INSIGHTi

The Proposed $600 Bank Reporting
Requirement: Frequently Asked Questions

October 6, 2021
A proposal to require financial institutions to report information to the Internal Revenue Service (IRS) on
personal and business accounts has garnered significant publicity and congressional attention. The
proposal is commonly referenced as the “new $600 bank reporting requirement.” This Insight addresses a
number of frequently asked questions about the proposal.
What is the proposal and where did it come from?
The proposal referenced in media reports was included in the President’s FY2022 budget request and is
described as being part of a “comprehensive” financial account information reporting regime. The
General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, which accompanies
the President’s budget request, states that
Financial institutions would report data on financial accounts in an information return. The annual
return will report gross inflows and outflows with a breakdown for physical cash, transactions with
a foreign account, and transfers to and from another account with the same owner. This requirement
would apply to all business and personal accounts from financial institutions, including bank, loan,
and investment accounts, with the exception of accounts below a low de minimis gross flow
threshold of $600 or fair market value of $600.
The General Explanations also mention similar reporting requirements for cryptocurrency and state that
payment settlement entities would be covered by the new regime. Additionally, crypto asset exchanges
and custodians, as well as crypto transactions exceeding $10,000, would require information reporting.
Is the proposal included in legislation?
The new $600 bank reporting requirement proposal is not currently a legislative proposal. Some have
suggested that it may be considered as Congress develops modifications to either the reconciliation bill
(H.R. 5376), known as the Build Back Better Act, or the infrastructure bill (H.R. 3684, as amended and
passed by the Senate on August 10, 2021).
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The Senate-passed version of H.R. 3684 includes a separate information reporting requirement that would
require a party facilitating the transfer of cryptocurrency to file an information return as a broker with the
IRS. The Senate-passed version of H.R. 3684 would also require a business that receives cryptocurrency
worth more than $10,000 in a single transaction to report the transaction to the IRS. The Joint Committee
on Taxation (JCT) estimates that these information reporting requirements would raise $28 billion over 10
years. For more information on this proposal, see CRS In Focus IF11910, Cryptocurrency Transfers and
Data Collection
, by
Mark P. Keightley and Andrew P. Scott.
What is the purpose of information reporting?
There are two general purposes of information reporting. The first is to increase tax compliance and to
reduce money laundering and illicit financial activity. The second is to provide information to taxpayers
to allow them to accurately calculate their tax liability. When an information return is filed, a copy of the
return is sent to the IRS and a copy is sent to the taxpayer. This allows the IRS to double-check the
information reported by a taxpayer. Additionally, the IRS can use the information to flag returns for audit.
At the same time, the copy sent to taxpayers provides them with information that they may need when
completing their tax return. Taxpayers may also be more likely to accurately report their income if they
know the IRS has this information. Information returns typically must be sent to the IRS and taxpayer
early in the calendar year.
What are the current information reporting
requirements?
A significant number of transactions are currently subject to information reporting requirements. The
IRS’s Guide to Information Returns identifies transactions in the following categories: general, education,
health insurance, transfers of stock, and retirement. Financial institutions are currently required to file
information returns for any account for which interest payments or dividends are $10 or more throughout
the year. They are also required to report the amount of mortgage interest paid, student loan interest paid,
amount of canceled debt, distributions from certain retirement accounts, and certain transactions in which
they serve as a payment settlement entity, among others.
Taxpayers are legally required to pay the appropriate tax regardless of whether they receive an
information return. For example, an individual who receives $9 of interest on a savings account is
required to pay tax on that income, even if an information return is not received.
Is the proposal a new tax?
The proposed bank reporting requirement would not be a new tax. Information reporting, as the name
suggests, provides more information to both the IRS and taxpayers. If, however, the additional
information results in taxpayers making additional payments in compliance with existing tax laws,
taxpayers may pay more in taxes.
What are the trade-offs involved with information
reporting?
Information reporting raises a number of general policy considerations. One concern is the appropriate
balance between government data collection and the rights of individuals. Information reporting may


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assist the IRS in fulfilling its statutory obligation to administer the tax code, but it also subjects
individuals and businesses to greater government scrutiny. Another consideration is that increased
information reporting would place an administrative burden on financial institutions required to make
reports. The magnitude of such a burden is not necessarily clear given that financial institutions are
already required to report certain information. At the same time, increased information reporting may
assist individuals in completing their tax returns and more easily complying with the law. With regard to
the proposed bank reporting requirement, it is not clear how knowing one’s financial flows throughout the
year would help in determining taxable income.
How could increased information reporting reduce the
tax gap?
The proposed $600 bank reporting requirement would likely decrease the tax gap by increasing tax
collections. The tax gap is the difference between the aggregate amount of taxes legally owed and the
aggregate amount of taxes collected. The latest IRS estimates suggest that the gross tax gap costs the
federal government $441 billion in lost tax revenue per year. Late payments and enforcement actions
reduce this gap to $381 billion. In an April 13, 2021, Senate Committee on Finance hearing, IRS
Commissioner Charles P. Rettig raised the possibility that the tax gap may now be closer to $1 trillion per
year once the rise in popularity of cryptocurrency, foreign-source income, taxable illegal income, and
more recent estimates regarding high-income taxpayers are accounted for. Some have questioned the
accuracy of this estimate. Still, the IRS’s tax gap estimates clearly demonstrate that income subject to
little or no information reporting is more likely to be underreported for tax purposes than income subject
to more information reporting. About $245 billion (56%) of the gross tax gap is attributable to
underreporting of income on the individual side. Income that is subject to little or no information
reporting accounts for $109 billion (55%) of the $245 billion shortfall. Income subject to substantial
reporting and withholding accounts for just $9 billion (1%) of the shortfall.


Author Information

Mark P. Keightley

Specialist in Economics




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