Companies and more. Including spark light. At spark light it is our home too and we are facing our greast challenge and that is why we are working around the clock to keep you connected. We are doing our part so you can do yours. Sparklight supports cspan along with these other Television Providers giving you a front roe seat to democracy. Irs commissioner testifies on Child Tax Credit and the use of Artificial Intelligence in auditing tax returns. The topic of the earned income tax credit fraud was also discussed. [inaudible conversations] [inaudible conversations] [inaudible conversations] the committee will come to order. Before we began i now, i know the committee will come ft order. Before we begin, i know i speak for everyone here when i wish our Ranking Member a happy birthday, yesterday. We are supposed to have some cake later so we need to celebrate. But, a late happy birthday and we appreciate serving with you. Thank you commissioner for appearing before the ways and Means Committee earlier than usual. We have a lot to go over so i appreciate you answering the request of members to come before the Committee Early this year. The first as it pertains to the current 2023 tax Filing Season. Thank you to you and your team for the Technical Work to make sure that the quick and without delay implementations of provisions of the tax relief for American Workers and families act. We appreciate the steps the agency is taking right now to be ready to immediately implement the legislation when the Senate Passes the bill and it is signed into law, especially with regard to adjustments to the Child Tax Credit. We are largely aligned on the importance of rooting out fraud in the Employee Retention tax credit program. We look forward to your efforts eliminating fraud but also making sure that Small Businesses across america who filed legitimate claims received their credit as soon as possible. I am grateful for your partnership in these efforts and it would not surprise you that i also have a number of concerns about the Biden Administration approach to the irs and about the irs handling of several important issues. Last time you were before this committee the irs and chosen to delay a provision of a law crafted by the Biden Administration and Congressional Democrats that would send tax forms to 44 million americans just for engaging in transactions over 600 in one year. This includes transactions like selling a used couch or a concert ticket through a Third Party Payment platform. The irs unilaterally chose to delay implementing the law or sending these forms. This time, in an election year. Republicans are united behind repealing this policy. I want to say thank you to representative carol miller for her leadership on the repeal effort but the way to fix this terrible law is to repeal it. Not to use the irs to shield the Biden Administration from the consequences of its own policies. Also, last time you were before this committee, you said that the irs would not retaliate against whistleblowers. One of the iris whistleblowers that has appeared before this committee has since alleged the irs retaliated against him for exposing the truth about the doj preferential treatment of hunter biden. I hope you will share what steps have been taken to protect whistleblowers. Just a couple of weeks ago a judge sentenced an irs contractor to five years in prison for the greatest theft of taxpayer information in american history. I think the department of justice woefully under charged this individual but i am pleased that the judge applied the maximum sentence available to her. This story does not end with that case. The irs must be accountable for allowing this theft to ever have happened. It must ensure that it fixes security vulnerabilities at the agency. A recent report from the Inspector General describes alarming details about how current irs security flaws demonstrate the problem has not been resolved. I hope that you will commit today to address their findings quickly for the sake of millions of taxpayers. We have serious questions about numerous other issues like the implementation of an irs direct file scheme that the American People did not ask for. , how the irs is suspending fantasyland claims about how much revenue with increased audits. More of the irs time and resources should be directed towards improving its Customer Service for its existing duties and not spending money and resources on new systems no one has asked for. Part of that focus should be on deploying new Tech Knowledge he to make the irs more efficient. Proper use of technology can help avoid the need to hire thousands and thousands of new employees. Thank you to representative for leading the charge to make sure that the irs is taking advantage of new Tech Knowledge he to help taxpayers. Clearly there is a lot the irs needs to answer for and i look forward to hearing how your agency plans to follow the law and protect taxpayers moving forward. I recognize the Ranking Member for his statement. We want to welcome the commissioner back to the committee on ways and means. It is delightful to have you with us in the middle of what promises to be a record breaking filing system. The dedication of those that the irs is remarkable. For the swift implementation of the Inflation Reduction Act. Last Filing Season was the first impacted by the democrat multi Year Investment from historic Taxpayer Service was dramatically improved but it was the consequence of a well made and well funded program and the results have been remarkable. In this era of service to american taxpayers the irs meets goals and delivered it in a quality level of service. 3 million more phone calls were answered and wait times were cut. Over 140,000 additional taxpayers were served in person. The 2022 backlog was eliminated. A reminder to the republican colleagues, many of the recommendations that we entertain and discuss this morning came from a republican who worked with all of us to make sure is we had quality service. We know that expectations have been increased based on the success that the irs has had so far. It was just lester that we discussed the future of the iris ability to hold the top 1 of tax accountable. Over 500 million has been recovered from 1600 wealthy tax avoiders. Another major victory. A reminder, if the revenue is not collected in a fair manner the rest of us pay more. The biggest threat to the irs right now is the extremism of some colleagues. From the government shut down in five days to the attempt to not only will this end up costing taxpayers money and adding to the deficit but how can you argue with the success. I find myself wondering out loud about who wins when the irs is starved for resources. Perhaps a colleagues can answer that this morning. The audit rate on millionaires fell by more than 70 from 2002 through 2019 the audit rate of large corporations fell by more than 50 . That was a request from commissioner reddick. Workers and their families pay their fair share to make sure that wealthy and wellconnected people are paying their fair share too. The promise of direct file draws nearer but i am disappointed it was not in time for the public to take advantage of it. You, to the commissioner for his diligence and being here today and we look forward to continue to work on behalf of the American People. With that i yelled back my time. Spent the sole witness today is the commissioner of the. Commissioner danny werfel, you may begin. Thank you for the opportunity to testify on the Filing Season and irs operations. I am pleased to report the 2024 Filing Season opened on schedule on january 29 and has gone smoothly so far. Along with Filing Season and other day to day operations we continue to make progress in efforts to transform our agency through implementation of the Inflation Reduction Act. Using ira funding, hard work is centered on three fundamental themes. First, ensuring taxpayers can easily contact the irs whether in person, on the phone, or online. We want them to get help navigating complex tax laws and accessing the credit they deserve. Second, identifying the growing number of taxpayers with complex returns, including certain wealthy individuals, large corporations, and complex partnerships shielding income to evade tax responsibility. We want to collect from them what is owed. Third, addressing the growing risk of tax scams and schemes by protect thing honest taxpayers from them. We want to root out the nefarious actors that perpetrate them. These investments allow us to of irs i want people to know that the irs is on the side of taxpayers and we are working to reflect that in every aspect of our operations while administering tax law. The irs has been working hard to build on the accomplishments of last year and our transformation goals for this Filing Season include providing an 85 level of service on our main tollfree line during Filing Season. We continue to increase scrutiny on those that evade taxes. We are working to reverse the historically low audit rates for large corporations, complex partnerships and high wealth individuals. The irs has taken dramatic steps to strengthen our internal systems, protocols, and procedures by putting in place numerous improvements to bolster how we protect key systems and information. Recent steps enabled new funding and that has sharply reduced risk for taxpayers and the task system. Taxpayers should be concerned about recent reports of the unauthorized access and disclosure that occurred in the 2017 13,021 timeframe and the Data Security environment at the irs has dramatically improved. We have worked tirelessly this past year to close gaps that allow this event to transpire however, there is always more work to do and we will continue our laser focus on strengthening Data Security. Another important aspect of the mission that is implementing tax laws fairly and justly. A key part of this involves making sure that everyone pays the taxes that they owe but we also have a responsibility to protect taxpayers from being overly burdened and fulfilling Tax Obligations. We work continuously to balance these sides of the mission. This is the issue that we faced implementing this 600 threshold for 1099 reporting that Congress Passed in 2021. It is important to have the information provided under the lower threshold and we must also consider the burden placed on taxpayers meeting this requirement. Our administration of tax laws should be guided by what is best for taxpayers. In this situation we delayed imposing the lower threshold because we realized that immediate implementation posed a high risk of taxpayers being confused and even the complexities of the 1099 reporting, some potentially paying taxes they did not actually owe and that is something we take seriously and we will do everything in our power to avoid so the irs is continuing to reduce that risk for imposing the 600 standard for this is transactions. We will continue to working this and getting feedback from key groups. I want to assure the committee that the irs is paying attention to the potential passage of the child credit talks. The irs is poised to work quickly to implement it building off of experience with Economic Impact payments during the pandemic we might be able to start implementation as early as 612 weeks after passage depending on the final language but taxpayers should not wait for people to file returns. We will get any additional refunds to taxpayers that have filed. They will not need to take additional steps. Members of the committee, that includes my statement. I am happy to take your questions. Spectacle. We will now proceed to the question and answer session. Commissioner werfel , it included adjustments to Child Tax Credit that you briefly touched on. I want to ask some additional questions to make the record reflect appropriately but the bill passed through this committee by a vote of 403 and it received 357 votes on the house floor. I appreciate the work you and your team have done to help ensure that the bill can be implemented as quickly as possible. I want to confirm a few details with you. The overwhelming majority of american taxpayers are guaranteed to have no adjustment to their tax liability. That is due to the Child Tax Credit changes in this bill. Can you confirm that only roughly 10 of households will be affected and will receive just modest adjustments to their tax refunds . Yes. Looking at the numbers, if you look at the same eligible population. The metric is in line with how it will impact taxpayers going forward. We worked with your team to make sure the bill did not place a new burden on taxpayers and can be implemented without delay. Can you confirm taxpayers do not need to file amended returns to maintain the adjustments made, further speeding things up . Yes. There is language in the legislation requiring the irs to process any additional returns without delay. That was language that we added the during the markup in this room. It if the bill is passed by the senate and signed into law, how quickly can you make the Child Tax Credit adjustments for this Filing Season. How long will it take after bill signage for the irs to sound out send out additional refunds. We gave you a range of 612 weeks from the point of enactment. We give a range because we need to see the final language but i am committed to work illegitimately to make sure we are closer to the six week range. I appreciate hearing that. Just to be clear we have your commitment that the irs will move as quickly as possible . It will be a top priority to make sure that this gets done. Thank you. In the past the irs has asked congress to make changes during tax Filing Season. Congress has asked the irs to make larger changes than this bill does like sending stimulus checks to hundreds of millions of taxpayers. Or creating a monthly check sending system for the Child Tax Credit on the flight. Fly. The number of taxpayers affected here is a fraction of those affected in those other programs. Given that, can you confirm the administrative adjustments needed to implement the tax will be for american and workers act are in much lighter lift for the irs than for those other programs . Yes, and mr. Chairman, the work that we did to implement the payments that you referred allowed us to build additional capacity to make us even more ready for this change. Thank you, sir. Commissioner werfel, the individuals who stole and disclose the Tax Information of thousands of americans has now been punished with a sentence of five years in prison. While im glad the judge in the case sentenced him to the maximum available to her, i was surprised that the department of justice only charged the individual with one count, one count of unauthorized disclosure and no other crimes. Did you make the recommendation to the department of justice on how to charge in this case . No. Thats not the role of the irs commissioner. We allow and defer to the justice, department of justice on prosecutorial decisions. Do you think one count of disclosure matches of the crime committed . I think that protecting taxpayer information from unauthorized access is an absolute solemn responsibility of the irs. And also believe this individual betrayed the trust, he betrayed his own commitments. He betrayed irs employs in place and he betrayed the american tax people. And based, and the type of the should not be tolerated, and based on whats playing out in court its not being tolerated isis persons being brought to justice. And as i understand it is going to spend years in prison. Five years. Do you think the penalty should have been hired for this individual . I dont, i dont have a on that, mr. Chairman. I rely on the court and the judicial process to play out, and i trust that the judicial process will get the right answer. I was looking more of the legislative process of whether congress should change and increase the penalty for someone who abuses taxpayer information like this situation. I now recognize the Ranking Member for any questions you might have. Thank you, chairman. Commissioner, whats the irs done to restore element of fairness to the tax system . Is a into compliance you are aware of two on high income earners or the corporation. Thank you for the question. What happened in the time before the Inflation Reduction Act when i was funding was low and we were not making the appropriate investments, theres a friday different different areas we fell behind and one of the key areas we fell behind is the ability to assess complex returns. So in situations where taxpayers had the means to hire an army of warriors or accountants to create a lot of complexity in the return and potentially shield income, we werent making the appropriate investments to track that, assess it, collective. And now we are doing just that with the Inflation Reduction Act