Transcripts For CSPAN2 IRS 20240702

Taxpayers and corporations. All right the joint hearing of the subcommittee on Government Operations in the federal workforce in healthcare and Financial Services committee will come to order. Welcome everyone. Without objection the chair may declare a racist at any time. I recognize myself for the purpose of making Opening Statement first and foremost thank you all for being here. This crazy bit of times we are in we are time is extremely important have been plagued with dysfunction and complexity dysfunction is acrosstheboard of data breaches and Identity Theft to slope audits, backlogs and Terrific Customer Service at least for my constituent. Despite years of oversight and watchdogs not much has changed my collect on the other side of the aisle believe more money and more power is the solution. In fact, and last years yearsInflation Reduction Act Congressional Democrats 80 billion, 80 building with the irs. With this influx of cash this funding reinforcement of improving Taxpayer Services. Taxpayer Service Processing taxpayer returns received a 9 funding. With enforcement receiving the 69 funding. The irs not the irs needs work on getting the American People their money back in a timely fashion not auditing the lower and middle class americans. The irs in my opinion is to invest in highly skilled experts not something hire more employees but higherquality not so much quantity. Put simply the irs just need to do a better job. There needs to be consequences for inaction. If a private business did with the irs on a daily basis it would quickly go out of business. If a private business repeatedly left you on hold for hours as mike to constituents and myself has experience at a time we didnt answer the phone call at left sensitive Tax Information unsecured or at last it entirely, it would face criminal penalties and go out of business. But since the government is involved there is no accountability or any accountability i have for its poor performance thats one of things i like to talk about is who owns it . What is the accountability . But also what are we doing to improve it . So even if we did give more money what would these Solutions Look Like . We can sit here and complain we also to focus on solutions. Hardworking americans accept this because they follow the law they know they face consequences like penalties and fines if they dont. Those penalties and fines are their money. It comes out of their pockets. A fleet make a mistake on our tax return that costs us. In contrast when the irs makes a mistake there are really no consequences if there are elective talk about what those are. Do people lose their jobs . Are they put on action plans . Do they get demoted . What are the consequences . I dont think its too much to ask to have the federal agency played by the same rule as we expect the American People to play by. The irs asks for more money to fund more mistakes, more data breaches. It should not be acceptable we have to hold our Government Agencies to at least the same standard will hold the American People to with their tax dollars. Instead of doing a job instead of processing tax returns in a timely manner americans are waiting months and sometimes years for money that is rightly theirs. The issue is yes, we pay them interest on that money but a lot of businesses are going to go out of business by the time they get there rightly deserve money instead of serving taxpayers the irs is something as simple as answering the phone the irs carelessly leaves her Sensitive Information unsecured and vulnerable to leaks, fraud, Identity Theft. Frankly the irs is the perfect example of a bureaucracy failure. There has not been a lot of accountability if any accountability for it. We talk about these issues today. We need to remember these are real problems that impact real people with real money, their money. Since i entered congress countless constituents have approached my Office Asking for help with the irs. I have constituents who filed returns on time in april have yet to receive the refund. When they seek help from the irs they cannot get a hole of anyone on the phone. Even to get an update ill cover those a little later. Often they went hours to reach Customer Service representatives only to get disconnected due to an overloaded switchboard. Which you can imagine and senses them in the frustration goes to the roof i have constituents were Business Owners who have outstanding applications for the Employee Retention tax credit. One of these cases has been pending since february. These wait times are unacceptable for Small Businesses because they depend on those dollars, as posted to the pandemic we are here this afternoon to demand answers with accountability on behalf of the American People. Commissioner, thank you for being here to the subcommittee today i look forward for your fruitful discussion. I know recognize Ranking Member for the purpose of making Opening Statement. Thank you very much madam chair. Good morning, oh good afternoon. Im living in another universe i see. Welcome everyone and thank you very much madam chair. Paying ones a fair share is an important obligation and what is known as the American Social contract. With an estimated 1. 6 or 168 individual taxpayers file returns this year alone processing returns the volumes and higher returns of paper require sufficient personnel modernized technology and streamlined systems. A little over a year ago President Biden sign the induction Inflation Reduction Act or the ira into law. As most of you know this groundbreaking legislation which the irs at a critical time right before the 2023. Delivered 80 billion to the irs over the next 10 years. The fund allowed the irs to hire new staff, to modernize all of its technology and to audit wealthy tax cheats who had been getting away with murder. The posterboard behind me illustrates this is a win, a win for low and middle class americans. These ira backed improvements achieved, as you can see, achieved 87 peak levels of performance and Service Success as a result of their implementation. 87 higher than any other time timeof the dramatic increase fra previous tax filing year alone. 5 million more calls cutting the wait time down that 86 . Serve more than one or 40000 additional taxpayers and clergy backlog of unprocessed 2022 individual tax returns with no errors. Youve got to be doing something right to have those kind of numbers that are certifiable and verifiable. Those are real and tangible and show investment dont take my word for it. By the way i would ask unanimous consent to be entered into the record showing the agency will continue to prioritize high income individuals without running away, turning a blind eye shows investment in the irs improves Taxpayer Services. Unfortunately after this years tax Filing Season, and the budget negotiations the nation was forced to heed the persistent call for rescinding the irs funding. There are a lot of bogeyman stories that took place all over the floor of the car about what is going to happen thomas virtually scare the american taxpayer into believing something that was not true the reality is the agency kept its promise and commitment to the nation. When it stated goal of cracking down on delinquent tax evading millionaires theyre getting with robbery. The agency kept its commitment despite cuts to its funding and the persistent and dangerous mischaracterization of irs agents in an army of bogeyman waiting to kick in your door and lock you up weve got to stop playing games like that i make sure middleclass americans know what the facts are trade with the intentions were and more importantly what the goals have been in the conclusions it. To the extent irs has collected nearly 160 million, in back taxes from individuals earning over a Million Dollars speaks volumes of who they are trying to help and who they are trying to keep us from being taken advantage by. The millions of dollars of missing tax payments were not an accident it was not manna from heaven was a clear deliberate effort to make sure it was so it should be by that agency and to make sure tax cheats particularly wealthy wealthy wealthy ones did not have a safe haven. For example the irs individual one individual who last month had to pay 15 million in restitution for falsifying personal expenses as acceptable business expenses i dont know kind of neighborhood that person lives and when you get that kind of find it suggest you been getting away with serious crimes and was caught. 51000 squarefoot mansion. Whoever it was got caught. I really am. That is the affront that is the tragedy here. That is why weve got to find a way for the irs to protect middle income people going after the high income abusers. These greedy checks cheats its amount of money owed and collected by the irs on time. In other words, the more millionaires and billionaires who skirt around with paying their fair share the larger the burden falls on hardworking Everyday Americans who pay their fair share every year on time. The irs reports small declines in taxpayer compliance can cause billions of dollars in lost revenue underscoring the need for simplicity and efficiency during the tax Filing Season i co led with my colleague and with mr. Conley of virginia to trust in Government Act which directs the department of treasury to expand electronic tax filing and other via email. We also led streamlining irs act requires tax filed on paper can be gradually digitalized irs heated that task and request by expanding not reducing but expanding as a digital scanning efforts this tax season. Congress must continue to ensure the irs has the funding and the resources necessary to maintain its remarkable progress since ira became law progress is unheralded in many respects and then noticed by others who hide behind the fake characterizations. Make no mistake further cuts will hamper the irs ability to execute transformative change. I urge my colleagues on both sides of the aisle to preserve funding as we move forward from our current stalemate get back the Government Operations. Going to thinker witnesses for your participation in todays hearing i particularly looking forward to hearing from commissioner about the status of the irs upcoming tax Filing Program known as direct file. We have the duty and obligation of this committee to assure the government operates at a toptier level for all americans. Looking to discuss how we could work to support those efforts but i yield back madam chair. Thank you for a note recognize chairman sessions for the purpose of making Opening Statement. Chair thank you very much. I am sorry to each of you for being late. We have had a business in the another part of the complex. Commissioner thank you so much for being here. And ms. Judy, thank you very much for the opportunity for us to meet today we spoke about yesterday commissioner is one of natural inquiry that this committee has. Its about the effectiveness of the Internal Revenue service as it relates to their ongoing business perhaps it goes in thats why we are here today. The irs its performance does do its job they are properly funded we need to make sure that they treat all people fairly. Not just some that they would choose too. We believe there have been reasons why you were brought on board the first time as commissioner, acting commissioner. We believe there are reasons why you are there today for perhaps a second theres a lot of things that we will want to get into. But perhaps his most important for me too say that i believe confidence in the irs is what were asked to pay i spoke to about this yesterday. The sizing models the professionalism of the ability not just have a good answer but to get through on the phone. Without having to wait for hours. The effectiveness of the irs and the ability to get the job done is importance. We know the irs we know theyre going to cooperate with this you told us that yesterday you and i spoke about you did not want to get into actual the idea that you will cooperate. You will cooperate fully with us. You will make sure the questions we ask why you do not have to go into the specifics about those, certainly not names certainly not times about your agreement that you will cooperate with this committee and with congress in those regards. So, we know you have been given some extra 80 billion we are going to want to talk about that and the deployment of that and how thats going to aid in do the things that would be necessary. I think its important that you know the irs touches almost every single american. The information we get back comes at a time you defend a lot of ground. Thank you for being here today i want to thank chairwoman mclean for allowing us to start this meeting without me. Madam chairman i yield back my time. Checks i recognized Ranking Member porter for the purpose of making a new statement. Have you heard guests by unchecked deaths by thousand paper cuts its how to get rid of something by suddenly attacking it over and over until its finally gone. Death by 1000 cuts. For too many years washington politicians have worked to get the Internal Revenue service to cut the irs time and time again how do they do that . Phase one they start by attacking its credibility. It isnt easy to love it. Believe me opportunity know that too. They go on tv and give the irs a verbal falsely suggesting the irs is spying on us. Targeting us for our political belief or going after us to pay more money than we owe. What a bunch of bs. Even though those claims lack any evidence we might be inclined to believe negative things about an agency that collects taxes. Even the bible is not that kind of Tax Collectors. These politicians easily exceed make it easier to the irs. Q phase two and attacks on hardworking mus on the republicans went hard after the irs. Under the Obama Administration republicans falsely claim the irs was unfairly targeting conservative organizations more than a progressive applying for taxis and havoc. Irs spent 28 million and produced 1 million pages of documents in response. Ultimately republicans are not proven anything. They instead use it to justify diverting resources from irs Customer Service, itn it and enforcement. Thats what it opportunistic politicians wanted to turn people against the irs cannot do his job then take one last . That brings us to phase three, budget cuts. When politicians tell us Tax Collector is after us, no one wants to fund the collector. That is exactly what is happened opportunistic politicians have succeeded in cutting irs staffing 20 lower than it was in 2010. Even of the country has grown by 7 since then. The agency we need 52000 new irs employees just to meet the agencys needs. That is how bad its gotten folks, year after year of politicians taking slashes at the irs. Opportunistic politicians have not succeeded in totally killing the irs by 1000 cuts. Its badly wounded. Who suffers from all of this . We do. We all suffer. Only help with our taxes and no one is available the irs to pick up the phone blame a politician to the irs budget. When we went the irs to make tax filing easier work harder to make our information more secure, the irs cannot invent and technologies that cyber cybersecurity, blame a politician who the irs. When we pay our fair share of taxes make sure billionaires do the same have the resources to do it blame a politician who the irs republicans led to attack the irs instead of making it work better, other republicans are slashing our entire congress at the same time. To stop congress from doing its work because they have not been able to elect a speaker of the house so we cannot pass legislation. The most opportunistic republicans have spent so long attacking our government that now republicans dont even trust each other. But that is what the opportunists wanted to weaken congress, a weak irs. It is what they call smart government. But in reality its a federal government and cannot serve its people. Right now the opportunists are creating that reality. Bipartisan coalition of reasonable members of congress can stop them. Today, everything that we do and say matters. Before my College Block the irs, consider humerus might be one of the thousands of cuts over time that weakens our government and hurts the American People. But the irs needs to serve the help congress can be an effective partner if republicans ever elect a speaker so we can legislate. I yield back. I placed a thinker witnesses commissioner and jessica lucas, dannys commissioner is the director of strategy issues to hearing to what you have to say on todays important subject. Rule 9g the witness will please stand and raise the right hand. Do you solemnly swear or affirm the testimony were about to give is the truth, the whole truth and nothing but the truth so help you god . Let the record show the witnesses answered in the affirmative. Thank you and have a seat. We appreciate you being here today and we look forward to your testimony. Let me remind the witnesses we have read your written statement it will appear in the hearing record please limit your oral statement to five minutes. As a reminder please press the button on the microphone in front of you so it is on and the members can hear you. When you began to speak the light in front of you will turn green when the red light comes on here five minutes had expired and we would ask you please wrap up. I now recognize commissioner for his Opening Statement. Chairman sessions, chairwoman mclean, and members of the subcommittee, thank you for the opportunity to testify on irs operations. I am please to report the irs makes important progress in the effort to transform into implementation of the Inflation Reduction Act. Using ira funding the irs has three objectives to help taxpayers in the nation. Taxpayers can easily contact the irs whether in person on the phone and accessing the credit they deserve. Two, identify the growing number of wealthy taxpayers between individuals, large corporations and complex partnerships who are shielding income to evade their tax responsibility and third, address the growing risk of tax scams and schemes by protecting honest taxpayers from them and root out nefarious actors and perpetrate them. Achieving the ambitious agenda that will require we rebuild areas in the irs that have suffered more than a decade of underfunding that preceded the Inflation Reduction Act. Is providing irs workforce with the right tools including training, technology, smarter processes. So we are ready now and in the future to meet our core mission of supporting taxpayers and the nation. The ira funding we are clearly making a difference. Good examples phone service at this point last year we had an average level of service of the phones of about 14 and we answered fewer than 9 million calls. This year after hiring more than 5000 additional phone assistors our level of service exceeded 85 during the Filing Season and answered more than 15 million calls. We also improved in Person Service sensing fusion of ira funding reopens 46 centers is allowed to serve more than 1. 6 Million People at our walk in centers this year which is 18 temperate walk in centers to serve taxpayers who dont live near and person center. We do have the resources you in the past. Modernizing operation is key to meeting many of our transformational goals for those who choose to interact with us. For example we added new features to enhance online accounts we recently launched the business package neither of which were able to do before the ira funded. The transformation extend to enforcement as well. Before the Inflation Reduction Act the irs for several years were unable reasonable percentage of complex returns especially wealthy individuals, large corporations, complex partnerships. We are turning that around. We are hiring accountants, attorneys, engineers, calmness and data scientists needed to tackle these complex returns. We are already seeing results. For example in just the last few months we have recovered more than 100 million from delinquent tax cases involving millionaires. As part of these efforts recently announce the initiative to step up audits of the Largest Corporations and partnerships we have been to korea valuing our enforcement activities and other areas and will be producing correspondence audits and return that claim the earned income tax credit and other refundable credits. Irs prioritizing the taxpayer the ira funding allows us an additional controls to secure our systems. This includes adding new restrictions limiting access to key data to protect against insider threats. Our Data Security posture has been strengthened to make taxpayer data safer now than ever before. To ensure transparency update on irs. Gov all of the latest improvements in security will continue to do more to ensure taxpayers in our own systems are protected. Chairman sessions, Ranking Members and members of the subcommittee that concludes my statement. Ill be happy to answer questions. Thank you. I now recognize jessica for his Opening Statement. Thank you. Chart mclean, sessions, Ranking Members, members of the subcommittee. Thank you for this opportunity to be here today will thin and vicious and vision my written statements key findings from prior reports. Also my remarks on open recommendations that will be important as irs implements as a Strategic Operating plan. These following three key areas improving Taxpayer Services efficiently processing tax returns, so the Sensitive Information. But first Taxpayer Service. The irs is late in responding to more than half its correspondence in 2022 including amended returns and Identity Theft documentation. We recommend irs communicate timeframe for resolving this backlog. Delay of correspondence can cost taxpayers to write again or call. In 2020 we recommend the irs identify goals for improved taxpayer experience. Without such information will be challenging to assess progress made toward print taxpayer experience. Irs attrition rate for critical Filing Season staff is high relative to the agencys overall attrition additionally i data it shows agency. About 23 of new recruits within two or three years. Irs faces challenges hiring employees and lacks information about where skills gaps exist what skills will be needed in the future. In 2019 we recommend irs fully implement workforce planning initiative. Irs intends to do so by march 2024. Implementation continues to develop staffing requirements. Were continuing to review all of these issues a part of a review of the 2023 Filing Season. The second area i will covers processing tax returns. In 2018 we recommend irs digitized information for paper returns to control costs irs transcribing a limited amount of information for paper inches databases. By Filing Season 2025 irs aims to digitize all paper file returns received consistent with the recommendation. Irs can improve Electronic Filing for businesses. In 2021 we recommend irs identify identify barriers but has not taken action to it address them due to competing priority is addressing these barriers help irs reduce the volume a more costly paperbased work and improve services to business filers. Congress can also help to include return processing. Broadening irs authority to correct full tax return errors this could facilitate correct tax payments help avoid costly burdensome audit. In addition congress can allow irs to establish requirements for paid taxpayers this could increase the accuracy of tax returns they prepare tension reduce the tax gap. The third areas and protected information. Is critical for Public Confidence in voting data breaches expose Sensitive Information to fraudsters. As of october 2023 irs and implement 85 of the more than four to 50 recommendations previously made in this area. But others remain open. Increasing oversight access taxpayer information as a recommend in august of 2023 irs no one contractors are not meeting their training requirements. Providing guidance to employees responsible for contractor oversight will give assurance those employees will report incidents timely and accurately. Irs generally greeted his recommendations that it plans to act on them. Irs also use recommend recommendations internal control over Financial Reporting that remain on implemented following our fiscal year 2022 audit of the irs Financial Statement. And finally as we report in january 2023 irs uses a significant number of outdated or aging Application Software assets. Reliance on these Legacy Assets can contribute to security risks, but on that Mission Needs and costs. For example irs needs replaced 60 of individual master fires the ims the authoritative data for tax account data. Irs has been working to replace for more than a decade. Suspended two related initiatives as unclear time frames for completing them. Implementing a recommendations to establish time frames for disposing and other legacy systems would provide accountability and reduce risk. Irs sale document complete modernization plan. So in summary refining and caring on its Inflation Reduction Act, irs should work toward implementing open recommendations. Chairwoman mclean, chairman sessions Ranking Members and members of the subcommittee and i look for jury questions. Thank you now recognize myself for five minutes. I feel like im watching movie one side says are things going great the other side said is going horrible let me talk about for my district. Because i represent the people from my district today. I would like to begin by sharing more about the complaints i have received in my short time. This year. I have four constituents who have contacted my office because they have yet to receive their 2022 tax refund. Some have thousands of dollars stuck in limbo as they wait for the tax refund credit. Others cannot get assistance from the irs via phone despite waiting on hold for hours. They cannot get updates on their delayed refund status. The phone seems to be an issue i have a constituent who run Small Businesses say they cannot get an answer on the status just the status of their employee return on the tax credit application. My office recently for leasing this refund total would release them the advocate service intervene as well as the encounters. These are handful of the first i handful front frustrations for my constituents. May beat my office is alone on this and the people on the other side of the aisle have no issue. It is interesting. These are specific to my constituents the underlying pattern is essentially the same across the country. It seems like the irs is not performing efficiently or effectively. So my question is, why cant the irs provide taxpayers with quality phone service . At least in my district . Madame chairwoman, i appreciate the opportunity to respond too. First i think we did have a tremendously improved Filing Season from 2022 until 2023 as a result of the infusion of Inflation Reduction Act to fund specifically were able to immediately hire 5000 Customer Service representatives and put them on the phones. So for those who called to during thats the end of dinner to mid april we were able to answer 87 of calls within three minute wait times. Now, theres more to do print some issues you are raising is taking off in my brain different modernization plans we have underway. So for example if you file your original tax return electronically and you give us a pink count we can automatically debit for those taxpayers on average you get your refund within 13 days. That is what we achieved but if you do not file electronically now you are in a paper process. Quick switch takes longer we understand that. American taxpayer should have a choice we would love for them to file online but they choose to file on paper. Is your assumption there filing on paper if they moved to the electronic . That will be incredibly improve their odds. Quick sometime but phone service. Where you file electronically or file paper if i call you i still need to get someone on the phone to speak with me. I just met with a constituent they have been trying to get information from you since february. They said they would get an answer by october 20 someone would call them back with the status of just an answer its the 24th we still have not had an answer. This was a Small Business in our community. That has to do with Customer Service brake lights on the offer to things that will help. Obviously adding more Customer Service reps, training, zone process. The second thing will help us modernizing our call center investing in things like more callback options. You can sign up, we will call you back. It also means more automation per there are certain things that can be done by pressing buttons versus waiting for human. And maybe your constituents needs a human if other people in the queue can be deflected. I got it one last point before my time is up. So i think what you are saying is we can modernize our System People would get a return call faster. Directionally. If that is the case then why in the Inflation Reduction Act is roughly 7 billion targeted to system modernization and Taxpayer Service . And the other out of the 80 billion, if thats the problem goes to enforcement and operational support. With that i wheeled back. Quick to chair now recognizes the Ranking Member. Mr. Commissioner you do not have an mr. Commissioner you do not have an easy job. It goes without saying the more this congress can help you do that job the better the performance for all americans. We have seen sometimes we increase in popularity and yet want to decrease the funds that are there to apply services to those people. Because we represent all of them, 770,000 in each of our districts we will hear from time to time for people for whatever reason would want better service. Im glad to be able to take the good news it back. On the Inflation Reduction Act and improving may not even be the right word in some case they are astonishing some of the peaks that irs is achieving. You said there were three things you that should be highlighted, Taxpayer Service, performance by the irs and performance goals. And protection of information for you pass this information along to the commissioner. What are your early reading sale new customer to select the irs is trying to find ways to get to those achievable goals . Yes you heard the performance and the Filing Season was significantly better than prior years. It does come at a cost though. The people answering the phones are the ones who are processing returns and correspondence. We think it is important there be a longterm strategy for dealing with issues like that thank you, thank you, that is good news at some point in time we ought to shout good news when it occurs. Madam chairman went to balance my time to the chairman of the full committee. Mr. Raskin. Thank you very much for that. Thank you for your excellent remarks and for pointing out its only after decades of deliberate understaffing and under financing and political attacks the irs has grown so unresponsive and ineffective to ripoffs by big corporations but the Inflation Reduction Act we passed last year without any republicans for the democrat said to increase the responsiveness of the irs to improve the effectiveness and advance equity there. U. S. Tax system is disproportionately targeted lower income taxpayers giving preferential treatment to the wealthiest filers. When we pass the Inflation Reduction Act it provided the irs with resources to make search and billionaires in large corporations would pay their fair share. Earlier this year our Committee Held a hearing to examine 2023 high risk list which highlights the federal programs and operations most vulnerable to waste, fraud, corruption, abuse, and mismanagement. Enforcement of federal tax laws has been on that list ands 1990 for the last 33 years. This years update presents startling data about audit rates for individuals between 2010 and 2019. The dotted red line shows the audit rate for tax filers making 5 million a year or more you see the dramatic reduction and audits taking place of the wealthy american citizens 1 of the American People. To decrease for everyone. In other words the irs was much less efficient in general. But the dotted red line shows it decline the most for people making the most money, is that right . Yes. What has Inflation Reduction Act done to your ability to actually do the audit to crackdown on tax cheating schemes . I appreciate it if it makes all the difference in the world. The Inflation Reduction Act are few low income you will receive better service. We will receive more scrutiny. Thats the agenda we are an taking under the Inflation Reduction Act. For Small Businesses we are using the funds and are laser focused. Why do some people not want that . Why is their whole political lobby long time. I find we are often have been the poster child of government. Big government versus small government enter the argument. I can tell you this the irs in this role now for seven months. All i find when i get there are absolute dedicated passionate Public Servants that want to do the right thing. They are not perfect they do not always do it correctly but they are trying to do the right thing. We are rallying around this mission. Page reach the irs you should be able to reach the irs for the wealthy and bad actors we are increasing scrutiny. The third, we are going to help victims of tax scams we are going to try to prevent them and hold the perpetrators accountable. That is the agenda. I really want the American People to understand a wellfunded irs can achieve great things along these three areas. Thank you yelled back. Quick thank you the chair now recognizes mr. Sessions. Thank you very much i appreciate the Ranking Member for his questions. With that said yesterday we spoke about the effectiveness of the irs, their ability to adapt themselves to what might be near Term Companies that offer Wide Services and how they have adapted themselves to technology, to the things that would be necessary and be aware of them offering good Customer Service. We also talked about and you and i spent a good amount of time talking about questions you do not want to answer that are extraneous to that matter. You heard me agree with you. I am not looking for an answer now ive penned a letter today to you that will be in the mail. It essentially goes back to some hearings we have held here in our committee on the testimony irs agents who are whistleblowers. They brought up information that it faced retaliation. I want you to know im sending you a letter im going to ask a you a series of questions about that retaliation. About your involvement of the agency. We are going to match up your answers with that we have received in detail from these irs agents who came into contact on a regular basis at the department of justice, the department of treasury. We are overridden on what seemingly could be described as as perhaps but they were held back we also see his political reasons. Next, recent Court Documents talk about how the irs contractors have reduced information a number of highprofile people. We just want to make sure that you answer just as you have today, about other things are not going so well. About the steps that you have taken we will be interested in them. That. Others will be interested in them. Even like three years ago New York Times ran a story about release of data and information. We have yet to hear back on specific information pertinent to that about an investigation they have made. Commissioner, please know this. We do have problems with the irs. We also know the irs has their own problems of trying to stay up with people and to do things. We believe this new money thats coming there should also go directly to fix the problems of people who are honest taxpayers are trying to get their work done. Getting phone calls that come in. Training that is necessary to where i and answer would be given. Strongly identify people we talked to yesterday about this. Gov portal that perhaps you are relying on and how ineffective that is. Billions of dollars hundreds of billions of dollars that went out that probably should not have received them based upon data that you are counting on thats fraudulent about those individuals. I want you to know that we believe you are under the gun. We believe you do not have the adequate resources Computer Systems are outdated. With that said we are also concerned about the integrity of highvalue people that you just spoke about. You spoke about the number people making 5 million not paying taxes. Do you not find out until the end of the year that you are not getting a regular 941 . You are not receiving the information. Why is that you cannot look at those people who are high valued people and make some determination earlier . Bucks we are trying to build the infrastructure to be able to do it more effectively. It is not one simple answer the way in which taxes are abated. Are the extremely complicated structures. Using offshore tax havens and issometimes mentioned. Its overstating deductions. It comes in a variety of different forms. What happened over the 12 years that predated the ira is due to budget cuts and a lack of investments weightloss track. We fell behind. For those taxpayers who can hire an army of lawyers in an army of accountants we fell behind in terms of keeping pace with the complex of methods they are using to shield their income. I know we are catching up. We are catching up with the scientists and subject matter experts. Theyre going to help us keep pace and identify the greatest accuracy where these issues are we select the right cases for audit and bring those funds due back to the American People. The referred to the recommendations of the irs has they afforded themselves have looked in about 85 of the recommendations. With the recommendations from ms. Judy about these high attempts of how to look at that. Recently issued a report on the Partnership Audit program and the recommendation the irs should improve its audit selection models. And we make sure defining and putting in place measures to the effectiveness of the program. And what was the response . They agreed with the recommendation for lex thank you very much i yell back my time. Thank you in the chair now recognizes mr. Raskin. Thank you chairman for calling this hearing. And also for your thoughtful remarks today. The American People want a tax system that is simple or and more responsive. I wish we could at have hearings on each of those. Just to take a look at simplicity for example ive lived in Foreign Countries they dont have meant multi billiondollar business and h r block and all these companies are trying to help people understand their taxes. Most peoples taxes 90 of peoples taxes could be done in 15 minutes or 20 minutes which is what its like in countries around the world. We should be having a hearing about why we have a tenant billiondollar plus business and helping people we have is one more hearing that beat up on the irs to deconstruct the state estevan promised at the beginning we are right and the e throes of it. One can only regard with amazement that any member of the Republican Party today would lecture the commission of the irs about efficiencies or organization, or anything else. Look at what the republicans are saying about the republicans today on capitol hill. As we lived through all of the reverberations of the chaos caucus. So the world is building around us but we are fiddling we do not have a strategy paid that is represented steve a womack republican from louisiana. We are fractured us as a member of this committee. Represented from florida it is not a normal majority cyst representative tom cole republican of oklahoma. Here is representative Marjorie Taylor greene talking about the republicans for this conference is absolute broken. Heres Kevin Mccarthy who used to be speaker who was opposed by the republicans this is embarrassing for the Republican Party but it is embarrassing for the nation. Heres represented david joyce from ohio who probably sums it up best, we are a party they cannot govern. Now the implemente ira says that providingde urces dramatically improve services to people and the effectiveness of the overall mission. It allowed them to create and adopt Digital Tools to process tax returns more efficiently. The agency greatly improved in Person Service, service over the telephone and online Customer Service. But we know a lot more needs to be done. I have a constituent who came in to see us in august. He and his wife had filed their taxes in april. But they got their refund from the state of maryland in two weeks after five months and multiple attempts to get the irs to send their tax refund. They still couldnt get it and reached out to my office in desperation and we were able to work with the advocate to make it happen but no one should have to go through that experience of bureaucratic lethargy and frustration like that. You are against a background of decades of deliberate underinvestment. The ira is also making the system more equitable for the tax laws against big corporations and ultra wealthy whove been able to get away before the commissioner how is the ira allowed irs to cramp down on tax cheats, is the investment paying off in terms of the money we are getting back . It is, Ranking Member, it absolutely is. We are putting them money to work today to take a variety of different steps. We are increasing the number of audits on the Largest Corporations using analytics that weve invested in to make sure that we select the right corporations of the highest risk of shielding income. We increase the number of audits on complex partnerships, something the gao pointed out, how anemic our Partnership Audit rate is and again we are using invested new tools and analytics to ensure that we are in understanding the type of trend is necessary to know where those complex partnerships are that are actually evading taxes so we improve the efficiency of the audit. As mentioned earlier we launched an effort to get back taxes from millionaires and billionaires and identified 1600 high priority targets if you will of millionaires and billionaires and weve already collected in the early months of 100 million in taxes. We have a lot of work to do Building Block by Building Block we are making changes to make the story you told a thing of the past. Thank you madam chair. I know you keep talking about millionaires and billionaires but youre also going after taylor swift fans who sold their tickets. The previous rule was that someone earned 20,000 and not more than 200 transactions that the bill 600 regardless the number of transactions so its not just millionaires and billionaires. Youre also going after auditing Small Businesses and others. I want to point out one of your predecessors testified before the committee in 2015 and he said it wouldnt be advisable to audit our way out of the tax gap, yet thats exactly what youre trying to do. I have a question for you, commissioner. If a tax filer manipulated a text document, would that be considered a form of tax fraud . Based on the way you described it they manipulate to misdirect grimace report. A penalty for that could be a fine up to 250,000 and up to five years in prison. Is that correct . It could be up to 500,000 in five years. Let me ask you this. If government auditors were similarly found to be backdating or manipulating tax forms of private citizens, but that also without alsobe considered a forx fraud . Its concerning. I asked you a direct question. If a private citizen altered information on a tax a document whether its a date or signature from a supervisor, it would be considered tax fraud and it would be prosecuted. It is a felony that could pay up to 250,000 in fines and serve up to five years in prison. So what are the penalties for irs employees who do the same thing and possibly jeopardize a private citizen on their tax filing . Whats the penalty . There should be accountability. What is the penalty . If you will allow me to elaborate i dont want a long answer. I want you to tell me what is the penalty . There is no specific penalty. It depends on the circumstances and circumstances with of the taxpayers as well. The wall street journal reported on this. Youre in court right now. The commissioner would be you for you have people that falsified documents, and thats not the only one. So did anybody get fired . Let me tell you whats going on. Maybe madame chairman, mr. Chairman, we need to investigate this. I have Major Concerns about the tax gap. Major concerns. The biggest problems with the tax code is its complexity. We have a separate tax code and i think we would collect more taxes rather than audit people rather than manipulate tax documents so that somewhere down the line of someone that filed a tax return doesnt face a tax bill and potentially a penalty because somebody at the irs falsified the documents so theres got to be some penalties. In any of those situations, and they are extremely limited and that we are taking all the right steps and all the right procedures to make sure that that situation is corrected. We will follow the right procedures for accountability. Will anybody be fired . Thank you. Im not going to comment on an employee process. If you find out it was done intentionally as the evidence indicates, keeping in mind the severity of the penalties that are imposed on private citizens, the least that anybody can expect is that someone be dismissed from their job and i hate to say that because i dont want to fire anybody for the consequence to their families but think about the lack of trust the American People have and the irs and put that first and foremost. I yield back. The chair recognizes ms. Norton for five minutes. Thank you, madam chair. I appreciate this hearing. Mr. Chairman, when the taxpayers reach out to help with their taxes, a specific filing or Identity Theft they rightfully expect and deserve helpful assistance. In the past of the irs has the duty to serve the American People who timely and accurate responses to taxpayers because of insufficient funding. But i am really pleased to see they improved their service in the tax Filing Season. Democrats historic investments in the irs through the Inflation Reduction Act have already improved taxpayers services. So, commissioner, the irs achieved an 87 level of a success answering taxpayer phone calls exceeding the ambitious 85 success treasury secretary set for your agency is that correct . Thats correct. Commissioner, the irs also dramatically cut the average time that a taxpayer has to wait on hold to speak to the irs to an employee, is that correct . Thats correct. Commissioner, for taxpayers who are unable to reach a live assistance immediately, the irs expanded its customer callback option, correct . Correct. Commissioner, how was the irs able to make these telephone and online Customer Service improvements . I understand they expanded in Person Service in the Centers Across the country. That is correct. Commissioner, what help can irs taxpayers expect to receive from one of these taxpayer centers in addition to these Taxpayer Assistance Centers that started a new initiative pop up services to assist filers and hardtoreach areas you might have difficulty getting a Permanent Location . We want to meet the taxpayers where they are. Not every taxpayer can afford an accountant or has the means to travel to a location where we have a walk in center. So we are going to wear the taxpayers are and we are setting up what we are calling pop up centers where we are accessible to taxpayers that need help. We are having saturday hours for taxpayers that cant make it during the week but are still working and we are Holding Special Sessions with low income taxpayers to help them with their refundable credit application so they get it right the first time. Commissioner, when taxpayer, when democrats enacted the act, we prioritized the taxpayer experience. We focused on building to meet the needs of taxpayers. Your testimony is clear that its already helped arrows the e longstanding Customer Service issues, but everyone still hears from constituents who have problems getting the refund as they deserve. So, commissioner, in recent Inflation Reduction Act funding runs through fiscal year 2021, briefly what is your vision for how the irs will serve 2031 and how do you plan to achieve this vision . I appreciate that question. The vision is taxpayers who need to reach us will be able to reach us quickly, get their issue resolved because they are either doing it in an automated way or effectively trained irs agent and that does supply a meeting the demand of taxpayer needs. That means we have the right number of centers where people want to meet us in person and staff in our call centers and our call centers modernized with the right for example jackpots, the right callback options, the right call routing so they are investing in technology from maximum efficiency benchmarked against the private sectors best call centers. And it means the website is operating on private sector benchmarks for Online Banking so you can go in and you never have to talk to a person or walk into a center. You can see everything you need and manager taxes and your online account. As i said earlier, brick by brick we are building the functionalities after 12 years of underfunding, we fell behind. Some of the stuff we can do immediately, some of the stuff cant be rushed. So, as you will see and Filing Season 24 thats coming up, there will be new functionality in the individual online account, new functionality of the Business Online account. There will be no functionality in the call center, or callback options, more chat bots. Incremental change, every Filing Season, they should see a better experience versus what the opposite was be for the Inflation Reduction Act and before we had this funding where each year it seemed to get worse. That could get worse as long as we hold onto that fund and make Smart Investments and im accountable to make sure we are making Smart Investments. Thank you. I yield back. The chair recognizes the gentlelady from north carolina. Thank you, madam chair. And i think the witnesses for being here today. Commissioner, can you explain that the applicable federal rate or afr is . I think you are referring to the overall tax rate for the public, if i understand correctly. The federal rate and as i understand is for the Internal Revenue service allowing for private loans. Is that correct . I believe you are correct, maam. Someone gave his or her Family Member including a brother a loan, would that person have to charge an Interest Rate equal to or higher than the current afr . I dont believe they would have to charge an Interest Rate, but again if youre going to walk me into a hypothetical i want to make sure im getting it right and consult with my team, but i dont think they are required to provide an Interest Rate. It depends if they are going to treat it as a gift or loan and theres a lot of implications. Then i have a followup. If a rate less than its my understanding that there is an afr and that it is to be charged. But if it is less than the afr if somebody gives you a loan and dont charge an Interest Rate, then its technically a gift which carries certain tax implications, is that correct . Yes. Okay. So if someone gave his or her Family Member or a loan but the Interest Rate equal to or higher at the time was not charged, would that loan be considered a taxable gift . Again, youre getting into a hypothetical where i would want to know a lot of other facts and have kind of expert accountants with me advising. I think its dangerous for me to say yes or no unequivocally on a fact pattern where i probably need a lot of information. There might be other countervailing factors at play. What kind of countervailing factors would you hypothesize . Well, im not sure where youre going with your fact pattern. I dont know im just trying if someone is deceased, the timing of the issue. I am just trying to determine if this loan does not have an interest charged. , then would that be considered a taxable gift . And other factors might come into play. As a general matter you are describing a situation that may have a taxable event. Okay. Next. The socalled Inflation Reduction Act gave the irs an additional 80 million in funding, and youve been talking about that. I think we can all agree that thats an incredible amount of money, right . Thats a lot of money, isnt it . It is. Even in todays day. Even after congress amounted to down to 60 billion of the physical response ability act, how many new agents does the irs plan to hire. We are hiring Customer Service reps, accountants, agents. We have published our three year view of staffing which im not confident on because i can make Key Assumptions about needs and market trends. We are at 90,000 today, and i think over the next three years we should be over 100,000 but not much over. Okay so how many tax enforcement agents out of the ones that he planned to hire would there be in that three year plan . I might have that number on me, congresswoman. Im about out of time. We should be hiring about 8,000 total if im reading my chart correctly by the end of 2025. You previously stated they wouldnt target taxpayers earning below 400,000 per year. How can we be sure that the new agents and tax enforcement resources will not go to targeting middleclass taxpayers and Small Businesses . I appreciate the question. We publish our audit rates each year and you can assess those by income level, so its a very transparent way of being held accountable that the rate for people earning less than 400,000 will not increase. So, you are guaranteeing that you will not increase the number of audits of people making less than 400,000. That is my marching orders to the irs and if we fall short of that, i will be held accountable for it but we will publish those rates. I noticed before you said your marching orders into little while ago you said you had control of the irs. Im glad to know somebody in federal government feels that he or she has control of some agency so we will come back to you with that. Im sure its going to show up in a minute that you are in control. I want to offer that a mentor of mine who is a constituent passed away recently. I know she looked up to you as a mentor as well and wanted to thank you for mentoring her as she mentors me in my career. What a nice thing for you to say. Thank you. Linda was a very beloved person. The chair now recognizes the gentlelady from california. Washington spends a lot of time and energy scrutinizing how our nation collects taxes. What do Americans Care about . They want their filings to be free, low effort and mistake free. Thats it. Filings to be free, low effort and mistake free and they want a good experience doing it. So lets cut through the washington noise and help people decide what tax filing method can get them there. Commissioner, lets say someone wants to file their taxes the oldfashioned way by hand. I used to think that was fun when i had more free time. Would that be a freeway to file . It would be. That would be free. I cannot get this marker off. Okay so that would be free. How about low effort . No. No. Its a lot of work. Read a bunch of documents, find cross referencing. Do filers that use this method make minimum mistakes . No, more mistakes. I made a mistake in one of your correction notices. So lets look at the tax preparation software. This is a multibilliondollar industry as my colleague mentioned. Would that be a free way to file . Generally know. They sell you a lot of things along the way. Audit defense into different programs and extra help that you can get. At all costs money. Does that method involve low effort . It can. So lets put a box there. And have about the mistake level, how are they using taxpayers the software catches the mistakes in real time. Lets look at accountants is that free . Definitely not. Does that involve low effort . It is a effort for the accountant and taxpayer. We hear the stories about people dropping off shoeboxes full of paperwork. Do they make minimum mistakes . They do although i would like to talk about holding them more accountable for things they do but they do make fewer mistakes. I would like to talk about that and i noticed that in your testimony so i will be following up but generally fewer mistakes. Lets talk about the direct file. This is a new option that you are rolling out in 2020 for a pilot program, correct . Correct. Will this be free . Yes. Will this require a minimum amount of effort . Yes. Will people have the benefit of eliminating common mistakes . Yes because they will follow the same structure as the tax software and catch mistakes in midstream. Okay. Three for three. Thats what im talking about. Im glad to some americans are going to have this option the next time they file. Commissioner, why is this just now becoming an option for the taxpayers . Theres a long story here where we have tried a variety of different ways to get free Electronic Filing for eligible citizens. We have something called the free file alliance. It has had mixed results over the years were some of the Software Providers offered Free Solutions but congress and its wisdom and the Inflation Reduction Act said to the irs you need to study the direct solution and it aligns to offer more options. I think its absolutely important as you walk me through these questions that all of these should be options for taxpayers if they want to do it by hand or higher tax software, go with an accountant but should they have the option to file direct, they dont have to if they dont want to but should they have the option you can make the case that the agency would offer that option. And its the one with the best of the criteria its the winner winner chicken dinner. It looks like the best thing. Who could possibly oppose the irs doing its job this effectively and making it free and streamlined and lowering the effort of people to pay the taxes. Who is on the other side of this . I think that there is a concern if we issue a direct file solution it will be will be to the software industry. Disruptive, you mean these industries right here making billions of dollars off taxpayers to get them to do something they should be doing by working with our government. Thats the concern ive heard. Do companies have a profit incentive . Yes. The only interest the irs has is an option that is free and easy and reduces mistakes for people to be able to file their taxes so lawmakers have a choice. We can support and invest in the irs Whose Mission is to do right by the taxpayers and who we can hold accountable for delivering a free low cost mistake free option or we can stand with special interest who want to see an underperforming irs who they can profit to the tune of billions of dollars off taxpayers. I know where i stand and i yield back. The chair recognizes the gentleman from minnesota. I was explaining to people the other day how people from other states cant tell the difference between minnesota and wisconsin. My apology. In china they invest in power plants and education degrees and in america we invest in irs auditors. Just a general question. Between 2010 and 2023 about what percentage of returns were paid for and what percent were computer filed and i take every year that the gap shrinks im not going to pull that affect you. We are up over 90 at this point. Where i was 15 years ago. I think it was closer to 50 . When you go from 50 to 93 or something, you would expect less auditors, wouldnt you . There would be something wrong if you computerized to that degree and have the same number. I think it depends on the complexity of the flailing because some of the flails that we received electronically are thousands of pages long and we are seeing a spike in the complexity of large multinational corporations. I just rely on common sense. We are on to something else. The political activity on their part leads to audits. I dont know that its true or not. We talked on the Oversight Committee about the politicization of the fbi. I wondered have you ever done a study, we dont do it and wisconsin but other states people register republican democrats. As the employee pool, are we tilting too much towards one political belief . Do you have any idea . We absolutely dont ask that question. I think it would be inappropriate to ask that of our staff. We do make it clear that it is fundamental value of the irs but politics has no place in our operations or decisionmaking. We talk about wealthy people not paying taxes. Weve got to look into it. Sometimes they dont pay taxes because of foolish Public Policy decisions made by the people up here. Im thinking things like a tax credit for a fancy electric vehicle or section 42 tax credits for wealthy builders. Could you give us an idea of why wealthy people may not be paying taxes . I think there are two trends. One is what i will call very aggressive avoidance where they are looking for the best tax advantage status but because we have not been under the appropriate watch they pushed too far into the gray area and needs to be pulled back. Second is intentional. Moving money when wealthy people put a zero at the bottom of their tax return and say they did something wrong. Certainly not in every case. I would imagine in most cases, no. Why dont you look into it or do a study of people, i dont know, people who it appears have a lot of wealth and let us know what type of tax. There have been studies done im happy to share with you. Okay. Good. Now the next question. The Inspector General reports that they issued 3. 3 Million Advanced Child Tax Credits to 1. 5 million ineligible americans. Can you explain how this happened and if you can also explain how the oneforone tax credits invite cheating . Theres always a Program Integrity challenge with any federal program where you are giving money to beneficiaries. Unfortunately, there are many who would look to exploit the complexity of the tax system for their financial advantage or along the way. Dollar for dollar, things like the earned income tax credit, Child Tax Credit its so easy to cheat and make a lot of money, isnt that the problem . The one clarification i would offer is the basic mistakes because of how complicated is to apply but there is a part of the error that is concerning. Its a small part but its a concerning part that is intentional fraud. Okay we will go for another one did the irs see more claims filed after the American Rescue plan made an increase in Child Tax Credits . Did the number of claims go up . Im not sure. I would have to get back to you on that. Okay. Illuminating if they are. The irs reported as of july 31, i will turn it back over to my chairman here. The distinguished chairman yields back. The gentleman from florida for five minutes. Thank you mr. Chair and to the witnesses. Republicans have spent more than a decade working on the irs through funding cut after funding cut. At the same Time Congress has tasked the agency with enforcing one of the most complex tax codes in the world on a growing population with increasing wealth inequality. The irs struggled for years to provide the level of Service Taxpayers deserve whether that was processing peoples tax refunds in a timely manner, performing audits against highrisk individuals or enforcing tax law against fraudsters and those that made false business statements to get loans. The agency struggles with Customer Service in several ways but two of them that i am especially concerned about are ourthe old it systems that cant digitize the forms and the it modernization blunders. Earlier this year the Government Accountability office gao found the irs still uses massively outdated it systems. How do the systems impact the taxpayers . The legacy systems are at the heart of a lot of operations on the concerns processing and accounts management as well as enforcement and so its very important and that also has the effect on accuracy and on speed of processing. So its very important they be able to implement the plan and prioritize the different modernization initiatives that have been placed and that it be clear about the goals into the timeline of the progress. So it seems it also contributes to the security risks, unmet Mission Needs and cost, correct . One of my constituents reached out because she waited more than six months for her tax return that she desperately needed. She was told 120 days then 60 days than she had to wait for a letter and then she got the letter and it said she would have to wait for a year. At the irs operated more than 600 legacy systems including the individual master file system and the software is written in a coding language they dont teach in school anymore what is the importance and do they have the funding they need to stay on track with that goal. It is kind of the engine, the infrastructure. If you went to the atm and took out money, by the time that you logged on to your account it already knows you took money else but that isnt true in the irs. It takes time to process that information and move it into an account. The system cant move or communicate quickly enough without online solution. Not only do we need to move to a smarter more manageable architecture. Its also going to be more secure and is a keystone for a lot of the efforts and we do have some good news. The good news is in april, so after this Filing Season we are going to turn on that modern system for the first time and run it in parallel with our legacy system, work out any kinks and hopefully get it up and running so we are making progress. Are we making enough money . We have a modernization budget as people have pointed out. The issue was on the base budget. They run the trains every day and thats been underfunded and its still underfunded. We have to borrow from the modernization budget to pay for the base budget and as we do that, we raised the modernization budget and then we might not have enough money so the answer to the question is we have enough money as long as Congress Appropriates the base budget. It gives enough money to run the daily train schedules and we have enough money to get the job done. As a commissioner howell these efforts that weve spoken about improve the 2024 Filing Season of people of Central Florida but also across the entire country . As i said earlier, the improvements we are making are visible and when they come to us in january to pay for their taxes, we are making specific improvements, so we are changing things for Filing Season 24 for example we are replacing the scanner and processing equipment so we will be scanning and processing more quickly. We made changes to the online accounts and more functionality to the individual online accounts. We updated and are redesigning the notices so they are easier to read and follow and more plain language. We are enhancing the outreach. All that happening in the Filing Season 24 and a whole host of additional incremental improvements in the Filing Season 25. The idea is each year to get better and better and where i see opportunities to accelerate i will push for acceleration. The goal is to do things as quickly as possible and as safely as possible. My constituents cant afford to wait a long time to get to their tax returns and i think for every member to be on the same page we cant defund the irs. We need to modernize it. I also want to thank all the hardworking federal employees who are serving the country. Thank you and i yield back. The gentleman from South Carolina is recognized for five minutes. Thank you mr. Chairman. Part of the duty is to ensure the taxpayers are treated fairly with quality of service and are injured the protection of their privacy and confidentiality. I understand this is important for any agency to play. However, these are serious instances in which preventative measures failed against Cyber Attacks or Tax Information was mishandled resulting in needless and very expensive damages to the american taxpayers. Since 2010 theyve made over 450 recommendations aimed at strengthening the safeguards for taxpayer information and access to text processing systems. I want to start by asking you how many open gao recommendations are there with of the irs grandly . As i mentioned in my statement implemented about 85 of the recommendation. Theres others that are still open and some of those that are key include 40 recommendations from our Financial Statement audit related to Information System security. Related to some of those, both types, what are most of them about . Its a range of different topics. Some identify threats and make sure it has systems in place for that. Understanding the risks to the systems. So many recommendations have been given to the irs since the appointment of the commissioner. That i would have to get back to you on. In july of this year they sent a letter to the commissioner that encouraged congress to hold hearings focused on the irs progress and withhold funds when appropriate or provide incentives. Are you concerned with their ability to keep pace with the gao recommendations . Its an ongoing conversation between gao and irs. We do have a followup process and weve seen progress particularly on those recommendations that weve identified as being related to the enforcement of tax laws in d highrisk areas and those that the agency has designated as priorities but theres those about making sure that it has, that its able to communicate information about the correspondence backlog, that it has a Human Capital strategy in place as i mentioned in my opening remarks that on the Security Side its adequately protecting information and that its got a centralized monitoring of contractors who have access to taxpayer information and employees who oversee contractors know how to report if they see a breach. Your website says most fraudulent tax returns but the fraud is suspected the irs will contact you with instructions. How long does it take to identify fraud after a form is submitted . I have to answer in this way it depends. Sometimes we can see just how with whats submitted we will run an algorithm and Say Something is very off and there is a fraud. Sometimes someone will call with a tip to the tip line. Sometimes the gao and Inspector General will point something out. So theres a variety of Different Reasons that manifest itself so there is no set a time. Are you able to say whether its increased under your watch or not . Its too early to sell. I am trying to make sure that we are spending our money smartly on investments to improve detention. Commissioner, taken into a different tax year, has the irs entered into any mou is or any other agreement with the Treasury Department of the cfpb for the purpose of sharing consumer level transaction data . Not that im aware of. Great. Mr. Chairman. With that i will yield back. We now go to the gentlewoman from pennsylvania. You are recognized. Thank you mr. Chair. To get to the core of what the nation values all one would need to do is look at what the government encourages tax credits and deductions and who it decides to audit. Unfortunately the biases and inequities these embedded in the history and much of the presentday tax code. Earlier this year researchers at stanford policy Research Released a study showing how the tax system disproportionately targets black families. Researchers found black taxpayers were three to five times more likely to be audited for nonblack taxpayers. I ask unanimous consent to enter into the study into the record. Although the irs doesnt ask about race when its filing the individual tax return the irs is automated. The gao has been looking into how they better understand how the tax provisions expect individuals and families differently on their ethnicity or sex. Can you tell me about what the Government Accountability office has discovered this far . We have ongoing work looking at the audit rates and audit selections in equity and that is something we will be issuing later this year or early next year. As far as the information that is available to look at the disparities, weve recommended Congress Helped facilitate information sharing between those between treasury into sentences and others to be able to do studies on inequities and also that they consider things other than imputation models to be able to do some of those studies. Thank you. Its unacceptable especially when it de prioritized the audits on the wealthiest americans jumping 50 over the last decade has dropped by 92 present in the last ten years and in 2021 the Research Found of the top 1 of u. S. Income earners failed to report more than 20 of their earnings to the irs. Gao is trying to conduct work on this topic is that correct . Thats correct. What data and evidence are you tracking to demonstrate the equity in the prayer ready at the irs . First, congresswoman i want to acknowledge how important the question you are raising is. I want to acknowledge the approach we must change it. Weve taken the step of reducing the number of audits of the credits and shifting that emphasis to the tax evasion and changes to the algorithms to the refundable tax credits to promote equity against all demographics and we stated publicly that we are providing updates on how this is playing out. We are working with a variety of different external stakeholder groups continuing to work with researchers at stanford. Im very motivated and very inspired to get this right. What would you say makes auditing the top earners so much more difficult . The audits are very complicated. The structures were complicated. They hired lots of outside consultants, lawyers, accountants. It is a, they litigate. These things take a long time and unfortunately in the 12 years that predated the act we were not making the appropriate investments to keep up. Think about how different the worlds versus in 2010 when the budget cuts started. Crypto currency in the globalization of the movement of funds during the bath time it became easier for wealthy individuals and organizations to work to shield their income. We have some catching up to do. President biden issued his First Executive order to the agencies to examine their policies and how they may create or perpetuate however unintentional the outcomes that are barriers to equal opportunity. Im pleased to see the irs is taking this seriously. You mentioned some of the steps youve taken and i appreciate you sharing that. I look forward to continue working with you made with my colleagues and congress to ensure the taxpayer system is there not just for the wealthy elite. Distinguished gentleman is recognized. Welcome back. Great to see you. What happened between 2011 and 2019 . Overall the budget was decreased. Can you be a little more specific . It went down significantly during that time. I dont have the numbers in front of me. Perhaps you have that number. In real terms it went down roughly 20 to 25 . 20 to 25 . Did that have any relationship at all in terms of the performance and capability of the irs and that easier time period . It had a significant impact. Like auditing . Every dimension of the operation suffered from the lack of resources. Customer service . Processing of refunds . Yes. So, ms. Lucas, it seems to me if you want to come here and testify about recommendations and compliance you want to take cognizance to be more specific in your awareness of what happened in an eightyear period and by the way, all of it generated by this congress. The very people that we here complaining about Customer Service dont want to mention many of them or their predecessors voted for stringent cuts in the irs including their ability to replace legacy systems and it, including ignoring audit, in fact welcoming there were fewer audits because their friends were not audited. It seems to me we cant be here with of this administration or this irs commissioner. Weve had testimony from your predecessors about money left on the table leaned over to the federal government and legitimate taxes but not collected because of this capability problem youve described. We have used the figure. Your immediate predecessor appointed by then President Trump said it could be as high as a trillion. What is the number you operate within terms of money owed to the federal government but not collected every year . The latest information we have is the gap that you are describing is about 540 billion you must be good at math. 540 billion a year. Lets take that out as we often do times ten. What is that member . Could that reduce the deficit significantly . Yes. So you think people that are deficit hawks before we talk about raising taxes make sure everyone who owes money to the irs pays it and therefore we need to the irs to have that capability. Would that be a sensible proposition . The recommendations we are hoping the irs can work them into the Strategic Operating plan because its important now it has the additional funding that it has now this opportunity to address some of the longstanding challenges in Customer Service and it modernization. The high risk categories one of which by the way is legacy systems which i took up and worked closely with the head of the gao to try to address that and i think weve got a high margin of doing that although the irs remains a case in point. Shouldnt the fact the irs itself now estimates over half a trillion dollars a year shouldnt that be a high priority for you and for us . It is definitely. Let me say, commissioner i want to work with you and i hope the committee wants to work with you. We can talk about tax cheats, but if we are going to have voluntary compliance at the rate we continue to have its got to be perceived as a fair system that what is asked of me is also asked of him or her and we have got to come up with concrete plans to bring that number down as close to zero as possible and i am a democrat willing to even say every one of those 540 billion ought to be used for deficit reduction. Its not a zerosum game. Weve got to do something about this and the reason we havent been able to is because of the deterioration we constantly allowed and voted for into the e final question speaking of resources, was your budget reduced in the debt ceiling agreement that was achieved a few months ago . The modernization budget was reduced by 21 billion. Im sorry, what did you say . 21 billion reduction. So here we are talking about your ability and inability and flaws and mistakes and we cut your budget again by 21 billion is that your testimony . It is. I thank the chair. The gentleman yields back his time. The gentlewoman is recognized for five minutes. Thank you so much. Im going to pick up right where the representative left off. Out of curiosity do any of you know the definition of insanity . I think you are referring to doing the same thing over and over again and expecting a different result. That is exactly what i was referring to and it sounds like that is what this party is good at. But i want to talk about the name of the day. Commissioner, you said over and over the word complicated. I wasnt keeping a tally but he was headed a lot of so i want to work with this word a little bit. I have a list of items i would like for you to let me know if you believe they are complicated or not. Tax returns. Complicated. Operating without proper investment. Complicated. Recruiting workers in this antagonistic environment . Complicated. Millionaires and billionaires . Complicated. It sounds like you have a complicated job and it also sounds like you have to know something about math. My colleague brought that up as well. It sounds like you need to be at least somewhat decent at counting to be with the irs, yes . I would agree. Its so weird because my colleagues on the other side of the aisle wanted to call this hearing this isnt the first or second. Ive actually lost count myself of how many irs hearings we are having, and they seemingly feel like they can fix your very complicated issues but somehow, they arent a good at a simple math, simple math that would get them to a speaker, you know, like right, weve been three weeks without one. Let me ask you another question that may be another one of these situations. There was a looming Government Shutdown a few weeks ago, and interestingly enough, when i do the math, approximately a little more than 60 of the people that sit on this committee actually voted to shut us down. Out of curiosity for everyone that claims to care about their constituents, do you think its easier or more difficult to operate as the irs than, say when there is a shut down . Or home also left lots of phone calls sounds like they had a lot of performative politics taking place Million Dollars. Also talked creation is to talk talkabout the fact billion doll. 540 billion is a net number, correct . Like 540 to go get it. And thats how much were going to get we are talking netting 540 billion pretax 540 billion we are on track to get a 400 and how is it the American People should believe has the ability to solve complex issues were number one, they do not Pay Attention to history which was defunding this organization has not helped to their constituents to her therapist at once. So let me add to that the last time i checked america is going we were defunding their organization and ending up with the more people you are correct, correct . More population, more filers or changes to the tax code complexity of the enemy. 2010 when it started we never heard of paypal, then melt all these platforms. Again in the economy changes thats great but we have to invest and be ready to be as effective as administrator of as the world changes. Thats we keep our funding at pace big rex i agree and as a child of an irs worker apps and i thank you for what you do and i think my mama for what she does for the American People as well. I wheeled back. A gentleman feels that general from South Carolinas recognize for five minutes per. Thank you, mr. Chairman. It has been over a month since the House Oversight and to the Domestic International business dealings to determine whether they compromise national security. More importantly President Bidens ability to lead. Over 20 million in payments to fisa from ukraine, from china jaliscos on. Thereve not been in the whistleblowers quit seems to be a twotiered system of justice. This is doing the job the d. O. J. And the fbi were supposed to be doing. We were initially told theres there isno communication between President Biden hunter biden about hunters business dealings. That was false number until President Biden not communicate and that was determined to be both President Biden did communicate Hunter Bidens business associate it was on about the weather, that was my favorite one later determined to be. That was in President Biden may have commune with hunter biting his Business Associates discussed business on multiple occasions. But President Biden never received a benefit he said show me the money we recently have direct evidence 200,000dollar payment from jim bite into his brother joe this is a new one, that the loan repayment the white house seeks to feeding the American People narrative the president s done nothing wrong perhaps a little advice. Given this committed the long document provide evidence 20000 was transferred from prison biden to jim bite in the preceding month or years. Document this alleged offense and if you can do that help us understand how its ethical, legal for the president s father to leverage the influence hundreds of thousands of dollars from a Distressed Company from dangling a possible bailout from a middle eastern investor. The white house tries to show the American People the president did nothing wrong to not forget Oversight Committee receives thousands and thousands of pages of bank records fully expect thousands more once we uncover more and more nefarious activities. This is the first of one anticipate will be millions of dollars. So now to commissioner of ones question. Do you promise to act in a nonpartisan manner . Pursue justice no matter where it takes you . Imp. Thank you between the lowest in the whistleblowers of impropriety within the irs it seems to be a problem. We need to restore the American Peoples faith in the institution. The Oversight Committee is doing the job the d. O. J. Irs hunter and jim biden possibly present biden activity we will continue to move forward. We need your help to restore faith in our institution with that mr. Chairman i yield back. The judgment yields back is time for thank you very much. The gentleman from california mr. Garcia is recognized for five minutes per. Thank you tour witnesses. Administrator, i also want to pass along my thanks to everyone at the agency pretty special the Taxpayer Advocate service. My team back home is really impressed working with the team and really dedicated servants and is not always an easy job. Just recently a constituent of mine reached out to Identity Theft issues had not received tax returns in 2021 or 2022 we worked with your office and the tax service were able to secure overseas 16000 back to her plate this is a story that we hear over and over again in our office but that would not be possible without the two workers you have it. I want to thank you and remind folks this is a hard business there people working really hard to give folks the earned dollars back. So thank you for that. Glad were having this hearing and i know the irs often times faces a very difficult task. We all know the work you do is necessary we should all every Government Agency to be as efficient as possible at work as effectively as possible but better irs means better Customer Service, better refunds meet a better economy everyone recognizes this and obviously when Congress Passes a law we should also be enforcing it. Enforcement is so important. Something is very focused on when i was mayor of long beach before i got here about a year ago. And it matters in the irs. I am very Glad Congress and President Biden came together to fund the irs enforcement division. Especially to go after the very wealthy tax cheats that are regular and regularly are not paying their fair share in this country with the very rich should pay their fair share if they do we could reduce the deficit at inflation get Better Services it will all lead to this into of course the very rich billionaires and millionaires cheat on their taxes and get away with it. Ill point this out here in this and weve been discussing this a little bit. This goes to show you the irs enforcement helen depleted between 2010 at 2018. Enforcement personnel and the audit rate. You see the impact this can have on an agency. Now administrator, can you confirm between 2010 and 2020 irs enforcement. That sounds right. I know the majorities but this is also been a House Majority of the irs and work against additional funding. This chart shows the impact this has had. The audit rate for the Largest Corporation has plummeted. This is suit the majority i believe is working overtime to protect it is to protect billionaires and millionaires were cheating on their taxes, not workingclass people and middleclass folks. This chart is concerned to the agency but it certainly should be concerned the American Public. Commissioner as it currently tax cap was the amount of taxes owed comes to nearly seven showing over the last decade . Yes. More than a quarter of that comes from the top 1 bracket, is that right . I am very specific numbers on them. For example what i just mentioned individuals that are more than 500,000 associate with 40 billion thats from roughly about 200 billion to the individuals involved. 500,000 per. The irs the irs now they can in the be able to do more. Promise to the card for middle out in the bottom up not the top down when to take on tax cheats especially those at the very top lowering the deficit is good. Taxing the very wealthy is good at making sure people pay a fair share what they owe the government for the basic services will depend on as the country is also very important pretty want to thank all of my colleagues for having this hearing. I want to thank you both your work i look forward to continuing and ensuring the very wealthy way their fair share i yield back. A judgment yields back his time. Is time. Commissioner there was a conversation with a member how the irs looked at perhaps identified and treated people who may be of color. You gain information about people then why would you have responded that you look at that and made decisions from that . That is not my testimony. What is your testimony . Looks my testimony is that a Research Group from Stanford University using what is called in imputed identifiers of race. There is no recent data in terms of taxpayers identified not as a treatment but it impact. Basically saying on average our audit algorithms or have the unintended consequence of having black families in a higher audit rate in non black families. This is an analysis of what you are not using actual razor using imputed recent data. We do not collect data that we dont plan too. You have made changes as to a result of this. To adjust the approach and working to external stakeholders again using in imputed mess methodology our fair its all demographics not just race. Took so fair if you are applying the law as you know their authenticity, their rights. It has you look at the law based upon some consideration. We have a responsibility to all of our operations in a nonbiased way. There should no disparity or impact. Following the law. Following the law it is our responsibility under the law to make sure the irs operations are carried out. It is helpful. The cases where he gives us an outside instead. We studied it. I think the congresswoman entered the report on how they integrated in the report. They looked at it and said yes. Based on this analysis the way we are selected that would not be considered what we believe our responsibilities implement the tax code across all demographics. So we are making changes in the hopes the next time this is tested the disparity impact the longer exists. We will look at that. It seems like a threshold by which you would look at this. Is that more and generally specific correct . I dont think so its refundable credit not related to any demographic. Just a specific cut in volume. The researchers and in the Stanford Report michael with that figure be then . I can get you the data. I want them to be realistic i think youre entitled to set thresholds. And i want to be realistic what these numbers hour. I do not want us to find a way to where we might be discriminating or discriminatory. But i would be interested in what the special numbers were and what you have changed them too. On behalf of this subcommittee the chairman and the Ranking Member, we want to thank both of you for taking time to be with us today. I want to thank you for taking time to speak with me the other day. But to try to be fair and would probably be prompt i did not know we were going to get off like this. I just want you to know that i appreciate what you have done in taking the time here. And also from the gao. There is the distinguished ranked member have any comments you would like to make . Thank you very, very much mr. I want to thank you for your guidance on this issue we have spent a lot of time talking and trying to figure out a bipartisan to these hearings so that we could receive this testimony on have an opportunity to go over it. Thats more effective not less effective its really up to this committee to set the example. Mr. Commissioner, i said before you got a tough job, you really, really do. There are no silver linings, note magical bullets. Nothing else that is going to set this where we all wanted to be on the right track six hard at work and oversight. We do our oversight we expect you will do dogged oversight in your role. I cannot tell you the last seven months you have been there have been very, very encouraging. The provided by gao which are not touch points but guideposts that will be taken seriously not only that but reviewed periodically with gao. They are indeed working. It is a tough row to hoe but somebodys got to do it. We recognize we cannot do without the irs in this country. And yet we all know we want it to be better each and every year. One of the ways to do that is to make sure its properly funded to be able to do the sort of things. It is been on the record for some time now that irs has improved Customer Service to our constituents we all know its not perfect. We spoke of those phone calls in our offices. Our staff still have worked for months and months and work it tried to mildly satisfy and bring about resolution cases. Im glad to report Getting Better britt irs is opening both permanent and pop up taxpayer assistance and trust me sir those are very, very needed. A lot of people do not know where to turn. They want to do the right thing by compliance and complying with the law. They just need in this instance a helping hand. Oh forward to talking with a chair about this. We really believe is the oversight body here it is our function but more important our duty to try to find a way to get answers and to provide the larger American Public with one sense and some cents not that theres continuity here that there is cooperation here as we tried to move forward. Mr. Chairman, i have a couple unanimous consent request i would like to read into the record. I would ask unanimous consent to enter into the record this letter that is dated july 19, 2023 from a coalition of more than 200 National State and local organizations organization including texas area united way, raise taxes, unitarian universal fellowship of texas and the Michigan League for Public Policy to the irs commissioner in support of the irs free program. I would also ask an animus consent for Treasury Department press release entitled Filing Season 2003 the irs delivered significantly improved customer and the irs Strategic Operating plan for 2023 2031 which outlines the organizations plans for implementing the 80 billion coming from the Inflation Reduction Act paired. Without objection for. Finally mr. Chairman and ask unanimous consent to entrench the record a statement from for Taxpayer Advocate nina olson accompanied letter dated june 21 of this year from the executive director of the center for taxpayer rates. Nina olson to the Treasury Department and irs commissioner regarding the implementation of the irs 2023 2031 strategic operative plan. Without objection pickwick thank you, mr. Chairman healed back. Thank you very much paired fr before end of this i want to say i attempt to run this with an understanding about working with each other in a fair manner not only to our members but also to the witnesses we asked to come and appear. We do expect them to appear we do expect them to follow our guidance of working with each other. We end this hearing we want to come and shake your hand and thank you for being here. With that and without objection all members of five legislative days within which to submit material and additional written questions. For the witnesses, which will be forwarded to the witnesses. There is no further business without objection the subcommittee stance adjourned. Quick sir, thank you. 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