Opinion Piece by Jim Roche

Unintended Consequences of Federal Tax Reporting

By Jim Roche

While we firmly believe Americans should honor their tax obligations, Congress’ efforts to raise more federal revenue from those who cheat our federal tax system risks ushering in unwelcome and unintended consequences for working men and woman across Maine. The “tax gap” proposal put forward by the Biden Administration would require banks and other financial institutions to report to the IRS all inflows and outflows for customers’ accounts, including personal accounts with an activity or balances of $600 or more. That means that if the savings, checking, Money Market or other accounts you have with your local bank where either activity or balances exceed that amount, your information will go to the IRS.

This is problematic for a host of reasons. For starters, there’s already a high level of distrust of government in general and the IRS in particular. This proposal will not help. Banks and other established financial institutions have worked hard over decades to establish trusting relationships with families and individuals saving for their first house, retirement, college fund, that new car, vacations, paying monthly bills, and more. Reporting many of these routine transactions to the IRS, as this legislation would require, could damage these relationships, resulting in people leaving their banks and falling prey to non-bank lenders and check cashers, incurring exorbitant interest rates and fees in the process. Some consumers will jeopardize their personal security by carrying cash.

In addition, certain communities, including those recently arrived from other countries with authoritarian regimes that eavesdrop on their citizens, will turn away from the banking system. This will occur at the very time efforts in Maine are underway to help these communities achieve financial literacy, financial stability, and financial security.

According to the U.S. Treasury Department, the IRS experiences 1.4 billion (with a “B”) cyberattacks annually. That’s not a great confidence builder when it comes to protecting the financial information for hundreds of thousands of Mainers. A recent survey by the Independent Community Bankers of America confirms what a questionable idea this is. The survey, released September 7th, shows that “two-thirds of voters (67%) oppose a proposal that would allow the IRS to collect bank account deposit and withdrawal information from American consumers.” The survey also reports that more than three in five voters (64%) do not trust the IRS much or at all to monitor their deposit and withdrawal information, including 50% of Democrats, 73% of Independents, and 75% of Republicans.

Tax simplicity is an important goal that promotes tax compliance. The “tax gap” proposal aimed at finding mischief-makers who avoid paying their fair share of federal taxes would create new complexity for the rest of us and drive many away from banks altogether. Strengthening IRS funding and overhauling outdated technology to use existing reporting to target questionable tax returns is a much more efficient and effective approach to closing the tax gap. We urge Maine’s federal policymakers to first ensure that the IRS’ information collection and oversight is being fully utilized before adopting new requirements that will bring with it unwelcome and unintended consequences for working men and woman around our state.


Jim Roche is president of the Maine Bankers Association (MBA). MBA represents Maine’s banking industry and its 9,000 employees statewide. Maine’s 29 retail banks operate 454 offices in nearly every community throughout the state. MBA member banks assist Maine’s citizens and businesses with financial decisions that strengthen the state’s economy and improves the quality of life for everyone.