Lily Batchelder on Tuesday testified before the Senate Finance Committee to become Treasury's next Assistant Secretary for Tax Policy and said if confirmed she would be “eager” to regulate tax preparers to help close the Tax Gap.
“I would be eager to work on any efforts to regulate unregulated tax preparers,” Batchelder said, adding that “I should emphasize when we talk about the Tax Gap we should be thinking about it as people purposely not paying their taxes, but there are also people unwittingly not pay all the taxes that are owed because unregulated preparers are giving them that advice.”
Batchelder mentioned that the Treasury Department has prioritized regulating paid tax preparers to reduce the Tax Gap, which is the difference between the taxes that are owed and what is collected.
Treasury estimates that in 2019 the Tax Gap totaled nearly $600 billion and is projected to rise to roughly $7 trillion over the next ten years if the Tax Gap is not addressed.
Batchelder said those estimates were probably low because they don’t incorporate all enforcement actions that the IRS could deploy.
“There are reasons to believe this might be an underestimate. It does not include the effects of upgrading IT systems or improving taxpayer services,” she said, adding that increased enforcement efforts have a ripple effect when it comes to tax collections.
“There is a lot of evidence that people comply more when enforcement is improved, even if they are not personally audited,” she said.
Batchelder also seemed to suggest that the audit rate of partnerships should be increased, since this segment of businesses currently enjoys a 0.00004% audit rate.
“Just to talk about one industry that I know, there are some large law firms with thousands of attorneys [and] partners earn over $1 million a year. I find it hard to believe that if one knows your audit rate is 0.00004% that that would not affect voluntary compliance,” she said.
She was also pressed by one Committee Member, Sen. John Thune (R-S.D.), on whether the Biden Administration seeks to modify the pass-thru deduction, which is scheduled to expire in 2026.
Batchelder responded by saying that she was not yet a part of the Biden Administration, but so far had seen nothing that would suggest modifications to the tax measure were imminent.
“I have not seen any proposals to change 199A,” she said.
Senate Finance Chairman Ron Wyden (D-Ore.) concluded the hearing without calling for a vote on Batchelder’s nomination, which is a normal procedure for the Committee. Votes for nominations usually occur off the Senate floor, and the tally is publicly announced shortly thereafter.