Transcripts For CSPAN3 Former IRS Commissioners Discuss Agencys Budget 20221129

that irises faced over the years, as well as the opportunities that the agency has now to implement solutions. you all should have the full biographies of our speakers and panelists, but just to give you a brief run down, we are joined by -- who had multiple irs and treasury roles from the 80s and 90s, including irs commissioner and assistant secretary of the. he was subsequently a partner until 2017 and was there as counsel. we also have charles rizzo ady, who served as irs commissioner from 19 97 to 2002. he is a founder and director of shrink the tax gap, which is i'm sure a concept we will discuss today. and currently, is a senior adviser focused on investments in the fields of i.t. and business services. prior work includes public and private sector roles, including american systems. and then finally, john costed in who service irs commissioner from 2016 2017. he is now retired. his previous work includes various positions at freddie mac, omb, as well as the local d.c. government. so thank you so much to all of our panelists once again. commissioner costa and i wanted to start with you. all of you were put through the wringer at multiple points. my memories of your grilling are probably freshest. i am wondering, what advice would you give to danny werfel, the recently announced nominee for irs commissioner, as he starts to embark on this vetting process? >> obviously, the 80 billion dollars is a unique experience of last ten or 12 years. i think my the basic idea would be to have an idea of how the money is going to be spent. and then spend a lot of time being transparent and in consultation that they need to be brought along on the journey. so that they understand how the money is spent, and what the public is getting in response to that. so we have improved technology in tax collection. i think the congress and the public are going to be most interested in this and i think that as long as danny is transparent but with the goals are in the reports against them, i think you will be fine. >> commissioner goldberg, is 80 billion dollars too much, too little? was it allocated in the appropriate way? over half the funds were allocated to enforcement and operations management. 4% for customer service. is that the right breakdown? was the emphasis both in dollars and in rhetoric on enforcement, rather than customer service? was that perhaps a mistake, given that it has attracted a lot of divisiveness, to say the least. and threats to the persistence of this funding stream. >> thanks, catherine. to take your two questions separately, it's important to keep in mind that this is over a ten-year period, starting from the current base funding, five or 6% increases a year. i believe that that is manageable, and usable properly. in terms of the allocation, we use the words enforcement and we use the words service. we don't think about enforcement. it is a means, it is not an end. it is a means to compliance. and when you think about what the service does, with 70% of correspondents having audits, that is a process where some but he comes to taxpayer. the taxpayers to deal with it. the taxpayers should have their phones answered. the interaction should be smooth, and it should be seamless. and she later prompt resolution. some folks think of that a service, and that is probably accounted for. that is within the compliance bucket. there is, unfortunately, in cbo, and everybody else lives with it in the current system. it is not scored as what is classically referred to as service. service has as much of an impact on compliance, even more so than anything else that happens. so i believe properly allocated and properly accounted for service can make this work. the political rhetoric, hopefully that is in the rearview mirror. this is all about making it right for everybody. >> so do you think that the agency has the agency intends to deploy the dollars? >> this is not in the legislation, but it is in contract in the hiring. i believe opium has the authority to make that work well. and the point is that this is doable. i believe it is going to happen. and i believe that the administration has the flexibility. it kind of goes back to john's point. if the commissioner is candid, open, and brings congress along on the journey, i think this is all going to work out. >> do you think this is the reallocation of funds? >> i really sign on to the point that fred is making. from the taxpayers point of view, a lot of what frustrates tax payers, the biggest part that frustrates taxpayers are things that happen that would be funded under the enforcement chain. he was talking about correspondence audits. the whole collection thing, if you send in a return and you have some care or maybe the irs has won, and they send you a notice that says you didn't pay what you're supposed to. you then have to some way communicate and fix that whole thing. if it was done from one of those -- it is funded by enforcement, even though from the taxpayers point of view, it is really service in the sense that you need to interact with the taxpayer, with the irs to resolve the problem. by the, way there's 175 million notices issued per year, almost all of them are in some form of enforcement chain. every one of them has to be responded to and resolved by the taxpayer and the irs. and almost all of those are -- accounting for these appropriations has to be done, but i think that the bottom line is what fred said. the irs has plenty of flexibility to do what it needs to do to make sure the taxpayers are served properly. >> i might just chime in a little that what people don't understand often is that a lot of the improvements in tech have been achieved by technology. the funding and modernization of technology is the goal when i was there. it was to try to get as many taxpayers as possible, and a lot of them can interact with the irs online. over 90% of taxpayers buy online. they pay online. they respond online. they do everything online. they communicate and respond hair and charles had talked about it. a lot of what happened was not only the i teeny budgets, but it makes a huge difference for service. >> one of the concerns that i frequently hear from people, readers who write me, when i've written about how this money will be deployed, is that they are concerned that more enforcement means that they, in particular, are more likely to come under audit. even if they are honest. and commissioner was already, you talked about the need not four more audits, but for better targeted audits. basically to make it less likely that honest taxpayers are drawn into the dragons'den, if you will. and those who are not compliant are more likely to be flagged for audit. one proposal that i know that you are a proponent of in the past few years involved doing more financial reporting requirements, which obviously hasn't happened. this makes the auditing process better targeted, to allay those fears of honest taxpayers. >> let me say catherine's that you are readers are on to one of the most important points there is about his whole program. i know the people think of auditing and the increases -- for the emergency knee irs wouldn't even make a dent in the tax cut. what really matters is use of data to find places where the really is under reporting of income or noncompliance, let's say. and the irs when it uses data effectively is very, very effective. and very efficient. it does that traditionally for a long time. your dividend, you can match it up and that's what the bank says. you missed something, small amounts usually. and what is really the -- just to tell you how much data the irs has and how little it's using, the irs receives almost two billion information reports every year from third parties like payers and banks that report 18 trillion dollars. the irs, that is information at the irs has that it can use to determine who may or may not be under reporting. and it can follow up efficiently. this is largely due to lack of funding and lack of technology. but it's that the irs only uses a tiny, tiny fraction. i will give you a simple example. there is over 1.2 trillion dollars the comes in from businesses like partnerships, and corporations that are supposed to be reported on individual returns. the business doesn't pay any tax. that comes in on a report called the k one, of which there are 4 million of those. the irs doesn't have any ability to use any of that. there is a report that the congress authorized, great reporting on what's called the ten 99 k to deals with certain kinds of things like short term rental income. that is an enormous untapped opportunity. on the other side, if the irs does not do that, it will result in unfortunately too many audits that are not productive. at the present time, if you look at high income audits, the ones that are most important, anywhere from 20 to 40% of those audits are reported by the irs itself using what's called no change audits. they audit them but they don't find any need to do that audit. it was just a poor allocation that wasn't delivered and didn't have great numbers. that's an understatement, because in our experience, personally, we know that it will be much larger if that number -- if you just looked at audits that result in very small changes. the irs is stuck with older methods of mug -- which results in a significant infraction of audits that don't need to be done. it does not make use of a lot of data that it already has, that it could use. so that's really where the opportunity comes from. it doesn't mean that they won't have to be audits, and there has been a decline in audits. john his indicated in some of his writings about how far down it's gone. of course, you do need audits. but just increasing honoring is not going to solve the problem. if you take the amount of money that the irs gets back from all the audits it does on everything, it's about ten and a half million dollars a year. which is less than 2% of the total tax cut. if you doubled it, if you doubled that immediately, if you did, that would still only make a minor dent in the tax cut but wouldn't even be as much as cbo estimate they would get. so it is absolutely clear and they want to do -- it has to use data and technology. that's the only way can happen. it doesn't mean there won't be any auditing, but the auditing has to be leveraged. this is going to take some time. it can't be done immediately. >> commissioner, picking up on that question about targeting of audits, this administration has said that it will be targeting very wealthy individuals and large businesses and corporations for its increased enforcement activity. and secretary yellen has also have directed the iris to not use this for people with less than $14, 000, relative to recent stork levels. is that a realistic restriction? how will that be implemented, since the irs won't know someone's real income without the audit? how can this be done? this is another question i hear a lot of skepticism about from taxpayers. >> first, as a general manager, let me assure readers. the irs has no real interest in people who are honest taxpayers. they get audited on occasion, but the irs wants to keep track of change rate because it recognizes if there is no change, or a minor change, it is a waste of the taxpayers time and the irs's time. the audit rate overall has dropped by over 50% across the board. and that is under 400,000 because there are more agents than there were years ago. so what secretary yellen has said is that there won't be an increase in the rate of audits for under 400,000. there will be some increase to get back to where we were ten or 12 years ago in the course of audits. i think the critical point is charles's point, which is if you can improve the technology and better handle analytics, you will be better across the board. and the irs goal is to find people who are pushing the envelope we're not filing at all. i used to say that when you cut the irs, you get tax cheats. because they are the ones who -- so that your honest taxpayer, the goal is not to audit them. we recognize there is nothing to gain by wasting taxpayers time or their time. and the goal is to see if there is funding that overtime, we couldn't get data analytics or better intelligence. so you can do things like audit large partnerships. what most people don't realize is partnerships are audited by -- today, many of these have thousands of partners, and some of those partnerships or partnerships with thousands of partners. and so far, we have been very limited to be able to analyze -- they are huge. and so basically, these just aren't audited at all. that is where we have better analytics to operate more over ten years. >> if i could just amplify what john has said. one, i do not think getting audit coverage for lower middle income -- i think it's probably not appropriate. but when you get a large partnership, this is john speaking. there is the raw under-reporting, but when you are talking large, complex partnerships and talking through the next tier large businesses, high net worth individuals, there is a lot of things that happen in the structure, complex partnerships. offshore structures. and part of it is part of the critical importance of data and research. it is understanding these structures, and at least in the experience of folks such as my self, agents are not equipped at all to understand what the structures are. to reduce taxes. there are techniques that are permitted by statute, folks have clearly crossed a boundary. and so i agree, it is data. i think that went under reported income is the function or the result of a particular structure, you need to understand that to. and decide whether that's okay under current law. if it's okay undercurrent long, but you don't like the answer, go change the law. don't mess and try to climb the mountain, if you can't climb the mountain under existing law. but the key is, data, and research. this is not about hiring as many officers and agents as you can to go chase people. that would be an utter and complete failure, and i think the irs understands that, and i think the treasury understands that. >> so, commissioner goldberg, you just touched on something that i also want to ask you about, which is that i know i have been presenting a lot of these questions in the form of honest taxpayers versus not so honest taxpayers. but the tax code is notoriously complicated. a lot of these arrangements are complex, and there are great areas that lead to disputes between taxpayers and the irs. is more money being allocated for compliance and enforcement sufficient, without tax simplification? where would you begin, if the answer is no? >> that's been the holy grail for 40 years. but it is not moving in that direction. but i think part of this is when we think of the irs. we've got the chief counsel's office, and we've got the treasury tax policy. and where the system has been corroding in certain respects and continues to erode, is that when folks say the only way to deal with compliance is audits. that is a mistake. the treasury does policy, and chief counsel's office to support treasury. the chief counsel supports the commissioner in whatever manner they think it should be pursued. and those are also tools, and important tools, of improving compliance. the notion of making tax policy through the courts, which i believe is an increasing trend, is another mistake. the treasury got a giant increase. this is an integrated effort. it is not hire more agents to audit more folks. where the rich pool folks, poor folks, anyone in between. if it's not going to work. >> it was sort of a rhetorical question. i don't know if either of the other commissioners want to weigh in on what extend they can overcome the fact that there is complexity in the law, and the agency seems like it's going to be outgunned. >> there is tax policy and tax law all those years ago. >> they were all on a single body and the regulations were a body. now, you have literally thousands of regulations along with thousands of pages of law. will people to understand is that the irs not only enforces the law of the irs, but social welfare these days. it issues over 100 million dollars of refunds and tax credits beyond those payments that were one time -- so in addition to the lot being more complex, the irs was complaining about it in continuing to get more responsibilities. they really are welfare programs with a tax credit. my most favorite welfare program, i am told. and you are exactly right, years ago, it was clear that the best thing for taxpayers would be tax simplification. and what would make people happy, if they could be happy, is hours and hours and thousands of dollars, trying to do it. we've been trying to simplify this for sometime, which is well taken. a lot of what we are talking about is responsive to the complexity that is out there. the answer isn't more regulations, the answer is reading ourselves, or simplifying -- >> the only comment i'll make is that my colleagues -- i think that the fact that there is complexity, and i am going to say that when you run the irs, you have to take the tax code the way it is. when you have increasing or decreasing complexity, as well as new programs being loaded on, it only increases the in -- one is, providing reasonable service to people that may have a problem with whatever they're making. it's not reasonable to expect people to comply and not provide them the assistance they need to do that efficiently. it's bad enough them -- that's got to be a top priority. the other thing is, you simply can't with this complexity, do all of this as a solution to compliance. because trying to say, okay, i'm going to use some kind of magic animal tax return and then it's up to them. it's inevitably going to result in what we have now, which is a very inefficient use of enforcement resources. a lot of no change audits and a lot of frustration. if we're going to have this kind of tax code, which we're going to have for a while, this is how we're going to cope with it for the use of the data. >> this is a symmetric, in that four very large, complex enterprises that are themselves -- the complexity can be awful, miserable, expensive, painful. but it can also be a playground. when you are talking about low income, middle income individuals and small businesses, complexity is an unmitigated disaster. and so if you think about it that way, part of the question is whether the treasury can use its existing authorities to get off the backs of some of these lower income folks. i believe they have the power to do that. it is a totally different context. and jogger sin, when you get to the folks and the irs, paying attention to it, that one cuts both ways. >> there has been previous times when congress appropriated money for modernization and for digitization, for other kinds of upgrades. i think the irs business system is now decades in progress. what is different about this time? is it just the scale of the funding that makes you more optimistic that this is what is necessary? are there other management lessons, in addition to the amount of dollars that could be learned from prior times of modernization, that you think would make this round more successful? >> that's a great question, and when i talk to people, that's one of the questions i get when i talk to my friends about it. it's a very good question, but let me answer it two ways. one is by at least partially disagree with the premise, the implying premise, which is the past efforts have been unsuccessful. i don't think that's true, at least not as true as -- >> on the question of, whether it's been successful, the fact of the matter is that when you get to the irs today, there have been massive improvements in the way they used technology and if it hadn't happened, it is the fact that over 90% of people file electronically. without that, we would not function. there is probably five to 600 million interactions a year of taxpayers getting information from websites that didn't exist some years ago. which if you didn't have that, you would not be able to function. and on top of that, there are more specific things which have been noted. some four false refunds, the irs has been successful with that, using very -- and there are other things i could say. i think that a key point is that g.a.o., which keeps a list of the highest risk agencies took the irs off that list about seven or eight years ago. although the perception is accurate that it's been a failure, it has been a failure. what is true is that it has been constrained, very constrained by funding. how much? i will give you one data point. this year, the jpmorgan bank is going to spend $12 million on technology. 12 million. that's about the same as the entire irs budget. not the technology budget, the entire irs budget. and jp morgan is a big organization, but it doesn't have as many customers as we have taxpayers. that gives you the sense of the scale, but it's also the fact that where the irs has funding, it isn't even. it ends at the fiscal year, and the next year doesn't get funded until the middle of the year. it is difficult to manage any kind of technology project with that kind of unevenness. that is why i am saying, i don't really agree with the premise of your question in many cases. there is that perception, and oh, the irs has failed in its modernization. i think that that is fed, not that we have specific failures, but it has been fed by even the irs itself, and buy treasuries and others to constantly cite the fact that the irs relies on these master files. the so-called master files that do the processing system. which are very old, and yes, they are. it is very, very slow to place those overtime. they have to be replaced. but guess what? every large organization that i know of, and that would include banks i've been on the board of, have these systems. every business has them. and they have to be replaced very slowly, because you can't do them quickly. the irs is older and worse, but it has that basic issue. that does not stop the iris were doing things i cited, nor does it have to stop them in the future. especially if they get more funding. so what's the solution? the solution is that the replacement of the old legacy systems does have to be done, and it has to be done slowly because it can be done quickly. you can't invent a whole tax code in it. if you have proper funding, that does not have to impede more rapid progress on things like taxpayers that can include self-service accounts. the irs is starting on that, with things like self-service. but it can go much faster with the additional funding. >> one thing i would just add is that a key part of the ten-year funding from i.t. is that it is ten years. as charles noted, episodically, most of the work is done by contract. you can only contract for a year, and sometimes you don't even know what the budget is for five for five months into the year. at the end of the year, you have no idea what goes on to the next year. the modernization budget allows 15% of the last minute. which threw everything into chaos. and so over the longer period of time, you not only can plan for the ten years, or incremental modules as we've done before. but you begin that contract in that context, it's a lot better in the efficient and then the annual stop and start, and now we have to have the contract extended again. i think the ten years has a significant positive impact on the ability of the irs to factor this in. >> one last point, which is the lessons. the lessons of the funding, and the other things that i've said is that there is very strong leadership from the top which is necessary. it's not necessarily technology leadership, it is technology leadership, but it's really the leadership of the agents, because there are so many important cross cutting decisions that have to be made about how you allocate technology, how you produce risk, i could go on. the leadership has to be engaged in the issue of applying technology to improve the way that the irs works. it's not something that you can delegate to some budget i.t. people. part of this is storytelling, what's really going on. and picking up on the two points that charles and john made. real things are happening, as the collection with support of the commissioner. the support of the tech folks, putting in place a system on collections where you can call and get general questions answered. that's resulted in a 70%, which taxpayers can choose. it has reduced phone calls to live people by 70%. a big deal is that you can call, if you owe irs $23, 000, you can call the number. it's always going to be answered. you get to set the terms of air agreement. up to six years, and if it happens, you want to change that, differ more payments, you can do that a hunter percent of the time. these are real things. when you next panel, she had a couple of very interesting blogs about 70% plus. there is something called tax player digit digital communications. this permits interaction with a single person who is responsible for your case. they are going to be launching something called document upload tool, the u t. and we have written about this, what this does for the correspondence audits by definition, they are handled by passing things back and forth. this allows the taxpayer to upload documents for cell phones, computers, and get it to the irs. these are really big deals. see i is the head of the pack in using technology to materially improve how you develop, and how you identify criminal cases, which improves the compliance, because if they're out there doing their job right, it has an impact. all of these things are happening right now. they have been happening before the billion dollars, the point is that they have incredibly talented folks who know how to do this. as john said, it was feast or famine every year. as charles says, there is not enough time to plant had to do this, taking the collections technology can be applied to taxpayers systems. it can be applied to these kinds of audits. there are a couple of lessons here. one, these kinds of initiatives don't all succeed, progress and risk are very jointed at the hip. not all of this is going to work, and none of it is going to be perfect out of the box. it's going to need to improve, and i think that one of the big challenges that all of us have is support these efforts to do this differently. they're not all going to work, and it goes -- i think you're the best there is, katherine, but it goes to the press in part. how do you deal with the inevitable mistakes? it goes back to john's point, it is what we are trying to do, and if it doesn't work, raise your hand and say that it didn't work. the oversight function, congress is complicated, but at least in my view, g.a.o. and cbo are gems. they do it fair and balanced. that's what's going to happen over the next ten years. i'm off my podium, i will shut up. >> one thing that i have heard all of you mentioned so far is the importance of the reliability of this ten-year funding, the ten long term contracts, you don't have to worry about the whims of appropriators from year to year. one concern that people have raised is that congress did not construct any guardrails between the 80 billion dollar multi year funding boost, and the multi annual appropriations. what is to prevent appropriators from cutting back on the annual budgets, and essentially forced the irs to make up the difference with the funds? how should the agency think about those kinds of risks? given that this is supposed to -- this funding stream was supposed to be reliable, but there is still some political risk attached to it. >> there always is, but i think back to the fact of what we have been talking about in terms of having congress come along. the congress has to understand that if they cut it back, what are they losing? you can't be talking about the 80 billion dollar buyout at some ways. there are improvements going on, and of payments that are going on in the next six, 12, 18, 24 months, it's going to take five years to get it done. people have to know about them, and expect them, they have to be told about it when they are in company. when you're saying that i'm going to cut back my 12 or 15 million dollar budget by 5 million, and take it out of the medium. congress has to understand that the impact on their constituents, -- you're actually trying to make an efficient and effective. the people affected when it does not work well are republicans as well as democrats, and independents. they are citizens and taxpayers of the country, and are everybody's constituents. oftentimes, congress, and sometimes republicans who are anxious to cut the irs don't understand that while they might be helping taxes, what they're doing is making auditing much more difficult for their constituents, who are missing great opportunities to have a better experience with the irs. a lot of people with the early interactions with the government is when they filed their taxes. if congress interferes with that ability to get that relationship, better they have to understand that their constituents might not understand. >> are there things that you think -- commissioner, that the irs can get done quickly to show progress to taxpayers, and build more support for sustaining this funding and potentially insulating the agency against calls for more future funding tests? these are long-term projects. are there things in the near term that would build more allies? >> the first thing you can do, and this is not -- hire more people to answer the phone. the fact that only 11% of calls went through last year. obviously, it's abysmal. it's terrible for pat taxpayers, terrible for people who finally had somebody there, waiting for three hours to get through. simply having more people into the phones is going to make taxpayers much better. that funding is coming right out of the dollars. fred had a number of very good examples. to the extent that you can do individual projects like that, and we spent a lot of time improving the funding issues. there are 1000 taxpayers a year who no longer have their returns frozen because somebody else filed a return for them. the technology and work has been done so that somebody, when it looked like somebody was filing the return, stops, and says is that your return? then it goes back to france, i think there are significant numbers of incremental steps the taxpayers will find, it will make life much easier for them. i love the story about being able to update and get through. congress needs to see those, they need to understand the impact, and it needs to understand that not everything is going to work. there are wonderful steps forward, in our made possible by the improvement. there is nothing to keep appropriate from saying to keep the budget and spend it somewhere else. if they do that fairly often, they will underline the ability of the iris to improve and deal with closing some of the taxpayers. >> let me say that we all agree with that. this is why it's so important for congress to act on hearings and confirmation of a new commissioner. the commissioner is the person that has to do two things along these lines. one is set the priorities internally so that they are -- there are hundreds of things that they could be doing. no matter how much money you have, you can't do them all. setting the priorities that will happen, that can be done, it will have the impact as an internal job. externally, as fred has said, building the relationships with congress and communicating that this is what is going to happen over the next six months, the next year, and really bringing that message home, those stories homestead that congress can appreciate what is being made. there is no substitute for a confirmed conditioner to do those two things. >> we have an audience question this relevant to this discussion. how can the irs improve public perception interest in the agencies especially in the age of misinformation and conspiracy. how can the average tax fare better understand why giving the irs 80 billion dollars is necessary and important to them? is there anything that any of you want to add to address that question? >> fred touched on the. it's really the story, the information shared, you mention information technology, their eyes glaze over, and it all disappears. what you have to do for the public as well as the irs is make sure people understand that this is what we're trying to do, and this is how it's going to be better. you have to remind them of all of the changes that have already been done. 90% of taxpayers filing online, as taxpayers said, is stunning. there used to be ten processing centers that processed 90% of the paper. now they're only two of those, and for taxpayers, it's a lot easier. it didn't happen that way. i do think that this will always be the story, and there are a lot of people in congress who want to talk about congress, and coming after for who they are. what needs to happen is that you have to have people understand the good things that are going on. i used to travel around the country and see our employees, and i say, if people ask you where you are, you say the government, and then you say, where in the government, -- we need 100,000 ambassadors to the internal revenue service. a lot of people on school boards, your own parents, if soccer coaches, people know you and respect you. if they understand the joe works for the irs, and they're good people, maybe they'll understand that the rest of the agents are good people. my bet is that a lot of people don't know their neighbors friends, colleagues, actually work for the internal revenue service. that's a big part of the story. >> catherine, -- >> it is a very big job for the commissioner. i think a lot of, us even just for myself, i travel almost every week out to different parts of the country talking to local people, and trying to -- i will, say there's a lot of other constituencies they can help with the issue. you have many taxpayers use practitioners, i would say but 70% or 60% probably use some sort of practitioner to help them file. the lawyers, accountants, many different people like that that are involved in the irs, they can be helpful if you worked with them and make them partners. >> there is a whole -- j o today interesting poll on this, years ago part of this is the irs opening the windows, opening the doors, letting the drawbridge down because the accounting profession is a big deal for the reason that charles is saying. these programs are launching, the private sector business tells you something. the private sector businesses ask their customers. it's done independently, they can do all of that. i believe that they're starting to do it. i believe that some of the new leadership that leads to the new commissioner. this is a partnership deal, we're all doing this together. the proof that it is working is wet people say. >> one thing that i think has been implicit, as a three of your comments recently, is the importance of having the right talent. weather as ambassadors to the world or otherwise, i think that i'm wondering if any of you want to talk about the challenges of attracting auditors and tax lawyers that can go toe to toe with those in the private sector, or competing with private firms for programmers and experts in ai. how challenging is it to hire people given the wages that the agency pays, as well as some of the public perceptions of what it means to be the tax man. if you don't know when from your local school board, or otherwise seeing them as human, do any of you want to talk about that? i don't know if the commissioner -- since you are most recently held in the agency. >> it's a clear challenge. i was surprised when i was there, we lost 20,000 employees when i was there over 14 years. we didn't hire a lot of people. occasionally, we would reach out and have an opening for our systems, and i was delighted and gratified by the number of applicants that we had. these were not technical positions, but i think that even for technologies, there are a lot of people that are interested in public service. they are interested in understanding the position of the irs. especially in cybersecurity and those high technology areas, where everybody in the company is trying to find the best people they can, you can't underestimate the challenges. my hope is that at some point, the streamline of critical pay will be mentioned, and the irs can hire people quickly rather than just saying the are terrific, wait three more months, we'll get back to you. they will be incrementally more than the irs government, and so they will show the value attached to those technology positions. >> ultimately, the agency itself, the staff people that will join, because they believe in the public service and the mission of the agency. i continue to be with younger people who are committed to public service, they want to make a contribution. you want to make a contribution and see real change, the irs is going to be a good place for you. >> i had the same experience in one year that we had the hiring authority, that we were able to attract very qualified people. you have to sell the mission. i use the analogy of the military. why do people join the military? they don't get paid a lot. it's very demanding, they get deployed, they have personal risk. the ploy didn't very dangerous places. they join in large part because of the mission, and the commitment. i think that that is something from my experience that is possible at the irs. i think the fact that the congress has provided some funding long term shows support for that mission. the commissioner and his team is going to have to convey that to people and get that across, and provide the right support. i think it has to be done in the right way, it's not automatic. the opportunity is there. yes, pay is important, and you have to be reasonable in your pay. that's why some of the authorities are important. nobody's going to join the irs or the military to get the highest pay, they have to get adequate pay, but they have to believe in the mission. i believe that that is entirely possible to do, especially for my own practical experience during the period that i was at the irs when they had some hiring authority. >> our agree with you both. there's another dimension to this, especially on the technology side. this contract analogy. in bringing that, which has -- charles, you know that is done frequently. there are folks in the private sector who know how to do this, who have done this for -- and that avoids the issues, that internal hiring. >> the technology, this is a field that i've been in most of my life. almost the entire federal government does almost all of its technology development through contracts. that means you don't need internal people, but you do, you need leadership, but as far as the large portion of the work, it's almost always done by the private sector companies. they do a lot of their technology work. that's just the most efficient way to do it. that is another option that you have. >> getting back to the question of budgeting, we've been talking a lot about outlays. and wondering, one of the big debates that has been held over this introduction of money into the agency has been, what will the payoff be? there has been some debate over what it would actually take to realize some of that additional enforcement revenue, given how long it takes to revamp those processes, invest in new technologies, et cetera. do you have any thoughts on that timeframe? >> i believe that -- you said just on enforcement, but john said there were very specific things that could be done to improve the way that the agency works with taxpayers. very much in quarterly increments, in the first year or two years. some of that will have an impact on compliance. as far as pure enforcement, that's going to take longer. that's going to take a few years, because some of that requires hiring people, some of it requires some new technology, and it's going to take a while to really search, it's going to take a while to deploy. the impact on service and indirect impact should be first. the larger impacts, in terms of, let's call them traditional enforcement dollars, will be later. >> i think charles is right. when you cut the audit rate by 50%, some of them would not change. specifically, the large corporation partners, even though you're not auditing everybody in the long time, when you're down by 60 or 70% in some places, simply getting back to the historic audit rate. we scored maybe at least some significant amount of funding. it goes back to the planning issue, and the leadership issue, as we lay all of this out. some people understand that we can do this in six months, 12 months, two years, you have to keep measuring yourself against that. i think the people will be comfortable that the money was given for ten years, and was given that large -- they understand that, as long as you are making part rest, and are being candid about, it -- they can understand what you're not going to accomplish, and the negative impact that that will have. >> in our last few minutes, i want to -- i was wondering if all of you would like to give some concluding thoughts about the plan that the agency is supposed to be developing right now, an operational plan. the secretary had directed the irs to report back with some sort of operational plan by february. what would you like to cnn? what are you looking for? how much detail are you expecting? what would be a good start, in your view? what are the core elements that you think need to be included? >> i will start and say numbers, i think that if you produce a plan, and i love the agency, it's got a great workforce. the strategic plan, it's got almost no numbers. a good goal, something we would all support, i think if this is going to work, you're going to have to accomplish this with some specificity, whether it's raising it in a couple of years, interest rate going from a hot percent to 90%, ten present, -- whatever it is, that puts you at some risk. this is what we're going to do with the money, and this is what we're going to accomplish. in the short run, you've got to have things out there that people can see, whether you're making progress. maybe you get 80% there, and you still know where you are. the longer term challenges, some of it is going to be hard to project. you're going to have to say that this is where we're going over that period of time, but we'll check back in next year and the year afterward, we'll keep planning. they have five-year strategic planes, not ten-year plans. the first is the budget next year, they'll usually wait for two or five years. -- you need a 3 to 5-year media plan to recognize what you are going to grow and rethink, and keep going for in those improvements. >> i want you to answer last. my advice, folks, check out shrink the tax gap that column. >> thanks for the commercial. >> my only comment before we turn it over to the guy who has been on this for three years, and has done this before, john has to, is to set priorities, set measurable, definable goals, and report on how you do. all yours, charles. >> i agree with that, especially the commercial for shrink detective. here's the thing to me, what i want to lead with, this is my -- i really hope and urged that my congress, now that there's a nominee, will take up this confirmation process, and the confirmation in this session of congress. the very point that you said, congress passed the law in august. it's already november. this needs to be a clear plan, just toeing the lines of what john and charles said, what they're going to do in the first year. longer term goals, all of that. the commissioner is going to be responsible for executing that. how can you have a situation where somebody produces some sort of a plan, and the commissioner comes in later on. that's just very unfortunate if that happens. if the commissioner is confirmed during this session of congress, and gets in between the end of the calendar year, that will give the person time. maybe it'll take longer than february, but will give the person time to really put their stamp on this plan, and stand behind, it and be accountable for it. the metrics that john was talking about for the first couple of years, and the longer term goals, and all of that. if not, then we have an odd situation where we have a congress and it has provided a bigger locomotive for the train, but do not put the engineer in the caveat. that's not good. i hope they will take action soon. >> thank you all of you for your thoughtful comments, and our audience for the questions. i will turn it back to june. >> thank you. >> thank you, catherine, and thank you to the commissioners for providing us with your insights and knowledge. our second panel will consist of three experts who were top officials in their agencies, agencies that will have an independent role in evaluating the outcome of the 80 billion dollar investment. since march of 2020, aaron collins has been the national taxpayer advocate. aaron has more than 35 years experience in tax lot, spending 15 years in chief counsel's office at the irs, and 20 years at the accounting firm kpmg, and retired in 2018 as a tax managing director in charge of the tax controversy practice at the western region. john mcclendon is a director of tax analysis, and congressional budget office, where he is responsible for magic -- john mccain the ceo in 2016, following 18 years at the department of treasury's office in tax analysis. the agency that he must -- before that, he was a director of revenue estimating. jamie attire is a director at the government accountability office, in the strategic issues team. he oversees -- he joined the g.a.o. in 20 -- in 1991, and there over the past decade, he has been overseeing the audits of the irs, on a range of issues related to tax administration and tax policy. our last panelist, we ended on a note of what the commissioners hope for in terms of the plan. erin, you're on the inside. what's been going on at the irs now, in terms of mobilizing? developing this plane that is due to the secretary of the treasury in february, what's happening over there? you are muted. >> can you hear me now? >> yes, thank you. >> there has been a lot of activity going on within the building. treasury, and a number of irs executives begin having these meetings and discussions long before they made the inflation reduction act. the thought process was hopeful that there would be additional funding, but also the treasury and irs want to look forward on transformational issues. how do we improve the irs with or without a budget, how do we prioritize it? i'm happy to say that the legislation did pass, and so now the key focus has been what i would call transformational issues. it's easy to say that my focus is really on tax administration, improving service, with a focus on fair and equitable systems while also protecting taxpayer rights. my opinion is that technology is going to be key to improving tariff services to practitioners. there is been a lot of discussion. there are daily meetings, weekly briefings, and so the iris is truly moving on trying to see and think outside of the box. they kind of jokingly say that we are going into the era of the flintstones, and moving right into the jet sense. we are going to skip all of the basics and we're going to go to what is going to be transformational in the next couple of years. where do we see the irs as what i would referred to as tax administration utopia. where is the goal? how can we get there? >> that's great to hear. part of g.a.o.'s mission is to help if enhanced the efficiency and effectiveness of the federal government. towards that, and what will you be looking for in this plan? what kind of information what you find? >> can you hear me okay? >> i can. >> great. i would say first, we will be looking for a short term plan that will kind of, what others have said already, addressing the media needs, especially in the era of taxpayer service. the phones, in person, and also lectures or plans, access to reduce the processing backlog that we've heard so much about. or specifically, g.a.o. will be looking at steps that the irs is taking to confront open jail recommendations, both in the area of taxpayer service, but more broadly, it is the commissioners service to go beyond help during the final season. as we sit here today, things are nearly 200 actionable recommendations that the g.a.o. has made to the irs that remain open. many of those recommendations, the irs fully agreed with. the problem was that they decided a lack of resources, or higher priorities, that prevented them from taking the action that we recommended. the sort of help at the agency back in june, we issued a letter designating 25 of the 200 recommendations as high priority. the recommendations that taught leadership should be focused on, for example eight of those 25 recommendations focused on improving tax player services, including key basic functions in terms of improving communication with taxpayers. whether digitally, through correspondence, or this and backlogs, we're also enhancing digital services. that's the more immediate one. but secondly, as many in the previous panel talked about, we will be looking for a longer transition for the future of tax administration that will address mission critical skills gaps and long overdue technology upgrades. it will also outline the vision to transform tax administration in the future. given the funding that the irs has been provided, this is really a unique opportunity for the irs and treasury to really transform the next administration. irs has been quite prolific over the last couple of decades or so. the blueprint back in the early 2000s, that was kind of replaced by service on demand, and then the commissioner came in and it was the irs feature state. just recently, we had the first step in 2021, which was the enormous effort that the irs put forward in a really comprehensive effort, in terms of the reorganization as well as the focus on training and customer service. as we said, the key difference this time around is that the irs has the funding to actually make these plans, or bring these plans to fruition. that said, hopefully the irs is not going about reinventing the wheel, and hopefully they are leveraging the ideas, the concepts, the analysis it went into all of these plans that i just mentioned. finally i would say that years ago, the g.a.o. issued some work back in the time when the department of homeland security was being stood up. we gathered outside experts and really focused on what makes a or transformation -- the number one criteria or factor that was brought up was ensuring the top leadership insurers transformation. the other discussion -- he is on board, and he cannot really be sent the direction with pace and tone to provide clear and consistent rationale that brings all of the very stakeholders. in particular, the congress together, but also the employees and all of the industry stakeholders. again, oh stop here, but there are a number of practices that really should be focused on -- the commissioners and prior discussions. that's what we're looking for. there's a lot of work to do, and we will be working closely with our clients in the oversight committee to ensure proper oversight of this funding. >> they have a rather unique and important role, in that the agency is responding for estimating the revenues that were associated with the 80 billion dollar investment. we saw over the course of the summer that the estimate changed as much as it -- going into the coming winter and spring, you're all going to have a chance to look at the legislation when it comes to estimating the budget baseline. see vito will estimate a new budget baseline every year. that will probably be done after the february plane is released. what kind of things would be included in the plan it would affect the reappraisal of our confirmation, the estimate that we did in the legislation? >> thank you. our bread and butter is doing a bunch of predictions, and so the legislations is the first piece. there is 80 billion dollars, but it's $80 to spend through 2031. how will that be spent out? that goes to question what the irs is going to do with it. i think that the projections we did with the legislation throughout was misguided from what we heard of the service and treasury, which was largely about who they want to hire, the challenges to hire them, they need to invest in hr, the types of employees that they wanted they went along with the hiring authority in the legislation, and then out of the legislation. that was the first piece of it. what's the timeline of how spending will ramp up, what does that mean for the size of the service? these activities in each year. that's the first piece that we will be looking at. certainly getting feedback and the plane would be helpful there. certainly as the economy of all this, that says something about the ease of hiring. certainly the removal of hiring authorities to make it more difficult than the earlier version of the legislation. more importantly, what are you going to emphasize first? how are you going to balance the different things for this customer service? these operations and i.t. investment. we will be looking at that again. once we have that peace sit out and then return. revenues that we estimate will be a factor of this spending. but the revenues followed the spending. it's not going to be instantaneous, but again it depends on what you are invested in. i know that you have heard many parts, but once you heard some more investments from the customer service. we want to do those kinds of things, and certainly you might not want to start with the force of it and have people not get their questions answered about the importance of what they got. they have the consequence of a lot of those revenues resulting and will follow years after the folks are hired. we want to get a sense of what types of hires you will do. would you do them? and again, what kind of activities? i'm sure we get to a what types of taxpayers are going to be the focus. the more information that we can get on that would be very helpful to us indeed. and revisit our revenue projections. let me follow up with that as a segue to our next question. i will skip to your portion of that question, and i admit i used to do those estimates, so i am not trying to give away anything here, but back in the day, estimates were largely based on changes in the enforcement budget. do you or will you take into account the impact on compliance and the impact indirectly on revenues, of increases in customer service? >> yeah, so, we have fought hard about this -- different allocations among the different activities. we wanted to make sure that we would recognize that it isn't just the enforcement account that matters. if you are going to hire enforcement personnel, you need to make sure you have the physical offices for them, your i.t. support. and also all their activities. and the information gets to all of the parties that need them. and mentally, it's hard to think about drawing upon research and really tracing how those things interact. but i think we have tried to make sure. we thought about it holistically. and we make sure, where is the bottleneck? is answering the phones going to be the bottleneck or is it having the i.t. support? or is it the enforcement personnel that will be the bottleneck? and to that extent, i think we do recognize the invest in customer service is a necessary condition for the personnel to be as efficient and effective as possible. so, that is a roundabout to answer your question. but i think we are cognizant that there is a part of this that we all need to work together and we want to make sure that particularly at -- we are constantly looking at further legislation to modify thanks. and make sure people understand that cutting things from customer service or cutting things from operational support may effectively be equivalent to cutting the effectiveness of enforcement and will have similar effects to direct cuts. further research on understanding exactly how these things interplay would be super helpful to us, but we are trying to make sure that we reflect that in the estimates. >> yeah, i think you summed up the complexity of the job of a revenue estimate or. >> [laughter] >> and i will join you in a plea to any students out there, looking for dissertation topics, to consider this issue as a subject for your dissertation. talking about customer service, the allocation of the funds of the 80 billion dollars, over half of that goes into the enforcement accounts. 40% goes to the operation support and for the technology and modernization. of the 80 billion over the next decade, only three billion was advocated for the account for customer service. and the last session, the commissioners were making the point that the border is between these accounts are not fixed, there are some things that they would think of as service, such as you get a letter from the irs saying you are under audit and somebody calls and -- that is a form of customer service. but there are other kinds of customer service that i don't think really interact with enforcement. do you think the three billion is sufficient to cover what you think is necessary for improvements in customer service? >> are you muted? can we hear? >> i always think that the service should get a larger allocation and similar to the commissioners, i think it is how you define a service. a member of our group -- a lot of people look at us as a service, but we are really the consequence of enforcement. people have a challenge and they reach out to our office for assistance and that -- it depends on how you define a service. i do think it is a very large sum of money and thank you for that. so i think it really gets down to the irs prioritizing what we need to do within that bucket and similar to what jim was saying, our office has some recommendations throughout the year. a lot of the irs -- -- funding was a real problem. so, i think the challenge the irs will have now is taking all those priorities with respect to service, modernization, i will let them figure out the enforcement piece. and then trying to prioritize what needs to get done and what do we need to be down quicker. we are all painfully aware that the phones have been a challenge for taxpayers and practitioners. i think is part of a vicious cycle. until we get the -- the fans are going to continue to bring. we need to focus. the irs needs to put their energy on getting the paper behind them because otherwise, those calls are going to continue to come in and we will just continue that vicious cycle. irs needs to keep up the pace. they are not where i would like to see them be. but they are moving quicker than they were moving last year at this time. i am not as optimistic that we will start basically from scratch compared to pre-covid years. we will still have to deal with a carry over. unfortunately, that is technically service, getting that done. again, it is sort of a vicious cycle, we need to get that piece fixed so we can focus on where we see this going in the future. >> where do we stand with numbers. last week, it did not look great. >> there are lots of numbers. most of us are 10:40-centric. we really look at the 10:40. as of today, i think, the latest was -- the unprocessed to 40s are down to 2.3 million, which is great. but we still have about 4 million business returns and then we have an additional 6 million of returns in suspense. and then, we also have about 2 million -- another couple million of 9:40 ones. and then about another four 5 million correspondents, so when you start adding it up, the number is still larger than it needs to be and it's carrying over into the next fiscal year. irs needs to continue getting those numbers down. >> a lot of it has to do with paper filing, right? >> a big challenge as the paper. the issues in suspense could be either paper or electronic filing, so for example, identity theft. you're about two point, seven 2.8 million returns that failed what you might call a filter -- and the irs needs to reach out to the taxpayers to verify if this is a return or not. the challenges, because of resources, it's taking about a year to resolve those cases and if you are one of those 2.8 million a year, it is way too long, we need to speed up that process. >> we face similar problems with paper filing of information returns. information returns like w twos and ten 99th, most of them are coming in electronically, but still, many are coming in on paper and that is also causing issues for the irs. >> yeah, i think any paper at this point -- >> go ahead. >> yeah, no, we reported on this a couple of years back and at the time, it was about three and a half billion and information returns. i think it's over four billion now. at the time, we noted that about 1% was coming in on paper and 1% sounds small, but 1% of three or four billion is 30 or 40 billion pieces of paper, plus or minus a couple million. so, a paper is definitely as she just said, kryptonite both on the tax return side as well as on the information recording side. we talk about pieces of paper, millions and billions of forms. what this is information that irs is collecting for businesses, employers, and to the extent that irs is now fully utilize getting value out of that information, it is why people have to call and getting back to the information that comes in on paper, some of that information is transcribed, but others can be introduced during the transcription process, so that will generate flags and notices that go around to taxpayers and that feeds the backlogs and the low level of service on phones and so, to the extent that the irs can move away from paper, not just on tax, but also information returns, it can improve the quality of the information to the extent that it has all that information and an electronic, digitized format. it can also extract more value and data. -- and also, i think this is very important, also reduce the burden on compliant or good tax payers, so that the eye are us -- sending them notices simply because the irs is not fully utilizing data or introducing mistakes once they have the information at irs. >> let me follow up on that because a lot of the focus on paper filing has been -- get the information, manually implanted into the irs -- and the impact that us had on refund payments and the like, but there is an enforcement angle on this as well, and not as you mentioned, errors -- this is also the case with filing and returns. not all the information can be transcribed because of the work -- what are the consequences then for irs enforcement if the irs is not even able to use all the information it is getting because of a very small fraction of paper returns? >> i would say it certainly has an effect on the enforcement function. to what extent, it is hard to know. obviously, i would say that irs could be more affective and focused in terms of where to put their enforcement all are, whether we are talking 49 billion, or four billion in their regular appropriations, so that it is a real value, the information that irs collects. it can help them be more targeted and more precise in what they are looking for. one of the functions, the classification function, which is right now at irs, very labor intensive, i think that is a function that could be improved tremendously with more use of electronic information to highlight areas of noncompliance. >> why does not the irs scanned the paper? >> that is a good question. we have made recommendations in that area in the past. it has come down to resource constraints, but again, now with this money, i think that should go a long way to improving the systems, as you said, to allow irs to capture as much information as a can that is coming in on paper, whether it is post the optical character recognition or requiring more information to be and coated on tax returns, either through -- or what is now called v codes, vendor provided coated tax returns. i think a lot can be done with the technology and the enforcement that we see with the inflation reduction act. >> i guess a now they're part of it -- a challenge in addition to the paper issue, is the pure volume. it blows my mind to think that the irs receives over four billion information returns a year and that number is growing because of the requirement on the ten 99 case, which are the forms that credit card companies, paypal, it sends to pays about transactions. that is going down to a in acquirement on -- do we have any productions on how many more information returns the irs will be processing in the next couple of years as a consequence? >> i will jump in here as well. don't forget the virtual currency. >> okay. >> they are thinking that is going to double or more so, -- i think, although the requirement is dropping down from 600, will have an impact, i think the virtual currency is going to be substantially larger. so i would not be surprised if you find yourself, six, seven, eight, nine -- it is not just a matter of matching it. people need to look at what comes out of the computer. so, all that information is coming. it is not just going to be sitting at computers, being matched to returns. people are going to have to look at these mismatches. we are also talking about a large number of eyes having to look at this stuff and another -- >> i just wanted to jump in. another point that we made in our 2018 report was that irs locks in overall strategy in terms of information reporting and in terms of how they want to or can use all the information that is coming into the agency. in 2017, they developed a plan to kind of modernize and oversee all the information that is coming in. however, as i stated earlier, that was kind of put on hold because of research -- resource constraints, but also the reorganization under the taxpayer first act. but what is critical is, for example, in terms of managing the volume of information, there are some information returns that have garnered threshold of $1 or $10. we are talking ten 99 beast or ten 99 miscellaneous. and the irs could manage the volume by reassessing various thresholds and that could go a long way. that would not take much in terms of resources either, so i wanted to put that out there. but it is critical that iris look across the board. we think it's critical that they look across the board in terms of all the information that is coming in and how the agency as a whole can best utilize that information. >> one last challenge with the information returns, i mean, i'm obsessed because i'm writing a paper about it, but one more challenge is you have a lot of variation in terms of the information that is included. so, you take a w too, from the taxpayers perspective, it contains most of the information they need to put any information on the 10:40. you take the relatively new ten 99 k, which is this reporting from the paypal and credit card. and in other information on the income, but it does not have information on the losses. we have seen some studies that have demonstrated that when the irs gets this information and has the gross income, some taxpayers respond by essentially overstating their losses, so that keeps their net income, reported net income, lower. -- going forward, with this variation in terms of the -- what does the irs do for enforcement when all the information is not equal? >> the commission -- has talked about, a lot of investments in technology, such as machine learning. is that going to be a viable solution at least in a short term or in the long term? have you had an opportunity to look at the program that was cited in the last panel? is that a guide to the future? >> we have looked at the return review program, again, i think we looked at it and 2018 or 2019, that is a very successful program that the irs implemented. it does seize cutting edge information technology and it is now, i believe, you can correct me, but the irs's primary fraud detection system. and we have recommendations to irs that they expand use of the program and right now, it is used to stream refunds going out, but we think it could be expanded to other types of taxpayers, or taxpayers that are not getting a refund, but may have overstated or understated their tax liability. so, we see great potential in that program and it is definitely a success for the irs. -- so, did that answer your question? >> i think so. do you have any concerns about the movement towards machine learning? as a way of identifying returns for audits -- >> i think it has pros and cons. i think if it's done appropriately, it could actually limit and create a better model for picking cases for potential audit or enforcement. i think part of the challenge is also going to be education. because i think a lot of people will be surprised when they get a ten 99 k. for example, if you and i are going out monthly and having lunch and you are reimbursing me with venmo, we may not indicate that it is personal. so, i get a ten 99 for all of our lunches, and what do i do with it? i think part of the is going to be education for taxpayers. because some of those mismatches may be appropriately personally spent. i think that will be a challenge, i think the whole challenge of virtual currency -- i think people are not sure how to report that, so that will bring up challenges for the ten 99. i do think ai will help with dealing with the volume. but we need to make sure that we do it in a fair impartial way, so that we don't have issues for taxpayers. >> for the 80 billion for enforcement, the administration has really targeted three groups for audits. the first one, i called the 400,000 dollar question, is that -- it was in the legislation, it's definitely in secretary yellen 's directive to the irs, that the additional funds shall not be used to increase audit rates above historic levels for taxpayers with income -- i expect that you maybe -- this may be a question that you receive in some way or another in your business on the hill. >> yeah. that is the thousand dollar question. we had to wrestle with what that meant and we sort of had to deal with the realtime of the bill getting to the senate, and the way that we thought about that was going back to this question of what types of activities is the irs going to undertake? what types of people do you need to hire to do that? and we talked with a 400,000 that had real meaning. it's an arbitrary line and some sounds, but nevertheless, there are a lot of activities and auditing taxpayers, who have relatively more straightforward -- than maybe they didn't include everything -- or they're just not tactically as complicated. a lot of the taxpayers -- taxpayers above $400,000 are probably more likely to have more sophisticated financial planning. business returns are often more complicated. you need to hire a different type of irs employee to engage in a lot of those audits. so, the question intersects with what types of people are you going to try to hire and what will your success be? we had that as a -- you need to have a more developed hiring strategy, more training to get people up to speed to do those more sophisticated audits. and if that is what you're going to focus on, if the additional resources for the irs -- that was going to alter the revenue that came in. that may be deferring when revenue comes in as opposed to changing -- slow the time before those employees were affected if you were going to sort of push most of the resources from individual taxpayers with incomes below $400,000. >> i heard -- that will look at, did they meet that goal? and we have funding for regular appropriations, which can be used by any kind of audit and we have the 80 billion. how will you do a study, as i'm sure you will be asked to do, that looks at this question of, did the irs keep its promise not to odd -- not to use the additional funds to audit people? >> before you answer, let me just point out, the members of congress said that the secretary -- is not the same thing as law. i am sure they would be happy to write such a study. it would be very effective in highlighting the issues that the irs has. -- >> you may have already received that letter. -- [laughter] >> i think my audio just went out. but anyway, go ahead. >> i just want to jump in as well. my concern is with smarter people, higher ups to make the decision -- and i think the reason they picked the 400 is thought about 98% of the people fall below 4000. how this is being portrayed in the press is my concern. and the message that is going out to practitioners and individuals, which is irs is not auditing under 400,000. they are not looking at the fine print of with the additional funding. i am concerned with -- i hear people say, practitioners, well, the irs is going to -- again, it is messaging. and i think we just need to make sure -- i think the voluntary compliance -- if people believe you will not be out of it, i think that will have a negative impact. we can get into technical discussions of what is used for what purchase -- we need to be careful that the general message going out to taxpayers and practitioners is going to be normal audits, however you want to define that, and then the additional -- we will focus on the high net worth and whatever it is going to be. but i am concerned. because i am hearing it. and when you read articles in the press, any additional funds kind of fall down three sentences later -- again, i think we just need to make sure that that message goes out to taxpayers. >> that is the language of, not above recent or historical levels. it opens the possibility that audits will actually increase for people under 400, relative that to some level in the past, without specification -- do you want to say anything, since we -- >> you raised very good points. relative to what? overall, audit rates are down by about a third of what they used to be ten years ago. just across the board, they have fallen more for higher income individuals, high income, high wealth individuals. and when we talk about 400,000 income, it can get very technical. is that adjusting for income, is that not positive income? and john, you know this. all money is green. so, unless irs tracks this new funding very carefully with some sort of accounting code, it will be near impossible to tease out which dollars went where. irs has a lot of flexibility to move money around. and user fees, they collect about a half a billion -- they often go where there are resources needed. it will be difficult to track what money is going into what type of audits. we were -- >> another one of the targets partnerships. john, you were a coauthor of what is considered to be my area -- that looked at -- who owns u.s. businesses and how much taxes do they pay? what blossoms from that paper -- what lessons are there for that paper for what it will mean for trying to increase in -- >> i have great appreciation for the challenges that they face on the field. the challenge that she alluded to is an attempt to sort of take the administrative records to trace from the sort of business that was undertaking the activity, all the way through to the tax payer. -- it was daunting in the sense that how many times one partnership would be sort of reporting and come to another partnership, to another partnership, to another partnership. and as a result, out of the gate, it was extraordinarily hard to have this linkage to make sure that there is complete inconsistent reporting of all the economic activities. traditionally, the service has looked at businesses, like, they are forced to audit the partner and they take those returns and there's activity here. let me then look at the partnership. it's not just one step, it will be multiple steps up. and i think that makes it -- i think irs will have to think hard about how to crack that not in a way that is both manageable and doesn't -- make sure that you are looking and the right places so you don't have a lot of those audits -- it is easy to see how you sort of throw up your hands and you say, i am throwing additional hours into this audit. will i ever see the bottom? maybe i should walk away. that is a no change audit. and so, i think it is very challenging there. -- certainly, additional situation returns and processing of those information returns will help. but it will not be easy and i think it will take a fair amount of additional research and a little bit of trial and error to develop a strategy that is effective and efficient. and increasing complexity in that area. >> trial and error is hard because that means that in the short term, some compliant taxpayers are being caught. that is not going to make this investment any more popular. >> that goes back to a long run plan. i think the commissioner talked about being clear about what the plan is and hoping that you sort of buyer self enough time to implement the plan, but if you are putting all your eggs in the basket of the first thing out of the gate we will do is to solve a partnership problem -- >> [laughter] >> i would fear if that is your strategy. but nevertheless, no one, i think back to aaron's point there, about no one getting a pass, and people thinking that voluntary compliance is important here and people do their best, that is too -- true for people and also true for a partnership. there should be of potential here. i think irs being clear about how they are going to be using those information returns in an effective way has great potential. ry and sufficient condition so the money was necessary but are there other things the irs needs that money can't buy that they need in order to use the $80 billion effectively? >> i will go back to the first principles. certainly the irs is not creating tax policies. they are taking the policies that are there and they have the task to apply the law as it is written. in the pandemic it in a fair and effective manner. the pandemic has shown, the irs has been asked to do a lot of things, using their existing research to do that. certainly irs's life would be simple with a simpler tax code and more transparent rules and their guidance for taxpayers about what their obligations are. this is certainly a lot of the issues, a lot of clear a lack of clarity. it may not be nefarious intent. again, i don't think it's irs's position to call for that. certainly not my position to call for that, but just an observation. there is an interplay between the complexity of the act the irs is asked to administer. >> are they're changes that they do audits that would help more effective use of the 80 billion dollars and other statutory changes. >> you know -- has a number of recommendations to congress that would simplify both the burden on taxpayers as well as clients and enforcement. we as long as others have long abdicated for irs to have the authority to set standards. for tax prepares. protect lower income filer's as well as protect them from mistakes and the burden of an irs audit. we call for expanded math ever authority or correctable authority, where irs, we talk about all the data that irs has and what other government agencies may have. and so we think irs, with safety valves around it, could better utilize that information, if given the authority to correct a tax return. then sent a notice to the taxpayer saying hey these numbers didn't match, what is going on here? in other words, taking a first step is close to sending out a notice in the taxpayer has to respond. so it would cut down on some of the burden but would still protect taxpayers, and there are a number of other areas where -- outstanding that could help tax administration. -- was all for a clarification, more clarity in the tax code. that is where irs, where the congress has put a huge burden on the irs and that is, it has created situations in the past where iris has gotten in trouble, if you will. in terms of its interpretation of the tax lock. >> i want to turn, for perhaps the last question of the day, but this is the question that you all are in unique position to answer, which is, what are the metrics for determining whether this is a success? and in each of your roles, you're going to be looking at aspects. what kinds of, i hate to use the term performance measures and that because that implies something quantitative, but what would you all be looking at in terms of judging whether the irs has used the 80 billion dollars effectively? a change in the tax gap? john, the look is on his face, his look is telling a story. maybe no words are necessary. >> aaron, i think you're on mute. >> mute? yeah. i think it's a challenging question because from our perspective earlier we were looking more on the service side, simple things like answering a telephone. a large percentage of audits come out of the reporting unitard correspondence audit. we need to clean those up and we need to have more guidance, simple notices it english or whatever language it is, terms that people can understand. a lot of what we are focusing on are the folks under the 400,000 mark, because that is a substantial number of tax to payers we deal with. so really it's the day today dealings with the irs, how does that improve, and where do they go forward? i'm going to leave the partnership because both those changes are gonna take place tomorrow, but i am very hopeful that the service and modernization can get done in the next 12 to 36 months. >> i think a lot of people are going to be looking at two parameters and political or. they're going to be looking at the tax gap. and they are gonna be looking at audit breaks. are those, what is it that those measures are going to tell us, and are they going to tell us enough to know tell us something, are they gonna be misleading, will they be sufficient to explain how the eight billion was used? >> i'll start. you know, i think the tax gap could provide a kind of a motivational goal, and the problem with the tax gap is that it is so broad and in mesh mint is very difficult and is not timely. even with the ten year horizon that we are talking about, with the inflation reduction act, it will barely get one tax gap in that ten-year framework that will reflect what's going on since the infusion of the money. so i do think we do have more outcome or output focused measures such as level of service, wait times on the customer service side i. think we can look at audit rates on the enforcement side. exchange rates. i think those are pretty good metrics to guide us. for the broader effort as the commissioners talked about i think it is key that leadership is very transparent about what the agency hopes to accomplish, what it is accomplishing quarterly or yearly, and how that measures up against what they set forth at the beginning. so a lot of transparency, i think, is key in talking about specific actions, and throw in those metrics that i mentioned, i think it would help. >> john, should we be looking at the return on investment? >> that's what i was gonna say. having a particular detailed plan, here are the activities we decided to expel band, and then for those activities, what are the activities with those resources you undertook? how many audits did you start? what types of? audience and then the question that came out of, that the measure that came out of that. what is the return on investment? that is, how much direct revenue did you receive from this activity. and i think that will be instructive. some things, there will do a lot of things. some things will end up being more infective than others, but if they have been clear about what they're doing and give us that commentary as they go along, i think that will contribute to confidence that they are attempting to learn from their activities and they are improving. but that will mean that they need to be clear about, here is our plan, here are the things we undertook, and then be committed to consistently providing that feedback, which will in some cases will work as well as we hoped, or may not be extraordinary effective. if it works it will install a lot of confidence that the services on the right track. >> in my own plug on this subject, which, is we're gonna need a lot of metrics and there will also have to be a recognition that many matrix will not be perfect. the tax gap, for example, improvements in identifying noncompliance will spill over into the studies of the tax gap. and so all of the things, although you may see an increase or noncompliance just because the irs has become better at detecting it. so broad mind, broad metrics. and on that note, having gotten in the last word of my favorite subject. i want to thank the panelists john, erin, j, for participating. and i'd like to thank the audience for paying attention, staying here for most, for the two hours. thank you. and the event people, we would like to remind you that you need to please take a moment to fill out the event survey. there's a link in the chat. so thank you very much. this is a conversation that i expect will continue for sometime. goodbye. on 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