Several months removed from former IRS Commissioner Chuck Rettig’s departure, the Senate Finance Committee will consider President Biden’s nomination of Daniel Werfel as his successor for the term ending November 2027.
Werfel, who was tapped as Biden’s pick November 10, 2022, is sure to face scrutiny from Republican members of the Senate’s tax writing body skeptical of the IRS’ ongoing efforts to modernize its systems, improve customer service, and close the tax gap through increased enforcement activities. The hearing is scheduled for February 15 at 10:30 a.m. Eastern, ahead of the much anticipated release of the IRS’ spending plan for the $80 billion authorized to the agency by the Inflation Reduction Act (PL 117-169).
During the confirmation process, Werfel will be expected to address concerns from some lawmakers regarding new employees the IRS plans to hire in the near future, as well as through 2032. Specifically, those who have criticized the additional funding will wish to hear Werfel’s answers on what some expect to be 87,000 auditing agents allegedly poised to raise audit rates across all income tax brackets.
Chief among that camp include House Speaker Kevin McCarthy of California and Ways and Means Committee Chair Jason Smith of Missouri, both key Republican leaders who have publicly expressed doubts that audit rates will not rise for those earning less than $400,000 a year beyond historical levels, as mandated by Treasury Secretary Janet Yellen.
“Congress’s nonpartisan scorekeeper has confirmed that at least $20 billion will come from increased audits on Americans making less than $400,000 per year,” said Smith in a January 19 statement. “Projections based on historical IRS audit data show that under this expansion, the IRS will conduct an additional 700,000 audits on Americans making less than $75,000 a year.” Smith has since written to Acting IRS Commissioner Doug O’Donnell seeking clarification on what “historical levels” exactly entails. The plan is due to Congress February 17, though it remains to be seen when it will be made publicly available, and to what extent will there be redactions.
In a January 12 report, agency watchdog Treasury Inspector General for Tax Administration acknowledged the lack of specificity surrounding prior audit levels. “As of December 2022, IRS officials have not yet finalized what constituted the $400,000 income level or what historic audit level will be used for its metrics,” read the report. “They indicated that this is still being discussed between the IRS and the Treasury Department.” TIGTA added, though, that IRS officials do not sense an “immediate risk” of violation of the $400,000 threshold mandate.
Rochelle Hodes, principal at Crowe and chair of the American Institute of Certified Public Accountants IRS Advocacy and Relations Committee, told Checkpoint in an interview that although O’Donnell in his acting role is “knowledge and competent—and a wonderful leader,” it is “beneficial for the American public and for our tax system” that there is “a permanent leader to weigh in on decisions” affecting the IRS’ reform strategy and spending priorities.
Given the expectation of increased IRS oversight from Congress, especially the Republican-controlled House, a “permanent commissioner who is confirmed by the Senate is just in a different posture when they’re sitting before committees” during hearings, Hodes said. Although the partisanship currently attached to the IRS funding conversation is another factor of why a commissioner needs to be confirmed soon, the “mantle of confirmation” in general should not be understated, according to Hodes, as a testament to the constitutional process and the importance of having a legitimate head of a government agency such as the IRS.
Based on her experience working with the IRS at the AICPA, Hodes said the agency understands “what’s at stake” this year and this tax filing season especially, since its performance will be closely monitored under a microscope in light of the new funding and challenges during and emerging from the COVID-19 pandemic.
The new commissioner will face pressure should ongoing issues persist. Hodes said that ultimately from a taxpayer and practitioner perspective, end results matter, and what is going on behind the scenes at the IRS is for those in power who wish to carry out investigations.
“How the sausage is made is not important so long as [there is] the ability to comply with … tax obligations and [taxpayers] have the information to do that and resolve matters quickly and efficiently with the IRS—that’s what’s important,” said Hodes.
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