IRS Nominee Werfel Pledges Transparency with $80 Billion (2)

IRS Commissioner nominee Danny Werfel appeared to be headed toward Senate confirmation as he promised transparency if confirmed to a job putting him in the crosshairs of a partisan battle over how to spend $80 billion in new funding.

Werfel got tough questions from Republicans during his nearly three-hour hearing at the Senate Finance Committee on Wednesday but appears to be on-track for a bipartisan confirmation vote.

“I intend to support your confirmation, incidentally” said Sen. Thom Tillis (R-N.C.) during his questioning of Werfel about audits. Sen. Todd Young (R-Ind.) also said following the hearing he is likely to support Werfel.

Much of the focus of lawmaker questions was on the funding provided to the IRS in the Inflation Reduction Act. The IRS is tasked with submitting a plan to Treasury Secretary Janet Yellen by Friday on how it plans to spend the funds. Finance Committee ranking member Mike Crapo (R-Idaho) asked Werfel, who has not been involved in writing the plan, whether the document would be made public and stakeholders would be given an opportunity to provide feedback.

“I agree that the plan that is put together should allow both you, this committee, and the public to connect the dollars from the Inflation Reduction Act to the various activities and investments,“ Werfel replied, adding that he wants to earn the committee’s trust.

Sen. Chuck Grassley (R-Iowa) later asked whether Werfel would direct the IRS to update the plan annually. Werfel said he’d work with the committee to determine the frequency of updates to the public.

Republicans have bemoaned the fact that most of the money is allocated for enforcement, rather than taxpayer services, and are skeptical that the IRS won’t use the money to increase audits on middle-class taxpayers. Democrats say the money will help the agency and could end up lowering the odds that families and small businesses compliant with the law are audited.

Senate Finance Committee Ron Wyden (D-Ore.) said in his opening statement that the “Inflation Reduction Act makes sure that the IRS gets the resources to go after tax cheating by the big guys.”

Republicans had sharp words for the IRS, but less criticism of Werfel himself.

Tillis, in an interview with Bloomberg Tax outside the hearing, said he met with Werfel on Tuesday and said he would “call balls and strikes” and there’s little evidence he would be controversial.

“No dumb white papers, no dumb college Tweets,” Tillis said explaining his support for Werfel. “He is definitely, in a very positive sense, in my opinion, a technocrat.”

Werfel said he is committed to following Yellen’s directive that the funds not be used to increase audit rates, relative to historic levels, for households making under $400,000. When Sen. John Barrasso (R-Wy.) asked Werfel if he would have put more of the Inflation Reduction Act money toward taxpayer service, he said he would work to get the maximum value out of the several billion provided in the law for that purpose.

“My commitment is to make sure that that money is spent wisely, that we get the most out of that money so that it benefits taxpayers, all taxpayers,” Werfel said.

Sen. Ron Johnson (R-Wis.) said he’s still reviewing Werfel’s record. “He’s been pretty forthright in his answers to the committee,” Johnson said.

Grassley said he is “inclined to support” Werfel’s nomination, cautioning that he hasn’t made a final determination.

The IRS’s new funding wasn’t the only issue that senators brought up to Werfel. Senators on both sides of the aisle also asked Werfel about the reporting requirement established in the 2021 pandemic aid law that requires e-commerce companies to provide tax forms to users with business transactions above $600. The IRS in December delayed the requirement for one year but it’s still currently set to apply for next year’s filing season, and lawmakers on both sides of the aisle would like to see the $600 threshold increased.

Werfel said that when it comes to implementation of the requirement, he would “start with the law,” but would also solicit feedback from lawmakers and keep in mind what would build trust with taxpayers.

While the parties had contrasting stances on the money for enforcement, both Democrats and Republicans zeroed in on how Werfel would address the agency’s technology woes.

When asked by Sen. Catherine Cortez Masto (D-Nev.) if the technology the IRS uses today was outdated, Werfel answered simply. “Yes,” he said.

The IRS still employs aging systems that have in the past have gone down on some of the most important days on the IRS calendar, like filing day. Despite spending billions on the systems in roughly the last two decades, GOP lawmakers questioned Werfel on why the agency doesn’t have more to show for it.

Sen. Bill Cassidy (R-La.) expressed concern that despite billions being spent, the problems remain.

“If history is prologue, these systems are not going to get fixed,” Cassidy said, asking if Werfel planned to look at what other agencies have done to upgrade their systems to remedy their own.

Werfel said he believed it was premature to give a firm answer on exactly what solution the IRS could employ, but vowed to make evidence-based decisions on what would be best for the agency.

Wyden asked Werfel for an update on the status of the IRS implementing scanning technology to speed up processing of paper-filed tax returns. Werfel said he didn’t know the status of that but said it’s a “huge priority” of his to enhance scanning.

Werfel also was asked by Wyden about a recent Stanford University study that found that Black taxpayers are audited at higher rates than non-Black taxpayers. Wyden pressed Werfel to report to the committee within 60 days how this disparity can be addressed.

Werfel said the findings are “very concerning” and the IRS needs to get an understanding of whether its approaches are having a disparate impact. He said he would talk to people at the agency working on this issue and report back to lawmakers.

Werfel, who most recently worked in the private sector, spent more than a decade at the Office of Management and Budget. He served as acting IRS commissioner in 2013. In his opening remarks he told lawmakers he was inspired to public service watching people like his grandfather, a postal worker and a World War II veteran, and his mother, who was a social worker, and his wife, a public-school psychologist.

At Wednesday’s hearing, Werfel’s wife sat behind him next to his two children and his parents.

Senators were given until Friday to ask additional questions in writing and will need to meet afterward to vote on advancing the nomination to the full Senate.

Wyden, speaking to reporters after the hearing, said he would discuss Werfel’s nomination with Majority Leader Charles Schumer (D-N.Y.). Both the Senate and House are out next week due to the President’s Day holiday, but return the week of Feb 27.

“My hope is that we can move his nomination very quickly when everybody gets back,” Wyden said.

— With assistance from Samantha Handler.