Transcripts For CSPAN2 IRS 20240703

This house appropriation this House Appropriations subcommittee hearing on the 2025 budget is about two hours. [inaudible conversations] close a door please. Thank you. The subcommittee on Financial Services and general government will come to order. I would likee to welcome irs commissioner werfel, the first time youve appeared before the subcommittee will look for to discussing the irs fiscal year 2025 budget submission. This is also my first hearing as chairman of the subcommittee and im looking forward to conducting this oversight with the agencies under the subcommittee jurisdiction Whose Mission and backs the everyday lives of hardworking americans in my district and across the nation. Its my duty to ensure the agency including i was to not unfairly target americans and auditing their taxes, overseen to produce patient potential markets and impacting their ability to own or operate a Small Business. Okay, thank you for fiscal year 2025 budget request for the irs 12. 3 billion. This is equal to this current fiscal year. However, the irs is requesting official . 4 billion the mandatory funds to rebuild the norm of irs agents and carry out a direct filesystem that congress did not authorize among other enforcement priorities. The irs claims the rescissions enacted as part of the fiscal responsibility act undermined the nations financial strength when, in fact, request and reverse that cut on top of an additional 24 billion mandatory funds does just that. And while the irs deserves credit for a successful filing system, the claims it cant even come close to achieving 88 level of service while that additional mandatory funds. Specifically, commissioner werfel said without additional funds the level of service on the irs main phone like to drop back to 30 levels in 2026. Its worth exploring why the irs says he cannot deliver successful Filing Season with discretionary funds the subcommittee provides especially considering these funds account for almost half of the committees allocation. We need to get back tutoring from i was and how it is effectively to point the discretion resources to improve its modernization efforts and better secure taxpayer data. I would also like to hear from you i was on how the administration is complying with their pledge that taxpayers incomes under 400,000 are not experiencing an increase in audit activity by the irs. They have enough to worry about amidst higherr grocery, rent, ad utility bills. Its our job to be good stewards of the taxpayer dollars and ensure that American People at the agencies under our jurisdiction are not wasting money by supporting bad policies that fail to achieve desired outcomes. Now ill turn to and Ranking Member mr. Hoyer for his opening remarks. Thank you very much, mr. Cha. Thank you very much, mr. Chairm. And welcome to the chair, chairmanship of this committee. I look forward with withf you as i look forward to and had a great relationship as you know with your predecessor who is now our Ranking Member on the majority side. And i want to thank him for his leadership and a note that you will bring the same kind of major work to this committees very important effort as he did. I want to start by saying that, commenting, a comic you made. Unfortunately the allocation historical to this committee is insufficient to meet the responsibilities of this committee. And because the objects of this committee are not necessarily most interest either to the public or to the members. However, the work of this committee and particularly the Internal Revenue service is absolutely critical to all other objectives that are covered by the appropriations committee, and we ought to keep that in mind. I want to thank commissioner werfel for joining us on capitol hill today. I look forward to hearing more from you about all the irs accomplished this year. I read your testimony. It is very impressive, the level of service and increased that weve given to the american public, and im sure why they dont fully appreciate the ease with which youve made this an experience that none of us like much better. The agency made important progress in its efforts implement the Strategic Operating plan that it laid out a yuriko initially updated ands recently updated to enhance Taxpayer Services. We saw those initiative yielded impressive results. In the most recent tax Filing Season with the irs fielding 1 million more Customer Service calls than it did during the 23 season. On on average, calls only had to wait on hold for three minutes. I wish most of the private sector calls that i make were answered as quickly. Thats a minute shorter than last year, otherwise known as 25 , and five minutes shorter than the 2022 filing system. Last season before we secured funding for the reduction act. Also saw the irs make important technological advances to improve the Taxpayer Experience from its Paperless Processing Initiative to its new direct file Pilot Program. As a a longtime supporter of direct file, i was pleased to see the Pilot Program exceeded its target goal. With more than 140,000 taxpayers across 12 states participating. Thanks to funding for the Inflation Reduction Act, the i was also improved tax enforcement find partners, successfuluc collecting 520 million in legally owned, in legally owed back taxes from roughly 1000, millionaires and billionaires. These are just a few of the irss achievements from you. Im sure commissioner werfel will highlight me others. Oi mentioned these accomplishments because they demonstrate what the irs is capable of, when it receives the resources it needs to carry out its absolutely critical work for the u. S. Government, for the American People, and for our success. If congress withholdings resources it puts all those, all that progress at risk. Sadly, that is exactly what many of my friends across the aisle continue to do. The antipathy directed at irs and its employees is unfortunate and it demonstrates an antipathy towards government. In the appropriations for this. 124, rescinded more than 20 billion in Inflation Reduction Act funding for the agency. Lets be clear about what underfunding the irs means for the american taxpayer. It means irs Customer Service hold times will climb right back up. It means initiatives like direct file will would be delayedn hold. It means more high earners will be able to get out of paying the taxes that they owe under laws that are already on the books. Nobody likes to pay taxes, but all of us ought to pay the taxes that are legally owed under the laws that we pass. And americans are particularly agreed when they think they are paying more than their fair share aggrieved where Corporate Executives are paying less than the people who work for them in terms of percentage. Crucially cutting irs funding will add to our National Debt. You cannot be concerned with the National Debt if you are not concerned with collecting legally owed revenues to fund our Critical National defense and domestic security. Many of my republican colleagues claim they care about fiscal responsibility. If thats the case, then it ought to care about enforcing the law and collecting legally owed revenue. They have to work with us not only to fulfill the administrations request for irs sunday but to secure Additional Resources to offset what was taken from the agency through the recent rescissions. Puttingill not be forward the grass i used during the markup, but the workload of irs has escalated geometrically and its resources to meet those needs have been dramatically reduced over the decades. I look for doing from the commission about why this fund is so crucial here he can illuminate all that the irs has accomplished for these resources in past years was the consequence, the consequences that underfundingeq the agency would have on the nation. Mr. Chairman, i thank you. I think it went over a minute 35 seconds. Ipod just the right to think i need to say all but that i. Thank you, mr. Hoyer. I will now turn to the Ranking Member delauro for her remarks. Thank you so much, mr. Chairy thank you both for holding this hearing. Commissioner werfel, thank you for being here today. Welcome to the Financial Services and general government subcommittee. Thank you so much for your Public Service. We really appreciateyo your wor, and it is vitally important for our nations governance, for our National Security, and for the Program Service provided to the American People that we have a strong, secure, and he will supported Internal Revenue service ear and underfunded irs means slower processing of americans tax returns and delays to crucial benefits like the Child Tax Credit. And ill take a second on the Child Tax Credit because there were folks who told us in 2020 that, one, we could not have an approvedul and expand tot Child Tax Credit. Secondly, that we couldnt get the irs to be able to live with the checks on ave monthly basis, that would never happen and the irs delivered the checks on a monthly basis starting that july, and with a 90 accuracy in getting the payments out to whom they were to go to, so i thank you, thank you for that, and families thank you for that. But underfunding the irs means that those with the most resources like billionaires and powerful corporations can often escape scrutiny and avoid paying taxes when the irs cannot afford to ensure that their meetings or obligation. 2021 at least 55 least 55 of the largest corporations in america are in a year when he took in over 40 billion in pretax income, paid no federal Corporate Income taxes, zero, nada, nothing. Corporations like nike, hewlettpackard, the dish network paid zero federal income taxes. Profiting on the backspr of hont American Families. Every dollar that i was spent auditing the average yield just over two dollars. A notable return on investment. For the wealthiest tenth of 1 ottis produced nearly triple the return with each dollar you think over six dollars in revenue. Through last years debate over irs funding we would use of members of the majority improperly callma this activity the irs collecting tax that is legally owed a tax increase. Complete nonsense. We protect honest, hardworking taxpaying americans by ensuring that the wealthiest individuals and corporations are paying the taxes that they owe. This committee has made several investments annually and in Inflation Reduction Act in the irs to ensure it has the resources to collect taxes owed, to improve services, and indeed there is been great progress in modernizing irs for the American People. With our investment the irs has significant improvement Customer Service with call wait times of just over three minutes and 37 increase of taxpayers served in person. The irs is also piloting a direct file program allowing taxpayers in 12 states with simple returns to file for free directly with the irs. There is simply no good reason that american taxpayers are all but forced toco use costly Prive Services to be sure they are paying their taxes correctly. The government at a minimum should be able to tell taxpayers if they are paying the amount they owe. This is an important step forward in making government work better for people. And critically, now that it hs the resources to audit the wealthiest individuals and corporations, the irs has collected five and 20 million in back taxes from roughly 1000 delinquent millionaires and billionaires. Rolling these investment back would only serve those who seek to escape paying the taxes that they owe, getting a free ride on the backs of hardworking and American Families. This committee must continue to ensure the irs has the resources to complete its mission. Itit would be foolish for this s to slash its accounts receivable department in an effort to save money. The u. S. Government should not do so either. Thank you for being here and for your Public Service to our country here i yield back the balance of my time. Thank you thank you , ms. Delauro. Mr. Werfel, welcome again. Without objection your full written testimony from the entered into the record. Ur with that in mind i ask you to give us a summarization of your Opening Statement in the five minutes. Chairman joyce, Ranking Member hoyer, Ranking Member takano, members of the subcommittee, thank you for thef opportunity to testify on the Filing Season and the irs budget. Give testimony on the budget. We saw a strong tax season for the nation, one of our best in history. Through the april filing deadline, the i. R. S. Received more than 139 million 139 million individual income tax returns and issued 245 billion in refund. Inflation funding has allowed the i. R. S. To have one of its best Filing Seasons ever in terms of Customer Service. Taxpayers are seeing a difference. Weve answered over one million more taxpayer calls than we did a year ago and three million more calls than we did in 2022. Wait times and level of service on our main phone lines has improved and we dramatically expanded service in our wakein sites, increasing hours and serving more taxpayers. And new and expanded tools on irs. Gov are seeing heavy use. At the same time, Inflation Reduction Act funding has enabled us to make critical inroads in addressing tax evasion among the most complex and largest filers. This is a sharp turn around from the past decade when we were hindered by a lack of resources. Our compliance work includes focusing on tax drink winsy and nonfiling among high income tax drink enzi and nonfiling among the high income filers. We remain committed to following the treasurys directive not to increase audit rates relative to historic levels for Small Businesses and households earning less than 400,000 per year. Historic levels will be defined by tax year 2018 where rates for all cohorts were at historic lows. Notably, audit rates for various groups are made public each year in our data book. Therefore, when the final audit rate for tax year 2023, the first full tax year following the enactment of the i. R. A. Is available, the public will be able to compare the rates to historical levels and confirm that the i. R. S. Successfully met secretary yellens directive. In the meantime, we are working to develop a methodology to determine which taxpayers fall above or below the 400,000 income threshold. We will of course keep lawmakers and members of the public updated on this work as appropriate. The i. R. S. Anticipate increasing audits on the wealthiest taxpayers, largest corporations, large and complex partnerships by sizable percentages for tax year 2026. For example, the i. R. S. Will nearly triple audit rates on Large Corporations with assets over 250 million in tax year 2026, increase audit rates by nearly tenfold on large complex partnerships with assets over 10 million and increase audit rates by more than 50 on wealthy individual taxpayers with totals positive income over 10 million. Thats where our focus will be. Again, i want to be clear, middle and low income taxpayers should know theres no new wave of audits coming. Were laser focused on using new i. R. A. Dollars to increase scrutiny on those large and complex tax filers showing red flags potential tax evasion. In all our transformation work, the i. R. S. Has more work to do on many fronts, and this includes closing remaining gaps on phone service, expanding digital options, further strengthening data security, and supporting vulnerable populations by protecting them from scams and increasing access to refundable credit. We have be a opportunity to build a 21st century tax agency at the level the american taxpayers deserve. It hinges on sustained investments to make sure we have the right size task force with training and tools. We need a modern Technology Infrastructure with webenabled tools for taxpayers. These are needed to serve the nation today and in the future. A critical part of the effort is the administrations fiscal 2025 Budget Proposal and gives us flexibility and increases i. R. S. Transfer authority, helping us use available resources efficiently and effectively. It will also help sustain a new i. R. S. Baseline of resources and avoid immediate funding delivers that would dramatically degrade our ability in many different areas, including the Service Improvements taxpayers saw this Filing Season. Chairman joyce, Ranking Members hoyer and delauro, members of the subcommittee, that concludes my statement and i would be happy to take your question. Thank you very much. Quite timely. 5 29. We have starting questions and take five minutes. When you see the yellow light come on, you have one minute left. The questions and answers need to be done within that. Ill recognize myself first. Commissioner werfel, the inflation act allows them to study to create a free e filing tool for taxpayers to pay their tax return. They completed the study in may of 2023 and shortly thereof created a pilot of direct file rolling it out in 12 states for those making less than 70,000 a year. The i. R. S. Mandated the study to create a free e filing system. Under what authority did the i. R. S. Create the direct file system . Mr. Werfel first, the small scale pilot we believe is part of a study of whether a solution like that could be deployed nationally so we wanted not just to study in the abstract but engage in the taxpayers to see if the prototype could be built and work. Part of the authority was the i. R. A. Requirements for a study. But the Second Authority is under the section 7803 of the code which requires the commissioner and the i. R. S. To administer the tax code in a way that serves taxpayers needs the taxpayer bill of rights and we believe provides options for how they file, just as when we went from paper filing to put, for example, p. D. F. Forms online with fillable entries. We didnt believe we needed authority then because we think theres a General Authority for the i. R. S. To move and evolve along with technology in the digital age to meet taxpayers and not to ask congress for specific authority for all these adjustments. Mr. Joyce what distinguishes direct file from the e file system . Mr. Werfel when taxpayers want to file we want to reduce the stress and make the processessier. One thing we heard from taxpayers and various members of congress, an option where the taxpayer could file online for free direct with the i. R. S. Versus working with a Software Providers is an option that should be available. We encourage taxpayers to work to figure out what is the best option for them and we know many taxpayers have enjoyed and and are satisfied with the commercial software they use and are free to continue to use that software but there are taxpayers, and i heard directly from them, but were looking for another option and what were doing is testing whether we could provide such an option and if there was a demand for it. Mr. Joyce the i. R. S. Spent 26 million in creating the direct file pilot and only 140,000 direct file tax returns were successfully submitted. Of the taxpayers eligible submitted a successful return. The i. R. S. Spent 174 for each file return. I look at wasteful spending. Why didnt the i. R. S. Encourage taxpayers to use the existing prefile system instead of spending 26 million when you already had a system . Mr. Werfel we ran a pilot and reported our results. There is a way to look at the demand of the taxpayers. We opened it to the public in early march and didnt have the full Filing Season. I believe if we were open for the full Filing Season, numbers likely would have been higher because many of the eligible taxpayers filed before we opened it to them. Also, we saw significant ramp in demand over the course of Filing Season, so by the time we got to april 13, april 14, we were seeing exponential growth because more people, as they started to focus on their taxes looked at this option favorably. In terms of the cost of return filed, a lot of what was built this year if we were to go forward has already been built. We would expect the cost per return will drop significantly in the future if direct file goes forward. But were glad people are having this debate. Were glad there can be an analysis and cost information out there to analyze and go forward. Mr. Joyce the i. R. S. Included 27 million in the budget request for direct file and heard it may not go forward. Who at the i. R. S. Will determine if direct file continues . Mr. Werfel we hope to make a decision fairly soon. We released a 4050 page report detailing all of the findings from the pilot last week. Were now doing a variety of stakeholder engagements with all kinds of taxpayers and taxpayer intermediaries. I hope over the next several weeks well complete that and be able to make an announced decision. Mr. Joyce thank you. And i recognize mr. Hoyer for the questions he has. [inaudible] mr. Hoyer ill start with a basic question. Ive been on this subcommittee for a long time. And that is how much revenue that is owed to the federal government under the laws that we have passed are not being paid because of a lack of enforcement, which is both a direct loss and indirect loss. A direct loss by the money we dealt and an indirect cost by people who believe theyre not going to be checked anyway, so they will either go very close to the line or over the line. Mr. Werfel we refer to that as the tax gap and we estimate it to be 680 billion a year. Mr. Hoyer 687 billion per year . Mr. Werfel per year. Mr. Hoyer does the current request of the administration anticipate with the enforcement money you have from i. R. A. And that are requested, will that make a significant dent in that gap . Mr. Werfel we believe it will. At the point of the Inflation Reduction Act, the day before it was enacted, the most anemic audit rates weve had sense isly in i. R. S. History. Now what were doing with these funds is increasing our ability to enforce in particular on high wealth and complex filers. One reflection ive shared before is on the day the Inflation Reduction Act was passed, we had one auditor for every 150 of the top tier most wealthy taxpayers in the country. Im not talking about 10 million in more in income or asset but 250 million, the topmost tier. One auditor for each 250. Many of these tax returns are tens of thousands, hundreds of thousands of pages long. I told people to picture that one auditor backing in trucks full of tax returns and its them against all of that. And what we need to do is not only hire more people but provide them technology, Data Analytics and subject matter expertise to unpack all that complexity. Were leaving a lot of money on the table. Mr. Hoyer the statistic i had and showed last year was from 20102019, those fiscal years, the i. R. S. Audits of millionaires plummeted from approximate 9 plus to less than half a percent. Is that accurate . Mr. Werfel yes. Mr. Hoyer to make it clear, nobody wants anyone to pay more taxes than they owe. But to the extent that they do not pay, somebody has to take up the slack or we create a debt. And theres great concern about that debt. But when you tell me theres 687 billion per year estimated to be uncollectible, thats a significant problem. Heres a particular peeve i have i want you to answer very quickly. I hear a lot of advertisements on the radio, some on tv but mostly radio, if you come to us and havent paid your taxes, guess what, well save you 1,000, 10,000, 50 of what you owe, etc. , etc. It seems to me a great disincentive for people to pay their taxes, are you concerned about those advertisements . Mr. Werfel i am concerned about those advertisements. Many of them are exploiting the tax system and stress over taxes to victimize these individuals. And heres why. We have a variety of tools that are very accessible for you to either create an installment agreement or do an offer in compromise. Weve designed them so you shouldnt need help and theyre very fluid. You shouldnt have to pay or give any risk to anyone claiming they can get the i. R. S. Debt to go away. The reality is we have programs in place. Theyre very accessible. Were working on making them more accessible. And those that believe they have to work with someone in order to take advantage of these programs are giving something away. Thats why these businesses have the money to avoid to advertise and exist. And what weve learned from testimonials and talking to taxpayers, is that at the end of this process, theyre left with a mess on their hands. We urge people to get educated. If you work with someone, work with somebody reputable and search free help at irs. Gov. Theres a lot there thats navigable and theres probably something there that they tell you that you dont need. Mr. Joyce now recognize the current chairman of transportation, housing, and urban development. Commissioner. Thank you for being here today. And in my previous role as chairman of the subcommittee, i always enjoy the fact that youre very responsive to the questions that we have, though this is your first hearing before this subcommittee. I ask a quick question. Mr. Womack i want to pick up on what mr. Hoyer said a moment ago. The Taxpayer Advocacy Service is an Important Organization but then the i. R. S. Ists the american taxpayers who are experiencing financial difficulty and need help solving tax problems or believe the i. R. S. May not be performing as it should. The Taxpayer Advocate service which my constituents rely on is struggling to keep up with demand. The fiscal request for task is 268 million but what was enacted was 271 million. Does the budget request address the need . Help me understand the difference between the enacted 24 versus the request in 25. Mr. Werfel there are choices we need to make in terms of how we maximize the effect of the discretionary requests we have of 12. 3 billion. We can also provide supplemental resources to the Taxpayer Advocate using inflation act dollars to help close gaps. Anything that you see in the 2025 budget, we are using Inflation Reduction Act to try to meet the demand. We dont always get all the way there. So we will work with the Taxpayer Advocate to help them manage demand. Typically the better job we do with service, the less their phone rings. So we can try to reduce some of the demand by improving our Customer Service, our ability to resolve taxpayer issues, and well also work with the Taxpayer Advocate to make sure theyre accessing other nondiscretionary resources to make sure especially hardship cases get addressed. Mr. Womack those i. R. A. Funds run out in 2026, correct . Mr. Werfel they do. So where we stand today, weve requested 2. 8 billion for Taxpayer Service dollars coming up in 2025. That would get you 25,000 s. T. E. We actually need 38,000 s. T. E. To match the tax system and the number of phone calls, tens of millions of phone calls, hundreds of thousands of people that come into our Walkin Centers, all the paper that comes in that needs to be managed. So we are using i. R. A. Resources to close that cap and get to the 38,000 s. T. E. So we can meet the taxpayer demands. But that i. R. A. Money runs out. It runs out in 2026 and then well have to shrink our Customer Service and youll see those lines start to emerge against at our Walkin Centers and on the phones. Mr. Womack the 687 billion tax gap, im not sure how you calculate that. Im sure you have highspeed computers and experts that can thats not a round number, thats 687 billion. How much of that is owed by people, say, making less than 400,000 a year, which would account for the majority of the tax filers would be my guess. Mr. Werfel i dont have that number at my fingertips. But as you can imagine, across that 687 billion portfolio, you have distribution of income. We have people not paying at the low income of register and at the high income. What we have set out as a plan is to increase our capacity and our scrutiny on highwealth filers because thats where we fell the most behind in the leap years prior to the Inflation Reduction Act. We didnt lose as much we didnt lose as much capacity toy assess balance due for simpe filers, but we lost a ton of capacity because Large Corporations are operating in more Tax Jurisdictions. They are using alternative currencies. They are using more sophisticated methods, in some cases, not at all, we have cfo since ceos doing the right thing but too often they are not and using sophisticated methods to shield their income. So the idea around Inflation Reduction Act spin is to make sure were investing where we need the most, and what we get the most of what we fell behind the most, andll what we fell behind the post is complex filers. I know im out of time. I want to think about something mr. Ware said a minute ago just as a statement for the record, and that is,ag unopened pecan optima necessarily although the marketing. He could because thats whao remember. But but i am concerned and i e this concern in this subcommittee before, that when youre driving down the road listening to a sports broadcast and either somebody come on and says, hey, if you owe the irs, youre in good luck, call us and were going to give you all this release, and just scratch my head thinking wait a minute. I dont owe the irs because i paid my taxes. And so why should someone else get off the hook . Ive always had a little bit of concern about that. And the last thing, this would just before quick response. In recent years weve seen a lot of indications of Identity Theft, soul knows, those kinds of things, people stealing and filing false claims and what have you. In your modernization effort has that tampa down somewhat . Will quickly because im out of time. Yes, it has. We are doing a more effective job year over year in avoiding Identity Theft situations where we have work to do is what you been victimized, the light is too long to get help from irs and if something something were focus on fixing. I thank you, and yield back. Thank you, chairman womack, Ranking Member walz. Would love to your question. Thank thank you very muc. A couple points about just a recent conversation here. Throughout the appropriation process, House Republicans have sought to destroy thee. Funding for the irs. Its been more than 21. 6 21. 6 billion in cuts irs funding over the past year. Weve heard about the tax gap, 687 billion. You have been able to collect 520 million in back taxes, estimated 1000, millionaires and billionaires, which is collecting revenue i just went repeat for the record, collecting revenue legally owed. Now, and again with my colleagues on the otherhe side, they frameme our debt as as m of investment in the American People. We have a revenuee. Problem whih i think that we have demonstrated here this morning. And there is a refusal to let that i o was collect legally owd taxes from billionaires, corporate, of folks, in order to address the problem. Just a very, very quickly, wee going into a new budget year. If more funding is cut from your budget what would that mean . What it will mean speedy what are the consequences . The consequences is will not be able to meet the demand that taxpayers present. People will call the irs and not get through. That will happen to more people. People show up at our Walkin Centers. They will find long lines and not be able to get in. And we will have, we will be limited inn our ability to hold people accountable that are not playing by the rules. This is why this is so important. If youof are a cfo of the Large Company and your playing by the rules, you want and irs the first of all each alone, does its like you for audit because weve invested and now have the precision to see where the patient is more likely. And once with both the return of a rethink the invasion is more likely, the cfo for suing the right thing wants to make sure welded the cfo for stopping playing by the rules accountable. All of that degrades if we dont meet the resources that we need. Those consequences need to be telegraphed loud and clear and about who, from whom are we trying to get the taxes from. 55 corporations, zero in federal taxes. Another 39 what they only a portion of their taxes. Let me move to the Child Tax Credit. What an amazing success, and i put you at the irs of the city of making this program and enormous success. You distributed nearly 93 billion in monthly Child Tax Credits payments to families. As i mentioned earlier, treasury Inspector General for Tax Administration of the irs accurately set sent 90 mony Child Tax Credit payments. 98 . No fraud, waste or abuse, people not going to work, people buying drugs with the child taxes. All of that naysaying dissipated with the success that you and the staff have had in making that possible. I also might add at this juncture that distributed nearly 93 billion. I. I have folks who tell me, my god, we really cant afford a Child Tax Credit to lift almost half the kids in this country out of poverty, lowered the hunger rate. We cant afford it. But my god, we certainly can afford a 607 billion tax gap . We could do with the Child Tax Credit over and over again. Should some of Child Tax Credit be reinstated . How quickly the irs be able to restart the program . And how can the congress assist in this effort . And can you just briefly discuss the Lessons Learned from the Child Tax Credit implementation, how its impacted other irs . I really appreciate you expressing your appreciation. The irs workforce often does rise to the challenge and in particular during covid really get a lot of heroic efforts to send out wifi and economic payments to so many hundreds of millions of americans. And credit to my predecessor and others who led the irs to that time. Whats also important and what huge lessonn learned is, is that we are starting to make advances in updating our core technology. And ive heard for a long time that a lot of money has been spent it has the irs technology improved . I can report that it is starting to show meaningful improvement and its for that reason that if a Child Tax Credit new program was enacted, we could reengineer and begin within weeks, not months, and that is because weve done before snl where the playbook, but weve made not all the advances, we have a long way go in technology, but changes have started to happen and we are starting to see those technological changes generate efficiency like weeks, not months, to move forward on a new child tax heartbroken. Get ready because wera are going to reinstate the Child Tax Credit. Hankie. I yield back. Thank you, ms. Delauro. Now recognize chairman amedeo. Thank you, mr. Chairman. Goodwin, commissioner. Ive been told that tax collection over the last year, a couple years, are at record levels. Have i i been, to have accurae information, what can you tell me about collections in general over the last couple of taxis and . Rf ihe would say that the size f the tax base has grown. So were seeing the population growth and theres more taxpayers. So just in the general rhythm of collecting taxes, the receipts can ebb and flow, but as the population grows and as the economy grows, we can see higher overall receipts and i overall collections. What is the audits that have grown in the way they should and thats why in my testimony i outlined plans to increase the audit rates. I get that but if the answer to my question, are dollars up the last couple cycles . I would have to double check but i do believe overall, receipts are increasing as the population grows. If i heard youree right, pat of thero function of that, in yr view, is birthrates. Because what, more people are attending adult status and filing,in or over the 2010s we saw a 7 increase increase in the number of tax filers. So just to give you kind of a rough benchmark, in the ten years between 2010 and roughly 2020, about a 7 7 growth in filing. What do we attribute that you . Population growth. Okay. Also we for talk about technology and funding for technology and stuff like that. Can you kind of briefly tell us what those Technology Advances have done, if anything, to affect the workforce that you need to prosecute your core mission . Absolutely. Y. One, and when i was entering congresswoman delauro, i left out the importance of not just our phone lines and a Walkin Centers but our digital. We have an emerging generation of taxpayers are used to doing everything for their smartphones and tablets. We need to getax there. One of the things that is happened in the last few years is weve made dramatic increases to our digital solution. You can now get an individual online account, a Business Online account, their functionalities in those accounts are increasing so that moreas and more you dont have o walkin, you have to call us. But if your business with the irs you can do it from your smartphone or tablet or your laptop. Weve made four changes to irs. Gov and the last two years than in the previous 20 years combined, and thats part come for you lot more to do because the gap between, for example, your favorite online bank and what they can do and we can do a significant. Se and we planned use the Inflation Reduction Act funds, close the gap so that your children and grandchildren operating in a world where they never have to call a walk in to a irs center. So connect the dots for me if you will in whatever context is appropriate. The Technology Advances have affected what it costs us to operate the company. How . Have gotten any efficiencies and cost reductions in operating the company from the technology . Absolutely have. We absolutely have seen efficiency. Every time we move a form from paper to digital, weve seen a lot more digital upload a document. Were up to now 94 of americans can send stuffff to us electronically rather than have to use paper. The reduction of paper reduces costs. The issue is that the tax system grows at a faster rate than we can drive efficiency. Ill give it a good example of that. Congress passed a law requiring irs to build a new technology to do information reporting for Digital Currency. So theres a whole new program after because of Digital Currency that we now have two great new infrastructure. So, one, so we have a new cost because we are to build a new system because there is new currency. That system has to be both built and maintained. Soso even though we may be drivg efficiencies in these legacy systems that are in place, making them more efficient, when Congress Changes the code and adds new requirements, our overall resource last question, some members have referred to with specific numbers corporations, x number of corporations pay whatever, x number. Can you tell me what, if anything, youre doing, if its finite, region to prioritize going and getting those 55 i 55d ever with your existing assets . I i would assume if that information isme out there and they are not paying their fair share, that youve got a top ten list for sunday what its like were going after a, b, c and d because there at the top of the list. Wetzel to do. In fact, with the top 1600 less, 1600, millionaires and billionaires that owe back taxes. Taxes. With one and 25 are they tell me were collecting from them. Theyve heard from us. Weve collected 500 million so far and more to go. Weve sent letters to 125,000 wealthy individuals who havent filed since 2017, and they are hearing from us. Weve launched is that Data Available, Public Information . Public information. Good. My time is expired soti i yield back. Thank you. Mr. Pocan. Thank you, mr. Chairman. They can measure. Was it integrate the direct filesystem . It was 26. 4 million of irs finds. Twentysix im sorry, 24. 6. Do you know how much is made by the tax preparation industry annually . I dont have that number but i know its in the billions. I looked up one company into a, 14. 3 billion, they had a 13 increase. H r increase. H r 35 billion, bigmoney. They are lobbying alone was 93 million which is almost four times what it cost completely to create a direct filesystem. Taxpayers anve enormous amount of money if what people would have access direct file, isnt that correct . It could, and we want free file to expand. We think one of the things about the free filear program is not enough people are taking advantage of it, and this past Filing Season we saw an 11 increase in free file. Some of it direct file, some of the free file with us with the Software Providers. Were happy about that. What we do to do that . I know when stat and avert a couple that is not sure if this is correct but 70 people would qualify for the correct file like 3 use. What we do to get more people to be able to have that information . N . Just like when were talking earlier about people getting scammed by two could be true, and advertising. We have to do more outreach, and we plan on doing a lot more outreach. One of the questionsue earlier s are you getting more efficient . We are. What do we want to do with new capacity . Theres more help needed in our underserved population. Wewe had 79 taxpayers less you eligible for eitc that the claimant. We need to close n that gap anda working i underserved and distressed communities we can share more information about tax skanska and what to be on the lookout for and what our free options for your file. We want themha to have choice. We wanted to be educated to know, well, i can file for free with the irs direct or i can use commercial software. Let me try both and see what works for me. The idea around direct file is really another option with the overall objective of serving people that cant afford an account and need more help. We require people to pay taxes of the fact we will provide something for them to do that only makes complete sense to me, and to that you talk about the money that doesnt get to low income families, 12 billion in tax credits are left on the table. Is there afi way to auto file se of information with the system so that when people come if they do direct file, some of it could be included since you receive it electronically . There is a lot of study that we need to do to understand the future of tax filing. Right now, where we stand today, it is up to you to enter your information and you are the final arbiter of what your tax return is. There are other countries, other nations that do it very carefully. They present, you are still the final arbiter of the papers into a completed tax return and you thumbs up and thumbs down. Whether the u. S. Goes in the direction i think its a valuable conversation to have. My commitment is to be transparent so that if were going to move in a direction where we are providing more information to the taxpayer to react to versus then putting it in themselves, im going to share that information publicly before we go forward. Are you looking maybe doing that with a pilot . I think we should have conversation with stakeholders, if we move forward with the correct file next filing system what should we adjust to further reduce taxpayer stress . And what can we learn from that . Also on the private companies theres all theth information about devika shared with meta what you dont think you we are multiple bills to fight tiktok and other companies who are doing things with privacy and data, and we see this industry sharing data in ag very disturbing way. A we dont sharee, data with anyo, do we . We dont. This is whats interesting about taxpayers. The if different preferences. And different experiences. One of the notable things we learned in the correct file pilot was more than 85 of taxpayers that use direct file said it increased the trust of the irs. There are taxpayers who are not going to want to use direct file, who have different trust relationship with us and they can use commercial software. The issue is taxpayer choice. And and i guess i would jud with, we would love to have that taxpayer choice in wisconsin. So if you are looking at expanding, hit i i noticed the only midwestern states right is how to code which a relatively small sample, upper midwest would certainly love to be included, police wisconsin, i will speak for wisconsin. If you could do that we really appreciate it because i would love to save my constituents money. Thank you. Thank you. Yield back. Thank you, mr. Pocan. Thank you, mr. Chairman. Commissioner werfel, just last friday treasury issued a final rule on the 30d tax credit which included relaxing restrictions, sourcing graphite from china. As you may know the peoples republic of china as new critical mineral export controls last october which allow the prc to restrict graphite exports to any country for supposedly National Security reasons. There is clear evidence that these restrictions are already a happening. Last june european Battery Manufacturers were unable to source graphite from the prc, causing negative repercussions for battery production in europe. Thats according to the european commission. Do you believe the tax dollars of hardworking americans should be given to foreign entities of concern or the u. S. Subsidies . We have a responsibility at the irs to work to find the right outcome. Treasury ultimately has the final discretion on what a notice or a final rule will indicate. I know just based on the fact we get a lot of Public Comment and a lot of different opinions on whether, how we construct a rag, look at how comes it will have, i think its a healthy dialogue to have. Ultimately what our responsibility is that the irs is to make sure we are carried out the laws especially at the e Evidence Base and this we try to do. If i understand what youre saying is you feel that treasures responsibility t to determine whether hardworking taxpayer dollars should be given to foreign entities of concern or the u. S. Subsidiaries. Not the irs . I know that with respect to the clean Vehicle Credit and other provisions in Inflation Reduction Act related toin ener, the reg writing process has generated a multitude of different perspectives and opinions, a very healthy dialogue on the policy and operational tensions involved in the final reg. Ultimately its up to treasury to calibrate all those tensions and come up with an outcome that best serves the intent of the law. So you dont want to share an opinion on whether we should be giving american taxpayer dollars to entities from russia, china, iran, north korea . I think the intent of the law is to curb any financial benefit of foreign entities of concern. I am all about supporting the intent of that law. I think ultimately theres a variety of different paths you can take to meet that objective, and treasury has the final say on what path we take. Can you tell me what Statutory Authority you believe gives you the ability to create an impractical to trace safe harbor category of constituent material or a category of battery material, actually none of which are remotely contemplated in the 30d stagen as amended by the ira . That question on corner to get back to you on to understand from treasury general counsel and also the tax policy but legislative authorities the relied on for reaching a conclusion. Okay. I would welcome a letter or sunk your medication your general counsel to just establish the likelihood that these provisions were even withstand legal challenge by a taxpayer. I can commit to that. Thank you. Are there any restrictions under current law that would prevent a subsidiary of a a foreign enty of concern that receives ira tax credit from sending thoses payments back to its Parent Company in a hostile foreign nation . I cant i will have to get back to you i on the steps that are being taken to mitigate the type of risk that you describe. But again imha not familiar wih the exact details of that soul had to get back to. Okay, thank you. Are there any measures that you intend to implement to ensure that taxpayer funds are not directed to such entities, considering the broader implications for National Security and economic independence pgh yes. I mean, now youve hit on the responsibility that the irs has, is once the decisions are made in terms of the parameters, the guardrails, somewhat, what is legal in what is not from a regulatory standpoint, and i was as to stand up the infrastructure including the fraud detection, the Program Integrity issues and, therefore, we will build what i call a risk register to understand what our the top issues that will do great integrity of the program, the intent of the law and the regulation, and well use a science and other elements to try to make sure that with leading indicators to see what behavior is going in a direction that we need to step in and prevented. So in the future as move forward to government final rags, i be happy to brief you on some the Program Integrity things that were doing. Fingertips, i can get back to you on that. Mr. Moolenaar thank you. I yield back mr. Joyce now recognize mr. Bishop. Mr. Bishop thank you for your testimony, for being here, and let me thank you and your team for your hard work in doing so with limited resources. Theres been a lot of talk this morning about the tax gap. My understanding between 2020 and 2022, the number of examining agents who handle cases saw about 40 . That the field connection revenue officers who manage the revenue cases dropped by 54 . Can you tell me how so many highly trained enforcement staff that are vital to ensuring the integrity of the tax code, how has that prevented irs from addressing the tax gap and generated muchneeded revenue to reduce the deficit and thats my first question. I have two other questions that are relatively short that will take short answers. One is, what the irs is doing and what efforts youre deploying with regard to Artificial Intelligence to crack down on tax evasion and whether or not youre developing Artificial Intelligence tools inhouse or are you collaborating with outside experts or contractors . The final question is relative to rural taxpayers. Many of my constituents live in rural areas and they dont have access to high Speed Internet. So when they file their returns, they do so by paper rather than online. And what is irs doing to speed up the processing of the paper returns . Thank you, congressman, let me start with your first question, which is underfunding means two things. It means we dont have the right number of people. Were not right sized, so therefore, we dont have the scope and reach that are necessary to address tax evasion where its happening. And the second thing is were not making the right investments in subject matter expertise and in and littics analytics, and ai, and leaving the taxpayers playing by the rules alone. It just degrades both our scale and our depth of knowledge and it means that more evasion will occur and that will create uncertainty in markets and be very challenging for those companies and partnerships that are playing by the rules and expect the irs to hold people accountable to play by the rules. Your second question, just bridging on the ai. How were using ai in enforcement, you know, the analogy that ill use is a chess game. When we are looking to select audit amongst some of the largest corporations in the world, those that arent playing by the rules are shielding their incomes in very sophisticated ways and an example might be theyre operating in multiple Tax Jurisdictions and theyre doing a significant amount in the u. S. , but theyre moving all of that Economic Activity and theyre presenting it to a better tax rate jurisdiction. When the reality is that that activity is happening in the u. S. How do we detect that . Thats a chess move by then. Were deciding rather than having the humans there playing that chess game. Were getting the computer to advise us. Its still the humans decision, the irs employeess decision what the next move should be, but were having the computer calculate the permeatations and can catch it. Inhouse side . Both. And we have important partnerships with the private sector, but ultimately, decisions on audit selection is inherently governmental. And the rule . Yeah, this is an important point. We have to we have done significant improvements in managing our paper back logs. They were significantly outsized during covid and now theyre back all within what i call tolerance with the exception of the Employee Retention credit, which is a different thing. So, and a different challenge. But more work is needed and what we really want to see is increased access to high Speed Internet all over the country. So that those taxpayers can avail themselves. Well meet them where they are. If they have to file in paper well do better in paper and also, well set up and weve been doing this more and more, Walkin Center, we call them popup Walkin Centers where theyre going to Rural Communities more than 100 miles from a city center and setting up shop with a Walkin Center and they can get help if they need it. Thank you, sir. Thank you, mr. Bishop. Recognize ms. Hensen. Thank you, mr. Chairman. Thank you for being before us to discuss the budget request. As im sure youd agree federal agencies including the irs, its crucial that taxpayers get the high level of support and should be the top priority. As you mentioned, millions are interacting through the tax season and its important to get the returns rightfully owed to them. As i say to iowans, its their money, and throughout the past season my team has been hearing from the constituents who are concerned that they cannot go to their local irs office to pick up the instruction and due to work challenges. And you noted in the house ways and means hearing r earlier this year. Roughly 50 are in the office at any given time. Do you believe this is still the case that its about half and how are you tracking how many employees are currently in their offices to do the Services Like you mentioned, popup offices as well . Yeah, so theres tens of thousands of irs employees that are always on site. And these are people that are, for example, managing the paper thats coming in and doing submission processing, but its also our employees in our Walkin Centers, there is no remote work in any of our Walkin Centers. And inflation reduction we have opened those around the country. Fully staffed . Fully staffed every day and here is the challenge that we see. We move to an Appointment Schedule during the week and we have more taxpayers coming than we can handle in a lot of cases because everyone else has an appointment. So we started Opening Saturday hours and thats not by appointment and a given walk in center can serve about 300 people a day on a saturday without appointment, but sometimes 4 or 500 people show up and this is why its so important that we continue to make sure that were right sizing our footprint to meet the demands. So, if we can serve 300 people in, you know, in a city center in iowa, and 500 people are showing up, that tells me theres more people that are needed and we need to improve our Digital Solutions as well, but in the Walkin Centers, those are no one works from home and they are fully staffed right now. Well i would just urge you to continue to keep an eye on that. If that demand exists we need to be responsive to that. Absolutely. Number one, i get a district report every week from my Case Work Team and its never less than two to one in terms of agency interaction, irs is number one that our Case Work Team has to deal with. When i look at reports from jo, 61 of irs mailed taxpayers inquiries were considered late and id like to see that improved up from 55 in the file season and when you mention the tens of thousands of employees in the office what are you doing to speed up that correspondence to make that timely . We look at the timing and i look at score cards. There are places we exceeded our goals and did terrific, we exceeded almost all of our goals, there are other parts of the operation we were below goal and we have more work to do, one of them i mentioned earlier is our response to those victimized by Identity Theft and people are waiting too long to get the issues resolved and certain correspondence or activities not going in the right direction in terms of timeliness. What well do now that Filing Season is done, well look at the score card and look at i am incrementally. And its not perfect. When its not perfect, thats impacting the taxpayer. That means the taxpayer couldnt get through or got something late and that matters to us. I dont know that we can ever be perfect, that would be unrealistic, but were going to continue to perfect our process and not rest. I like to say theres no victory laps here. We had a good Filing Season, a strong Filing Season. We need to guild on it and we have to close gaps. I certainly understand that. Closing gaps and you mentioned your phone wait times are down significantly, but were hearing from people who are waiting for 45 minutes. If youre calculating including people who hang up, of course, that number can be lower. 45 minutes is way too long to wait. Agreed, i can explain that. Our main line. Our 1040 line, almost 40 of every call the irs gets is on that phone line, a line that has a threeminute wait and we had the best Level Service that weve had in terms of us answering the calls and the questions. Remaining 10 are the other call lines that we have. We have to do better. When you hear someone that had a 45 minute wait, guaranteed thats in one of the other call lines in the remaining 10 weve got to close the gaps. I look forward to following up with you on that. I yield back. Thank you, ms. Torres for any questions that she has. Thank you, chairman and thank you commissioner for being here. Former president trumps 2017 tax scam was the biggest tax increase to middle class Property Owners to use salt, how salt works, folks that may not know how it works, Property Owners agreed to tax themselves or to pay for public bonds to build a library, police stations, maybe a bridge and local infrastructure and in exchange they would be able to use that money in to take a deduction on their taxes based on that. It has had a Significant Impact on california Property Owners. It has had a Significant Impact of Property Owners in states where, you know, this was practiced. It was not a free gift to those Property Owners. It was an investment that they made in the communities. Most of those communities, the federal government has failed to provide, you know, proper funding for housing and for all of those things that they chose to tax themselves on. Im interested in hearing what you are hearing from our taxpayers, how they have been impacted by this, and is there anything that you can help with to alleviate . So the role that i have as irs commissioner is to make sure that i understand what the experience taxpayers are having with the law on the books in terms of getting the questions answered from the irs, getting the forms they need. Part of that experience includes how theyre experiencing changes in laws and thats what im interested in. And thats actually something more in secretary yellin and her teams wheel house so i, you know, any concern the concern that congressman raised on the Vehicle Credit and these concerns, i will bring back to the Treasury Department and make sure i provide fulsome answers. Let me go back to the audit and the working poor covered by my colleagues already. Its unsettling to see the audit numbers and i know that you have stated here that you are working to improve those numbers. So, how is that going to be a realistic approach that in my community, thats often first on the block of priority . I want to make sure that youre focusing on tax cheats and that youre not focusing on the people that, you know, are doing everything that they can to pay their taxes . When i arrived in the irs in march of 23, we began as a team to look at the audit rates in particular in low income communities. There is a lot of inequity that has existed in terms of how audits are decided upon and we are working to both acknowledge that inequity and change it, so and part of that involves ensuring that you have a diverse work force. Yes. So that they are, you know, have some cultural competency and income competency and that are not simply going after the lowest the easy pickings. Oh, absolutely. In fact, we have in response to these concerns on these equity concerns have worked with groups that are involved in these equity issues, external stake holders, treasury has committees, we have committees, weve created separate working groups just to look at equity issues in Tax Administration and weve already taken steps, for example, ive announced a dramatic reduction in the number of audits related to the earned income tax credit because we believe that that will do two things, address inequity by substantially reducing the volume of audits, but actually put that audit resource to better use and move it to areas of the tax gap that are more concerning. Let me go to another issue thats important. A nonprofit Tax Compliance with nonprofit agencies. Ive seen in my own city, pomona, the abuse of tax exempt status. Report by the california state auditors revealed that the executive director or the three top executives making over 10 million a year, at that time i had requested an audit from the irs. You do your Due Diligence instead of giving them, you know, a large fine, you force them to make some changes. How are we making sure now that nonprofit agencies are exercising some, you know, some good models in how they pay their executive team, versus the services that theyre providing in the community . Yeah, and obviously, without commenting on any specific case, we take our review of exempt organizations very seriously. Over the last 15 years, i would say, dating back to, well, the last 10 or 11 years, there have been significant efforts to increase the robustness, the transparency of our approach. Weve had our Inspector General review our approach on review of exempt organizations and for the most part weve gotten good and passing grades from them. That doesnt mean the work is done. We have the ability to continue to understand from Congress People like you and others where are there activities going on in our eo review process that are leading to bad results . Otherwise someone is exempt that shouldnt be, or someone is exempt that shouldnt be. My time expired and id love to continue this conversation with you another time. My apologies. No problem. Now recognize any questions he may have. Thank you commissioner, for spending time with us today. One of the many grievances in the declaration of independence against the king of great britain, there are offices and officers to harass our people and eat their substance. A lot of the American People feel that way about our government right now and a lot of that is on congress no matter how much money we bring in, we spend more than we dont do it in necessarily the most efficient and effective way. Some of that is on the irs and its long history of weaponization, whether targeting conservative groups, bringing extra scrutiny against them, silencing whistleblowers who shielded hunter biden from prosecution, many along those lines and im wondering what the irs is doing to clean up the culture that long existed that needs to be directed ill give you an example. Theres a letter to christianson gage a couple of years ago at that said, this is part of the letter that irs wrote to them denying the 501, c3. Central to their beliefs in the bible and education christians on what the bible says in areas where they can be strumental the sanctity of life, the marriage, freedom of speech, the border, u. S. Immigration, the bible teachings are typically affiliated with the Republican Party and candidate, this disqualifies you under 501 c3 and give a medal for the candor on the policy set and the other is a concern that this culture existed. And the irs after pushedback rescinded this and they ended up getting that 501 c3, the signature line was steven martin. Does he still work at the irs . Congressman, im not going to comment on any specific matter or on the status of my employee in a public setting. Was there any disciplinary max taken for this . I would have to look into that specific matter and get back to you. Okay. The rules of the Internal Revenue service explicitly vie leagues of the law or commission of a crime and goes on the irs 75384 states explicitly even antiwar protests, organization, committed to world peace and primary activity demonstrations in which demonstrators are urged to violate ordinances and breach public order and the tax status. We have a number of protests across our College Campuses that are being sponsored by a number of organizations, have any letters been sent to these organizations to let them know that their 501 c3 status might be in jeopardy . Ments let me respond in couple of different ways. First of all, as a person versus a commissioner, i see activities going on anytime that theres violence, theres hate, its heartbreaking. I have to divorce from that as the commissioner. I have to do the job as commissioner in a way that following all required procedures. And while i cant comment on specific cases, i will tell you has the irs sent any letters to let them know that their 501 c3 status is in jeopardy. That would be a specific action. Any organization in general, i have not named any organizations, ill be happy to because we can, but in a letter, but have any letters been sent and any investigations along these lines. I will go back out of abundance of caution, determine whether i can answer on the record without violating a 6103 concern. Along the lines miss simpson asked, basically youre telling if we dont up the irs budget well see degradation of services and yet, just recently, you made the goal of sending 50 work force back to work, basically, to stop teleworking, to me and to most americans who are footing the bill for this, this seems pretty unacceptable. I would urge you to get people back to work. My time is almost expired so well have to get to that, questions for the record. But please work on the culture. Can you tell us what youre doing to work on the culture of the irs . Yeah, we want the irs to be an amazing place for people to come and have impact and the impact is to help people, to reduce the stress they have in filing their taxes. The partisanship. Theres no place for that in the irs and we have control and training with Inspector General to constantly evaluate moments where theres even the perception of politics in the irs. And if there is, we work to correct it, and make sure it never happens again, but i believe fundamentally across the irs, there is a common understanding that if politics enters what we do, then were not meeting our mission effectively. I would agree with that aisesment, but i think we have a number of high profile instances where that has not been the case so i would love to see specific examples, perhaps in writing where you have made some efforts to bring accountability, thank you. Thank you, mr. Cloud. Now recognize mr. Carl for any questions he may have. Thank you, mr. Chairman. And thank you, commissioner, for joining us today. I know you look forward to this every year, right . I do. Okay, good, good. As you know, the tax cuts and jobs act which was passed in 2017 set to expire at the end of 2025 with Small Businesses making up 99. 4 of alabamas businesses, and as a former Business Owner myself, one what impact will this have to my constituents, Small Businesses . The expiration of the ccja, is that your question . Right. I have not done kind of an Economic Assessment of the tcga. That falls more with the Treasury Department. In terms of whether the expiration of the tcga leads to implications for Small Businesses, ill have to assess that and get back to you. So youre saying you dont know if its going to raise Small Businesses, taxes are not . Is that what youre saying . Well, im not prepared to provide analysis of that. Thats something that if i was to provide an analysis of it, i would have to do it in consultation with the treasury secretary and ive not run that analysis. Keep in mind this administration is quote, unquote not focused on rises taxes on anyone under 400,000. And out of that , probably 90 of that is under 400,000 range and its going to raise taxes and i think we both review that as a tax increase. Does the irs have any plans on providing this 2025 data expires and weve done nothing . Does the irs have a plan to educate, give guidance to these Small Businesses across the country . Has that already got put into place . As i said, based on this question, i will go back and make sure that we understand what implications, not from a tax rate standpoint, thats more for treasury and im happy with work with treasury and get an answer to your question there, but in terms of the daytoday interactions that a Small Business might have with the irs in filing their taxes and paying an estimated payment and getting a refund to the extent the expiration of tcj has an impact on that, im asking for your indulgence to review that and get back. If theres clearly on Small Business from an administrative standpoint i want to be on top of that and supportive. All due respect ive sat through many of these meetings, and never got the response. Ill get that. I like being different. The irs hired up excuse me . Okay, i do like being a little different, its okay. The irs hired up for tax ser have services and Walkin Centers and i know you spoke on that briefly. How do you plan to sustain your level of service with the irs funding expiring for tax services at the end of the year . Yeah, so, as i mentioned, we are confronting what were calling a funding cliff. We can make it right now with the 25 budget as proposed, through 26, through 2026, and maintain the strong level of service that weve had and work to close some of the gaps where we have some gaps to close. After 2026, we no longer have the funding to maintain the Customer Service work force that we have grown to meet this extraordinary demand that we see. So i will be up here making the case, like i am now, that there are some, what i believe to be relatively modest adjustments on a year over year basis in terms of funding and transfer authority to help make sure that we can continue to serve taxpayers. One last thing on the way out the door. One of my Staff Members told me to see if he could get his tax return back, hes been waiting on it. So all right, well i know hes one of many because we get a lot of those phone calls. His refund, waiting on his refund. I yield back, mr. Chairman. Thank you. Thank you very much, mr. Carl. Now recognize mr. Edwards for any questions he may have. Thank you, mr. Chair. Mr. Werfel, thank you. We probably look as much forward to this as you do. Of the initial 80 billion dollar pay raise to the irs, your agency allocated 45. 6 billion towards enforcement and you claim that taxpayers under 400,000 would not experience the effects of that increase enforcement. None of less, according to the irs data book for 2023, it was reported that the irs proceeded with 495,700 some odd examinations of individuals making less than 500,000. And id love to get more granular and share the exact amount for the 400,000 mark and less, but the data book doesnt include that level of specific data. Its using 500,000 as the maximum in this in the range that im referring to and thats compared to just 21,455 examinations of taxpayers making more than 500,000 resulting in just over 3. 6 billion dollars in additional tax. Clearly American Families and individuals earning 400,000 or less are experiencing the brunt of irs enforcement actions. Would you agree with that . I would not, congressman. And your basis in disagreeing would be . Because what ive said and what im committed to is that taxpayers who earn less than 400,000, theres no change in their likelihood of being audited before the Inflation Reduction Act was passed versus after. However, if youre high income and earn more than 400,000 and the reality is, were laser focused on much higher levels of income, for those individuals, the audit rate will increase and ive announced in my testimony to you today, the various cohorts, millionaires, billionaires, Large Corporations, complex partnerships, we intend to significantly ramp the audit rates between now and 2026. But if you earn less than 400,000, we peg your audit rate back to 2018, a historic low percent. Year over year, my goal and my intention is that those taxpayers will not see an increase in that 2018 rate. So, maybe you can represent me understand the difference in the chart that ive got here that was taken straight from the data book that i referenced a while ago. And i pulled this data directly from your agencys own book. The Inflation Reduction Act seems to have a concentration of audits against the lower and middle class American People, in fact, it looks like its about 95. 5 of the audits conducted on folks making less than 500,000. So can you tell us what is the difference between your claim that folks making less than 400,000 are not being targeted and my calculation and the table that ive referenced to. Yeah, i can explain this. What your table is reflecting is audits that were closed, that were started, 2017, 2018, 2019. It takes sometimes months, but often years for an audit to close. And so what you have, for example, is for Large Corporations, the audit rate and that for 250 million or more in assets, the audit rate was 8. 8 in 2019 and we planned to get it to 22. 6 . That wont be reflected in our data book for a few years, so the bars that are you demonstrated are reflecting a preInflation Reduction Act set of audit activity thats kind of closing up now. What has been started since the Inflation Reduction Act, and what will play out in future data books, is the bar chart will shift dramatically to the right as we ramp up. As i mentioned from 8. 8 to 22. 6 for our largest corporations, and from 11 to 16. 5 on wealthy individuals. And so, are you claiming that the audits prior to 2018 were targeting 95. 5 of the returns for folks less than 500,000, but we expect to see that lower after the inflation . Well, i think that also, your data is raw data, versus percent audited. So at that would be another clarification to make. What im suggesting, and im happy to brief you separately and get in the details and by the way, data book in the future will be listed at 400,000, rather than 500,000 to help with the transparency. What im suggesting is that on a probability, youre a Small Business, youre a middle or low income individual. Your probability of audit has not changed. It will be the same probability that it was in 2018 and it will be that way for years and by the way, 2018 is a historically low audit rate. So there should be some degree of comfort in the fact that i am publicly committing to and transparency in future data books that we are not intending to, and ive ordered the team not to, raise that audit rate above that 2018 level. The opposite is true for higher wealth filers whereas ive stated publicly the intention, the marching order is to raise those rates. Now, this will all be tested in public data that will be available in the future. The issue is that it takes time for the audits to unfold. The audit of a Large Corporation will take time before its closed out. When we send new waves of audits we announced recently that we sent audit letters to 76 of the largest partnerships in the world. But in terms of when those close out, that will take some years before they close out. And so, i think i hear you saying dont trust the data thats reported now, its you can trust it, its just, calibrate is back to the sweet spot of when the audits were issued is pre Inflation Reduction Act. Its trustworthy data. Im saying the timing to assess whether we met the commitment, not to increase audit rates on people 400,000, as i said in my testimony, tax year 23 which we just completed the first full tax year, the audit of 23 taxpayers, people, thats more in the future than in the past in terms of the schedule for those audits. Ive gone well beyond my time, mr. Chair, i apologize. But i would appreciate the opportunity to engage with your office to get a better understanding because the Data Available to us now. Yes. Says something materially different that what were hearing would be the implications for folks making less than 400,000. I will be responsive to congressman carl and responsive to you and get you what you need. Recognized by the Ranking Member and myself that we have time for a round two. I know youre having so much fun here, you want to continue this. Im ready. And ill start with myself again. The irs Advisory Council public report published in 23 that perform w2g. 12,000 was. And i signed on this, what consideration, commissioner have you been given to update the w2g threshold in accordance with the recommendation of the irs Advisory Committee . Yeah, im aware of this issue, congressman, i think its valuable when we get input from the tax paying community and from our Advisory Council on when thresholds may be out of date. As ive mentioned throughout this hearing, the determination of Something Like that is of a regulatory nature and therefore, while they would consult with me, the decision rests with treasury, the office of tax policies and the consultation with the secretary. I know that this particular recommendation is under serious consideration and i can certainly provide you more detailed update following this hearing. Very great, sir. And another interest ive had in trying to set some regulatory guidelines in fairness there, and when the treasury secretary yell men and omb director young testified in march we discussed the access for candidates banking and cannabis banking, today unable to use the Banking System and forcing some businesses to hire Armored Vehicle to transport their cash to make payment to the irs office, creating a logistical and Security Issues for all involved. Commissioner, have you seen or that you thought about any improvements to the process how the Legal Cannabis businesses pay their taxes and what are your recommendations to create a safer and less burdensome payment process for the businesses . Congressman, the announcement on the change in status for cannabis is recent and what we need to do in a moment like this is understand the implications that this change will have on a whole variety of different elements of this part of the economy. As you mentioned, what will their status be with respect to Financial Institutions . Will they remain mostly a cashbased industry or will they move into something other than cash . All of these things are important moving pieces for the irs to determine how this emerging and changing industry is assessed at the right level and paying what they owe. And so, theres more work to do. I think based on my reading of some of your comments, youre asking all the right questions and in terms of what do we need to anticipate, given this change, we shouldnt just sit on our hands, we should be active and looking at what steps we need to take and we need to interact with this community, and make sure that we understand and talk to them. I mean, typically when we engage with industries, we find that theyre very amenable to discussing and getting a better understanding of clarity of what theyre going to be expected to do. Certainty, tax certainty is one of the taxpayer bill of rights. And its not a good thing if youre operating in ambiguity. Its stressful enough to pay taxes and if you have ambiguity. To work with you, and this community to understand how the change of the industry and make sure we set up the right tax structures for them to operate in. Wouldnt it be fair to say that different the opportunity to have a Banking System involved in this process, it would make life easier for you, youd be able to have a third party in which you could judge . I think that history has demonstrated when we get third party information, 1099 reporting, it drives a lot of integrity and Quality Control into the system and it reduces the number of uncertainties and variables and often is helpful for the taxpayers because theyre aware of what the irs has been informed of in terms of income. So, in general yes. With anything, im sure there are tensions, paper work, burden, privacy, all of these other issues that will surface and my job will be to be at the table and explain what the various tradeoffs are from the tax standpoint. And ive heard you discuss with others trying to make it as user friendly as possible. Do you know what is available to navigate and compliance . Typically what happens when we have an issue like this or an emerging change in an industry. For example, you know, new currencies, new tax credits, where people that previously didnt have eligibility, now have, like car dealerships, in the case the Inflation Reduction Act. We build a collaboration and engagement. Sometimes we can do faqs or hold webinars or round tables and it seems like a Material Change thats going to impact the industry and likely will warrant that we build that type of stake holder engagement. Thank you, ive exceeded by time and now deter to Ranking Member ohare. inaudible first of all, mr. Commissioner, you were appointed by donald trump, is that accurate . No, no, i was not appointed by donald trump. I was appointed by president biden. Okay, excuse me. I got some misinformation. In any event, im going to make my point anyway. Mr. Reddick, one of your predecessors and you, essentially have represented a nonpartisan, bipartisan view of the revenue flow of the irs and the impact on its ability to do the job thats been given to it by the congress of the united states, would that be an accurate statement . Yeah, my predecessor commissioner reddick was a significant champion for the irs work force and for the dollars that we needed to get the job done. Now, let me unfortunately, mr. Edwards left because i wanted to refer to his chart and did you you went up and looked at it. I couldnt see it from here. What was the time period for that chart . Did anybody recognize it . Did you see, anybody . It talked about the start the close of audits in 2023, if i recall, and the reality is that because of some audits take months, but many audits, especially conflict take close years. The closeout is i like that chart. Reflects reality under 400,000 if you have an audit essentially on average its one 0 one. You spend 5 to do the and you save 5. You find 5 in fraud or underpayment. If you audit millionaires, you get 12 times the expense. So you have a 12 to 1. Now, its interesting that in the years, in the last 10 years we have audited many, many, many more people under 400,000. Why . Its easy. So you can conduct audits, you dont get much money because the payments are relatively small and because probably 90 of those im just taking that off the top of my head, dont have a have every week, every bi week, every month, we collect their taxes. Its the corporations, its the passthroughs, its the partnerships, et cetera, et cetera, that you dont do that with, which are much larger, which is why you have four, five, six, 12 to one return on the audit. So i want to see is, because it makes our point to the extent you underfund enforcement and enforcement has been reduced 22 , from to 10 to 2019, hopefully we have more relevant, more recent statistics than that, but has been reduced 22 . Returns are up 7 . Thats a 39 difference there. Or 29 , excuse me. So it is not surprising that we have that 7 billion dollars underpayment. Why . Not just because its just the cheats or strike that, people who dont pay what theyre supposed to pay, but it is also because those who know that there are 687 billion owed, they may not ever be caught. So not only our tax system, one of the great things about it, its a largely voluntary system. One of the most voluntary in the world. I think were now at 87 or Something Like that. 80, yeah. North of 85 . 85 . In that ballpark, but frankly to the extent that we reduce enforcements with all due respect to all of us, if we think maybe it is, maybe its not, im not going to pay it, if they catch me, they catch me, and i pay it. Thats why this enforcement system is so critically important. Its also not unusual that these who make the most are audited the less, the least. My, my, my, isnt it nice that we dont all of those people who give us all of these big contributions and all of that stuff we dont look at you, we look at the little guy, a lot, which is what that chart shows. I hadnt seen that chart and i dont have the basis and have to analyze, but ditc, and they dont make anything, hardly. Theyre scraping by and they have it tough. And we want it really look at them. Is there fraud in the ditc . Absolutely. Why is there fraud in the itc . Because human beings are participating in it and human beings want it try to pay as little as they me included. But some people cheat. And they claim they are you dont collect much from them because they dont have much. But thats why so much time was spent because we want it see that little old lady who is driving the cadillac coming and doing the food stamps at the grocery store. Mr. Chairman, it concerns me that when people who are making a lot of money and very frankly, i dont know the statistics, miss delauers corporations, theyre probably doing that legally and we make the rules and we complain about it. If they follow the rules, god bless them. Theyve got smart accountants ants smart lawyers and i hear my colleagues say that all the time. Okay, did they go to jail . No, well, then theyre obeying the law, our law. If you dont like the fact that theyre not paying any, dont let them have the deductions or backs or whatever theyre taking. I know ive taken a longer time, but this is a critical issue for defense, for National Security because thats how we pay for National Security, for domestic security because thats how we pay for it. Thats how we pay for the administration and all the government, who mr. Werfel and his colleagues efforts and we need to come to grips with establishing a system where we dont have forget about what the figure is, lets say its only 400 billion. Extrapolating it by 250 billion dollars, we have a deficit. We need to be collecting everything that is owing, not a nickel more. And on the 400,000, people on the taxes, on the property tax, very frankly, and i come from a high property tax state, marylands a rich state, but very frankly on property taxes, you buy a 2 million home and someone down the road cant afford a 50,000 home you want them to subsidize your real estate. That wouldnt be popular in my district, mr. Chairman, its know the popular, but i take that position because they want the federal government to subsidize when they voted for their schools and whatever, god bless them, but dont look around at the maryland taxpayer or the kansas or the iowa taxpayer or even the ohio taxpayer to subsidize what they decided to spend money on through the property taxes. That wont be popular in my district, but thats the way it is, mr. Werfel, thank you very much. Youve got a tough job. We are going to have a markup and im going to work very hard to get the money that we need as americans, not you, not the irs employee, we need as americans to fund a tax system that is fair, which means that everybody pays their fair share. Thank you very much, mr. Chairman. Youre welcome. Ranking member. Now we recognize. Thank you, mr. Chairman. A brief question, commissioner. Obviously, erc tax credit in your testimony, you say that there is still a moratorium on processing those claims because of the fraud, amount of fraud with that and i appreciate the efforts to combat that fraud, but i am working with a lot of concerned Business Owners who have the claims pending and those are refunds that theyre rightfully owed, some of them, some of the pending cases are worth hundreds of thousands of dollars, when theyre tight, its what they plan to do and grow the business and add some jobs or wait on the dollars. What is the agencys expected timeline to continue processing those erc claims . Well, were still processing claims received before september 14th, 2023, when the moratorium started. And since the moratorium, weve processed more than 2 billion in claims. Its those that received after september 14th that we are not currently processing. Do you have a timeline for when you might begin . I dont have a timeline. What i had stated earlier was after Filing Season, we were going to conduct a or during Filing Season and leading to after Filing Season, conducting an assessment for our inventory, the best way to proceed. Unfortunately, congresswoman there are a lot of eligible claims for our inventory and who is suffering for that . The eligible claims. Small numbers, but hard to find. And we are working with our Taxpayer Advocate to move to the front of the line. Hardship cases, and anything that has become more urgent. If you believe youre truly eligible, but we are urging taxpayers who are ineligible to withdraw. Weve had almost 400 million in withdrawals since we announced the moratorium and then weve had a voluntary disclosures for those that received the payments and they knew they were received in error. For that 177 million in people who have voluntarily come to us and returned the ineligible credit. And some of those issues were without Side Companies and also involved in and to get to your question, i want to work those with the urgent need while were continuing to sort through what is a very challenging situation, that we address those quickly. Are you paying interest out on those claims . Were required to, yes. Do you know what the expected cost is . When we look about giving you more money, we want to make sure that youre as efficient as possible and driving the costs the costs of the interest . Its largely offset by the costs that we save by holding onto the claim longer, so it ends up being budget neutral, the interest costs. I can give you more data on that. Certainly would encourage you not to, you know, hold back as many of these claims as possible. Thats not the intention. The intention is to find the eligible ones and process them as quickly as possible. Thank you, i yield back, mr. Chair. Thank you, miss hinton, mr. Cloud. Thank you once again and i have what is a little more technical questions. Okay. In january the irs announced total amount of recovery wealthy individuals as a result of the funding 520 million and thats about 5 of the 10 billion increase of revenue that cbo projected for fy23 and 24. Part of that i think has a huge part to cbos penchant to overinflate the benefits and underinflate the costs of anything were evaluating. You would, i would guess, if we had more help, more people and more time, we could probably get that done. But going back to the issue on the teleworking that we touched on briefly, i wanted to ask you very specifically, earlier this year, you set a goal for employees to be in the office back to just 50 of the time in may. How many days per pay period do you require your dc based managers and employers covered by collective bargaining to be in the office . Well, its half. So if theres 10 days in a pay period, it would be five days and so, its and let me also offer that, what we are requiring is consistency with the government standard issued by the office of management and budget. Part of what we have to evaluate with respect to telework. Are we achieving our productivity goals . We had a strong Filing Season and a lot of our goals were achieved. We have to stay competitive in the labor market and we want to provide good flexibility along with what other employers might provide and we want to meet the government wide standards. Theres a lot and were talking about the teleworking practices were under covid and meant to be temporary and out of covid made permanent. Now, from a business perspective, you know, when youre making this decision, youre thinking, okay, im going to take probably is a short somewhat of a hit in productivity from working at home, but we dont have the facility usage so theres savings there. Can you submit to us what savings we have been able to gather . Are there offices youve been able to close down, maintenance . Believe it or not, its mixed in some locations, we have space issues because people are shifting to smaller telework footprints over time and working on site. In some cases, we have excess real estate and were working to offload that real estate. Its not always the case that you lose productivity when people are are working off site it depends on a lot of it depends on the individual. And the situation. The irs is committed significant resources to ensuring taxpayers who navigate the 7,000 tax code paid the proper amount, which they should. But the job, we were talking about the fy23 treasury reported a staggering 33 of improper payments for the earned income tax credit so we were just talking about that. Yes. What are you doing to reduce those improper payments . Yeah, this is a really important point because it is that high improper payment rate that i believe led to the large number of audits in this program. We have to balance. There is a part of that error rate, that is more concerning than another part of that error rate. So part of that is direct fraud or a nefarious preparer who steals the eitc from the eligible applicant and part of that error rate is the dependent child lives with the parent for four months out of the year, rather than six months out of the year and thats the eligibility issue. In a constrained resource environment we have to make choices. Can you break that down for us, maybe . That 33 . Yes, we can get you more information on that. I would say that a large part of the error is kind of more of this technical error, where its the number of month youve lived with your dependent child. What my commitment is to go after and correct the errors that are more nefarious. That are more likely to compromise trust in the tax system. I wish we could get all the error but we have to prioritize. We have to prioritize. I have a couple of seconds. I dont have any reason to think anything about these questions except you mention that the irs does not sell data. Happy do that but that sparked a couple questions. Do you purchase of data . Do we purchased data . I dont believe we purchased data. I mean, maybe we purchased benchmark information on real speedy on individuals come on citizens. We do not. Do you share data with other agencies or to other agencies have access tora your data witht a warrant or subpoena . Yes, under section 6103 of the three of the code are statutorily established data sharing environments like, for example, we share data with hhs to help with their Child Support enforcement. We share data with the Education Department around aligning with student aid eligibility. So there are these buckets of otherwise, beyond a facet prescribed in statute in section 6103, we do not share it. Thank you very much. I yield back. Thank you. Mr. Cloud. Mr. Werfel, all good things must come to an end. T [laughing] there may be members who may submit questions for the record. Please submit any questions record with theex next seven da. Iav would ask you as a of other people in the past to try to respond to those issues if you would within 15 Business Days after receipt of them. Again, i would like to thank you for being here today, the opportunity to have this discourse with you, and this meeting is now concluded. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] today the Affordable Housing culverts of Montgomery County maryland holds its 33rd annual housing summit. He was brett jamie raskin and glenn ivey are expected to join acting housing secretary in discussing issues impacting the filament of Affordable Housing. Watch live at 1 10 p. M. Eastern on cspan, cspan now are freed mobile video app or online at cspan. Org. Today watch cspans 2024 campaign trail, a weekly round up of cspans Campaign Coverage providing a onestop shop to discover what the candidates across the country are saying to voters along with firsthand accounts from political reporters, updated poll numbers, fundraising data and campaign ads. Watch cspans 2024 campaign trail today at 7 30 p. M. Eastern on cspan, online at cspan. 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