COMMISSIONER

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

WASHINGTON , DC 20224

The Honorable Ron Wyden 

Chairman 

Committee on Finance 

United States Senate 

Washington, DC 20510

Dear Chairman Wyden:

Following the one-year anniversary of enactment of the Inflation Reduction Act (IRA) 

and my sixth months as Commissioner, I am writing to update you on our ongoing 

efforts to rebalance the IRS’ enforcement activities. The investment of resources 

under the IRA represents a generational opportunity for the IRS to refocus our energy 

on closing the tax gap by ensuring efficient and effective tax administration. This 

rebalancing effort centers around high-income and high-wealth individuals, complex 

partnerships, and large corporations who are not paying the taxes they legally owe, as 

well as any bad actors who victimize taxpayers. 

This effort also recognizes that the vast majority of taxpayers want to comply with tax 

law. We aim to make this simpler and easier to do, while allowing taxpayers to interact 

with the IRS in the ways that work best for them. For the first time, and thanks to the 

new resources provided by the IRA, the IRS will help taxpayers identify mistakes 

before filing, quickly fix errors that delay their refunds, and claim the credits and 

deductions they are eligible for. Helping taxpayers get it right at the time of filing will 

reduce the need for the IRS to contact taxpayers through notices, correspondence 

audits, and other enforcement activities. To that end, the changes we are making 

benefit all Americans by promoting fairness and accuracy and protecting all taxpayers 

from scams and schemes. 

Following a top-to-bottom review of enforcement and in line with our Strategic 

Operating Plan, the IRS has begun announcing sweeping efforts to overhaul

compliance efforts to improve tax administration. For example, the IRS is intensifying 

collections activities that focus on high-income taxpayers with more than $250,000 in 

recognized tax debt. This builds off earlier successes that collected $38 million from 

more than 175 high-income earners this past spring. In addition, IRS staff are closely 

examining potential non-compliance among large, complex partnerships, including 75 

of the largest partnerships in the U.S. identified as higher risk for tax compliance with 

the help of new AI tools as well as hundreds of partnerships with over $10 million in 
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assets and balance sheet discrepancies. In the near term, we will be sharing details 

regarding our stepped-up activities to address non-compliance among large 

corporations. These changes, which leverage the IRA’s investment in modernized 

technology, expanded data science, and right sizing of our workforce, will significantly 

improve the IRS’s ability to address the tax gap, which was projected to be $540 

billion per year for 2017-2019.

As the next step in our efforts to improve fairness in tax administration, we are also 

realigning resources internally to accelerate progress against our strategic priorities. In 

fiscal year (FY) 2024, we will be substantially reducing the number of correspondence 

audits focused specifically on certain refundable credits, including the Earned Income 

Tax Credit (EITC), American Opportunity Tax Credit, Health Insurance Premium Tax 

Credit, and Additional Child Tax Credit. Over-reliance on audits to resolve basic errors 

can lead to fewer taxpayers receiving credits and deductions for which they are 

eligible and thus decrease accuracy in tax administration, whereas focusing on 

helping taxpayers submit accurate filings upfront will increase payment accuracy while 

reducing administrative burdens for the IRS and the tax filer. This strategy will allow us 

to repurpose resources to focus on other work that better aligns with IRS' strategic 

priorities and further our core objectives of equitable and efficient tax administration. In 

advance of the next filing season, I commit to updating you on our plans to redeploy 

our freed-up compliance resources to focus on other pressing priorities.

As we’ve discussed, recent research using imputed race information estimated that 

Black taxpayers are audited at three to five times the rate of non-Black taxpayers. This 

research, the general findings of which IRS and Treasury’s ongoing internal work has 

validated, demonstrated that the volume of exams focused on the EITC that the IRS 

performs is a major driver of overall disparity. The realignment to focus on high-end 

tax evasion and any bad actors who contribute significantly to the tax gap will 

therefore help reduce this disparity, in addition to its other beneficial effects for tax 

administration, by achieving greater balance in our examination of different sources of 

non-compliance. 

We are taking additional steps to reduce audit rate disparities as well. We have 

implemented an initial round of changes to EITC case selection processes that testing

suggests will increase the expected return on investment for cases selected while 

simultaneously reducing disparities. Specifically, this initial round of changes improves 

the accuracy of the automated risk scoring process by adjusting how IRS considers 

information about where children live. Further, we are piloting two alternative 

approaches to our existing EITC case selection process. We will publicly report on the 

results of these pilots and, if they yield the anticipated improvement for fairness and 

the accuracy of exam outcomes, the alternative approaches for audit selection could 

be the basis for further changes in a future filing season. Through our parallel efforts 

to help taxpayers get it right through improved service, outreach and education, and 

other tools, coupled with our increased focus on addressing unscrupulous return 
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preparers and other bad actors, we are taking new steps to increase payment 

accuracy. We anticipate it will take several months after the end of the next filing 

season to determine the impact of these changes, but we are committed to 

monitoring, sharing our findings, and making additional improvements. 

In addition, we are devoting more resources to addressing unscrupulous preparers 

who are leading their customers to underreport income or overclaim credits and 

deductions. To do so, we are leveraging data that identifies tax preparers with 

questionable practices. Our research suggests that these bad actors 

disproportionately file tax returns for vulnerable taxpayers, including low-income filers, 

filers of color, and those with limited English proficiency, which may contribute to 

higher audit rates for this taxpayer segment. Over time, we believe stepped-up efforts 

to stop unscrupulous preparers that target this population, will lead to higher quality 

tax preparation and increased return accuracy, thereby reducing the number of 

individual taxpayers at risk of audit. 

The IRA funding will also allow us to focus even more attention on reaching 

underserved communities to provide education and real-time assistance in claiming 

available credits and incentives. This is critically important given the complexity of 

eligibility rules for some of these incentives, especially the EITC. We are also 

improving our ability to meet taxpayers where they are, to ensure they have the 

options that work best for them for fulfilling their tax obligations. Along those lines, as 

directed by the Treasury, we are moving to implement a scaled pilot of a free, IRS-run 

direct filing option in the 2024 filing season. Additionally, we are developing 

approaches to alert taxpayers promptly to potential issues, such as those related to 

refundable tax credits, to encourage self-correction upfront and reduce the potential 

for an audit, as outlined in the Strategic Operating Plan.

In summary, we are making broad efforts to overhaul compliance efforts in a manner 

that robustly advances our commitment to fair, equitable, and effective tax 

administration. I hope this information is helpful and note that we will be reaching out to 

your staff shortly to arrange the requested Senate Finance Committee member briefing 

on how we are reducing the audit rate disparity. Thank you for your continued focus on 

this critical issue. 

Sincerely,

Daniel I. Werfel

Commissioner
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cc: The Honorable Mike Crapo

Ranking Member, Committee on Finance