More eyes on all that IRS money

MORE OVERSIGHT FOR IRS SPENDING: The grilling that IRS Commissioner Danny Werfel faced last week from the Senate Finance Committee over the $80 billion Congress handed his agency last year is likely just a taste of things to come.

And lawmakers aren’t the only ones concerned that the money might not go where it’s most needed or used in the most effective way.

The National Taxpayers Union Foundation is announcing today that it is launching a project that convenes outside tax experts to provide policy recommendations and keep an eye on the IRS as it starts to spend its new windfall.

As part of the Taxpayers for IRS Transformation (Taxpayers FIRST) project, the right-leaning NTUF has brought together an advisory board of experts that includes former IRS leaders and congressional staffers, as well as think-tank experts from left-leaning and conservative-minded organizations alike.

Some priorities for the project: making sure that the IRS closes the estimated half-trillion-dollar tax gap while respecting taxpayer rights and makes some tangible progress on improving taxpayer services and the agency’s outdated technology.

BUT FIRST: Back to an oldie but a goodie. POLITICO’s Lee Hudson compiled lobbying data on the five largest defense contractors and found that they spent $17.7 million trying to influence policymakers between January and March.

One thing those contractors all still agree on: restoring immediate deductions for research and development costs that was changed to a gradual five-year write-off by the Tax Cuts and Jobs Act.

Got any interesting thoughts on how R&D might move in Congress this year? Send us your tips, scoops and feedback.

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BACK TO IRS SPENDING: NTUF has brought together some heavy hitters in the tax world to provide the IRS with insights as the agency moves forward with its strategic operating plan.

You can see the list of members of the advisory board here, which includes former IRS commissioner Fred Goldberg, Executive Director for the Center for Taxpayer Rights and former National Taxpayer Advocate Nina Olson and Jason J. Fichtner, who is vice president at the Bipartisan Policy Center, among others.

“Education and outreach strategies that focus on small business taxpayer service and emphasize collaboration across the federal government need to be prioritized as IRS moves forward with implementing tax administration reform,” Caroline Bruckner, a professor at American University’s Kogod School of Business and a member of the advisory board, said in a statement accompanying the announcement.

Getting back on the field: Another issue that hasn’t gotten much talk but will be interesting to watch is how the agency plans to ramp up enforcement on tax-exempt organizations, if at all.

Audits in the area were largely put on ice after the 2013 Lois Lerner scandal involving allegations that the IRS improperly targeted conservative organizations applying for exempt status.

But recent high-profile cases of fishy non-profit dealings in the news — including reports of politically active organizations clinching church status from the IRS and allegations that conservative legal activist Leonard Leo improperly uses his non-profits for personal enrichment — could make it hard for the agency to let the issue quietly lie forever.

Sen. Sheldon Whitehouse (D-R.I.), for one, used his precious time at last week’s hearing on the 2023 filing season to press Werfel on 501(c)(3)s and 501(c)(4)s that seem to be abusing their tax-exempt privileges by participating in political activities more than they’re supposed to.

“I think that the IRS has chickened out and refused to do its job in this space because they fear that political blowback,” Whitehouse said. “I ask you to pull up your socks, do your job.”

Werfel responded that the IRS must tread carefully at a time that the agency is trying to rebuild itself and forge trust with taxpayers.

THE PARTNERSHIP PROMISE: However, before the IRS gets to increased enforcement in the non-profit arena and others, it will have to successfully hire the specialists it needs to do the most complex and sophisticated audits.

And it’s not at all clear that the agency has its ducks in a row yet to do that.

For instance, Monte Jackel of Jackel Tax Law argues in a new article in Tax Notes that failing to plan for the creation of a separate partnership tax division in Treasury’s Office of Chief Counsel was a significant omission in the IRS’s strategic operating plan.

Jackel notes that the lack of expertise in partnership tax law within the cadre of lawyers who issue tax guidance and litigate cases for the IRS is a major contributor to the federal income tax gap.

“The outside tax bar from the big law firms and the large accounting groups (such as the Big Four) do not discuss their superior talent and expertise over those on the inside for obvious reasons,” Jackel writes.

SPINNING THE DEBT PLAN: Welp, despite the unanimous support within the House Republican caucus for rescinding IRS funds, we reported last week that SpeakerKevin McCarthywas concerned that sticking the IRS provisions in the debt plan could provide some serious messaging fodder for Democrats — who could say the GOP is risking a debt default to help wealthy people avoid paying taxes.

It seems McCarthy was right to be concerned: Since the debt package was released, we’ve heard a lot of squawking about the IRS angle.

Hosts of the popular progressive podcast Pod Save America spotlighted GOP plans to take away the agency’s funds in McCarthy’s debt package in a recent episode.

And here’s Samantha Jacoby of the Center on Budget and Policy Priorities in a recent tweet: “Speaker McCarthy’s plan to slash IRS funding makes clear deficit reduction isn’t the goal. According to CBO, rescinding the Inflation Reduction Act’s IRS funding would ADD $114 B to the deficit b/c it would let wealthy tax cheats off the hook.”

For Republicans, though, it’s not a hard political calculus.

“I don’t find that this polls that well back home,” Rep. Don Bacon (R-Neb.) told Weekly Tax of the IRS’s $80 billion. “Only customer service.”

A tax hiccup: Punchbowl News reported last week that Midwestern lawmakers from states such as Iowa and Minnesota said they can’t vote for McCarthy’s plan because it would roll back critical ethanol subsidies: specifically, the carbon sequestration, biofuel tax, sustainable aviation fuel, and clean fuel production credits.

We’ll keep our ears to the ground on that one.

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Did you know?

Woody Harrelson, who was spotted around the Capitol last week, will star in an upcoming HBO show called “White House Plumbers,” a satirical political drama that follows two of President Richard Nixon’s Watergate operatives.