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Tips | IRS Commissioner Werfel talks IRS direct file, audits and budget

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I feel a collective sigh of relief this tax season.

After the chaos of the past few years at the IRS, there has been less drama for taxpayers filing their 2023 returns.

The agency has largely cleared its massive backlog of tax returns and increased the chances that someone answer the phone on the customer service line. Its funding also benefited from a significant increase.

“Despair has turned to cautious optimism,” national taxpayer advocate Erin Collins wrote in her report to Congress this year.

As IRS Commissioner Danny Werfel celebrates his first anniversary leading the agency, we sat down to discuss Direct File, audits, and an agency in recovery.

Werfel is the 50th commissioner of the IRS and seems passionate about improving an agency that, before his appointment, was a a real mess.

Here are some of the questions I discussed with Werfel. (Some answers have been edited for brevity and clarity.)

Background: The discretionary budget for fiscal year 2024 is $12.3 billion. For fiscal year 2025, it’s also $12.3 billion, including “an additional $104.3 billion in mandatory funding for fiscal years 2026 through 2034 to enable the agency to continue strengthening its services to taxpayers, its technology and its application after other funds have been exhausted,” the IRS said.

It’s hard for Americans to understand how the IRS can’t manage a budget worth billions. Why do you think the agency needs more money?

It’s definitely not enough money. The analogy I always use is that of the railway system. How much money does it take to run the rail system so that all the trains are kept up to date, running, repaired, on schedule, paying employees, and do they carry out security checks?

The bigger the rail system, the more money you need, the more people you need, the more trains you need, and the more repairs you need.

Our budget is essentially the same as it has been since around 2011, 2012 and 2013. The same basic budget. Think about how different the tax system is today than it was back then.

Racial disparity in audits of black taxpayers

Background: Black taxpayers are three to five times as likely to be audited as other taxpayers, according to a report published last year by researchers at Stanford University, the University of Michigan, the University of Chicago and the Treasury Department. Researchers found that the cause was not overt racism, but rather computer algorithms used by the IRS to detect fraud on returns claiming the Earned Income Tax Credit, designed to help individuals and families whose income falls below certain thresholds.

THE The report appeared as Werfel was preparing his confirmation. In May 2023, shortly after taking office, he submitted a letter to the Senate Finance Committee, stating that “our initial findings support the conclusion that taxpayers may be subject to audits at higher rates than would be expected given their share of the population.”

What’s new to ensure that black taxpayers are not audited more than the average taxpayer?

When I saw this study, I almost felt a sense of despair. I wanted to get there to fix it. One of the first things we had to do was recognize (the problem). This study is legitimate. The IRS has a significant problem with its approach to audits. . . where these audits have a disparate impact on Black taxpayers.

But this recognition was not enough. The first thing to do was to significantly reduce the number of audits. The second is to modify the underlying calculations or algorithm that lead to the case selections. We have identified critical changes to the algorithm that will eliminate the disparity. But now we have to test it. This is now a monitoring process.

The aim is to publish a report before the end of the calendar year. (The report) is basically going to say that we have taken specific interventions to address the disparity.

Background: The Inflation Reduction Act funded a pilot program that allows taxpayers to deposit directly their returns to the agency. The driver is only available to those with simple tax situations in 12 states: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.

So far, approximately 60,000 taxpayers have used Direct File. And since its January debut, taxpayers have claimed more than $30 million in refunds, saving millions in estimated filing fees, according to the IRS.

Are you satisfied with Direct File’s performance?

I am very happy with the location of Direct File. The product works and we get positive comment above.

Taxpayers tell us it’s easy and reliable. If there is a transfer with the State regarding income taxes, the transfer goes well. Our state partner solutions work efficiently.

We will make a decision later this spring regarding the future of Direct File and in consultation with (Treasury) Secretary (Janet L.) Yellen. If we are able to move forward, we would certainly like to increase the number of states.

Homer Simpson and the IRS

Background: The IRS collects approximately $4.7 trillion in gross revenue and generates approximately 96 percent of the funding that supports the operations of the federal government.

In a speech at American University earlier this year, Werfel quipped, “Why doesn’t Homer Simpson like us?” »

He was referring to the iconic “Simpsons” character who, during a trip to DC, booed the IRS.

What do you hope to do with this agency while you are here?

Our goal is not popularity. The goal is to do our work as efficiently as possible, because we play an essential role.

I use the NFL referee analogy. The referees will get booed if they make the right decision. They’re going to get booed if they get a bad call.

(At the IRS) we’re going to do an instant replay and minimize the number of times we get a wrong call. But we’re still going to get booed, and that’s part of the job.

It must be recognized that it is in the brochure that the tax collector is not a profession it’s popular. But I want the American people to see us as a North Star trying to get better and better at our job so that the game is as fair as possible.

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