The 2021 “Green Book” presents comprehensive financial reports on the accounts | Foodman CPAs and Advisors
The “Green Paper” is divided into the American Jobs Plan: this section includes corporate tax reform, support for housing and infrastructure and prioritizing clean energy and the American plan for families: this section includes strengthening taxation for high-income taxpayers, support workers, families and economic security, closing loopholes, improving compliance and improving tax administration.
Currently, business income is subject to limited information reporting. Reporting of gross receipts information exists for certain types of income (Forms 1099-MISC, 1099-NEC, and 1099-K). There is no information on total deductible expenses. Therefore, requiring complete financial account information will increase the visibility of gross business receipts and deductible expenses with the IRS, which in turn will allow for better targeting of IRS enforcement actions and encourage voluntary compliance.
The Biden administration identifies the lack of complete business information reported to the IRS as a causal factor in the tax gap. Reduce the tax gap (difference between the amount of tax owed by taxpayers for a given year and the amount actually paid in a timely manner for that same year) as a source of revenue for the US Treasury.
According to the Green Paper, comprehensive reporting of business information by financial institutions accounts for inflows and outflows from financial accounts by requiring financial institutions to report financial account data in an information return.
- The “proposed” annual statement will report gross inflows and outflows with a breakdown of 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 financial institution accounts, including bank, loan and investment accounts (except accounts with a de minimis gross flow threshold of less than $600 or fair market value of $600).
- Accounts with characteristics similar to those of financial institution accounts will be covered by this information reporting regime. For example, payment settlement entities would collect tax identification numbers (TINs) and file a revised Form 1099-K extended to all payee accounts (subject to the same de minimis threshold), reporting not only gross receipts , but also gross purchases, physical cash, as well as payments to and from foreign accounts and transfer inflows and outflows.
- The reporting requirements would apply to crypto asset exchanges and custodians in cases where taxpayers purchase crypto assets from a broker and then transfer the crypto assets to another broker, and businesses that receive crypto assets in transactions with a fair market value of more than $10,000 would have reported those transactions.
The Comprehensive Financial Accounts Report will provide the IRS with information about income deposited and expenses paid, account balances, transfers to and from an account, and transfers out of an account. The proposals outlined in the Green Paper have yet to be evaluated by Congress and although the new reporting requirements take effect in 2023, taxpayers are questioning the quality of their compliance and should reassess their tax reporting history.
Notably, the new reporting obligations will create a substantial compliance effort for all financial institutions. Financial institutions need to assess their corporate governance programs and ensure they are able to inherit more reporting responsibilities.
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