[Senate Hearing 115-539]
[From the U.S. Government Publishing Office]


 
  FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL 
                               YEAR 2019

                              ----------                              


                         TUESDAY, MAY 22, 2018

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.

    The subcommittee met at 10:04 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. James Lankford (Chairman) 
presiding.
    Present: Senators Lankford, Moran, Boozman, Daines, Coons, 
Leahy, Manchin, and Van Hollen.

                       DEPARTMENT OF THE TREASURY

STATEMENT OF HON. STEVEN T. MNUCHIN, SECRETARY

              OPENING STATEMENT OF SENATOR JAMES LANKFORD

    Senator Lankford. Good morning. The subcommittee will come 
to order.
    This is our second of our fiscal year 2019 budget hearings 
for agencies under the jurisdiction of the Financial Services 
and General Government Subcommittee.
    Today we have with us the Secretary of the Treasury, Steve 
Mnuchin, and the Acting Commissioner of the Internal Revenue 
Service, David Kautter. Thank you for being here today.
    We will do these in back-to-back panels.
    The Treasury Department's budget request proposes a total 
funding of $12.3 billion in 2019 for its operations and its 
bureaus. These offices execute important functions that promote 
our economic growth, combat illicit finance, safeguard our 
financial system, administer the Internal Revenue Code, and 
manage the Federal Government's fiscal operations.
    One of the largest proposed increases is an additional 
$17.2 million to the Office of Terrorism and Financial 
Intelligence. The Office of Terrorism and Financial 
Intelligence plays a critical role in our national security by 
developing and implementing our Government's strategies to 
combat terrorist financing.
    I look forward to hearing how you will utilitize the 
increase to target additional sanctions against terrorists, 
international narcotics traffickers, and those involved in the 
proliferation of weapons of mass destruction.
    I also look forward to hearing how the memorandum of 
agreement between Treasury and OMB to create a new framework 
for reviewing tax regulations is being implemented.
    I have long believed that IRS regulations should be held to 
the same rigorous standards as other agencies. While it is 
important that the IRS implements the Tax Cuts and Jobs Act 
expeditiously, it is also important that proposed tax 
regulations are thoroughly analyzed and impose the least 
possible burden of some costs.
    The IRS requests a total of $11.135 billion for its base 
operations and an additional $362 million that would be 
provided through a program integrity cap adjustment. While the 
agency's previous request for a program integrity cap 
adjustment were not enacted, I look forward to discussing the 
agency's resource needs.
    This funding is intended to administer the Nation's tax 
system, generate more than $3 trillion in revenue to fund 
Government programs, protect billions of taxpayer records, and 
strengthen tax compliance.
    Tax compliance in particular is critical. The Government 
Accountability Office has identified the enforcement of tax 
laws as a high risk area. In 2016, the IRS estimated that the 
average annual gross tax gap, the difference between taxes owed 
and taxes paid on time, was $458 billion for tax years 2008 to 
2010.
    I look forward to hearing your strategy for closing the tax 
gap, and I stand ready to work with you on the solutions.
    Thank you again for testifying today.
    I now turn to my colleague, the Ranking Member, Senator 
Coons, for his opening statement.

               STATEMENT OF SENATOR CHRISTOPHER A. COONS

    Senator Coons. Thank you, Chairman Lankford, for convening 
this hearing. I appreciate the opportunity we have to work 
together on the diverse and important set of issues that come 
before the subcommittee and hope we can continue to find common 
ground and work well together.
    I would like to welcome our witnesses, Treasury Secretary 
Mnuchin and IRS Acting Commissioner Kautter. Thank you for 
joining us this morning and for your service.
    Today we are considering the budget for the Treasury 
Department, including the IRS. Treasury is central to our 
Government's stability and ongoing operations, helps sustain 
our country's fiscal health and protect our national security. 
You have a vital and wide-ranging job from collecting taxes and 
processing over $3 trillion in Federal payments annually to 
prosecuting financial crimes here in the United States and 
identifying and stopping individuals that finance and promote 
terror abroad.
    I am pleased you requested an increase in the Office of 
Terrorism and Financial Intelligence, which has the critical 
responsibility of enforcing sanctions. I do want to discuss the 
adequacy of resources for that office later in this hearing. I 
am concerned the very real and important work you are doing 
regarding North Korea and Iran do not limit your ability to 
enforce other sanctions around the world.
    I am, however, disappointed your budget proposes to 
eliminate altogether grants to Community Development Financial 
Institutions (CDFI) which support development and create jobs 
in underserved neighborhoods around our Nation. In fiscal year 
2016 alone, CDFI program awardees originated more than $5 
billion in loans and investment, financed more than 12,000 
businesses, the development of nearly 28,000 affordable housing 
units, and served nearly half a million individuals with 
financial literacy training.
    I am also concerned about the overall adequacy of the IRS 
budget. No Government agency is more visible or has a greater 
personal impact on 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, and programs. And each year, more than 80,000 public 
servants at the IRS makes hundreds of millions of contacts with 
taxpayers and businesses. The IRS has endured years of freezes 
and budget cuts, and the proposal we are reviewing today would 
continue that trend by further cutting funds for both 
enforcement activities and taxpayer services.
    My office frequently hears from Delawareans frustrated when 
their calls to the IRS go unanswered or it takes a long time to 
connect with an official at the IRS, especially those who are 
seeking information so that they can comply with their tax 
obligations voluntarily. I would imagine many other Senate 
offices hear from constituents with similar concerns. The 
solution to these concerns is to give the agency the resources 
it needs, not to slash the budget further in an effort to score 
points.
    Like the Chairman, I am concerned about your strategy to 
close the tax gap and will be interested in hearing more about 
that today and to hearing more about why the Department and the 
IRS thinks it is a good idea to reduce its service delivery 
rates for taxpayers.
    We have a great deal to discuss today and important ground 
to cover. I hope we will hear our witnesses' perspectives on 
what resources are essential to deliver the high quality 
services American taxpayers and companies deserve. I know 
Delawareans expect no less.
    I welcome the opportunity to work with you on these 
important issues, Chairman Lankford, as the fiscal year 2019 
process moves forward here in Appropriations. Thank you.
    Senator Lankford. I want to recognize the Vice Chairman of 
the full committee for an opening statement as well.

                 STATEMENT OF SENATOR PATRICK J. LEAHY

    Senator Leahy. Thank you, Mr. Chairman. I note that both 
Senator Shelby and I are very anxious--and I know, Chairman 
Lankford and Senator Coons, you are too--to get all the 
appropriations bills through in regular order.
    I am worried, Mr. Secretary--so I am going to have to leave 
to work on another one of the bills. But we have this tax bill, 
which some would praise, others would consider, as I do, a 
corporate tax giveaway. Corporate CEOs are happy with the 
result. Stock buy-backs are booming, the most in the entirety 
of my life. JPMorgan Chase has estimated it could reach an all-
time high this year.
    But Vermonters feel that Washington has put the 
corporations ahead of their own interests, whether it is a 
relative pittance working families receive in relief. The 
amounts are low, and some polls show that more than half of 
Americans report not noticing the increase in their paychecks, 
or the rising health care premiums they face they feel is a bad 
deal. And on top of that, the tax cuts were put on the Nation's 
credit card. It is sort of like buying a war on a credit card. 
It means the deficits explode.
    But also what they are finding is the IRS has been starved 
for resources. Senator Coons mentioned this, but in a rural 
State like Vermont, taxpayers that have questions or need 
assistance--they are left out in the cold. They do not have 
assistance. They do not have a place to get their questions 
answered. Now with the new law, many Vermonters are confused 
about how to navigate the tax system in light of the changes. I 
know the President promised we would do taxes on a postcard-
sized tax return. Well, that is not the situation. That is not 
a promise that was kept. A typical Vermonter cannot afford 
armies of tax lawyers to help them. Millionaires, billionaires, 
corporations that benefit from the new tax law can. Now, they 
should have the right to call the IRS or visit a location in 
person to receive the assistance they need in a timely manner. 
That is not available.
    And further troubling them is that millions of American 
taxpayers wonder whether their personal, sensitive information 
has been compromised in any one of the many data breaches, 
which never should have occurred. The loss of this data puts 
taxpayers at risk for fraud. And ironically, you are proposing 
cutting support for the IRS at a time when these data banks are 
even more vulnerable.
    I am sorry we are in this. We are trying--Senator Shelby 
and I are--to have a bipartisan way of getting our 
appropriations bills through. I wish the same had been done on 
the tax bill. But the least we can do, now that it has been 
passed, is to make sure the average American taxpayer actually 
has the resources so they know how to navigate it. But your 
budget strains the IRS's already limited resources. It does not 
make it look like you are on the side of hardworking middle 
class Vermonters and Americans.
    And then one last word on trade. Trade policy, Mr. 
Secretary, as you know, like tax policy is complicated. There 
are many stakeholders. There are many interests. There are many 
nuances. It cannot be negotiated on Twitter accounts. You 
cannot one day threaten billions of dollars in tariffs on 
Chinese products and then pull back on it the next day. You 
cannot accept promises to address intellectual property theft 
without meaningful commitments to back them up. We have a 
national security problem with the theft of our intellectual 
property by the Chinese and others. It is the envy of the 
world--our intellectual property. But it also means that they 
want to steal it, and you do not address that with 280 
characters on Twitter.
    So I will submit some questions for the record.
    But, Mr. Chairman, I appreciate your moving forward, as 
others are in this subcommittee, to get our bills done.
    Senator Lankford. Thank you, Senator Leahy.
    Secretary Mnuchin, you are recognized. Obviously we have 
your written statement as well, and glad to be able to have 
that and pleased to be able receive your oral testimony now as 
well.

              SUMMARY STATEMENT OF HON. STEVEN T. MNUCHIN

    Secretary Mnuchin. Thank you very much.
    Chairman Lankford, Ranking Member Coons, and Members of the 
subcommittee, it is good to be here with you today to discuss 
the President's budget and the priorities for the Treasury 
Department.
    I would like to begin by thanking you for your support in 
the fiscal year 2018 omnibus for tax reform implementation and 
the Treasury's Office of Terrorism and Financial Intelligence 
(TFI). The Tax Cuts and Jobs Act is the most significant tax 
reform legislation since 1986. The resources appropriated will 
allow the IRS to update its systems to implement the new tax 
law and provide much needed guidance to taxpayers and 
businesses. The continued support for TFI's initiatives is 
critical as we as we continue our maximum pressure campaign on 
North Korea and support efforts to denuclearize the Korean 
Peninsula.
    Additionally, funds for TFI are helping to advance the work 
of the Terrorist Financing Targeting Center (TFTC). The TFTC is 
a collaborative, multilateral effort with Saudi Arabia and the 
Gulf Cooperation Council to fight terrorism, counter Iran's 
malign influence, and isolate the Assad regime.
    Turning to the President's 2019 budget, the 
administration's request reflects the priorities of protecting 
and strengthening America's financial system and national 
security. We have requested increased resources for TFI and the 
Financial Crimes Enforcement Network. Treasury is working 
aggressively to combat terrorist groups, transnational criminal 
enterprises, proliferators of weapons of mass destruction, 
human rights abusers, and other malign actors. Treasury will 
continue efforts to achieve a change in behavior by the North 
Korean regime and fully fund the TFTC in Saudi Arabia. These 
funds will also be used to implement the Countering America's 
Adversaries Through Sanctions Act, including funding for our 
Russia and Iran programs, to target illicit financial networks.
    This budget also provides for Treasury-wide cybersecurity 
protections. As I have previously noted, protecting both 
Treasury and the global financial system from cyber attacks is 
critical to our Nation's financial stability. These attacks not 
only have the potential to affect financial markets and the 
broader economy. They also implicate our national security. In 
particular, I want to highlight the Cybersecurity Enhancement 
Account. This initiative makes proactive and strategic 
investments in enterprise-wide cybersecurity capabilities. 
These capabilities will ensure that Treasury is better prepared 
to defend against cyber attacks and respond appropriately when 
they occur.
    Finally, as Chair of the Committee on Foreign Investment in 
the United States (CFIUS), I would like to highlight the 
ongoing collaborations between the administration and Members 
of this body to modernize the CFIUS review process. We are 
working together to protect technological advantages that are 
critical to our national security, while continuing to promote 
investment and economic growth.
    The policies articulated in the President's budget will 
foster economic growth, set our country on a sound fiscal path 
in the long term, and carry out the administration's commitment 
to protect the national security of the United States.
    Thank you very much.
    [The statement follows:]
              Prepared Statement of Hon. Steven T. Mnuchin
    Chairman Lankford, Ranking Member Coons, and Members of the 
subcommittee, it is good to be here with you today to discuss the 
President's budget and the priorities of the Treasury Department.
    I would like to begin by thanking you for your support in the 
fiscal year 2018 omnibus for tax reform implementation and Treasury's 
Office of Terrorism and Financial Intelligence (TFI). The Tax Cuts & 
Jobs Act is the most significant tax reform legislation since 1986. The 
resources appropriated will allow the IRS to update its systems to 
implement the new law and provide much needed guidance to taxpayers and 
businesses. The continued support for TFI's initiatives is critical as 
we continue our maximum pressure campaign on North Korea and support 
efforts to denuclearize the Korean peninsula. Additionally, funds for 
TFI are helping to advance the work of the Terrorist Financing 
Targeting Center (TFTC). The TFTC is a collaborative, multilateral 
effort with Saudi Arabia and the Gulf Cooperation Council to fight 
terrorism, counter Iran's malign influence, and isolate the Assad 
regime.
    Turning to the President's fiscal year 2019 budget, the 
administration's request reflects the priorities of protecting and 
strengthening America's financial system and national security. We have 
requested increased resources for TFI and the Financial Crimes 
Enforcement Network. Treasury is working aggressively to combat 
terrorist groups, transnational criminal enterprises, proliferators of 
weapons of mass destruction, human rights abusers, and other malign 
actors. Treasury will continue efforts to achieve a change in behavior 
by the North Korean regime and fully fund the TFTC in Saudi Arabia. 
These funds will also be used to implement the Countering America's 
Adversaries Through Sanctions Act, including funding for our Russia and 
Iran programs, and to target illicit financial networks.
    This budget also provides for Treasury-wide cybersecurity 
protections. As I have previously noted, protecting both Treasury and 
the global financial system from cyber attacks is critical to our 
Nation's financial stability. These attacks not only have the potential 
to affect financial markets and the broader economy, they also 
implicate our national security. In particular, I want to highlight the 
Cybersecurity Enhancement Account. This initiative makes proactive and 
strategic investments in enterprise-wide cybersecurity capabilities. 
These capabilities will ensure that Treasury is better prepared to 
defend against cyber attacks and respond appropriately when they occur.
    Finally, as Chair of the Committee on Foreign Investment in the 
United States (CFIUS), I would like to highlight the ongoing 
collaboration between the administration and members of this body to 
modernize the CFIUS review process. We are working together to protect 
technological advantages that are critical to our national security, 
while continuing to promote investment and economic growth.
    The policies articulated in the President's budget will foster 
economic growth, set our country on a sound fiscal path in the long 
term, and carry out the administration's commitment to protect the 
national security of the United States.
    Thank you very much.

    Senator Lankford. Mr. Secretary, thank you.
    I recognize myself for some brief opening questions. Then 
we will move to other Members quickly.

            TERRORIST FINANCING TARGETING CENTER OPERATIONS

    Tell me a little bit more about the Terrorist Financing 
Targeting Center in Saudi Arabia that you are standing up. What 
are the key goals that you want to have within the next 12 
months as you target this financing, and when do you think it 
will be fully ready and operational?
    Secretary Mnuchin. Well, the key goals are to be able to 
share information that leads to combating terrorist financing 
activities and, in particular, make sure that we have 
coordinated sanctions, not only here but also throughout the 
Middle East. I think we have already seen this working. We have 
some people on the ground. We want to continue to staff that up 
on the ground. But I see this as a very significant achievement 
for us to be able to counter terrorist financing in the region.
    Senator Lankford. Fast forward 12 months. How many people 
do you think are committed to this in the effort there in the 
region? And do you think it is fully operational by the end of 
12 months?
    Secretary Mnuchin. I do think it will be fully operational. 
I think that we will have a significant number of people, I 
think something like 20 people on the ground from our 
standpoint and 10 to 20 from each of the additional countries. 
So something like 50 from them and 20 from us.
    Senator Lankford. Do you see this as a model for dealing 
with counternarcotics and obviously the movement of money and 
illicit trafficking here in our hemisphere as well to be an 
effective model for what we are doing there on terrorist 
financing in Saudi Arabia and the region? Would that work in 
our region as well? And what would be different in how we 
handle counternarcotics work versus how we are handling 
counterterrorism work there?
    Secretary Mnuchin. Well, I think as you know, we 
fundamentally believe that sanctions are a critical tool in 
combating all different types of terrorist activities and can 
also be used to counter narcotics trafficking and other illicit 
activities.
    We do see this as a model. I think in the region, it makes 
sense for us to have people on the ground working together. I 
think that we can use that same model here but do not 
necessarily need a physical presence.
    Senator Lankford. I want to recognize the Ranking Member, 
Senator Coons.
    Senator Coons. Thank you, Chairman Lankford.
    Thank you, Secretary Mnuchin.
    The President's fiscal year 2019 request for the Community 
Development Financial Institutes Fund eliminates all funding 
for grant programs, a cut of about $236 million from the fiscal 
year 2018 enacted level. I just cannot understand why the 
administration is advancing these cuts. These are programs that 
have enjoyed strong bipartisan support the entire time I have 
served on this subcommittee. Applications for CDFIs are nearly 
four times what current resources can provide. CDFI investments 
generate $12 in private capital in communities that badly need 
investment for every dollar in grants.
    How do you justify or explain these proposed significant 
cuts to this important program?
    Secretary Mnuchin. Senator, first of all, I fully 
appreciate this does have bipartisan support, and to the extent 
you decide to fund it, I can assure you and commit that 
Treasury will continue to provide that function.
    As it relates to the administration's decision to cut this, 
this was merely making difficult decisions and prioritizing 
spending.
    Senator Coons. Well, if I could suggest a different 
difficult decision in prioritizing spending. Both taxpayer 
services and enforcement funding are significantly cut in this 
budget proposal. Taxpayer enforcement returns $5 to the 
Treasury for every dollar spent on enforcement. I might suggest 
that is an area for greater investment rather than cutting a 
long-established bipartisan program that helps low-income 
communities.

                           TREASURY SANCTIONS

    Let me move on to sanctions. I think also on a bipartisan 
basis, we have steadily increased our investment, but we also 
have a steadily growing range of sanctions around the world. 
And I think this is very important work that you are doing, and 
I look forward to supporting your work and hearing more about 
it that Senator Lankford was just asking about.
    I am concerned, though, that Treasury's capacity to 
actually implement and enforce all the different sanctions 
around the world, including on the continent of Africa where 
there are sanctions against Burundi, South Sudan, Zimbabwe, the 
Central African Republic (CAR), and the Democratic Republic of 
the Congo (DRC) may be exceeded--may not be fully funded. Let 
me put it that way. We have heard Treasury may not be able to 
complete new congressionally mandated reports on Iran's 
sanctions because the limited staff are too busy monitoring and 
implementing existing sanctions. Is that correct, and do you 
think the 12 percent increase requested for the Office of 
Terrorism and Financial Assistance is sufficient?
    Secretary Mnuchin. Well, Senator, first of all, thank you 
very much. I am glad, as you appreciate, we are busier on 
sanctions throughout the world than we have ever been, and 
these are very important tools and I believe they are working 
very well in that process with our foreign policy and our 
national security issues.
    As it relates to the Iran report, I can assure you that we 
will have those reports.
    I think the increase is significant, but again, as you have 
outlined, these are areas that will have more and more demands 
and we will come back to you if we need additional resources 
once we staff up to these levels.
    Senator Coons. I was concerned by the President's decision 
to withdraw from the Joint Comprehensive Plan of Action 
(JCPOA). Although I saw it as having real limitations and 
agreed with much of the initiatives proposed by Secretary 
Pompeo and the President to work with our European allies to 
strengthen our actions against Iran's unacceptable, aggressive 
behavior in the region, I did think we would be better off 
staying in the deal with our European allies.
    Now that we are not just departed from the JCPOA, but 
Secretary Pompeo has announced intention to be far more 
aggressive, I am concerned. Do you think intend to sanction 
economic activity by some of our closest allies, Germany, the 
UK, France, or Korea, Japan, and others, in this context in 
order to try and re-escalate pressure on Iran?
    Secretary Mnuchin. Senator, as you are aware, the President 
has been saying for the last year he had very serious concerns 
about the Iran JCPOA. I can tell you I just got back from the 
region and there are significant concerns there as well about 
Iran's bad behavior. The President is determined that Iran 
never has nuclear weapons, and I think that is an important 
issue for the region.
    As it relates to the sanctions, as you are aware, the 
President--because he did not sign the certification, the Iran 
sanctions will go back in place, both the primary sanctions and 
the secondary sanctions. We have already communicated with our 
European partners both through Secretary Pompeo and myself that 
we will be enforcing the secondary sanctions.
    Senator Coons. I will just say I am very concerned about 
how that will affect our relations. I agree with the broader 
objective of restraining, hopefully ending, Iran's aggressive 
and bad behavior, but the division with our allies at a 
critical moment concerns me.
    Let me ask the last question. ZTE Corporation, a Chinese 
telecommunications giant, was subject to sanctions for 
violating our U.S. national sanctions on Iran and North Korea. 
FBI Director Wray just testified the FBI is deeply concerned 
about the threats foreign telecom companies pose to the 
security of U.S. networks. Sanctions are a critical tool. If we 
do not hold companies accountable for violating them, they 
become ineffective. Yet, the President tweeted I think last 
week that he and Xi Jinping are working hard together to make 
sure that ZTE is able to function and be vibrant.
    Given the clear findings ZTE is guilty of violating U.S. 
sanctions against Iran and North Korea, why is the 
administration back-peddling to make it easier for a Chinese 
company to operate and compete with U.S. companies?
    Secretary Mnuchin. Senator, I would comment, as I have said 
recently. First of all, I do not think it is a function of 
back-peddling.
    First, let me just comment on President Xi did ask 
President Trump look into this. This is not a surprise. 
President Trump often calls foreign leaders on business issues.
    This is a Commerce Department enforcement issue, working 
with the Justice Department. The President has been very clear 
that this is up to the Commerce Department. Although I have 
participated in certain discussions, I can assure you that 
whatever the Commerce Department decides--the intel community 
has been part of the briefings, and we will make sure that we 
enforce national security issues. If there are any proposed 
changes on ZTE--the objective was not to put ZTE out of 
business. The objective was to make sure that they abide by our 
sanctions programs.
    One proposal that the Commerce Department did was, 
obviously, limiting exports that create certain issues for our 
companies and our jobs. I cannot comment on what the Commerce 
Department is considering. But again, I can assure you anything 
that they consider will take into account the very important 
national security issues, and those will be addressed.
    Senator Coons. Thank you. I certainly hope we will continue 
to rigorously enforce our sanctions against North Korea and 
Iran.
    Senator Lankford. Senator Manchin.
    Senator Manchin. Thank you, Mr. Chairman.
    Secretary, thank you for being here.
    In March, the administration announced the U.S. will place 
a 25 percent tariff on imported steel and a 10 percent tariff 
on imported aluminum, which I have greatly supported. 
Historically trade deals have not been good for our State of 
West Virginia, and I appreciate the President taking a look at 
all these trade deals. And I support that very vigorously.
    As a way of looking at these tariffs, I think I would want 
to know where you all stand on this as far as the tariffs on 
steel and aluminum with China, if that is still in place, if 
that tariff is going to go into force. And it seems like when 
it was first brought out, it was on like a blanket across all 
trade agreements and then brought back from those such as 
Canada, which we had surpluses with. Why would we have not just 
targeted China to begin with since we knew they are the bad 
actor?
    Secretary Mnuchin. Again, Senator, thank you very much.
    First of all, as it relates to China, the steel and 
aluminum tariffs will remain in force. Those were not part of 
our discussions. We were merely focused on the proposed----
    Senator Manchin. Those are not going to be touched at all.
    Secretary Mnuchin. Those are not being touched.
    As it relates to other countries, I think, as you know, 
this was done under section 232 and addressing national 
security issues. And the President has instructed the Commerce 
Department and USTR to have discussions with other countries. 
As you know, in certain places, they have already gone into 
effect. In certain places, they are on hold pending discussions 
with those other countries and getting various assurances. But 
the President is very determined to make sure we protect the 
steel and aluminum industry here.
    Senator Manchin. Senator Coons just mentioned about ZTE. We 
are very much concerned about ZTE. Last year, the U.S. imposed 
a $1.19 billion penalty against ZTE, one of their big tech 
companies, and it was found to have violated U.S. sanctions by 
selling equipment to Iran and North Korea, which alerted us at 
a high level.
    Last month, the Commerce Department decided to ban American 
companies from buying or selling the phone-maker's products for 
the next 7 years. And now we understand that might be undone, 
and I think that was the concern. I think you answered that by 
saying it would have to be a Commerce Department decision on 
that.
    What is your own personal feelings on ZTE?
    Secretary Mnuchin. Again, just to comment on--because I 
have participated in listening in some of these discussions. I 
can assure you that the administration is absolutely determined 
to enforce sanctions and make sure there are very significant 
penalties for companies that violate sanctions, number one.
    Number two, the administration is very well aware of the 
national security issues, and anything now or in the future 
will address national security issues. I have had the 
opportunity to be part of discussions with the intelligence 
community.
    Number three, you know, kind of to the extent that the 
Commerce Department looks at alternative means, those will be 
subject to the enforcement and something that they are 
comfortable with.
    Senator Manchin. Well, I would hope that you all would 
understand the security. If the U.S. were ever to go to war 
with China, which I hope never, ever occurs and never even 
comes into the realm of talking about this, it is not far-
fetched to believe that China could potentially disable 
American cell phones or take control of American networks.
    I cannot understand in our trade deals how we allow them to 
come into our markets in ways we cannot get into their markets. 
That should be the simple adjustments to be made. If you are 
allowed to come into the markets, whether it be resources or 
our networks or our grid system, then we should be allowed to 
go into their markets. And for some reason, China gets a bye on 
this every time.
    I would like to go to the CFIUS, if we could. As you are 
aware, I think it is important to keep an eye on foreign 
involvement in the U.S. economy. That is why I was an early 
supporter and cosponsor of the Foreign Investment Risk Review 
Modernization Act (FIRRMA). It really comes down to failure to 
address efforts by China to acquire U.S. technology. It has 
far-reaching costs over the long term. The Commission on the 
Theft of American Intellectual Property estimates that privacy 
theft and counterfeiting by China cost the U.S. economy between 
$225 billion to around $600 billion a year, and we are not even 
talking about the effects that it could have on our military's 
leadership around the globe.
    So do you believe China is the U.S.'s greatest national 
economic threat?
    Secretary Mnuchin. Senator, first of all, I take my role at 
CFIUS very seriously. As you know, we have been quite 
aggressive in the use of these powers. I am also very much 
looking forward to the Senate. I believe they have a vote this 
morning on the FIRRMA legislation. It is something that the 
administration very much supports. We need to bring CFIUS into 
the modern age, and I think that is very important.
    Senator Manchin. Well, do you believe that China is the 
United States' greatest economic threat? Do you see anybody 
else as a threat to our economy other than China?
    Secretary Mnuchin. Again, we carefully analyze all the 
different economic threats. I think, as you know, the President 
has been extremely focused on every discussion with every 
foreign leader on trade, and I believe he has a very strong 
position on trade and a very strong position on national 
security, which we have been enforcing.
    Senator Manchin. Do you believe CFIUS reform legislation in 
the Senate now can protect the ownership of U.S. technology and 
infrastructure from transfers to countries like China?
    Secretary Mnuchin. I do indeed. On top of that, whatever we 
need to do, we will work to ensure that.
    Senator Manchin. Thank you.
    Senator Lankford. Senator Moran.
    Senator Moran. Mr. Chairman, thank you.
    This is my first subcommittee meeting of this Financial 
Services and General Government Subcommittee (FSGG) with you as 
its Chairman, and I look forward to working with you.
    Senator Lankford. A fairly familiar spot for you to be just 
over to the right here, though.
    Senator Moran. We will continue our close working 
relationship based upon geography and other features.
    Mr. Secretary, thank you for joining us this morning.
    I heard what Senator Coons asked you in regard to ZTE. I 
had a similar question. Reports from ``The Wall Street 
Journal'' is generally what I know about what the 
administration has announced in regard to ZTE. I also know from 
hearings, press reports, and conversations that our 
intelligence entities have testified and have indicated their 
concern from a national security point of view in regard to the 
company ZTE.
    My question I think is perhaps similar to Senator Coons'. I 
was going to ask you to justify what appears to be a clear and 
present intelligence issue being resolved with at least what 
``The Wall Street Journal'' reports as changes in our policies 
in regard to those sanctions.
    My understanding is your answer would generally be this is 
a question for Secretary Ross. And decisions were made. You 
were in the room, as I understand it, but the details or the 
justification would be better coming from the Department of 
Commerce.
    Secretary Mnuchin. Well, again that is case. But I want to 
say very specifically--and there seems to be more interest in 
this issue than any enforcement issue I have seen in recent 
times. I can assure you that the administration is very focused 
on making sure that our sanctions regimes are enforced. That is 
number one.
    Number two, any national security issues--I can assure you 
this administration is as much, if not more, focused on 
national security than anywhere else. That is why the President 
has taken very aggressive positions in all areas around the 
world in us using sanctions. So I can assure you that whatever 
changes or decisions that are made in Commerce will deal with 
the national security issues. The intelligence areas we have 
discussed and have reviewed. I would encourage anybody in a 
classified setting, if they are interested in understanding the 
security issues. But I can assure you the national security 
issues are being addressed, and that is of paramount importance 
to the President. This was not a quid pro quo or anything else. 
This was merely that President Xi asked President Trump to look 
into this, which he has done. Any changes to this will fully 
support the mandate of making sure that our sanctions and our 
technology are protected.
    Senator Moran. Mr. Secretary, thank you. I would assure you 
that in previous hearings and previous administrations, our 
interest, for example, in sanctions against Iran were visible 
and continuing. No different today. I want the United States to 
be protected, and one of the ways that we can do so is with our 
use of enforcement of our laws and the sanctions that come with 
them.
    I want to turn to a more pedestrian issue. Mr. Secretary, 
there are, as I understand it, as of June 2017, more than 60 
million U.S. savings bonds more than $23 billion at the U.S. 
Treasury. They are matured and unredeemed debt. I have asked 
this question of your predecessor, Secretary Lew, without 
satisfaction.
    But my question is related to the efforts by the Treasury 
Department to find the owners of those bonds and to remit them 
the money that they are due. The law indicates that and the 
past practice was that they would escheat to States and then 
States, in our case the State treasurer's office, would begin 
the process of trying to pursue lost owners.
    Seventeen States, in fact, have those laws in place, and 
they try to find the original owners. It was Treasury's 
longstanding policy that States would have to take title to the 
bonds through a valid State escheat process. However, in 2015, 
the Obama administration published a final rule that attempts 
to block States from taking title and to reunite and return 
those redeemed bonds to their owners. That was a complete 
reversal of Treasury Department policy of 60 years.
    I wonder if your Treasury Department has a different policy 
and if you are taking any efforts to find the owners or to 
allow the process to take place in which the bonds escheat to 
the States?
    Secretary Mnuchin. Well, Senator, although I take great 
pride in knowing an awful lot of the details and the many 
aspects that the Treasury does, this is not one. But I promise 
you that I will look into this and make sure my staff addresses 
it. What you are suggesting is that our procedures do not make 
sense, and if that is the case, I can assure you we will look 
into it and address that.
    Senator Moran. I am suggesting that, and I think I had the 
same answer from Secretary Lew. So he did not know either. But 
I trust that you will follow up with an answer when I did not 
get----
    Secretary Mnuchin. You have my personal assurance that we 
will follow up with you.
    Senator Moran. Thank you very much, Secretary.
    Senator Lankford. Senator Daines.

          PROTECTING U.S. INTELLECTUAL PROPERTY AND TECHNOLOGY

    Senator Daines. Thank you, Mr. Chairman.
    Secretary Mnuchin, thanks for coming up the hill.
    I just recently returned from two trips to China over the 
last 6 weeks. I have crisscrossed the country. I have been in 
Shenzhen, Hangzhou, Beijing, Shanghai, and Shenyang. The 
threats regarding China are very real, as well as the 
significant opportunities. I spent 5 and a half years working 
in Guangzhou with Procter & Gamble, so I very much understand 
and see the balance and the understanding of the tremendous 
opportunities for American companies, for American farmers and 
ranchers, as well as the threats.
    I think it is very important that we engage in these 
negotiations. We cannot just see this as a standard trade 
dispute with China. We must keep in mind China's long-term 
strategic approach and their long-term goal of becoming the 
world's superpower militarily and economically.
    My question is, how will you seek to balance the importance 
of increasing U.S. exports in agriculture and energy in the 
immediate future, which I applaud, versus the longer-term 
threat of China's forced technology transfers, their military 
investments, their outright theft, and their incredibly fast 
developing innovation ecosystem?
    Secretary Mnuchin. Thank you.
    Mr. Senator, I think as you are aware of, President Trump 
has been more aggressive than any previous President ever on 
dealing with the China trade issue. That is why we ended up 
with--proposed $150 billion of tariffs in a 301 report. It is 
because of those issues we have had a series of intense 
negotiations that are a framework. I can assure you that we are 
not looking at short-term gains. What we are looking at is 
creating opportunities for U.S. workers and U.S. companies to 
compete fairly there on a level playing field and to make sure 
that U.S. intellectual property and technology is protected. So 
that is absolutely the President's desire.
    Senator Daines. So I have been actively engaged for a long 
time and very specifically on the ground in China in areas of 
biotechnology, quantum computing, artificial intelligence, 
avionics.
    A very specific question, Secretary Mnuchin. Will you 
reject any trade proposals with China that would loosen or 
weaken existing restrictions on the export or transfer of U.S. 
military technologies and the advanced dual-use technologies 
because of the military-civilian fusion there as they think 
about things over there, jet engines, semiconductors, or 
helicopter technologies?
    Secretary Mnuchin. I would say that export control items 
are absolutely not on the table for discussions. We would in no 
way look to loosen that, and quite the contrary, I think we are 
aggressively looking at whether it is through CFIUS, with 
FIRRMA, or other means--the President has instructed me to 
review protecting those technologies. I could assure you this 
President is very focused on, as I have said, protecting 
American technology.
    Senator Daines. You brought up CFIUS, Mr. Secretary. I am 
glad you did. I think it is clear that the time has past where 
the U.S. can be complacent when it comes to China. The very 
real threats they pose to our national security need to be 
addressed directly and in a strategic and very thoughtful 
manner.
    As you chair the Committee on Foreign Investment in the 
United States, CFIUS, how can we best protect U.S. interests 
and our innovation while not unduly impeding foreign direct 
investment from our friends, as well as our allies?
    Secretary Mnuchin. Well, as I like to say, the United 
States is the most open environment for investment, and we want 
to keep it that way other than for national security issues. 
And the single most important thing is to pass the legislation 
that modernizes CFIUS, gives us the tools that we need. That is 
the first step and in my opinion the most important step for 
giving us tools. But I can assure you this administration is 
very focused, as I have said, on using CFIUS to the maximum 
amount available.
    Senator Daines. You have previously expressed some concerns 
that CFIUS does not currently cover joint ventures. I worked as 
part of a joint venture for 5 and a half years of a Fortune 25 
company in China. I was engaged just recently on the ground 
there in China with some very high profile American joint 
ventures there in Shanghai.
    Do you support legislation that would expand CFIUS 
jurisdiction to include joint ventures?
    Secretary Mnuchin. Yes. That may be one of the most 
important aspects of the new legislation.
    Senator Daines. Thank you, Mr. Secretary.
    Senator Lankford. Senator Boozman.
    Senator Boozman. Thank you, Mr. Secretary. Thank you for 
being here.

                             CYBERSECURITY

    Secretary Mnuchin, as you mentioned in your testimony, 
cybersecurity is a huge concern as we continue to move into the 
world where everything is digital. Could you expand on the role 
of the Cybersecurity Enhancement Account and how it helps to 
prepare us in combating cybersecurity threats?
    Secretary Mnuchin. Yes, Senator. I think it is a very 
important source of funds. But I would also just comment that 
cybersecurity is extremely important between the IRS, which is 
constantly under attack and, as you know, needs to protect very 
important taxpayer information, as well as our role in making 
sure that the financial system is protected. I do believe--and 
the Acting Commissioner and I have discussed this--although we 
spent a lot of money on technology at the IRS, we have not 
spent enough. He and I are looking at a 5-year plan to address 
these issues. But one of my most important priorities is to 
make sure that we protect our financial system and the IRS 
against cyber intrusions.
    Senator Boozman. I know being on the subcommittee for a 
while, having gone through the challenges that IRS and OPM have 
faced, how do you change the culture. We can increase 
technology, but a lot of it is just the culture of thinking in 
a different way, in a secure way.
    Secretary Mnuchin. I think we have many, many important 
people at the IRS that understand this culture and that every 
day make sure that they protect it. The Commissioner and I are 
very focused on using technology at the IRS, as Senator 
Lankford talked about in the tax gap. In my mind, one of the 
biggest ways of shrinking the tax gap is through additional use 
of technology as opposed to just throwing money at enforcement. 
But I think the acting Commissioner and myself have spent a lot 
of time. We meet monthly with the IT people there, and that, 
for both of us, is a major priority across the Department.
    Senator Boozman. Very good.
    Agriculture is one of the few areas where the U.S. actually 
runs a trade surplus, and it accounts for almost a third of 
Arkansas' overall economy. In many of Arkansas' small rural 
communities, in fact, much of Arkansas, it accounts for more 
like 90 percent of what is going on in the area's economy.
    I have heard from many of my constituents that simply the 
uncertainty that we are going on through right now is causing 
significant problems as far as their plans and costing them 
market share. For Arkansas' largest row crop, soybeans, every 
third row is exported to China. However, just last week it was 
reported that almost 1 million tons of soybean exports have 
been canceled. With 95 percent of the world's consumers living 
outside of the United States, our farmers need markets to sell 
their products. There are other countries who are chomping at 
the bit to take our market share.
    The University of Arkansas produced a report that noted if 
25 percent retaliatory tariffs are placed on rice, corn, 
soybeans, and sorghum, Arkansas will see job losses over 4,400, 
and our State's value-added economy would be reduced by $383 
million.
    And I know that you know all these things. You have been 
very good about visiting with Congress in small and big groups. 
You have been very, very available.
    Can you talk just a little bit--and I know you are hearing 
this over and over again, but it truly is an important thing 
that is going on with our economy, with our farm community, not 
just our farm community but everything. And one of the great 
enemies that we have seen in the past, over regulation, we are 
getting somewhat better at now. But now we are creating this. 
Can you talk just a little bit about trade and what you see in 
the foreseeable future?
    Secretary Mnuchin. Yes. Thank you very much.
    Let me just first comment on an overview that the 
President's economic plans are really beginning to kick in as a 
result of the tax cuts, regulatory relief, and trade.
    I think for the first time we are now seeing many 
projections of 3 percent and higher GDP. I think that we could 
have a GDP number that surprises us on the up side this year 
very significantly. The number one issue is creating economic 
growth.
    As part of that, our farmers are some of the most efficient 
in the world. This is a tremendous export for the United 
States. Whether it is the North American Free Trade Agreement 
(NAFTA) or whether it is China, our farmers have terrific 
opportunities not only to sell existing amounts, but they 
should be selling a lot more, and that was one of our specific 
discussions in China. But I can assure you the President is 
very focused on opportunities. Farmer income has gone down 
significantly, and we are looking to create better 
opportunities because as you said, these are great exports, and 
we need to make sure that there is certainty in long-term 
commitments for our farmers.
    Senator Boozman. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Lankford. Mr. Secretary, let me do a quick second 
round with us as well to be able to clarify some additional 
questions that we may have.
    The Office of Foreign Assets Control in March took on some 
of the Mexican heroin trafficking and then just earlier this 
month, there were countries and individuals in Venezuela and in 
Panama, that there were additional basically asset seizures and 
focus on trying to be able to deal with them and that 
trafficking coming in the United States.
    Are there additional authorities that Treasury needs to be 
able to deal with the counternarcotics work in our hemisphere? 
There are about $100 billion that is estimated to be moving 
from the United States just into Mexico in illicit trade and 
traffic. What other authorities do you need to be able to take 
that on that you do not have currently?
    Secretary Mnuchin. Thank you, Mr. Chairman. As you and I 
have discussed, this is a very big opportunity to stop the drug 
trafficking by following the money. I think we do have the 
authorities. We are working on putting together interagency 
groups to focus on this. We have used these sanctions 
successfully this year, and we will continue to do so. And we 
will work with our counterparts in Mexico and other countries 
to do that.
    Senator Lankford. You have asked for some additional 
funding in that area. We think it is very reasonable to be able 
to have some additional emphasis based on what we are facing 
with the opioid crisis in the United States and such. We will 
want to be able to follow up in the year ahead to see how that 
is spent and what is done and the benefit of that to the United 
States in that additional investment.
    Can I switch over to IRS? The IT investment. You and I have 
spoken as well. It seems like every year IRS comes back to us, 
asks for additional dollars and says we have a legacy system, 
so we need additional dollars for our IT to be able to improve 
that. That request has been out there about every 10 years in a 
row, and every year for 10 years or so, this Congress has given 
additional funds and targeted that area.
    At what point do we get on top of that, and how does that 
actually happen that we finally catch the IRS up into the 
technology that is needed?
    Secretary Mnuchin. Thank you, Mr. Chairman.
    Let me make just two comments.
    The first is I would just highlight we do have a request to 
transfer money between Taxpayer Services and Enforcement into 
Operations Support. While the headline sounds like it does not 
make sense, as I have explained to you, the reason why we have 
that request is we run the entire technology budget through 
Operations Support. What will probably make more sense over 
time is to allocate the technology budget to Taxpayer Services 
and Enforcement and Operations. The money that we are 
requesting to transfer is to spend technology dollars on 
Taxpayer Services and Enforcement. I believe that is a much 
better long-term way of delivering taxpayer support and 
enforcement. That is issue number one.
    Issue number two. I think you know we did have a technology 
problem this year on tax day. That is something that as far as 
I am concerned is completely unacceptable to have the IRS 
systems go down. As a result of that, as I have said, we are 
doing a complete review. I think that we have come back and 
always focused on the most pressing issues. But I am determined 
that we have a plan to bring the IRS into the modern age of 
technology. Right now, as I have said to you, we are looking at 
that seriously.
    Senator Lankford. It is my understanding that there is in 
development a 5-year plan basically to be able to lay out how 
to be able to catch IRS up and what to be able to do with 
technology. Is that the current plan?
    Secretary Mnuchin. I have asked the Commissioner and the 
team to work on that. We meet every day with the Commissioner 
because he is busy on tax implementation. But this is a major 
focus that I have asked the Commissioner to work on and for us 
to make sure we come back and brief you on.
    Senator Lankford. When do you think we would get that plan, 
at least the draft of it, to be able to see how----
    Secretary Mnuchin. I hope to, within the next 90 days, be 
able to come back and give you a preliminary update.
    Senator Lankford. That would be helpful because, obviously, 
we need to be able to look at how we are going to allocate the 
funding for that to be able to support that and to be able to 
have the completion.
    The Committee on Foreign Investment that you are so 
incredibly engaged in, that has been such a conversation at 
this point of how we are going to handle that--do you have the 
funding that you need to be able to deal with that particular 
area? Because that is a growing threat for us. What do you need 
that you do not have that is additional to what you have 
requested?
    Secretary Mnuchin. We have asked for some additional 
funding under the current resources. But if FIRRMA does pass, 
which we hope it does, we will need additional funding.
    Senator Lankford. Do you have a good idea of what that will 
be for that additional funding?
    Secretary Mnuchin. I would rather privately come and brief 
you and the subcommittee Members on that since it is pending.
    Senator Lankford. Senator Coons and I will look forward to 
that conversation then to be able to talk about where we are 
going long-term on those issues.
    Obviously, there is a difference in funding needs because 
Treasury is now working with the Office of Information and 
Regulatory Affairs (OIRA) and to be able to work through the 
IRS. Do you have the funding that you need for the additional 
regulatory responsibilities and the answers to be able to get 
back to OIRA and that coordination back and forth. Is there an 
additional responsibility--that because of the additional 
responsibility, do you need additional funding in that area?
    Secretary Mnuchin. I believe we put in some additional 
requests for next year for that.
    Senator Lankford. Okay. We will go through that as well.
    You may be surprised that some community banks are coming 
and knocking on our door asking questions about interaction 
with Treasury and such. The Customer Due Diligence Rule is one 
of those issues that there has been some questions about. This 
is a long-term issue and has been discussed again for years.
    What steps are being taken to allow community banks to be 
able to have their issues heard and to make sure that they are 
being heard and we are not running over the top of them, 
obviously. Large banks, community banks--very different 
staffing issues, and when you deal with the customer due 
diligence issue, that is very different for them.
    Secretary Mnuchin. Yes, I can appreciate that. On the one 
hand, we are trying to balance the important Bank Secrecy Act 
(BSA) requirements, as well as making sure that community banks 
can enforce these issues without being burdened by undue amount 
of costs. We have had the opportunity to meet with many of the 
community bank representatives, and we are working through 
those issues.
    Senator Lankford. What do you think the timing is to try to 
resolve that to make sure that is fully resolved?
    Secretary Mnuchin. We will try to come back to you and give 
you an update within the next month on that.
    Senator Lankford. That would be helpful.
    One last question for me and I am going to recognize the 
Ranking Member as well for an additional set of questions.
    The Judgment Fund has been an issue for awhile, just in 
basic transparency. That is an area that Congress has delegated 
out that responsibility years ago to make sure that there is 
not a continual vote every time that there needs to be a 
decision on it. But the Judgment Fund in recent days has been 
used--not in the last year, but in the last decade has been 
used for some rather creative ways.
    How do we get greater transparency into how the Judgment 
Fund is actually used to make sure that Congress sees that it 
is actually being used in ways that it is intended?
    Secretary Mnuchin. Well, let me say I fully appreciate this 
issue. At Treasury, we are merely the fiscal agent on that 
fund. So like many other areas of the Government, we are 
responsible for the disbursement of the funds. But to the 
extent that the requests come in with the necessary 
authorization, we merely process it.
    I would suggest that this is, again, an issue that perhaps 
we can come back to you on. Right now, the information that we 
collect is rather limited around the processing of those 
payments, and when we get the requests, we make sure that they 
are properly authorized. But we are not focused on the issue 
within our area of the reasons for the payments.
    Senator Lankford. Senator Coons.
    Senator Coons. Thank you for your clarification, Mr. 
Secretary, about a reallocation to Operations that in your view 
may end up supporting Taxpayer Services and Enforcement. I 
would welcome a little more detail on that.
    Let me move to one of the consequences of the tax law that 
I am concerned about. According to the nonpartisan Tax Policy 
Center, charitable giving may fall by as much as $13 billion 
per year because of changes in the tax law. Charities, as you 
well know, provide vital community services, education, health, 
and others. And given downward pressure on the State and local 
government spending in these areas as well, I am very concerned 
about what this might mean for our communities.
    Are you concerned about a potential decrease in charitable 
giving? And would you support legislation that would allow 
individuals to claim the charitable deduction without having to 
itemize, the so-called universal charitable deduction?
    Secretary Mnuchin. Well, first, let me just say I think 
charitable contributions are an important part of communities 
and our society and are actually a very good and important 
alternative to government spending.
    I think that the tax bill will encourage more charitable 
donations. One of the things we were very focused on is not 
putting a cap on charitable donations. There were people who 
proposed that. We did not support that.
    I think what you are suggesting is that perhaps because of 
the simplification, that somehow or another it does not create 
the incentives. I am not sure I agree that will be the outcome. 
But this is something I would suggest if, over time, that 
indeed has the outcome, that we look at it and potentially 
address it. But I do not expect that in the short term.
    Senator Coons. Well, I would welcome a chance to work with 
you if we, indeed, see an emerging significant drop in 
charitable giving.
    As you may well know, buried in the tax code is a provision 
called the Master Limited Partnership (MLP) that has long been 
taken advantage of by the energy sector to build out 
infrastructure such as pipelines and create energy and 
infrastructure jobs. MLPs are taxed as a partnership, but 
ownership interests are trade like a corporate equity. But by 
statute, oddly, they can only be used by a narrow segment of 
energy, nonrenewable energy.
    I have worked with a number of Republicans and Democrats--
Senator Moran on this subcommittee is an early cosponsor--to 
broaden the number of uses to which MLPs can be put in the 
energy sector so we are not picking winners and losers. It has 
both bipartisan and bicameral support.
    Are you familiar with MLPs and the benefits they provided 
to infrastructure in our energy sector? And do you think 
expanding MLPs to all forms of energy might be a wise way to 
expand infrastructure investment opportunities?
    Secretary Mnuchin. I am very familiar with MLPs and the 
role that they serve. I am less familiar with the issue, as you 
have suggested, about expanding them. But I will consult with 
our Office of Tax Policy and look at that and would be happy to 
review that with you.
    Senator Coons. It is a conversation I have had with both of 
your predecessors who tended to oppose pass-through entities. I 
think we are in a different environment now, and I am hopeful 
that we might have a constructive conversation about it.
    I share your hope that charitable giving does not go down, 
but I also wanted to raise a concern about deficits more 
broadly.
    As a potential consequence of the tax bill, the chief 
economist of Goldman Sachs said yesterday that his projection 
is that the current deficit is $825 billion. By 2021, it will 
go to $1.25 trillion; by 2028, to $2.05 trillion. All of this 
creating upward pressure on interest rates and I think 
potentially harming growth, which is the principal goal that 
you have identified.
    Do you think at some point, if deficits and the national 
debt continue to grow, that we should reconsider some of the 
provisions of the tax bill?
    Secretary Mnuchin. I do not necessarily think we should 
reconsider certain provisions of the tax bill. I continue to 
think that if we hit our targets on GDP, that the tax bill will 
pay for itself.
    But I do share your concerns about deficits overall. I 
think as it relates to the spending issue, the President was 
very focused on increases in military spending, and increases 
of non-military spending went along with that. I do think that 
deficits are something we do need to look at and address. But 
our primary goal right now is economic growth.
    Senator Coons. Let me ask you a last question, if I might.
    I was deeply concerned by recent reports that important 
financial information about Michael Cohen, President Trump's 
personal attorney, could not be located by law enforcement. A 
whistleblower from U.S. law enforcement said two suspicious 
activity reports on money paid to Mr. Cohen's account were 
missing.
    Can you say that the Treasury Department did not remove, 
distort, or destroy any suspicious activity reports (SARS) 
related to Michael Cohen?
    Secretary Mnuchin. Mr. Senator, first of all, I very much 
appreciate you asking me this question because I think there 
has been misinformation on the press about this.
    As we have recently said, let me first comment that I 
personally have not been involved in any of the procedures or 
anything associated with this. But I will also comment--we do 
have procedures where at the request of law enforcement 
agencies, we do have the ability to suppress important 
information, and for different law enforcement reasons, as you 
can appreciate, this is often done.
    Now, let me also just be clear. I am not making any 
comments whether this was or was not done, as it relates to 
these specific SARs, but I do want to comment that the 
Financial Crimes Enforcement Network (FinCEN) does have a 
longstanding policy of accommodating the enforcement agencies 
on that.
    I would also comment that our Inspector General is 
reviewing the issue of leaks. At least there is the appearance 
that some information may have gone out. I have seen articles 
that actually reference employees who claim they released 
information because they thought things that were suppressed. 
There is no excuse whatsoever for anybody who has access to 
these important systems to release information on an 
unauthorized basis, and I can assure you our Inspector General 
is reviewing these issues very carefully.
    Senator Coons. If I might, Mr. Secretary, I appreciate that 
your IG has been directed to investigate leaks. Is the IG also 
investigating whether or not there has been any inappropriate 
interference with the SARs that are alleged to be inaccessible 
or missing?
    Secretary Mnuchin. Again, they are reviewing everything 
associated with the information of the SARs, both the 
technology issues, the issues around logging. Again, I can 
assure you that they are doing a thorough review because this 
system of SARs is absolutely critical to our entire FinCEN 
effort, and we need to make sure that it is in no way at risk.
    Senator Coons. I am glad you are committed to the integrity 
of the Financial Crimes Enforcement Network and to hear that 
the Inspector General is looking at this broadly. And I would 
look forward to any follow-up from you on this. Thank you, Mr. 
Secretary.
    Senator Lankford. Mr. Secretary, one quick question, as 
well as a follow-up on what Senator Coons was talking about 
also. It is a big concern for me, and that is the charitable 
giving side.
    One of the challenges that we have had is getting up-to-
date information. Often when we go back to IRS and say tell us 
the tracking on this, they will give us the information that 
may be 4 years old. With the charitable giving and that change, 
that is something we are going to have track pretty carefully 
to be able to see if that was a wise choice. There are, at this 
point, guesses on how that will happen, but it is all educated 
guesses as we go through the process of what that will mean for 
charitable giving in the days ahead.
    How quickly do you think we can get accurate tax 
information at the end of this next year to be able to see what 
actually happened in charitable giving and the changes?
    Secretary Mnuchin. I think we will have some pretty good 
data so that we could begin to see the impacts of that.
    Senator Lankford. Do you think that will take 18 months? Do 
you think that will take 6 months? How long do you think it 
will be before we get some good guesstimates?
    Secretary Mnuchin. I am going to have to confer with the 
Commissioner on that, but you are free to ask him that 
question.
    Senator Lankford. We will follow up as well. It is just one 
of the things we will want to be able to look at. I would say 
from my perspective, I do not want to have to wait 3 years to 
be able to get the last year's information. If possible, to be 
able to get a rolling year-to-year comparison would help us.
    Secretary Mnuchin. I can assure you I do not want to wait 
for 3 years either, and we will get that to you.
    Senator Lankford. It would be very helpful.
    Secretary, thank you for being here. You have always been 
very open to answering questions. You have been available when 
we have asked you to be able to come in the office, even 
available by phone. So thank you from both of us and from our 
subcommittee to be able to walk through this. I appreciate you 
testifying before the subcommittee today.
    At this point, we are going to have a brief pause here as 
we transition to our second panel with the Acting Commissioner 
David Kautter.
    Thank you again, Mr. Secretary, for being here.
    [Pause.]
    Senator Lankford. Mr. Kautter, being the Commissioner of 
the IRS is an incredibly difficult task. Being the Acting 
Commissioner is even more difficult because you are always in 
flux and in transition. We appreciate you stepping up and being 
able to take the leadership and to be able to walk us through 
this. I look forward to receiving your testimony.
                              ----------                              


                        INTERNAL REVENUE SERVICE

STATEMENT OF DAVID J. KAUTTER, ACTING COMMISSIONER
    Mr. Kautter. Thank you, Mr. Chairman and Ranking Member 
Coons, and Members of the subcommittee. Thanks for the 
opportunity to discuss the IRS budget and current operations.
    I want to begin by thanking Congress and especially this 
subcommittee for providing the IRS with an increase in funding 
for fiscal year 2018 in the omnibus budget bill. This funding 
will allow the IRS to continue delivering on critical 
priorities, including improving taxpayer service, updating our 
information technology infrastructure, increasing 
cybersecurity, and safeguarding taxpayer data.
    I also want to express my appreciation for the additional 
$320 million in funding to implement the Tax Cuts and Jobs Act 
and for the flexibility we were given to shift resources 
between accounts. Implementing the new tax law is a critical 
priority for the IRS this year and next. Our goal is to ensure 
taxpayers and tax professionals can understand and navigate the 
changes made by the new law.
    Implementing tax reform is a huge undertaking. We estimate 
that the IRS will need to create or revise more than 400 tax 
forms, publications, and instructions. We will need to publish 
extensive guidance, including regulations, notices, and 
frequently asked questions. And we will need to reprogram about 
140 interrelated tax return processing systems to be ready for 
the 2019 filing season. So I am extremely grateful that we 
received this additional funding in the early stages of our 
work on the new tax law. It ensures we can start critical 
implementation activities on time, and knowing funding is 
available through next year allows us to let contracts 
appropriately and have the resources needed to test our 
processing systems in the first quarter of fiscal year 2019.
    The broad scope of our efforts required us to begin 
implementation work almost as soon as the law was enacted last 
December. We worked on implementing the new tax law while we 
were administering the 2018 tax filing season. So far, we have 
issued over 70 pieces of public guidance and have drafted most 
of the revised tax forms we will need for 2018. We are 
finishing up the instructions for those forms and plan to 
release the forms and instructions for public comment over the 
summer.
    Even with this challenge, I am pleased to report the filing 
season went well overall despite a system outage on April 17 
that prevented the IRS from accepting electronically filed 
returns and some payments for about 11 hours. Later that day, 
we are able to bring our systems back up, and we subsequently 
received and processed 14 million electronic submissions. 
Within 24 hours of the onset of the outage, the IRS had fully 
recovered and was current in its processing.
    For the filing season as a whole, IRS received a total of 
more than 139 million individual returns. We have issued more 
than 99 million refunds for more than $275 billion. About 80 
percent of returns filed so far have claimed a refund, with the 
average refund totaling approximately $2,800, which is about 
the same as last year.
    Looking ahead, the President's fiscal year 2019 budget 
requests an appropriation of $11.497 billion for the IRS, which 
is $11.135 billion in base resources, plus $365 million 
provided through a program integrity cap adjustment. The 
President's budget submission seeks less costly ways of 
delivering taxpayer service and maintaining enforcement using 
technology, training, and internal efficiencies. The budget 
balances competing priorities and increases funding to 
operations support by 6.2 percent.
    Dedicated funding is needed now to modernize IRS hardware 
and software so that we have the technology needed to run the 
day-to-day operations, transform the taxpayer experience, 
improve cybersecurity, and ensure we can continue to safeguard 
taxpayer data.
    The IRS is subject to 2.5 million cyber attacks on average 
each day, 1 million of which are sophisticated attacks. Some of 
the attacks are referenced to acquire taxpayer data, and some 
are efforts to disrupt the functioning of the U.S. Government. 
Against this backdrop, it is important to realize that 59 
percent of IRS hardware and 32 percent of its software is 
obsolete.
    In regard to taxpayer service, we understand Congress' 
concern and are taking steps to improve service through a 
multi-channel approach.
    It is important to underscore the fact that taxpayer 
service is funded not only by the Taxpayer Service 
Appropriations Account but also from the Operations Support 
Account. For example, funds from the Operations Support Account 
pay for the phones, computers, and office space for our 
Taxpayer Assistance Centers.
    I would also note that the investments needed to improve 
IRS information technology that I mentioned a moment ago are 
critical to our efforts to improve taxpayer service. IT is the 
backbone for how we serve taxpayers today.
    In addition to ensuring adequate funding for the agency, 
Congress can also help IRS by enacting three pieces of 
legislation that will improve tax administration, renewing 
streamlined critical pay authority, allowing correction 
procedure for specific areas, and giving IRS authority to 
require minimum qualifications for tax return preparers. These 
provisions, along with the other items highlighted in the 
budget, will help the IRS continue building on its work to 
serve the Nation's taxpayers.
    That concludes my statement. I would be happy to take your 
questions.
    [The statement follows:]
              Prepared Statement of Hon. David J. Kautter
                              introduction
    Chairman Lankford, Ranking Member Coons and Members of the 
subcommittee, thank you for the opportunity to discuss the IRS's budget 
and current operations, including efforts to improve taxpayer service.
    In allocating resources, the IRS strives to balance three competing 
and overarching priorities: basic tax administration, sustaining our 
information technology (IT) systems and modernizing our operations. The 
President's fiscal year 2019 budget request attempts to balance these 
priorities by investing in key mission-critical requirements and build 
on the work the IRS has already begun in fiscal year 2018 to implement 
the Tax Cuts and Jobs Act.
    This piece of legislation was the first major tax reform 
legislation in more than 30 years. With hundreds of provisions intended 
to provide relief to American families and make America's businesses 
more competitive, the new law will require extensive work by the IRS in 
calendar years 2018 and 2019 to serve the needs of both taxpayers and 
tax professionals. We appreciate the additional $320 million approved 
by Congress as part of the omnibus budget bill for fiscal year 2018. 
This funding enables the IRS to start critical implementation 
activities on time, and we transmitted updated implementation plans and 
cost estimates to Congress recently.
    In addition, the IRS has been focused on implementing the tax-
related provisions in the Bipartisan Budget Act enacted in early 
February. Retroactive extension of tax provisions requires the IRS to 
reprogram its tax return operating systems during the filing season, 
and by late February the IRS had completed system reprogramming for the 
three benefits most likely to be claimed on tax returns early in the 
tax filing season. Since then, the IRS has completed reprogramming its 
systems, and has updated the necessary forms and instructions, to 
accommodate the other extender provisions in the Budget Act.
    The IRS remains mindful of the need to do everything possible to 
provide taxpayers and their representatives with secure, high-quality 
assistance and services, through every available channel. The agency 
spends a significant amount of time and resources each year working to 
fulfill this critical part of our mission, and our workforce remains 
dedicated to helping taxpayers understand and meet their filing 
obligations. Taxpayer needs have been evolving, with more taxpayers 
conducting their business using digital tools at the time and place of 
their choosing. The fiscal year 2019 budget invests resources to meet 
these needs by reducing dependency on a single point of entry and 
ensuring the IRS meets the needs of all taxpayers.
    The most visible service the IRS provides each year is delivery of 
a smooth tax filing season. I'm pleased to report that the 2018 filing 
season began on schedule on January 29 and went well overall, despite a 
system outage on April 17 that prevented the IRS from accepting 
electronically filed returns and some payments for about 11 hours. 
Later that day we were able to bring our systems back up, and we 
subsequently received 14 million electronic submissions. Within 24 
hours of the onset of the outage, the IRS had fully recovered and was 
current in its return processing. For the filing season as a whole, the 
IRS received more than 139.9 million individual returns through April 
27. We have issued more than 99.5 million refunds for more than $275.7 
billion, with the average refund totaling approximately $2,800. The 
average phone level of service (LOS) on our toll-free lines for the 
filing season was about 80 percent. During calendar year 2017, the IRS 
received more than 150 million individual income tax returns, 87 
percent of which were filed electronically.
                the president's fiscal year 2019 budget
    The President's fiscal year 2019 budget request of $11.135 billion 
includes savings and reductions of $24.5 million and more than 2,200 
full-time equivalent equivalents (FTE) compared to the fiscal year 2018 
enacted level (excluding the one-time funding of $320 million provided 
for tax reform in the final bill).
    The budget invests in high-priority programs to allow the IRS to 
assist more taxpayers by becoming more efficient and effective. The 
budget also invests in technology and data analytics, to focus 
compliance and enforcement contacts on closing the tax gap, and to 
protect taxpayer refunds from fraud. Importantly, the budget increases 
funding for security and replacing obsolete hardware to protect 
taxpayers' sensitive data from growing cyber threats. In addition, the 
budget requests modest changes to the IRS transfer and reprogramming 
authority to provide the IRS with the flexibility necessary to manage 
its resources more effectively.
Taxpayer Services
    The President's budget request includes $2.24 billion for taxpayer 
services. We will continue our investments in improving the use of 
online tools and offerings and modernizing the taxpayer experience. The 
IRS is mindful of the need to continually improve our efforts to ensure 
taxpayers can file their taxes as quickly and easily as possible. We 
will continue expanding opportunities for taxpayers and their 
representatives to complete service and compliance interactions through 
their preferred channel, be it online, over the phone, or in-person at 
one of the IRS's many Taxpayer Assistance Centers (TACs).
    Over the last several years the IRS has launched a number of 
digital applications that allow taxpayers to conduct various 
transactions online, such as paying their tax bill, having access to 
certain return information, and requesting an online payment agreement. 
Our work in this area also includes continuing the development, over 
time, of online accounts at the IRS where taxpayers can log in 
securely, obtain the information they need about their account and 
interact with the IRS as needed.
    Effectively serving taxpayers who prefer to be served through 
electronic channels allows the IRS to reduce costs, increases taxpayer 
satisfaction and frees up funds to serve those taxpayers who prefer to 
be served differently. Not only that, efforts to continue improving our 
online offerings will allow the IRS to simplify return filing for the 
vast majority of taxpayers. Enhancing taxpayer service in this way will 
in turn increase voluntary compliance, improve tax administration and 
increase taxpayer satisfaction.
Operations Support
    The President's budget request includes $4.16 billion for 
operations support programs including rent, cyber and physical 
security, IT services for all IRS employees, and core tax processing 
and compliance systems. Within that total, $2.29 billion is allocated 
for information services.
    The management, maintenance, and ongoing enhancement of the IRS's 
information technology systems are central to the reliability of its 
operations, and to the successful accomplishment of its mission. The 
2019 budget includes dedicated funding to refresh IRS hardware and 
software to provide a stable foundation for delivering technology 
services required for day-to-day operations, transforming the taxpayer 
experience, and modernizing IRS operations.
    At the end of fiscal year 2017, more than 59 percent of IRS 
hardware was past its useful life compared to 64 percent at the end of 
fiscal year 2016, and 32 percent of software was two or more releases 
behind the most current commercially-available version. The fiscal year 
2019 budget provides $187.8 million to enable the IRS to implement 
critical hardware and software upgrades and reduce system outages and 
failures.
    Sustained investments in IT are also required to improve 
cybersecurity and ensure the IRS can continue to safeguard taxpayer 
data. The IRS combats more than 1 million cyberattacks daily, and 
operates strong network perimeter defenses to mitigate threats, detect 
vulnerabilities and monitor network security. The 2019 budget includes 
$303.7 million for these critical activities.
Enforcement
    The President's fiscal year 2019 budget includes $4.63 billion for 
enforcement programs. In addition, the budget also includes a program 
integrity cap adjustment for improving the effectiveness and efficiency 
of the IRS's overall tax enforcement program.
    The IRS remains committed to increasing compliance by assisting 
taxpayers in fulfilling their tax obligations and enforcing the tax 
laws. As a result of these efforts, the agency remains one of the most 
cost-effective investments within the Federal Government. In fiscal 
year 2017, the IRS collected $3.4 trillion in revenue to fund the 
Federal Government, which represents more than 90 percent of all 
Federal receipts, and resources invested in the agency lead to 
significant revenue increases for the Nation.
    One of the IRS's highest priorities remains the effort to combat 
tax-related identity theft and refund fraud. Protecting taxpayers and 
their personal data from identity theft is a critical aspect of 
taxpayer service, and the IRS has worked to improve its efforts in this 
critical area. During fiscal year 2017, the IRS continued increasing 
taxpayer protections to make filing a tax return as safe and secure as 
possible. As a result, the number of fraudulent refunds declined and 
the number of taxpayers reporting to the IRS that they were victims of 
identity theft has also declined. The number of victim reports declined 
from 401,000 in calendar year 2016 to 242,000 in 2017, a drop of 40 
percent.
Business Systems Modernization
    The President's budget includes $110 million for business systems 
modernization. To gain efficiencies, secure and protect data, and 
reduce the resources necessary to maintain existing systems, the IRS 
will continue efforts to modernize its systems. Our main initiatives in 
this area are: expanding the digital conversion of paper case files, 
automating repetitive manual processes, leveraging existing data to 
detect tax noncompliance earlier, and enabling a strong and secure 
systems platform for taxpayer-facing applications.
                      implementing the new tax law
    Implementing the Tax Cuts and Jobs Act is one of the IRS's highest 
priorities. The IRS has established a Tax Reform Implementation Office, 
led by senior leadership, to ensure its successful administration. Our 
efforts to implement this new law began shortly after its enactment. 
For example, the IRS issued two important pieces of guidance related to 
the new law on December 29, 2017: notices that address amended section 
965 of the Internal Revenue Code and the new section 1446(f). 
Subsequently, the IRS has issued additional guidance relating to 
section 965, including a set of Frequently Asked Questions that deal 
primarily with how to report the transition tax.
    Additionally, the IRS and the Treasury Department have been working 
to update the income tax withholding process to take into account 
changes made by the new statute that affect virtually every taxpayer 
who receives a paycheck. In early January, we released updated 
withholding tables for 2018. In late February we released an updated 
version of our online Withholding Calculator on IRS.gov, which 
taxpayers can use to help them ensure the correct amount of tax is 
being withheld from their paychecks. At the same time, we released a 
revised Form W-4, Employee's Withholding Allowance Certificate, that 
more fully reflects the new law.
    Additional published guidance on the new tax law will be provided 
as the Treasury Department and the IRS continue to analyze the law and 
its impact on tax administration. The 2017-2018 Priority Guidance Plan 
issued by the Treasury Department and the IRS includes projects related 
to the law, and updates to the plan are published periodically.
    Activities to implement tax reform include: re-programming 
approximately 140 interrelated return processing systems in conjunction 
with creating or revising approximately 450 tax forms, publications and 
instructions; publishing guidance, notices, and Frequently Asked 
Questions (FAQ); preparing the IRS workforce to help taxpayers 
understand how the new law applies to them; and importantly, providing 
taxpayer assistance and outreach.
    The estimates for these activities reflect one-time costs 
associated with updating major systems and enabling the IRS to quickly 
respond to the new tax law changes and anticipated higher taxpayer 
demand for assistance in 2018 and 2019. As with other major 
investments, the IRS expects some recurring operations and maintenance 
costs which will be funded within base appropriations.
    legislative proposals in the president's fiscal year 2019 budget
    Along with the funding requested in the President's fiscal year 
2019 budget, we are also asking for Congress's help legislatively, 
particularly in four important areas that would improve tax 
administration and support the IRS in fulfilling its mission:
Program Integrity Cap
    In addition to the base appropriations request of $11.135 billion, 
the fiscal year 2019 budget proposes a $362 million program integrity 
cap adjustment to fund new and continuing investments in expanding and 
improving the effectiveness and efficiency of the IRS's overall tax 
enforcement program.
    The budget also proposes a program integrity cap in the outyears to 
fund new initiatives and inflation. The investments will generate about 
$44 billion in additional revenue over 10 years and will cost about $15 
billion for net savings of $29 billion. Notably, the return on 
investment (ROI) likely is understated because it does not reflect the 
effect that enhanced enforcement has on deterring noncompliance.
Streamlined Critical Pay Authority
    The IRS Restructuring and Reform Act of 1998 increased the IRS' 
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 move quickly to 
hire well-qualified individuals to fill positions deemed critical to 
the agency's success, and that required expertise of an extremely high 
level in an administrative, technical or professional field. Executives 
hired under this authority included our former Chief Information 
Officer, a senior cybersecurity expert, our system architect, the 
director of our online systems development team and other senior IT 
executives. This authority expired at the end of fiscal year 2013. The 
last appointment made under Streamlined Critical Pay authority expired 
on September 29, 2017. Without this authority, the IRS continues to 
face challenges recruiting and retaining top-level talent, especially 
IT professionals who can help modernize our IT systems and protect 
taxpayer data from cyberattacks. The President's fiscal year 2019 
budget request proposes reinstating this authority through fiscal year 
2022.
Correction Procedures for Specific Errors
    Under current law, 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 a proposal in the President's fiscal 
year 2019 budget to provide the IRS with greater flexibility to correct 
specific errors on taxpayer returns. This proposal would allow the IRS 
to correct errors in cases when the information provided by the 
taxpayer does not match the information contained in government 
databases, or when the taxpayer has exceeded the lifetime limit for 
claiming a deduction or credit.
Authority to Require Minimum Qualifications for Return Preparers
    The President's budget request proposes providing the Secretary 
with explicit authority to require that all paid tax return preparers 
have a minimum knowledge of the Code. This is especially important to 
ensure that the estimated 400,000 tax preparers without credentials can 
meet minimum standards for competency. Incompetent and dishonest tax 
return preparers harm taxpayers by subjecting them to potential audits 
and by potentially subjecting them to penalties and interest as a 
result of incorrect returns. Requiring all paid tax preparers to keep 
up with changes in the Code would help promote high-quality service 
from preparers, improve voluntary compliance and foster taxpayer 
confidence in the fairness of the tax system.
    Chairman Lankford, Ranking Member Coons and Members of the 
subcommittee, that concludes my statement. I would be happy to take 
your questions.

    Senator Lankford. Thank you very much for your statement 
and your preparation and the ongoing work there in that role.
    Let me get right to a couple issues and we will try to 
clear this up and have an ongoing dialogue.

                             IRS TECHNOLOGY

    The first of which, let us talk about tax day and about 
filing, the 11-hour time period that there was the shutdown of 
the system. It is my understanding--though you had mentioned 
about 59 percent of the hardware is obsolete that is within our 
current system. My understanding is the particular piece of 
hardware that failed there was only a year and a half old at 
that point. Help us walk through the mechanics of what happened 
and how we are avoiding that for next year.
    Mr. Kautter. Certainly. So you are correct, Senator. The 
equipment that failed is a year and a half old. It was what is 
called firmware, which is the software that actually runs the 
mainframe computer. These mainframes are in operation around 
the globe. This particular problem has only ever occurred once 
before. So it so happens that it happens on the last day of 
filing season. But we were able to quickly diagnose the 
problem. Within 12 hours of the problem having occurred, we had 
the systems back up and running. We did it on a planned basis 
where we started out small and then opened it up wider. Within 
24 hours of the system problem, we had processed all the 
returns that were in the system and we were back up and 
running.
    I think one of the lessons that we have learned, frankly, 
from this last episode is that probably during the peak of 
filing season, we need to keep our backup system up and running 
simultaneously with our mainframe systems.
    Senator Lankford. This 5-year plan that is being discussed 
that the Secretary just mentioned--in the next 90 days, we will 
get some kind of update on that. How engaged are you in that 
process?
    Mr. Kautter. I am very involved in it. In fact, it is hard 
for me to meet with the Secretary without him mentioning it. We 
are well along the road for developing that plan. We have got a 
pretty good outline of all the systems and the detail behind 
it. And right now, we are working on the cost of updating the 
systems in various stages.
    But the IRS I think has done a fairly good job of 
strategically investing the technology dollars that it has. The 
hardware that runs the core filing system is up-to-date and 
current. The language that runs on those mainframes is not up-
to-date and current. It is, frankly, a language from the 1960s. 
It is a solid language. It is stable. We can use it. But having 
the ability to use more modern language so the systems can be 
better integrated would be very beneficial to the IRS and 
efficient operating of the filing systems.
    The other aspect. By using that old language, Mr. Chairman, 
the system is built block upon block. It is not an integrated 
system. So although we have got modern hardware, the software 
is really our Achilles heel. And I frankly personally, having 
been in the job 6 months and coming from the private sector, my 
sense is the best way to deal with this is is going to be in a 
major, comprehensive way. I think dealing with it in an 
incremental approach is going to be highly inefficient and is 
not going to get the sort of efficiencies that you are looking 
for.
    Senator Lankford. I would say when we hear ``major, 
comprehensive way,'' we typically hear outside contractor 
coming in, charging us a fortune for their consulting services 
and doing a few things. We will want to be able to have an 
ongoing dialogue to be able to make sure that at the end of it, 
3 years later, IRS is not coming back and saying we still have 
legacy systems. Millions were invested and most of it went to 
contractors rather than to actually solving the problem.
    Mr. Kautter. I think that is fair. And I also think it is 
fair to say the IRS in the past has not done a particularly 
good job with respect to its technology dollars. The leadership 
team that is now in place in the IRS on the operations support 
side has been in place less than 2 years. The Deputy 
Commissioner has been in his job just a little over 2 years, 
and the eight primary deputies have all been in their jobs 
under 2 years. So I think it is a new team that is energetic, 
knowledgeable, and I hope and I believe will get a different 
result.
    Senator Lankford. Let me ask you about the new tax regime 
and trying to be able to shift over to a new system. At this 
point, are you on schedule with the transition for the 2018 
filing?
    Mr. Kautter. Yes, sir. We have all the forms drafted. We 
are working on the instructions. They will be done within the 
next 2 weeks. The plan is for the forms and the instructions to 
be released over the summer for public comment. The 
publications that need to be amended are well in process of 
being amended and are on track.
    The most time-consuming and expensive part of tax reform 
implementation is technology. For the $397 million request we 
originally made, 73 percent of that is for technology. We have 
already started to develop the software to implement tax 
reform. The major piece that is left is guidance. We expect to 
have proposed regulations on most of the major pieces of the 
tax reform out by the fall. So we are on track. You could 
always do better. We could always move a little faster, but I 
think we are in pretty good shape.
    Senator Lankford. It is my understanding there is a $77 
million request that is the second tranche. Is that a correct 
number?
    Mr. Kautter. Yes, sir. That is correct.
    Senator Lankford. Let me recognize the Ranking Member, 
Senator Coons.
    Senator Coons. Thank you, Chairman Lankford.
    Mr. Kautter, providing access to quality customer service 
helps American taxpayers understand their obligations so they 
can pay the right amount in a timely way. It is important to me 
that Delawareans, Americans are able to get the assistance they 
are seeking from the IRS so that they can, in good faith, pay 
the taxes they owe. For several years, for much of my time on 
this subcommittee, the IRS service level has, frankly, been 
awful and unacceptable. In 2015, only 38 percent of calls to 
the IRS were answered, and callers, American taxpayers, 
experienced an average waiting time of more than 30 minutes. 
Those service numbers have come back up significantly this 
year. Yet, as I understand your budget proposal, it is to make 
headcount cuts that will bring it back down. In fact, I think 
your goal for this coming year is, again, that 39 percent of 
calls to the IRS are answered. And that means if you reach that 
goal, the majority of American taxpayers calling with questions 
will never reach anyone to get an answer.
    Why is that an acceptable goal for the IRS? And how do we 
return to a level of service experienced back in 2004 when the 
IRS answered 87 percent of phone calls and wait times averaged 
just 2 and a half minutes?
    Mr. Kautter. Well, Senator, let me respond in two ways.
    First of all, in putting together the budget, we had to 
make some choices between funding. And given the increasing 
number of cyber attacks, the sophistication of those attacks, 
and the age of some of the software and hardware that we have 
at the IRS, the decision was made to invest in operations 
support. Now, that is short term. It is not forever. And we 
talked about funding for technology to get the IRS up to speed. 
But it is just a hard choice that we had to make.
    Second, with respect to level of service, if you look at 
the IRS response to telephone calls, you find a wide array of 
response between various phone lines that the IRS operates. The 
phone line for taxpayers calling to ask questions of the IRS, 
individual taxpayers--the level of service for that over the 
last filing season was 80 percent. And I do not mean to 
minimize the fact that other lines are not answered nearly as 
quickly. But with respect to that line, it is 80 percent.
    Senator Coons. And given the hard choices you are 
referencing, do you expect it to continue to be 80 percent this 
coming filing season?
    Mr. Kautter. Under the budget that has been submitted, it 
would be less than 80 percent.
    Senator Coons. How much less than 80 percent?
    Mr. Kautter. It would probably be in the 60-65 percent 
range.
    Senator Coons. So about 40 percent of Americans who call 
looking for assistance, given a sweeping tax code reform, the 
biggest in 30 years, about 40 percent would not get an answer.
    Mr. Kautter. I think that is a terrific question. So it is 
important to realize----
    Senator Coons. It is. So let me just interrupt you there, 
if I might, because I asked the same question of the Secretary 
and I am expecting a better answer from you. I hear that you 
have got competing demands. You have got cyber attacks. You got 
aging IT equipment. One path is to cut service to American 
taxpayers. A better path would seem to me to to be invest in 
program integrity activities. If I understood your testimony 
right the tax gap, taxes that are owed but not paid, is about 
$400 billion. If the IRS invested, I think you said, $15 
billion in program integrity over 10 years, it would recoup $44 
billion in additional revenue.
    Mr. Kautter. Yes, sir.
    Senator Coons. Well, so that is a roughly 3 and a half, 4 
to 1 return on investment. You have got two options: lay people 
off and cut services so more Americans trying to seek taxpayer 
assistance are frustrated and confused, or invest in making 
sure the tax cheats actually pay their taxes. It seems to me 
there is an obvious alternative and much better choice.
    The request from the IRS also requested a program integrity 
cap adjustment, which is sensible but something that the IRS 
has requested year after year after year. The Budget Committee 
has never provided appropriators with that adjustment. In fact, 
I do not believe there is a Budget Committee vehicle that would 
even allow that this year.
    So let me just suggest that perhaps a better approach is to 
request funding for program integrity activities--in other 
words, finding people who are cheating on their taxes--within 
your base budget request.
    Could you please just share with me what you think the IRS 
should be spending on enforcement activities to maximize return 
on investment, and what are you doing in the current budget to 
reduce the tax gap?
    Mr. Kautter. If you look at enforcement activity, it is 
down, over the last 10 years, 37 percent across the board, the 
number of audits. Part of the challenge is that, again given 
budget priorities, we are trying to decide between operations 
support and hardware and software.
    But I would also say with respect to enforcement, the IRS 
is much more sophisticated today than it was 5 or 10 years ago 
in its use of technology and data analytics to identify 
taxpayers to audit. For example, an individual taxpayer making 
more than a million dollars a year is seven times more likely 
to be audited than a taxpayer under $200,000 a year. With 
respect to taxpayer data that is submitted on information 
forms, the level of compliance is in the upper 90 percent 
range. Where we have our problems with the tax gap tends to be 
in the cash economy and with respect to activity that is not 
reported anywhere on a form that the IRS can find.
    So I think enforcement is at a point where we need to start 
looking seriously about enhancing what we do. But I am not as 
concerned as some. I am concerned. I am not as concerned as 
some because I have seen what data analytics and technology can 
do in terms of identifying areas of noncompliance.
    Senator Coons. Let me just make sure I have understood your 
testimony. Do I understand your testimony correctly that there 
is a significant tax gap, that auditing rates have been 
steadily declining over the past decade, and that significant 
improvements, increases in investment in tax enforcement, would 
bring a multiple rate of return for every additional dollar 
spent?
    Mr. Kautter. It is true that----
    Senator Coons. Then why on earth would we not do that?
    Mr. Kautter. In a finite world, we have to make decisions 
between technology and----
    Senator Coons. Door number one, generate more revenue. Door 
number two, frustrate American taxpayers by cutting services. 
It seems to me like an easy choice.
    Mr. Kautter. Well, I think we will go back and take a look 
at what else we can in the enforcement area. Thank you.
    Senator Coons. Let me ask one last question, if I might.
    The National Taxpayer Advocate has endorsed an approach for 
years that would assign a single IRS account representative for 
tax-related identity theft and refund fraud victims. I noted 
that in your testimony the number of tax refund fraud victims 
dropped significantly over the past year from 400,000 in the 
previous year to 240,000 in calendar 2017. I just want to 
commend you and the folks at IRS on that improvement. That is 
still a quarter of a million Americans facing the deeply 
frustrating experience of refund fraud.
    What changes have you made to take into account this input 
from the Taxpayer Advocate, and how might we work together to 
make sure that the handling of tax refund fraud and identity 
theft is as streamlined and efficient as possible? These are 
some of the toughest constituent calls I get, people who are 
really upset.
    Mr. Kautter. We are in the process of putting together a 
report on what we can do with respect to enhancing the identity 
theft area. We had great success. We are down 65 percent on the 
number of reported tax-related identity thefts over the last 2 
years. I think the challenge is to get the number down to that 
point.
    We have had to introduce a number of filters within the 
processing system. Some of those filters produce false 
positives. We end up holding up refunds longer than taxpayers 
would like. We are in the process of revisiting those filters 
and seeing what we can do to reduce the number of false 
positives.
    I would also say, Senator Coons, prevention is part of the 
problem. With respect to helping taxpayers, once they are 
victims of identity theft, we have set up a separate identity 
theft victims assistance group, and they have had great 
success. About 75 percent of the victims have their problems 
resolved within 4 months. And again, we would like to get that 
down to a lower level. Our inventory is 5 percent of what it 
was 2 years ago.
    Senator Coons. And is part of the actions that group is 
taking having a single point of contact for identity theft 
victims?
    Mr. Kautter. It is. So what we have moved to is a small 
group concept, a team concept, for an individual taxpayer. We 
looked at providing sort of the one-on-one relationship, and 
our concern with that was that sometimes that one individual 
who is your point of contact within the IRS could have a large 
caseload. They could be on vacation. They could be out. So what 
we have moved to are small teams where the information can be 
exchanged easily and the taxpayer's account is sitting right 
there in front of that team. So I think that is a wonderful 
approach, and we are in favor of that.
    Senator Coons. Well, thank you. I would appreciate the 
chance to have a longer dialogue with you about that, and I 
look forward to hearing about your reconsideration on 
enforcement investments. Thank you.
    Mr. Kautter. Yes, sir.
    Senator Lankford. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman.
    Welcome.

                    POTENTIAL IMPACT OF THE TAX BILL

    Let me just first apologize for being late. I was just in a 
Banking Committee where we had a markup on a Committee on 
Foreign Investment in the United States (CFIUS) bill. And I am 
pleased that the committee adopted an amendment I offered on a 
bipartisan basis dealing with ZTE and Chinese 
telecommunications companies that have violated U.S. sanctions. 
I understand there was a lot of conversation about that here 
today. But in the Banking Committee on that bill--and the bill 
passed--there is now a provision that essentially says that the 
President may not unilaterally change sanctions in place 
against a Chinese telecommunications company unless he 
certifies that the company has been in compliance with U.S. law 
for more than a year and that they are fully cooperating with 
the United States. So I was pleased to see bipartisan support 
for that.
    So I have a couple of questions with respect to the tax law 
that passed. I understand you are double-hatted. Right? You are 
the Acting Commissioner of the IRS but also the Assistant 
Secretary that oversees tax policy at the Department. Right?
    Mr. Kautter. Yes, sir.
    Senator Van Hollen. And I understand that the Secretary, 
Secretary Mnuchin, again claimed today that the tax bill that 
we just passed would pay for itself, meaning that it would not 
add to the debt. Is that a correct statement of what he said?
    Mr. Kautter. Yes, sir.
    Senator Van Hollen. A simple question. At the time that the 
tax proposal was being put forward, Secretary Mnuchin said 
there were 100 analysts at the Secretary of the Treasury 
working on all the implications of this and that they were 
going to give us the analysis showing the impact on the debt. 
They were going to give us distribution analyses. All we ended 
up was getting a one-pager. In fact, I have got the one-pager 
here with me.
    So my question is did the Department of the Treasury do an 
analysis showing what the impact of the tax bill would be on 
the debt?
    Mr. Kautter. We had extensive analysis run as the bill was 
being considered, and I think it culminated in that one-page 
document that you are seeing.
    Senator Van Hollen. So that is it. So all that work 
culminated in a one-page analysis.
    Mr. Kautter. There is a lot behind it and that is the 
summary.
    Senator Van Hollen. With all respect, Secretary, I mean the 
reality is that when the Joint Committee on Taxation does an 
analysis, they provide a document that shows how they got to 
their answer. So that is it. The one-pager is all that came out 
of that. Is that correct?
    Mr. Kautter. To my knowledge, that is all that is being 
publicly released. Yes, sir.
    Senator Van Hollen. Is there analysis that has been done 
that is not publicly released that would show the impact on the 
debt?
    Mr. Kautter. I do not know about the impact on the debt. I 
mean, we vigorously analyzed each provision, its impact, on 
various segments of the economy.
    Senator Van Hollen. But the Secretary is making claims 
about its impact on the debt, and so that is why I am focused 
on this issue because we have a full analysis that was recently 
presented to the Congress from the Congressional Budget Office 
that indicates that the debt would increase by close to $2 
trillion over the next 10 years. Have you had a chance to see 
that?
    Mr. Kautter. Yes, sir.
    Senator Van Hollen. And do you have any reason to dispute 
their analysis?
    Mr. Kautter. I think it is a reasonable analysis.
    Senator Van Hollen. I do too. And what is interesting is 
that when the Inspector General of the Department of the 
Treasury looked at some of these issues and asked one of the 
key people in the tax policy department, Mr. Mackey--are you 
familiar with Mr. Mackey?
    Mr. Kautter. Yes, sir.
    Senator Van Hollen. I mean, he is a professional. Right?
    Mr. Kautter. Yes, sir.
    Senator Van Hollen. They asked him about the previous JCT, 
Joint Committee on Taxation, analysis which showed that if you 
take into account the economic impact, you still have a 
trillion dollar addition to the debt. And that does not 
include, by the way, any additional interest on the debt.
    And Mr. Mackey--when he was asked by the Inspector General 
about this, he said that the JCT estimates were, quote, widely 
considered to be reasonable. Unquote. Do you dispute that?
    Mr. Kautter. I think they are reasonable. Yes, sir.
    Senator Van Hollen. Thank you.
    Mr. Kautter. But I would say, Senator, once you move into 
predicting the future, there is a wide range of reasonable 
estimates that can be made. The Secretary, who I talk to daily, 
feels very strongly that the economic activity will create 
enough revenue for the tax bill to pay for itself. And I also 
believe that is within the range of reasonable estimates.
    Senator Van Hollen. Here is the issue. Feeling is one 
thing; analysis is another. Would you agree?
    Mr. Kautter. Yes, sir.
    Senator Van Hollen. I mean, we would all love to say that 
whatever we are going to do is generate--why stop at 3 percent 
growth? Why not 4 or 5? But the reason you do analysis is to 
get your best estimate. Right?
    Mr. Kautter. Yes.
    Senator Van Hollen. And as I understand what you are 
saying, the Treasury has not done that detailed estimate with 
respect to the debt, and yet the Secretary of the Treasury is 
making public comments very confidently predicting this thing 
is going to pay for itself when the CBO says it is going to add 
$2 trillion to the debt and you-- and I give you full credit--
just said the CBO analysis is a good, reasonable analysis. So 
what are we supposed to believe?
    Mr. Kautter. The analysis on the debt may have been made, 
Senator. I am just not aware of it at the Treasury Department.
    Senator Van Hollen. Well, if it has been made, I am going 
to ask you to make that available to the Congress because I 
think the American people are due whatever work product came 
out of an analysis of a tax bill. And so I would ask, Mr. 
Chairman, that if there is such an analysis, that the 
subcommittee request it from the administration.
    Senator Lankford. I have no issue with that. Obviously, 
typically internal documents are internal to the executive 
branch and always have been. But if there is a document that we 
can get, we should.
    Senator Van Hollen. Well, this is just an analysis of the 
impact of the tax bill on the debt. I am not looking for any 
kind of work product information. And given that the Secretary 
continues to make these statements, it would be interesting to 
discover what the basis of it is because most people believe 
that the CBO analysis was a reasonable one. So I appreciate 
that, Mr. Chairman, and thank you.
    The last question I have. Did you do a distributional 
analysis at the Department of the Treasury?
    Mr. Kautter. We have looked at distributions. Yes, sir.
    Senator Van Hollen. Because I did ask the Secretary about 
that in a Banking Committee hearing a little while ago. And I 
would also respectfully, Mr. Chairman, request the distribution 
analysis that was done by the Department of the Treasury.
    Senator Lankford. I have no issue with that as well. 
Actually long-term on this--I appreciate your questions. Long-
term is going to be over the next 2-3 years, as the actual 
numbers come in. The estimates at the beginning are one thing. 
Actually what occurs in the economy will be the real evidence 
as we roll out in the next couple of years.
    Senator Van Hollen. That is true. We all try to do analyses 
so that we can make the best decisions possible, given the 
information at hand. And I have seen the JCT estimate. I have 
seen the CBO estimate. I have seen the backup material for 
that. So it would be useful to have the backup material that 
the Secretary of Treasury is using. Thank you.
    Senator Lankford. Thank you.
    Senator Daines.
    Senator Daines. Thank you, Mr. Chairman.
    It is good to have you here, Mr. Kautter. Thank you for 
being here.
    Obamacare violates the principles of Tribal sovereignty-- 
it is a big issue for me back home in Montana for our Tribes--
because it requires Indian Tribes to either provide health care 
coverage for their employees or face fines of $2,000 per 
employee. These penalties would prove disastrous for our 
Tribes. The fines outstanding are seven-figure in nature. Their 
economies are already struggling. In many cases, Tribal 
governments would be forced to cut essential services to their 
people or lay off employees in a climate where jobs are already 
very scarce.
    Last Congress, I offered some legislation that would exempt 
Tribal governments and tribally owned businesses and 
organizations from this severe standard. I am announcing right 
here and right now that I will be reintroducing that 
legislation again very soon.
    Mr. Kautter, could you provide an update on where the IRS 
is in levying fines for noncompliance with the employer 
mandate?
    Mr. Kautter. Yes, sir. At this point, the IRS has 
identified about 32,000 employers who may be subject to the 
penalty. We have issued 11,000 letters, just a little over 
11,000 letters at this point. We have closed a little over 
3,000 of those cases or letters. Of those 3,000, almost 82 
percent have resulted in no change. It is basically the 
taxpayer filled out the form wrong. So we have had a high no-
change rate. The amount of penalties assessed at this point is 
about $83 million.
    Senator Daines. So thank you. I am impressed you have those 
numbers right there off the top of your head. I can tell you 
watch this very carefully.
    But to confirm, the IRS is still working to exact those 
fines against Tribal governments, tribally owned businesses, 
and Tribal organizations in the same way that the IRS is going 
after other large employers. Is that correct?
    Mr. Kautter. Yes, sir.
    Senator Daines. Do you know how many Native American 
governments, businesses, or Tribal organizations will be held 
liable for penalties under the employer mandate for tax years 
2015 and 2016?
    Mr. Kautter. No, Senator, I do not.
    Senator Daines. Would you be able to get that information 
to me after today's hearing?
    Mr. Kautter. So you are looking for the number of--I will 
get the question from you.
    Senator Daines. Yes, the number of Native American 
governments, businesses, Tribal organizations that are held 
liable for penalties for 2015 and 2016.
    Mr. Kautter. Yes, sir.
    Senator Daines. Thank you. And we will give the specifics 
as well on that just to be clear on it. Thank you for that.
    I think it is important. And the purpose of that question 
and to get that data is so that we can better understand the 
scope of the employer mandate's negative impacts to Indian 
Tribes. And I look forward to leading the charge once again to 
prevent these negative impacts on our Tribes, and remedy would 
be the legislation I am proposing.
    I want to shift gears and talk about freedom of speech. Mr. 
Kautter, as you may know, the previous Commissioner back in 
2015 made statements questioning whether Schedule B forms for 
tax exempt organizations were necessary and also expressed 
concern about whether the confidentiality of the information 
can be kept. Recently we have seen tax-exempt organizations 
call for the Treasury and the IRS to suspend Schedule B forms 
for tax-exempt organizations in order to protect anonymous free 
speech.
    Do you support this effort and will you act?
    Mr. Kautter. Senator, I am actively involved with the 
Secretary looking at Schedule B, and I think for many 
organizations, there frankly is not a requirement. We do not 
need that information to administer the tax laws in a fair and 
equitable way. So let me work with the Secretary and get back 
to you. I know it is an issue of interest of his and it is an 
interest of mine, and I think we could do something with 
respect to Schedule B going forward.
    Senator Daines. Thank you. It was, I think, chilling for 
many of us who watched that unfold in the last administration, 
a fundamental First Amendment issue on freedom of speech and of 
expression. So I would appreciate your help in this effort.
    Mr. Kautter. Yes, sir.
    Senator Daines. Thank you, Mr. Chairman.
    Senator Lankford. Let me follow up on Senator Daines' 
question. It was one of the questions that I had as well.
    Tell me what has changed in the exempt organization's 
portion of the IRS. There has been, obviously, a tremendous 
amount of attention focused on them over the last 8 years. What 
have you seen as a change in operation of what forms are 
required, the process, the time period to be able to get 
answers back for all organizations regardless of the 
background? Tell me what has changed in the exempt 
organization's portion of the IRS.
    Mr. Kautter. Sure. From my perspective, Mr. Chairman, the 
leadership of that division within the IRS has changed. The 
leadership has set a completely different tone than I think the 
tone that existed in that organization in the past. They are 
interested in fair and equitable administration of the law. I 
think your question earlier about how do you change the culture 
in the IRS, I think it is the same as any organization. It has 
to start at the top and it has to be driven through management 
and accountability.
    I think that is what has happened to tax-exempt 
organizations. We continue to look at, as Senator Daines 
suggested changes in the forms and the filing that could be 
made that would allow us to continue to administer the tax law, 
reduce the regulatory burden on taxpayers, and assure that the 
laws are being complied with by tax-exempt organizations. So it 
is an area of great interest to me and, as I said, I think 
significant changes have been made and continue to be 
considered.

              MINIMUM QUALIFICATIONS FOR RETURN PREPARERS

    Senator Lankford. We will continue to be able to follow up 
on that in the days ahead as well.
    You, in your written and then briefly in your oral 
testimony, had mentioned three requests that you have for 
additional legislation, one of them being authority to require 
minimum qualifications for return preparers. Let me ask the why 
on that, and I think I know the why, but I would like you to be 
able to clarify the why, and then let us talk about this 
business. It has been an ongoing conversation with IRS and 
Congress.
    Mr. Kautter. Sure. I think two reasons. Accurate reporting 
by taxpayers is critical to the functioning of the tax system. 
Fifty-six percent of all returns prepared are prepared by a 
paid return preparer. There are about 650,000 paid tax return 
preparers. Sixty percent of those folks, about 400,000, have no 
professional credentials whatsoever. They are not CPAs, 
attorneys, or enrolled agents. The accuracy of those returns is 
not as high as it should be. That creates problems for the 
taxpayers who have used those individuals. It creates problems 
for the IRS. And requiring minimum competency and some annual 
education for someone who wants to be a paid tax return 
preparer seems to me to be a reasonable approach to help 
facilitate operation of the system.
    Senator Lankford. So in previous dialogues that I have had 
with IRS leadership before, there is always the carrot and the 
stick conversation. Obviously, this was attempted before 
several years ago and then was ruled and was kicked out by the 
courts on those mandates, saying that there is not legislative 
support for that requirement. The question is, would the carrot 
work better on it? For instance, if you are a paid tax 
preparer, your returns come faster if you have already been 
through training. If you have not been through training, then 
your returns may take 2 months to come back, and you would have 
to be able to tell people as a tax preparer am I one that can 
get your return fast or am I one of those guys that can get 
your return, but it may be 2 months down the road for it. Is 
there a way to be able to do that kind of prioritization saying 
those that are certified can do faster returns, those that are 
not certified do slower?
    Mr. Kautter. An interesting approach, Mr. Chairman. I have 
not looked into that. In theory it is possible. We would have 
to gather some additional information to implement something 
like that. It does disadvantage those individuals who use 
return preparers who are not certified. And I guess different 
people would have different opinions on whether that is a good 
approach or not.
    Senator Lankford. Well, typically if you are an individual 
doing a return, they are going to advertise, hey, we can get 
your return fast. You cannot say that if you cannot actually 
get the return fast. You are not actually certified to be able 
to do it. So the encouragement is, get the training, get the 
certification. Then you can help people actually get a faster 
return. If you do not get certified, then you are not.
    Mr. Kautter. An interesting approach. And I would say in 
order to implement that approach, we would probably need some 
legislative authority to require the education of the return 
preparers and to implement that policy. But not having 
considered it, I would have to look into that.
    Senator Lankford. Let us keep that ongoing conversation 
between us and our teams and see what may be needed because 
there may be some other ways to be able to deal with this.

                           IMPROPER PAYMENTS

    This issue about improper payments. Obviously, this has 
come up over and over again on the issue about tax preparers 
that are, again, not qualified, that are putting out 
inconsistent information about improper payments. GAO has 
listed it as a high risk issue for years. The Inspector General 
has listed that as a major issue to be able to address.
    Where are we right now on dealing with the issue of 
improper payments?
    Mr. Kautter. This is an issue that has been looked at for 
years. It is very frustrating. If you look at the improper 
payments with respect to the earned income credit, the 
education credits, and the additional child tax credit, there 
are probably three broad sources of noncompliance. Let me 
divide it into two categories.
    The legislation with respect to refundable credits is very 
complicated. It is some of the most complicated legislation in 
the Internal Revenue Code. And I say that as somebody who has 
been a tax practitioner for 40 years. The definition of who is 
a qualifying child, trying to identify the family income--many 
taxpayers misinterpret filing status, get head of household 
versus married, believe it or not. Our analysis is about 6 
percent of the overpayments are attributable to the fact that 
the IRS does not have on hand the financial data to verify 
income of those individuals claiming the refundable credit.
    Senator Lankford. Did you say 6 percent or 60 percent?
    Mr. Kautter. Six.
    Ninety-four percent of the problem, as we have analyzed it, 
comes from the complexity of the legislation, the definition of 
a qualifying child. Is someone a relative? How long do they 
live in that household? And then second, the marital status. 
That is, in our analysis, 94 percent of the problem. And it is 
frustrating because I will sit here and tell you without 
changes in that legislation or invading people's lives, the IRS 
will continue to pay out $20 billion to $25 billion a year, 
year in and year out, in improper payments. I take no pride in 
saying that. It is in fact the way the system is structured.
    Senator Lankford. Is that something that your team could 
make specific recommendations and say this is the area where, 
if we can clean this up, this will make an enormous difference?
    Mr. Kautter. We have looked at it. We will make some 
recommendations. I do not know that we have got anything that 
will make an enormous difference unless we change some of the 
fundamentals of the statute.
    Senator Lankford. Well, clearly that is something that 
Senator Coons and I do not handle here from our appropriations, 
but obviously, the Finance Committee does. And that type of 
language would need to be addressed in the authorizing statute. 
But that specific recommendation to be able to deal with a 
long-term issue is important, GAO has mentioned that year after 
year as a high risk. IRS continues to be able to say we need 
greater training typically for tax preparers because it is 
where they miss it. But if there are ways to be able to clean 
up the language and you have recommendations, we would be 
pleased to be able to pass those on.
    Mr. Kautter. Yes, sir.

                            TAX LAW CHANGES

    Senator Lankford. Let me ask about next year's tax filing. 
As you are going through and preparing forms, is there an 
estimate at this point of how many individuals--now, this is 
not just the business side but for the individual tax side--
will have a simplified process of filing their taxes and what 
those forms might look like for Americans?
    Mr. Kautter. We are right in the middle of trying to design 
the Form 1040 for next year, and I would hope within 2 weeks to 
3 weeks we have got a pretty good idea of what that new design 
looks like. One thing for sure under the tax reform bill, the 
number of individuals itemizing on their returns will drop from 
about 35 percent of all taxpayers to 10 to 12 percent of all 
taxpayers. So that in and of itself will be a substantial 
simplification.
    Senator Lankford. So as far as the 10 to 12 percent, those 
are still in the 1040 area. Are you anticipating the other 88 
to 90 percent are on the 1040-EZ at that point?
    Mr. Kautter. We are looking at the entire family of 1040 
forms, including 1040-A and the 1040-EZ. And we are working on 
some concepts that might dramatically change the way that 
family of forms is structured.
    Senator Lankford. Well, we will look forward to getting a 
chance to get a follow-up on that.
    Senator Coons, do you have additional questions?
    Senator Coons. Let me just ask one last question. Given 
that significant drop in the number of filers who will itemize, 
what is your expectation about the potential impact on 
charitable giving? I know you heard me ask the same question of 
Secretary Mnuchin.
    Mr. Kautter. So I think it is a tough question. It is 
trying to predict the future. My sense is that most taxpayers--
this is just personal, Senator--do not give because of the 
deduction. I think many give out of a sense of charity. I do 
think what you will see for a well-advised taxpayer, frankly, 
is bunching of charitable contributions. In other words, 
someone who gives a substantial amount and could bunch, say, 2 
or 3 years of contributions in 1 year to get over the limit for 
being in the standard deduction--you will see more of that. I 
personally do not believe there will be a dramatic decline in 
charitable contributions. Can I prove it? I cannot.
    Senator Coons. We have got lots of hopes and expectations 
about charitable giving, about deficits. I will say that across 
a number of subjects we have discussed today, what will be the 
impact of greater investment in enforcement? What will be the 
impact on the ability of taxpayers to get good customer 
service? How might we improve program integrity in terms of 
taxpayers using paid preparers, and what might we change? And 
then how might we reduce improper payments through some 
revisions to the relevant statute? All of these are things I 
look forward to working with the Chairman on. These are 
longstanding, vexing challenges. But as I emphasized before, I 
think the better path is investing in enforcement rather than 
cutting services at the highest level.
    I appreciate the chance to have you before us today, and I 
look forward to continuing to work together.
    Senator Lankford. Let me do one last comment. This is 
purely personal. I think it is a good learning technique for 
IRS just in general. I have an individual that we are doing 
casework for right now that is active deployed military. He has 
been frequently deployed, and his filing from 2015 was tagged 
as a possible identity theft. And he is told he has to go in 
person to a taxpayer assistance center to be able to go ahead 
and check in. He has been deployed over and over and over and 
over again. His power of attorney is not being accepted to be 
able to go in for him on his behalf.
    If there are issues like that, then I would assume if we 
are working that case, that is probably true in other cases. 
That is something that we need to be able to evaluate for our 
folks that are forward deployed in the military and how they 
are going to interact with IRS and what that is going to look 
like to try to make it as simple as possible for them. They 
have fairly stressful days already, and to be able to deal with 
that would be one of the areas I would just flag for you to say 
we are dealing with that case currently. We are going to work 
it out. Our folks that have been the taxpayer advocates in 
Oklahoma that we work with have really been terrific folks and 
have been very, very responsive and have done a very good job 
of working with us on that. But this may be something that we 
are just not dealing with but a lot of other folks are as well.
    Mr. Kautter. Well, thanks, Senator. I will take that back 
and make sure we do not have a systemic issue there.
    Senator Lankford. That would be great.
    Thank you again for your testimony today and for your 
participation and for the engagement on this issue and wearing 
two hats. Your job is tough enough. Wearing two hats 
simultaneously makes it a little tougher on that.

                     ADDITIONAL COMMITTEE QUESTIONS

    If there are no further questions on this, the hearing 
record will remain open until Thursday, May 31, for 
subcommittee Members to submit any statements or questions for 
the witness 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. Steven T. Mnuchin
            Questions Submitted by Senator Chris Van Hollen
    Question 1. During the hearing, Mr. Kautter confirmed that the 
Treasury Department has performed its own distributional analysis of 
the recently enacted tax law (Public Law 115-97). When I asked whether 
the Treasury Department had done this distributional analysis, Mr. 
Kautter testified, ``We have looked at distributions. Yes, sir.''
    Renewing my request following your earlier testimony before the 
Senate Banking Committee on January 30, please provide the 
distributional analysis performed by the Treasury Department's Office 
of Tax Analysis regarding the size of the average tax change for 
different income groups. At a minimum, this should include 
distributional tables showing the average tax change for each income 
group, expressed in dollar terms and as a percentage of after-tax 
income. And I would also appreciate any additional distributional 
analysis that the Office of Tax Analysis conducted regarding the new 
tax law.
    If there is any reason that the Treasury Department is unable to 
disclose its distributional analysis of the new tax law, please 
describe the issue that is preventing the release of this information.
    Answer. The Treasury Department regularly publishes analysis 
conducted by our Office of Tax Analysis (OTA). See attachment on the 
next page. Also available at: https://www.treasury.gov/resource-center/
tax-policy/tax-analysis/Documents/
Distribution-of-Income-by-Source-2019.pdf.

                               ATTACHMENT

(Available at: https://www.treasury.gov/resource-center/tax-policy/tax-
     analysis/Documents/Distribution-of-Income-by-Source-2019.pdf)


    Question 2. Mr. Mnuchin, ZTE reached a historic combined $1.19 
billion settlement with the U.S. Government and pled guilty to criminal 
charges, including obstruction of justice, and reached settlements with 
the U.S. Department of the Treasury's Office of Foreign Assets Control 
(OFAC), the U.S. Department of Commerce's Bureau of Industry and 
Security (BIS), and the U.S. Department of Justice (DOJ), ending a 
long-running investigation into ZTE by the U.S. Government.
    Part of ZTE's settlement with the U.S. Government was that ZTE also 
agreed to a 7-year suspended denial of export privileges, which could 
be activated if any aspect of the agreement was not met and/or if the 
company committed additional violations of the Export Administration 
Regulations (EAR). In fact, the Commerce Department released documents 
that featured flow charts on the best ways to circumvent American 
sanctions and provided step-by-step guidelines for setting up shell 
companies to circumvent U.S. export controls. It also released 
documents signed by ZTE executives, stating that the firm was exporting 
to ``all five major embargoed countries--Iran, Sudan, North Korea, 
Syria and Cuba.''
    Last month, the Commerce Department activated its denial order of 
export privileges, denying ZTE's export privileges for 7 years. Then 
the President tweeted that he was going to put this enforcement action 
on the table as part of your trade negotiations with China. On May 25, 
the Commerce Department communicated to certain offices on Capitol Hill 
that the administration had reached a deal with ZTE that would allow 
the company to resume business with U.S. companies, subject to 
management changes and the payment of a fine.
    Question 2a. Do you recall when OFAC assessed penalties on ZTE? 
Please state OFAC's charges against ZTE.
    Answer. On March 7, 2017, ZTE executed a settlement agreement with 
OFAC whereby ZTE settled its potential civil liability for 251 apparent 
violations of the Iranian Transactions and Sanctions Regulations, 31 
C.F.R. part 560 (ITSR) for $100,871,266.
    From on or about January 2010 to on or about March 2016, ZTE 
engaged in: (i) the exportation, sale, or supply, directly or 
indirectly, from the United States of goods to Iran or the Government 
of Iran; (ii) the re-exportation of controlled U.S.-origin goods 
subject to the Export Administration Regulations from a third-country 
with knowledge that the goods were intended specifically for Iran or 
the Government of Iran; and (iii) activity that evaded or avoided, 
attempted and/or conspired to violate, and/or caused violations of the 
prohibitions set forth in the ITSR. Specifically, ZTE appears to have 
engaged in 251 transactions in apparent violation of Sec. Sec. 560.203, 
560.204, and/or 560.205 of the ITSR. The total value of the 
transactions constituting the apparent violations was $39,622,972.
    Question 2b. Did ZTE fully comply with OFAC and Treasury officials 
during the investigation?
    Answer. No, ZTE did not fully comply during the course of the 
investigation which ultimately led to the settlement concluded on March 
7, 2017. In 2013, ZTE's highest-level leadership decided to 
surreptitiously resume its Iran-related business in 2013 while under 
investigation by the U.S. Government. ZTE continued its Iran-related 
business until March 2016, when the Department of Commerce added ZTE to 
the Entity List. Additionally, under the direction of its leadership, 
ZTE deleted evidence and provided the U.S. Government with altered 
information to hide the fact that it had resumed its unlawful business 
with Iran.
    Question 2c. Did ZTE comply with OFAC's order after it reached its 
settlement? Please elaborate.
    Answer. OFAC did not issue an order to ZTE but rather resolved its 
case via settlement agreement. The Department of Commerce issued two 
suspended denial orders against ZTE as part of its settlement 
agreements with the company. Questions regarding the suspended denial 
orders should be directed to the Department of Commerce, the agency 
that issued the orders.
    Question 2d. Do you have evidence demonstrating a change in ZTE's 
behavior? If so, please provide that information. Do you have national 
security concerns about ZTE's access to the U.S. market?
    Answer. Under the terms of the settlement agreement with OFAC, ZTE 
is required to maintain policies and procedures to minimize the risk of 
any recurrence of U.S. economic sanctions violations in the future. ZTE 
also confirmed in its agreement with OFAC that it had terminated the 
violative conduct described in the agreement.
    Treasury does not speculate on possible sanctions violations or 
comment on possible or pending investigations. We constantly monitor 
for global activity that might undermine the integrity of our sanctions 
and trigger our authorities, and do not hesitate to pursue violative or 
sanctionable conduct when appropriate.
    Question 2e. Did you ever recommend to the President to offer to 
China that you would reduce or lift penalties on ZTE as part of your 
ongoing trade negotiations with China for reasons unrelated to U.S. 
national security?
    Answer. Any changes to Commerce Department penalties on ZTE will 
ensure the protection of the national security of the United States and 
the enforcement of U.S. sanctions programs. This is an enforcement 
issue, not a trade issue. We are committed to protecting American 
technology, American jobs, and our national security. Our goal is to 
protect America's interests without putting an entire company out of 
business and hurting innocent employees.
    Question 2f. Did you ever recommend to the Secretary of Commerce 
that he reduce or lift the export controls on ZTE for reasons unrelated 
to U.S. national security?
    Answer. Please see response to 2e.
    Question 2g. Did the President consult with you about reducing or 
lifting these enforcement actions as part of your ongoing trade 
negotiations with China?
    Answer. Please see response to 2e.
    Question 2h. Did the President ask you or Secretary Ross to reduce 
or lift penalties on ZTE for reasons unrelated to U.S. national 
security?
    Answer. Please see response to 2e.
    Question 2i. Do you think it is appropriate to include large 
enforcement matters like the one we have with ZTE as part of trade 
negotiations with a foreign power?
    Answer. Please see response to 2e.
    Question 2j. Do you support lifting penalties on ZTE? Please 
explain your rationale.
    Answer. ZTE settled its potential civil liability for 251 apparent 
violations of the ITSR for $100,871,266. OFAC expects all apparent 
violators who enter into settlement agreements to fully comply with the 
terms of their agreements, including the payment of any agreed-to 
settlement amount. Treasury defers to other agencies with respect to 
any regulatory and law enforcement actions taken against ZTE.
    Question 2k. What are the implications for other actors being 
investigated by Treasury for violations of sanctions or Bank Secrecy 
Act and Anti Money Laundering laws?
    Answer. The ZTE settlement is OFAC's largest ever against a non-
financial entity and sends a powerful message that Treasury will 
aggressively pursue any company that willfully violates U.S. economic 
sanctions laws and obstructs Federal investigations of such violations. 
This settlement is the result of close collaboration and coordination 
between multiple U.S. Government agencies and highlights the 
effectiveness of a whole-of-government approach to pursuing egregious 
violations of U.S. economic sanctions or export control laws. Other 
actors being investigated by Treasury are on notice that OFAC will 
continue to coordinate its efforts with other Federal agencies--
including the U.S. Department of Justice and the U.S. Department of 
Commerce--in order to prevent sensitive or controlled U.S.-origin goods 
from being illegally shipped or exported to sanctioned countries or 
parties. Given the specific authorities under which the ZTE case was 
brought, this case is unlikely the implicate BSA/AML laws.
                                 ______
                                 
               Questions Submitted to Hon. David Kautter
            Questions Submitted by Senator Patrick J. Leahy
    Question. I have been very concerned about the budget cuts directed 
at the IRS over the last several years. The Trump administration's 
budget proposal for fiscal year 2019 would continue cuts to the IRS 
that will impact key taxpayer services at a time when many Americans 
are confused about their new obligations under the Republican tax cut 
legislation. The IRS also experienced an embarrassing technical failure 
on the last day taxpayers had to file their taxes, requiring an 
extension in the filing date. At the same time, IRS enforcement efforts 
have dropped and the sensitive information of American taxpayers is 
under constant attack.
    How will further budget cuts, including reductions in taxpayer 
services (particularly in rural areas), improve the IRS experience for 
taxpayers in Vermont?
    Answer. The IRS provides service through a variety of channels, 
which are funded through two different accounts. The Taxpayer Services 
account funds taxpayer services provided through toll-free phone lines, 
walk-in assistance at Taxpayer Assistance Centers, and correspondence. 
The Operations Support account funds the systems that support taxpayer 
services, a growing range of online taxpayer services, and web-based 
self-assistance tools. The 2019 budget includes funding for taxpayer 
services as well as the underlying systems and new tools and technology 
which enable taxpayers to conveniently and securely engage with us 
anytime and anyplace--similar to any other financial institution.
    Question. Rural areas like Vermont have unique challenges when it 
comes to providing taxpayer services, which is why closing Taxpayer 
Assistance Centers (TACs) is so problematic. Attempting to replace in-
person visits with online services doesn't help Vermonters who lack 
broadband service. Replacing these visits with phone calls only helps 
if the IRS sets a target response rate that aims to serve everyone who 
makes a call.
    What consideration has the IRS given to the impact of TAC closures 
in rural areas that lack access to broadband?
    Answer. We recognize that our obligation to serve all taxpayers 
requires the IRS to provide multiple ways to get assistance. The IRS is 
committed to finding ways to ensure all taxpayers have convenient and 
efficient service options. We will always provide service options that 
are alternatives to the Internet, including face-to-face and telephone 
service options. The IRS makes decisions about location and staffing of 
TACs after evaluating population covered, distance between the TACs, 
services most frequently requested in the area, cost, and availability 
of alternative services, including services through our trusted 
partners. Toll-free phone lines continue to be the number one choice 
for getting assistance with account and tax law questions. The IRS 
answered more than 21.4 million calls this fiscal year through July.
    To continue providing face-to-face services outside of the 
traditional TAC model, the IRS has been exploring various options. For 
example, as of August 21, 2018, we have 38 partner cities that host the 
IRS Virtual Service Delivery technology. This technology enables 
taxpayers to receive assistance from TAC employees in another 
geographic area of the country via an IRS computer and high-resolution 
video. Thus, the IRS is able to maintain virtual face-to-face services 
without placing any technology demands on taxpayers. Additionally, the 
IRS partnered with the Social Security Administration (SSA) to pilot a 
program that co-locates IRS TAC employees within SSA office space. 
These collaborations provide additional service channels in geographic 
locations without a TAC.
    Additionally, the IRS continues to look for innovative ways of 
providing taxpayer services for taxpayers without broadband. For 
example, the IRS redesigned IRS.gov, making it mobile friendly. This 
means the site will resize and adapt based on the screen size or the 
type of device used, including a smartphone or tablet. Taxpayers can 
now use IRS.gov on their mobile devices, without needing access to 
broadband. Another example is the IRS2Go App, which is the official IRS 
smartphone application compatible with Apple and Android mobile 
devices. Taxpayers don't need a computer or broadband to check their 
refund status, make a payment, find free tax preparation assistance, 
sign up for helpful tax tips, and more. IRS2Go is available in both 
English and Spanish. In addition, we offer 100 commonly used 
Instructions and Publications in eBook format. IRS eBooks for mobile 
devices are free and are provided in the ePub format.
    Question. According to the Identity Theft Resource Center, there 
were a record-high 1,579 data breaches in 2017, compromising nearly 158 
million Social Security numbers. The massive Equifax data breach 
impacted as many as 147.9 million Americans and exposed personally 
identifiable information that scammers can use to file fraudulent tax 
returns. It is clear that the number of data breaches is growing rather 
than shrinking.
    What steps has the IRS taken to protect taxpayers in the wake of 
the Equifax data breach?
    Answer. We have taken significant steps in recent years to 
strengthen our information technology systems to protect taxpayers 
against identity theft and refund fraud. As part of our Security Summit 
partnership with State tax administrators and the private sector tax 
community, we have added new protections for electronically engaging 
with the IRS, including greater authentication measures and fraud 
detection filters for verifying legitimate tax filers and detecting 
identity theft tax returns. These additional fraud detection filters 
and cross-checks make it harder for fraudsters to obtain fraudulent tax 
refunds, protecting taxpayers and revenue loss. We specifically 
designed these safety measures to work in the environment of large-
scale data breaches, such as Equifax, where criminals obtained basic 
information such as names and Social Security numbers.
    As it relates to the Equifax data breach specifically, we took 
immediate action to understand and evaluate the impact of the breach. 
Immediately upon notification, we conducted a comprehensive internal 
review and performed an on-site inspection at the Equifax facility. The 
on-site inspection confirmed that no IRS data was compromised. 
Additionally, in our continued efforts to combat cyber fraud and 
protect taxpayer data, we have seen no indications of tax fraud from 
information exposed in the Equifax data breach. We will continue to 
actively and closely monitor the situation.
    Question. Does the IRS budget request take into account the 
potential for future spikes in data breaches?
    Answer. Yes. The 2019 budget includes a $181 million initiative 
that would strengthen cyber security, provide higher levels of security 
for taxpayer data (improved identity assurance and authorization) and 
help maintain the currency of the agency's hardware and software, our 
most significant operating risk. Adequate funding for information 
technology operations is one of IRS's most critical needs.
    Question. During the Obama administration, Republicans attacked the 
IRS for what they perceived as politicized behavior by its leadership. 
While I believe these attacks were overblown, there is no question that 
it is important to ensure that the IRS is independent from political 
concerns. You currently serve two roles in the Trump administration, 
including a policy role at the Treasury Department that may require you 
to take political considerations into account.
    What assurances can you give this Committee that you are serving as 
Acting IRS Commissioner in a manner that is independent from political 
considerations?
    Answer. I can assure you that as Acting IRS Commissioner, I am 
deeply committed to being independent in working to accomplish the 
mission of my organization, which is to provide America's taxpayers top 
quality service by helping them understand and meet their tax 
responsibilities and by applying the tax law with integrity and 
fairness to all.
    Question. Do you believe you can adequately shield IRS employees 
from political pressure given your dual role in the administration?
    Answer. Yes. The IRS career employees provide high quality service 
to all American taxpayers on a fair and impartial basis, in an 
environment free of fear of retribution, retaliation or political 
pressure.
    Question. Since becoming Acting IRS Commissioner, have you ever 
personally briefed or met with President Trump? If so, how many times?
    Answer. I have not personally briefed President Trump in my role as 
Acting IRS Commissioner.
                                 ______
                                 
             Question Submitted by Senator Chris Van Hollen
    Question. During the hearing, you testified that you were unaware 
of any detailed estimate performed by the Treasury Department for the 
impact of the new tax law on the debt, despite the Treasury Secretary's 
frequent claims that the tax law would pay for itself with economic 
growth. You further testified that, to your knowledge, the only 
analysis regarding this issue that has been ``publicly released'' was a 
one-page document that simply assumed higher economic growth without 
any analysis showing that the tax law would actually produce such 
growth. You later stated, however, that detailed analysis showing that 
the tax law would pay for itself may exist, but that you are, ``just 
not aware of it at the Treasury Department.''
    If any detailed analysis exists to show how the new tax law will 
pay for itself with economic growth, at the Treasury Department or 
elsewhere, please provide that analysis.
    Answer. For additional analysis on this topic from the 
administration, we would refer you to the detailed report published by 
the Council of Economic Advisors in October 2017 attached, and also 
available at: https://www.whitehouse.gov/sites/whitehouse.gov/files/
documents/Tax%20Reform%20and%20Wages.pdf).

                               ATTACHMENT

 (Available at: https://www.whitehouse.gov/sites/whitehouse.gov/files/
               documents/Tax%20Reform%20and%20Wages.pdf)
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                          SUBCOMMITTEE RECESS

    The subcommittee hearing is hereby adjourned.
    [Whereupon, at 11:54 a.m., Tuesday, May 22, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]