Tax Byte
Capitol Hill Connection: Werfel in Hot Seat Before Senate Finance Committee
Happy first Friday after Tax Day, tax pros. You made it. And if you don’t read this because you refused to check your email today, I can’t blame you. But there was a noteworthy development on Capitol Hill this week, and as your “boots on the ground” here in Washington, D.C., let me fill you in.
Werfel Sits in Congressional Hot Seat
IRS Commissioner Danny Werfel felt the heat from lawmakers this week during an April 19 Senate Finance Committee (SFC) hearing examining the IRS’s budget and 2023 tax filing season. This was Werfel’s first time testifying before Congress since being confirmed in March as the 50th IRS Commissioner.
During the hearing, lawmakers pressed Werfel for details on how the agency plans to implement its $80 billion in funding over a 10-year period under the Inflation Reduction Act (IRA) (P.L. 117-169), as well as its requested 15 percent annual discretionary funding boost above 2023 enacted levels.
Long funding story short:
- Although the IRS submitted its 150-page IRA Strategic Operating Plan earlier this month, SFC ranking member Mike Crapo, R-Idaho, said the plan fell short of providing quantitative targets and metrics to properly measure success as well as details on who is responsible for various improvement initiatives at the IRS.
- Notably, while over half of the $80 billion in IRA funding was allocated for enforcement, taxpayer services and business systems modernization got the short end of the stick with only $3.2 billion and $4.8 billion, respectively.
- John Thune, R-S.D., inquired whether some of the IRA enforcement funding could be reallocated to customer service, but Werfel expressed hesitance in “redirecting funds out of one basket into another.”
- Because of IRA funding, the IRS was able to hire more than 5,000 additional customer service representatives for the phones, which resulted in a level of service averaging 87 percent this filing season compared to 16 percent last year.
- The IRS will exhaust all taxpayer service funding under the IRA by fiscal year 2026 and will rely only on annual appropriations thereafter, according to an IRS spending document made part of the hearing’s record.
- Overall, the IRS’s plan for IRA implementation assumes that IRA funds will support transformation efforts, while day-to-day operations would continue to be supported by annual appropriations, according to Werfel.
Free IRS Online Filing Program
Additionally, Democrats and Republicans alike questioned Werfel on the possible establishment of the agency’s own free online tax filing system. The IRS was directed under the IRA to conduct a study on the potential benefits and feasibility of such a program.
“Democrats are committed to the proposition that it shouldn’t cost hundreds of dollars and many, many hours of time simply to follow the law and pay what you owe. When it comes to filing taxes online, the status quo is unacceptable,” SFC Chairman Ron Wyden, D-Ore., said during opening statements. Republicans, however, have expressed concern over such a program. “Having the IRS act as tax preparer, tax collector and tax enforcer raises significant conflicts of interests in many of our minds,” Crapo said. Werfel told lawmakers that the IRS had not yet decided whether it would move forward with the program after completion of its study.
“Normal” 2023 Tax Filing Season
While I’m not sure of your specific experience this 2023 tax filing season (shoot me an email; I’m listening), many tax pros in the industry are saying things largely returned to “normal” this go-around. Or dare I say, better than normal?
Those significantly increased phone service rates certainly have something to do with it. Also, the IRS reported this week that as of mid-March it had finally cleared its backlog of unprocessed returns from the previous filing season. Additionally, this filing season the IRS launched its Information Returns Intake System (IRIS) online portal for businesses to electronically file 1099- series forms.
And for the first time, taxpayers this year who e-filed Form 1040-X to amend their tax returns had the option to choose direct deposit for their refund. Further, the IRS started its new Digital Intake initiative, which allows it to scan paper tax returns rather than manually type the information in like it did in years past. Werfel called this one in particular a “major accomplishment” for the IRS.
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