Democrats will scale back a proposal to require banks to report balances to the I.R.S.

WASHINGTON — The Biden administration, bowing to an aggressive lobbying campaign by the banking industry and pushback from Republicans, has agreed to support a far more limited plan for the Internal Revenue Service to try to crack down on tax cheats.

Senate Democrats are expected to roll out a new proposal on Tuesday that would narrow the scope of information that banks would have to provide to the Internal Revenue Service about customer accounts. Under the new plan, banks would only be required to provide data on accounts with total annual deposits or withdrawals worth more than $10,000, rather than the $600 threshold that was initially proposed. The reporting requirement would not apply to payroll deposits for wage and salary earners or to beneficiaries of federal programs such as Social Security.

The narrowing of the plan comes after a steady lobbying campaign by banks and a rhetorical barrage from Republicans, who argued that the Biden administration’s desire to bolster the I.R.S. to shrink the $7 trillion so-called “tax gap” amounts to an invasion of privacy and government overreach.

Critics of the proposal have incorrectly suggested that the I.R.S. would be tracking information about individual transactions. The administration has said the I.R.S. would not monitor specific customer transactions but would instead use the bank account information to spot discrepancies between what individuals report on their tax returns and what their bank accounts show.

The Biden administration insists that audit rates for those making less than $400,000 would not go up and that the program is focused on collecting unpaid taxes from the rich.

But Republicans, who have expressed distrust of the agency for years, continued to criticize the proposal as an invasion of privacy.

“Whether it’s $600 or $10,000, under this proposal, the intimate financial details of everyone in this room — at a minimum, of every American who has a job — will be turned over on a daily basis to the I.R.S.,” Senator John Kennedy, Republican of Louisiana, told reporters, despite the proposal’s exemption of payroll deposits. “What could possibly go wrong?”

Senator Kevin Cramer, Republican of North Dakota, warned darkly, “Marx is at the doorstep.”

Senator Ron Wyden of Oregon, the chairman of the Senate Finance Committee, was set in prepared remarks to call the Republican accusations a flat-out “lie” promulgated by lawmakers at the behest of “donors and allies” who “want nothing more than a crippled I.R.S. unable to go after their cheating.” Under the revised plan, banks would not send daily transaction reports but rather “two numbers once per year,” Mr. Wyden will say, “the total amount going into an account, and the total amount going out of it.”

But the campaign has taken its toll. The Treasury Department said that the Biden administration would back the narrower proposal because the I.R.S. already has information about American workers and retirees. While it would give the agency visibility into far fewer bank accounts, Treasury on Tuesday said in a fact sheet that “only those accruing other forms of income in opaque ways are a part of the reporting regime.”

“Today’s new proposal reflects the administration’s strong belief that we should zero in on those at the top of the income scale who don’t pay the taxes they owe, while protecting American workers by setting the bank account threshold at $10,000 and providing an exemption for wage earners like teachers and firefighters,” Treasury Secretary Janet L. Yellen said in a statement.

Mr. Wyden and Senator Elizabeth Warren, Democrat of Massachusetts, will unveil the new plan on Tuesday afternoon.

“The main reason Republicans have latched on to this issue as the one to lie about every day is because they know their tax agenda is a political loser,” Mr. Wyden will say, according to his prepared remarks. “The American people overwhelmingly want to ensure mega-corporations and billionaires pay their fair share, so Republicans have largely given up on their tired-trickle down arguments.”

Banks already submit tax forms to the I.R.S. about the interest that customer accounts accrue. But the new proposal would require they share information about account balances so that the I.R.S. can see if there are large discrepancies between the income people and businesses report and what they have in the bank. The I.R.S. could investigate the gaps to see if those taxpayers are evading their obligations.

The Treasury Department has estimated that its original proposal to require banks to report account balances, along with plans to beef up the enforcement staff at the I.R.S., could raise $700 billion over a decade.

In a letter to House Democrats last month, Ms. Yellen urged lawmakers not to water down the information-reporting proposal. Originally, that part of the plan was projected to raise $460 billion over a decade. The Treasury Department estimated that the narrower plan that Congress had been considering could raise between $200 billion and $250 billion over that time.

The Treasury Department believes that those are conservative estimates and that the “deterrent effects” of the policies could still generate $700 billion of additional tax collection in next decade.