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In a recent address at the AICPA National Tax & Sophisticated Tax Conference, IRS Commissioner Danny Werfel stressed the critical need for the agency to swiftly exhibit the transformative power of its increased funding. Despite the Inflation Reduction Act of 2022 allocating $60 billion over a decade, Werfel emphasized the pressing timeline, asserting that the IRS must promptly showcase the positive impact of a well-funded agency.

The Funding Challenge:

The initial allocation of $80 billion over ten years was reduced to $60 billion during negotiations over the debt ceiling. Furthermore, the IRS is facing a reduction in its annual budget appropriation from Congress, raising concerns about its ability to effectively modernize and provide essential taxpayer services.

Werfel’s Three Key Tasks:

Werfel outlined three pivotal tasks that a fully funded IRS must address urgently: efficient communication with taxpayers, ensuring an equitable tax system, and combating scams that target vulnerable individuals.

Task 1: Improved Communication

Werfel stressed the importance of taxpayers being able to reach the IRS for issue resolution. The commissioner argued that an underfunded IRS hampers taxpayers’ access to crucial avenues for problem resolution, hindering the agency’s ability to fulfill its mission effectively.

Task 2: Equity in the Tax System

Equity in the tax system, according to Werfel, necessitates treating wealthy individuals and corporations the same way as middle- and low-income individuals. He highlighted the need for a balanced probability of assessing a balance due, regardless of the complexity of the return.

Task 3: Combatting Tax Scams

With the advancement of AI, Werfel warned that tax scams are likely to scale quickly. He emphasized the proactive role a well-funded IRS can play in providing taxpayers with tools to identify scams, conducting aggressive outreach, supporting victims, and holding perpetrators accountable.

Employee Retention Credit (ERC) Challenges:

Werfel also addressed the issues surrounding the employee retention credit (ERC), a legitimate tax credit that faced widespread abuse. The IRS imposed a moratorium on processing new claims, citing the need for clarity and stronger outreach to address eligibility issues.

ERC Claim Withdrawal:

The IRS introduced a process for eligible employers to withdraw ERC claims, treating them as if they were never filed. As the agency updates review procedures for new claims, Werfel highlighted the importance of clear guidance to prevent erroneous claims.

Looking Ahead:

While focusing on ERC claim withdrawals, Werfel did not mention specific plans for guidance to help employers who have already received ERC payments, leaving room for future developments in this area.

In the face of funding challenges and high expectations, Commissioner Werfel’s call for swift and impactful action underscores the urgency in demonstrating the IRS’s ability to adapt, improve, and meet the evolving needs of American taxpayers.

Source ( Journal of Accountancy News).