Personal Finance

IRS Commissioner Werfel talks about Direct File, audits and IRS budget

Published

11 months ago

April 12, 2024

Business Finance News

I sense a collective sigh of relief this tax season.

After the chaos of recent years at the IRS, there was less drama for taxpayers filing their 2023 returns.

The agency has largely worked through its massive backlog of tax returns and increased the odds of someone answering the phone on the customer service line. It’s also gotten a significant boost in funding.

“Despair has turned to cautious optimism,” National Taxpayer Advocate Erin Collins wrote this year in her report to Congress.

With IRS Commissioner Danny Werfel marking his first anniversary as head of the agency, we sat down for a chat about Direct File, audits and an agency in recovery.

Werfel is the 50th IRS commissioner and seems passionate about improving an agency that, before his appointment, was a hot mess.

Here are some of the issues I discussed with Werfel. (Some answers have been edited for brevity and clarity.)

Background: The discretionary budget for fiscal 2024 is $12.3 billion. For fiscal 2025, it’s also $12.3 billion, including “an additional $104.3 billion in mandatory funding for fiscal years 2026 through 2034 to allow the agency to continue strengthening its taxpayer services, technology and enforcement after other funds have been exhausted,” the IRS said.

It’s hard for Americans to understand how the IRS can’t manage with a budget in the billions. Why do you think the agency needs more money?

It’s definitely not enough money. The analogy I always use is like the train system. How much money does it take to run the train system so that all the trains are kept up to date, so that they work, they’re fixed, they’re on schedule, they’re paying employees, and doing safety checks?

The bigger the train system, the more money you need, the more people you need, the more trains you need, and the more repairs you need.

Our budget is essentially the same as it’s been since around 2011, 2012 and 2013. The same base budget. Think about how different the tax system is today versus [how] it was back then.

Racial disparity in audits of Black taxpayers

Background: Black taxpayers are three to five times as likely to be audited as other taxpayers, according to a report released last year by researchers from Stanford University, the University of Michigan, the University of Chicago and the Treasury Department. Researchers found the cause wasn’t overt racism, but rather computer algorithms the IRS uses to spot-check for fraud on returns claiming the Earned Income Tax Credit, which is designed to help individuals and families whose incomes fall below certain thresholds.

The report came out just as Werfel was preparing for his confirmation. In May 2023, shortly after starting the job, he submitted a letter to the Senate Finance Committee stating that “our initial findings support the conclusion that taxpayers may be audited at higher rates than would be expected given their share of the population.”

What’s the update in ensuring Black taxpayers aren’t being audited more than the average taxpayer?

When I saw that study, I almost felt like a sense of desperation. I wanted to get there to fix it. One of the first things we had to do was acknowledge [the problem]. This study is legitimate. The IRS has a significant problem with its approach to audits . . . where these audits are having a disparate impact on Black taxpayers.

But acknowledgment wasn’t nearly enough. The first order of business was to dramatically reduce the number of audits. Second is to change the underlying math or algorithm that leads to the case selections. We identified the critical changes to the algorithm that will eliminate the disparity. But now we have to test it. Now it’s a monitoring process.

The goal is to issue a report before the end of the calendar year. [The report] is going to basically say that we’ve taken specific interventions to address the disparity.

Background: The Inflation Reduction Act provided funding for a pilot program that allows taxpayers to directly file their returns with the agency. The pilot is only available to those with simple tax situations in 12 states: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.

So far, about 60,000 taxpayers have used Direct File. And since its debut in January, taxpayers have claimed more than $30 million in refunds, saving millions in estimated filing fees, according to the IRS.

Are you happy with how Direct File is doing?

I’m very happy with where Direct File is. The product is working, and we are getting positive feedback on it.

Taxpayers are reporting to us that it is easy and that it is reliable. If there is a handoff with the state with income taxes, the handoff is going well. Our state partner solutions are working effectively.

We’ll make a decision, later in the spring, around the future of Direct File and consulting with [Treasury] Secretary [Janet L.] Yellen. If we get to a point of going forward, we would certainly want to expand the number of states.

Homer Simpson and the IRS

Background: The IRS collects about $4.7 trillion in gross revenue and generates about 96 percent of the funding that supports the federal government’s operations.

In a speech at American University earlier this year, Werfel joked, “Why does Homer Simpson not like us?”

He was referring to the iconic character on “The Simpsons” who, during a trip to D.C., booed the IRS.

What do you hope to do with this agency in the time that you are here?

Our goal is not popularity. The goal is to do our jobs most effectively, because we play such a critical role.

I use the analogy of the NFL referee. The referees are going to get booed if they get the call right. They are going to get booed if they get the call wrong.

[At the IRS], we’re going to do instant replay and minimize the number of times we get the call wrong. But we are still going to get booed, and that’s just part of the job.

We have to recognize that it’s in the brochure that the tax collector is not a job that is popular. But I want the American people to see us as having a North Star of trying to get better and better at our job so that the game is as fair as possible.

Personal Finance

Social Security plans to cut about 7,000 workers. That may affect benefits

Published

9 hours ago

March 3, 2025

Business Finance News

The Social Security Administration office in Brownsville, Texas.

Robert Daemmrich Photography Inc | Corbis Historical | Getty Images

The Social Security Administration plans to shed 7,000 employees as the Trump administration looks for ways to cut federal spending.

The agency on Friday confirmed the figure — which will bring its total staff down to 50,000 from 57,000.

Previous reports that the Social Security Administration planned for a 50% reduction to its headcount are “false,” the agency said.

Nevertheless, the aim of 7,000 job cuts has prompted concerns about the agency’s ability to continue to provide services, particularly benefit payments, to tens of millions of older Americans when its staff is already at a 50-year low.

“It’s going to extend the amount of time that it takes for them to have their claim processed,” said Greg Senden, a paralegal analyst who has worked at the Social Security Administration for 27 years.

“It’s going to extend the amount of time that they have to wait to get benefits,” said Senden, who also helps the American Federation of Government Employees oversee Social Security employees in six central states.

Officials at the White House and the Social Security Administration were not available for comment at press time.

The Social Security Administration on Friday said it anticipates “much of” the staff reductions needed to reach its target will come from resignations, retirement and offers for Voluntary Separation Incentive Payments, or VSIP.

More reductions could come from “reduction-in-force actions that could include abolishment of organizations and positions” or reassignments to other positions, the agency said. Federal agencies must submit their reduction-in-force plans by March 13 to the Office of Personnel Management for approval.

Cuts may affect benefit payments, experts say

Former Social Security Administration Commissioner Martin O’Malley last week told CNBC.com that the continuity of benefit payments could be at risk for the first time in the program’s history.

“Ultimately, you’re going to see the system collapse and an interruption of benefits,” O’Malley said. “I believe you will see that within the next 30 to 90 days.”

Other experts say the changes could affect benefits, though it remains to be seen exactly how.

“It’s unclear to me whether the staff cuts are more likely to result in an interruption of benefits, or an increase in improper payments,” said Charles Blahous, senior research strategist at the Mercatus Center at George Mason University and a former public trustee for Social Security and Medicare.

Improper payments happen when the agency either overpays or underpays benefits due to inaccurate information.

Top Social Security official exits after refusing DOGE access to sensitive data

With fewer staff, the Social Security Administration will have to choose between making sure all claims are processed, which may lead to more improper payments, or avoiding those errors, which could lead to processing delays, Blahous said.

Disability benefits, which require more agency staff attention both to process initial claims and to continue to verify beneficiaries are eligible, may be more susceptible to errors compared to retirement benefits, he added.

Cuts may have minimal impact on trust funds

Under the Trump administration, Social Security also plans to consolidate its geographic footprint to four regions down from 10 regional offices, the agency said on Friday.

Ultimately, it remains to be seen how much savings the overall reforms will generate.

The Social Security Administration’s funding for administrative costs comes out of its trust funds, which are also used to pay benefits. Based on current projections, the trust funds will be depleted in the next decade and Social Security will not be able to pay full benefits at that time, unless Congress acts sooner.

The efforts to cut costs at the Social Security Administration would likely only help the trust fund solvency “in some miniscule way,” said Andrew Biggs, senior fellow at the American Enterprise Institute and former principal deputy commissioner of the Social Security Administration.

What President Donald Trump is likely looking to do broadly is reset the baseline on government spending and employment, he said.

“I’m not disagreeing with the idea that the agency could be more efficient,” Biggs said. “I just wonder whether you can come up with that by cutting the positions first and figuring out how to have the efficiencies later.”

Personal Finance

Student loan borrowers pursuing PSLF are ‘panicking.’ Here’s what to know

Published

10 hours ago

March 3, 2025

Business Finance News

Students walk through the University of Texas at Austin on February 22, 2024 in Austin, Texas.

Brandon Bell | Getty Images

As the Trump administration overhauls the student loan system, many borrowers pursuing the Public Service Loan Forgiveness program are worried about its future.

“There’s a lot of panicking by PSLF borrowers due to the uncertainty,” said higher education expert Mark Kantrowitz.

PSLF, which President George W. Bush signed into law in 2007, allows certain not-for-profit and government employees to have their federal student loans canceled after 10 years of payments.

Here’s what borrowers in the program need to know about recent changes affecting the program.

IDR repayment plan applications down

Some borrowers’ PSLF progress has stalled

While the legal challenges against SAVE were playing out, the Biden administration paused the payments for enrollees through a forbearance, as well as the accrual of any interest.

Unlike the payment pause during the pandemic, borrowers in this forbearance aren’t getting credit toward their required 120 payments for loan forgiveness under PSLF. It’s unclear when the forbearance will end.

But while the applications for other IDR plans remain unavailable, borrowers in SAVE are stuck on their timeline toward loan forgiveness, Kantrowitz said. If you were on an IDR plan other than SAVE, you will continue to get credit during this period if you’re making payments and working in eligible employment.

The Education Department is now tweaking the applications to make sure all their repayment plans comply with the new court order, an agency spokesperson told CNBC last week.

It will likely be months before the Department has reworked all the applications and made them available again, Kantrowitz said.

Those who switch to the Standard plan will continue to get PSLF credit, but the payments are often too high for those working in the public sector or for a nonprofit to afford, experts said.

‘Buy back’ opportunity can help

While it’s frustrating not to be inching toward loan forgiveness for the time being, an option down the road may help, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.

The Education Department’s Buyback opportunity lets people pay for certain months that didn’t count, if doing so brings them up to 120 qualifying payments.

For example, time spent in forbearances or deferments that suspended your progress can essentially be cashed in for qualifying payments.

The extra payment must total at least as much as what you have paid monthly under an IDR plan, according to Studentaid.gov.

Borrowers who’ve now been pursuing PSLF for 10 years or more should put in their buyback request sooner than later, Kantrowitz said.

“The benefit is likely to be eliminated by the Trump administration,” he said.

Keep records

Borrowers have already long complained of inaccurate payment counts under the PSLF program. While the student loan repayment options are tweaked, people could see more errors, Kantrowitz said.

“A borrower’s payment history and other student loan details are more likely to get corrupted during a transition,” he said.

As a result, he said, those pursuing PSLF should print out a copy of their payment history on StudentAid.gov.

“It would also be a good idea to create a spreadsheet showing all of the qualifying payments so they have their own count,” Kantrowitz said.

With the PSLF help tool, borrowers can search for a list of qualifying employers and access the employer certification form. Try to fill out this form at least once a year, Kantrowitz added.

Personal Finance

Treasury Department halts enforcement of BOI reporting for businesses

Published

13 hours ago

March 3, 2025

Business Finance News

The US Treasury building in Washington, DC, US, on Monday, Jan. 27, 2025.

Stefani Reynolds | Bloomberg | Getty Images

The U.S. Department of the Treasury on Sunday announced it won’t enforce the penalties or fines associated with the Biden-era “beneficial ownership information,” or BOI, reporting requirements for millions of domestic businesses.

Enacted via the Corporate Transparency Act in 2021 to fight illicit finance and shell company formation, BOI reporting requires small businesses to identify who directly or indirectly owns or controls the company to the Treasury’s Financial Crimes Enforcement Network, known as FinCEN.

After previous court delays, the Treasury in late February set a March 21 deadline to comply or risk civil penalties of up to $591 a day, adjusted for inflation, or criminal fines of up to $10,000 and up to two years in prison. The reporting requirements could apply to roughly 32.6 million businesses, according to federal estimates.

The rule was enacted to “make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures,” according to FinCEN.

In addition to not enforcing BOI penalties and fines, the Treasury said it would issue a proposed regulation to apply the rule to foreign reporting companies only.

President Donald Trump praised the news in a Truth Social post on Sunday night, describing the reporting rule as “outrageous and invasive” and “an absolute disaster” for small businesses.

Other experts say the Treasury’s decision could have ramifications for national security.

“This decision threatens to make the United States a magnet for foreign criminals, from drug cartels to fraudsters to terrorist organizations,” Scott Greytak, director of advocacy for anticorruption organization Transparency International U.S., said in a statement.

Greg Iacurci contributed to this reporting.