The $600 Question is Now the $10,000 Question – Will the IRS Track Your Receipts and Disbursements?

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Part of the Build Better Back Plan, proposed by the Biden administration, has many people scratching their heads in confusion. In question is a component of the administration’s plan to beef up IRS auditing by expanding the agency’s funding and power. The proposal would require banks, credit unions and other financial companies to monitor deposits and withdrawals in accounts that have balances above $10,000 at any time during the year, not counting deposits from paychecks or government benefits. The administration believes these actions will begin to close the tax gap of $166 billion per year and improve tax compliance.

Several headlines and talking points have arisen around whether this change applies to any and all transactions over $10,000 and suggesting that the government would have unrestricted access to most Americans’ bank accounts. This one component of the proposal has led trade groups and social media users to question whether the government is overstepping on Americans’ financial privacy as well as provide adequate protection of such important information.

In an effort to clarify their plan the Treasury Issued a fact sheet on October 19, 2021. It spells out that the new proposal seeks only two additional numbers from the financial institutions and banks: the total amount of funds deposited into the account and the total amount withdrawn over the course of the year. They go on to clarify that while there has been widespread mischaracterization about whether banks will have to report individual transactions to the IRS – they will only require those two data points (money in and money out over the course of the year) in addition to the information that banks already supply to the IRS.

The official language from the Treasury Department 2022 revenue proposal states that the “annual return” will report gross inflows and outflows with a breakdown for 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 $10,000 or fair market value of $10,000. This change to the tax code would have to pass Congress for it to take effect and would start in 2023. 

Critics note that these calculations would include individuals mortgage payments and retirement account withdrawals as well as cash deposits from real estate rentals and other business ventures. They believe this would burden financial institutions with new requirements and expose consumers and businesses to privacy incursions and possible data breaches.

Supporters contend bank customers would face no new obligations while giving the IRS more information to pursue tax cheats, primarily among the wealthy. They include groups like the Center for Budget and Policy Priorities, who reiterate that “the only thing the IRS would have access to is two new numbers, total gross inflows and gross outflows for the year.” 

In a sharp pushback against the proposal, more than 100 trade associations raised alarm about the plan. The group which includes several banking coalitions, calls on Congress to reject the new requirement, saying it violates customer privacy and would create an incredibly expensive and elaborate reporting requirement for banks. The group argues it would target “almost every American” and questions whether the IRS could keep that information secure from hackers and bad actors.

Another widely circulating idea is that all Americans will be swept up in greater IRS scrutiny as a result of this new proposal. In the latest fact sheet, the Treasury Department explained that most wage and salary earners as well as federal program beneficiaries already are in the system and that this proposal is aimed at only those accruing other forms of income in less direct ways.

The final area of confusion is if this greater tax enforcement will create new burdens for taxpayers and financial institutions. While all proposals are subject to interpretation, the Treasury spells out that this one is designed to ensure that taxpayers do not have to take any action at all and that banks and financial institutions will only need to provide two additional numbers to the IRS. The Treasury Department has noted that banks and other financial providers already report interest income above $10. 

Having this new information will help the IRS flag under-reported income and target enforcement activities on tax evaders, according to the Treasury Department. The prospective reporting requirements are being considered as a revenue offset for Congress’ $3.5 trillion reconciliation bill, as the Treasury estimates the new system will generate $460 billion over a decade. The proposal last appeared in negotiations for the $1 trillion bipartisan infrastructure package that passed the Senate in August and is awaiting a vote in the House. If approved, the proposal would go into effect in 2023.

In response to this proposal, Republicans on the House Ways and Means Committee have introduced the Prohibiting IRS Financial Surveillance Act. Senate Republicans acknowledge the existence of a tax gap, suggesting a more concentrated focus on upgrading IRS technology and customer service capabilities would be a better approach to close the gap.


While the Build Better Back Plan has not been passed into law, it’s important to look at proposed legislation to get a feel for what the government thinks will raise revenue.  One fear of this new law is that it would create additional IRS notices that need to be responded to.  Over the past few years, we have seen a huge uptick in the automated letters that the IRS generates, all of which need a response.  This adds cost and complexity for many of our clients.  We would not want to see any more of that.


Again, these proposed rules are not law, and may never become law.  We at Madonia & Associates, will continue to closely monitor this situation and strive to share any changes that arise or become finalized.  If you have questions about this, and how it may impact your particular situation, please contact our office (312) 578-9300.