What Is HR 1094 and the IRS Bank Reporting Proposal?
Learn about the proposed IRS rule for financial data reporting and HR 1094, the specific legislation created to prohibit the measure.
A legislative proposal, the “Prohibiting IRS Financial Surveillance Act,” was introduced in Congress to counter an IRS reporting proposal. The bill’s purpose is to prevent the Internal Revenue Service (IRS) from creating a new financial account information reporting system. It seeks to amend the Internal Revenue Code to forbid the Treasury Department from requiring financial institutions to report data on their customers’ accounts. This legislation is a direct response to a specific administrative proposal and is not related to other tax forms, such as the Affordable Care Act’s Form 1094-C.
The Proposed IRS Reporting Requirement
The initiative that prompted this legislation originated from the U.S. Treasury Department as a method to address the “tax gap,” which is the difference between taxes legally owed and the amount actually collected. The administration’s goal was to gain better visibility into financial flows where income might be underreported, unlike wages reported by employers on Form W-2. The proposal aimed to equip the IRS with new data to identify potential tax evasion from sources like proprietorship or farm income.
Under this plan, financial institutions would have been mandated to report new information to the IRS annually for many of their customers’ accounts. This reporting was intended to provide the IRS with a high-level view of financial activity. By seeing aggregate financial movements, the agency could more effectively select which taxpayers to audit.
Scope of the Proposed Financial Data Collection
The proposal specified the collection of aggregate data, not individual transaction details. Financial institutions would have been required to report the total gross inflows and outflows for each covered account for the calendar year. This requirement would have applied to personal and business checking and savings accounts, as well as certain loan and investment accounts.
Initially, the reporting threshold was set at a very low level. The rule would have applied to any account with annual gross inflows or outflows of $600 or more. This low threshold generated public and industry opposition, as it would have captured the financial information of nearly every individual with a bank account.
In response to the criticism, the proposal was later revised. The new suggested threshold was raised to $10,000 of annual activity. The revised plan specified that certain income streams, such as wages deposited via direct deposit, would be excluded from the calculation of this threshold. This change was intended to narrow the focus to income sources that are less visible to the IRS.
Current Status of the Proposal and Legislation
The Treasury’s financial reporting proposal faced opposition from the public, the banking industry, and lawmakers, and the provision was not included in subsequent legislative packages. While the proposal is considered politically unviable, it has not been permanently withdrawn by the administration, leaving open the possibility of its reintroduction.
In response, the “Prohibiting IRS Financial Surveillance Act” was introduced as H.R. 1010 in the House of Representatives and S. 453 in the Senate. In early 2023, the bills were referred to committee, but their progress has been limited as the immediate threat of the IRS proposal has subsided. The bills remain in committee, serving as a clear statement of legislative intent to block such reporting requirements.