Now that the dust has settled from the confirmation process of the IRS’ new head official, much attention will be given to how the agency moves forward under new management.
On March 9, the Senate confirmed Daniel Werfel as IRS commissioner by a bipartisan vote of 54-42. Werfel was sworn in March 13 by then-Acting Commissioner Doug O’Donnell, who manned the fort after former Commissioner Chuck Rettig’s term expired November 2022. Only weeks into his term, which expires November 2027, Werfel faces a tax community anxious to see which fires the IRS will put out, and when. Reactions from practitioners have been a mix of optimism and skepticism.
Jennifer Benda, tax controversy and litigation partner at Holland & Hart, told Checkpoint that Werfel’s “blend of government and private sector experience provides a good launching point for overseeing the expanded IRS budget.” She added that his background, which includes a stint as acting commissioner in 2013, will hopefully “allow the agency to focus on making the IRS more efficient so that taxpayers with IRS issues can resolve them quickly and without years of prolonged efforts.”
“Ultimately, a new Commissioner’s ability to modernize and streamline taxpayer service will improve public trust in the agency,” she added.
Some have more reservations about the current state of the IRS and internal issues that compiled when Werfel was not in the building, as well as future challenges. K&L Gates Government Affairs Counselor Mary Baker told Checkpoint that he will face ongoing scrutiny from both the House Ways and Means Committee and the Senate Finance Committee “on the historical baggage he’s acquired.”
According to Baker, this includes the backlog of unprocessed paper income tax returns; implementing the proposed Service Industry Tip Compliance Agreement—a voluntary tip reporting program announced February (IR 2023-19); and preparing for reporting requirements attributable to Form 1099-K and cryptocurrency transactions. Some lawmakers may also press Werfel on matters relating to leaks of taxpayer data, such as when news outlet ProPublica obtained confidential records of wealthy individuals. Also fresh on the minds of several committee members is when the IRS destroyed 30 million paper information returns, which the agency said in a statement was done due to “system constraints.”
“Another hot issue will be explaining how the IRS is going to administer the $400,000 threshold on audits,” said Baker, alluding to the possible audit rate implications of additional enforcement funding authorized by the Inflation Reduction Act (PL 117-169). “[Treasury Secretary Janet Yellen] has been careful to word it that the percentage of audits in that category will not increase, but some have characterized it that the actual number of audits of those making under $400,000 will not increase.”
Baker also said Rettig was “fairly popular” among IRS employees, and it remains to be seen whether Werfel will “engender the same level of trust.”
Practitioners are eager to see how the IRS incorporates the various energy provisions of the Inflation Reduction Act, from new and expanded credits and the transferability of those credits to third parties. Industries await guidance to know what is expected of them to be able to claim and comply with the inflation bill’s sweeping green energy changes.
“In Daniel Werfel’s confirmation hearing, Commissioner Werfel acknowledged the requisite work that needs to be done and the significant responsibility of the IRS in completing and releasing this guidance,” Snell & Wilmer Partner Marc Schultz told Checkpoint. “This acknowledgment by Commissioner Werfel has been welcomed news for the renewable energy industry.”
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