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Five Key Moments from the Ways & Means Hearing on Accountability and Transparency at the IRS

April 28, 2023

WASHINGTON, D.C. – One week after Tax Day, American taxpayers are still gravely concerned about the threat posed by Democrats’ supercharged IRS. During a hearing on accountability and transparency at the IRS, House Ways and Means members questioned IRS Commissioner Daniel Werfel about the agency’s commitment to protect whistleblowers, its failure to spell out its plan to spend billions of taxpayer dollars, and a lack of protections for working-class Americans from an increase in audits. Below are edited excerpts of exchanges during the hearing.

Chairman Smith Demands Protections for All IRS Whistleblowers

Recently, an IRS whistleblower contacted the Ways and Means Committee with troubling claims about abuses of power. While the Committee continues to review this matter, Ways and Means Chairman Jason Smith (MO-08) demanded Commissioner Werfel pledge that there will be no retaliation taken against this whistleblower.

Chairman Smith: “As we discussed previously, we set up an online whistleblower portal for IRS personnel wishing to share information with the Committee. I continue to urge you to let your employees know about the portal. I believe it will encourage agency personnel who witnessed wrongdoing to come forward. And just this last week, we received outreach from an IRS whistleblower requesting the Committee look into concerns the individual has about allegations of misconduct. Can you commit that there will be no retaliation against that whistleblower?”

Commissioner Werfel: “I can say without any hesitation, there will be no retaliation for anyone making an allegation or called into a whistleblower hotline.

IRS Commissioner Dodges Questions About IRS Auditing Middle-Class Families Above “Historical Levels”

Secretary Yellen’s carefully worded pledge that the IRS will not use its $80 billion to audit working families above “historical levels” means 600,000 more families making less than $75,000 will be hit with an IRS audit. 

When Chairman Smith (MO-08) directly asked Commissioner Werfel to clarify his comments that audits would not increase for those making less than $400,000, especially given Secretary Yellen’s prior statements, Commissioner Werfel would not flat out say audits will not increase for these families. Instead, he referenced the audit rate in 2018 and would only commit to not raising audits on families making less than $400,000 above the 2018 audit rate “for years to come.”

Chairman Smith: “There’s been a lot of statements from Secretary Yellen that says that the audit rates will not be above that of the historical audit rates, which 2010 was the peak. When you say that there’s not going to be an increase in audit rates, are you referring to the audit rates last year? Or the historical rates like what Secretary Yellen has said?”

After saying that audit rates won’t go up for lower- and middle-income families in the near term, Commissioner Werfel said:For the next several years at least, we’re going to be focused on the work that we’re doing with highest-income filers. Now, once we start and reconsider that, because the 2018 rate is so low, it’s not anywhere near the historical rate. You probably looked at the years and said wow the historical rate is a lot higher than the rate in the most recent years. So even if we did start increasing our audit footprint a few years from now, then you’re still not going to get anywhere near the historical average for quite some time…”

Commissioner Werfel Confirms Agency Is Hiring More Armed IRS Agents

The IRS has listed job openings for armed IRS agents in all 50 fifty states. Rep. Adrian Smith (NE-03) pressed Commissioner Werfel to clarify whether the IRS is increasing new hires of armed special agents.

Rep. Smith: “It’s my understanding from a communication I received from your agency last fall, that criminal investigation plans to hire 360 Special Agents per year, per year over the next five years for an approximate net gain of 1,200 special agents considering attrition, is that accurate?”

Commissioner Werfel: “That sounds about right.”

Rep. Smith: “Okay, those special agents are armed, is that correct?”

Commissioner Werfel: “They are armed, it’s less than 3 percent of the IRS workforce.”

Rep. Smith: “Now you said earlier that you’re not hiring any new special agents that will be armed but it sounds to me like you are?”

Commissioner Werfel: “I’m glad you’re clarifying. My understanding of the question was around audits. Our CI division, our Criminal Investigation Division, they do not conduct audits. What they do is they are investigating acute issues of fraud and…tax evasion. And typically, they’re armed when they’re putting themselves in danger.

Rep. Smith: “I understand. But I think it’s important to note that there is a different set of new hires that will be armed.

IRA Funding for Customer Service Runs Out in Four Years While Enforcement Continues to Climb

Out of the $80 billion pay raise to the IRS in Democrats’ Inflation Reduction Act, a mere $3.2 billion is allocated for taxpayer services, compared to $45.6 billion for enforcement. Rep. Drew Ferguson (GA-03) pointed out that customer service is clearly not being prioritized by the IRS, as new funding for customer service runs out in just four years, while enforcement continues rising over the decade.

Rep. Ferguson: This is the data…regarding where the new hires in the IRS are going to be through fiscal year 2031…With this wonderful customer service that you have right now, and I say that very facetiously, what we see is taxpayer services in the out years begins to drop significantly. A bad problem is getting worse, yet the enforcement number is going straight through the roof, and operational support is coming down…This whole thing is backwards, you need to be funding taxpayer services a heck of a lot more…You don’t need to be going after the enforcement side the way that you are…This simply does not make sense. Every single person here is talking about the problems…their constituents have with the IRS and getting their money back. Yet, what we see from your own data is that this line is coming down…Taxpayer services are going down. Enforcement is going up.

Even a Supercharged IRS Cannot Handle New $600 Threshold Reporting Requirement – and the Commissioner Called on Congress to Adjust the Threshold

As a result of the Democrats’ so-called “Inflation Reduction Act,” Americans will soon have to report every Venmo or PayPal transaction over $600. Rep. Carol Miller (WV-01) forced Commissioner Werfel to admit that even a drastically expanded and overfunded IRS will struggle to implement and enforce this requirement — underlining how burdensome this provision of the so-called American Rescue Plan will be on American taxpayers.

Rep. Miller: “Last year the IRS cited the difficulty in administering the program as one reason for this delay. The IRS did have a full year to send taxpayers a bill that they likely didn’t owe, and the agency wasn’t really prepared to handle that type of a burden. If this policy was too difficult for the IRS to get right in that year, with all your new employees…how do you expect an individual who is selling a bicycle or paying their rent as a group to handle the cost and the compliance burden?

Commissioner Werfel: “I think one of the most important principles of tax administration is the taxpayers have clarity on what is expected of them. Sometimes a law change in the Internal Revenue Code, we can administer it fluidly without any impact on the clarity. And sometimes the change is complex to administer. In this case, we were not ready to administer in a way that provided taxpayers the clarity they need.

[…]

Rep. Miller: “Would the IRS welcome Congress raising that threshold back to the time-tested standard of $20,000 and 200 separate transactions?”

Commissioner Werfel: “Again as I said earlier, I cannot opine on the wisdom or the preference of a particular policy outcome. But I will share that a change in the threshold would be easier to administer. At my seat at the table, I can say that the IRS would have an easier time administering it.”