Regulations, the committee will keep microphones muted to limit background noise. Members are responsible for unmuting themselves when they seek recognition or are recognized for 5 minutes. Second witnesses must have their cameras on when they are present for the hearing. If you need to step away from the proceedings, please turn off your Camera And Audio rather than logging out. In the event that i have technical difficulties or need to step away, Oversight Subcommittee Chairman pasqual will take over as chair until i return. Finally, since this is a joint hearing of the select revenue measures and Oversight Subcommittees, without objection, the chairs and ranking members of both subcommittees will be permitted to offer an opening statement. Further, without objection, members will be recognized for questioning in the order of seniority on their respective subcommittees alternating between the two. Finally, after members of each subcommittee have completed their questioning, ill recognize members from off the subcommittees who have waved onto this hearing in order of full committee seniority. Without objection, consistent with all other subcommittee hearings, the rules of the subcommittee on ways and means under rules of the house apply in Todays Hearing. With that, ill now turn to the topic of Todays Hearing. Todays hearing with the select Revenue Measure Subcommittee is holding jointly with mr. Pasquals Oversight Subcommittee, focuses on the growing gap between taxes owed to the government and taxes actually paid. This is commonly referred to as the Tax Gap. The Tax Gap is an important indicator for how well our Tax System functions, and reducing it is a central part of the Irss Mission to fairly administer and enforce our Tax Laws. However, over the past decade the irs has been starved of resources to go after a significant contributor to the Tax Gap, wealthy taxpayers, who can use sophisticated methods to evade taxes and whose income is not subject to reporting requirements. Instead, facing Budget Cut after Budget Cut, the irs has relied heavily on current Information Reporting to audit working americans who have more straightforward returns. Without the funds to train Enforcement Staff or upgrade its technology, the agency has been fighting a losing battle against wellarmed taxpayers who can create complicated partnerships, structures or send their assets overseas. I hope this joint hearing is an opportunity to examine the Administrations Proposals on how to provide the irs with the resources it needs to properly enforce our Tax Laws and best serve our taxpayers. Put simply, the irs doesnt have the tools it needs to effectively meet todays challenges. This Information Technology System is the oldest in the federal government. It has fewer auditors than at any time since World War ii. As a result the audit rates for taxpayers making over 1 million in income have fallen by 80 . The agency has lost many experienced revenue agents who handle time consuming, complex issues. Finally, Irs Staff have had to do more with less. Fortunately, the biden administration understands that a fair and effective Tax System requires the irs to have adequate resources. Thats why it proposes sustained investments to improve enforcement efforts, including an appropriate number of skilled agents who can pursue wealthy taxpayers that evade taxes using complex schemes. The administration also knows they are an important component of shrinking the Tax Gap is comprehensive Income Reporting that can shine a light on the income streams of these taxpayers. None of this can be done efficiently without overhauling and modernizing the irss outdated Information Technology System. Finally, increased resources and enforcement does not mean that we should stop asking how we can make our system better. There must be a sustained focus on reducing disparities in the treatment of different taxpayers and providing better Taxpayer Service so that americans who do comply with the law can feel assured that the Tax System is fair and efficient. Its not just our subcommittees and the biden administration that think its time to tackle this issue. Yesterday, five former treasury secretaries who served under both democratic and republican administrations agreed we need to act. In a jointly authored oped published in the New York times titled we ran the treasury department, this is how to fix Tax Evasion, they write, and i quote, we know firsthand the challenges dedicated Irs Employees face each day as they work to administer Tax Laws while hamstrung by inadequate funding and support. On this issue, all should agree, including members of congress of both parties, giving the irs the tools it needs to improve compliance will raise significant revenue and create a fair, more efficient system of Tax Administration. Without objection, this Oped Piece is inserted in the record. Americans feel more confident paying their taxes if they know that everyone else is paying what they owe and that the Tax Laws are fairly enforced. I look forward to hearing from our witnesses and working with the administration and colleagues to improve irs efficiency, ensure there is no additional burden on honest taxpayers and make the Tax System more equitable. Thank you. With that, i will recognize ranking member mr. Smith of nebraska for the purposes of an open statement. Thank you, mr. Chairman for the time. I appreciate that we are taking this time to further investigate the Administrations Tax Enforcement proposal and the potential impact on our economy. We agree it is fundamentally unfair to the vast majority of americans who pay their taxes accurately and on time if some people dont. Our system of voluntary compliance works because americans believe their friends and neighbors are also following the rules. Our system should recognize that by not further burdening those who put substantial time and resources into following the law, we should work in a bipartisan fashion to find ways we can better track down those who cheat the system without undermiing bipartisan successes in bringing accountability to the irs, like the taxpayers first act. That said, i come into this hearing with concern about president Bidens Proposal on a number of fronts. Im very skeptical of the irss projected return on investment. The administration is promising to bring nearly three quarters of a trillion dollars over the next decade with its proposal. That relies on the assumption that 80 million in new funding would raise more than five times that. However, the congressional Budget Office has predicted a 2. 5 time Return Rate which would net 200 billion for those dollars. We have a strong Track Record in congress of establishing and sticking to pathways for more predictable funding for agencies, whether its prefunding the department of veterans affairs or corporation for public broadcasting or working to double Nih Funding over time. I would be glad to work to find a way to give irs and other agencies more longterm certainty so they can plan for their staffing needs. At the same time, that Certainty Shoul come through regular appropriations so we can continue to have proper oversight of the agency when issues arrive, whether it is printers without Toner Or Rogue employees leaking taxpayeR Data to the irs. Those are resources that can go through Enforcement Or Customer service. My biggest concern, however, is that this proposal falls in line with other problems with the president s tax agenda, all of which i woulder characterize as, quote, Fairness Run amok. They have chosen to pursue a punitive capital Gains Rate in the name of fairness instead of one that maximizes revenue or economic activity. The g7 minimum corporate Tax Proposal engineered by Secretary Yellen only serve as cover for the administrations desire to hike our corporate Tax Rate in the name of supposed fairness instead of recognizing that corporate Tax Reform made the United States a more desirable place to create jobs while also stopping corporate aversion. Now today we are reviewing president Bidens Proposal to install 90,000 new government bureaucrats to harass american businesses because he finds unfairness in the fact that our Tax Code provides various options for how to organize and pay taxes as a small business just as most modern economies do. While it is easy to understand the president might think the only reason to set up an scorporation is to avoid medicare taxes, that is not the primary reason while small businesses organize themselves in that way. There are areas we can work together in a constructive way to modernize enforcement of our Tax Code. For example, by setting specific, clear, consistent rules and procedures for the taxation of crypto currency. That should be our focus. Thank you again, mr. Chairman. Im looking forward to the administration explaining their proposal and to hearing varying perspectives on it. I yield back. Thank you. Thank you, mr. Smith. I now recognize the chairman of the Oversight Subcommittee mr. Pasqual for an opening statement. Thank you, chair thompson. Thank you for holding the joint Hearing Today on the evasive Tax Gap. The Tax Gap or the measurement of the difference between what taxpayers owe and what they actually pay has become pretty significant, i think youd say. This gap matters immensely as we come to terms with a Tax Code that fosters one system for the wealthy and another system for average americans. The disclosure this week that some of the wealthiest americans play barely any tax was shocking, but not surprising. The revelation should give us greater urgency to address fairness. Thats what im looking for. I know what youre looking for. I dont know what other people are looking for when they talk about harassment or when they talk about people this is a voluntary system. We know its a voluntary system. And we certainly cant look back to 2017 and say that was the beginning of Tax Reform. That would be comical. Im looking forward to the testimony of our witnesses, starting with representatives from the biden administration. President biden has put forward an aggressive agenda to improve compliance. The president s plan to rebuild the irs will enable the irs to engage in more effective enforcement, particularly for wealthy scofflaws. I want to hear more details from Assistant Secretary Maeser and Commissioner Odonnell, two great servants of this country. Were also fortunate to have witnesses who are experts in the academic and private sectors to help us evaluate what congress should do and can do to produce real results and narrow the Tax Gap. Any changes we consider, however, must do so in a way that is fair and preserves fledgling Taxpayer Confidence in our voluntary compliance system. To me and i can only speak for myself, mr. Chairman. To me, Tax Fairness does not mean bludgeoning the wealthy. Thats not where im coming from and i want you to know that. One way to improve Taxpayer Confidence is effective taxpayer assistance. So many people need help rather than go and pay somebody to help them, we should provide information on this very important task of increasing the revenue for this nation so it can spend wisely. Taxpayers need guidance in preparing their returns and paying their taxes. The irs should do more to help as a matter of fairness. Its like having a million lawyers that can be at your beck and call and obviously others have no lawyers they can turn to when dealing with the irs. Decades of underfunding and the pandemic wreaked havoc on this function, but we must quickly rebuild it. A corollary of this is ensuring Tax Return preparers are qualified in the first place. Im eager to learn more about how the biden administrations Tax Return Preparer Regulation will advance our goal. Finally, i believe that Transparency And Accountability are the building blocks of what i would consider effective Tax Administration. This committee continues to wait for the administration to respond to our legal requests under Code Section 61. 03 for the former president s Tax Returns. The request was to many weird four years ago, but it is not weird. We have a right under 61. 03. Its very clear. We may have an illegal Leak Or Hack of private citizens Tax Return information. As oversight chair, ive asked the irs to fully investigate, as i did in the conversation yesterday. I expect a prompt and transparent response. I yield back, but look florida to our witnesses testimony. Thank you. I recognize mr. Kelley for the purposes of an opening statement. Thanks, mr. Chairman. Good afternoon. I want to begin by addressing the news this week of a criminal leak of confidential Taxpayer Information to propublica. Pro publica claim it was provided a vast trove of tax data on the nations wealthiest over 15 years. This is a shocking breach of Taxpayer Privacy and should cause all of us concern. This is the second high profile, unauthorized disclosure of Taxpayer Information to the press in less than a year. This can happen to the wealthiest americans or even the president of the United States, it can happen to any american taxpayer. Id like to hear what is being done to get to the bottom of this and make sure any Irs Employee that leaked the information is prosecuted. I dont know if you had a chance to read the oped in the Wall Street Journal the otheR Day, but it does shed a light on how this information that is supposedly so guarded and private, it leaked out. This is 15 years of information theyre willing to expose. This is incredible, but they dont know where they got it from. I guess it just showed up on the doorstep one morning and they opened it up and were just surprised. This Tax Gap that were going to talk about today in Tax Enforcement. Commissioner reddick recently cast some doubt on the irs Tax Gap estimate. This should be a concern to all, because we need to have an accurate Tax Gap estimate in order to make foreign policy choices. I look forward to hearing from our Witnesses Today about highway the irs is going to develop a more accurate and timely Tax Gap estimate. Im sure Todays Hearing will also address President Bidens Tax Enforcement plan. My understanding is that the administration is looking to put another 80 billion into the irs over ten years for enforcement. This is going to include the hiring of something like 87,000 new Irs Employees over the same time period. Every american should pay all the taxes they owe and the irs should conduct smart and efficient Tax Enforcement. But throwing 80 billion at the problem without a clear plan or cleaR Demonstration that the agency can use that money effectively is not the right approach. The administrations claim that it will be able to audit its way to 700 bllgds in new revenue over ten years doesnt sound realistic to me. I was proud to work with the late John Lewis on reforming the irs on the bipartisan taxpayer first act. That law was designed to focus the irs on actually serving american taxpayers in providing excellent Customer Service. By the way, while were all together, you and i both know that our staffs did an incredible job picking up the ball and helping our taxpayers all across ouR Districts, because the irs was working from home and was not able to do some of the things it needed to do. In fact, they couldnt answer all the phone calls. Our staff stepped it up. Each one of us are really blessed with a group of people who really do serve our american citizens. Most americans want to pay the taxes they owe, but have a tough time when questions arise and they cant get through to the irs for help. We required the irs to create a Customer Service strategy in the bipartisan taxpayer first act. President bidens plan seems to turn its back on that approach. Instead, the administration wants to build an army of Irs Agents that will seek to squeeze every dollar possible out of the american people. Again, every single penny we spend comes out of some hard working american taxpayers pocket. We have a tremendous obligation to them as they do to the country. The administration is asking for 80 bllds for enforcement when there are over a million 2019 returns still unprocessed and millions more still held up in error resolution. I have constituents still waiting on refunds they should have received a year ago and there are millions across the country waiting on the irs. We have a Taxpayer Service crisis at the irs, and yet the administration can only talk about the enforcement. Not the service end, but the enforcement. Of course we need to improve the Irs Enforcement as well. There are smart and targeted ways we can do that. Mr. Lewis, one of the most incredible people ive ever come in contact with in my life, his whole purpose was in service not only to his district but to the country. The taxpayer first act was an incredible attempt to do exactly that and that was to provide great service to the american people and our hard working american taxpayers. In closing, i want to thank all our witnesses on both panels and all members for being present today. We can do this together. We can work on this together. We can get this situation cleaned up and get to a point where everyday americans go to the mailbox and get a letter and if they see in the corner that it was sent by the irs, they dont become scared, oh my god, whats happening now. So thats what we need to get to. With that, im willing to work with all of you on every one of those issues. Id love to hear from our two panels. Thank you. Thank you, mr. Kelly. Without objection, all members opening statements will be made part of the official record. Thank you to our witnesses for taking the time to appear before us today to discuss this very important issue. We will hear from two Panels Today with an opportunity for members to question each panel separately. For our first panel i would like to introduce two witnesses. Mark maeser is a Deputy Assistant Secretary for Tax Policy, office of Tax Policy at the u. S. Treasury department. He was most recently the robert c. Rosen director of the urban brookings Tax Policy center, a position he held starting in 2017. Doug odonnell is a Deputy Commissioner services and enforcement at the irs. Previous he was the commissioner of the large business and international division of the irs where he also served as the u. S. Authority. Each of your statements will be made part of the record in its entirety. I would ask that you summarize your testimony in 5 minutes or less. To help you with that time, please keep an eye on the clock that should already be pinned to your screen. If you go over your time, i will notify you with a tap of the gavel. With that, mr. Maeser, youre recognized for 5 minutes. You may proceed. Thank you for inviting me here today to discuss Tax Compliance and the administrations Tax Compliance agenda. We all know that improving Tax Compliance can help build a Tax System that raises the necessary revenue for the federal government in an equitable and efficient manner. As noted in the opening statement, the irs has estimated the amount of noncompliance at the federal Tax System foR Decades. This measure of noncompliance is called the Tax Gap. Its defined as the distance between the overall true Tax Liability and what is paid on time and voluntarily. For 2011 to 2013, the irs estimated the gross Tax Gap to average around 441 billion per year. When late payments are taken into account it is 331 billion for that time period. If we take those numbers and extrapolate them today, assuming that the Tax Gap grows with the economy, the estimated Tax Gap would be around 580 billion for 2019. Over the coming decade the gross Tax Gap is projected to total 7 trillion. Obviously thats a lot of money. In part the growing Tax Gap is a result of sustained period of underinvestment in the irs. The Irs Budget has reduced by about 20 in real terms over the last decade. Staffing dropped and there was a deep decline in audit rates. At the moment there are insufficient resources to adequately meet enforcement and service. The administrations fy 22 budget and american families plan proposed a transformative investment in resources made available to the irs. First,it would provide the irs with resources needed to address noncompliance. In addition to the and discretionary funding a sustained multiyear funding would provide nearly 80 billion in additional resources to the irs over the next decade. The multiyear nature of this funding provides certainty to make investments in high quality Enforcement Staff and modernized Investigation Technology and assemble talented research teams. Second, help identify noncompliance and improve Customer Service. The irs too often relies on antiquated systems and this will allow them to address technology challenges in what would be an upgrade. Third kpaent of the plan is to taxpayer the compliance rates of that income they report about 95 or 99 accurately. When theres no Reporting Compliance can drop to about 50 . Decrease the likelihood that fully compliant taxpayers would be subject to us. A fourth component would improve Tax Administration and including giving the irs the ability to regulate preparers. They would raise around 700 billion of revenue over the course of a decade, but they would create a fairer Tax System and more efficient Tax System and improve Customer Service. They work together to create a more efficient Tax System. When the irs is adequately funded, they can use the information they collect more efficiently. When they collect more information, they can make their enforcement resources better utilized. We all believe that taxpayers should pay the amount of tax they legally owe under the laws that congress passes. Today theres a large gap between that belief and the Tax Compliance reality we observe. The Compliance Proposal takes important steps toward narrowing that gap and we look forward to working with congress to address this longstanding problem. That concludes my testimony. I look forward to your questions. Thank you, mr. Maeser. Mr. Odonnell, you may proceed. Thank you. Chairman thompson and pass cell, ranking members smith and kelly, thank you for the opportunity to appear before you today and for your support of our efforts on behalf of the american people. Last month i became the Deputy Commissioner for services and enforcement at the irs. Before stepping into this role, i spent several years as a commissioner of our large business and international with division. I appreciate this opportunity to discuss current and future irs efforts to reduce the Tax Gap, ensure the integrity of our system and improve Tax Administration for the 21st century. Reducing the Tax Gap requires a multiyear, consistent, significant investment in our modernization, service, Enforcement And Compliance effort. To help us deliver meaningful services to taxpayers, conduct critical enforcement initiatives and support longterm modernization efforts to help improve both service and compliance. We want to help taxpayers attempting to comply and appropriately pursue those who willfully refuse to fulfill their tax obligations or commit tax fraud. These enforcement efforts support compliant taxpayers. Operating with limited resources, our entire workforce is dedicated to doing the very best we can. This includes employees who develop forms, instructions and publications, Answer Taxpayer questions on the phone and in person, process returns and collect taxes owed and investigate tax fraud. We struggle to keep pace with change. The size of the economy, the number of taxpayers that we serve, the complexity of the law and the digital nature of new and emerging global economic interactions. Our ability to deliver on our mix has been limited by the Level And Inconsistency of funding we receive. To remain highly impact full going forward, the irs must expand. To do so, we need to on board many experienced specialized examiners and appropriate levels of supporting personnel throughout the organization in areas such as chief counsel, appeals and the Taxpayer Advocate. Further, all examiners, indeed all employees, must receive appropriate resources and training to enable them to perform at the highest levels. Additional resources will allow us to examine the Nature And Scope of these examinations. We use the information from the Tax Gap to help decide where to deploy our limited resources to minimize burden on those that are compliant and concentrate on helping those who make mistakes and reaching those who choose not to comply. The vast majority of taxpayers are paid wages that include withholding and their compliance levels typically exceed 98 . We should not and do not want to burden them with any additional interaction with the irs. There are others, though, who simply do not report income, implement tiered partnerships or similar complicated structures, utilize opaque sources of income or engage in offshore activities that increase the risk of noncompliance and adversely impact the fairness of our system. Our challenge is better understanding those structures, income sources and offshore activities that present the most recognize, recognizing that the greatest risk is where there is little or no third Party Reporting and the taxpayeR Does not report the activity, whether intentionally or unintentionally. Were able to identify noncompliance in ways that were impossible just a few years ago. With that said, there is room to further modernize these efforts and the irs has requested funding to do that. In addition to that, making further progress on the Tax Gap also requires policy and legislative changes to reduce Tax Law complexity, increase Information Reporting, improve Irs Access to relevant data and increasing authority in certain areas such as regulating paid Tax Return preparers as the president recently proposed. The recent budget proposals from the administration will ensure the system is enforced fairly, taxpayers receive the Nature And Quality of services they deserve, our systems are modernized to make better use of the data they collect and no one feels secure cheating on their taxes. We need your help. This concludes my statement. I look forward to responding to your questions. Thank you. Thank you, mr. Odonnell. Without objection, each member will be recognized for 5 minutes to question our witnesses on Panel Number one. Please note that after all members have had an opportunity to request our first panel, we will turn to the second panel. We will not observe the Gibbons Rule in this remote setting and will instead go in order of seniority, switching between Majority And Minority members. Members are reminded to unmute yourself when you are recognized for your 5 minutes and ill begin by recognizing myself. Mr. Maeser, weve heard that the irs has a lot of information about certain categories of income, but that other categories of income are subject to limited third party Information Reporting. According to irs estimates of the Tax Gap, income and deductions subject to little or no Information Reporting are subject to incorrect reporting at a much higher rate than income thats verified by a third party. What do we know about the distribution of the gaps in reporting by Income Level . Are certainly categories of income that arent subject to reporting more likely to be earned by higher Income Taxpayers . Thank you for the question. The irs has done a lot of work looking at the relationship between Income Reporting and compliance. As i mentioned earlier, if your income is reported on a W2 Form and theres taxes withheld, your compliance rates are around 99 . If theres no Information Reporting, like for a sole proprietorship or rental Income Or Something like that, that income is reported with about a 50 accuracy rate. Theres this big gap between them. And you asked about the distribution. Well, most americans have the majority of their income from Wage And Salary income, so those folks are reporting at very high rates. But if your income comes from Partnership Income or a subchapter s corporation or a closelyheld business, they tend to be less compliant on average and those sources of income tend to be more associated with higher Income Taxpayers. So theres a distributional proponent as well. Its not positive that every high Income Person has income of resources that are underreported, but the tendency is along those lines. Thank you. Mr. Odonnell, regarding the administrations Information Reporting proposal, how will Information Reporting from financial institutions, payments, settlement entities and Crypto Asset exchanges assist the irs with its enforcement efforts and what does the Agency Plan to do with the information it collects and what resources will it need in order to implement that regime . Thank you, Chairman Thompson. First off, any questions regarding the legislation will require us to actually have an enacted bill. But what i would say and it tracks what was reporting, that the better information we have regarding taxpayer activities, the more likely we are to be able to spot instances where taxpayers are fully compliant and that we do not need to take any further action with them and those that appear to have a risk of noncompliance. Weve done quite a bit of work with our systems to be able to improve our analysis in this space. What i would say, though, is thats important for me certainly to report that and reflecting on other Information Reporting regimes that weve gotten that im thinking about faca where there was a lot of additional information into the irs, but because we were not fully funded to be able to build out a system that took in the information and fully analyzed it and we did not have sufficient analysts in the agency to work with it, that we were not capable of taking full very long of the information that we received. So what id say is that as we work through this proposal and as its enacted, its going to be very important that we do have funding that allows us to build the system to ingest the information and analyze it and that weve got the appropriate analysts in the agency to take action with that information so that we can appropriately identify those who require no further attention and identify those that do require additional attention on our part. Thank you. Is it accurate that the irs has the oldest Technology System in the known world . Chairman, i am unable to be comment on that. Im an accountant, but ive heard enough people report on it where i do think its likely that our systems do require a great deal of modernization. I personally have grappled with the inability to easily add new tools onto our system because of the age of it. That does impair us to rapidly respond to evolving opportunities to improve service to taxpayers. Mr. Maeser, do you have a comment . Id just like to follow up a little bit on the question about how that information will be used. Just to kind of give you like a quick little example, if you have a taxpayer with 25,000 of inflow and 25,000 of outflows from their accounts and their income is reported at 25,000, then theres no need to audit them. Instead if theres a million dollars of inflow and out flow and 25,000 of income reported, Thats Something you want to look at. Thats really what the Information Reporting is intended to get at, those situations of gross noncompliance that deserve some attention. Thank you. Is it true that the smithsonian has dibs on your technology if we provide money to update it . [ laughter ] so one of the things that was interesting about the Irs Technology is that a lot of the programming still occurs in an old language when i was an undergrad. I think it was an old language when all of us were undergrads. Mr. Smith. Thank you to both our witnesses for appearing today. There are a lot of unanswered questions about the administrations Tax Proposal across the board and this is a great opportunity to answer them. While your Focus Today has been on proposals to close the Tax Gap from the collection side, much of the president s viewpoint that Government Isnt sufficiently taxing farms and small businesses. The administrations recent budget released proposed repeal of stepped up basis and creating a second Death Tax on top of the existing Death Tax. I didnt just start hearing about this as a concern for the proposal when the president made it, but long before. Im now hearing serious concerns about ag producers and small Business Owners who spend a lot of time and money on their taxes and that the irs would be focusing a lot more time and resources coming after them, costing them even more. The second Death Tax that we are reading about will affect millions of families because the minimum threshold is so low. Im wondering how much additional Irs Resource will be needed to enforce that provision including audits of small businesses and farms and addressing the valuation of assets in some cases acquired many decades ago and can you please explain the provision that empowers the irs to place a lien on a Farm Or Ranch or Family Business when the head of a family dies. Can you explain that . Ill take a crack at that question. So on the question that you asked about the step up in Basis Proposal within the administrations budget. The basic idea here is to tax Wealth And Labor income at roughly the same rate. People that earn income from capital and wages have roughly the same Tax Rate. One of the loopholes in the current Tax System is taxpayers have an ability to accrue Capital Gains over a long period of time, never sell those assets or realize the gains and pass them onto a their heirs without ever having paid taxes on that accrued increase. Thats an obvious inequity between people who are in different circumstances. What the proposal is attempting to do is to get at that. If a person sold an asset, they pay taxes on the Capital Gain they realize. In the case of a taxpayer who dies with a substantial amount of unrealized gain, those gains would be subject to tax. There are special rules in the provision as outlined in the treasury green book that deal with Family Businesses and family farms to ensure that taxpayers dont feel they need to sell the asset in order to settle the tax debt, that there would be provisions in place to either allow payment to occur over time or be delayed until that Business Or Farm is sold. Ill leave it to my colleague to talk about the liens on estate taxes. Mr. Odonnell. Thank you, ranking Member Smith. A quick point on that. First off, before we would ever move to a lien or levy, there are a series of notifications and opportunities for taxpayers to interact with the irs so that the taxpayer is afforded every opportunity to take an appropriate Step Or Arrangement to resolve the issue. I am very happy to spend time with your team to understand more clearly the question and make sure that we provide the type of information that would be useful to you and your constituents on that issue and would be happy to schedule time with your staff to work on that. I appreciate your offer there. My underlying concern is that the irs and we can look into that. My underlying concern is that the irs contains an immense amount of power. I was at the airport a while back and i noticed where there was an Irs Agent who was empowered to walk around the magnetometers at the airport because they have the power to do so. I am very concerned you know, even the Clinton Administration pulled back on the aggressiveness the irs triggering audits because it was agreed upon across the political spectrum that harassment was taking place. I think we need to be very careful, i remember the hearings, Lois Learner exerting her power, she would probably describe that as fairness, too, in the manner that she did and how inappropriate it was and i appreciate my democratic colleagues at the time for acknowledging how inappropriate that application of power was on the part of ms. Lerner. So i hope we can work together to address the Tax Gap that i do believe exists, perhaps with different numbers, but, like i said, i just hope we can work together to make sure that what we are doing is the right thing and that the power of the federal government is appropriately enacted and applied across our economy. Thank you and i yield back. Thank you, mr. Smith. I recognize mr. Pascrell for five minutes. Mr. Chairman, mr. Mazur, thank you for joining us today, Assistant Secretary, i know your work in the past. You are a true servant. Yourself and obama are really what we look for in who works for the taxpayer. Mr. Mmazur, the release of the purported Tax Return information of a number of healthy taxpayers just two days ago highlights the fact that we have two different Tax Systems, one for the wealthy which they seem to be able to avoid taxes all together, many times legally, that doesnt in any manner, Shape Or Form shade the problem. And another for the average american worker who has taxes withheld from wages on a regular basis throughout the year. How will the president s budget proposals specifically address this growing inquiry . So mr. Pascrell, first, thanks for the question. Its great to see you again. The president s proposals really try to equalize the treatment of income from Labor And Income from capital, and thats at a basic level what is trying to occur here. So the president proposes to increase the Tax Rate on Capital Gains income for those with the most largest amounts of Capital Gains to be equivalent to the same rate that they would have on wage income, and similarly as i was just discussing with mr. Smith, the proposal to have a step up of bases at death is a way to equalize the treatment of income from capital assets and income from wages. And so that really is an underlying theme of the number of the budget proposals is to create that equalization. And you would admit in the last 40 years the persuasion was moved in the positive direction for those who primarily have capital assets to the expense, i believe this is my opinion of those who get wages every week. Would you agree with that . Weve seen growing inequality of Income And Wealth over a large number of years and much of that is occurring at the very Tip Top of the Income Distribution where theres been larger gains than at say the medium level. Thats relatively true, yeah. Let me ask my second question. I wonder if you can update me and the members on the status of the Committees Request for the former president s Tax Returns. Im hoping the administration has seen the light and our section 6103 request. You and i have talked about this before. Where are we now . So, mr. Pascrell, this is something that i am personally not working this issue, but i understand that your Committee Staff and the department of justice attorneys are working through some of the some of the details on this. Its under active litigation. Im not asking you for personal information. Commissioner odonnell Deputy Commissioner, im concerned about the drop in audit rates for large corporations and wealthy taxpayers at a much higher rate than eitc recipients and i am angry over that. I hope you are, too. Can you explain why this has occurred and how about the biden Compliance Proposal change that trend. First i want to thank you for the compliment at the opening. First i think its important to correct the record out there. The rate of examinations of high Income Individuals, for example, at the 10 million level is 8. 1 . The rate of audit of eitc recipients is 1. 12 . Frankly the majority of examinations that we conduct of low Income Individuals are a result of them claiming eitc. There is an exceptionally high misclaim or Error Rate in that population, its roughly 25 . Why is that . Why is that . So there are a number of reasons for it. Its primarily due to the complexity of the law, the fact that taxpayers do not properly report their income. Theres basically three variables that drive the ability to claim the credit, its the Income Level, its the Filing Status and its that the dependent child resides with the claimant for more than six months. It is not unusual for us to see instances where a multiple individuals are claiming the dependent even though only one person could ever claim im sorry, the Countdown Clock is not working so if ive exceed my time i will speed up. About you in any event go ahead. Youre fine. Go ahead. Thank you. Okay. There can only be one person who can claim the dependent, but it is not unusual for more than one person to claim a dependent and it is not unusual for multiple people to claim a dependent which puts us into an environment where there are improper payments made and under the Ipera Law improper Payments Recovery Act we annually estimate what that is in our sample of taxpayers is at 1. 12 . Theres a very large population of individuals that do claim the credit, not every one who is eligible claims the credit and we are working on educational outreach to make sure that those who know that they could do claim it and that we improve the understanding of those who are claiming it of what they need to do to ensure that they are the one who is entitled and eligible and does receive the credit and that they do not get called up in the improper audit process. Mr. Odonnell, thank you very much for your testimony. Thank you, mr. Chairman. Thank you, mr. Pascrell. Now i will recognize mr. Kelly, the ranking member for five minutes. Thank you, mr. Chairman. My questions are going to be directed more to you, mr. Odonnell and it becomes because of this disclosure the otheR Day in Pro Publica that appears that the data came from inside the irs and was disclosed in violation of the federal law, but one thing i think we all agree on, it doesnt matter what party you represent, it really comes down to do we have Faith And Confidence and trust in the system that we use to collect our taxes from all our citizens, right . And its called Income Tax. It has nothing to do with your wealth, but it does have to do with your income that was generated during that taxable year. I worry about what steps do you think can be taken to find out about how this information got out there. The fact that theres 15 years of this that have been disclosed and im going to go back to what i just said, if our fellow citizens believe that there is a double standard, believe that if somebody wants to weaponize the irs and if the irs is, in fact, while not at the top but maybe somehow working along those same lines to say i will disclose stuff that will hurt somebody at some level, i dont care what party it is, if it happens to any american it should be something we are all concerned about. But once you lose that Faith And Confidence and trust in the system, then we go back and say, well, some of these people arent paying their fair share. I will tell you that most of the people i talk to theyre hard working most of my district is all blue collar people. They are all blue collar people. I dont care what stage of employment were in, but they are hard working american taxpayers and they will say to me all the time i dont mind paying my fair share as long as somebody else is paying their fair share, its what were talking about with this Tax Gap. When you get to a situation where it looks like the irs has politicized and used information from the agency to take advantage of a political issue or agenda, then they are saying, whoa, w a right. Thats not supposed to happen and yet it has happened and its happened far too often. My question to you is where do you think this information came from and what can the agency do. Ranking member kelly, first off, i want to say that i we all share your frustration, outrage at this. Were very, very concerned with the Pro Publica reporting that they received Irs Information from an unknown source. The Irs Commissioner redding he actually immediately referred this matter to russell george who is the tax Inspector General, Tax Administration, when he first became aware of this and it was right before he was heading up to a hearing on Tuesday Morning with the senate finance committee, the ig immediately confirmed receipt of the referral. We are required, Irs Employees are required to report to tigda immediately any instances of possible unauthorized access of Taxpayer Information or a disclosure of Taxpayer Information. So its both, whether somebody accessed it oR Disclosed it, tigda is the authorized federal agency to investigate these potential violations and the commissioner requested that an investigation be initiated immediately. Treasury announced yesterday that they made investigative referrals to their office of Inspector General as well as to the fbi and the United States Attorneys Office for the district of columbia. We fully support any investigation undertaken and will urge the investigative authorities to keep congress appropriately informed of their findings. Im unable to comment on whether there is an investigation under way at all because its been referred to the Inspector General, but we, too, want to know what happened urgently so that if there was any information obtained from us, we understand how and we can immediately and appropriately respond to whatever happened. We take very seriously the protection of information, its part of our core culture. Every employee is instructed on the importance of protecting information annually. Every employee from the top all the way down to the lowest graded employee takes training regarding the prohibitions on unauthorized access to information as well as sanctions foR Disclosing Taxpayer Information. We have strong systems and measures in place to detect unauthorized access that are regularly reviewed by tigda. I must reinforce we take this matter very seriously and we will be pushing as hard as we can to ensure that we learn as soon as possible what actually did happen. I appreciate your answer. Mr. Pascrell and i are very much concerned when it comes to oversight for every single american, whether they are at the top of the heap or at the very bottom of the heap. They need to have Faith And Confidence and trust in our system. I would just suggest that this is not the first time this has happened, but i dont recall any significant penalties for the last time we saw with ms. Lerner that anything came forward from that. So i think thats what further erodes, again, the trust the gentlemans time has expired. Thank you. I recognize mr. Doggett for five minutes. Clearly the Facts Gap is real and i think its important that we accept the recommendations of our witnesses and get them in place along with supporting the broader biden effort to get not only revenue from closing the Tax Gap, but to get equity. Because our Tax System relies on mostly on voluntary compliance when it becomes evident that many many of the most prosperous people in the country are not fully complying, it discourages compliance from those who are already recognizing the importance of having the revenues to support the greatest nation in the world. At the same time i think its very important after years of hearing from republicans that we could fund all the needs of government by simply eliminating waste, fraud and abuse, a frequent campaign claim, that we as democrats not substitute the Tax Gap as the solution for funding necessary initiatives. It is a modest part, its an important part, but really the biggest gap that we have is the gap between Rhetoric And Reality when it comes to all the loopholes that are in our current Tax Code. David k. Johnson a Pulitzer Prize winning reporter wrote a book a few years ago that was entitled perfectly legal. It is the perfectly legal tax loopholes that the committee has failed to close that President Biden has made so central to the revenue proposals for his Infrastructure Bill that i think deserve even greater attention than the Tax Gap. Specifically this Morning Weve heard about individuals i agree fully with mr. Kelly in his comments that we need to be concerned about privacy and getting to the bottom of this disclosure, but id like to see an equal commitment from republicans to the equity aspect. Why it is right to have a Tax Code that facilitates multibillionaires paying little or nothing at a Tax Rate while ordinary hard working americans, a police officer, a Nurse Or Teacher are having to pay substantially more. Its just not right and we need to look at the substance not just at the process here. Let me ask the deputy who is testifying here today to comment on the corporate Tax Gap that exists and how much revenue you believe we are losing from the corporate Tax Gap and whether its done through various tax dodges that are legal or illegal and why we need to focus on that as well as individuals. Thank you, congressman. I will start with this and there is a significant amount of additional taxes owed by large corporations. The Tax Gap does not adequately measure some of the global activities that occur and so all short transactions are not necessarily picked up and what i would say is my experience, my last job in large business and international, we observed many well, there were a number of large corporate taxpayers who took advantage of many opportunities to plan into various countries around the World And Structure their affairs where they minimize their tax, perfectly legal, but there were a number who did push the envelope and it did typically is involved in transactions where theyre dealing with a controlled foreign corporation and theres transactions going between the two of them and theyre able to price them in a manner which they use the arms length standard. Theres a lot of subjectivity to t but we find that there are some that do push the envelope and have in the past and the tax cuts and Jobs Act of 2017 attempted to park profits in little or no tax jurisdictions and we saw quite a bit of that. So there is a lot of activity to plan into, transactions that do minimize the global effective Tax Rate of these large entities. What i would add very quickly is that its not unusual, either, for some of the global high wealth individuals who themselves look like a multinational holding company to operate in a manner thats not dissimilar. So it looks like a multinational. The challenge is they do not file a consolidated Tax Return. It is much more difficult to identify their activities than it is on a large multinational. Thank you on both. How would the president s plan help you do a better job or more thorough job of enforcing our laws . The gentlemans time has expired. Thank you. Mr. Rice, youre recognized for five minutes. Mr. Rice, are you there . Peter, im here. Im sorry. I thought i had unmuted. I apologize. No worries. My career before i was in congress i was a Tax Lawyer and a cpa and i remember the mid 90s when the irs had grown to abuse the collection systems to the point that taxpayers and their representatives were outraged and there were hearings in congress and aggrieved taxpayers were brought in because largely because the irs was disclosing personal information to taxpayers and the result of those hearings was the Taxpayer Bill of rights and the pendulum had and that was under the Clinton Administration. The pendulum had swung far toward protecting taxpayers and now it appears that the biden administration wants to swing the pendulum far back in the otheR Direction. So where i do certainly believe that everybody should pay what they legally owe, im extremely concerned about the privacy aspects here that the administration is looking to expand the irs and their reach into peoples personal information. Particularly with respect to the vast growth in the irss reaching into Peoples Bank accounts and to Information Reporting on the specifics of their Bank Accounts. And in light of these disclosures that have happened in this week where thousands of individuals, somebody the irs has apparently leaked to publications. Mr. Mazur, let me ask you, given the, you know, steady Stream And Leak of personal information from the irs do you think that [ inaudible ] it will help voluntary compliance or hurt voluntary compliance. I think the Administrations Proposal thank you for the question, mr. Rice. I think the Administrations Proposal to increase the Information Reporting by financial institutions would help voluntary compliance and it would do so let me ask you this, given that the Irs Cant keep information private, they leak it and were going to give the irs more information about taxpayers mr. Rice, youre cutting off. Maybe turn your im sorry. I will turn my video off. Can you hear me now . Yes. Can you hear me . Can you hear me . Yes, i can hear you. Hello . Yes. We can hear you. Okay. Can you hear me . We hear you, mike, but i dont think were going through to you. Im here. Go ahead. We can hear you now. Okay. Mr. Mazur, do you think that these leaks that the irs seems to have on a fairly consistent basis will help or hurt voluntary compliance . First of all, i think we need to get to the bottom of the disclosure of the Tax Information that was in the Pro Publica articles and as Deputy Commissioner pointed out there is a series of investigations going on and at this point were probably not in a place that we can presuppose where it came from or where the information came from. That said, obviously the importance of keeping information private is paramount and taxpayers have a right to believe that their information will be kept private and given that weve been wholly unsuccessful in doing so, do you think the irs should be given even more information that they can illegally disclose . Sir, i think the disclosure of information whether it occurred from the irs or some other source is problematic. What we are talking about here is some Information Reporting from financial institutions of information they already have on their customers to the irs that would do two things, it would help the irs mr. Mazur, im running out of time. I have one more question i want to get to. Sure. Its this question of shifting the Irss Funding from discretionary over which congress has oversight to mandatory over which congress does not. And given the enormous power of the irs and their propensity to abuse that power, please justify for me why congress should give up their Oversight Authority over the Irss Funding. It seems to me that is just patently egregiously bad. So, mr. Rice, i think the importance of multiyear funding is the key issue here and its not necessarily the case that there is ceding oversight. Congress would have the ability to continue to have oversight, frankly the committee ways and means subcommittee on oversight would be expected to continue its efforts to oversee the irs operations regardless of the source of funding. And you would expect the irs to have routine reports on how theyre doing on this as a way to help improve oversight as well. Thank you. The gentlemans time is expired. Mr. Suozzi, youre recognized to inquire. This is such an important topic, i hope that we can find bipartisan agreement that this is just an issue of Fairness And Justice and a great way to bring in revenues into our nation for people that owe their taxes. Mr. Mazur, thank you so much for your service and thanks for being here today. Mr. Mazur, the Irs Commissioner who currently serves was appointed by trump, wasnt he . That is correct, its a fiveyear term for Irs Commissioner. And Irs Commissioner red dig has said in testimony before that he believes the Tax Gap is as high as a trillion dollars. He has said that. You testified earlier that you think that the analysis you have is its as high as 600 billion but he thinks its as high as a trillion dollars and he believes, i believe, in testimony hes given to hearings before us, that for every dollar we invest we can get at least 5 back in additional revenue. Is that correct . So on the return on investment the irs historically has a return on investment of four to five to one for every dollar reported. Commissioner red dig appointed by President Trump believes its five times for every dollar, isnt that correct . He has said that, why he. Mr. Odonnell, you are a career irs official, youve been there for 34 years, is that correct . Yes, congressman suozzi, that is correct. Did you know in 1988 when you first joined the irs there were over 17,000 revenue agents and today there are only 8,000 revenue agents . Yes, sir, i know that our staffing is way down and it makes it very difficult for us to operate effectively in this environment. When you started in 1988 there were 8,400 revenue officers and today there are only 3,200 revenue officers. Yes, sir. So weve had a dramatic decrease in Enforcement Ability at the irs certainly during your Career And Weve got a lot of statistics on the past ten years. For example, Corporations Audits have gone down from 18 to 12 , high income earners who make over a million dollars a year have gone down from 12 to 3. 5 , in fact, thats only through 2018, they say its gone down as low as 275 . And as a result corporations worth a billion dollars or more audits are down 51 and million Dollar Income earners are down 61 . So i see that in the president s budget which i totally support, this is a great way for us to bring in revenue so we can build back better and make our country stronger just by getting people to pay their Share Fair of taxes, i see that there is a 1. 2 billion increase in discretionary spending and 417 million in Program Integrity for 176 billion but then theres another big chunk of money to be spent over ten years. Do you believe that we can bring back 5 for every dollar of enforcement that we spend . Congressman, i believe that if we rebuild the irs with necessary enforcement resources and the Information Reporting thats being discussed that we that the return on investment thats been discussed by Assistant Secretary mazur and the commissioner is definitely within the range of possible. With you as a career professional really believe that we need to make this investment so we can do our job to try and recapture the money were owed. You agree with that, dont new. Were way down on Audit Coverage on all the major contributors to the Tax Gap. Im concerned about the fact that mr. Mazur testified that he thinks theres a 7 trillion Tax Gap over the next ten years and that we are only estimating because were using these conservative numbers were only going to bring in 700 billion, only 10 of that 7 trillion in tax cap, only 10 . Its really a very conservative, very modest number and i want to know if we gave you more money thats being proposed by the president do you think you could bring in even more money in tax revenues . Those estimates are prepared by the Departments Office of tax analysis. I think mr. Mazur is better positioned to respond. Mr. Mazur, do you think we could bring in even more than 700 billion if we gave you even more money . If we look at the proposal its a rightsized proposal and really sin tended to allow the irs to absorb these resources in a reasonable way over the coming decade. One thing to keep in mind is the amount of revenue thats expected to be raised in this second decade after the end of the Budget Window is sort of twice the revenue in the Budget Window. So these kinds of estimates grow a lot over time and really have big longterm implications. Well, im very excited for you to get this money so that you can start hiring people so the commissioner can bulk up on our revenue agents, our revenue officers which have been decimated over the past ten years and over the past 34 years that mr. Oconnell has been there and we will support everything we can to help you achieve your mission. Thank you for your service. Ms. Plor ski, youre recognized. Thank you, mr. Chairman. Mr. Odonnell, im concerned about iconsistent conflicting outcomes that architectural firms face in relation to their R D give the irs more money to conduct audits we need to know that the audits like the ones facing small businesses claiming the R D credit are fair. General language used in some irs denials indicate companies that provide, quote unquote, services dont qualify for the Business Component of the R D credits fourpart test which seems incorrect based on historical application of the credit. Furthermore, there are examples where the irs large business and international division approved the credit as part of an audit while similar claims under audit in the small business selfemployed division are being denied. So are you familiar with this issue with the R D credits longstanding applicability to the research activities of architectural and engineering firms . I also understand recommendations have been submitted to the irs to clarify the guidance. Can you commit to working with the committee and the small Business Division to apply clear guidance and ensure that Irs Audits are fair and that resources are being allocated wisely . Congresswoman walorski, thank you first for the question. I will answer your question to say that we are committed to working with the small business selfemployed division. They actually report to me in my new role. I have quite a bit of experience with the research and experimentation credit, my former role in large business and international. It is a factually intensive issue, theres a lot of subjectivity in what taxpayers are doing. We have made great strides in the recent past to centralize efforts to better understand what type of Compliance Risk is presented by certain types of businesses and activities and we have concentrated our expertise both within small business and in large business to improve our availability of resources to support those audits, to actually be engaged in the audit to the extent necessary and to ensure that the work that were doing comports with the expectations of our experts and that to the extent that we do not need to further examine we drop the issue, but where we do need to pursue it further we will. The most important point, though, i want to make is that at the outset we have gotten better at identifying the types of activities that give rise to noncompliance and improving our selection methods around that so that we are not burdening taxpayers who are compliant and we are spending the time where the noncompliance is. I appreciate that. Mr. Odonnell, the Irs Ite system is complex with many systems requiring a high level of interoperability and scape ability. Security and resiliency are of paramount importance especially in the age of cyber attacks. Many of the challenges we face can be addressed through the use of Nextgen Rate I. T. Solutions such as cloud computing. By utilizing the cloud we will maximize agencys i. T. Interoperability, security and resiliency. Whats the irs doing to leverage the cloud and emerging technologies to modernize the i. T. Infrastructure . There is i cannot answer the question specifically on the cloud but i know that we have been working very hard to improve our cybersecurity and to update our platforms as was said at the outset our infrastructure is quite old, it does need updating and what i would be willing to do very happy to do actually is to stay up from our i. T. Division, work with our staff to explain what it is that were doing to improve and how much progress were making towards the cloud, the support, both the services that we provide to taxpayers but to improve our ability to identify noncompliant taxpayers, to identify or ingest information to analyze it and to make the best decisions on how to run our business here. That would be great. And one more question. The irs has not developed specific or longterm plans to address [ inaudible ] or retiring most of the legacy systems. As stated in the August 20th treasury Inspector General or Tax Administration report the irs identified [ inaudible ] systems for modern zags or candidates for modernization, 34 systems for retirement. Further, the irs does not have an enterprisewide definition or complete and accurate inventory of legacy systems. How does the irs balance the recapitulation of legacy platforms with the requirement to migrate to the cloud as a necessity of Cybersecurity Protection . Again, congresswoman, i would be very happy to have the staff from i. T. Come up and work with you to brief you on exactly what their plans are. I will say that multiyear funding on a timely basis can help us achieve the objectives youre describing. Thank you. I yield back, mr. Chairman. Thank you. Ms. Chu, youre recognized to inquire. Deputy Assistant Secretary mazur, when we spoke earlier this year i voiced my concerns that the Tax Gap and about the need for action Chairman Pascrell, Congressman Delbene and i have been working together with broad congressional support for increasing the irss discretionary funding for normal operations. But that mandatory funding is really critical. I fully support president Bidens Proposal for multiyear mandatory fund to go restore the Irss Capacity and operations to where it should be. Ensuring that all taxpayers are paying their fair share. However, as your testimony notes the irs has serious systems upgrade needs that have fixed costs and staffing costs that have been deferred for years. Commissioner redick has talked about the significant amount of fund that go goes to patching outdated technology each and every year. So would you provide us with your overview on how the administration envisions mandatory funds to be allocated across irs functions, particularly in the first few years and how would upgrading the irs systems and staffing levels help contribute to efforts to close the Tax Gap . Thank you very much for the question, congresswoman chu, and thanks for your support of addressing the Tax Gap, its incredibly important to do. When we look at the long term challenges that the irs faces theyre both human capital and fiscal capital. On the human Capital Side its important to be able to attract, train and retain talented enforcement personnel, whether they are revenue agents, revenue officers, criminal investigation officers or whatever. And so part of a big part of the mandatory funding or i kind of prefer to look at it as multiyear funding is dedicated to do that, to build up the systems that allow you to bring on board thousands of new hires over a number of years and get them to perform at very high levels. In addition, you want to pair up those talented people that you hire with the best Information Technology that you can. Part of it will involve upgrading the current systems that are outdated or antiquated, part of it will involve a learning about new technologies and new techniques that can take information and put it into more usable forms for that first so we are looking at relatively the majority of the funding in the multiyear portion is for personnel, but we are looking at several billions of dollars for i. T. Investments and to accommodate the extra Information Reporting thats requested also by the administration. Thank you. Deputy Commissioner Odonnell, last yeaR During a Committees Budget Hearing with former Secretary Mnuchin i asked him about treasurys funding request for expanding callback functions at the irs in the coming years. Allowing the irs call taxpayers to call taxpayers back instead of staying on hold for an extended period of time would be a common sense improvement that most taxpayers would applaud and i believe it has great potential to also improving services for taxpayers with limited english proficiency, yet in 2019 the irs was only able to answer 29 of the 100 million calls it received, which indicates that the irs also has Staff Capacity problems with its call features. So would you please tell us how the irs plans to use both annual discretionary funding and multiyear mandatory funding to increase Staff Capacity and improve Technology Systems at the irs for better Taxpayer Service and specifically with regard to the call back functions and are there any plans on how to use these systems to improve services for limited english proficient taxpayers . Thank you for your Question Congresswoman chu. First off, we have been increasing the use of the call back feature and there has opinion a significant effort under way to contract out services to help us provide services to taxpayers where theres limited pro sisht si. Theres a lot of interest within the agency to make sure that the many new residents in the United States of america, whether theyre citizens or working to become citizens, they want to pay the appropriate amount of tax, they want to be part of the system and we are working to do what we can to help them achieve that. Multiyear funding to improve our systems and to allow us to have sufficient personnel in the agency to assist taxpayers will go a long way towards improving access to service, but access to services is primarily an annual Budgeting Event where we are authorized a specific level of service in the fy 22 budget we have requested a 75 level of service in a normal environment. This year has been anything but normal and our level of service is exceptionally the gentlewomans time has expired. If you have more information you can get that to us and we will make sure everybody gets a copy of it. Yes, sir. Mr. Schweikert, you are recognized to inquire. Thank you, mr. Chairman. To mr. Odonnells point is there quite an echo . Theres something wrong with your audio. Lets see if we can actually change that because thats quite an echo. I think youre muted. All right. Are we better now . Youre recognized. All right. Mr. Chairman . Yeah. Okay. Mr. Odonnell just made a point this last year the number of complaints we have had and Customer Service we understand its a very difficult year, but theres a couple points and, mr. Chairman, and to everyone thats actually really interested in this, if you actually look through your briefing materials for this hearing i think i found five, maybe six different estimates of the Tax Gap. I would love to have a couple of the members who work for the irs send us your actual formula, maybe even democrat staff. This is not and i got you, its truly to understand what the curve looks like because as you would guess the first dollar collected is a lot easier than the last dollar. Second, a few years ago sitting on ways and means oversight the previous Irs Commissioner we had hearing after Hearing And Discussion afteR Discussion with staff in regards to the i. T. Resources. You know, getting the irs off of its own servers, moving to an encrypted cloud, actually modernizing it, the stories that in the Server Farm in west virginia, the floor is sinking. Its time to do a fairly radical approach of build a near system and then one day turn it on, but get the irs off of managing its own servers and i would argue building an encrypted data services and get them out into the private sector. Third thing, and mr. Odonnell, theres been and some really smart people have written about this. Instead of using the data and algorithms that are housed within the irs, purchasing commercially available data to actually find when Theres Discontinuity in whats reported and whats also on public records as a way to decide audit functions particularly for high net worth individuals and that the cost of that would be dramatically less expensive over hiring tens of thousands of people and their Pension And Salary costs and would actually produce greater revenues with much more accuracy. Have you ever had conversations of the elegance and the value of using the stunning amount of outside data thats available that could trigger your audit flags. Congressman schweikert, first off, thank you for your points and your question. The notion of selecting taxpayers for examination or for whatever appropriate Enforcement Action is one that its an ongoing exercise within the agency. We are constantly looking to improve our capability, we have limited resources, we do not want to spend more time than we need to with people who are complied. Its a waste of our time, its a waste of their time. Deputy commissioner, i know its the tyranny of the clock so im sorry for that and a lot of caffeine. My argument is moving away from the constant internal battle of is your technology good enough . Is youR Design of we will call it your algorithm but your triggers and starting to actually use the almost a Crowd Source Data Collection Model and in some ways removing the human fragility that makes many of us very uncomfortable of possible individual targeting that it becomes actually lots of data you cant afford to collect, but you can afford to subscribe to. Sir, i would be happy to work with anyone who had clever ideas, clever approaches, new ways to think about identifying noncompliance. We would love to speak with them to understand what it is that they could do and i personally have led an effort within the agency to try to improve our capability. Again, it is with our resources, with our people, but we are not averse, i actually looked to take ideas from other, you know, other countries, other commercial Enterprises Anyone who has a better approach to identifying the question, you know, answering the question were asking would definitely be supportive of moving in that direction and would welcome your support to do that and any ideas that you have and how to go about achieving that. Thank you, Deputy Commissioner. Mr. Chairman, this becomes the moment of question. Is the democrats goal to dramatically plus up the size of the bureaucracy or is it to substantially collect dollars that are actually owed . If theres dollars that are owed i believe many of us on the republican side have created data centric paths to get you there without inflating the size of bureaucracy and i would make you the argument that formula foR Dallas spent to dollar collected would be much more robust on a data centric approach than a bureaucratic approach and with that i yield back. I thank the gentleman. Ms. Sanchez, youre recognized to inquire. Thank you, Chairman Thompson and pascrell for holding this important hearing. As we debate major investments that we need to make in our infrastructure we always seem to arrive at a familiar place. I think almost all of us can agree that we need to rebuild our Transportation And Interchange systems that our communities are going to be depending upon over the next century and probably most of us can even agree that we need to do more for communities of color and rural areas that always seem to be left behind, but when it comes time to talk about how do we pay for t we suddenly get mired in an academic debate about revenues. Most of us are not accountants or Tax Lawyers so Eyes Glaze over when we talk about the Tax Gap but its way too easy to demonize the irs and blame them for everything so we just end up right back to square one. We never get to the plain and simple issue of fairness that is squarely in front of us. Then somehow we convince ourselves into thinking that we cant afford big investments in this country anymore. Well, i maintain that we cant afford to keep repeating this pattern because the communities that i represent cant afford it. The communities that i represent with id say medium Household Income of under 80,000, those communities they do pay their fair share of taxes and they have just an Underreporting Rate of just under 3 . Meanwhile, a recent study suggested that the top 1 avoid paying taxes on 20 of their income. So, you know, i think it is smart for the administration to lay out the solutions to these issues of fairness that plague our system. Thankfully, you know, fairness is pretty simple, about as simple as the problem were facing in terms of the Tax Gap. First of all, we can invest in a Computer System for the irs that is newer than the 1960s Tax Processing system that it currently uses. We can also allow the irs to hire auditors who have the expertise to crack down on sophisticated Tax Cheating schemes and when all of our offices hear from constituents who face long wait times on the Phone And Cant get a live person at the irs, we also might try investing in increased staffing. Those are just three really simple things we can do to help close this problem. But i want to drill down a little bit more on the inequities in our enforcement because thats really where the Tax Gap issue lies. So ms. Holtzblatt, as you noted in your testimony, its far easier to conduct an audit for the average Tax Filer in my district than it is for the wealthiest 1 . Can you please expand on the consequences of not having thorough audits at the top income thresholds . Sorry, i want prepared. Okay. Do you want me to answer at this point or wait until the second panel . My apologies, you were on our second panel. Im sorry to catch you off guard. If you wouldnt mind responding to that, that would be helpful. I think its very important to be able to do equitable audits at all levels of income. It is much more complicated to do audits at the high end because of the complexity of the Tax Code there. What concerns me at the lower end is the high number of honest audits that end up with individuals not responding and i think Thats Something we have to delve more into as to why individuals at the lower end are not responding when they get requests foR Documentation. Whether thats because theyre not compliant or whether its because theyre scared of the irs, they cannot get the documentation, they dont speak english, these are things that we have to probe on both sides of the income [ inaudible ]. Thank you. And deputy Commissioner Odonnell, can you elaborate on the different skill sets that are needed to audit the Tax Returns of small businesses compared with multinational corporations . Yes, congresswoman. What we need at the more sophisticated level, the large corporate, the high wealth individuals are individuals who have experience, deep experience, in narrow areas of the Tax Law where there is substantial planning going on, the law is complicated and it requires those who have a lot of experience having worked through and helped either examine those types of transactions or plan them, those are the types of sophisticated examiners that we require. Its much less expertise is required to deal with a taxpayer who has one issue where all the information is on the Tax Return, which we would typically find with an individual with wages oR Deductions. So we do need more sophisticated gsh yes, sir, we need more sophisticated on the higher end. Thank you. I yield back. The gentlewomans time has expired. I want to remind all members to direct your questions to those on the first panel. We will get to the second panel when we conclude our questioning. Mr. Wenstrup, you are recognized to inquire. Thank you, mr. Chairman, thanks for everyone being part of this discussion today. You know, im one that would like to see all of our agencies be a little bit more parental and cooperative and caring to the american people and punitive, but punitive when its appropriate and hopefully we can head in that direction at some point. Im not going to continue to the discussion about Pro Publica, thats obviously a problem and i do want to address it. And i will get into that. You know, mr. Suozzi brought something up today that i thought was an important question and how to ask it. You know, you are talking about increasing number of employees with the irs and will that increase the net vef knew, not just revenue, but net revenue, thats important and i think thats what he was driving at. At the same time when we talk bin creasing taxes we have to make sure that that doesnt decrease employment and decrease our net revenue. So Thats Something we have to consider as we move forward with what were doing with taxes. Going back to Pro Publica, leaks like these, especially without accountability, they shake our Constituents Confidence in the irs, their confidence in our Tax System . General is gone and the ability to secure the private information that they give us year after year is obviously on the line and i want our citizens to be able to trust our agencies, be able to trust our irs but seemingly we are a long way from that. All this is coming at a time when the administration is seeking nearly 80 billion in taxpayeR Dollars with more than 70 billion of that which would go to mandatory spending to grow the irs and at the same time seeking access to even more private data. Its a tough sell, i have to tell you right now. Let me shift gears a little bit. The Tax Compliance proposal impresses complex and costly reporting and Data Collection requirements on our financial institutions and i am also concerned that this may make many banks facing the Irs Enforcement puts their reputations and their relationships with their customers at risk and i want to ask this question probably two questions really here i want to ask and i will ask them both to mr. Maz azure if i can. What outreach is the irs doing to ensure smaller community and independent banks are not smod erred with compliance burdens and cost and what is the plan for he can url this data set. Into i second question is can you guarantee no one making under 400,000 will be impacted Reg Tifl by this Tax Proposal. I will give both questions to you if i could, sir. Thank you. Thank you, mr. Wenstrup. Its important first to realize on data thats being requested this information that financial institutions already have about their customers. If you look at your personal Bank Account you will see that theres monthly a tallying up of inflows and outflows in your accounts. Really what were asking for in this request this proposal is that information tall eid up for each account on an annual basis and for the smaller and community banks, there could be some cause and this is something where we would be as an administration very willing to work with affected institutions to figure out what is the best way to go about doing this. At most it should be a onetime cost because it is a routine set of information thats collected but you wouldnt want it to be overly burdensome. Second question you asked about taxpayers with income under 400,000. And change in their taxes. The proposal the Compliance Proposal looks at increasing the amount of resources to the irs to ensure that people pay the taxes that are owed under the laws that congress has already passed. The administration would like to see rates go back to where they were in recent years so to reverse some of the decline. If i can, my other question was can you guarantee no one making under 400,000 will be negatively impacted by the Tax Proposal . By the Compliance Proposal . By the Tax Proposal in general . The Tax Proposal in general we worked very hard to ensure that taxpayers with income under 400,000 would not face a higher Tax Rate, would not face increased Tax Rates on their Capital Gains income and all of those things. So thats detailed very much in the treasury green book which outlined a lot of the proposals. The gentlemans time is expired. Consistent with committee practice, we will now move to a two to one Questioning Ratio and i will recognize mr. Snyder for five minutes to inquire. Thank you, mr. Chairman. I want to thank Chairman Thompson and Chairman Pascrell for hosting this important meeting and our witnesses for joining us today in this first panel. As weve long known the irs has been resource starved for years, just in my state in illinois alone since 2010 weve seen 73 of the Irs Workforce eliminated. The number of personnel went from more than 2,200 to just over 600 in a single decade. Overall weve lost well over 40,000 Irs Employees in the past three decades and the agencys underlying digital infrastructure relies on a Programming Language that hasnt been taught in years. All these data points illuminate the most frustrating aspect of the Tax Gap. Its cause and its solution are both clear as day. When the irs lacks the resource it is needs to do its job more people get away with skirting the rules on tax that is they owe. Experts like those experts agree that increased funding pays for itself through the increased revenue. Money the people already owe to the u. S. Government and will make a difference as we go forward. We turned to you earlier, it was suggested, or questioned whether investing, the administrations plan for in57ing would be five times or two times. Is it thought of as reasonable if not an outstanding investment . So yeah. That would be a great investment. What the irs has found is historically the return on investment in resources is four to 5 to 1. So with this logic, if only a two of in a times return, it would achieve greater fairness, improved efficiency and better Service Level for all taxpayers and perhaps stating the obvious, if we didnt get two and a half, we did get the four to five times, it would be a good thing for all americans. So director odonnell, if i can turn to you, we talked about the irs. The rate for the most affluent, like those with the most complicated returns and known for errors, has dropped by more than twothirds. In 2018, only 140 of 4. 2 million partnership and 397 of 4. 8 million escrow files returns, filed returns, were audited. In this case, is it fair to say that the Returns Today are more complicated than they were just after World War ii . Thank you for the question. I say that not only are they more complicated. Theyre more likely to operate globally, which adds complexity to the environment and theres a lot more of them that are being done as you point out. So a significantly reduced Work Force and significantly increased number of returns and complexity has put us at a real disadvantage in ensuring the american public that theres fairness in the System And Integrity in the system. And multiyear funding, timely multiyear funding can help us turn the tide and help us rebuild the agency. So i know this is obvious but i think it is important to state the obvious. To handle these more complicated returns, is it true that they require skills and expertise far greater than what was necessary 75 years ago . Yes, sir. And Thats Part of our hiring plan. To be looking for those individuals. Well try to recruit in if we get the budget support. Those individuals who have much more experience on the outside, or in other parts of the government, that understand from these transactions, mid career professionals looking for a change to come in and initially help us be able to run faster sooner. Well look to bringing in more recent college graduates once we get a bit more expertise. Our initial focus will be to bring in the sophisticated examiners that you describe. So we have more returns. They take longer to evaluate. If were going to create that irs more fair, more efficiency and more service oriented, if were going to do a better job ensuring that everyone in the country, irrespective of their income or where they live, phase taxes they owe, dont we need to invest in more people and better systems . Yes, we do. And it will help improve service to taxpayers and fairness in the system. Thank you. Your time has expired. Thank you to our chairman for holding this important hearing and thank you to both of our witnesses for your time and your work. I am the formeR Director of the Washington State Department of revenue. So as someone who has had to lead a revenue agency, i definitely understand the importance of having adequate and consistent stable funding and updated technology to sure we have an efficient and effective revenue agency. Ive consistently advocated for increased funding for the irs, specifically for Business Modernization and the Work Force to support that. We are seeing an alarming increase in cyber attacks on both public and private entities. These attacks threaten the security of millions of americans personal financial information and the irs is not immune to such vulnerabilities. Congress has been asking the irs to do an increasing number of tests lately from extending the programs to extenting existing ones, as well as to modernize. It is only appropriate for to us provide the, to appropriate resources to put the agency in the best position to succeed. Mr. Mazur, can you speak to what is needed to sufficiently modernize and secure the Irss Business systems to combat the nearly 1. 4 billion security threats that the irs faces annually . So the Administrations Proposal includes both a discretionary component that funds ongoing work to deal with cyber attacks and security. But also, the multiyear funding includes a sufficient, a substantial amount of resources for i. T. Funding that would allow the irs to upgrade its systems and also to harden them and make them more resilient to potential attacks. And just a quick comment. You talked about this earlier, about systems that still require cobalt programming. This is a big Work Force issue. Because students coming out of Schools Today are not learning cobalt. And so you must have to back train folks in order to help them be able to work on these systems. The irs, when they hire people to work on these systems, needs to train them on what are essentially ancient languages. Then also, if the core irs systems were to fail, what would that mean for our government operations . Over to my colleague, it would be catastrophic. We would be unable to fund the government if the systems were to fail for some substantial period of time. Congresswoman, i would agree with Assistant Secretary mazur that it would be catastrophic. I spoke with the leaders of our i. T. Division before the hearing to get a sense of what they need and where they are. There are significant funding shortfalls within the i. T. Arena, and any support that we can get from the congress, multiyear, timely focused on improving our system, our infrastructure modernizing it would greatly improve our ability to provide service to the american public, to improve our ability, to make enforcement decisions, and basically to improve the Integrity And Fairness of our overall Tax System. It is something the United States deserves and very much hope that we can have your support going forward for that. And just to follow up on that, clearly we know the systems going down could be catastrophic in terms of the impact that it would have. Can you comment on the fact that we are asking the irs to modernize as well as keep things running day to day . This isnt a place where you can focus just modernization but you also have to continue to do daily work. Can you comment on the impact that has on the Work Force and the Budget Standpoint . Yes. It is typical to run into an agency where were having to make doigss where our limited resources will go. I mentioned earlier the challenges we had, we started receiving additional information. We typically are able to only develop minimally viable products. They dont get us to the point to be able to fully utilize information that is coming in, or to fully support our entire organization. So there are many challenges we face every day, trying to make these very difficult decisions. Thank you very much. I yield back, mr. Chairman. Thank you, gentle lady. Mr. Hern, youre recognized for five minutes to inquire. Mr. Hern . [ no sound ] mr. Smucker . Are you there . Yes, im here, chairman. Well to go mr. Smucker, then come back to mr. Hern. Youre recognized to inquire. Thank you, mr. Chairman. A question for mr. Odonnell. Weve already talked about the Pro Publica leak. I find it astonishing that they were able to post apparently thousands of Tax Returns and i think will have, as you mentioned, i know you share this, a devastating impact on Taxpayers Confidence that the irs is capable of keeping that personal information confidential. So i think it is absolutely terrible. I know you said that you obviously, you Cant Confirm theres an investigation but i would assume theres an investigation underway. This is illegal for anybody in the irs to release information like this. I would like the ask a few questions about that. And i want to mention, it looks political at this time when this information is being used, even today to advance the democrats narrative that the wealthy individuals dont pay enough of their taxes. So it certainly looks like it is not only illegal but also political and timed to coincide with the political debate were having now. My question to you is, is this a felony to release this kind of information . And if it were after an investigation, determined that an Irs Employee or a group of employees released this information, what would the penalties be for that . Thank you, congressman smucker. I would say that first of all, i want to be very clear that we dont know what happened. And ive operated in an environment where i have to work through. Im not criminal. Im civil. We worked through information and we try to understand what happened. And in this instance, i would presume, there would be criminal investigators involved, as well as cyber experts that can go in and look at systems on understand what could have happened. I dont know. But separate from this incident, if there were a willful disclosure of information, the individual or individuals would be subject to felony prosecution. And do you know i know that this is not particularly about this investigation. I fully understand that. And i know we both want to get to the bottom of it. This is more about what the law says. What would the penalty be for that . Is there an additional penalty if it is done for political purposes . And is there any penalty for Pro Publica, for releasing, for publishing the private information . Those are three questions that i have. The first one, ill take the last one first. I do not know what the rules are with respect to Pro Publica. It is, the code, as far as im aware, and i am fairly aware. Law and the space, does not make a difference, oR Does not differentiate the activity that motivated, or the motivations of the individual that may have been involved in any disclosure, if that were to happen. There is prison time and a fine. I do not know off the top of my head what those are. It certainly does involve thank you. I want to skip to one other aspect. I dont see the clock here. I dont know if im out of time do you think one of the things that were hearing over the past few days is this is being used to show the wealthy pay some percentage of taxes. That percentage i believe is inaccurate because it is based on unrealized gains. Am i correct on that, first . Is it accurate . I do not i think it is best for me not to opine on any Tax Matter or otherwise. Do you think that wealth should be taxed before it is earned . Thats a matter of Tax Policy, sir. I would prefer to avoid commenting on that. Well, it would certainly be a massive change in Tax Policy that would have significant impact on our economy if we start to talk about taxing on unrealized Capital Gains. I think it is important to look at these rates and we hear the narrative being used as a result of this illegal disclosure, that we keep that fact in mind as well. Thank you. Time expired. Miss plaskett . Yes. Youre recognized to inquire for five minutes. Yes, thank you. Thank you for convening this hearing this morning. I had several questions regarding Irs Funding and closing the Tax Gap. One of the questions to mr. Mazur. The Irs Commissioner claimed that the federal Tax Game nowadays was close to 1 trillion, or about 560 billion more than the latest irs estimate. Which covered a period from 2011 to 2013. His statement has triggered a mini debate over the actual size of the game. Do you think the commissioner is correct in this estimate . If so, why do you think the game grew by almost 600 billion in seven years . Thank you for the question about the Tax Gap. One of my previous jobs when i worked at the irs was actually overseeing the estimates of the Tax Gap that the irs did. And the folks who worked this came up with an estimate for the 2011 441 billion. Obviously, that would grow over time and in my testimony, there is a statement that talks about, if it grew with the size of the economy, it would be around 580 billion for 2019. Commissioner reddick has been saying that the estimates are on the low end because they dont take into account particular types of advances in the economy and potential Tax Avoidance behavior. The irs is in the process of updating those estimates. And well see where they come out on that. No matter how you look at i, its a big number for a Tax Game for 2019. And we project over the coming decade, it would be 7 trillion. And so it is large and its growing and it needs to be addressed. So you wouldnt say specifically that the estimate that was given by the Commissioner Reddick was the correct amount. But youre saying it is a large amount and it is growing in an accelerated rate. There has been considerable discussion in the past year about the best way to close that Tax Gap. Do you have or purport or promote specific policy measures that would have the biggest impact in shrinking that gap . So a couple things. The Administrations Proposals are all of the above. Additional funding for enforcement personnel, and improved Information Reporting. And taken together, we think they would raise approximately 700 billion over the coming decade. But it really requires to do all of those components. You cant just do one. They are really complimentary. You want the additional enforcement agents to be well trained, to have available the best tools to do their work. So that means improved Information Reporting and improved i. T. Systems. So we need to do all of those. With that enhancement, particularly in the enforcement area, could it be used to fully fund high level priorities like the Child Tax Credit system for our system . Or even infrastructure which is so dear to members of the committee. If you look at the president s plans, the improved compliance revenues are used to support a number of the proposals. Theyre that concert with the improvements in the way we tax corporations and individuals. So it is up to you in congress to do the mixing and matching together. But we think if we look at the president s budget proposals, theres a coherent plan to do all of those things. Well, we rely out experts to give us guidance. Before my time expires, i wanted to ask you, were talking about enforcement for Taxpayer Services. Discussions on reducing the Tax Gap has focused on enforcement. What is lost in the discussion is the role of. At a Taxpayer Services. How much do you think should be as an element to shrink the game . Thank you. I think a significant amount of emphasis needs to be on service to Tax Services. It is an area where i think a significant amount of outreach to help eligible taxpayers know theyre eligible and paying appropriately would go a long way in eliminating problems in that space. Thank you so much i yield back. Thank you. Miss moore, youre recognized to inquire for five minutes. Thank you, mr. Chair. I want to thank both of our witnesses for their patience. Let me jump right in with you, mr. Mazur. I was really sort of stunned a little bit to, looking at all these numbers of the Tax Gap. 1 trillion, 700 billion, i think you noted, 600 billion, that maybe only 32 billion was associated with Underreporting Or Nonfiling of corporations. And that the rest really is attributed to maybe nonfilers or to individual Income Taxes. So i have to ask you for a little bit of a profile of these tax documents. Would you say it is primarily people whose businesses are structured as passthroughs . Well, one of the things that we take from the data the irs has put together on the Tax Gap is that income that is reported by third parties tends to be reported to the irs with a high degree of action rasy. Income not reported by third parties tends to be reported at a much loweR Degree of accuracy. So really, what the proposal tries to do is make the set of income where theres Information Reporting larger relative to where there is no Information Reporting. That would encourage taxpayers to voluntarily comply. Essentially, own up to those sources of income and not take steps to try and hide it from the tax authorities. Do you think that it would be useful to have third parties like banks or merchants involved in helping, you know, disclose the noncompliance . OR Do you think that we ought to look at really sort of reevaluating who is labeled as a passthrough . So i think the Administrations Proposal tries to enlist financial institutions in reporting in flows and outflows to financial accounts as a way to give the irs a bit of a lens into formally hard to see income. Formerly opaque income. Thats a way to build on the current Reporting System to improve that. For a variety of business reasons, people may want to have passthrough structures in place. And it probably isnt the role of the Tax Code to try to impinge on those business decisions. I think as Deputy Commissioner talked about, that there are a number of situations where passthrough businesses may be tiered in a way to hinder the irs from seeing where income generating activities take place. So you want to see whats going on. Well, thank you form. Let me ask a question then. Since 2010, large public companies have a Tax Filing Requirement to report tax uncertainties. That is, Tax Positions that affect their tax, income Tax Liability. This was supposed to give the irs the focus on issues and taxpayers that pose the greatest risk of noncompliance. How has this worked out . Do you think reporting of information related to uncertain Tax Position has helped you improve Return Selection and examination results . To address underreporting by these large corporations . And have you effectively incorporated this information into the Examination Process . Congresswoman moore, thank you for the question. What i would say is that the results from the uncertain Tax Position reporting have been underwhelming. They have not given us the insight into Taxpayer Noncompliance that we were hoping for. There are many reasons form. We have polled our Work Force that examines the taxpayers in this space. It primarily gets down to a lack of clarity in terms of what exactly comprises the taxpayers financial reporting that is made up of the uncertain Tax Position. We have undertaken a look at the form and the instructions and are looking at ways to improve the reporting so we can better utilize what is being submitted. Thank you. Thank you, mr. Chairman. I yield back. Thank you. Mr. Hern, youre recognized the inquire for five minutes. Thank you. To all of our panel i haves for being here today, as you all know, were here to discuss the current Tax Gap and the difference between taxes owed to the irs and the taxes paid by hard working [ inaudible ]. Are you no, sir. You were cutting out a little bit. Go ahead. Can you hear me okay . We can hear you fine. Good. As i was saying, 600 billion in 2019 is expected to reach 7 trillion as mr. Mazur said a minute ago. Individual Income Taxes account for the largest portion of this game followed by employment taxes, corporate taxes and estate taxes. To increase the Work Force by some 87,000 people and conduct more routine audits on taxpayers to ensure taxes are being paid. The administration touts that implementing these strategies will bring in some 700 billion. Some of these unpopular agenda items, the life styles of those in New York and california that are driving 80,000, 100,000 teslas. On this committee we can all agree that one of the key roles of the sirs to collect taxes rightfully owed to the government from individuals and businesses without collecting these revenues, well fall farther into the massive deficits and debt that were seeing currently. It is our responsibility to ensure the irs is capable of performing these requirements and i fully agree with the biden administration that closing the Tax Gap is a top priority to adequately fund our government. Where we disagree is how we accomplish this task. Efficiency in the federal government should be a prirt. The president reversed the executive orders that made it easier to hire and fire employees. We cannot continue to waste taxpayeR Dollars on people who are unable to perform their jobs. Furthermore, enforcement. Special when i the knowledge the treasury has not sufficiently protected taxpayeR Date and other information in the past. We saw this just last year when the Treasury Experience Ad major cyber tike the Email System and two days ago when Pro Publica leaked the irs tax data. Data which is supposed to be confidential on some of the countrys wealthiest individuals. President bidens proposed increased reporting come out any data will be secure and protected. We shouldnt increase the amount of personal information taxpayers are forced to disclose without proper safeguards in a place to protect it. This is a potential Security Hazard for millions of hard working taxpayers, on the individual and the business side. Not only is this a Security Concern but it also places overly burdensome reporting on small businesses. We are still trying to recover from the harmful impacts of covid19. As a former small Business Owner for over 35 years, as the cofounder of a community bank, i understand first hand the impact that overly burdensome reporting poses on both financial institutions and small businesses. President bidens current proposal to increase reporting requires detailed information on all inflows and outflows from both personal and Business Bank accounts. President biden makes the false assumption that financial institutions can easily provide this information. This complex reporting regime will take years to implement and cost literally millions of dollars to comply. As members of congress, it is ouR Duty to ensure the Government Isnt posing unnecessary regulatory burdens on our citizens. While i agree we must take actions to make sure taxpayers are paying their legal taxes, we must do it in a way that is safe and avoids placing overburdensome obligations on our taxpayers. I will yield back. My questions have been asked and answered by the panel. Is regarding how well ensure the sensitive information is not compromised in the future. I think the answer is, we dont truly know. We just know well have more information that cant be disclosed. I yield back. Thank you, gentlemen. Mr. Evans, youre recognized for five minutes. Thank you, mr. Chairman. Not only has the Work Force in pennsylvania lost nearly a quarter of its employees over the last decade. I would like to ask this question of mr. Odonnell. With almost to Job Losses among revenue agents and revenue officers who audit Tax Returns and perform collection activity, can you explain how a Job Loss complicates the agencys effort to address the Tax Gap . Congressman evans, thank you for the question. I certainly can describe some examples. First off, as we lose employees, we lose the expertise that they have. An employee who has been here 30, 35 years at least, they are some of our most capable employees and they are very difficult to replace. In an environment where we have Attrition And Arent able to fill, they are not replaced. So we lose expertise and we dont replace them with someone who either has equal expertise or over time can be schooled up to that level. What that has done over time is it has diminished our capability to meet the risks in our environment of the greater complexity, many more returns being filed and we have fewer people looking into, or examining taxpayers or securing returns from people who have not filed. That is an important role that our revenue officers play with a significant drop in the resources, we are unable to pursue to the extent we know we should or be able to, the nonfilers. And on the revenue agent side, youve heard the numbers. We can describe them again. But our coverage. Very large multinational entities, our coverage of the multitiered partnerships, our coverage of the global high wealth is greatly diminished. Our people want to do a good job. Providing service, ensuring taxpayers pay the appropriate amount, or our internal amount supporting the rest of the agency. They want to do a good job. It is very difficult in an environment where were making doigss what we cant do because of our limited resources. Another question to you. Many of my constituents need help filing accurate and timely returns as they seek to claim the Child Tax Credit and the earned Income Tax. My office has handled cases with serious errors. Would you please explain how Increase Oversight of paid tax preparers as the Bidenharris Administration has proposed, would ensure that low to moderate income i heard you start the conversation with miss moore. Can you talk about that . Yes, sir. First, if i may, i do want to say, it is very important for us to be providing service to taxpayers to ensure they can comply. With respect to return preparers, especially in the earned Income Tax credit space, 51 of the returns filed by eitc claimants are filed by paid preparers which may suggest theres some complexity there. The interesting observation that weve made is that those returns that are prepared by a paid preparer are more likely to have an error than an individual who prepares the return themselves. So anything we can do to improve our ability to ensure that the paid preparers have the Confidence And Capability to prepare an accurate return and avoid any further interaction with the internal Revenue Service is a major step forward. There is another ask in the proposal. And it is to give us the ability to penalize those individuals who refuse to provide their information that they have been a paid preparer. We call them ghost preparers. They are a significant problem in that they prepare returns but theyre not willing to sign it and they take money from a taxpayer, a low Income Taxpayer, perhaps, and they are not filing an accurate return. We really do need the capability to respond to that risk in the system. Thank you. I yield back, mr. Chairman. I thank the gentleman. I recognize mr. Beyer to inquire. Thank you, mr. Chairman, very much. I want to point out first that the u. S. Treasury in may estimated the Tax Game is 3 of gdp. So as we struggle to figure out how to get this economy moving faster, thats an important number to remember. I would like to take issue with my friend mr. Rice in South Carolina who i very much respect, about the concern for privacy, yes, privacy is incredibly important. We need to do everything we can to preserve it. The extra staff people. Special cyber security experts will help. Wheres the balance between the unintended illegal leak of data on a handful of very rich people, equally divided between democrat and republican, and the importance of keeping people from cheating. It is our priority to protect these traders to our country who refuse to pay their fair share of the price of freedom. But cheat all the honest taxpayers out there. The project says that 70 of the Tax Gap was probably coming from the top 1 . I dont think most americans dont trust the irs. Maybe a handful. You figure that 99 of the wages are reported to the irs. I dont know anybody that is worried about it except somebody that maybe worth a couple of billion dollars. I dont want this to be the red herring that keeps us from doing the right thing as we move forward. So Assistant Secretary mazur, one of the important things that the administration, with the reporting nishtivelies in the supplementary funding, will this reduce the number of audits . Or are we in a place where if you almost the law, you are at less risk than you were before . That is intent. The example i used before, if a taxpayer has on their financial reporting, 25,000 of inflows. 25,000 of outflows and their income is reported as 25,000, thats a return the irs does not need to look at and theres no reason to you had a that it taxpayer. So it could reduce the amount of audits on otherwise compliant taxpayers by having this information available. Conversely, it would increase the scrutiny on taxpayers who are grossly where there is large inflows and relatively small amounts of taxable income reported. One of the things the attorney came up with, 99 of taxes and wages on salaries are reported. Only 45 of the more opaque sources of income. Capital gains, rental income, passthroughs and the like. Underreporting general little rises with economic income because higher Income Taxpayers have access to more sophisticated Tax Evasion techniques. How do you respond to the concerns brought up by some of my republican friends about this reporting versus the Privacy Concern . So i guess i look at this additional reporting as very similar to the Information Reporting you already get from your bank about interesting income. We dont think of that as invasion of privacy. Your bank says you have 25 interest and sends you a form for that. It would be a similar thing. Your financial institution would be, in addition to reporting whatever interest you received, would show your inflows and outflows to the accountants. That would really not be an invasion of privacy for individuals. It might even be helpful to know what the inflows and outflows were over the course of it. And mark, youve been doing this a long time. Do you have any sense that the average american taxpayer that is compliant, works hard and pays their taxes on time, theyre somehow worried the Pro Publica will come after them . I mean, i think the, first of all, the release of data to Pro Publica was illegal and wrong and should be investigated and there should be consequences for the people involved. But for most americans, they get paid wages and salaries. Their information is reported routinely to the irs on their W2 Form and theyre very compliant. As you noted. Theyre 99 compliant. Where theyre less visible sources of income, taxpayers report smaller amounts. And for the most opaque sources, maybe 50 is a good guess on what the actual Reporting Value is. Thank you very much. Gentlemens time is expired. Mr. Davis. Youre recognized for five minutes to inquire. Thank you, mr. Chairman. And thank you for a very informative, very, very, very informative hearing. I also want to thank our witnesses for their experiences and insights. Like other systems in our country, the seemingly raceneutral tax policies and audit practices have a substantial disproportionate impact on taxpayers of color. I and my colleagues at the congressional black caucus were deeply troubled by the prior Administrations Denial of legal stimulus checks to incarcerated individuals, especially given the disproportionate harm to africanamericans and their families. Similarly, i am deeply troubled that the prior administration failed to pursue 300 high Income Taxpayers who cost the agency about 10 billion in unpaid taxes over three years. But disproportionately, audited the working poor, receiving the earned Income Tax credit, who lived in counties that are largely black, latinx and nativeamerican. And weve heard some response in terms of the why of some of the audited. But mr. Mazur and mr. Oconnell, what steps is this administration taking on examine its practices to ensure that it is not and will not unintentionally disadvantage taxpayers of color . Mr. Davis, thank you for the question. Obviously, the biden administration shares your views that the Tax Code should be enforced in a race neutral way. Obviously, there are parts of the Tax Code enacted by congress that have disproportionate effects on different portions of the population. Some of those can mitigate existing racial differences or exacerbate them. Unlt with of things the administration has done is set up an equitable data working group right out of the white house which is charged with trying to develop data sets to understand these questions and really know, are we doing things that enhance racial equity with our policy choices or not . And until we have that data, we have many an he can dotes i guess we can talk about. But would allow for a high level sophisticated discussion of what the impacts are. And allow them to be taken into account and developing policies going forward. Thank you form. And let me ask if Theres Anything to add. Yes, Congressman Davis. A couple of quick points on the matter of prisoners receiving the economic impact payments, i did understand that was an issue. There was a Court Case that decided in favor of prisoners receiving the payments. And from that point forward into the second and third round of the economic impact payments, we did ensure that that population was appropriately paid. So we have corrected that and to the extent it is explicit in the law, we will comply with the intent of congress. Thank you both. And again, chairman, thank you for a very informative hearing. And i yield back. Thank you, mr. Davis. I recognize mr. Horsford for five minutes to inquire. Thank you for holding this important hearing on improving the fairness in our Tax Administration at the internal Revenue Service. Too many of my constituents feel cards are already stacked against they will. Hard working people in nevadas fourth congressional district go to work even and every day to provide for their families and to make their communities a better place to live. They pay their fair share of taxes and are simply trying to live the american dream. At the same time there are millionaires and billionaires and major corporations who reap profits from their labor. They should expect to pay their taxes like any other american and contribute to their country. However, study after study has shown that this simply isnt true. The Tax Gap is a consistent and growing problem but evading taxes or hiding their money in secret offshore Bank Accounts in order to avoid paying their tax obligations. In fact, americans account for a disproportionately larger share of taxes while at the same time, lower income communities, especially black and brown communities, are targeted more by the irs. This is not fair and it must end. Two days ago, Pro Publica released a story about how the 25 richest people in america paid little to no federal Income Taxes for years. Not one of these 25 richest americans live in my congressional district. Instead, it is comprised of middle class americans who pay their taxes fairly. Im proud of the hard work my stints do each and every day and it is unjust and unfair that the odds are stacked against them which is why we must make reform to the internal Revenue Service to ensure proper Tax Compliance in a fair and equitable manner. Mr. Mazur and mr. Dean, i wanted to ask, what steps can be taken to assist low income Individuals Participation in efiling which proves to be more effective and efficient form of filing taxes, and were looking at an overall, looking overall at the outdated tax collection system. Is the Irs Factoring in the unique needs of low income and black and brown communities in their Outreach And Support . So the thanks for the question. Obviously, the goal of the Tax Administration system is to have Everyone File a completely accurate return. Either they pay the tax they owe or they get the tax benefits theyre entitled to. And the irs has a pre file system, a system with a prefile lings to allow lower Income Individuals, or mod Rad Income individuals to file electronically for free using software developed by the leading soft weaR Developers. And that really is an important way for people to file electronically. Which means that their returns tend to be more accurate because there arent arithmetic errors and things mike involved. And they get processed faster. It is a matter of days. Where paper returns can take much longer. I will turn to my colleague for the other items. Thank you, mark. Thank you, congressman horsford. First off, i would say in addition to Marks Point on the free file alliance, there are sites available as well as tax clinics for the elderly where we do work those groups and communities across the United States to provide service to individuals that are in need. I do think it is important to say a few words about Audit Coverage. While we do audit a large number of eitc claimants, the rate of coverage for the high income, for example, above 10 million, is that 8. 1 . When you compare that to 1. 21 for the eitc claimants, there is certainly a higher level, or a higher likelihood that aly Income Individual will be examined. That said, and it has been part of the discussion from the beginning. Our coverage on the large multinationals, on the high wealth, is. Lower than we think is appropriate. It gives us the confidence in the system. Thank you. Thank you. Thank you both very much. Well now turn to our Secretary Panel to introduce our three witnesses. Janet is a senior fellow at the Tax Policy center. Previously she served in the federal government for over three decades including as the Unit Chief for Tax Policy studies in the Tax Analyst Division of the congressional Budget Office, and Deputy Director of the individual Taxation Division in the office of tax analysts at the u. S. Department of treasury. Steven dean is a professor of law at Brooklyn Law school. He previously served as vice dean. And while a visiting professor at Nyu School of law as Faculty Director of the graduate tax program. Finally, Nina Olson is the executive director for the center for taxpayer rights, a nonprofit organization dedicated to advancing. At a taxpayer rights. She is a national Taxpayer Advocate. [ inaudible ]. With your testimony. Five minutes. Thank you for having me here today to talk about the Tax Gap and improving administration, for Tax Administration for the 21st century. The views i express today are my own and should not be attributed to the urban brookings Tax Policy center, their boards or their funders. In this short testimony i would like the make three major points. First, boosting the Irs Enforcement benefit would generate more than it would cost. It is not enough to increase the number of audits. Improvements in the Selection And Operation of examinations are also necessary. And three, before the irs can hire and train now staff, and invest in the 21st century technology, the agency must be assured of sustained funding. The witnesses in the previous panel described the deep cuts in the Irs Budget over the last decade. I will impact on the revenues. Just as funding for the irs has dropped by over 20 since 2010, so has been the amount of enforcement revenues. They have declined about 25 in Inflation Adjusted Dollars during the past decade. Now its possible that a decline in resources could cause enforcement revenues to increase relative to the labor costs of audits. That would occur if a resource constrained irs became more selective, focusing on the examinations with the highest return on investment than might otherwise be the case. My Research Collaborator Jamie mcguire and i have study this question in tax audits. We found on average the amount of recovered taxes was four times the cost for all times of audits in 2010. The return on investment for Correspondence Audits was that three times larger than for Inperson Audits. Thats not a surprising result. Unlike Inperson Audits, Correspondence Audits are generally for a few items on a Tax Return and are conducted through the mail. Somewhat more surprising was our finding for audits in 2017. The return on investment for Inperson Audits declined. Though it did increase for Correspondence Audits. One reason for the difference was in terms of staffing. There was a shift to even lower paid staff working Korngs Audits and a shift to even higher paid staff working on higher level audits. It was focused on the cost portion. However, otheR Data reveals certain trends in Audit Assessment thats might have incredible to the fall and the yield for Inperson Audits since 2010. It is always important to know, audits dont always end one a Tax Bill. For example, the revenue agents didnt make any additional assessments in 11 of audits in 2019. That was about a drop of 3 percentage points. In contrast, the average no Change Rate for large corporations, those with 10 million or more in assets, rose from 28 in 2010 to 38 in 2019. That leaves some important questions that might be better better addressed. Was that observation because of poor targeting of audits . Or was it because highly skilled tax advisers successfully claimed the aggressive positions as legal avoidance rather than illegal evasion. Can investment in staff alone overcome the challenges or are changes to the Tax Code also necessary to close up opportunities for aggressive avoidance . In addition to the funding the president is proposing multiyear budgeting by removing part of the budget from the annual appropriate Ragss Process and making it manner to. It is a smart move. The irs needs to make long term improvements to ensure a steady return of investment over time. But without guardrails, future administrations in congresses might bow to Temptation And Shift funding. Regardless of the concerns, i think one thing is certain. At this juncture, increasing the Irss Enforcement Budget after a decade of deep cuts, and those saving theres show up where it matters the most and increase in federal revenues is smalleR Deficit than would otherwise be the case and perhaps an increase in public confidence and the Integrity And Fairness in the Tax System. I thank you for the opportunity to testify today. Thank you very much. Youre recognized for five minutes. Thank you. Chairman thompson, ranking member kelly, ranging Member Smith, members of the committee, thank you for inviting me to share these views on how to improve fairness. In my testimony today, i will explain why a race blind approach to Tax Foermt is bad policy. It doesnt solve problems. It creates them. Weve heard from Pro Publica that counties in the United States are black ander pooh. If you listen only to tax experts, you could not be blamed for overlooking race. Just last night, secretaries described the counties simply as rural counties in the deep south with no indication that they are overwhelmingly black and latin dx. I will tell you how we can do better. Sam gilliam is an an tract impression painter. To most of the world, he is known as a path breaking artist. One of the greats. But in the federal Income Tax class, he is simply a man who was arrested after a bad reaction to drugs his doctor prescribe. The Tax Code does not detail his race. It does detail the treatment he received, where and when he was born. Where he received his masters of arts in painting, and where he can exhibit his paintings in numerous art galleries in the United States and europe. None of them mention his race. I discovered he was black by accident in a museum. From then on i asked my students to consider how his race might affect his outcome. His race may have played a role in his arrest and prosecution, or the successful Government Challenge to [ inaudible ] it added insult to injury. Gilliams legal expenses were found to be ordinary and therefore not deductible for business expenses, unlike expenses for, quote, causing an accident which results in injuries to a child, an unsuccessful charges, and quote, assault with intent. All of which survived similar challenges. The Tax Laws insistence to ignoring race doesnt playing it go away. It simply creates land mines that can hurt individual taxpayers. They can derail important efforts as they did in 2000. The corporation lost the congressional black caucus over racial profiling when it attempted to on liberia but not switzerland for bag a tax haven. How dangerous can these land mines be . Remember eric garner would be alive today if not for antiblack Tax Enforcement. However helpful they have proven in the context of policing, body cameras will not solve the problem of race in Tax Enforcement. Fortunately we have a tool that can shed much needed light on the Way Race impacts enforcement date. Experts honed the craft of using tax data in concert with other sources of information. They use to it tell rich stories about our lives. On my podcast one economist describes his work using Irs Information to determine which colleges provide the best opportunity. We dont need more information, although more transparency would be helpful. We simply need more the Tax Law should not be creating more sam gilliams or eric garners. It is up to all of us here today to make sure that it does not. Thank you. Thank you. Ms. Olson, you are recognized for five minutes. Mr. Chairman thompson and pascrell, ranking Member Smith andcaly, and members of the subcommittee, thank you for inviting me to appear today to discuss 21st century Tax Administration and the Tax Gap. I will address the need to protect taxpayer rights and minimize undue burden as the irs undertakes transformational change to address the Tax Gap. As the irs supplies resources and skills toward the upper Income Levels we have to ensure that middle and lower Income Tax wayers, including unrepresented taxpayers are not giving short shrift. Toward that end i recommend the irs embrace its dual role as both he Revenue Collector and social Benefits Administrator by creating a Family And Worker Benefits Unit and adapting staffing, structures appropriate. Failure approve Tax Service particularly to vulnerable populations will risk increasing the Tax Gap. There are few things we should remember as we try to narrow the Tax Gap. First, we shall never close it. We will only narrow it. Second, the drive to enforce the Tax Laws cannot come at the expense of Taxpayer Service. Approximately 2 of the 3. 6 trillion the irs collects each year comes from the direct Enforcement Actions. The remaining 98 comes from the indirect effect of a mix of Peoples Fear of the irs and theiR Desire to be compliant with Tax Laws. When these tax players have problems they call the irs yet the irs routinely answers less than 50 of calls and this year at times answered only 2 of the calls to its main irs 1040 number. The irs does not have a 360degree View of taxpayer accounts because there is no database in which all Taxpayer Information stored or linked so its Sisters Cant provide issue asSisters Cant provide information to callers. This has significant consequences not only for taxpayer systems, but also for audit collection, Collection Prioritization and collection of taxpayer rights. Taxpayer service, which is so important the achieving the level of compliance we have today must be funded to maintain that level. Third, the Tax Gap does not equal Tax Evasion. Framing noncompliance as Tax Evasion not only undermines compliance among the currently compliant, but it creates an environment in which Irs Staff can feel justified. Tax noncompliance is a continuum of behavior with many causes, including Tax Law and procedural complexity and economic down turns. We should not treat a taxpayer who has simply made a mistake in the same way as a taxpayer who is actively evading tax. And we should not equate legal Tax Avoidance with Tax Evasion. Doing so obfuscates the need for reform. Fourth intelligent use of data can improve Tax Administration enormously if it is fit for the purpose intended and used in algorithms and other techniques that mimic human reasoning and if it does not relace human Decision Making and discretion. Today irs Data Use is mired in the 19 0s with some notable exceptions. There is heavy emphasis on data matching and rulebased systems that rarely include feetback loops. Many irs systems have false positive rates and abatement rates. The irs also does not use data proactively to alleviate birden and prevent harm to taxpayers. On the other hand, research shows the irs automated or systemic assessment of penalties increases Taxpayer Burdenen and future noncompliance. And we should be very wary of Irs Audit approaches that appear to have high return on investment. Research shows these audits have heidi fault rates and inconsistent deterrent affects and are viewed as unfair to those subject to them. Taxpayer protection should be expandsed in this area. Also must be accompanied by taxpayer protections. Bank Account Information alone is not prima Facie Evidence of underreporting. Therefore if congress authorizes financial account reporting it shall prohibit the Irss Use of this data in mere information in document matching. Congress should also extend the Urd Abouten of proof protections under section 6201d to apply to onerous Examination And Matching activities. In my written testimony, i have made many other recommendations, including proposing a new procedure, the taxpayer rights impact assessment to insure the irs incorporate taxpayer rights and minimizes administrative burden in its initiatives. Thank you for the opportunity to appear today. Thank you, ms. Olson. Without objection, each member will be recognized for five minutes to question our witnesses. As previously stated, if you do not observe the Gibbons Rule for this remote setting and we will instead go in order of seniority alternating between each subcommittee and between Minority And Majority members. Unmute yourselves when you are recognized for five minutes. When you are not speaking, please mute. We are getting a little feedback now. I will begin by recognizing myself. Ms. Holtzblatt, thank you for joining us today. We have heard today that it will take several years for the irs to fully implement the Administrations Enforcement proposals because at the outset new revenue agents will need to be trained to analyze complex returns and develop skills. During this time, how can you insure that the irs will not use additional fundsing to increase Correspondentence Audits which are easier to conduct and disproportionately focused on the poor . Well, i wait. Before you answer. Let me say it again. If you are not speaking, please mute, because we are getting a little feedback from someone. Thank you. Thank you for your question. Personally, i cannot speak for the irs and assure what they will do that. I believe that they have made a commitment very much so in their language that they are going to be targeted to higher income people and to big businesses. As so, there is some language in the treasury reports that say that they would also the people under 400,000, they would not audit them at a rate that was greater than half the case in recent years. Thats open to some interpretation. The issue is that Correspondence Audits are not substitutes for Inperson Audits. For Inperson Audits you do need to hire people and train people. Like what the commissioner said they are going to get professionals in because those individuals require a lot less training and so forth. But you know, its really up to the Administration And Congress to keep that commitment that they are making right now. My concerns are real. Its something that we should be mindful of . I think you need to be mindful in all cases. Thank you very much. I will now recognize mr. Smith for five minutes. Thank you, mr. Chairman, thank you to your panel as well. I think we have had a great exchange of information so far here. And i think we are going to continue in that direction. A lot has already been said about the unauthorized release of personal information from taxpayers Tax Returns. I im disturbed mostly by the parallel message politically thats been in the public square Front And Center for a while and that certainly follows the same pattern as the unauthorized release of Taxpayer Information. Its been said that perhaps it is a State Actor wishing to sow discord. I guess i would ask everyone involved if thats the case to not assist in that. Thats particularly dangerous. Ms. Olson, i was fascinated by your testimony. I think its particularly useful and timely. Can you repeat the percentages of revenues that are obtained by I Cant remember your terminology, whether it was active collection or passive collection . It seemed to be a significantly different. Can you repeat that . Yes. So about actually its about in 2007, 1. 6 of the 3. 56 trillion that the irs collected was attributable to direct Enforcement Action. Right. Which would be collection actions, audits, things like that. The rest, i rounded it to 98 is attributable to some mix of the indirect effect of having an audit service, and Taxpayer Service, that taxpayers want to comply with the laws. My point is if you erode Taxpayer Service and just beat the Enforcement Drum you are really risking increasing noncompliance from the already compliant taxpayers. Wow. Thats fascinating. I you know, the proposition that just hiring more auditors is the answer i find particularly troubling, and especially when we know we have experience from the 90s of the irs being overly aggressive and virtually harassing taxpayers, compliant taxpayer, i will emphasize. So i hope that we can responsibly address this Tax Gap in a thoughtful manner that does not result in lawabiding taxpayer hard working americans getting harassed. I kind of sense from some of the discussion both here today and outside this discussion that, well, the harassment of taxpayer americans who are compliant, you know, thats just a little byproduct of maybe a little collateral damage, you know, in this mission to generate billions and billions of dollars more than are currently being collected. I would hope that and ms. Olson, i would be curious what you think we can do on the Customer Service enwhere you said what, the irs only answers about half of the phone calls received . Is that accurate . Well, depending on what leans you look at, this Filing Season it was as low 2 , or 5 of the calls that came in. Some of that is the result of the covid and the difficulty in the you know, the remote working. And also an increase in calls, which shows you that taxpayers really want to communicate with the irs and hear from the irs what is going on with their accounts. They are willing to do Self Service up to a point. But this is the irs. And bad things can happen to you if you cannot communicate directly. And really, the only answer to that is more staffing on the Taxpayer Service side. Its just a mathematical equation of how many employees do you have and how many calls do you get in. And Callback Technology is definitely important. But you know, dealing with the irs is not getting an Airline Ticket or buying a package, something on amazon. You know, its got serious consequences, and people want at that talk to an Irs Employee to know they are heard and their issues are being addressed. Yeah. I would hope that we could in a bipartisan manner agree that starting with the Customer Service would be a great and most effective place to begin to help taxpayers achieve compliance. And especially when i believe there is a willingness to do that because that is what compliance is about. So thank you to our witnesses. And thank you, mr. Chairman. I yield back. Thank you mr. Smith. Mr. Pascrell, you are recogni ed for five minutes. Thank you mr. Chairman. I would like to ask my first question to director oR Doctor and senior fellow janet holtzblatt. Ms. Holtzblatt, in your testimony you discussed potentially adverse effects on pure orders of voluntary compliance. How do you think the disclosure the purported Tax Returns on some very wealthy americans showing in some cases no taxes paid could affect levels of voluntary compliance . Ms. Holtzblatt . Sorry. We dont really know. It certainly doesnt help in terms of morale and Taxpayer Confidence in the fairness of the system. Hopefully, people remain honest about their own liabilities in light of the news about how other people are avoid the taxes. Yeah. You know, when you look at the numbers, regardless of who is providing them you know exactly what i am talking about. When you look at those numbers and you are perceiving numbers about people who are trying to get away with something, for the most part. It may be something they do unconsciously. Who knows. It seems to me that the numbers, regardless of who they are coming from, are stark and that there is a big gap. We talk about a gap. There is a big gap you know, from what is owed and what is eventually paid. Although much of this money is moved into, like from income into assets, and there is a big difference between the two and how the two are taxed and how they are umbrellaed sometimes with legislation that we passed. I mean, there is absolutely accommodation from the congress. We had something to do with the tax writing the Tax Law, and editing it, and reforming it. But it would seem to me that the levels of voluntary compliance, how we strengthen that is not simply to uphold the Law And Review and the fact people, some people are not paying any taxes at all. How can you justify that . I dont understand it. And there are some people that are onto distracted issues on the point of the gap that, you know, it takes us away from the central point of whos paying their fair taxes. Do you agree . There is im sorry. There is something to be said about that, that there is this gray area between illegal evasion, what we call evasion, and aggressive avoidance. And there are ways in which congress could act and the administration could act to unblur, make it more black and white, in terms of what the law is. You know, so that those who have the resources are not in the this position of being able to take a position thats very aggressive and argue with the irs that this is, in fact, legal. We havent had real Tax Reform since 1985 when bradley and Congressman Kemper both parties are guilty and are at the bottom of the source of all of these inconsistencies. Lets face it. Lets address it. There are no good guys and bad guys in this situation, ill tell you that. And i think we need to do something about it rather than talk about it. ProfessoR Dean, you suggested in your testimony that the irs does not need additional data to help us improve the fairness of our Tax Enforcement, but, instead, we need to utilize the data that we have more creatively. What do you mean by that . Give me an example . Thank you for the question. What i was focus on in my testimony is how do we enforce that enforcement is being carried out in a rishlly evenhanded manner . One of the questions that authorizes in that context is whether the irs should be asking taxpayers their risk. Right . So the 1040 doesnt ask you your race, although many government forms do. What i was suggesting is that in order for the irs and treasury generally to determine whether or not enforcement is being done in a racially fair manner they would not necessarily need to start collecting Race Information from taxpayers. They are sitting on a Relationship Trove of information and they have incredibly talented people working in data. And they could they could make sure they were doing things fairly without starting to collect more information on taxpayers. I did mean this yesterday, i couldnt do more with more information, imjust suggesting that they could do better with the information they already have. Thank you so much. I have one more question for ms. Olson, but my time is up. Mr. Chairman, thank you. Thank you mr. Pascrell. Consistent with our committee practices we are going to be using a 2to1 Questioning Ratio. So at this time i will recognize mr. Suozzi to inquire. Thank you, mr. Chairman. Im not going to ask any questions this time. I am just going to make the brief comment you know one is suggesting the answer to this is to simply hire more manufacturesment agents. It is a big part of it but we need to have more Customer Service people. We need to upgrade the Information Technology Systems. We need to make better use of the data. There is no question that the irs has been gutted over the past decade. And more than that, from the previous hearing we had where i talked about the number of employees, there are half of what there were in revenue agents and others. So we need a comprehensive approach to not only serve taxpayers better, give them more information, but also to be more equitable and to do better enforcement as well, because the audit rates have begun down so resip to usually over the past 12 years. There is a great you know, i remember how upset republicans became when there was talk about eliminate or abolishize. I. C. E. I came out and supported, and got in trouble for it. I dont think we should abolish i. C. E. I think we should make it more sensible. It was the same feel when people were calling to abolish the irs. Thats absurd. We need to do a better job recognizing that the irs has an important job to do to benefit all the people of the United States of america by collecting taxes in a fair way for the people that owe their taxes. And thats going the require all these different things of upgraded Information Technology, upgraded levels of staff, better publicfacing programs, to do their job. We cant just be against government, against the irs. There is a role for government. And collecting tax revenues is one of them. We just need to do a better job. This should be the last issue that should become a partisan fight. Everybody should be in favor of making the irs as robust as possible, as fair as possible. Do we want to go back to people abusing, as was pointed out, taxpayers or unfairly no. Nobody wants that. But lets collect our fair share of taxes from people that owe their taxes. When you are only auditing 2. 5 of the people that make over 1 million a year and you have decreased the auditing of corporations that have over 5 billion in net worth in Market Value i think it is 51 or 65 I Cant remember the number somethings wrong. Lets work together. Lets make this the robust agency that it should be. And lets try to collect our fair share of taxes from people on an equitable bases using the tools and technology we have available to us. I yield back, mr. Chairman. Thank you mr. Suozzi. Ill recognize mr. Rice for phi minutes. Can you hear me okay. Yes. The bill of rights and the constitution exist to protect the rights of citizens and to constrain government from interfering with their freedom. And the irs is an incredibly powerful federal bureaucracy. Its one of the few that can seize your assets with no hearing, with no even notice. They can seize your assets. The irs is all too often been abused abused the rights of citizens. It has been used as a political tool in recent history to attack citizens of a certain political persuasion. And citizens have every right, in fact a responsibility to be extremely skeptical of expanding the powers and reducing the oversight over the irs. I think the idea that we would allow the irs automatic access to Bank Account records of citizens is absurd. I think the idea that we would reduce the ability for congress to have oversight over the irs by making their funding mandatory is ridiculous. I will never support either one of those ideas. We as a in a bipartisan fashion in recent history have have sat in hearings and questions the irs on abuses. It routinely happens, almost every single year. And the idea that we would expand that power and make it more difficult to have oversight over them is is absurd. I absolutely agree that we should do what we can to close the Tax Gap. I absolutely agree its ridiculous that the irs is working on computers that run code that was manufacturing in the 80s. I would have served that it has more to do with fundingfunding. That they wouldnt have upgraded their equipment when they had this massive increase in their funding. They said they were running 300 different systems and had 200 points of failure where only one guy knew how to program the computer and that guy when he retired oR Died, the rest were out of lunch it is completely incompetent and absurd. Im curious to see how much progress they have made and if they can justify spending additional to bring their technology into the 21st century, a, i guarantee you it will close the Tax Gap signature cantlie. B, i will be first in line to support that. It is not like we have not provided funding for additional technology in the past. It is simply when we have given them that money and they have spent it they said oh, i guess we learned how not to spend that money. I agree, we bring the technology up to date and we will need less people. And it will close the Tax Gap. But the idea that we would give them the ability to look at Peoples Bank accounts is absurd. The idea that we would reduce our Oversight Ability by making their funding mandatory is ridiculous. And with respect to any other ideas to close the Tax Gap, i am all ears. I yield back. I thank the gentleman. Dr. Chu, you are recognized for five minutes. Ms. Holtzblatt, in your testimony you note that not only have audit rates decreased for larger corporations over 20 billion, but the of those corporations walking away without any additional taxes collected has also increased. Thats alarming. What does that dynamic look like in real dollars or as a share of gdp . I dont have those figures with me. We do have information thats reported in the irs in terms of how much was refunded to the corporations. I cant say what they ended up not paying. But i can certainly forward that information to you after this hearing. That would be great. Now, i am a member of the small business committee. And im concerned that while the largest corporations are using their vast resources to game the Tax System, small businesses dont have these resources, yet are trying to compete for business against those larger groups. Have you done a similar analysis of the audit rates of small businesses as you have for large corporations . How would these large corporations avoiding their taxes negatively impact small Businesss Ability to compete fairly in the market . Thats a very interesting question. It gets down to your aftertax profits and your ability to for example, get the resources to compete and to hire the lawyers who can help you. Again, i dont have at my fingertips the audit rates for the smaller businesses. But i will forward that to you as well. Okay. It is clear that making investments in the irs would have a positive return on revenues rates through greater Tax Compliance. Your testimony notes Quantity And Quality of auditing needs to be improved. I dont think we can do that without the funding. Given your previous experience with cbo and the budget committee, do you have any additional thoughts for this committee about what safeguards we should put in place to ensure that mandatory funding does not supplant the annual discretionary funding . I have been struggling with that. I know there is a similar kind of program in the Medicare Medicare Area for Health Fraud where there is a portion thats appropriations, a portion thats mandatory. I am not steep in knowledge of how that works, but that could be a model in terms of how they do that correctly and how they do it incorrectly. I would turn to the budget experts at omb, cbo, and the budget committees perhaps for more advice on how to do this in terms of constructing the safeguards. I just know you need to get safeguards in there in order to avoid the kinds of games that all of us play with our money. Absolutely. Thank you. And i yield back. Thank you ms. Chu. Mr. Schneider, you are recognized for five minutes. Thank you, mr. Chairman. Again, i want to thank you Chairman Pascrell for this hearing, and our second panel for staying with us in whats been a long hearing. One of the central principles that i believe has to be part of our Tax System is fairness. We heard much about the Propublica Release last week, the report and you know, the fair concerns about where that data came from. But there is information in the data that i think is important to touch on. We saw that in 2018 there were 25 individuals who were worth 1. 1 trillion. For comparison, it would take 14. 3 million 14. 3 million ordinary american wage earners to put together an amount equal to that. The Tax Bill for that percent was 1. 9 billion. Whereas the 14. 3 million, taxes on their wages was 143 billion. Lets be clear that that means. Those 25 individuals collectively with the same annual earnings of 14. 3 million were paying 1 100th of the amount of taxes. It raises the question of whats fair. Thats a broad question. But thats what happens we we dont have a sufficiently funded irs. The Tax Gap grows. And rich get away with taking deductions, having offshore assets, et cetera. But it creates a definite sense of unfairness. And we are in the Context Today of the Tax Gap, we are not talking about raising taxes. We are simply talking about making the investments in the resources, in the Skill And Training of people, and the systems they need to do their jobs to make sure that everyone pays the taxes that they owe. So my question for the group is, how will addressing the Tax Gap Affect Equity . What degree will we have of ensuring fairness in making sure that people do pay their taxes . I will open that up to anyone on the panel. I think it is very important for the taxpayers of the United States to know that the irs is taking the appropriate steps to ensure that people are paying the taxes that are legally due and owing. To me, compliance voluntary compliance is really the name of the game. Because you dont you know, enforcement is so expensive. So you want people to feel that the agency is using its power legitimately, not coercively, and not disproportionately, even as its also providing service to people and builds trust in that way. And thats why i have recommended that you really think carefully about that balance between, you know, using legitimate Power And Building trust with all of the taxpayers. I think i share the concerns about mandatory funding, that the irs is under a lot of pressure and there are many demands on it. So there need to be great safeguards to make sure that it does when its supposed to. I also think you need watch very carefully by oversight hearings that it is delivering what you are expecting of it on time. Because often gets awry and offscheduled. I have witnessed that for 18 years when i was a national Taxpayer Advocate. An extra minute. Mr. Adrian or ms. Holtzblatt . I think in terms of equity there also needs to be, you know, leveling the playing field more in terms of the Audits And Understanding why for example, we get these kinds of rates in favorable conditions in favor of certain taxpayers over others. As weve seen, as i said, 44 out of 10 of the corporations come out of the audits with no change or a refund. Many of them never respond to the Irs Audit. That gets to an issue that ms. Olson has raised on many occasions, which is providing lower income people with assistance in going through this kind of process, making it easier for them to be able to respond to the irs request. So to the extent to which you maintain audits across the board, there also is the need to maintain equitable treatment of taxpayers proviing to be able to respond to the irs with a way that can get them the result that they would like for themselves. Great. Thank you. My time has expired. I yield back. Mr. Smucker, you are recognized for five minutes. Thank you, mr. Chairman. Ms. Olson, i asked a member of the former panel some questions in regards to the Propublica Information that was just released. And of course they are very concerned about that as well. I assume you are very concerned about that as well . Absolutely. And i have spent a lot of time trying to think about how that could happen. Because as deputy Commissioner Odonnell has said every Irs Employee has annual training on unauthorized access and there are safeguards in being able to access information. And unauthorized access is tracked not just by the irs but by the Inspector General. They have access to our systems to see patterns of unauthorized access. It is very disturbing if it is a Irs Employee or contractor. I want to say it could be someone this the Accounting Division who had access to that information. But it is profoundly disturbing. Some of the questions i have are related to, this but i know we will find a lot out after we learn more about this investigation. But it is not clear to me entirely what the penalties are if this is indeed an Irs Employee. Can you speak to that at all . It is a crime. And its also that they will lose that are job which is the least of it. But unauthorized access can be a criminal offense. I am sure we will see that roll out if they identify the person. Maybe you can answer this question a little better than the previous person i asked. Certainly appears to me like there could be blil reasons foR Doing this. It fits with my friends on the other side of the Isles Narrative that the rich arent paying enough taxes. They are certainly using it to try to make that case. Would there be additional penalties if this were done for political purposes . My understanding is that under the statute the actual political motive is as it is with criminal offenses. Its did you intend to do this thing, namely,is close or access private Taxpayer Information that you do not have authority to access. So whether there was a political motivation or not, at least for that particular offense it would not be an issue. Thats my understanding of it. Can you tell me whether propublica could legally publish that information regardless of how they received it . I am not an expert on first amendment and you know those kind of requirements. I do not i am not an expert on that. My focus has been on Irs Employees and what they are authorized to do. Yeah. Sorry. Then the other pointed, i dont know if you can speak to this or not, but this narrative that the wealthy are not paying enough in taxes. I pulled up a chart. And mr. Chairman, i would ask that i have this submitted into the record. At the moment I Cant tell where this came from. Its not on the heading. Maybe stipulate that for now. But this breaks down by quintiles. By income quintiles, the lowest 20 and so on. What percentage of the total federal taxes they are paying, the top 20 in 2017 paid 87 of the total federal taxes that were received. Compared to this chart goes back to 1979. In 1979, that rate was 65 . So weve seen the wealthy paying more in taxes as a percentage of the total since 1979. In fact, the top the lowest 40 pay zero in taxes. In fact, they get money back. So that the bottom quintile pay as negative 3. 9 . The next 20 pays a negative. 8 . I dont know, ms. Olson, do you accept this notion that the wealthy are not paying their fair share . Personally, i dont like the discussions with the word fair share. I think citizens should pay the taxes due and owing under the law. I believe the irs needs technology and skills, more skills to be able in this modern age to ensure that folks engaging in transactions are paying what they should. But in looking at the propublica article, there was no indication that anyone was doing anything illegal. It was all legal. It was Tax Avoidance rather tharn Tax Evasion. Thank you, the gentlemans time expired. Thank you. Miss del bene, you are recognized for if i have minutes. Thank you mr. Chairman, thank you to all the members of our panel for giving up your time and insights. Since 2010, congress decreased Irs Funding by 23 with a correspondenting 22 reduction in Work Force. These Budget Cuts allowed corporations and wealthy individuals to avoid taxes. And a failure to update antiquated technology makes the irs vulnerable to inefficiencies and also to cyber attacks. It is not enough to mack sure they have resources. But we have to make sure irs has tools to modernize technology and ensure fairness and also make sure that we have a strong and skilled Work Force. Ms. Holtzblatt, i wanted to talk to you you speak about Work Force. I wondered if you could tell us where in the u. S. A personnel decreases that occurred. A good chunk of the reduction in personnel has occurred in enforcement and collections. Perhaps most concerned is that a lot of share has been the reduction of the revenue agents and the revenue officers. Those are the individuals who handle the most complicated tax audits, they are the ones who go out, do the audits, and who collect. I think a part of why we have seen that is that there was a hiring freeze between 2011 and 2018. And the irs has a population like the rest of the world thats getting older. And you have large numbers of people retiring and they could not be replaced. So the irs has heavy brain drain. And that has, i think, contributed to sort of the slow down in audits because you are losing those skilled people. And to the extent you have skilled Work Force there, they are the ones who are going to be responsible for training new hires and so forth. So i think that is a major contributing force. It is a heavily labor intensive agency. And when you are losing your most skilled and experienced workers, you are going to have an impact on not only the number of audits, but the quality and the length that they take. That point on Work Force training i think is critically important. We were talking in the first pam about the i. T. Side, how students coming out today with i. T. Skills dont have training in coball anymore and they are having to be trend on the older technologies in order to work on irs systems. Obviously, the folks who have the Skills Today on the audit side, et cetera, are critically important to training. I think it is important too for us to think about the out of date systems, et cetera. Do you agree . Certainly. The good thing about hiring younger, or more recent graduates is not only do they have to pick up the cobalt in transition but they already have the skills. Its not going to be that difficult generally to go back and learn an old knowledge but they can also bring new blood, new knowledge and move the agency forward. One would hope. Thank you for your time i yield back, mr. Chairman. Thank you miss del bene. Ms. Blaskt you are recognized for five minutes. Thank you mr. Chairman. I want to thank you for having these two panels offering their perspective on a number of issues related to closing the Tax Gap. One of the questions that i have it is a question that i asked to the first panel that i think would be also interesting to have the second Panel Answer as well. And thats related to reducing the Tax Gap which of course focuses on Irs Enforcement capabilities but somewhat what has been lost in the discussion is the role of adequate Taxpayer Services. Ms. Olson, i know that you talked quite a bit about that in your opening statement. I recall how important your work has been and your assistance to my constituents. And some others2 the panel might have opinions on that as well. Well, i can certainly go first, and let others sure. Taxpayer service is just absolutely vital. Its not just in the form of picking up the fun, but its in really rethinking how you present information to taxpayers, the extend of transparency, the ability to explain things, the kind of on the Ground Assistance you give to people. And i believe that as we are talking about fresh employees, new employees n many ways the old way of thinking of Taxpayer Service just doesnt apply in this environment. On the other hand digital is important, but again being able to talk to taxpayers is vitally important, because of the power the irs has over their lives. Thank you. Anyone else . I would say one thing for people to keep in mind the the history of the earned Income Tax credit is an complex system. But there is a program called [ indiscernible ] to actually help taxpayers. That was very good for ras and ros to see taxpayers who were trying to comply with the law since every dave their lives they saw people that maybe werent. Thank you. The last question i have, and then i will yield back, and thank you again mr. Chairman for this hearing, is related to when we talk about enforcement resources, some have called for a multiyear Funding Program that would not be subject to annual appropriations. What are any of the members of the panels thoughts about supporting or not supporting multiyear fundsing . And additionally, should there be a mandatory funding to provide funding to ensure that irs has a stream of funds for such mandatory funding for service purposes like preventing Medicare Fraud and medicare. Then i will yield back. I spoke about this somewhat in my testimony but i think it is critical that multiyear budgeting be provided to the irs. I know from when i worked at treasury and met with people from the irs decisions about how to hire and where to invest money were really dependent on their confidence that the money would be sustained over time. You cant invest in capital unless you know you will have the money when the bills come due. And you can hire people unless you know you are pay them the following year. On the other hand, it is perhaps i can understand Peoples Caution in terms of providing this money on an automatic basis. And that i think requires more oversight. It also requires the irs to be providing more information with respect to their plans on how they would use the mandatory money and to have milestones. There needs to be more information and rules in order for congress to be able to evaluate how that money is being use asked if it is on track to meet the goals. Thank you very much. Mr. Chairman. Thank you. Ms. Moore, you are recognized for five minutes. You may have to unmute. There you go. [ no audio ] mr. Chairman, am i recognized . You are recognized. Thank you, mr. Chairman. And thank you so much for this distinguished second panel. I am so happy to see you, ms. Olson. And im so happy that when you gave your testimony you leaned into the fact in a the irs is not only the agency that collects revenues and does Tax Enforcement, but its also a way to deliver important Taxpayer Services, you know, like the eip that we provided to people during the pandemic. Like the earned Income Tax credit, like the Child Tax Credit. Its our main Highway And Delivery system for those things. And so and i appreciate your role as a Taxpayer Advocate and going on to continue this work. That being said, you know, we have talked before about the situation that many, many primarily women found themselves in during the pandemic where their abusers took the eip checks even though the women primarily had custody of the children. We tried to work with the irs. And they perceived they didnt have the authority to provide replacement checks. I was wondering if you could walk us through i have legislation, by the way, that would provide the authority for the irs to do this. And i am wondering if you can walk us through how this is possible, and what we can do, and why this ought to be a priority. Thank you. First of all, thank you for your leadership on this issue. You know, your legislation identifies a Funding Source to be able to make replacement payments. But the irs has the skills right now, in house, to be able to make determinations of whether someone is a survivor of domestic violence, and whether the children reside with them during the period so that all things being equally, if there is a Funding Source a payment could be made. And working with domestic Violence Advocacy groups, weve identified a whole series of kinds of documentation that state agencies and local agencies and courts have accepted, you know, as evidence towards there has been a domestic Violence Situation that the irs could definitely adopt. And so this is definitely something that they can do. I would also say that this leads to my proposal that the irs create a separate unit for Family And Worker benefits so that just a whole unit is you know, a division of the irs understands that this is the populations and the issues that they may be facing. And they are responsible from beginning to end of that taxpayers experience, including compliance, but also these kinds of issues. So you have got people that are in a cando mentality, and looking for resolution, and up owe rate issive ways to address the needs of the Family And Worker population. Thank you so much. This is this is really, really, very, very important to me. Do you think that this is a big ask of the irs . I mean, you might have already answered it. But, you know, i was thinking with this portal that we created, with all the information the irs has, you know, with my legislation and the authority, are we asking the irs to do something that is outside of their Wheel House and that they really cant do . Congress created a provision called relief from joint and Self Ral Ability irc which is what we call the innocent spouse statute. Under that, the irs regularly makes is faced with domestic violence, and you know, and abuse situations. They have a unit that is familiar with those issues. I personally have trained them on those issues. So this is just building on the strengths of that unit and the knowledge that that unit has and expanding it and putting it in you know, applying it toward a different issue, namely the eip as opposed to regular Tax Returns. But there is a unit that has those skills. Listen, i thank you so much for continuing to be engaged. We are going to work with you on the creation of your new unit. I think thats a fabulous idea. And thank you so much. And mr. Chairman, im going to give back my 27 seconds. Thank you, ms. Moore. Mr. Beyer has another hearing. Is there objection to allowing him to go next . Mr. Beyer, i am going to recognize you for five minutes. You owe Dwight Evans lunch. I will buy him coffee on monday. Thank you mr. Chairman, i appreciate it. I would first like to respond to my friend mr. Smuckers comparisons of the percentage of taxes paid by the wealthiest since 1965 to today. That has been accompanied by an extraordinary concentration of wealth in soes same people. We have wealth more concentrated now in the United States than any time in the last 25 years. A fair comparison would be what percentage of their Income And Wealth is being paid. I hope that we will look at that. By the way, fairness is measured in different ways. The biggest thing is what is the quality of our life after those taxes are paid . I am so pleased to have ms. Olson here arc longtime Taxpayer Advocate, formerly of the city of richmond, virginia. Nina, it is great to see you. I want to thank you very much. We much especially in this last year much of our constituent service has been with the Taxpayer Advocates. And they have been terrific and have returned check after check to our constituents. So thank you very much. And thank you for the many things you laid out in your long testimony. Give that 98 of phone calls are not answered boy a live person, thats as someone who likes to be in management, thats a disaster for management. My wife told me she was going to leave me if the business ever started answering the phone with electronic Voice Mail rather than a human being. Its amazing how successful you can be if you maintain that personal touch. So thank you for emphasizing that. We cannot let closing the Tax Gap come at the expense of Taxpayer Service. I have a specific question because you, in your testimony you talked about the vague math errors. And having lived through this many, many times with the irs, where it says, you filed it wrong, there is mistake, but they dont tell what you the mistake is, and you have no idea how to react to it. Your recommendation that we Amendment Irc 6213b 1 to require asource of assessment is brilliant. Is there anybody leading on this right now in house or the senate . Is there some bill i could cosign . I dont know of any. I just know this was a chronic problem, people getting notices and they dont know why its being adjusted which of course leads to a phone call, the very thing that you could avoid if you had a clear notice. You know . And i also have to say that some of the notice issues are because of irsi archaic technology that it takes a year to get Notice Khang Language changed. Even if you wanted to do something to fix it it would take so long to fix it. Which is crazy in an agency like that. Madam Taxpayer Advocate, we will track down with congressional Research And Legislation services who is doing that and we will help. Thatsj just in the last year, i am still managing my childrens taxes, even though they are in their 40s. Again and again, that specific issue comes up, there is a mistake, but we dont know what the mistake is, and we dont know how to fix it so thank you very much. Mr. Chairman, thank you for the time. I leyland back. Thank you mr. Beyer. Mr. Evans, you are recognized for five minutes to inquire. Thank you mr. Chairman. Mr. Chairman i would like to ask this question specifically to professoR Dean. ProfessoR Dean, how would you expand refundable credits of Ctc And Ertc addressing racial inequities in our Tax System in and then anybody else on the panel will be invited to comment on that. Thank you for your question. I think a lot of what the biden administration has already done i think is just incredibly valuable. The switch from the earnings and Tax Credit and all of the complexities, all of the opportunities for enforcement to create problems for individuals, replacing that with the Child Tax Credit is really an incredible step forward. I applaud the biden administration foR Doing that and working hard to make that permanent. I do think that the effort to provide advanced payment, which they are doing is a really challenging step they are taking. It does seem they are doing a pretty good job of it so far, although we havent really seen the results yet. So i think the direction they are headed is really a great one. And i think, you know, your support in that would be excellent. I do think there are steps that can be taken certainly from the enforcement side. I dont need to tell you, you know the story about the heavy some nating returns for black and latinx counties. I think that thats one of the benefits of the switch from the ertc to the ctc. There are just fewer cracks for the really vulnerable taxpayers to fall into with that. In more general terms, understanding that more white taxpayers than black claimed the ertc understanding that its not a black tax program, it is a program for all americans who are working and need support. I think that the moves that the biden administration are making are helpful. I think they do need to do some inward looking into how they are turning out enforce mental. But i do think the irs is can go a great job. I know they are working very hard to enforce fairly but they dont have the perspective they need or the information they need to ensure they are doing it fairly. Thank you for the question. If i might add something, i have a slightly different perspective. I think the definition of a child in the internal Revenue Code is based on 1950s, leave it to beaver families and there is a lot to be done in the code to really reflect and life circumstances and the family structures that we see in all families today, particularly those at the lower Income Level. The other thing is that dr. Holtzblatt raised this. The auditing is correspondence examine. It is the one it is a technique that people dont learn what they did wrong. There is unless you actually manage to get through to a live human being, it is a machine that does the audit from every step of the way. There is no human interaction unless you can force yourself into that. And thats very troubling. We did studies that showed that people after they had been audited had no idea what they had done wrong. Thats important because one third of the Ictc Population channels in and out each year. So you dont have an opportunity to learn from your current Years Mistake and then fix it for the next year. I think the Family Structure Issue is going to be a problem with credits because as your child moves with you in the current year that you are getting the payment for, but their money is being paid out to somebody else. Thats a Design Feature that we learn about as we do this sixmonth test. I just want to add when Correspondence Audits were approached in the 1990s, the thought was they would be less burdensome to the taxpayers because it was focused orch just a few issues and it wouldnt have to be conducted in the office. There is need to look back on how to improve the process. On improving the process it should be in mind in order to continue to maintain this goal of less burden on individuals than having to face the intensive Inperson Audits that other people have to face. Mr. Davis, you are recognized for if i have minutes to inquire. Thank you. Thank you, again, mr. Chairman, for just an outstanding afternoon of serious discussion. I want to thank you for inviting mr. Dean especially to focus on the racial disparities of Tax Policy. You know, we are having more and more of these discussions now about race and the role that it plays and its impact on public policy Decision Making. And i commend you and chairman patterson. When we tax Labor Income at a higher right than capital income, there is a racial gap in who benefits and who loses. When the internal Revenue Service erect barriers for the incarcerated to receive their legal stimulus checks, theres a racial gap in who wins, who benefits, and who loses. When the top 1 are responsible for 70 of tax underpayments, yet the five counties with the highest audit rates are predominantly black, latinx, and native american, there is a racial gap again in who wins and who loses. I was thinking of ida b. Wells who said that the way to right wrong is to shine the light of truth upon them. To address inequality in the Tax Code enforcement, i believe strongly that we need to collect as much demographic tax data as we can to shine the light. Ms. Olson, i dont really have a question, but i do want to to let you know you are an absolute shero of mine and i want to thank you for the work that you did in helping to insure that incarcerated individuals would receive a degree of fairness as we deal with the whole coronavirus issue, as we deal with the economic impact of the pandemic. I want the thank you for that. I i mean, thats a group that oftentimes are overlooked, and a group that is relegated to a certain kind of punishment because of their status. And would know that disproportionately they are population groups that are affected in that population. Mr. Dean, i want to thank you for your focus on the issue of the inequalities in racial disparities and or highlighting the work of delegate christensen, congressional black caucus, and chairman rango. Could you furtheR Discuss the racial patterns in tax policies and enforcement and how we might be able to move in such a way that the policies that we arrive at tax into consideration a more clearer picture of what has been some of the historical precedent in our country. So if you could do that, i would appreciate it. Well thank you so much Congressman Davis for your question. It really is a privilege to be here to express these issues. They really the good news and the bad news is that i am not asking a lot. What i am asking for is something that i think both republicans, democrats can easily agree on. As you noted, the stories i tell in my longer written testimony about a surviving alliance between george w. Bush and the congressional black caucus sfes to how easy this is. I am asking for simple decency. Imlooking for us to look at the eight Way Tax policies are designed and the way they are enforced. And just to make sure that they treat americans fairly, hardworking americans Thats Something that we all treasure. I think it is really quite simple. I think it is important as you say, to collect more information when we can, but we also have to do better with what we already have. Thank you so much. Thank you both. Again, mr. Chairman, i think you maybe when the two of you got together, you just kinds of hit a double home run. We thank you for the afternoon. And i yield back the balance of my time. Thank you. The gentlemans time is expired. I want to thank all of our witnesses for the great job that you did. You all shared some very important information with the two subcommittees that will help us move forward. And i also want to thank the members. Thank you for hanging in there. You had great questions. I think this truly is something that we can work together on in a bipartisan way to address both fairness and a better outcome with the irs. Members, you will have two weeks to submit any written questions to be answered later in writing. And those questions, along with your answers, will be made part of the formal hearing record. Again, thank you all. Mr. Pascrell, always a pleasure to parter in up with you. Thank you all. And with that, the subcommittee stands adjourned. Be safely. And we will see new person next week. We will see you in person next week. Cspan has your unfiltered view of government. We are funded by these television companies and more, including charter communications. Broadband is a force for empowerment. 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