Yellen on $600 IRS reporting requirement: 'There's a lot of tax fraud and cheating that's going on.'

Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell testify to Congress

Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell testify to Congress.

Treasury Secretary Janet Yellen continues her pitch for the Biden administration's proposal that would require banks to report every customer's transaction of $600 or more to the IRS, insisting it is aimed at wealthy people while saying "there's a lot of tax fraud and cheating that's going on."

The White House estimates that the plan would raise more than $460 billion over the next decade for the federal government through ramped-up enforcement, and the administration is trying to sell the plan as a way to make money from rich folks –  although all Americans would be subject to the rule.

U.S. Treasury Secretary Janet Yellen speaks during a news conference, after attending the G7 finance ministers meeting, at Winfield House in London, Britain June 5, 2021. Justin Tallis/Pool via REUTERS/File Photo (Justin Tallis/Pool via REUTERS / Reuters Photos)

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In a clip aired Tuesday evening, CBS News' Norah O'Donnell asked Yellen regarding the plan, "Does this mean that the government is trying to peek into our pocketbooks if you want to look at $600 transactions?"

"Absolutely not," the treasury secretary replied, insisting, "I think this proposal has been seriously mischaracterized. The proposal involves no reporting of individual transactions of any individual."

Then Yellen went into how there are "individuals" the IRS does not receive enough information about.

"Look, the big picture is that we have a tax gap that over the next decade is estimated at $7 trillion," she continued. "Namely, a shortfall in the amount that the IRS is collecting due to a failure of individuals to report the income that they have earned."

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O'Donnell asked, "But that's among billionaires. Is that among people who are transferring $600?"

"No, it tends to be among high-income individuals whose income is opaque and the IRS doesn't receive information about it," Yellen said. "If you earn a paycheck, you get a W-2, the IRS knows about it.  But high-income individuals with opaque sources of income that are not reported to the IRS, there's a lot of tax fraud and cheating that's going on, and all that's involved in this proposal is a few aggregate numbers about bank accounts – the amount that was received in the course of the year, the amount that went out in the course of a year."

Yellen then gave an example.

"If someone reports an income of $10,000, and they had $3 million go out of their checking account, that tells the IRS that’s an individual that you might audit."

Yellen has not explained the threshold for who the administration would consider "wealthy," nor has she ruled out going after wage-earners. 

This is also not the first time she has been asked about why the $600 proposal is so low if the IRS is purportedly targeting "billionaires."

Republican Wyoming Sen. Cynthia Lummis (Credit: Fox Business screenshot of Bitcoin 2021 live stream) (Fox News)

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Last month, Sen. Cynthia Lummis, R-Wyo., grilled Yellen over the IRS proposal, telling the treasury secretary during a hearing that the "$600 threshold is not usually where you're going to find the massive amount of tax revenue you think Americans are cheating you out of."

"That's correct," Yellen conceded, "but it's important to have comprehensive information so that individuals can't game the system and have multiple accounts."

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