Thursday, April 25

IRS commissioner aims to show progress despite threats of budget cuts

During his Senate confirmation last February, Daniel Werfel told lawmakers that if nominated as commissioner of the Internal Revenue Service, he would work to increase “public confidence” in the troubled agency and would use the $80 billion Congress gave it to build a “more modern system.” and efficient”.

A year later, Mr. Werfel oversaw the elimination of a backlog of thousands of tax returns, reduced wait times on IRS phone lines and the creation of a system that allowed qualified taxpayers to submit their federal returns for free. But those accomplishments weren’t enough to satisfy Republicans, who accused Mr. Werfel of making the IRS more intrusive and even engaging in lawless behavior.

Hostile congressional hearings are commonplace for IRS commissioners, and when Mr. Werfel testifies before the House Ways and Means Committee on Thursday, he will receive a frosty reception as he pushes back against efforts to cut the budget of his agency.

For Mr. Werfel, the confrontation is an opportunity to explain why even skeptics would benefit from a well-funded IRS.

“I think the most powerful statement the IRS can make, when it is proposed to significantly reduce our budget, is to show our work and demonstrate that we are on the right track to improve the tax operations of an way that benefits taxpayers.” Mr. Werfel said in an interview this week.

The IRS was supposed to receive $80 billion in the Inflation Reduction Act of 2022 and the money was supposed to help the agency strengthen its enforcement capabilities to combat tax evaders and modernize its technology obsolete. As part of a deal to raise the debt ceiling last year, Democrats agreed to Republican demands to claw back $20 billion of those funds. And Republican lawmakers in recent months have been considering additional cuts as part of negotiations related to funding for other policies.

During his first year in office, Mr. Werfel tried to allay concerns fueled by criticism of the agency that the IRS would hire thousands of armed agents to harass middle-class Americans and small enterprises. To do so, he focused on efforts to make the IRS more accessible by staffing customer service centers and allowing taxpayers to reach the agency without having to wait hours on the phone.

As part of its modernization campaign, the IRS also announced initiatives to crack down on wealthy tax evaders, ended its practice of sending unannounced agents to residences to collect unpaid taxes, and began introducing artificial intelligence technology in its audits.

But top Republicans have argued that any signs of progress at the IRS are overshadowed by lingering problems. They insist that Mr. Werfel’s agency, which they say has a history of targeting conservatives, is influenced by politics and favors Democrats.

These concerns have been exacerbated by recent security breaches. The IRS has been under pressure to improve its data security protocols after a former contractor accused of leaking the tax records of Donald J. Trump and other wealthy Americans was sentenced to five years in prison. A report released last week by the Treasury Inspector General for Tax Administration found that as of July, more than 200 former IRS employees or contractors still had access to sensitive information.

Tax committee members are expected to press Mr. Werfel on Thursday to explain why he has delayed implementing a controversial tax policy that would require users of digital wallets and e-commerce platforms like Venmo, PayPal, Cash App , StubHub and Etsy to start. report small transactions to the tax collection agency. The policy was passed as part of the 2021 American Rescue Plan and faced criticism because it would increase oversight of lower- and middle-class taxpayers. Although Republicans hate the policy, they argue that Mr. Werfel’s delays flout the law.

“The IRS should not protect Democrats from the consequences of their own bad laws,” Jason Smith, Republican chairman of the Ways and Means Committee, said in a statement. “The IRS cannot circumvent the Constitution and simply rewrite the laws.”

Mr. Werfel said he plans to argue that he is entitled to delay the so-called Venmo tax because the law, as written, would create widespread confusion and could harm taxpayers. And he would argue that data security at the agency has improved significantly over the past year. Such incidents, however, have provided fodder for critics of the IRS to argue that it does not deserve the additional funding it has received.

“Any time you have negotiations on budget issues, you want money for Ukraine or Israel or something like that, we take it out of the IRS piggy bank,” said Grover Norquist, founder and president of Americans for Tax Reform, an advocacy group that favors lower taxes. “Because they showed no seriousness about wanting to be better at anything.”

The Biden administration has said continued attacks on the IRS are part of a strategy to weaken the agency so it doesn’t have the ability to catch wealthy taxpayers who evade paying what they owe. they must. The Treasury Department estimates that the United States has a almost 700 billion dollars “tax gap” of revenue missed each year and argues that stricter enforcement of the tax code is essential to reducing America’s dependence on borrowed money.

“There are those with power and those with wealth, who would love nothing more than for the IRS to not have the resources to go after them and make them pay their fair share,” Wally said Adeyemo, Deputy Secretary of the Treasury. a meeting.

Frequent discussions about cutting the agency’s funding have Mr. Werfel looking over his shoulder as he tries to implement the priorities of the ambitious multi-year operating plan that the agency produced last year. last year.

Mr. Werfel said the barrage of criticism leveled at the IRS over the years had taken a toll on his staff, but he believed morale was starting to improve. He prefers the agency’s role to that of an impartial arbiter necessary for government to function, but he recognizes the challenge of staying out of politics.

“I think most people think of us as the tax collector, and that’s not the most popular action the government takes,” Mr. Werfel said. “It’s becoming a reality that when the debate is about the role of government, the size of government, the actions of government, the IRS will be at the forefront of that debate.”