A CRITICAL MOMENT: The future of what tax administration and enforcement will look like in the U.S. may very well hinge on IRS appropriations battles to be fought over the next couple years in Congress.

Will the agency manage an overhaul to permanently transform its operations with Inflation Reduction Act funding — and, perhaps, greatly expand its role in tax administration by offering a new free filing tool available to every American taxpayer? Or will Republicans successfully make the case that the IRS is unworthy of both new funding and the trust of the public?

That battle is happening now, with Democrats and several civil society groups asserting that yes, in fact, the IRS has already made remarkable strides since Democrats enacted their climate, health and tax bill last August.

This morning the newly launched Coalition for Free and Fair Filing is holding a press conference with Sen. Elizabeth Warren (D-Mass.), House Ways and Means member Don Beyer (D-Va.) and Rep. Katie Porter (D-Calif.) to discuss an analysis of how the agency has rapidly improved its customer service and successfully laid the groundwork for an agency-run direct filing option.

The analysis, which was produced by the coalition and previewed by Weekly Tax, will highlight that the agency has been able to answer millions more calls this filing season with 5,000 new support staff; cut its unprocessed paper returns, which were the bane of the IRS during the pandemic, by 80 percent; and collected $38 million in delinquent taxes from more than 175 wealthy taxpayers as the result of ramped-up enforcement efforts.

But Republicans and conservative groups are underscoring other developments to argue that the agency is as untrustworthy as ever.

Take what the conservative Americans for Tax Reform said in response to a watchdog report published last week that revealed that the IRS lost track of millions of sensitive tax records: “This is the same agency that wants to spend large amounts of taxpayer dollars to get into the tax software business. Yes, the same agency that wants you to trust them with safeguarding your most sensitive personal data cannot even do a basic inventory.”

BACK IN A MOMENT: Can you believe we’re already coming up on the one-year anniversary of the IRA, which was signed into law on August 16, 2022? Well, either way, you should do yourself a favor and take a read of this phenomenal article by our colleagues Josh Siegel, Kelsey Tamborrino and Jessie Blaeser, which delves into how $370 billion in climate tax incentives implemented by the legislation is now playing out across the country.

The most interesting part: The majority of new clean energy projects are based in GOP districts, and as a result conservatives in rural areas are finding themselves having to navigate the tricky politics of it all.

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PAST CONTROVERSIES: The Treasury Inspector General for Tax Administration report on the lost tax records isn’t the first instance of the IRS getting caught flat-footed in its handling of potentially very sensitive taxpayer information.

It was also revealed that the IRS, crushed by paper backlogs during the pandemic, destroyed 30 million documents in March of 2021 in a move that prompted outrage from tax preparers around the nation.

And Republicans have likewise hounded the agency about its accidental publication of 120,000 private tax files on its website in 2022 and how non-profit publication ProPublica somehow got its hands on a trove of returns belonging to the wealthiest Americans.

“House Republicans secured an agreement to repurpose up to $21 billions of future IRS enforcement funds during the June debt-ceiling fight,” the Wall Street Journal editorial board wrote last Friday in a response to the watchdog report. “The threat of cuts should warn the agency to get its leaky house in order before focusing on growing its audit program.”

FUNDING BATTLES: Indeed, it turns out that Republicans have already maneuvered to cut a whole lot more than the $21.4 billion rescission agreed to under the debt limit deal between President Joe Biden and Speaker Kevin McCarthy.

House Appropriations Committee Republicans have in fact proposed to slash $67 billion from the IRS, obscuring the additional cuts in a potpourri of unusual spending bills, including those for transportation, housing and urban development, and labor, health and human services, as Doug Sword reported in Tax Notes.

According to a preview of this morning’s call by the Coalition for Free and Fair Filing, Igor Volsky of Groundwork Action plans to underscore how deleterious those GOP efforts would be and point to new research indicating that the IRS can return as much $12 from audits of wealthy taxpayers for every $1 invested in the agency.

“In the past year, the IRS has revamped customer service and brought the agency closer to the modern world because of this funding, and now Republicans want to stonewall this modernization process,” Adam Ruben of the Economic Security Project says. “It is critical that we keep this momentum going if we hope to see free and simple tax filing become a reality.”

A side note: We reported last week that former IRS Commissioner Chuck Rettig is hoping to do his own part to improve tax administration from the sidelines and has joined the board of a company called K1x that digitizes schedule K-1s using AI technology.

You may want to watch this area. While the improvements in tax administration at the IRS may be subject to the whims of congressional appropriators in a given year, the private sector is also working to harness new technology to automate monotonous tasks and make filing season less of a headache.

SMITH ON WEISS: The top tax writer in the House isn’t all that enthusiastic about the news, which was reported last week by our Betsy Woodruff Swan, that U.S. Attorney for Delaware David Weiss has been appointed special counsel in the long-running probe of Hunter Biden.

“Unfortunately, A.G. Garland selected the very same Biden-aligned U.S. Attorney ofDelaware, David Weiss, who oversaw the clearly bungled investigation into Hunter Biden and who was the architect of his sweetheart plea deal,” House Ways and Means Chair Jason Smith (R-Mo.) said in a Friday press release, asserting that the appointment is, in fact, designed to hamper congressional investigations of the president’s son.

Smith was responsible for releasing the testimony of two IRS whistleblowers alleging political interference in the Hunter Biden probe and, along with Oversight Chair James Comer (R-Ky.) and Judiciary Chair Jim Jordan(R-Ohio), has sought testimony from several other federal employees involved in the case.

And here’s a notable comment from Smith on Fox Business regarding the development: “Where the facts are leading, I don’t see how we don’t go into an impeachment inquiry.”

Guardian: “Tax cuts would put ‘scary’ UK finances in greater danger, warns top economist”

Bloomberg: “Thousands of Tax Workers Protest Romanian Cuts Plan, Union Says”

FT: “Europe’s thriving businesses face mounting windfall tax hit”

WSJ: “A New Green Tax-Credit Market Is for Corporations. Some Wealthy People Want In.”

Forbes: “The Ultimate Tax Plan Of Donations Of LLC Interests To Charity Leads To The Indictment Of Michael Meyer”

AP: “Alabama Residents to Get $300 Tax Rebate Checks Likely in November”

Bloomberg: “Brazil Police Seek Bank, Tax Records in Bolsonaro Probe”

MarketWatch: “IRS targets employee stock-ownership plans”

Variety: “IRS Claims Vice Media Owes Nearly $41 Million in Back Taxes for Refinery29”

Elmo has testified before a House Appropriations subcommittee on the importance of federal funding for musical education programs.