May 2021 / United States

May 21 2021

Biden Seeks To Narrow USD 7 Trillion Tax Gap with Tax Compliance Reform

President Biden aspires to shrink the nation's "tax gap" (i.e. the difference between taxes owed and actually paid) with his tax compliance initiatives that include a new reporting regime. The US Treasury Department (Treasury) issued a report on President Biden's proposed tax compliance measures and a related Press Release, dated 20 May 2021.

According to the Press Release, the total gap amounted to nearly USD 600 billion in 2019 and will rise to approximately USD 7 trillion over the next decade if left unaddressed. The tax gap disproportionately benefits taxpayers with substantial income from non-labour sources where misreporting is common.

President Biden's tax compliance proposals, which are part of his "American Families Plan," would provide the US Internal Revenue Service (IRS) with resources and information it needs to address tax evasion and to improve taxpayer service.

Specifically, President Biden's tax compliance proposals would:

  • provide the IRS with nearly USD 80 billion in additional resources over the next decade so that the IRS would grow manageably (up to 10% annually), modernize information technology, improve data analytic approaches, and hire and train agents dedicated to complex enforcement activities;
  • provide the IRS with more complete information by introducing a new reporting regime that would:
    • build on the current framework of IRS Form 1099-INT (Interest Income), which taxpayers already receive from financial institutions when they earn more than USD 10 in interest;
    • require financial institutions to report additional information on IRS Form 1099-INT with regard to gross inflows and outflows on all business and personal accounts that they house, including bank, loan and investment accounts, with exceptions for accounts below a de-minimis gross flow threshold;
    • require payment settlement entities to report gross receipts and purchases;
    • cover foreign financial institutions;
    • cover cryptocurrencies and cryptoasset exchange and payment service accounts that accept cryptocurrencies; and
    • require reporting on businesses that receive cryptoassets with a fair market value of more than USD 10,000, as with cash transactions;
  • overhaul outdated technology to help the IRS identify tax evasion, improve tax service, and meet threats to the security of the tax system, including 1.4 billion cyberattacks that the IRS experiences annually; and
  • regulate paid tax preparers, increase penalties for tax preparers who commit and abet tax evasion, and impose additional sanctions on "ghost preparers" who fail to identify themselves on the tax returns that they prepare.

The Treasury expects the proposed compliance initiatives to raise USD 700 billion in additional tax collections over the next decade net of investments, which would reduce the tax gap by 10%, and then to raise USD 1.6 trillion in tax revenue in the second decade.

May 26 2021

Treasury Proposes 15% as Floor Rate for Global Corporate Minimum Tax

The US Treasury Department (Treasury) has proposed to the Steering Group of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) that the global corporate minimum tax rate (the Pillar Two) should be at least 15%. The Treasury announced this proposal in its Press Release dated 20 May 2021. The 15% rate is lower than the 21% rate for which the Biden administration has been pushing as a new rate for the US global minimum tax on foreign earnings of US multinational corporations, i.e. the tax on global intangible low-taxed income (GILTI), which is currently set at 10.5%. The Treasury underscored that 15% is a floor and that discussions should continue to raise the rate higher. The IBFD will be tracking the proposal closely and report more on this as it develops.