IRS Commissioner Nominee Pledges Not to Increase Audits, but There Could Be a Catch

The Internal Revenue Service building in Washington, on Feb. 19, 2014. (Jim Watson/AFP/Getty Images)

President Joe Biden’s nominee to lead the Internal Revenue Service (IRS), Danny Werfel, said Wednesday that he won’t use boosted agency funding to increase audits for people earning less than $400,000 per year above historical levels, although some experts say that audits have been down recently.

In testimony before the Senate Finance Committee, the IRS nominee said that the agency under his watch will prioritize audits for high-income individuals or businesses.

The president nominated Werfel to steer the IRS as it receives a massive funding boost, or nearly $80 billion over the next 10 years through the Inflation Reduction Act, which Congress passed in August 2022. Noting the act’s impact on the federal tax collector, Werfel stated that “Americans rightfully expect a more modern and high-performing IRS.”

While promising to modernize the agency’s technology, address its paperwork burden, and audit high-income earners, Werfel said in prepared testimony (pdf) that he will be “unyielding in following my true north to increase public trust.”

Werfel, 51, who led Boston Consulting Group’s global public sector practice, was nominated to replace Charles Rettig. Selected by former President Donald Trump to lead the agency, Rettig left when his five-year term ended in November 2022. An acting commissioner has been filling in in the meantime.

“While unheralded, effective implementation of our tax system is necessary to fund critical government services,” Werfel also said. “For eight months in 2013, I had the privilege to walk into the IRS and draw inspiration from the workforce and the solemn duty of this mission. As I reflect on the public service legacy of my family, I think about the example I will set for my children by re-dedicating myself to a career in public service. To be given this opportunity again would be the greatest honor of my life.”

Former acting IRS commissioner Danny Werfel testifies on Capitol Hill in Washington, on June 6, 2013. (Charles Dharapak/AP Photo)

And Werfel, who previously served as acting IRS commissioner in 2013, said he is “committed to meeting” a directive from Treasury Secretary Janet Yellen, who has publicly stated that she doesn’t want a bevy of new audits.

“Therefore, if I am fortunate enough to be confirmed, the audit and compliance priorities will be focused on enhancing the IRS’s capabilities to ensure that America’s highest earners comply with applicable tax laws,” he added. “Also front and center will be efforts to modernize and dramatically improve taxpayer service.”

‘Historical Levels’

In August, Yellen issued a news release saying that the new IRS resources would “not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.”

But some tax experts and organizations have noted that there has been a decline in audits in recent years, meaning that audits over the coming years could actually still go up. Neither Yellen’s release last year nor Werfel’s statement to the Senate Wednesday provided data or more details.

“The IRS claims to aggressively audit high-income taxpayers and businesses; yet these statistics show that even by 2017 the overall audit rates had declined precipitously, with high-income returns seeing the greatest decline in audits,” said a report from the Tax Adviser website, citing agency data.

And a report published last year by the U.S. Government Accountability Office said that IRS audit rates “have dropped for all income levels” and “with audit rates decreasing the most for taxpayers with incomes of $200,000 or more.”

IRS officials have asserted that the decline in audits was because of “staffing decreases” and “because it takes more staff time and expertise to handle complex higher-income audits,” GAO reported.

Republicans have suggested that the agency would use the new infusion of funds to hire an army of tax agents with weapons. They have pointed to a Joint Committee on Taxation analysis dated in 2021 that there could be significant revenue from underreported income, indicating that some people who make less than $400,000 should face higher taxes.

During Wednesday’s hearing in front of the Senate, ranking member Sen. Mike Crapo (R-Idaho) pressed Werfel on audits.

“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 said, reported the Washington Examiner. “I really want to earn this committee’s trust … I think you and I are sharing the same values, senator, let’s be public about the plans, and let’s make sure that we’re building trust on the way forward.”

“Thank you, and I’ll take that as a commitment that you will publicly release the plan,” Crapo told him.

The Associated Press contributed to this report.