The “Green Book” is a US Treasury Department document that presents detailed explanations of an Administration’s revenue proposals in support of a President’s annual budget request. On May 28, 2021, the Biden administration released its “Green Book” titled “General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals”. The Green Book was last issued in 2017 – the last budget cycle of the Obama Administration.
The “Green Book” is divided into the American Jobs Plan: This section includes the Reform of Corporate Taxation, Support of Housing and Infrastructure and Priority Clean Energy and the American Families Plan: This sections includes Strengthen Taxation of High-Income Taxpayers, Support Workers, families and Economic security, Close Loopholes, Improve Compliance, and Improve Tax Administration.
The Green Book states that “a robust and reliable stream of resources is critical for the IRS to maintain its enforcement functions, expand and improve its compliance programs, and the agency increase its effectiveness and efficiency. A visible, robust presence of IRS functions helps promote voluntary compliance and ensure confidence in the tax system”. The Green Books further states that there is “revenue loss” due to a lack of comprehensive information delivery to the IRS.
Currently, business Income is subject to limited information reporting. Information reporting of gross receipts exists for certain types of revenue (Forms 1099-MISC, 1099-NEC, and 1099-K). There is no information reporting on total deductible expenses. Consequently, requiring comprehensive information reporting of financial accounts will increase the visibility of business gross receipts and deductible expenses to the IRS that will in turn better target IRS enforcement measures and encourage voluntary compliance.
The Biden Administration identifies a lack of comprehensive business information reporting to the IRS as a Tax Gap causation factor. Reducing the Tax Gap (difference between the amount of tax owed by Taxpayers for a given year and the amount that is actually paid timely for that same year) as a Source of Revenue for the US Treasury.
According to the Green Book, comprehensive business information reporting by financial institutions is reporting on the inflows and outflows of financial accounts through requiring Financial Institutions to report data on financial accounts in an information return.
- The “proposed” 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).
- Accounts with characteristics similar to financial institution accounts will be covered under this information reporting regime. For instance, payment settlement entities would collect Taxpayer Identification Numbers (TINs) and file a revised Form 1099-K expanded 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.
- Reporting requirements would apply to crypto asset exchanges and custodians in cases in which taxpayers buy crypto assets from one 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 to report such transactions.
Comprehensive Financial Account Reporting will provide the IRS with information regarding income deposited and expenses paid out, account balances, transfers into and account and transfers out of an account. The proposals outlined in the Green Book must still be evaluated by Congress and although the new reporting requirements go into effect in 2023, Taxpayers question the quality of their compliance ought to re-evaluate their tax reporting history.
Notably, the new reporting obligations will create a substantial compliance endeavor for all financial institutions. Financial Institutions ought to evaluate their Corporate Governance programs and ensure that there is capacity to inherit more reporting responsibilities.
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