Transcripts For CSPAN3 IRS 20240703

The hearing is two hours and 20 minutes. Chair Wyden Finance Committee will come to order. Today the Committee Meets to discuss tax Filing Season, which closed yesterday. I think thank commissioner werfel for being here at a busy time for everybody in the agency. There are lots of issues to discuss, and one that certainly is important to the American People is direct file. Anyone who denies that the direct file was a huge success, my guess is just living in another universe. It is open to a fairly small percentage of taxpayers, but the reviews it got from its initial users were overwhelmingly positive. It seems like a whole lot of people were very stunned that a federal agency, particularly one as frequently vilified as the irs, was able to build a helpful website that works. Tens of thousands of taxpayers who use direct file this year collectively save millions on fees that they wouldve paid to one of the tax software giants. Website is userfriendly. It is quick and easy to use and didnt hassle users for up charges for Addon Services they didnt need. Direct file showed that the irs could build a good tool that people like because it saves americans time and money. No surprise, then from that people who oppose it are absolutely furious and once again are doing everything they can to stop it from growing. The detractors and said it didnt attract enough users. Tens of thousands of new users came in over the last week. The irs hit its goal of 100,000 taxpayers using the system. There is no doubt in my mind that this will be more popular every year. Others have said that the cost estimates were too date, but the fact is there is always challenges with Pilot Programs. Now that the irs has tested this system, the costs are going to be clear Going Forward. Finally, there are some who said the whole project was unnecessary. They said taxpayers got the option of using the free file system of the big tax Prep Companies. They may have had a valid argument years ago, because before the tax prep giants got caught hiding free file options from eligible taxpayers, they were conning people into forking over hundreds of dollars they didnt need to spend. Congress simply cannot go around trusting the big taxPrep Companies to do the right thing. For some, their version of free file is the freedom to get americans to pay them more. The services the federal government are to be providing to americans whenever it can i understand the irs and Treasury Department are evaluating how the Pilot Program went over the last few months. Personally i believe that this program should be expanded. Im looking forward to the day when oregonians come up to me in one of our 51 fred Meyer Grocery stores i have been to every single one of them, having had a chicken in each 1 to tell me how thrilled they were to save time and money with direct file. On the topic of vastly improved federal programs, i will turn to the irss continued success in improving Customer Service during the filing system. The irs entered a million more calls with live assistants than last years filing system, getting call waiting times down to three minutes, saving taxpayers 1. 4 million hours of time than in previous years. They wouldve spent basically listening to all the music and being on hold. It has smashed its goals for in person service. Despite the success, apparently there have been complaints from the other side of the aisle that the administration is asking for money to sustain this progress. Im not sure what is behind that. Maybe they want to go back to the bad old days when taxpayers sat on hold for hours and couldnt get timely refunds. Doesnt make any sense to me. For the second filing system and Filing Season in a row the irs has prepared can provide a topnotch level of Taxpayers Service when Congress Gives it the resources. Just a few words to close on enforcement. The irs has announced major enforcement efforts in the last few months. This includes cracking down on 125 thousand cases where wealthy individuals, many of them bringing in more than a Million Dollars a year, never even filed a tax return. Let me repeat this, this is not people figuring out how to name the system full game the system. They are sufficiently contemptuous of the rules that they never even filed a tax return. There is an effort to root out the abuse of tax base for corporate jets, highflying executive to take tax writeoffs for personal travel, for example. In my view the irs ought to look at similar abuses with corporateowned yachts. The abuses he to me to be even more blatant. Yachts produce big writeups, but i find it hard to believe that anybodys yachting to a board meeting. If Congress Continues to cut the irs funding or the patient or the Inflation Reduction Act expires, wealthy tax cheats will have an easier time getting away happen. Wealthy tax cheats will have an easier time getting away with breaking the law. And that means misery for typical americans who are just trying to do their civic duty when tax Filing Season comes around every spring. That is an outcome that the vast majority of the American People oppose. Lost to discuss lots to discuss this morning, colleagues. I want to thank commissioner werfel for joining us. Senator crapo. Sen. Crapo thank you, mr. Chairman, and will come again, welcome again commissioner , werfel. I agree and appreciate the work you are doing on the progress that you have made. There are going to be issues that i raise today, however. The irs needs to be accountable for the choices it makes, become more efficient, rigorously plan, provide full transparency and real feedback for informed stakeholders Like Congress before acting. Despite claims that the 80 billion in new funding would transform the irs into a 21stcentury agency, the president s budget request indicates otherwise. While modest progress has been made, there are other areas where the agency continues to miss the mark. For example, last year i raised concerns with the irs Strategic Operating plan including its vagueness and missing lineitem cost projections. A year later we are still missing important details. Yet this years budget asks for even more unprecedented irs funding, more than 104 billion. This underscores that the initial windfall was not a cure. The irs has not transformed. And the president believes the only way that vision can be achieved is to spend more. While i support a transformed irs, this approach is not the solution. 480 billion dollars, one would expect the transformationa desk for for 80 billion, one would expect the transformational Customer Service changes. Fully modern frontend and backend i. T. Instead, it seems that taxpayers have paid for mail to be opened and a decline in phone wait times. Meanwhile, several million items of taxpayer correspondence remain unanswered and have a million id theft cases remain unresolved on average years later. I. T. Modernization funding is scheduled to run out, years before the irs finishes updating its systems. I assume that this is due in part to the bulk of the ira funding being directed to enforcement. I dont disagree with the enforcement needs that my colleague the chairman has identified. An emblematic example of the just spend more, no questions asked, approach is the direct file program. Despite their already being multiple freefiling programs i say that again, multiple freefiling programs offered by the irs, the agency embarked on a redundant governmentrun tax preparation project complete with attendant inefficiencies and conflict of interest. Just last week, the Government Accountability office reported a highlight of many ways the supposed Pilot Program has not followed best practices. Including key planning, budgeting, and accountability failure the report noted that while gao could not determine how much the program has and will cost to operate, the irs, having not provided sufficient information to do this, the current cap far exceeds 100 millioncurrent tab far exceeds 100 million just through fiscal year 2024. For an option that might only serve 100,000 taxpayers this year. In contrast, the federal government spends less than 5 million a year to have 2 million to 3 million taxpayers served in one of its free incometaxpreparation programs. Were the irs to use this years direct file spending to pay thirdparty providers to prepare and file returns instead, literally hundreds of times the number of taxpayers could file for free. The irs spending hundreds of millions of its finite funding to simply test the utility of doing something that can already be done more efficiently with Better Outcomes and without the very real conflicts while simultaneously pleading for more funding calls for more oversight. Direct file is not my only concern with the irss current path. Other serious concerns include the continued irs use of biased data and post fecteau metrics to post facto to plan and justify its actions. Indiscriminate campaigns the pressure on his taxpayers and waste government resources. And the irss continued and highly disproportionate focus on increasing enforcement over improving Taxpayer Services. Commissioner werfel, while i appreciate the positive steps the irs has taken during your tenure, so much remains undone at the irs that any victory lap is unwarranted. I look forward to your testimony, commissioner werfel, and i thank you, mr. Chairman. Chair wyden all right. Our witness today is commissioner daniel i werfel, 50th commissioner of the irs, previously the managing director and partner of the boston consulting group. Before joining them, he was nominated to be the comptroller of the office of management and budget, a post he served in for four years before becoming acting commissioner of the irs in 2013. He began his career at the office of management and budget in 1997 as a policy analyst in the office of information and Regulatory Affairs. Commissioner, welcome. Please go ahead. Mr. Werfel chairman wyden, ranking number crapo, members of the committee, thank you for the opportunity to testify in the Filing Season and the irs budget. Im pleased to report the 2024 taxis and open on schedule january 29, and we have seen an historic Filing Season unfold since then. Thru april 6 the irs received more than 101. 8 billion individual income tax returns and issued nearly 66. 8 million refunds from more than 201. 1 billion. The Inflation Reduction Act funding has enabled the irs to have one of its best Filing Seasons ever in terms of Customer Service. Taxpayers are seeing a difference. We have entered over one million more taxpayer calls than we did a year ago, and 3 million more calls than we did in 2022. Wait times and level of service on our main phone lines have improved. We have dramatically expanded service in our walkin sites, increasing hours and serving more taxpayers, and a new and expanded tools on irs. Gov are seeing heavy use. We had several ambitious transformation goals at the start of Filing Season, and irs employees worked hard to deliver. Here are some examples through early april. We committed to an 85 service on the main taxpayer helpline during the filing susan. Filing season. As of early april we exceeded the goal at 88 . That is huge improvement from 2022 2022 when only 15 of callers could connect and receive support from a live assistant. We committed to an average call wait time of five minutes or less on the agencys main taxpayer helpline. We exceeded that goal, within the mainline funds being answered in three minutes. These are some of the examples of how we are seeing historic improvements in a Taxpayers Service, and the agency is rebounding from some very tough and lean years during the past decade. At the same time the Inflation Reduction Act funding has enabled us to begin making critical inroads in addressing tax evasion amongst the most complex and largest filers. This is a sharp turnaround on the past decade when we were hindered by a lack of resources. Our compliance work includes focusing on tax delinquency and nonfiling among high income individuals, areas we are particularly concerned about. We are also responsibly leveraging Artificial Intelligence and hiring subjectmatter experts to find a tax evasion amongst the largest and most complex partnerships in corporations. I want to be clear, despite improvements this tax season, the irs has instilled much more work to do on many fronts. This includes closing remaining caps on phone service, askremaining gaps on phone service, further strengthening Data Security, supporting vulnerable populations by protecting them from scams and increasing access to the earned income tax credit and other refundable credits. Our ongoing success hinges on sustained investments to make sure that we have the right sized workforce with the right training and tools as well as modern Technology Infrastructure with increasingly modern web enabled tools for taxpayers. These are needed to ensure the irs continues our transformation work to serve the nation today and in the future. Helping us in these efforts is the administrations fiscal year 2025 Budget Proposal. It gives us flexibility and increases irs transfer authority so all available resources can be used efficiently and effectively. It will also help sustain a new irs baseline of resources and avoid immediate funding clips that would dramatically degrade our ability in many different areas, including the Service Improvements that taxpayers saw this Filing Season. The 2025 funding is necessary for us to build on our successes this Filing Season and continue our work to, for example, make further phone Service Improvements and provide Digital Tools to help taxpayers. For the irs to be able to do all of these things, adequate annual discretionary funding and complementary longterm mandatory funding are essential. Finally, i want to publicly thank taxpayers for taking the time to file and pay their taxes this Filing Season. This is a critical component that citizens do to support our great nation. Please note that all of us at the irs deeply appreciate and respect the time and care taxpayers take it to do this a vital civic duty, and irs employees remain committed to helping taxpayers in any way that we can get chairman wyden, Ranking Member crapo, that concludes my statement could i would be happy to take your questions. Chair wyden commissioner, thank you, and we very much appreciate you being here. You have experience in both the public and the private sector, and it seems to me that launching Something Like direct file is a little bit like starting a startup company. Telus from a business perspective, how has this project launch gone . Mr. Werfel its gone very well. I think of it as a product launch. We are putting any product on the street, and our customers, in this case taxpayers, are going to let us know if the product is working effect, and if they think they would like to use the product in the future. So we started, like any private Sector Company would we had the idea for the product and then we put it on the street with volunteers. We tested it. From january 29 to march 8, the direct file product was in testing with volunteer taxpayers who agreed to submit. We got very positive reviews, but we were also able to make realtime fixes to the product based on taxpayer experience. On march 8, we were ready to go, and that is when we made publicly available to the millions of taxpayers in 19 states that were eligible this year. The feedback has been great. People are telling us that it is easy to use, simple, and of course they like the price tag, its free. As you mentioned, in the final days of the Filing Season, we saw an extraordinary increase in the pace of taxpayers filing with direct file, and it all went very smoothly. Chair wyden ok, lets talk about the massive fraud that we are seeing now in the Employee Retention tax Credit Program. As we all know, this was a real helpful to lots of people during the pandemic. But it was told me not to long ago but a whistleblower told me not too long ago that there is no one avalanche of fraud, Something Like 95 of the claims Something Like 95 of the games choking the irs systems and delaying valid refunds. The bipartisan tax bill that i introduced with chairman jason smith on the house would cut off the claims after january 31, 2024, and give the agency new enforcement tools. My question to you is if the senate fails to take action on this bipartisan tax agreement, it seems to me that fraudulent ertc claims are going to continue to clog the system. Thats going to cost taxpayers billions of dollars, and its going to divert resources away from lawabiding taxpayers. Your thoughts . Mr. Werfel i absolutely agree, mr. Chairman. We issued a moratorium on september 14, 2023, because over the summer of 2023, we were seeing an increasing number of questionable claims coming in. And we were worried not just about the financial bottom line of the u. S. Government. We were worried about honest Small Businesses we saw were being taken advantage of by aggressive marketers and promoters, convincing these Small Businesses that they were eligible for credit they were not truly eligible for. And they were saying you can get this credit at no risk to you, and that wasnt true. So it was also false advertising. We had to take steps to stop the flow, and we did slow it. But even today, mr. Chairman, we are still getting 20,000 new claims every week, even when we announced in september that we stop processing. Stopped processing. This is because the law allows these claims to be submitted through 2025. These promoters are out there still pushing for these claims to be filed. I really do appreciate the legislation that he was sponsoring with chairman smith in the house that would give us the tools. There is two things being harmed if that bill doesnt pass one, the financial bottom line of the u. S. Government come because you are giving us tools to crack down on fraud. And two, in epic inventory of claims there are still eligible claims in the midst our big in the midst, but they are bit very hard to find. They are like finding a needle in the haystack. With your help we can get this claims issued and hold back from issuing the ineligible claims. Chair wyden i talked to chairman smith late last night and he wanted me to say we are pulling out all the stops to get this legislation passed. If i were to go through all of the groups, conservative groups, progressive groups, and other groups who are for this legislation, we would still have you here tomorrow morning at breakfast, so im not going to do that. But we are pulling out all the stops to get this passed. Last question deals with ira funding and Customer Service. The funding provided by the ira this Filing Season seems to have been a major success. The irs cut call wait times to three minutes, expanded the customer call back service, reopen 54 sites for inperson service, there are new Digital Tools and you scan millions of paperfiled returns and that ought to speed up refunds. How will taxpayers notice the ira funding has improved service this year, a, and b, so we get this in, what would it taxpayers notice if the funding were cut . Mr. Werfel taxpayers, i believe, and ive heard from them, have saw and felt a big difference in the past two years, particularly this year. We are putting the Inflation Reduction Active fund to good use to serve taxpayers. How . We now have the right number of phone assisters in the fund center. They are answering the phone calls at peak efficiency and the wait time is down to three minutes, and we used ira funding to modernize our call center with things that taxpayers want, like a callback option and more chatots an automated solution so you dont have to wait on the phone if what you can get done can be done by pressing a button or speaking out loud. These are things that taxpayers are seeing and feeling and is making a difference. We are also using Inflation Reduction Act funding to update irs. Gov with new tools. There are things people can do on individual online accounts now, updates to wheres my refund. We had over 500 million hits to irs. Gov this year, a record for us. We believe that is because we have updated it with tools that taxpayers are finding useful , like for example being able to submit documentation to the irs electronically rather than on paper at the post office. All of that needs to be sustained. This is what is critical about our Budget Proposal. Our Budget Proposal is not saying we need a lot more money to get the job done. We have gotten, for example, the service to an extraordinarily high level. The money we are asking for in the out years of the president s budget is to sustain. We dont want to lose those 5000 new assisters, we dont want have to fire them or lay them off. That means phone calls wont get answered. The funding we are asking for is to make sure we can sustain the rightsized Customer Service workforce and the right tools so this new Service Level we have achieved could be sustained into the future. Chair wyden im over my time. Senator crapo. Sen. Crapo thank you, mr. Chairman. The first issue i want to talk about is Identity Theft case resolution. Mr. Werfel yes. Sen. Crapo we have had significant issues in idaho and they are exiting across the country. According to data provided by yourself, is coming taking the irs almost two years to resolve id theft cases flagged by taxpayers to the irs. Your staff also indicates that the irs currently has a backlog of almost 600,000 such cases. During the time a taxpayer awaits the irs resolving a case, many negative outcomes can occur, including the irs itself taking actions that could harm the already victimized taxpayers, such as imposing liens or levies. As a sign of how pervasive and troubling these cases are, i am aware of instances where state and local governments have reached out to congress to assist with their own idtheft cases. Now, im not asking you to comment today on any particular case. My staff has been in touch with you and your staff with regard to some of these. Speaking generally to all of the cases, im concerned and certain you would agree that taking years to identify and resolve victims id theft victims claims and problems is on except it will, and both of the delinquent resolution time and the backlog needs to be improved rapidly would you agree to provide me your responses no later than your responses to the committees other questions on record, a report detailing the concrete steps the irs will hereafter take to thoroughly resolve these unresolved idtheft cases, as well as an analysis of the reasons why there are so many of these cases in the first place . Mr. Werfel yes, absolutely, we will commit to that. Sen. Crapo i appreciate that. This needs to be highly prioritized. The next issue i would like to go to with you is basically the direct file and what i see is a lack of transparency regarding the way that it has been managed. When you last testified before this committee, i raised concerns with the wasteful and duplicative direct file program that at the time the irs was allegedly only studying. You assured me then that no decision has been made on moving forward with the direct file. A week later you told house ways and Means Committee embers that you would produce a study, and then you would come back and talk about it with congress. What happened is that the very same day you should your study, issued your study, which both gao and take to has flagged as missing Key Information and analysis, you announce the announced irs was going to do direct file. Putting aside policy concerns with respect to direct file, my question for you is do you believe the irs has Statutory Authority to implement a direct file program . Mr. Werfel i do. Sen. Crapo and what is that authority . Mr. Werfel we have authorities under the Internal Revenue code to provide Taxpayer Service to taxpayers and update the tools and solutions that taxpayers use to file. We lived in a world what work we lived in a world where we had only paper forms and we move to a world where we can put a pdf form on the web. We did not need Congressional Authority to do that. We worked to develop, as you mentioned in your opening statement, a partnership with the Free File Alliance with commercial Software Providers to add and work with them to support their efforts to support free Electronic Solutions and we did not need Congressional Authority to do that. And now we stand here where we are hearing from taxpayers not every taxpayer, but some taxpayers that they want an additional option. They have paper, they can go on a pdf file on the web, they can work with commercial software provider. Irs didnt ask for legislative authority. Now there is yet another option on the menu. It is our assessment that we have the authority to add such options on the menu. Ev there is another option that will come after maybe there is another option that will come after direct file. This is about the irs working with taxpayers and making sure we are giving them options to make their life less stressful and easier as they file their taxes. Sen. Crapo i will pursue this with you more later. I only have time for one last question. I need to get this question in. This is the budget request for another 104 billion. You stated before that the irs would have a decade to rebuild with the 80 billion in irs funding. And there would be healthy pressure to immediately take the funds and demonstrated what a wellfunded irs means. At the time when many of us raised concerns with that level of funding, five times or more of the budget of the irs, it was stated, well, we need that money to maintain these employees. Now i understand that we need the 104 billion more to maintain the employees of the irs. I guess my question could be when will it stop, but my question is now that the irs has requested an additional more than 8 times its annual budget for more new mandatory multiyear spending, when is it going to end. What is the actual amount of doubling, tripling, multiplying the size of the irs budget in order to accomplish whatever the objective you say cannot be accomplished with what has been provided . When will we see the end of the amount of phenomenal multiplications of the size of the irs in budget requests . Mr. Werfel im glad you asked the question, senator. I would like to take a moment to explain our budget as quickly and easily as i can. We have a base budget and then a modernization budget. Our base budget is too small to serve the tax system we have today. Our base budget is roughly the same as it was in 2010, and the tech system has grown in a variety of different ways more filers, a gig economy, more complexity, thousands of changes to the tax code. As the tech system grows and our base budget stays constant, we have to rely on the modernization funds to close that gap. What we are asking for in the funding is to basically create a new baseline so as the tech system continues to grow, we havge the right we have the right set up to run the train schedules that are created by that tax code. Its not about asking for more and more and more money to build an ever increasing irs. It is about achieving a baseline. What happens in the out years is all the money goes away. If you like a 2026 can we lose our ability to maintain services. If you look at 2029, we lose all of our ability to maintain technology, because there is a cliff. So that money you are describing is of concern is really just intended to address the cliffs in the out years. When taxpayers came to us this year and we are able to answer close to nine out of 10 of their calls in three minutes time, what the president s budget is saying is make sure that sam result exists in 2026, 2027, 2028, 2029. That is all the president ss budget is asking. Sen. Crapo 800 existing baseline . Mr. Werfel its not a hundred percent. Its not 800 . I would say its different in services than it is in operations, but currently we are 2 billion to 3 billion a year off of our services baseline as an example. And by the way, the tax system continues to grow. I could show you all the math and work with your team on that, but i want to be clear that the increased money is really a combination of making sure we can provide Digital Tools to taxpayers but also just run the train schedules we have today and overcome these cliffs that are coming. Chair wyden ok, senator carper, followed by senator grassley. Sen. Carper thanks so much. It was 14 months ago that you set the table and behind you is not your Leadership Team from the irs, but your wife, your kids, your parents. I thanked them at the time for sharing you with all of us. I still feel that way, and im encouraged by the leadership you are provided. I will say to my colleague on both sides of the aisle, some of us previously served as governor in delaware we dont have the irs, we have the Delaware Division of revenue weeds to provide Lousy Service and we didnt do a good job of collecting taxes we didnt provide out if we provided a Lousy Service and we didnt do a good job of collecting taxes we were owed. We fixed it in 8 years. When i stepped down as governor, Delaware Division of revenue received the award for quality of service. It is like, are you kidding . No, we are not. We did a better job of collecting revenues we were owed and we balanced budgets in large part because we have done that. It can be done. It can be done without support. It cant be done without leadership. It cant be done overnight. It cant be done without support. Thank you for providing that leadership. Im going to talk a little bit about direct file. A major step towards improving the taxpayer experience, and taxpayers in 12 states could directly file with the irs through direct file. We look forward to working with you and your team to go along with the success of this years pilot to bring direct file to taxpayers in all 50 states including the first state of delaware. Question, commissioner werfel, does the irs plan on continuing the direct file program next tax Filing Season . And do you plan on expanding the scope of the program for the next Filing Season, and if so, how . Mr. Werfel senator, as we sit here today, direct file pilot is still ongoing because massachusetts is one of our pilot states and because of patriots day, they have until april 17 to file. The pilot isnt done yet. Once the pilot is complete, well gather the data, and weve already started gathering the data, and we will report out publicly the information, including cost. Senator crapo mentioned in his remarks a cost estimate that may exceed 100 million. Im not saying that yearly data, im not seeing that in the early data, not even close to that. I look forward to having a public discussion about what we saw, what the demand was, what the performance of the product was come and what the cost was once the pilot wraps up. We are a couple days away from that. Once we get that information out to the public space, i would expect we are going to hear from stakeholders. We are going to from taxpayers and states and members of this committee and numbers from house ways and means, and then we will make a decision and i will consult with secretary yellen and we will make a decision about the future of direct file. The results have been encouraging. There was significant demand for the product. When we released it on march 8 to the broader public, we anticipated at time based on traffic that we would see about 100,000 users by april 15. We blasted through 100,000 on april 13 or 14, and we are getting more returns in. Demand exceeded what we thought the day we launched the product widely. And then in terms of cost, we are still gathering information on, but i dont see anything in the data come early data, that points to overage opening over exorbitant over exorbitant costs. We want to make the decision as transparent as we can. Sen. Carper thank you for that. I want to stick with direct file for another moment, if i could. How could we on this side of the dais support the direct file program so more states like my state can participate next year . Mr. Werfel i think it is about making sure there is balanced information about what the ambition of direct file is. It is intended to be an option, not intended to be mandatory. Its still taxpayers preparing their own taxes. Not the irs preparing the taxes for you. People can opt out of it anytime they want and switch products. We want to hear from taxpayers in delaware and other states more broadly what do they want from the irs to make the tax filing process as seamless and easy as possible. How can we reduce their stress . A lot of taxpayers are telling us a free solution to work direct with the irs online is one option we would like to have. We might not use it, but we want it on the menu. We want to hear from your citizens in delaware what they think so that we can be evermore reforms in how we serve taxpayers most effectively. Sen. Carper mr. Chairman, wen when you and i were house members million years ago, and senator grassley was a house never is well, we used to hold town hall meetings. I hosted up and down the state we only have three counties, but every county we did the division of revenue from the irs and we help people prepare their taxes. We would to an exercise where people in the audience could help us balance the budget. It was interesting, we had 50 to 100 people there. When youre we had a heart one year we had a hard time balancing the budget. We still couldnt balance the budget in the exercise. A lady in the back of her room raised her hand. We are having a hard time, do you have any thoughts . Well, have you thought about revenues . It is not just raising tax rates commit is making sure people who have an income paying their fair share. The lady in the back said, i dont mind paying even more taxes, i just want to make sure everybody else is paying their fair share. That is what we are trying to do. Chair wyden we are going to move on, but dont think you are really retiring. We are going to call on you for counsel. Senator grassley. Sen. Grassley yeah. You know that i spent a lot of time listening to whistleblowers throughout the bureaucracy, so let me speak about i know on july 21, 2023, irs supervisor special agent emailed to you asking that you direct senior irs leadership to stop retaliating against him. On may 18 last year, an irs special agent emailed you to disclose his concerns about the irs handling of a case he was working on. And i have an opportunity to talk i know that they asked to meet with you. What they wanted to discuss with you, i would assume they wanted to tell you what is wrong with handling of certain cases. I would think that you at the top of the irs would want to listen to them. So im not going to ask you a question, but im going to do now what i told them i would do. I was going to ask you to meet with the two of them and just listen to them. Whether you take action or not is up to you, but i think you ought to at least listen to them. I think whistleblowers throughout government are some of the most patriotic people i know. I would ask you to do that. I want to go to my first question. The irs whistleblower program, which you know i was involved in getting enacted, that has brought 6 billion into the federal government. It has been a pretty effective and efficient program. But we have this problem of the average wait time for people to get their case closed. Its got longer and is now up to 10 years. The long average wait time is in part due to the irs policy against paying partial awards. Under this policy, the irs will wait years until all the years of claims are completed to pay anything whatsoever. In fact, the irs has created barriers to pay awards on its own that are not in the whistleblower statute passed by congress. You need to examine the unnecessary policy in the irs revenue manual and work to allow partial awards to be paid to whistleblowers as quickly as possible. Could you do that . Mr. Werfel senator, im glad you asked the question. Between the question that senator crapo asked on Identity Theft backlogs and your question on the backlog of whistleblower claims, you are pointing to two very High Priorities as we move forward. As i said in my opening statement, we had a good Filing Season but we have a lot more work to do. I will commit to you that that is an interesting recommendation on partial payments in the way we can potentially accelerate how whistleblowers who providing such valuable information to us get their fair share of the money that they saved for the american taxpayer. We will look into that and i will get back to you. Also, since i didnt get an opportunity, senator crapo, i will get back to you on Identity Theft, another big priority and big issue we have to do better at. Sen. Grassley im glad that whoever makes arrests for people that violate the law in the irs because this one contractor is now serving five years for disclosing information. But i kind of wonder how an activist like him who wants to be contracted, who presumably got a job for the sole purpose of making Public Information about taxpayers in this case i guess he was after trumps tax returns how was an activist with plans to steal taxpayer information able to get hired and gain access to taxpayer information, and what action is the irs taking to ensure an active employee or contractor is never again able to access and share sensitive taxpayer information . Mr. Werfel thank you for the question. Taking taxpayer information from the unauthorized access is a protecting text. Information from the unauthorized access is an absolutely solemn responsibility of the irs. The individual you reference betrayed the trust of the irs and the American People and it cannot be tolerated. Based on what played out in court, it is not being tolerated, as this bad actor was brought to justice and will be serving a fiveyear term in prison. From my first day on the job in march of 2023, it is a top priority to strengthen the Data Security at the irs, and we have taken numerous steps to address this, working to make sure that we have their todo list along with our todo list. Fewer users, more robust encryption, less removable media, tighter email controls, new printer controls, all of this is ongoing and being put in place to make sure this type of unauthorized access by a contractor in this case a contractor or an irs employee can never happen again. There is always going to be that risk. What you try to do is narrow the risk to as small as it possibly can be. Insider threats and unauthorized access from insider threats, it is impossible to get rid of legally impossible to get rid of completely. But im committed to reducing it to a small as it can be like putting in but again this right equity to close those gaps. Chair wyden im a partner on the whistleblower effort and i have been for years and i very much support the fact that you will make those issues about whistleblowers that senator grassley mentioned a priority Going Forward. I will be working with r. Kelly from iowa. 0 our colleague from iowa. Senator bennet. Sen. Bennet im taking a Political Risk by using the words good news and irs in the same sentence. I want to call out at a moment when there was a lack of confidence among the American People and our governing institutions and particularly in the deployment of technology by Government Agencies, im going through that misery myself, as the American People are, with what the department of education has failed to do on the fast reform the fafsa form which Lamar Alexander and i work for years and years and years to try to improve and now the American People having to struggle with the absolute disaster that has become in terms of implementation. I have to say, it appears to me that the irss direct file effort may be a model of Government Technology implementation. That certainly has been the experience of people in colorado. I know there are around 100,000 americans who have used this to file their returns. I hope many more states are going to have the chance to participate Going Forward. There are a lot of coloradans who have interest in using this tool Going Forward. I just wonder if you could talk a little bit about how you were able to successfully deploy this, commissioner, and what do you think made the direct file effort successful as it was that we could learn from in other technological implementations across the federal government. And i apologize for that sounding like such a ridiculously softball question, but it is such a rare occurrence that i thought it was important to give you a chance to talk about it. Mr. Werfel i appreciate that. I am proud of what we were able to accomplish this Filing Season. I am proud of the success of the direct file pilot. I also acknowledge there was a lot more work to do. As i look across the irs, there are areas where we can learn from the success of the direct file in our own Technology Operations and our own management successful im going to learn from it as well. I think, first, big decision we made was not to go to big and to make sure that we focused on what i will call executional certainly. We could have tried to release direct file to a more states and to have way more taxpayers eligible to use it in this first year. But what we decided to do was find that right first step, where we could test the interests, the demand, the user experience, the cost, but not try to hit a home run in our first atbat. We went out to 12 states, and based on the way we scoped it, 19 Million People were eligible. We could have scoped it a lot bigger. We also waited until march 8 Filing Season started january 29. We could have gotten excited and said, lets release this to everyone first day of Filing Season to try to really drive a bigger impact. But we wanted to take weeks working with a small number of volunteer taxpayers to see how their experience was, to work out any bugs. Anytime you do something for the first time there are going to be mistakes. Lots of testing, lots of prioritizing executional success vs. The big splash. And i think also we worked across government. This was done not by irs alone. We had a lot of help from people like gsa and we had a lot of help from the u. S. Digital service in particular who brought Agile Technology, product expertise, they worked sidebyside in a tea room in team room in irs headquarters. It was inspiring to visit that team room and see the energy and excitement and see different parts of the government working together so well. Ultimately this is a little geeky it was Agile Technology that was the eyeopener. There is a whole discipline around how you move more quickly to deliver incremental functionality, how you strip through bureaucracy and get decisions made more quickly, that you take a calculated risks more regularly. The irs is no different, federal agency tended to not be agile when you do technology. That is why you hear about projects taking 5, 6, 7 years. Here, by sizing this in an increment, increment that had impact, we are able to be more agile and have executional certainty and wanted something we can learn from. Where direct file goes from your, we are not ready to announce that, but taxpayers have had a positive experience with it and we learned a lot from this experience. Chair wyden i thank my colleague, and i would just say to him, i dont think in the history of the finance committee we have ever heard anyone give an eloquent expo nation of incremental eloquent explanation of incremental functionality. Mr. Werfel had to start somewhere. Chair wyden you did. Senator whitehouse. Sen. Whitehouse first of all, let me echo what senator bennet said, i meet regularly with my Taxpayer Advocate in rhode island and she has seen her workload expedited so quickly is as the caseload she carries to help rhode island constituents has been able to move much more rapidly and successfully through the irs in the wake of funding. You have a fan who can show real results from the work you have done to simplify and speed things up at the irs. The topic i want to raise with you is when i have raised before, the problem of 501 c 3 and 501 c four enforcement. My view is that when the Supreme Court performed its Citizens United decision, that unleashed its normal cements of money into the political system and made it for the first time a very significant and consequential think to be able to hide who the donors were. Once you have got tens of million of dollars to donate, it is a whole different game than thousands of dollars. They went straight to work and the first area was 501 c 4 . I will concede that the irs did a fumble of how it handled that. But at the same time, the problem was real. When people started looking into the abuse of 501 c 4 s, there was a massive rightwing pushback using what i call the faux outrage machine. Next thing you know your predecessor prosecution and since then, literally billions have flown gone through 501 c fours. There are billions of areas, one of them is the plan cycling of those sitting around the table and taking the money that sends it to the super pac and the second one takes 50 of the 60 and sends it to the super pac and then by the time youre done with the fourth one, 90 of the money goes straight into politics. Contrary to the rule of 50 , which i think was sloppy to begin with, but taking it is it as a given, this is a cheesy and around and i dont see any effort at enforcing it. Its now stateoftheart in political influence, 501 c three and 501 c four that are virtually indistinguishable. There is no effort to pierce the corporate veil or investigate whether a 501 c three or 501 c four are staying in their lanes were they share the same staff in the same office and all of that. I would urge you to take a look at this. It is the wild west out there and it is a wild west of nonenforcement. I know that you guys took a hell of a beating and i know the obama i know the Obama Administration to not stand up for the organization, but at some point the sheriff has to put his boots on the ground and clean up the town. We badly need it cleaned up. Mr. Werfel i want to make sure we get to the right answers on an effective following of the appropriate rules for 501 c 3 and 501 c4. Between fiscal year 2020 and 2023 the irs worked 100 unique cases under our Political Campaign intervention program. Is that enough . No. There is more work to be done. When i describe what the Inflation Reduction Act funds enable us to do, it enables us to make investments to spot complexity and address complexity. That complexity often happens in multinational corporations, offshore tax havens. All of that. There is also that complexity in the taxexempt space as well. The situation with taxexempt , as you very clearly outlined , is fraught with risk and delicate decisions that need to be made. Lets say there are 10 different pads for how you move forward. Eight of them, you can step in a pothole and mess it up. You have to be really cautious in terms of how we scale our enforcement efforts so there is no sense, ever, there is any politics in irs operations. That we are doing things aboveboard, nonpartisan, and we are tackling this issue in a way that is above any reproach. Sen. Whitehouse if your goal is if your goal here is not to enforce the law, and people who dont want you to enforce the law can use strategic reproach to keep you from enforcing the law. Mr. Werfel we want to make sure we are Building Trust with citizens. I am ready to roll up sleeves and work with you on, how do we build off the 100 cases we have launched, ramp up our enforcement, but do it in a way im ready to take criticism. That is not my concern. The issue is making sure that broadly taxpayers believe we are taking the right process, that we are doing things transparency and that they can have confidence there is effective oversight as well, to make sure there is no risk or no perception of any politics in our operations. Im committed to that, willing to work with you on it. Sen. Whitehouse my time is up. Thank you, chairman. Chair wyden the next would be senator cassidy, and then senator warner. Sen. Cassidy thanks for coming in. Maybe the first time limit, certainly the first hearing i think i pulled out clippings from the Reagan Administration talking about how the irs is modernizing their Computer Systems and about how it never happens. Now, i have been looking a lot at this. Because were not the only agency which i mean, we never accomplish it. There has been some success with the irs, but i get a sense that we are having something custombuilt for the irs. Ive done a Little Research and in 1994 there was the federal acquisitions streamlining act, a law that prohibits government from starting loadfilled projects if an off the self offtheshelf solution is available. There is offtheshelf solutions right now to capture fraud. To answer people during tax season. A i can do that. I have a statistic that only 29 of phone calls were actually answered in the 2023 tax season. There is offtheshelf stuff they can do this. Minor modification, but if you said it had to be done within six weeks or six months, they would hit it. Is the irs doing any of that . Mr. Werfel yes. It is mixed. Where we see an opportunity to use an offtheshelf solution we need to seize it. There are instances where we well sen. Cassidy with all due respect, when you say we see it, by what means are you viewing it . Mr. Werfel we try to understand, for example, where industry is using something similar. Let me give you an example. If we have an opportunity to use voice recognition, so someone calls in they can talk to a computer and say, can you tell me about my refund, how many days until i get it, that the computer understands. They do not have to wait for a phone and the computer says, your refund will be issued to you in eight days. That is something we have an opportunity. Why reinvent the wheel . But when you have something that is very specifically wired to having to accommodate the complexity of the tax system, like somebody filing an amended return, right now the way we process amended returns is automated. Sen. Cassidy let me ask, have you gone to industry and asked them if there is an offtheshelf solution . I say this because operation warp speed was warp speed because we did a lot of offtheshelf stuff people thought had to be customdesigned. When i read about ai in ukraine or israel it is kind of it was not entirely offtheshelf, but adapted onthefly. I say that we are really good at software. So, who is making the call that this is so specific that it cannot have an offtheshelf solution . Are you soliciting to see that there is . Mr. Werfel look, i am in agreement with you. I agree that offtheshelf is the way to go and that in general Government Agencies tend to try to customize when they shouldnt. And so, i have the same guiding principle you do, that, why modify it . You should modify your business processes to meet the officers help offtheshelf solution. It is a better approach and we should certainly be more aggressive in that space. What i would like to do is come back to you, if you are willing, with some inventory discussions around where we are offtheshelf, where we are not, and maybe we can look at the gray area and see if we can move to more offtheshelf. Sen. Cassidy let me ask you this. My staff is taking notes. If you said this is what we are going to talk about, we are going to be ideally within three or four weeks and give us a week just to call 304 big software companies, could you address this with offtheshelf . I think there are capabilities out there we went iron not familiar with and that a Government Agency may not be familiar with. Even at its best. Mr. Werfel i agree. Sen. Cassidy if we could schedule up that followup and give us time to scout out . Mr. Werfel will do. Sen. Cassidy appreciate that. This is going to make my day. [laughter] let me just give you one more thing. The irs has decided to delay implementing the change to the form 1099 k reporting threshold for transactions on thirdparty payment platforms, such as venlo and paypal. It was enacted under the American Rescue plan in 2021, and it moved the threshold to 200 to help taxpayers transition. The irs will keep the 20,000 2 the threshold and phase it in for 2024. Can you discuss what the irs by the way, senator brown, bipartisan, we have put in the reduction act that would raise the threshold to protect Small Businesses. Can you discuss the irs authority to delay the implement of laws, and can you explain how the irs arrived at the five thousand dollars threshold for tax year 2024 . Mr. Werfel i can do both and i will do it quickly. First, we have in law a responsibility to implement all tax laws in a way that protects taxpayers rights and a set of taxpayer bill of rights is written out in the law. As a result, there have been times in irs history in order to protect taxpayer rights we have had to ramp implementation of a law if he was going to either be overlyburdensome to them, or potentially overtax them beyond what they owed. This particular law created both risks, so we felt on balance, in order to meet our statutory responsibility to implement the code consistent with the taxpayer bill of rights, this was one case and we have done it before where we have ramped implementation of a law. 5,000 came from work with stakeholders. We worked with the Major Companies that are thirdparty pay platforms. They were concerned about their customers receiving a slew of 1099s they wouldnt know what to do with. A lot of confusion about how you would, for example, calculate a basis of some good some kind of good you sold on one of these platforms. Some any questions came in, and we ask them a lot of questions, like, what is the right way to ramp this, consistent with protecting taxpayers from confusion, burden, and ending overtax . They said, give us time, and they helped identify 5,000 as a threshold that would allow them to deal with a smaller number of transactions and customers, yet get a lot of receipts back to the u. S. Government. Chair wyden we have to move on. The next three will be warner, lankford, and johnson. Sen. Warner thank you, mr. Chairman. If you are going to get to senator cassidy this information about not recreating the whole ball of flax on Software Programs and updates on computers, i would like to see it as well. I agree with bill. It seems we always have to customize on everything in government, and usually products that are not as good as offtheshelf. I would add, while there are enormous challenges around ai, there is a great deal of upset. I hope whatever information you get to senator cassidy you will get to me as well. It is great to see you here and i remember when you first got nominated for this, and is this really the way you wanted to spend as part of your life . Im glad you were doing it. You are getting results. Im surprised we have gone through a number of questions and you have not been asked what i would have thought would have been one of the first questions. Even some of my republican colleagues who dont like all of the money going, i would agree most of them would was to them would agree better enforcement will help grapple with the tax cap. It has been the most recent estimate on the tax gap for 2021 put it at 688 billion. So, would not have to raise taxes if we could have that full payment. There have been some estimates that we can actually get savings with 800 billion dollars by 2034. There has been some testimony that you are looking at High Net Worth individuals in terms of enforcement. I think there was some reference that there are upwards of 500,000 in additional revenue each investigation. Can you give us record investment . What do we look like in terms of how we are making progress on closing this tax gap and what metrics on a regular basis could we see . Mr. Werfel enter for the question. The first gap we have been able to close is the services gap. We put the Inflation Reduction Act money to use to make sure we had the right number of people on the phone. Sen. Warner we have gone from 30 minute weights to threeminute bites. Mr. Werfel exactly. We made a commitment to use Inflation Reduction Act funds on large, complex filers. Were just getting started. We have announced initiatives for wealthy individuals who have not filed, about 125,000 of them. We have announced initiatives to collect delinquencies from millionaires and billionaires better back taxes. We have announced efforts to crack down on something called transfer pricing, multinational corporations shield profit and income in the u. S. And move it to a different tax jurisdiction. We have announced efforts on cracking down on the largest and most complex partnerships who are particularly sophisticated at times in shielding. We believe the efforts we are undertaking under the Inflation Reduction Act, all totaled and we issued a report on this a few months ago could result in nearly 700 billion in return. Sen. Warner and that is over 10 years . Mr. Werfel yes. We were debating the president s 2025 budget, and concerns were raised about the 104 billion we have asked for starting in 2026 and beyond. And i described needing that money to make sure we are sustaining what we are able to achieve this year and beyond as the tax system and economy continue to grow in its complexity. That 124 billion dollars we are asking Forward Return about 341 billion over 10 years in additional revenue. Sen. Warner beyond the 700 billion . Mr. Werfel no. That is why it is so important. That is why it is such an interesting debate on irs funds. There is two things at play. One is making sure we can help taxpayers who need it. Taxpayers have questions. Tax filing is stressful. The tax system is complicated. It is heartbreaking to us if we cannot answer the call. So, having enough funding to have the right size staff size and the right Customer Service, but also it is absolutely essential to the governments bottom line if the irs is closing that tax gap. Sen. Warner i agree. I know my time is running out. One area i still get a lot of concerns with this improved Customer Service, families who have got a loved one who has died, how you deal with the deceased processing. Quickly, is there some plans on how we can improve that part of the service . Mr. Werfel there are a couple of different areas between you look at topics where we from taxpayers that it is complicated and they are not getting, you know, as direct and clear service. Identity theft victims. We have done a fairly good job preventing Identity Theft, working with partners. But on the backend, once you have been victimized we are too slow and we need to get quicker. You raised another question in terms of emilys dealing with deceased relatives and resolving. It gets confusing. Sen. Warner my time is up, but i hope you will come back with a plan on how you can improve that service. That is one of the areas we have concerns about. Chair wyden senator lankford. Sen. Lankford good to see you again. Thanks for the work continue to do. Obviously with this week, all of the filings and things go on. Senator cassidy was asking about the video venmo requirements. There will be additional reporting and new Filing Requirements that will come from that. You expressed that there is a flexibility on that interpretation based on other statutes on this. This is part of the challenge we are dealing with right now, the flexibility side of things. Im trying to determine what is something that can be counted on and how that is interpreting, where it goes. Sitting at that same table just a few weeks ago is a Business Leader from the Hudson Corporation talking about, they were doing chemical manufacturing for ev batteries but the tax credit, the clean vehicle credit, the foreign concern restriction, dealing with that was way for china so that that company, that was an American Company, no longer was competitive because the Chinese Company was noncompetitive, even though the statute itself says that was not allowed. There was a waiver given to a Chinese Company that directly undercut an American Company on that. So the predictability of this becomes an issue. Where i am headed with this is, this administration took out a review for the irs for new regulations. A beastly previous administrations had an additional review. This administration took that out. My question is, why is it a bad thing for the irs to be able to have a review for regulations they are putting in, when you have expressed the flexibility you have to be able to do that, but every other entity needs to have a review under the administrative procedures act . Mr. Werfel that is a great question. Ironically i started my career at the office of Regulatory Affairs at omb. Im a big proponent of noticing rulemaking. Im always telling my team, if there is an opportunity for us to go out for public comment, rather through formal channels, or anyway so we can telegraph where we are going, going back to the 1099k, that is what we try to do in terms of Public Meetings and open forms to try to hear the concerns and recognize them and make sure we are accessible. I know that we continue to do, through making. I know, for example, on cryptocurrency we got 40,000 comments on it. So, we continue to have that process. I will have to get back to you on, kind of, the nuances of how we continue to work with omb. It is a different path than other agencies, but it is not no path. We continue to feel accountable to make sure we are leveraging notice and comment. Sen. Lankford but i dont want to have is, but we dont want to go through review we dont have to, when we do want to go through review we do. I dont want to have situations like that, because then it is unpredictable again and once we are back to the flexibility issues, this committee has talked about this, often dealing with the pillar one, pillar two conversation. Pillar two is expected to take away about 120 billion from american taxpayers. The finance committee in particular has asked the treasury to say, are you really going to go around this committee and cut out 120 billion . And we are still getting this push and pull back and forth with treasury. We are inching what is predictable and what is consistent. If i could move on to a couple of other quick things, one of them is i work a lot on Charitable Giving. I think it is important that we incentivize it in our tax code. It is something that will come next year come up next year when we are dealing with tax policy issues. It is our understanding that after we stopped incentivizing Charitable Giving through our tax code we had a dramatic drop in Charitable Giving across the country. It hurts our nonprofits, which hurts our big safety net. We want to get more information from you on that. We will follow up on that in the days ahead. We are also working a lot on the tax cuts and jobs act. Obviously that is coming up next year for bonus depreciation. It was interesting to me on this that we have seen such conservative bastion locations such as harvard, princeton, university of chicago recently put out a study saying based on some of the business tax increases there is a 20 in investment and also an increase in taxes coming in. My questionings, there is this conversation that is happening out there about trying to raise business taxes again, based on this study that im sure you have seen and others out there. Are we continuing are we continuing to see more investment in business now than we saw years ago . Mr. Werfel senator, that is a question i need to get back to you on, in particular because it is more in the domain of treasury and tax policy. I do not want to get on in front of them, but i will coordinate with my treasury colleagues and get back to on the answer to that. Chair wyden the time of the gentleman has expired. We are just going to keep going, because i know the commissioner has a schedule. Senator cardin is going to help. Im going to run and go vote, but we will keep going. Next will be senator johnson and senator tillis. We will going. Senator johnson, you are next. I will be right back. Sen. Johnson senator grassley, i do not think he asked with a commitment. Will you commit to meeting with those two whistleblowers . Mr. Werfel senator, what i commit to is relying on the Inspector General run the process to make sure that the rights of those whistleblowers are protected. Im not going to jump in front of it. Sen. Johnson your answer is no. Last year there were bizarre things going on that seemed like a politicallymotivated, unannounced home visit. We wrote you about that. You claim section 6103, which i understand. Since then we have seen irs agents using a fake alias to enter someones home. We have seen an irs attorney backing documents. My question. Have you investigated these situations . Has anybody been held accountable . I know you ended unannounced home visits. By and large. Have you investigated these . Has anyone been held accountable . Mr. Werfel in any situation where the irs makes a mistake or acts inappropriately, or an irs employee, we have to acknowledge it. He did in the cases you are describing. We have to then fix the issue. Fix the process, put in new controls, and then take appropriate personnel actions. Ive instructed the team in all of these cases to do all of those things. Sen. Johnson appreciate that. In your testimony you said, as the tax system continues to grow, you obviously mentioned the fact our economy is growing, but you also mentioned complexity. He said the tax system is complex. I have noticed in the Inflation Reduction Act of the solution was not to address complexity but to throw more money at the problem. We can do so much to solve so many problems with problems if we could start simplifying the tax system. That is my first question. Is that something the irs has taken a look at in terms of, what would be the best way, the most effective simplifications we can direct toward the tax system . I would also ask you, is it more complexity on the individual side versus the business side . Is there some sort of split . Mr. Werfel it is definitely more complex on the business line business i. Sen. Johnson let me stop you there. What is interesting is, business taxes, about 16 last year of total revenue. If that is all the complexity again, i dont have the numbers of past uses, but we dont raise anywhere near the amount of revenue, but that is the more complex side. That is just begging for some litigation, right . Mr. Werfel we always advocate where we can for the ability to administer the tax code effectively. In reality what is going on in the economy, we are always going to say, here is where we can administer more easily versus not. Ultimately it is up to this committee working with ways and means and my leadership over at the Treasury Department to decide how to change those laws. But, yes, it is not just the complexity in the tax laws, but that feeds different types of corporate and Large Partnership behavior. We are seeing really, really more complicated arrangements. The movement of money across international jurisdictions. The movement of subsidiaries. Very complicate. Sen. Johnson im talking about all the problems we could solve by simplifying the tax code. Noneconomic behavior driven by a complex tax system. Im interested in the offtheshelf solutions. I would encourage the irs, with your expertise in terms of what you are having to deal with in terms of complexity, to report back to this committee. Here is the low hanging fruit. This could really help us out a lot if we could simplify this without really impacting revenue. Ok . I think we do so much in terms of closing the tax gap. Part of the tax gap is just complexity, and people avoiding taxes, not necessarily evading them. You make the tax code complex, there a lot more avoidance. Again, is that something you have done . Is that something you could take a look at . Mr. Werfel we do it on a casebycase basis. Earlier, discussing on the law associated with the employer retention credit, the fact that you can still 54 file for an erc in 2025 when the period of eligibility was between 2020 and 2021, that creates a lot of extra work for the irs. That drives our costs up. This is why we need more funding. So, yes, on an inventory basis, like you are describing, i think it is a great question. Sen. Johnson if you can find a low hanging fruit that is completely nonpartisan, this is so obvious, fix this, i would like to think this committee and congress could fix it for you. Thank you. Senator hassan is recognized. Sen. Hassan i want to thank you and chairman wyden and Ranking Member crapo. Commissioner, thank you for being here, and thank the people you work with for all of their fine work as well. At the irs modern i. T. Systems are critical for improving Services Provided to taxpayers. In past years i have heard again and again from my constituents about delays with getting their refunds and other Taxpayer Services. I. T. Issues have obviously constricted contributed to these delays. The irs has difficulty in processing paper tax returns has led to issues with taxpayers. An issue i know the irs has taken steps to address. What you doing Going Forward to modernize irs i. T. Systems so that families dont experience delays in getting their refunds and other Taxpayer Services . Mr. Werfel on this i have some good news, which is the main system at the irs that is the engine for all individual returns is on the cusp of finally being turned on into a modern solution. That is coming after this Filing Season. We will have more on that. What we would describe to you and the American People and your constituents, is how that will impact them. With more realtime information, faster processing. There is some good news coming in our Technology Modernization efforts in particular, and how it impacts individuals and families. Sen. Hassan thank you and i look forward to hearing more about that. It is something we hear about literally daily in our constituent service team. Different topic. Several criminals often quickly convert stolen funds into cryptocurrency, making it nearly impossible for Law Enforcement to recover the funds. This happened in the town of peterborough, New Hampshire one criminals stole 2. 3 Million Dollars and converted it to cryptocurrency. Following this cyberattack i pressed your predecessor on how the irs can help combat this kind of cybercrime. He sent me a letter recommending stronger know your customer requirements for cryptocurrency exchanges. In your view, how could strengthening these requirements help or cover stolen funds after a cyberattack . Mr. Werfel i agree that there is a chain of events that occurs, and people along that chain event chain of events need to know what is going on. Outside of crypto, for example, suspicious activity reports by Financial Institutions or brokers are critical for Law Enforcement to understand where these activities are. That is not mature yet with crypto brokerages. I agree that is the place to focus. Sen. Hassan thank you. Last year i led a bipartisan push for the irs to address possible tax scams fueled by Artificial Intelligence. One concern we raised is that scammers can target seniors and Small Businesses with ai generated emails they claim to be from the irs. What trends in irsgenerated aigenerated irs scams has the irs seen this Filing Season . Mr. Werfel our tax preparers are also reporting an increase. A lot of irs impersonation, a lot of very sophisticated behavioral science to understand what, for example, will convince an elderly person to pull out their credit card and pay a fake tax debt. We have to solve this through a combination of things. Awareness campaigns can help. One thing, senator, i participated in International Tax summit and ask my fellow commissioners around the world this same question. One of the big fixes that is out there that has helped is putting into an is putting into an individuals tax account the basic flag of whether the Tax Authority is trying to reach you. Some of our peer nations have really disrupted ai impersonation by encouraging their citizenry to come to your tax account and see whether it is out that are really trying to reach you. We have plans for next Filing Season to include such a flag in peoples online accounts. Sen. Hassan that is very helpful, because in response to our i think this is along the same lines. You said the irs was adding online tools that would allow taxpayers to verify. So this is what you are really talking about . Mr. Werfel you have to educate people that they have to sign up for their online accounts and not panic when someone calls claiming to be the irs. Sen. Hassan where is the irs in getting these tools up and running to protect taxpayers . Mr. Werfel this is a big priority for next Filing Season. It is a combination of that flagging, but also a onestop shop for taxpayers. All of the notices you may have gotten. Many taxpayers will have none. I mean, this is what is really interesting. It is like coming you get a text, an email, a phone call and your neighbors got the same one, your work colleagues. The vast, vast majority of taxpayers are not going to hear from us. So, it is really about educating. We are working to make sure that by next Filing Season we have these tools in place. In the meantime, we are doubledowning on awareness campaigns. Sen. Hassan thank you very much. Sen. Cardin senator tillis is recognized. Sen. Tillis would you introduce the lady working behind you that has been working for the irs for 52 years . Mr. Werfel diane grant. Sen. Tillis thank you for your decades of service. She is also from tennessee. I think we mentioned that earlier. Mr. Werfel, i dont expect you to have an answer for. If you do it would not surprise me, but i dont expect it. Can you give me, today, the full cost of the filing system and plantation . Implementation . Mr. Werfel i do not want to, because the pilot is still running as i am sitting here. Within days. By the end of april. Sen. Tillis i do not want just the irs internal costs. I want full burden, other actors, so we understand the nature of the investment. A quick question on that, as the pilot is moving forward i think you all are implementing an api that automatically unloads adjusted gross income, something the industry and some of the Free Filing Alliance has asked for for years. What is the posture of the agency in providing that api to authenticated third parties . Mr. Werfel i will look into that. We were talking to taxpayers who were using the direct file solution, and there was some confusion about how to get to your agi amount, which is a key moment in your tax filing process from the previous year. Absolutely willing to talk. Those partners, our partners who provide those commercial software, we work closely with them. Sen. Tillis i agree. Mr. Werfel they are terrific. Sen. Tillis if it is a tool that is going to be available to free filing, we can deal with whatever privacy, security concerns they may be. But it does not seem fair or appropriate to have that additional step. Mr. Werfel we will look into it, sir. Sen. Tillis i would hope that this pilot, this thing you are working on now, you just decide it is not worth it because the privatesector options are so much better it becomes a distraction. That is my personal bias. I cant believe i was trying to figure out a way that i could ask this question that were knocking you in hot water, but i admire your background. That is why i supported your confirmation, and so far im happy to what i have seen. But i just cant imagine a project of this scale, if you were coming in and trying to fix all of the things that need to be addressed or modernized in the irs that you would have been pounding the table saying, this has to be one of my top five initiatives in my tenure. Can you at least stipulate that while this may be nice, it is not one of the most important things that the irs should be dealing with right now . Mr. Werfel it is such a difficult question to answer, because there is so much that goes into it. I would say, as we try to hear from taxpayers and it is not an exact science, right . In terms of what youre hearing from different constituents. There are loud voices out there who want this solution. Sen. Tillis again, im not going to get you in hot water, but it just defies logic. I have implemented a lot of Financial System platforms. I never went in to a client and said, you know what . We should just build it from ground up. We should do it differently. What is disturbing to me, or disappointing to me, is i have not seen a fullyexecuted strategy on exhausting all of the possibilities for free filing, for paid filing, for being able to file for free on some of the for pay platforms. It just seems to me that he could have found another way to fix the problem, and so instead of using a flyswatter to address some of the problems that some of the irs filers were having, we decided to create a thermonuclear detonation device that does the same thing. Mr. Werfel i will share with you one benefit from all of this. Is that we saw a substantial increase in the number of people that file for free electronically across all platforms this year. 2 million more people filed electronically for free. There was so much attention on it. Sen. Tillis if we would have spent a fraction of the plot of the money we spent on this platform that we are going to have to care and feed and modernized 10 years from now, and so on and so forth, it feels like there wouldve been a better way to achieve the goal, if the goal was to provide costeffective or no cost filing options. I know youre doing your job. Im going to make a comment, not even ask you. I think your goal right now is it fair to say those of us who may have, lets say 500 billion, or whatever the latest number is of unpaid taxes, is it fair to say people appear that think that is a smoking good payfour are probably not being realistic about your ability to zero out that tax cap . Mr. Werfel it is a difficult enterprise to undertake. If you notice sen. Tillis im going to go ahead and roll, what i want to get back with you on progress with the tax cap. Thank you. Chair wyden it is an important issue. Ive got to keep everybody to five minutes at this point. Sen. Warren it was not long ago that the onetwo punch of the pandemic and nearly 20 years of underfunding brought the irs to its knees. We all remember the phones were not answered, just acts of unprocessed returns sitting in boxes. But democrats secured billions of dollars in longterm funding for the irs so that you could do your jobs during and the turnaround has been truly remarkable. Yesterday was the tax filing deadline, and i want to congratulate you, commissioner, and all of the hardworking folks at the irs for a smooth tax filing system and season. This year the irs wants to Pilot Program called direct file. A first of its kind option for americans in 12 states to be able to file their taxes online directly with the irs. It is easy and it is free. That means, instead of the 150, on average, and nine hours taxpayers typically spend for the privilege of filing your taxes, they can do it for free with the irs. Commissioner werfel, im sure your team is still going through all of the data from the Filing Season. But what is the feedback you have seen so far on direct file . Mr. Werfel it has been tremendously positive. The results of the pilot have been for a couple of different reasons. One, the product work. Second, how are partnership with states like massachusetts, the states product we handed it off to because once you do your taxes on direct file if you have a state income tax you have to do the handshake, like we did with massachusetts and new york, and others, that worked as well. Taxpayers told us in almost unanimity that it was easy to use, fast, secure, and, of course, free, which was the bottom line that people wanted to emphasize. So, very encouraging results. But as we sit here and you know this better than anyone as it uses is still filing, massachusetts is still filing. A lot of people want to know the final numbers. Sen. Warren we are not there yet. Days away, but i want to start with the fact that direct file is getting fivestar reviews. Mr. Werfel it is. Sen. Warren taxpayers are raving. The phrase i have heard is so darn easy, that they filed on their lunch break. They did not have to worry about fees, ads, did not have to worry about up cells upsells. So of course these tax Prep Companies are kicking and screaming and trying to shut the program down. And a lot of their lobbyists friends claim it is illegal for the irs to provide a 21st century online tax board. Tax form. This argument is laughable. The irs is supposed to modernize and upgrade services over time. But lets dig in a little more. Commissioner warfel, decades ago the irs mailed out tax filing forms at the post office and the post office stocked the paper forms, and that was it. But in 1986 the irs piloted electronic filing. Back then that meant plugging in phones into modems, transferring data by tapes. It was real cutting edge stuff in 1986. To your knowledge, did anyone suggest the irs did not have Legal Authority to do that . Mr. Werfel no. Sen. Warren all right. Decades ago a tax refund was a paper check. In 1987 the irs expanded the pilot and added electronic direct deposit to put refunds directly into peoples bank accounts. Did anyone to your knowledge say the irs cannot do that because direct deposit is not specifically referenced in the statute . Mr. Werfel no. Sen. Warren in 2008 the irs created pdf forms that taxpayers online could fill out and file electronically. Did anyone suggest that serpas was somehow beyond the reach of the irs . Mr. Werfel no. Sen. Warren you know, there was a time when the only way to ask the irs a question was to mail them a letter or show up in person. But at some point the irs started using the phone. And then email. And be still my beating heart, the irs now uses texts. In other words, the irs is doing what all of government should be doing. Modernizing and making it work better for ordinary people. And there is a big return on the investment here. The Economic Security project studied the full cost and benefits of a fullfledged direct file program and determined that nationwide direct file will save taxpayers 23 billion a year, including tax prep fees they will not have to pay and tax refunds that people currently miss out on. I did the math. That is about 100 to individual taxpayers for every one dollar invested in direct file. It is a great investment. Thank you for the program. Chair wyden as much as i agree with the senator from massachusetts, we have to move on. Senator blackburn. Sen. Blackburn always great to see you. I want to talk to you about telework policies. You and i have discussed this before. I understand you have a policy now of requiring people to work in the office 50 . Mr. Werfel that is correct. Sen. Blackburn what percentage of your employees are teleworking . Mr. Werfel we are at the government mandated amount of 50 . Sen. Blackburn half of your employees are working 50 of the time . Mr. Werfel the way to look at it is, at any given moment we have 50 of the irs working in a river remote location, and 50 is working onsite. Sen. Blackburn have you all evaluated whether teleworking enables employees to properly work without proper supervision . Mr. Werfel that is a constant evaluation of ours, in terms of, are we hitting our productivity goals . Are we answering the phones, are we processing . All of the critical things we have to do. Sen. Blackburn and you are two years behind on refunds, right . Mr. Werfel no, we are uptodate. We had one of the best Filing Seasons we have ever had. Sen. Blackburn well, i was asking these questions because of the tax Court Cases Regarding tomasi fields and an irs agent, and david combs, manager david combs. We were backdating penalty approval forms in 2022. Mr. Chairman, i have a tax notes article to submit for the record. Chair wyden without objection, so ordered. Sen. Blackburn i think this type of fraudulent activity taking place within the agency is important to be addressed, and i think it is important that you are doing something to ensure irs employees are fired and removed when they are found to be in such violation of policy and that they are properly reprimanded by their respective bar associations. Mr. Werfel yes, and, look, with respect to the case you raised, we need to do better if we are going to build trust with the American People. We are acknowledging that we should have promptly corrected our representations in court in this case. Ive instructed the irs Leadership Team to take all of the official actions to make sure this never happens again and to the extent appropriate personnel actions with those involved. Sen. Blackburn ok. And i think it is important to note this happened during a teleworking time. And without proper supervision. I want to talk with you. Have discussed four also that issue of total positive income and the 400,000, what is going to happen with those audits. In the American Family plan Tax Compliance agenda and i have that for the record, mr. Chairman. Treasury pledged that audits would not increase for taxpayers with incomes below 400,000 in actual income, relative to recent levels. And one can assume that actual and taxable income would be the same thing, but the irs has opted to use total positive income. That is the sum, according to what you have said, the sum of all available income before deductions. And congress has not established a statutory definition for total positive income. So, lets have you clarify, what does tpi account for . Does it allow charitable deduction . If you are gifted money, is it included in that . If you get an insurance settlement or an inheritance, is it included in that tpi . Since that since there is that definition, and there is actual and taxable. Where are we on this . Mr. Werfel i think as a general rule you can assume that if it is income it is adding it is included in total positive income. What we are trying to do is give a bright line, an easy way to understand how to distinguish. We believe our commitments of only increasing audit scrutiny on those above 400,000 is a high enough amount where middle, low income people around the country can breathe easier knowing that they are likely never to sen. Blackburn my time has run out, but when you say general rule and assume, you know what happens when people end up going to court. So we are going to have to be more explicit. I will talk with you about it later. Chair wyden very good. Next in order of appearance would be senator young. Sen. Young commissioner, welcome to the committee. Thank you so much for being here today. When you came before the committee for your nomination hearing you noted in questions for the record that if confirmed it would be a priority of mine to ensure irs employees are where they need to be to carry out irs mission most effectively. Mr. Commissioner, over a year later i continue to hear that my constituents are having trouble obtaining assistance from the Internal Revenue service. My office, like im assuming all of my colleagues offices, still regularly receives complaints from hoosiers that the local irs offices are empty, representatives are not consistently answering the phones, and when someone at the irs does pick up, there is often no resolution to the issue at hand. So, commissioner, i know you are here today touting some Customer Service improvements and advocating for additional funds for the irs. And of the reasons you were put in this position, i think the general perception was in looking at your background, you are a resultsoriented guy. It is your teams objective to make sure you achieve results. I am curious what results you are seeing that indicate success regarding Taxpayer Services, however. Frankly, the irs has received aliens of dollars in supplemental funding, and yet two years later we are still seeing some poor customer results manifested in the feedback i get from taxpayers. It is my responsibility to press a bit on that issue. I suspect you are going to quote me some data on phoneanswering rates. Unfortunately those phoneanswering rates are not particularly instructive to us, because those answered phone calls are not actually leading to resolutions. By my estimation. Which is why i continue to hear from my constituents all sorts of lamentations and upset pertaining to the service from the irs. I will just ask you, mr. Commissioner, give you an opportunity to respond. Why is the irs just focused on hiring employees to answer the phones instead of hiring where taxpayer problems remain the most significant, such as the processing of paper returns, responding to correspondence, and resolving taxpayer disputes . Mr. Werfel so, let me start by saying, senator, i will say we have more work to do. We want every taxpayer in america to feel like if they need the irs we are there for them, that we answer the call, that person on the other end of the line or walkin center, or tool on irs. Gov meets their needs. We have not achieved that goal. There is no victory lap here. There is a lot more work to do. You can imagine, as the irs commissioner, 99 out of 100 voices i hear from taxpayers or concerns. I know that a lot of taxpayers are being served well. I know that things are trending better. Im not going to cite all of the statistics, but i know that we are answering more calls, we are getting more people into those walkin centers in the hoosier state, we are serving more people in the state than we have ever served before. But that doesnt mean we are done. We have more work to do and we are prioritizing some of the areas you raised. Where we dont answer the calls as effectively are in some of these topics we are going to focus on, like victims of Identity Theft. We need to do more on that, and some of your colleagues on both sides of the aisle have raised pressing questions where there are still gaps in the ability of the irs to serve. That i want to build on the momentum. Dings are getting better. Thanks are improving on all dimensions of Customer Service. But the race is not finished. Sen. Young we are going to stay on top of this issue. As you know, we have a five minute question and answer format on this committee, and i have roughly 15 seconds left. Certainly not enough to continue with this line of questioning. I have put on the record my concerns. I have heard from you that we should remain hopeful, but continue to vigorously oversee the irs, and i will certainly do the latter on behalf of my constituents. Thank you. Mr. Werfel thank you. Chair wyden senator young, your point about oversight, that is what our job is all about. Senator cortez master, you are next. Sen. Cortez masto i have two questions for you. One involves the solar tax credits. I want to thank you for making the low income communitys on his Credit Program a success. It is set to deliver nearly 1. 8 gigawatts of clean energy in low income communities across the united states. More residential solar was installed in 2023 than ever before. Here is my concern. After reviewing the 2024 program the current guidance reduces the amount of capacity for category one residential solar solar projects. This reduction will negatively impact states that have an active residential solar market, but no Regulatory Framework to support community solar, which is where the credit capacity was increased. Residential solar deploys seven times more capacity than community solar. So my question to you is, can you explain that or can you address the concerns i have . Mr. Werfel i would need to learn more, senator. Why dont i commit to getting back to your team as early as tomorrow and schedule a followup meeting where we can dig into the issue and get the answers to your questions . Sen. Cortez masto thank you. I appreciate that and i look forward to that dialogue. The only other question i have for you is on the earned income tax credit. My colleagues are particularly concerned that about one in five taxpayers that are eligible to not claim the credit. What do we need to be doing . What does the irs need to do to reach these families . Mr. Werfel it is so important. For the most recent data we have there are roughly 7 million americans roughly eligible that never claimed it. There is a series of steps we need to take that to make sure people are getting the credits they are entitled to, and particular vulnerable populations. These are individuals who dont have the means or are intimidated by the irs in some way, shape, or form. Need to break down those barriers and get these people at the credits they are entitled to. We need to do outreach, working with community leaders, setting up safe spaces for people to calm, learn more about the credit, understand that it is a friendly environment, and we are there to help them if the credits they are entitled to. There is also some work we can do, potentially, to improve the 1040 form to make it easier to climb. We are analyzing a variety of steps, from outreach to forms itself. And get out in front of that. So, we are going to be releasing our updated annual plan in the coming weeks. We have dedicated a new priority section in there to what we are calling credit uptake. It addresses a lot of these questions and i look forward to sharing that with you and chair wyden my colleague senator cardin would be next. Sen. Cardin i want to thank you for taking on this challenge. As we have talked previously, we appreciate the commitment to Public Service. I want to talk about one area where we are seeing a change in the way athletes are handled and whether our tax code is keeping up with the changes. Senator thune and i announced legislation to deal with an il and many of the nonprofit organizations associated with college are participating and our concern is whether that was consistent with their nonprofit taxexempt status. You issued a general advice memorandum in june 2023. Can you update us as to the enforcement of the taxexempt status for those organizations that may be going over the line. And what they are doing . Mr. Werfel we did issue that memorandum. We made it clear that in that memorandum that organizations that promote and develop name, image, and likeness opportunities for student athletes are engaging in what would be a nonexempt purpose. If that is the fundamental thing youre doing it would be very likely you are operating for nonexempt purposes. And we have started finding finding organizations and revoking taxexempt status or not granting taxexempt status based on this update, so this is a new area, there is work to be done. We are at the early stages of working across stakeholders to make sure what the irs position is on this, but i would say we are at the urge early stages of implementation, with respect to certain organizations and enforced the generic memorandum we issued in 2023. Senator cardin we saw some real abuses by certain organizations that were not rewarding athletes but trying to enhance the academic the ability to recruit rather than ebbing giving benefit to a person because of their name and likeness. Mr. Werfel i should be clear that we dont have any opinion, good or bad on nil as an area of the economy. Just do it by the rules. Senator cardin that is the point, we want people to be rewarded but we dont want to see it abused. We appreciate you keeping us informed as to how your enforcement is going in that area with additional help from us. Im going to followup on senator Cortez Mastos point. In regards to low income families one program that has been helping low income taxpayers get the help they need. Your Pilot Program and expect that will help and you mentioned to try and simple if i the forms. Could you tell me your strategies to help low income taxpayers . We struggled with tying tax trying to comply. Mr. Werfel it is multifaceted. I was most recently at a clinic in baltimore, seeing the good work going on to provide Free Tax Services to distressed communities or vulnerable populations. It is inspiring work and we need to do more of it. We should be investing and growing these volunteer programs, working in local communities with local universities, to provide these free services. These are the environments where we can really connect to their earned income tax credit that otherwise might not be. Its about awareness campaigns, it is about working with local partners, it is about setting up environments like a clinic where people feel that they can feel that they understand the benefits that are provided and there are things we can do behind the scenes at the irs. I mentioned to senator cortez masto, we are looking at updates to the 1040 potentially and changes to the forms, what can we do to make it clear and easy for taxpayers to apply for the earned income tax prep tax credit because if students are if 7 million americans are eligible and not applying, somethings not current net doing not connecting correctly many to fix it. Protecting them from scams. Sen. Cardin you need that authority. Thank you. Chair wyden i want to thank my colleague. The senator from wyoming. Thanks so much for being here today. I want to talk with you about this direct file Pilot Program. I know you have talked some others about it, there has been a lot of controversy surrounding the irs starting up this direct filing portal that could replace successful private sector options that are currently available to taxpayers around the country. Unlike the current free file process which partners with the private sector, this would be solely handled by the Internal Revenue service, make the irs both a Tax Collector as well as the tax preparer, the socalled Inflation Reduction Act provided 15 million for the irs to study the feasibility of a government run direct file system but it did not provide Statutory Authority to create and operate a new multimillion dollar direct file program. To me in a classice fashion, the irs spent 130 million in a direct file program, only 55,000 people used the program, so the irs spent over 2000 per taxpayer and when you compare that to the private sector free file options, serving roughly 30 land a taxpayers across the 30 million taxpayer it cost the taxpayers and the government nothing. 18 straight treasuries including the wyoming state treasury sent a letter asking you to turn to make the program and called this a solution in search of a problem. The treasury Inspector General for Tax Administration is also raised some concerns. The Government Accountability Office Released a report listing out problems with this new irs program. Do you think the irs can do a better job than the private sector in helping taxpayers . Mr. Werfel but we are trying to do is provide an option for taxpayers. It is not supposed to be better or worse. It is supposed to give taxpayers options. I would offer that the pilot is not done. There have been no cost estimates. You referenced a cost in your statement that i am not familiar with. There are way more taxpayers that have filed direct file in the past few days so the numbers are very different. I will say this. We have not made a decision on the future of the program. After the pilot is done and we still have massachusetts filing through april 17. We will report publicly on the results. Because they are one of our pilot states. I will be able to provide a final cost number, a final number of taxpayers and it will give opportunities like your state treasurer to react to the data and provide feedback and we look forward to that feedback. Sen. Barrasso he is a big private sector guy. Does the private sector have the same conflict of interest that the irs has if the irs is the Tax Collector, enforcer and now the tax preparer . Judge, jury and lord high executioner. Mr. Werfel my answer to that is two fold. I dont consider us the preparer. We provide the platform, the taxpayer fills in the information. They make the final sign off and it is an option. Second, if the taxpayer feels like this is too much irs for them, they can use any other option for them, including using the Free Solutions offered by the software company. I encourage them to do it. They are good products. Sen. Barrasso what safeguards have you put in the irs to protect taxpayers from come lugs from either conflicts of interest as well as any Additional Information the irs will now have relating to taxpayers . Mr. Werfel first of all, it is your option. We try to be as transparent as we can about what the parameters of of direct file are and what they arent. We make it clear that there are other ways to file your taxes. You do not have to file with direct file. We have allowed taxpayers to make the final call. They hit submit, they review the form, they make the final decisions on what they submit and once they submit it, their data goes into the same pool of data as any other tax file coming in. It has equal protection in terms of Data Security. There is no real change in your status as a taxpayer once you hit submit on direct file versus any other solution. Sen. Barrasso i voiced my concerns about funding priorities, socalled Inflation Reduction Act allowed 80 allowed roughly 80 billion to the Internal Revenue service. 45 billion went for enforcement compared to only 3 billion in Taxpayer Services. We talked about that in my office. We talked about it in the hearing and in a recent Budget Hearing the irs asked for , another 104 billion in mandatory spending. 59 billion of that for enforcement. This would be on top of almost 5. 5 billion provided for enforcement annually. Our Small Business owners and hardworking tax payers going to be protected from some of the burdensome onslaught of audits if you spend more than 100 billion dollars on auditors and enforcement agents in the next 10 years . Mr. Werfel those are my marching orders. As long as im commissioner sen. Barrasso not from anyone on my side of the aisle. Thank you, mr. Chairman. Chair wyden senator casey. Sen. Casey congratulations on a successful Filing Season. I am pleased that the irs continues to use the money appropriated in the Inflation Reduction Act to improve Taxpayer Services and with call wait times down to three minutes after being up to 28 minutes just two years ago and more filing options available than ever before. Im pleased you announced an increase in audits of large compex partnerships with more than 10 million in assets and that you will pursue the 25,000 in assets and that you will 10 billion pursue the 25,000 millionaires who elected to file taxes since 2017, a much bigger number when you lower that below 1 million. Here is my first question. Can you explain what the irs is doing with this new funding to ensure that billion Dollar Companies and millionaires or higher pay what they owe, just like middleclass americans . Mr. Werfel i appreciate the question because i want to close out my response from senator barrasso. My marching orders are to make sure that the Inflation Reduction Act funds are exclusively used on enforcement of high wealth complex organizations, Large Partnerships, large corporations. That is where our focus is. If you are a momandpop, middle or low income, there is no new wave of audits coming under the Inflation Reduction Act. The audit rate you had before the act was historically low is the same audit rate you had the day after and the same you will have today, and the same into the future. No new wave of audits. We have a lot of work to do, to deal with the complexity that exists in the u. S. Economy today, and how large corporations compex partnerships complex partnerships and very wealthy individuals are shielding income. Many arent. Many are playing by the rules and i would like to say that our focus on high wealth and Large Businesses benefits high wealth and Large Businesses, because if you are the cfo of a Major Corporation and you are playing by the rules, you want the other company you might be competing with also play by the rules. You want the irs to be able to know which case to select for audit. By having the right funding, we can be more precise. Those who are playing by the rules will never have to hear from us, if we are smarter, more technical and competent in this complexity. That cfo playing by the rules will also have the comfort of knowing we are not selecting them for audit, but we are selecting those in their industry that may not be playing by the rules. That is going to create fair competition. This is really about an irs that can do its job and enforce the code fairly and equitably. If we dont have the resources to be able to spot and deal with the complexity we are seeing, then the system starts to degrade. Sen. Casey thank you very much. You might be aware that in february of 2023, a Norfolk Southern train derailed in east palestine, ohio. It was carrying hazardous materials. It was very close to the pennsylvania border. The township is darlington, pennsylvania. To avoid toxic exposure from the crash, thousands of people in ohio and hundreds in pennsylvania had to flee their homes. Norfolk southern leader provided some reimbursements for the families. Senator brown and i have been working to make sure the victims of this disaster are not taxed on these reimbursements that they got from Norfolk Southern. I hope we can deliver on this tax assistance to the victims, bypassing the bipartisan tax bill. If not, if that doesnt happen, i hope you and secretary ellen use your authority to declare that this was a catastrophic disaster and that related payments are exempt from tax. Can you assure us you will do everything in your power to deliver tax relief to the Norfolk Southern demerit dexter derailment of victims . Mr. Werfel this is one of those spots, we talked a lot about irs authorities. I mentioned on many occasions that i think one of my fundamental responsibilities as commissioner is to implement the tax code in a way that protects the taxpayer bill of rights. It is actually section 7803a3 which requires me to implement the tax laws consistent with a delineate seat of state of taxpayer bill of rights. That is one of the most important rules i have. This is a moment where you basically look for opportunities to protect taxpayers, because you have this taxpayer bill of rights that is that balancing against what might be a part of the tax code that has this unintended consequence of placing undue burden or not really understanding the situation. I think the bill on disasters is going to be enormously helpful but in the meantime, we are rolling up our sleeves to find a solution for the residents of east palestine. Chair wyden senator menendez. Sen. Menendez good to see you. Contrary to the standard in most professions, paid preparers are not obligated to while many to hold a license while many offer exceptional services, regrettably there are some who take advantage of the lack of oversight on the market and take advantage take advantage of hardworking taxpayers. These ghost preparers often promise hefty returns, claim credits for taxpayers that they are ineligible for and charge fees based on the inflated refund amounts. Then the preparer will balk at signing or providing the irs prepared tax id number, as mandated by law, leaving the taxpayer exposed and potentially liable for any inaccuracies in their returns. What have you done or what can you do to crack down on fraudulent tax preparers and whether Additional Resources what Additional Resources or authority does the irs need to deal with this . Mr. Werfel within our legal authorities that we have, we lean in, do more awareness campaigns, work with taxpayers on the risks of ghost preparers. That only gets you so far, but it doesnt mean we shouldnt be leaning in, to do more of these awareness campaigns. We have put in the president s budget a variety of different provisions that would help us with cracking down on ghost preparers and other unscrupulous preparers. New tax penalties that would be created, allowing us to determine more comprehensively whether a tax preparer is suitable or not. There are certain restrictions that we have at the irs in terms of being able to essentially regulate this space. This is a spot where i think regulations would be helpful, because in particular, vulnerable populations in distressed communities need help. They dont have the means to hire an accountant or lawyer and we should be helping them. Sen. Menendez i would very much like to hear from you and your staff, what type of authorities or regulations would you like to see, to be able to be more successful in this regard. I would imagine that if a law says that if you are a tax preparer and you fail to put your tax id purposefully, that making that some type of crime is a real incentive not to do that. Mr. Werfel i appreciate the question. Sen. Menendez last year a study uncovered that black taxpayers base over three times the likelihood of being audited by the irs. The absence of race or ethnicity Data Collected by the irs obscures the roots of this inequality, but the report points to potential discrimination embedded within the irs audit selection algorithms. At your confirmation hearing, you and i had a discussion about this. The Research Highlights a disproportionate auto rates targeting individuals claiming the ei tc. Any letter to chairman wyden, you in a letter to chairman wyden, you committed to changes to the filing system. Within the framework of the Inflation Reduction Act, the irss pledge to engage in research aimed at comprehending any systemic bias, a primary focus of this initiative is the continual assessment of algorithms for selecting audits related to the eitc. What are the findings of your research thus far . The report did not conduct research into potential audit biases for latino taxpayers but as you work on this issue, will you commit to evaluating latino taxpayers as well . Mr. Werfel let me start by saying as i sat here on february 15 at my confirmation hearing, when this report had just come out, it was alarming and concerning and i wanted to get to the irs and roll up my sleeves to address it. The first thing i did was respond to the chairmans request for an update. I provided an update. I told him and i acknowledged the validity of the findings, acknowledged there were Racial Disparities in how we selected audits for certain refundable credits including the eitc and committed to doing something about it. We have dramatically reduced the number of eitc audits. We have made changes to our selection algorithm. Weve done more outreach to impacted stakeholders. We are working with the Census Bureau and others to make sure we are setting up the right Data Infrastructure in order to better evaluate the Racial Disparity, potential Racial Disparity of any Tax Administration so that this does not happen again. The results, i committed to the chairman that i would be prepared by the fall of 2024 to start unpacking some of the results of what the steps are and i still think we will make that deadline. Sen. Menendez i look forward to you sharing that with us, and i hope you will look at latinos. Mr. Werfel absolutely. Sen. Menendez fairness is an essential part of this process. Chair wyden mr. Commissioner, you have been in that seat for almost two and a half hours. Im going to liberate you very briefly. In just a couple minutes. In particular, we have dealt with an array of very substantive and important issues. We could debate further about direct filing. Its been back and forth, a partisan exercise. For history, that is just not accurate. In that seat over there, sat at one time dan coats of indiana. He joined me in a bipartisan tax reform bill that included a version of direct file. That was history and i know sometimes history feels like the last minute but there really are bipartisan roots to this direct file effort and i appreciate the way you described this as similar to building a startup because i think that is very appropriate. Also i want you to know that we are going to pull out all the stops to get this tax bill, bipartisan, 357 votes in the house of representatives. You cant get 300 to seven votes to order a piece of apple pie. 357 votes to order a piece of apple pie. This is just an extraordinary accomplishment. Chairman smith deserves an enormous amount of credit. Bipartisan work went on for months and months and the provision we talked about today, dealing with the fraudsters. This is now a bill that is on offer to give you the tools to go after these fraudsters and youve made it clear that you are not going to be able to do the job that you want to do, without the enforcement capabilities. I appreciate that. Im going to close with this. Ive had at home about 1060 town hall meetings. The way you come to the finance committee seems to me to be. Almost a town hall meeting. Get a lot of questions for senators. That is what we get on the certificate for. You either answer them or you say we will get back to you. This is not just an isolated event. Youve been available for roundtables. Senators have asked to come to meetings privately, sessions in the office to come and talk for 40 minutes or Something Like that. Youve been open and accountable. That is what Public Service is supposed to be about. I appreciate it and i want colleagues to know the questions for the record are due by 5 00 next tuesday. With that, we will excuse you. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] [captions Copyright National cable satellite corp. 2024] [no audio] [no audio]