On May 28, 2021, President Biden released some of the legislative items that would be added by his American Families Plan, which includes a provision that could impact tax information reporting by financial institutions. If enacted, this proposal could require substantial effort to implement and administer.

President Biden’s American Families Plan includes a provision which would increase the information reporting compliance requirements for financial institutions. This compliance initiative would not begin until the 2023 tax year; however, it will take significant time in advance of this period for financial institutions to implement these requirements into their annual information reporting process.

This new compliance initiative would require financial institutions to report additional information on an annual Form 1099 information return. Specifically, this Form 1099 would report gross inflows and outflows from a financial account with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account owned by the taxpayer. This requirement would include all business and personal accounts, including bank, loan and investment accounts. It would also apply to payment settlement entities by expanding the information required to be reported on a Form 1099-K. The threshold to determine whether this information would need to be reported would be $600 in gross inflows and outflows.

This proposal also would for the first time create reporting requirements that would apply to crypto asset exchanges and custodians. These reporting requirements would include 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 greater than $10,000.

Additionally, this compliance initiative would expand the current 1099 information reporting requirements to include corporations, who are currently exempt from the Form 1099 information reporting regime.

A two-page summary of this provision which was released by the White House can be found here.  We will continue to monitor this legislation and will publish an updated alert if this provision is included in the final American Families Plan. If you have any questions or concerns regarding the implementation of this proposed legislation please contact one of the authors of this alert. We have experience in tax reporting by financial institutions, tax disputes and penalty resolution, and with respect to managing the implementation of new reporting requirements adopted by the IRS.