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Here’s what we learned from the IRS Commissioner hearing

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Senate Finance Committee Chairman Ron Wyden, D-Ore., questions IRS Commissioner Charles Rettig at a Senate Finance Committee hearing.

Tom Williams | Pool | Reuters

President Joe Biden’s nominee to steer the IRS answered questions during a Senate Finance Committee hearing this week, highlighting key issues from lawmakers on each side of the aisle.

Daniel Werfel, a former budget official and personal sector leader, fielded questions Wednesday in regards to the agency’s funding, enforcement, transparency and other priorities.  

“I believe there’s quite clearly a respect for Danny Werfel and recognition that he will undergo,” said Mark Everson, a former IRS commissioner and current vice chairman at Alliantgroup.

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While there’s still time for questions, Everson expects a full Senate vote and confirmation to return “in a matter of weeks.”

Listed here are a number of the key takeaways from the hearing.

Scrutiny of $80 billion in IRS funding will proceed

The nomination comes at a critical time for the beleaguered agency, which is getting $80 billion in funding over the subsequent decade in August as a part of the Inflation Reduction Act.  

After months of scrutiny, House Republicans voted to rescind the funding in January, which was largely seen as a political messaging bill without the votes to pass within the Senate or support from the White House.

If I’m fortunate enough to be confirmed, the audit and compliance priorities might be focused on enhancing IRS’ capabilities to be certain that America’s highest earners comply with tax laws.

Daniel Werfel

IRS Commissioner nominee

“Simply because [Werfel’s hearing] was smooth does not imply there won’t be a reasonably charged environment with the House in Republican hands and the election coming,” Everson said.

The agency is predicted to deliver the $80 billion funding plan on Friday per Treasury Secretary Janet Yellen’s request.

Audit rate won’t rise for those making under $400,000

Following a directive from Yellen, Werfel vowed not to extend audit rates for small businesses and households making under $400,000, relative to recent years.

“If I’m fortunate enough to be confirmed, the audit and compliance priorities might be focused on enhancing IRS’ capabilities to be certain that America’s highest earners comply with tax laws,” Werfel said in his opening statement.

Tax enforcement fairness is a key issue

Senate Finance Committee Chair Ron Wyden, D-Ore., kicked off the hearing by emphasizing the Inflation Reduction Act’s goal of providing resources to attain fairness in tax enforcement, aiming to “go after tax cheating from the massive guys.” 

Wealthy Americans have increasingly seen fewer audits after years of budget cuts. During fiscal 2022, millionaires faced a 1.1% probability of an IRS audit, based on a recent report from Syracuse University’s Transactional Records Access Clearinghouse. 

Meanwhile, the audit rate has declined more slowly for lower earners claiming the earned income tax credit, and Black Americans are roughly three to 5 times more more likely to face an IRS audit than other taxpayers, based on a recent study

If poor individuals are more more likely to be audited than the rich, Werfel said it “potentially degrades public trust and desires to be addressed throughout the tax system.”

Angelique Neal, a tax attorney at Dickinson Wright, said Werfel “seems committed” to addressing these audit disparities to make sure fairness and equitable treatment for all taxpayers.

Constructing trust is “considered one of the foundations of presidency,” especially for an agency tasked with collecting the overwhelming majority of revenue, said Neal, who previously served as a senior trial attorney within the office of chief counsel to the IRS.

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