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Six Key Moments from Hearing with IRS Commissioner Daniel Werfel

February 19, 2024

WASHINGTON, D.C. – The Internal Revenue Service (IRS) is currently failing to follow the law and protect taxpayers in several key areas, Ways and Means Committee members warned IRS Commissioner Daniel Werfel during an oversight hearing of the agency. A recent report from the Treasury Inspector General for Tax Administration (TIGTA) showed just how vulnerable the security of sensitive taxpayer data remains years after an IRS contractor leaked thousands of returns, including that of President Trump, to the media. Members pressed the Commissioner to share a timeline for when and how the agency plans to fix these security issues and prevent future theft of protected taxpayer information.

Members also called out the IRS for failing to follow the law and instead providing cover for the disastrous policies of the Biden Administration and Washington Democrats’:

Members also highlighted issues within the Employee Retention Tax Credit program, and recent legislation passed by the House of Representatives – the Tax Relief for American Families and Workers Act, which would help clear the backlog of legitimate small business claims by ending the ability of fraudsters to take advantage of American taxpayers

IRS Must Take Real Action to Protect the American People’s Tax Information

The IRS continues to leave taxpayer data exposed to potential leaks by rogue employees, even years after IRS contractor Charles Littlejohn illegally disclosed the confidential taxpayer information of thousands of Americans in what was the largest theft of taxpayer information in American history. Ways and Means Committee Chairman Jason Smith (MO-08) highlighted the importance of not only taking action to protect taxpayers and their sensitive information, but also deterring similar leaks in the future.

Chairman Smith: “Do you think one count of disclosure matches the crime committed?”

IRS Commissioner Werfel:  “I think that protecting taxpayer information from unauthorized access is an absolute solemn responsibility of the IRS. I also believe that this individual…betrayed his own commitments. He betrayed IRS employees, and he betrayed the American taxpayer. That type of betrayal should not be tolerated. Based on what’s playing out in court, it’s not being tolerated, because this person is being brought to justice. As I understand it, he is going to spend years in prison.”

Smith: “Five years. Do you think the penalty should have been higher for this individual?”

Werfel: “I don’t have a judgment on that. Mr. Chairman, I rely on the court and the judicial process to play out and I trust that the judicial process we’ll get the right answer.” 

Smith: “I was looking at more of the legislative process of whether Congress should change and increase the penalties for someone who abuses taxpayer information, like this situation.”

IRS Commissioner Unable to Name Authority To Make The IRS America’s Tax Filer, Preparer, and Auditor

The IRS has implemented a direct e-file program that would turn the IRS into a tax filer, preparer, and auditor without congressional authority. While Democrats in Congress gave the agency authority to study whether such a program was feasible, the IRS was never given authority to set up the program. When asked by Rep. Adrian Smith (NE-03) what law gave the IRS the specific authority to create this direct e-file scheme, Commissioner Werfel was unable to provide a specific answer.

Rep. Adrian Smith: “The so-called Inflation Reduction Act provided $15 million to conduct a study of direct e-file and enumerated the study’s parameters…Can you tell me explicitly what authority the IRS relied on to create an entirely new government-run system of filing taxes, since the law only provided authority to conduct a study on the direct e-file system?…I want specific language from the federal code authorizing the particular pilot.”

Werfel: “…What’s critical about the direct file solution is that it is an option. There is no mandate for anyone to use this solution.”

Smith: “You’re saying there’s direct authority to do so?”

Werfel: “There’s direct authority to implement the tax system in a way that provides tools and solutions for taxpayers to meet their tax responsibility.”

Smith: “Generically speaking.”

New Technology Negates Need for Tens of Thousands New IRS Agents

Democrats handed the IRS an $80 billion windfall, supposedly to improve its notoriously bad customer service and hire an army of new enforcement agents. Oversight Subcommittee Chairman David Schweikert (AZ-01) made the case that new technology should lower costs for collecting revenue, negating the need for the IRS to hire so many new employees in the first place.

Rep. Schweikert: “The adoption and the purchase of technology…should dramatically lower your cost of collections and make your collections much more efficient, fair, open. Am I off base? Do we have to hire armies of people or is technology my nirvana?”

Werfel: “To answer your question on the technology. It’s essential.

The whole effort underway is really about modernization. It’s at every level. Technology is going to help us process quicker, more efficiently, more accurately, and more securely.”

IRS Commissioner:  Bipartisan Tax Bill Will Speed Up Processing of Legitimate ERTC Claims

The Tax Relief for American Families and Workers Act, awaiting action in the Senate, moves up the filing deadline for the ERTC, a COVID-era program rife with fraud. Small businesses with legitimate claims have been forced to wait months as the IRS woefully attempts to address fraudulent claims while sifting through a backlog of legitimate claims. In response to Rep. Drew Ferguson (GA-03), Commissioner Werfel shared how the new tax bill will help the agency process legitimate claims for small business across the country by ending the onslaught of fraudulent applications.

Rep. Ferguson: “The problems in the Employee Retention Tax Credit have been well-documented, and well-discussed here today. This committee, in a bipartisan way, along with the House, passed a pretty significant piece of legislation the other day. At the heart of it was dealing with the Employee Retention Tax Credit. Can you speak to how important that legislation was to preventing the fraud and helping the IRS work through the legitimate claims?”

Commissioner Werfel: “The legislation that’s under consideration would prohibit ERC claims from coming in after a date certain. One of the things that impacts our ability to make sure that we’re getting to the eligible claims, among the ineligible, is the size of the inventory…Once we issued the moratorium, the influx of claims dropped in half, but I think we got 17 to 20,000 last week. That inventory is growing, and it’s growing with a lot of ineligibility. Helping us pause the incoming at this point, so we can find those that have submitted that are eligible. We need that help.

IRS “Free” Direct E-File Program Is False Advertising

When marketing its new “Direct File” program as “free” for the American public, the IRS is downplaying the program’s true cost to taxpayers while simultaneously failing to note that free alternatives are already offered for Americans earning less than $73,000 through partnerships with private tax preparation companies. Rep. Kevin Hern (OK-01) highlighted the fact that taxpayers are footing the bill for the IRS’s new direct e-file program. Even worse, despite the IRS claiming that the direct e-file could cost at least $2.5 billion, a recent TIGTA report found that the agency could not substantiate its cost estimates for the program, meaning that taxpayers may be on the hook for a substantially larger sum in the future.

Rep. Hern: “Isn’t it true that the private sector provides free return preparation services outside of the government Free File program?”

Werfel: “Yes…We work with the Free File Alliance, these are commercial software providers that have signed on to help provide a path for eligible taxpayers to use their product for free to file their taxes…There’s resources that the IRS does to ensure that partnership is as successful as possible.”

Hern: “You’re saying that these services are provided by corporations for free and others that are doing business? When you say it’s free to the American people, you’re saying you’re providing these services internally doesn’t cost you anything. There’s no taxpayer dollars used in your organization for administrative costs to do this?”

Werfel: “No. There is a cost and we’ve been public about what the potential and cost would be.

“Congress Writes the Laws. You Don’t”: IRS Doesn’t Have Authority To Halt Implementation of Politically-Damaging Laws

In 2021, Democrats in Congress mandated the IRS send a new tax form to 44 million Americans for something as simple as selling a used couch through a service like Venmo or PayPal. Since then, the agency has twice refused to implement this law, giving Democrats political cover from their bad policies. Rep. Carol Miller (WV-01), the author of legislation repealing this invasive policy, sent a clear message that the IRS must leave lawmaking to Congress.

Rep. Miller: “What authority does the IRS have to set the new threshold?”

Werfel: “We have an authority under the code to administer laws consistent with taxpayer rights. This happens from time to time. Our goal and our objective is to implement the laws on day one.”
Miller: We write the laws. Congress writes the laws. You don’t.

Werfel: “There are a variety of examples throughout history, where the IRS, in order to protect taxpayers from undue burden, or from potentially being overtaxed, we have either delayed implementation or ramped implementation. This is not the first time and I’m not the first commissioner that has confronted this tension.”

Miller: They’re still illegal. Your actions are still illegal.

READ: IRS Commissioner Confirms Child Tax Credit Refunds Will Be Sent Within Weeks