IRS Chief defends budget increase

The House Ways and Means Committee heard testimony from Internal Revenue Service Commissioner Daniel Werfel on Wednesday as he defended the $80 billion budget boost the agency received from the Inflation Reduction Act, an increase that bond lawyers have suggested will lead to increased audits. 

“There’s absolutely money being left on the table in terms of what is owed versus what is paid,” said Werfel.  “This is particularly an area of focus for high wealth taxpayers in complicated situations.” 

Republicans remain skeptical about how and where the money is being spent.

“I continue to have concerns that the $80 billion dollars in IRA funding is not giving us the results, perhaps that were promised,” said Rep. Adrian Smith R- Neb.  “Also, certainly there’s a lack of candor, I believe from the administration about how the funds are actually being utilized.”  

Werfel’s grilling was mostly non-contentious and included a nod of appreciation for the agency’s cooperation on the House passage of a major tax package earlier this month. 

The legislation includes expanding the child tax credit, loosening restrictions on research and development tax deductions and adjusting the requirements for Low Income Housing Tax Credits which could boost private activity bond issuance.  

“I want to thank you and your team for the technical work to ensure the quick and without delay implementations of provisions of the Tax Relief for American Families and Workers Act,” said Committee Chair Jason Smith R- Mo. “We particularly appreciate the steps the agency is taking right now to be ready to immediately implement the legislation.” 

The agency’s budget boost turned into a political football during the debt ceiling negotiations. Congress has already clawed back a chunk of the funding the agency says it needs to update its technology and go after tax cheats.

“Unfortunately, the majority seems to think that the IRS budget is a slush fund to pay for every program that they want to pass and put into law,” said Rep. Lloyd Doggett ,D – Texas. “I’ve lost track how many times they’ve tried to use the IRS budget to offset spending, despite reams of evidence, proving that IRS cuts actually increased the deficit.” 

Audit levels funded by the fresh money and who is being targeted remains an area of concern for muni advisors and tax attorneys.  

The Commissioner maintains the agency has been working at getting audit numbers for key groups back in line. “We are working to reverse the historically low audit rates for large corporations, complex partnerships and high wealth individuals,” said Werfel. 

The agency is also trying to fully enter the digital age and move away from paper returns, which requires a significant investment and help from Congress. 

Per a report the IRS issued last week, “To actualize these goals, we expect to need an investment of around $7.75 billion for Business Systems Modernization and $25 billion for Operations Support. Much of this funding is already available and is being deployed but it is predicated on adequate discretionary funding including BSM funding being provided annually.”   

Werfel believes the return on investment ensures a quick pay off.  “It certainly has a very positive ROI in general,” he said. “We reported that we returned $6 for every $1 invested. On average, you should expect about a one to six ratio.”  

The sentiment was echoed by ranking member Rep. Richard Neal D – Mass. “It was just last year that we discussed the future of the IRS ability to hold the top 1% of tax cheats accountable and in a matter of months over $500 billion has been recovered from 1,600 wealthy tax avoiders,” said Neal.