Small businesses would be exposed to costly audits and unwarranted IRS scrutiny to pay for spending provisions in the “Build Back Better Act”
In a letter last week to congressional leadership, NFIB opposed the Biden Administration’s proposal to require all businesses above a de minimis threshold to report gross inflows and outflows in their bank account to the Internal Revenue Service (IRS).
The Biden Administration proposed that financial institutions report inflows and outflows to any account above a specified threshold, currently reported to be $10,000 in gross annual revenue. While proponents who have proposed this change say it’s designed to catch tax cheats and get them to pay their fair share, in practice it would put small business owners’ privacy at risk and expose them to unwarranted IRS scrutiny and costly, burdensome audits.
“This proposal would sacrifice the privacy of law-abiding small business owners, continuing a troubling trend of Congress increasing intrusive government reporting requirements,” said NFIB Vice President of Federal Government Relations Kevin Kuhlman. “This level of detail about the ordinary banking practices of small business owners should be alarming to Congress, particularly in light of the IRS’s troubled history of violating taxpayers’ rights.”
In the letter to Congress, Kuhlman goes on to mention that the IRS historically has failed to safeguard taxpayer information, which is split up among dozens of databases that are prone to leaks and security failures.
The new requirements would also expose small businesses to costly, burdensome audits. The majority of small employers are pass-through entities (such as S-Corps and LLCs) which are being specifically targeted for additional scrutiny in the White House’s plan. Kuhlman points out that without reform to the IRS, this amounts to a heap of increased enforcement on an already-overtaxed agency. The end result would be a lose-lose as small businesses are exposed to audits while the IRS will be unable to leverage the new data they are receiving for effective enforcement.
“Small businesses are struggling with labor shortages, rising inflation, supply chain disruptions, and increasing threats from COVID-19 variants. Now is not the time to subject small business owners to new reporting requirements that will violate their privacy and subject them to additional, unwarranted IRS scrutiny,” Kuhlman concluded.