Biden's IRS nominee pledges no tax audit hike on earnings up to $400,000

By David Lawder

WASHINGTON (Reuters) -President Joe Biden's nominee to run the Internal Revenue service pledged on Wednesday not to raise tax audit rates for U.S. households and small businesses earning less than $400,000 a year as the agency implements $80 billion in new funding for tax compliance.

Danny Werfel, a management consultant who was acting IRS commissioner during the Obama administration, told the Senate Finance Committee he was "committed to meeting" Treasury Secretary Janet Yellen's directive to not increase the proportion of audits for those earning under $400,000 beyond historical levels.

He added that he would focus instead "on enhancing IRS capabilities to ensure America's highest earners comply with applicable tax laws."

Werfel said he wanted to restore "balance" to the IRS' audit profile and move actions from lower income individuals claiming the Child Tax Credit towards wealthy Americans using sophisticated partnerships and other tactics to hide income.

Werfel pledged to be fully transparent about the agency's forthcoming plans backed by $80 billion in new funding over a decade that Democrats approved last year in the Inflation Reduction Act, Biden's climate and healthcare legislation.

The funding, aimed at increasing tax compliance, improving customer service and updating technology to recapture hundreds of billions of dollars in revenue lost to tax evasion, is a prime target for Republicans seeking to extract spending concessions from Biden amid a debt ceiling standoff.

Senator Mike Crapo, the Finance Committee's top Republican, questioned how Werfel would keep Yellen's under-$400,000 pledge, given that it is not enshrined in law.

"Secretary Yellen's statement leaves a lot of wiggle room," Crapo said. "I don't expect to see wiggle room in this commitment."

Werfel replied, "I look forward to working with you and you holding me accountable for that."

MASSIVE INVESTMENT

If confirmed by the Senate, Werfel would be in charge of the biggest transformation of the IRS in decades, upgrading 1960s-era computer technology and restoring staffing eroded by funding cuts during years that Republicans controlled Congress.

The IRS has already hired more than 5,000 new customer service agents to reduce telephone hold times for taxpayers at the start of the 2023 tax season.

Werfel's written statement emphasized these improvements.

"Front and center will be efforts to modernize and dramatically improve taxpayer service and ensure that individuals and businesses eligible for tax benefits receive them," he said.

Werfel most recently led Boston Consulting Group's public sector practice, joining the firm in 2014 after serving more than five years in the Obama administration, first in the Office of Management and Budget and later as acting IRS commissioner in 2013.

(Reporting by David Lawder; Editing by Franklin Paul, Helen Popper and Aurora Ellis)