[Senate Hearing 117-]
[From the U.S. Government Publishing Office]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL
YEAR 2023
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TUESDAY, MAY 3, 2022
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
The subcommittee met at 2:43 p.m., in room SD-124, Dirksen
Senate Office Building, Hon. Chris Van Hollen, (Chair)
presiding.
Present: Senators Van Hollen, Coons, Durbin, Manchin, Hyde-
Smith, Moran, Boozman, and Kennedy.
INTERNAL REVENUE SERVICE
opening statement of senator chris van hollen
Senator Van Hollen. Good afternoon. This hearing will come
to order. And I want to start by welcoming our witness, IRS
Commissioner Charles Rettig.
Commissioner Rettig, thank you for your service. Thank you
for being here. And I also want to take this opportunity to
thank your staff for their professionalism and partnership,
both preparing for the hearing, but throughout this Congress.
The IRS has been consistently receptive to the work of our
Committee, and my team and I are grateful to you and your team
for your cooperation.
At the outset I would like to highlight your diligent
efforts over the past 2 years to implement several new COVID
relief programs, especially those we passed under the American
Rescue Plan. And because of the American Rescue Plan nearly
three million Maryland families received direct relief payments
of $1,400 a person, over one million Maryland children
benefited from new tax cuts for families, you know, through the
expansion of the Child Tax Credit, and over 250,000 Maryland
workers got a tax break through the expansion of the Earned
Income Tax Credit.
The IRS played a key role in delivering these funds to
Americans across the country. You did that while also working
tirelessly to protect your own employees from COVID-19. The
obstacles were enormous, but you and your agency delivered. And
I want to salute you and the good men and women of the IRS who
helped get that vital relief out the door.
We also know that the agency, the IRS, continues to be
underfunded and understaffed. And the massive tax return
processing backlog at the IRS is the resultant, you know, we
will talk some about that today.
Many of my constituents are frustrated that they are still
waiting for their 2021 and 2020 refunds. Just last month I
heard from a mother of two in Maryland, who has to move homes,
and is counting on her 2021 refund to cover the cost of a
security deposit and the first month's rent. Her tax forms are
stuck in the backlog, along with millions of others.
Mr. Commissioner, I know you have made it a priority to
address that backlog by hiring new staff at your processing
centers, and by detailing experienced staff from other parts of
the IRS to help with the backlog.
I commend you for these efforts, and I want to make sure
that this subcommittee is working with you to address this
issue as fast as possible.
As the Chairman of the Committee, I have made IRS funding a
top priority, and I want to thank Ranking Member Hyde-Smith,
for working together on these issues, so that we can help the
IRS replace outdated technology and hire more staff.
Less than 2 months ago, this subcommittee provided the IRS
with its biggest funding increase in 20 years to do just that,
to help serve our constituents, your clients.
I look forward to seeing that investment improve service
for working families, cut down on hold times, and reduce the
backlog. As we work to improve customer service, we also need
to improve IRS enforcement. Right now, as you, yourself, had
pointed out Mr. Commissioner, there is anywhere from $500
billion to $1 trillion in taxes, each year, that are owed but
not paid, what is commonly referred to as the tax gap.
These are billions of dollars that are legally due and
owing under current tax law, while everyday Americans have
their taxes withheld, and pay what they owe, we cannot allow
the super-wealthy to evade the system. By enhancing the
capacity of the IRS to track down wealthy individuals' unpaid
taxes, and big businesses who sidestep their tax
responsibilities, we can raise more revenue without changing
the tax law. Those who refuse to meet their obligations, or
avoid their obligations make everybody pay instead.
I am proud of the work we have done to increase the IRS
budget to meet these goals, but despite our efforts to
prioritize IRS resources in this subcommittee, as a result of
the overall caps, the funding we secured this year was less
than you requested. And I believe less than you need, and we
look forward to working with you this year so you can meet your
mission.
I have heard from some of my colleagues who say that the
IRS problems we are seeing are not a budget issue at all. They
just say that the IRS needs to hire more customer service
agents, and upgrade their IT systems, and everything will be
fine. Well, that would improve things, but that does cost
money. And while money is not the only solution, it is a big
part of the answer.
Commissioner Rettig, I know that you understand the IRS'
problems, and want to solve them. I will hope that this hearing
is an opportunity for us to discuss how we can help the IRS
access the tools it needs to delivery topnotch taxpayer
services, and beef up enforcement of the super-wealthy who are
not paying their fair share.
But before we move to your testimony, I would like to
return to Senator Hyde-Smith, and again thank her for her
partnership on this subcommittee, and for her opening
statement.
opening statement of hon. cindy hyde-smith
Senator Hyde-Smith. Thank you, Mr. Chairman, for that very
kind welcome. And I certainly appreciate the opportunity to
serve as the Ranking Member on this very important
subcommittee, and I look forward to continuing to work with you
in crafting responsible funding legislation for fiscal year
2023.
And I want to welcome the IRS Commissioner to our hearing
today. And thank you for your service, and we look forward to
your testimony this morning.
The IRS entered this year's tax-filing season with a
historically high backlog of unprocessed paper returns, and
correspondence. When such issues arise, the IRS usually speaks
about the need for more funding. However, the IRS received more
than $3 billion in supplemental funding since 2020. Today, more
than $1 billion of this amount remains unavailable and--I mean
available and unobligated.
Moreover, in this current fiscal year the IRS received
$12.6 billion, its largest funding increase in two decades.
Despite this robust funding, critical IT modernization projects
lag, the tax gap remains wide, the backlogs remain high, and
the customer service is at an all-time low.
The IRS requests a total of $14.1 billion for the upcoming
fiscal year. And I believe it is time for these funding
increases to be met with fiscally responsible decisionmaking,
decisionmaking that prioritizes that everyday taxpayer, and
efficiency.
I want to ensure that money appropriated to the IRS is no
longer diverted away from measures and programs devoted to
improving taxpayer services and enforcement. It is my hope that
during today's hearing our priorities align to ensure utmost
efficiency and fiscal responsibility with the IRS going
forward.
Mr. Commissioner, I know you have made some tough choices
in responding to additional responsibilities placed on the
agency. I thank you for your service. And I look forward to
your testimony today.
Senator Van Hollen. Thank you, Senator.
Our first witness and only witness today is IRS
Commissioner, Charles P. Rettig. Prior to his confirmation in
September 2018, Commissioner Rettig worked in private practice
for 36 years, representing thousands of individuals and
businesses before the IRS. The Department of Justice Tax
Division, Federal and State Courts, and State taxing
authorities.
He received a B.A. in Economics from the University of
California, Los Angeles, as well as a JD from Pepperdine
University, and an LLM in Taxation from New York University.
Commissioner, thank you for coming back. I know that you
have testified in front of a number of committees already this
season, but we look forward to your testimony, and hope you can
help us as we work with you to make sure you have the tools you
need to do your job, and serve the American people.
Commissioner Rettig?
STATEMENT OF HONORABLE CHARLES P. RETTIG, COMMISSIONER,
INTERNAL REVENUE SERVICE
Commissioner Rettig. Yes. We have had a lot of hearings
this year, but I should say that my wife appreciates it,
because she likes to watch the hearings, so she knows exactly
where I am, what I am saying, and it gives us a 3- or 4-hour
discussion each evening as she critiques what I said, what I
didn't say.
It is an honor and a privilege to be in this role. It is an
honor and a privilege to be in front of each of you. And
Chairman Van Hollen, Ranking Member Hyde-Smith, and Members of
the Subcommittee, thank you for the opportunity to discuss the
Internal Revenue Service operations, the current filing season
and the fiscal 2023 budget.
As you know fiscal 2021 gross receipts for the Internal
Revenue Service were approximately $4.1 trillion which
translates to approximately 96 percent of the gross revenue of
the United States of America. I would like to start by
indicating the importance of the IRS, not only to Members of
Congress, and not only to taxpayers in this country, but really
to the rule of law, to the country that we have, and the
support of the country.
We don't make decisions as to the expenditure of the funds
collected, but the importance of the IRS in supporting this
country, from a financial perspective, at 96 percent of the
total gross revenue of the country simply cannot be ignored. We
need a fully functioning, successful, Internal Revenue Service
to have a fully functioning, successful United States of
America.
And you know, I am a proud American. You are all proud
Americans. That is why we are here. We are willing to give of
ourselves to make this country continue as the greatest country
on the planet. I believe that, and that is why I came. And I
believe in the people of the Internal Revenue Service.
The people of the Internal Revenue Service have given
extraordinary efforts during the pandemic, and we look forward
to oversight. From my confirmation hearing through today, I
have welcomed all types of oversight. We do have oversight in
certain lanes. Obviously, we have a Treasury Inspector General
for Tax Administration, we have GAO, we have media, we have
taxpayers, we have professional associations, we have Members
of Congress.
Oversight should not be a concern. We welcome that; I
welcome that; I believe every Commissioner after me should
welcome that. My term, as you are aware, is a statutory term,
and it concludes November 12 of this year. It has been a
privilege to be here, a privilege to interact. I want to bring
that in because presumably this might be my last appearance
before you.
The employees of the Internal Revenue Service are the
strength of the Agency, and they will continue to be the
strength of the Agency, and collectively, we need to support
them in the efforts going forward.
I believe that the President's budget proposal for fiscal
2023, supports the employees of the Internal Revenue Service,
supports the mission. Again, we request oversight, because I
think that that is a privilege for the tax administration
agency to have people understand what it is, and specifically
what it is not, for transparency, for people to see what we do,
and what we don't do.
I have read a lot of articles since I have been in this
position that I can't wait to contest once I am no longer in
this position. We are here, collectively, and I am speaking to
both of you, but as well as to everybody else, to get this
right so that we can proudly walk out the door and say, we are
here supporting the United States of America.
And I say that as a proud member of a military family. As
you know, my son is a Major in the United States Army. I
couldn't be more proud of his service, of what he does,
literally, on a daily basis. And I think that most people
should feel like that.
I am more than willing to have discussions with respect to
the ARP spend plan. We provided a detailed summary of what we
are doing with respect to the spend plan on February 12 and we
got an Omnibus Budget on March 15, so we are adjusting our
spend plan. We will come back to you with an adjustment to
that, so you can see how we are spending the balance of the ARP
funds, but we have obligated about $966 million of those funds
to date.
But know that we have been in more than 100 continuing
resolutions since 2001. It is impossible to build out a robust,
meaningful, technology infrastructure without multi-year,
timely, consistent funding. When we get our funding halfway
through each fiscal year, it is impossible for us to plan
multi-year expenditures.
So with that, and not to go further over my time, I will
turn it back to you. I am certainly available for questions. I
am also available for meetings individually, with Members of
this Committee, or with staffs of this Committee, with or
without Members of the Committee.
[The statement follows:]
Prepared Statement of Charles P. Rettig Commissioner
introduction
Chairman Van Hollen, Ranking Member Hyde-Smith and Members of the
Subcommittee, thank you for the opportunity to discuss the filing
season and the IRS budget.
Taxpayer service remains the most significant IRS priority, and we
have implemented many new, innovative strategies in an effort to
improve our overall level of service and processing of our
unprecedented current and projected inventories. The pandemic presented
the IRS with a confluence of novel and critical demands at a time when
we lacked the stable, long-term funding needed to appropriately serve
the American people. Given these significant challenges, although we
may not have always gotten it right or supported the important
priorities of some, our employees have worked extremely hard to respond
as best we could to a never-ending string of compounding challenges.
I am pleased to report the 2022 filing season has gone well in
terms of tax return processing and the operation of our information
technology (IT) systems. Through April 15, the IRS processed more than
118 million individual Federal tax returns and issued more than 78
million refunds totaling more than $242,000,000,000. We worked
diligently to open the filing season earlier this year than last, on
January 24, 2022, compared to February 12, 2021. A detailed discussion
of the filing season is provided later in this testimony.
While the filing season has presented no major disruptions or
surprises, we know we have a great deal of work to do in many other
areas of the IRS. The IRS continues to focus on working to reduce paper
correspondence inventory and process paper tax returns from 2021 as
well as improve our response to an unprecedented level of phone
demand--situations that have been compounded by the pandemic and
related issues. For example, in fiscal year 2021, we received more than
15 million individual paper returns. We also had a significantly higher
error rate on individual returns due in large part to challenges
associated with reconciling funds received through important stimulus
programs like Economic Impact Payments (EIPs). We received far more
than 10 million returns where the taxpayer did not properly reconcile
the two EIPs received in 2020 to the amount of the Recovery Rebate
Credit (RRC) stated on their return filed in 2021. Similarly, more than
10 million individuals reported unemployment compensation on their
return that was subject to the exclusion enacted during the 2021 filing
season. In addition, millions of taxpayers elected to use 2019 rather
than 2020 as the base year for determining their EITC (and the
legislative change for that was enacted after our IT development for
the 2021 filing season had been completed). Each of these returns
required a manual review and resolution by an IRS employee.
We will continue to do our best as we face new challenges. Our
workforce is strong and remains our most important resource, with
substantially all of our employees engaged on a full-time basis. We
have taken numerous steps to address these challenges, and we continue
to look for other ways so that we can improve these operations and get
healthy by the end of the year.
The IRS is serving more people and entities in a global environment
than ever before, while handling new and bigger responsibilities. This
was the case before the pandemic and has only increased since then. At
the same time, we have experienced delays in updating our IT systems,
which means the IRS and taxpayers must continue to use certain paper-
based processes. This use of paper processes can result in significant
delays, contributing to IRS inventories and limiting taxpayers' ability
to know the status of their cases.
We are in this position because we have not had the sustained
sufficient multi-year investment for IT modernization necessary to
improve our technology and operating systems. I am here to tell you
today that nothing is more important than having those resources in
place to make it possible for us to appropriately serve the American
people. Absent consistent, timely, multi-year funding we have largely
been a paper-based organization operating in a digital world
environment. In 2022, IRS employees should not be transcribing paper
returns by hand. Taxpayers should not have to wait and wait on the
phone--often to no avail. I want to better serve the American people--
and so do the dedicated employees at the IRS. They will finally be able
to do so if you, and your colleagues, provide us the stable, multi-year
funding we need.
Like all Federal agencies, the IRS is best able to accomplish our
mission when we receive the resources necessary to do so. And that
mission is vital to the functioning of our government: The fact that
the IRS collects approximately $4.1 trillion in gross revenue per year,
representing about 96 percent of the gross revenue of the U.S., clearly
shows that the success of our Nation is closely tied to the success of
the IRS. The President's fiscal year 2023 budget proposal, which
provides $14.1 billion for the IRS, will allow the agency to take
important steps forward in improving taxpayer service, modernizing our
systems and ensuring fairness in the tax system. But for the IRS to
truly be able to deliver for the American people, it needs stable,
multi-year funding to be in place to allow the agency to rebuild.
Over the course of the last decade, the IRS's budget has decreased
by more than 15 percent in real terms. Because of this decrease, in
fiscal year 2021 we realized less than 79,000 full-time equivalents
(FTEs), which is close to 1974 levels. Since 2010, IRS Enforcement FTEs
have decreased by 30 percent, while the Nation's real Gross Domestic
Product has increased by 29 percent, and the filing population has
increased by 14 percent. Over the next 6 years, we estimate we will
need to hire 52,000 employees just to maintain our current levels.
Every measure that is important to effective tax administration has
suffered tremendously in recent years, with profound deficiencies
resulting from underinvestment in human capital and information
technology.
Although the IRS appreciates the $675,000,000 increase to our
budget in the fiscal year 2022 Omnibus, sufficient funding remains a
constraint to addressing the current paper inventory and supporting our
IT operations adequately. For example, this year's funding left our
Operations Support account, the account that funds all of the hiring,
rent, laptops, and telecom for taxpayer services and enforcement
employees, $100,000,000 short of our inflationary cost increases.
Without shifting the funds to the appropriate accounts, we are left
depleting resources from one less-visible program to pay for another
essential program, which causes us to slow or stop work on updates to
our systems that must be modernized to provide digital services that
citizens expect from us. Mandatory multi-year, consistent funding would
help us deliver meaningful services to taxpayers, conduct critical
enforcement initiatives and support long-term modernization efforts to
improve both service and compliance for the Nation.
When we are confronted with long-term Continuing Resolutions (CRs),
we typically freeze nearly all external hiring. We take this action to
ensure we have funds to pay all employees, including any applicable pay
raises. Last fall, we increased staffing despite the CR, hiring at risk
without the funding in place to support these positions, but assuming
future resources would be provided by the eventual enactment of the
fiscal year 2022 appropriation, to help address our inventory. The full
fiscal year 2022 President's budget request would have allowed us to
maintain current staffing levels and fund 4,200 additional full-time
equivalent employees. The Omnibus increased our Taxpayer Services
account by $193,000,000 from fiscal year 2021, which covered the
inflationary increases in Taxpayer Services (what we refer to as
``maintaining current levels"), and about 42 percent of our requested
program increases. We will now be required to use other funding sources
to cover our remaining needs, including requesting an inter-
appropriation transfer, redirecting user fees, and realigning American
Rescue Plan (ARP) funds. Although the Omnibus reflects an important
down payment on the necessary investments in the IRS, it is far, far
from what the dedicated IRS employees need to serve the American people
they way they deserve.
Even with appropriate funding, the IRS continues to experience
significant challenges recruiting talent to support the critical work
the agency does for taxpayers and our Nation, particularly in the
current labor market. With our limited funding, we have been hard at
work to do all we can to bring talent on board. For example, we have
major processing center operations in Austin, TX, Kansas City, MO, and
Ogden, UT, where we are working to attract eligible applicants for more
than 5,000 vacant positions. We have been holding both in-person and
virtual job fairs in Austin, TX, Kansas City, MO, and Ogden, UT where,
using recently received Direct Hiring Authority (DHA), we have been
able to make more than 2,500 conditional offers at the conclusion of
the interviews.
IRS employees want to do more to help taxpayers. We want to be able
to answer the phones and respond to questions. We want to be ready,
whenever crisis hits, to deliver economic relief quickly--as our
employees demonstrated repeatedly during the current pandemic, working
long hours to deliver crucial programs. During this challenging period,
the IRS has been operating in an ``all-hands-on deck'' approach,
leaving nothing off the table for consideration to improve overall
service.
Our employees continue to expend every effort to balance the
confluence of multiple, unprecedented demands--including successfully
starting the current filing season and working our inventory of
unprocessed tax returns, as well as looking for additional ways to
minimize burden for taxpayers, tax professionals and businesses. We
will continue to rapidly adapt to changing circumstances when
appropriate to do so. We remain committed to ensuring the tax system is
administered fairly and impartially and that every American receives
the nature and quality of services they deserve.
effects of the covid-19 pandemic and the irs response
This unprecedented pandemic illustrates the significant role that
the IRS plays in the overall health of our country. We have been called
to provide economic relief during this national crisis while also
fulfilling our routine responsibilities of tax administration. The
IRS's response to COVID-19 includes issuing more than $1.5 trillion in
combined historic economic relief and individual refunds over the past
2 years. This effort shows the level of dedication of our workforce and
illustrates how important the IRS is to the functioning of our
government and the success of the Nation.
IRS employees have worked hard since March 2020 to implement major
provisions of the Coronavirus Aid, Relief and Economic Security (CARES)
Act, ARP and other COVID-related relief legislation. This work included
delivering more than $800,000,000,000 in EIPs to help Americans cope
with the financial effects of COVID-19--which involved creating the
internal processes to accomplish this effort. The Treasury Inspector
General for Tax Administration (TIGTA) noted in a report released March
21, 2022, that the IRS computed the correct payment amount for more
than 99 percent of the 175 million payments issued for the third round
of EIPs. Our work also included delivering (and creating the internal
processes for) more than 200 million advance payments of the Child Tax
Credit totaling $93,000,000,000 that were made to eligible families
between July and December of last year.
Congress provided critical help to support our ability to implement
the third round of EIPs and the advance CTC payments by appropriating
$1.86 billion in supplemental funding for the agency under the ARP.
These funds represent important 3-year funding (expiring fiscal year
2023) and have provided, and will continue to provide, critical
assistance in our effort to better serve taxpayers. As of April 12,
2022, the IRS has obligated $928,000,000 of the total; we are
continuing to use the funds over the remaining 2 years of the
expenditure window provided by Congress in ways that are intended to
maximize taxpayer service, including responding to taxpayer questions
about EIPs and advance CTC payments. As identified in our ARP Spending
Projections provided to Congress in February 2022, these funds are
allowing us to help taxpayers efficiently obtain the payments they are
rightfully due, with additional frontline staffing, systems and
technology improvements to create safe and secure platforms, and with
investments in long-term modernization enhancements that will pave the
way for long-needed system improvements going forward.
For both the third round of EIPs and the advance CTC payments, the
IRS made an extensive effort to ensure we reached as many people as
possible who might be eligible for these benefits. We worked with
thousands of community groups, non-profits, associations, education
groups and anyone else with connections to people with children to
share critical information about EIPs, the CTC and other important
benefits. As noted above, we are continuing to work this filing season
to ensure that anyone eligible who did not receive an EIP understands
they can claim the RRC on their return, and we continue reminding
recipients of the advance CTC of the need to reconcile those amounts on
their returns.
Reducing inventory of paper returns and correspondence
The combination of the pandemic, new tax laws and numerous other
factors led to an unprecedented amount of unprocessed tax returns and
correspondence remaining in the IRS inventory during 2021.
The IRS pursued significant actions during the 2021 filing season
to address the return and correspondence inventory. But due to resource
issues and numerous unique factors tied to new legislation and the
pandemic, we have entered the 2022 filing season with a significant
inventory of unprocessed returns and correspondence and, to date, the
inability to meet our hiring goals. We must continue pursuing
innovative strategies to fulfill our commitment to return inventories
to a healthy level before entering the 2023 filing season.
To reduce the current and projected inventory, we are taking
aggressive actions that include:
--Surge Teams. We presently have more Customer Service
Representatives (CSRs) onboard than ever before. We have
retained temporary CSRs on a permanent basis to concentrate on
the inventories. We took this risk in the context of an
uncertain funding environment, hoping the annual appropriation
process would deliver funding; however, this effort has not
been sufficient to reduce the current and projected inventories
The IRS is deploying surge teams, which are groups of employees
across the agency organized to temporarily assist with urgent
issues. For example, we temporarily moved approximately 900
employees with previous relevant experience back into key areas
from other organizations. In addition to this accounts
management surge team, which is now in place, we have assembled
a similar surge team for our submission processing area with
700 employees who started on this critical work in April.
--Direct Hire Authority (DHA). Working with Treasury, the Office of
Personnel Management, and the National Treasury Employees
Union, the IRS recently secured direct hiring authority for a
total of 10,000 positions--5,000 employees with the goal of
onboarding them in the next several months, as well as an
additional 5,000 new hires to be made over the course of the
next year. Congress also helpfully provided hiring
flexibilities in the Omnibus to further expedite hiring in
critical positions. Due to the challenges of hiring during the
pandemic and competition from other employers for the same
talent, this environment is an exceptionally difficult one for
hiring. DHA may improve our ability to be competitive in cities
where these employees are most needed. We are extremely hopeful
to satisfy our hiring goal over the coming months. Also, for
the first time, we have partnered with the Military Spouse
Employment Program and are engaging contractors while
aggressively pursuing our hiring goals. We are grateful for the
specific direct hiring authority language included in the
recent Omnibus (Consolidated Appropriations Act, fiscal year
2022) that will enable us to bring talent on-board more swiftly
in needed locations.
--Mandatory Overtime. We have implemented mandatory overtime and are
offering authorized overtime to certain employees to help with
the reduction in inventory, and we are doing so for the first
time in certain functions.
--Increased access to online self-service tools. Over the last
several months, more than 10 million individuals have created
their individual online account through IRS.gov. Reducing call
volumes through increased online service allows us to devote
more resources to the inventories.
--EIP/CTC letters. We sent more than 250 million letters to help
taxpayers match IRS records to prevent delays in processing.
IRS Letter 6475, Your Third Economic Impact Payment, and IRS
Letter 6419, 2021 Advance Child Tax Credit, set forth the
amounts that individuals received in 2021. Individuals can also
verify these amounts by accessing their individual online
account through IRS.gov. Given that more than 10 million
returns failed to properly reconcile two EIP payments received
in 2020 on their returns filed during the 2021 filing season,
it is critical that individuals (and their preparers) verify
the possibly six to eight payments received in 2021 before
submission of a 2021 return this year.
--Innovating to expedite case closures. We are employing new tools to
help IRS employees review and process tax returns that include
errors and manual reviews, a piece that is already helping
taxpayers receive refunds quicker in 2022. These efforts have
already demonstrated positive results.
--Expanded Saturday openings of certain Taxpayer Assistance Centers
(TACs) to assist taxpayers this filing season in more than 90
cities around the country. TACs provide important front line,
in-person taxpayer assistance. We maintain 358 TACs but, due to
attrition and resource limitations, 39 are presently not
staffed on a full-time basis (24 TACs presently provide a
virtual service delivery alternative to an in-person visit).
All staffed TACs offer appointments as well as the ability to
walk in.
--Enhanced the EITC Assistant tool on IRS.gov to make it more user
friendly for individuals to determine their potential
eligibility (intended to reduce resources being dedicated to
erroneous EITC claims). This important tool serves taxpayers
and reduces erroneous claims, freeing up resources to help
process our inventories.
--VITA/TCE. We are also continuing to notify taxpayers about ``Free
Tax Return Preparation for Qualifying Taxpayers'' by
encouraging use of the IRS's Volunteer Income Tax Assistance
(VITA) and Tax Counseling for the Elderly (TCE) programs, which
offer free basic tax return preparation to qualified
individuals.
--Created and expanded self-service portals for taxpayers to
implement an Online Payment Agreement, request payment
transcripts, request an Identity Protection Personal
Identification Number (IP PIN), update their personal
information, etc. These efforts reduce call volume, which
releases resources to help process our inventories.
--Expanded ``Customer Callback'' to approximately 70 percent of our
toll-free telephone demand. During fiscal year 2022, we have
offered this option to more than 5.3 million taxpayers with an
acceptance rate exceeding 57 percent. We estimate this feature
has saved taxpayers more than 1.7 million hours.
--Implemented Online Live Assistance, Voice Bots and Chat Bots (in
English and Spanish) to better enable taxpayers to interact
with IRS. Online Live Assistance leverages limited employee
resources allowing a single employee to respond to multiple
taxpayers at a time. Our Advance CTC Voice Bot launched
February 18, 2022 (delivered 6-8 weeks ahead of schedule) and
handles the top 27 Advance CTC topics (English only at present,
but the Spanish version is coming soon) to assist callers who
need help reconciling the credits on their 2021 tax return. The
IRS, in recent weeks, has deployed Voice and Chat Bots in
English and Spanish for phone lines that assist taxpayers with
tax payment issues or understanding an IRS notice they may have
received. In addition to the payment lines, Voice Bots help
people calling the EIP toll-free line, providing general
procedural responses to the most frequently asked questions.
Voice Bots are software powered by artificial intelligence (AI)
that allow a caller to navigate an interactive voice response
(IVR) system with their voice, generally using natural
language. Chat Bots simulate human conversation through web-
based text interaction, also using AI-powered software to
respond to natural language prompts. Taxpayers who request to
speak with a CSR are placed in queue for English or Spanish
telephone assistance. These efforts reduce call volume,
releasing resources to help process our inventories.
--Reduced the percentage of our outdated hardware from more than 60
percent a few years ago to approximately 10 percent at present.
Funding provided by Congress has allowed us to pursue these
efforts, reducing the risk associated with an interruption to
our delivery of meaningful services.
These steps are making a difference. Refunds for tax returns and
amended tax returns in the inventory continue to flow out to taxpayers.
We continue to consider and pursue additional relief measures while
balancing the many other demands for our time and limited resources.
We also instituted additional relief measures for taxpayers, such
as:
--On January 27, we announced the suspension of notices in situations
where we have credited taxpayers for payments but have no
record of the tax return being filed. Given that in some
situations the return is still waiting to be processed,
suspending this notice will help avoid confusion.
--On February 9, we announced the suspension of more than a dozen
additional notices, including automated collection notices
normally issued when a taxpayer owes additional tax or has no
record of filing a tax return. As a result, we have now
suspended all known notices that are associated with
unprocessed original return inventory. Specifically, any
notices that are still being sent to taxpayers are associated
with ongoing programs and services that are not associated with
the unprocessed returns. Note that many other IRS notices are
statutorily required to be issued within a certain timeframe to
be legally valid.
We are evaluating penalty relief options; however, we must also
determine if systemic programming changes or manual intervention are
required for the considered relief. Manual intervention would require
re-direction of resources from processing original returns and amended
tax returns, which complicates this area.
Other taxpayer assistance offerings
Important Update Information Available at IRS.gov. The IRS
workforce is working hard to reduce current and projected inventories,
meet taxpayers' continuing needs and provide relief or assistance
whenever possible. We have issued various announcements available on
IRS.gov outlining important steps we've taken this filing season to
assist taxpayers with the aim of reducing current and projected future
inventories. On February 14, we issued a news release titled, ``IRS
launches resource page on IRS.gov with latest details and information
for taxpayers during filing season,'' (IR-2022-32, February 14, 2022)
with a link to this important resource page ( ``Help for taxpayers and
tax professionals: Special filing season alerts'' ).
The IRS is continuing to assess other changes and system
modifications to assist taxpayers on an array of issues. We have
redeployed and reallocated resources throughout the IRS and have
implemented innovative strategies in an ongoing effort to provide a
meaningful reduction in our inventories. As we make additional
adjustments, we will continue to make information available to
taxpayers throughout the filing season and beyond.
Important Steps for Current Filers to Get Their Refund as Quickly
as Possible. To prevent future inventory problems, the IRS has also
worked diligently to encourage people to take extra precautions this
year so they can get their refund quickly and avoid processing delays.
For this filing season, refunds on error-free electronically filed
returns continue to be processed within approximately 21 days.
Requesting direct deposit accelerates receipt of the refund by the
taxpayer. There are three important steps people can take to get their
refund as quickly as possible:
--File electronically;
--File an accurate return (verify amounts reflected as received for
the EIP and advance CTC payments), and;
--Request a direct deposit of their refund.
These steps are critical to accelerating delivery of the refunds
people deserve and the IRS employees want to get out as quickly as
possible. We have engaged in extensive outreach with community-based
and professional organizations to reduce the otherwise manual review of
returns that fail to reconcile these amounts. We're also encouraging
taxpayers with questions to turn first to online resources, since we
anticipate a continued high call volume again this year.
Responding to unprecedented demand for phone assistance
The IRS provides phone service to individuals, businesses, tax
professionals and tax-exempt entities. We have specialty lines for the
hearing impaired, identity theft victims, the taxpayer protection
program, and for making appointments at our TACs. We also offer over-
the-phone translation services in 350 languages.
Taxpayer Service Remains Our Top Priority. The long-term erosion of
our budget has depleted every function of the IRS. Even though our Wage
& Investment division--which is where the current and projected
inventories exist--remains the most well-staffed function of the entire
IRS, it is well below the levels necessary to deliver the service we
aspire to achieve. We have implemented several approaches to reducing
current and projected inventories and reducing call volumes which
allows us to devote more resources to the inventories.
Our customer service representatives (CSRs) operate from 10 main
campus sites and 14 smaller satellite locations across all mainland
United States time zones, plus Puerto Rico. The CSRs work 7 a.m. to 7
p.m. shifts staggered nationally according to time zones. When we
temporarily closed most of our facilities in March 2020 to protect
employees from COVID-19, our IT operation worked rapidly--within
weeks--to provide our CSRs with laptops, related equipment and training
so they could work remotely in a virtual environment.
Against that backdrop, IRS phone operations have faced an unusually
challenging environment over the past year, with an unprecedented level
of phone assistance demand. In 2021, we answered four million more
taxpayer calls than the year before but had a lower level of service
than prior years because demand was so high. In the first half of 2021
alone, we received more than 199 million calls--about 400 percent more
calls than we get in an average year. For comparison, we received a
total of 42 million calls in all of 2018, 40 million calls in 2019, and
55 million calls in 2020. On March 15, 2021, we received 8.6 million
calls on just that one day, which is an average of about 1,500 calls
per second. The high call volume has significantly hampered our ability
to manage telephone demand.
At the same time, the average duration of each call has also
increased due to the complexity of COVID-related tax law changes and
because taxpayers have personally endured a great deal throughout the
pandemic. Our average time per call was 12 minutes for calendar year
2019. Thus far in 2022 (through April 16) the average time per call is
16 minutes. Spending more time on each call to provide the needed
customer service limits the CSRs' ability to handle more calls during a
shift.
We attempted to ease these challenges by starting the CSR hiring
process for the 2021 filing season months earlier than normal. We
repeated this approach for the 2022 filing season. During the pandemic,
we transitioned into an entirely virtual recruiting and onboarding
process for new employees to speed up the process. While we were able
to hire an additional 3,800 CSRs, clerks and other support staff for
the 2021 filing season, it was short of our goal of 5,000. While we did
slightly better thus far in the 2022 filing season, we still have been
able to hire just 4,131 of our overall goal of 5,000. The pandemic
caused significant hiring challenges, including low applicant pools in
some locations, delays in fingerprinting due to closed facilities, and
delays in processing applicants virtually. And we routinely find
ourselves being able to offer candidates significantly less than what
the private sector can. We are trying innovative training approaches to
get new CSRs ready to work the phones in less than the usual 14-week
timeframe. Working with NTEU, OPM and Congressional Appropriators, we
are also thrilled to have secured direct hire authority, discussed
previously, which will allow us to be more successful in recruiting top
talent by increasing the speed with which new employees can be
onboarded.
update on the 2022 filing season
The IRS successfully opened the 2022 tax season on January 24--two
weeks earlier than the year before--giving taxpayers more time to file
returns and delivering more than 1 million refunds in the first days of
processing. Getting underway in January has given taxpayers as much
time as possible to meet the Federal tax filing deadline, which this
year was April 18 for most taxpayers.
Due to many factors, the 2022 tax filing season has been a complex
and challenging one for taxpayers, tax professionals and for the IRS as
well. During this tax season, taxpayers faced a number of issues
resulting from critical tax law changes that took place in 2021, as
well as ongoing challenges related to the pandemic. Our dedicated
workforce has done everything it can to prepare for the April 18
deadline, and our focus has been on simplifying the taxpayer filing
experience by streamlining the process, answering as many questions as
possible and reducing the inventories mentioned earlier in this
testimony.
Our system that allows electronic filing of returns, Modernized
eFile (MeF), took a major step forward this filing season. We made the
latest in a series of changes that over time have made MeF more
efficient, standardized and robust. This latest change expanded the
availability of MeF so that our external partners who transmit returns
electronically can access the system 24 hours a day, seven days a week.
This upgrade is a win not only for the transmitters and ultimately
taxpayers, but also for the IRS, because it allows us to perform MeF
maintenance during the week, enabling more rapid deployment of critical
updates.
Providing help to navigate a challenging filing season
We believe the filing season has gone the smoothest for taxpayers
who file electronically, file accurate tax returns and request direct
deposit of their refund.
In fact, filing electronically with direct deposit has been more
important than ever this year, given the additional complexities on
many returns, such as those who were eligible for an EIP but did not
receive it and are now claiming the RRC, as well as those who need to
reconcile advance CTC payments on their return.
During the filing season we have worked to ensure families who
added a dependent--such as a child, a parent, a nephew or niece, or a
grandchild--on their 2021 income tax return who was not listed as a
dependent on their 2020 income tax return to know they may be eligible
to receive a 2021 RRC of up to $1,400 for this dependent. Additionally,
all eligible taxpayers with qualifying children born or welcomed
through adoption or foster care in 2021 have been encouraged to claim
the CTC--worth up to $3,600 per child- on their 2021 tax return.
Another important credit we've been highlighting is the Child and
Dependent Care Credit, which was expanded for 2021. This means that
more taxpayers will qualify this year than ever before, and the credit
will be worth more. We've been working to remind people who pay
expenses for the care of a qualifying person while working or looking
for work that they may qualify for this important tax credit. Depending
on their income, taxpayers can get a credit worth 50 percent of their
qualifying child care expenses. For tax year 2021, the maximum eligible
expense for this credit is $8,000 for one qualifying person and $16,000
for two or more.
We realize that taxpayers who are still waiting for their 2020
return to be processed may be wondering whether they should wait to
file their 2021 return. Our message to these individuals has been to
file their 2021 return when they are ready. If a taxpayer is
electronically filing their 2021 tax return and we have not yet
processed their 2020 tax return, they should validate their 2021
electronic tax return by entering $0 (zero dollars) as their prior year
adjusted gross income (AGI). If a taxpayer used the Non-filer Sign Up
tool in 2021 to register for advance CTC payments or an EIP, they will
instead enter $1 as their prior year AGI.
Given that incredibly high call volume has continued again this tax
season, we understand the filing experience has been more difficult for
taxpayers who need to interact with us. But we continue to make
improvements and are confident this work will have us trending in the
right direction. We are also encouraging taxpayers with questions to
turn first to online resources. This area has been a huge focus for the
IRS, and critical tools are available that people may overlook. These
options range from the Where's My Refund online tool to several other
automated tools now available through the Online Account on IRS.gov.
For many, there are ways to get help without calling.
Improving service to diverse communities
Amid the challenges posed for the agency by the pandemic and new
tax law changes, the IRS has continued to focus on improving service to
diverse communities. An important way we serve these taxpayers is by
communicating with them in their most comfortable language. We are
committed to enhancing the experience of all taxpayers, including those
who have limited English proficiency. We know that these taxpayers
respond to our efforts--as just one example, there were nearly 90
million visits to non-English pages on IRS.gov last year. Already this
year, through April 10, there have been about 17.7 million visits to
non-English pages.
Since 2021, the IRS has taken important steps to further improve
the amount of service we offer in multiple languages:
--Provided the Form 1040 in Spanish during the 2021 filing season for
the first time.
--Gave taxpayers the opportunity to indicate on new Schedule LEP
(Limited English Proficiency) whether they want to be contacted
by us in a language other than English. This schedule, filed
with the 1040, allows taxpayers to select one of 20 languages
in which to receive communications from the IRS. During
calendar year 2021, the IRS received approximately 326,000
Schedule LEPs.
--Made Publication 1, Your Rights as a Taxpayer, available in 20
languages.
--Issued a new, streamlined version of Publication 17, Your Federal
Income Tax, that is available in seven languages.
These efforts continue this year. We've completed conversion of 34
Spanish notice inserts to Braille, text, audio and large print as of
January. We also recently converted Form 1040 and its main schedules,
as well as Form 1040 NR, Form 1040 SR, Form W-4 and six publications,
into Spanish Braille, text, and large print. We continue working to
increase our communications and outreach materials--including
information shared on social media channels--into additional languages.
To ensure that taxpayers can easily provide their preferences in this
area, we also released new Form 9000, Alternative Media Preference,
this filing season. This form allows taxpayers to tell us they want to
receive notices in Braille, large print, audio, or text, and can be
filed alone or with the 1040.
While those steps are all important, the IRS is continuing to do
more to enhance the taxpayer experience for those who are more
comfortable using a language other than English. We are, for example:
--Pursuing efforts to translate website applications for these
taxpayers. We have already identified 17 of the most frequently
used applications for translation into additional languages.
--Exploring opportunities to employ machine translation to help us
add more multilingual content. This is a significant challenge,
given how complex many tax terms are. We will need to carefully
evaluate automated translation tools, so we anticipate this
effort will be ongoing for several years.
update on modernization efforts
One of my highest priorities as Commissioner is ensuring the
agency's IT infrastructure remains on a path toward modernization.
Modernization is vital to all our core functions: successfully
delivering the annual tax filing season, ensuring the health of the
Nation's tax system and supporting the Federal Government's financial
strength. Today, we do not have the steady, consistent multiyear
funding to support these efforts the way we need to in order to deliver
appropriately for the American people.
We have long sought levels of funding that would enable necessary
IT investments. As noted above, absent consistent, timely, multi-year
funding we have largely been a paper-based organization operating in a
digital environment. It is difficult to modernize a significant IT
portfolio to improve processing and delivery of important taxpayer
services when constantly funded through a CR.
Until recently, we were operating under a CR for fiscal year 2022.
This year's Omnibus (Public Law 117-103) represents the largest funding
increase for the agency in two decades. But the agency's needs are much
deeper. Unfortunately, because our budget has fallen so significantly
in real terms over the course of the last decade, we have lost
foundational staff at the agency and need to rebuild. From a
modernization perspective, many of our priorities, including upgrading
the Individual Master File, one of the oldest IT systems in the Federal
Government, are multi-year efforts. This situation means we have not
been able to invest in modernizing and integrating our technological
infrastructure, which processes the more than 160 million returns we
anticipate receiving this year. The situation also affects other
important interests of tax administration. Modernized technology would
significantly improve the ability of the IRS to respond to a crisis,
pandemic-related or otherwise.
Since the initial release of our Modernization Plan in 2019, our
operations and infrastructure have changed significantly. We have
received only limited funding for our efforts: from fiscal year 2019
through fiscal year 2021, we received only 57 percent of the planned
Business Systems Modernization funding. But within the funding
received, we have delivered critical technology improvements and at the
same time responded to unprecedented demand due to the pandemic. We
accelerated the development of our digital services. We expanded
customer callback availability on our toll-free telephone lines. We
created new web applications such as ``Get My Payment'' to track EIPs.
We also created the Child Tax Credit Update Portal to help people
manage advance CTC payments, a first-of-its-kind endeavor. And in
another milestone, we also achieved the long-time goal of making it
possible for individuals to e-file their amended tax return.
Another example of modernization at work involved creating a tool
last year to help eliminate several steps in the process an IRS
employee is required to do to reconcile RRC discrepancies between the
two EIPs that were made in 2020 and what the taxpayer reported on their
tax return. Prior to the automation, an employee could reconcile about
100 returns per day. Once we completed the modernization improvement,
the employee can now process 600 per day. Not only does this
improvement speed up the ability for the taxpayer to receive their
refund, but it also avoids adding further to the backlog of inventory.
We continue to investigate new ways of doing business to optimize
the important work of IRS employees and improve the taxpayer
experience; for example, we hope to be able to scan in a paper form and
file it electronically later this summer, which will help us identify
the potential for this approach to be used for other forms in the
future. We are also looking into our ability to leverage an approach
that we call Scanning-as-a-Service, where we may be able to
significantly increase the availability of digital images for IRS
employees to use to perform their work without owning and maintaining
expensive equipment or paying to store the paper records. Both efforts
seem straightforward on the surface, and although we are cautiously
optimistic of their progress to date, it is important to note that they
are not a sure thing, and a significant amount of work remains to
confirm the viability of these pilots, as well as their ability to
scale to other use cases.
In addition to the above, we continue taking steps to safeguard
taxpayer data while modernizing platforms to improve taxpayers'
experiences. Investments in cybersecurity are essential. In 2017, IRS
was experiencing just over 1 million cyberattacks per day. Today, we
sustain more than 1.5 billion attacks each year. While IRS network
defenses mitigate threats and keep our core tax processing systems
secure, we must continue to advance our cyber capabilities, so we stay
one step ahead of the bad actors who are attacking IRS systems.
IRS Online Account
An important focus of our efforts has been the development of IRS
Online Account, which allows taxpayers to interact with us online and
perform various types of transactions in a secure environment. For
example, they can view their payment history, make a payment online or
request previous years' tax information. Since the initial launch of
IRS Online Account in 2016, we helped taxpayers securely access the
information and services they need, with more than 23 million sessions
and 8.37 million new users in fiscal year 2021. We are continually
working to expand the transactions taxpayers can conduct through the
online account.
In July of last year, we launched a new online feature that allows
individual taxpayers to authorize their tax practitioner to represent
them before the IRS with a Power of Attorney (POA), and to view their
tax accounts with a Tax Information Authorization (TIA). Tax
professionals can go to the Tax Pro Account on IRS.gov to digitally
initiate POAs and TIAs. Over time, we will continue building
functionality so that other transactions involving tax professionals
can be completed online in a secure digital environment.
As we expand our digital options, security is always an important
consideration. For that reason, in February we announced steps to
change the way taxpayers authenticate their identities when signing on
to their online accounts. Specifically, we began transitioning away
from using a third-party service for facial recognition. The IRS is
working closely with partners across government to roll out Login.Gov
as an authentication tool for us. The General Services Administration
is currently working with the IRS to achieve the security standards and
scale required of Login.Gov, with the goal of moving toward introducing
this option later this year.
efforts to improve tax compliance
The IRS remains committed to doing everything we can, with our
limited resources, to track down those who willfully refuse to fulfill
their tax obligations or who commit tax fraud. We want to maintain a
strong, visible, robust tax enforcement presence to appropriately
support taxpayers who comply voluntarily. When taxpayers file their
returns, they should feel confident others are doing the right thing
too.
Our efforts to ensure compliance with the tax laws cover a broad
range of groups--individuals, small businesses, tax-exempt
organizations and large entities. In our challenging resource
environment, large entities are of particular concern because this
group includes very sophisticated taxpayers--major U.S. corporations,
multinational companies and complex multi-tiered partnerships--all of
which require us to have highly trained, highly skilled enforcement
personnel with special accounting and tax law skills, who can
understand the issues raised by these returns, root out instances of
noncompliance and litigate issues where necessary.
We will continue emphasizing a number of special areas in our
enforcement activities. This strategy includes keeping a focus on high-
income taxpayers engaged in offshore noncompliance, failure to file,
unreported and improperly reported virtual currency transactions and
abusive tax shelters, such as syndicated conservation easements and
micro-captive insurance shelters, as well as monetized installment
sales and Malta pension abuses.
In this challenging environment, the IRS continues working to
improve coordination of enforcement activities across the agency. In
fact, the IRS's Office of Fraud Enforcement (OFE), which we created in
March 2020, is actively encouraging and ensuring this coordination
across the IRS, promoting compliance, strengthening the IRS' response
to fraud and working to mitigate emerging threats. The Office of
Promoter Investigations (OPI), created last year, is helping us better
identify issues that involve abusive tax shelters as well as
individuals promoting abusive tax transactions.
It is vital that we improve our ability to identify and deter
promoters, and that we do so more quickly--before they are able to
widely market their transactions, as we have seen with syndicated
conservation easements and micro-captive insurance. We are seeing many
aggressive transactions being promoted on social media and the
Internet, and we continually work to identify and evaluate potentially
abusive trends and transactions to determine whether they need further
enforcement actions. I have challenged OPI to lead our efforts against
not only those who promote abusive tax avoidance transactions we know
about, but to find the transactions that are being concocted today, and
to coordinate our efforts to stop those promoters quickly and
efficiently.
Recent accomplishments
We have made progress in a number of enforcement areas. For
example, over the past 2 years, we have shifted significant examination
resources and technology to increase our focus on high-income and high-
wealth taxpayers. As a result, examination coverage of the taxpayers in
the highest income category (taxpayers with over $10,000,000 of total
positive income) increased to over 8 percent coverage for Tax Year (TY)
2018, the most recent year for which complete statistics are available.
This level is the highest coverage rate of this growing population
since TY 2014, and we expect the TY 2019 numbers will show this level
of coverage continued.
Substantially all experienced examiners--those who are the most
highly trained with substantial accounting and tax law skills--are
almost entirely focused on tax returns that include complex issues,
such as high-income taxpayers, pass- through entities, multi-national
taxpayers involving international tax issues, large pension plans,
private foundations and the most egregious situations. We also continue
to focus on employment tax cases where employers have failed to pay
over taxes withheld from employees or have failed to file their
employment tax returns.
An IRS initiative announced in 2020 involves improving tax
compliance by increasing visits to those generally with incomes above
$100,000 who failed to file tax returns. These Revenue Officer
Compliance Sweeps (ROCS) focus on the most egregious non-filers. A
partnership between our Field Collection operations, the OFE and our
Criminal Investigation (CI) division also worked to identify common
attributes of successful fraud referrals resulting in recommendations
for criminal investigation for non-filers.
Another example of our accomplishments involves the development of
a comprehensive, coordinated enforcement strategy to address abusive
syndicated conservation easement transactions, and we have worked
closely with the U.S. Department of Justice to shut down the promotion
of them. Subsequently, the U.S. Tax Court held in the government's
favor in a number of conservation easement cases, supporting the IRS's
position on the abusive nature of the underlying deductions in these
cases. While continuing to investigate these transactions, the IRS has
also made settlement offers to certain taxpayers with docketed cases at
the Tax Court involving this type of transaction.
Our efforts have also borne fruit in another important area--
employment tax fraud. Non-compliance in this area means employers cheat
the system and their employees without consequence. In so doing, they
gain an unfair advantage over their honest competitors. We continue to
work with the Justice Department's Tax Division to identify
opportunities to better address non-compliance. These opportunities
include using data analytics to identify egregious noncompliant
employers. To cite one instance, we used our Innovation Lab's Data
Analytics Program to identify thousands of taxpayers who reported wages
on their individual income tax returns where the employer who paid
those wages did not file their W-2 forms with the Social Security
Administration and neither filed employment tax returns nor remitted
taxes withheld from their employees. Seriously noncompliant employers
were further investigated by the IRS examination, collection and CI
organizations. This agency-wide commitment ensures consistent treatment
of taxpayers and fair application of the tax law.
The IRS's enforcement efforts have extended to preserving COVID-
related financial relief for those legitimately in need of financial
support during this crisis. For example, the IRS has been working
diligently to thwart scams related to COVID-19 by alerting taxpayers
and tax professionals to these scams--especially calls and email
phishing attempts tied to the EIPs. The IRS and our partners throughout
the country have been publicizing these scams. Another example involves
the OFE's efforts to prevent ineligible claimants from obtaining $1.2
billion in COVID-related employer credits. The credits were intended to
help employers retain employees who would otherwise be unable to work
during the pandemic, but bad actors saw an opportunity to exploit the
program for their own financial gain. Working collaboratively with
teams of seasoned enforcement employees who identified the questionable
claims, OFE investigated the suspect claims and either administratively
disallowed the claims and/or referred cases for further investigation.
In noting accomplishments on enforcement, I continue to be
extremely proud of the investigative work done by CI. To take just one
recent example, CI's Cyber Crimes Unit played a key role in the largest
cryptocurrency seizure ever recorded for the Federal Government, valued
at more than $3.6 billion. In February 2022, the Justice Department
announced the arrest of two individuals in connection with an alleged
conspiracy to launder cryptocurrency stolen during a 2016 hack of
Bitfinex, a virtual currency exchange. IRS-CI Cyber Crimes Unit special
agents were critical in unraveling a sophisticated laundering
technique, enabling them to trace, access and seize the stolen funds.
As well as being the largest cryptocurrency seizure, this was also the
largest single financial seizure recorded by the Federal Government.
In regard to recent events, CI is prepared to support the U.S.
government's efforts to impose sanctions on Russia. CI has a track
record of successfully rooting out and stopping illegal kleptocracy
money flowing into or through the U.S. CI's special agents expertly
target those who launder money, including active investigations
involving Russian oligarchs and politicians, as well as those who
facilitate the illicit movement of money on behalf of sanctioned
individuals or organizations. Agents on the Global Illicit Financial
Team and throughout CI are not only experts in tracing assets and
understanding the complex global financial world; they also work
seamlessly with our domestic and global law enforcement partners to
ensure the integrity of the U.S. financial system on behalf of U.S.
taxpayers.
Resource challenges
Despite the progress we have made, our ability to enforce the tax
laws against non-compliant taxpayers with complex returns continues to
be hampered by a lack of resources. We can no longer audit a
respectable percentage of large corporations, and we are often limited
in the issues reviewed among those we do audit. These corporations can
afford to spend large amounts on legal counsel, drag out proceedings
and bury the government in paper. We are, quite simply, ``outgunned''
in our efforts to assure a high degree of compliance for these
taxpayers. It is unacceptable for the Nation's tax administrator to be
outgunned when appropriately challenging the return positions of some
of the most sophisticated taxpayers. We must receive the resources to
hire and train more specialists across a wide range of complex areas to
assist with audits of entities (taxable, pass-through and tax-exempt)
and individuals (financial products; engineering; digital assets;
cross-border activities; estate and gift planning; family offices;
foundations; and many others).
A lack of resources also threatens to reduce the effectiveness of
our criminal investigative work. Much like other operating divisions in
the IRS, CI is close to its lowest staffing level in the past 30 years.
With fewer agents, we have fewer cases and fewer successful
convictions. A strong, robust criminal tax enforcement presence
provides significant deterrence to those willing to evade their lawful
obligations to our country. Without adequate resources, we risk sending
a much less powerful message to would-be and active tax evaders.
Because of our current funding and staffing limitations across our
enforcement functions, we are forced to make difficult decisions
regarding priorities, the types of enforcement actions we employ, and
the service we offer. Limited IT resources preclude us from building
adequate solutions for efficiently matching or reconciling data from
multiple sources. As a result, we are often left with manual processes
to analyze reporting information we receive. Such is the case with data
from the Foreign Account Tax Compliance Act (FATCA). Congress enacted
FATCA in 2010, but we have yet to be appropriated any significant
funding for its implementation. This situation is compounded by the
fact that when we do detect potential non-compliance or fraudulent
behavior through manually generated FATCA reports, we seldom have
sufficient funding to pursue the information and ensure proper
compliance. We have an acute need for additional personnel with
specialized training to follow cross-border money flows. They will help
ensure tax compliance by improving our capacity to detect unreported
accounts and income generated by those accounts, as well as the sources
of assets in offshore accounts.
In other programs, we have information but are unable to select all
high-risk cases identified due to resource and funding constraints. In
these situations, to the detriment of tax administration, we must make
difficult enforcement decisions based on resources, return on
investment, coverage of all types of taxpayers, and other high priority
work. For example, our information document reporting programs are
identifying potential discrepancies with taxpayers who have received
Form 1099-K, Payment Card and Third-Party Network Transactions
(including potential non-filers), but not all of these have been
addressed due to resource constraints.
As we make enforcement decisions, we try to balance resource
limitations across a number of factors, including evaluating overall
compliance effect and focusing resources into special projects. For
example, we currently have fewer than 2,000 revenue officers, the
lowest number of field collection personnel since the 1970s, and we
have over 100,000 collection cases in active inventory. In addition to
our active inventory, we have over 1.5 million cases (more than 500,000
of which are considered high priority) awaiting assignment to these
same 2,000 revenue officers. We have classified roughly 85 percent of
those cases as high priority, many of which involve delinquent business
employment taxes.
In discussing our resource situation, another major concern is our
ability to investigate and take enforcement actions against abusive
transactions. While we are doing our best with the resources available
to us, it is important to point out that the lack of funds and staffing
makes it increasingly difficult for us to keep up with--much less stay
ahead of--those who promote abusive transactions and the tax evaders
who engage in them. Shelter promoters continue to innovate and invent
new ways of gaming the system. We continue working to find them and
identify their methods, but in order to ensure we can take meaningful
enforcement actions against them, it is critical that we receive
adequate resources.
It is becoming easier for tax shelter promoters to pitch their
wares to the wealthy, and we are concerned such pitches are taking
hold. While we are doing what we can, we need more resources if we hope
to keep these activities in check and continue our efforts to inform
taxpayers about the problems with these transactions so they will be
dissuaded from participating in them. These activities shift the
required funding of our country onto the backs of wage earners.
Everyone should pay their fair share, and no one should be able to
inappropriately avoid their obligations.
looking to the future: irs taxpayer experience office
Along with our day-to-day efforts to help taxpayers and enforce the
tax laws, our agency is also committed to delivering on the promise of
a new IRS. We are continuing the work begun in 2019 with passage of the
Taxpayer First Act (TFA) to develop an innovative approach to the
future of tax administration that will better serve everyone, including
those in underserved communities. The IRS is using the implementation
of the TFA to make significant improvements in the way we serve
taxpayers, enforce the tax laws in a fair and impartial manner, and
ensure our workforce collaborates and is well-trained.
A key driver of these efforts is our Taxpayer Experience Office,
launched last year to unify and expand the work being done across the
agency to serve taxpayers. The Taxpayer Experience Office sets the
strategic direction for improving the taxpayer experience and
identifies opportunities to make continuous improvements in real time
for taxpayers and the tax professional community.
The Taxpayer Experience Office will identify changing taxpayer
expectations and industry trends, focus on customer service best
practices, and promote a consistent voice and experience across all
taxpayer segments by developing agency-wide taxpayer experience
guidelines and expectations. The office will be adding staff in the
coming months to help support the effort.
Some of the areas of improvement in the near term include expanding
customer callback, expanded payment options, secure two-way messaging
and more services for multilingual customers. These activities build on
recent improvements such as digital tools to support EIPs and advance
CTC payments, online chat and the online tax professional account.
the president's fiscal year 2023 budget
The President's fiscal year 2023 budget proposal for the IRS
provides $14.1 billion, an increase of $2.2 billion, or 18 percent more
than the fiscal year 2022 Annualized Continuing Resolution level of
$11.9 billion, to administer the Nation's tax system fairly, collect
more than $4 trillion in gross taxes to fund the government, and
strengthen tax compliance. Because the Administration drafted the
fiscal year 2023 budget submission ahead of the enactment of the fiscal
year 2022 Omnibus, the submission was not able to reflect the final
enacted fiscal year 2022 funding levels. The budget includes
initiatives to improve the taxpayer experience that should ultimately
lead to increased voluntary tax compliance. The request also aims to
ensure we stay current with the paper inventory and improve telephone
and in-person service; facilitates better oversight of high-income and
corporate tax returns; and accelerates the development of digital tools
to enable smarter communication with taxpayers. In addition, the
Administration continues to support a multiyear investment in IRS
enforcement to increase tax compliance. An appropriate level of funding
for the IRS will allow the agency to continue enhancing the taxpayer
experience, narrowing the tax gap to ensure equitable administration of
the tax code, protecting IRS systems and taxpayer data, and modernizing
our information technology systems.
Specific funding areas
The fiscal year 2023 budget requests a total program increase of
$1.31 billion, including the following:
--Putting Taxpayers First: $320,200,000 to continue implementing the
Taxpayer First Act [TFA], which requires the IRS to put in
place a Taxpayer Experience Strategy to improve the taxpayer
experience with the IRS. The IRS's Taxpayer Experience Office,
in partnership with key internal and external stakeholders and
subject matter experts, identified certain areas of focus to
inform development and implementation. The fiscal year 2023
request focuses on: continuing to protect taxpayer data;
increasing outreach and taxpayer education efforts; developing
strategies to reach underserved communities; and providing
human resources support for implementing the TFA.
--Enhancing Taxpayer Service: $389,100,000 for increasing the
telephone Level of Service (LOS) and enhancing information
technologies to improve taxpayer services. This investment will
build on the IRS's efforts to improve telephone services for
the underserved, such as those who are deaf or hard of hearing,
limited English proficiency communities, and victims of
identity theft. This investment provides a projected LOS of 85
percent in fiscal year 2023 assuming phone demand returns to
pre-pandemic levels and the IRS can provide in-person services
at pre-pandemic levels. The increase in funding also will
improve the ways taxpayers interact with the IRS by enhancing
and expanding the range of modern, digital tools provided by
the IRS to deliver a service experience comparable to that
available in the private sector. By empowering taxpayers to
address certain needs without requiring live assistance,
development of these tools is essential to the IRS's long-term
success in satisfying taxpayer expectations and meeting the
ongoing growth in demand for assistance.
--Increasing Compliance to Ensure Fairness: $469,300,000 to allow the
IRS to continue improving upon its compliance strategies and
enforcement activities--including examination, collection and
investigation--to ensure fairness in the tax system and narrow
the tax gap. We continue to develop innovative approaches to
understanding, detecting, and resolving potential
noncompliance, which helps to maintain taxpayer confidence in
the tax system. It is important to note the IRS has an overall
enforcement return on investment (ROI) of about $5 for every $1
invested compared to the IRS appropriated budget, not including
significant deterrence effects.
--Maintaining Critical IT Operations: $39,500,000 to sustain these
operations to maintain optimum network performance and
functionality. The IRS continues to transform its technological
landscape, and it has made progress on its modernization
journey to provide taxpayers with a seamless customer
experience, while empowering employees with the tools and
systems needed to provide top quality services and enforce the
tax law. These successes have increased the need to sustain
critical IT operations to maintain optimum network performance
and functionality. The IRS continues to deploy and incorporate
new, modernized tools for taxpayers, tax professionals and
employees. Taxpayer service improvements (additional digital
services, up-to-the-minute account information, etc.),
enterprise efficiency advances (automation, artificial
intelligence, machine learning, etc.) and new employee tools
(case management, collaboration, learning platforms, etc.) all
require additional bandwidth to sustain a high volume of users
processing digitalized capabilities.
--Fostering Economic Development in Underserved Communities:
$10,200,000 to allow the IRS to cultivate new opportunities for
adults and students in underserved communities. One focus of
our efforts is the Mississippi Delta Region, which currently
has the highest rate of poverty in the United States, excluding
the U.S. territories. As an initial step, we are opening a new
Automated Collection System (ACS) call site in Clarksdale,
Mississippi, and have announced plans to hire contact
representatives to work at the call site. Initiatives in other
regions are already underway, including a significant staffing
increase for our ACS operation in Puerto Rico. We have
increased staff at this site from approximately 79 employees in
fiscal year 2020 to more than 400 as of February 2022. We plan
to add another ACS call site in Puerto Rico during 2022 that
will accommodate an additional 400 employees. The expansion
offers employment to Puerto Rico residents and allows for a
significant increase in bilingual ACS employees to better serve
taxpayers with limited English proficiency.
Structural changes to IRS appropriations to improve mission delivery
The President's budget also proposes a change to the appropriations
language that would allow Taxpayer Services and Enforcement funding to
be used for certain associated support costs that are currently
reserved for Operations Support funding. Currently, Taxpayer Services
and Enforcement funding only pays for an employee's labor cost, not the
cost to hire the employee nor the IT equipment and space needed to make
them productive. There are significant benefits to this change: By
including support costs, future IRS budgets would reflect the full cost
of Taxpayer Services and Enforcement. The changes would also prompt IRS
business units to be more efficient with their support costs because
they would stand to directly benefit from savings.
In addition to the IRS's fiscal year 2023 budget request, stable,
multi-year funding for the IRS is necessary to facilitate the types of
longer-term investments that the agency needs to make to adequately
serve the American people and enforce the tax laws.
legislative proposals in the president's fiscal year 2023 budget
Along with the funding requested in the President's fiscal year
2023 budget request, we are also asking for Congress' help
legislatively in several important areas that would improve tax
administration, including the following:
--Information reporting by financial institutions and digital asset
brokers. Over time, the U.S. has established a broad network of
information exchange relationships with other jurisdictions
based on established international standards. The information
obtained through those relationships has been central to recent
successful IRS enforcement efforts against offshore tax
evasion. The ability to exchange information reciprocally is
particularly important in connection with the implementation of
the Foreign Account Tax Compliance Act (FATCA). Currently,
however, the U.S. provides less information to foreign
governments than we receive from them. The proposal would
expand reporting by financial institutions and digital asset
brokers in a number of ways--for example, by requiring
financial institutions to report the account balance for all
financial accounts maintained at a U.S. office and held by
foreign persons. These new reporting requirements would enable
the IRS to provide equivalent levels of information to
cooperative foreign governments in appropriate circumstances to
support their efforts to address tax evasion by their
residents. The proposal would be effective for returns to be
filed after December 31, 2023.
--Require reporting by certain taxpayers on foreign digital asset
accounts. Section 6038D(b) of the Internal Revenue Code
contains an annual reporting requirement for individuals in
regard to two categories of foreign financial assets, but there
is no reporting requirement under this section for digital
assets. Against this backdrop, tax compliance and enforcement
with respect to digital assets is a rapidly growing problem.
The global nature of the digital assets market offers
opportunities for U.S. taxpayers to conceal assets and taxable
income by using offshore digital asset exchanges and wallet
providers. The proposal would amend section 6038D(b) to require
reporting with respect to a new third category of asset: that
is, any account that holds digital assets maintained by a
foreign digital asset exchange or other foreign digital asset
service provider. Reporting would be required only for
taxpayers that hold an aggregate value of all three categories
of assets in excess of $50,000. The proposal would be effective
for returns required to be filed after December 31, 2022.
--Extend the statute of limitations for certain tax assessments.
Section 6501 of the Internal Revenue Code generally requires
the IRS to assess a tax within 3 years after the filing of a
return. But for complex audits in the largest cases, critical
issues may not be identified until late in the process of an
examination, and in many cases these issues cannot be pursued
further due to time and resource constraints. The proposal
would amend section 6501 to extend the 3-year statute of
limitations to 6 years if a taxpayer omits from gross income
more than $100,000,000 on a return. This change would give the
IRS enhanced agility and flexibility in evaluating and staffing
its case inventory and appropriately allocating its limited
enforcement resources.
--Increase oversight of paid tax return preparers. Paid tax return
preparers have an important role in tax administration because
they assist taxpayers in complying with their obligations under
the tax laws. The proposal would amend Title 31, U.S. Code
(Money and Finance) to provide the Secretary with explicit
authority to regulate all paid preparers of Federal tax
returns, including by establishing mandatory minimum competency
standards. The proposal would be effective on the date of
enactment.
--Expand and increase penalties for return preparation and e-filing.
Inappropriate behavior by paid tax return preparers harms
taxpayers through the filing of inaccurate returns, erroneous
refunds and credits and personal tax return noncompliance. Tax
return preparer misconduct continues, in part, because the
amounts of the penalties under current law do not adequately
promote voluntary compliance. The proposal would increase the
amount of the tax penalties that apply to paid tax return
preparers for willful, reckless or unreasonable
understatements, as well as for forms of noncompliance that do
not involve an understatement of tax.
--Expand authority to require electronic filing for forms and
returns. Under this proposal, electronic filing would be
required for returns filed by taxpayers reporting larger
amounts or that are complex business entities, including: (1)
income tax returns of individuals with gross income of $400,000
or more; (2) income, estate, or gift tax returns of all related
individuals, eStates, and trusts with assets or gross income of
$400,000 or more in any of the three preceding years; (3)
partnership returns for partnerships with assets or any item of
income of more than $10,000,000 in any of the three preceding
years; (4) partnership returns for partnerships with more than
10 partners; (5) returns of real estate investment trusts, real
estate mortgage investment conduits, regulated investment
companies and all insurance companies; and (6) corporate
returns for corporations with $10,000,000 or more in assets or
more than 10 shareholders. Further, electronic filing would be
required for the following forms: (1) Forms 8918, ``Material
Advisor Disclosure Statement"; (2) Forms 8886, ``Reportable
Transaction Disclosure Statement"; (3) Forms 1042, ``Annual
Withholding Tax Return for U.S. Source Income of Foreign
Persons"; (4) Forms 8038-CP, ``Return for Credit Payments to
Issuers of Qualified Bonds"; and (5) Forms 8300, ``Report of
Cash Payments Over $10,000 Received in a Trade or Business.''
Return preparers that expect to prepare more than 10
corporation income tax returns or partnership returns would be
required to file such returns electronically. The Secretary
would also be authorized to determine which additional returns,
statements, and other documents must be filed in electronic
form in order to ensure the efficient administration of the
internal revenue laws without regard to the number of returns
that a person files during a year.
--Improve reporting for payments subject to backup withholding. The
proposal would treat all information returns subject to backup
withholding similarly. Specifically, the IRS would be permitted
to require payees of any reportable payments to furnish their
TINs to payors under penalty of perjury. The proposal would be
effective for payments made after December 31, 2021.
conclusion
Chairman Van Hollen, Ranking Member Hyde-Smith and Members of the
Subcommittee, thank you again for the opportunity to update you on the
filing season and IRS operations.
We continue to balance multiple unprecedented demands, including
continuing the filing season and work on important new tax provisions.
We remain focused on numerous taxpayer-related issues, and we have
pursued innovative ideas and processes not previously deployed by the
IRS in an effort to make improvements to the current inventory and
provide meaningful taxpayer services.
The reality at the IRS is that we know we need to do better; we're
committed to doing better, and we are trending in a positive direction.
We appreciate your patience and understanding and the many expressions
of gratitude we have received for the efforts of our employees, who
have consistently stepped forward despite their own health and safety
concerns. Our employees are doing everything they can. But we need
Congress to help us by providing adequate resources and a sustained,
multiyear investment in the agency.
I continue to be extremely proud of our workforce and their
dedication to helping American taxpayers fulfill their tax
responsibilities and resolve tax issues.
Senator Van Hollen. Thank you. Thank you, Mr. Commissioner.
I think we will do 6-minute rounds, and we may have more than
one round. I don't know if other Members of the Committee will
be joining us at this point or not. And I want to start my
first round of questions, focused on the backlog and customer
service issues.
So Mr. Commissioner, you and I were talking a little bit.
Can I confirm that it is your goal to eliminate the backlog by
the end of this calendar year?
Commissioner Rettig. It is my commitment to you,
individually and as Commissioner of the Internal Revenue
Service, for the IRS to eliminate the backlog, and you will
hear us use and see us use in print is ``get healthy,'' which
means through the eyes of the taxpayer, doing what they expect
us to do by the end of this year.
Senator Van Hollen. Got it. And one of the tools we gave
you, in the last session, was Direct Hire Authority. I know you
are using that, right?
Commissioner Rettig. Absolutely. Congress rescued us. There
is no other way for me to say that, with Direct Hiring
Authority. It was part of the Omnibus budget, March 15. On
March 16, we started with job fairs at our three big processing
centers. For the last 2 weeks of March we went out on the
ground, held job fairs and they have been extraordinarily
successful. We are looking to hire 5,000 people this year and--
5,000 people next year, for a total of 10,000.
To give you an example we went to the three processing
centers, Ogden, Utah; Kansas City, Missouri, and; Austin,
Texas. We went into Austin, Texas and we had 500 people show up
with resumes, meaning their package is complete. We made 500
offers on the spot. We have about a 93 percent offer rate to
people who show up at our job fairs on the spot.
We are also doing virtual job fairs. And in the next 30
days, we are doing another round of job fairs at these same
locations. They have been very successful. They have received a
lot of local press, in a good way. The government is coming in
and giving jobs, Federal jobs, to the community.
Without the Direct Hiring Authority that we got in the
budget I would not be able to report anything really positive.
We cannot hire people at $15- to $17 an hour in these
communities when we are competing with Amazon. We are competing
with Target, that is $20 an hour. Walmart recently announced
they are hiring 50,000 people. Walmart recently announced truck
driver positions at $110,000 a year, and we come in $15 an hour
Federal jobs. So we need to be able to hire on the spot.
Senator Van Hollen. Good. Well, thank you for making use of
that authority. And now just in terms of the, sort of the--and
I know you have made some progress already, but the mountain
that we need to tackle in order to achieve your goal, just so
we are on the same page, and just quick yes or no answers, if
you can, to confirm the numbers I have got. I am looking at a
status of unopened mail and backlog inventory issued April 26.
So it should be pretty current.
Paper returns waiting to be processed, the calendar year
2021, over 2.5 million; those received in calendar year 2022,
just over 8.9 million, for a total of 11.5-plus million, is
that the system----
Commissioner Rettig. The paper returns for 2021, as of
April 21, 2022, are at 1.8 million, received in 2022 are 4
million, which somebody might dispute whether those were
backlogged or not. We just concluded the April 18 filing date.
Senator Van Hollen. Okay.
Commissioner Rettig. The total paper returns that we are
sitting on as of April 21, 2022 is 5.8 million.
Senator Van Hollen. All right, let me stop you there. So
whoever, just whatever information I have got here is obviously
incorrect, I thought it came from the IRS but--I guess I have
got some of the----
Commissioner Rettig: I am reading the individual returns.
Senator Van Hollen. Yes. Yes.
Commissioner Rettig. And if you went to the right, you
might be reading the total returns. It is the side with this--
--
Senator Van Hollen. Oh. I am sorry. You are right. I am
reading--I am reading the total individual in business; you are
right. I have got--I guess the document that I have got, Status
of Unopened Mail and Backlog Inventory, issued April 26th,
2022, is the most up-to-date information?
Commissioner Rettig. Correct.
Senator Van Hollen. Yes. I got it. Thank you. So, you know,
one of the frustrations, and I know you understand this, that a
lot of taxpayers have, is they, if they get a Notice of
Deficiency, and they want to get somebody on the line to
explain it--let me modify that.
They want to get in contact with somebody quickly, and as
you well know, given the volume of phone calls that come in
versus the operators and folks you have got answering them, it
is really hard to get through by phone. So online,
communication seems to be the answer. That is the way most
people do a lot of business in the United States. I mean, you
can communicate with your bank. You can communicate with other
entities that way. When will a taxpayer be able to communicate,
in real time, with someone at the IRS online?
Commissioner Rettig. There are different levels of
communication that we have online, but taxpayers can create a
taxpayer online account, that they can go in and monitor their
account, and they can change information. They can, on their
own, without interacting with anybody at the IRS, enter into an
installment payment arrangement if they owe less than $50,000.
But we are also mindful that we live in a country where
there are tens of millions of people who do not have broadband
access, who cannot go online, who don't have a smartphone. So,
it is critical that our resources also be deployed in our
Taxpayer Assistance Centers, which are really our frontline
retail operations, where somebody can walk in--we prefer by
appointment--but even unannounced as well as telephone access.
The driver of the inventories is, for the most part, that
people who answer the phones also are responsible for
conducting resolution of paper that we are left with. So, we
have made various decisions. We leave people on the phones, and
then in theory, when the phone volume would come down, they
would move to the paper.
We have not had either of those volumes come down in 2
years. We currently have moved people into the paper
processing, trying to answer the phones the best we can trying
to get people to interact with us, it is just----
Senator Van Hollen. Right, and just--thank you for giving
me your commitment and goal in terms of an-end-of-year deadline
for the backlog. Can you give us a sense of when I, as a
customer, as a, you know, one of my constituents who has a
question for the IRS about, you know, their tax return, when
they are going to be able to communicate online with the IRS?
Commissioner Rettig. It depends upon what they are looking
for, but we get tens of millions of online contacts currently,
and those operate seamlessly and successfully. Where we really
want to be, we are about 5 years from being what the Agency
should be in terms of the ability of the folks who want to just
interact with us online, to do everything with us online, with
the exception of filing a return.
We don't have pre-populated returns, but otherwise to
provide and interact with us online, I would say that we are
about 5 years away from that. It could be a little more,
depends upon the funding that we get, and it depends upon
technologies that develop.
Senator Van Hollen. Thank you. Ranking Member Hyde-Smith.
Senator Hyde Smith. Thank you very much. Mr. Commissioner,
we have heard a lot about the historically high backlog, and we
have discussed your recent pledge that the backlog would be
resolved by the end of 2022, in large part, due to the IRS'
ambitious plan to onboard thousands of new employees. How is
the challenging labor market affecting that hiring plan for
you?
Commissioner Rettig. Well, thanks to Congress, we got
Direct Hiring Authority, so we are in a different world now
than we were before March 15 when we received that authority.
And what we are talking about is onboarding folks at our
Submission Processing and our Accounts Management facilities
around the country. Submission Processing is dealing with
paper, whether that is mail or paper returns; Accounts
Management is resolving a taxpayer issue that they may have
with respect to an already-filed return.
We have over 2,500 people coming on board, but we have also
done a lot of other things that we have not previously done, to
bring these volumes down. And simply, the way I summarize it is
to say, we are trending in a good direction. I am comfortable
sitting here today telling you that we are committed to--and I
am committed to--being healthy by the end of this year.
But obviously, not to play lawyer games, but another COVID
or unforeseen circumstances could interrupt that. But where we
are today, I am committed to doing that. If we see unforeseen
circumstances, some type of a surge, whether it is COVID, or
some other non-COVID-related issue that impacts us, I would
come back up and let you know that I need to adjust.
This is my reputation with you, our reputation with you,
and we want you to see what we are doing. We have also engaged
contractors to do what contractors could do, about 2,500 people
coming in. I think it is well known, it has been played up a
lot that we did surge teams. We brought back employees who have
been in these two lanes within the last 2 years. We brought
them back in to do that processing.
And now we are going for the employees who left within 3 or
4 years to bring more back in, and all the efforts that we have
made show that we are trending in a good direction. And
similarly, with respect to the current filing season, which
just concluded - without extensions--on April 18.
We did a lot of messaging and have lessons learned from
filing season 2021 to filing season 2022, which we are in
currently. We did a lot of messaging encouraging people to file
electronically, file an accurate return, file for direct
deposit. There was one large transmitter of returns for people
that I heard. I am a tax guy, I came in from the tax
community--and I heard in a roundabout way that one large
transmitter was telling its franchisees to start submitting
returns on January 4.
I reached out and I said, do not submit returns on January
4. You need to reconcile the Advanced Child Tax Credits, and
the Economic Impact Payment that these folks receive before a
return is filed. We sent out 200 million letters telling people
what they got for an EIP. We sent out 57 million letters
telling people who are under the Advanced Child Tax Credit. We
encourage people to look into their online account and verify
those amounts, because accurate, electronically filed returns
where people requested a direct deposit, those are going
seamlessly.
Senator Hyde Smith. Okay. And about the employees that you
are bringing in, the on board, how many of those you are going
to have to train? Because I know it can take several weeks to
train people once you get them there. But you are saying the
ones you are bringing on are basically already trained?
Commissioner Rettig. No.
Senator Hyde Smith. The fact that they have been out of the
system?
Commissioner Rettig. No. Let me give you sort of a summary.
And then if you want me to back it up and give you the
individual information that. I think you might be inquiring
about. All these efforts, when are you going to see an impact
with trained people in these rooms, processing this
information? It is going to be in the June range. But we have
figured that in. When I am telling you we will be current by
the end of this year, we know the process.
And some of the people that we are onboarding are going to
need 2 or 3 days to train. Remember, we are opening envelopes.
We have people who open envelopes. We have people who monitor
electronic accounts. It is a broad range of talent that we are
looking at.
But when I tell you the end of the year, it is on the
assumption that these people are in, on board, in the June
range, and trained. It doesn't help us to put an untrained
person in these facilities.
Senator Hyde Smith. But our information is telling us it
could be 8 weeks to 37 weeks to properly get someone trained.
Commissioner Rettig. Not at all. I don't know who told you
37 weeks. I would like to meet with that person.
Senator Hyde Smith. So you, when you come in by June, I
mean, this is being May.
Commissioner Rettig. Yes.
Senator Hyde Smith. You are going to have all of these
employees already trained?
Commissioner Rettig. We don't have 37 weeks left in this
year, I believe.
Senator Hyde Smith. So they will all be trained by June? Or
is that realistic, or?
Commissioner Rettig. That is where we are with the people
coming in. If the people continue to come in at the rates that
they are coming in, the June range, having our people in the
seats, trained and handling it, is realistic.
Senator Hyde Smith. So you can have them--everybody trained
in a month?
Commissioner Rettig. Keep in mind, when we do these surge
teams, these are already trained people that are just getting
refreshed--that is a matter of days.
Senator Hyde Smith. And that is the majority of the ones
coming in, there is not newly hired?
Commissioner Rettig. There is both.
Senator Hyde Smith. That has never worked for the IRS
before?
Commissioner Rettig. There is both. We are doing every
lane.
Senator Hyde Smith. But you feel confident even those who
have never worked for the IRS before you can have them trained
by June.
Commissioner Rettig. The person who has never worked for
the IRS before is not going to on board and adjust some
taxpayer's account because they reported unemployment
compensation as non-taxable when it wasn't. That would be a
different category. We have a broad category of people that we
are bringing in for different levels of work.
And if I may? If it is different, you will hear from me.
Senator Hyde Smith. Okay. It is just an aggressive plan for
hiring people, and have them all trained and ready to roll.
Commissioner Rettig. Both of you and this country deserve
an aggressive plan. We have done a lot of innovative things
behind the scenes to make things work. We have used our ARP and
other money for technology that radically improved our ability
to process certain things, that in a different world we
probably wouldn't have been able to do, or had the support to
do it.
We have also considered things that we did not implement
because it didn't look like it was going to get us to where we
needed to be or was more complex. We cannot add complexity when
we are in the situation we are in.
I think we have done as each of you would do if you were in
this seat. We entertained and continue to entertain everything
that we can to get this right. And we are not done being
innovative where it will be helpful. We can't be innovative if
it shorts us on what we are trying to do.
Senator Hyde Smith. Thank you.
Commissioner Rettig. Thank you.
Senator Van Hollen. Thank you. Thank you, Mr. Commissioner.
I have one final question on the issue of, you know, the
backlog and taxpayer service, and then I am going to turn to
enforcement issues.
Paper returns, I know your life at the IRS would be made
much easier if more taxpayers filed electronically, but we also
know that we have to keep open the option for people filing
paper returns. If you look at the backlog, as you have
indicated, it is essentially those paper returns.
And I am sure you are aware that the Taxpayer Advocate has
said that, quote, ``Paper is the IRS' kryptonite, and the IRS
is buried in it.'' And the Taxpayer Advocate has recommended
that the IRS implement the 2D bar coding, and/or the optical
character recognition technology to speed up the processing of
paper returns.
What plans, if any, do you have to implement this new
technology that the Taxpayer Advocate argues would speed up the
process?
Commissioner Rettig. The technology is not new. We actually
requested funding in our Congressional Budget Justification in
2013, and then again in 2014, again in 2015, again in 2016,
again in 2017, for 2D bar-coding, and we never got the funding.
And so in 2018 the agency shifted to an emphasis on electronic
filing.
We are currently running about 95-96 percent--for the
current filing season--of the individual returns that we are
receiving e-filed. There are some returns and some forms that
cannot be electronically filed. We need to get those so the
taxpayers have the ability to e-file those. That is a
technology draw. And we move our resources to areas that are
there.
But we are looking at this, and you will see our response
to the Taxpayer Advocate Directive that was issued. This is not
new, and it is not new for the agency.
Senator Van Hollen. Right. Let me just ask you, because I
agree, and I do appreciate your efforts to move people toward
electronic filing for the reasons we have discussed. But do you
agree with the Taxpayer Advocate's recommendations? I
understand that you have asked for it in past budget requests,
this new technology, and you haven't received it.
I don't know if it is in your current request. I don't
believe it is. And so I guess my question is: What is your
current assessment of the Taxpayer Advocate's recommendation?
Commissioner Rettig. I appreciate the efforts of the
Taxpayer Advocate, and you will see us move in a direction that
is expansive in this regard.
Senator Van Hollen. In terms of deploying these
technologies?
Commissioner Rettig. It may not be these technologies. If
we were asking for it in 2013, we are 10 years, essentially,
technology wise beyond that.
Senator Van Hollen. Right. Okay. So put aside the specific
technologies, but I guess the question is, you would be looking
for technologies that would allow you to convert a paper return
much more quickly, to be processed rather than having to sort
of keypunch every item; is that right?
Commissioner Rettig. Absolutely.
Senator Van Hollen. Okay.
Commissioner Rettig. We have a digitalization office that
is not only doing this--which is outward facing--we are doing
it inward-facing too to help our employees.
Senator Van Hollen. Got it.
Commissioner Rettig. You know, transferring information.
Senator Van Hollen. Good. Let me turn to enforcement, and
you have spoken eloquently about the tax gap, and the need to
get at it. Some have argued that, you know, we should not
provide you with more authority to close the tax gap. And
again, I remind people, this is collecting taxes that are doing
owing; that we should not give you additional tools to do that
because you are going to go after the little guy, you are going
to go after small businesses. Is that in your intention, and
that if you were given these resources what would you do? And
what would the impact be?
Commissioner Rettig. I note it is National Small Business
Week too. I think the Committee should note that I was born and
raised into a small business. I'm very respectful, and
understand that small businesses, in my mind, are the backbone
of this country. The folks that might not have another
opportunity, employment-wise, tend to open a small business. So
the respect there is huge.
The resources that we are looking at when we talk about
enforcement are at the high-end level. It is the big, and
super-big corporations. We have cases where we have $10- $15
billion of tax at issue. We get outgunned in those routinely,
by the professionals they are able to hire, and the resources
we are able to bring in, that it can come down.
And the statistic I use frequently is: last year we had
over 4 million partnership returns filed. I have 6,500
frontline Revenue agents all in, and they are all currently,
and would remain so, dedicated to the high end, most complex
returns that we receive.
And so the concept that we would expand examination
resources to small businesses, or lower-income people, and the
administration has called for nothing under $400,000. $400,000,
quite frankly, if you look at where we are, it would be nothing
under a number significantly greater than $400,000. Typically,
for taxpayers with up to about a million dollars, we have
information reporting; we have either W-2s or 1099s.
When you go to a million dollars plus, you are talking
about entrepreneurs that use multiple-layered entities, and
that is where we should be. And it is where we are currently.
Senator Van Hollen. Thank you. No, I appreciate that
commitment. I just wanted to underscore that point. Let me ask
you about conservation easements. These are one mechanism that
are, if it is used for very wealthy people to escape their tax
obligations. Can you talk about that particular device?
Commissioner Rettig. There are criminal indictments in the
conservation easement cases. There are cases in the United
States Tax Court, civil cases, where we have amended petitions
to assert civil fraud penalties that should be indicative of
what the IRS and Department of Justice believe about the
syndicated easements.
We support the intent of Congress with respect to the
purpose of conservation easements. The syndicated easements are
different. They have been categorized as an abusive
transaction. If you read any of the tax court opinions that are
out there, you will see why, and notwithstanding, we have put a
lot of resources into this space, from a counsel perspective,
appeals, and exam perspective.
We have listed this transaction in 2016, giving people
notice that we believe this was an abusive transaction and
notwithstanding our efforts, we have not had an impact on
essentially slowing the volume of these transactions that we
receive currently. We need Congressional help. We need a
statute to help us curb this activity.
Senator Van Hollen. Well, thank you for that distinction
between legitimate and important uses of conservation
easements, and the abuses that you mentioned.
I do have some additional questions on enforcement, but my
time is up with this round. And I will turn it again to the
Ranking Member.
Senator Hyde Smith. Thank you, Mr. Chairman.
You had mentioned the 2D barcodes on tax forms, and the
efficiencies that are associated with those things. Can you
speak about the IRS' progress in implementing that on those tax
form bar codes? Wouldn't the associated cost of implementing
these--this technology be largely offset by the savings from no
longer having to pay employees to manually enter this data?
Commissioner Rettig. No, ma'am. 2D bar coding still
requires us to receive a paper return that needs to be opened
and processed. It is a paper return concept. Also with respect
to transmitters and other returns, there is not a system that
allows the IRS to seamlessly take the equivalent of a Xerox
copy or a fax kind of a concept, that drops it into our system
seamlessly, and all the numbers drop in.
We still have a lot of manual provisions that we require,
but we did seek funding to get into this arena. And we are
going into the direction of being able to automate paper
returns. As you indicate, it would help from a staffing
perspective, it would help from a cost perspective, and I think
it would help across the board in terms of shortening the tail
on when we can get these returns processed, and get refunds
out.
Senator Hyde Smith. But it wouldn't offset the cost that
much is what you are saying, although you get the technology?
Commissioner Rettig. There is not a perfect system that the
IRS can buy today without a significant cost, both in terms of
human cost and resources to get us to where we need to be. But
we are definitely going in that direction.
Senator Hyde Smith. Okay. The IRS recently ended the
practice of requiring individuals to provide biometric data in
order to create an online account, and the IRS changes course
by giving taxpayers the option to verify their identity through
the biometric verification, or during a live, virtual
interview.
What level of confidence do you have that the biometric
data that has already been provided, or will be provided, is
protected?
Commissioner Rettig. The biometric data that is provided to
ID.me, and our memorandum of understanding, the agreement with
ID.me,-- I think Congress has copies of those agreements--the
information that somebody would provide currently is destroyed
within 24 hours.
Information that was provided prior to the time that we
shifted was to be destroyed within 30 days. The only pieces
that are not are where there--are indications of identity
fraud, and there is considerable amount of identity fraud
associated in the taxpayer world. We shifted to providing that
option also with the recognition that we are looking at other
options to provide taxpayers. And there have been a lot of
questions as to why the IRS went to ID.me.
We were receiving about a million visits a week, of people
trying to create online accounts. The system we had before had
about a 40 percent authentication rate. Taxpayers who would try
to authenticate that, yes, this is Chuck Rettig. About 60
percent were not getting into the system, and had to walk into
a site, or had to call in, which when we are on our heels from
an inventory perspective, is not a meaningful thing for the
people in this country. They deserve better.
With ID.me, the authentication rate is far in excess of 70
percent, both on the biometrics part, which is facial
recognition, but taxpayers have the alternative to get online
with a live ID.me person. On the facial recognition, that is
offered in eight different languages; the in-person is offered
in more than thirty different languages.
And I think you are aware that we have moved significantly
from a service perspective, into our multilingual efforts have
really been there. The last part is Login.gov can handle about
less than 30 transactions per second. We need more, about 1,500
transactions per second. We need a level two authentication
that once this person is in, this is the person.
We are looking at other alternatives, but know, as the
level of authentication may come down, people that don't want
facial recognition or the in-person, what we were hoping to get
to, and I think the people in the country would help us to get
to is, once I know this is you, that is your account, I can
open up a whole list of services that you can do automatically
online.
When that authentication level might be different, we have
to pull back because of the levels of fraud that we encounter.
And some people think fraud is somebody sitting in their
backyard, but we are up against nation states. And I think you
are aware that we get about a 1.8 billion cyber attacks per
year. And so, to protect the data that people trust us with, we
have to be at a higher authentication level, or not have so
many options available.
And we will explain to you as we get there. These are some
of the many difficult choices that have to be made, because I
think, collectively, we all want the person who is capable of
going online to be able to do 100 percent of their interactions
with the IRS, online, seamlessly. If we open it up for one, we
end up opening it up for all. So those are some of the
decisions that have to be made.
Senator Hyde Smith. Okay. Let us talk about the dollar
figure. Do you know how much money has been spent to date on
the IRS contract with the ID.me, and what is the status of that
contract?
Commissioner Rettig. I could get you the information on
that.
Senator Hyde Smith. You don't have a----
Commissioner Rettig. I think the contract provided for up
to something like $88 million, if I am not mistaken, but I can
get you the information within a day.
Senator Hyde Smith. And you had mentioned the Login.gov.
Commissioner Rettig. Mm-hmm.
Senator Hyde Smith. Of the fiscal year 2023 request seeks
$27 million for user authentication. And how does the IRS plan
to spend this increase? Will this funding be used to support
that, the Login.gov?
Commissioner Rettig. Well, we are----
Senator Hyde Smith. On the 2023 request?
Commissioner Rettig. We are where we are with ID.me. There
is still facial recognition with an option for the interview.
We actually are working with Login.gov to try to get their
transaction-per-second rate up, and to try to get their
authentication level up to a NIST Standard 2, IAL2 I think is
the actual terminology. It is a higher authentication.
And I believe we have the best IT people on the planet, and
I have asked our people to coordinate with Login.gov. It is not
an IRS agency, it is another agency.
Senator Hyde Smith. Mm-hmm.
Commissioner Rettig. But it would benefit all agencies. And
we should bring the best talent there. And if they get to the
point, I think that we have already indicated that we would
shift. You would want us to shift, and I am not saying you
personally, but people of the country want us to have the best
system, seamlessly helping the people who want to go in that
lane, and provide as many services as we can. And that is our
desire as well.
Senator Hyde Smith. Thank you.
Senator Van Hollen. Thank you. And just to follow up on
that. I mean, I understand the authentication challenges you
have got, given the fraud situation. I do appreciate your
moving to a volunteer system when it comes to facial
recognition, but the more people can sort of volunteer into
your authentication systems, you know, the better off the
overall process, I think, will be.
I want to go back to a couple of enforcement issues,
because, we saw from a recent Treasury Department Report that
one of the mechanisms that some employers--and I just want to
address ``some''--use to avoid paying their payroll taxes that
are due owing, it is employee misclassification.
They found that, you know, workers being misclassified as
independent contractors, contributed to a significant tax gap,
and avoidance of paying the Social Security, Medicare, and
other payroll taxes.
What role, if any, do you believe the IRS has in
addressing, employee misclassification?
Commissioner Rettig. Well, certainly, people categorized as
an employee receive wages through a W-2, that is the
information reporting to the IRS that is withholding the
accuracy in filing for those folks is typically around 99
percent. When you get into a lack of withholding, and maybe a
lack of 1099 type of thing, which gets you into the independent
contractor status, it drops down below 50 percent, sometimes
significantly below 50 percent.
There is a significant issue here, because these are issues
I was aware of on the outside. An employer would like to
categorize a worker as a non-employee, so they don't have to
pay the employer's portion of the employment tax regime that we
have. So it is less expensive for the employer to do that.
They might not be providing certain insurance, et cetera.
But the person might actually be an independent contractor, and
so that is a determination that the IRS needs to make, through
a facts and circumstances test.
There is a form that people can file, the SS-8, and on that
form they indicate why they believe somebody is or is not, or a
category of employees are or are not, an employee, and we don't
get a lot of those forms each year. My reaction is, that
employers don't want to hear that somebody is categorized as an
employee, and they would probably rather take the risk.
But to give you some numbers, in fiscal year 2021, we
received 2,387 SS-8s, which is the request for a determination
of employee status. We closed 1,953 of those with an average
cycle time of about 240 days, which is exactly the cycle time
we had in fiscal year 2018, meaning that those are not
backlogged. But quite frankly, in a country the size that we
have, and the number of workers that we have 2,387 for a fiscal
year.
Senator Van Hollen. Right. So I mean, but right now, and as
I understand it, and the only mechanism, at least via the IRS,
is this voluntary, mechanism of filing an SS-8 Form. I mean,
you don't take other steps to try to resolve this; do you?
Commissioner Rettig. Well, we do. I get all the statistics
around the country, probably a day doesn't go by that I read
about somebody either being sentenced or convicted for
employment tax-related fraud. And all of those start in-house
with our IRS Criminal Investigation Division.
We are very aggressive in that arena. Essentially, in that
case, if I withhold from an employee, withhold the payroll that
I am supposed to--the taxes I am supposed to pay over to the
Government, but I don't, and I go and buy a motor home or
whatever, and that employee files a tax return, the government
gives that employee credit for the amounts that I stole.
So, we are hugely aggressive in those arenas. And once a
person gets indicted, sentenced, and et cetera, those cases
become public, and they hit the newspapers in the local
communities and, typically, these are the cases where you do
see somebody withheld X-dollars, and they have the trips, the
motor homes, the houses.
Senator Van Hollen. Right, but you are--these are the wage
theft cases you are referring to.
Commissioner Rettig. Yes.
Senator Van Hollen. I am referring also, though, to these
employee misclassifications in it.
Commissioner Rettig. There are some----
Senator Van Hollen. And I know they are related. Let me
move on quickly, because I do want to ask you about the
provisions in current law that says that if you want to be a
government contractor, you have to be up to date on your tax
payments. And I know that we have been working with you, and I
know the IRS has initiative to be able to quickly determine
whether somebody who is one of your contractors at the IRS,
meets the test, that they have made their tax payments on time.
But we want to extend that provision government-wide, and
facilitate other agencies of being able to quickly determine
whether or not a proposed government contractor that they would
do business with, has met these requirements. Where does
everything--where do we stand on that?
Commissioner Rettig. Yes as you know, there is a provision,
and Congress gave us the task to do it but there is not a
waiver under 6103, which makes every taxpayer's information
private and confidential. We created what we believed was a
workaround that does not violate 6103, where a company could,
essentially, come in and get a certificate from us. And we
would issue a certificate that they would then take to the
agency where they want to contract. And it would say: This
person is current with their tax obligations.
We are still talking to certain other agencies, but there
are other agencies that believe that is too much of a burden on
the taxpayer who is doing a government contract, to actually
have to go into the system, they can do this automatically, and
get this certification.
And we cannot violate 6103, so we are working with the
other agencies. You know, some Congressional assistance in this
space I think would help get through the log jam. This needs to
happen. I mean, I think we all would agree that somebody
contracted with the United States Government should not be tax
delinquent.
Senator Van Hollen. Yes. And, we appreciate the efforts you
are----
Commissioner Rettig. We actually do it ourselves for our
own contractors.
Senator Van Hollen. Right, I know--I know you are dealing
with that.
Commissioner Rettig. And it is effective, so yes.
Senator Van Hollen. We just want to make sure that the
benefit of your expertise is shared with the rest of the
Federal Government.
And Ranking Member.
Senator Hyde Smith. Thank you so much. And going back to
the issues that my office gets calls on. You know, the high
backlog, all of it. And you know, the call-answer rate that is
at 20 percent now, and the customers having to wait an average
of 28 minutes to speak to someone. Your budget request includes
a $3.4 billion ask for its taxpayers' services appropriation.
How will this money be used differently than in the past to
address these customer service failures?
And one of the things is: ``Where's My Refund'' tool that
we hear about. So what is going to be different to address them
in spending this money?
Commissioner Rettig. One, I wouldn't say it is a failure.
We did not get in the situation that we are in because of any
issue for IRS employees' desire and dedication. We got here
with changed legislation on these when we had already done our
technology. During tax season confusion for taxpayers on the
exclusion of the $10,200, et cetera, et cetera. And the
inability of taxpayers to reconcile, which we have done better
this year, and we sent out these letters too.
We have done the best that we could with what we have. But
with taxpayer service, what happens is that we have buckets,
and part of this provision asks for the ability to change the
buckets. I am where you are on what is referred to as an IAT,
Inter Account Transfer, not taking money from enforcement every
year and supporting taxpayer service or operations support.
If Congress tells us it should be in that lane, that
bucket, we have four distinct buckets: Taxpayer service,
Operations Support, Modernization, and Enforcement, and
Congress tells it should be there. We have an IAT that allows
us to transfer, I think, up to 5 percent between those, but we
need to be respectful to that.
In the taxpayer service lane, what is going to be
different? Where are we going to go? One, if we get our levels
current, the taxpayer service funds combined with the
modernization funds, this year we added a customer call back to
70 percent of our toll-free lines, which is the lines people
call when they have an issue. And they get a call back within
the same business day.
When I heard it initially, I thought, okay, so we plugged
something into the system. We had to redo our telephone
infrastructure to be able to bring that into the system that we
have.
There are a lot more complexities to what we have than
necessarily just plugging something in. But also adding people,
we received phone calls at the rate of 1,500 per second at
various points in time during the year. We receive 400 percent
more phone calls this year than any other year.
If the country gets back to normal - and we are not
organizing ourselves for normal, we are organizing ourselves
that we need to be providing the services that we should be
providing in the environment that we are currently in--if we
got 10,000 more employees, but these sort of COVID-related
issues subsided, I need to find a place to put those 10,000
employees inside the IRS, to be respectful for the funds that
we use to hire the people. We are looking at all of that, and
that is really what we are talking about.
Bottom line, what you want us to do is to answer the
phones, open the mail, have our Taxpayer Assistance Centers
open. We have 358 Taxpayer Assistance Centers which are our
frontline retail operations. Some of them are in malls; some
are associated with other agencies.
You want the ability of any American to walk in and ask a
question of somebody at the IRS, and have that person be
trained and capable of answering that question there, whether
they go into the system or otherwise. So we need to fully staff
our Taxpayer Assistance Centers, we need to train the people
who are in those. We are a long way from that. Attrition is
significant with us. So that is another avenue and there is a
whole list of needs.
We need to do better in every lane. I am sure every
Commissioner has asked for what I have asked for--but I combine
it with oversight. We are not here to spend money and not have
people see how we are spending it, or moves that we are
thinking and making. But the funding concepts for an agency
that touches literally every American, there are significant
issues to be able to operate the agency, to the extent that I
think you all want, but also that every American deserves.
We touch more Americans than anybody on the planet. And
during the pandemic, let it be known that Congress called on
us, not the VA, not Social Security, not some other agency, to
distribute over $1.5 trillion during the pandemic in three
rounds of Economic Impact Payments, two rounds of Form 1040
refunds, and another $93 billion in Advanced Child Tax Credit
payments, which were distributed over a 6-month period.
We had to create the vehicles to do that during a pandemic
and handle the filing season. We are in our third COVID filing
season. That is where I come to.
You know I am the end of the runway. It is not my choice to
leave, but it is the statutory term, November 12, but the end
of the runway is there.
And you will hear from me throughout this year and next
year. Employees of the IRS, they are dedicated, they want to do
it. And we have all levels. I will close with this. I met a
lady my first year, in Covington, 61 years with the Internal
Revenue Service. She showed up every single day at 6:30 a.m. to
open envelopes. And when I went up and said, hi, I am Chuck.
She was crying. She was so proud to be there.
That is the employees that we have. Our employees, we're
the front line for the United States Government in touching
taxpayers who lost a spouse, who lost a family member, who had
somebody in the hospital. One of the issues on phones, people
are saying, the average time, or the difficulty to pick up, but
I encouraged our employees to stay on that call.
If somebody called in on an EIP, or a tax issue, stay on
that call, because every one of those calls flipped to: I lost
my husband. I don't want our employees, being representative of
the United States Government saying, I have got ten more calls
I have got to go answer.
I want our employees to be human and say you lost your
husband. That must be hard and wind that call down. We do this
thing, Talk Story, where on Zoom I meet with 100-150
employees--it is scheduled for an hour, and the shortest one we
have done is about two-and-a-half hours. And we do them weekly,
all around the country. I talk to employees in Guam.
And I see our employees get emotional when they tell me the
stories they are getting from taxpayers, but know that it is
IRS employees, that we are touching people in their homes
suffering from COVID during the pandemic, and it is IRS
employees that made these distributions. And Congress asked us
to do so as rapidly as possible, three times.
I have told our employees--don't correct me if I am wrong--
but I have told our employees, Congress respects you. You only
ask people once, twice, three times, four times when you know
they can meet that challenge. And I am going to tell you today,
and I will tell you after my term, our employees will meet that
challenge.
We have people on mandatory overtime. I have 6,000
employees in mandatory overtime for far beyond what we should
be asking these people to do. And I have 10,000 employees on
authorized overtime. The reason I say ``far beyond'' is that at
some point this creates morale issues.
I am about ready to do a sort of tour to these campuses and
go and sit with our employees, a thank you kind of a thing.
I apologize for the long-winded response but we are proud
of who we are, and we are going into communities. You are well
aware of our initiatives. We are coming down into Mississippi.
We went to Puerto Rico. No other agency is going into the
communities we are going to. We are going to these communities;
it is the right thing to do. We are not brick and mortar, we
are not an institution, we are people helping people, but we
are going to communities that have three and four generations
unemployed, to bring in and train job skills. We are bringing
Federal time----
Senator Hyde Smith. I am over my time limit.
Commissioner Rettig. So am I. And I apologize.
Senator Van Hollen. Mr. Commissioner, first of all, I
appreciate your initiative in going into underserved
communities, I know you have 10 million in the budget
specifically for that purpose and, look forward to working with
you as you implement that.
I have one last question for you here, I will submit the
others for the record, and then I will ask the Ranking Member
if she has any final questions, and then we will wrap it up. So
my final question relates to cryptocurrency, as you know, in
the Bipartisan Infrastructure Bill that we passed last year, we
had a provision to raise some funds by extending financial
reporting requirements on brokers to include cryptocurrency
transactions.
I have heard estimates that the annual tax gap due to non-
reporting of cryptocurrency gains is estimated at approximately
$77 billion a year. My question to you Mr. Commissioner is:
What steps have you taken to implement the provision from last
year's bill? And how would you assess that figure I just gave
you with respect to the tax gap in crypto transactions?
Commissioner Rettig. Let me start by saying that the market
cap for virtual currency fluctuates between $1.5- and $2.5
trillion, depending upon if it is Wednesday, Thursday, or
Friday. Last year there were $14 trillion in transactions in
virtual currencies, if you do a GNP of the United States, of
the world's GNP, we are somewhere between 30 and 40 percent of
possibly $14 trillion in transactions.
They are based on affidavits in John Doe summons cases, and
we have done about five or six of these, where we have gone for
the information, and we received information about taxpayers in
certain exchanges that have indicia of U.S. contacts. So, we
know there is a very significant compliance issue there.
We need information reporting in the virtual currency
space. We got FATCA as legislation, but we never got the
funding to implement and modernize the systems to take care of
the information that we get. It does not make sense to me to
give us information reporting if we don't get the funding to
put a system together to do that.
You want it, and we want it, and we should not end up in
the same place with virtual currencies. I think we have to have
virtual currency reporting. We have to have the ability to use
that information in a meaningful manner. And I am not saying,
to be able to go after people. If we have the ability to match
information, we will not go after people as much as we would go
after unreported transactions.
The people who report it don't need to hear from us, and we
should be able to check that on our end before we send out a
notice. So, it works both ways. Technology helps us know where
not to go, as well as to know where to go.
Senator Van Hollen. No, I appreciate that. I mean, this is
not to prevent innovation in this space. This is, as you say,
is simply to be able to, you know, collect gains that have been
made that--that should be taxed like other gains in the
economy.
Senator Hyde-Smith, any final questions?
Senator Hyde Smith. Yes. I do have a few more. And because
I have a few more, if you could be brief with your answers----
Commissioner Rettig. And I will try.
Senator Hyde Smith [continuing]. That will be very much
appreciated.
Commissioner Rettig. And I apologize for--yes.
Senator Hyde Smith. The fiscal year 2023 requests $10.2
million to establish the Mississippi Delta Hiring Initiative.
And can you discuss your vision for this initiative, including
the benefits it will bring to the Mississippi Delta region?
Commissioner Rettig. I expect the IRS to be the agency that
revamps the Mississippi Delta region. I think you are aware; we
are already open to hiring. We did an announcement for 15
positions in a presently existing facility in Clarksdale. We
had a tremendous response, which shows that we are headed in
the right direction.
We have people on the ground. I had more than a handful of
people who spent the week there meeting with local officials,
looking at sites, which GSA would handle. I would love to come
to talk to you one-on-one with what we envision for
Mississippi.
We tried to hire 2,000 people in Austin, Texas, and we had
100 qualified people. We went into Puerto Rico and did a
hiring, and we would look for 500, and we got 600.
So for the Mississippi Delta, your question might be: Well,
why did this kid from L.A. running IRS in Washington, D.C., get
to the Mississippi Delta? The equation is pretty simple. We
looked at the EITC hot map. Where are the most EITC claims that
we are dealing with? It is in the Delta. We are going to the
Delta to bring Federal jobs into the Delta.
What we are doing is pairing up with 4-year and 2-year
universities and colleges, to bring job skills. It is unfair of
us to say that every 26-year-old needs a 4-year degree to work
for the IRS. You need some job skills, which we will do through
these 2- and 4-year schools.
And then somebody said to me, well what about what they
think about the IRS?
We have over a hundred high schools in this country that
have VITA programs. We are bringing VITA programs to high
schools in these communities, so that people understand the
benefits of giving back to the community. People understand
what IRS does, and then sort of build the pipeline.
It is probably, and there is no magic to this, 6-year
project, but my goal is that in the communities that we go
into, rather than seeing subsidized housing, where somebody is
painting an older building, that we see the developers come in
with new housing, because you have got people with Federal
jobs. And it is looking like we are going to make this a
reality, and we are on the ground there.
Senator Hyde Smith. And we appreciate that. And can you
tell me the percentage of your workforce that is still working
from home?
Commissioner Rettig. Some of our workforce always works
from home. We have people who have been telework eligible
forever, but 99 percent of our workforce is working.
Senator Hyde Smith. 99 percent of?
Commissioner Rettig. Is working, but we have taken----
Senator Hyde Smith. But you don't know the percentage that
is working from home? I mean, what was the normal percentage 3
years ago that was working from home?
Commissioner Rettig. I would say that we are probably not
that far away from where we are today. We have thousands and
thousands of employees who are telework eligible, and some----
Senator Hyde Smith. I mean, that the information I am
getting is 50 percent work from home; is that accurate
information?
Commissioner Rettig. I would say that that is low for where
we are.
Senator Hyde Smith. It is higher than that who are working
from home?
Commissioner Rettig. You know, our frontline Revenue agents
don't need to go into an office. Our frontline Revenue
officers, our IT people will stay at home. Those are telework-
eligible people. We have a bargaining agreement with the
National Treasury Employees Union as to who is telework
eligible, and we abide by that agreement. We have all different
categories.
Senator Hyde Smith. Okay. But it is more than 50 percent is
what you are saying? That that is a low number that works from
home for the IRS?
Commissioner Rettig. I would not hesitate to ask you
something, but also where somebody is working, the physical
location is mostly irrelevant, quite frankly, other than our
people who are processing paper.
Senator Hyde Smith. That doesn't hinder the process that
you are trying to accomplish now?
Commissioner Rettig. Zero. Those folks were back in June of
2020 socially distanced, working split shifts. The people who
process the paperwork split shifts, they have been in their
facilities since June of 2020. The people on the phones are
telework-eligible. We went into the pandemic with only 3,000 of
15,000 telephone staff being telework eligible, and then,
within 2 months, 15,000 of 15,000 people were telework
eligible.
Where that helped us was when we had hurricanes,
earthquakes, snow, where we would shut down IRS facility, our
employees continued to work from home on the phones, who were--
--
Senator Hyde Smith. but that is inaccurate, more than 50
percent are still working at----
Commissioner Rettig. I don't have that number. We will get
you that number.
Senator Hyde Smith. Okay.
Commissioner Rettig. If you want it, either as a question
for the record, or we will just get it back to you.
Senator Hyde Smith. Yes. When you said that was a low
number, that there is--that that concerned me.
Commissioner Rettig. I just know where the people are, and
they are all working.
Senator Hyde Smith. And the 2019----
Commissioner Rettig. If the question is, how many of our
people are working, more than 99 percent.
Senator Hyde Smith. 2019 Report from the Office of
Personnel Management found that the IRS employees spent
hundreds of thousands of hours doing taxpayer-funded warrant
for their labor union. Are you aware of the hours IRS employees
spend on union time now? That was in 2019.
Commissioner Rettig. I am not. But we just concluded our
union contract. We can get you that, but we are locked into
that by a contract.
Senator Hyde Smith. And the IRS employees that dedicate
time to union activities on the job; is that fair, instead of
addressing the backlog of returns of unanswered calls? And
making sure that that is the best way their time is spent?
Commissioner Rettig. I would like to have every employee
who is capable of answering phones, or opening or processing
mail, doing that. I don't know the category of the folks in
that. And again, all I can say is, we have a union contract
that I am required to abide by.
Senator Hyde Smith. Okay. And the religious freedom is one
of the greatest cornerstones of our country. And I am really
troubled to learn of Federal agencies, including Treasury and
the IRS, tracking Federal employees who request religious
exemptions. Can you confirm that the IRS is tracking this
information on religious exemptions? Are you tracking that
info?
Commissioner Rettig. This is the first I have heard that we
are tracking this. The only reason that we had issues with
exemptions was under the mask mandate, or when we had a mandate
that people had to be vaccinated or terminated; we had medical
and religious exemptions. But I have no more information, and
you can ask me a question for the record.
Senator Hyde Smith. Okay, but----
Commissioner Rettig. But you are the first I have heard of
it, and I would oppose us tracking any religious information.
Senator Hyde Smith. Okay. Well, my time is out again.
Senator Van Hollen. Well, thank you. Thank you, Senator
Hyde-Smith.
Mr. Commissioner, thank you for being here today; I want to
also take this opportunity to thank you for your service. I
don't know if you will appear before this subcommittee again,
but I am grateful for your testimony, and for the ongoing
partnership with you and your staff.
And believe that you were committed to doing the very best
job you can on behalf of the American people in tough times.
ADDITIONAL COMMITTEE QUESTIONS
Our Members will have one week to submit questions for the
record. Those are due May 10th. And I would appreciate if you
could--and your team--could get back to us as quickly as
possible in response to any of those questions.
With that, this subcommittee meeting is adjourned.
[The following questions were not asked at the hearing, but
were submitted to the Internal Revenue Service for response
subsequent to the hearing:]
No questions were submitted.
Senator Van Hollen. Thank you all.
SUBCOMMITTEE RECESS
[Whereupon, at 3:51 p.m., Tuesday, May 3, the subcommittee
was recessed, to reconvene subject to the call of the Chair.]