WASHINGTON (TND) — The leader of the Internal Revenue Service appeared in front of a House committee on Tuesday to defend his agency’s budget as the Republican majority in control of the chamber has tried multiple times to cut its new funding as it tries to modernize and become more efficient to enforce an increasingly complicated tax code.
IRS commissioner Daniel Werfel has made several pleas to lawmakers to leave the agency’s budget intact as it tries to enforce the tax laws that are on the books and improve what had become putrid customer service for Americans trying to ask questions about filing their taxes.
He appeared in front of a House Appropriations subcommittee on Tuesday where he praised the agency’s progress in the first full tax year after the new funds took effect and said it will need boosted funding moving forward to continue serving taxpayers effectively.
“The consequence is we will not be able to meet the demand that taxpayers present. People will call the IRS and not get through, that will happen to more people. People will show up at our walk-in centers, they'll find long lines and not be able to get in and we will be limited in our ability to hold people accountable that aren't playing by the rules, and this is why this is so important,” Werfel said when asked about what would happen if funding levels for the IRS drop.
The IRS received an infusion of $80 billion in the Democrats’ Inflation Reduction Act, which the agency and outside experts agreed was sorely needed after years of underfunding that led the IRS to work on outdated technology and with limited staff that drove up wait times and a backlog of millions of returns.
Democrats have pushed to maintain IRS funding and to build on the investments made in the IRA as what they say is a fairer application of the U.S. tax code.
“This committee must continue to ensure the IRS has the resources to complete its mission. It would be foolish for a business to slash its accounts receivable department in an effort to save money. The U.S. government should not do so either,” said Rep. Rosa DeLauro, D-Conn.
It has already lost more than $20 billion of that funding in deals between President Joe Biden and congressional Republicans in debt and budget negotiations. The IRS has been a frequent target of House Republicans, who have made claims of an “army of IRS agents” that are out to get middle-class taxpayers through higher levels of audits.
“The IRS is requesting an additional $24 billion in mandatory funds to rebuild an army of IRS agents and carry out a direct file system that Congress did not authorize,” said Rep. Dave Joyce, R-Ohio, and the subcommittee’s chair.
The IRS has pledged to move forward with audit rates at levels set in 2018, which Werfel described as “historic lows.” The agency is operating on a directive to focus on taxpayers who make more than $400,000 per year or large companies that have dodged paying taxes that are legally owed. Auditing those returns are more costly and time-consuming for the IRS, which led to rates falling from 2010 to 2019 and caused the tax gap to increase.
Despite those pledges, Republican lawmakers have been highly skeptical that the IRS would follow through and that lower- and middle-class Americans would face the brunt of higher audit rates.
Also at issue with the IRS budget is closing the “tax gap” of taxes that are owed through existing laws but are not paid. Estimates on how much it is worth on an annual basis vary, but even conservative figures total hundreds of billions of dollars. The IRS has begun work to close that gap through enhanced audits of wealthy taxpayers and large corporations as part of its directive to use IRA funding to increase auditing on high earners and not on low- or middle-class Americans.
Government watchdogs have warned IRS funding cuts would reduce the amount of revenues the U.S. collects and increase the deficit, including a report in February from the nonpartisan Congressional Budget Office.
Tuesday’s hearing comes after what the IRS described as a successful tax season thanks to the infusion of funds, with call wait times being slashed to three minutes for the 2023 filing season compared to 28 minutes in 2022. More than 3 million additional calls were answered compared to the same time last year, which the IRS said saved taxpayers 1.4 million hours of hold time.
The IRS also said it had a successful pilot run of its direct file program, which gives taxpayers a choice to prepare and file their taxes for free directly through the federal government. It was rolled out to taxpayers in a handful of states in the first run, but IRS officials said it exceeded its goals for participation and user ratings.
Republicans have been opposed to an IRS direct file system over concerns that it is unfair for the tax agency to prepare returns and enforce tax laws in a conflict of interest and that it is an unnecessary expense due to other free options that are available through private companies. Advocates of a direct file system say it would make it easier and cheaper for taxpayers to file a return and incentivize filing digitally, which is cheaper and faster to process.
Werfel said is only meant to be a part of a menu of options for taxpayers and the agency had seen significant interest in the public into creating the program.
“It's really just another option. We want taxpayers, when they have to file, we want to reduce their stress and make the process easier,” Werfel said. “One of the things that we've heard from taxpayers and various members of Congress, is that an option where a taxpayer could file online for free direct with the IRS versus working with a software provider is an option that should be available.”
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