How will the IRS spend its extra money? Rep. Blake Moore asks during House committee hearing

The House Ways and Means Committee invited the IRS Commissioner Daniel Werfel to give testimony last week in Washington, D.C. Utah Rep. Blake Moore took the opportunity to ask a few questions about how the IRS plans to spend the tens of billions in extra funding it received last year.

He also asked for an update on a pandemic-era tax credit that might be phased out this year.

The Biden administration’s Inflation Reduction Act of 2022 gave the IRS $80 billion in supplemental funding, part of which was meant to go toward modernizing the agency. But because of GOP pushback, Biden agreed to slash $20 billion of this funding as a part of the debt ceiling deal last year.

Since then, the agency has reduced call wait lines and invested in creating online systems.

IRS is trying to modernize itself — and Moore says it should ‘double down’

Moore, who was recently elected as vice chair of the House Republican Conference, told Werfel that Utah’s 1st District, which he represents, has a “wonderfully strong workforce for the IRS,” in Ogden.

He noted the strong, bipartisan support in Congress to modernize the IRS.

“We should be doubling down. We should be tripling our efforts to make this happen,” Moore said, “and at that point, we then assess what workforce needs are.” He added this is a real pain point for his constituents.

In his written testimony, Werfel said the IRS has an “ambitious transformation agenda” that requires rebuilding parts of the agency to incorporate “technology and smarter processes”

This includes offering more in-person and online resources ahead of tax seasons, incorporating voice bot technology to assist taxpayers, launching a paperless tax return processing initiative, and enhancing online security infrastructure to combat fraud.

During this filing season, the IRS is launching a pilot program called Direct File that will allow people to “file a tax return for free, online, (and) directly with the IRS.”

Some GOP lawmakers weren’t supportive of the program, with Rep. Adrian Smith, R-Neb., asking Werfel what authority the IRS had to create “an entirely new government-run system of filing taxes?”

Meanwhile, Rep. Carol Miller, R-W.Va., said, “I don’t think you should be wasting your millions of dollars when the private industry is doing a good job,” according to The Hill.

Werfel said his agency has a five-year goal of revamping its process to allow a taxpayer to file documents and respond to notices online.

How is the agency spending money to modernize?

Moore asked Werfel how his agency is prioritizing these efforts, like the Direct E-File program.

Werfel said the goal is to have a beneficial impact on taxpayers. He admitted the agency faltered in 2022 when it answered only 1 out of 10 phone calls. In 2023, the IRS saw a 65% increase when representatives answered 7.7 million calls.

In addition to hiring more employees to man the phones, the IRS attempted to modernize its call center, mimicking other industries that use artificial intelligence and technological solutions to create a smoother experience.

Werfel said the IRS now gives individual taxpayers or businesses the ability to create an account with the agency. But, he noted, there’s still “a gap” between the functionality of online accounts offered by the IRS account and a typical bank.

“There are certain things you can do with the IRS online account, but not nearly as much as you can do with your favorite bank online account,” Werfel said.

“Now, that is not just about fixing the website,” he added. “There’s the entire technology, infrastructure underneath that also has to enable a more modern experience for taxpayers.”

Is the employee retention tax credit being processed? Is the tax break ending?

Moore also inquired about the big backlog in processing the pandemic-era employee retention tax credit, or ERTC, claims.

“I’ve heard from a lot of small businesses that are anxiously waiting for their ERTC claims to be processed. How is the IRS working with reputable tax preparers in the greater tax community to ensure ERTC payments continue to be processed?” Moore asked.

Werfel said the IRS is working with the Taxpayer Advocate, an office within the IRS, to prioritize the large inventory by those facing “the biggest hardships.”

“It’s an unfortunate situation. The promoters and the marketers essentially tricked a lot of small businesses that weren’t eligible into applying,” Werfel said. But the IRS is working through the claims, adding it is “coming up on nearly a billion dollars in ERTC, issuances that have occurred since we announced the moratorium,” which was Sept. 14, 2023.

Congress has proposed to end this tax break program — meant to incentivize businesses to keep their staff on payroll — in exchange for expanding the child tax credit, which is included in the bipartisan tax package headed to the Senate after passing in the House. This bill has tax breaks worth roughly $79 billion, as the Deseret News reported.

Roughly 95% of the ERTC claims for this tax break were fraudulent, as Werfel admitted in a private meeting with the Senate Finance Committee, which would explain why Congress is shutting down this program, as The Associated Press reported.

The ERTC was expected to cost $55 billion but has blown up to five times that amount due to marketers and promoters of the program.

“I don’t have the exact number, but it’s like almost universal fraud in the program. It should be ended,” Sen. Ron Johnson, R-Wis., said. “I don’t see how anybody could support it.”