[Senate Hearing 114-]
[From the U.S. Government Publishing Office]


 
  FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL 
                               YEAR 2017

                              ----------                              


                         TUESDAY, MARCH 8, 2016

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:03 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. John Boozman (chairman) presiding.
    Present: Senators Boozman, Moran, Lankford, Mikulski, 
Coons, and Durbin.

                       DEPARTMENT OF THE TREASURY

                        Office of the Secretary

STATEMENT OF HON. JACOB J. LEW, SECRETARY


               opening statement of senator john boozman


    Senator Boozman. Good morning. The subcommittee will come 
to order. Today marks the first hearing of the Financial 
Services and General Government Subcommittee to consider the 
President's 2017 budget. This is my second budget season as 
chairman of the subcommittee, and I am pleased to serve along 
side my ranking member and good friend, Senator Coons.
    I would also like to acknowledge the other members of our 
subcommittee, Senator Moran, Senator Lankford, and Senator 
Durbin. Although the membership of our subcommittee is small, 
we have oversight of a broad range of agencies which have a 
significant impact on our economy and our Government.
    As we begin this important hearing, we welcome our 
witnesses with us today, Treasury Secretary Jack Lew, 
Commissioner John Koskinen, and the Treasury IG for Tax 
Administration, Russell George. Thank you all for being here.
    We look forward to hearing from you about the details of 
our budget request, as well as recent actions taken by the 
administration, including the lifting of sanctions against 
Iran. We are also interested to learn more about your plans to 
combat internal threats and your efforts to address cyber 
vulnerabilities in our Nation's financial sector.
    As members of this subcommittee, we have a tremendous 
responsibility to ensure the hard-earned tax dollars from 
millions of Americans are spent appropriately.
    That is why it is so disappointing to see the President's 
final budget proposal. This budget does nothing to address 
Washington's spending problem. The budget for 2017 would create 
$3.4 trillion in new taxes, increase spending by $2.5 trillion, 
and add $6.1 trillion to the debt over the next 10 years.
    While hard working Arkansans have been forced to cut their 
spending significantly in the past few years, the President 
remains unwilling to do so in Washington.
    Most troubling is the significant new mandatory funding 
streams for programs that typically would receive discretionary 
dollars controlled by Congress. The use of mandatory spending 
to skirt spending limits will diminish fiscal discipline and 
congressional oversight.
    As members of this subcommittee, we have an obligation to 
ensure that decisions about Federal funding are made with 
taxpayers in mind. Nowhere is the need for oversight more 
apparent than the agencies before us today.
    When the IRS engages in behavior that breaches the trust of 
the American people, it undermines taxpayers' faith in the 
impartiality of the agency. When the IRS hires employees with 
past performance or conduct issues, it does not build 
confidence in the agency's ability to safeguard taxpayers' 
rights, transparency, and privacy.
    When the IRS makes employee bonuses a priority, it does not 
restore the trust of taxpayers that it will enforce laws 
impartially, without regard to an individual's exercise of 
their constitutional rights.
    Once again, the IRS does not seem to have its priorities in 
order. According to the Taxpayer Advocate, the IRS's ultimate 
goal is, and I quote, ``To get out of the business of talking 
with taxpayers,'' and to quote again, ``And the widespread 
expectation is that traditional taxpayer services--telephone 
assistance and face-to-face assistance--will be scaled back 
dramatically.''
    While some evolution in service delivery can be expected, 
it is the IRS' ability to manage that change without adversely 
impacting taxpayers that is most worrisome.
    This is of particular concern given the recent revelation 
that in the rush to expand online services, the IRS made 
fundamental mistakes in assessing risks which resulted in over 
700,000 taxpayers being exposed to the potential of identity 
theft and refund fraud, many more than were first reported.
    The American people want a government that works for them, 
not against them. They want us to curb Washington's wasteful 
spending habits, make the Government more efficient, effective, 
and accountable, and pursue policies that create economic 
opportunities for everyone.
    These priorities will be reflected in the critical 
oversight we conduct as we consider the fiscal year 2017 budget 
request for all of the agencies within our jurisdiction.
    Thank you.
    I now turn to my ranking member, Senator Coons, for his 
opening statement.


               statement of senator christopher a. coons


    Senator Coons. Thank you, Chairman Boozman, for convening 
this hearing. I enjoy working together on the diverse array of 
issues that come before the subcommittee, and I am grateful for 
the opportunity to again work with you closely.
    I hope we can explore matters of mutual interest and find 
areas of common ground as we strengthen our partnership and 
leadership roles on this subcommittee.
    I would like to welcome today's witnesses, Secretary Lew, 
Commissioner Koskinen, and Inspector General George. I commend 
you for your service and leadership under what are often 
challenging circumstances.
    Today, we consider the budget request for the Treasury 
Department, an agency central to our Government's stability, 
our country's fiscal health, and our national security. You 
have a vital and wide ranging job, from collecting taxes and 
prosecuting financial crimes here in the United States, to 
identifying and cracking down on individuals, businesses, and 
governments that finance and promote terror abroad.
    From my standpoint, the members of this subcommittee have 
both the opportunity and an obligation to provide you the 
resources you need to do your jobs effectively.
    I appreciate today's opportunity to have a frank discussion 
about where the department is today, where it needs to be, and 
how we can work together to help Treasury fulfill its broad 
responsibilities.
    At a time of constrained budgets, I am also eager to hear 
from our witnesses how Treasury has adapted. I know a gap has 
remained in recent years between what the department has 
requested and funding it has actually received, making it 
challenging to meet mission demands. If that persists, a 
question I have is what will be the impact on Treasury's 
ability to carry out its important missions, and how will the 
Treasury prioritize scarce resources amidst competing demands.
    It is important we gain a deeper understanding for how 
funding and management decisions will affect Treasury's 
operations, not just next year but in the years to come.
    Most of the department's discretionary funding, of course, 
goes to the IRS, but the department also includes other bureaus 
and offices with a wide array of responsibilities, from 
forecasting economic indicators and managing Government 
spending, to combating money laundering and fighting financial 
crimes.
    I am pleased the President has requested increased funding 
for development programs, including the Community Development 
Financial Institutions (CDFI) Fund and the States Small 
Business Credit Initiative. Programs like these provide access 
to capital for small business and individuals around the 
country to help rebuild some of our most distressed 
communities.
    I was pleased also to see this year's budget does not 
propose a reduction for the Office of Terrorism and Financial 
Intelligence, which has the critical responsibility of 
enforcing economic sanctions against nations such as Iran, 
North Korea, and other regimes that support terror and 
instability around the world, and I will be interested to hear 
whether the requested level of funding is sufficient for this 
office's crucial mission.
    No Government agency is more visible to the American people 
than the Internal Revenue Service. The IRS collects the 
revenues that fund more than 95 percent of our Federal 
Government's operations, public services, programs, and each 
year the more than 80,000 public servants at the IRS make 
hundreds of millions of contacts with American taxpayers and 
businesses.
    The President's fiscal year 2017 budget for the IRS 
proposes roughly $11.8 billion in base discretionary funding, 
an increase of $530 million or 5 percent above the fiscal year 
2016 enacted level.
    I look forward to hearing from Commissioner Koskinen about 
his priorities for these requested funds as well as how the IRS 
is directing funds that were made available for fiscal year 
2016.
    My office frequently hears from Delawareans frustrated when 
their calls to the IRS go unanswered or when it takes a very 
long time to connect with an official of the IRS. I would 
imagine many other Senate offices similarly hear from 
constituents with concerns.
    Nationally, last year, less than half of the callers to the 
IRS actually reached someone on the other end before giving up, 
and those who did get through often had to wait an average of 
more than half an hour.
    Doing your taxes is already time consuming and challenging 
enough. Getting a tax filing question answered should not be 
more difficult than actually filing taxes in the first place.
    Mr. Koskinen, I look forward to hearing how the fiscal year 
2016 funding increases have allowed the IRS to improve its 
performance in the current filing season, and what your plans 
are moving forward. We certainly have a long way to go to 
return to the responsiveness levels of a decade ago when 
callers to the IRS could generally get through in less than 3 
minutes. I am anxious to hear how we can do more to optimize 
service delivery rates.
    Mr. Chairman, we have much more to discuss today and 
important ground to cover. The fiscal year 2017 funding 
forecast retains budgetary constraints, so it will be helpful 
to hear our witnesses' perspectives on what resources are 
essential to deliver top notch service to taxpayers and enforce 
our tax laws with integrity and fairness. I know Delawareans 
expect no less.
    I welcome the opportunity to work with you again, Chairman 
Boozman, and to an open exchange of ideas as our fiscal year 
2017 process moves forward. Thank you.
    Senator Boozman. Thank you, Senator Coons. I appreciate 
Senators Durbin and Moran being here today.
    In order to make it through all three panelists today, I 
asked the other Senators to incorporate their statements into 
their questions or submit them for the record.
    Secretary Lew, again, thank you for being here. I now 
invite you to present your remarks on behalf of the Department 
of the Treasury.


                 summary statement of hon. jacob j. lew


    Secretary Lew. Thank you, Chairman Boozman, and Ranking 
Member Coons, members of the subcommittee. I appreciate the 
opportunity to be here today to discuss Treasury's fiscal year 
2017 budget request.
    Since my testimony last year, our economy has continued its 
record breaking streak of private sector job creation, which 
has reached 6 consecutive years and 14.3 million jobs. Over the 
last 2 years, we have experienced the strongest job creation 
since the 1990s.
    At 4.9 percent, the unemployment rate is half of its 2009 
peak, and we continue on a sound fiscal path. From fiscal year 
2009 to 2015, the deficit as a share of GDP fell by almost 
three-quarters to 2.5 percent.
    The passage of the omnibus spending bill in December has 
helped to build on this momentum, contributing to our economic 
growth and helping to rebuild our international leadership. 
That agreement demonstrates that we have the capacity to find 
common ground on difficult issues, and it lays the foundation 
for addressing some of our long-term challenges.
    But more work remains, which is why this year's budget 
includes critical investments in our domestic and national 
security priorities. Treasury's 2017 budget makes investments 
in cybersecurity infrastructure and financial intelligence 
activities, including efforts directed at the Islamic State of 
Iraq and the Levant (ISIL).
    It also includes strategic investments in the IRS so that 
the agency can return to providing the level of customer 
service and privacy protections that Americans expect and 
deserve.
    It supports investments in America's small businesses and 
distressed communities to help grow the economy and ensure that 
all Americans benefit from growth.
    Finally, the 2017 Treasury budget makes a number of 
investments to support the ability of both our domestic and 
international offices to further Treasury's mission.
    Cybersecurity is an urgent challenge facing the country and 
the Treasury Department. Treasury's budget request proposes a 
new $110 million department-wide cybersecurity investment 
account to enhance IT management across our bureaus, and 
improve our ability to protect against and respond to cyber 
threats.
    The proposed investments will enhance electronic 
authentication procedures for access to Treasury digital 
services, expand existing security systems on internal networks 
and public Web sites, and safeguard data across the department.
    The fiscal year 2017 Treasury budget also includes 
strategic investments in the IRS to improve service to tens of 
millions of taxpayers, to reduce the deficit through a more 
effective tax administration, and provide the privacy 
protections that Americans expect and deserve.
    I appreciate the increase provided by Congress in fiscal 
year 2016, but as many of you are aware, the IRS remains 
severely underfunded. Despite its crucial role and growing 
responsibilities, the IRS budget is nearly $1 billion lower 
than it was in fiscal year 2010, while the volume of income tax 
return filings has increased by nearly 7 percent.
    Budget reductions of the IRS costs the country billions of 
dollars each year in lost revenue contributing to inadequate 
customer service for taxpayers and leaves necessary 
cybersecurity protections unfunded.
    A sustained deterioration in taxpayer services combined 
with diminished enforcement capacity could create serious long-
term risks for the U.S. tax system.
    Our request provides a $530 million increase above the 
fiscal year 2016 enacted levels. With these investments, the 
IRS will increase staffing for traditional taxpayer services, 
improve the quality of assistance available to taxpayers who 
call the IRS, and bolster defenses against stolen identity 
refund fraud.
    In fiscal year 2015, full-year telephone level of service 
plunged to just 38 percent. With the additional funding 
received in fiscal year 2016, we expect to reach 47 percent 
this year, and with full funding in fiscal year 2017, we could 
bring that level back to 70 percent.
    The budget also invests in new IT architecture that will 
enable the IRS to continue to modernize and secure its online 
services and provide taxpayers with an experience comparable to 
what they have come to expect from financial institutions.
    Treasury's request also proposes an additional $515 million 
increase through a program integrity cap adjustment to increase 
enforcement of current tax laws, investigate transnational 
organized crime, root out abusive tax schemes, and enforce the 
Foreign Account Tax Compliance Act, FATCA.
    These targeted investments are expected to return roughly 
$6 to the Government for every $1 invested, and reduce the 
deficit by $46 billion over a 10 year budget window.
    The fiscal year 2017 Treasury budget outlines key 
investments in evidence-based programs that will support 
America's small businesses, working families, and distressed 
communities.
    I would like to focus on one in particular. While I 
appreciate the committee's inclusion of technical assistance 
for Puerto Rico in last year's funding bill, more needs to be 
done. Puerto Rico's economy continues to suffer. Its 
unemployment remains above 12 percent. Its debt is 
unsustainable, and outmigration continues to accelerate.
    The administration has proposed a comprehensive plan to 
address Puerto Rico's financial challenges, and we encourage 
Congress to act with the haste that this crisis requires with 
legislation that will allow a financial restructuring along 
with new oversight, neither of which cost any taxpayer dollars.
    The budget also proposes a $600 million annual allotment 
indexed to inflation to create a refundable locally 
administered earned income tax credit for residents of Puerto 
Rico. Unlike Americans living in the 50 States and the District 
of Columbia, residents of Puerto Rico are not eligible for the 
Earned Income Tax Credit (EITC), which would increase 
employment in Puerto Rico's formal economy, as well as improve 
the commonwealth's tax compliance and tax revenue.
    Finally, the fiscal year 2017 Treasury budget makes a 
number of investments to support the ability of both our 
domestic and international offices to further Treasury's 
missions. While not under this subcommittee's particular 
jurisdiction, I want to highlight Treasury's international 
program's budget request. It provides a cost effective way to 
promote international financial stability and continue U.S. 
leadership in international development, advance national 
security, and expand export markets for American businesses.
    In closing, I want to take the opportunity to thank the 
talented team of public servants at the Treasury Department. I 
am proud to represent them here today, and on behalf of these 
hard working men and women, I want to say how much we 
appreciate the continued support of this subcommittee.
    Thank you very much, and I look forward to your questions.
    [The statement follows:]
                Prepared Statement of Hon. Jacob J. Lew
    Chairman Boozman, Ranking Member Coons, members of the 
subcommittee, thank you for inviting me to speak about Treasury's 
budget request for fiscal year 2017.
    I want to begin by acknowledging the bipartisan passage of the 
omnibus spending bill in December, which is already contributing to our 
economic growth and rebuilding our leadership internationally. This 
agreement demonstrates that we have the capacity to find common ground 
on difficult issues and lays a foundation for addressing some of our 
long-term challenges. Over the past 7 years under the President's 
leadership, we have seen a sustained economic recovery and an 
unprecedented decline in the Federal budget deficit. But more work 
remains to make sure we are upholding the basic American belief that 
everyone who works hard gets a fair shot at success. In recognition of 
this, the fiscal year 2017 President's budget puts forward the building 
blocks of a social compact for the 21st century and creates the 
conditions for sustained economic growth. The budget also makes 
critical investments in our domestic and national security priorities 
while adhering to the bipartisan budget agreement signed into law last 
fall, and it lifts sequestration in future years so that we continue to 
invest in our future.
    Within these constraints, the fiscal year 2017 Treasury budget 
supports key administration priorities to (i) further our national 
security interests, (ii) to invest in Treasury's cybersecurity 
infrastructure and financial intelligence activities--including efforts 
directed at ISIL--and (iii) to make strategic investments in the IRS to 
provide the level of customer service and privacy protections that 
Americans expect and deserve. And it supports investments in America's 
small businesses and distressed communities to help grow the economy 
and ensure that all Americans benefit from growth. Finally, the fiscal 
year 2017 Treasury budget makes a number of investments to support the 
ability of both our domestic and international offices to further 
Treasury's mission.
                       investing in cybersecurity
    Cybersecurity is one of the most urgent challenges facing the 
Treasury Department and the country. Treasury's budget request proposes 
a new $110 million department-wide cybersecurity enhancement account to 
focus Treasury's cybersecurity efforts, improve IT management across 
our bureaus, and increase our ability to protect against and respond to 
cyber threats. The proposed investments will enhance electronic 
authentication procedures for access to Treasury digital services, 
expand existing security systems on internal networks and public Web 
sites, and safeguard data across the department.
   investing in national security and protecting the financial system
    Treasury's financial intelligence, sanctions policy, and 
enforcement activities support U.S. national security interests and 
help protect the financial system from illicit use. Treasury's request 
provides $117 million for the Office of Terrorism and Financial 
Intelligence (TFI) to oversee and marshal Treasury's intelligence, 
enforcement, and economic sanctions functions. The request reflects 
Treasury's continued efforts to combat rogue nations, terrorist 
facilitators, money laundering, drug trafficking, and other threats to 
our security. These efforts include disrupting ISIL's finances, 
enforcing sanctions against Iran and North Korea, and enhancing global 
financial transparency.
    The request also includes $115 million for the Financial Crimes 
Enforcement Network (FinCEN) to support Treasury's efforts to safeguard 
the financial system from illicit use, combat money laundering, and 
support national security interests through the collection, analysis, 
and dissemination of financial intelligence and the strategic use of 
FinCEN's authorities.
              investing in the irs and a fairer tax system
    Treasury's request includes strategic investments in the IRS that 
will improve service to tens of millions of taxpayers and reduce the 
deficit through more effective tax administration. I appreciate the 
increase provided by Congress in fiscal year 2016; however, the IRS 
remains severely underfunded.
    The IRS collects more than 90 percent of Federal revenue and 
interacts with millions of Americans every day. Despite its crucial 
role and growing responsibilities, the IRS budget is nearly one billion 
dollars lower than it was in fiscal year 2010, while the volume of 
income tax return filings has increased by nearly 7 percent. Budget 
reductions at the IRS cost the country billions of dollars each year in 
lost revenue, contribute to inadequate customer service for taxpayers, 
and leave cybersecurity protections necessary to protect taxpayer data 
underfunded. A sustained deterioration in taxpayer services combined 
with diminished enforcement capacity could create serious long-term 
risk for the U.S. tax system.
    Our request provides a $530 million increase above the fiscal year 
2016 enacted level to protect the integrity of the tax system, fairly 
enforce the tax code, and provide adequate levels of taxpayer services. 
With these investments, the IRS will increase staffing for traditional 
taxpayer services, improve the quality of assistance available to 
taxpayers who call the IRS, and bolster defenses against stolen 
identify refund fraud. In fiscal year 2015, full-year telephone level 
of service plunged to just 38 percent. With the additional funding 
received in fiscal year 2016, we expect to reach 47 percent this year 
and with full funding in fiscal year 2017, we could bring that level 
back to 70 percent. The budget also invests in new IT architecture that 
will enable the IRS to continue to modernize and secure its online 
services and provide taxpayers with an experience comparable to what 
they have come to expect from financial institutions.
    Treasury's request also proposes an additional $515 million 
increase in fiscal year 2017 through a program integrity cap adjustment 
to support efforts aimed at increasing enforcement of current tax laws, 
investigating transnational organized crime, rooting out abusive tax 
schemes, and enforcing the Foreign Account Tax Compliance Act (FATCA). 
Targeted investments to fully fund enforcement initiatives through the 
cap adjustment are expected to return roughly six dollars to the 
Government for every dollar invested and reduce the deficit by $46 
billion over the 10-year budget window.
              investing in economic growth and opportunity
    The President's budget lays out a vision for what we need to do as 
a country to grow the economy and ensure that all Americans share in 
the benefits of economic growth. Treasury's request outlines key 
investments in evidence-based programs that will support America's 
small businesses, working families, and distressed communities. These 
investments will help drive economic growth, create jobs, and provide 
access to essential financial services.
    Treasury's request includes $246 million for the Community 
Development Financial Institutions (CDFI) Fund to promote economic 
development investments in America's low-income and underserved 
communities. Included in this request is $10 million for a new Small 
Dollar Loan Program, which will support broader access to safe and 
affordable financial products and encourage community institutions to 
provide alternatives to predatory lenders. The request also proposes to 
extend the CDFI Bond Guarantee program to facilitate the provision of 
long-term capital to financial institutions operating in underserved 
communities, at no cost to taxpayers.
    The budget also includes a series of mandatory proposals to 
facilitate private investment in our Nation's infrastructure, 
investments in small business job creation, and partnerships with 
private industry and local governments to promote stable income and 
sustainable savings practices for working families.
Investing in Infrastructure
    The budget establishes a new Financing America's Infrastructure 
Renewal (FAIR) program within Treasury that would provide direct loans 
to U.S. infrastructure projects developed through public-private 
partnerships. Eligible projects under the program will encompass the 
transportation, water, energy, and broadband sectors, as well as 
certain social infrastructure, such as educational facilities, and must 
meet all applicable environmental and labor standards. The program is 
estimated to provide $15 billion in direct loans over 10 years at no 
cost to taxpayers.
Supporting Small Businesses
    The budget includes a new authorization of $1.5 billion for the 
State Small Business Credit Initiative (SSBCI) to build on the momentum 
of the program by strengthening the Federal Government's relationships 
with State economic development agencies and providing capital to 
America's diverse community of entrepreneurs. Since enacted in 2010, 
SSBCI has supported over 12,400 private-sector loans or investments in 
small businesses and helped create or retain over 140,000 jobs.
Encouraging Projects that Pay for Success
    The budget includes a $300 million one-time mandatory appropriation 
for a new Pay for Success (PFS) Incentive Fund administered by 
Treasury. This program will support the growing number of State and 
local governments seeking to establish projects that use PFS financing. 
These projects leverage private investment to provide preventive social 
services that measurably improve outcomes for families and communities 
while generating value to the government, including savings. The PFS 
Incentive Fund will help to strengthen the ability of State and local 
governments to achieve measurable impact for people and communities.
Financial Innovation for Working Families Fund
    The budget includes a $100 million mandatory fund for Treasury to 
encourage the development of innovative private-sector financial 
products and services that would help low- to moderate-income workers 
build up ``rainy day'' reserves. The reserves would provide these 
workers and their families with a buffer against shocks to income and 
spending needs.
Allotment for Puerto Rico EITC Payments
    I appreciate the committee's inclusion of technical assistance 
authority for Puerto Rico in last year's funding bill; however, more 
needs to be done. While the economic health of our Nation has improved 
dramatically since President Obama took office, Puerto Rico's economy 
continues to suffer. Their unemployment remains above 12 percent. 
Outmigration continues to accelerate. And the Commonwealth's debt is 
unsustainable. As a result, the administration proposed a comprehensive 
plan to address Puerto Rico's financial challenges, and we encourage 
Congress to act with the haste this crisis requires. This must begin 
with legislation to permit a financial restructuring along with new 
oversight, neither of which cost any taxpayer dollars.
    The budget proposes a $600 million annual allotment, indexed to 
inflation, to create a refundable, locally-administered Earned Income 
Tax Credit (EITC) for residents of Puerto Rico. Unlike Americans living 
in the 50 States and the District of Columbia, residents of Puerto Rico 
are not eligible for an EITC. Given Puerto Rico's low labor force 
participation rate, the existence of an EITC should increase employment 
in Puerto Rico's formal sector by providing higher incomes to workers 
who file taxes. This added incentive for participation in Puerto Rico's 
formal economy should also increase Puerto Rico's tax compliance and 
tax revenues.
           other investments in support of treasury's mission
    The request includes new investments in Departmental Offices to 
support Treasury's economic and financial policy, and general 
management. These targeted investments will allow Treasury to improve 
risk management, enhance Treasury's analysis of complex tax and 
economic data sets, and effectively implement the Digital 
Accountability and Transparency Act (DATA Act).
    Finally, while not under this subcommittee's jurisdiction, I also 
want to highlight Treasury's International Programs Budget Request. The 
request provides a cost-effective way to continue U.S. leadership in 
international development, advance national security, and expand export 
markets for American businesses. The request promotes international 
financial stability and supports key global initiatives such as 
economic development, poverty reduction, improved food security, and 
climate change mitigation and adaptation.
                               conclusion
    In closing, I want to thank the talented team of public servants at 
the Treasury Department. They are dedicated to the work of the 
department and committed to the American people. I am proud to 
represent them here today, and on behalf of these hard-working men and 
women, I want to say how much we appreciate the support of this 
subcommittee.
    Thank you, and I look forward to answering any questions that you 
have.

    Senator Boozman. Thank you, Mr. Secretary. At this time, we 
will proceed to our questioning, where each Senator will have 7 
minutes per round. If there is sufficient interest from our 
members for additional rounds of questions, we will try to 
accommodate them.
    Secretary Lew, at this hearing last year, members of both 
sides of the aisle brought up the need for reforms to onerous 
laws and regulations that burden our community banks and limit 
their ability to serve small businesses. Unfortunately, little 
progress has been made in reducing compliance costs and 
regulatory burdens.
    Small businesses and community banks remain swamped under 
paperwork and regulations, and zero new banks have been 
chartered in Arkansas during the entire Obama administration. 
Additionally, many community banks are being forced to 
consolidate due to ever increasing compliance costs. Community 
banks did not cause the financial crisis, yet they have been 
affected during the implementation of Dodd-Frank.
    Can you talk a little bit about what the administration is 
trying to do to provide flexibility and ease the burdens and 
compliance costs facing the community banks?
    Secretary Lew. Mr. Chairman, I think we agree that 
community banks, small financial institutions, play a crucial 
part in the financial system of our country and in forming a 
backbone for small businesses and for our communities.
    The laws that we have give our regulators flexibility to 
have different standards, so it is not an one-size-fits-all 
approach. They have endeavored in many areas to address the 
concerns of small financial institutions with lighter reporting 
requirements and different supervision schedules and standards.
    I think the reality is that there are a very broad range of 
financial institutions in the country today, and we probably do 
not have a single definition of what a small institution is. 
When we think of the small institutions, we are not thinking of 
regional banks and we are not thinking of banks that are 
hundreds of billions of dollars.
    The burdens on the smaller institutions should reflect the 
risks they present. I know the meetings that we have at the 
Treasury Department, the conversations that I have with the 
regulators, they are constantly looking at what tools do they 
have to be responsive to that concern.
    Senator Boozman. I agree in the sense that as you stated, 
it should be addressed based on risk. Certainly, the smaller 
banks need to be regulated. I guess the next question is how do 
you make sure the same regulations that apply to the mega banks 
are not being forced down on community banks, and along with 
that, the reality is there are simply no new banks being 
chartered post Dodd-Frank. Banks are getting bigger rather than 
smaller. I think in that regard, putting us more at risk.
    Secretary Lew. The truth is the burdens on the larger banks 
are different than the burdens on smaller banks. The nature of 
the stress tests, the question of which institutions have to 
file living wills, the degree of oversight they get.
    I do not think we want to be in a world where we go too far 
in removing the supervisory function. It is not that many years 
ago that we had a financial crisis that did not come from big 
banks, it came from small banks. We know this pendulum can go 
in both directions.
    Senator Boozman. Why are there not being new banks 
chartered?
    Secretary Lew. You know, I think coming out of the 
financial crisis--we have seen what was happening before the 
financial crisis--which is a trend towards consolidation. I 
think it has to do with economies of scale as much as anything 
else. It is not something that was created by the financial 
crisis. We were seeing that trend over some time.
    I do not have any specific evidence on why we are not 
seeing new banks chartered, but I would be happy to go back and 
look and see what the kind of experience was at different 
periods of time, whether we were seeing a lot of new banks 
chartered in the 10 years prior to the financial crisis, for 
example. I am happy to look at that and get back to you.
    Senator Boozman. Thank you. The administration has taken a 
number of steps to foster stronger economic ties with Cuba, yet 
a major barrier that my constituents in Arkansas face is the 
ban on private credit for agricultural transactions in the 
Cuban marketplace.
    Cuba imports about 80 percent of its food, making it an 
attractive export market for farmers, and estimates indicate 
that for Arkansas alone, we could add nearly $80 million 
annually to the economy by exporting to Cuba.
    Last year, I offered an amendment to the Senate Financial 
Services bill that was adopted by voice vote based on a bill 
that I and Senator Heitkamp introduced. The legislation would 
lift the ban on American's ability to provide financing for 
sales of agricultural commodities to Cuba, no longer requiring 
cash payment in advance of shipment, and breaking down a huge 
barrier to trade. This solution seems like an obvious next step 
to building a more positive relationship with our neighbor.
    Can you describe some of Treasury's recent efforts related 
to Cuba? Are there any forthcoming plans to further enhance 
economic ties?
    Secretary Lew. Mr. Chairman, we have gone quite far within 
laws that constrain our ability to go all the way to normal 
trade relations. There is an embargo in place. We have laws 
that prevent us from having normal trade relations.
    Respecting those laws, we have been going as far as we can 
to try and open up commerce and connections between the 
American people and the Cuban people, because frankly, 50 years 
of an embargo have not worked. If we want to change Cuba, we 
need to have more contact with Cuba. We need the Cuban people 
to have more contact with ideas and people from the United 
States.
    In the areas of export financing, we have gone as far as we 
can to ease up on the financing requirements that have hurt our 
agricultural exporters, but frankly, until there is a change in 
law, we have limitations as to how far we can go.
    We have been very careful. We have tried to be as 
aggressive as we can be within the law, but not to go beyond. 
We are continuing to look at what options we have. We would be 
open to suggestions of areas where if anyone thinks we have not 
gone far enough, we would be happy to take another look.
    Senator Boozman. We appreciate that. You do support 
loosening the rules up, as far as congressional change, to 
increase the financing?
    Secretary Lew. Yes. I mean it would take an amendment to 
current law to do that. We would be happy to work with you on 
that. We have made clear that the broader issue of the embargo 
is something that Congress would have to address for us to 
truly have any full normalization of relations.
    Senator Boozman. Thank you, Mr. Secretary. Senator Coons.
    Senator Coons. Thank you, Chairman Boozman. I am confident 
that we share an enthusiasm for the same agricultural 
exporters, and I think all the states represented by the 
members here have that in common. I also will follow up with 
you about Cuba financing.
    Let me ask you first about the Community Development 
Financial Institutions (CDFIs), if I might, and the role they 
play helping small businesses and communities to expand and 
grow. How would this budget help expand CDFIs into new 
neighborhoods, and particularly into rural areas where they are 
not currently located or as effective as they could be? What 
other incentives or reforms do you think are needed to 
encourage banks and other entities to partner with CDFIs?
    I would also be interested, Mr. Secretary, if you would 
talk about the small dollar lending program. I have seen 
firsthand how destructive payday lending can be, and I would be 
interested in how you think we might help CDFIs enter the small 
dollar market, and I am interested in several other proposals 
you have for financial innovation for working families. Let's 
focus first on CDFIs.
    Secretary Lew. Thanks, Senator Coons. We think CDFI is an 
exceptionally important program in building financial 
institutions in our smaller communities and in our rural 
communities to help provide access to capital, which is 
necessary for businesses to have a chance to get started and to 
thrive.
    There are a number of things in the President's budget. 
First, we start with an increase in funding, so more money into 
the program is obviously helpful. Secondly, we fully fund the 
bank enterprise award program, which is a way to provide grants 
to FDIC-insured depository institutions that demonstrate they 
have increased their investments in CDFIs.
    You mentioned the small dollar loan program. Our budget 
requests $10 million for the new small dollar loan program, 
which would be a very important way for us to make progress on 
having a real alternative to payday lending. Payday lending is 
not a good thing for either the individuals who have no choice 
but to go to them or for the financial systems. We think that 
is very important.
    One of the things we did last year that greatly expanded 
the reach of CDFIs is we worked with the credit unions, made 
credit unions eligible for CDFI. That greatly expands the 
number of institutions that are CDFI eligible.
    As I travel to cities and rural areas, I visit CDFI-funded 
institutions. One of the things that I am always struck by is 
that what we fund is only part of what they do. They become 
anchors in their community and they became hubs that can 
provide access to multiple forms of assistance, and bring 
together a lot of the things that we do in the Federal 
Government, in the community where people need access to it.
    Senator Coons. Thank you. Let me focus for a moment on 
sanctions. As you know, we recently voted to strengthen 
sanctions against North Korea. We continue to have serious 
concerns about vigorous enforcement of sanctions against Iran 
that remain in place, and continued efforts to disrupt 
terrorist financing that supports the Islamic State of Iraq and 
the Levant (ISIL).
    Is the budget request sufficient for this small office to 
effectively fulfill its critical mission, and do you think it 
makes a difference that Adam Szubin has not yet been confirmed, 
despite bipartisan support for his record of service across two 
administrations, to actually lead this office?
    Secretary Lew. Senator, I think our Office of Terrorism and 
Financial Intelligence (TFI), is seen throughout the Federal 
Government as fighting way above its weight in terms of adding 
value to the effort to control illicit financial activities and 
to track down and stop the flow of funds to terrorist 
organizations.
    I could not be more proud of the people, the men and women 
who work in that office. They work at night, they work on the 
weekends. I think we have requested the right amount of money. 
I do not think there is any way we are going to make these easy 
jobs because these are jobs that are investigative jobs like 
any other. The people who do this work are committed to it.
    No one complains about working long hours. We have the 
people we need. We have requested funding. Obviously, more 
funding always eases the workload burdens. I do not think this 
is a case where there is a shortage of funds. It is hard work. 
It just takes grinding effort going through intelligence, going 
through leads, figuring out where a case can be made, and then 
taking action.
    With regard to Acting Under Secretary Szubin, I think he 
should be confirmed. It is one of the most important 
counterterrorism positions in our Government. He is eminently 
qualified. I do not know anyone who has raised a question about 
his qualifications. He represents us around the world in some 
of the most difficult environments, and the Senate should 
confirm him and confirm him quickly.
    Senator Coons. Thank you. Mr. Secretary, as I have raised 
with you directly and through a letter I recently sent, Mahan 
Air continues to be a key means by which Iran is providing 
support to Hezbollah, the murderous regime of Bashar al-Assad, 
which helps fuel the Syrian refugee crisis. Yet, Mahan Air 
lands in airports all over Western Europe. They have previously 
been subject to sanctions.
    What are the main obstacles to implementing new sanctions 
against Mahan Air, given their ongoing role in facilitating 
terrorist activity by Iran?
    Secretary Lew. Well, Senator, we are committed to enforcing 
sanctions against Mahan Air as part of our broader efforts to 
push back against Iran's efforts, both in terms of its support 
for terrorism, and its activities in the region that are 
destabilizing the region.
    We have focused in particular on Mahan Air's support for 
the Iranian Revolutionary Guard Corps (IRGC) Qods Force, 
including the transfer of personnel and movement of arms and 
fighters from Iran to Syria, Iraq, and Yemen. We have continued 
to take action against Mahan through engagement, financial 
blockings, designations, interdicting shipments, and by 
pressing our partners to act against Mahan Air.
    We are actively working with our international partners to 
try to limit where Mahan can fly. We are continuing to look for 
actions that should and could be taken against Mahan, and have 
never relented in that.
    Senator Coons. I would welcome hearing from you in more 
detail. That is encouraging. I think you would find bipartisan 
support for limiting Mahan's ability to access our allies' 
airspace, because this is the means by which the forces are 
projecting into the region in a terrible and destabilizing way, 
and I think we can and should take more aggressive action 
against them.
    I have more questions, but I can see----
    Secretary Lew. If I might, Senator, just to take it to a 
broader level of principle, as I made clear before a number of 
committees of Congress over the summer, we are taking the 
ongoing enforcement of sanctions on terrorism, regional 
destabilization, and human rights violations very seriously.
    We have taken action in recent weeks. We will continue to 
take action as it is warranted. We lifted the nuclear sanctions 
because that was the deal. Iran stopped its nuclear program. We 
lifted the nuclear sanctions. We have never lifted the other 
sanctions nor is there any understanding other than that we 
will continue to press forward.
    Senator Coons. Thank you. Thank you for your testimony, Mr. 
Secretary.
    Senator Boozman. Senator Moran.
    Senator Moran. Mr. Chairman, thank you very much. Secretary 
Lew, thank you for your presence and testimony today.
    The Treasury Department holds the proceeds of 50 million 
matured unredeemed U.S. savings bonds worth about $17 billion. 
Many of those bonds have been fully matured for a long period 
of time, decades. Is there any effort at the Treasury 
Department to find the owners of those bonds and/or to assist 
States like my own who have unclaimed property laws to make 
certain the owners or the heirs of those owners can access the 
funds that they loaned to the Federal Government?
    Secretary Lew. Senator, I will have to admit that I am 
going to have to check on that and get back to you. I do not 
get a regular report of unclaimed bonds, but I will check on it 
and get back to you with an answer.
    Senator Moran. Mr. Secretary, I think you will find that 
the Treasury Department is not very engaged in this effort. You 
can confirm or deny that once you have the information.
    There are 17 States that have laws in place in which they 
are trying to return those bonds or the proceeds of those bonds 
to the rightful owners or the heirs of the rightful owners with 
little or no help from the Treasury Department. The Treasury 
Department indicates it has no ability to connect the owners to 
the bonds in a transparent way, to notify those bond holders.
    Secretary Lew. I am not sure whether these are paper bonds 
or electronic bonds and what form they are held in. I will get 
the facts and get back to you. Obviously, we have no interest 
other than being helpful. Whether there is a system that 
provides for that to be accommodated is what I need to check, 
and I am happy to do so.
    Senator Moran. Thank you very much. I will have a few 
follow up questions in writing in that regard.
    Let me turn to the topic that Senator Boozman raised with 
you in regard to community financial institutions. I was less 
than enamored with your response to Senator Boozman.
    It seems last year when we had this conversation, you were 
more vigorous in your support for community financial 
institutions and more concerned about their overregulation. I 
hope that is just a reflection of the words you happened to 
choose today and not a reflection of your attitude or approach.
    When the Banking Committee, of which I am a member, passed 
legislation, the so-called ``deregulation,'' that became the 
Shelby bill, it came out of our committee on a partisan vote. 
Every Republican voted yes, every Democrat voted no.
    I took that as an opportunity not to call this the end of 
the day, but to try to organize colleagues, Democrats and 
Republicans on the committee, to come together and find 
something perhaps in the middle, some place in this discussion 
in which we could address some of the, in my view, 
overregulation of regional and community banks and financial 
institutions.
    One of the things I would ask you is--it seems to me that 
part of our challenge in getting that accomplished was the 
Treasury Department, and you in particular, in a letter to the 
House Financial Services Committee, indicated opposition to the 
effort for the kind of changes that were being at least 
considered.
    My only request, and you certainly have the right to oppose 
changes to Dodd-Frank that you think would be inappropriate, 
but if you could be more discrete, more narrow in your 
opposition, and rather than being opposed to the process or 
trying to shut down the conversation or passage of legislation 
that you oppose in its current form, that you could help us by 
supporting provisions that are reducing whose goal the 
provisions of which reduced the burden upon community financial 
institutions, and deliver that message instead of the message 
that this is a bad idea in totality.
    Secretary Lew. Senator, my views have not changed since 
last year. I continue to believe there should be differential 
treatment of banks of different size.
    The reason we objected to the legislation that you are 
describing is we thought it did do severe damage to Dodd-Frank, 
and I do not think it drew a line between small and large banks 
in a way that is the right way to distinguish.
    For example, the current limit is at $50 billion. It took 
it up to $500 billion. Those are enormous institutions. They 
are amongst the very largest financial institutions in our 
country. It was not even in the neighborhood of a reasonable 
proposal in terms of what you might change the size to. Some 
people talked about going from $50 billion to $100 billion. The 
proposal went to $500 billion.
    I think one of the reasons we respond the way we do to big 
packages like that that contain very damaging rollbacks of 
Dodd-Frank is we have seen now for 5 years efforts to repeal 
Dodd-Frank, to chip away at Dodd-Frank, so perhaps we are 
conditioned by the experience of the last 5 years. If it had 
been a proposal that did not have such damaging provisions, we 
would have responded in a different way.
    Senator Moran. My only request, and I understand how you 
can get to the point of view that every effort is to totally 
repeal Dodd-Frank--my request would be work with us, 
particularly as we try to get a bipartisan solution to 
community financial institutions by providing things that you 
do believe are worthwhile of our support and something that the 
administration would agree to.
    Secretary Lew. I think last year when I testified, I 
probably used the same example. The schedule for supervisory 
review could be changed for smaller institutions. That would 
ease their burden. That would be the kind of thing we would be 
open to talking about.
    The problem is it was a rather large and all inclusive 
package that Senator Shelby moved through committee, and we 
were responding to that. I always remain available to have 
conversations about things that are in the realm of real 
improvements.
    Senator Moran. Knowing the circumstances which the Shelby 
bill faced, there were those of us, Republicans and Democrats, 
trying to find some other parameters by which we could 
accomplish this. We need your help, not opposition, to find 
that place in which we can come together.
    Secretary Lew. If I may, Senator, just on that issue, one 
of the things that comes up frequently when we have 
conversations like this is attempts to roll back the Financial 
Stability Oversight Council. One of the things we have been 
very negative about is anything that would chip away from that.
    Before the financial crisis, we had no entity in this 
Government that was responsible for looking across all agencies 
to ask the question where is financial stability risk coming 
from.
    I would just say in my last year it is something that I am 
going to be zealously on guard against, because right now, we 
are sitting in a place where the U.S. financial system is safer 
and sounder than it was by a long shot, and I think we have to 
leave it that way.
    Senator Moran. Let me remind you of something you agreed to 
do in our conversation in this hearing last year. Agrippa, you 
are familiar with the process, I assume, from OMB.
    Secretary Lew. Yes.
    Senator Moran. I would just encourage you to encourage the 
regulators----
    Secretary Lew. I have done so.
    Senator Moran. To take that process seriously. This may be 
the place for the inability of Congress to find a legislative 
solution. There is a process in place by which many regulations 
that may be overly burdensome, unnecessary, or too broad can be 
addressed by regulators, those people, I assume----
    Secretary Lew. I totally agree.
    Senator Moran. Have the greatest ability to find the right 
balance.
    Secretary Lew. When I was OMB Director, I wished I could do 
a regulatory look back for all agencies because independent 
agencies do not come under OMB review in the same way. They are 
governed by a separate process. That is what the Economic 
Growth and Regulatory Paperwork Reduction Act (EGRPRA) process 
is.
    I know that the regulators have been taking it very 
seriously, and I think that is the right place to look to see 
where some things can be rolled back.
    Senator Moran. Thank you, Mr. Secretary.
    Senator Boozman. Our ranking member on Appropriations, 
Senator Mikulski.
    Senator Mikulski. Thank you very much, Mr. Chairman, and to 
your ranking member, Senator Coons. This is an excellent 
hearing. You have organized a trifecta with the Secretary of 
Treasury, the head of IRS, and then a wrap up hitter with the 
Inspector General.
    I think we often overlook the importance of the Department 
of Treasury in terms of keeping America safe, the safety and 
soundness of our financial institutions, to protecting us 
against terrorism and the illicit funding of human traffickers 
and drug cartels.
    I wanted to come to this hearing not only to ask some 
important questions of the Secretary and IRS, but also, Mr. 
Lew, this is our last public appearance together. I wanted to 
be here particularly to thank you for your service. We go back 
to the Clinton days, way back when you were the Director of 
OMB.
    I have found over the years, whether you were in Government 
and out of Government, what a straight shooter you have always 
been in dealing with Congress and trying to solve the problems 
that were in your portfolio. You have been a straight shooter.
    You have been a money guy with an eye on the people. You 
have always tried to encourage public investments for 
dividends, whether it was physical infrastructure or human 
infrastructure. We have been really lucky to have someone with 
your expertise, and that also goes to what you said earlier 
about the people at the Department of Treasury.
    This field is financial services. Anyone who goes into this 
field, lucrative opportunities are available in the private 
sector. They are here because of mission and they are here 
because of purpose.
    I am going to thank you and I am also going to thank them 
for what they do every single day. I feel we thank them with 
both adequacy of resources and certainty of resources.
    Secretary Lew. Senator, you beat me to the punch. I, last 
night, said this is probably the last hearing that I will 
appear before Senator Mikulski, and I was proud to call you my 
Senator for 10 years, and I have been proud to call you my 
friend for longer than that. I could not have asked for a 
higher honor than to work with somebody like you for all these 
decades.
    Senator Mikulski. Well, the feeling is mutual. While we are 
doing some Kumbaya, we will get to some questions. We are very 
much concerned about the whole issue of safety and soundness of 
financial institutions, the exploitation of terrorism, human 
trafficking, all the ways that money travels.
    I am interested in the security of the Treasury Department 
itself, and the whole potential of cyber attacks on various 
aspects of the Department of Treasury. We saw what happened to 
OPM. We know the Pentagon gets a million hacks a day, and so 
on.
    Could you tell us what is the Department's initiative to 
protect the department against this? I will now talk with IRS. 
You know, it is everything from identity threat. I just got 
these kinds of calls where I am now a target for IRS fraud, and 
I will talk more about it with the director.
    Could you tell us about what you have in mind for this $110 
million? Is it adequate? Does it do the job? Can we feel secure 
that you will use the money well?
    Secretary Lew. Senator, cyber threats are something that 
every agency of government, every business in the country deal 
with on a daily basis. It is a new reality, and it is a 
terrible reality because it is something that puts at risk our 
systems and our personal financial security and our personal 
privacy.
    At Treasury, we have multiple levels at which we are 
concerned about it, starting with the systems themselves. 
Obviously, that is something where we have the same problem, we 
detect attacks that come in. We need to continually put in the 
software and the monitoring necessary to catch things before 
they get into our system.
    Because we are a consumer/taxpayer facing agency, as you 
will talk with the IRS about, we get attacked in ways that are 
beyond just our system. There is enough information out there 
on the Web that people can impersonate a taxpayer and not hack 
into the system, but just come in under the guise that they are 
pretending to be you or me.
    We have to be better at finding them. We have put systems 
in place to have those instances detected because of patterns, 
and one of the things that regretfully we have had to do is 
make it a little bit more cumbersome rather than easier to deal 
with some of the things that were supposed to simplify access.
    For example, we wanted people to be able to get a 
transcript easily, Get Transcript, have it be something that if 
you are applying for a loan, you get your tax file 
instantaneously. It turned out that cyber criminals found 
identities of people and drew upon their tax records, so we now 
are going to have to put some filters in to make it a little 
bit slower. That is just the price----
    Senator Mikulski. Mr. Secretary, I note that in the 
President's budget and your request, there are 12 new 
cybersecurity projects, and you are going to hire 28 cyber 
experts. Is this is what they are going to be dealing with?
    Secretary Lew. Well, the cyber experts at the main Treasury 
will be dealing with our systems. At the IRS, they will be 
dealing with the taxpayer systems. You will come back to that 
with----
    Senator Mikulski. To come back to your systems, there you 
are, head of Treasury, are they plums or pigeons to be plucked, 
are these 28 people going to be the cyber shield to protect 
you?
    Secretary Lew. Well, I think we face the same challenges 
that every other employer faces, it is a very hot market for 
people with expertise in cybersecurity. In the private sector, 
salaries are way up. One of the things we have been pleased by 
is public service still calls good people in, and we have been 
able to hire the people with the skills we need.
    I must say I worry about that going forward because we are 
going to need to train more and more cyber experts or else it 
will get challenging, and we might end up not having access to 
the talent we need.
    So far, we have been able to hire the right people, but I 
do not take for granted that that will continue. I see what the 
bidding is in the private sector. We need to be able to have 
the flexible practices that permit us to bring in technical 
people when we find them and to pay them appropriately.
    Senator Mikulski. Thank you. Mr. Chairman, I just encourage 
the subcommittee, this is an area where I think we are 
vulnerable, even in OPM, you oversee so many things. This is an 
area we ought to keep an eye on. Thank you very much.
    Senator Boozman. Thank you. Thank you for your questions. I 
agree with you totally, this is a huge area that I think is 
kind of the tip of the iceberg if we are not careful.
    Secretary Lew. It will not go away. We are going to be 
dealing with it for years to come. We need to, I think, 
understand the cyber criminals will try to figure out where the 
weaknesses are, and we are always going to have to be fighting 
to get ahead of them.
    Senator Boozman. Right, very much. I would like to ask, as 
part of the appropriations bill, the subcommittee requested the 
Treasury Department, prior to the lifting of any sanctions 
designation relating to Iran to conduct a full review of 
sanctioned entities' behavior and report to the subcommittee in 
writing whether the entity continues to engage in any 
particular prohibited activities.
    I guess the question is did we go back as the law requested 
and review all these entities? Of all the Iranian banks that 
were de-listed, were none engaged in facilitating non-nuclear 
illicit activities? The question is was not a single one of 
these banks facilitating a significant transaction for the 
Iranian Revolutionary Guard Corps (IRGC)?
    Secretary Lew. Senator, we went back and reviewed every 
entity that was designated for nuclear purposes, and we removed 
the designations that were related to their violations of our 
nuclear sanctions.
    If an entity was designated for a different purpose, say 
for support of terrorism, we did not lift the designation. Some 
entities were duly designated, and if you were designated for 
both nuclear and terrorism, it was not lifted. We lifted the 
sanctions that were nuclear sanctions, and that was primary 
sanctions and secondary sanctions.
    Senator Boozman. Are we continuing to conduct ongoing 
reviews to ensure the entities are not engaging in any of the 
prohibited activities?
    Secretary Lew. We continue with the case of terrorism and 
regional destabilization and human rights sanctions to 
vigorously review activity and take action when appropriate.
    I think if you look at the financial institutions, for 
example, those that were designated for terrorist violations 
remain sanctioned.
    We also have a broader prohibition against doing business 
between the United States and Iran that is an obstacle for most 
direct business. That is just related to the legislation that 
was enacted decades ago.
    Senator Boozman. The Iran Sanctions Act (ISA) is the 
foundation of the sanctions regime architecture. As you know, 
unless we reauthorize it, the law will expire at the end of 
2016. Under the joint plan of action, the administration waived 
certain ISA provisions, and you also pledged to snap back these 
sanctions should Iran violate the joint plan of action.
    I believe it is crucial for Congress to reauthorize the ISA 
to ensure there is something to snap back to. Reauthorization 
would also send a strong signal to Iran that Congress is 
carefully scrutinizing its actions. Failure to reauthorize 
would send Iran exactly the opposite message. In other words, 
the U.S. will not push back against bad Iranian behavior.
    Secretary Kerry stated last week that now is not the time 
to reauthorize ISA. I guess the question is when is the right 
time?
    Secretary Lew. Well, Senator, my experience is that when 
the right time comes, this is an area where legislation can 
pass very quickly. I do not think there is any need to act now 
for something that does not expire until January.
    I think on the question of snap back and actions we could 
take, we have ample tools right now both to snap back sanctions 
and to take action against Iranian entities that violate 
terrorism, regional destabilization, and human rights 
sanctions.
    In the event there is a reversal of Iran's position on 
nuclear issues, we can snap back sanctions there with the 
authorities we have.
    I do not think this is a case where we are lacking in the 
ability to perform as we have described, and I do not think 
there is a need right now for Congress to act on the Iran 
Sanctions Act.
    Senator Boozman. Thank you. Senator Coons.
    Senator Coons. Mr. Chairman, I will defer to Senator 
Durbin.
    Senator Boozman. Senator Durbin.
    Senator Durbin. Thank you very much, Mr. Chairman. I want 
to thank my colleague, Senator Coons. Mr. Secretary, thank you 
for being here.
    I read the statements by the Inspector General as well as 
the Commissioner. I would just say until we can devise a 
government which does not involve the collection of taxes, we 
owe it to taxpayers to treat them fairly and in a courteous 
way. What we have done to the Internal Revenue Service in terms 
of their taxpayer services by virtue of cutting back 
dramatically on appropriations is a sad commentary on Congress' 
relationship with the IRS.
    I think we owe it to the American taxpayers who by and 
large are people doing their best to comply with the law and do 
everything they are required to do, to treat them with more 
courtesy, respect, and efficiency.
    Secretary Lew. I could not agree with you more, Senator.
    Senator Durbin. When I look at these numbers from the 
Inspector General, that the IRS received approximately 8.3 
million calls and provided 37.6 percent level of service with a 
23.5 minute average speed of an answer----
    Secretary Lew. It is terrible.
    Senator Durbin. There is no Senator or Congressman who 
could get reelected if they tried this in their home States or 
with their constituencies.
    Secretary Lew. Yes, I find it unacceptable to preside over 
an agency that has no choice but to have such a bad performance 
record because it does not have people answering the phones. 
You go to the call centers and there are empty seats. That is 
why the phones do not get answered.
    Senator Durbin. Also, when it comes to compliance, if the 
word is not out and about there are cops on the beat, we know 
what is going to happen. People are going to continue to try to 
cheat this Government. The overwhelming majority of people are 
doing their legal best to pay their taxes, and we owe it to 
them to make sure everyone pays their legal share of taxes in 
this country.
    I would like to address another issue, the issue of 
inversions. I think the estimate is some 76 companies have now 
inverted, which means paper shuffling to try to change their 
address and reduce their tax responsibility. We have had them 
in my State. We had--I will not name names. I just do not want 
to open up old wounds.
    Major corporations announced they were going to pick up and 
move overseas to avoid their Federal tax responsibilities. You 
stepped in at the Treasury Department to try to devise ways to 
slow this down or stop it. How successful have you been?
    Secretary Lew. Yes, Senator, we have taken action twice 
with administrative guidance that has helped, it has slowed 
down the process. As I said at the time, through administrative 
action, we cannot shut the door to inversions. It would take 
legislation to do that, and I think Congress should legislate 
to do that.
    There are a lot of tax professionals out there, lawyers and 
advisors, who figure out ways around guidance, but you could 
have legislation that shuts the door. In our tax reform 
proposal, we do a lot of things that I think are important to 
make our tax code more competitive and to help stimulate 
investment in the United States, but you could pull out the 
inversion provisions and you could legislate an anti-inversion 
bill and stop these inversions.
    Senator Durbin. There is an estimate----
    Secretary Lew. We are actually looking at an additional 
action, Senator, and it will help, but I do not want to 
mislead. It will help but it will not shut the door completely.
    Senator Durbin. We estimate we have lost $30 to $90 billion 
in Federal tax revenue from these companies that do this fast 
shuffle of corporate location so they can avoid tax liability. 
Some of them argue and I have heard the argument, well, that is 
because of our corporate tax rate, but when you take a look at 
the companies that are inverting, leaving to go overseas, very 
few if any are paying the full 35 percent tax rate.
    Burger King and Medtronic paid an average Federal tax rate 
of 20.3 percent between 2011 and 2013. Overall, the largest 
companies pay a rate of just under 20 percent on average.
    Even if you could argue for it, and I would join in the 
argument, for some sort of tax reform that would include 
corporate tax rates, that in and of itself is not the argument 
in the cases of these corporations.
    Secretary Lew. Senator, I avoid commenting on any 
individual tax matters, but as a principle, there is no 
question that there are companies that have gotten a lot of 
benefit by being U.S. companies. They benefit from the research 
and development in the United States, the infrastructure in the 
United States, the education system in the United States, the 
rule of law in the United States, and for them to change their 
legal address to lower their taxes and still take full 
advantage of everything the U.S. offers is just not right. It 
may be legal, but it is not right, and we should change the 
law.
    Senator Durbin. It is certainly not fair to those 
businesses and individuals who continue to pay taxes in this 
country to maintain our national defense, to maintain the 
infrastructure, which these same companies take advantage of 
every single day, and in the case of pharmaceutical companies, 
again, I will not name names for fear of the not so innocent 
being highlighted, these companies relied on the National 
Institutes of Health (NIH) and other agencies doing basic 
research at taxpayers' expense so they can create products that 
will make a profit for them. Now, they want to go overseas and 
avoid paying the taxes that sustained the medical research 
operations.
    Secretary Lew. Senator, I think the right answer would be 
for us to do business tax reform properly, to get rid of the 
loopholes in the deductions, to lower the statutory rates so 
that we can compete in the world again, and to have an 
international tax system that makes our taxes and taxes 
overseas work better together.
    Senator Durbin. So, what should we do about the $2 trillion 
in profits overseas that are being held to avoid paying U.S. 
taxes?
    Secretary Lew. That is where our tax reform would subject 
U.S. taxable income to taxes, a minimum tax rate, even if it 
does not come home. It would be a lower tax rate than the 
domestic rate, but we put a 19 percent rate in our bill, and 
there have been proposals for different rates. We can solve 
this problem.
    That is one of the things that would have generated 
revenue, one time revenue, where that overseas money is 
repatriated to pay for infrastructure and help rebuild our 
country.
    We had a proposal, we have had a proposal for several years 
now, which I think actually has pretty broad bipartisan 
support. We just have not been able to get it through the 
Congress.
    Senator Durbin. I might add that I think you are suggesting 
and I would support saying those who want to repatriate 
overseas profits would be given some advantage in the Tax Code 
if in fact they reinvest it in America, in capital investment 
in our country, to create job opportunities, new business 
opportunities for Americans. That, to me, is the thoughtful way 
of trying to bring the profits home, allow the corporations to 
benefit somewhat, but more importantly, that American workers 
and businesses will benefit as well.
    Thank you, Mr. Chairman.
    Senator Boozman. Thank you, Senator. Senator Coons.
    Senator Coons. Thank you, Mr. Chairman. Just a few follow 
on quick questions, if I might. First, just on the question of 
sanctions enforcement, I just wanted to commend the 
administration for placing tough export restrictions on the 
Chinese telecom giant, ZTE, and continuing to enforce our laws.
    I am troubled. Earlier today there were news reports just 
breaking in recent hours that the Iranians have launched a 
whole other range of ballistic missiles, and they will continue 
to test us. It is my hope we will be able to continue to work 
closely on ensuring we are enforcing the many sanctions and 
export restrictions that remain on the books.
    On cybersecurity, just to follow up on Senator Mikulski's 
question, FITARA, the Foreign IT Acquisition Reform Act, was 
enacted in 2014, and helps to empower agencies' CIOs to ensure 
they would have sufficient authority over IT spending across 
the department to eliminate silos and stovepipes of spending at 
the bureau level.
    This broad initiative across the department to strengthen 
your cybersecurity resources, how does it build on the goals of 
FITARA, and how would these funds be merged with other IT funds 
within the department's base request to make sure that it 
really does meet your highest priorities and greatest risks the 
department faces?
    Secretary Lew. Senator, the challenge dealing with cyber is 
there are some things you know you need to deal with as a 
planning matter in advance, and other issues come up over the 
course of the year. We need to be able to target funding where 
it is needed, when it is needed.
    One of the things we have been working on in recent months 
is to make sure we take our classified system and have it meet 
the highest level of standards.
    The challenges are in every part of the IT infrastructure, 
not just at the Treasury Department, but globally. The idea of 
having very narrowly defined funding targets does not give you 
the ability to be nimble enough to move as you see threats that 
need to be addressed. A lot of these solutions are not multi-
year builds. It is seeing a problem, bringing in experts and 
fixing it.
    We think the proposal that we put together gives us the 
flexibility to address the things we know are now on our 
agenda, but also to target resources as the year develops to 
challenges as they occur. We very much look forward to working 
with the subcommittee on coming to an understanding of how that 
can be done and the subcommittee seeing how we use the money.
    We are not looking to have unbridled discretion here. It is 
really a question of targeting it to the right part of the 
fairly broad enterprise that Treasury comprises.
    Senator Coons. There is a significant tax gap in the United 
States by some accounts, something like $350 billion goes 
uncollected, mostly because of under-reporting of Federal tax 
liability. It is about a 16 percent gap, if I understand it 
correctly.
    It also raised equity concerns because those who comply, 
those who voluntarily meet their legal duties, honest 
taxpayers, end up paying more, and one estimate is about $3,400 
per household per year, to subsidize dishonest taxpayers who 
underestimate.
    What do you think we could do to shrink the tax gap, as 
Senator Durbin raised, when the message is sent out that the 
agency is underfunded, and the ability to collect effectively 
is significantly hindered as well? I would be interested in 
what you think both the agency and more broadly the Department 
and the IRS is going to be able to do to address the tax gap.
    Secretary Lew. I would say two things, Senator. First, if 
we do not have the resources to hire the enforcement officers 
that we need, the tax gap will only grow, because we know when 
you put resources into enforcement, you find cases of tax 
avoidance, and we know when you find cases of tax avoidance, 
voluntary compliance goes up because people do not want to get 
caught.
    So, you have the direct benefit of finding taxes that 
should have been paid that were not, but you also make the 
system a healthier system and a more fair system, because 
everybody should know that people in a like position are paying 
taxes as they do, not skirting the law.
    In terms of monitoring the tax gap, it is related to the 
whole IT challenge that we have. Frankly, the resources 
available for data collection, data analysis, do not reflect 
what we need to do all the work that we have. So, it is another 
area where resources actually make a difference.
    Senator Coons. A bill that I supported, the Digital 
Accountability and Transparency Act, which was enacted 2 years 
ago, was designed to improve the quality and the transparency 
of Federal financial data, and I think would also improve the 
understanding of the average American of what it is the Federal 
Government does.
    Is the USAspending Web site going to be ready to host the 
enhanced agency data, and what is the current status of 
Treasury's implementation of the Data Act?
    Secretary Lew. We have been working to implement the Data 
Act. It is something our folks worked very closely with the 
subcommittee on when it was being developed. We have taken the 
lead with OMB on implementing it. We have taken the lead in 
terms of our own data to make sure it is ready to be in 
compliance.
    I should have the schedule at my fingertips, but I will 
have to get back to you with the schedule.
    Senator Coons. Last, you had a proposal for incentivizing 
the financial services sector to create wealth generating 
opportunities for low income working class families. If you 
could just talk about that proposal briefly, I would appreciate 
it.
    Secretary Lew. Yes, Senator. We launched a program called 
myRA (``my retirement account''), which is a way for people who 
do not have employer provided retirement plans to open an 
account. What we found the obstacles to people starting to save 
were pretty straightforward. They wanted something simple. They 
wanted something safe, and they wanted something affordable.
    If you cannot put away a minimum amount, you cannot open a 
private account in a lot of places. If you are not able to put 
more than a few dollars a pay period away, there are not a lot 
of private options out there.
    A myRA account can be opened with as little as $5. There is 
no minimum amount. You can do it by putting part of your tax 
refund in it. It is safe. It is invested in Treasury 
securities. It is essentially savings bonds. It is something 
that you can get access to if you have a crisis because it is 
on the model of a Roth IRA.
    It is safe, it is simple, it is affordable, and all you 
have to do is go on myRA.gov to sign up. We just went 
nationwide with the ability to sign up at the end of the year, 
and we are trying to get the word out to people to take 
advantage of it.
    Senator Coons. Thank you. Thank you for your testimony 
today, and thank you very much for your service.
    Secretary Lew. Thanks, Senator.
    Senator Boozman. Senator Mikulski, do you have any follow 
up?
    Senator Mikulski. No, thank you, Chairman Boozman.
    Senator Boozman. Thank you, Mr. Secretary, for being here. 
I know you are disappointed that you are excused now. We do 
appreciate you being here and appreciate your hard work.
    Secretary Lew. Thank you, Chairman Boozman. It is always a 
pleasure to be here.
    Senator Boozman. Thank you. Commissioner. We also thank 
you, Mr. Commissioner, for being here. I would now invite you 
to present your remarks on behalf of the Internal Revenue 
Service.
                                ------                                


                        INTERNAL REVENUE SERVICE

SUMMARY STATEMENT OF HON. JOHN A. KOSKINEN, 
            COMMISSIONER
    Mr. Koskinen. Thank you, Mr. Chairman, Ranking Member 
Coons, and members of the subcommittee.
    Senator Boozman. Can you do your microphone?
    Mr. Koskinen. Chairman Boozman, Ranking Member Coons, and 
members of the subcommittee, thanks for the opportunity to 
discuss the IRS budget and current operations here this 
morning. I want to begin by thanking Congress, including the 
members of this subcommittee, for approving $290 million in 
additional funding for the IRS for fiscal year 2016.
    This is the first time in 6 years the IRS has received 
significant additional funding. It is a major step in the right 
direction, and I can assure the Congress that we will use these 
resources wisely and efficiently.
    The IRS is still under significant financial constraints. 
Even with the additional $290 million, our budget for 2016 is 
still about $900 million below 2010. Our budget as a whole, for 
this year, is actually essentially flat compared to last year, 
when you consider that the Service must absorb about $300 
million in mandated cost increases and inflation this year.
    Since 70 percent of our budget is for personnel, we have no 
choice but to continue the exception only hiring policy that 
began in fiscal year 2011. That leaves us unable to replace 
most employees we lose this year through attribution. In fact, 
we expect the IRS workforce to continue to shrink by another 
2,000 to 3,000 full-time employees this year, for a total loss 
of more than 17,000 employees since 2010.
    The President's fiscal year 2017 budget proposal for the 
IRS requests an increase of about $1 billion, which would bring 
the Agency's funding back up to its level of 7 years ago. This 
increase would help the IRS across a wide range of tax 
enforcement and taxpayer service categories.
    Even with this increase, the IRS would still, in real 
terms, be operating with fewer resources and a significantly 
larger workload than it had in 2010. While our budget was 
declining, inflation rose by 9 percent, the number of tax 
returns filed grew by more than 10 million, and the IRS was 
given numerous unfunded mandates to implement in the meantime.
    We recognize the importance of spending taxpayer dollars 
wisely, and will continue working to find efficiencies in our 
operations, but a fact that often gets overlooked is that the 
U.S. is much more efficient in its tax collection than most 
other countries.
    The average OECD member spends $8.87 to collect $1,000 of 
revenue while the U.S. spends only $4.70. If you look at 
Germany, France, England, Canada, Australia, they all spend 
almost twice as much as we do to collect a dollar of revenue. I 
believe it is important to understand that we are already one 
of the most efficient tax administrations in the world.
    In developing our funding request for 2017, we felt it was 
important to be as specific as possible in describing our 
priorities and the cost of each one. For that reason, the 
funding request describes 15 separate initiatives that together 
represent the bulk of the $1 billion increase proposed in the 
President's budget.
    We believe this will give Congress a good sense of how we 
intend to spend any increase in funding we might receive, and 
we are prepared to be held accountable for achieving the goals 
related to each initiative.

               THE IRS'S FISCAL YEAR 2017 FUNDING REQUEST

    Let me briefly highlight some of the major areas covered by 
these initiatives. First, taxpayer service. As discussed with 
the Secretary, the level of taxpayer service last year was 
totally unacceptable. The additional funding for 2017 will help 
us improve service delivered through traditional channels and 
allow us to continue modernizing the services we offer, to help 
transform the taxpayer experience.
    Already, of the $290 million provided for this fiscal year, 
we have devoted $178 million to improving our level of service 
on the phones. This year we have already answered 3 million 
more calls than we answered at this time last year, primarily 
because of our ability to hire 1,000 additional employees.
    Second, stolen identity refund fraud. The additional 
funding will allow us to keep investing in resources and tools 
to try to stay ahead of criminals who continue to become more 
sophisticated in stealing identities and filing false returns.
    Third, our core enforcement programs. With this additional 
funding, we would, for example, be able to increase the number 
of audits and collections. This increase is critical because 
the ongoing decline in enforcement activities we have seen in 
the last several years has translated into billions of dollars 
of lost revenue for the Government.
    I would note that at the end of fiscal year 2016, compared 
to 2010, we will be down 6,500 Revenue Agents, Revenue 
Officers, and Criminal Investigators, compared to 2010.
    Fourth, the Affordable Care Act. We have no choice but to 
continue to invest in IT infrastructure to support the 
implementation of the Affordable Care Act's major tax related 
provisions. I would point out that for the past 4 years, the 
IRS has received almost no funding for implementation of the 
Affordable Care Act, and therefore, we have had to use over $1 
billion of resources needed for other critical IT functions in 
order to meet our statutory obligations under the Affordable 
Care Act.
    Fifth, electronic records management. Although we have been 
making progress in preserving and protecting e-mails and other 
electronic records, we need to continue making improvements so 
we can respond faster to legal and congressional inquiries, 
along with Freedom of Information Act (FOIA) requests.
    While providing adequate funding in these and other areas 
is critical, Congress can also help us by passing legislation 
to improve tax administration. In that regard, the President's 
2017 budget request contains a number of legislative proposals 
that I would urge the Congress to approve.
    We do appreciate that Congress already has responded to our 
request and next filing season, we will get W-2s in January, at 
the same time employees do, which will allow us to 
significantly attack identity theft.
    The proposals for this year for which we request support 
include renewing streamlined critical pay authority, which is 
used primarily for information technology executives. It was 
passed as part of the Restructuring Act in 1998. It expired in 
2013, and has not been renewed by the Congress.
    Of the 14 remaining people on our streamlined critical pay 
roster who will disappear next year, 10 of them are senior IT 
executives. I was advised yesterday that one of our senior 
cybersecurity experts has been recruited away by the private 
sector. It does not cost the Government much, but our ability 
to hire up to 40 people, particularly in IT--we have never used 
the full 40; over this time, the maximum was 34--is critical to 
our effective IT functioning.
    Also, we requested legislation to expand the matching 
program for taxpayer identification numbers; to grant us 
authority to require minimum qualifications for paid tax 
preparers, and; the ability to expand electronic filing 
requirements for business. At this point, we get over 85 
percent of individuals who file electronically, but less than 
50 percent of businesses file electronically.
    This concludes my statement. I would be happy to answer 
your questions.
    [The statement follows:]
              Prepared Statement of Hon. John A. Koskinen
                              introduction
    Chairman Boozman, Ranking Member Coons and members of the 
subcommittee, thank you for the opportunity to discuss the IRS's budget 
and current operations.
    Let me begin by expressing my appreciation to Congress, including 
the members of this subcommittee, for approving $290 million in 
additional funding for the IRS for fiscal year 2016, to improve service 
to taxpayers, strengthen cybersecurity and expand our ability to 
address identity theft. This brings the total IRS budget for fiscal 
year 2016 to $11.2 billion. It is an important development for the IRS 
and for taxpayers, and is the first time in 6 years that the agency has 
received significant additional funding. It is a major step in the 
right direction, and I can assure the Congress that we will use these 
resources wisely and efficiently.
    Even with this additional funding, however, the IRS is still under 
significant financial constraints. This is illustrated by the fact that 
the IRS appropriation remains $911 million below the fiscal year 2010 
enacted level and that the $290 million increase is less than half the 
amount that had been requested for fiscal year 2016 in the three 
critical areas mentioned above. In addition, the IRS must absorb 
mandated cost increases and inflation during fiscal year 2016 that are 
greater than the additional funding provided. This year, we will need 
to continue the exception-only hiring policy that began in fiscal year 
2011, leaving us unable to replace most employees we lose this year 
through attrition. Thus, although we will be undertaking additional 
seasonal and temporary hiring to improve our phone level of service 
(LOS), we expect the permanent IRS workforce to continue to shrink by 
another 2,000 to 3,000 full-time employees during fiscal year 2016, 
equaling a loss of over 17,000 since fiscal year 2010.
    The President's fiscal year 2017 budget proposal for the IRS, 
described in more detail below, requests a base funding increase of 
$530 million above the fiscal year 2016 enacted level. This would help 
the IRS across a wide range of tax enforcement and taxpayer service 
activities. The budget also proposes a multi-year program integrity cap 
adjustment for tax enforcement activities, including $515 million in 
fiscal year 2017 to reduce the deficit and narrow the tax gap, yielding 
net taxpayer savings of $46 billion over the next 10 years.
    While the multi-year decline in our budget was occurring, the 
number of returns filed grew by more than 10 million (or nearly 7 
percent), from 153 million in 2010 to 163 million in 2015. Further 
increasing our workload, the IRS during this period has had to 
implement a number of significant legislative mandates, nearly all of 
which came with no additional funding. These include: the Affordable 
Care Act (ACA); the Foreign Account Tax Compliance Act (FATCA); the 
Achieving a Better Life Experience (ABLE) Act, which includes a new 
certification requirement for professional employer organizations; and 
reauthorization of the Health Coverage Tax Credit (HCTC). In fiscal 
year 2016 several additional legislative mandates were put in place 
that carried no implementation funding with which to execute them, for 
example, new passport restrictions, a private debt-collector program 
and a registration requirement for newly created 501(c)(4) 
organizations. We have had to defer hundreds of millions of dollars 
worth of important information technology (IT) projects and 
improvements since fiscal year 2014 in order to meet our statutory 
requirements to implement the ACA.
    Against this backdrop, a fact that often gets overlooked is that 
the United States is much more efficient in its tax collection 
operations than most other countries. According to statistics compiled 
by the Organization for Economic Cooperation and Development (OECD), 
the average OECD member country spends $8.87 to collect $1,000 of 
revenue, while the United States spends only $4.70. The tax 
administrations of Germany, France, the United Kingdom, Canada and 
Australia each spend twice as much as the IRS to collect a dollar of 
revenue. So while the IRS will continue to look for efficiencies in our 
operations, it is important to understand that we are one of the most 
efficient tax administrators in the world.
    We continue to recognize the importance of spending taxpayer 
dollars wisely and working to strengthen our operations as we move 
forward. In that regard, the IRS has addressed a number of management 
problems that had developed in the past. Actions taken to solve these 
problems have in some cases been in place for several years. For 
example, spending on conferences has been reduced by 80 percent since 
2010. In order to achieve this, since 2012, any division planning to 
spend more than $20,000 on a conference is required to obtain prior 
approval from the IRS Commissioner. Any proposed conference expense 
over $50,000 must also be approved by the Secretary of the Treasury or 
his designee. With regard to videos, any IRS division seeking to make a 
video must receive prior approval from an executive review board the 
agency created in 2013 for this purpose. As for performance awards, the 
IRS no longer pays such awards to IRS employees who are disciplined for 
serious misconduct issues or who have willfully failed to pay their 
taxes. In addition, processes are in place to ensure that the IRS does 
not rehire former employees who had significant conduct or performance 
problems during prior employment with the agency.
    In the tax-exempt area, the IRS has acted on all of the 
recommendations made by the Treasury Inspector General for Tax 
Administration (TIGTA) in his May 2013 report describing the use of 
improper criteria in reviewing applications for tax-exempt status under 
section 501(c)(4).The changes we made in response to those 
recommendations include: eliminating the use of inappropriate criteria; 
implementing improved and expanded training for employees; expediting 
the processing of section 501(c)(4) applications; and establishing a 
new process for documenting the reasons why applications are chosen for 
further review, with appropriate oversight of the entire process.
    In addition, the Department of the Treasury and the IRS followed 
TIGTA's remaining recommendation and began the process of drafting 
guidance on how to measure social welfare and non-social welfare 
activities of section 501(c)(4) organizations. In light of language in 
the appropriations legislation for fiscal year 2016, the IRS halted 
work on those proposed regulations.
    Along with responding to TIGTA's May 2013 report, the IRS also has 
been working to address the recommendations by the Senate Finance 
Committee in its report issued last August. As we advised the Finance 
Committee in October, the IRS accepted all of the recommendations in 
the report that are within our control--those that did not involve tax 
policy matters or legislative action. They include 15 of the report's 
18 bipartisan recommendations and also six of the recommendations in 
the separate sections prepared by the Majority and Minority. Moreover, 
I am pleased to report that the IRS has substantially completed action 
on all of these recommendations.
           planning for the future of the taxpayer experience
    Within our tight budget constraints, the IRS has also continued to 
analyze and develop plans for improving how the agency can fulfill its 
mission in the future, especially in delivering service to taxpayers 
and, along with that, maintaining a robust compliance program. Our goal 
is to improve and expand taxpayer services for all taxpayers, no matter 
what their circumstances.
    In requesting adequate resources to allow the IRS to improve 
taxpayer service, it is important to point out that our goal is not to 
fund today's staff functions at historically high levels. We need to 
be, and are, looking forward to a new, improved way of doing business 
that involves a more robust online taxpayer experience. This is driven, 
in part, by business imperatives; when it costs between $40 and $60 to 
interact with a taxpayer in person, and less than $1 to interact 
online, we must reexamine how we provide the best possible taxpayer 
experience, in response to taxpayer expectations and demands.
    The improvements we are planning are a natural outgrowth of 
modernizations made to our business systems over many years. These 
include the development and implementation of the Customer Account Data 
Engine 2 (CADE2), which allowed the IRS to migrate to daily processing 
and posting of individual taxpayer accounts, enabling faster refunds 
for more taxpayers, more timely account updates and faster issuance of 
taxpayer notices. Another advance put in place several years ago was 
Modernized e-File (MeF), which processes tax returns electronically in 
real time, rather than in several batches a day. MeF has reduced 
turnaround time, and allows acknowledgments to be sent much more 
quickly to those who transmitted the returns.
    After years of study, and in response to taxpayer demand, the IRS 
has also worked to improve our Web site, IRS.gov, and to provide more 
Web-based tools and services. These include the ``Where's My Refund?'' 
electronic tracking tool, which was used nearly 235 million times in 
fiscal year 2015, and the IRS2Go smartphone application. In fiscal year 
2015, there were more than 2.3 million downloads of the application.
    With regard to compliance programs, an excellent example of actions 
the IRS has taken to improve interactions with taxpayers involves our 
Large Business and International (LB&I) division. LB&I recently 
restructured its operations to center around issues, rather than 
organizations, which will focus resources to better meet taxpayers' 
evolving needs in a global environment.
    An important change in the compliance area has been the development 
and phase-in of the Return Review Program (RRP), which delivers an 
integrated and unified system that enhances IRS capabilities to detect, 
resolve, and prevent criminal and civil tax non-compliance. Continued 
investment in the RRP will allow the IRS to retire the legacy 
Electronic Fraud Detection System (EFDS), and save between $10 million 
and $15 million a year.
    Going forward, the IRS intends to further improve compliance 
programs through investment in an Enterprise Case Management (ECM) 
system, which will address the need to modernize, upgrade, and 
consolidate over 100 aging IRS case management systems. A unified case 
management environment will yield efficiencies by implementing standard 
case management functions, providing visibility across all types of tax 
transactions and improving data accessibility and usability.
    Even with the improvements we have made and continue to make, we 
are at the point where we believe the taxpayer experience needs to be 
taken to a new level. Building on improvements made and new 
applications provided over the past 10 years, our goal is to increase 
the availability and quality of self-service interactions, which will 
give taxpayers the ability to take care of their tax obligations in a 
fast, secure, and convenient manner.
    As I have discussed in numerous congressional appearances and 
speeches, the idea is that taxpayers would have an account with the IRS 
where they, or their preparers, could log in securely, get all the 
information about their account, and interact with the IRS as needed. 
Most things that taxpayers need to do to fulfill their obligations 
could be done virtually, and there would be much less need for in-
person help, either by waiting in line at an IRS assistance center or 
calling the IRS.
    As we improve the online experience, we understand the 
responsibility we have to serve the needs of all taxpayers, whatever 
their age, income, or station in life. We recognize there will always 
be taxpayers who do not have access to the digital economy, or who 
simply prefer not to conduct their transactions with the IRS online. 
The IRS remains committed to providing the services these taxpayers 
need. For example, while the IRS will continue to offer more Web-based 
services, taxpayers will still be able to call our toll-free help lines 
or obtain in-person assistance if that is their preferred method of 
receiving service from the IRS.
    A good example of our commitment to serving all taxpayers, whether 
or not they participate in the digital economy, involves the return 
filing process. While the number of taxpayers who e-filed their income 
tax returns exceeded 85 percent last year and is expected to do so 
again this year, millions of people still choose to file paper returns. 
The IRS will not leave any taxpayer behind as we move into the future 
and will continue to offer individuals who prefer filing on paper the 
option to do so.
    In moving toward the future of taxpayer service, it is also 
important to note that actions the IRS takes to help taxpayers 
increasingly will have a positive impact in the enforcement area, and 
will in turn help improve voluntary compliance. An excellent example of 
such an action is the Early Interaction Initiative we launched last 
December to help employers.
    Under this initiative, the IRS seeks to identify employers who 
appear to be falling behind on their interim employment tax payments 
before they file their annual employment tax returns. The IRS will 
offer helpful information and guidance through contacts such as letters 
and automated phone messages. In the past, the first attempt by the IRS 
to contact an employer having payment difficulties often did not occur 
until much later in the process, after unpaid tax obligations were 
already beginning to mount. This initiative is designed to help 
employers stay in compliance and avoid needless interest and penalty 
charges. You could call this initiative a form of improved taxpayer 
service, or a more efficient enforcement activity. We believe that it 
is both.
    This initiative illustrates why I believe it is important to view 
taxpayer service and enforcement as two sides of the same coin. While 
the IRS collects $50 billion to $60 billion a year as a result of our 
enforcement operations, those numbers pale in comparison to the more 
than $3 trillion that is collected each year as a result of taxpayers 
voluntarily fulfilling their tax obligations. That is why we continue 
to be extremely concerned about the decline in both taxpayer service 
and enforcement as a result of the continued cuts in IRS funding. These 
declines threaten to undercut the basic voluntary compliance fabric of 
our tax system. If you consider that a one-percent drop in the 
compliance rate translates into a revenue loss of approximately $30 
billion a year, or $300 billion over the ten year budget window often 
used, then declining voluntary tax compliance results in a cut to the 
funds the Government needs to operate.
          the administration's fiscal year 2017 budget request
    In preparing the fiscal year 2017 budget request, the IRS's senior 
leadership recognized the need to prioritize funding of key activities 
that help support enhanced digital service delivery discussed earlier 
in this testimony, while preserving the agency's core mission 
functions. As a result, the IRS established a new investment process 
and created six key strategic themes that outline how the agency will 
execute tax administration to meet the needs of taxpayers in the 
future. IRS leadership set priorities for new investments based on how 
those investments align with these themes:

  --Facilitating voluntary compliance by empowering taxpayers with 
        secure innovative tools and support;
  --Understanding non-compliant taxpayer behavior and developing 
        approaches to deter and change it;
  --Leveraging and collaborating with external stakeholders;
  --Cultivating a well-equipped, diverse skilled workforce;
  --Selecting highest-value work using data analytics and a robust 
        feedback loop; and
  --Driving more agility, efficiency and effectiveness in IRS 
        operations.

    Following from these themes, the administration's fiscal year 2017 
budget request includes a number of initiatives that provide the 
building blocks to move the IRS into the future. These initiatives 
represent a large portion of the increased funding requested in the IRS 
budget for fiscal year 2017. They are as follows:

    Additional funding to improve taxpayer service: $48 million.--Under 
this initiative, the IRS will work both to improve taxpayer service 
delivered through traditional channels and continue modernizing the 
services we offer in order to help transform the taxpayer experience.
    The additional staffing funded by these resources by itself will 
deliver phone level of service (LOS) for the full year on our toll-free 
helplines at 53 percent; if the President's budget is enacted in full, 
the IRS will be able to combine this funding with additional resources 
through user fees to achieve a 70 percent LOS throughout the year. It 
is worth noting, however, that we expect to have the lowest user fee 
balance available for carryover to fiscal year 2017 since 2008, meaning 
that we will not have that contingency available to boost service if 
other needs are not sufficiently funded.
    In terms of modernizing the taxpayer experience, the additional 
funding will allow the IRS to continue moving toward the development 
of: secure online taxpayer accounts; secure online digital 
communications between the taxpayer and the IRS; and new Web-based 
self-service products and more interactive capabilities to existing 
products, so that taxpayers would potentially be able to, for example, 
securely authenticate their identity, view and print tax records 
online, pay outstanding debts, enter into installment agreements, 
establish powers of attorney, and get tax law information.
    Taken together, these improvements will ultimately allow taxpayers 
to resolve more issues online, leaving our employees more time to 
support the transactions that are best completed by phone or in person.

    Additional funding to continue implementing the Affordable Care 
Act: $153 million.--The additional funding provided by this initiative, 
above current resources, will allow the IRS to develop advanced 
technology infrastructure and applications support and to modify 
existing IRS tax administration systems, so the agency can continue 
implementing the tax-related provisions of the ACA.
    For example, the funds will improve the IRS's ability to: validate 
taxpayer claims for the premium tax credit; collect penalties, taxes 
and fees related to the ACA provisions that the IRS administers; and 
administer the individual shared responsibility provision. The 
additional funding also supports administration of the new reporting 
requirement for health coverage providers, as well as the employer 
shared responsibility provision, both of which took effect in 2015.
    To further illustrate the importance of funding this initiative, I 
would note that over the last several years the IRS has had to divert 
resources from other critical functions, including taxpayer service and 
IT, and expend user fees to fund ACA implementation. In particular, 
these diversions have depleted user fees and made it difficult to use 
those fees to help fund core mission activities and other unfunded 
legislative mandates.

    Additional funding to leverage new technologies to advance the IRS 
mission: $53 million.--Under this initiative, the IRS will continue 
using new technologies to develop critical IT systems needed to support 
the IRS's taxpayer service and enforcement programs. This includes 
making improvements to such systems as CADE2 and MeF. The IRS will also 
be able to provide the necessary IT infrastructure to support efforts 
to improve the online taxpayer experience, including the infrastructure 
portions of secure digital communications and more interactive 
capabilities to existing web-based self-service products.
    Another major component of this initiative is the implementation of 
the Event Driven Architecture (EDA) framework, which is designed to 
improve return processing by allowing the IRS to process and share data 
from returns more easily. Through the use of EDA, for example, returns 
with minor errors can be addressed at the time of filing. 
Implementation of EDA is a prerequisite for a number of planned 
improvements to the online taxpayer experience, including immediately 
notifying taxpayers of errors on a return as soon as it is filed, and 
allowing taxpayer to self-correct return errors through an online tool.

    Additional funding to help prevent stolen identity refund fraud and 
reduce improper payments: $90 million.--The IRS has made significant 
progress in combatting stolen identity refund fraud over the last 
several years, though it has been a challenge to find the resources for 
investments in this area because of the ongoing cuts to our budget. We 
therefore appreciate the additional funding Congress approved for 
fiscal year 2016 for cybersecurity and identity theft.
    Nonetheless, the IRS needs to continue investing in resources and 
tools to stay ahead of criminals. The additional funding requested 
under this initiative will allow the IRS to invest in the additional 
staffing and technology to continue improving our efforts to: detect 
and prevent refund fraud related to identity theft; assist identity 
theft victims; and apprehend the criminals who perpetrate these crimes.
    With this additional staffing, the IRS will be able to, for 
example: resolve taxpayer cases of tax-related identity theft more 
quickly, and expand the capacity of the IRS's Identity Protection 
Specialized Unit (IPSU) to handle additional cases; expand the IRS 
External Leads program, through which the IRS works in cooperation with 
financial institutions, State agencies and other external sources to 
recover fraudulent refunds; and do a better job of detecting prisoner 
refund fraud through the use of Prisoner Update Processing System 
(PUPS) data.
    Technology investments under this initiative will allow the IRS to 
make a number of other improvements, including: reducing the use of 
Social Security Numbers (SSN) on IRS mailings to taxpayers; 
establishing a centralized fraud repository within the IRS to expand 
the agency's ability to identify significant tax cases and streamline 
and standardize the fraud referral process; and accelerating IRS access 
to employment tax data from the Social Security Administration (SSA).

    Additional funding to improve electronic enterprise records 
management: $19 million.--The additional funding provided under this 
initiative will allow the IRS to continue its efforts to manage 
official records more effectively through the implementation of new 
systems to maintain unified records of IRS policy, program and project 
development, and to create a unified searchable archive of IRS e-mails 
to avoid redundant archiving. By making these improvements, the IRS 
will be able to respond in a timelier manner to legal and congressional 
inquiries and requests under the Freedom of Information Act (FOIA). 
These improvements, which will be phased in over several years, will 
allow the IRS to more easily comply with various recordkeeping 
requirements under the Federal Records Act.
    The investment-related increases I have just described must be 
viewed in the context of the overall budget request for the agency. The 
President's fiscal year 2017 budget provides $12.3 billion for the IRS, 
an increase of $878.5 million in investments and an additional $167 
million in funding for inflation for a total of $1.045 billion over the 
fiscal year 2016 level. This amount includes $11.8 billion in base 
discretionary resources and an additional proposed $514.7 million 
program integrity cap adjustment to support program integrity efforts 
aimed at restoring enforcement of current tax laws to acceptable levels 
and to help reduce the tax gap, which is the difference between taxes 
owed and taxes paid on a timely basis. This multi-year effort is 
expected to generate $64 billion in additional revenue over the next 10 
years at a cost of $18 billion over that 10-year period, thereby 
reducing the deficit by $46 billion.

    Enactment of the program integrity cap adjustment proposal would 
facilitate funding for several initiatives, including the following:

    Additional funding to strengthen enforcement programs: $399 
million.--This set of initiatives allows for investment to strengthen 
core enforcement programs to help the IRS improve the resolution of 
non-compliance with fairness and integrity. Budget cuts over the last 
several years have led to rising case inventories and call volumes, 
preventing the IRS from bringing into compliance taxpayers who fail to 
pay their tax debt, and reducing individual audit coverage to levels 
below 0.8 percent. As statistics released recently by the IRS show, 
this trend continued in fiscal year 2015. The number of individual 
audits completed in fiscal year 2015 was about 14,300 less than the 
previous year, and dropped to the lowest level in a decade. 
Additionally, the individual audit coverage rate in fiscal year 2015 
was the lowest since 2004, and audit revenue continued to decline as 
well.
    With this additional funding, the IRS will be able to: increase 
collection and audit coverage; conduct compliance activities related to 
FATCA; pursue employment tax noncompliance and abusive tax schemes; 
increase investigations of transnational organized crime; and develop a 
digital version of the Form 990, Return of Organization Exempt from 
Income Tax.
    The investments made through this initiative will, for example 
allow us to: handle more than 30,000 additional collection cases; close 
more than 32,000 additional individual audits; expand the Automated 
Underreporter (AUR) program to process more than 400,000 additional 
cases; and implement a quality review program for penalty and interest.

    Additional funding to maintain the integrity of revenue financial 
systems: $10 million.--The current revenue financial systems do not use 
commercial software, so the IRS is reliant on internal resources to 
maintain them. This investment will merge multiple financial systems 
into one repository to ensure the integrity of the IRS's financial data 
and make necessary changes to ensure that systems comply with 
accounting standards and requirements. This will automate 
reconciliations of the IRS ledger systems and assist in the gathering 
of data to respond to audits by TIGTA and the Government Accountability 
Office (GAO). Savings and efficiencies will be achieved in future years 
through the reduction or elimination of the resources required to 
maintain the multiple systems supporting operational decisionmaking and 
the financial audit. This will close a material weakness.

    Additional funding for operations and maintenance of deployed 
Business Systems Modernization (BSM) projects: $92 million.--The IRS 
receives funding for major IT modernization projects through the BSM 
appropriation, but BSM funds can only be used for developing new 
systems. Once development is completed, regular operations and 
maintenance begins, and the IRS is required to pay for this maintenance 
through its Operations Support appropriation. Since 2013, the IRS has 
incurred more than $95.5 million in unfunded increased annual 
requirements to its Operations Support appropriation as a result of BSM 
systems deployments. The additional funding requested partially 
restores the Operations Support base so that the funding will not have 
to be redirected from other areas to pay for the operation of deployed 
BSM projects. Resources will fund additional staff, hardware and 
software, and contractual services for these deployed systems.
          legislative proposals to improve tax administration
    The IRS appreciates the actions taken by Congress last year to 
approve legislation designed to improve tax administration. These 
measures include: accelerated filing dates for information returns; 
allowing SSNs to be masked on W2 forms and other information returns; 
creating a safe harbor for minor errors on information returns; and 
expanding the due diligence requirements for paid tax return preparers.

    The President's fiscal year 2017 budget contains several additional 
legislative proposals that would further improve tax administration and 
enhance IRS operations. They include:

    Streamlined critical pay authority.--The IRS Restructuring and 
Reform Act of 1998 increased the IRS's ability to recruit and retain a 
small number of key executive-level staff by providing the agency with 
streamlined critical pay authority. This allowed the IRS, with approval 
from Treasury, to hire well-qualified individuals to fill positions 
deemed critical to the agency's success in areas such as international 
tax, IT, cybersecurity, online services and analytics support. This 
authority, which ran effectively for 14 years, expired at the end of 
fiscal year 2013. The loss of streamlined critical pay authority has 
created major challenges to our ability to retain employees with the 
necessary high-caliber expertise in the areas mentioned above. In fact, 
as of today there are only 10 IT senior executives and leaders hired 
under this authority remaining at the IRS and we anticipate there will 
be no staff left under critical pay authority by next year. The 
President's fiscal year 2017 budget proposes reinstating this 
authority.

    Authority to expand the Taxpayer Identification Number (TIN) 
matching program.--The IRS operates a voluntary program under which 
entities that issue payments subject to backup withholding can confirm 
with the IRS that the name and TIN of the person receiving the payment 
match the name and TIN on file with the IRS. Although IRS code section 
6103 generally prohibits the IRS from disclosing taxpayer data, the 
agency is permitted to disclose this information to payors under 
authority of section 3406. But this authority only covers instances 
where payments are subject to backup withholding. The proposal would 
broaden the agency's authority to cover any situation where a person is 
required to provide the TIN of another person to the IRS.

    Correction procedures for specific errors.--The IRS has authority 
in limited circumstances to identify certain computation mistakes or 
other irregularities on returns and automatically adjust the return for 
a taxpayer. At various times, Congress has expanded this limited 
authority on a case-by-case basis to cover specific, newly enacted tax 
code amendments. The IRS would be able to significantly improve tax 
administration--including reducing improper payments and cutting down 
on the need for costly audits--if Congress were to enact the proposal 
in the President's budget that replaces the existing authorities that 
specify specific tax code amendments with authority to correct specific 
errors instead. This would allow the IRS to fix errors where the IRS 
has reliable information that a taxpayer has an error on his/her 
return. Thus, for example, the IRS could use data from completed State 
tax return audits to adjust information on the Federal return.

    Authority to require minimum qualifications for return preparers.--
The proposal would provide the agency with explicit authority to 
require all paid preparers to have a minimum knowledge of the tax code. 
Requiring all paid preparers to keep up with changes in the Code would 
help promote high quality services from tax return preparers, improve 
voluntary compliance, and foster taxpayer confidence in the fairness of 
the tax system. It would thereby help the IRS to focus resources on the 
truly fraudulent returns.

    Expanded electronic filing requirements for businesses.--The 
proposal would require all corporations and partnerships with $10 
million or more in assets to file their tax returns electronically. In 
addition, regardless of asset size, corporations with more than 10 
shareholders and partnerships with more than 10 partners would be 
required to file electronically. Paid tax return preparers who expect 
to prepare more than 10 corporate income tax returns or partnership 
returns annually would be required to file these returns 
electronically. Additionally, all tax-exempt organizations required to 
file Form 990 series returns would be required to file electronically.
    Chairman Boozman, Ranking Member Coons and members of the 
subcommittee, this concludes my statement. I would be happy to take 
your questions.

                  FISCAL YEAR 2015 PERFORMANCE AWARDS

    Senator Boozman. Thank you. For the past few years, the IRS 
provided approximately $60 million in employee bonuses each 
year, and in the past, the IG has found that awards were given 
to employees with tax compliance problems and other misconduct 
issues.
    How much did you pay out in employee bonuses in fiscal year 
2015?
    Mr. Koskinen. We are still calculating it, but we will 
again be providing that. They are not bonuses, they are 
performance awards. Thirty to forty percent of employees do not 
get any payment. The average payment is about $1,000 to $1,200. 
As I say, nobody is going to Bimini with the money.
    We have cut the amount that is being provided over the last 
several years. Three or 4 years ago, the number was in the $85 
to $90 million range. We negotiated with the Union that the 
pool would be decreased by three-quarters, from 1\3/4\ percent 
to 1 percent.
    The amount of money being paid is smaller than it used to 
be. We have taken everyone's advice. We no longer pay--we have 
negotiated with the Union--performance awards, even if they are 
qualified for it, to anyone who has a 1203(b) violation or 
serious conduct issue. We have responded to those and other 
suggestions as to how we can improve administration.
    Senator Boozman. When do you think you will have the 
information to provide to the subcommittee?
    Mr. Koskinen. We can give it to you, but it is going to be 
in the same ballpark, $55 or $60 million. It is going to go on 
an average of $1,000 to $1,200, and it is going to go to 50-55 
percent, perhaps 60 percent, of the employees. They are 
performance awards. They are performance based.
    [The information follows:]

        FISCAL YEAR 2015 PERFORMANCE AWARDS PAID IN NOV/DEC 2015*
------------------------------------------------------------------------
          Employee Type                   IRS            Chief Counsel
------------------------------------------------------------------------
Bargaining Unit Employees.......  Aggregate Amount    Aggregate Amount
                                   of Awards Pool:     of Awards Pool:
                                   $31,110,801.00      $1,014,641.00
                                  # of Awards:        # of Awards: 744
                                   36,325             Average Award
                                  Average Award        Amount: $1,363.76
                                   Amount: $967.00
 
Non-Bargaining Unit Employees...  Aggregate Amount    Aggregate Amount
                                   of Awards Pool:     of Awards Pool:
                                   $8,291,262.00       $461,925.00
                                  # of Awards: 6200   # of Awards: 246
                                  Average Award       Average Award
                                   Amount: $1,199.00   Amount: $1,878.00
 
Managers........................  Aggregate Amount    Aggregate Amount
                                   of Awards Pool:     of Awards Pool:
                                   $7,470,245.00       $622,299.00
                                  # of Awards: 5354   # of Awards: 222
                                  Average Award       Average Award
                                   Amount: $1,357.00   Amount: $2,803.15
 
SES.............................  Aggregate Amount    Aggregate Amount
                                   of Awards Pool:     of Awards Pool:
                                   $1,673,666.00       $41,950.00
                                  # of Awards: 118    # of Awards: 10
                                  Average Award       Average Award
                                   Amount:             Amount: $4,195.00
                                   $14,183.00
------------------------------------------------------------------------
* Fiscal Year 2015 Performance Award Spending figures are still
  estimates. Percentages of employees receiving awards not yet
  available. These amounts are lower than amounts paid several years
  ago.

                           PERFORMANCE AWARDS

    Senator Boozman. Did any of those go to employees with 
conduct issues or unpaid taxes?
    Mr. Koskinen. Anyone with a conduct issue or who did not 
pay taxes is not eligible for a performance award.
    Senator Boozman. But they received them in the past?
    Mr. Koskinen. In the past, but in the last 2 years we have 
changed that system.
    Senator Boozman. I guess the question is, Secretary Lew 
mentioned if you go to the call centers, you see empty chairs 
that are not filled answering the phone. Why are the employee 
bonuses a priority over funding other critical missions of the 
agency?
    Mr. Koskinen. As a general matter, it is important to 
encourage and reward performance, and certainly with the 
shrinkage of our workforce--as I said, we will be down 17,000 
people--we feel it is important if we are going to have an 
effective operation of tax administration and taxpayer service 
to provide performance awards, which we have historically 
provided throughout the history of this organization, and to 
continue to provide them to the employees. We cannot fund this 
operation on the backs of employees.

                      IRS EFFORTS TO COMBAT SCAMS

    Senator Boozman. Taxpayers have been hit with an increasing 
number of scams this filing season. We talked about this prior 
to the hearing. The IRS has seen approximately a 400 percent 
increase, a surge, along with a surge in phone scams, the scam 
artists threaten police arrest, deportation, license 
revocation, and other disturbing things.
    Can you talk some about the steps you have taken in regard 
to pursuing this type of crime, these types of criminals?
    Mr. Koskinen. It is a critical problem, as the Secretary 
noted. The private sector, as well as all Government agencies 
and State and local governments are increasingly under attack 
by increasingly sophisticated criminals.
    We find as we monitor this and we work closely with the 
Inspector General that the range of scams run from phone scams, 
where people call threatening people, impersonating as IRS 
employees, to very sophisticated criminal syndicates around the 
world who have volumes of personal identification information 
from taxpayers and who can masquerade effectively as taxpayers.
    On the phone scams, for the last 2 years we have been 
pushing out as much information as we can, warnings, to the 
public to say, as I have said, ``If you are surprised to be 
hearing from us, the chances are pretty good you are not 
hearing from us.''
    Certainly, we would never threaten anyone with jail, never 
threaten anyone with some law enforcement activity within 24 
hours. Ultimately, we would never ask them to make a payment 
into a debit card account or bank account. Anyone who pays 
their taxes pays a check to the United States Treasury.

                             GET TRANSCRIPT

    On the other end of the spectrum, with the sophisticated 
criminals we have, our systems are getting better. You have to 
understand that this is a moving target. As the IG has noted--
and we worked with them when we first set up Get Transcript, 
for instance, 3 or 4 years ago--everyone at that point was 
relying on out of wallet questions, on the theory that you 
would know those and no one else would.
    It has now become clear that, not in every case, but 
certainly in the Get Transcript case, criminals have enough 
information on an estimated over 100 million Americans that 
they can effectively masquerade as the taxpayers. Half of them 
did not get through when they tried to access, but the other 
half did.
    Now, we have taken Get Transcript down. We are actually now 
moving toward what is called ``multifactor authentication,'' 
which is difficult for us because we do not have other ways of 
communicating with taxpayers. We write people letters.
    We do not have access to their e-mail accounts. We do not 
have access to their cell phone accounts. We have been working 
with the Department of Homeland Security and experts in the 
private sector to be able to stand Get Transcript up in a more 
effective way.
    As the Secretary said, the balance is always that the more 
difficult we make it for criminals, the more difficult we make 
it for the average taxpayer.
    Even with the out of wallet question system, over 20 
percent of legitimate taxpayers could not get through. They 
could not answer their own out of wallet questions, and in 
fact, as I used to say, criminals sometimes can answer them 
more effectively than you can.
    All of these are impersonation scams. Fortunately, knock on 
wood, cyber breaches--getting into our system--have not taken 
place yet, although we operate on the theory that it will 
happen any time. We are attacked close to a million times a 
day. If you had a white light flashing every time someone was 
pinging our system to get in, it would just be a steady stream 
of light.
    One of the reasons I am so concerned about our ability to 
hire and retain critical IT people is that we have one of the 
world's greatest databases. We have data on over 300 million 
taxpayers. It is why criminals and syndicates around the world, 
whether they are in China, Asia, Russia, or the Middle East, 
are actually anxious to try to figure out how to get in.
    So, it is the highest priority for us to protect taxpayer 
data, to protect the taxpayers, but it is an ongoing battle and 
we should not underestimate the severity.
    Senator Boozman. In regard to the Get Transcript 
application, the IRS will eventually send out over 1.7 million 
letters that are being mailed to affected taxpayers. Over 1.3 
million have or will be offered credit monitoring. It is 
unclear what protection, if any, might be offered to the 
children or dependents whose information also appears on the 
transcripts.
    So, I want you to talk about that in a second. Also, is 
there a deadline to apply for the credit monitoring?
    Mr. Koskinen. At this point, we provide credit monitoring. 
Actually, the 1.3 million is the total number of people that 
are involved. There are about 700,000 who actually had 
transcripts accessed.
    It is when you actually had your transcript accessed that 
we provide the credit monitoring. There are other letters just 
to warn people that criminals have their data, and while no 
taxpayer information went out on our system, we felt it was 
important for taxpayers to know that criminals are actually----
    Senator Boozman. The children and dependents, what about 
them?
    Mr. Koskinen. At this point we provide the credit 
monitoring to the taxpayer. To the extent that the taxpayers 
feel they are exposed in any other way, we will talk with them 
about that as well. The basic monitoring is for the taxpayers.
    Senator Boozman. Is there a deadline for a sign-up?
    Mr. Koskinen. Usually what happens, to the extent people 
take up the offer, they will do it fairly quickly. But the 
letter informs the affected taxpayers they have 90 days to 
enroll. We understand people may think about it.
    Senator Boozman. Thank you. Senator Coons.
    Senator Coons. Thank you, Mr. Chairman. Thank you, 
Commissioner Koskinen, for your testimony today and your 
service.

                              FUTURE STATE

    I want to talk briefly about the future state of the IRS, 
your plans around future state, and some of the concerns you 
have just been discussing with the chairman about cybersecurity 
and about the Get Transcript problems, and some of the 
investments that need to be made in IT security systems.
    Mr. Koskinen. We have no shortage of challenges.
    Senator Coons. You have no shortage of challenges. So, just 
tell me how will you alleviate concerns raised that in the so-
called ``future state,'' where many more taxpayers will be 
filing online and they will be accessing services online, if I 
understand correctly, how do you address concerns about access 
to the Internet, about confidence and comfort with your ability 
to keep personal data secure, and with the experience that the 
average taxpayer will have as you transition to providing more 
taxpayer services online?
    Mr. Koskinen. I work closely with the Taxpayer Advocate, 
who does very good work. The report misstated where we are 
going with Future State. The Future State is not some new plan 
that we have been working on for the last 2 years. We have been 
moving toward providing improved, expanded taxpayer service 
since the Reorganization Act. The Reorganization Act in 1998 
required us to set up an online account, develop an online 
account for taxpayers.
    But as I have said publicly for the last 3 years, 2\1/2\ 
years, we understand we are not like a normal financial 
institution in the sense that we cannot take a group of people 
and say, ``well, they do not provide enough money,'' or ``they 
are too big of a problem, we will leave them for somebody 
else.''
    We willingly accept the responsibility to deal with 150 
million individual taxpayers in any way that they find most 
convenient.
    The goal of moving to a Future State where you have an 
online secure account, the way you do with your bank or 
financial institution, is to get people, in effect, off the 
phones who do not want to be there. People would much rather, 
according to our surveys, deal with us electronically, the way 
they deal with either purchases or financial institutions.
    To the extent we can do that, it means we will free up our 
call centers and our taxpayer assistance centers for the people 
who want to be there, or need to be there. We have no intention 
of closing down our call centers. We have no intention of 
getting out of the taxpayer assistance center business.
    It is important, and Get Transcript is a good example. 
While we had a serious issue, that we dealt with last filing 
season, 7 to 8 million legitimate taxpayers downloaded 23 
million transcripts. Those people, in the old days, would have 
called. That would have been 7 to 8 million more calls.
    One of the issues we are trying to address is getting 
people online where they can--last year, 235 million people 
went to our Web site to find out where their refund was. In the 
old days, they would call us.
    So, to the extent we can move people who would like to, and 
who have access to the Internet, onto the Internet, it frees up 
our resources to be more effective in servicing taxpayers who 
either do not have access or are uncomfortable, those who need 
to be there.
    With regard to security, we, like banks and financial 
institutions, understand an online account where you can 
actually transact with us, as opposed to just get information, 
has to be secure. That is why we have spent the last 9 months 
with experts in the Government and outside the Government to 
figure out how can we best provide what is called ``multifactor 
authentication.''
    We are about to start testing that system in the next 
couple of weeks. We expect to have the Get Transcript system up 
and back online, but again, unfortunately at the front end, it 
is going to be more difficult for people to access it as we go 
forward. We hope to refine that over time.
    I do think it is important that taxpayers not only be 
confident that the system is secure, but that it actually has 
to be as secure as we can make it. In the context of our 
earlier discussion, just as the banks are concerned--I saw an 
article recently that the banks were worrying about billions of 
dollars in credit card fraud every year--this is an ongoing 
problem that we are going to have to continue to deal with.
    My goal is for us to get out of the situation of being 
reactive, and get to a point where we can at least be even with 
the criminals, and begin to anticipate where will they show up 
next. The Get Transcript situation is a reflection of the fact 
that our filters were getting better and better for fraudulent 
returns, so the criminals felt the need to get, to the extent 
they could, information about last year's tax return so their 
fraudulent return this year would be more accurate.

              INFORMATION SECURITY AND TAXPAYER ASSISTANCE

    Senator Coons. Commissioner, how does your funding request 
provide adequate budgetary and human resources to address these 
concerns and GAO recommendations about information security 
deficiencies? First.
    Second, I am interested in taxpayer assistance, 
particularly to low income taxpayers. A recent article in my 
home town paper, the News Journal, said that about 20 percent 
of Delawareans eligible for the EITC were unaware and did not 
file. You have done, I think, a strong job of partnering with 
community organizations to try to do outreach and to try to 
make folks aware of their potential eligibility for things like 
the Earned Income Tax Credit (EITC) through an Annual Awareness 
Day.
    What additional efforts are you going to be making to 
ensure that programs like Volunteer Income Tax Assistance 
(VITA) that provide support for community organizations that do 
EITC outreach will continue?

                             EITC OUTREACH

    Mr. Koskinen. We do that. We have at the start of filing 
season every year, a program across the United States called 
EITC Awareness Day. We expect that about 80 percent of people 
who are eligible apply for the EITC. Part of the problem is the 
number of beneficiaries turn over by about a third a year. 
People either earn more money or they drop out of the 
workforce.
    We are forever, on the one hand, reaching out to people and 
trying to get them to participate, but on the other hand, 
struggling mightily with improper payments, trying to make sure 
the right people get the right amount. That is why getting the 
W-2s earlier, as you approved for next year, will help us 
significantly in that regard.
    We are in this ironic position of being a social welfare 
agency on the one hand, trying to provide funding to people, 
and at the same time trying to police the system to make 
certain the amounts paid are appropriate.
    Senator Coons. How do you believe the request that you are 
making this year addresses both TIGTA's concerns and the GAO's 
concerns in terms of----
    Mr. Koskinen. The bulk of our outreach is done by people in 
the field touching people. We have 12,000 VITA sites that we 
train. The funding would allow us to----
    Senator Coons. I am sorry, Commissioner, if I have confused 
you. I tried to ask two questions to prevent you from 
filibustering my request.
    Just on cybersecurity, unrelated to the EITC, just on 
cybersecurity, how does your request deal with the concerns 
that GAO has raised and that TIGTA has raised about information 
security?

                             CYBERSECURITY

    Mr. Koskinen. As I noted, we are devoting $95 million of 
the money you gave us this year to cybersecurity, which will 
allow us to do things like segmenting our systems, monitoring 
them internally better. There is another $90 million that is in 
the President's budget to allow us to, in fact, continue that 
work.
    As I noted, we genuinely appreciate the $290 million, but 
it was out of a request for $700 million of additional funding 
in the areas of taxpayer services, identity theft, and 
cybersecurity. Again, this year we hope we will have a 
constructive dialogue and taxpayer service will get better with 
additional funding, that we will be able to deal with identity 
theft better, and with additional money for cybersecurity, we 
will be able to protect the database.
    Senator Coons. Thank you, Commissioner.
    Senator Boozman. Senator Lankford.
    Senator Lankford. Thank you, Mr. Chairman. Thank you, Mr. 
Commissioner, good to see you again.
    Mr. Koshinen. Good to see you.

                        EITC STAKEHOLDER SUMMIT

    Senator Lankford. Let me ask you about the EITC Stakeholder 
Summit that is going on. What we need is one more summit, but 
we do need a solution to this. What do you expect to get out of 
this summit and the people that are gathered there?
    Mr. Koskinen. We would hope that somebody is going to come 
up with additional ideas. When I started over 2 years ago, we 
held an internal meeting of everybody in the IRS who had ever 
dealt with this problem, to try to figure out okay, what does 
it take to solve this problem? We have been working on it for 
10 years and made relatively little progress.
    Senator Lankford. You and I have had multiple conversations 
about it.

                         LEGISLATIVE PROPOSALS

    Mr. Koskinen. Right, and out of that came the request for 
W-2s earlier, which I think we will find will help 
significantly.
    Out of that came a request for requiring minimum 
qualifications for tax preparers. It is not that they are 
crooks and you are never going to get them out of business, but 
this is a complicated statute and a lot of preparers have no 
background in it at all. As somebody said, your barber has more 
qualifications and has to go through more standards to cut your 
hair then to prepare your taxes, which he does not have to do 
at all. That will help significantly.
    If we could get what we are now calling ``correction 
procedures for specific errors,'' that would help. Part of our 
problem is we audited about 350,000 EITC returns last year, 
about a third of our audits are in that area, trying to, in 
fact, fight improper payments wherever we can.
    Our problem is if we have a database from Social Security 
or someone else, a reliable database, and we can see an error 
in the return, the only way we can make that correction is to 
actually go out and do an audit. We send you a letter, have 
somebody contact you in the field.
    If we had this authority--it used to be called something 
else--we are trying to say for specific errors, we would have a 
correction procedure that, much like math error, would say if 
you say you earned X and Social Security tells us you earned Y, 
we make the adjustment, let you know the adjustment. You still 
have all your rights to object and say no, I really did earn 
that money or did not earn that money as the case may be.
    At that point, we have made the adjustment, we have stopped 
the payment. Right now, all we can do is send you a letter and 
audit you. Otherwise, the payments have to go through. It 
frustrates our people to no end to say we have not got enough 
resources to audit people, and in fact, we are never going to 
audit our way out of the problem. But if we can increase the 
capacity of return preparers, who prepare almost 60 percent of 
these returns, to understand what the statute is, if we can get 
W-2s earlier, which we will, and match them, and if we have the 
ability, when we see an error, to correct it, then I think we 
will begin to make a dent.
    Senator Lankford. That is a legislative correction.
    Mr. Koskinen. Yes, the correction procedure would be a 
legislative change, as would be the minimum qualifications for 
tax preparers.
    Senator Lankford. We have talked before about dual tracking 
on returns, when you talk about the ability, if you are a 
certified preparer and you have this certification, your tax 
return comes out faster. All these tax preparers all advertise 
the same thing, speed.
    You are in the normal lane if you are certified, if you are 
not certified, you are in the slow lane, basically. That is an 
incentive for folks to be able to go and be able to get----
    Mr. Koskinen. As we discussed, I thought that was a 
creative idea. One of the things we have done along those 
lines, we have a voluntary return preparer program, where you 
get a Certificate of Completion. What we have said for this 
year is, if you do not have a Certificate of Completion, you 
cannot represent the taxpayer in tax matters. You have to be 
either a CPA or an enrolled agent who is already qualified, a 
tax attorney, or you have to have a Certificate of Completion 
to be able to represent the taxpayer.
    Again, our hope was that will encourage taxpayers to say 
well, if you do not have a certificate, then you cannot 
represent me. I am going to have to find another preparer.
    It is the same theory if can we incentivize people to get 
the minimum standards of education. We are not talking about 
regulations. We just want them to have----
    Senator Lankford. Just to know the rules.
    Mr. Koskinen. Exactly. It is a complicated statute, so it 
is not as if it is easy. Yes, they ought to know the rules and 
they ought to be able to demonstrate that before they can hang 
out a shingle.
    Senator Lankford. Is there anyone in your agency, whether 
it is you or someone else, that can make proposals to Congress 
to simplify this very complicated statute?
    Mr. Koskinen. Yes.
    Senator Lankford. I know you all deal with this all the 
time.
    Mr. Koskinen. The policy issues really are the domain of 
the administration and the Congress.
    Senator Lankford. I understand.
    Mr. Koskinen. When I say that, I am usually going to tell 
you a policy issue. If you could streamline the statute, it 
would make it easier for preparers, for beneficiaries, and 
certainly for the IRS for tax administration.

                              DATA SHARING

    Senator Lankford. Okay. As you are sharing databases among 
the Federal Government, you talked about Social Security 
before, which database is the most reliable that you actually 
share information with back and forth that is helpful to you, 
or which database do you need to have access to that you do 
not?
    Mr. Koskinen. I am sorry, which?
    Senator Lankford. Databases. Which database do you have 
access to, that you do not have access to. You mentioned Social 
Security.
    Mr. Koskinen. Social Security. There is a new hire 
database. It gives you information for people moving into the 
workforce, and for which we do not have total access, which 
would be very helpful.
    Senator Lankford. Why? Is it statutory that you do not have 
it or why?
    Mr. Koskinen. It would be helpful. There is a question of 
whether the Agency has the authority to provide it to us. If we 
had statutory authority that made it clear, that would make 
life easier.

                                ID THEFT

    Senator Lankford. Okay. I.D. theft has been a huge issue. 
You and I have talked about it as well before. Some of the 
things were addressed in the omnibus bill last year to deal 
with some basic I.D. theft, and some of the verification parts 
of it.
    What is pending at this point, and what do you need to 
further finish out the I.D. theft part of this?
    Mr. Koskinen. I.D. theft is primarily a question of making 
sure we have resources at the right level, and that is why I 
feel so strongly about streamlined critical pay.
    Senator Lankford. You have the 16 digit pilot program 
coming out with the W-2s this year; is that correct?
    Mr. Koskinen. Yes.
    Senator Lankford. Do you have any preliminary data on how 
it is being used?
    Mr. Koskinen. Yes. Thus far, this pilot program--which 
basically provides an algorithm to the W-2 so we can verify it, 
and we have four tax preparers participating with us--does 
exactly what we expected. We can actually take people, when we 
have a verified W-2, and move them out of the queue for holding 
their refunds up while we are looking at them, and it allows us 
to have greater confidence that the suspicious returns are, in 
fact, worth looking at. In fact, if you cannot create the 
algorithm, it means there is some real risk, that the W-2 is 
false.
    That is a significant step forward. The biggest change we 
have made since I testified here last, just about a year ago I 
brought the CEOs of the major tax preparers, software 
developers, payroll providers, and the State Tax Commissioners 
to a meeting in Washington.
    I told them the purpose was not for me to tell them what to 
do, the purpose was for us to form a partnership, to work 
together across the entire tax system to try to fight identity 
theft. We have had a tremendous positive response from the 
private sector as well as the States.
    It has resulted in this filing season, already, a 
significant volume of sharing of information of suspicious 
activities and what are called ``leads'' from the private 
sector and us. We share information back to them in a way that 
we have never been able to do before.
    The response was such that by last summer, the private 
sector participants moved from requesting to demanding that we 
make it permanent, which we are going to do, because it is an 
effective partnership. It allows the States to work together 
and have standards.
    At the first meeting, the private sector people said, 
``well, we need to have a standard for what authentication we 
are going to require of our clients, and you have to provide 
that.'' I said ``well, I am happy to do that as long as it is a 
standard that you all design with us and that you can live 
with.'' It has happened.
    We also had 83 percent of tax preparers already providing 
us leads of suspicious activities that are going on.
    Of all the things we have done, it is probably going to be 
the most significant step, going forward, we have taken because 
the partnership with the private sector and the States means we 
are now including financial institutions where refunds are 
deposited.
    Hopefully, we will authenticate taxpayers at the front end 
more significantly when they go to their preparer. Our filters 
are getting more and more sophisticated, so we will stop 
suspicious returns, and to the extent financial institutions 
can identify deposits----
    Senator Lankford. Multiple deposits in the same account.
    Mr. Koskinen. Yes, multiple deposits in the same account, 
deposits into an account that is not the taxpayer's account. We 
think all of that is going to help.
    Senator Lankford. Okay. Thank you.
    Senator Boozman. Senator Mikulski.

                          THE STATE OF THE IRS

    Senator Mikulski. Thank you, Mr. Chairman. Mr. 
Commissioner, first of all, I want to welcome you to the 
committee. I also want to thank you for being willing to serve 
as the IRS Commissioner.
    You are under tremendous stress, the stress of the budget, 
the stress of the taxpayers being frustrated that you are not 
able to respond to them the way they would like, with the 
unanswered phone calls, and you are under the stress of the 
Congress.
    This was a very civil hearing, as characteristic of both 
the chair and the ranking member. I have watched you just be 
harassed and berated and belittled, and I am sorry about that. 
I want to thank you for what you do, and I also want to thank 
the thousands of people who work for the IRS.
    I am very proud of the fact that IRS is headquartered in 
Maryland. When I move around, this is what they say to me. 
Barb, help us do our job. Barb, we want to be able to collect 
the taxes. Barb, we want to answer those phones. What can you 
do to get us the money? They are telling me to tell the 
Congress do our job so they can get to do their job. I hear it 
as I move around, and I am just impressed by their dedication.
    That is what we need to do, collect the taxes owed, $385 
billion. That is outrageous that is uncollected, and it is 
uncollected because some people avoid and some people do not 
know.
    Then it is to help the taxpayers, so many, with over 150 
million returns being filed, 10 million letters, 5 million 
visits, 100 million phone calls to IRS. Wow.
    Then there is the schemers and the scammers. I want to get 
to that. People over a certain age, put me in that category, 
are now the victims of these targeted scams. I, myself, was 
most recently targeted where I got this phone call saying you 
are being sued by IRS, all you need to do is give us your 
Social Security number to validate that is who you are, by the 
way, give us your credit card number and the pin number, and do 
you have your bank account number so you can do the electronic 
transfer.
    Well, it is not that Barb Mikulski was targeted, it is all 
the other people over the age of 65 that are being targeted.
    I say to my colleagues, Senator Collins who chairs the 
Committee on Aging and Senator McCaskill, have done a great job 
of identifying the scams against seniors. I am outraged that 
hard working people who want to comply are now being terrified.
    My question to you, Mr. Commissioner, I took action, turned 
to proper law enforcement, to the Attorney General for the 
State of Maryland, all those things, what would you advise the 
taxpayers that if they get this kind of scheme, scum effort to 
actually defraud them, what would you recommend, what action 
would they take?
    While we are working on big budget, we have to remember the 
little people. What tips and news could you give today on how 
to help them?

                            ADDRESSING SCAMS

    Mr. Koskinen. For the last 2 years since I have been 
Commissioner, we have tried to warn taxpayers across the 
country. We put out a list of what we call the ``Dirty Dozen'' 
at the start of each filing season, and at the top of that list 
is phone scams.
    We are trying to warn people and to tell them, (a) if you 
are surprised to be hearing from us, you are probably not 
hearing from us, and (b) we never threaten you. If somebody 
threatens you, take the number, let the Federal Trade 
Commission and law enforcement know. Let the Inspector General 
know. The Inspector General, with whom we work closely, has 
done a wonderful job of tracking and moving forward toward 
prosecution of people when we can find them, and disrupting 
those systems. It has been an important partnership we have 
with them.
    It is a low cost of entry crime. All they need is a set of 
phone numbers and they just robo-dial them as much as they can, 
and they can mask the calls so it looks like it is coming from 
Washington where the IRS headquarters are.
    I got one of those. I said, ``well, I bet I can talk to 
somebody at the IRS about this.'' We tracked it down. It came 
from Pakistan. In fact, a number of these calls are obviously 
generated from abroad. When you arrest someone who is 
collecting the money, a lot of time they are mules, as known in 
the trade.
    Senator Mikulski. Mr. Commissioner, right now there are 
people watching this on CSPAN, and then the use of media, and 
social media, as we are coming to know it, how can we 
communicate, take no action, but if you get this kind of call, 
who do you turn that into?
    Mr. Koskinen. Turn that in for action. You can go to our 
Web site link called ``The Inspector General.'' Call the 
Federal Trade Commission. Call your local law enforcement. Most 
importantly, the IRS will never have you make a payment to a 
bank account or a debit card. The IRS will have you make a 
payment to the United States Treasury. If somebody wants money 
for some place else, do not send it.

                       TELEPHONE LEVEL OF SERVICE

    Senator Mikulski. Now, this also goes to the ability to 
answer your phone. The phone is often left unanswered. I know 
that since 2011, you have really had 6 years of consecutive 
annual budget cuts because of the Congress.
    How would you characterize the funding request to deal with 
customer service, presuming most people want to comply, most 
people have legitimate questions, some people are just scared 
because they get these calls, or some are people who are just 
starting a business for the first time, do you feel the request 
that you have submitted this year would begin to deal with 
this? Sixty-two percent of the calls were unanswered in 2015.
    Mr. Koskinen. Yes. Actually, we already can see the impact 
of having additional people to help us deal with taxpayers. We 
have lost over 3,000 call center representatives over the last 
5 years. If you do not have people, they are not going to be 
able to answer the phone.
    This year, thanks to the funding from the Congress, we have 
been able to add 1,000 people. Our level of service, we think, 
is going to go up during the filing season into the mid-60 
percent as opposed to the low 40 percent. It will still be low 
for the year because for the first 3 months, we did not have 
the money. We do think even with that, the level for the year 
will be 47 to 50 percent as opposed to 37 percent.
    If the President's budget is funded in these categories, 
for both user fees and the regular funding, we think we could 
get to a level next year, for the entire year, at 70 percent. 
Our goal would be to go back to where we were in the mid-2000s, 
where our level of service was 80 percent and the waiting time 
was less than 3 minutes. In other words, everyone ought to be 
able to call the IRS, get an immediate answer, get someone who 
is trained to answer their question.
    We are moving in that direction thanks to the additional 
funding, but it is a simple equation. If we have additional 
resources, we will hire the people who will be able to answer 
the calls.
    Senator Mikulski. Thank you very much. Thank you, Mr. 
Chairman.
    Senator Boozman. Thank you, and thank you for really 
pursuing that line of questions regarding the scams that are 
going on. I do not think we can emphasize that too much, sadly.
    Senator Mikulski. Mr. Chairman, I will bring to your 
attention and Senator Coons the Collins-McCaskill report that 
they put out, they did it like desktop publishing, they did not 
go to 15 printers and all of that. It is actually news that you 
can use with your own constituents.
    That is what they want. People want information that they 
can use to protect themselves or turn in the bad guys.
    Senator Boozman. Right. Thank you very much. Thank you, Mr. 
Commissioner, for being here. We appreciate your testimony 
very, very much.
    Mr. Koskinen. Thank you, Mr. Chairman. Again, thank you. We 
do appreciate the additional funding we got this year and hope 
to have a discussion with you about what we will do with the 
additional funding next year.
    Senator Boozman. As always, certainly if members have 
questions, they will submit those for the record, and we would 
appreciate your response.
    Mr. Koskinen. That would be fine. Thank you.
    Senator Boozman. Thank you, Inspector General, for being 
here. We appreciate it. I know you have been a little bit under 
the weather, and above and beyond the call of duty. I would 
appreciate it if in your opening remarks you could hold those 
to 5 minutes. Thank you.
                                ------                                


           TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION


                       DEPARTMENT OF THE TREASURY

STATEMENT OF HON. J. RUSSELL GEORGE, INSPECTOR GENERAL
    Mr. George. Very good. Chairman Boozman, Ranking Member 
Coons, members of the subcommittee, thank you for the 
opportunity to appear today.
    My testimony addresses the IRS' fiscal year 2017 budget 
request, our recent work related to the most significant 
challenges currently facing the IRS, and the fiscal year 2017 
budget request for TIGTA.
    I would like to begin with a brief discussion of 
significant challenges facing the IRS, starting with the topic 
of providing quality customer service. Many taxpayers use the 
telephone to contact the IRS. IRS cuts in service have resulted 
in long wait times, abandoned calls, and taxpayers redialing 
the IRS toll-free telephone lines for service.
    As a result of increased customer service funding in fiscal 
year 2016, the IRS is forecasting for this filing season a 65 
percent level of service, which is the relative success rate of 
taxpayers who call for live assistance. This is a positive 
development. This would be an increase, as you heard before, 
from the 38 percent level of service for last year.
    However, the IRS also estimates that the number of 
taxpayers assisted at its walk-in offices, known as taxpayer 
assistance centers, will again decline this fiscal year. The 
IRS reported that it assisted more than 5.6 million taxpayers 
in fiscal year 2015, but plans to assist 7 percent fewer 
taxpayers this year.
    Tax-related identity theft is a major challenge confronting 
the IRS. Since 2012, TIGTA has issued a series of reports 
assessing the IRS' efforts to detect and prevent fraudulent tax 
refunds resulting from identity theft, and made recommendations 
to improve the IRS' processes.
    However, improvements are still needed. For the 2014 filing 
season, the IRS reported that identity thieves were successful 
in receiving approximately $3 billion in fraudulent tax 
refunds.
    The IRS is also challenged by other threats to tax 
administration. As has been discussed, based on TIGTA's review 
of the Get Transcript breach, the IRS recently reported that 
there were an additional 390,000 suspicious accesses to 
taxpayer accounts as well as 295,000 unsuccessful attempts to 
access taxpayer accounts that were not previously identified by 
the IRS.
    Moreover, many of these accounts have information for 
spouses and dependents. We are concerned that tax information 
obtained through this data breach could be used to commit 
identity theft in the future.
    In addition, TIGTA continues to investigate the telephone 
impersonation scam in which approximately one million intended 
victims have received unsolicited telephone calls from 
criminals claiming to be IRS agents. Over 5,400 of these 
individuals have reported to TIGTA that they have been 
victimized by this scam by paying close to $29 million.
    Implementation of the Affordable Care Act also has 
presented challenges for the IRS. For example, TIGTA reported 
that the IRS did not receive information during the 2015 filing 
season needed to enable it to verify that individuals who 
claimed the premium tax credit purchased insurance through an 
exchange.
    We are in the process of evaluating the IRS' verification 
of premium tax credit claims during this year's filing season.
    The tax gap is also a continuing challenge. In fiscal year 
2015, the IRS reported that it collected more than $54 billion 
in enforcement revenue, a 9 percent decrease from fiscal year 
2014. IRS enforcement activity has decreased due to budgetary 
constraints. These compliance trends are a continuous cause for 
concern, especially given diminished enforcement could affect 
voluntary compliance over time.
    TIGTA's fiscal year proposed budget requests resources of 
$170 million, an increase of 1.4 percent compared to fiscal 
year 2016. This would enable us to oversee the implementation 
by the IRS of the Affordable Care Act, look more into the 
identity theft issue, and international tax compliance.
    In addition, we will continue investigating allegations of 
serious misconduct and criminal activity by IRS employees, 
ensuring that the employees are safe and the data and 
facilities that the IRS uses are not impeded by threats of 
violence.
    Protecting the IRS against external attempts to corrupt or 
interfere with tax administration is a primary concern of 
TIGTA.
    Mr. Chairman, Ranking Member Coons, members of the 
subcommittee, thank you for the opportunity to testify.
    [The statement follows:]
              Prepared Statement of Hon. J. Russell George
    Chairman Boozman, Ranking Member Coons, and members of the 
subcommittee, thank you for the opportunity to testify on the Internal 
Revenue Service's (IRS) fiscal year \1\ 2017 budget request, our recent 
work related to the most significant challenges currently facing the 
IRS, and the Treasury Inspector General for Tax Administration's 
(TIGTA) fiscal year 2017 budget request.
---------------------------------------------------------------------------
    \1\ The Federal Government's fiscal year begins on October 1 and 
ends on September 30.
---------------------------------------------------------------------------
    TIGTA is statutorily mandated to provide independent audit and 
investigative services necessary to improve the economy, efficiency, 
and effectiveness of IRS operations, including the oversight of the IRS 
Chief Counsel. TIGTA's oversight activities are designed to identify 
high-risk systemic inefficiencies in IRS operations and to investigate 
exploited weaknesses in tax administration. TIGTA's role is critical in 
that we provide the American taxpayer with assurance that the 
approximately 86,000 IRS employees \2\ who collected over $3.3 trillion 
in tax revenue, processed over 244 million tax returns, and issued more 
than $400 billion in tax refunds during fiscal year 2015,\3\ have done 
so in an effective and efficient manner while minimizing the risks of 
waste, fraud, or abuse.
---------------------------------------------------------------------------
    \2\ Total IRS staffing as of October 3, 2015. Included in the total 
are approximately 15,400 seasonal and part-time employees.
    \3\ IRS, Management's Discussion & Analysis, fiscal year 2015.
---------------------------------------------------------------------------
    TIGTA's Office of Audit (OA) reviews all aspects of the Federal tax 
administration system and provides recommendations to: improve IRS 
systems and operations; ensure the fair and equitable treatment of 
taxpayers; and detect and prevent waste, fraud, and abuse in tax 
administration. The OA places an emphasis on statutory coverage 
required by the IRS Restructuring and Reform Act of 1998 (RRA 98) \4\ 
and other laws, as well as on areas of concern raised by Congress, the 
Secretary of the Treasury, the Commissioner of Internal Revenue, and 
other key stakeholders. The OA has examined specific high-risk issues 
such as identity theft, refund fraud, improper payments, information 
technology, security vulnerabilities, complex modernized computer 
systems, tax collections and revenue, and waste and abuse in IRS 
operations.
---------------------------------------------------------------------------
    \4\ Public Law No. 105-206, 112 Stat. 685 (1998) (codified as 
amended in scattered sections of 2 U.S.C., 5 U.S.C. app., 16 U.S.C., 19 
U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C., and 49 
U.S.C.).
---------------------------------------------------------------------------
    TIGTA's Office of Investigations (OI) protects the integrity of the 
IRS by investigating allegations of IRS employee misconduct, external 
threats to IRS employees and facilities, and other attempts to impede 
or otherwise interfere with the IRS's ability to collect taxes. Since 
the summer of 2013, a significant part of the OI's workload has 
consisted of investigating a telephone impersonation scam in which 
approximately one million intended victims have received unsolicited 
telephone calls from criminals claiming to be IRS agents. The callers 
demand money under the guise of a tax liability from the victim. To 
date, over 5,400 victims have paid close to $29 million to these 
criminals. In addition, the OI investigates misconduct by IRS employees 
which manifests itself in many ways, including extortion, theft, 
taxpayer abuses, false statements, financial fraud, and identity theft. 
The Office of Investigations places a high priority on its statutory 
responsibility to protect all IRS employees located in over 670 
facilities nationwide. In the last several years, threats directed at 
the IRS have remained the second largest component of the OI's work. 
Physical violence, harassment, and intimidation of IRS employees 
continue to pose challenges to the implementation of a fair and 
effective system of tax administration. The Office of Investigations is 
committed to ensuring the safety of IRS employees and the taxpayers who 
conduct business in IRS facilities.
    TIGTA's Office of Inspections and Evaluations (I&E) provides 
responsive, timely, and cost-effective inspections and evaluations of 
challenging areas within the IRS, providing TIGTA with additional 
flexibility and capability to produce value-added products and services 
to improve tax administration. The I&E's work is not a substitute for 
audits and investigations. In fact, its findings may result in 
subsequent audits and/or investigations. Inspections are intended to 
monitor compliance with applicable law, regulation, and/or policy; 
assess the effectiveness and efficiency of programs and operations; and 
inquire into allegations of waste, fraud, abuse, and mismanagement. 
Evaluations, on the other hand, are intended to provide in-depth 
reviews of specific management issues, policies, or programs. In the 
last year, the I&E has reviewed the IRS's process for disclosing 
taxpayers' Personally Identifiable Information and related tax 
information; performed an inspection of Taxpayer Assistance Centers; 
and reviewed requests for adaptive technology made by IRS employees 
with disabilities.
         overview of the irs's fiscal year 2017 budget request
    The IRS is the largest component of the Department of the Treasury 
and has primary responsibility for administering the Federal tax 
system. The IRS's Strategic Plan guides program and budget decisions. 
In addition, the IRS has established a new investment process and 
created six strategic themes to guide its investment strategy and 
resource allocation. The IRS believes these themes align with existing 
Strategic Goals and Objectives and clearly articulate the strategic 
outcomes which the IRS seeks to achieve. The IRS's role is unique 
within the Federal Government in that it collects the revenue that 
funds the Government and administers the Nation's tax laws. It also 
works to protect Federal revenue by detecting and preventing the 
growing risk of fraudulent tax refunds and other improper payments.
    To achieve these goals, the proposed fiscal year 2017 IRS budget 
requests appropriated resources of approximately $12.3 billion.\5\ The 
total appropriations amount is an increase of slightly more than $1 
billion, or approximately 9.3 percent more than the fiscal year 2016 
enacted level of approximately $11.2 billion. A comparison of next 
year's request with the current budget is shown in Table 1. The budget 
request includes a net staffing increase of 3,231 full-time equivalents 
(FTE) \6\ for a total of approximately 84,803 appropriated FTEs.
---------------------------------------------------------------------------
    \5\ The fiscal year 2017 budget request also includes approximately 
$141 million from reimbursable programs, $45 million from non-
reimbursable programs, $400 million from user fees, $385 million in 
available unobligated funds from prior years, and a transfer of $5 
million to another agency for a total amount of $13.2 billion in 
available resources.
    \6\ A measure of labor hours in which one FTE is equal to 8 hours 
multiplied by the number of compensable days in a particular fiscal 
year.

           TABLE 1--IRS FISCAL YEAR 2017 BUDGET REQUEST INCREASE OVER FISCAL YEAR 2016 ENACTED BUDGET
                                                 [In thousands]
----------------------------------------------------------------------------------------------------------------
                                                              Fiscal year  Fiscal year
                   Appropriations account                         2016         2017       $ Change     % Change
                                                                enacted      request
----------------------------------------------------------------------------------------------------------------
Taxpayer Services...........................................    2,333,376    2,406,318       72,942          3.1
Enforcement.................................................    4,864,936    5,216,263      351,327          7.2
Operations Support..........................................    3,746,688    4,314,099      567,411         15.1
Business Systems Modernization..............................      290,000      343,415       53,415         18.4
                                                             ---------------------------------------------------
      Total Appropriated Resources..........................   11,235,000   12,280,095    1,045,095          9.3
----------------------------------------------------------------------------------------------------------------
Source: Treasury Inspector General for Tax Administration's analysis of the IRS's Fiscal Year 2017 Budget
  Request, Operating Level Tables.

    The three largest appropriation accounts are Taxpayer Services, 
Enforcement, and Operations Support. The Taxpayer Services account 
provides funding for programs that focus on helping taxpayers 
understand and meet their tax obligations, while the Enforcement 
account supports the IRS's examination and collection efforts. The 
Operations Support account provides funding for functions that are 
essential to the overall operation of the IRS, such as infrastructure 
and information services. Finally, the Business Systems Modernization 
account provides funding for the development of new tax administration 
systems and investments in electronic filing.
    As shown above, the Operations Support appropriation request for 
fiscal year 2017 has the highest increase at over $567 million (328 
FTEs) compared to fiscal year 2016. The two largest components of this 
increase are $153 million to implement changes to deliver tax credits 
and other requirements for the Patient Protection and Affordable Care 
Act and the Health Care and Education Reconciliation Act of 2010 \7\ 
(collectively referred to as the Affordable Care Act or ACA) and $92 
million for the operations and maintenance on deployed Business Systems 
Modernization projects.
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    \7\ Public Law No. 111-148, 124 Stat. 119 (2010) (codified as 
amended in scattered sections of the Internal Revenue Code and 42 
U.S.C.), as amended by the Heath Care and Education Reconciliation Act 
of 2010, Public Law No. 111-152, 124 Stat. 1029.
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                     key challenges facing the irs
    In this section of my testimony, I will discuss several of the most 
significant challenges now facing the IRS as it administers our 
Nation's tax laws.
                            taxpayer service
    TIGTA continues to review the IRS's efforts to provide quality 
customer service and recommend areas of improvement. Although the IRS 
has implemented recommendations to better assist the American taxpayer, 
significant challenges remain. The IRS has made cuts in its traditional 
services, which has significantly affected a number of areas.
    First, for the IRS toll-free lines,\8\ there have been long 
customer wait times, resulting in abandoned calls, and customers 
redialing. Despite other available options, most taxpayers continue to 
use the telephone as the primary method to contact the IRS. For the 
2015 Filing Season, as of May 2, 2015, the IRS reported that there were 
approximately 83.2 million attempts to contact the IRS by calling the 
various customer service toll-free telephone assistance lines. 
Assistors answered approximately 8.3 million calls and provided a 37.6 
percent Level of Service \9\ with a 23.5 minute Average Speed of 
Answer.\10\ It should be noted that the reported Level of Service for 
the 2014 Filing Season was 70.8 percent.
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    \8\ The IRS refers to the suite of 29 telephone lines to which 
taxpayers can make calls as ``Customer Account Services Toll-Free.''
    \9\ The primary measure of service to taxpayers. It is the relative 
success rate of taxpayers who call for live assistance on the IRS's 
toll-free telephone lines.
    \10\ The average amount of time for an assistor to answer the call 
after the call is routed to a call center.
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    For the 2016 Filing Season, as of February 27, 2016, the IRS 
reports that approximately 40.5 million attempts were made to contact 
the IRS via its toll-free assistance lines. Assistors have answered 
approximately 6.3 million calls and have achieved a 72.9 percent Level 
of Service with a 9.6 minute Average Speed of Answer. As a result of 
the IRS receiving additional funding for customer service in fiscal 
year 2016, the IRS is forecasting a 65 percent Level of Service for the 
2016 Filing Season, which is an increase from the 38 percent originally 
forecasted. Overall, the IRS is forecasting a 47 percent Level of 
Service for the full fiscal year, which is an increase from its 
original forecast of 34 percent. We are currently assessing the IRS's 
process for allocating its Customer Service budget.
    Second, the IRS's ability to process taxpayer correspondence in a 
timely manner continues to decline. The reported over-age 
correspondence inventory has steadily increased from 40 percent in 
fiscal year 2012 to 49 percent in fiscal year 2015. IRS management 
indicated that it has been necessary to focus its limited resources on 
maximizing taxpayer assistance on the toll-free telephone lines during 
the filing season while concentrating any remaining resources toward 
various priority programs such as identity theft and aged work.\11\ In 
February 2016, we reported that although the IRS has taken action to 
improve its working of correspondence inventory, managers continue to 
not effectively use over-age reports to monitor and reduce 
inventory.\12\
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    \11\ TIGTA, Ref. No. 2014-40-029, Interim Results of the 2014 
Filing Season (Mar. 2014).
    \12\ TIGTA, Ref. No. 2016-40-023, Continued Inconsistent Use of 
Over-age Correspondence Lists Contributes to Taxpayer Burden and 
Unnecessary Interest Payments (Feb. 2016).
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    Third, the IRS estimates the number of taxpayers assisted by 
Taxpayer Assistance Centers (TAC) will again decline this fiscal year. 
The IRS reported that it assisted more than 5.6 million taxpayers in 
fiscal year 2015, which was a nearly 4 percent decrease from the prior 
year. For fiscal year 2016, the IRS plans to assist approximately 5.2 
million taxpayers, which is 7 percent fewer than in fiscal year 2015. 
The IRS indicated that its strategy of not offering services at TACs 
that can be obtained through other service channels, such as the IRS's 
Web site, are the reasons that the IRS plans to assist fewer taxpayers 
at the TACs.
    In July 2014, we reported that although the IRS stated that the TAC 
services eliminated or reduced were, in part, the result of the IRS's 
anticipated budget cuts, the IRS's plans did not show the extent to 
which the service cuts would lower the costs and the FTEs at the TACs. 
In fact, the FTEs allocated to TACs in fiscal year 2014 were not 
substantially reduced. Furthermore, prior to making the service cuts, 
the IRS did not evaluate the burden each service elimination or 
reduction would have on taxpayers who seek assistance at the TACs.
    Another challenge facing the IRS is meeting taxpayers' expectations 
for expanded online account access. The IRS's eventual goal is to 
provide taxpayers with dynamic online account access that includes 
viewing their recent payments, making minor changes and adjustments to 
their accounts, and corresponding digitally with the IRS. In a May 
2015,\13\ we reported that the IRS is depending even more heavily on 
technology-based services and external partners. The IRS continues to 
expand the information and tools to provide self-assistance through 
IRS.gov and various social media channels (e.g., Twitter, Facebook, and 
YouTube).
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    \13\ TIGTA, Ref. No. 2015-40-053, Taxpayer Online Account Access Is 
Contingent On the Completion of Key Information Technology Projects 
(May 2015).
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    However, key information technology projects needed to provide 
these online options ultimately cannot be completed until the IRS 
allocates sufficient resources to them. The projects need to be 
completed to enable taxpayers to accurately authenticate their 
identities online, view their accounts, and communicate with the IRS 
using secure electronic messages. We reported that without additional 
funding for key information technology projects, the IRS will continue 
to miss opportunities to fully benefit from the cost savings and 
improved customer service, including reducing the reliance on 
traditional service channels such as telephones, paper correspondence, 
and face-to-face contact.
                  identity theft and tax refund fraud
    Tax-related identify theft is a major challenge still facing the 
IRS. Since 2012, TIGTA has issued a series of reports assessing the 
IRS's efforts to detect and prevent fraudulent tax refunds resulting 
from identity theft. In July 2012, we reported that the impact of 
identity theft on tax administration is significantly greater than the 
amount the IRS detects and prevents. Our analysis of tax year 2010 tax 
returns identified approximately 1.5 million undetected tax returns 
with potentially fraudulent tax refunds totaling in excess of $5.2 
billion that had the characteristics of identity theft confirmed by the 
IRS.\14\
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    \14\ TIGTA, Ref. No. 2012-42-080, There Are Billions of Dollars in 
Undetected Tax Refund Fraud Resulting From Identity Theft (July 2012).
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    We have continued to perform follow-up reviews evaluating the IRS's 
efforts to improve detection processes, including its implementation of 
TIGTA recommendations. In April 2015, we reported that the IRS 
continues to make improvements in its identification of identity theft 
tax returns before fraudulent tax refunds are released.\15\ In response 
to our reporting that the IRS did not have a process to measure the 
impact of identity theft, the IRS initiated a research project in 
calendar year 2012 to develop a measurement process to assess its 
efforts to defend against identity theft as well as identify areas 
requiring additional effort. For the 2014 Filing Season, the IRS 
reported that identity thieves were successful in receiving 
approximately $3.1 billion in fraudulent tax refunds. TIGTA is 
evaluating the accuracy of the IRS's measurement and expects to issue 
its report early next fiscal year.
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    \15\ TIGTA, Ref. No. 2015-40-026, Efforts Are Resulting in the 
Improved Identification of Fraudulent Tax Returns Involving Identity 
Theft (Apr. 2015).
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    The IRS has implemented many of TIGTA's recommendations, and has 
continued in its efforts to improve its detection processes. In the 
2014 Filing Season, the IRS reported that it detected and prevented 
approximately $21.5 billion in identity theft refund fraud.
    The IRS is locking the tax accounts of deceased individuals to 
prevent others from filing a tax return using their names and Social 
Security Numbers (SSN). The IRS locked approximately 30.2 million 
taxpayer accounts between January 2011 and December 31, 2015. For 
processing year 2015, the IRS rejected approximately 77,000 fraudulent 
e-filed tax returns and prevented about 16,000 paper-filed tax returns 
through the use of these locks as of April 30, 2015.
    The IRS also continues to expand the number of filters used to 
detect identity theft refund fraud at the time tax returns are 
processed. Those filters increased from 11 filters for the 2012 Filing 
Season to 183 filters for the 2016 Filing Season. Tax returns 
identified by these filters are held during processing until the IRS 
can verify the taxpayer's identity. As of December 31, 2015, the IRS 
reported that it identified and confirmed more than one million 
fraudulent tax returns and prevented the issuance of nearly $6.8 
billion in fraudulent tax refunds as a result of the identity theft 
filters.
    After TIGTA continued to identify large volumes of undetected 
potentially fraudulent tax returns with tax refunds issued to the same 
address or deposited into the same bank account, the IRS developed and 
implemented a clustering filter tool during the 2013 Filing Season. 
This tool groups tax returns based on characteristics that include 
address and bank routing numbers. Tax returns identified are held from 
processing until the IRS can verify the taxpayer's identity. As of 
December 31, 2015, the IRS reported that, using this tool, it 
identified 835,183 tax returns claiming approximately $4.3 billion in 
potentially fraudulent tax refunds.
    A new process, also implemented during the 2015 Filing Season, 
limits the number of direct deposit refunds that can be sent to a 
single bank account to three deposits. The IRS converts the fourth and 
subsequent direct deposit refund requests to a specific bank account to 
a paper refund check and mails the check to the taxpayer's address of 
record. In August 2015, we reported that programming errors resulted in 
some direct deposit refunds not converting to a paper check as 
required.\16\
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    \16\ TIGTA, Ref. No. 2015-40-080, Results of the 2015 Filing Season 
(Aug. 2015).
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    In December 2015, Congress passed legislation that addresses 
TIGTA's ongoing concern about limitations in the IRS's ability to 
prevent the continued issuance of billions of dollars in fraudulent tax 
refunds. We reported that the IRS did not have timely access to third-
party income and withholding information needed to make substantial 
improvements in its fraud detection efforts. The recently enacted 
legislation now requires the annual filing of income and withholding 
information by January 31, beginning in 2017.\17\ Access to this 
information at the beginning of the filing season is the single most 
important tool to detect and prevent tax fraud-related identity theft. 
TIGTA will be reviewing the IRS's use of the income and withholding 
information returns as part of its fiscal year 2017 assessment of 
efforts to detect and prevent identity theft.
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    \17\ Public Law No. 114-113, Consolidated Appropriations Act, 2016.
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    Identity theft also affects businesses. In September 2015, TIGTA 
determined that processing filters could be developed to identify 
business tax returns containing certain characteristics that could 
indicate potential identity theft cases.\18\ TIGTA also reported that 
State information sharing agreements do not address business identity 
theft and that actions are needed to better promote awareness of 
business identity theft. The IRS agreed with our recommendations.
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    \18\ TIGTA, Ref. No. 2015-40-082, Processes Are Being Established 
to Detect Business Identity Theft; However, Additional Actions Can Help 
Improve Detection (Sept. 2015).
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    In order to continue to improve its detection efforts, the IRS 
needs expanded capabilities in its fraud detection system. The IRS's 
current fraud detection system does not allow the IRS to change or 
adjust identification filters throughout the processing year. The IRS 
is developing and testing a replacement fraud detection system, called 
the Return Review Program (RRP), which the IRS believes will provide 
new and improved capabilities that advance its fraud detection and 
prevention to a higher level.
    The IRS conducted a pilot test of the RRP scoring and models during 
Processing Year 2014 to assess its effectiveness in identifying 
potential identity theft tax returns. In December 2015, TIGTA reported 
that although the pilot successfully identified tax returns involving 
identity theft that were not identified by the IRS's other fraud 
detection systems, it did not detect all the fraudulent tax returns 
identified by its existing fraud detection systems.\19\
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    \19\ TIGTA, Ref. No. 2016-40-008, Continued Refinement of the 
Return Review Program Identity Theft Detection Models Is Needed to 
Increase Detection (Dec. 2015).
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IRS Assistance to Victims of Identity Theft
    TIGTA has identified continuing issues with victim assistance. In 
September 2013, TIGTA reported that, on average, it took the IRS 312 
days to resolve tax accounts of identity theft victims due a refund in 
fiscal year 2012.\20\ In March 2015, we reported that taxpayers were 
still experiencing long delays in resolving their tax accounts and that 
the IRS continues to make errors on the victims' tax accounts.\21\ Our 
review of a statistically valid sample of 100 identity theft tax 
accounts resolved by the IRS during fiscal year 2013 identified that 
the IRS took an average of 278 days to resolve the tax accounts and did 
not correctly resolve 17 of the 100 accounts (17 percent) we reviewed. 
We estimate that of the 267,692 taxpayer cases resolved during this 
period, 25,565 (10 percent) may have been resolved incorrectly 
resulting in delayed or incorrect refunds and requiring the IRS to 
reopen cases to resolve the errors.
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    \20\ TIGTA, Ref. No. 2013-40-129, Case Processing Delays and Tax 
Account Errors Increased Hardship for Victims of Identity Theft (Sept. 
2013).
    \21\ TIGTA, Ref. No. 2015-40-024, Victims of Identity Theft 
Continue to Experience Delays and Errors in Receiving Refunds (Mar. 
2015).
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    On May 4, 2015, the IRS announced the final phase of its plan to 
consolidate its identity theft assistance and compliance activities 
into a new organization called the Identity Theft Victim Assistance 
Directorate. The IRS indicated that this new directorate aims to 
provide consistent treatment to victims of tax-related identity theft. 
We plan to review the IRS's implementation of this organization as part 
of our fiscal year 2016 audit coverage.
Employment-Related Identity Theft
    Individuals can also learn that they are victims of employment-
related identity theft if they receive a notification from the IRS of 
an income discrepancy between the amounts reported on his or her tax 
return to the amount employers reported to the IRS. This can occur when 
an innocent taxpayer's stolen identity is used to gain employment. It 
can cause significant burden due to the incorrect computation of taxes 
and Social Security benefits based on income that does not belong to 
the taxpayer.
    In response to a TIGTA recommendation, the IRS initiated the 
Employment Related Identity Theft Notification Project in 2014 to 
notify a test group of taxpayers that their SSNs have been used by 
another person for the purpose of employment. The IRS mailed 
approximately 25,000 letters to potential victims whose SSNs had been 
used on a Form W-2 accompanying a tax year 2013 tax return filed by 
another individual with an Individual Taxpayer Identification Number 
(ITIN).\22\ The letters also described steps the taxpayers could take 
to prevent further misuse of their personal information, including 
reviewing their earnings with the Social Security Administration (SSA) 
to ensure their records are correct. However, the IRS completed the 
pilot in fiscal year 2014 and did not continue issuing the notification 
letters to taxpayers. TIGTA is currently evaluating this pilot 
initiative and expects to issue its report in March 2016.\23\
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    \22\ The IRS created the ITIN to provide Taxpayer Identification 
Numbers, when needed for tax purposes, to individuals who do not have 
and are not eligible to obtain an SSN.
    \23\ TIGTA, Audit No. 201540015, Assistance to Taxpayers Affected 
by Employment-Related Identity Theft, report planned for March 2016.
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                   irs ``get transcript'' data breach
    On May 26, 2015, the IRS announced that unauthorized access 
attempts were made by individuals using taxpayer-specific data to gain 
access to tax information through its ``Get Transcript'' application. 
According to the IRS, one or more individuals succeeded in clearing the 
IRS's authentication process that required knowledge of information 
about the taxpayer, including Social Security information, date of 
birth, tax filing status, and street address.
    The tax information that can be accessed on the Get Transcript 
application can include the current and three prior years of tax 
returns, 9 years of tax account information, and wage and income 
information. The unauthorized accesses resulted in the IRS removing the 
application from its Web site. In August 2015, the IRS indicated that 
unauthorized users were successful \24\ in obtaining access to 
information for over 340,000 taxpayer accounts. However, TIGTA's 
current review \25\ of the Get Transcript breach identified additional 
suspicious accesses to taxpayers' accounts. Based on TIGTA's analysis 
of Get Transcript access logs, the IRS reported on February 26, 2016 
that potentially unauthorized users were successful in obtaining access 
to an additional 390,000 taxpayer accounts. The IRS also reported that 
an additional 295,000 taxpayer transcripts were targeted but the access 
attempts were not successful. The IRS did not previously identify these 
accesses because of limitations in the scope of its analysis, including 
its method of identifying suspicious email accounts as well as the 
timeframe it analyzed.
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    \24\ A successful access is one in which the unauthorized users 
successfully answered identity proofing and knowledge-based 
authentication questions required to gain access to taxpayer account 
information.
    \25\ TIGTA, Audit No. 201540027, Evaluation of Assistance Provided 
to Victims of the Get Transcript Data Breach, report planned for March 
2016.
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    In response to TIGTA's identification of the additional accesses, 
the IRS is mailing notification letters to these taxpayers and placing 
identity theft markers on their tax accounts, which started February 
29, 2016. It should be noted that the actual number of individuals 
whose personal information was available to the potentially 
unauthorized individuals accessing these tax accounts is significantly 
larger in that these tax accounts include certain information on other 
individuals listed on a tax return (e.g., spouses and dependents). 
TIGTA plans to issue its report in March 2016.
    In a report issued in November 2015, TIGTA found that when the IRS 
assessed the risk of the Get Transcript application, it rated the 
authentication risk associated with Get Transcript as low to both the 
IRS and taxpayers.\26\ As a result, the IRS implemented single-factor 
authentication to access the Get Transcript application. The IRS now 
knows that the authentication risk was in fact high to both the IRS and 
taxpayers and should have required multifactor authentication. We also 
reported that the IRS did not complete the required authentication risk 
assessment of the issues Identity Protection Personal Identification 
Number (IP PIN) \27\ application. The IRS does not anticipate having 
the technology in place for either the Get Transcript or IP PIN 
application to provide multifactor authentication capability before the 
summer of 2016.
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    \26\ TIGTA, Ref. No. 2016-40-007, Improved Tax Return Filing and 
Tax Account Access Authentication Processes and Procedures Are Needed 
(Nov. 2015).
    \27\ To provide relief to tax-related identity theft victims, the 
IRS issues IP PINs to taxpayers who are confirmed by the IRS as victims 
of identity theft, taxpayers who are at a high risk of becoming a 
victim such as taxpayers who call reporting a lost or stolen wallet or 
purse, as well as taxpayers who live in three locations that the IRS 
has identified as having a high rate of identity theft (Florida, 
Georgia and the District of Columbia).
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    TIGTA is participating in a multi-agency investigation into this 
matter and we have provided the IRS with some of our investigative 
observations to date in order to help them secure the e-authentication 
environment in the future.
                      telephone impersonation scam
    As noted earlier in my testimony, the telephone impersonation scam 
has proven to be so large that it continues to be one of my agency's 
top priorities, and it has also landed at the top of the IRS's ``Dirty 
Dozen'' tax scams. The number of complaints we have received about this 
scam continue to climb, cementing its status as the largest, most 
pervasive impersonation scam in the history of our agency. It has 
claimed thousands of victims, including victims in every State 
represented on this committee, with reported losses totaling close to 
$29 million to date.
    We started receiving reports of this particular phone scam in 
August 2013. As the reporting continued through the fall, we started to 
specifically track this crime in October 2013. TIGTA currently receives 
between 10,000 and 14,000 reports of these calls each week. To date, 
TIGTA has received more than one million reports of these calls. As of 
February 22, 2016, over 5,400 individuals have reported to TIGTA they 
have been victimized by this scam by paying close to $29 million, 
averaging over $5,300 per victim. The highest reported loss by one 
individual was over $500,000. In addition, over 1,275 of these victims 
reported that they also provided sensitive identity information to 
these scammers.
    Here is how it works: The intended victim receives an unsolicited 
telephone call from a live person or from an automated call dialer. The 
caller, using a fake name and sometimes a fictitious employee badge 
number, claims to be an IRS agent. The scammers use Voice over Internet 
Protocol technology to hide their tracks and create false telephone 
numbers that show up on the victim's caller ID system. For example, the 
criminals may make it appear as though the calls are originating from 
Washington, DC, or elsewhere in the United States.
    The callers may even know the last four digits of the victim's SSN 
or other personal information about the victim. The caller claims that 
the intended victim owes the IRS taxes and that if not paid 
immediately, the victim will be arrested or charged in a lawsuit. Other 
threats for non-payment include the loss of a driver's license, 
deportation, or loss of a business license. They often leave ``urgent'' 
messages to return telephone calls and they often call the victim 
multiple times.
    According to the victims we have interviewed, the scam artists made 
the threatening statements as described above, and then demanded that 
the victims immediately pay the money using prepaid debit cards, wire 
transfers, Western Union payments or MoneyGram payments in order to 
avoid being immediately arrested. The callers typically warn the 
victims that if they hang up, local police would come to their homes to 
arrest them immediately. Sometimes the scammers also sent bogus IRS e-
mails to support their claim that they worked for the IRS. By the time 
the victims realized they had been scammed, the funds were long gone.
    Over time, the scam has evolved from live callers demanding payment 
using prepaid debit cards to scammers using automated call dialers, or 
``robo-dialers,'' to place thousands of calls very rapidly. When the 
intended victim answers the phone, the automated voice states that the 
victim owes the IRS taxes. The victim is informed that if they do not 
immediately call a telephone number provided in the message, they will 
face arrest and possibly a lawsuit.
    TIGTA has made several arrests in connection with this scam and has 
numerous investigations underway. While we cannot provide specific 
details of ongoing investigations out of concern that it will hinder 
our ability to prosecute those responsible, we can describe for you 
some of the steps TIGTA is taking to combat this scam.
    To thwart scammers using robo-dialers, we have created and 
instituted an ``Advise and Disrupt'' strategy. The strategy involves 
cataloguing the telephone numbers that were reported by intended 
victims. We then use our own automated call dialers to make calls to 
those telephone numbers to advise the scammers that their activity is 
criminal and to cease and desist in their activity. As of February 24, 
2016, we have placed over 48,000 automated calls back to the criminals.
    Also, we are working with the telephone companies to have the 
scammers' telephone numbers shut down as soon as possible. Of the 541 
telephone numbers that have been reported by victims, we have 
successfully shut down over 77 percent of them.
    TIGTA is also publishing those telephone numbers determined to have 
been used by the scammers on the Internet. This provides intended 
victims an additional tool to help them determine if the call is part 
of a scam. All they have to do is type the telephone number in any 
search engine, and the response will indicate whether the telephone 
number has been identified as part of the impersonation scam. These 
efforts are producing results: our data show it now takes hundreds of 
calls to yield one victim, whereas in the beginning of the scam it took 
only double digit attempts.
    In addition, TIGTA is engaged in a public outreach effort to 
educate taxpayers about the scam. This effort includes issuing press 
releases, granting interviews, issuing public service announcements, 
and providing testimony to the Congress. The criminals view this scam 
as they do many others; it is a crime of opportunity. Unfortunately, 
while we plan on arresting and prosecuting more individuals, the scam 
will not stop until people stop paying the scammers money. Our best 
chance at defeating this crime is to educate people so they do not 
become victims in the first place. Every innocent taxpayer we protect 
from this crime is a victory.
               implementation of the affordable care act
    The ACA provides incentives and tax breaks to individuals and small 
businesses to offset healthcare expenses, and impose penalties for 
individuals and businesses that do not obtain healthcare coverage for 
themselves or their employees. Implementation of these provisions will 
continue to present numerous challenges for the IRS in the 2016 Filing 
Season. For example, the IRS will continue its efforts to verify claims 
for the Premium Tax Credit (PTC).\28\ Taxpayers who purchase insurance 
through an Exchange \29\ are required to file a tax return and attach 
Form 8962, Premium Tax Credit (PTC), to claim the PTC and reconcile any 
Advance PTC payments (APTC) \30\ that were made to an insurer on their 
behalf. For the 2015 Filing Season, as of June 11, 2015, the IRS 
reported that it processed more than 2.9 million tax returns in which 
taxpayers received approximately $9.8 billion in PTCs that were either 
received in advance or claimed at the time of filing.
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    \28\ A refundable tax credit to assist individuals and families in 
purchasing health insurance coverage through an Affordable Insurance 
Exchange.
    \29\ The Exchange is where taxpayers find information about health 
insurance options, purchase qualified health plans, and, if eligible, 
obtain help paying premiums and out-of-pocket costs.
    \30\ An APTC is paid in advance to a taxpayer's insurance company 
to help cover the cost of premiums.
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    In a draft report issued to the IRS in February 2016,\31\ TIGTA 
reported that its evaluation of the IRS's verification of PTC claims 
during the 2015 Filing Season identified that not all Exchanges 
provided monthly Exchange Periodic Data (EPD) \32\ to the IRS prior to 
the start of the 2015 Filing Season as required. Without the required 
EPD, the IRS is unable to ensure that individuals claiming the PTC met 
the most important eligibility requirement--insurance was purchased 
through an Exchange. The IRS also cannot effectively and efficiently 
prevent erroneous PTC payments or ensure that the APTC paid in error is 
recovered.
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    \31\ TIGTA, Audit No. 201540317, Affordable Care Act: Internal 
Revenue Service Verification of Premium Tax Credit Claims During the 
2015 Filing Season, draft report issued February 2016.
    \32\ The ACA requires Exchanges to provide the IRS with information 
regarding individuals who are enrolled by the Exchange on a monthly 
basis. These data are referred to as Exchange Periodic Data (EPD).
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    Because it did not receive all required EPD data, the IRS developed 
manual processes in an effort to verify PTC claims associated with 
these Exchanges. However, to carry out these processes, the IRS has to 
suspend these tax returns during processing, which uses additional IRS 
resources and increases the burden on taxpayers entitled to these 
claims. We are evaluating the effectiveness of the IRS's verification 
of PTC claims during the 2016 Filing Season, including an assessment of 
the IRS's receipt of required EPD and Forms 1095-A, Health Insurance 
Marketplace Statement, from the Federal and State Exchanges.
    In the 2016 Filing Season, the IRS must implement processes and 
procedures to ensure taxpayer compliance with Minimum Essential 
Coverage (MEC) \33\ and Shared Responsibility Payment (SRP) 
requirements. In March 2015, we reported that the IRS had not developed 
these processes and procedures during the 2015 Filing Season.\34\ 
Taxpayers, and any individual the taxpayer could claim as a dependent 
for Federal income tax purposes, who did not maintain MEC must either 
be exempted from the requirement or pay a penalty (referred to as the 
SRP) for each month during which MEC was not maintained. We are 
currently evaluating the IRS's efforts to verify taxpayers' compliance 
with MEC and SRP requirements.
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    \33\ MEC is health insurance coverage that contains essential 
health benefits including emergency services, maternity and newborn 
care, and preventive and wellness services.
    \34\ TIGTA, Ref. No. 2015-43-030, Affordable Care Act: Assessment 
of Internal Revenue Service Preparations to Ensure Compliance With 
Minimum Essential Coverage and Shared Responsibility Payment 
Requirements (Mar. 2015).
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    Finally, the IRS will also have to implement processes and 
procedures to ensure employer compliance with ACA provisions. For 
example, the Employer Shared Responsibility Provision applies to 
employers that had an average of 50 or more full-time employees during 
the prior calendar year. The ACA requires these employers to report to 
the IRS whether they offered full-time employees and their dependents 
the opportunity to enroll in coverage. This reporting requirement was 
delayed from calendar year 2015 to 2016.
    Employers that do not offer health insurance coverage, or offer 
health insurance coverage that does not meet minimum requirements, may 
be subject to an Employer Shared Responsibility Provision when at least 
one of their full-time employees receives a PTC to purchase coverage 
through an Exchange. TIGTA is assessing the status of the IRS's 
preparations for ensuring compliance with the employer mandate and the 
related information reporting requirements.
                       irs compliance activities
    A serious challenge confronting the IRS is the Tax Gap, which is 
defined as the difference between the estimated amount taxpayers owe 
and the amount they voluntarily and timely pay for a tax year. Despite 
an estimated voluntary compliance rate of 83 percent and IRS 
enforcement efforts, a significant amount of income remains unreported 
and unpaid. In January 2012, the IRS estimated the gross Tax Gap for 
tax year 2006 to be $450 billion.
    In fiscal year 2015, the IRS reported that it collected more than 
$54.2 billion in enforcement revenue, a 9 percent decrease from fiscal 
year 2014. This is the sixth consecutive year that the IRS has exceeded 
$50 billion in enforcement revenue. While enforcement revenue has 
remained consistent, IRS enforcement activity has decreased due to 
budgetary constraints.
    For example, TIGTA reported that the IRS Collection function 
activities showed mixed results in fiscal year 2014.\35\ The amount 
collected on delinquent accounts by both the Automated Collection 
System and the Compliance Services Collection Operations increased, 
while the amount collected by Field Collection decreased. The 
Collection function continued to receive more delinquent accounts than 
it closed, although the number of delinquent accounts in the Collection 
queue decreased, due in part to the removal of millions of accounts 
that were not resolved. While the use of levies increased, fewer 
Notices of Federal Tax Lien were filed and fewer seizures were made. 
Meanwhile, taxpayers' use of the offer in compromise payment option 
decreased for the first time in the past 5 years.
---------------------------------------------------------------------------
    \35\ TIGTA, Ref. No. 2016-30-004, Trends in Compliance Activities 
Through Fiscal Year 2014 (Nov. 2015).
---------------------------------------------------------------------------
    The Examination function conducted 11 percent fewer examinations in 
fiscal year 2014 than in fiscal year 2013. The decline in examinations 
occurred across almost all tax return types, including returns for 
individuals, corporations, and S corporations. Seventy-one percent of 
return examinations were conducted via correspondence. In addition to 
the decline in the number of tax return examinations, productivity 
indicators also declined. The dollar yield per hour for most return 
types decreased. The no-change rates increased for most types of 
examinations (individuals, corporations, and partnerships). Overall, 
the IRS reported the audit rate was 0.8 percent in fiscal year 2015, 
down from 1.1 percent in fiscal year 2010. These compliance trends are 
a continued cause for concern, especially given that diminished 
enforcement could also affect voluntary compliance over time.
    The tax compliance of business and individual taxpayers involved in 
international transactions also remains a significant concern for the 
IRS. Complex transfer pricing issues and identifying U.S. taxpayers 
with hidden foreign assets and accounts continue to demand additional 
IRS resources.
    As this global economic activity increases, so do concerns 
regarding the International Tax Gap.\36\ To address the International 
Tax Gap, the IRS developed an international tax strategy plan with two 
major goals: (1) to enforce the law to ensure that all taxpayers meet 
their obligations and (2) to improve service to make voluntary 
compliance less burdensome.
---------------------------------------------------------------------------
    \36\ The International Tax Gap is the taxes owed but not collected 
on time from a U.S. person or foreign person whose cross-border 
transactions are subject to U.S. taxation.
---------------------------------------------------------------------------
    The IRS also currently faces the challenge of implementing the 
Foreign Account Tax Compliance Act (FATCA).\37\ FATCA was enacted to 
combat tax evasion by U.S. persons holding investments in offshore 
accounts. Under FATCA, a United States taxpayer with financial assets 
outside the United States is required to report those assets to the IRS 
on Form 8938, Statement of Specified Foreign Financial Assets. In 
addition, foreign financial institutions are required to report to the 
IRS certain information about financial accounts held by U.S. taxpayers 
or by foreign entities in which U.S. taxpayers hold a substantial 
ownership interest. The IRS is developing a new international system, 
the Foreign Financial Institution Registration System, to support the 
requirements of FATCA. This system is intended to register foreign 
financial institutions to assist in achieving the primary objective of 
FATCA, which is the disclosure of U.S. taxpayer foreign accounts. TIGTA 
reviewed the development of this system and reported that the program 
management control processes did not timely identify or communicate 
system design changes necessary to ensure its successful 
deployment.\38\
---------------------------------------------------------------------------
    \37\ Public Law No. 111-147, Sec. Sec. 501-541, 124 Stat 71, *96-
116 (2010) (codified in scattered sections of 26 U.S.C.).
    \38\ TIGTA, Ref. No. 2013-20-118, Foreign Account Tax Compliance 
Act: Improvements Are Needed to Strengthen Systems Development for the 
Foreign Financial Institution Registration System (Sept. 2013).
---------------------------------------------------------------------------
    TIGTA found that the IRS has taken steps to provide affected 
stakeholders information that explains FATCA requirements and 
expectations.\39\ However, TIGTA identified improvements that are 
required to ensure compliance and to measure performance for foreign 
financial institutions. If plans are not properly documented, 
implementation and performance of compliance activities could 
experience unnecessary delays. TIGTA also identified some limitations 
with the processing of Forms 8938 which could limit management's 
ability to make informed decisions and achieve the IRS's compliance 
objectives related to FATCA. TIGTA will continue to perform audit work 
to assess the IRS's efforts to improve compliance in this area.
---------------------------------------------------------------------------
    \39\ TIGTA, Ref. No. 2015-30-085, The Internal Revenue Service Has 
Made Progress in Implementing the Foreign Account Tax Compliance Act 
(Sept. 2015).
---------------------------------------------------------------------------
               tigta budget request for fiscal year 2017
    As requested by the subcommittee, I will now provide information on 
TIGTA's budget request for fiscal year 2017.
    TIGTA's fiscal year 2017 proposed budget requests appropriated 
resources of $169,634,000, an increase of 1.41 percent from the fiscal 
year 2016 enacted budget. TIGTA will continue to focus on its mission 
of ensuring an effective and efficient tax administration system in 
this lean budget environment. The fiscal year 2017 budget resources 
requested include funding to support TIGTA's critical audit, 
investigative, and inspection and evaluation priorities, while still 
maintaining a culture that continually seeks to identify opportunities 
to achieve efficiencies and cost savings.
    During fiscal year 2015, TIGTA's combined audit and investigative 
efforts recovered, protected, and identified monetary benefits totaling 
over $26.6 billion, including cost savings, increased revenue, revenue 
protection,\40\ and court-ordered settlements in criminal 
investigations, and affected approximately 5.3 million taxpayer 
accounts. Based on TIGTA's fiscal year 2015 budget of $158 million, 
this represents a Return on Investment of $168-to-$1.
---------------------------------------------------------------------------
    \40\ Recommendations made by TIGTA to ensure the accuracy of the 
total tax, penalties, and interest paid to the Federal Government.
---------------------------------------------------------------------------
    TIGTA will continue to expand its oversight related to 
cybersecurity. The proliferation of data breaches reported in recent 
years and the types of information available on the Internet has 
compromised the effectiveness of controls used to authenticate 
individuals when they access their account information. Providing 
taxpayers with more avenues to obtain answers to their tax questions or 
access their own tax records online also provides more opportunities 
for exploitation by hackers and other fraudsters. TIGTA will evaluate 
the changes being considered for authenticating taxpayer access to 
their account information; the effectiveness of controls to mitigate 
external and internal threats to IRS systems; the security of data file 
transfers to third parties; and the effectiveness of controls to 
address cybersecurity incidents.
TIGTA's Audit Priorities
    TIGTA's audit priorities focus on assessing key areas in which the 
IRS faces major risks, including ACA implementation and administration; 
identity theft detection and prevention; risk of unauthorized access to 
tax account information; international tax compliance; and oversight of 
the tax-exempt organizations.
    Implementation of ACA provisions will continue to present many 
challenges for the IRS. TIGTA will continue to evaluate the 
effectiveness of the IRS's verification of employers' and individuals' 
compliance with minimum essential coverage requirements and the 
assessment of the shared responsibility payment as well as the IRS's 
continued efforts to improve the verification of Premium Tax Credit 
claims. In addition, the ACA also requires employers and insurers to 
file information returns with the IRS identifying individuals to whom 
employers offered health insurance and indicating whether the insurance 
offered met minimum requirements. TIGTA will assess the IRS's efforts 
to identify employers that do not meet ACA requirements.
    Stopping identity theft and refund fraud continues to be a top 
priority for the IRS and for TIGTA in our oversight role. Identity 
theft patterns are constantly evolving and the IRS needs to 
continuously adapt its detection and prevention processes. The risk for 
unauthorized access to tax accounts for the purpose of filing 
fraudulent tax returns will continue to grow as the IRS focuses its 
efforts on delivering taxpayers self-assisted interactive online tools. 
Tax account information obtained through unauthorized accesses, such as 
the Get Transcript data breach, can be used to file fraudulent tax 
returns that more closely resemble a legitimate tax return, making it 
more difficult for the IRS to detect. TIGTA will continue to assess the 
IRS's efforts to detect refund fraud committed by identity thieves and 
authenticate individual taxpayers' identities at the time tax returns 
are filed and when services are provided.
    International tax compliance remains a significant area of concern. 
We will be continuing to assess the IRS's compliance efforts in this 
area, including its use of the tools that the law provides to assist in 
its efforts. One of the most significant tools is FATCA, which mandates 
reporting obligations for certain U.S. taxpayers with foreign accounts 
and also provides for the sharing of information between the U.S. and 
foreign financial institutions to ensure compliance with those 
obligations.
    Additionally, TIGTA will be auditing the IRS's implementation of 
the new legislative requirement to utilize Private Debt Collectors 
(PDCs). On December 4, 2015, the Fixing America's Surface 
Transportation Act (FAST Act) was signed into law. It included 
provisions which amend Internal Revenue Code (IRC) Sections (Sec. ) 
6306 and 6307 to mandate the use of PDCs to collect inactive tax 
receivables. Pursuant to IRC Sec. 306(j), TIGTA will also biannually 
provide an independent review of contractor performance.
    Finally, OA will be continuing to provide close oversight of the 
IRS's tax-exempt organization program. These entities are not subject 
to Federal income tax, but they represent a significant aspect of tax 
administration.
TIGTA's Investigative Priorities
    TIGTA's investigative priorities include investigating allegations 
of serious misconduct and criminal activity by IRS employees; ensuring 
that IRS employees are safe and that IRS facilities, data and 
infrastructure are secure and not impeded by threats of violence; and 
protecting the IRS against external attempts to corrupt or otherwise 
interfere with tax administration.
    IRS employees are entrusted with the sensitive personal and 
financial information of taxpayers. It is particularly troubling when 
IRS employees misuse their positions in furtherance of identity theft 
and other fraud schemes. TIGTA will continue to process and investigate 
the complaints from taxpayers, the Congress, IRS employees and 
managers, as well as continue to use sophisticated data mining tools to 
proactively search for internal and external criminal activity that 
impacts the efficient operations of the IRS. This includes proactively 
reviewing the activities of the 56,000 IRS employees who access 
taxpayer accounts for an indication of unauthorized accesses that may 
be part of a larger identity theft fraud scheme.
    Between fiscal years 2011 and 2015, TIGTA processed 12,176 threat-
related complaints and conducted 5,971 investigations of threats made 
against IRS employees. TIGTA will continue to aggressively investigate 
individuals who threaten the safety and security of the IRS and its 
employees.
    The recent large-scale cybersecurity incidents in which criminals 
were able to obtain the information of hundreds of thousands of 
taxpayers from IRS systems continue to be a major investigative focus 
for our investigators. We are in the midst of a multi-agency 
investigation into these incidents and we are, as able, sharing what we 
are learning from these investigations with the IRS.
    As mentioned earlier in my testimony, TIGTA has received more than 
one million reports from taxpayers claiming that they were contacted by 
individuals impersonating IRS employees in an effort to defraud them. 
To date, thousands of victims have paid close to $29 million to the 
scammers. TIGTA will continue to investigate these crimes against 
taxpayers and alert the public to this scam to ensure that taxpayers 
are not harmed by these criminals.
    We at TIGTA take seriously our mandate to provide independent 
oversight of the IRS in its administration of our Nation's tax system. 
As such, we plan to provide continuing audit coverage of the IRS's 
efforts to operate efficiently and effectively and to investigate any 
instances of IRS employee misconduct.
    Chairman Boozman, Ranking Member Coons, and members of the 
subcommittee, thank you for the opportunity to share my views.

    Senator Boozman. Thank you again very much for being here, 
we appreciate your hard work. Your office recently reported 
that approximately another 390,000 taxpayers account for 
suspicious attempts related to the Get Transcript application 
and 295,000 taxpayer transcripts were targeted but access was 
not successful.
    This is in addition to the original announcement from May 
2015, and also the later announcement from August. Should the 
IRS have been able to identify the full scope of this attack?
    Mr. George. You know, in an ideal world, sir, the answer is 
yes, but we have to be realistic here. This is such a dynamic, 
amorphous effort on the part of people who are extraordinarily 
sophisticated--meaning foreign governments--to individuals 
sitting in their dens, on their sofas, in rooms around the 
world.
    Senator Boozman. How are you able to identify so many more 
than they were?
    Mr. George. Well, you know, what we were able to do, sir--a 
lot of it relies on people reporting the problem. I am 
extraordinarily proud of my team of investigators and auditors, 
inspectors and evaluators.
    When someone calls in, myself included, and gives that fake 
telephone number that was provided by the scammer, we have 
procedures in place, and I do not want to give away the entire 
way we address this, sir, working with the telephone companies 
to block those telephone numbers to make it much more difficult 
for the scammers to use identical numbers to continue this 
problem.
    Again, off camera, we would be more than happy to provide 
you with more information as to how we go about doing that.
    Senator Boozman. Sure. Well, thank you. Recently, you found 
that the IRS failed to properly assess the risk of the Get 
Transcript application. We also learned other IRS electronic 
applications were susceptible to security breaches.
    As IRS moves to a future state environment, what level of 
confidence do you have that the IRS is assessing risk of its 
applications before rushing to provide online services to 
taxpayers?
    Mr. George. They have such a difficult balancing act there, 
Mr. Chairman. There is no question that it is in everyone's 
best interest to allow for people to comply with their tax 
obligation. The easier that people are able to do this, the 
more likely they are to comply.
    As I alluded to in my earlier comment, the fact that this 
is such a rapidly growing and expanding problem, if the IRS 
could find a solution today, that would be antiquated tomorrow. 
That is no exaggeration.
    They have to have the resources. They have to have the 
commitment, and I do believe they have the commitment under the 
current Commissioner, but they need the resources, and they are 
competing with the private sector for some of these top-notch 
people.
    Senator Boozman. It was hacked almost immediately, was it 
not, as soon as it was put up?
    Mr. George. That is my understanding.
    Senator Boozman. I guess the question is why would you go 
forward until you completely made sure it was somewhat filtered 
at least?
    Mr. George. I would have to defer to the Commissioner to 
give you a definitive response, but it has to be noted too, 
sir, that the IRS, because of it being a Government agency, has 
to be open with the problems that it encounters, whereas many 
of the private sector organizations that seem to be 
extraordinarily effective in terms of avoiding these types of 
problems are less required to do so under their stock charter 
or whatever requirements they have to their stockholders, they 
don't have the same reporting obligations, and yet they have 
encountered many of the same problems.
    Senator Boozman. Right. We understand the IG is responsible 
for following up, as you testified and others have talked 
about, and prosecuting the IRS impersonation scammers. IRS 
reported the IG has received 896,000 contacts since October 
2013, and had become aware of over 5,000 victims.
    Again, in following up on the Senator from Maryland's 
question, she asked them what they were doing in order to 
alieve this problem. What is the IG doing? What are you doing 
in order to help with the problem?
    Mr. George. Yes, sir. First, just to be clear, the number 
now is in excess of a million people in the impersonation scam. 
The key is we are engaged in a multi-faceted approach, sir.
    Everything from public service announcements--my late mom 
just told me a few weeks before she passed away, which was not 
too long ago, that when she got one of these calls, she hung up 
on them. She was extraordinarily proud of that fact. She said, 
``Russell, I hung up on them.'' I said, ``Mom, that was the 
right thing to do.''
    That is the key. You have to get people informed about this 
scam, and unfortunately, you are right, many senior citizens 
fall prey to this, but it is not just senior citizens, sir.
    The dollar amounts are bewildering, sir, that potentially 
are at risk here.
    Senator Boozman. You mentioned a million, and then I had 
5,000 victims.
    Mr. George. Oh, I am sorry.
    Senator Boozman. No, I had 896,000 as far as received 
contacts, with 5,000 victims. Do you have an update on the 
actual victim number?
    Mr. George. It is roughly in the 5,000 range.
    Senator Boozman. Okay. Senator Coons.
    Senator Coons. Thank you, Senator Boozman. Just to follow 
up on that point, these roughly 5,000 victims have paid out 
something like $30 million, $26 to $30 million?
    Mr. George. Yes.
    Senator Coons. What more could we be doing in partnership 
with TIGTA to shut down these scams and to inform and educate 
Americans, particularly seniors who tend to be vulnerable to 
high pressure tactics or folks whose first language is not 
English or recent immigrants? These tend to be those most 
targeted. How could we be more successful in shutting down 
these scams, and is the IRS doing enough?
    Mr. George. The IRS, to the extent that they have the 
resources, is attempting to do enough. Now, again, I have to 
repeat, getting information out there. Many members of the 
House and Senate, when you reach out to your constituents in 
your newsletters or during town hall meetings, make this scam 
more aware to your constituents.
    Again, the PSA that we and the IRS are doing--I will tell 
you what really would help all involved, if we were able to 
successfully prosecute more of these perpetrators, and for the 
courts to impose very stringent punishments to serve as a 
deterrent effect to those who commit these crimes.
    Unfortunately, a lot of this occurs overseas, which makes 
it much more difficult for our law enforcement officials to 
have access to them, and in a few instances and hopefully in 
the near future, we will be able to announce some of those bad 
people have been caught and will face justice.
    Senator Coons. You have identified in a report the single 
greatest challenge to the IRS being information security, sort 
of the top management challenge. You have spoken today at some 
length about why, lack of resources and the challenge of a 
constantly evolving world, and the unique role the IRS plays in 
terms of accessing financial information.
    As they move towards a future state and as they learn 
lessons from the Get Transcript application challenge, are you 
confident that their request this year actually responds to the 
concerns that TIGTA has identified, and they are in fact 
planning to incorporate sound multi-layer electronic 
authentication specifications in any future applications?
    Mr. George. It is a step in the right direction. I have to 
admit that TIGTA has made recommendations in the past which the 
IRS has not immediately adopted, and to their defense, it is 
because, as they pointed out, due to a lack of resources. They 
have to pick and choose what laws they have to enforce and 
when.
    I believe that a concerted effort on the part of the 
Commissioner, the Secretary, and the Congress will help address 
this problem. Will it be solved completely, sir? I am not 
saying when about that, given again the nature of this, and the 
dollar amounts that are involved.
    People, even if they are starting to wise up about this, 
are still falling prey to it.
    Senator Coons. Last, I asked previously about the tax gap 
and enforcement issues. As the IRS watchdog, what do you 
recommend as the best long-term strategy for tackling the tax 
gap, and in your view, is the IRS hampered in its ability to 
acquire more robust information reporting by the lack of some 
legislative authority that you would recommend that would 
reduce impediments to the IRS narrowing this gap?
    Mr. George. Yes. More information provided by third 
parties, the higher the compliance rate. The IRS itself reports 
that when information about income is provided by a third 
party, the compliance rate is in the high 90s. When it is not, 
it is half of that, in the 50s. Again, a much dated piece of 
information, when it is an all-cash business, the compliance 
rate falls under 20 percent.
    The recently passed legislation which requires the 
provision to the Internal Revenue Service of income information 
by January 31 is a very productive step in the right direction. 
As you know, prior to that, that information was not required 
until March, which allowed a huge time gap between when people 
could file for refunds and when the IRS had adequate 
information as to the amount of income that person made and 
what refund he or she was entitled to.
    Senator Coons. Thank you. Thank you both for your testimony 
and for your service. That is encouraging.
    Mr. Chairman, if I might, I would like to ask consent that 
the statement by President Anthony Reardon of the National 
Treasury Employees Union be entered into the record of this 
hearing.
    Senator Boozman. Without objection.
    [The statement follows:]
                Prepared Statement of Anthony M. Reardon
                           National President
                   National Treasury Employees Union
    Chairman Boozman, Ranking Member Coons and distinguished members of 
the subcommittee, I would like to thank you for allowing me to provide 
comments on the IRS budget request for fiscal year 2017. As President 
of the National Treasury Employees Union (NTEU), I have the honor of 
representing over 150,000 Federal workers in 31 agencies, including the 
men and women at the IRS.
    Mr. Chairman, NTEU strongly supports the administration's fiscal 
year 2017 budget request of $12.28 billion for the IRS, an increase of 
more than $1 billion above the current fiscal year 2016 level. We are 
particularly pleased the administration's request would provide the IRS 
with the additional resources necessary to restore customer service 
levels that have fallen in recent years due to funding cuts totaling 
$1.2 billion, and to begin rebuilding its depleted workforce which is 
down more than 15,000 full-time employees since fiscal year 2010. 
Without this additional funding, the IRS' ability to serve taxpayers 
and enforce our Nation's tax laws will continue to erode.
                           taxpayer services
    Providing quality customer service to the taxpayer is an important 
part of IRS efforts to help the taxpaying public understand its tax 
obligations while making it easier to comply. Unfortunately, the IRS' 
ability to provide excellent taxpayer service has been severely 
challenged due to reduced funding in recent years and the cuts mandated 
by sequestration. Without additional resources, further degradation in 
taxpayer services will occur, jeopardizing our voluntary compliance 
system.
Impact of Funding Reductions on IRS Taxpayer Services
    Mr. Chairman, funding reductions in recent years have had a 
devastating impact on IRS' ability to provide taxpayers, including 
victims of identity theft, with the service they need in a timely 
manner. Since fiscal year 2010, the IRS has absorbed $1.2 billion in 
cuts despite the fact that they are handling more than 10 million 
additional tax returns a year, and the number and complexity of tax 
refund fraud cases are on the rise. The funding cuts have resulted in a 
reduction of about 34 percent in the number of assistors answering 
telephone calls between fiscal years 2010 and 2015 and contributed to 
the lowest level of telephone service in fiscal year 2015 compared to 
recent years. In addition, reduced funding forced the IRS to implement 
a number of service initiatives during fiscal year 2015 that included 
reducing or eliminating certain telephone and walk-in services, and 
redirecting taxpayers toward other service channels such as IRS's Web 
site.
    In a recent letter to Congress, the IRS highlighted some of the 
adverse impacts these reductions had on the IRS' ability to deliver 
taxpayer services during the most recent filing season. These include:

  --A reduction in the percentage of callers seeking live assistance 
        who received it (telephone level of service) to 38 percent--
        down from 74 percent in fiscal year 2010.
  --Taxpayers waiting about 23 minutes on average for an IRS 
        representative to get on the line, with more than 60 percent of 
        calls going answered. This represents a sharp decline from 
        2010, when the IRS answered three-quarters of calls and had an 
        average wait time of just under 11 minutes.
  --The IRS was not able to answer any tax-law questions except 
        ``basic'' ones during the last filing season and no tax law 
        questions after the filing season, leaving the roughly 15 
        million taxpayers who filed later in the year unable to get 
        answers to their questions by calling or visiting IRS offices.
  --The IRS historically has prepared tax returns for taxpayers who 
        need help, particularly for low income, elderly, and disabled 
        taxpayers. Eleven years ago, it prepared some 476,000 returns. 
        That number declined significantly over the past decade, and 
        last year the IRS announced it will no longer prepare returns 
        at all.

    In addition, as a result of budget cuts, the IRS was forced to 
reduce staff devoted to face-to-face assistance at walk-in sites by 
about 4 percent in fiscal year 2015 compared to the previous year, and 
directed customers to self-service options. However, the percentage of 
customers at walk-in sites waiting for longer than 30 minutes for 
service increased by 7 percentage points (from about 25 to 32 percent) 
during the same period.
    The importance of providing taxpayers with timely assistance over 
the phone or in person is of particular importance for victims of 
identity theft and other types of tax refund fraud. These cases are 
extremely complex cases to resolve, frequently touching on multiple 
issues and multiple tax years and the process of resolving these cases 
can be very frustrating for victims.
    While the IRS has made considerable progress in this area, 
additional work remains. Fighting identity theft is an ongoing battle 
as identity thieves continue to create new ways of stealing personal 
information and using it for their gain. Therefore, it is critical that 
the IRS has the resources and staffing necessary to prevent refund 
fraud from occurring in the first place, investigate identity theft-
related crimes when they do occur and help taxpayers who have been 
victimized by identity thieves as quickly as possible.
    That is why NTEU strongly supports the President's request of $2.4 
billion in funding for taxpayer services in fiscal year 2017. This 
funding will allow the IRS to increase the telephone level of service 
to 70 percent, provide assistance to victims of identity theft in a 
timely manner, and help taxpayers understand their obligations, 
correctly file their returns, and pay taxes due in a timely manner.
    Mr. Chairman, it is evident that drastic funding reductions in 
recent years have seriously eroded the IRS' ability to provide 
taxpayers with the services they need. Without the additional funding 
proposed in the administration's budget request, taxpayers will 
continue experiencing a degradation of services, including longer wait 
times to receive assistance over the telephone, increasing 
correspondence inventories, including letters from victims of identity 
theft and taxpayers seeking to resolve issues with taxes due or looking 
to set up payment plans.
                              enforcement
    Mr. Chairman, NTEU believes a strong enforcement program that 
respects taxpayer rights, and minimizes taxpayer burden, plays a 
critical role in IRS' efforts to enhance voluntary compliance, combat 
the rising incidence of identity theft and reduce the tax gap.
Impact on Efforts to Reduce the Federal Deficit
    Unfortunately, funding reductions in recent years are undermining 
IRS' ability to maximize taxpayer compliance, prevent tax evasion and 
reduce the deficit. The adverse impact of insufficient funding on IRS' 
capacity to collect revenue critical to reducing the Federal deficit is 
clear. In fiscal year 2015, on a budget of $10.9 billion, the IRS 
collected $3.3 trillion, roughly 93 percent of Federal Government 
receipts. According to the IRS, every dollar invested in IRS 
enforcement programs generates roughly $6 in increased revenues, but 
reduced funding for enforcement programs in recent years has led to a 
steady decline in enforcement revenue since fiscal year 2007. In fiscal 
year 2015, IRS enforcement activities brought in $54.2 billion, down $5 
billion from the $59.2 billion of fiscal year 2007.
    The reduction in revenue can be partly attributed to a reduction in 
the total number of IRS enforcement personnel, including revenue agents 
and employees in the correspondence audit program, which have limited 
the IRS' impact on voluntary compliance. The number of revenue agents 
fell 7 percent from 11,422 to 10,657 in fiscal year 2015, the lowest it 
has been since before 2005, when there were 20 million fewer taxpayers, 
while reduced staffing in the correspondence audit program resulted in 
roughly 16,000 fewer case closures and potentially $75 million in lost 
revenue.
    Without sufficient staffing to effectively enforce the law to 
ensure compliance with tax responsibilities and combat fraud, our 
voluntary tax compliance system is at risk. And as the IRS Commissioner 
has repeatedly noted, a simple 1-percent decline in the compliance rate 
translates into $30 billion in lost revenue for the Government.
    Sufficient enforcement staffing is also critical if the IRS is to 
make further progress on closing the tax gap, which is the amount of 
tax owed by taxpayers that is not paid on time. According to the IRS, 
the amount of tax not timely paid is $450 billion, translating to a 
noncompliance rate of almost 17 percent.
    While the tax gap can never be completely eliminated, even an 
incremental reduction in the amount of unpaid taxes would provide 
critical resources for the Federal Government. At a time when Congress 
is debating painful choices of program cuts and tax increases to 
address the Federal budget deficit, NTEU believes it makes sense to 
invest in one of the most effective deficit reduction tools: collecting 
revenue that is owed, but hasn't yet been paid.
    That is why NTEU was happy to see the administration's budget 
request would provide a total of $5.2 billion to support IRS 
enforcement activities, an increase of more than $356 million over the 
current level. The increased funding is designed to protect revenue by 
identifying fraud, including tax related identity theft, and strengthen 
examination and collection programs. The increase is also supported by 
a program integrity cap adjustment totaling $514 million, which 
includes funding for both the Enforcement ($231 million) and the 
Operations Support ($283 million) accounts. This additional funding is 
designed to restore enforcement of current tax laws to acceptable 
levels, investigate transnational organized crime, pursue abusive tax 
schemes and enforce the new Foreign Account Tax Compliance Act (FACTA). 
According to the administration, the cap adjustment will help generate 
$46 billion in net savings over the next 10 years. This estimate does 
not account for the deterrent effect of IRS enforcement programs, 
estimated to be at least three times larger than the direct revenue 
impact.
                               conclusion
    Mr. Chairman, thank you for the opportunity to provide NTEU's views 
on the administration's fiscal year 2017 budget request for the IRS. 
NTEU believes that only by restoring critical funding for effective 
enforcement and taxpayer service programs can the IRS provide America's 
taxpayers with quality service while maximizing revenue collection that 
is critical to reducing the Federal deficit.

    Senator Boozman. I also would like to ask unanimous consent 
that the statement by the Taxpayer Advocate also be included in 
the record. Again, hearing no objection, we will also do that.
    [The statement follows:]
    Prepared Statement of Nina E. Olson, National Taxpayer Advocate
    Chairman Boozman, Ranking Member Coons, and distinguished members 
of this subcommittee:
    Thank you for inviting me to submit this statement regarding the 
proposed budget of the Internal Revenue Service for fiscal year 
2017.\1\
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    \1\ The views expressed herein are solely those of the National 
Taxpayer Advocate. The National Taxpayer Advocate is appointed by the 
Secretary of the Treasury and reports to the Commissioner of Internal 
Revenue. However, the National Taxpayer Advocate presents an 
independent taxpayer perspective that does not necessarily reflect the 
position of the IRS, the Treasury Department, or the Office of 
Management and Budget. Congressional testimony requested from the 
National Taxpayer Advocate is not submitted to the IRS, the Treasury 
Department, or the Office of Management and Budget for prior approval. 
However, we are providing courtesy copies of this statement to both the 
IRS and the Treasury Department.
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    From fiscal year 2010 through fiscal year 2016, we estimate the 
IRS's budget has been reduced by about 19 percent on an inflation-
adjusted basis. That is a huge reduction for any organization, 
particularly a large agency that is labor-intensive like the IRS. At 
the same time, the IRS has been given significant new responsibilities, 
including implementation of the Foreign Account Tax Compliance Act 
(FATCA) and large portions of the Patient Protection and Affordable 
Care Act (ACA), which require significant resources.
    The combination of reduced resources and more work has eroded the 
IRS's ability to serve taxpayers and promote voluntary compliance. The 
additional $290 million in funding that Congress has provided in fiscal 
year 2016 is very helpful, and because of it the IRS has performed much 
better at answering taxpayer telephone calls this year than at this 
time last year.
    The IRS remains resource-constrained, and there are limits to how 
much its performance can improve unless and until it receives 
additional resources. Nevertheless, the agency must continue to do its 
best with whatever resources it is given, and in my 2015 Annual Report 
to Congress I have made many recommendations that would improve IRS 
performance without significant or even any investments of resources. 
In this statement, I will focus on seven areas where I believe it can 
do better:

    1.  IRS Future State Plan. The IRS has developed a Future State 
plan that envisions how the agency will operate in 5 years and beyond. 
A central component of the plan is the creation of, and reliance on, 
online taxpayer accounts. The IRS believes online accounts will produce 
significant cost savings and enable it to substantially reduce its 
expenditures for telephone and in-person assistance. I believe the IRS 
is wrong and that it is critical it maintain robust personal service 
options.

    2.  Taxpayer Assistance at IRS Taxpayer Assistance Centers (TACs). 
The IRS has been reducing taxpayer service options at its TACs for 
several years, and it has recently decided to switch to an 
``appointment-only'' system at all of its TACs by the end of 2016. The 
TACs, which were previously known as ``walk-in sites,'' will no longer 
accept walk-in taxpayers anywhere, and it is conducting a pilot under 
which it is not even accepting tax payments from walk-in taxpayers. I 
believe the IRS's unwillingness to help walk-in taxpayers fails to meet 
the needs of many taxpayers for personal assistance, and I find the 
notion of declining to accept tax payments from walk-in taxpayers 
inexplicable and baffling for a tax collection agency.

    3.  IRS Management of Volunteer Income Tax Assistance (VITA) and 
Tax Counseling for the Elderly (TCE) Programs. Beginning in 2014, the 
IRS discontinued its longstanding practice of preparing tax returns at 
its TACs for taxpayers seeking its assistance. That work has largely 
shifted to VITA and TCE programs. Yet the IRS imposes many restrictions 
on VITA and TCE programs that prevent taxpayer needs from being met. 
For example, volunteer programs cannot prepare tax returns for many 
sole proprietors and for many taxpayers with capital gains or 
losses.\2\ As a result, more taxpayers can no longer obtain free 
assistance in preparing their returns, which imposes burden on these 
taxpayers and may undermine voluntary compliance.
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    \2\ See IRS Pub. 3676-B, IRS Certified Volunteers Providing Free 
Tax Preparation (Oct. 2015). VITA sites may not prepare a Schedule C 
with losses or a ``complicated'' Schedule D.

    4.  Impact of Stolen Identify Refund Fraud on Victims. For nearly a 
decade, the tax system has been plagued by stolen identity refund 
fraud, wherein identity thieves impersonate legitimate taxpayers to try 
to obtain tax refunds in their names. Victims of tax-related identity 
theft face several consequences, including considerable hassle proving 
their identities, lengthy delays in receiving their refunds, and often 
a general feeling of helplessness that their privacy has been violated. 
IRS filters are doing a better job of blocking bogus returns, but the 
``false-positive'' rate of these filters has increased, imposing more 
burden on legitimate taxpayers, and victims continue to be frustrated 
by the hassle of dealing with the IRS. For any case involving more than 
one tax issue or more than 1 tax year, I recommend the IRS provide 
identity theft victims with the name of a single employee they can work 
with--and who will be held accountable--for the timely and proper 
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resolution of their case.

    5.  Impact of Taxpayer Service Cutbacks on U.S. Taxpayers Abroad. 
The IRS has significantly reduced its overseas taxpayer service 
presence in recent years. About a year ago, it eliminated its last four 
overseas tax attache posts. A few months ago, it eliminated an online 
system through which taxpayers could obtain responses to questions and 
a separate system that allowed IRS customer service representatives to 
refer taxpayer questions to employees with relevant expertise. These 
service cutbacks have coincided with the implementation of FATCA, 
leaving many of the more than 8.7 million U.S. citizens living abroad 
with more needs and less assistance. I recommend that the IRS re-open 
its recently closed tax attache offices and that funding be provided 
for TAS to open small offices in four appropriate international 
locations to assist U.S. taxpayers living abroad in resolving problems 
with the IRS.

    6.  Taxpayer Access to the IRS's Office of Appeals. Congress has 
long recognized that ``all taxpayers should enjoy convenient access to 
Appeals, regardless of their locality.'' \3\ As a result, Congress 
required the IRS, among other things, to ``ensure that an appeals 
officer is regularly available within each State.'' \4\ Yet today, the 
IRS reports that 12 States do not have an Appeals Officer. That should 
change. The IRS has suggested in the past that requiring an Appeals 
Officer in each State would be costly. We do not agree. Universal 
coverage does not require more Appeals Officers. It would simply 
require the IRS to relocate a small number of posts of duty from States 
with numerous Appeals Officers to States with no Appeals Officers. The 
IRS has also suggested that virtual conferences or circuit riding is 
sufficient. We do not agree with those contentions, either. In many 
cases, it would be impossible for an Appeals Officer to judge the 
credibility of a witness without an in-person conference, and ``circuit 
riding'' does not happen often, requiring taxpayers to wait months, or 
even a year or more, to obtain a face-to-face hearing. By placing an 
Appeals Officer in each State, the District of Columbia, and Puerto 
Rico, the IRS would comply with the congressional directive and give 
meaning to ``The Right to Appeal an IRS Decision in an Independent 
Forum.'' \5\
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    \3\ S. Rep. No. 105-174, at 92 (1998).
    \4\ Internal Revenue Service Restructuring and Reform Act, Public 
Law No. 105-206, Title III, Subtitle E, Sec. 3465(b), 112 Stat. 685, 
768 (1998).
    \5\ ``The Right to Appeal an IRS Decision in an Independent Forum'' 
is one of the ten rights included in the Taxpayer Bill of Rights that 
the IRS adopted in 2014 and that Congress cross-referenced in 
subsequent legislation. See IRS, Taxpayer Bill of Rights, available at 
https://www.irs.gov/Taxpayer-Bill-of-Rights; see also Consolidated 
Appropriations Act, 2016, Public Law No. 114-113, Division Q, Sec. 401 
(2015) (codified at IRC Sec. 7803(a)(3)).

    7.  The Need for an IRS Enterprise Case Management System in 
General and the Taxpayer Advocate Service Integrated System (TASIS) in 
Particular. The IRS's information technology (IT) systems, particularly 
its case management systems, require an investment of funding to 
promote efficiency gains and improve taxpayer service. My own 
organization, the Taxpayer Advocate Service, is operating with a 1980s 
legacy system known as the Taxpayer Advocate Management Information 
System (TAMIS). TAMIS is largely obsolete and requires case advocates 
to perform many tasks manually that can and should be automated. 
Working with the IRS's IT function and a contractor, TAS has developed 
the requirements for a replacement system known as the Taxpayer 
Advocate Service Information System (TASIS), and about two-thirds of 
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the programming for TASIS has been completed.

      About $20 million has already been spent on TASIS out of a total 
projected cost of about $32 million. TASIS was within an estimated 6 
months of completion. For the last 3 years, the Senate Appropriations 
Subcommittee on Financial Services and General Government has 
repeatedly included TASIS on a list of six ``major information 
technology project activities'' about which it has directed the IRS to 
submit quarterly reports.\6\ Yet the IRS has halted all work on TASIS 
due to budget constraints. This decision is penny-wise and pound-
foolish for three reasons: (1) TASIS would allow TAS's case advocates 
to be much more efficient, reducing the number of case advocates needed 
for a given number of cases, so it would save money after a few years, 
(2) it makes no business sense to pull the plug on a successful IT 
project after more than 60 percent of the funds have been spent and it 
is within 6 months of completion, and (3) there are many business units 
in the IRS that would benefit from a new case management system, and 
the TASIS system includes many useful case management features that 
could be adapted to meet those units' needs.
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    \6\ See S. Rep. No. 114-97, at 39 (2015); S. Rep. No. 113-80, at 34 
(2013). In 2014, a similar provision was included in the Senate 
Appropriations Committee's draft report, but the draft report was not 
adopted for that year.

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    I will elaborate on these points below.

I.  The IRS Future State Plan Commendably Commits the IRS to Develop 
        Online Taxpayer Accounts, but the IRS May Be Significantly 
        Underestimating Continuing Taxpayer Demand for Telephone and 
        Face-to-Face Service and It Must Be Required to Maintain Those 
        Services to Meet Taxpayer Needs.

    During the past 2 years, the IRS has developed a ``future state'' 
plan that details how the agency will operate in 5 years and beyond. 
There are many positive components of the plan, including the goal of 
creating online accounts through which taxpayers and their 
representatives will be able to obtain information and interact with 
the IRS.
    However, the plan raises significant concerns about the continued 
availability of telephone and face-to-face service. Taxpayer demand for 
IRS personal service is high and has remained so for many years. Of 
particular note, the IRS has received more than 100 million taxpayer 
calls and 5 million taxpayer visits in every year since fiscal year 
2008.
    The IRS believes that online taxpayer accounts will enable the 
agency to achieve significant cost savings. In testimony before this 
subcommittee, for example, the Commissioner recently stated the move 
toward online accounts ``is driven, in part, by business imperatives; 
when it costs between $40 and $60 to interact with a taxpayer in 
person, and less than $1 to interact online, we must reexamine how we 
provide the best possible taxpayer experience.'' \7\
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    \7\ Fiscal Year 2017 Treasury Department Budget Request: Hearing 
Before the Subcomm. On Financial Services and General Government of the 
S. Comm. On Appropriations, 114th Cong. (2016) (statement of John A, 
Koskinen, Commissioner of Internal Revenue, at 3).
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    While the goal of achieving cost savings is commendable, online 
accounts will only achieve significant cost savings if either (1) large 
numbers of taxpayers stop calling and visiting the IRS or (2) taxpayers 
continue to call and visit the IRS in large numbers but the IRS stops 
serving them.
    The IRS recently posted a document on IRS.gov that says: ``[W]e 
recognize that some taxpayers will always prefer to deal with us on the 
phone or in person. These services will always be available to them in 
the Future State.'' \8\
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    \8\ IRS Future State: Overview The Path Traveled and the Road Ahead 
(Draft: February 2016), available at https://www.irs.gov/PUP/newsroom/
IRS%20Future%20State%20Journey_R.pdf (last visited March 7, 2016).
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    Assuming that to be true, the crux of my disagreement with the IRS 
boils down to whether taxpayers will ultimately use online accounts as 
a substitute for personal service or whether taxpayers will use online 
accounts as a supplement to personal service.
    For the foreseeable future, I believe taxpayers will use online 
accounts as a supplement to taxpayer service and therefore that online 
accounts will not produce a significant reduction in taxpayer telephone 
calls and visits. This is true for several reasons, including that 
millions of taxpayers do not have Internet access, millions of 
taxpayers with Internet access do not feel comfortable trying to 
resolve important financial matters over the Internet, and many 
taxpayer problems are not ``cookie cutter,'' thus requiring a degree of 
back-and-forth discussion that is better suited for conversation and 
that taxpayers will insist upon.

            A. Post-Filing Contacts

    Taxpayers who get into post-filing disputes with the IRS are 
particularly likely to want to speak with an IRS employee, and there 
are many taxpayers who fall into this category. In fiscal year 2015, 
the IRS had actual or possible post-filing contacts with more than nine 
million taxpayers. Most arose because of proposed tax adjustments the 
IRS made. Others arose because the IRS temporarily or indefinitely 
froze tax returns and withheld refunds, generating taxpayer inquiries 
and attempts to provide substantiation.
    If one were to focus solely on the individual audit rate of less 
than one percent,\9\ one might assume that fewer than 1.5 million 
individual taxpayers have contacts with the IRS after filing a tax 
return. In fact, the number of taxpayers who have post-filing contacts 
with the IRS is vastly larger. For example:
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    \9\ In fiscal year 2014, the individual audit rate was 0.86 
percent. See IRS fiscal year 2014 Enforcement and Service Results 2, 
available at https://www.irs.gov/PUP/newsroom/FY-
2014%20Enforcement%20and%20Service%20Results%20--%20web%20version.pdf. 
At this writing, the individual audit rate for fiscal year 2015 has not 
yet been released.

  --The IRS makes adjustments to taxpayer accounts under ``math error'' 
        authority that do not count as audits.\10\
---------------------------------------------------------------------------
    \10\ IRC Sec. 6213(b) & (g).
---------------------------------------------------------------------------
  --The IRS makes adjustments to taxpayer accounts based on document-
        matching between information a taxpayer reports on his tax 
        return and information the taxpayer's employer reports on a 
        Form W-2 or a payor reports on a Form 1099. These adjustments 
        do not count as audits.\11\
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    \11\ See IRC Sec. 7605 and Rev. Proc. 2005-32, 2005-1 C.B. 1206, 
regarding contacts with taxpayers and other actions taken by the IRS 
that are not treated as ``examinations.'' In general, an examination 
involves the IRS's inspection of a taxpayer's books and records. Among 
contacts not treated as examinations are those resulting from the 
matching of information on a tax return with information already in the 
IRS's possession and considering any records the taxpayer provides 
voluntarily to explain a discrepancy between a filed return and 
information furnished by third parties that is used as part of a data-
matching program. See Rev. Proc. 2005-32, Sec. 4.03(1)(b) & (c).
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  --The IRS operates an Automated Substitute for Return program in 
        which it creates tax returns for taxpayers who did not file and 
        who the IRS believes should have filed a return.\12\ The 
        automated returns produced under this program do not count as 
        audits.
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    \12\ See IRC Sec. 6020. For additional information regarding the 
automated substitute for return program, see National Taxpayer Advocate 
2015 Annual Report to Congress 188-195 (Most Serious Problem: AUTOMATED 
SUBSTITUTE FOR RETURN (ASFR) PROGRAM: Current Selection Criteria for 
Cases in the ASFR Program Create Rework and Impose Undue Taxpayer 
Burden).
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  --The IRS employs a wide variety of anti-fraud filters to screen out 
        fraudulent tax returns and refund claims. However, these 
        filters are inherently both under-inclusive and over-inclusive. 
        Where filters are over-inclusive, the IRS sometimes notifies 
        taxpayers it has frozen their returns and requires them to 
        submit additional documentation before it can proceed, and it 
        sometimes temporarily suspends the processing of their returns 
        (and the issuance of refunds) pending internal verification 
        measures. Even where the IRS is solely performing internal 
        verification, taxpayers experiencing refund delays will often 
        call the IRS to find out why. These reviews also do not count 
        as audits.

    Thus, the number of taxpayers who receive notices and may have to 
get into a dialogue with the IRS about their unique facts and 
circumstances is as follows: \13\
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    \13\ Sources for data on audit and similar contacts are as follows: 
IRS Audit Information Management System, Closed Case Database (showing 
number of individual examinations closed in fiscal year 2015); IRS 
Compliance Data Warehouse, Notice Delivery System (showing number of 
CP2000 and CP2501 document-matching notices mailed to distinct 
taxpayers by the IRS's Automated Underreporter Program in Fiscal Year 
2015); IRS Individual Master File (showing number of math error notices 
mailed to distinct taxpayers in fiscal year 2015); IRS Collection 
Activity Report NO-5000-139 (Oct. 5, 2015) (showing number of automated 
substitute for return (ASFR) notices issued in fiscal year 2015; ASFRs 
are created with respect to taxpayers that did not file tax returns but 
that the IRS believes should have filed tax returns). Sources for data 
on refund delays are as follows: IRS Generalized Unpostable Framework 
(GUF) report, GUF5740 Closed Inventory Summary (Dec. 17, 2015) (showing 
that 729,487 returns were initially deemed unpostable for inconsistency 
with ID theft business rules but were later processed in calendar year 
2015 through Dec. 17); IRS Return Integrity & Compliance Services 
(RICS), Update of the Taxpayer Protection Program (TPP) 8, (Dec. 9, 
2015) (showing that 649,915 returns were stopped by Taxpayer Protection 
Program filters but were later found to be legitimate in calendar year 
2015 through Dec. 9); IRS Individual Master File (showing that 179,459 
returns were stopped due to suspected fraudulent income documents that 
later were found to be legitimate and 155,103 returns were frozen from 
Jan. 1 through Sept. 30, 2015 because an identity theft return in the 
taxpayer's name had previously been submitted and posted; refund delays 
of less than 2 weeks are generally excluded from these totals). The 
number of refund delays shown in this chart is under-inclusive overall 
because there are additional sources of refund delays. However, a small 
number of returns may fit into more than one category and therefore be 
double-counted.

    FIGURE 1.1.1--POST-FILING NOTICES AND REFUND DELAYS THAT GENERATE
                            TAXPAYER CONTACTS
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Individual Audits.......................................       1,228,693
Document Matching (AUR) Notices.........................       3,836,216
Math Error Notices......................................       1,886,216
Automated Substitute for Returns........................         184,776
Refund Delays...........................................       2,078,311
                                                         ---------------
      Total.............................................       9,214,212
------------------------------------------------------------------------


    It is not realistic to expect that taxpayers who are told they owe 
more tax or whose refunds have been significantly delayed are going to 
be satisfied resolving their problems with the IRS exclusively through 
an online account. A high percentage of taxpayers in this situation 
will want to speak with an IRS employee so they can be certain they 
understand the source of the problem and what more they need to do--and 
to try to obtain reassurance about when they can expect a final 
resolution.

            B.  IRS Technology Advancements Historically Have Not 
                    Reduced Taxpayer Demand for Personal Services 
                    Despite Hopes to the Contrary.

    Ever since Congress enacted the IRS Restructuring and Reform Act of 
1998,\14\ the IRS has been speaking about harnessing technology to 
improve efficiency and reduce the need for personal service. In fact, 
the IRS has succeeded in dramatically increasing the percentage of 
taxpayers who file their returns electronically, it has vastly expanded 
and improved its Web site to provide more information to taxpayers, and 
it has launched ``Where's My Refund'' to reduce telephone calls. The 
hope and expectation was that these measures would have substantially 
reduced taxpayer demand for personal service by phone or in person.
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    \14\ Internal Revenue Service Restructuring and Reform Act of 1998, 
Public Law No. 105-206, 112 Stat. 685 (1998).
---------------------------------------------------------------------------
    In fact, taxpayer demand for personal service has increased over 
time. The number of calls the IRS received on its Accounts Management 
lines over the past decade has risen about 64 million in fiscal year 
2006 to about 102 million in fiscal year 2015, an increase of about 59 
percent, as shown in the following graph: \15\
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    \15\ IRS, Joint Operations Center, Snapshot Reports: Enterprise 
Snapshot (final week of each fiscal year for fiscal year 2006 through 
fiscal year 2015). The majority of the additional calls were handled by 
automation. The increase in calls seeking to speak with an IRS customer 
service representative (CSR) was 20 percent. The IRS's Snapshot Reports 
do not specify the number of calls routed to CSRs, but that number can 
be roughly computed by dividing the number of calls answered by CSRs by 
the percentage of calls answered by CSRs (known as the ``CSR Level of 
Service''). The number of calls routed to CSRs on the Account 
Management telephone lines increased from about 39.8 million in fiscal 
year 2006 to about 47.9 million in fiscal year 2015. The percentage 
increase in calls seeking to reach a CSR likely would have been 
considerably higher absent IRS policies designed to limit the scope of 
CSR-eligible subjects, such as sharply restricting the scope of tax-law 
questions CSRs may answer.
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FIGURE 1.1.2--TAXPAYER CALLS TO IRS ACCOUNTS MANAGEMENT TELEPHONE LISTS



    (The one-time spike in telephone calls in fiscal year 2008 was 
attributable to widespread confusion concerning payments under the 
Economic Stimulus Act of 2008.\16\)
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    \16\ Public Law No. 110-185, 122 Stat. 613 (2008).
---------------------------------------------------------------------------
    Taxpayer demand for face-to-face service at the IRS's walk-in sites 
has also remained high--above 5.6 million visits in fiscal year 2015--
despite IRS service reductions, such as directing employees to refrain 
from answering tax-law questions and discontinuing the preparation of 
tax returns.\17\
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    \17\ IRS Wage & Investment Division, Business Performance Review 7 
(4th Quarter--Fiscal Year 2015, Nov. 2, 2015).
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    These results are hardly surprising. The continuing demand for 
personal service despite greater online functionality is not unique to 
tax administration. For example, the Board of Governors of the Federal 
Reserve System conducts an annual survey of bank customers who use 
mobile phones to conduct their banking. The most recent survey found 
that 72 percent of bank customers reported they had visited a branch 
and spoken with a teller within the preceding month (an average of two 
times), and 68 percent reported they had used telephone banking within 
the preceding month (also an average of two times). In addition, 85 
percent reported they had used an automated teller machine (ATM) within 
the preceding month (an average of three times).

    Summarizing these survey results, the report concluded:

        Taken together, these estimates indicate that while mobile 
        banking users are utilizing technological platforms at a high 
        rate and on a consistent basis, they have also maintained 
        connections to their banks through the more traditional branch 
        and ATM channels.\18\
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    \18\ Board of Governors of the Federal Reserve System, Consumers 
and Mobile Financial Services 2015, at 11 (March 2015), available at 
http://www.federalreserve.gov/econresdata/consumers-and-mobile-
financial-services-report201503.pdf.

    There is no doubt that secure online taxpayer accounts will be a 
positive development for both taxpayers and the IRS. But the IRS's own 
experience with technology improvements and data from other sectors 
suggest online accounts are unlikely to substantially reduce taxpayer 
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demand for telephone and face-to-face service.

            C. National Taxpayer Advocate Public Forums

    In my 2015 Annual Report to Congress, I expressed concern that the 
IRS had developed its Future State plan and the CONOPS that underlie it 
internally--without publishing them or soliciting taxpayer comments. I 
announced I would hold a series of public forums around the country to 
seek public comments and would post panelist statements online and 
publish a summary of what we learned from the public forums in my 2016 
Annual Report. I have already held several public forums, and they have 
produced valuable insights. More are scheduled. Details are posted at 
http://www.taxpayeradvocate.irs.gov/public-forums.

            D. ``Customer Callback'' Technology

    The IRS has proposed implementing a customer callback system that 
would allow taxpayers who call the IRS's toll-free telephone lines to 
choose between remaining on hold and receiving a call back when their 
place in the telephone queue is reached.\19\ We believe a customer 
callback system would significantly improve the taxpayer experience at 
a reasonable cost, and we urge the IRS to make a final determination 
about the system this year.
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    \19\ See Internal Revenue Service, Congressional Justification for 
Appropriations accompanying the President's Fiscal Year 2015 Budget at 
IRS-20 (2014); Internal Revenue Service, Congressional Justification 
for Appropriations accompanying the President's Fiscal Year 2016 Budget 
at IRS-22 (2015).
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    In the President's fiscal year 2015 and fiscal year 2016 budgets, 
the IRS proposed this initiative and estimated the cost would be about 
$3.3 million.\20\ In November 2015, Commissioner Koskinen said that 
although the customer callback technology itself would cost about $3.5 
million, the IRS had determined its phone system would need to be 
upgraded at a cost of about $45 million in order to allow the customer 
callback technology to run.\21\
---------------------------------------------------------------------------
    \20\ Id.
    \21\ See Lisa Rein, IRS Customer Service Will Get Even Worse This 
Tax Filing Season, Tax Chief Warns, Washington Post.com, Nov. 3, 2015.
---------------------------------------------------------------------------
    We think a customer callback mechanism would be a prudent 
investment despite the cost to upgrade the telephone system. For 
context, the IRS's fiscal year 2016 budget proposal requested about 
$186 million to increase the Level of Service (LOS) on its toll-free 
lines to 80 percent.\22\ The significant majority of that funding would 
pay for additional customer service representatives and other costs 
that recur annually. By contrast, the deployment of a customer callback 
system would essentially be a one-time cost, and it would permanently 
improve the IRS's Level of Service.
---------------------------------------------------------------------------
    \22\ See Internal Revenue Service, Congressional Justification for 
Appropriations accompanying the President's Fiscal Year 2016 Budget at 
IRS-22 (2015).
---------------------------------------------------------------------------
    It should be emphasized that a high percentage of taxpayers who 
don't reach the IRS on their first attempt keep calling until they 
eventually get through. Last year, the overall LOS during the filing 
season averaged 37 percent, and those taxpayers who managed to reach an 
IRS telephone assistor waited an average of 23 minutes on hold.\23\ On 
the Taxpayer Protection Program (TPP) telephone line--which taxpayers 
are instructed to call to validate their identities if the IRS flags 
their returns as suspicious for identity theft--the LOS during the 
filing season was 17 percent and the average hold time for successful 
callers was 28 minutes.\24\ That means that (1) the average taxpayer 
had to call nearly three times until he got through overall and (2) the 
average taxpayer whose refund was held up by the TPP filters had to 
call nearly six times until he got through.
---------------------------------------------------------------------------
    \23\ IRS, Joint Operations Center, Snapshot Reports: Enterprise 
Snapshot--Accounts Management lines (April 18, 2015).
    \24\ IRS, Joint Operations Center, Fiscal Year 2015 Weekly TPP 
Snapshot Report (April 18, 2015).
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    With customer callback technology, unsuccessful calls would be 
largely eliminated or at least substantially reduced--as would hold 
times. Most taxpayers would only have to call the IRS one time. Thus, 
this one-time cost would improve taxpayer service and substantially 
increase the LOS for years into the future.

Recommendations

    I recommend that Congress direct the IRS to take the following 
actions:

  --Commit to maintain high levels of telephone service and face-to-
        face service for the foreseeable future. The IRS should not 
        make any plans--explicit or implicit--to reduce telephone and 
        face-to-face service unless and until it becomes clear that 
        taxpayer demand for such services is declining.
  --Complete a study of ``customer callback'' technology with an eye 
        toward implementing it for the 2017 filing season.

II.  The IRS Continues to Reduce Service at the Taxpayer Assistance 
        Centers.

    During fiscal year 2015, the IRS piloted a program in 44 of its 
Taxpayer Assistance Centers (TACs) to offer appointment-only based 
service to taxpayers.\25\ In practice, this means that many TACs, which 
were once known as ``walk-in sites,'' no longer offer walk-in service 
to taxpayers.\26\ While initial information provided to TAS by the IRS 
regarding this pilot seemed promising, I am very concerned with the 
pace at which the IRS has decided to move all TACs to appointment-only 
service, the methodology and measures used to determine the success of 
the pilot program, and reports TAS has received about recent TAC 
service. Initially the IRS planned to expand appointment only services 
to all TACs over fiscal years 2016, 2017, and 2018. Now, however, the 
IRS intends to convert all TACs to appointment-only scheduling by the 
end of fiscal year 2016. I do not believe that an entirely appointment-
based system meets the needs of taxpayers, and I am concerned about the 
impact of this approach on voluntary compliance.
---------------------------------------------------------------------------
    \25\ IRS, Field Assistance Appointment Test Report-Executive 
Briefing (Sept. 29, 2015).
    \26\ A proposed Internal Revenue Manual (IRM) currently circulating 
through internal clearance would permit TAC managers to use discretion 
to assist drop-in taxpayers experiencing hardships. However, the IRS 
does not define the term ``hardship,'' nor does it allow for managers 
to use discretion to assist taxpayers when there are available TAC 
employees with no appointments.
---------------------------------------------------------------------------
    While the IRS currently allows taxpayers to walk in to make a tax 
payment or to drop off a return, it is currently testing a pilot at 
five TACs where taxpayers will need appointments to complete even these 
basic tasks. It is harmful to both taxpayers and the public fisc for 
the IRS to turn away taxpayers who have taken the time to visit a TAC 
to pay their taxes. This proposal appears even more illogical when 
taking into account the results of the broader pilot in the 44 TACs. 
The results show that 20 percent of taxpayers had to wait between 13 
and 41 days to obtain an appointment and 5 percent had to wait more 
than 41 days for an appointment.\27\ Those are not encouraging results. 
Asking taxpayers seeking in-person assistance to wait so long to get an 
appointment or make a payment deters--rather than encourages--voluntary 
tax compliance.
---------------------------------------------------------------------------
    \27\ IRS, Field Assistance Appointment Test Report-Executive 
Briefing, at 7 (Jan. 13, 2016). In addition, 11,496 taxpayers did not 
show up for their appointments. The IRS removed those appointment wait 
times from the reported averages.
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    Anecdotally, TAS has heard numerous complaints concerning the 
service at TACs, which I have raised through appropriate channels 
within the IRS. These reports range from the lack of available forms, 
to being turned away from appointment TACs, to long waits at other 
TACs. Employees told a taxpayer visiting the San Jose TAC solely to 
file a return that he needed an appointment. Employees refused to 
accept the return and advised him to drive an hour to the Oakland TAC 
where he would not need an appointment. Another taxpayer visited the 
San Jose TAC to make a payment on an existing installment agreement 
only to be told he had to make an appointment. Additionally, it has 
been reported that TAC employees have refused to assist taxpayers 
because they do not have appointments, even when there had been no one 
in the TAC receiving or waiting to receive assistance. In Brooklyn, an 
appointment-only site, TAC employees have reported being bored, while 
in the Manhattan TAC, taxpayers are lined up out the door.
    I have continually raised concerns regarding the IRS's chipping 
away at the services provided by TACs.\28\ Over the last few years, the 
IRS has limited the scope of tax law questions answered, will only 
answer tax law questions during filing season, and no longer prepares 
tax returns. With the latest move to appointment-only services, I 
believe the IRS will continue to use measures that do not fully capture 
the impact of its decisions on taxpayers and will allow the IRS to 
attempt to justify further reducing in-person service. Making a service 
more difficult to use, then touting declining use of that service as a 
reason to cut the service further or entirely, is disingenuous.
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    \28\ See, e.g., National Taxpayer Advocate 2015 Annual Report to 
Congress (Most Serious Problem: Individual Taxpayer Identification 
Numbers (ITINs): IRS Processes Create Barriers to Filing and Paying for 
Taxpayers Who Cannot Obtain Social Security Numbers), National Taxpayer 
Advocate 2016 Objectives Report to Congress 20-21, National Taxpayer 
Advocate 2014 Annual Report to Congress (Most Serious Problem: Taxpayer 
Service: Taxpayer Service Has Reached Unacceptably Low Levels and Is 
Getting Worse, Creating Compliance Barriers and Significant 
Inconvenience for Millions of Taxpayers).

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Recommendations

    I recommend that the IRS take the following actions:

  --Staff TACs during the filing season at sufficient levels that 
        taxpayers generally do not need to make advance appointments to 
        receive service.
  --Permit taxpayers to file a tax return or make a payment at any time 
        without the need for appointments.
  --Where a TAC generally operates by appointment, allow employees to 
        assist taxpayers without appointments when there is an 
        available employee.

III.  Volunteer Tax Assistance Programs Are Overburdened and the Design 
        Grant Structure is Too Restrictive.

            A.  The IRS's Elimination of Free Return Preparation at the 
                    TACs Imposes Undue Burden on Both Volunteer 
                    Partners and Taxpayers.

    Prior to 2014, hundreds of thousands of taxpayers visited the IRS's 
TACs for assistance each year in preparing and filing their tax 
returns. At the start of 2014, the IRS stopped preparing returns at 
TACs and directed taxpayers to use other free options such as the IRS 
Free File program, Facilitated Self-Service Assistance (FSA) sites, or 
Voluntary Income Tax Assistance (VITA) and Tax Counseling for the 
Elderly (TCE).\29\ The IRS stated that commercial tax software and paid 
preparers are additional options.\30\ However, these alternatives are 
not replacements for the service formerly offered by TACs. Unlike TACs, 
volunteer sites and Free File software cannot prepare forms or handle 
issues that are ``out-of-scope.'' \31\ Low income taxpayers may not be 
able to afford software or a paid preparer, while taxpayers with 
disabilities, limited technology skills, or no access to a computer may 
be unable to use Free File or commercial software.
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    \29\ IRS, Growth Through Alternative Filing Strategies in the Next 
ERA Fiscal Year 2014 Program Guide 7 (2014). See also IRS, Contact Your 
Local IRS Office, available at http://www.irs.gov/uac/Contact-Your-
Local-IRS-Office-1 (last visited on March 7, 2016). FSA is interactive 
tax return preparation software available at some VITA and TCE sites 
that the taxpayer uses with very little assistance and does not require 
face-to-face interaction. For a more detailed discussion of our 
concerns regarding the VITA and TCE programs, see National Taxpayer 
Advocate 2014 Annual Report to Congress 55-66 (Most Serious Problem: 
VITA/TCE Funding: Volunteer Tax Assistance Programs Are Too Restrictive 
and the Design Grant Structure Is Not Adequately Based on Specific 
Needs of Served Taxpayer Populations).
    \30\ IRS, Fiscal Year 2014 Service Approach Return Preparation 
Clarification 3 (Jun. 9, 2014).
    \31\ ``Out-of-scope'' returns include forms, schedules, and tax law 
topics that the IRS identifies each year and may change every year. 
Examples of out of scope items include moving expenses (only volunteers 
with a military certification can preparer these returns), farm income, 
and returns for taxpayers in bankruptcy. See IRS Pub. 4012, VITA/TCE 
Volunteer Resource Guide, Scope of Service 8-10, EXT-5 (Dec. 2015).
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    With the elimination of tax return preparation services at TACs, it 
is critical that the IRS provide adequate support for VITA and TCE 
sites so that taxpayers can obtain free tax return preparation 
assistance to meet their reporting obligations and comply with the tax 
laws. In fact, in 2008, the House Appropriations Committee directed the 
IRS, through VITA and TCE, to ``strengthen, improve, and expand 
taxpayer service.'' \32\ The Committee explained the purpose of the 
VITA grant funds was ``[t]o enable VITA programs to extend services to 
underserved populations and hardest-to-reach areas, both urban and non-
urban, as well as to increase the capacity to file returns 
electronically, heighten quality control, enhance training of 
volunteers, and significantly improve the accuracy rate of returns 
prepared by VITA sites.'' \33\
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    \32\ H.R. Rep. No. 110-207, at 25 (2008).
    \33\ 153 Cong. Rec. H16049 (daily ed. Dec. 17, 2007).
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    In fiscal year 2015, VITA and TCE programs prepared about 3.8 
million returns.\34\ This amount represents a 10 percent increase over 
fiscal year 2013 levels, before the IRS eliminated return preparation 
at the TACs.\35\ In 2014, a small sample of VITA sites participated in 
a survey conducted by the non-profit Maryland CASH Campaign. Their 
survey responses identified specific concerns about the IRS's decision 
to eliminate tax return preparation services at TACs. Specifically, 
they indicated that the sites were receiving increased referrals from 
TACs for out-of-scope and amended returns as well as referrals outside 
of tax season. In addition, many sites reported they were receiving 
reduced support from IRS Stakeholder Partnerships, Education and 
Communication (SPEC), the IRS organization that works with VITA 
programs.\36\ The Treasury Inspector General for Tax Administration has 
noted that the combination of increased activity at, and decreased 
funding for, VITA and TCE programs can strain partners' ability to meet 
taxpayer needs and improve voluntary compliance.\37\
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    \34\ IRS SPEC Final Fiscal Year 2014/2015 Comparative Scorecard 
(Sept. 30, 2015). The reported fiscal year 2015 levels do not reflect 
the number of taxpayers who are turned away from VITA or TCE sites 
because the issues they need help with are out-of-scope.
    \35\ IRS SPEC 2013/2014 Comparative Scorecard (Sept. 30, 2013).
    \36\ Maryland CASH Campaign released the survey at the 2014 Common 
Cents Conference. 2014 Common Cents Conference, IRS VITA Communications 
Panel, Impact of Taxpayer Assisted Center Closures: VITA Field Survey 
Summary Results, available at https://www.surveymonkey.com/
sr.aspx?sm=mDtFjCp_2f5M9bobk33JOo8_2ffhVCxrf2eyFcarkizSSx4
_3d (last visited March 7, 2016).
    \37\ Treasury Inspector General for Tax Administration (TIGTA), 
Ref. No. 2012-40-049, Additional Steps Are Needed to Ensure the 
Volunteer Income Tax Assistance Grant Program Reaches More Underserved 
Taxpayers (Apr. 30, 2012).

            B.  VITA/TCE Programs Are Subject to Limitations and 
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                    Restrictions that Impede Their Effectiveness.

    The guiding principle of the IRS VITA Grant Program is that the 
grantees should show ``incremental increases'' in their return 
preparation each year. The IRS also expects grantees to achieve 100 
percent of their grant agreement goals as well as increasing the number 
of returns compared to the prior year with similar amounts of 
funding.\38\ To reduce the additional burdens on taxpayers and the VITA 
and TCE sites, the IRS grant funding process must change. In 
particular, the following IRS restrictions on how VITA and TCE partners 
use their funds limit the effectiveness and reach of both programs:
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    \38\ IRS Pub. 4883, Grant Programs Resource Guide for VITA 
Volunteer Income Tax Assistance & TCE Tax Counseling for the Elderly 5 
(Aug. 2014).

    1.  No Funding for Time Spent on Intake and Processing for Out-of-
Scope Taxpayer Issues.--VITA and TCE sites must perform intake and 
interview each taxpayer who visits a site.\39\ However, the sites do 
not report the time spent on intake and processing for a taxpayer whose 
issue is out-of-scope or needs amended or prior-year tax returns 
prepared. The initial interviews provide valuable information and 
guidance to taxpayers, even if they ultimately cannot be assisted by 
the VITA or TCE site. However, by the IRS not counting and funding the 
time spent on this valuable service, taxpayers experience longer wait 
times or risk being turned away.
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    \39\ IRM 22.30.1.3.13.1.2, Intake and Interview Process (Oct. 1, 
2014).

    2.  Burdensome Training Requirements for Volunteers.--The IRS 
suggests that volunteer preparers have 2 years of previous experience 
and be trained and certified at the advanced level before preparing 
prior year or amended returns.\40\ Further, volunteer preparers who 
work in the tax and accounting field, such as attorneys and certified 
public accountants, are also burdened by the IRS training and 
certification policy requirement that volunteers who answer tax law 
questions, instruct tax law classes, prepare or correct tax returns, or 
conduct quality reviews of completed tax returns must be certified in 
tax law annually.\41\ The IRS should require these volunteers to 
recertify only on new provisions and changes in tax law. This change 
could potentially increase volunteer participation of experienced 
professionals.
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    \40\ IRS, Fact Sheet for SPEC Partners, Preparing Prior Year and 
Amended Returns at VITA/TCE sites (Oct. 2015), available at https://
www.irs.gov/pub/irs-utl/FactSheet
PriorYearandAmendedReturns.pdf (last visited March 17, 2015).
    \41\ IRM 22.30.1.3.13.1.2, Intake and Interview Process (Oct. 1, 
2014). The IRS provides training to volunteers through the Link and 
Learn application. IRM 22.30.1.3.7.1.3, Link and Learn Taxes (LLT) 
(Sept. 11, 2015).

    3.  Limitations of Mandatory Software.--The TaxWise software the 
IRS provides to VITA and TCE volunteers allows return preparation only 
for the current year and the three previous tax years.\42\ Because VITA 
and TCE sites are only authorized to use this software, they cannot 
fully assist a taxpayer who requires the preparation of returns that go 
back more than 3 years.\43\ Further, the IRS's restrictions on which 
volunteers can prepare prior year or amended returns, combined with the 
limitations of software, discourage sites from preparing these returns.
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    \42\ IRS, Fact Sheet for SPEC Partners, Preparing Prior Year and 
Amended Returns at VITA/TCE sites (Oct. 2015), available at https://
www.irs.gov/pub/irs-utl/FactSheet
PriorYearandAmendedReturns.pdf (last visited March 17, 2015).
    \43\ Taxpayers are sometimes required to provide several years of 
tax returns to meet certain immigration-related requirements.

    4.  No Funding for Quality Reviewers.--Volunteer sites need quality 
reviewers (even if in a part-time funded capacity) to ensure the 
accuracy of returns. Without quality reviewers, the programs solely 
rely on volunteers to verify the quality of the prepared returns, which 
could potentially lead to improperly prepared returns.\44\
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    \44\ The IRS uses quality measures to evaluate whether the site 
receives funding in the future. See IRM 22.30.1.3.13, Quality Review 
Process (Jan. 10, 2013). However, every tax return must be quality 
reviewed by a person other than the preparer. See IRM 
22.30.1.3.13.1(4), VITA and TCE Quality Site Requirements (QSR) (Sept. 
11, 2015).

    5.  No Funding for Certifying Acceptance Agents (CAAs).--Failure to 
fund CAAs imposes an additional burden on taxpayers who need an 
Individual Taxpayer Identification Number (ITIN).\45\ Having a paid CAA 
on staff at the VITA or TCE site would allow certification of documents 
that taxpayers bring in with their Form W-7, Application for IRS 
Individual Taxpayer Identification Number, thus reducing the burden to 
taxpayers. It would also promote accountability and protect against 
fraud. Indeed, the IRS recently adopted rules that require VITA 
programs seeking to become CAAs to have a ``responsible officer'' who 
is a ``permanent employee'' (and, for emphasis, the rules state that 
``volunteers do not qualify'').\46\ The combination of requiring a VITA 
site to have a ``permanent employee'' to qualify as a CAA and barring 
VITA sites from using these funds to pay the salaries of such employees 
makes it even more difficult for VITA sites to assist taxpayers who 
need to obtain ITINs.
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    \45\ A certifying acceptance agent is a person (i.e., an individual 
or an entity) who is authorized to assist alien individuals and other 
foreign persons in obtaining ITINs from the IRS. Rev. Proc. 2006-10, 
2006-2 IRB 293 (Jan. 9, 2006).
    \46\ IRS Fact Sheet for SPEC Partners, SPEC Certifying Acceptance 
Agent Initiative (Dec. 2015).

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Recommendations

    I recommend that Congress and the IRS take the following actions:

  --Increase VITA funding to maximize the overall resources (Federal 
        and matching funds) available for free tax return preparation 
        assistance.
  --Remove VITA and TCE program grant restrictions for specific tax 
        forms, schedules, and issues, including Schedules C, D, and F, 
        and ITIN applications.
  --Allow grant funding to be used for quality review, CAAs, and year-
        round services at select sites.
  --Require volunteers who are authorized under 31 C.F.R. Part 10 
        (Circular 230) to practice before the IRS (e.g., attorneys, 
        CPAs, and Enrolled Agents) to annually recertify only on new 
        provisions and changes in tax law.
  --Provide free tax return preparation assistance at TACs in areas 
        with limited access to VITA or TCE volunteers, along with 
        proper staffing and hours to handle taxpayer traffic.

IV.  The IRS Is Taking Important Steps to Prevent Stolen Identity 
        Refund Fraud, But It Needs To Do More To Assist Victims.

    Tax-related identity theft is an invasive crime that has 
significant impact on its victims and the IRS.\47\ Apart from the time 
and frustration involved in dealing with the IRS to prove one's own 
identity, taxpayers generally do not receive their refunds until their 
cases are resolved.
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    \47\ See National Taxpayer Advocate 2015 Annual Report to Congress 
180-187; National Taxpayer Advocate 2014 Annual Report to Congress vol. 
2, 44-90; National Taxpayer Advocate 2013 Annual Report to Congress 75-
83; National Taxpayer Advocate 2012 Annual Report to Congress 42-67; 
National Taxpayer Advocate 2011 Annual Report to Congress 48-73; 
National Taxpayer Advocate 2009 Annual Report to Congress 307-317; 
National Taxpayer Advocate 2008 Annual Report to Congress 79-94; 
National Taxpayer Advocate 2007 Annual Report to Congress 96-115; 
National Taxpayer Advocate 2005 Annual Report to Congress 180-191; 
National Taxpayer Advocate 2004 Annual Report to Congress 133-136.
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    I have concerns about both the IRS's preventive measures to combat 
identity theft and the IRS's approach to identity theft victim 
assistance.

            A.  The IRS Should Improve Its Identity Theft Filters and 
                    Allocate Sufficient Resources to Staff Its Phone 
                    Lines to Respond to Taxpayers Impacted by These 
                    Filters.

    The IRS uses data analytics to develop various filters to detect 
suspicious tax returns. One such series of filters is known as the 
Taxpayer Protection Program (TPP). When the TPP flags a suspicious 
return, the processing of that return is suspended until the taxpayer 
is able to verify his or her identity. The IRS sends a letter 
instructing the taxpayer to either call the TPP phone number or answer 
some knowledge-based questions online to verify his or her identity.
    Last filing season, approximately one out of three returns 
suspended by the TPP was a ``false positive.'' \48\ As a result, 
hundreds of thousands of taxpayers who filed legitimate returns had to 
spend time contacting the IRS to verify their identities.\49\ This 
created a significant backlog of calls to the TPP toll-free phone line. 
As shown in the figure below, the level of service on the TPP line was 
below 10 percent for three consecutive weeks.\50\
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    \48\ IRS, IRS Return Integrity & Compliance Services (RICS), Update 
of the Taxpayer Protection Program (TPP) 9 (June 24, 2015).
    \49\ IRS, IRS Return Integrity & Compliance Services (RICS), Update 
of the Taxpayer Protection Program (TPP) 9 (June 24, 2015).
    \50\ For weeks ending February 28, 2015, March 7, 2015, and March 
14, 2015, the LOS on the TPP line was 9.7 percent, 7.6 percent, and 9.8 
percent, respectively. The graph presents data in the IRS's Fiscal Year 
2015 Weekly TPP Reports. In the IRS's Fiscal Year 2016 Weekly TPP 
Reports, the Average Speed of Answer for Fiscal Year 2015 has been 
slightly revised and is shown as 0.1 minute shorter for the weeks 
ending Jan. 10, 2015 and Jan. 24, 2015.




    I support the use of data-driven models to detect suspicious tax 
returns. However, the IRS has an obligation to sufficiently test these 
filters--a false positive rate of 36.2 percent is unacceptably 
high.\51\ Furthermore, the IRS has a responsibility to ensure that the 
phone lines are sufficiently staffed to handle the volume of calls to 
the TPP. During the 2016 filing season to date (through March 5), the 
IRS has received about 3.6 million telephone calls on its TPP line, and 
it has answered only about 12.3 percent.\52\
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    \51\ IRS, IRS Return Integrity & Compliance Services (RICS), Update 
of the Taxpayer Protection Program (TPP) (Dec. 2, 2015).
    \52\ IRS, JOC, Fiscal Year 2016 Weekly TPP Snapshot Report (week 
ending March 5, 2016).

            B.  The IRS Should Assign a Sole Contact Person to Assist 
                    Victims of Identity Theft When Multiple Functions 
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                    Are Involved.

    Identity theft cases account for approximately a quarter of all TAS 
case receipts.\53\ One reason why so many identity theft cases end up 
in TAS is because of their complexity--historically, these cases often 
require actions to be taken by employees from multiple IRS functions.
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    \53\ TAS Business Performance Review (fiscal year 2015; run date 
Oct. 1, 2015).
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    To improve the victim experience and shorten its identity theft 
case cycle time, I have recommended that for complex identity theft 
cases (ones that require the victim to deal with multiple IRS 
functions), the IRS designate a sole contact person with whom the 
victim can interact for the duration of the case.\54\ I believe this 
would not only put the victim more at ease, but would also avoid having 
an identity theft case fall through the cracks and adding to the cycle 
time.
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    \54\ National Taxpayer Advocate 2015 Annual Report to Congress 187; 
National Taxpayer Advocate 2014 Annual Report to Congress vol. 2, 55.
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    The IRS recently reorganized its identity theft victim assistance 
units, moving toward a more centralized approach for which our office 
has long advocated.\55\ As the IRS re-engineers its identity theft 
victim assistance procedures, it should look at its processes from the 
perspective of the identity theft victim. Given the multiple points of 
contact and resulting periods of inactivity, the IRS may find if it 
adopts our suggestions that it actually will require fewer resources to 
do the same volume of work. I am confident that taxpayers--our 
customers--would be much more satisfied with their experience.
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    \55\ See National Taxpayer Advocate 2007 Annual Report to Congress 
115.

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Recommendation

    I recommend that the IRS take the following action:

  --For identity theft cases involving more than one tax issue or more 
        than one tax year, assign a single employee within the Identity 
        Theft Victim Assistance unit to work with the identity theft 
        victim until all related issues are fully resolved. The 
        taxpayer should be given the opportunity to speak directly with 
        that employee whenever possible, but if the employee is not 
        available, the taxpayer should be given the option of either 
        leaving a message for the employee or speaking with another 
        available assistor.

V.  The Elimination of Key International Taxpayer Service Channels Has 
        Increased Compliance Challenges for International Taxpayers and 
        Undermined Taxpayer Rights.

    Despite an increase in the number of international taxpayers, the 
IRS has significantly decreased its overseas taxpayer service presence 
in recent years.\56\ While it has plans to expand international 
criminal investigation locations,\57\ the IRS during late 2014 and 2015 
eliminated the last four tax attache posts abroad, citing a multi-year 
decrease in its appropriations.\58\ Apart from the attaches, the only 
free option \59\ for taxpayers abroad to ask a specific question and 
receive a response from an IRS employee was the Electronic Tax Law 
Assistance Program (ETLA), which the IRS terminated in October of 
2015.\60\ In conjunction with terminating ETLA, the IRS also 
discontinued R-mail, a system that allowed customer service 
representatives to refer taxpayer questions to employees with specific 
expertise.
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    \56\ National Taxpayer Advocate 2015 Annual Report to Congress 72-
81. See also National Taxpayer Advocate 2011 Annual Report to Congress 
156, fn. 39; National Taxpayer Advocate 2009 Annual Report to Congress 
134-54.
    \57\ See Internal Revenue Service Fiscal Year 2016 President's 
Budget 81 (Feb. 2, 2015),
available at http://www.treasury.gov/about/budget-performance/CJ16/02-
06.%20IRS%20FY%20
2016%20CJ.pdf.
    \58\ There were originally 15 foreign tax attache posts. On 
November 30, 2014, the IRS closed its Beijing office. The IRS closed 
tax attache offices in Frankfurt, Germany; London, UK; and Paris, 
France, on June 26, 2015, Sept. 19, 2015, and Dec. 26, 2015, 
respectively.
    \59\ Because taxpayers calling abroad may have to pay long distance 
toll charges, the international taxpayer assistance line is not 
considered a free option.
    \60\ ETLA allowed the IRS to learn directly from taxpayers what 
problems and questions they had and how it needed to update its 
webpages and publications to provide the necessary information.
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    The elimination of these essential services could not come at a 
worse time, as taxpayers abroad are facing unique challenges in 
complying with their obligations under the Foreign Account Tax 
Compliance Act (FATCA),\61\ Foreign Bank and Financial Accounts (FBAR) 
reporting rules,\62\ and the Affordable Care Act (ACA).\63\ The 
combined effect of more requirements and less support is that over 8.7 
million U.S. citizens living abroad,\64\ over 170,000 U.S. military 
service personnel and their families,\65\ and hundreds of thousands of 
students and foreign taxpayers with U.S. tax obligations \66\ who 
benefitted from the tax attache offices are left with the options of 
obtaining all their information from IRS.gov Web pages or calling the 
IRS toll line in the United States.\67\
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    \61\ FATCA was passed as a part of the Hiring Incentives to Restore 
Employment Act, Public Law No. 111-147, 124 Stat. 71 (2010) (adding 
Internal Revenue Code (IRC) Sec. Sec. 1471-1474 & 6038D).
    \62\ See 31 U.S.C. Sec. Sec. 5314, 5321; 31 C.F.R. 
Sec. Sec. 1010.350, 1010.306(c); FinCEN Form 114, Report of Foreign 
Bank and Financial Accounts (FBAR), http://www.fincen.gov/forms/
bsa_forms.
    \63\ The Patient Protection and Affordable Care Act of 2010 (ACA), 
Public Law No. 111-148, 124 Stat. 119 (2010) (codified in scattered 
sections of the U.S. Code), as amended by the Health Care and Education 
Reconciliation Act of 2010, Public Law No. 111-152, 124 Stat. 1029 
(2010).
    \64\ The Department of State estimates that 8.7 million U.S. 
citizens live abroad and more than 80 million U.S. citizens travel 
abroad annually. U.S. Department of State, Bureau of Consular Affairs 
(April 2015), https://travel.state.gov/content/dam/travel/
CA%20by%20the%20Numbers-%20May%202015.pdf (last visited on Mar. 7, 
2016).
    \65\ U.S. Department of Defense, Defense Manpower Data Center, Ref. 
No. DRS #54601, Total Military Personnel and Dependent End Strength By 
Service, Regional Area, and Country--Military (as of Sept. 30, 2015), 
available at https://www.dmdc.osd.mil/appj/dwp/dwp_reports.jsp (last 
visited on Mar. 7, 2016).
    \66\ National Taxpayer Advocate 2015 Annual Report to Congress 81. 
Since 2011, the National Taxpayer Advocate has recommended establishing 
international Local Taxpayer Advocate offices at four locations abroad. 
See also National Taxpayer Advocate 2013 Annual Report to Congress 213; 
National Taxpayer Advocate 2009 Annual Report to Congress 183.
    \67\ Over half of taxpayers may be unable to reach an IRS employee 
on the toll-free phone lines this year. The Commissioner of Internal 
Revenue recently estimated the level of service on the toll-free phone 
lines for the entire filing season would ``probably be at or above 65 
percent,'' and the level of service for the full year would be ``around 
47 percent.'' John A, Koskinen, Commissioner of Internal Revenue, 
Address Before the National Press Club (Mar. 24, 2016), available at 
https://www.irs.gov/uac/March-24-2016-Commissioner-Koskinen-Speech-to-
National-Press-Club. See also IRS, Contact My Local Office 
Internationally, http://www.irs.gov/uac/Contact-My-Local-Office-
Internationally; National Taxpayer Advocate 2013 Annual Report to 
Congress 205-213.
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    Moreover, by eliminating ETLA and R-mail, the IRS has shut itself 
off from taxpayers with no way of knowing (unless a taxpayer makes a 
mistake and the IRS selects his or her return for audit) whether it is 
providing the service taxpayers need. In fact, the IRS is limiting the 
opportunity for interaction and will no longer be able to learn 
firsthand what taxpayers need. Without a two-way dialogue, information 
will be filtered and the IRS will decide what it thinks taxpayers need, 
instead of hearing what information taxpayers want and need.
    I am very concerned about the inability of taxpayers to access IRS 
services from abroad given the overwhelming complexity of the 
international tax rules and reporting requirements and the potentially 
devastating penalties for even inadvertent noncompliance.
    In addition to re-opening the four recently closed IRS tax attache 
offices, the IRS could help meet the service needs of international 
taxpayers by establishing International Local Taxpayer Advocate (LTA) 
offices abroad. TAS is statutorily required to assist taxpayers who 
experience significant hardships in resolving problems with the IRS, to 
identify areas in which taxpayers are experiencing problems in dealing 
with the IRS and, to the extent possible, to propose changes in the 
administrative practices of the IRS to mitigate the problems 
identified.\68\ TAS is the only IRS function exclusively devoted to 
resolving taxpayer issues with the IRS.\69\ Establishing Taxpayer 
Advocate offices abroad would ensure that the IRS's international 
policies, processes, and procedures protect the taxpayer rights to be 
informed, to quality service, and to a fair and just tax system,\70\ 
and encourage future compliance by taxpayers dealing with the 
complexity and procedural burden of the international tax rules.
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    \68\ IRC Sec. 7803(c)(2)(A)(i)-(iii).
    \69\ See generally IRC Sec. Sec. 7803; 7811. See also IRS Pub. 1, 
Your Rights as a Taxpayer. The law requires at least one LTA in each 
State. International taxpayers cannot access TAS's toll-free telephone 
number from abroad.
    \70\ The rights contained in the Taxpayer Bill of Rights (TBOR) 
that was adopted by the IRS are now listed in the Internal Revenue 
Code. See Consolidated Appropriations Act, 2016, Public Law No. 114-
113, Division Q, Title IV, Sec. 401(a) (2015) (codified at IRC 
Sec. 7803(a)(3)).

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Recommendations

    I recommend that the IRS take the following actions:

  --Reopen and provide funding for its four tax attache offices abroad;
  --Reestablish the ETLA (or a similar program) with timeframes for 
        responses and create a process for using the information from 
        ETLA inquiries in updates to IRS internal and external 
        materials, including the IRS.gov Web site; and
  --Provide funding for and require the IRS to establish Local Taxpayer 
        Advocates in four locations throughout the world, based on 
        where there is there is the greatest taxpayer need or 
        concentration of U.S. taxpayers.

VI.  The IRS Lacks an Appeals Presence in 12 States and Puerto Rico, 
        Depriving Many Taxpayers of Timely and Equitable Face-to-Face 
        Hearings.

    Congress has long recognized that ``all taxpayers should enjoy 
convenient access to Appeals, regardless of their locality.'' \71\ An 
independent and unbiased Appeals function provides a place for 
taxpayers to turn when they disagree with a preliminary IRS 
determination.\72\ Convenient access to an appeal is not only an 
important element of taxpayer rights, but contributes to the goal of 
more timely and efficient resolution of disputes between taxpayers and 
the IRS, and increases overall tax compliance.\73\
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    \71\ S. Rep. No. 105-174, at 92 (1998). See also Internal Revenue 
Service Restructuring and Reform Act, Public Law No. 105-206, Title 
III, Subtitle E, Sec. 3465(b), 112 Stat. 685,768 (1998).
    \72\ See, e.g., 144 Cong. Rec. S7639 (daily ed. July 8, 1998) 
(statement of Sen. Jeffords).
    \73\ S. Rep. No. 105-174, at 92 (1998). See also Melinda Jone and 
Andrew J. Maples, Mediation as an Alternative Option in Australia's Tax 
Disputes Resolution Procedures, 27 Australian Tax Forum, (2012).
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    Despite continued warnings from the National Taxpayer Advocate 
regarding the detrimental effects resulting from the unavailability of 
Appeals Officers, the IRS, based on data provided to TAS, has 12 States 
completely lacking a permanent Appeals presence.\74\ The States lacking 
both an Appeals Officer and a Settlement Officer are depicted in the 
following map: \75\
---------------------------------------------------------------------------
    \74\ See National Taxpayer Advocate 2014 Annual Report to Congress 
46-54; 311-14. See also National Taxpayer Advocate 2009 Annual Report 
to Congress 346-51.
    \75\ According to the IRS, the following States lack both Appeals 
Officers and Settlement Officers: Alaska, Arkansas, Delaware, Idaho, 
Kansas, Montana, North Dakota, New Mexico, Rhode Island, South Dakota, 
Vermont and Wyoming. As of 2014, the following States had at least one 
Appeals Officer but no Settlement Officers: Hawaii, Iowa, Maine, and 
West Virginia. We originally were given this list in connection with 
the National Taxpayer Advocate 2014 Annual Report to Congress. See 
Appeals' Response to TAS information request (Aug. 5, 2014). In 
preparing this statement, we contacted the Office of Appeals to attempt 
to validate that the data remains current. Initially, we were told 
there is now an Appeals Officer in Arkansas, and we were given a 
spreadsheet showing the number of Appeals Officers in each State. 
However, we were able to determine that the individual in Arkansas 
holds the title of Appeals Officer but is serving as a technical 
advisor to the Area Director and does not hear taxpayer cases. It is 
therefore possible there are other States where Appeals Officers are 
listed as resident but do not hear cases. We have not obtained updated 
information regarding the States that have Appeals Officers but not 
Settlement Officers.




    This lack of an Appeals presence in each State is potentially 
prejudicial to impacted taxpayers, as they or their representatives can 
be forced to travel great distances if they wish to present their 
Appeals case in person (e.g., taxpayers from Arkansas typically must 
either wait for Appeals personnel to ride circuit in Arkansas or travel 
to Oklahoma City or Dallas for a more timely face-to-face conference). 
Without face-to-face interaction, it can be difficult for Appeals to 
judge credibility, which in turn can generate extended resource-
draining controversies with taxpayers. By contrast, Appeals Officers 
who are well versed in the local industries and economic circumstances 
prevailing within a particular region can be indispensable for 
preserving both the appearance and the reality of fair and equitable 
treatment.\76\
---------------------------------------------------------------------------
    \76\ National Taxpayer Advocate 2014 Annual Report to Congress 311; 
National Taxpayer Advocate 2009 Annual Report to Congress 76.

---------------------------------------------------------------------------
Recommendation

    I recommend that Congress take the following action:

  --Require the IRS to permanently assign at least one Appeals Officer 
        and Settlement Officer in each State, the District of Columbia, 
        and Puerto Rico.

VII.  The IRS Requires Funding to Upgrade and Streamline its 
        Information Technology Systems, Particularly its Case 
        Management Systems, in Order to Meet Taxpayer Needs and Improve 
        Productivity.

    In my testimony before this subcommittee last year, I noted that 
the IRS's information technology (IT) systems, and particularly its 
case management systems, required an investment of funding to permit 
real improvements and productivity gains. I believe that this need for 
IT funding is even more pressing for the upcoming fiscal year.

            A. ECM in General

    The IRS is currently undertaking an assessment of its case 
management systems as part of a comprehensive project to create a 
servicewide enterprise case management (ECM) solution. I use the term 
``case management'' in a comprehensive sense to refer to electronic 
recordkeeping systems the IRS uses to track information about 
interactions with respect to taxpayers' tax returns or other tax-
related matters. These systems include audit and collection case 
records for individuals and large, medium, and small businesses; exempt 
organization determinations; whistleblower claims; automated 
substitutes for returns; the automated underreporter (AUR) program; 
criminal investigations; and the Taxpayer Advocate Service case 
management system.
    ECM offers a future vision for consolidated case management that 
will address the need to modernize, upgrade, and consolidate multiple 
aging IRS systems. The IRS now supports approximately 200 such systems, 
few of which communicate with one another and none of which provides an 
electronic substitute for the paper case file (i.e., there are reams of 
paper supplementing whatever records are included in the electronic 
system).\77\ The IRS's current case management system structure 
requires employees to:
---------------------------------------------------------------------------
    \77\ Email from Director, Enterprise Case Management to TAS Acting 
Deputy Executive Director, Case Advocacy (Intake & Technical Support) 
(Mar. 11, 2016).

  --Retrieve data from many systems manually;
  --Maintain both paper and electronic records;
  --Transcribe or otherwise import information from paper and other 
        systems into their own case management systems; and
  --Ship, mail, or fax an estimated hundreds of thousands, if not 
        millions, of case management files and supporting documents 
        annually for management approval, quality review, and responses 
        to Appeals and Counsel.

    The ECM solution involves developing a common infrastructure for 
multiple projects to share. Implementation of the solution will provide 
the IRS with a consistently efficient approach to case management 
across all business units. While I agree that the IRS needs a 
servicewide ECM solution and am very supportive of such efforts, I am 
concerned about the IRS's failure to leverage the comprehensive work 
already completed in creating Taxpayer Advocate Service Integrated 
System (TASIS).

            B.  The Taxpayer Advocate Service Integrated System

    As I discussed in my testimony before this subcommittee last year 
and in several of my past Objectives Reports to Congress, TASIS is a 
versatile case management system that would replace TAS's current 
antiquated Taxpayer Advocate Management Information System (TAMIS). 
While ECM focuses on case selection and work assignment capabilities, 
among other things, TASIS focuses on case intake and case-building 
functions, creating virtual case files with data auto-populated from 
other IRS systems and information transmitted electronically between 
functions for review and action. Once TASIS is completed, the IRS can 
incorporate elements of TASIS into core ECM for use by other IRS 
business units, including the Exempt Organization function, Appeals, 
the Whistleblower Office, and the Innocent Spouse, Identity Theft, and 
Offer in Compromise units.
    When TAS learned that TAMIS was slated for retirement, it 
capitalized on the opportunity to integrate all of its systems and 
business processes into a single state-of-the-art application. TAS 
developed over 4,000 business requirements for the case management 
system aspect of TASIS functionality, including:

  --Fully virtual case files, in which all documentation (whether IRS 
        or taxpayer-generated) will be scanned or received digitally 
        into an electronic case file;
  --Electronic access to other IRS case-management systems, with 
        automatic retrieval of taxpayer information programmed into the 
        system and no further need for TAS employees to obtain and 
        import the information manually;
  --Electronic submission and tracking of Operations Assistance 
        Requests (OARs), including receipt, acknowledgement, 
        assignment, and response, in which TAS sends requests, with 
        supporting documentation, to IRS functions to take actions on 
        cases, eliminating delays and time-wasting manual tracking;
  --Full access to all virtual case information for purposes of 
        management and quality review, eliminating the delay and cost 
        associated with transporting files;
  --Taxpayer (and representative) ability to submit Form 911, Request 
        for Taxpayer Advocate Service Assistance (And Application for 
        Taxpayer Assistance Order), electronically;
  --Taxpayer (and representative) ability to submit documentation 
        electronically;
  --TAS and taxpayer (and representative) ability to communicate 
        digitally, through email and text messages, including both 
        substantive case information and reminders to help move the 
        case along;
  --Taxpayer (and representative) ability to electronically check the 
        status of a case in TAS and see what actions have been taken or 
        are underway; and
  --An electronic case assignment system that matches, in real time, 
        the complexity and direct time associated with the case with 
        the skills and available direct time associated with each case 
        advocate in any given office, taking into account an employee's 
        unavailability because of annual leave, sick leave, training, 
        or on-the-job instruction, eliminating delays in assignment, 
        and minimizing the need to transfer cases.

    These are just some of the capabilities contained within the TASIS 
Business System Requirements Report, which collectively illustrates the 
TASIS case management component will not just replace TAMIS but will 
significantly increase the productivity of TAS case advocates because 
they will no longer spend their valuable time tracking down paper 
documents or inputting information into multiple systems. Moreover, 
taxpayers will be able to communicate efficiently with TAS and 
electronically send key case information and documents. This 
functionality will enable our case advocates to spend their time 
advocating for taxpayers, rather than performing manual input and 
tracking documents and IRS actions.
    TASIS began the transition from concept to reality in 2014 when an 
early prototype was rolled out for informal testing. Based on those 
test results, TAS was just months away from deploying the complete 
application. In March 2014, however, the IRS IT function notified TAS 
executives that TASIS would no longer be supported due to budget 
constraints.
    This decision was a significant setback for TAS's case advocates 
and therefore for the taxpayers they serve. Moreover, even apart from 
supporting TAS's critical work, the foundation built through TASIS can 
benefit the IRS's ECM improvement efforts. Because TAS has a working 
knowledge of almost all other IRS case management systems, we designed 
TASIS to serve as the basic system upon which other IRS divisions could 
add modules and functionality to meet their specific needs. Thus, the 
time, planning, development, and programming that TAS and IT have 
invested in TASIS can benefit all of the IRS.
    At present, it is not clear the extent to which TASIS objectives 
will be included in the ECM plan or how TASIS will impact or align to 
the ECM solution. Yet the Senate Appropriations Committee has 
recognized the importance of TASIS and included it on its list of six 
``major information technology project activities'' about which it 
directed the IRS to submit quarterly status reports.\78\
---------------------------------------------------------------------------
    \78\ See S. Rep. No. 114-97, at 39 (2015); S. Rep. No. 113-80, at 
34 (2013). In 2014, a similar provision was included in the Senate 
Appropriations Committee's draft report, but the draft report was not 
adopted for that year.
---------------------------------------------------------------------------
    Unfortunately, as I mentioned above, because of budget constraints 
impacting the IRS's IT function, all IT activity on TASIS has come to a 
halt. To date, about $20 million--about 62.5 percent of the total 
estimated cost--has been invested in TASIS Release 1, and about 70 
percent of the programming is complete. We are ready to begin the final 
programming as soon as funds are available. At the time the project was 
halted, it was estimated that 6 months and $12 million would be needed 
to complete Release 1 programming, testing, and launch. At this time, 
despite the demonstrated savings of TASIS and its benefits for all of 
the IRS, no funds are allocated to TASIS. If TASIS is not funded to 
completion, TAS will be forced to invest time and funds in upgrading 
TAMIS. This would be extremely wasteful, and would fail to provide 
TAS's case advocates with the tools they need to assist taxpayers in 
resolving their problems with the IRS.
    As I stated last year, I believe that the design and implementation 
of TASIS is critical not only for TAS but to the IRS's ability to move 
forward and begin to harness the savings and burden reduction that a 
sophisticated case management system promises. For that to happen, the 
IRS requires sufficient IT funding to invest in new systems that have 
great promise. TASIS is one such program.

Recommendations

    I recommend that Congress take the following actions:

  --Provide that a portion of the funds in the IRS Business Systems 
        Modernization (BSM) account shall be spent to complete the 
        programming, testing, and deployment of TASIS as well as to 
        maintain its long-term functionality.
  --Provide additional information technology funding for the IRS to 
        upgrade and streamline its enterprise case management systems.

VIII.  Conclusion

    The recent reductions in the IRS budget at the same time that the 
IRS has been given significant new responsibilities under FATCA and the 
ACA are placing a significant strain on the agency's performance. 
Simply put, the IRS is failing to adequately meet the service needs of 
U.S. taxpayers. To address this problem, the IRS will need more 
resources to answer taxpayer telephone calls, process and respond to 
taxpayer correspondence, assist taxpayers who seek assistance in its 
walk-in sites, and modernize its IT systems.
    In the meantime, the IRS can take steps to serve taxpayers more 
effectively by giving greater priority to certain programs and 
improving its resource-allocation decisions. In this statement, I have 
tried to offer some reasonable and actionable recommendations to help 
in this regard.

    Senator Boozman. I want to thank Senator Coons and his 
staff, my staff, for their hard work in preparing for the 
hearing today. We appreciate you being here, appreciate your 
hard work on behalf of the American people.

                     ADDITIONAL COMMITTEE QUESTIONS

    If there are no further questions, the hearing record will 
remain open until Tuesday, March 15, at noon for subcommittee 
members to submit their statements and questions to the 
witnesses for the record.
    [The following questions were not asked at the hearing, but 
were submitted to the Departments for response subsequent to 
the hearing:]
                Questions Submitted to Hon. Jacob J. Lew
              Questions Submitted by Senator John Boozman
    Question. Recently, the Arkansas Bankers Association, the American 
Bankers Association, and bankers associations from every State in the 
country wrote a letter to you with implementation and compliance 
questions regarding the National Flood Insurance Program. The 
associations noted the helpful meeting that Treasury convened in 
December last year. When will you convene a follow up meeting so that 
the bankers in my State will know how to answer the important flood 
insurance questions that people in my State are asking?
    Answer. Treasury's Federal Insurance Office (FIO) and the Federal 
Emergency Management Agency (FEMA) of the Department of Homeland 
Security, which administers the National Flood Insurance Program 
(NFIP), have co-hosted two stakeholder engagement sessions.
    As you note, the first session addressed challenges confronted by 
lenders with respect to implementation of and compliance with the 
mandatory purchase of flood insurance requirements. We are pleased that 
you found this to be a helpful discussion.
    The second joint FIO-FEMA stakeholder session addressed questions 
regarding the education of insurance agents and brokers, and consumers, 
with respect to the NFIP, and the challenge of increasing the purchase 
of flood insurance throughout the United States.
    We recognize the importance of flood insurance to property owners 
throughout the United States, and to the lenders who often provide 
financing in support of the purchase of residential and commercial 
property. For this reason, although dates have not been set, FEMA 
intends to continue the stakeholder outreach in order to improve NFIP 
coverage and to promote awareness and understanding of the NFIP. In 
addition, Treasury and FEMA will continue outreach to the lender 
community.
    Question. Many financial institutions are in the process of 
severing ties with businesses or individuals considered high-risk, due 
to pressure from regulators. If a potential customer or business is a 
small part of the overall business for the financial institution, it 
becomes difficult to justify the regulatory costs of continuing to do 
business with customers whose businesses involve cash, remittances, or 
money service businesses. What can Treasury and the Financial Crimes 
Enforcement Network (FinCEN) do to better target regulations to address 
valid security concerns while avoiding unnecessary regulatory burdens?
    Answer. Treasury is focused on both safeguarding the financial 
system from abuse and promoting financial inclusion. Banks that have 
terminated relationships or limited specific types of banking services 
in recent years have articulated a number of drivers, including 
profitability concerns, macroeconomic factors, and heightened 
prudential requirements, as well as challenges with anti-money 
laundering and combating the financing of terrorism (AML/CFT) 
compliance, including poor implementation of AML/CFT standards in some 
foreign jurisdictions. Often, decisions are based on a combination of 
these factors. Treasury is working across a number of fronts to address 
those factors that we can affect. First, we are working to ensure that 
U.S. AML/CFT regulations are appropriately balanced and clearly 
understood. Treasury develops these regulations to address valid 
security and law enforcement concerns in a manner that ensures key 
stakeholders, including the private sector, have the opportunity to 
provide essential feedback necessary to developing effective and 
targeted AML/CFT regulations. U.S. financial institutions are also 
expected to implement AML/CFT regulation in a risk-sensitive manner, 
which means that financial institutions should seek to assess risk and 
then manage that risk as appropriate. Second, Treasury's Office of 
Technical Assistance has advisors working with 17 countries across the 
globe to help improve those countries' compliance with global AML/CFT 
standards. Third, Treasury pursues a number of multilateral efforts--
including through the Financial Action Task Force--to help shape 
international AML/CFT standards and to ensure that those standards are 
well understood and applied consistently. The stronger the 
implementation is of international AML/CFT standards by jurisdictions 
and financial institutions, the more comfortable U.S. banks' will be in 
providing financial services to them.
    Question. Financial institutions in my State have a number of 
implementing issues that still need to be clarified regarding the 
Volcker rule; including the nature of which funds are covered, the 
definition of ``market making,'' and others. However, the Volcker Rule 
is administered by 5 independent agencies (the Federal Reserve, FDIC, 
Office of the Comptroller of the Currency, the SEC, and the CFTC), each 
of which is reluctant to provide written guidance without sign off by 
all of the other agencies. As a result, there has been uncertainty and 
the likelihood of inconsistent application among the regulators. What 
is the Treasury Department doing to ensure that these agencies work 
together and give timely and accurate answers to financial institutions 
with implementation questions?
    Answer. The Volcker Rule is a key part of the Dodd-Frank Act that 
helps to ensure that banking organizations are focused on serving their 
clients rather than risky trading activities. The statute required the 
rule to be implemented by five different regulatory agencies. The 
Chairperson of the Financial Stability Oversight Council (FSOC) also 
had a statutory role to coordinate the regulation, and we have been 
closely monitoring the implementation of the Volcker Rule as it comes 
into effect. The agencies have taken important steps to respond to 
questions and comments about the rule, and the Treasury Department 
regularly seeks input from stakeholders about the rule's effects. But I 
would defer to the five agencies with respect to any particular 
questions about the implementation of their regulations.
    Question. It is my understanding that several of the companies 
designated by the FSOC for systemic risk regulation do not fully 
understand the basis for their designation. If a company may pose a 
systemic risk, shouldn't FSOC make it clear what activities, practices, 
or operations generate that risk so the company has the ability to 
eliminate or mitigate that risk?
    Answer. Each designated company receives a lengthy and detailed 
explanation of the basis for its designation by FSOC. These 
explanations can include hundreds of pages of company-specific analysis 
that identify specific risks arising from factors such as counterparty 
exposures and potential fire sale risks. This information allows each 
company to make informed decisions regarding potential changes it could 
make if it were to seek a rescission of its designation. For example, 
for one of the companies that was designated, the FSOC spent almost a 
year and a half conducting its analysis after beginning its engagement 
with the company. The Council considered more than 21,000 pages of 
materials submitted by the company, and staff of FSOC members and 
member agencies met with representatives of the company 13 times. The 
FSOC's evaluation, which considered the company's views and 
information, culminated in a detailed and lengthy analysis (over 300 
pages) that the FSOC shared with the company following the proposed 
designation and before a vote on a final designation.
    Question. Treasury has been criticized for a lack of clarity 
regarding FSOC designations and a lack of clarity on how to de-risk 
after receiving a Systemically Important Financial Institution (SIFI) 
designation. How has Treasury responded to these criticisms, and has 
Treasury made any changes to address the criticism it has received?
    Answer. FSOC has been data-driven and deliberate in its work to 
evaluate nonbank financial companies for potential designation for 
Federal Reserve supervision and enhanced prudential standards. FSOC 
established a robust and transparent process for designations. It 
issued a rule and guidance on the designations process that included 
three separate rounds of public comment, even though FSOC was not 
required to conduct a rulemaking. In addition, FSOC has consistently 
demonstrated its willingness to periodically examine its activities and 
adopt appropriate reforms. Last year, after months of engagement with 
representatives of previously designated companies, industry, public 
interest groups, the GAO, and Congressional staff, FSOC adopted 17 
changes to its designations process that address the three key themes 
identified by stakeholders: earlier engagement with companies under 
review for potential designation, increased transparency to the public 
about designations, and stronger engagement with designated firms 
during FSOC's annual reviews of their designations. Those process 
changes also provide each designated company with an opportunity to 
meet with staff every year to discuss the FSOC's annual reevaluation of 
the company's designation. One company recently said publicly that the 
enhancements to the annual review process have been helpful in this 
respect.
    FSOC has also provided to Congress and posted on its Web site an 
explanation of its basis for each final determination, and has provided 
each of the designated companies with lengthy analyses describing 
FSOC's evaluation of that firm. Each company had many months and 
extensive opportunities to engage with FSOC and its staff, and the 
opportunity to understand and respond to the key factors underpinning 
FSOC's analysis before FSOC's vote on a final designation. FSOC is 
committed to conducting its business in an open and transparent manner 
but must also protect confidential, company-specific information as 
required by law.
                                 ______
                                 
           Question Submitted by Senator Christopher A. Coons
    Question. Right now, long term interest rates are the lowest they 
have been in generations. As our debt grows, net interest costs are 
estimated to skyrocket over the next decade. What is Treasury doing now 
to lengthen the average maturity rates of our debts in order to lock in 
the current low rates for our children and our children's children?
    Answer. Since the depths of the financial crises Treasury has 
extended the weighted average maturity (WAM) of all Treasury debt 
outstanding from 49 months to 69 months. The chart below illustrates 
this. The average maturity of debt is near highs not seen in nearly 15 
years.




    In November 2015, Treasury announced that it would increase bill 
issuance over coming quarters. The increase in bill issuance was 
designed to help achieve the debt management objective of lowest cost 
of funding over time and also enhance Treasury market functioning and 
liquidity, particularly in the short-end of the Treasury market.
    The increase in bill issuance was largely expected by market 
participants. For several quarters, beginning in May 2015, Treasury 
stated intentions to increase bill issuance. The decision to increase 
bill issuance was delayed until November 2015 due to concerns about the 
capacity to implement the increase in bill issuance in the face of debt 
limit constraints.
    Treasury's desire to increase bill issuance reflects the ongoing 
supply and demand dynamics in the front end of the Treasury market. 
Over the last several years, as a result of Treasury's decision to 
rapidly increase in the average maturity of debt outstanding and 
declining deficits, the supply of bills outstanding as a percentage of 
the total Treasury portfolio declined to a multi-decade low of 
approximately 10 percent. Meanwhile, demand for Treasury bills, driven 
by money fund reform and other macro prudential regulations, remains 
high and is expected to continue to grow.
    Given Treasury's projected financing needs over the next few years 
and the desire to maintain the existing auction schedule, Treasury 
announced in February 2016 modest reductions to the issuance size of 
some coupon securities and Treasury Inflation Protected Securities 
(TIPS) in order to accommodate increased bill issuance. Despite the 
increase in bill issuance and the modest reductions to coupon and TIPS 
issuance, the WAM of outstanding Treasury debt will continue to 
increase, albeit at a slower pace.
                                 ______
                                 
               Questions Submitted by Senator Jerry Moran
    Question. 17 States (beginning with Kansas in 2000) have passed 
laws allowing those States to escheat title to matured, unredeemed U.S. 
savings bonds that have been abandoned. I understand that four 
additional States are right now in the process of passing the same 
legislation. Those States then use their abandoned-property statutes to 
return redeemed bond proceeds to the original owners. In contrast with 
these State-law mechanisms, the Treasury Department appears to lack any 
meaningful process for contacting owners of matured bonds--even for 
bonds that matured decades ago.
    I understand that Treasury holds the proceeds of over 50 million 
matured and unredeemed U.S. savings bonds worth $17 billion, many of 
which have been fully matured for decades. Once matured, these bonds 
are, at best, an interest-free loan to Government from its citizens or, 
at worst, an unintended gift in cases where the bond owner or his/her 
heirs lack the necessary information to identify and redeem the bond. 
What steps is the Department taking to repay this long overdue debt?
    Answer. The United States Treasury has sold savings bonds since 
1935. All matured savings bonds are in definitive (paper) format. Since 
1935, Treasury has required the owner of a paper savings bond to 
present the bond for payment, or to establish that the bond has been 
lost, stolen, destroyed, or mutilated. When the owner requests 
redemption, Treasury retires the debt from a paper savings bond; there 
is therefore, no ``Overdue'' debt.
    The procedure for requesting redemption is simple. Paper bonds may 
be redeemed at a local paying agent or by sending them to the 
Department of the Treasury's Retail Securities Site. Treasury's savings 
bond regulations describe the rules governing the redemption of savings 
bonds, and further information is available on Treasury's Web site at 
www.treasurydirect.gov. Customer service representatives are available 
by email, telephone, and U.S. mail to answer questions about savings 
bonds, including the redemption process. In 2015, the Savings Bond 
program handled approximately 860,030 customer service inquiries on a 
variety of topics, and redeemed approximately 24 million paper savings 
bonds valued at $9.71 billion.
    Question. I understand Treasury has only partially ``digitized'' 
the hundreds of thousands of reels of microfilm that hold ownership 
information of U.S. savings bonds, and that even the digitized data is 
``not searchable,'' but is simply a digital image of the microfilm. 
Does the state of Treasury's recordkeeping limit its ability to contact 
the owners of the over 50 million matured but unredeemed U.S. savings 
bonds? Can searches be done by last known address and/or by State where 
purchased?
    Answer. Treasury has sold U.S. savings bonds continuously since 
1935. The records and record systems allow Treasury to fulfill its 
obligation to redeem savings bonds presented for payment and to answer 
inquiries from saving bond owners when the owner provides necessary 
identifying information.
    Treasury has undertaken efforts in the past to contact owners to 
inform them that their bonds have matured, and posted information on 
its Web site that assists owners in determining whether they have 
matured bonds. Treasury has also conducted broad outreach efforts 
through public service announcements, media outreach, trade shows, 
conferences and periodic mass mailings to savings bond owners. Through 
some of these efforts, Treasury has learned that a high percentage of 
savings bond owners are aware that their bonds have matured and have 
elected not to redeem them at the present time.
    People who cannot locate their paper bonds can use the Department 
of the Treasury's Web-based TreasuryHunt application, which allows 
them to search for matured, unredeemed bonds that were issued since 
1974 and registered to them. If a search is successful, the system 
alerts searchers of a potential match and directs them to fill out and 
submit an electronic form to redeem a bond in their possession or to 
file a claim for a lost, stolen, or destroyed bond. In 2015, 700,000 
visits to the TreasuryHunt site yielded 41,000 matches. Although 
individuals can use TreasuryHunt to find bonds registered to their 
Social Security Numbers, they cannot search by State or locality. To 
further help individuals with matured bonds, Treasury ensures updated 
information and tools are maintained on its Web sites (e.g., the 
Savings Bond Wizard for pricing redemption values).
    Question. It has been brought to my attention that the Department 
changed its rules governing State escheatment of matured, unredeemed 
U.S. savings bonds. Breaking with the long-held view that the 
Department was required to recognize valid State judicial proceedings, 
the new rules now say that State title ``will not be recognized'' 
except as a matter of the Department's ``discretion.'' Is this in fact 
the case?
    Answer. Treasury issued a notice of proposed rulemaking in July 
2015 to address a growing number of State escheat claims for savings 
bonds. After considering public comments, Treasury published a final 
rule amending the savings bond regulations in December 2015. The final 
rule is available at 80 FR 80,258 (Dec. 24, 2015).
    The final rule is consistent with Treasury's longstanding view that 
savings bond ownership is a matter of Federal law, and that Treasury 
will not recognize State judicial proceedings that interfere with these 
ownership rights. The preamble to the final rule addresses the topic of 
State escheat claims in detail. For your convenience, a copy of the 
preamble and final rule is attached.
                                 ______
                                 
            Questions Submitted by Senator Richard J. Durbin
    Question. The Community Development Capital Initiative (CDCI) was 
created as part of the Treasury Department's TARP Bank Investment 
Program. The CDCI was intended to provide low-cost capital to Community 
Development Financial Institutions (CDFIs) and financial stability to 
mission focused institutions and the distressed communities they serve.
    A January 2015 Special Inspector General report found that Treasury 
went to great effort to ensure the largest banks were allowed exit 
strategies from TARP that were favorable and ensured no harm to the 
institutions. However, smaller community banks were not given the same 
opportunities.
    In the case of the CDCI program, CDFI banks have been treated even 
more unfavorably. Treasury has not presented a written plan, committed 
to a specific strategy for resolution, or indicated a timeline for 
resolution for these banks.
    What is the Treasury's plan for the resolution of the CDCI 
portfolio?
    Answer. The CDCI program was designed to help stabilize viable 
certified CDFIs providing banking services to underserved communities 
through capital investments with an initial dividend rate of 2 percent 
per annum (compared to the 5 percent rate offered under the Capital 
Purchase Program). To encourage repayment while recognizing the unique 
circumstances facing CDFIs, the dividend rate will increase to 9 
percent after 8 years, compared to 5 years under CPP. To date, 25 of 
the 84 CDCI participants have repaid the Treasury. With regards to the 
remaining CDCI portfolio, to date only 2 of the institutions are not 
current on dividends and the CDCI banks continue to build capital 
through retained earnings allowing them to better serve their 
communities.
    The institutions within the CDCI program have the option, with 
regulatory approval, to repay their investments in whole or in part at 
any time, and Treasury routinely accepts such repayments and expects to 
continue doing so.
    Question. How will the plan ensure that resolution neither creates 
instability or hardship to the institution and the communities they 
serve?
    Answer. Participating CDCI institutions have been able to 
accumulate additional capital since the program's inception, and all 
but two participating institutions are current on dividend payments. 
The duration of these investments as well as the interest and dividend 
deferral features were designed to promote stability. In addition, in 
order to protect the taxpayers' interest in the value of an investment 
and to promote the objectives of EESA, if an institution is financially 
distressed, Treasury can restructure that investment in a way that 
facilitates strategic capital actions by the institution.
    Question. If you do not have a plan, will you commit to develop and 
implement one by the end of 2016?
    Answer. Treasury is continuing to closely monitor the performance 
of the CDCI institutions and make decisions regarding the program's 
wind-down as appropriate.
                                 ______
                                 
              Questions Submitted to Hon. John A. Koskinen
              Questions Submitted by Senator John Boozman
                           performance awards
    Question. For the past few years the IRS provided approximately $60 
million in employee bonuses each year. TIGTA previously found that 
awards were given to employees with tax compliance problems and other 
misconduct issue. How much did you pay out in employee awards for 
fiscal year 2015? Please provide a breakdown for bargaining unit 
employees, non-bargaining unit employees, managers, and SES.
    Answer. In order to protect the integrity of the IRS, screening for 
employee misconduct and discipline continues to occur prior to the 
payment of awards. Employees who have been determined to have violated 
Section 1203(b) provisions will not be eligible for performance awards, 
bilingual awards, Quality Step Increases, Performance Based Increases, 
or other monetary awards.
    Please see the table below providing data on the awards for fiscal 
year 2015.

                         IRS Performance Awards
------------------------------------------------------------------------
          Fiscal Year/Average Population              Fiscal Year 2015
------------------------------------------------------------------------
                      Bargaining Unit (BU)         $36,243,384
    # of awards..................................       36,737
    Average $....................................         $987
 
                              Manager (IR)          $8,042,219
    # of awards..................................        4,739
    Average $....................................       $1,697
 
                      Non-Bargaining (NBU)          $8,506,514
    # of awards..................................        5,262
    Average $....................................       $1,617
 
            Senior Executive Service (SES)          $1,540,868
    # of awards..................................          122
    Average $....................................      $12,630
------------------------------------------------------------------------
             Total (BU, NBU, Manager, SES)         $54,332,985.00
    # of Awards (BU, NBU, Manager & SES).........       46,860
    Average $ (BU, NBU, Manager & SES)...........    $1,159.47
------------------------------------------------------------------------
                  Total (BU, NBU, Manager)         $16,548,733
    # of Awards (BU, NBU, Manager)...............       46,738
    Average $ (BU, NBU, Manager).................       $1,163
------------------------------------------------------------------------


                    Chief Counsel Performance Awards
------------------------------------------------------------------------
          Fiscal Year/Average Population              Fiscal Year 2015
------------------------------------------------------------------------
                      Bargaining Unit (BU)          $1,068,549
    # of awards/average $........................  811/avg $1,318
 
                              Manager (IR)            $678,212
    # of awards/average $........................  250/avg $2,713
 
                      Non-Bargaining (NBU)            $459,107
    # of awards/average $........................  257/avg $1,786
 
            Senior Executive Service (SES)            $376,940
    # of awards/average $........................  35/avg $10,770
------------------------------------------------------------------------
                                     Total         $2,582,808.00
------------------------------------------------------------------------

                information technology & identity theft
    Question. The identity theft problem continues to plague the IRS. 
You recently announced 390,000 additional taxpayers were affected by 
the Get Transcript breach, bringing the total number of affected 
taxpayers to 724,000, while 101,000 attempts were successful at gaining 
access to an E-file PIN during a bot attack. In addition, the IRS shut 
down the Identity Protection Personal Identification Number (IP PIN) 
page so that it could review this tool and further strengthen its 
security features.
    TIGTA recommended IRS ensure the level of authentication on risk 
for all current and future IRS online applications accurately reflect 
the risk to the IRS and taxpayers and be in accordance with NIST 
standards.
    GAO has found that IRS only asks authentication questions of a 
small number of taxpayers to confirm their identities. GAO stated IRS 
has options for improving its tools for authenticating taxpayers.
    Why were these applications rolled out without proper risk 
assessments?
    Answer. As a matter of practice, we conduct risk assessments on all 
taxpayer-facing systems before they are deployed. Both Get Transcript 
and IP PIN completed risk assessments prior to launch and the IRS 
assigned them what was considered to be the appropriate level of 
assurance at the time. We follow Office of Management & Budget (OMB) 
Memorandum M-04-04, which states that all Federal agencies must conduct 
an e-authentication risk assessment on those systems that remotely 
authenticate users over a network for purposes of e-government and 
commerce to determine the required level of authentication assurance 
for the information system. We also work closely with organizations 
such as the National Institute of Standards and Technology (NIST) to 
ensure best practices are followed and solutions meet the appropriate 
guidelines, e.g., NIST SP 800-63-2.
    While compliance with NIST standards (e.g., NIST SP 800-63) is 
important, it is difficult for guidance to keep up with the latest 
cyber threats. In particular, the proliferation of easily accessible 
information about individuals in the past few years means that 
previously private, shared secrets are generally available for a price, 
legitimately or illegitimately.
    As a result, in addition to our efforts in complying with the 
latest guidance, we now are taking a risk-based approach in 
decisionmaking related to safeguarding taxpayer information, 
incorporating the latest cyber threats and vulnerabilities. This 
approach, used for the re-launch of the IRS's Get Transcript online 
service and the IP PIN application, includes a more rigorous identity 
proofing and e-authentication process for taxpayers, enhanced 
monitoring technologies and other strategies that will significantly 
increase protection against identity thieves impersonating taxpayers to 
access tax return information. We expect this authentication procedure 
to be used for other self-help services in the future.
    Question. Was the IP PIN page at risk of the same authentication 
concerns as Get Transcript? How many individuals attempted to retrieve 
their IP PINs through this site and subsequently found out they were 
victims of identity theft?
    Answer. Although the IP PIN application employed the same 
authentication process as Get Transcript prior to its relaunch, the IP 
PIN application does not reveal any personal taxpayer identification 
information. Instead, the IP PIN application enables certain taxpayers 
to obtain an optional IP PIN and provides service to IP PIN holders who 
have lost or misplaced their IP PIN and need it to file.
    Prior to the beginning of the 2016 filing season, we put procedures 
in place to mitigate the risk of potentially fraudulent use of the IP 
PIN application. Returns filed with an IP PIN obtained from the IP PIN 
application received extra scrutiny to verify that the return received 
was the true taxpayer's return. Although we implemented this additional 
layer of security and prevented fraudulent returns from posting to the 
true taxpayer's account, our ongoing monitoring processes quickly 
identified suspicious activity as it occurred. Thus, the IRS decided to 
discontinue offering services through the online IP PIN application 
until we could implement a strengthened authentication process.
    We relaunched the IP PIN application on July 19, 2016 with Level 3 
assurance after raising the risk assessment from moderate to high.
    The number of distinct taxpayers who viewed their IP PIN online 
between January 20, 2016 and March 7, 2016, was roughly 138,000. The 
additional scrutiny of returns filed with IP PINs obtained from the IP 
PIN application identified roughly 17,000 potentially fraudulent 
returns filed out of the 138,000 for which no improper refunds were 
issued.
    Question. What steps have you taken in response to TIGTA's & GAO's 
recommendation?
    Answer. We have established the IRS Identity Assurance Office. We 
are also developing an enterprise-wide Identity Assurance Strategy and 
Roadmap to ensure Secure Access meets the needs of the IRS and can 
manage data to enable taxpayers to access services through a variety of 
channels (e.g., online, phone, in-person). The Identity Assurance 
Strategy includes updating e-Authentication capabilities consistent 
with OMB policy and NIST standards. The Get Transcript and IP PIN 
applications currently employ these updated e-Authentication 
capabilities. We plan to complete development of the Identity Assurance 
Strategy by the end of calendar year 2016, with full implementation of 
the associated roadmap occurring over a period of several years.
    In support of our commitment to develop new strategies to protect 
taxpayer information, we have also worked closely with the Department 
of Homeland Security (DHS) and MITRE to perform extensive penetration 
testing to ensure integrity of our cybersecurity posture, including 
authentication. There is also a dedicated IRS team focusing exclusively 
on a cross-functional, enterprise-wide capability to provide secure 
account access to taxpayers. We plan to expand this new Secure Access 
capability to all applicable online applications applying the 
appropriate levels of assurance to each application as required by OMB 
policy and NIST guidelines. We are working with the US Digital Services 
(USDS) in building out this Secure Access capability, which we discuss 
in more detail below in our response to your question about the USDS's 
involvement in our Future State effort.
    Question. What is IRS's process for assigning risk levels for its 
electronic applications?
    Answer. We comply with both internal IRS policies and external 
Federal guidelines as a central tenet of our Identity Assurance 
Strategy. We follow OMB Memorandum M-04-04, which states that all 
Federal agencies must conduct an e-authentication risk assessment on 
those systems that remotely authenticate users over a network for 
purposes of e-government and commerce to determine the required level 
of authentication assurance for the information system. We also work 
closely with NIST and other agencies to ensure best practices are 
followed and solutions meet the appropriate guidelines, e.g., NIST SP 
800-63-2.
    Question. Please provide a status update on the Get Transcript 
application.
    Answer. On June 7, 2016, we relaunched our Get Transcript online 
service for taxpayers. The relaunched service has a more rigorous e-
authentication framework that incorporates the latest security updates 
consistent with OMB policy and NIST standards and was developed as part 
of the Identity Assurance Strategy. This framework has significantly 
increased protections against identity thieves impersonating taxpayers 
to access tax return information through the IRS Get Transcript 
service. The new security features require a taxpayer to have a text-
enabled mobile phone and ask the taxpayer specific financial account 
information, such as credit card number or certain loan account 
numbers. These features do require additional time and makes 
authentication more difficult for many users. As a result, many fewer 
taxpayers can successfully gain access to Get Transcript. We are 
working to increase the number of legitimate taxpayers who are able to 
use the automated service while ensuring that we provide adequate 
direction to taxpayers for the other ways in which they may obtain a 
transcript.
    Under the OMB policy and NIST standards mentioned above, we have 
redesigned the authentication process to meet Level 3 assurance, which 
requires multi-factor remote authentication techniques and applies to 
Web applications requiring ``high confidence in the asserted identity's 
validity.'' We also raised the risk assessment level of the Get 
Transcript Online application from moderate to high.
    Question. To what extent does IRS plan to leverage the Digital 
Service Team assistance in its Future State vision?
    Answer. We began working last year with top digital experts at U.S. 
Digital Service (USDS) to create a new e-authentication platform for 
Get Transcript and other IRS.gov tools. The recent successful relaunch 
of the Get Transcript online service with its stronger identity 
proofing with Secure Access e-Authentication is evidence of the 
effective partnership we have with USDS.
    The Future State will focus on taxpayers and how to provide the 
services they need in the way that works for them. We plan to continue 
working with USDS to increase the number of taxpayers that can and do 
use IRS online services, develop additional security measures for our 
online services, and improve our public Web sites. For example, we will 
partner with USDS as we develop Online Accounts, to help meet security 
and performance guidelines as well as the needs of taxpayers.
    Another important element of the Future State vision is IRS.gov, 
the portal used for all taxpayer access, whether they are browsing 
public content or accessing private information. USDS will help IRS 
improve reliability, style, architecture, and ease of use of our public 
facing Web sites.
                             cybersecurity
    Question. In your budget request you present a ``focus area'' of 
Strengthening Cybersecurity and Eliminating Stolen Identity Refund 
Fraud. What portion of the $90,039 million to ``Strengthen 
Cybersecurity & Eliminate Identity Theft'' is for Cybersecurity?
    Answer. As outlined in our fiscal year 2017 Congressional 
Justification, the total investment amount of $90.039 million will help 
to prevent, detect, and combat stolen identity refund fraud, including 
detection and prevention, assistance to victims, and law enforcement. 
The funds will address the increased workload associated with Identity 
Theft, Refund Fraud, and Improper Payments. In addition, the Department 
of the Treasury proposed a new Department-wide Cybersecurity 
Enhancement Account that included all of the IRS's new investments in 
cybersecurity. This account includes investments in Treasury-wide ($48 
million) and IRS-specific cybersecurity activities ($62 million).
    Question. What was the fiscal year 2016 enacted level on cyber 
spending?
    Answer. The IRS's fiscal year 2016 enacted level for cyber spending 
is $269 million.
    Question. How do the cyber activities and services funded under the 
Cybersecurity Enhancement Account compare to those funded under the 
fiscal year 2016 cyber base?
    Answer. We have robust cybersecurity systems and processes in 
place, but more work must be done. The IRS plans to spend $268.9 
million on cyber security in 2016 In addition to maintaining he fiscal 
year 2016 cybersecurity initiatives with base funding, the President's 
fiscal year 2017 budget includes $62.084 million and 35 FTEs for the 
IRS as part of the request for $109.827 million in the Department-wide 
Cybersecurity Enhancement Account. This request builds upon the 
cybersecurity efforts already in place at the IRS and would fund 
$54.732 million and 16 FTEs for cyber defense activities, including 
additional efforts to secure data, increased site reviews of non-IRS 
facilities such as lockbox banks to validate security controls are in 
place, improvements to our ability to monitor and respond to emerging 
cybersecurity threats in real-time or near real-time, and comprehensive 
incident response capabilities for planning, evaluating, testing and 
maintaining the cyber resilience of mission critical IRS operations and 
enabling technologies. It also requests $7.352 million and 19 FTEs to 
continue developing e-Authentication capabilities and access controls 
required to expand the use of mobile devices, cloud computing, and 
collaborative technologies, which will improve fraud detection and 
prevention through the use of suppression of unauthorized or suspicious 
user activity.
    Question. What is IRS's plan for working with Treasury on 
programmatic needs for Cyber Defense and e-Authentication?
    Answer. We are working with Treasury to support the Cyber Defense 
and e-Authentication through a centralized managed Cybersecurity 
Enhancement Account. These initiatives are described in detail in the 
Congressional Justification for this account.
                               user fees
    Question. IRS collects hundreds of millions in fees it charges for 
services provided to taxpayers. The fiscal year 2017 budget anticipates 
approximately $400 million in user fees.
    In fiscal year 2016, the IRS anticipates spending $204 million out 
of $396 million on ACA information technology needs. Why does the IRS 
spend more in user fees on ACA IT needs than you do to improve taxpayer 
levels of service?
    Answer. Over the last several years, the IRS Operations Support 
account has faced significant cuts. Additionally, the IRS is legally 
required to implement and deliver on a number of legislative 
requirements, including the Foreign Account Tax Compliance Act (FATCA), 
Affordable Care Act (ACA), Health Coverage Tax Credit (HCTC), the 
Protecting Americans from Tax Hikes (PATH) Act, and the Achieving a 
Better Life Experience (ABLE) Act, which are either not funded or not 
fully funded. User fees have been key to reducing the impact of these 
requirements. Recent reductions to the Operations Support appropriation 
has caused a situation where the infrastructure necessary for 
maintaining the integrity of all IRS core operations, including filing 
season requirements and taxpayer services. Sufficient funding for 
Operations Support is critical to support taxpayer levels of service, 
because it pays for IT and telephone systems, and covers real-estate 
costs for the buildings where service representatives work. Funding 
must be allocated to the Operations Support appropriation for the new 
unfunded legislative mandates discussed above to avoid tax 
administration system failures and to ensure that the systems IRS 
employees use continue functioning.
                              recent scams
    Question. Taxpayers have been hit with an increasing number of 
scams this filing season. These scams include aggressive and 
threatening phone calls by criminals impersonating IRS agents and 
scammers attempting to verify tax return information over the phone. 
What steps has the IRS taken to communicate these dangerous scams to 
taxpayers particularly the elderly and individuals for whom English is 
not their first language?
    Answer. Alerting taxpayers, especially those most vulnerable to 
scams, has been a priority for many years. In late 2013, we issued our 
first news release on telephone scams, https://www.irs.gov/uac/
newsroom/irs-warns-of-pervasive-telephone-scam. Since then, we have 
issued a series of Tax Tips and additional news releases (examples 
linked below), as well as YouTube videos and podcasts (in English, 
Spanish and American Sign Language), to alert taxpayers to these on-
going scams. We give prominent mention of tax scams on our main Web 
page, www.irs.gov and we have a special Web page, Tax Scams/Consumer 
Alerts, with information about this and similar scams. In recognition 
of the prevalence of this scam, we gave it high visibility on our list 
of the Dirty Dozen tax scams for the current filing season.
    We have also halted most initial taxpayer contact by telephone. The 
vast majority of initial audit contacts are handled by sending a letter 
first. However, in some of our in-person field audits, a small 
percentage of our overall audits, we had sometimes contacted the 
taxpayer or their representative by phone to schedule an appointment to 
begin an audit or open an appeal. This phone contact was generally 
followed up with an appointment letter confirming the appointment. 
However, in an abundance of caution and in light of pervasive phone 
scams seeking to extort money from taxpayers, we changed this policy to 
ensure criminals claiming to represent the IRS could not be mistaken 
for IRS personnel calling for appointments. We are implementing a new 
policy to now notify taxpayers first via mail, and then contact them to 
schedule an appointment. Further, we engaged our external partners in 
delivering warnings about tax scams by making drop-in articles 
available to them for use in their newsletters and on their Web pages. 
Our Outreach Corner has featured articles about scams that subscribers 
can use in their own publications that reach taxpayers--more than 
50,000 organizations, including community-based, non-profit, and 
others, subscribe to these materials. Both traditional and social media 
have been very helpful in getting the word out on these scams.
    TIGTA also now features a prominent scam alert on its Web page 
along with an expedited process for taxpayers to report such calls. 
https://www.treasury.gov/tigta/ We are concerned about the innocent 
taxpayers who may be victimized by this scam; so, our messaging is 
designed to reassure taxpayers the real IRS will never:

  --Call to demand immediate payment, nor will the agency call about 
        taxes owed without first having mailed you a bill;
  --Demand that you pay taxes without giving you the opportunity to 
        question or appeal the amount IRS says you owe;
  --Require you to use a specific payment method for your taxes, such 
        as a prepaid debit card;
  --Ask for credit or debit card numbers over the phone, or;
  --Threaten to bring in local police or other law-enforcement groups 
        to have you arrested for not paying.

    Here are a few examples of the many ways we've alerted taxpayers 
about scams over the past few years:
2016:
  --IR-2016-62, IRS Warns of Continued Scams, Varied Tactics as the Tax 
        Deadline Nears
  --IR-2016-40, Consumer Alert: Scammers Change Tactics, Once Again
  --IR-2016-28, Consumers Warned of New Surge in IRS E-mail Schemes 
        during 2016 Tax Season; Tax Industry Also Targeted
2015:
  --IR-2015-05, Phone Scams Continue to be Serious Threat, Remain on 
        IRS ``Dirty Dozen'' List of Tax Scams
  --IR-2015-62, Don't be Fooled, Phone Scams Continue to Be Serious 
        Threat Nationwide
  --Special Edition Tax Tip 2015-18, IRS Urges Public to be Stay Alert 
        for Scam Phone Calls
  --Dirty Dozen 2015, (Scams were listed as the top item)
2014:
  --IR-2014-105, Scam Phone Calls Continue; IRS Unveils New Video to 
        Warn Taxpayers
  --Special Edition Tax Tip 2014-18, Five Easy Ways to Spot a Scam 
        Phone Call
  --IR-2014-84, Scam Phone Calls Continue; IRS Identifies Five Easy 
        Ways to Spot Suspicious Calls
  --IR-2014-81, IRS Repeats Warning about Phone Scams
  --Special Edition Tax Tip 2014-17, IRS Updates Phone Scams Warning
  --IR-2014-53, IRS Reiterates Warning of Pervasive Telephone Scam
  --Special Edition Tax Tip 2014-10, IRS Renews Phone Scam Warning

    The protection of taxpayers and their rights remains a top priority 
for us. We are committed to working with our partners across government 
and the private sector to stop these scammers from preying on 
taxpayers.
                               aca costs
    Question. Your fiscal year 2017 budget request includes $402 
million for ACA, including $41.4 million to handle the projected 6 
million calls above normal telephone demand in fiscal year 2017 for 
Taxpayer Services. Specifically, 85 percent of the requested increase 
to improve taxpayer service is requested for ACA. Why is ACA 
implementation the IRS's highest priority? How does IRS estimate ACA 
call volume?
    Answer. IRS must implement and enforce all the ACA's requirements 
by law. Accordingly, the ACA and other legislative requirements are 
among the IRS's priorities, in addition to performing our customary 
missions of providing taxpayer service, enforcing the tax code, and 
ensuring we are constantly adapting to our operating environment. The 
Service has had to fund implementation of legislative requirements from 
its core budget. The fiscal year 2017 budget seeks to obtain specific 
funding for implementing additional ACA requirements and for addressing 
specific taxpayer questions about the law to ensure that taxpayers 
understand the requirements and can sufficiently comply with them.
    We fund telephone level of service from the Taxpayer Services 
appropriation and supplemental funding from user fees receipts. Also, 
taxpayer services support costs, including IT infrastructure, 
facilities, and security services are funded from the Operations 
Support appropriation. ACA phone calls are treated with the same 
priority as other phone calls. IRS estimates of increased volume to 
meet taxpayer demand is what is driving our projected need for 
increased level of service funding.
    Changes in the law tend to generate questions from taxpayers which 
lead to a higher call volume. We projected how much of the increased 
call volume for the coming filing season would come as a result of new 
ACA implementation. We estimated the ACA call volume by calculating the 
ratio of fiscal year 2016 ACA assistor call volume demand per ACA 
return and multiplying it by the projected number of ACA returns for 
fiscal year 2017. Level of Service for all taxpayers will go up or down 
according to the demand for service and the capacity of the IRS to 
answer calls, so more funding is needed to support level of service, 
regardless of which legislative change is generating additional phone 
calls.
                             budget request
    Question. In your budget request you are asking for almost $12.3 
billion for the IRS, which is a $1 billion or 9.3 percent increase over 
fiscal year 2016 enacted. This amount includes an increase of $530 
million in direct, discretionary funding and $515 million for a program 
integrity cap adjustment, which is clearly not allowed under the Budget 
Control Act. Unfortunately, less than 10 percent of the requested 
increases are for Taxpayer Services and the IRS continues to spend its 
funding on the Affordable Care Act. Why does this request fail to make 
customer service a priority?
    Answer. We are committed to providing the highest level of customer 
service possible within available resources. Customer service remains 
one of our highest priorities and the Service allocated more than $178 
million (over 60 percent) of the available $290 million from the 
Section 113 administrative provision to improve level of service this 
fiscal year. In the fiscal year 2017 Request, we requested $41.4 
million and 590 FTE and plan to allocate user fees to achieve a 70 
percent level of service on our phone lines for the full year.
    Question. IRS is seeking to build on the additional funds provided 
in fiscal year 2016 to implement a Future State Vision without fully 
determining whether it will provide sufficient support for taxpayers. 
Just recently you stated that taxpayers would prefer to not interact 
with you and instead transact their business online.
    What data do you have to support this claim?
    Answer. Our vision for the future is to provide taxpayers a broader 
choice of how they prefer to interact with the IRS. The intent is to 
ensure the availability of safe, secure, reliable online services for 
those taxpayers who would rather interact through those methods, which 
would in turn alleviate demand on the traditional methods allowing for 
more responsive customer service. We have no intention of discontinuing 
face-to-face or phone interactions.
    Question. How are you ensuring taxpayers won't be exposed once 
again to identity theft or refund fraud?
    Answer. While we cannot ensure taxpayers will never be exposed 
again, we are making significant investment in numerous processes and 
technologies to combat identify theft and refund fraud.
    We have established the IRS Identity Assurance Office and are 
developing an enterprise-wide Identity Assurance Strategy and Roadmap 
across taxpayer contact channels to ensure Secure Access meets the 
needs of the IRS and manages data to enable taxpayers to access 
services through a variety of channels (e.g., online, phone, in-
person). The Identity Assurance Strategy includes updating e-
Authentication capabilities consistent with OMB policy and NIST 
standards, which is now available and in use in conjunction with the 
Get Transcript and IP PIN application. We plan to complete the 
development of the Identity Assurance Strategy across all other contact 
channels by the end of calendar year 2016, with full implementation of 
the associated roadmap occurring over a period of several years.
    We comply with both internal policies and external Federal 
guidelines as a central tenet of its Identity Assurance Strategy. We 
follow OMB Memorandum M-04-04, which states that all Federal agencies 
must conduct an e-authentication risk assessment on those systems that 
remotely authenticate users over a network for purposes of e-government 
and commerce to determine the required level of authentication 
assurance for the information system. We also work closely with NIST to 
ensure best practices are followed and solutions meet the appropriate 
guidelines, e.g., NIST SP 800-63-2.
    Under this guidance, we have redesigned the authentication process 
to meet Level 3 assurance, which requires multi-factor remote 
authentication techniques and applies to Web applications requiring 
``high confidence in the asserted identity's validity.'' We also raised 
the risk assessment level of the Get Transcript application from 
moderate to high to more accurately reflect the risk demonstrated 
during the previous unauthorized accesses.
    In support of its commitment to develop new strategies to protect 
taxpayer information, we also have worked closely with the Department 
of Homeland Security (DHS) and MITRE to perform extensive penetration 
testing to ensure the integrity of our cybersecurity posture, including 
authentication. We also have a dedicated team focusing exclusively on a 
cross-functional, enterprise-wide capability to provide secure account 
access to taxpayers. We plan to expand this new Secure Access 
capability to all applicable online applications applying the 
appropriate levels of assurance to each application as required by OMB 
policy and NIST guidelines. We are working with the U.S. Digital 
Services (USDS) in building out this Secure Access capability, which we 
discuss in greater detail above, in the answers under the heading 
``Information Technology & Identity Theft''.
    Question. How are you accounting for taxpayers who have a real need 
for in-person services?
    Answer. Our long-term goal is to provide all taxpayers with the 
most convenient and efficient way to obtain assistance. Face-to-face 
and telephone assistance will continue to be an integral part of the 
IRS Future State to serve taxpayers based on their needs and to 
facilitate customer access to other convenient and efficient channels.
    Question. What is your plan for maintaining Taxpayer Assistance 
Centers?
    Answer. Face-to-face service remains an integral part of the IRS 
Future State. We recently began offering scheduled appointments at our 
Taxpayer Assistance Centers (TACs) to decrease wait times. Since we 
started offering scheduled appointments, more than half of taxpayers 
calling for an appointment had their issues resolved over the phone, 
and determined that they did not need to come in person. The 
appointment service resulted in more convenient services for those 
taxpayers who were helped over the phone or online, substantially 
reduced or eliminating long lines at the TACs and reduced wait time for 
taxpayers who chose an appointment at a TAC. In addition, we are 
collaborating with existing partners to set up a limited number of 
virtual service delivery (VSD) workstations in some areas where there 
is no TAC. VSD involves taxpayers interacting with live assistors 
located in a different geographic location via an IRS computer and 
high-resolution video capabilities. The computer can be placed in IRS 
community partner locations or in other government offices. This 
capability was originally tested in 2011 providing assistance in 
smaller, understaffed offices through assistors in TAC locations with 
sufficient staffing. It was expanded in 2012 to include locating 
equipment at a Low Income Taxpayer Clinic and to provide appointments 
for taxpayers working with Appeals, Taxpayer Advocate Services and 
Compliance units. Future opportunities include expanding VSD through 
inter-agency agreements and through additional community partnerships.
    Question. In your fiscal year 2016 Operating Plan you stated the 
possibility of transferring up to $145 million from the Enforcement 
account to Operations Support for IT systems and only $30 million to 
Taxpayer Services to meet level of service goals.
    Why is the bulk of this transfer going to Operations Support? Do 
you plan to roll out additional electronic service options with these 
resources?
    Answer. The bulk of the transfer is going to Operations Support to 
help us maintain the systems necessary to successfully execute filing 
season, maintain system availability to provide taxpayer support 
services, and implement numerous unfunded or not fully funded 
legislative requirements such as: the ACA; the Foreign Account Tax 
Compliance Act (FATCA); the Achieving a Better Life Experience (ABLE) 
Act; a new certification requirement for professional employer 
organizations; and reauthorization of the Health Coverage Tax Credit 
(HCTC). Additionally, Congress passed three new legislative 
requirements in December 2015: a private debt-collection program, 
Protecting Americans from Tax Hikes (PATH) Act and a registration 
requirement for newly created 501(c)(4) organizations. These programs 
all require technology investments to implement and to maintain.
    Question. Why is Operations Support a priority over Taxpayer 
Services for this transfer?
    Answer. The Operations Support appropriation provides information 
technology, telephones, real estate space, and other services used by 
every employee at the IRS. When increases are made to Taxpayer Services 
or Enforcement, commensurate increases must be made to Operations 
Support so that new employees have space, tools, and common resources 
to complete their work. However, this has not happened. The Operations 
Support appropriation has been cut by more than 11 percent since fiscal 
year 2010, and has also needed to pay for IT implementations of various 
new unfunded legislative requirements while replacing overaged IT 
infrastructure (more than 60 percent of which is beyond lifecycle 
replacement standard age). The savings from staff attrition in the 
Enforcement account have been moved to Operations Support so that it 
can maintain services needed to support remaining Taxpayer Services- 
and Enforcement-funded activities.
                                 ______
                                 
          Questions Submitted by Senator Christopher A. Coons
 security of online applications and protection of sensitive personal 
                              information
    Question. Safeguarding sensitive personal information and 
combatting data breaches is a daunting challenge for the IRS. What 
lessons have been learned from the ``Get Transcript'' hack?
    Answer. When we identified the problem with Get Transcript in May 
2015, we determined that unauthorized third parties with taxpayer-
specific sensitive data from non-IRS sources had cleared the Get 
Transcript verification process. While we determined that many of the 
perpetrators had failed to pass the final verification step, there were 
those who had cleared the process and gained unauthorized access to 
taxpayer data. Lessons learned include the following:

  --Criminals are becoming more and more sophisticated as each day 
        passes. This fraudulent activity is their form of ``business'' 
        and they invest in it similar to any other business in a 
        competitive market. Previously, sensitive information such as 
        shared secrets would have been acquired physically, through 
        techniques such as ``dumpster diving'' or direct access to 
        private records or documents. However, the proliferation of 
        easily accessible information about individuals in the past few 
        years through social media means that previously private, 
        shared secrets are generally available for a price--
        legitimately or illegitimately; this undermines ``knowledge-
        based authentication'' techniques that were a long-standing, 
        typical authentication technique.
  --While compliance with NIST standards (e.g., NIST SP 800-63) is 
        important, it is difficult for guidance to keep up with the 
        latest cyber threats. In addition to our efforts in complying 
        with the latest guidance, we also must take a risk-based 
        approach for our decisionmaking related to safeguarding 
        taxpayer information, incorporating the latest cyber threats 
        and vulnerabilities. This approach includes a more rigorous e-
        authentication process that will significantly increase 
        protection against identity thieves impersonating taxpayers to 
        access tax return information through the IRS Get Transcript 
        online service and other IRS self-help services into the 
        future. With the assistance of top digital experts at U.S. 
        Digital Service (USDS), we began working last year to create a 
        new e-authentication platform for Get Transcript and other 
        IRS.gov tools. We need to take a multi-pronged approach to 
        protect taxpayer data:

    --Strengthening our internal protocols, as evidenced by the recent 
            relaunch of multi-factor authentication and stronger 
            identity proofing with Secure Access e-Authentication in 
            partnership with USDS. This process also includes more 
            constant and aggressive approaches within the IRS to 
            protect taxpayer data, such as restricting employee 
            Internet access; encryption of taxpayer data for any 
            transmission externally; content filtering and strict 
            firewall policies, and network security monitoring.
    --Partnering with industry through the Security Summit as we 
            jointly implement the enhanced authentication data elements 
            and the information sharing and assessment center.
    --Continuing to engage the broader tax administration ``ecosystem'' 
            as we track shifts in criminal behavior and emerging 
            vulnerabilities.

  --We cannot address this problem alone--we require support from 
        individuals and companies, to protect the taxpayer information 
        in their hands (before it becomes Federal Tax Information) 
        through adequate identity proofing, authentication, and 
        cybersecurity controls. We intend to continue our dialogue with 
        NIST around standards that can help improve security.

    Question. To what extent has this experience forced IRS officials 
to reassess how online applications are made available in a secure 
environment?
    Answer. We have taken a more conservative approach with enhanced 
identity validation with the recent relaunch of the Get Transcript and 
IP PIN on-line applications.
    To use these on-line services, taxpayers must now have an email 
address, a text-enabled mobile phone, and specific financial account 
information such as a credit-card number or certain loan numbers. 
Taxpayers who registered using the older process will need to re-
register and strengthen their authentication in order to access the 
tools. As part of this new multi-factor process, we will send security 
codes via email and text. Unfortunately, these new security measures 
allow only a minority of taxpayers to successfully authenticate and 
access the system. We are working to broaden authentication in the 
future so that more taxpayers can use new online tools, without 
sacrificing security.
    A new Secure Access process is not the only step we have taken. We 
have also been improving our systems architecture to enable enhanced 
online services. In order to launch high-profile online applications, 
we have improved our launch process by expanding testing and external 
validation activities (e.g., beta testing) to ensure organizational 
readiness and preparedness. This careful approach promotes confidence 
in moving forward with any online application launch.
    We have developed a broader cybersecurity strategy that is focused 
on managing information security risk on a continuous basis; monitoring 
the security controls in our information systems and the environments 
in which those systems operate on an ongoing basis; and maintaining 
ongoing awareness of information security, vulnerabilities and threats 
to support organizational risk management decisions. We are also better 
prepared for incident management (that is, response, resolution and 
recovery) in the event of a security incident.
    Question. What steps have been taken to address the concerns raised 
by TIGTA that the IRS lacks an agency-wide strategy and that the 
authentication methods fall short of the NIST standards?
    Answer. We have established the IRS Identity Assurance Office and 
is developing an enterprise-wide Identity Assurance Strategy and 
Roadmap across taxpayer contact channels to ensure Secure Access meets 
the needs of the IRS and manages data to enable taxpayers to access 
services through a variety of channels (e.g., online, phone, in-
person). The Identity Assurance Strategy includes updating e-
Authentication capabilities consistent with OMB policy and NIST 
standards, which is now available and in use in conjunction with the 
Get Transcript and IP PIN applications. Assuming these efforts receive 
adequate funding, we plan to complete the Identity Assurance Strategy 
by the end of calendar year 2016, with full implementation of the 
associated roadmap occurring over a period of several years.
    We comply with both internal policies and external Federal 
guidelines as a central tenet of its Identity Assurance Strategy. As a 
matter of practice, we conduct risk assessments on all taxpayer-facing 
systems before they are deployed. We follow OMB Memorandum M-04-04, 
which states that all Federal agencies must conduct an e-authentication 
risk assessment on those systems that remotely authenticate users over 
a network for purposes of e-government and commerce to determine the 
required level of authentication assurance for the information system. 
We also work closely with organizations such as NIST to ensure best 
practices are followed and solutions meet the appropriate guidelines, 
e.g., NIST SP 800-63-2.
    Under this guidance, we have redesigned the authentication process 
to meet Level 3 assurance, which requires multi-factor remote 
authentication techniques and applies to Web applications requiring 
``high confidence in the asserted identity's validity.'' We also raised 
the risk assessment level of the Get Transcript application from 
moderate to high.
    In support of its commitment to develop new strategies to protect 
taxpayer information, we have also worked closely with the Department 
of Homeland Security (DHS) and MITRE to perform extensive penetration 
testing to ensure integrity of our cybersecurity posture, including 
authentication. There is also a dedicated IRS team focusing exclusively 
on a cross-functional, enterprise-wide capability to provide secure 
account access to taxpayers. We plan to expand this new Secure Access 
capability to all applicable online applications applying the 
appropriate levels of assurance to each application as required by OMB 
policy and NIST guidelines. We are working with the US Digital Services 
(USDS) in building out this Secure Access capability. The USDS will 
also help us improve the general usability of our services, for example 
identifying where taxpayers get confused or frustrated enough to drop 
out of the process and modifying the user interface, to remove areas of 
confusion for taxpayers.
    A key part of the IRS Future State is for taxpayers to have a more 
complete online experience for their IRS interactions. The partnership 
between the IRS and USDS in developing and expanding our Secure Access 
framework is the cornerstone of all future IRS efforts to create more 
valuable features and services for taxpayers. It creates opportunities 
for taxpayers to have more convenient, efficient, and scalable 
alternatives to phone calls or in-person service. It paves the way for 
taxpayers to have an account at the IRS where they or those they 
authorize, can log-in securely, get the information about their account 
and interact with the IRS as needed. This approach also has a goal of 
freeing up our limited in-person resources--such as our phone lines--to 
better serve people and tax professionals who need in-person 
assistance. We will partner with USDS as we develop Online Accounts, to 
help meet security and performance guidelines as well as the needs of 
taxpayers.
    Question. If these actions are a work-in-progress, when do you 
expect to complete work to correct these deficiencies?
    Answer. See response to the previous question above.
    Question. How has IRS's engagement with industry, tax 
practitioners, and state partners through the ``Security Summit'' you 
convened last June enhanced IRS's work? What's next on the horizon for 
the ``Summit'' activities?
    Answer. Marking its first year, this ground-breaking partnership 
made great progress in 2016. As a result, we have implemented new 
safeguards leveraging cooperation with Summit partners, begun working 
with Summit partners to develop a framework for enhancing cybersecurity 
protections, and taken initial steps to develop an ``early warning'' 
system that will help industry, tax practitioner, and state partners 
quickly identify and share identity theft schemes.
    Because of the Security Summit initiative and our cooperative 
efforts, we protected more taxpayers from tax-related identity theft, 
we stopped more suspicious tax returns, and we prevented more 
fraudulent refunds from getting into criminals' hands. Because of the 
safeguards enacted by this partnership, fewer people became victims of 
tax-related identity theft this year. See IRS news release IR-2016-94 
for additional details: https://www.irs.gov/uac/newsroom/security-
summit-reviews-2016-accomplishments-announces-2017-intiatives.
    For 2017, the emphasis remains on authentication of legitimate tax 
filers, increased information sharing by partners, and cybersecurity. 
Most of these activities will be invisible to taxpayers, but will be 
extremely helpful to Summit partners in detecting and preventing 
identity theft returns and fraudulent refunds.
    Additional details can be found at on our IRS.gov site at: http://
www.irs.gov/uac/security-summit-partners-update-identity-theft-
initiatives-for-2017.
                                 ______
                                 
               Question Submitted by Senator Jerry Moran
    Question. IRS officials have said to be weighing the idea of 
removing the Schedule B Donor Information Requirement, which asks for 
the names and addresses of an exempt organization's contributors and 
for certain information about contributions received. What is the 
status of considerations to eliminate Schedule B of the Form 990?
    Answer. Since 2014, the IRS Priority Guidance Plan has contained an 
item on ``Guidance under Sec. 6033 relating to the reporting of 
contributions.'' We continue to consider the relevant concerns of 
taxpayers and the IRS, while monitoring legislation that may affect the 
requirements.

                          SUBCOMMITTEE RECESS

    Senator Boozman. The hearing is adjourned.
    [Whereupon, at 12:08 p.m., Tuesday, March 8, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]