Statement of Roger Harris, Padgett Business Services — Tackling Tax Complexity Roundtable, June 7, 2023

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The written statement of Roger Harris, President of Padgett Business Services, for a roundtable titled Tackling Tax Complexity: The Small Business Perspective, held jointly by the United States Senate Committee on Finance and the United States Senate Committee on Small Business and Entrepreneurship on June 7, 2023. The statement argues that the SBA and its resource partners can help deliver tax information to small businesses and that the SBA's Office of Advocacy has a role in reviewing IRS and Treasury regulations. It calls for better IRS digital tools for tax professionals, IRS funding for technology and customer service, and authority for the IRS to regulate tax preparers. It supports cash basis accounting, citing the Tax Cuts and Jobs Act threshold of $25 million in average annual gross receipts, and names the Employee Retention Tax Credit (ERTC) as a COVID-19 policy to review.

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              Statement of Roger Harris
        President of Padgett Business Services


Tackling Tax Complexity: The Small Business Perspective


Joint United States Senate Committee on Finance and
United States Senate Committee on Small Business and
            Entrepreneurship Roundtable




                    June 7, 2023
                     10:00 AM
           216 Hart Senate Office Building
Chairman Wyden, Ranking Member Crapo, Chairman Cardin, Senator Young, and members of
both the Senate Finance Committee and Senate Committee on Small Business &
Entrepreneurship, thank you for the opportunity to testify today on the struggles that small
businesses face when it comes to tax complexity.
My name is Roger Harris and I am the President of Padgett Business Services based in Athens,
Georgia.
Padgett is a national accounting, advisory, and tax preparation company with approximately 200
offices across the U.S. that has served tens of thousands of small business clients for over 50
years. Prior to becoming President of Padgett in 1992, I ran one of the largest Padgett
franchises with the company for 10 years. I have long been passionate about the intersection of
small business and taxation.

I had the honor of serving as chairman of the Internal Revenue Service Advisory Council (IRSAC)
in 2002 and 2003 and always welcome the opportunity to provide feedback to Congress on how
to improve our tax system for small businesses. Throughout the pandemic, we saw first-hand
the positive impacts that many of the legislative changes had on small businesses and other
taxpayers as well as some of the unintended consequences of those policies.

I want to thank both of the committees for putting together this hearing and for all the work
you have done and continue to do on behalf of small businesses and taxpayers. I also want to
acknowledge the thousands of small businesses that Padgett has worked with over the years for
their hard-work and invaluable contributions to the economy.

Our daily work at Padgett is primarily with what would be considered "mom and pop” small
businesses. Our clients on average have less than 20 employees and come from a wide range of
industries. According the SBA’s Office of Advocacy, there are currently over 5.4 million
businesses with between 1 and 19 employees. Individually they are small, but collectively they
represent a major portion of our economy and jobs. There are 61.7 million small business
employees in the U.S., comprising of over 46% of U.S. employees. 1

Small business owners get into business to do the one thing they love and the 99 things they
hate. Dealing with the complexity of our tax system often ranks high on that list of 99.

11
     https://advocacy.sba.gov/wp-content/uploads/2022/08/Small-Business-Economic-Profile-US.pdf
I do think there are steps that can be taken by Congress, by the SBA, and by the IRS that can
help alleviate some of that complexity and better meet small businesses where they are.

Role of the SBA

First, the SBA is a huge resource that we must continue to utilize and leverage when it comes to
communicating with small businesses. While the SBA and its resource partners cannot replace
the role of accountants and trusted tax advisors, they can play a prominent role in getting tax
information out to small businesses that is both timely and easy to understand. Whether a
business is just forming or is trying to survive a challenging time, the Small Business
Development Centers, Women’s Business Centers, SCORE Business Mentors, and Veteran
Business Outreach Centers can provide invaluable counseling to small businesses free of charge.
They have a unique ability to meet businesses where they are and speak their language. Often,
when the IRS releases changes or requirements on small businesses, it is written in a way that is
difficult for small business owners to understand. I believe SBA’s resource partners could play an
even more robust role in delivering information on tax changes and opportunities to small
businesses in a concise and comprehensible way.

The Office of Advocacy at the SBA also plays a key role in making sure proposed regulations
coming out of the IRS and Treasury fully consider the impact on small businesses. SBA’s Office of
Advocacy has an attorney specifically assigned to monitor tax regulations and help ensure the
IRS and Treasury are considering potential flexibilities for small businesses during the
rulemaking process. SBA’s Office of Advocacy can and should continue to play an important role
in preventing unnecessary regulatory burden and complexity on small businesses by helping to
stop it before it happens.

Role of Tax Professionals

Most small businesses rely heavily on a tax professional or outside advisor to help them
navigate their taxes. However, our tax administration system does not always make it easy for
tax professionals to represent small businesses. There are not adequate digital tools at the IRS
for tax professionals representing small businesses and getting a power of attorney or other
authorization on file can be a long and time-consuming process. The IRS must prioritize
upgrading their systems and building more tools for tax professionals, which in turn will have an
outsized impact on small business as they navigate the tax system. I have long advocated that
there needs to be adequate funding at the IRS for technology and customer service.
One area where Congress could help is giving the IRS the authority to regulate tax preparers.
Currently, anyone can hold themselves out as a tax preparer and charge for their services. This
often leads to unqualified individuals making mistakes and harming the small businesses that
hire them. There must be more oversight to ensure a basic level of competence and ethical
standards among those preparing taxes for businesses and individuals. I appreciate proposed
legislation in the past by Chairman Cardin and others to address this issue.
There is often no difference between ill intent and ignorance when it comes to taxes – they both
can have the same negative result on the government and the taxpayer.


Tax Complexity for Small Businesses
With today’s tax code, it is easy to stress the need for simplicity, but the process of making that
a reality is far from easy. Nobody complains about complexity in the tax code when it saves
them money, they only complain when it costs them money. That said, the more Congress and
the IRS can support and allow cash basis accounting for small businesses, the more
straightforward taxes will be for them. I applaud the change that was made in the Tax Cuts and
Jobs Act that allows businesses with average annual gross receipts of $25 million or less to use
the cash method of accounting, sparing many small businesses from having to comply with a
variety of burdensome requirements. The one record that all businesses understand is their
checkbook. They know things are going well when their checkbook is going up and bad when it
is going down. The more the tax code can follow that method of understanding the simpler it
will be for small businesses.
Despite the fact that most small business owners pay their taxes on their individual return,
another important issue for small businesses involves the choice of business structure.
Decisions on how to organize, whether as a sole proprietorship, partnership, corporation, S
corporation, or Limited Liability Company (LLC), all impact the complexity a small business will
have to navigate. Nevertheless, these are often choices that small businesses can leverage for
their own unique advantages, but they must be informed and receive good advice. I think this is
one area where SBA’s resource partners can play an important role in advising new businesses.
In addressing tax complexity for small businesses, however, I think the most important thing for
policymakers is learning from past actions and examining what worked well and what did not.
For example, with policies that were implemented during COVID-19, there are innumerable
lessons to be learned as we contemplate future policy changes. It is important to get all of the
stakeholders at the table to examine if there are choices we would make differently next time.
The Employee Retention Tax Credit (ERTC) is an example of a small business tax policy with
tremendous upsides and challenges that would be well-suited for a thorough analysis to help
inform future policy. Ideally, we could get to a place where the IRS does not just get better at
solving problems, but gets better at preventing them.

In closing, I think this hearing today is a step in the right direction. I applaud the committees for
hosting it and was honored to participate along with these accomplished small business owners.


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