On Wednesday, the Senate Finance Committee held a confirmation hearing for Daniel Werfel to be the next Commissioner of the Internal Revenue Service (IRS).
Here are five important takeaways from the hearing.
Werfel Has His First Hard Deadline
A primary role of Senate Finance Committee members is to conduct oversight of the IRS, and Werfel received his first hard, lawmaker-imposed deadline from an unlikely source: Senate Finance Chair Ron Wyden (D-OR).
Wyden and several other Democrats raised significant concerns with a recent joint study from several academic institutions and the Treasury Department that concluded, as reported by The New York Times:
“Black taxpayers are at least three times as likely to be audited by the Internal Revenue Service as other taxpayers, even after accounting for the differences in the types of returns each group is most likely to file…”
Werfel agreed with Democratic Senators that the study was cause for concern, saying that equity and fairness should be essential principles to tax administration at the IRS. Chairman Wyden asked Werfel to commit to reporting back to Senate Finance within 60 days of his confirmation on the root causes for these disparities and how the IRS may go about correcting discrepancies. Werfel did not directly commit to the 60-day timeline, causing Chairman Wyden to reiterate at the end of the hearing that he expects to hear from Werfel within 60 days of his confirmation.
The Public May Not See the Full IRS $80 Billion Spend Plan
Republicans, starting with Ranking Member Mike Crapo (R-ID), asked Werfel to commit to providing lawmakers and the general public with the full IRS spending plan for the $80 billion the IRS received in 2022 under the Inflation Reduction Act (IRA). Werfel notably did not commit to providing the general public with the full plan, stating instead that he would work with IRS officials to determine what portions of the plan could be communicated to the public and that the IRS should be as transparent as possible about its spending plans. Ranking Member Crapo indicated that he took Werfel’s answer as a commitment to making the full IRS spending plan public, but how Werfel follows through on these questions will be of paramount importance.
Sens. Chuck Grassley (R-IA) and John Thune (R-SD) each asked about the IRS updating its IRA spending plans annually, which would be required under their IRS Funding Accountability Act (and which is supported by NTUF's sister organization NTU). Werfel answered Sen. Thune more directly than Sen. Grassley, saying Werfel would need to “confirm his understanding” with IRS officials that annual updates are achievable but indicating that an annual update is “reasonable” and “resonates” with him.
There’s Momentum to Legislatively Address the $600 1099-K Threshold
In December 2022, the IRS delayed enhanced 1099-K reporting requirements on taxpayers’ digital transactions (such as eBay sales and ticket sales on StubHub) that were to go into effect in January 2023. Instead, the IRS will begin enforcing the new $600 reporting threshold, significantly lower than the $20,000 and 200 transaction threshold previously in law, in 2024.
While questions remain about how and why the IRS decided to unilaterally delay these reporting requirements for a year, Wednesday’s hearing offered momentum for a legislative fix.
While several Republican Senators brought up the 1099-K matter, it was Senate Banking Chair Sherrod Brown (D-OH), also a member of the Finance Committee, who specifically indicated the $600 threshold is too low. Sen. Brown was a cosponsor of Sen. Maggie Hassan’s (D-NH) legislation in the 117th Congress to raise the threshold to $5,000, which NTUF sister organization NTU supported, but Sen. Brown’s comment indicates that momentum still exists for compromise legislation that raises the 1099-K threshold and avoids capturing millions of non-taxable transactions in a reporting system that will no doubt confuse taxpayers next year.
There Are Many Unused Tools in the Customer Service Toolkit
For observers who are sweating the details on how the IRS will improve a beleaguered customer service operation this year and in future tax filing seasons, Werfel provided some thoughtful and intriguing tactics the IRS should be looking into. They include, but are not limited to:
- Expanding staffing for Taxpayer Assistance Centers (TACs);
- Improving and expanding online tools available to taxpayers, particularly mobile applications on taxpayers’ smartphones;
- Making use of public-private partnerships to reach taxpayers where they are and in underserved communities;
- Figuring out what customer-facing services the IRS can automate in order to serve more taxpayers more quickly;
- Updating IRS scanning technology so it can clear paper backlogs more quickly, and moving out of paper more generally by providing more forms and services online;
- Hiring more customer service employees; and
- Conducting surveys and focus groups to determine how taxpayers themselves would like the agency to improve customer service.
Sen. Todd Young (R-IN) pointed out that the IRS could be saving money for taxpayers and the federal budget by investing more in digital customer services, which carry a much lower cost per transaction than phone or in-person customer service. Sen. Young also asked Werfel to provide an estimate of how much money the IRS could have saved by having better digital services in place in recent years, which Werfel committed to looking into if confirmed.
One proposal Werfel did not really comment on was a perennially controversial proposal for return-free filing, the last question of the hearing asked by Chair Wyden. The Chairman, a supporter of having the IRS provide taxpayers with a pre-filled return based on information the IRS has on file about the taxpayer’s income and earnings over the previous year, pressed Werfel for his thoughts on the proposal. Werfel indicated he would leave these decisions to Treasury’s Office of Tax Policy (OTP) and to lawmakers.
Two former IRS Commissioners, John Koskinen and David Kautter, told National Taxpayers Union in March 2022 that return-free filing should not be a part of the IRS’s information technology (IT) plans going forward:
Also important, however, was what both Commissioners agreed should not be prioritized in the IT space: return-free. Their remarks are instructive. Commissioner Koskinen noted that, ‘It’s years down the road because there are other things much more critical.’ He also neatly summed up the challenge of implementing return-free in such a complex tax system: ‘A lot of people, once you get in the middle class, with a lot of deductions and other issues, then you’re probably never going to get a system that automatically does it because you have to have a lot of data that goes behind it.; For his part, Commissioner Kautter added that in regards to return-free, ‘The IRS needs to get its technology house in order, and until that occurs, I think that it’s unwise.’”
NTU Foundation will be watching “return-free” filing developments going forward, and it will be interesting to see if Werfel changes his tune at all during his service as Commissioner.
Werfel Has Already Earned Bipartisan Support
Werfel likely came out of the hearing feeling good about at least one thing: he has already locked up bipartisan support for his confirmation. Sen. Thom Tillis (R-NC), one of the newest members of the Senate Finance Committee, made some news at the hearing by telling Werfel that he would be supporting his confirmation. To the best of our knowledge, Tillis is the first Republican Senator to publicly commit to backing Werfel’s confirmation. Tillis’s announcement all but confirms that Werfel’s nomination will clear the Senate Finance Committee in a few weeks and, depending on the Senate calendar, eventually be approved by the full Senate.
NTU Foundation looks forward to working with Werfel, should he be confirmed, on much-needed improvements to IRS customer service, modernization, data privacy protections, and taxpayer rights and due process protections.