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May 28, 2021, the President delivered the remainder of his Fiscal Year 2022
budget to Congress. The Administration’s budget is an explanation of its
spending and revenue priorities and does not have the force of law.
the most consequential item in the budget for credit unions includes new
reporting requirements for financial institutions. In an
effort to increase taxpayer compliance, these new reporting requirements,
beginning in 2023, are estimated to increase federal revenues by $463 billion
over ten years. The Administration’s FY 2022 budget proposes the creation
of a new and comprehensive financial account information reporting
regime. Banks, credit unions, and other entities would be required to
annually report to the IRS the gross inflows and outflows of account holders
(businesses and individuals) with a breakdown for cash, transactions with a
foreign account, and transfers to and from another account with the same owner.
requirements would apply to savings, transactional, loan, and investment
accounts. A de minimis exception would exempt accounts with gross flow
threshold of $600. The vehicle for this reporting will be the existing
IRS Form 1099-INTs sent by financial institutions, brokerages, and others to
account holders who earned more than $10 in interest in a calendar year. In tax year 2019, over 81 million of these
forms were delivered or made available to individual account holders.
settlement entities would also be required to collect Taxpayer Identification
Numbers and file a revised Form 1099-K expanded to all payee accounts (except
de minimis amounts), reporting not only gross receipts but also gross
purchases. This enhanced requirement is in addition to
the President's the new proposed reporting requirements on financial
institutions outlined above.
should be noted that the $600 de minimus exemption is deliberately set so low
in order to require financial from nearly every account held in American
depository institutions. This also has the
effect of discouraging people from spreading their funds to multiple accounts
to avoid reporting requirements.
Finally, since other payment services like Paypal and Venmo are covered
under similar reporting requirements (see below), with the same de minimus
exemption, depository institutions would not be discriminated against nor would
these online payment services be a viable destination for an outflow of funds
from banks and credit unions in an effort to conceal financial assets.
remains concerned about the effect this proposed new compliance burden will
have on credit unions. Privacy and data
security are paramount issues. Whether
is the massive data breach at the federal Office of Personnel Management in
2014 or this year’s IRS leak of federal tax returns of many wealthy Americans,
CUNA needs additional reassurance that such data will be safe and secure.
smaller credit unions would be especially burdened by this new proposal. From the increased costs of software upgrades
to staff training, smaller institutions would perhaps need financial resources
and additional time for implementation to meet new requirements.
also has concerns about how the proposal will affects accounts that are
comingled with business and personal funds, as well as how jointly held
accounts would be treated. We also want
to avoid any intended consequences that may arise from the Administration’s
proposal. For example, the Federal Account
Tax Compliance Act of 2010 placed similar burdensome reporting requirements on
financial institutions. In response,
many Americans overseas were unable to obtain or lost access to the banking
system as many financial institutions were unwilling or unable to meet the
requirements of that law. CUNA believes
that any future account reporting requirements be subject to rigorous review
credit unions and other financial institutions already churn out many federal
tax informational reporting forms. This
new requirement further puts credit unions in the position of further policing
their members and account holders. CUNA
has been in contact with Treasury officials on this proposal and appreciate
their good faith efforts to address some of these issues. This issue now moves to Congress where it is
almost certain that this revenue generating proposal will be used as a partial
funding mechanism for increased infrastructure spending.
new reporting requirements, if enacted into law, will also greatly expand
reporting requirements for “payment settlement entities.” The new
requirement would require all entities, including financial institutions, that
process IRS Form 1099-Ks to add more reporting information.
MasterCard, Visa, PayPal, Amazon, and many others send 1099-Ks annually to the
retailers that use their services to facilitate customer payments. Gig
economy workers (like Uber drivers) receive annual 1099-Ks from their “employers”
(like Uber, Etsy, Airbnb) if their “employers” processed 200 or more
transactions totaling $20,000 or more for that “employee.” In 2021, Congress passed the American
Rescue Plan Act of 2021. This new
law will lower this threshold next year to $600 with no minimum number of
transactions. Reportable transactions do
not include ATM withdrawals or checks issued in connection with a payment card.
particular, the Administration proposes that “payment settlement entities”
would collect Taxpayer Identification Numbers (TINs) and file revised Form
1099-Ks … expanded to all payee accounts (subject to the $600 de minimis
threshold). They would have to report gross receipts, gross purchases,
physical cash, as well as payments to and from foreign accounts, and transfer
inflows and outflows. This requirement would also start in calendar year
the President’s proposal doesn’t define “payment settlement entities”, the tax
code defines them as “merchant acquiring entities and third-party settlement organizations.” Under current law, these entities must send
Form 1099-Ks to the IRS by the last day of February of the year following the
relevant transactions. However, if they
file electronically, they are due April 1st. Form 1099-Ks may be
filed electronically through the Filing Information Returns Electronically
(FIRE) system. Entities that submit more
than 250 of these information returns annually must file them electronically.
“merchant acquiring entity” is the financial institution or other organization
that processes payment card transactions on behalf of a merchant and then transfers
the funds received from the customer's bank (the “issuing bank”) to the
third-party settlement organization is an entity that makes payments to
participating payees in a third-party payment network. Paypal, Amazon, Venmo, GrubHub, Uber and
Google Pay are examples of a third-party settlement organizations.
entity operating a network (like the ACH – the “Automated Clearinghouse”) which
merely processes electronic payments (like wire transfers, electronic checks,
and direct deposit payments) between buyers and sellers is not required to file
the proposal states that third party settlement organizations will not have to
report aggregate transactions under $600 annually, merchant acquiring entities
will still have to file Form 1099-Ks for all merchants who receive any amount (no
de minimus amount pertains).
has significant concerns about these proposed new compliance burdens and will
continue to work with lawmakers to achieve fair treatment for credit unions.
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