Transcripts For CSPAN2 IRS 20240703

Testifies the 2024 tax Filing Season and President Biden 2025 budget request for the agency. During the hearing the commission from the Senate Finance committee and irs efforts in improving Taxpayer Services. [background noises] finest commando come to order. Today, the Committee Meets to discuss irs budget and tax Filing Season was closed yesterday. I want to thank commissioner for being here on a very busy time for everybody at the agency. There are lots of issues to discuss. One that is certainly important to the American People direct file. Anyone who denies the direct file pilot was a huge success,re my guess is you are living in another universe but its open to a fairly small percentage of taxpayers but the reviews i got from its initial users were overwhelmingly positive. It seems like a whole lot of people were very stunned that a federal agency, particularly one as frequently vilified as the irs was able to build a helpful website that works. The tens of thousands of taxpayers use direct file this year collectively saved millions on fees that they would have paid toward the taxis software giants. Website was userfriendly but is quick and easy to use. Did not hassle it uses up charges or add on services they did not need it. Direct file shows the irs could build a good tool that people like because it saves americans time and money. No surprise the people who oppose it are absolutely furious absolute furiousand once again g they can to stop it from growing. The detractor said it did not attract enough users with tens of thousands of newew users came in over the last week with the irs hit its goal of 100,000 taxpayers using the system. There is no doubt in my mind that this will be more popular every year. Others have said cost estimates were too vague. The fact is theres always challenges with Pilot Programs. Note the irs has tested the system and set of baseline theyre going to be clear Going Forward. Finally, there are some the whole project was unnecessary. They have said taxpayers have the option of using free filesystems through the big tax Prep Companies. They may have had a valid argument years ago because before the tax prep giants got caught hiding free filed optios from eligible taxpayers they were conning people into folk forking over hundreds of dollary they did not need to spend. Congress simply cannot go around trusting the big tax Prep Companies to do the right thing there were some of them their version of free file is the freedom for americans to pay them even more. The bottom flying direct files long overdue and Public Service and federal government ought to be providing to americans whenever it can. Hunters and the irs and Treasury Department rvalue and have a Pilot Program over the last few months for the person i believe this be expanded. Im looking forward to the day when oregonians come up to me im one of our 51 grocery stores. Ive been to every single one of them having had chicken and each one to tell me how thrilled they were to save time and money with direct file put on the topic of vastly improved and programs returned to the irs the irs answered live assistance than it did during lesters Filing Season. Call waiting times under threewi minutes. Save taxpayers 1. 4 million hours of time than previous years they would have spent basically listening to music and being on hold. Smash at school for inperson Service Despite this is success competently that been complaint on the other side of the aisle. Demonstrations asking for money to sustain the progress. Im not sure what is behind that may be going to go to the bad old days when got hold for hours and did not get timely refunds. This not make sense to me. The second policings in the road the irs is proving to provide topnotch level of Taxpayer Service when Congress Gives of thean resources. Just a few words to close on enenforcement the irs has announced some major enforcement efforts in the last few months cracking down on 125,000 cases what wealthy individuals many people who bring in more than a Million Dollars a year never even filed a tax return. Let me repeat that this is not people try to figure how to gain the system. They are sufficiently contemptuous of the rules they never even filed a tax return. Tax breaks hyatt flying executives who takes tax writeoffs for personal travel for example. And in my view similar abuses more blatant. Produce big writeoffs i find it hard to believe anybody Congress Continues to cut the irs funding or if the Inflation Reduction Act funding expires in congress is not add more, we know exactly what will happen. Wealthy tax cheats will have an easier time getting away with breaking the law. Lots to discuss this morning, collects him to thank commissioner for joining us. I look forll to the question and answer session. Thank you, mr. Chairman welcome again commissioner. I agree andd appreciate the wok youre doing and the progress that you have made. Theyre going to be issues that i at rays today however. The irs needs to be accountable for theay choices it makes, bece more efficient rigorously plan, provide full transparency andeh timely solicit real feedback from inform stakeholders Like Congress before acting. Despite claims 80 billion in new phone date would transform the irs into a 21st century agency, the president budget request indicates otherwise. While modest progress has been made, there are other areas where the agency continues to miss the mark. For example, last year i raised concerns i with the irs strategc operating plan including its vagueness missing line item cost projections. A year later, we are still missing important details. Yet, this years budget asks for even more on precedent irs funding. More than 104 billion. This underscores the initial was not a cure for the irs is not transformed and the president believes the only way that vision can be achieved is to spend more. While i support a transformed irs, this approach is not the solution. For 80 billion but would expect the transformational Customer Service changes and fully modern front end and back end it. Taxpayers have paid for mail to be opened several million of taxpayer correspondence remain unanswered half a million id theft cases remain unresolved. On average, years later. It modernization funding is also scheduled to run out. Years before the irs finishes updating its systems. I assume this is to impart to the bulk of the ira funding being directed to enforcement. I dont disagree with the enforcement answer collects my chairman has identified. Emblematic example of just spend more no questions asked is the direct file program. Despite already being a multiple of three filing programs i saybe that again multiple free filing programs offered by the irs, the agency embarked on a redundant government run taxpreparation project complete with all attended inefficiencies and conflict of interest. Just last week, the government t Accountability Office report a highlight of the many ways the supposed Pilot Program has not followedow best practices. Including key planning, budgeting and accountability failures. The report noted while gao could not determine how much the program has and will cost to operate, the irs not having provided sufficient information to do this the current tab far exceeds 100 million. Just to fiscal year 2024. For an option that might only serve 100,000 taxpayers this y year. In contrast the federal government spends less0 than 5 million a year to have two three million taxpayers served in oneon of its free income tax preparation programs. Where the irs to use this years direct file spreading to pay thirdparty providers to prepare and file returnsre instead, will literally hundreds of times the number of taxpayers could file. For free. The irs spending hundreds of millions of its finite funding to simply test to do something can already be done more efficiently with Better Outcomes and without the very real conflicts while simultaneously pleading for more funding calls for more oversight. Codirect file is not the only concern. Other serious concerns include the continued irs use of biased data post effective metrics to plan and justify its actions. Indiscriminate irs Enforcement Campaign sent pressure on us hot taxpayers and waste government resources. The irs is continued and disproportionate over improving commissioner, while i appreciate pthe positive steps the irs has taken during your tenure, so much remains undone at the irs in any victory lap is unwarranted. I look forward toim your testimy and i thank you, mr. Chairman. All right. Our witness todays commissioner daniel c the 50th commissioner of the irs. The consulting group. Before joining them now meant to be the control of the office of management and budget posting certain years before becoming acting commissioner in 2013. The office of management and budget in 1987 the policy analyst in the office of information regulatory appearance. Welcome,e. Please go ahead big x works chairman, Ranking Member crapo c members of the committe. Thank you for the the opportunity to testify the Filing Season and the irs24 budget. Please report the 22 a for taxis and open on schedule generally 29th. Historic Filing Season unfold since then. The irs received more than 101. 8 million individual income tax returns and issued nearly 66. 8 million refunds for more than 21. 1 billion. Inflation reduction act of one of the best Filing Seasons advert in terms taxpayers are seeing a difference. Then we did a year ago than 3 million calls we did in 2022. Main phone lines have improved we dramatically expanded service or walk and cites increasing hours and serving our taxpayers. New expanded tools on irs. Gov and you see heavy use. Several ambitious transformational goals at the start of Filing Season. Irs employees worked hard to deliver. Here are some examples to early april. We committed 85 level of phone service under main taxpayer helpline during the Filing Season. Due as of early april we exceeded that goal it 88 . That is a huge improvement from 2022 went only 15 of callers could connect and receive support from a live assistance. We commit to an average call wait time of five minutes or less on that main taxpayer helpline. We exceeded that goal with our main line of phones being phoned in about three minutes. These are some of the examples of how we are seeing historic improvements in Taxpayer Service the agency is rebounding from very tough and lean years during the past decade. At the same time Inflation Reduction Act funding has enabled us to make critical inroads in the most complex and largest of filers this is a sharp turnaround from the past decade but we were hindered by a lack of resources. Our compliance work includes focusing on tax delinquency non filing among high income individuals. Areas we are particularly concerned about. We are also responsibly leveraging Artificial Intelligence and hiring the subjectmatter experts to find tx evasion among the largest and most complex and corporations. I want to be clear despite improvements this tax season the irs still has much more work to do on many fronts. Closing remaining gaps on phone Service Expanding digital options for all taxpayers further strengthening Data Security supporting vulnerable populations by protecting them from scams increasing access to earned incomecc tax credit and other refundable credits. Ongoing success hinges on sustained investments to make sure we have the right size workforce with the right training and tools as well as modern Technology Infrastructure with increasingly modern tools for taxpayers. Serve the nation today and in the future helping us is the fiscal year 2025 Budget Proposal. It gives us the flexibility fley increases irs transfer authority. So they can be used efficiently and effectively. Also help sustain a new irs a baseline of resources and immediate funding that would dramatically degrade our ability in many areas taxpayer saw this tax season. 2025 funding is necessary for us to build on our success this Filing Season and continue our work. Make for their fellow Service Improvements provide Digital Tools to help taxpayers pay for the irs to beta able to do all f these things adequate annual discretionary funding and complementary longterm when you probably think taxpayers this is a critical component that citizens do support our great nation. Please know all of us at the irs deeply appreciate and respect the time and care taxpayers take to did this vital civic duty. Irs employees remain committed to helping taxpayers in any way that we can. Chairman, Ranking Member and members ofvi the committee, that concludes my statements. Illlp be happy to take your questions. Commissioner, thank you. We very muchh appreciate you u,being here. You havein experience in both te public and the private sector. And it seems to me launching Something Like direct file is a little bit like starting a startup company. Tellli us, from a business perspective how has this project launch gone . It is going very well. I think of it as a product launch. We are putting a new product on the street if you will. Ctour customers, in this case taxpayers and if they think they would like to do the product in the future. We had the idea for the product to be put on the street with volunteers. We tested it. From about generally 29th until march 8 direct file product was testing with volunteer taxpayers who agree to submit. Very positive reviews but also able to make realtime fixes to the product based on Taxpayer Experience appeared on march 8 we were ready to go. That is omitted publicly available to the millions of taxpayers in 19 states were eligible thiss year. People tell us its easy to use. It is simple. Of course they like the price tag it is free. In the final days of the Filing Season was extraordinary increase in the pace of taxpayers violate with direct file per edit all and very smoothly. What the massive fraud we are seeing in the Employee Retention tax credit program. As we all know this was a really help for people during the pandemic. But it was a blow or it told me not to long ago, there is now an avalanche of fraud. Something like 95 of the claims now being made are fraudulent, choking the irs systems and delaying valid refunds. The introduce with jason smith in the house the cut off that claims after generate 31, 2024 give the agencys new enforcement tool. My question to you is if this sentence on this bipartisan agreement seems to me fraudulent claims will continue to clog the system. They will cost taxpayers billions of dollars divert resources with lawabiding taxpayers, your thoughts . I absolutely agree mr. Chairman. We issued a moratorium on september 14, 2023. Because over the summer 2023 increasing number of questionable claims coming in. And we were worried. Not just about the financial bottom line of the u. S. Government. We were worried about honest all businesses that we sell are being taken advantage of by aggressive marketers and promoters. Convincing these Small Businesses they were eligible for a credit there were not truly eligible for but they said you get this at no risk to you and that was not true is also false advertising. We got to take steps to stop the flow. We did slow it but even today at mr. Chairman we are still getting 20000 new claims every week. Even when we announced in september that we stopped processing. This is because the law through 2025 these promoters are out pushing for these claims to be filed. I really do appreciate legislation you are sponsoring with chairman smith and the house that would give us the tools are there two things being harmed at that bill does not pass. One, financial bottom line of the u. S. Government because you are giving us tools to crack down on fraud. And two, in our big inventory of claims there are still eligible claims in the midst. Theyre very hard to find. Its like finding a needle in the haystack. With youre help we can get those eligible claims found and issued. And hold back from issuing the ineligible claims. I talk to chairman smith late last night. He wanted me too say we are pulling out all of the stops to get the legislation passed. If i were to go through all the groups, conservative groups and other groups or for this administration we would still have your tomorrow morning at breakfast. Im not going to do that. We are pulling out all the stops to get this passed. Last question was asked for the ira funding and Customer Service. This Filing Season and seems to be a major success the cut call wait times to three minutes but expanded customer call back service. Open to reopen 54 sites for inperson service. There is new Digital Tools you cascan millions of paper filed returns for that ought to speed up some refunds. Commissioner, howell taxpayer noticed ira funding is improved service this year . Thats a. Nba, so we get this star what will they visit the funding is cut . Has sought a big difference in the past years in particular this year. Could used to serve taxpayers how . We have the right number of interphone center they are trained, they are answering the phone calls at peak efficiency. List ira funding to modernize our call center things taxpayers want. Like a callback option and chat bots and Automated Solutions you do not do weight on the phone if we can get a out the irs can be done by pressing a button or speaking out loud. These are things taxpayers are seeingn and feeling and it is making a difference. We are also using Inflation Reduction Act funding to update irs. Gov with their a tools. There are things they can do individual online accounts now. Updates to reflect we have over 500 million hits the irs. Gov this year. It is a record for us. We believe it we have updated tools taxpayers to find it useful. For example be able to submit documentation to the irs electronically rather than on paper the post office. S all of that needs to be sustained for this is what is critical about her Budget Proposal. Our Budget Proposal is not saying we need not singly a lot more money to get the job done we have gotten for example the service to an extraordinarily high a level. The money we are asking for in the out years of the president s budget is to sustain for we do not want to t lose 5000 new sisters. We do not want to have to fire them or lead them offered them his phone calls on that answer but the funding we are asking for is to make sure we can sustain the right size Customer Service workforce and the right tools of this new Service Level that we have achieved can be sustained into the future because im over my time. Senator crapo. Thank you commissioner, the first issue went to talk with you about have significant issues with that in idaho. Existing all across the country. Almost two years to revolve idf cases flagged by taxpayers to the irs. Your staff also indicates the irs currently has a backlog of almost 600,000 such cases. During the time a taxpayeraw awaits the irs resolving a cap many negative outcomes could occur including irs itself taking actions that are hardly already victimized taxpayers such as imposing liens or levies. As a sign of how pervasive and troubling these cases are im instances where state and local governments have reached out to congress to assist with their own id theft cases. Now im not asking you to comment today in any particular case. My staff is been in contact. But you will agree taking years to identify id theft victims claims and promise not acceptable in a delinquent time in the sheer volume of the backlog needs to be improved rapidly. Would you agree to provide me your responses no later than your responses to the committees other questions on record a report detailing the concrete steps the irs will take to quickly and thoroughly resolve these unresolved id theft cases . As well has an analysis of why there are so many of these cases in the first place . Yes, absolutely we will commit too that. D. I appreciate that. This is something that really needs towi be highly prioritize. The next issue i would like to go to with you is basically the direct file. What i see is a lack of transparency regarding the way it has been managed. When you last to testify before this committee raise concerns with the way wasteful direct file program. The irs was only studying. We told ways and means committet and then he would come back and talk about it with congress. What happened is the very same day you issued your study both the gao have since flags as missing Key Information andge analysis. You announced irs was going to do direct file. Putting aside policy concerns with respect to direct file. The irs a statute authority to implement direct file program what is that authority . We have authorities under the Internal Revenue code to provide Taxpayer Service to taxpayers and update the tools and solutions taxpayers used to file. We lived in an world to be had only paper forms. Then we moved to a world where for example w we can put a pdf form on the web people can fill out the pdf form on the way we did not need Congressional Authority to do that. We worked to develop as you mentioned in your opening statement, a partnership withee the Free File Alliance with commercial Software Providers to add and work with them and support their efforts to support free electronic solutions. We did not need Congressional Authority to do that. And now, we stand here where we are hearing from taxpayers but not every taxpayer but some taxpayers they want an additional option. They want additional they have paper, they can go on a pdf file to the commercial software provider. We can aspirate legislative authority. Yet another option on the menu. It is our assessment that we have the authority to add such options on the menu. Maybe theres another option to come after direct file. This is the irs working with taxpayers, serving their best interest in making sure we are giving them options to make their life less stressful and easier as they file their taxes appear quick so pursue this more with you later. I only have time for one last question. 90c at this question. Us his budget request for another one third of four billion dollars. You stated before the irs would have a decade to rebuild with the 80 billion in irs funding. There be a healthy pressure to immediately take the bonds and demonstrate what a wellfunded irs means at the time many of us raise concerns about that level of funding, which was five times or more the i budget of the irs, it was stated we need that money to maintain these employees. Now i am understandingly 104 billion more to maintain the employees of the irs. My question could be when will it stop . But my question is now with the irs has requested an additional more than eight times its annual budget for more new multiyear spending, one is it going to end . What is the actual amount of doubling, tripling, multiplying the size of the irs and budget in order to accomplish whatever the objectives you say cannot be accomplished with what is being provided. When will we see theit end of te amount of phenomenal multiplications of the size of the irs and budget request . Im glad you asked the question senator. I would like to take a moment to explain the budget as quickly as i can we have a base budget and we have a modernization budget. The base budget is too small to serve the tax we have today are base budget is roughly thesy sae as it was in 2010 the tax system is grown in a variety of different ways. More filers, a gig economy, or complexity. Thousands of changes to the tax code. As a tax system grows our base budget stays constant we have to rely on the modernization funds to close thatud gap. What we are asking for in the funding is to create a new baseline. The tax system continues to grow, we have the right set up to run the train schedules that are created by the tax code. Itan is not about asking for moe and more and more money to build an ever increasing irs. Its about achieving a baseline. What happens in the out years is all the money goes away. If you look at 2026 we lose all of our ability to maintain services. Lookbi at 2028 and 2029 we lose all of our ability to maintain technology because there is a cliff. That money you are describing is a concern is intended to address the clips in the out years. When taxpayers come to us this year were able to answer close to nine out of 10 of their calls in three minutes time with the president s budget is saying please make sure that same result exists in 2026, 27, 28 and 29. Thats all were asking for prayer. Eight 100 that existing baseline . It is not eight 100 . Its different in services than it is in operations. But currently two or 3 billion esa year. Half the service baseline as an example. The tax system continues to grow. Increased money is a combination to provide towe taxpayers. From the train schedules we have today and overcome the clips that areli coming. Okay. Cetera carper then followed by senator grassley prayer. Thanks soat much. It was 14 months ago we sat at this table behind you was not your Leadership Team from the irs but your wife, your kids, your parents and i thank them at the time for sharing you with all of us. Just conveyed to them i still feel that way and i am encouraged by the leadership you have provided. Ii want to say to my colleagues on both sides of the aisle, some of us previously served as governor. We have in irs we have a Delaware Division of revenue that used to provide lousy service. Ve we did not do very good job collecting taxes are owed. We want towe work on that we did not fix it in a year. We didse not even fix it in a oe term. But with accident eight years. The year i stepped out as down asgovernor of the state of delaware will receive the quality of work for service. I dont job of connecting revenues owed and we balance our budget eight years in atsca rowe can be done it can be done overnight. Talk about direct file if we can. A major step toward improving the Taxpayer Experience on i think 12 states could directly file with the irs through direct file. We look forward to working with you and your team to build on the success of this years pilot to bring direct file to taxpayers in all 50 states including the first day of delaware. Commissioner does the irs right next tax Filing Season . For the next Filing Season and how . As we sit here today direct file pilot is still up on going. Massachusetts is one of the pilot states. They have until april 17 to file. Heres a plant once the pilot is complete will gather the data we started gathering the data it will port out publicly information including costs. Sitter crapo mentioned in his remarks cost estimate that may exceed on not seeing that in early dated not even close to that. I am looking forward to having a public discussion around what we saw it was the demand was with the performance of the product was the cost was once the pilot wraps up and we are a couple days away from that once we get that information out to the public space that would expect for going to hear from some stakeholders werepa going to or fromtaxpayers and will hear from states. We are from members of this committee and house ways and means and then we will make a decision will consult with secretary yellin the results have been encouraging. There was significant demand for the products. When we release it on march 8 to the public we anticipate at that time based on traffic we would see about what her to thousand users by april 15. We blasted through 100,008 on april 18 or 14th and were still getting more returns and demand exceeded without the date we launch the product widely. We dont see anything in the earlyy data that points to over exorbitant costs per but again which of the public discussion. And then we went to make a decision as transparently as we can. Thank you for that. I just have direct file if i could. Support the direct file program can participate next year. Is making sure theres balanced information out there is intended to be an option. Not intended to be mandatory. It is still taxpayers are paying their own taxes through us at withoutthe irs preparing the tar you. W people can opt out of it anytime they want and switch a product. Merger from taxpayers in delaware and other states more broadly, what do they want from the irs to make the tax filing process asas seamlessly as possible . How can we reduce their stress . A lot of taxpayers are telling us a free solution worked direct with the irs online is one option would like to have. Winter from your citizens in delaware what they think. Until we can be ever more informed and how we serve taxpayers most effectively. Mr. Chairman bruce to hold a lot of town Hall Meetings in a respective states. I remember every year right tax Filing Season opened on the statement of three counties meant everett county would help people file their taxes. We would prepare their taxes. We would have an exercise in people to help us balance a budget. One year we were having a hard time a big group was getting a hard time. The citizens are having a hard time balancing the budget and work on defense spending, nondefense spending, worked onn entitles him and could not balance the budget and the exercise of woman in the back raised her hand and said yes, maam . And she said we are having a hard time do you have any thoughts . I said well, if you have not thought about revenues and trying to get us to this but revenues are part of the solution but its not just raising tax rates. Its making sure people cohabit and theyre paying their fair share. Late in the back of limbs and i dont mind paying even more taxes i just want to make sure everybody else is paying their fair share but thats what were trying to do here. We are going to move on. I dont think youre retiring your retiring weregoing to call. Senator grassley. You know that i spent a lot of time listening to whistle prose throughout the bureaucracy. Let me speak about, i know on july 21, 2023 irs supervisors special agent emailed you asking new direct senior irs leadership to stop retaliating against him. On may the 18th, last year irs special agent emailed you to disclose his concerns about the irs handling of the case that he was working on. And i have an opportunity to talk to these. I note they have asked to meet with you. What they want to discuss with you, i assume they want to tell you what is wrong within handling of certain cases. And i would think you come at the top of the irs, it will want to listen to them. I am not going to ask you a question but im going to do now what i told them i would do. I was going to ask you to meet with the two of them. And just listen to them. Whether you take action or not is up to you but i think you ought to at least listen to them. I think a whistleblowers throughout government are some of the most patriotic people i know. I would ask you to do that. Now, i want to go to my first question. The irs Whistleblower Program which you know i was involved in getting enacted that is brought 6 billion into the federalve government. Its been a pretty effective and efficient program. But to get their case closed is up to 10 years. The long average wait time is in part due to the irs policy under this policy the irs what weight gears until all the years of claims are completed to pay anythingng whatsoever. Effectively the irs is creating barriers to pay awards on their own that are not in the whistleblower statute passed by congress. So, you need to examine the unnecessary policy in the irs revenue manual and worker to allow partial rewards to be paid to whistleblowers as quickly as possible. Could you do that . Senator, im glad you asked the question. Between the question senator crapo asked Identity Theft backlogs of the question on the backar log of the claims are pointed to High Priorities as we move forward. As a set of my opening statement, we had aod good filig season but we have a lot more work to do. These are two areas but i will commit that is an interesting recommendation on partial payments and the way we can potentially accelerate how whistleblowers who provided such valuable information to us get their fair share of the money they saved for the american taxpayer. We will look into that and ill get back to you also, since i did not get an opportunity senator crapo i will get back to you on Identity Theft. Another big priority and a big issue we have to do better at. I am glad whoever makes arrests for people who violate the law and the irs because this one contractor is now serving five years for disclosing information. But i kind of a wonder how it activists like him who wants to be contracted who presumably got a job for the sole purpose of making Public Information about taxpayers. In this case i guess he was after trumps tax returns. How is an activist with plans to share taxpayer information hired and gain access to information and what action is the irs taken to ensure an active employee or contractor is never able again to access and share sensitive taxpayer information . Thank you for the question. Protecting taxpayer information from unauthorized access is an absolute solemn responsibility to the irs for the individual you reference it betrayed the trust of the irs and the American People at the trail that cannott be tolerated. Based on what played out in court it is not being tolerated is this bad actor was brought to justice and will be serving a fiveyear term in prison. From my first day on the job, back at march of 23 it is a top priority to strengthen Data Security at the irs. We have taken numerous steps to address this. Working to make sure we have there to do list along with our to do list. Fewer viewers, stronger oversight, better access logs, tighter email controls, new printer controls. All of this is ongoing and being put in place to make sure this type of unauthorized access by a contract in this case is a contractor or an irs employee could never happen again. Theres always going to be that risky. What you try to do is narrow the risk to a small as it possibly can be. Insider threats and unauthorized access from Insider Threats is impossible to get rid of completely. But i am committed to reducing the probability to a small as it can be by putting in the sweat equity to close all those gaps. Commissioner, i am senator grassleys partner on that whistleblower effort and have beenen for years. I bring much support to the fact youre going to make those issues about whistleblowers at senator grassley mentioned a Party Going Forward but i will be working with our colleague from iowa. Thank you, mr. Chairman. I appreciate it. Commissioner, thank you for being here. I am considering taking a Political Risk this morning. Which is to use the words good news and the irs in the same sentence. I really want to call out a moment when there is a lack of confidence among the American People and our governing institutions. Particularly technology by government agencies. Im going through that misery my self as the American People are with what the department of education has failed to do on the form we worked for years and years to try to improve it. And now the American People are having to struggle with absolute disaster that it has become in terms of implementation. And i have to say it appears to me the irs direct file effort may be a model of Government Technology implementation. That is certainly been the experience of people in colorado. The restaurant wonder to thousand americans who have used this to file their returns for help many more states a lot of colorado ands have interest in using this tool goinger forward. I wonder if you could talk a little bit about how you were able to successfully deploy this, commissioner . And what do you think made the direct file effort successful with other technological across the federal government. I apologize for that sound like a supple question but is such a rareth occurrence. I am proud of what we are able to accomplish this sees it i am proud of the success of the direct file pilot. I also acknowledge there is a lot more work to do. As a look across the irs there are areas where we can learn from the success of the direct file and her own Technology Operation and our own management success. Very long to learn fromit as we. The first big decision we made was not to go to big and to make sure we focus on what i call executional certainty. We could have tried to release it direct file to wait more states and away mark taxpayer eligible to use it in the first year. What we need to do is find the right firstep step the User Experience the cost but not try to hit aex home run at our first atbat. D and so we went out to 12 states and based on the way we scoped it , Million People were eligible we could have scoped it a lot bigger. We also waited until march 8 Filing Season started march generate 29th we couldve gotten excited and so we will release this to everyone at first a Filing Season to really drive a bigger impact. We wanted to take a weeks work with a small number of volunteer taxpayers to see how their experience was to work out any bugs. Its image easily for the first time theyre going to beat be mistakes lots of testing. Lots of prioritizing executional success versus the big splash. And i think also we work across a government but this is done not by irs alone. We had a lot of help from people at gsa. We have a lot of help from the u. S. Digital service in tiparticular. Who brought Agile Technology product expertise. Work sidebyside it was inspiring to visit that team room. See the energy and excitement to different parts of the government working together so well. Ultimately and this is a little geeky it was Agile Technology that was the eyeopener. There is a whole discipline around how you move more quickly to delivert incremental functionality. How you strip through bureaucracy and get decisions made more quickly. You take calculated risks more regularly. The irs is so different but federal agencies tend to not be after when they do technology but that is when you hear about projects taking five, six, seven years. By sizing this increment increment thatha impact. Were able to be more agile, have executional certainty and launch something we can all learn from. Y where direct buyout goes from here. Were not ready to announce that but one thing is for sure taxpayers who have a positive experience with it and we all learned a lot from this experience. I i think my colleague i would just say to them i dont think in the history of the finance committee we have ever heard anyone given eloquent explanation of incremental technology. Excuse me incremental functionality. Very much appreciated. Piglets had to start somewhere. You did you get points on the board. Senator whitehouse bro. Thank you very much chairman. Thanks commissioner for being here. First of all let me echo what center bennett set a meat pretty regularly with my taxpayer at rhode island she has seen her work load expedited quickly as the caseload c she carries to hp rhode island constituents to be able to move much more rapidly the irs in the wake of the funding. You have a fan that can show real results from the work you have done to simplify and speed things up at the irs. The topic i want to raise with the was one of race before thats a problem 5o1c3 and 5o1c4 enforcement. My view is when the Supreme Court performed at Citizens United decision, that unleashed a enormous amounts of money into the political system. Made for the first time a very significant consequential thing to hide to the donors work. Once you got tens of millions of dollars its thousands of dollars. They went straight to work the first it was 5o1c4. We will concede the irs did a fumble of the way it handled that. But, at the same time the problem was real. People started looking into the abuse of 5o1c4 there was a massive right wing push back using the bow machine. The next thing you know your predecessors being threatened with impeachment. Referred to the department of justice for criminal prosecution since then two areas ongoing violations. One the plan cycling of money through 5o1c40 of sport related sitting from table. It sends it to the super pack. The second one takes part at 50 said that to the super pack and they take 25 and send it to the super pack. By the timing of the fourth when he got more than 90 of the money goes into politics. Contrary to the rule of 50 which i think was a sloppy role to begin with. Butaking it as a given, this isa cheesy end around. Do not see any effort at enforcing it. The second is that the stateoftheart they are virtually indistinguishable. Theres no effort whatsoever to pierce the corporate veil or investigate whether a 5o1c3 and a 5o1c4 are legitimately thing in their lanes in the show the same staff, same address, same gedonors, same boards, all of that. I really urge you to take a look at this. It is the wild west out there west of not enforcement. And i know youi guys took a beating. Of the Obama Administration did not send it for the organization back then. At some point the sheriff has to put his boots off the table, on the ground and clean up the town we badly need cleaned up. I want to make sure you get to the right answers on effective filing of the appropriate rules for 5o1c3 and 5o1c4. Between fiscal year 2020 and 2023, the irs worked 100 unique cases under a new campaign. Is that enough . No. Theres more work to be done. When i i describe with the Inflation Reduction Act funds enables us to make investments to spot complexity and to address complexity. That complexity often happens in multinational corporations, offshore tax havens and all of that. Theres also complexity in the taxexempt space as well. The situation with taxexempt as you very clearly outline his fraud. With risk and delegate decisions that need to be made. There are i was a 10 different paths for how you move forward in force. Eight if any could step in a pothole and really mess it up. You have to c be really, really cautiousen in how we scale our enforcement efforts. There is any politics in the irs operation. Nonpartisan we are tackling the issue in a way thats above any reproach. Of your goal here is not to enforce the law but to avoid reproach people who dont want you to enforce the law can use approach or keep you from enforcing the law progress want to make sure we are Building Trust with the citizens. I am ready to roll up sleeves and work with you on how do we build off the water to cases we have launched. Ramp up our enforcement brain ready to take criticism, that is not my concern. The issue is making sure that broadly taxpayerst believe theyre taken the right process. The oversight as well to make sure there is no risk, or no perception of any politics in our operation. Im actually committed to that. And of course im willing to work with the on it piglets my time is now up, thank you chairman. Okay, next to be senator cassidy than senator warner provokes thanks for coming in, appreciate it. Maybe the first time we met certainly the first hearing i think i pulled out clippings from the Reagan Administration talk about how the irs is modernizing their computer nevers and about how itin happens. Now you are not the only agency. We never accomplish it. I have a sense custombuilt for the irs. I have done a little research. In 1994 federal acquisition streamlining act. A law that prohibits the government from starting projects off the shelf solution theres offtheshelf solutions right now to capture fraud. To answer people during tax season ai can do that. Only 29 of phone calls off the shelf stuff six weeks or six months they did it. The irs doing any of that . Yes. But it is mixed. Where we see an opportunity to use an offtheshelf solution, we. Need to seize it and there are instances where we will use for. In all due respect, by what means are you viewing . We try to understand for example if we have an opportunity to use voice recognition. Computer and say, can you tell me about my refund, how many days until i get it, that the computer understands. They do not have to wait for a phone and the computer says, your refund will be issued to you in eight days. That is something we have an opportunity. Why reinvent the wheel . But when you have something that is very specifically wired to having to accommodate the complexity of the tax system, like somebody filing an amended return, right now the way we process amended returns is automated. Sen. Cassidy let me ask, have you gone to industry and asked them if there is an offtheshelf solution . I say this because operation warp speed was warp speed because we did a lot of offtheshelf stuff people thought had to be customdesigned. When i read about ai in ukraine or israel it is kind of it was not entirely offtheshelf, but adapted onthefly. I say that we are really good at software. So, who is making the call that this is so specific that it cannot have an offtheshelf solution . Are you soliciting to see that there is . Mr. Werfel look, i am in agreement with you. Offtheshelf is the way to go and thaty in general the governmentte agencies tend to ty to customize when theyey should end so i have the same guiding principle that you do that why modify it, you should modify your business processes to meet the solution as a better approach and we can certainly be more aggressive in that space. I would like to come back to you if you are willing with some inventory discussions around where we are and maybe look at theoo gray area to move more offtheshelf. Let me ask you this because my staff is taking notes. If this is what we are going to talk about and be ideally within three or four weeks and this is what well are going to talk abot and give us a week to call three or four Different Software companies, could you address this because i think there are capabilities you and i are not familiar with and frankly a Government Agency may not be familiar with even at its best so if we can schedule the follow up and get a little advanced notice and time to scout that would be fantastic. This is going to make my day. [laughter] one more thing, the irs decided to delay implementing change to the form 1099k reporting threshold for transactions on thirdparty payment platforms for paypal. Enacted under the American Rescue plan in 2021 and moved from 20,000 to 200 taxpayers transition. The irs will keep the 20,000 into the 200,000 threshold for 2023 in a phase it in and 2024, so can you discuss, and by the way senator brown, bipartisan we put in the red tape reduction act that would raise the threshold to protect Small Businesses so cansh you discuss the authority to delay the implemented walls and can you explain how they arrived at the 5,000 threshold for 2024 . Yes, i can do it quickly. First, we have in all responsibility to implement all tax laws in a way that protects taxpayers rights and a bill of rights is written out in the law as a result theres been times where in order to protect the rights we had to ramp implementation of the law if it was going to be overly burdensome to them or potentially overtaxed them beyond what they owe food and wind of this created both risks, so we felt in order to meet our statutory responsibility to implement the code consistent with off the taxpayer bill of rights this is one occasion weve done it before where we had ramp implementation of the law. Receiving a slew of 1090 nines that they wouldnt know what to do with, a lot of confusion how you would simply basis of some kind of good that he was sold on one of the platforms so many questions came in and we asked a lot of questions like what is the right way to ramp this consisting from confusion, burden and t beginning overtaxed that will allow them to deal with a smaller number of transactions and customers and a lot of receipts back to the u. S. Government. The next three will be warner, lankford and johnson. Thank you mr. Chairman. If you are going to get to senator cassidy this information about not recreating we have to customize on everything in government and the products offtheshelf and also there is an enormous challenges in this area theres a great deal of upside so i hope whatever information you get can get to me as well. Is this really the way you want to spend this part of your life . Im a little surprised weve gone through a number of questions and you havent been asked one of the first even some of my republican colleagues dont like all the money knowing going ithink most of them woulde better enforcement and its been most recent estimate and a ten year span there has been some testimony that while you indicated you are with individuals in terms of enforcement but theres some reference theres upwards of 500,000 of additional revenue from the investigation garnered. Can you give us u some sense of this kind of record investment in your organization what does it look like in terms of how we are making progress in closing the tax gap and what metrics can we see . Weve gone from 30 minute weights. Second weve made a commitment to use the reduction act funds in an enforcement andt exclusively a large complex and we are just Getting Started weve announced initiatives for wealthy individuals who havent filed about 125,000 of them we announced initiatives to collect delinquencies for millionaires and billionaires that owe back taxes and weve announced efforts to crack downun on some transfer pricing to shield a profithi in common the u. S. And move it to a different tax jurisdiction. Weve announced efforts on cracking down on the largest most complex partnerships through our particularly sophisticated using ai to spot that complexity. We believe the efforts that we are undertaking under the Inflation Reduction Act and we issued a report on this a few monthsnt ago could result in 700 billion in return. We were debating earlier the president s 25 budget and concerns were raised about the out years and i described needing that money to make sure we are sustaining what we are able to achieve end of the economy continued to grow in its complexity. That would also return about 341 million over ten years in additional revenue thats why itsit so important it is such n interesting debate because theres two things at play. One its making sure we cann hep taxpayers that have questions, filing yourer taxes can be stressful. The tax system is complicated and its heartbreaking to us that we cant answer the call so having e enough funding to have the right size and Customer Service but also its a special to the governments bottom line that the irs is closing the tax gap. Let me just quickly because i know my time is running out. One area i get a lot of concerns with the Customer Service families whove got a loved one thats a diet and how you deal with the deceased processing yells some plans on how we can improve that part of the service. Theres a couple areas when you look at topics where we hear from taxpayers its complicated and they are not getting as direct and Clear Service Identity Theft victims weve done a fairly good job preventingng Identity Theft, but on the back and once youve been victimized and you raise another question in terms of families that are dealing with deceased relatives and resolving it gets confusing. Our time is up but i hope that we can come back with a plan. Thats one of the areas we have a lot of concern about. Senator langford. Its good to see you again. Its an incredibly difficult job and this week with all the filings and Everything Else going on we appreciate you being here on this. We were just asking about the venom oh requirements that our colleagues added in the Inflation Reduction Act that there be reporting on people that actually use venom zero and therean be new filing requiremes in ways that would come from that. Youve expressed that there is a flexibility on that interpretation based on other statutes. This is part of the challenge right now is the flexibility side of things to try to determineth what is something tt can be counted on and how that is interpreted and where it goes. Sitting at the same table a few weeks ago was a Business Leader from the hudson corporationus talking about they were doing chemical manufacturing for ev batteries but the tax credit piece, the concerned restriction that was out there dealing with that was waived by the treasury and irs so that that company that was an American Company no longer was competitive against the chinese Competitive Company even though the statute itself says that thatss not allowed, there was a waiver that was given to a company that directly undercut an American Company on that a so the predictability becomes a big issue. Where im headed is this administration took out the review for the irs for new regulations obviously previous administrations had an additional review and my question is for the irs to be able to have the review for regulations they are putting in when youve expressed the flexibility that you have to be able toss do that but every othr entity needs to have review under the administrative p procedures act . That is a great question. Ironically at the office of Regulatory Affairs i am a big proponent of noticing comment rulemaking and im always telling my team if there is an opportunity for us to go out for Public Comment whether its channels like the administrative procedures act or any way that we can telegraph where weny are going and going back to the 1099, that is what we try to do in terms of how we have Public Meetings and open forums and webinars to try to hear the concerns and reconcile them and make sure that we are accessible. I know we continue to do noticing and comment rulemaking and i know that for example the recent regulations on crypto currency we got 40,000 comments on it so we continue to have that process. I will have to get back to you on the nuances of how we continue to work with omb. Its a different path than other agencies. We continue to feel accountable to make sure that we are leveraging the noticing comment as often as we can. When we dont want to go through review, we dont have to. When we do want to go through review, we do. I dont want to situations like that because then its unpredictable and its back to the flexibility issues this committee has talkedbi about ofn dealing with the pillar one and two conversation out there and it is expected to take away 120 billion from american taxpayers. The committee in particular asked the treasury to say are you going to go around of the committee and cut out 120 billion and we are still getting this push and pull back and forth so what is predictable and consistent if i could move on to a couple other quick things one we work on the Charitable Giving and this is an issue thats important incentivize into something that will come up in the conversation next year where we are dealing with a lot of tax policy issues but in an area that we need to get insight from on what is happening in the Charitable Giving and our understanding that have to be stopped incentivizing Charitable Giving during tax code we had a dramatic drop in this and the Charitable Giving in the country nonprofits. We are also working a lot on the tax cuts and jobs act. Obviously thats coming up next year for the bonus appreciation. We have a lot of debate right now but it was interesting to me that we have seen such conservative locations as harvard, princeton,ty University Chicago currently recently put out a study saying that based on some of the business tax pieces there was a 20 increase in investment and also an increase in taxes are actually coming in. My question is there is a conversation happening about trying to raise the business taxes again. Based on this study that youve seen and others, are we continuing to see more business now than what we saw years ago . That is a question that i need to get back to you all and in particular because it is more of the domain of the treasury and tax policy, and i dont want tool get out in front of them, t i will coordinate with my colleagues and get back to you read. The time of the gentleman is expired. We are going to keep going because i know there is a schedule. We are going to just keep going. Next will be senator johnson. Will you commit to a meeting with those whistleblowers . What i committed to is relying on the Inspector General to run the process to make sure the right of the whistleblowers are protected so i will consult. Im not goingin to jump in fron. So your answer is no. Last year there were pretty bizarre things going on it seemed like an unannounced home visit. We wrote to you about that and you claim to section 6103, which i understand. To some extent weve also seen agencies aliases to attack someoness home and irs attorney backing documents. My question have you investigated these situations . Has anybody been held accountable . I know you had an unannounced home visit, but have you investigated . In any situation where the irs makes a mistake or act inappropriately we have to acknowledge it and we did in the cases that you are describing. We have to then fix the issue, fixed the process, trained, put in new controls and as you mentioned, take appropriate personnel actions. Ive instructed the team in these cases to do all those things. Appreciate that. In the testimony you said as the tax systemu continues to grow ad you mention the fact of the economy is growing we have more taxpayers, i understand that but you also mentioned complexity. The tax system is complex. Ive noticed certainly in the inflation reductionic act the solution wasnt to address the complexity, but it was to throw more money at the problem. For my standpoint, i think we could do so much to help solve so many problems if we would address the complexity and try to start simplifying the taxes. So, that is my first question is is that something the irs has taken a look h at in terms of a project that would be the best way, would be the most effective simplification we can direct towards theif tax system. I would also ask you this is it more complexity on the individual side or the business side . Some sort of split definitely more complex on the business side. Let me just stop you right there. Whats interesting about that is the business taxes, about 16 last year total revenue if that is all complexity and again i dont have the numbers as it relates to the individual, but we dont raise anywhere near the amount of revenue thatsn more complex so that is just begging for simplification, right . We always advocate where we can for the ability to administer the tax code effectively and anytime we look at a set of laws, and in reality whats going on out there in the economy, we are always going to say heres where we can administer more easily versus not. Ultimately its up to the committee working with ways and means and my leadership over at the Treasury Department to decide how to change those laws. But yes there is the complexity not just the complexity in the tax law, but that feeds different types of corporate and large partnerships behavior we are s seeing really, really more complicated arrangements, the movement of money across the International Jurisdictions moving. By simplifying the tax code again notol economic behavior driven by the complex system part of the tax gap is complexity and people avoiding taxes not necessarily evading them,u but you make the tax coe complex theres a lot more to avoid. Is there something youve done or something you can take a look at . On a casebycase basis and discussing on the erc with the employer retention credit and you can still file into 2025 when the period of eligibility was between 2020 and 2021 that creates a lot of extra work for the irs and a lot of extra complexity so this is why we need more funding. So yes on a casebycase basis on an inventory basis like youre describing i think its a great question and i will go back and talk to the team about it. It is completely nonpartisan. Its obvious to fix this and i would like to think that the committee and congress could. Thank you very much senator cardin and i want to thank you and the Ranking Member for this hearing. Commissioner, thank you for being here and to the people you work with for all the fine work as well. At the irs modern it systems are critical for improving service is critical to taxpayers. In past years ive heard again and again from constituents about delays with getting their refund us and other taxpayers services. It issues have contributed to these delays for example difficulty in processing paper tax returns has led to significant issues for taxpayers, an issue that i know theyve taken steps to address. What are you doing Going Forward to modernize thehe it systems so families dont experience a delays in getting their refunds and other Taxpayer Services . On this i have some good news, which is the main system at the irs that is the engine for all individual returns is on the i cusp of finally being turd on into a modern solution and that is coming after this so we will havee more on that and be able to describe to you and the American People and your constituents how that will impact them with more realtime information and faster processing so there is some good news coming in our Technology Modernization efforts in particular how we impact families. Iv thats terrific. I look forward to hearing more about that. It is something we hear about literally daily. Different topics, cyber criminals often quickly convert stolen funds into crypto currency making it nearly impossible for Law Enforcement to recover the funds. This happened in a town in New Hampshire in 2021 when criminals stole 2. 3 million and then converted it to crypto currency following the cyber attack i pressed for the predecessor commissioner on how the irs could help combat this kind of cyber crime. He sent me a letter recommending stronger know your customer requirements of crypto currency exchanges. S. Commissioner, in your view how could strengthening these requirements help recover stolen funds after they cyber attack . I. Agree that theres a chan of events that occurs, and people along that chain need to know whats going on and outside of crypto for example suspicious activity reports by Financial Institutions and brokers are critical for Law Enforcement to understand where these activities are. If that is not mature yet into crypto space and brokerages, so i completely agree that is a place to focus. Thank you. Last question, last year i led a bipartisan push with senators wyden, grassley and langford to address possible tax obscured by artificialfi intelligence. One concern we raised the scammers could target seniors into smallbu businesses convincg ai generated emails that claim to be from the irs. What trends and possible tax scams has the irs seems so far this Filing Season . We have seen an increase across the board and our private sector partners tax preparers are also reporting an increase. A lot of very sophisticated science to understand what for example will convince an elderly person to pull out their credit card and o pay it for the sake f tax debt. We have to solve this through a combination of things. Awareness campaigns can help. One thing, senator, i participated in an International Tax summit and asked that my fellow commissioners are going to the world the same question. One of the big fixes out there that has helped is putting an end to individuals online tax account the basic flag whether the irs or the tax authorities are trying to reach you. Some of our nations have really disrupted ai impersonation by encouraging their citizenry to come to your tax account and see whether its us thats really trying to reach you. We have plans for next Filing Season to include such a flag in peoplesha online accounts. That is helpful because in response to the letter, i think that this is along the same lines you said to the irs was adding online tools that would allow taxpayers to verify so this is what you are talking about. We also have to educate people to sign up for online accountsey and not to panic when someone calls claiming to be the irs. Where is the irs in getting these online tools up and running to protect taxpayers . This is a big priority for next Filing Season. Its a combination of that but also kind of a onestop shop for taxpayers. All the notices that you may pahave gotten many times taxpays will have not and this is what is really interesting. Did you get a text, you get an email, a phone call and your neighbors got the same one, your work colleagues, the vast majority of taxpayers are not going to hear from us, so it is about educating that we are workinged to make sure my next Filing Season we have these tools in place. In the meantime we arece doublig down on awareness campaigns. Thank you very much, mr. Chairman. Senator tillis. Thank you mr. Chairman. Commissioner, would you introduce the lady sitting behind you whos been working for the irs for 53 years . Diane grant. Thank you for your decades of service. And from tennessee, senator blackburn, i think we mentioned that earlier. Yes. Click, i dont expect you to have an answer but if you do it would surpriseou me but i wouldt expect it, could you give me to date the cost of the free filing system implementation . I wouldnt want to do that because the pilot is still running as im sitting here so it would be premature. But d within days. By the end of april. I dontt want to justify irs internal cost fully burning. Understood. Until we understand the nature of the investment. A quick question on that moving forward, i think that you all are implementing an api that automatically unloads the giant gross income something the industry and free filing alliances asked for for years. What is the posture of the agency and providing that to authenticate a thirdparty . I will look into that. We were talking to taxpayers who are using direct file solution and otherwise some confusion about how to get that. We work very closely. Theyey are terrific. The tool has to be available. We can deal with whatever privacyh security concerns that there may be, but it doesnt seem fair or appropriate to have that additional step. I have hope that this thing you areot working on right now at se point you decide its not worth it because the private sector options are so much better but it becomes a distraction. Thats my personal bias. I cant believe, i was trying to find a way to ask this question in a way that wouldnt get you in hot water but i admire your background and thats why i supported your confirmation, and so far i am happy with what ive seen. But i just cant imagine a project of this scale if you are coming in and trying to fix all the things that needed to be addressed or modernized that you would have been pounding the table saying this has to be one of my top five initiatives in my tenure. Can you stipulate that its not one of the important things the irsbe be dealing with right now . It is such a difficult question to answer because there is so much that goes into it. I would saywo that as we try to hear from taxpayers, and its not an exact science in terms of what youre hearing from different constituents, there are loud voices out there that want this. Im not going to get you in hot water but it justifies logic. Ive worked in the consulting cg provisions a for years and implemented a lot of Financial System platforms. I never went to a client and said you know what, we should just build it from ground up and do this differently so what is disturbing to me are the disappointing moves that i havent seenn a fully executed strategy on exhausting all the possibilities for the filing and being able to file for free on some of the paper platforms. It seems to me we could have found another way to fix the problem. So instead of just using the flask water to address some of the problems that some of the irs filers were having, we decided to create a Thermo Nuclear detonation device to do the same thing. I will share with you one benefit from all this is that we saw a substantial increase in the number of peopleea it filed across all platforms this year. 2 Million People filed. To makeou a comment and not even ask you if you are a successful irs commissioner you are going to succeed and not having the tax gap theres a variety of reasons why it exists at the highend were the low end of the spectrum is it fair to say that those of us up here that may see it 500 billion as uncollected attacks 616. Is it fair to say that its a smoking gun and not being realistic about the ability to zero out the tax gap . If you will notice i want to be respectful and get back to you with the tax gap. My colleague has an important issue you the next two to tell colleagues to keep everybody to five minutes. Thank you mr. Chairman. So it wasnt long ago the onetwo punch of the pandemic and 20 years of underfunding brought to the irs to its knees and we all remember the stacks of unprocessed returns sitting in boxes but democrats secured millions of dollars for longterm funding for the irs, so that you could do your job of the turnaround has been truly remarkable. Yesterday the tax filing deadline and i t want to congratulate you, commissioner and all of the hardworking folks at the irs for a smooth tax filing system and season. So, this year the irs launched a pilot called direct file, first of its option in 12 states to be able to file their taxes directly with the irs. Its easy and its free and that means instead of the 150 on average and nine hours that taxpayers typically spend for the privilege of filing their taxes, they can do it for free with the irs. So, commissioner, im sure your team is still going through the data from the Filing Season, but what is the feedback that you have seen so far oned the direct file . Its been tremendously positive results have been encouraging for a couple of different reasons. One, the product worked. A second, the partnerships with of the states like massachusetts, the state product we handed it off to because once you dodo your federal taxes on direct file if you have a state income tax you have to do the handshake like we did with the state of massachusetts and the state of new york and others, that worked as well. The taxpayers told us in almost unanimity that it was easy to use, fast, secure and of course free was the bottom line people wanted to emphasize. So, some very, very encouraging results. But as we sit here and you know this better than anyone, massachusetts is still filing into the pilot isnt done and i know theres a lot of people that want to know okay what was the cost, what are the final numbers. Its a days away but i do want to start with the fact that direct file is getting fivestar reviews. So, t taxpayers are raving. The phrase ive heard is its so darn easy that they file on their lunch break and you dont have to worry about fees or ads ords sales in the way that the Text Companies like turbotax make their profit, so of course companies are kicking and screaming to try to shut the program down and the lobbyist friends claim somehow it is illegal for the irs to provide a 21st century online tax form. This argument is laughable. The irs like every other Government Agency is supposed to modernize and upgrade services over time. But lets did in a little more. Commissioner, decades ago the irs mailed out tax filing forms and the post office stocked the paper forms and that was it. But in 1986 the irs piloted electronic filing. Back then that meant modems, transferring data by tapes. It was real cutting edge stuff in 1986. To your knowledge did anyone suggest to the irs not have Legal Authority to do that . Decades ago in 2008. They could help file electronically. Did anyone suggest that service will somehow beyond the reach of the irs . There was a time when the only way to ask the irs a question was to mail them a letter or show up in person, but at some point they started using the phone and then email and then be still my beating heart, the irs now uses text. In other words the irs direct file will save 23 billion a year including tax prep fees and tax refunds that people currently miss out on is a great investment, thank you for the program. As much as i agree with of the senator, weve got to move on. Senatorr blackburn. Thank you and commissioner as always, good to see you. The work talk about policy. Requiring people to work in office 50 of the time, what percentage of your employees are teleworking . We are at the mandate of 50 . So half of your employees are working 50 of the time. I think the way to look at it is at any given moment the way to think about it is 50 of the irs is working inin a remote location at 50 is working on site if you would randomly pick have you all evaluated whether teleworking enables employees to properly work without proper supervision . That is a constant evaluation of hours in terms of are we heading our productivity goals like are we answering the phones, army processing and getting refunds out, all of the key fundamental missioncritical things and youre about two years behind on refunds, right . No, we are uptodate. We have one of the best Filing Seasons weve ever had. Well, i was asking these questions about telework because the taxl, court cases regardingn irs revenue agent david combs and manager david combs they were backdating penalty approval forms during auditing partnerships in 2022 and ive got a text note to submit. Without objection so ordered. And i think that this type of taking placetivity within the agency is important to be addressed and i think its important to you are doing something to ensure irs employees are fired and removed when they are found to be in such violations of policy and that they are properly reprimanded by their respective bar association. Yes. And look, with respect to the case you raised, we need to do better if wed, are going to buid trust with the American People. We are acknowledging that we should have promptly corrected the representation in court in this case. Ive instructed the Leadership Team to take all the appropriate actions to make sure this never happens again. Training controls and to the extent appropriate, personnel action with those involved. And i think its important to notete this happened during a teleworking time and without proper supervision. I want to talk with you, weve discussed before also the issue of total positive in command of the 400,000 what is going to happen with those audits. Now, in the American Family plan Tax Compliance agenda, and ive got that for the record, mr. Chairman, treasury pledged audits wouldnt increase for taxpayers with incomes below 400,000 in actual income relative to recent levels. And one can assume that actual and taxable income would be the same thing, but the irs has opted to use total positive income, that is the sum according to what you all have said, the sum of all available income before deductions, and congress has not established a statutory definition for total positive income, so lets have you clarify what does tpi account for . Does it allow charitablees deductions if you are gifted money, is it included in that if you get an insurance settlement . Or an inheritance . Is it included enough tpi . Since there is that definition and the vendors actual and are we ono where that . I think as a general rule you can assume that if it is income it is included in the total positive income. What we are trying t to do is ge a broad lien in an easy way to understand how to distinguish. With the people around the country to breathe easier knowing l that my time has run out but when you say general rule and assume, you know what happens when people end up going to court, so we are going to have to be more explicit. I will talk with you about that later. Very good. Next in order of appearance will be senator young. Commissioner, welcome to the committee. Thank you for being here today. When you came before the committee for your nomination hearing you noted in questions for the record that if confirmed it would be a priority of mine to ensure employees are where they need to be to carry out the mission most effectively. Mr. Commissioner, over a year later i continue to hear that my constituents are having trouble obtaining assistance from the Internal Revenue service. My office, like i am assuming all of my colleagues offices still regularly receive complaints from hoosiers that the local irs offices are empty, representatives arent consistently answering the phones, and when someone at the irs does pick up, theres often no resolution to the issue at hand, so commissioner, i know, you are here today touting some Customer Serviceod improvementsn advocating for additional funds. One of the reasons you were put in this position, i think the general perception was looking at your background your a results oriented guy, and i know that its your objectivity and your teams objective to make sure that you achieve results. Im curious what results you are seeing that indicates regarding the Taxpayer Services however. Frankly they received billions of dollars in supplemental funding and yet two years later we are still seeing some poor customer results manifested in the feedback i get from taxpayers so its my responsibility to press on that issue and i suspect you are going to quote me some data on the answering rate. Unfortunately they are not particularly instructive to us because those answer the phone calls arent actually leading to resolutions by my estimations, which is why i continue to hear from my constituents all sorts of limitations of upset pertaining to the service from the irs. I will just ask you, commissioner, for an opportunity to respond, why is the irs just focused on hiring employees to answer the phones instead of focusing on where the taxpayer problems remain the most significant such as thesu processing of paper returns, responding tote correspondence d resolving taxpayer disputes and issues . Let me start by saying, senator, i will say we have more work to do. We want every taxpayer in america to feel like if they need of the irs, we are there for them, that we answer the call, that the person on the other end of the line or the tool on irs. Gov meets their needs, and we havent achieved that goal so there is no victory lap. There is a lot more work to do, and as you could imagine as the irs commissioner, 99 out of 100 voices i hear our concerns. I know that a lot of taxpayers are being served well. I know that things are trending better. Im not going to cite all the statistics, but i know we are answering more calls into getting more people into those walk in the centers in the hoosier state. We are serving more people in bistate than we have served before, but that doesnt mean that we are done. We have more work to do and we are prioritizing some of the areas that youve raised. Where we dont answer the calls effectively are w in some of the topics that we are going to focus on like victims of Identity Theft. We need to do more on that gives some of your colleagues on both sides of the aisle have raised pressing questions where there are still gaps in the ability of the irs to serve, but i want to build on the momentum. Things are getting better, things are improving on old dimensions but the race is not finished. We are going to stay on top of this issue. As you know we have a five minute question and answer format on the w committee, and roughly 15 seconds left, certainly not enough to continue withth this line of questioning. I put on the record my concerns. Ive heard from you that we should remain hopeful, but continue to oversee the irs and i will do the latter on behalf of my constituents. Senator young your point about the oversight that is what our job is all about. Senatorut cortez musto. Commissioner, thank you. One question involves the Inflation Reduction Act of solar bonus tax credit and i want to thank you for making the low Income Communities Bonus Credit Program a success in its first year. Its sad to deliver eat gigawatts of clean energy in low income communities across the united states. More residential solar was installed in 2023 than ever before. Heres my concern though. After reviewing the 2024 program, the current guidance reduces the amount of capacity for category one residential solar projects. Thisti reduction will negatively impact states like nevada that have an active Residential Solar Market but no regulatory framework, which is where the credit capacity was increased so the residential solar deploy to seven times more capacity than communities last yearth so my question to you is can you explain that were address the concerns . Why dont i commit to getting back toco your team as early as tomorrow and schedule a ufollowup meeting where we can todig into the issue and get answers to your questions . I appreciate that and look forward to that of dialogue. The other question that i have is on the earned income tax credit. I, like my colleagues, am particularly concerned about taxpayers that are eligible and do not claim the credit, so what do we need to be doing to reach these families . Its such an important the recent debate other was roughly 7 million americans that were eligible that never claimed it. Theres a series of steps that we need to take to make sure people are getting the credit they are entitled to and particularly vulnerable populations. These are individuals typically who dont have the means or they are intimidated by the irs in some way shape or form and we needs. To break down those barriers and get people to credit they are entitled to. We need to do more outreach in communities working with local Community Leaders setting up safe spaces for people to come learn more about the credit and understand that its a friendly environment and we are there to help them get the credit they are entitledto to. Theres also work we can do for weexample potentially to improve the 1040 form and other things we can do to make it easier to claim and we are analyzing a variety of different steps across the intercom outreach to the forms itself. Anything we can do behindd the scenes to detect whether someone is eligible into to get out in front of that, so we are going to be releasing the updated annual plan in the coming weeks. Weve dedicated a new prior exception to what we are calling credit uptake that addresses a lot of these questions and i look forward to sharing that with you into talking with you more about it. Thank you, commissioner. I think my colleague and senator cardin will be next. Thank you mr. Chairman. First of all i want to thank you for taking on this challenge as we talked previously it is an extremely difficult challenge and we appreciate the commitment that youve made to getting this done. I want to talk about one area where we have seen a change in a way that athletes are handled on different colleges and whether the tax code is keeping up with those changes. Senator thune and i introduced legislation to deal and many of the nonprofit organizations associated with college are participating in our concern is whether that was consistent with her nonprofits tax exempt status. So, you issued a general legal advice memorandum in 2023. Can you update us as to the enforcement of the tax exempt status for those organizations and what they are doing . We did issue that memorandum. We made it clear in that memorandum that organizations that promote and develop name image and likeness opportunities for student athletes are often engaging in what would be a nonexempt purpose andd that if that is the fundamental thing you are doing that its very likely that you are operating for a nonexempt purposes and we have started finding organizations and revoking tax exempt status or not granting tax exempt status based on this update so this is a new area. Theres more work to be done with of the early stages of working across stakeholders to make sure theyt understand what the position is on this. But i would say we are not the early stages of implementation but we have taken some steps with respect to certain organizations and and forced the generic a legal advice memorandum that we issued in may of 2023. Senator thune operated with me on this because we saw some real abuses of this by certain organizations that were not rewarding athletes but were trying to enhance the ability to recruit rather than giving benefit to a person because of their name or likeness. To be clear, we dont have any opinion on good or bad as an area, its just play by the rules. We want people to be reworded. We dont want to see the abuse. We appreciate if you a would kep us informed as to how your enforcements are going in that area without additional help from us. I want to follow up with senator cortez musto with the families. One program that has been helping low income taxpayers get the help that they need, your direct file i know that its a Pilot Program we expect that will help. You mentioned to try to simplify the forms. Can you tell us your strategy to help lower incomeug taxpayers wo struggle with trying to comply and get the benefits of the tax code . Its multifaceted. I was recently yet a clinic in baltimore seeing the good works that are going on their to provide Free Tax Services to distressed communities or vulnerable populations. Its inspiring work and we need to do more of it. We should be investing and growing these volunteer programs working in local communities, working with local universities to providell of these services. These are vm environments we can connect people to the earned income tax creditt that they might not otherwise be, so its about awareness campaigns and working with local partners. Its about setting up environments like the clinics where people feel that they can come in and understand the benefits that are provided, and others also things we can do behindthescenes that the irs i mentioned to senator cortez musto we are looking at updates to the 1040 potentially and other changes to the forms. What can we do to make it absolutely clear and easier for taxpayers to apply for the earned income tax credit because of 7 million americans are eligible you did a lot of flying, something is not connecting and we want to fix it. A couple of things. Theres been a lot of controversy surrounding the irs starting up this direct filing portal that could relate private sector options currently available their checks present on the country. Unlike the current free file process which partners with the private sectore, this to be soly handled by the Internal Revenueh service. Make the irs both a Tax Collector as well as the tax preparer. The socalled Inflation Reduction Act and provide 50 million for the irs to study the feasibility of a government run direct file system. It did not provide Statutory Authority to create and operate a new multimillion dollar direct file program. So, to me in a classic mcfaul fashion irs spent 130 million on a direct file program only 55000 as of at least a couple of weeks ago, use the program the irs spent over 2000 per taxpayer you can present to the private sector free file option serving roughly 30 million taxpayers across cost the taxpayers and the government nothing. Might might might wyoming statea treasurer sent a letter ask you to terminate the program. They called this a solution in search of a problem. The treasury Inspector General for Tax Administration has also raised some concerns. Last week the government Accountability Office listing out problems with this new irs program. The irs had a better at helping taxpayers . Works were trying to do is provide an option first taxpayers. Its also better or worse this s give taxpayer options. I also would offer the pilot is not done. There have been no cost estimates for your reference a cost estimate your question im unfamiliar with right do notot think its going to end up their wait more taxpayers that direct file in the past few days. Its very different than the number should have in front of you. I will say this theyre one of our pilot states a final cost of number a final number of taxpayers. Trek to the data and provide feedback i look forward to the feedback required of us who the true state treasurer atse helpig wyoming. Its a big private sector guy as an eyebrow the question is does the private sector have the same what i would say it can conflict of interest the irsor has the is is the tax enforcer and now the tax preparer per judge, jury and executioner progress might my ar to that is twofold. I do not consider us the prepare we provide the platform complete taxpayer inputs the information it makes that. Second is an option for the taxpayer feels too much irs for them thickness any other option available for themre including using Free Solutions offered by the Software Company per encourage them to do it. Theyre very good products. Can i ask what safeguard has put the irs in place to protect conflicts of interest relating to taxpayers . Is the same as i just mentioned. First it is your option would try to be as transparent as we can about the parameters are and arent you. We make it very clear there are other ways to file taxes but you do not have to direct file. To make the final call they hit submit. They reviewed the four they make the final decisions on what they submit but once they submit their data goes into the same pool of data as any other tax fell coming in. Equal protection of Data Security. Theres no real change in your status as a taxpayer once you hit submit on direct bill reversing submit on any other solution. Cooks in your last or aio voicey concerns about Funding Priorities 45 billion compared to 3 billion Taxpayer Services. We talked about that in my office. We talked about in the hearing. Went mandatory spending of that, 59 billion for enforcement. This would be on top of almost five and f billion dollars provided annually through regular appropriations are Small Business owners are really can be protective terms of the boat is an onslaught. More than butter billion dollars on enforcement agents in the next 10 years. Also my marchin orders. Not any for my side of the asaisle. Great to be with you congratulations on a successful Filing Season. Thank you for being here today. And please the irs continues to use the money appropriated in the Inflation Reduction Act improved Taxpayer Services. With call or wait times down to three minutes after being up to 28 ministers two years ago. More filing options available than ever before and pleased to announce increase audits of complex partnerships with more than 10 billion in assets. They will pursue a much bigger number when you lower that below a millionrs dollars. Heres my first question. Can you explain with the irs is doing with the new funding with the billion Dollar Companies and millionaires pay what they owe. Just like middleclass americans for quick suppression of the questions a special because i want to close out my response to make sure they are exclusively used complex organizations, large partnerships, large corporations. That is where our focus is up or if you are a mom and pop lower or middle income this a new wave of audits coming underac the reduction act. Historically low the same audit rate you have the day after the same audit rate youll have today. Theres a lot of work to do to deal with the complexity exists in the u. S. Economy today. How large corporate and very wealthy individuals are shielding and comfort many arent. Many are playing by the rules. I would like to say our focus on high wealth and Large Businesses benefits high wealth. If you are the cfo of a Major Corporation playing by the rules when the other company you might be competing with two also played by the rules but when the irs to know which case you select for audit . By having the right funding we can be, more precise for those playing byen the rules will nevr have to hear from us. If we are smarter, more tactical a more competent in this complexity. The cfo playing by the rules will also have the comfort of knowing we are not selecting them for audit. We are selecting those in their industry that may notir be playg by the rules. That is when she great fair competition. This is about irs doing its job fairly in equity. If we dont have the resources to spot and deal with the complexity we are seeing the system starts to degrade. Commissionerer in february 23 Norfolk Southern train carrying Hazardous Materials jill railed in east palestine, ohio. More are very close to the pennsylvania border. The township is darlington. The township in pennsylvania to avoid toxics exposure from the crash t thousands of people in ohio and hundreds and pennsylvaniafo had to flee their homes but Norfolk Southern later provided some reimbursement for the hardship. To make sure the victims of this disaster were not taxed on these reimbursements they got from Norfolk Southern. I hope we can deliver on this the tax assistance to the victims. On that bipartisan tax bill. If not, that does not happen i hope you and secretary gallantly is your authority to declare this was a catastrophic disaster. S and related payments are exempt from tax. We assure shows everything for tax relief for it nor folk victims . Absolutely per this is one of the spots we talked a lot about irsam authorities. I mentioned on many occasions one of the fundamental responsibility as commissioner is to implement the tax code to prevent taxpayer bill of rights. Its actually a section 780383 which requires me too implement the tax laws consistent with the delineated sent ofle rights. To protect taxpayers the taxpayer bill of rights that is the balancing against what might be a part of the tax code has an unintended consequence of placing undue burden. Not understand the situation. I think the bill on disasters is going to be enormously helpful. Thank you very much at times expired for senator menendez. Good to see you. Contrary to the standard and most professions, paid preparers are not obligated to own a license. Many tax or preparers have exceptional professional services yet regrettably theres some that take advantage of a lack of oversight to take advantage of hardworking taxpayers. These ghosted preparers to some call them are the unscrupulous preparers often promised hefty returns, claim credit for taxpayer there in eligible for and charge fees based on the inflated refund amounts. The the preparer will balk at signing while providing irs prepared tax id number as mandated by law leaving the taxpayer exposed and potentially liable for any inaccuracies in their returns. Commissioner what have you done and what can you do to crack down on fraudulent tax preparers . What Additional Resources and authority if any does the irs need towe limit this practice . What we tried to do, senator, within our legal authorities that we have is lean in. Do more awareness campaigns. Work with taxpayers on the risks of ghosted preparers. That doesnt mean we should be leaning in to do more of these awareness campaigns. We put in the president s budget variety cracking down on ghostt preparers and other scrupulous preparers that would be created to determine more comprehensively what a tax preparer is suitable or not. There are certain restrictions that we have at the irs in terms of being able to essentially regulate the space. This is ati spot where i think regulations are be helpful. In the stress communities need help they dont have the money to hire an accountant or aen lawyer. Not right now. And your staff. What type of authorities or regulations would you like to see to be more successful in this regard . I would imagine if a law says you are a tax preparer e failed to pay your tax id purposefully at a real incentive to not do that. Anyhow, i would like to hear. Appreciate the question of a group. Last year collaborative study by Stanford University department of treasury uncovered a black taxpayers pay over three times of those being audited by the irs. The absence of race or ethnicity Data Collected by the irs obscures the roots of this inequality. The report points to potential discrimination better with the irs audit selection algorithms. Your confirmation hearing we had a little discussion about this. Additionally the Research Highlights disproportionate audit rates targeting individuals claiming eit seat commissioner, and a letter to chairman wyden you committed to identifying and implement changes prior to the next tax Filing Season. Within the framework of the Inflation Reduction Act Strategic Operating plan the irs has pledged to engage in a researching and comprehending any systemic bias. The primary focus with this initiative is a continual assessment of algorithms for selecting audits related to the e itc for example. So my question is, what are the findings of your research thus far . Stanford port did not have research into potential audit biases for latino taxpayers butw as you work on this issue will you commit to evaluate latino taxpayers as well . Yes. Let me start by saying as i sat here in fairway 15, 2023 of my confirmation hearing when this report had just come out it was alarming and concerning and i wanted to get to the irs and roll up my sleeves to address it. First thing i did when i got to the irs was respond to mr. Chairmans request for an update i provided an update. I told him and i acknowledged the validity of the findings. Acknowledged there were Racial Disparities in how we selected audits for certain refundable cards including the itc and committed to doing something about it. We have dramatically reduce the number of the audit spirit we achave made changes to our selection algorithm, we have done more outreach to impacted stakeholders. We are working with the Census Bureau and others to make sure we are setting up the right Data Infrastructure in order to better evaluate the Racial Disparity, potential Racial Disparity of any Tax Administration so that this does not happen again. The results i committed to the chairman that i would be preparedke by the fall of 2024 o start unpackingea some of the results of what the steps are. I stillyo think we will make tht deadline. I look forward to hopefully sharing that with us. I hope you will look up at latinos as part of yourpa effo. Fairness and is an essential part of your mission so thank you. Very important. Mr. Commissioner you have been in that seat for almost two and half hours. I am going to liberate you here very briefly. In just a couple minutes. And in particular we have dealt with an array of very various verysubstantive and important issues. I think for example wes could have a debate further about direct file and back and forth its been a partisan exercise but i just got to save her say forhistory thats just not accurate. And that seat over there sat at one time dan coats of indiana. He joined me in a bipartisan tax reform bill that included a version of direct file thats history and i know sometimes history feels like the last minute but there really are bipartisan roots this direct file effort. I am appreciating the way you describe this is similar to building a startup. That is very appropriate and i also want you to know we are going to pull out all the stops to get this tax bill bipartisan 357ge votes in the house of representatives you cannot get three and 57 votes or a piece of apple pie. This is an extraordinary accomplishment. Chairman smith deserves an enormous amount of credit bipartisan work went on for months and months and the provision we talked about today dealing with the fraudsters. This is now ase bill to give you the tools to go after the fraudsters. You made it clear do not going to be able to do the job so i appreciate that. Why you come to the finance committee seems to be almost a town hall meeting. You get a lot of questions for senators. We get election certificate four. You answer them as they have got to get back to you because we do not know x, y, z. This is not an isolated event youve been available for roundtable. Senators avesta come to meetings privately just in the office of my Senate Office to come and talk for 40 minutes or Something Like that. Youve been open and accountable that is what Public Service is supposed to be all about. I want you to know i appreciated for what College Student of the questions for the record are due by 5 00 p. M. Next tuesday. Mr. Commissioner we will excuse you. [background noises] [background noises] [background noises] cspan is your unfiltered view of government. 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