I.R.S. Commissioner Aims to Show Progress Amid Threats of Budget Cuts

At his senate confirmation last February, Daniel Werfel told lawmakers that if given the job of Internal Revenue Service commissioner he would work to increase “public trust” in the beleaguered agency and use the $80 billion that Congress had granted it to build a “more modern and high performing” organization.

A year later, Mr. Werfel has overseen the clearing of a backlog of thousands of tax filings, shrinking wait times on the I.R.S. telephone lines and the creation of a system that lets qualified taxpayers submit their federal returns with no cost. But those achievements have not been enough to satisfy Republicans, who have accused Mr. Werfel of making the I.R.S. more intrusive and even engaging in lawless behavior.

Hostile congressional hearings are routine for I.R.S. commissioners and when Mr. Werfel testifies before the House Ways and Means Committee on Thursday, he will receive a frosty reception as he fends off efforts to cut his agency’s budget.

For Mr. Werfel, the face-off is an opportunity to explain why even skeptics would benefit from a well funded I.R.S.

“I think the most powerful statement the I.R.S. can make, when there’s a proposal to significantly cut our budget, is to show our work and to demonstrate that we’re on a strong path to improving tax operations in a way that benefits taxpayers,” Mr. Werfel said in an interview this week.

The I.R.S. was supposed to get $80 billion as part of the Inflation Reduction Act of 2022 and that money was expected to help the agency beef up its enforcement abilities to crack down on tax cheats and modernize its antiquated technology. As part of an agreement to raise the debt limit last year, Democrats went along with Republicans’ demands to claw back $20 billion of those funds. And Republican lawmakers have in recent months been eyeing additional cuts amid negotiations related to paying for other policies.

During his first year on the job, Mr. Werfel has tried to ease concerns fomented by critics of the agency that the I.R.S. would be hiring thousands of armed agents to harass middle-class Americans and small businesses. To do that, he has focused on efforts to make the I.R.S. more accessible by staffing up customer service centers and making it possible for taxpayers to reach the agency without having to wait for hours on the telephone.

As part of its modernization campaign, the I.R.S. also announced initiatives to crack down wealthy tax evaders, stopped its practice of sending agents unannounced to residences to collect unpaid taxes and started introducing artificial intelligence technology into its audits.

But top Republicans have argued that any signs of progress at the I.R.S. are overshadowed by lingering problems. They insist that Mr. Werfel’s agency, which they believe has a history of targeting conservatives, is influenced by politics and favors Democrats.

Those concerns have been inflamed by recent security breaches. The I.R.S. has been under pressure to improve its data security protocols after a former contractor who was accused of leaking the tax documents of Donald J. Trump and other wealthy Americans was sentenced to five years in prison. A report published last week by the Treasury Inspector General for Tax Administration found that as of July more than 200 former I.R.S. employees or contractors still had access to sensitive information.

Members of the tax committee are expected to press Mr. Werfel on Thursday about why he delayed enforcement of a contentious tax policy that would require users of digital wallets and e-commerce platforms like Venmo, PayPal, Cash App, StubHub and Etsy to start reporting small transactions to the tax collection agency. The policy was enacted as part of the American Rescue Plan of 2021 and has faced criticism because it would increase scrutiny of lower and middle-class taxpayers. Although Republicans loathe the policy, they contend that Mr. Werfel’s delays are flouting the law.

“The I.R.S. should not be shielding Democrats from the consequences of their own bad lawmaking,” Jason Smith, the Republican chairman of the Ways and Means Committee, said in a statement. “The I.R.S. cannot sidestep the Constitution and simply rewrite laws.”

Mr. Werfel said he planned to argue that he was within his rights to delay the so-called Venmo tax because the law, as written, would cause widespread confusion and potentially harm taxpayers. And he would make the case that data security at the agency had significantly improved in the past year. Such incidents, however, have provided critics of the I.R.S. with fodder to argue that it does not deserve the additional funding that it has received.

“Whenever you have some negotiation about budget things, you want money for Ukraine or Israel or something, we’ll take it out of the I.R.S. piggy bank,” said Grover Norquist, founder and president of Americans for Tax Reform, an advocacy group that promotes lower taxes. “Because they’ve shown no seriousness about being better about anything.”

The Biden administration has said that the continuing attacks on the I.R.S. are part of a strategy to weaken the agency so that it does not have the capacity to catch wealthy taxpayers who evade paying what they owe. The Treasury Department estimates that the United States has a nearly $700 billion “tax gap” of revenue that is uncollected every year and argues that stronger enforcement of the tax code is critical for reducing America’s reliance on borrowed money.

“There are those who have power and those who have wealth, who would like nothing more than for the I.R.S. to not have the resources to go after them and make them pay their fair share,” Wally Adeyemo, the deputy Treasury secretary, said in an interview.

The frequent discussions about chipping away at the agency’s funding has left Mr. Werfel looking over his shoulder as he tries to carry out the priorities in the ambitious multiyear operating plan that the agency produced last year.

Mr. Werfel said that the barrage of criticism that had been directed at the I.R.S. over the years had taken a toll its staff but that he believed that morale was starting to improve. He likens the role of the agency to that of an impartial referee who is necessary for government to function, but he acknowledges the challenge of staying out of politics.

“I think most people see us as the tax collector, and that is not the most popular action that the government takes,” Mr. Werfel said. “It becomes the reality that when the debate is about the role of government, the size of government, the actions of government, that the I.R.S. is going to be front and center in that debate.”