Acting IRS Chief Begins Reforms, Says 'Solution is Not More Money'

Danny Werfel, the new acting commissioner of the scandal-tarnished Internal Revenue Service, stepped back from the Obama administration’s April request for a 9 percent budget hike, telling House appropriators the increased funding should wait for an all-agency review and implementation of management reforms.

The response to the recent revelations over IRS targeting of conservative nonprofits “has to start with recognition that trust has been violated, and then get all the facts out,” Werfel said during a Monday hearing of the House Appropriations Subcommittee on Financial Services and General Government. “As we struggle to chart a path forward for the IRS, the public is upset and so am I,” Werfel said. “But working together, I am confident we can address the problems that exist and move forward with a better IRS. We need to understand root causes of the breakdown.”

Werfel said by the end of this week he is to receive a new plan with “milestones” for reforming the IRS Tax-Exempt Organizations Division’s process for scrutinizing applications for 501(c)(4) status in a way that is politically “impartial,” on top of the overall IRS review he promised President Obama by the end of June.

“The solution is not more money,” Werfel said, “but understanding what controls need to be put in place, what oversight, what leadership, and what processes are needed, and then determining what resource footprint is needed to determine that in an effective way.”

He added, however, that he would still defend the president’s request following his review.

Werfel promised full cooperation with Congress on its probes of the IRS misconduct. Separately on Monday, Werfel appointed as his chief of staff Todd Grams, currently the Veterans Affairs Department’s executive in charge of the Office of Management and chief financial officer.

- Subcommittee Chairman Rep. Ander Crenshaw, R-Fla., opened the hearing blasting the IRS’ “arrogant and absolute abuse of power,” calling it “enough to shatter anyone’s faith in government.” He demanded to know who in the IRS came up with the targeting plan. He also noted the news that broke on Friday of a coming inspector general report saying the IRS spent up to $50 million from its enforcement budget on 220 conferences over three years, conferences that included parody videos of IRS staffers performing a line dance.

“Before the committee spends one more dime on the IRS, we need to know how it spends what it has already,” Crenshaw said. He stated that the targeting of certain nonprofits began in 2010 when the IRS appropriation was “at a record high” and when applications for tax-exempt status were “basically static.”

Rep. Jose Serrano, D-N.Y., the subcommittee’s ranking member, called the targeting of conservatives by the IRS Cincinnati office “an organization failure that is simply unacceptable,” adding that top IRS officials who’d been asked about it last year did not return to Congress to update lawmakers. “I’m second to none in Congress in asking for more funding for IRS,” Serrano said, “But this hurts me, and the IRS is not doing what it is supposed to do.”

Full committee Chairman Rep. Harold Rogers, R-Ky., told Werfel that the fact that “you say you want no more money, that is music to my ears.” He said he was “appalled at the apparent waste of taxpayer dollars on frivolous conferences -- it seems every day there’s a new misstep at the IRS. We need to stop the abuse in its tracks, and you’re the man.”

Rogers also blasted the IRS for the ongoing problem of improper payments going out -- the estimate of $13 billion is higher than the IRS budget, he noted -- and criticized IRS executive bonuses. He cited $103,000 over three years going Sarah Hall Ingram, former commissioner of the exempt organizations division and “since promoted,” Rogers said, to direct implementation of the 2010 Affordable Care Act. Rogers said Joseph Grant, who recently resigned as commissioner of tax-exempts and government entities, received $84,000 over three years, and Lois Lerner, current chief of exempt organizations who is on administrative leave, received $42,000 in three years.

Werfel said he’d have to check with human resources specialists on bonus policy.

J. Russell George, the Treasury inspector general for tax administration whose report earlier this month sparked the scandal, confirmed that his audit of the tax-exempt determinations office, which differs from an investigation, did not uncover who gave the direction for the political targeting. He also promised an audit of IRS bonuses this autumn. His testimony noted that IRS had agreed to seven of his nine recommendations, but added that the Cincinnati group, in sorting the applications for processing, failed to identify 175 applicants who did have “significant campaign interventions,” while flagging 91 that did not have signs of such intervention.

Over the weekend, Werfel and the IRS responded to advance details of the TIGTA report on overspending on conferences, which were released by House Ways and Means Republicans. The video of line dancing was “unacceptable and an inappropriate use of government funds,” Werfel said. “The conference spending should never have occurred.” Citing an 87 percent drop in conference costs from 2010-2012 and his work at the Office of Management and Budget in curbing conference spending, Werfel called the video prepared for a conference in Anaheim, Calif., “an unfortunate vestige from a prior era.”

The IRS explained that the 2010 conference in Anaheim involved 2,600 managers from 350 offices of the agency’s Small Business/Self Employed division, which brings in $50 billion in revenue. The conference came at a time, the agency said, when it needed to ensure that managers had proper training to address important new programs, major staff turnover and a substantial increase in security threats following the suicide attack on an IRS facility in Austin earlier in the year.

Werfel promised the appropriators and the public weekly progress updates, in addition to the major report to the president and Treasury secretary by the end of the month. “In my first week,” he said, “it’s already clear the agency is populated by thousands of dedicated public servants, and it’s an honor to serve alongside them.”