Prepared Remarks of Danny Werfel, Principal Deputy Commissioner, Before the 2013 IRS Nationwide Tax Forum
July 30, 2013
Good afternoon. It’s a pleasure to be here with you at the 2013 IRS Nationwide Tax Forum. Before beginning my talk, I want to take a moment to thank all of you in the return preparer community for the partnership we have with you. It is critically important for the IRS to maintain a strong partnership with this community. With the vast majority of taxpayers seeking help in doing their taxes, tax return preparers are our vital link to those individuals, and to our service and compliance strategies. You make our job easier by helping your clients properly report their taxes and pay what they owe.
I also want to express my appreciation to the seven tax professional associations that are delivering seminars at our Nationwide Tax Forums. Your participation is very important to the success of the forums.
Let me now turn to what brings me here today. As I’m sure you know, these are challenging times for the IRS. When friends and colleagues learned that I had accepted the position of Acting Commissioner at the IRS, I received a variety of different reactions. The number one response was “congratulations, I think.” Some went so far as to ask me if I needed to get my head examined. And as I was preparing to start the job, I have to admit there were moments when I asked myself “what was I thinking?”
But once I arrived at the IRS, I quickly realized that this truly was an extraordinary opportunity for which I am grateful. The IRS is an incredible organization, with an indispensable mission and a talented workforce dedicated to that mission. What I think I admire most about the IRS, and why I feel fortunate to now be a part of the organization, is how resilient the organization has been in the face of emerging challenges and constant change.
As the tax code grows in complexity, with statutory changes sometimes hitting just days from the start of filing season, the IRS has an impressive track record of being ready. As the population of taxpayers grows in size, as the economy becomes more global, as corporate structures grow more complex, as the information age dramatically changes the risks associated with maintaining data security and protecting against fraud, the IRS consistently goes toe-to-toe with these changes, deploying an evolving set of business solutions and innovations. More recently, the IRS, like other Federal agencies, has been confronted with budget uncertainty and resource cuts.
Yet, in Fiscal Year 2012, the IRS completed another smooth and successful filing season, collecting more than $2.5 trillion in revenue to fund the federal government, approximately 92 percent of all federal receipts. The IRS processed more than 147 million individual tax returns and issued more than 120 million refunds to taxpayers totaling $333 billion.
The IRS has had other accomplishments as well. We have improved international tax compliance, and modernized our technology in order to improve the filing experience for you and your clients. Another example involves our work on identity theft and refund fraud. This work continues to grow, touching nearly every part of the organization. More than 3,000 IRS employees are currently working on identity theft – more than double the number at the start of the previous filing season. We have also trained 35,000 employees who work with taxpayers to recognize identity theft and help victims. So far this calendar year, the IRS has worked with victims to resolve more than 565,000 cases. This is more than three times the number of identity theft victim cases that we had resolved at the same time last year. We realize, though that case resolution often takes too long, and we continue to strive to reduce the time that it takes to close cases.
We have also expanded our fraud detection efforts. We have increased the number and quality of our identity theft screening filters, and we have suspended or rejected more than 4.6 million suspicious returns so far this calendar year. The number of identity theft investigations by our Criminal Investigation division continues to rise, with more than 1,100 investigations opened so far in FY 2013.
As I meet more and more members of the IRS workforce, I gain a better understanding of their sense of duty in delivering on our mission no matter what the obstacles. So many of them have been at the Service for 20, 30, and often 40 plus years. And while their sense of duty and pride is clear, many of them have also shared with me their concerns with the events at the IRS of the last few months and it should be no surprise that they have offered to do what they can to help quickly and effectively restore the public’s faith in the organization they have dedicated their careers to.
My commitment to them and to the broader public is to do what is necessary to help the IRS restore that faith. Similar to how the IRS has historically operated when faced with a challenge, we are attacking the problem by staying focused on the task at hand and are eager to engage in a substantive dialogue with external stakeholders on the best path forward. With help from public sector management experts that I have brought into the Service and other seasoned IRS leaders, we are engaged in a methodical, thorough, and persistent effort to identify, design, and implement management reforms that will benefit IRS programs and operations.
In addition to a comprehensive and robust set of actions underway to address the management problems identified by the Inspector General related to tax exempt organizations, we are in the process of deploying a new Enterprise Risk Management Program to provide a common framework for detecting and addressing risk across the IRS. And we will work to improve education and outreach about the critical role of the Taxpayer Advocate Service in helping taxpayers who are having trouble resolving an issue with the IRS.
As I mentioned earlier, the IRS is eager for a substantive discussion with our external stakeholders on the future of the agency, our challenges and our opportunities. The issues surrounding the IRS, like many public sector organizations, are complex and we believe warrant rolling up sleeves and moving beyond talking points. For example, I believe the state of the IRS budget is an issue that requires some significant time to assess. Recently, questions were raised about our budget in reaction to recent Treasury Inspector General for Tax Administration reports regarding IRS expenditures on conferences, training and travel, and some have suggested that deep budget cuts across the IRS are now appropriate.
Let’s delve deeper into this issue. First, the vast majority of the activity in question has been stopped under new robust policies that are in place. During the last three years, the IRS has limited employee travel and training to mission-critical projects. We estimate that by the end of this fiscal year, training costs will have been reduced by 83 percent and training-related travel costs by 87 percent since 2010
So our spending on these activities is much different today. In fact, spending across the IRS is markedly different than it was just a few years ago. Specifically, since FY 2010, the IRS has absorbed cuts in appropriated funding that total nearly $1 billion, or nearly 8 percent. This includes a reduction of $618 million as a result of sequestration this year.
Also, the IRS travel and training budget, which has decreased dramatically in the past few years, represents a very small part of our budget. With these factors in mind, it is important to ask: Does the history of past training and travel expenditures justify making significant reductions to the wider circle of IRS expenditures, which involve our core operations?
To fully answer this question, I believe we must examine the tradeoffs and impacts of significant cuts to the IRS budget. We need to ask: who is harmed by these cuts versus the benefits that will be achieved by them? First, it is important to point out that for every dollar the IRS spends, the return on investment is more than 4-to-1. So there is a certain level of risk to the IRS’ ability to generate the same amount of revenue for the government as in the past.
In addition, cuts will impact taxpayer services, which could mean delays of several additional months for written IRS correspondence. For phone or walk-in customer service, millions of taxpaying individuals and small business owners could not reach the IRS. The number of taxpayer calls answered could fall to record low levels.
A potential reduction in taxpayer service levels must be analyzed in terms of its potential impact on our system of voluntary tax compliance, which is supported by our dual mission of service and enforcement. Thus, there are several complex factors to consider. We must sustain the public trust by demonstrating an ability to wisely spend taxpayer dollars. However, we cannot expect to have a high level of voluntary compliance if we can’t enforce the tax laws or if we are unable to provide the service that taxpayers need in order to help them meet their tax obligations.
Ultimately, I believe a high performing IRS is in the best interest of the nation. To be high performing, we must be able to invest for the future in areas such as strategic hiring, critical training and further technology modernization. We will also lose critical institutional knowledge and compromise overall productivity if we fail to replace departing staff. Thus, before such cuts are implemented in response to potential IRS waste, we must carefully consider the state of IRS spending today to determine if such waste persists, and the impact that such cuts will have on the core mission of taxpayer service and enforcement.
I met recently with community leaders and practitioners in Washington DC, Atlanta and Chicago. Their message to me was that whatever level of funding the IRS receives, their duties as taxpayers and preparers don’t change. They still have to file returns and comply with the tax laws. So they need a high-performing IRS to assist them. Again, it is in the interest of everyone to help ensure an effective, productive IRS. I am bringing all of my public sector management experience to the table in this effort to chart a path forward. I am working with other leaders, both inside and outside the IRS, in this effort.
What I have learned so far, and what I want to share with you is that, amid our challenges, the IRS has had a number of major accomplishments over the past several years. Although this point is largely overlooked in the current public discussion, these are accomplishments that we can and should build upon rather than dismiss.
The question, then, is what do we need to do to achieve the organizational excellence that we aspire to and that the American taxpayer rightfully demands of us? I believe we need to do a number of things to achieve that excellence. First, when we find a situation where risk exists in our operations, we must establish a fair and thorough process for ensuring accountability for mistakes that have been made, and we must have a robust and informed set of corrective actions to remedy the matter as quickly as possible.
More generally, organizational excellence at the IRS requires a vision and path forward for how best we can serve the taxpayer. That starts with commitments to our workforce that we will invest in them by providing them the training and tools that they need to succeed, including rewarding top performers and enabling recruitment and retention of top talent. It also involves investing in new strategies for improving services and enforcement, everything from finding new ways to reach out to taxpayers to improving fraud detection.
While our efforts are setting the IRS on the right course for the future, we need the help of Congress in order to fully achieve this goal. It is my hope that in the coming weeks and months, we can have a robust public dialogue about the future of the IRS and about what the right steps are for us to carry out our mission effectively.
Before I wrap up, I want to return again to our employees. It is easy to forget that, in the middle of the tempest in Washington that we have found ourselves in, there are thousands of dedicated employees and leaders, who have no connection to the events of the past few months, who are going about the business of the IRS every day, and keeping their focus on the job that needs to get done. And they are getting the job done despite some big challenges, such as the damage to the IRS’ reputation, hiring freezes, budget cuts and continuing budget uncertainty. Amid all of this they are as steady as a rock, meeting their commitment to serve the public with integrity.
I am proud to serve beside them. They inspire me to do everything in my power to quickly and effectively address our recent challenges and chart a path forward for the IRS so that we can better fulfill our mission to serve the American taxpayer. Thank you.