IRS Commissioner Werfel: Streamlining Processes for Better Service Remains Top Priority
January 17, 2024
Nearly one year after taking office, Internal Revenue Service (IRS) Commissioner Danny Werfel said the agency is making important strides in increasing efficiency and improving service delivery to taxpayers as it continues to explore the use of artificial intelligence technology to streamline operations.
Addressing attendees at the D.C. Bar Taxation Community’s Tax Conference last week, Werfel said he’s not interested in making organizational changes as a performative solution. “One of the benefits of coming to the job after spending so much time in the government is that I’ve seen leaders come in to make change for change’s sake. Even when there was momentum on something [initiated] by the previous leader, they would throw the baby out with the bathwater,” he said.
Before being appointed IRS commissioner in March 2023, Werfel was global leader of Boston Consulting Group’s public sector practice and, prior to that, he served more than 15 years in the federal government, including as acting IRS commissioner in 2013.
In a conversation with Ivins, Phillips & Barker, Chartered partner Eric Solomon at the Tax Conference, Werfel outlined his top priorities, including making it easier for taxpayers to access IRS staff when filing taxes, cracking down on tax evaders, and addressing the growing problem of tax scams to protect the public.
“We’re not going to solve these [issues] overnight. This is a journey,” Werfel said. “But I apply as much healthy pressure as I should to make sure there is meaningful and measurable progress in each of these areas that taxpayers can feel so that they know the money [from the Inflation Reduction Act] is being well spent.”
In 2022 the U.S. Congress passed President Biden’s Inflation Reduction Act, which authorized nearly $80 billion in total supplemental funding for the IRS over 10 years. Solomon noted that the agency now has approximately 90,000 employees, up from 79,000 in 2022.
Werfel said the budget increase was a historical and important step. “I’ve seen and understood in my bones how much the IRS workforce wants to help taxpayers, despite some of the public narratives that are out [there] about the IRS,” Werfel said. “[The employees] really have a passion for helping taxpayers navigate very complicated tax systems.”
Early in his tenure, Werfel said he often visited walk-in IRS centers and found that many of the stations were staffed with mostly new employees. “It’s good news that the hiring is having an impact,” he said. “But at each of those walk-in centers, there is this one very stressed senior employee.”
In addition to increased staffing, Werfel said the IRS has created robust appointment schedules on Fridays and Saturdays at its walk-in centers and launched pop-up centers in remote locations throughout the United States. To drastically decrease wait times during calls, the IRS anticipates using AI chatbots, Werfel said.
Asked about Congress’s proposed $20 billion cut in the IRS budget as part of a debt limit deal to avoid a government shutdown, Werfel said, “It should be absolutely nonpartisan to say, ‘What would you rather have — an IRS that kneels with respect to scams versus one that can be aggressive and that can disrupt perpetrators and that can give tools to taxpayers and communicate their outreach to the most vulnerable populations that are impacted?’”
“It’s a no-brainer,” Werfel added.
International Tax Issues
The Tax Conference, attended by more than 400 tax professionals, also featured a global tax policy update moderated by Robert Stack, managing director at Deloitte Tax LLP and former deputy assistant secretary for international tax affairs in the Office of Tax Policy at the U.S. Department of the Treasury.
Joining Stack was fellow former deputy assistant secretaries Michael Plowgian (international tax affairs) and Itai Grinberg (multilateral negotiations), who is now a professor at Georgetown University Law Center.
Plowgian, who recently left the federal government, began the discussion by touching upon Pillar Two of the Organization for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting. Signed by 138 countries, the Pillar Two tax reform agreement aims to “level the playing field between countries by discouraging them from reducing their corporate income taxes to attract foreign business investment,” according to Deloitte.
“We saw in late December additional administrative guidance, focused quite a bit on the CbCr [country-by-country reporting] safe harbors,” Plowgian said. Safe harbors would excuse certain multinational enterprises from performing full global anti-base erosion rule calculations in low-risk jurisdictions.
“And part of the reason was because of the temporary nature of the safe harbor — the need to have final guidance out so that countries and taxpayers could administer that. So, things like … allocating deferred tax on cross-border taxes, the treatment of ESOP [employment stock ownership plans] in S corporations, and the treatment of REITs [real estate investment trusts] — those are all still issues that … governments are discussing but couldn't be agreed in time for the December initial guidance.”
He also mentioned that there will be a peer-review process for each country’s legislation, which in turn raises concerns regarding the ongoing administrative guidance. “How is that going to impact my country going forward? How am I going to deal with some of the legal challenges … with each country’s or jurisdiction’s legislative process?” Plowgian said.
In terms of dispute resolution, Plowgian said that from his perspective, “a multilateral agreement would be the most complete way” to deal with the issue, adding, “That obviously has a challenge, both in the U.S. and in other countries.”
Plowgian also noted that the Multilateral Convention (MLC) to Approve Amount A of Pillar One was published in October 2023, and the Treasury Department requested public comments on the draft. Pillar One focuses on addressing how taxing rights are allocated among countries, ensuring that multinational enterprises pay their appropriate share of taxes in the nations where they operate, especially in the digital economy. “I see it as a huge step forward,” he said. “That was the first time stakeholders were able to see the draft MLC as a complete package. And to see concretely what it means.”
In late December, the Inclusive Framework’s Task Force on the Digital Economy issued a statement stating that the goal was to finalize [the] text of the MLC by the end of March. “That is not a lot of time to resolve the [dispute] resolution issues,” Plowgian said.
“I think it's important to have some caution about what is achievable,” Plowgian said. “It is highly unlikely that the Treasury would negotiate, or that Congress would have a treaty that would prohibit states from enacting certain taxes or that would [allow] other countries to put penalties on the U.S. One of the things that we really wrestled with in negotiations is that these provisions don't just apply to foreign taxes; they would apply also to U.S. provisions. And so, you have to worry about things like treaty overrides or innovations that the U.S. may want to enact in the future.”
Grinberg argued that the comments on the MLC draft are very effective in raising concerns such as clarification on digital services taxes. But one of the more pressing issues that hasn’t been discussed publicly, Grinberg pointed out, “is that 125 countries have basically deviated from trying to get to an agreement and are no longer acting in good faith. Those countries need to get back online.”
