Don't Mess With Taxes

Daniel Werfel, then IRS Acting Commissioner, and Treasury Inspector General for Tax Administration J. Russell George testified before Congress in June 2013 about the IRS' questionable nonprofit status approval practices. (C-SPAN hearing screenshot)

The Internal Revenue Service apparently will be led by a blast from its past, notably its troubled past.

Daniel Werfel is President Joe Biden's choice for commissioner of the Internal Revenue Service.

Werfel is most familiar to the tax and wider world as the man who filled the IRS' top role in 2013 in an interim capacity during the agency's nonprofit authorization scandal.

In charge during troubling IRS times: Conservative, predominantly Tea Party organizations, complained their applications for tax-favored 501(c)(4) status were delayed or denied because of their political positions.

An investigation by the Treasury Inspector General for Tax Administration (TIGTA) confirmed that the conservative groups were on a be on the lookout list, as were some progressive/liberal groups. The mishandling of the tax status applications cost one IRS exec her job, and led to months of Capitol Hill hearings and political recriminations.

The ignominious IRS incident finally died down in 2014, when the FBI refused to file any criminal charges.

Werfel was in the IRS hot seat during much of that. He served as interim IRS commissioner for seven months until John Koskinen was confirmed as the agency's 48th chief. 

Other executive experience: In announcing his intent to nominate Werfel, President Biden cited Werfel's IRS tenure during the tax agency's troubled period.

"In the wake of an Inspector General report alleging various forms of mismanagement and bias in the determination of tax-exempt status for non-profit organizations, President Obama appointed Werfel to serve as Acting Commissioner of IRS in 2013. Werfel provided immediate stability to the IRS, effectively responding to numerous Congressional investigations," said Biden.

Werfel also had served in presidential administrations in less tumultuous times.

Before temporarily taking on the IRS top role in 2013, Werfel served as Controller of the Office of Management and Budget (OMB) in President Barrack Obama's administration. Werfel held dual OMB duties, also serving as the executive office's Acting Deputy Director for Management, until taking the IRS interim commissioner posting.

Previously, Werfel was OMB Acting Controller during under President George W. Bush.

Werfel currently leads the public sector practice at Boston Consulting Group.

Timing of new IRS job: If confirmed by the U.S. Senate, likely next year, Werfel will be the agency's 50th commissioner.

He will succeed IRS Commissioner Charles Rettig, who's today is finishing up his last working day as the agency's leader. As one of his final acts as IRS head honcho, Rettig sent a farewell message to agency employees and taxpayers. OK, Rettig officially is on Uncle Sam's payroll through Nov. 12, but that's Saturday, and tomorrow is the federal Veterans Day holiday so the agency is closed.

Acting IRS Commissioner Douglas O'Donnell, tapped as interim IRS chief last month, will serve until Werfel is confirmed.

Tough confirmation questions: Despite Werfel's service in both Democratic and Republican administrations, don't expect his confirmation to be quick or easy.

The IRS Tea Party nonprofit scandal will be rehashed. Add to that the latest political strife the IRS is facing.

The IRS received nearly $80 billion over 10 years under the Inflation Reduction Act. Anti-IRS forces, including most Republicans on Capitol Hill, argue that such money will enable the IRS to exert dangerous power, especially regarding audits, over U.S. taxpayers.

Treasury Secretary Janet Yellen quickly responded to the unfounded charges that the IRS would weaponize audits.

"As the Commissioner of the IRS reiterated in a recent letter, audit rates on households making under $400,000 won't go up relative to recent years – in fact, they will likely see the chance of an audit decline," said Yellen. "Instead, new funding will crack down on tax evaders among the wealthy and large corporations, invest in technology upgrades that help taxpayers, and hire more customer support staff to prevent backlogs."

You can be sure, however, that the audit issue, and prior nonprofit status ones, will come up during Werfel's confirmation hearing. And he could face a tough time if the eventual midterm election outcome returns the Senate to GOP control.

You also might find these items of interest:

• New IRS Acting Commissioner Werfel addresses his troops
• Werfel makes IRS budget case at Texas tax preparers meeting
• IRS Acting Commissioner Daniel Werfel survives his first Capitol Hill hearing on troubled agency problems
• Werfel does his own tax returns, Lerner still under fire and other tidbits from House hearing on IRS small business audits

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