Yellen Urges Lawmakers to Give IRS More Power to Crack Down on Tax Evasion

The Treasury secretary urged lawmakers not to water down a central piece of the budget plan, which would give the Internal Revenue Service visibility into the financial accounts of taxpayers.,

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Janet Yellen urges House Democrats to give the I.R.S. more power to crack down on tax evasion.

Secretary of the Treasury Janet Yellin at the White House in June.
Secretary of the Treasury Janet Yellin at the White House in June.Credit…Pool photo by Chris Kleponis/EPA, via Shutterstock
  • Sept. 15, 2021Updated 3:13 p.m. ET

Treasury Secretary Janet L. Yellen is pressing Representative Richard Neal, the Democratic chairman of the Ways and Means Committee, to include the Biden administration’s full proposal for bolstering the Internal Revenue Service in its $3.5 trillion spending package, arguing that more resources and greater powers to catch tax evaders are crucial for reducing the “tax gap.”

In a letter to Mr. Neal, Ms. Yellen urged lawmakers not to water down a central piece of the proposal, which would give the Internal Revenue Service visibility into the financial accounts of taxpayers through more robust reporting requirements. Treasury officials say that will enable the agency to better crack down on rich people and companies who are not paying what they owe.

Legislation released by House Democrats earlier this week included the $80 billion in additional funding for the I.R.S. that the Biden administration had proposed to help expand staffing and enforcement capacity. However, a separate proposal to enact an “information reporting” regime was absent from the bill.

“As you consider specific policy choices in designing an information reporting regime, it is important to ensure that the reporting regime is sufficiently comprehensive, so that tax evaders are not able to structure financial accounts to avoid it,” Ms. Yellen wrote. “Any suggestion that instead this reporting regime will be used to target enforcement efforts on ordinary Americans is wholly misguided.”

Critics of the proposal have argued that giving the I.R.S. more power to peer into taxpayer financial information represents an invasion of privacy and have said it could lead to frivolous audits for political reasons. The Biden administration insists that audit rates will not rise for taxpayers who earn less than $400,000.

In an addendum to the letter, Mark J. Mazur, Treasury’s acting assistant secretary for tax policy, reiterated Treasury’s estimates that the investment in enforcement staff and new information reporting powers could generate $700 billion in government revenue over a decade. He suggested that Congress might be considering including a more modest reporting mechanism and warned that doing so would be less effective.

“Clearly, this will lower the estimated revenue raised from the proposed reporting regime relative to earlier administration estimates,” Mr. Mazur wrote.

At a hearing on Wednesday, Mr. Neal said he had received the letters and underscored the importance of strengthening tax enforcement without adding new burdens to small businesses.

“We are in conversations with the administration on reporting proposals that target sophisticated tax avoidance and evasion without impacting middle-class and working Americans,” Mr. Neal said.

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