[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


        
                                  
 
    FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2020

_______________________________________________________________________

                                 HEARINGS

                                 BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SIXTEENTH CONGRESS

                              FIRST SESSION

                             _____________

        SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT

                     MIKE QUIGLEY, Illinois, Chairman
                     

  JOSE E. SERRANO, New York                   TOM GRAVES, Georgia
  MATT CARTWRIGHT, Pennsylvania               MARK E. AMODEI, Nevada
  SANFORD D. BISHOP, Jr., Georgia             CHRIS STEWART, Utah
  NORMA J. TORRES, California                 DAVID P. JOYCE, Ohio
  CHARLIE CRIST, Florida
  ANN KIRKPATRICK, Arizona
  
  
  

  NOTE: Under committee rules, Mrs. Lowey, as chairwoman of the full 
committee, and Ms. Granger, as ranking minority member of the full 
committee, are authorized to sit as members of all subcommittees.

               Lisa Molyneaux, Laura Cylke, Elliot Doomes,
          Aalok Mehta, Marybeth Nassif, and Parker Van de Water
                            Subcommittee Staff

                                   _______

                                  PART 6

                                                                   Page
                                                                   
  Internal Revenue Service........................................    1
                                                                      
  Federal Trade Commission.........................................  47
                                                                     
  IRS Oversight: Treasury Inspector 
General, Tax Administration........................................  73
                                                                    

                                  
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


          Printed for the use of the Committee on Appropriations
          

                    U.S. GOVERNMENT PUBLISHING OFFICE  

38-421                     WASHINGTON : 2019



                      COMMITTEE ON APPROPRIATIONS

                                ----------                              
                  NITA M. LOWEY, New York, Chairwoman


  MARCY KAPTUR, Ohio                            KAY GRANGER, Texas
  PETER J. VISCLOSKY, Indiana                   HAROLD ROGERS, Kentucky
  JOSE E. SERRANO, New York                     ROBERT B. ADERHOLT, Alabama
  ROSA L. DeLAURO, Connecticut                  MICHAEL K. SIMPSON, Idaho
  DAVID E. PRICE, North Carolina                JOHN R. CARTER, Texas
  LUCILLE ROYBAL-ALLARD, California             KEN CALVERT, California
  SANFORD D. BISHOP, Jr., Georgia               TOM COLE, Oklahoma
  BARBARA LEE, California                       MARIO DIAZ-BALART, Florida
  BETTY McCOLLUM, Minnesota                     TOM GRAVES, Georgia
  TIM RYAN, Ohio                                STEVE WOMACK, Arkansas
  C. A. DUTCH RUPPERSBERGER, Maryland           JEFF FORTENBERRY, Nebraska
  DEBBIE WASSERMAN SCHULTZ, Florida             CHUCK FLEISCHMANN, Tennessee
  HENRY CUELLAR, Texas                          JAIME HERRERA BEUTLER, Washington
  CHELLIE PINGREE, Maine                        DAVID P. JOYCE, Ohio
  MIKE QUIGLEY, Illinois                        ANDY HARRIS, Maryland
  DEREK KILMER, Washington                      MARTHA ROBY, Alabama
  MATT CARTWRIGHT, Pennsylvania                 MARK E. AMODEI, Nevada
  GRACE MENG, New York                          CHRIS STEWART, Utah
  MARK POCAN, Wisconsin                         STEVEN M. PALAZZO, Mississippi
  KATHERINE M. CLARK, Massachusetts             DAN NEWHOUSE, Washington
  PETE AGUILAR, California                      JOHN R. MOOLENAAR, Michigan
  LOIS FRANKEL, Florida                         JOHN H. RUTHERFORD, Florida
  CHERI BUSTOS, Illinois                        WILL HURD, Texas
  BONNIE WATSON COLEMAN, New Jersey
  BRENDA L. LAWRENCE, Michigan
  NORMA J. TORRES, California
  CHARLIE CRIST, Florida
  ANN KIRKPATRICK, Arizona
  ED CASE, Hawaii
  

                  Shalanda Young, Clerk and Staff Director

                                   (ii)
                                   
                                   


   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2020

                              ----------                              

                                            Tuesday, April 9, 2019.

      INTERNAL REVENUE SERVICE BUDGET REQUEST FOR FISCAL YEAR 2020

                                WITNESS

HON. CHARLES P. RETTIG, COMMISSIONER, INTERNAL REVENUE SERVICE
    Mr. Quigley. I want to apologize. We outfoxed ourselves 
trying to figure out when to start this. We thought votes would 
start sooner, but I appreciate the ranking member accommodating 
the schedule. We at least wanted to get started and give the 
Commissioner an opportunity to discuss things. So this 
committee meeting will come to order.
    Good afternoon. I know it is a very busy time at the IRS 
with less than a week left in the filing season. So I want to 
welcome the Commissioner and thank him for taking the time to 
be with us this afternoon.
    I know this is your first filing season at the IRS, and we 
are interested in hearing your observations and visions for the 
IRS.
    Speaking of the filing season, Congress provided an 
additional $397 million in the past years to address system 
updates and needed new staff to help implement the 2017 tax 
law.
    However, in the weeks leading up to tax filing, we 
experienced the longest Federal Government shutdown, which 
delayed hiring, training, and updating. I want to thank your 
staff and their dedication for their perseverance, and I am 
curious to how the shutdown has impacted the filing season.
    The IRS makes up half our subcommittee bill, and under the 
previous majority, it has been underfunded for the last decade, 
underfunded despite issues like tax evasion, elder fraud, and 
identity theft. So, we want to reverse those trends and provide 
resources tied to results.
    Speaking of funding, the President's fiscal year 2020 
budget requests $11.8 billion in discretionary appropriations, 
constituting an increase over current spending levels.
    The majority of the increases are to support the Operations 
Support and Business Systems Modernization account.
    Based on the IRS's 6-year Integrated Modernization Plan, 
the IRS will dedicate $290 million of appropriated funds to 
update the legacy computing infrastructure.
    I hope you can share more details about IRS's modernization 
plan. I have a hunch you are anxious to do that.
    Your fiscal year 2020 budget request includes an additional 
$362 million for a program integrity cap adjustment that would 
provide $200 million to Enforcement and $162 million to 
Operations Support.
    Since 2011, the IRS' Enforcement budget staff has been cut 
by 27 percent. As a result, the number of audits and 
investigations have been reduced, and the most recent voluntary 
compliance rate is only 81.7 percent.
    These funds are needed to correct the downward staffing 
trend in Enforcement.
    I know we have to prioritize and make tough choices within 
the funds provided, but by cutting IRS Enforcement, what 
message does this send to the American people?
    Lastly, I would like to remind us all of IRS's mission to 
provide America's taxpayers with top quality service. We need 
to improve the taxpayers' experience by reducing wait times for 
callers trying to resolve a tax issue, increasing support to 
programs that assist the elderly and low-income populations, 
and providing quality and timely resolutions to victims of tax 
identity theft.
    In closing, I would like to thank Nina Olson, the National 
Taxpayer Advocate, for 18 years of service. She has been a 
champion for the U.S. taxpayer and provided insightful 
recommendations on how to improve the IRS and the taxpayers' 
experience. We thank her for her service.
    That said, thank you again for taking the time to meet with 
us today. We look forward to your testimony.
    Let me turn now to Ranking Member Graves for his comments.
    Mr. Graves. Thank you, Mr. Chairman.
    Commissioner, it is good to have you with us today. I want 
to first just congratulate you and all the employees that work 
with you at the IRS for the implementation of the Tax Cuts and 
Jobs Act. That has been lowering the tax burden on Americans 
this past year.
    But I know things are going well. According to Secretary 
Mnuchin earlier this morning, he says things are on track and 
are, in fact, going well. So I commend you and your team for 
that effort.
    I know one of your highest priorities going forward is the 
implementation of the Integrated Modernization Business Plan 
that provides a 6-year roadmap for achieving the necessary 
modernization of IRS systems and taxpayer services.
    I believe the operations of the IRS and the services 
provided to taxpayers can be improved. I know you feel the same 
way, and that is one of your great missions, and I look forward 
to working with Chairman Quigley to ensure that you have the 
resources necessary to implement.
    Now, during the previous administration, the IRS faced many 
management issues regarding wasteful spending on conferences, 
creating inappropriate videos and targeting certain groups 
based on ideological beliefs. I would certainly love to hear 
today how you have addressed some of these issues to ensure 
that they are not repeated in the future.
    And then finally, this morning Secretary Mnuchin said that 
the technology used at the IRS, and this is his quote, is 
embarrassing, and I think we all understand the challenges you 
have there. So your team maintains an enormous amount of 
sensitive business and personal information. Cybersecurity and 
identity theft have been a continuing challenge for the IRS.
    So maybe today you could share a little bit about what you 
and your team are doing to protect your systems and all of our 
taxpayer information from the cyber threats that exist.
    But I am glad to have you with us today. I appreciate your 
efforts.
    And, Mr. Chairman, I am happy to yield back.
    Mr. Quigley. Thank you, Mr. Graves.
    I would like to recognize Mrs. Lowey, the chairwoman of the 
full committee, for any opening statements she would like to 
make.
    The Chairwoman. Thank you.
    And I would like to thank Chairman Quigley and Ranking 
Member Graves for holding this hearing.
    Commissioner Rettig, welcome and thank you for being here.
    Commissioner, you and I had a really good discussion in my 
office last week, and I admire your dedication to the IRS 
workforce and your clear desire to boost morale. Your personal 
history, including your family's commitment to our country, 
speaks volumes about your character.
    And so, it disappoints me that your budget request is so 
unacceptable. It includes decreases that would impact my 
constituents who have already been targeted by the Republican 
tax bill.
    You include a $90 million cut to taxpayer services, which 
helped taxpayers navigate their personal finances and the new 
tax law accurately. I frequently hear from taxpayers and tax 
professionals in my district that they cannot even get in touch 
with an IRS representative for assistance, and these cuts would 
only make this worse.
    You also include a $155 million cut for base funding of 
Enforcement resources that bring tax cheats to justice and 
ensures the system remains fair for all.
    However, I was very pleased to see that you requested a 
$140 million increase for business systems modernization, 
including $80 million for cybersecurity and data protection.
    As you know well, the IRS houses our most sensitive 
personal data and is, therefore, consistently targeted by 
nefarious actors. This is an issue of national security, and we 
must make sound investments that protect Americans and their 
personal information.
    I know that you implement the laws that Congress enacts, 
but I would be remiss not to raise the biggest threat New York 
faces when it comes to taxes: the cap on the State and local 
tax deduction.
    This is particularly harmful in my district where 
Westchester and Rockland are already some of the most heavily 
taxed counties in the country, if not the most. There was 
recently an article just this week.
    The cap is quite frankly insulting. New York's residents 
and businesses send more revenue to the Federal Government than 
it receives back in Federal spending. In fact, a recently 
released report by the Rockefeller Institute of Government 
found that for 2017 alone, New York gave $35.6 billion more to 
the Federal Government than it received.
    It is unacceptable to further burden New York families, and 
I encourage you to work with us to find ways to ease the pain.
    I hope that you take these concerns seriously. I look 
forward to a productive discussion today, and I thank you very 
much.
    Mr. Quigley. Thank you.
    Commissioner, you are on.
    For the record, and without objection, your statement will 
be entered into the record. So if you could please keep your 
statement to 5 minutes. As you know, we are pressed up against 
votes again.
    But we are glad to have you. Thank you.
    Mr. Rettig. I understand, and I appreciate your comments, 
and I appreciate the opportunity to be here.
    Chairman Quigley, Chairwoman Lowey, thank you Member Graves 
and members of the subcommittee. Thank you for the opportunity 
to discuss the IRS budget and current operations.
    I am truly honored to serve as the 49th Commissioner of the 
Internal Revenue Service. Having spent 36 years in the private 
sector representing taxpayers before the Internal Revenue 
Service, I understand how important a fully functioning IRS is 
to the overall success of our country.
    Our people interact with more Americans than any other 
institution, public or private. Our people make a difference. 
They care, and they take pride in serving taxpayers and our 
country.
    The IRS is important to every American, and every American 
is important to the IRS.
    I am passionate about modernizing our information 
technology infrastructure and continuing to improve cyber 
security. I am passionate about making sure our workforce 
receives the resources and training they need to appropriately 
serve the taxpayer community.
    We want to do more, and with your assistance, we will be 
better able to enhance the overall taxpayer experience. I am 
passionate about helping all taxpayers with their filing and 
reporting obligations, but especially those in the underserved 
and ESL communities.
    Taxpayers who are willing to comply must receive 
appropriate levels of support and timely guidance while we 
respect their rights and forever safeguard their information.
    And I am passionate about making sure we enforce the tax 
law. The IRS must continue to balance service to the taxpayer 
community with an appropriate degree of enforcement of our 
Nation's tax laws. A robust enforcement effort assures 
compliant taxpayers that those who fail to comply risk the 
consequences of such noncompliance.
    I am pleased to report that the 2019 filing season opened 
on time on January 28th and continues to go well. As of March 
29, the IRS has received more than 92 million individual 
returns, and we have issued more than 71 million refunds for a 
total of more than $206 billion.
    Turning to the President's budget request, we are asking 
for an appropriation of $11.472 billion for the IRS in fiscal 
year 2020. This is $170 million, or 1.5 percent, above the 2019 
enacted level.
    This request proposes increasing funding in several 
critical areas. At the top of that list is technology 
modernization. We are finalizing our modernization business 
plan, which will cost about $2.3 billion to $2.7 billion over 6 
years, to help bring our critical IT systems up to date.
    The President's budget request includes $290 million in 
initial funding for our plan. Modernized systems are the key 
component to delivering quality service to taxpayers, providing 
efficient and robust enforcement activities, and keeping 
taxpayer data secure.
    The integrity of the Nation's voluntary tax compliance 
system depends on modernized IRS IT, and we look forward to 
working with Congress to implement this plan.
    Another critical area where we propose to increase funding 
involves the IRS' ongoing efforts to secure our systems and 
protect taxpayer data. Technology has greatly helped the IRS 
protect our computer systems from cyberattacks.
    It has also helped us in our ongoing battle to protect 
taxpayers and their information against tax-related identity 
theft.
    The funding called for in the President's budget is also 
important to our efforts to maintain a well-trained workforce. 
This is a critical time for us, given that a large percentage 
of our workforce is either eligible to retire or will become 
eligible in the next 2 years.
    To help us further in this area, we are asking Congress to 
restore streamlined critical pay authority, which expired in 
2013. Without this authority, we have found we lose highly 
qualified candidates to other organizations that can hire them 
more quickly.
    Chairwoman Lowey, Chairman Quigley, Ranking Member Graves, 
and members of the subcommittee, I appreciate the dedication 
and support that Congress has shown to the IRS mission. I am 
committed to working with you to ensure the IRS can continue to 
fulfill its mission now and in the years to come.
    That concludes my statement, and I would be happy to take 
your questions.
    [The prepared statement of Mr. Rettig follows:]
    
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    Mr. Quigley. Thank you.
    In consultation with the ranking member, Mr. Graves, we 
decided we were going to try to do Mrs. Lowey and Mr. Graves' 
questions before we run off to vote, and if folks could get 
back as soon as possible, we will commence again.
    Chairman Lowey.
    The Chairwoman. Thank you.
    Commissioner Rettig, your fiscal year 2020 budget request 
proposes a $155 million decrease for Enforcement without 
including the integrity cap adjustment, which means less money 
to combat tax cheats. I am struggling to understand this cut 
when Enforcement staffing has been reduced by 27 percent since 
fiscal year 2011.
    As I noted in my opening statement, cuts like this make it 
clear that this administration does not prioritize enforcement 
of the tax laws.
    Can you explain why your request cuts Enforcement?
    And why is it that year after year the IRS' request to 
transfer tens of millions of dollars out of Enforcement into 
other parts of the IRS?
    Do you not value Enforcement?
    Mr. Rettig. Chairwoman Lowey, as we discussed when I was in 
your office last week, I believe you understand I am an 
enforcement person. I am an enforcement minded person. I 
believe that a strong, robust, visible Enforcement presence by 
the Internal Revenue Service supports our voluntary compliance 
system. I think it supports the taxpayers who voluntarily 
comply. They need to know that those who do not run a 
substantial risk of being there.
    We are working hard on our systems with respect to data and 
analytics and the modernization plan to be able, to be better 
able to take Enforcement actions where appropriate.
    And I want to confirm to you as well as to the other 
members of the committee that personally I have both eyes 
focused on Enforcement and would be glad to come back and 
hopefully be able to tell you where we have made great strides 
in that.
    The Chairwoman. First of all, in addition to the eyes, I am 
sure you would like some money to help you with Enforcement. So 
I wish you would think about it, and maybe we can change that.
    And also briefly, because I know we are running out of 
time, the tax law, $10,000 cap on State and local tax 
deduction, you are a California native, previously no limit to 
deductions of State and local property and income taxes for 
those who itemize.
    A major sort of tax fairness for high taxed Federal donor 
States like New York with 35 percent of taxpayers deducted more 
than $22,000. In my district that number was even higher at 45 
percent of my constituents conducting an average of $26,000.
    Simply put, the new tax law places an unfair burden on New 
York taxpayers who already send more to the Federal Government 
than New York gets back in Federal investments. It is unfair to 
place the burden of Republican tax cuts on hard-working New 
Yorkers who already face high taxes and a high cost of living.
    What is the IRS doing to resolve this issue and provide 
relief to high tax States?
    Mr. Rettig. As an administrator of the tax laws enacted by 
Congress, the IRS is required to follow the law. The proposed 
regs. came out I think it was in August of last year, and the 
regs. are in the process of being finalized. I would anticipate 
and I would hope within the next month or less the regs. will 
be finalized.
    You know, the IRS cannot change the tax law. The IRS has to 
administer the law, and being from California, I well 
understand your comments.
    The Chairwoman. Well, I thank you very much, and maybe you 
can become an advocate for a change to where it was.
    Thank you.
    Thank you, Mr. Chair.
    Mr. Quigley. Thank you, Madam Chairman.
    Mr. Joyce.
    Mr. Joyce. Thank you, Mr. Chairman.
    Thank you for being here today.
    Are you familiar with the Voluntary Income Tax Assistance 
Program?
    Mr. Rettig. Yes, absolutely.
    Mr. Joyce. Having employed that when I was in law school 
myself, it used to be the fact that it was helping low income 
people who really need that refund to understand their taxes, 
prepare them properly, and get the money back in their hands.
    We have nine such sites throughout my district at the 
moment. Do you think Congress is doing enough to give you the 
wherewithal to continue this program and to provide these 
services in low income areas around the country?
    Mr. Rettig. As I indicated in my opening statement, I am a 
very strong proponent of taxpayer assistance to the lower 
income communities, the English as a second language 
communities, the communities of unrepresented taxpayers. I 
myself participated in VITA programs at earlier stages in my 
life.
    Since I have been in Washington, DC, I have participated in 
two separate lower income taxpayer-related activities here. One 
was on a weekend. One was in the evening. So I am very 
conscious of impacts in communities that are either 
unrepresented or lower income or people who English might not 
be their first language.
    And I think that VITA is a critical program for those, and 
I am hugely supportive of the VITA program, as is the IRS.
    Mr. Joyce. Are we providing enough funding for you to 
continue the program?
    Mr. Rettig. You know, every function of the IRS could use 
additional funding, and VITA could use additional funding, and 
there is legislation pending.
    With that, I yield back to my ranking member, Mr. Graves.
    Mr. Graves. Thank you, Mr. Joyce.
    Commissioner, a couple of quick questions on behalf of the 
bipartisan delegation of individuals impacted by some natural 
disasters. I know that they have requested some assistance in a 
letter that was directed to your office.
    It was led by Mr. Dunn from Florida, and as you know, 
victims of natural disasters need assistance oftentimes during 
the filing season in calculating their taxes.
    Can you just tell us a little bit about what the IRS is 
doing to help victims of 2018 and 2019 natural disasters?
    Mr. Rettig. I like to say the IRS is a large institution 
run by people, and it is run by people who care. And the IRS 
has a strong focus on natural disasters, and I was not aware 
before I came on that a lot of people are not aware that over 
9,000 IRS employees have participated in calls, over 1.6 
million calls related to various disasters.
    In the last hurricane down in Florida, 25 IRS Special 
Agents, Criminal Investigation, went down and worked 7-day 
weeks, 12 hours a day, providing security.
    So we are very aware of that and aware of your issue. We 
recently responded to another member of Congress on the same 
issue, and so we will take a deeper look at it.
    Mr. Graves. Are you considering using the cost index's Safe 
Harbor method? I know that is something that they requested.
    Mr. Rettig. I have seen the request. I am not personally 
familiar with that particular method, but we will take a look 
at it and work with staff.
    Mr. Graves. OK. Thank you.
    From what I know, just the little I know, it appears to be 
one of the quickest and easiest methods. Since there are not 
enough contractors to provide a lot of the estimates, many of 
the residents still have to be able to settle some of this.
    And so, yes, if you would take a look at it, that would be 
great, and I know on behalf of everybody impacted in those 
areas, any assistance available would be greatly appreciated.
    Thank you.
    Mr. Rettig. I come from earthquake country.
    Mr. Graves. Yes, I understand.
    Mr. Rettig. And natural disasters.
    Mr. Graves. Thank you, Mr. Chairman. I yield back.
    Mr. Quigley. Mr. Commissioner, we appreciate your 
indulgence of the pesky little constitutional requirement of 
voting.
    So if you will, the committee stands in recess until such 
time as required for members to cast votes on the floor.
    Thank you, sir.
    [Recess.]
    Mr. Quigley. We will reconvene. Thank you, Mr. 
Commissioner, for your indulgence.
    Sir, to begin, let me ask you about private debt 
collection. It has been 2 years now this program has been in 
operations. The obvious concerns are we spent most of our lives 
telling people that the IRS would not be the one calling you. 
So there is potential for some confusion in this regard, 
particularly when it relates to scams and those that would prey 
on lower income or senior citizens, or both.
    According to the National Taxpayer Advocate, 46 percent of 
taxpayers who have entered into an installment agreement to pay 
taxes owed had incomes below 250 percent of the Federal poverty 
level. Can help explain how this is happening and what the IRS 
is doing to remedy at the situation.
    Mr. Rettig. Thank you, sir. The private debt collection 
issue is the law, and as the law, the Internal Revenue Service 
is required to follow it. There is a proposal to reduce the 
figure from 250 percent to 200 percent of the Federal poverty 
rate, and a significant issue that flows there is: Are 
individuals entering into installment agreements that result in 
a default because they are answering the phone and working out 
a payment arrangement with somebody based on the fact that that 
person is on the phone now?
    So again, as I mentioned earlier in my testimony, issues 
with respect to lower income and English as a second language 
communities are issues that are very near to me personally with 
respect to family-related issues, and issues that we are 
focused on to try to make it work to the best of its abilities.
    And at the end of the day, we will follow the law. But we 
want to make sure that the program works effectively and does 
not unduly burden the communities that are being impacted.
    Mr. Quigley. So specifically, what do you do? There are 
folks out there that know that calls can come from the IRS. And 
there are extraordinarily unscrupulous actors who are going to 
say whatever it takes.
    How do you prevent that kind of fraud? What are you putting 
in place to make sure those folks are not used by such 
unscrupulous users of the system?
    Mr. Rettig. There are two issues in that. When matters are 
sent out to private debt collection, the taxpayer actually 
receives a notice, a written notice, from the Internal Revenue 
Service indicating that it is being sent out to private debt 
collectors.
    And then the other side, in terms of people who call and 
the scams, and we are inundated with those situations in this 
country, and certainly during filing season we are inundated 
with those situations, the IRS has done--puts out the Dirty 
Dozen, the 12 issues primarily that come up. And phone scams 
are always among the top on that.
    IRS Criminal Investigation is involved in numerous 
investigations of phone scam artists, not all of which are 
based inside the United States. Many of them are based outside 
of the United States. I think universally they prey on 
individuals who either have other issues--elderly, healthcare, 
and whatnot--and just have basically a fear of the government.
    So the IRS tries hard in terms of outreach. I thought they 
tried hard when I was on the outside in private practice, and I 
would see a lot of information come out. I probably did not 
read as much of it as I do now, and I probably was not as 
sensitive to trying to make it as easily understood as I am 
now; I have a higher focus because I am inside and paying 
attention to the things that are out there.
    But outreach, education, constant notifications, and there 
are peaks for when the scam artists tend to come up, which 
filing season tends to be one of those peaks.
    Mr. Quigley. Have you quantified in this 2-year period if 
there has been indeed an uptick in the scams dealing with 
phones?
    Mr. Rettig. I have not. I have only been on board since 
October 1 of last year.
    Mr. Quigley. Well, I meant the agency.
    Mr. Rettig. No. I understand. Two years for the program. 
Sorry about that. But I have not, but it is an issue I can look 
into and report back to you.
    Mr. Quigley. Yes. We would appreciate that.
    I guess I will go to Mr. Stewart. Is that correct, Mr. 
Graves?
    Mr. Graves. Yes.
    Mr. Quigley. OK.
    Mr. Stewart. Again, thank you, Mr. Chairman.
    And sir, it is good to have you with us. Again, I say this 
in most of these hearings, and that is the oversight role of 
Congress is important. And we have a specific role here. I know 
that makes your job harder sometimes; as you prepare for these 
hearings, you are wondering, what will I be asked, and do I 
have all of the information?
    And it impresses me, the witnesses and the officials we 
have before us their broad range of expertise and ability to 
deep dive into their own agencies. And there is hardly anything 
we could ask them that they do not seem to have the answer for.
    I am going to speak broadly, if I could, and I do not think 
this will take much time, but we will see. The IRS is an agency 
that has been bruised over the last 3 to 4 years. We go back--
previous to your time, obviously, there was a time when they 
were criticized for some inappropriate videos, as you may 
recall, some conferences that were very expensive. They seemed 
to be more luxurious, perhaps, than the American people 
expected.
    Of course, you look at them targeting certain ideological 
groups, the perception being that they had a different view 
than some officials in the administration and they were 
targeted because of that. And now you are in the middle of this 
firestorm over tax returns, which we have already discussed 
here, and I do not necessarily want to dive into it.
    Can you answer two things for me? First is, do you feel 
like we have got a handle on some of the spending that was 
perceived as being wasteful, and probably was. And the second 
thing is, how is the morale of your agency, and how do you 
think we could help with what is a real important function, and 
that is the American people voluntarily comply with most tax 
law.
    I mean, the foundation is built on voluntary compliance. 
How can we preserve that, the ethos? The IRS is an agency that 
many people are--it is not everyone's favorite agency, for 
obvious reasons. But we still want to maintain that integrity 
of the agency. Give us your sense on where we are with that, if 
you would, please.
    Mr. Rettig. Congressman, in significant part, I came on 
because of my respect for the IRS workforce, having been on the 
outside for 36 years, interacting with representatives of the 
Internal Revenue Service for my entire professional career. 
Respect the quality of the people who work there, and their 
dedication and their care for the mission that they are trying 
to accomplish.
    And I came in to really trend you to handle the issues that 
impact what people think of the Internal Revenue Service and 
this country on the outside, and to open up and make sure that 
people understand that we have an agency that 95 percent of the 
gross revenue of this country goes through the agency, that 
everything that is good in this country is in one way or 
another attributable to this agency; that the agency touches 
more Americans than any other entity, public or private.
    And I have done a lot of internal presentations. I have 
been down to Atlanta. I have been down to our service center in 
Austin, Texas. Next week I am going to Kansas City. It is my 
intention to actually touch, myself, as many of the 80,000 
employees as I can to remind them that I am here for them, that 
I respect----
    Mr. Stewart. I would invite you--do you tell where we have 
processing, although I imagine a smaller one, but there is one 
in Ogden.
    Mr. Rettig. I am headed there.
    Mr. Stewart. Good.
    Mr. Rettig. I am headed to Ogden. I do not anticipate to--
my goal would be to touch every person at the IRS, shake their 
hand, and thank them for the service that they have done on 
behalf of the country, and let them know that I am here for 
them. Because I am here for people of the Internal Revenue 
Service as well as the taxpaying public and as well as 
Congress, to make people aware.
    So from a morale perspective, I have been interacting 
directly with people of the Internal Revenue Service. We have a 
lot of communications that come out of the Office of the 
Commissioner, and those communications are written by me 
personally. We have a Communications and Liaison Department, 
but I write them myself, and I tell the employees I write them 
myself.
    I want them to know who I am. I want them to know the feel 
of why I am here, and the vision--my vision, at least--for the 
Internal Revenue Service, and have an understanding of that 
throughout. That is very important to me.
    On the spending side of the house, we are very conscious of 
spending-related issues. The IRS, I think, has to be efficient, 
it has to be responsible, and it has to make do with the 
ultimate amount of money that is made available to the Internal 
Revenue Service; that it is very important for the integrity of 
the Internal Revenue Service. The voluntary compliance rate in 
this country is right around 83 percent; that is people who 
voluntarily file and pay their returns, pay their tax.
    If that percentage, because people believe less in the 
integrity of the Internal Revenue Service, drops one point, 
that is $30 billion a year. If we can raise the integrity of 
the Internal Revenue Service one point, that is another $30 
billion a year. That is a $60 billion swing based on what the 
taxpaying public believes in the credibility and integrity of 
the Internal Revenue Service.
    That is what brought me on board. I came on board for that. 
At this point in my life, in my professional career, my 
personal life, I had the opportunity to do this and I did it. 
And that is why I am here.
    Mr. Stewart. Well, I would maybe just close with this 
point. If a 1 percentage drop is $30 billion, we have had some 
probably $60- or $90 billion issues in the last couple years. 
And again, I am not pointing the finger at you or any one 
individual. But there is no question that the agency has lost 
some of the credibility and some of the goodwill that was 
stored up there before.
    There are people like me who think they actually did target 
some of these groups and they did it for ideological purposes. 
And those are the kinds of people who would, because of that 
feeling, be resentful. And look. Because of who you are, you do 
not have the latitude that other agencies might have when it 
comes to not just that but some spending issues.
    So we encourage you to thank their employees for the good 
work that they do. We recognize it is essential, and we 
appreciate that. And continue to encourage them to value that 
integrity, which is absolutely irreplaceable and takes months 
or years to redeem once it is lost. So thank you, sir.
    Mr. Rettig. And we are looking forward.
    Mr. Stewart. Yes. Thank you.
    Mr. Rettig. We want things to be better for everyone.
    Mr. Stewart. Yes. That would be better for all of us.
    Mr. Quigley. Thank you.
    Mr. Bishop.
    Mr. Bishop. Thank you very much, Mr. Chairman.
    Mr. Commissioner, the IRS estimates that taxpayers pay 
collectively, as you just indicated, a bit more than 80 percent 
of owed taxes. And this difference accounts to roughly $450 
billion a year.
    The Government Accountability Office has recommended that 
the IRS reestablish goals for improving voluntary compliance 
and develop and document a stage that outlines how it will use 
its data to update compliance stages to address the tax gap. 
This is highlighted in both the House's and the Senate's fiscal 
year 2019 Financial Services appropriations bills.
    What is the IRS specifically doing to reduce the tax gap?
    Mr. Rettig. Congressman, I believe the net tax gap is about 
$406 billion. The 458 is before the IRS enforced collection 
activity occurs, and the net is about 406. But as in any 
estimate, it is an estimate, and it is an estimate that is 
based on old data, not necessarily current data.
    Mr. Bishop. What are you doing to address it?
    Mr. Rettig. We are a best-in-class data warehouse, and we 
are using the data that we have and data analytics and other 
avenues to come from an enforcement perspective. We are 
streamlining where we are looking. We are looking at some 
areas. There have been some issues in the past----
    Mr. Bishop. Well, let me ask you, the workforce has already 
dropped nearly 20 percent since 2011, with Taxpayer Services 
and Enforcement hit particularly hard. Unfortunately, the 
fiscal year 2020 budget request, even though it is better than 
fiscal year 2019, continues to deprioritize Enforcement and 
Taxpayer Services. These two functions not only assist 
taxpayers in fulfilling their obligations, which can be both 
stressful and confusing for many taxpayers, but it also helps 
to ensure compliance, accuracy, and lower levels of evasion, 
which ultimately helps lower the deficit, and it supports lower 
tax rates for all taxpayers.
    How is this sustainable? The Tax Code continues to grow 
more convoluted, and it seems that IRS has neither the 
resources to assist confused taxpayers nor the resources to go 
after those that are purposefully playing games with the Tax 
Code and defrauding hardworking taxpayers.
    Why is IRS not prioritizing Taxpayer Services and 
enforcement?
    Mr. Rettig. The IRS is prioritizing Taxpayer Services and 
Enforcement. The number----
    Mr. Bishop. You are not asking for the sufficient 
resources.
    Mr. Rettig. Well, at some point internally, and this has 
been coming from the outside in the IRS, it comes down to a 
guns-and-butter analysis. We are looking to modernize the 
agency itself, and that is our number one priority. We are in 
the process----
    Mr. Bishop. What is coming from the outside?
    Mr. Rettig. Pardon? My practice. I just got on board. 
Excuse me, sir.
    Mr. Bishop. Oh, I am sorry.
    Mr. Rettig. I just got on board October 1. I was 36 years 
in private practice on the outside, interacting with the 
Internal Revenue Service.
    We are in the process of hiring about 4,300 compliance 
personnel. We have 14,000 customer service representatives, 
which essentially are the phone assisters.
    Mr. Bishop. You think those people would be sufficient to 
address the, as you say, $406 billion in the tax gap?
    Mr. Rettig. I believe that we need not only personnel. We 
need to better use the data available to us and the internal 
data that the Internal Revenue Service has. And we are taking a 
strong look at that.
    Mr. Bishop. Well, how can you better address that data 
without having personnel to do it?
    Mr. Rettig. Beginning with personnel is to--we also need 
training for our personnel, and reference to the Taxpayer 
Advocate. Her reports have continually addressed training-
related issues, which has been cut significantly since 2010.
    So we need a trained workforce; when we have a trained 
workforce in place, we will be better able to quantify the 
actual number of people we need to bring on board, which you 
will hear from me when we get to that point.
    Mr. Bishop. Is the administration not proposing to reduce 
the personnel, the FTEs, in the Taxpayer Advocate section?
    Mr. Rettig. I believe it is the attorneys in the Taxpayer 
Advocate that will be moving into Chief Counsel's office, but 
not the personnel itself. But I can look into that and get back 
to you.
    Mr. Bishop. OK.
    Mr. Rettig. I interact a lot with the Taxpayer Advocate. I 
knew her before she became Taxpayer Advocate 18 years ago.
    Mr. Bishop. That was one of the most exciting innovations 
in dealing within the IRS over the last decade. The real 
involvement of the Taxpayer Advocate in helping taxpayers, and 
of course the last two tax cycles it has been diminished 
tremendously. Calls cannot even be answered, and it has just 
been terrible. It seems like you would prioritize that.
    My time is about expired.
    Mr. Rettig. Thank you, sir.
    Mr. Quigley. Mr. Graves.
    Mr. Graves. Commissioner, recent news reports indicate that 
the IRS is issuing less tax refunds than in the previous year. 
In fact, I think it is like $6 billion less refunds to the 
taxpayer. Some are very critical of that figure, and some from 
the other party actually point blame at the administration. Why 
is that? Why are there less tax refunds this year, a lower 
dollar amount than previous years?
    Mr. Rettig. Well, the Internal Revenue Service is a tax 
administrator, and we do not tend to message why and how behind 
the statistics and the information that we publish. I have read 
articles on the outside that have addressed issues with respect 
to withhold and whether people adjusted or did not adjust 
withhold during 2018, with respect to the filing of those 2018 
returns coming into this year.
    But as of March 29, we have issued $206 billion in refunds 
associated with 71 million separate refunds. And we are more or 
less on par with where we were last year. And so----
    Mr. Graves. Right. I think it is safe to say that when 
individuals are paying less in taxes, then they are probably 
going to get less tax refunds. Or when you have doubled the 
child tax credit or you have doubled the standard deduction, 
you may not even have a tax liability at all. Therefore, you 
are probably not going to get a refund, or it is going to be 
less than in previous years.
    In fact, one of these reports that was somewhat critical 
with the headline later says, ``Lower refunds do not mean 
Americans paid more in taxes. Quite the opposite. Most workers 
paid less in taxes last year and saw higher take-home pay week 
in and week out. But for many Americans, a slightly higher 
paycheck does not quite have the same visibility as a single 
$3,000 check in March or April.''
    So I would caution folks, from looking at that headline as 
a negative, in fact it is a positive. If $6 billion of less 
money is being sent to taxpayers, it means that $6 billion of 
more money that was in their pocket and was not held for almost 
12 months outside of their own pocket. So I do appreciate how 
you have been administering the Tax Code. I understand the 
answer to your question there.
    On a different note that I know you can address because I 
have talked to you personally about this, and it is really 
about the culture of the IRS and the employees. And I think you 
brought in a new approach, a new perspective, a breath of fresh 
air, openness.
    Maybe share with the committee your approach to how you 
engage the staff at the IRS, and how you have invested your 
time into them; and then also about some of the challenges you 
have from your open positions and hiring practices and 
opportunities that exist for the IRS.
    Mr. Rettig. Yes. I, from day one at the Internal Revenue 
Service, literally day one, October 1, sent a email throughout 
the entire service to 80,000 employees that was, as I said, 
written by me, and walked through the fact that--and in brief I 
will say I believe I am the only Commissioner to have son or 
daughter who is active duty United States military, who at the 
time that I was going through the process was serving in a 
combat zone overseas on behalf of our country.
    I believe I am also the only Commissioner who has a spouse 
who was not only a boat person escaped from Vietnam at the age 
of 18, but lived in a refugee camp for 6 months, whose father 
was in a reeducation camp for 3 years, 9 months in a Communist 
country, and have used that for an explanation to the people 
inside the Internal Revenue Service as who I am, and have 
opened up far beyond that, that I care about people. I care 
about the people inside the Internal Revenue Service. I care 
about the people outside of the Internal Revenue Service. And I 
care about the reputation of the Internal Revenue Service, and 
I care deeply.
    In terms of employment and on-boarding, being in the 
private sector up until October 1, if I was out somewhere and I 
met somebody that I thought would be a good addition to the 
firm I was practicing in, I could talk to them on Friday and 
they could start on Monday.
    I have since come to learn that the Federal process is 
about an 8- or a 9-month process. We lose people who we try to 
bring on board who would be significant for us going forward, 
which is one of the reasons why, in the current pending bill, 
is streamlined critical pay. It would allow the Internal 
Revenue Service in the IT and the cyber world to bring on up to 
40 people within a 4- to 6-week time frame, and by way of 
explanation in this country.
    Cyber is probably the number one concern for most public or 
private entities. And there are 300,000 available cyber 
positions in this country with a zero percent unemployment 
rate. So we need things like streamlined critical pay to get 
our people on board. It is critical for the operation of the 
agency.
    Mr. Graves. Mr. Chairman, if I could close by saying this: 
The Commissioner personally invests in the employees there, and 
in fact enjoys lunch with them each day. He is in the building, 
in the cafeteria with the employees. And I come to find out 
that the folks there that prepare the meals know that his 
favorite meal is in fact a salad every day.
    Mr. Rettig. I eat in the community table in our cafeteria 
every single day, and anybody who wants to join me, including 
each of the members here, you are all invited to come over. 
Thursday is turkey day. Wednesday is wings. Shrimp and grits on 
Tuesday. But that is one of the highlights of my position here, 
is to be able to sit with our employees from across the 
country, whoever is in the building. And I do that when I visit 
other IRS campuses as well. I am very proud of interaction and 
of our employees. Thank you.
    Mr. Quigley. Thank you.
    Mr. Crist.
    Mr. Crist. Thank you, Mr. Chairman. And Commissioner, thank 
you for being with us today.
    Mr. Commissioner, in response to declining enforcement 
funds over the last decade, IRS audits are down about 42 
percent from 2010 until 2017, according to a tax industry 
publication.
    This is troublesome because tax cheats obviously harm all 
of us. However, I am even more disturbed that the decline in 
audits is not evenly distributed, with taxpayers making more 
than half a million dollars per year seeing a decline in audits 
of 69 percent, yet working families' audits only dropped 36 
percent. This clearly indicates a policy shift of some sort. 
Cracking down on people who have little, and going easier on 
people who are doing very, very well.
    Now, I know you have only been on the job for a few months, 
so surely I am not blaming you for this, sir. But I am 
concerned that the 0.7 percent increase requested for 
enforcement activities will not provide adequate resources to 
rebalance the enforcement so IRS is treating the poor as fairly 
as the IRS is treating the rich.
    But this issue is broader than unfairly skewing audits away 
from the rich and toward the poor. I recently came across this 
map behind me on a website, ProPublica. It shows where audits 
are concentrated in America. And you are a tax lawyer, and I 
hear a very good one.
    Mr. Rettig. You should talk to my children.
    Mr. Crist. Sir.
    Mr. Rettig. Sorry.
    Mr. Crist. That is all right. So when you look at the map, 
you probably see a heat map of lower income filers. The data is 
clear on that, going after the poor and letting the rich off 
the hook. A terrible policy, I would argue. But there is more 
here that is disturbing.
    I want you to look closer at the map, if you would. And 
what else do you see, Mr. Commissioner? Does anything jump out 
at you?
    Mr. Rettig. I did not bring my glasses, and so I see a lot 
of--I understand what it is. I am not sure I can read the 
caption.
    Mr. Crist. Well, that is all right.
    Mr. Rettig. But you are going to say, I am assuming, that 
it is California and the bottom half of the country is where it 
is more shaded?
    Mr. Crist. Yes. What I see is the black belt in the Deep 
South and Mississippi Delta. I see the border region of Texas, 
the desert Southwest, and California Central Valley, and Tribal 
areas of the Upper Plains and the Midwest. The map looks like 
the IRS is targeting black, Hispanic, and Native American 
populations for audit. Is that the case?
    Mr. Rettig. No.
    Mr. Crist. Disparate impact is an important way to identify 
racism in policies and procedures that may not deliberately and 
intentionally want to do so. That is why it is not good enough 
to say that the IRS does not consider race when making audit 
determinations. Sometimes, in order to find racial 
discrimination occurring, you have got to look back after the 
fact and analyze if the systems or the algorithms that may be 
in use would violate or could violate individuals' civil 
rights, even if you did not mean to.
    If a fair lending compliance officer at a national bank, 
for example, would see an internal map that looked like this, 
they probably would be horrified. Even accidental racial bias 
this pronounced would mean big trouble for a bank. How will the 
IRS improve or avoid explicit or implicit racial, ethnic, and 
Tribal bias in audits going forward?
    Mr. Rettig. The IRS has no filters whatsoever that identify 
individuals by race, religion, or any other capacity. The IRS 
filters are based upon a scoring system for issues. And if I 
could explain, there are two parts I believe to your question. 
One is in terms of the map. In the world of the earned income 
tax credit and the additional child care credit.
    The IRS sends out correspondence, letters, and that 
particular world has about a 24, 25 percent what would be 
called an audit rate because a letter goes out; therefore, it 
constitutes an audit.
    And the issue with respect to EITC, not to turn it around, 
but is one that we are working very hard on. It is a very 
complex part of the Internal Revenue Code.
    Mr. Crist. Right.
    Mr. Rettig. And it is nearly impossible to, through third 
party or otherwise, identify what a qualifying child is under 
the EITC. And so we audit through a correspondence audit, but 
it is still an audit, but it less intrusive than a sit-down 
audit. But it is still an audit.
    Mr. Crist. Yes, sir.
    Mr. Rettig. We audit about 25 percent of that. And even 
with our audit activity in that arena, the net post-audit is 
about, for 2018, about a $18.4 billion overpayment. And so that 
is an area that I would personally like to work with Congress a 
lot.
    We are going back to 1976 to see every issue that has been 
put forward with respect to EITC, and maybe revisit, is there 
another look we can do of this? It is a very important social 
program.
    Mr. Crist. Yes, sir.
    Mr. Rettig. A little over $6,000 of a refundable credit, 
even if somebody does not have it. So it is an incredibly 
important program for our country. We just need to figure out a 
way maybe to get it better, better for the people who are 
entitled to it. It has about an 80 percent participation rate. 
But it needs to be better for the people who are entitled to it 
because I think it is $6,431 for a married couple even if they 
owe no tax. I think that is really significant, and something 
that we should all support.
    The other side of the same question is a lack of or a 
reduced audit rate in the world of the higher wealth 
individuals, extremely wealthy, mid-wealthy, or people, you 
know, 100-, $150,000 on up who may not consider themselves 
extremely wealthy but they fall into that.
    In significant part when I was talking earlier about 
restoring credibility and integrity to the Internal Revenue 
Service, one of my focal points is to get the audit rates up 
for the more wealthy taxpayers, not necessarily by targeting 
the taxpayers but by taking a strong look at the issues that 
I'm aware of that wealthy individuals might engage in.
    The Internal Revenue Service has not done a great job 
recently in terms of pass-through examinations, partnerships 
and related entities, and a lot of wealthy individuals have one 
or more pass-through entities. And so it gets a little complex 
to audit. We are looking at ways to streamline those audits.
    We are looking at ways to ask particular questions. I made, 
probably the first or second week on board----
    Mr. Quigley. Sorry, Mr. Commissioner. We need to move on.
    Mr. Rettig. I am done. Sorry. My fault.
    Mr. Quigley. And I appreciate your response to that, sir.
    Mr. Crist. Yes. Thank you.
    Mr. Rettig. Sorry about that. You are welcome.
    Mr. Crist. And for the record----
    Mr. Rettig. I am available to meet----
    Mr. Crist. Let's continue to work together on that. And I 
appreciate it.
    Mr. Quigley. I appreciate that. I just want to make sure 
others get their opportunities.
    Mr. Rettig. Yes. I apologize.
    Mr. Quigley. No. You did fine, sir.
    Mr. Crist has asked that the ProPublica article he 
referenced, ``Where in the USA Are You Most Likely to Be 
Audited by the IRS?,'' and ``Tax Notes: Regional Bias and IRS 
Audit Selection'' without objection, they will be entered into 
the record.
    [The articles referred to follow:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]   
    
    Mr. Quigley. Ms. Torres.
    Ms. Torres. Thank you, Mr. Chairman.
    In response to the Tax Cuts--I want to follow up on that--
and Jobs Act, the IRS and Department of Treasury produced new 
income brackets. Those tax withholding tables, due to 
inaccuracies in these tables, many taxpayers did not withhold 
enough during the year and they are having now to pay, as they 
are filing, more in taxes because of the government's error in 
producing these new income tax brackets.
    I do not think that that seems fair. I want clarification 
on a recent opinion that the IRS now claims that if the 
taxpayer paid 80 percent of their tax liability, that they will 
be forgiven for any underpayment. In January, the tax liability 
threshold was 85 percent.
    So when did you decide to change the number to 80 percent, 
and how did you choose 80 percent (sic) as the new threshold?
    Mr. Rettig. The withholding tables associated with the Tax 
Act were revised in February 2018, and the revisions to those 
tables were made by career IRS employees. And then those 
revisions were--there is a Treasury Inspector General report 
and a GAO report that came out that approved the revisions.
    I am not sure that it was the tables, but the IRS would say 
that it worked very hard to get the message out--they had 
Paycheck Checkup, a lot of news releases, a lot of outreach. 
Point in fact, it probably does not reach most of the people; 
working people are not going to necessarily look up an IRS news 
release. This is my impression from the outside.
    Ms. Torres. I would not--if I was not in this business, I 
would not be reading your press release.
    Mr. Rettig. The average person does not search for the IRS. 
They wait for the IRS to--you know. So the IRS view would be 
that it did a lot in terms of outreach and education. The 
individual, hardworking individual on the streets, who ends up 
preparing a tax return and owing tax would probably say, ``I 
did not know realize that there was a change.'' Might not even 
have realized that there was a change in the Tax Act, quite 
frankly.
    In terms of the 85 to 80 percent, the practice on the 
outside people would let you know that there are contingents of 
taxpayers who intentionally under-withhold and who 
intentionally fail to pay their estimated tax payments. The 
penalty on that is the--it is actually called a penalty, but it 
is the interest equivalent.
    Ms. Torres. But you know who those folks are.
    Mr. Rettig. They are not just limited to those folks. But 
if I could come back to the other piece, there are people who 
intentionally underpay because it is an interest component and 
they can make more on the money in their pocket----
    Ms. Torres. Rich people. The people that I represent do not 
overpay.
    Mr. Rettig. Correct.
    Ms. Torres. I mean do not underpay.
    Mr. Rettig. Correct.
    Ms. Torres. They want to pay their taxes.
    Mr. Rettig. So the law was if you pay 100 percent of the 
last year or the 90 percent category of the current year, you 
had a safe harbor. And so given comments made by the 
withholding tables, notwithstanding GAO and TIGTA, the IRS 
reduced the safe harbor for people who ultimately paid to 85 
percent, and then various practitioner organizations, including 
the AICPA, came out and said, ``The 85 should be 80.'' And the 
IRS then reduced it again to 80 based on----
    Ms. Torres. So where is it at?
    Mr. Rettig. Eighty.
    Ms. Torres. Okay. And who benefits from that? What tax 
bracket?
    Mr. Rettig. It is not necessarily----
    Ms. Torres. People making minimum wage? People making just 
above minimum wage?
    Mr. Rettig. It would be across the board. If somebody--I 
believe that if somebody did not adjust their withholding 
according to the Tax Act, the 80 percent, they should be safe 
within that. I believe there would be few and far between. I 
have not done the math on that.
    But the intent was that people who have under-withheld 20 
percent or less would not have the penalty issue associated 
with it. And again, the penalty is an interest equivalent 
issue. But it is an area that we are sensitive to.
    Ms. Torres. Well, absolutely, because from my perspective, 
the intent was to try to fool people that they were actually 
seeing a reduction when the Tax Act was passed, when in reality 
they were not getting a reduction in their taxes because they 
would have that liability at the end of the year.
    As it relates to SALT for Californians, the average 
Californian pays $18,438 in local and State taxes. And the new 
tax bill, the deduction is capped at $10,000. In 2015 my 
constituents in my district dedicated over $682 million in 
State and local taxes.
    What are you seeing? What is the impact that you are 
seeing?
    Mr. Rettig. Yes, I do not have statistics. But I am born 
and raised 62 years in Los Angeles, and I am understanding of 
the impact of SALT limitations. And I do not have California 
specifics or any other particular State specifics.
    Ms. Torres. Well, I would like you to follow up on that 
with me, if you can.
    Mr. Rettig. We will. I will work with you.
    Ms. Torres. Thank you.
    Mr. Rettig. And I understand the issue.
    Ms. Torres. And I yield back.
    Mr. Quigley. Thank you.
    Mr. Cartwright.
    Mr. Cartwright. Thank you, Mr. Chairman. And Commissioner, 
nice to have you back.
    Mr. Rettig. Thank you.
    Mr. Cartwright. A couple areas I want to ask you about.
    First, the program integrity cap adjustment: Included in 
the White House's fiscal year 2020 budget is a $362 million 
program integrity cap adjustment that, if we approve it, would 
provide an additional $200 million to Enforcement and $162 
million to Operations Support. And you are familiar with those.
    Can you explain to me what those are and why Congress ought 
to consider that proposal?
    Mr. Rettig. The Enforcement is as it sounds, enforcement, 
which we like to wrap the term ``enforcement'' also within 
compliance because we have to have a strong, visible 
enforcement presence which couples with telling the people who 
get it right that they are doing the right thing, so the people 
who are not doing it right need to understand the risk of not 
doing it right.
    The Operations Support is essentially the IT and related 
support for the Enforcement side of the house. I think that if 
we were on the outside, the reports might actually match 
specific IT with a specific enforcement function. But the way 
the accounting happens at the Internal Revenue Service, they 
separate those two out. So it is not--the Operations Support is 
not an overhead component; it is part of the Enforcement 
component, but it gets separated in that manner.
    Mr. Cartwright. So these are both to help increase 
collections and reduce tax cheats?
    Mr. Rettig. Correct, across the board.
    Mr. Cartwright. Has the IRS implemented a program integrity 
cap adjustment before? And if so, can you explain how it has 
benefitted the IRS and U.S. taxpayers?
    Mr. Rettig. I do not have the information on whether they 
have, but would certainly be willing to get back to your staff 
and work with your staff on that. I am a believer that the 
program integrity cap will help us, and there is going to be a 
lot of oversight on the use of the funds. And I am also a 
believer in oversight for the IRS. I think that people 
understand and see where the funds are being spent, 
particularly Congress. It will help us going forward.
    I also believe that the Internal Revenue Service and 
Congress are in this together. I do not believe it is our issue 
or Congress's issue. I think it is an issue we need to work on 
together.
    Mr. Cartwright. I appreciate your attitude, I really do. So 
is that enough money? The additional $200 million to 
Enforcement and $162 million to Operations Support, is that 
enough?
    Mr. Rettig. I think in the aggregate over a 10-year period, 
it is about $15 billion going forward. And I think that the 
figures that I saw is that that should return somewhere around 
$47 billion. My hope would be to come back at some point--
although it goes well beyond my specific term--my hope would be 
to come back and show that $47 billion was a significant 
understatement.
    To Congressman Bishop's comment, if there is a $406 billion 
net tax gap, why are we not getting it?
    Mr. Cartwright. Right. Okay.
    Mr. Rettig. I think that is a fair question for us.
    Mr. Cartwright. All right. Now, you did say part of it goes 
to IT, and I wanted to follow up about that, IT modernization. 
You have got some outdated hardware and software at the agency, 
do you not? I read that more than 45 percent of the IRS's 
hardware was past its useful life, and that a large percent of 
the software was two or more releases behind the most current 
commercially available version.
    That is not a way to manage an agency. What is the plan to 
ensure that the hardware and software are updated, and can you 
explain why this has not happened up to now?
    Mr. Rettig. Up to now--and again, I was on the outside but 
my impression of what is in it, but I have learned a lot in 
6\1/2\ months--but up to now, essentially, because of funding 
and other issues, they have been patching and adding on certain 
applications to what they have, so they have 60 different 
applications.
    And at some point you need to--even if it is a relatively 
used car, you need to trade in the old car and bring out the 
new car. The modernization system that is there, there is an 
executive summary that has been put out. The full plan, I 
think, will be put out in the near future. We would look 
forward to the opportunity to come in and sit with you and with 
your staff and walk through the entire plan.
    But it will do, it is a service-wide system so that a 
taxpayer actually can call in and handle all their matters at 
once. A taxpayer can actually go online and handle all their 
matters at once. It will radically increase the web apps, 
applications, that we have. It will also radically enhance our 
enforcement abilities and make us a much more effective agency.
    Mr. Cartwright. How about security? Are taxpayers' personal 
data at risk, given the antiquity of some of the equipment you 
are using?
    Mr. Rettig. The information that I receive is that we are 
not at risk today, but old systems are a higher risk than new 
systems; and that at some point we are driving that car further 
than we should.
    Mr. Cartwright. Okay. Thank you, sir. And I yield back, Mr. 
Chairman.
    Mr. Quigley. Thank you.
    Commissioner, I guess the big deadline is April 15. But 
there is another one tomorrow, and I need to ask you: As you 
know, the chairman of Ways and Means requested the last 6 years 
of the President's tax returns, asking that they be returned 
tomorrow, April 10th.
    So I am not going to ask you first what you are going to do 
or how you feel that you should respond to this. The first 
question is: Is this your decision under the law and under the 
regulations, or is it somebody else's? And again I am 
referencing what we know about 6103 and Treasury Order 150-10, 
which predates a 1955 Treasury Order, which is very similar, 
that suggests this is on you, and any decision to take away 
that delegation would require, at the very least, written 
notice to the relevant committee chairman.
    Sir, is it your understanding this is your decision to 
make?
    Mr. Rettig. From what I have been seeing, that is the 
information that I am receiving. And I saw the Secretary's 
testimony this morning. We are a bureau of the United States 
Treasury, and we are supervised by Treasury.
    And so we did receive the letter. We are looking into it, 
and expect to respond.
    Mr. Quigley. And so I will ask you: How will you respond?
    Mr. Rettig. We are working on it.
    Mr. Quigley. Sometime in the next 24 hours, we will have a 
decision. And again respectfully, is the decision yours? Yes or 
no, sir?
    Mr. Rettig. I think that the decision--subject to the 
delegation order, the decision is mine, with the supervision of 
Treasury.
    Mr. Quigley. What is your understanding what that means, 
the supervision? Respectfully, it is either your decision or it 
is not.
    Mr. Rettig. I think that Treasury can deal with the 
authority on that issue. But I do not have specifics for you on 
that.
    Mr. Quigley. Has Treasury talked to you about this 
decision?
    Mr. Rettig. They have talked to me about the----
    Mr. Quigley. ``Communicated with you'' is perhaps the 
better way to ask.
    Mr. Rettig. In fact, they are aware of the fact that we 
have received the letter. That is correct.
    Mr. Quigley. Has anyone at Treasury communicated with 
anyone at the IRS about that decision?
    Mr. Rettig. Counsel for the IRS has been interactive, and I 
had a brief discussion with the Secretary that we received the 
letter.
    Mr. Quigley. And that conversation was just that you 
received the letter?
    Mr. Rettig. That's correct.
    Mr. Quigley. Was there something beyond the fact that the 
letter was received?
    Mr. Rettig. No.
    Mr. Cartwright. He did not request you to act in a certain 
way?
    Mr. Rettig. No.
    Mr. Quigley. Did not suggest that he was going to make the 
decision to you?
    Mr. Rettig. That was a discussion about--and that is what I 
am saying about we are working on it. There was a discussion 
about who is going to handle the response.
    Mr. Quigley. And what did the Treasury Secretary say?
    Mr. Rettig. There is no conclusion on that.
    Mr. Quigley. But it is your understanding that the call is 
yours under the Treasury Order?
    Mr. Rettig. I read the same delegation order that you did, 
sir.
    Mr. Quigley. Right. And the fact is that to rescind thought 
would take written notification and at least 30 days?
    Mr. Rettig. We are under their supervision.
    Mr. Quigley. Sure. And I will ask you the same question.
    To your knowledge, has anyone at the IRS had any 
communication with anyone at the White House, information going 
back and forth in anyway, about this decision?
    Mr. Rettig. To my knowledge, absolutely not.
    Mr. Quigley. Okay. Is it your understanding that you have 
discretion under this sort of a request under the law, that you 
can decide whether or not to comply with a request under 6103 
of the Tax Code?
    Mr. Rettig. I think it would be inappropriate for me to 
identify what the understanding is with respect to that.
    Mr. Quigley. What have your legal experts told you? It is 
hard to imagine, sir, that they are going to say, at 5 minutes 
till midnight, ``Okay, what are we going to do?'' I would 
assume that you all have started to have these discussions. 
They would have given you some amount of legal understanding as 
to what your choices were and what the law says.
    Did they talk to you at all or did you ask about whether 
you have discretion to respond or to comply?
    Mr. Rettig. I have not asked, and I think it would be 
premature of me to speculate with you now.
    Mr. Quigley. Would it have been premature to ask them if 
you had discretion?
    Mr. Rettig. I have not asked.
    Mr. Quigley. But you have not made up your mind as to 
whether or not you have discretion at all. Correct?
    Mr. Rettig. Sir, I think at this point it would be 
inappropriate for me to go beyond the statements that I have 
made.
    Mr. Quigley. Ok.
    Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman.
    Commissioner, are you aware of any other time that the 
chairman of Ways and Means Committee in the House of 
Representatives has requested the personal tax return of an 
individual?
    Mr. Rettig. Personally, I am not.
    Mr. Graves. And for what reason would a chairman of Ways 
and Means request an individual's tax return or entities 
related to an individual?
    Mr. Rettig. I do not speculate on why people ask for 
things.
    Mr. Graves. In the letter from Chairman Neal, he says the 
committee is considering legislative proposals and conducting 
oversight. And that is their reason for requesting the 
individual tax return of an individual and corporations related 
to that person.
    Can you think of a legislative proposal that could be 
derived from looking at once individual's tax return or the 
entities that are associated with him?
    Mr. Rettig. I think it would be inappropriate for me to 
speculate.
    Mr. Graves. I mean, have you--I am not on the Ways and 
Means Committee, and I do not keep up with what they are 
working on. I am sure your staff does. Have you been informed 
of any legislative proposals they are working on that would 
require the evaluation of an individual's tax return in order 
for them to reach a conclusion of what is proposed 
legislatively?
    Mr. Rettig. I am not.
    Mr. Graves. Yes. I am not, either. I know it is not for you 
to speak on. But it just seems like we have a chairman, and 
potentially a party, that is attempting to weaponize the IRS 
for political gain. And that is unfortunate because, as you 
stated, there is no other time that I can recall, and maybe you 
cannot, either.
    Even in your time outside of the IRS and more in the public 
practice, if you were--as a tax attorney, if you knew that the 
Federal Government was using the power of Congress to request 
an individual's tax return for public disclosure, how would you 
feel about that in the private sector?
    Mr. Rettig. It is probably inappropriate for me to--
personal opinion.
    Mr. Graves. Let's say this tax return is not produced by 
the deadline. What are the consequences?
    Mr. Rettig. Again, privacy and confidentiality provisions 
probably preclude me from having any discussions with respect 
to the issues there.
    Mr. Graves. Well, I actually have great admiration for your 
willingness to protect, no matter whom they are, whether I 
agree with them, disagree with them, like them, dislike them, 
but your willingness to protect an individual's privacy, and 
particularly their tax returns.
    But I am curious as to what arresting authority the 
chairman of Ways and Means has if this product is not produced. 
Are you aware of any? Have they threatened to use any force 
against you as Commissioner?
    Mr. Rettig. Nobody has made any threats against me.
    Mr. Graves. Have they indicated any actions they might take 
against you or the Secretary of the Treasury?
    Mr. Rettig. I have not received any information beyond the 
letter.
    Mr. Graves. Well, thank you for looking at this very 
seriously because I think this is an important time in the 
history of our country, that we do not allow any political 
party to weaponize any form of our government against their 
adversary. That is a dangerous and dark time if that were to 
occur.
    And Mr. Commissioner, I appreciate your conversation today, 
all you are doing in the agency, how you are leading the people 
of the Internal Revenue Service, how you are creating a culture 
of service. That is something we certainly seek for our 
constituents, and it has been good to spend time with you 
today.
    Thank you again, Mr. Chairman.
    Mr. Rettig. Our people work hard.
    Mr. Graves. They do. They do.
    Thank you, Mr. Chairman.
    Mr. Quigley. Thank you.
    Just a follow-up to that and then I will go on to Mr. 
Bishop. Can you recall a time when the Treasury Secretary has 
ever been involved in a Section 6103 request?
    Mr. Rettig. Personally, not--but I just came on October 
1st. But----
    Mr. Quigley. I was just curious if your legal staff had 
talked to you about that.
    Mr. Rettig. Since October 1st, no. And I have not had that 
discussion with anybody.
    Mr. Quigley. Very good.
    Mr. Bishop.
    Mr. Rettig. I have been focused on the employees.
    Mr. Quigley. I got that.
    Mr. Bishop. Is there any reason for you to believe that the 
Ways and Means Committee would not have a legitimate interest 
in monitoring the auditing and the enforcement of the law with 
respect to a sitting president?
    Mr. Rettig. Sir, I am a tax administrator. We process, 
file, and things, and I do not put my thought processes into 
those who look at us and have oversight ability with respect to 
us.
    Mr. Bishop. Is it not true that the Ways and Means 
Committee does have oversight of the administration of your 
agency, and that it would be legitimate grounds to request the 
tax return of a president or an individual, particularly with 
respect to oversight of potential conflicts of interest that 
the president might have?
    Mr. Rettig. Sir, the committee has oversight, and I do not 
put my thought process into the balance of the question that 
you asked.
    Mr. Bishop. Are you aware of any IRS rule, and you are 
charged with administering the Internal Revenue Code with your 
agency, that says that a tax return cannot be released if the 
taxpayer is under audit? Whether a taxpayer is being audited or 
not, is there any----
    Mr. Rettig. Released by?
    Mr. Quigley. By the service when requested?
    Mr. Rettig. No.
    Mr. Quigley. Is there any reason--is there any prohibition 
in your regulation or in the law that would prohibit a 
taxpayer's return from being released simply because it is in 
the process audit?
    Mr. Rettig. Sir, I believe it is inappropriate for me at 
this time to engage in a discussion as to what might be 
appropriate or inappropriate with respect to issues coming out 
of that letter. And as I said, the Internal Revenue Service----
    Mr. Bishop. I am talking in general, not just specifically 
to that letter.
    Mr. Rettig. I understand that. But I think the reason----
    Mr. Bishop. If anybody's tax return is under audit, is 
there a rule that would prohibit that taxpayer from releasing 
it?
    Mr. Rettig. I think I have answered that question no.
    Mr. Bishop. So if any individual, including but not limited 
to the president, uses as a justification for not turning over 
a tax return to the public or releasing it, using the fact that 
that taxpayer may be under audit, there is no IRS rule or 
regulation to justify that, is there?
    Mr. Rettig. Sir, I cannot speak to any particular 
taxpayer's issue with respect to privacy and confidentiality 
issues. And the reason that we are probably having this 
discussion is based on the fact of the letter that was 
received. So it is an area that is inappropriate for me to----
    Mr. Bishop. That is speculation as to whether or not that 
is the nature of my question. But the reason for my question--
my question----
    Mr. Rettig. I believe if I did not receive the letter, we 
might not be having this discussion.
    Mr. Bishop. But there is no rule that would prohibit the 
release of a tax return because it is under audit?
    Mr. Rettig. I am not aware of such a rule. And I believe I 
have answered that.
    Mr. Bishop. Thank you.
    Mr. Quigley. Mr. Cartwright.
    Mr. Cartwright. Thank you, Mr. Chairman.
    Commissioner Rettig, in response to concerns about the 
inability of the IRS to answer taxpayer calls during tax season 
in a timely manner in recent years, Congress provided the IRS 
with $290 million in dedicated funding to improve the level of 
phone service for fiscal years 2016, 2017, and 2018.
    This additional funding allowed the IRS to hire additional 
temporary telephone assisters, which helped those raise the 
phone level of service from 38 percent during the 2015 filing 
season to almost 80 percent during the most recent 2018 filing 
season. Is that correct?
    Mr. Rettig. That is correct.
    Mr. Cartwright. But despite the fact the IRS has 
demonstrated that with additional funding, it can provide 
taxpayers with the assistance they need during tax season, this 
administration's fiscal year 2020 request calls for reducing 
funding for taxpayer services by almost $90 million below the 
current level, and overall Taxpayer Services staffing by almost 
2,200 full-time equivalents from fiscal year 2019 CR level, 
which the administration acknowledges would lower the phone 
level of service from 76 percent in fiscal year 2018 to just 68 
percent in fiscal year 2020.
    Here is the question: Will not these dramatic reductions in 
funding and staffing for Taxpayer Services simply reverse the 
gains that we have made in recent years and leave the IRS 
unable to provide taxpayers with the assistance they need, 
particularly for next year's filing season, when taxpayers and 
businesses will be coping with Tax Code changes?
    Mr. Rettig. Congressman, I can assure you that every person 
at the Internal Revenue Service, including myself, wants to do 
more. We want to do our best, and we want to have adequate 
tools to be able to do our best. We want to make you proud. We 
want to make the people of this country proud. That is our 
focus.
    Mr. Cartwright. Me, too. And thank you for saying that. But 
you know, we are in the habit of disregarding budgets that come 
at us that we do not like, and we decide how much money gets 
spent. Would it not make sense not to make those reductions?
    Mr. Rettig. Again, we will make do with what we are 
provided. But we want to do more, sir.
    Mr. Cartwright. Well, I am not going to torture you on that 
any more. And Commissioner, I thank you for coming here and 
providing us with your testimony.
    Mr. Rettig. Thank you. I appreciate it.
    Mr. Cartwright. I yield back, Mr. Chairman.
    Mr. Quigley. Thank you.
    Mr. Graves.
    Mr. Graves. No questions.
    Mr. Quigley. I know we all have tough choices, and I 
appreciate, Mr. Commissioner, the fact that you have been 
willing to meet with just about anyone who is out there. And I 
appreciate the spirit in which you are doing this. As I said, I 
know we all have tough choices to make, and we can disagree.
    I am often asked by high school and college students, 
``What should I read to prepare for a life in public service?'' 
When I think about the choices you are going to have to make in 
the next 24 hours, I would remind you of what I tell them. And 
who am I to tell you, but a ``Man for All Seasons'' comes to 
mind, and Sir Thomas More. But God go with in those choices, 
sir.
    We appreciate your being here, and all of those who were 
responsible for this. Thank you.
    Mr. Rettig. Thank you.
    Mr. Quigley. We are adjourned.

                                      Wednesday, September 25, 2019

                        FEDERAL TRADE COMMISSION

                               WITNESSES

ROHIT CHOPRA, COMMISSIONER, FEDERAL TRADE COMMISSION
JOSEPH J. SIMONS, CHAIRMAN, FEDERAL TRADE COMMISSION
    Mr. Quigley. Good morning. The committee will come to 
order. Thank you for joining us today. I am pleased to welcome 
Federal Trade Commission Chairman Joseph Simons and 
Commissioner Rohit Chopra. Am I batting .100 so far? Okay. It 
is the Cubs I am thinking of.
    It has been more than 7 years since the FTC has appeared 
before the subcommittee, so gentlemen, you are late. No, it is 
long overdue. And the FTC is obviously one of the most 
important agencies the subcommittee funds and it has only 
gotten more important over the last few years.
    You have enormous jurisdiction, policing most sectors of 
our economy for bad behavior. You crack down on abusive 
robocallers. They investigate data breaches that expose 
sensitive personal information. They analyze consolidation in 
the healthcare market, helping to limit abusive pricing for 
essential drugs and health services, perhaps at the front of 
mind. They are the top cop on the beat for consumer privacy 
violations and other issues in the technology sector. This is 
something everyone worries about these days, Democrat and 
Republican.
    Whether tech companies are respecting the privacy choices 
of their customers, whether they are choking off competition by 
favoring their own products or buying up competing products, we 
have seen some promising actions recently.
    The FTC certainly did not take a summer break. In the past 
few months, they have finalized high-profile settlements with 
Facebook, YouTube, and Equifax. They launched an anti-trust 
investigation of Facebook and possibly other companies.
    We recognize the challenges the FTC faces in policing such 
a large swath of the economy. That is why this year's House 
appropriation bill proposed a $40 million increase in FTC 
funding. That is a bump of more than 10 percent.
    Part of the reason we are here is to understand how the FTC 
can invest these resources wisely, how they can get the best 
bang for the buck for consumers. It is also our duty as 
appropriators to determine if the FTC is using its existing 
resources as efficiently as possible.
    Consider this summer's Facebook settlement. Yes, $5 billion 
is by far the largest privacy settlement. But it does not seem 
to match the magnitude of the privacy violations. That fine 
does not represent even a full month of revenue for the 
company, and it is not clear that the corporate changes the FTC 
secured will head off future privacy violations.
    We could raise similar points about YouTube or questions 
why the Equifax settlement over one of the largest data 
breaches in history included only $31 million for alternative 
compensation.
    The economy has transferred dramatically in the past 
decade. The companies we worry about today are structured much 
differently than the companies of concern in the past.
    What we want to know is this: Can the FTC do better? Can it 
win bigger monetary settlements to provide greater redress to 
consumers, or send clearer signals to the market that the U.S. 
will not tolerate anticompetitive or deceptive behavior, and 
that there will be severe consequences if that does happen? We 
look forward to hearing from the chairman and the commissioner.
    Before I turn to the witnesses, I would like to recognize 
Mr. Graves for his opening remarks.
    Mr. Graves. Thank you, Mr. Chairman, and I appreciate you 
holding this hearing today.
    Mr. Chairman, thank you for being here, and Commissioner as 
well. I look forward to hearing your testimony. And I think we 
all know that the Federal Trade Commission basically has two 
primary missions, and the first is to protect consumers from 
unfair and deceptive and fraudulent practices, as the chairman 
has discussed.
    And this includes protecting Americans from identity theft, 
false advertising, those dreaded telemarketing calls--the 
unwanted telemarketing calls--and certainly scams against the 
most vulnerable or elderly that are in our communities, and our 
great servicemembers.
    The FTC also makes sure our markets are open and free. Mr. 
Chairman, I was thinking about your comments about how it has 
been nearly 7 years since they have been before us. And there 
may be a reason for that, and that is since 2018, nearly 95 
percent of all their decisions and their work on the Commission 
has been unanimous--and we do not near a lot about that around 
here--in a bipartisan way, knowing that this is a bipartisan 
commission.
    So congratulations to both of you all on how you have 
worked together. And I know there is still 5 percent out there 
where there is tremendous debate, and we expect that.
    But as we have become more dependent on technologies in our 
everyday lives, these tasks are certainly more challenging that 
you face, in some of the thoughts that the chairman has brought 
up. It is critically important, though, that technology 
companies that serve Americans act in an open and transparent 
manner, that the technology sector protects consumer privacy, 
and that they do not conduct anticompetitive business practices 
whatsoever.
    However, as a regulator, the FTC must be careful not to 
stifle innovation while conducting its important work. And I 
know that is a difficult balance that you grapple with every 
day. Because we have all seen in the past that over-regulation 
of industries can hurt the economic growth and ultimately can 
hurt consumers as well.
    So Mr. Chairman, I want to thank you for having this 
hearing today. I think this will be very informative. And I 
appreciate, Chairman, for you joining us, and Commissioner as 
well, and I look forward to hearing your testimonies.
    Mr. Quigley. Thank you, sir.
    I would now like to recognize the chairman for his 
testimony.
    Mr. Simons. Thank you. Chairman Quigley, Ranking Member 
Graves, and members of the subcommittee, I am extremely pleased 
to be before you today to testify about the commission's work 
and funding request, and particularly alongside my dear 
colleague, Commissioner Chopra.
    The FTC is a highly effective independent agency with a 
broad mission: As you said, to protect consumers and maintain 
competition in most sectors of the economy. On the consumer 
protection side, we are aggressively pursuing law enforcement 
on privacy and data security matters, including record-breaking 
settlements with Facebook, Google and YouTube, and Equifax.
    We have mainly used a 100-year-old statute, Section 5 of 
the FTC Act, to bring our privacy and data security actions, 
but our authority under Section 5 is limited. These limitations 
have a critical effect on our ability to protect consumers, 
which is why we urge Congress to enact privacy and data 
security legislation enforceable by the FTC which grants us 
civil penalty authority, targeted APA rulemaking authority, and 
jurisdiction over nonprofits and common carriers.
    In addition to privacy and data security cases, we continue 
to bring a broad range of enforcement actions addressing, among 
other issues, fraud against older adults, servicemembers, and 
other diverse and underserved communities.
    On the competition side, enforcement actions in the 
pharmaceutical sector continue to be a big priority for us. 
Cases like our ``pay for delay'' matters protect generic 
competition, which helps keep down drug prices.
    To address concerns about the power of big tech, we have 
created a Technology Task Force within the Bureau of 
Competition to concentrate our expertise and better investigate 
conduct by technology companies.
    I want to thank this committee for the additional $40 
million for the FTC that is in the House fiscal year 2020 
Financial Services and General Government appropriations bill. 
I assure you we will make good use of that additional funding.
    Although $40 million is a very large number, more than half 
of it might be needed to cover mandatory compensation 
increases, step increases, and non-compensation costs related 
to our agency operations such as our Consumer Sentinel services 
contract, our litigation support service, and additional expert 
witness fees.
    The remaining portion of the $40 million would likely be 
used for adding additional personnel, in the neighborhood of 90 
FTE. We would focus new staff additions to priority areas such 
as our privacy and enforcement divisions in the Bureau of 
Consumer Protection, hiring more technologists, doubling the 
size of our Technology Task Force, and hiring more economists.
    Finally, but significantly, while principled differences 
among commissioners occasionally lead to split decisions, some 
of them high profile ones at that, the FTC predominately works 
in a bipartisan fashion, and we will continue to do so. We are 
committed to using every resource to effectively protect 
consumers and to promote competition, and we look forward to 
continuing to work with the subcommittee and the Congress. And 
I look forward to your questions. Thank you.
    [The prepared statement of Mr. Simons follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
     
    Mr. Quigley. Thank you.
    Commissioner Chopra.
    Mr. Chopra. All right. Thank you, Chairman Quigley, Ranking 
Member Graves, and members of the subcommittee. I appreciate 
you holding this hearing today. My name is Rohit Chopra, and I 
am honored to sit alongside Chairman Simons to represent the 
Federal Trade Commission.
    Congressional oversight ensures that regulatory and 
enforcement agencies are accountable to the public, and I 
welcome this oversight. I know it makes agencies stronger.
    And as Congress tackles some of the biggest challenges 
facing our economy, our society, and even our national 
security, the Federal Trade Commission should be a critical 
piece of that puzzle. The stakes simply could not be higher. 
For example, how are we going to combat pharmaceutical industry 
abuses that contribute to out-of-control drug prices that mean 
the difference between life and death for patients? What can we 
do to make sure that Americans can get a fair pay raise in a 
competitive job market rather than being squeezed by employer 
consolidation and noncompete agreements? How are we going to 
reverse the worrisome decline in new business formation and 
make sure that American entrepreneurs are not blocked by 
incumbents protecting their turf?
    How will we safeguard sensitive data from abuse and misuse 
by those here at home seeking profit and by those abroad 
seeking to do us harm? How will we deal with the rising 
dominance of Big Tech when it comes to fake reviews, facial 
recognition, fair competition, and so much more? Congress is 
currently considering an increase in funding for the FTC, and I 
share the chairman's commitment to use every resource 
effectively so that we deliver real value for the public.
    The FTC hearings that convened over the last year were a 
reminder of the importance of self-critical analysis. We must 
always be searching for ways to be more effective. For example, 
what can we do to leverage the resources and authorities of our 
Federal and State law enforcement partners to win full redress 
for victims and accountability for corporations and their 
executives that broke the law?
    How can we codify existing policy guidance and case law 
into clear rules so we can seek stiff penalties to be returned 
to taxpayers? What more can we do to protect honest businesses 
who play by the rules but are harmed by those who cheat? We are 
actively thinking about new ways to use the authorities and 
resources that Congress has entrusted to the agency that solve 
real problems in our markets.
    We appreciate the opportunity to work with you to tackle 
these challenges and opportunities, and I look forward to your 
questions.
    [The prepared statement of Mr. Chopra follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
   
    
    Mr. Quigley. Thank you both. And again, thank you both for 
being here.
    Commissioner, you and your fellow Democratic commissioner 
dissented in the YouTube and Facebook settlements. Could you 
give us a deeper dive as to the reasoning for your dissent, and 
what you think the FTC can do differently or better to address 
these issues?
    Mr. Chopra. Sure. The Facebook Corporation is a major 
governance and managerial challenge facing every regulator in 
the globe. They have serious dysfunction, and they repeatedly 
violated the 2012 FTC order almost immediately. I was not happy 
with the outcome of the settlement. I think that it provided 
blanket releases of claims that were unspecified. There is not 
a deep----
    Mr. Quigley. It is not just the money? Or is money part of 
it?
    Mr. Chopra. Well, will $5 billion--while it is a record, is 
it going to change a firm that makes that amount of money very, 
very quickly? This is one of the largest corporations in the 
world, and Wall Street reacted. They did not actually find it 
that big of a deal. Most in Silicon Valley who analyze that 
business did not see it so significant.
    So for me I outlined all of these concerns. And look. Since 
the time we finalized that settlement, we have now heard of 
more and more problems. Just recently, just a few days ago, 
64,000 apps suspended, we learn from the Massachusetts Attorney 
General court filings. We learn about phone numbers. It just 
keeps going and going. And I am concerned that the core 
problems in that firm are not fixed.
    Mr. Quigley. Mr. Chairman, I want to ask your thoughts on 
that settlement, and more importantly, the ongoing issue that 
that settlement was discussing. If you could add into this 
discussion if these decisions and settling are because of a 
risk of losing in court. And is there something we can do to 
mitigate against that concern?
    Mr. Simons. In this case I do not think it had anything to 
do, really, with the risk of losing in court. Just to give you 
some context, we do not have the authority ourselves to fine 
people. We would have to go to court and get a court to agree 
to the fine and to any other additional injunctive relief.
    So in this case I think there is a widespread view that if 
we had gone to court, if we had spent years in litigation and 
if we had won, the relief that we achieved in the settlement 
was far greater than any court would have likely granted us.
    So in terms of whether the settlement or going to 
litigation was the right choice, I think it is really clear. 
The settlement was far greater than we could have gotten in 
litigation, and they are now under--well, actually, hopefully 
soon they will be under order when the court signs the papers 
and finalizes it. And once that happens, then they are under a 
much stiffer regime than they were previously.
    The other thing I would say, too, is in terms of the $5 
billion, that is about 22 or 23 percent of their profits from 
last year. I mean, taking that much of someone's profit should 
be making them think about how they run their business.
    Mr. Quigley. Is there something besides the fines, though, 
that can change behavior? I just want you to elaborate on that.
    Mr. Simons. Yes, yes, yes. Absolutely. So part of this, 
another big part of this settlement, is the injunctive relief. 
So we have done a whole bunch of things there. We have got a 
new committee of the board that is formed that deals solely 
with privacy and is only composed of independent directors.
    We have got a requirement on Mr. Zuckerberg that he certify 
quarterly that they are in compliance with the privacy program 
that is mandated in the order. He cannot just stick his head in 
the sand. He gets mandatory information flows which he has to 
review.
    There is a very beefed-up third party assessor that is in 
here. We have the ability to hire and fire. That assessor has 
access to these mandatory information flows that the order 
requires. And then the FTC itself has the ability to monitor, 
too, more stringently than we have had in the past.
    Mr. Quigley. Thank you.
    Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman. I know we will talk a 
little bit more about antitrust and Facebook and others.
    But something that is a little bit more pressing for me--
because we have been hearing a lot about it in the news 
lately--is SIM swapping. And this is when a bad actor pretends 
to be somebody, calls a telecommunications company, and 
convinces them to activate a SIM card on a different device. 
And then that allows them to basically have mobile identity 
theft and have access to a person's phone, oftentimes bank 
accounts, their applications, passwords, all those, change 
things out.
    And what is interesting is that the FTC actually responded 
to this over 3 years ago, and there is a blog that was posed 
about this very thing. But it seems to be intensifying and more 
active. In fact, Jack Dorsey suffered this just a few weeks ago 
himself, and his phone was taken over.
    Can you give us an update? What role do you have in this, 
and what can consumers do to protect themselves from this? And 
Mr. Chairman, I will start with you on that, if you do not 
mind.
    Mr. Simons. Yes. So we share your concerns. This is a big 
problem. It enables fraudsters to access consumers' text 
messages and phone calls, as you said, get information, 
personal information, potentially get into their bank accounts, 
and other important aspects of their personal lives.
    So this is a serious problem. We did provide and do provide 
on our website guidance to consumers on this issue, and we 
continue to monitor this issue very carefully. So this is 
something we are focused on.
    Mr. Graves. Commissioner, anything to add?
    Mr. Chopra. The only thing I will add is that as two-factor 
authentication spreads, which is generally a good thing. Most 
people are using that through their personal cell phone, and so 
obviously that is now a big vulnerability, the more someone can 
dig into that phone.
    So for me, I think of this broader issue of identity theft 
as, really, problems in our data security infrastructure. And 
that has huge impacts on commerce, national security, 
everything. So if we do not take this serious--we cannot 
quantify the harm that can come from this.
    Mr. Graves. But the two-step verification does not really 
stop a SIM swap. Right?
    Mr. Chopra. No. No, but it makes it----
    Mr. Graves. Right. Help with an application or such.
    Mr. Simons. It makes it more damaging. Right?
    Mr. Graves. But it does not stop from reading somebody's 
text messages, changing passwords out on a cell phone, and 
other things.
    What can the Federal Government do to protect consumers 
from this? And I guess that is my basic question. I think 
consumers are doing everything they can. Technology is moving 
very rapidly. They are trying to protect their own identity. 
But now some of our telecommunications companies are 
inadvertently giving out personal information.
    Mr. Simons. Yes. Maybe there is something we could do in 
terms of encouraging the carriers because a lot of what enables 
this, right, is that the carrier--the scammer, the fraudster, 
is able to get enough information that when you go to the 
security questions, they are able to answer them. And so maybe 
we need to think about how to make that more secure.
    Mr. Graves. Yes. Thank you. And Mr. Chairman, if I could, I 
have one other question, related, because another issue that 
has been on my mind a little bit as it relates to--the chairman 
and I both have this similar position about cybersecurity and 
some of the threats we face as it relates to protection of 
privacy. That is why I am bringing up SIM swaps.
    But we had an FCC meeting recently that discussed 
geolocation data being shared by--being sold from these same 
companies without a consumer's knowledge as well. The FTC has 
some jurisdiction here as well to take action against those 
that are engaged in these unfair, deceptive practices.
    Can you give us an update as to what involvement you have 
in that area, too, Mr. Chairman?
    Mr. Simons. Sure. Be happy to. So we are extremely 
concerned about this area as well. Location information is 
particularly sensitive because its unauthorized sharing can 
create safety concerns--stalking, for example.
    We do not have the jurisdiction to bring cases against 
common carriers. We have asked for that immunity to be reversed 
and for us to have jurisdiction. But we have brought several 
cases alleging unfair and deceptive practices in connection 
with this problem.
    For example, we alleged that a popular flashlight app 
shared information with ad networks without disclosing the fact 
first. This was the GoldenShores case. And we have several 
nonpublic investigations going on right now regarding this 
issue.
    Mr. Graves. Okay. Thank you, Mr. Chairman.
    Mr. Quigley. Ms. Torres.
    Ms. Torres. Thank you, Mr. Chairman and Ranking Member, 
Commissioner Chopra. Thank you for being here.
    In your dissenting statement in the YouTube settlement, you 
noted, ``The Commission already has strong authority over 
children's privacy under the Children's Online Privacy 
Protection Act but has failed to use the enforcement tools at 
its disposal to effectively deter actions that infringe on 
children's right to privacy.''
    So I was very surprised to learn that on Monday, FTC 
officials actually suggested weakening restrictions on how data 
can be collected from users who watch videos aimed at children. 
How would this move impact children's privacy and legal 
protections under the law, current law?
    Mr. Chopra. Well, I have not reviewed the statement that 
was made by him. But he does not speak for me or any other 
individual commissioner. I do not agree that we should be 
moving toward any sort of weakness. We are doing a review, and 
if we do weaken the rule in a harmful way, that is not 
something I would want to support.
    And obviously Congress will have to review that, and has 
the right under the Congressional Review Act to overturn it. So 
I think we should go into it looking for ways to actually make 
sure protections are stronger, and that we can have the tools 
to deter the worst type of behavior because we are already 
seeing how mass accumulation of data on children is so 
lucrative. But it also can be extremely harmful and misused, 
and we should take that very seriously.
    Ms. Torres. Having seen so many abuses at every level, 
specifically as it relates to foster children, and being a 
grandma of a 4-year-old, I want to make sure that this issue 
does not go by the wayside. We have to do everything that we 
can to protect the future of children and their identities.
    The California Consumer Primary Act, CCPA, is considered 
the most expansive privacy law in the country. It will take 
effect on January 1, 2020. Congress and State legislators are 
working on legislation that would provide baseline consumer 
privacy protections in the U.S.
    Have you reviewed the California law?
    Mr. Chopra. Yes, I have.
    Ms. Torres. And are there any elements of that law that you 
think should be adopted at the Federal level?
    Mr. Chopra. Well, there are a lot of details to the law. 
But just some things that come to mind: There is a very clear 
way of deterring and penalizing firms that engage in 
violations, and there is a different level of penalty for 
willful or intentional violations compared to unintentional 
ones. I think making sure that there is clear liability of 
those who violate the law will create the incentives in the 
market to actually protect data and not abuse it.
    There are also some new consumer rights that are part of 
it. I think all of that is good, but we also need to make sure 
we are looking at how to attack the underlying incentive that 
relates to collecting geolocation data. All of this data is 
monetized, and that is the business model that is impacting so 
many of our problems online.
    Ms. Torres. This is an issue that is zero tolerance. If you 
accidentally swipe your card and know that there is zero 
balance on your checking account, the bank is not forgiving and 
says, it is your first mistake. We are going to waive all fees. 
The credit companies do not give you a break. You are punished 
by it. And it should be in the same line, zero tolerance for 
that.
    The FTC often works with State Attorney Generals on cases. 
Will the California law or other State privacy laws impact the 
Commission's work in any way?
    Mr. Chopra. I am happy to--I always think it is good when 
State AGs are with us. They often have authorities and ability 
to get penalties. So for me, I am really encouraging more State 
action when it comes to going after some of the abuses in the 
tech area. And we are seeing more laws being passed, and that 
is going to give us more leverage at the table. But obviously, 
a Federal law will help us as well.
    Ms. Torres. And just really briefly--you probably won't 
have time--but I just want to put this on the record for you.
    In recent years consumers have reported an increase in 
online hotel booking scams when third party vendors falsely 
claim to be affiliated with or proprietors of a hotel. So I am 
curious to know what actions the FTC has taken to combat these 
scams. It is an issue that comes up often in my district. So 
same as Facebook, zero tolerance. This is the same type of 
issue, where you have like pages.
    Mr. Chopra. So it--go ahead. Oh, it is obviously a problem. 
And these types of scams, one of my concerns is that they are 
heavily facilitated by some of the advertising models of the 
larger firms because they do not really police a lot of this 
content.
    So I saw this firsthand with all of the student debt scams 
that started several years ago. And most of the ways they were 
reaching people were through Google and Facebook ads. So Google 
and Facebook claim that they have no liability for it, but we 
have to really look at that because often they are----
    Ms. Torres. It is their platform. They should be held 
liable.
    Mr. Chopra. And they are monetizing some of that. And their 
business model is to get people to take action, so they profit 
from it, too.
    Mr. Quigley. We are going to move on to Mr. Joyce. But I 
will let the chairman comment on that as well.
    Mr. Simons. Yes. I was just going to say that one of the 
things that we do is we go after not only the fraudster but the 
people who helped the fraudster. And so that is consistent with 
what you are suggesting. So yes.
    Mr. Quigley. Mr. Joyce.
    Mr. Joyce. Thank you, Mr. Chairman. Gentlemen, thank you 
very much for being here today.
    Servicemembers, like all consumers, are potential targets 
for fraudsters. Certain schemes are more likely to target the 
military community, and in part because military families 
frequently relocate. Many servicemembers are young and living 
on their own and earning a paycheck for the first time.
    How big of an issue is it for fraud against service 
managers?
    Mr. Simons. This is a big issue, and it is a big priority 
for us. We have some recent cases where we have had enforcement 
actions against for-profit schools and their lead generators, 
where they basically pose as being associated with the 
military; tricked people who wanted to enlist in the military, 
took their information, used it as leads for the for-profit 
schools, implied that those for-profit schools were associated 
with the military and it would help a military career. And so 
that is just one example of what we do.
    Another thing that we do is we run a website called 
MilitaryConsumer.gov, which has all kinds of helpful 
information--identifies scams, how to avoid them, and also 
helpful things about how to set up a budget and things like 
that for servicemembers in various points in their careers.
    Mr. Joyce. I know it is probably hard to quantify, but do 
you feel that we are reaching the servicemembers who need this 
information? Or what else could we be doing to help make sure 
that these people are not being targeted?
    Mr. Simons. I think we are doing a pretty effective job.
    Mr. Chopra. I would just add, consumer education is really 
going to have its limitations when it comes to reaching 
servicemembers and veterans, given PCS orders, all of that. 
Just to jump----
    Mr. Joyce. The consumer wants to be educated, or has to 
take substantive interest in it.
    Mr. Chopra. Yes. I think sometimes we need to focus on what 
are some of the incentives that are driving the targeting of 
military families? Chairman Simons mentioned our actions 
against lead generators and schools that target them.
    One of the reasons those for-profit colleges target them is 
because of a rule, a law by Congress, that says, you need to 
get at least 10 percent of your revenue from outside of the 
Department of Education's program. So guess what some of these 
schools do? They go hard after the GI Bill and they go hard 
after the DOD military tuition assistance. So there's a cottage 
industry of companies that are just trying to go after the 
military.
    So some of this is we need to address that incentive. And 
we also need to look, I think, at criminal sanctions for some 
of this behavior because when we are leading to so much 
financial distress for military families, what are the impacts? 
They lose security clearances. They are more likely to 
separate. The DOD did an extensive report on this. And I think 
we need to act especially when it comes to these for-profit 
schools that target them.
    Mr. Joyce. So we screwed up passing the law. We need to do 
something to fix that.
    Mr. Chopra. Yes. And we need to--everyone needs to enforce 
this. I mean, the Department of Education has just allowed this 
to go on for years and years under multiple administrations. 
And they had to fix it, too.
    Mr. Joyce. That's a very good point. Thank you.
    I know the FTC also operates a Do Not Call registry and 
collects consumer complaints about telemarketing calls. The Do 
Not Call registry is effective when law-abiding actually comply 
with it, but I understand you are working with the FCC, who 
regulates the telecommunications industry, on reducing 
robocalls.
    What actions are being taken against telemarketers that 
inappropriately target Americans?
    Mr. Simons. Yes. This is a multi-faceted approach. 
Obviously, this is a very high priority for us. So we do law 
enforcement; an example of that is we had a big sweep a couple 
of months ago involving a large number of State and local law 
enforcement partners. So we do that.
    In addition, we are looking at the entry point for the 
robocallers to get into the system, whether it is a VOIP 
carrier or a common carrier, which allows me to segue into 
putting a plug in for getting rid of the common carrier 
exemption because I think, to a significant degree, some common 
carriers may be facilitating the robocalls. And if we had 
jurisdiction, we could get at that.
    So those are the--oh, and the other thing we did is we ran 
a technology contest which--in order to generate solutions for 
robocalls. And that produced several different technologies 
that are actually on the market now. One is called No More Robo 
and the other is Robo Killer. In fact, the last one is--I'm 
very excited about that one because what that one does is it 
answers the call with a bot and just keeps the caller on the 
line indefinitely, wasting their time and their money, not 
yours.
    Mr. Joyce. I certainly appreciate that. Do you foresee--and 
I know I am just about out here, Mr. Chairman--but foresee when 
Americans can expect a reduction in robocalls?
    Mr. Simons. That is really hard to say. One of the things 
that work with the FTC and encourage them to do is what is now 
being implemented, which is the Shake and Stir Program. So that 
would require identification of the call, so that would 
dramatically reduce spoofing.
    Mr. Joyce. Because you could certainly see it with a lot--
all the digits behind it, but then it will be a local number as 
it appears on your TV.
    Mr. Simons. Right. Oh, yes. Yes. So the FCC is working with 
the carriers to try to fix that problem.
    Mr. Joyce. Thank you very much, Mr. Chairman. I yield back.
    Mr. Quigley. Certainly.
    Mr. Crist.
    Mr. Crist. Thank you. Thank you, Mr. Chairman.
    I want to thank Chairman Simons and Commissioner Chopra for 
being with us this morning. I appreciate your critically 
important mission to protect America's consumers. Having been 
Florida's Attorney General, protecting consumers is very 
important to me and I think all members of our committee as 
well as you. I want to tell you about one such consumer.
    His name is Mike McKinney. Mike runs a minority-owned small 
business based out of Saint Petersburg in my district. His 
daughter, Taylor, was diagnosed with diabetes 9 years ago. 
Since her diagnosis, the family has focused on Taylor's health 
and treatments.
    Mike told me about the thousands he has had to pull out of 
the family's 401(k) and the ``creative things'' they did when 
they had nowhere else to turn. Mike left his corporate job to 
start his own business, but the insurance ran out at one point. 
Mike had to pay $120 for a three-day supply of Taylor's life-
sustaining insulin.
    In that vein, I would ask you to look at this chart behind 
me. They show the prices of brands of insulin over time. The 
insulin manufacturers, Eli Lilly, Novo Nordisk, and Sanofi, are 
increasing their prices dramatically, as you can see. And they 
are doing it in lockstep.
    Market forces are not driving these increases, and yet 
insulin, the drug that sustains America's 30 million diabetics, 
including Taylor, keeps getting more and more expensive, all 
while profits for the drug companies continue to skyrocket.
    Drug companies are price-fixing because they know their 
market is broken. They know their monopolies are legal for now. 
And they know their 30 million consumers cannot influence price 
because their demand is not negotiable. They need their insulin 
or they will die. This is anti-consumer behavior at its most 
egregious, its most harmful, and this is where Americans need 
the FTC.
    My question for both of you, but for you, Commissioner 
Chopra specifically because you mentioned the outrageous costs 
of prescription drugs in your testimony: What is the FTC doing 
to stop the drug company price-fixing, and what additional 
authorities would you need to save consumers' lives from the 
greed of these drug companies?
    Mr. Chopra. Well, I do not want to comment on any specific 
drug or investigation. But if there is price-fixing or other 
anti-competitive conduct that is literally leading to 
potentially people dying, we have to take that seriously, and 
we have to use all the authorities to do that.
    One of the things that I think is a concern for years and 
years is how pharmaceutical companies abuse their intellectual 
property, filing more patents, creating patent thickets, 
engaging in pay for delay--all of this nonsense.
    We have the ability to get money, but when it comes to 
price-fixing, that also can suggest criminal liability, which 
is not an authority that we have. But again, I do not want to 
comment on a specific drug or--but it is a serious issue in 
that as you all think about drug prices, you need to think 
about remedies for Pharma misconduct because it is not just 
about doing things here and there to get prices down.
    It is also about going after violations of law because if 
you can violate the law and simply pay out of your profits in 
just a fine, you are not going to change.
    Mr. Crist. They may look at it as a cost of doing business. 
Please, sir.
    Mr. Simons. Yes. So this is a big area of emphasis for us. 
We have a whole unit that is devoted to looking at anti-
competitive conduct in this space. Just as with Commissioner 
Chopra, I am unable to talk about nonpublic investigations 
specifically. So we are monitoring this space.
    We look at pricing over time. We monitor drug prices. And 
if we see something fishy, we look at it. If it looks like 
something that is related to price-fixing, we make an 
affirmative referral to the Justice Department, and oftentimes 
that results in them taking action.
    If the referral comes back--in other words, they do not 
think it is criminal--then that is something that we will look 
at and investigate very closely. So this is a priority area for 
us.
    Mr. Crist. Great. Are there other tools that you would like 
to have at your disposal in order to be able to be more 
effective?
    Mr. Simons. There is a bunch of legislation that is 
circulating now that deals with pay for delay, abuse of 
citizens petitions, and things like that. And those, I think, 
deserve some real careful attention. I think in general that 
type of effort would be helpful.
    Mr. Crist. Thank you very much, gentlemen. Thank you, Mr. 
Chairman.
    Mr. Quigley. Thank you.
    Mr. Cartwright.
    Mr. Cartwright. Thank you, Mr. Chairman. And I would like 
to--that was an interesting discussion about the Facebook July 
settlement. Obviously you two were at odds over whether the 
settlement should go forward. And I want to get into that a 
little bit.
    Commissioner Chopra, Chairman Simons said that the $5 
billion equated to 23 percent of annual profits. As a factual 
matter, are you on the same page with that?
    Mr. Chopra. I do not know exactly. That sounds right. It is 
roughly, I think, 9 percent of annual revenue, and maybe 22 
percent of profits.
    Mr. Cartwright. Okay. And you felt that that was not 
enough; that was kind of a slap on the wrist because the stock 
price went up, right, when you guys announced the settlement?
    Mr. Chopra. I think here is the issue, is that Facebook's 
business model is still completely intact in terms of--they can 
still collect all sorts of data and monetize it. So for me, 
there is not a fundamental change to their behavioral 
advertising business model----
    Mr. Cartwright. Sure.
    Mr. Chopra [continuing]. Which motivates them to engage in 
this mass data collection and ultimately creates problems.
    Mr. Cartwright. No. I understand that. I just want to sort 
of flesh out where you guys agree and disagree. In fact, 
Commissioner Chopra, in your dissenting statement to that 
settlement, you said, ``Breaking the law has to be riskier than 
following it.'' I do not think anybody disagrees with that.
    I also looked at Commissioner Rebecca Kelly Slaughter's 
dissent to that. Was that a 3 to 2 decision?
    Mr. Simons. Yes.
    Mr. Cartwright. Okay. And it was a good discussion. One 
thing that she brought up was that this was not just breaking 
the law. It was violating a court order, which in my mind has 
an elevated level of seriousness, particularly because it is 
intentional conduct. Intentional, illegal conduct, thumbing 
their noses at the courts.
    And I want to go back to you, Chairman. What do you make of 
that? And I also want you to touch on Commissioner Slaughter's 
comments that you read in her dissent about the value of 
actually going to court, just saying, damn the torpedoes, let's 
see what the courts rule on this. Personally, I never met a 
judge that sat still for the intentional violation of court 
orders. I never did. Go ahead, Commissioner.
    Mr. Simons. Yes. So I think it makes sense sometimes to 
say, damn the torpedoes, and go for the litigation if you have 
some reasonable chance of getting significantly more in the 
litigation than you do in the settlement. But that just was not 
the case here.
    And so going to court may have been cathartic for some 
people and maybe made some things more public but it would have 
taken a long time, it would have taken a lot of our resources, 
and they would not have been under the new, more stringent 
order during that time period.
    Mr. Cartwright. Was this a bench trial or a jury trial?
    Mr. Simons. I think it would have been a jury trial because 
civil penalties are involved. Okay.
    Mr. Cartwright. Okay. Did you do research? Was this DOJ 
prosecuting this case?
    Mr. Simons. It would have been, yes.
    Mr. Cartwright. Without revealing things that should not be 
revealed, what made you think the judge and the jury were not 
going to really throw the book at Facebook for this intentional 
violation of court orders?
    Mr. Simons. So we talked to a lot of people who have 
experience litigating these types of things, and the general 
consensus was, you would not even get it remotely close to what 
you got in the settlement.
    Mr. Cartwright. Was a big part of that that there had never 
been an award that high?
    Mr. Simons. I think that probably was a problem. The other 
thing, too, that I thought was really important to get this 
settlement effective as soon as possible with that $5 billion 
is that that would set a new floor.
    So rather than litigate for 3 years and hopefully get them 
under an order at that point, they were already being under an 
order. And if they do something and the order does not work 
this time, then we are in a position to get even more relief 
because we say to the judge, look. We got $5 billion last time. 
We got all this injunctive relief. It was not good enough.
    Mr. Cartwright. Understood.
    Mr. Simons. You have got to give us more.
    Mr. Cartwright. Understood, Chairman. Thank you.
    Back to you, Commissioner Chopra. Comment on those, please.
    Mr. Chopra. Yes. I do not agree that it is about catharsis 
or anything emotional. A trial or, frankly, further 
investigation--we have full ability to compel testimony--I 
think not clearly deposing Mr. Zuckerberg and Ms. Sandberg was 
a mistake because often, when you are able to directly depose 
those executives, you determine a lot more of the factual 
background around the management and governance incentives. On 
top of this----
    Mr. Cartwright. And we are always touching on something 
Commissioner Slaughter mentioned, is how about individual 
liability? These are human beings that are making these illegal 
decisions to go ahead. Is that what you are----
    Mr. Chopra. And actually, we name individuals with small 
firms that are controls of those firms all the time. And Mr. 
Zuckerberg controls this. I mean, I will tell you, there is 
State court litigation in multiple jurisdictions now. Through 
the discovery PCS, we are learning about more and more 
potential wrongdoing.
    So it was difficult for me to even size the problem that we 
were attacking without having more information. And again, to 
me money is one thing, but actually going after the individuals 
who made the calls and the fundamental business incentives, 
that would be the only way to comprehensively fix this problem, 
in my view.
    Mr. Cartwright. Thank you, gentlemen.
    I yield back, Mr. Chairman.
    Mr. Quigley. Thank you. And before we go to a second round 
and we will start with Mr. Graves, just for the record, people 
have asked--my constituents--the proceeds of settlements like 
this go to?
    Mr. Simons. Federal Government. Treasury.
    Mr. Quigley. Thank you. Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman. A question about 
something that has come up in the Energy and Commerce 
Committee. I know we were talking about lawsuits and such, and 
it appears that the Commission has lost a few lawsuits over 
time.
    And maybe as a result of that, and some of those decisions 
and testimony earlier in Energy and Commerce Committee, I guess 
this year, the Commission's requested an expansion in FTC 
authority, enforcement authority, through the enactment of 
private in data security legislation. I know both of you will 
be familiar with that.
    Pending this expansion, though, the FTC has also advocated 
for increased use of court decrees should a target not agree to 
the FTC's demand or not abide by the prescriptive restrictions 
on the business practices beyond what the courts say.
    Can you help us understand, what is the FTC's justification 
for adopting that approach ahead of the congressional debate 
over the changes to the FTC Act to grant the authority that you 
are seeking?
    Mr. Simons. I am sorry. I did not really understand the 
question. Do you want to--the reason we're asking for privacy 
and data security authority, like civil penalties or----
    Mr. Graves. No.
    Mr. Simons. Is that what you are looking at?
    Mr. Graves. No.
    Mr. Simons. I am not sure.
    Mr. Graves. Prior to that, you--before--I guess you are 
seeking the act--the changes in the act as well through the 
authorizing committee. But it also seems you have advocated for 
an increased use of court decrees as well prior to the 
enactment of congressional debate.
    Mr. Simons. Yes, yes. So beginning in the 1980s, the FTC 
started to bring actions in Federal court seeking disgorgement 
and consumer redress. And that enables us to stop fraudsters in 
their track, to go in and get asset freezes before they 
dissipate all the money and to recover whatever we can recover 
on behalf of consumers.
    And for 30 years there have been quite a number of circuit 
court decisions that uphold that ability of ours, that 
authority. And recently there have been some circuit court 
decisions that question that. And so we think it is really 
important that the Congress clarify that the prior existing 
view is the right view so that we can continue to stop 
fraudsters, we can freeze their assets, and we can get consumer 
redress.
    Mr. Graves. Does the FTC ever impose or ask a business or 
an entity to go beyond what the court sees as the appropriate 
response?
    Mr. Chopra. I will try. With respect to the provision the 
chairman is saying, many of the courts for years have 
interpreted our statute to allow us to get that money that is 
ill-gotten gains or redress. I think we are trying to make sure 
that that is clarified so that firms do not exploit some legal 
ambiguity and that we can continue doing our work.
    Mr. Simons. Yes. The problem we have is that now, companies 
are more likely to litigate with us, which will drain our 
resources further. SO if we clarify that we have this right, 
then that would mean less litigation for us.
    Mr. Graves. Currently you do not have that right?
    Mr. Simons. Well, we think we do, but there is just some 
ambiguity around it. So the ambiguity causes an incentive for 
the defendants to not settle with us and to litigate on that 
issue in particular.
    Mr. Graves. I understand. And one final question on the 
antitrust. So just a few weeks ago, we saw that most if not all 
the Attorney Generals from the States have engaged in the 
antitrust debate as well, kind of nationwide antitrust probe 
into Facebook and off of that. So the Judiciary Committee is 
also investigating Apple, Amazon, Facebook, and Google as well.
    How do these State investigations or the congressional 
investigations impact your work and some of the decisions you 
are making?
    Mr. Simons. Yes. So the State Attorney Generals are very, 
very highly valued partners of ours, and we collaborate with 
them on all sorts of levels, very heavily in consumer 
protection and also in the competition area. So this is a 
standard thing where we are working on the same matter and we 
cooperate with each other. They find things and tell us about. 
We find things and tell them. So it actually--it helps to 
leverage our resources, and we view it very favorably.
    Mr. Graves. Great.
    Mr. Chopra. Yes. I think it is an ``all hands on deck'' 
kind of moment. And I really value the State AGs being 
involved. I have been part of many multi-State arrangements, 
and I try to be in constant communication with those who are 
eager to make some change.
    So I welcome this. And just to--on congressional oversight, 
I think we have to keep a lot of our investigation, the 
contents of it, confidential. But there is always value of 
Congress investigating as well because the public is also 
learning about some of these business practices.
    Mr. Graves. Great. Well, Commissioner and Chairman, thank 
you for your work on the commission.
    And Mr. Chairman, I would highlight again the bipartisan 
nature in which this Commission operates is of good value to 
all our constituents. So thank you for the work to protect our 
constituency as you do.
    Mr. Quigley. Thank you, Mr. Graves. I agree. And it is--I 
am in agreement with that part of it. But it raises concerns 
about two other entities that seem to have disagreements.
    You won a case against Qualcomm back in May, and the 
Department of Justice sided with Qualcomm. What is happening? 
How do we address this? And the potential for duplicative 
jurisdictions conflicting--obviously, FTC, you share this 
jurisdiction over antitrust enforcement with DOJ. That has 
generally worked well. Where are we now in that regard?
    Mr. Simons. It's still, on average, working well. I am 
recused from the Qualcomm matter, but needless to say, watching 
from a little bit of outside in this circumstance, I do not 
think any at the FTC was happy about their intervention. It was 
highly unusual. The only other time I can----
    Mr. Quigley. Could you elaborate on ``highly unusual''? How 
often besides the blue moons that we see this?
    Mr. Simons. Yes. The only other time that I am aware that 
anything like this happened was in, I think, one of our initial 
pay for delay cases, where there was a cert petition filed. And 
the Department of Justice did not want to support our cert 
petition, and in fact the government did not support our cert 
petition. They took a different stance. So I think that is the 
only other instance that I am aware of.
    Mr. Chopra. Well, the appeal is still ongoing. I was very 
proud of the outcome at the district court level. I also found 
it not just unusual but very mysterious as to why the 
Department of Justice decided to weigh in. I think it raises 
questions about their commitment to fair administration of our 
antitrust laws, and so I was very disappointed by it. But we 
will continue to try and seek relief for all of the victims of 
Qualcomm's anticompetitive behavior.
    Mr. Quigley. And generally avoiding the issues of 
duplication, how do you manage the----
    Mr. Simons. Yes. So generally, we have a clearance 
agreement with the Justice Department. It has been in effect in 
one form or another for, I don't know, 70 or 80 years; it has 
been a long time. And that agreement provides that no agency 
should review a matter without--or start an investigation of a 
matter without it being cleared from the other agency. And the 
general approach is not to clear anything that would be--
involve an overlapping investigation.
    Mr. Quigley. Mr. Joyce.
    Mr. Joyce. Thank you again, Mr. Chairman.
    Overall, what is your approach to investigating the tech 
companies? Do you have a----
    Mr. Simons. Yes. Well, it is not one single approach, and 
it depends on what we are investigating. But we formed this 
Technology Task Force on the antitrust side to focus 
specifically on the high-tech platforms to look at not only 
currently what they are doing but to look historically what 
they have been doing; to look at some of the past mergers that 
they participated in and see if any of that is worth pursuing 
in terms of an enforcement action.
    And then on the consumer protection side, we have the 
privacy issues. We have potentially data security issues. And 
there are two parts of our consumer protection bureau that deal 
with that. So there is an enforcement division that handles 
order efficient, and so they took the lead on the Facebook case 
because that was a violation of an existing order; and then our 
privacy division, which looks at de novo matters.
    Mr. Chopra. Yes. These firms, I think six or seven of the 
10 largest publicly traded--or, I am sorry, ten largest 
corporations in the world are Chinese or U.S. tech companies. 
So it is involving everything beyond what Chairman Simons said: 
fake reviews, facial recognition. There are so many potential 
abuses against consumers, small businesses, competitors.
    So if the Congress cares about competition and cares about 
a new startup being able to challenge one of the big guys, you 
all need to support aggressive antitrust enforcement and 
aggressive enforcement against consumer abuses as well.
    Mr. Joyce. What type of anticompetitive behavior are you 
seeing when you look into these big tech companies?
    Mr. Simons. Well, we cannot really talk about any specific 
investigation. But one of the main things you might look for is 
a situation where the platform is engaged in some kind of 
exclusionary conduct, particularly against a company that might 
not be a direct competitor immediately but might turn into one.
    An example of this is what--history kind of repeats itself 
in cycles. So an example of this from the past would have been 
Microsoft and their anticompetitive behavior relating to 
Netscape's browser. So they did all kinds of things to get in 
the way of Netscape succeeding because they were worried that 
Netscape, as middleware, was going to make the operating system 
irrelevant.
    Mr. Chopra. I would also add----
    Mr. Joyce. I was old enough to remember that one.
    Mr. Simons. Yes.
    Mr. Chopra. I would also add looking closely at past 
mergers, joint ventures. To what extent was the purchase of 
many, many firms part of, potentially, a way to eliminate a 
potential competitor or maintain a monopoly? That has to be--
that is always part of how effective antitrust should look at 
things.
    It is not just like at mergers before they are consummated. 
It is also looking at them after to determine was it part of a 
plan to essentially shut down a potential threat.
    Mr. Simons. Yes. You can imagine a situation in which the 
plan is to try to buy the companies that are the most 
threatening. And then, if that does not work, then you engage 
in different types of exclusionary conduct to make them 
irrelevant. So there could be like a pattern, as Commissioner 
Chopra said, involved in an overall strategic approach to 
dealing with the significant competitive threats.
    Mr. Joyce. Certainly we want to help small businesses 
compete and able to be out there in the marketplace. But it 
requires having a competitive playing field.
    Mr. Simons. Exactly. We want small businesses to get big. 
That is what the free market system encourages. And so we do 
not want to get in the way. We do not want to allow companies 
to artificially, through anticompetitive means, stop that 
process from occurring.
    Mr. Chopra. Yes. And I am concerned about the argument that 
some in the sector are making that they had to stay big and 
dominant in order to compete against China. We should not try 
and replicate the Chinese system when it comes to tech. We 
should be having lots of entrants constantly innovating, 
challenging the leader, because that is actually how we 
innovate and get ahead, not by just allowing big incumbents to 
protect their turf.
    Mr. Simons. Yes. Protecting big incumbents really is not 
the right way. National champions, I think, is a proven 
failure, that when companies try to promote national champions, 
they just end up undermining the competitive strength of the 
companies they are supposedly trying to benefit, and that hurts 
everybody.
    It hurts the company. It hurts the domestic consumers 
because the prices are too high. And then eventually it is 
probably going to hurt the workers because eventually those 
jobs are going to go away because champions--or not champions, 
but competitive companies from other parts of the globe are 
going to come in.
    Mr. Joyce. Thank you, Mr. Chairman, for holding this 
hearing today. And I realize I am out of time, but whatever I 
had I will yield back.
    Mr. Quigley. Thank you.
    Mr. Cartwright.
    Mr. Cartwright. Thank you, Mr. Chairman.
    Chairman Simons, I want to talk about elder fraud a little 
bit. I read that since 2014, the FTC has had nearly 1.3 million 
reports about government impostors, people pretending to be 
from the HHS, from the IRS.
    And what we have seen is the scammers have become so 
sophisticated, they can have the caller ID of the person at 
home show the actual name of the agency they are pretending to 
be part of, including the Social Security Administration. In 
2019, we have seen an explosion of reports regarding the Social 
Security Administration impostors--64,000 reports in the first 
six months of this calendar year.
    Now, unfortunately, seniors and elders tend to be the most 
vulnerable to these types of schemes, and ideal targets for 
Social Security schemes, given that Social Security tends to be 
their biggest form of income.
    How is the FTC addressing these robocalls targeting 
seniors, specifically those pretending to work for the Social 
Security Administration?
    Mr. Simons. So this is another big priority area for us. 
And I will talk specifically about the Social Security 
Administration at the first, and then give me a chance and I 
will tell you what else we are doing.
    So we became aware that this Social Security scam was going 
on, and they were duplicating. They were spoofing the Social 
Security Administration phone number, but it was a phone number 
that they did not use except to take incoming calls. So we 
worked with the Social Security Administration to make the 
phone line only work for incoming calls, not for outgoing 
calls. And so I think that was fairly effective in dealing with 
that problem, at least in that form.
    More broadly, in March of this year we had a huge Federal, 
State, and international crackdown on elder fraud schemes, and 
these were primarily focused on tech support cases. We are 
about to submit a second annual congressionally mandated report 
on elder fraud detailing all our law enforcement actions, 
research and data analysis, and strategies to reduce fraud. So 
that will be out shortly.
    And then we regularly host Common Ground conferences with 
state AGs and local enforcement around the country to work 
collaboratively. And in particular, we hosted one in Minnesota 
with a panel focused specifically on elder fraud. And we have 
an ongoing partnership with AARP, which is also very helpful. 
And then we have consumer outreach as well.
    Mr. Cartwright. Ok. I want to touch on that.
    Mr. Simons. We were pretty active on that.
    Mr. Cartwright. In past Congresses I have been introducing 
a bill called the Elder Protection and Abuse Prevention Act, 
which would, among other things, expand the definition of elder 
abuse to include financial crimes and incorporate elder abuse 
prevention trainings, screenings, and more into Federal 
activities.
    My question for you on outreach is: How are you making sure 
that warnings reach senior citizens who may have more limited 
access and use of the latest technology?
    Mr. Simons. So we introduced a program, which do not hold 
me to the exact name, but I think it is called Pass It On. And 
what this program is designed to do is to get elder citizens to 
become an advocate in their own community, and take our 
material and pass it on.
    And so--because sometimes, when you get--I am old enough to 
be in this category. You think you know everything and you do 
not want to be told what to do. But if it is something for 
helping others, then it is more--it is something you might do 
out of the box. So that approach seems to be having a fair 
degree of success.
    Mr. Cartwright. Thank you. And Commissioner Chopra, do you 
have anything to add on that?
    Mr. Chopra. Yes. The only thing I would add is that we 
always need to look not just at the individual scams because 
that can be whack-a-mole. We have to look sometimes up the 
chain to determine who is facilitating the payments, who is 
providing the infrastructure that all these crimes, 
essentially, are perpetrated through.
    Mr. Simons. Yes. That is a very effective approach for us.
    Mr. Cartwright. Very good. Thank you, Mr. Chairman. I yield 
back.
    Mr. Joyce. Can I ask one----
    Mr. Quigley. Mr. Joyce.
    Mr. Joyce. Are most of the--as you go up the chain, are 
most of these people out of the country when they start these 
telefraud crimes or--my days as a prosecutor, they were Canada 
or they were in Jamaica.
    Mr. Simons. Yes. It could be, yes. It depends on the 
situation. Sometimes, like these robocalls are just scams, and 
they are coming from foreign countries. But sometimes they are 
coming from inside the country.
    And one of the reasons we want to go after the carriers who 
are taking the calls and putting them into the U.S. telephone 
system is just for this reason. The fraudster themselves 
actually is out of reach, but we can get to the carrier and 
stop them from facilitating the fraud.
    Mr. Joyce. For what it is worth, every time I have done one 
of these education processes at the senior centers, all of them 
have gotten these calls.
    Mr. Simons. Yes. Oh, yes. Absolutely.
    Mr. Chopra. Yes. And we also need to push the carriers, 
writ large, on a lot of these types of problems. I think they 
have evaded a lot of scrutiny when it comes to their role in 
this.
    Mr. Quigley. Thank you, Mr. Joyce. Thank you, Mr. Graves, 
and our colleagues for their thoughtful questions.
    Mr. Chairman, Mr. Commissioner, thank you so much for being 
here. We appreciate that. We appreciate your service. We will 
see you soon. Thank you.
    Mr. Simons. Thank you.
    Mr. Quigley. This meeting is adjourned.

                                      Thursday, September 26, 2019.

    IRS OVERSIGHT: TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

                                WITNESS

J. RUSSELL GEORGE, TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
    Mr. Quigley. Good afternoon. This hearing will come to 
order.
    I want to thank all for being here, and especially thank 
our witness, Mr. Russell George, the Treasury Inspector General 
for Tax Administration, along with two of his deputies, James 
Jackson and Michael McKenney.
    We appreciate you taking time to be with us and to share 
your insights on the IRS, especially since the IRS is the 
largest agency funded within our bill. TIGTA has consistently 
provided Congress with top-notch reports and audits.
    I want to acknowledge you and your team for your 
responsiveness and your efforts to fight fraud, waste and abuse 
at the IRS.
    I look forward to hearing from you about the status of the 
2019 filing season in which the IRS had to implement 119 new 
tax provisions that affected 57 systems and more than 500 
forms.
    Coupled with the changes to the Tax Cuts and Jobs Act, the 
Federal Government experienced the longest shutdown in history, 
which delayed hiring, training, and system updates needed for a 
successful filing season.
    With all this change, did taxpayers get their refunds on 
time? Was the IRS able to respond to customer service requests 
timely and adequately? And what improvements are needed for the 
upcoming season?
    Closing the Tax Gap is of special importance to this 
committee. As a result of declining staff levels at the IRS, 
audits have dropped nearly 40 percent since 2011, and the 
chance of a taxpayer being audited is less than 1 percent.
    However, audits for lower income individuals are on the 
rise, and resources previously dedicated to collect unpaid 
taxes from wealthy non-filers have been slashed. Increasing 
audits for the wealthy and the assessment rate for wealthy non-
filers are common sense approaches to reduce the Tax Gap.
    So it baffles me that the IRS has employed a strategy that 
does the opposite. I need to get a little more about this 
troubling trend and why lower income populations are being 
targeted for IRS audits.
    Equally important is TIGTA's involvement in discussions 
with the IRS, Department of Justice, or Treasury related to 
Congress' request for the President's taxes.
    I am also interested in the IRS' oversight of the 
Presidential Audit Program that reviews a sitting President's 
annual return.
    Finally, I would like to get your take on how the new 
limitation on State and local tax deductions was administered. 
With the passing of the Taxpayer First Act, fiscal year 2020 
will bring further change to the IRS. I am interested in your 
thoughts on how these new provisions, which concentrate heavily 
on customer service, will improve the taxpayers' experience and 
reshape the organization.
    In addition, the fiscal year 2020 budget request did not 
include funds for this implementation. I am hoping you can 
clarify the resources needed to implement this sweeping 
legislation.
    Since fiscal year 2011, the IRS workforce has declined by 
19 percent, and the enforcement function specifically is down 
by 27 percent. Compounding the concerns with this downward 
trend, the Commissioner has stated that about 45 percent of the 
IRS' total workforce will be eligible to retire within the next 
2 years.
    The IRS is facing critical skill gaps, and I am eager to 
hear if the agency has a strategy to retain valued employees 
and recruit skilled personnel.
    After years of budget cuts, the agency has struggled to 
modernize its legacy IT systems, jeopardizing taxpayer personal 
identification and hampering efficient services. All this has 
taken a toll on the agency, and we need to reverse the trend of 
underfunding critical IRS systems.
    I hope you can share more details about IRS' modernization 
plan and how it will benefit U.S. taxpayers.
    Again, I want to thank you for being with us this afternoon 
to share your expertise on how we can improve the taxpayer 
experience and IRS operations.
    I would now like to recognize Mr. Graves, the ranking 
member of this subcommittee, for any opening statements he 
would like to make.
    Mr. Graves. Thank you, Mr. Chairman. Thanks for inviting 
the Inspector General to join us today, and I look forward to 
hearing your testimony and giving some updates on the progress 
that the Internal Revenue Service is doing to be more taxpayer 
friendly and to assist our constituents.
    But before we begin the testimony, I just want to commend 
you on your many years of good service, Mr. George. You have 
been across multiple administrations. I believe you have about 
15 years of service in your current capacity potentially, and 
you are known as somebody that does your job really, really 
well, and you have been fair to each and every member and each 
party and each administration which serves our constituents 
well.
    So I really appreciate your good work over the years and 
look forward to hearing your testimony today.
    Thank you, Mr. Chairman.
    Mr. Quigley. Thank you.
    I would now like to recognize Mr. George for his testimony.
    And, again, welcome to his colleagues who are not here 
testifying, but are here to support the IG.
    Mr. George, if you will please keep your statement to 5 
minutes, this will allow time for members to ask as many 
questions as possible.
    Mr. George. Thank you, Mr. Chairman.
    Chairman Quigley, Ranking Member Graves, members of the 
subcommittee, thank you for the opportunity to discuss a number 
of important topics, including challenges currently facing the 
IRS.
    I would like to focus my opening statement today on the 
most recent tax filing season and IRS' efforts to reduce the 
Tax Gap.
    Our overall conclusion is that the IRS performed well 
during the most recent filing season, especially in light of 
several significant challenges.
    For example, to implement the Tax Cuts and Jobs Act as well 
as the redesigned Form 1040, the IRS needed to update a 
substantial volume of tax forms, instructions, and 
publications. In addition, significant computer programming 
changes were necessary.
    This filing season was also impacted by the partial 
shutdown of the Federal Government for approximately 1 month. 
During this time, taxpayers were unable to obtain customer 
service. A backlog of paper tax returns and taxpayer 
correspondence developed, and hiring of submission processing 
employees was delayed.
    However, despite the shutdown, the IRS began accepting and 
processing individual tax returns on January 28th, 2019, three 
days after the government reopened.
    One of the IRS' key responsibilities is to ensure that 
taxpayers comply with the tax law. The Tax Gap, or the 
difference between what taxpayers owe and what they paid 
timely, is estimated to be $458 billion annually. The 
underreporting of income taxes comprises the largest component 
of the tax gap at $387 billion annually.
    IRS studies have shown that audits have the largest impact 
on tax compliance. However, the number of audits has decreased 
by approximately 28 percent from 1.4 million in fiscal year 
2014 to less than 1 million in fiscal year 2018.
    Proposed assessments have declined over the last 5 years 
from $33 billion in fiscal year 2014 to $27 billion in fiscal 
year 2018.
    Due to diminished resources, the IRS has 627 fewer revenue 
agents in fiscal year 2018 than in fiscal year 2017, an almost 
8 percent decline. From fiscal year 2014 to 2018, there was a 
23 percent decline in revenue agents from 9,870 to 7,649.
    Nonpayment of taxes owed is a smaller portion of the Tax 
Gap, estimated to be $39 billion annually.
    Reduction in resources has also impacted payment 
compliance. From fiscal year 2014 to fiscal year 2018, field 
revenue officers have decreased by approximately 23 percent, 
from 2,809 to 2,168.
    The IRS' fiscal year 2020 budget requests additional 
funding for compliance positions to address some of the 
attrition that has occurred over the last 5 years. Funding to 
slow attrition, improved use of existing resources, and 
legislative changes in selected areas could have a significant 
effect in increasing compliance and tax revenue.
    For example, the IRS is not working billions of dollars in 
potential tax discrepancies involving taxpayers who earn income 
in the gig economy, but do not report the income. Treasury 
regulations do not require certain gig economy businesses to 
report payments made to workers unless the workers earn at 
least $20,000 and engage in at least 200 transactions annually.
    When income information is not reported to the IRS, 
taxpayers tend to be much less tax compliant.
    TIGTA's reviews of compliance with withholding tax 
reporting and payments provisions have shown that the IRS' lack 
of enforcement leaves substantial amounts of tax uncollected. 
In 2016, we reported that due to the lack of enforcement, 
taxpayers are avoiding the payment of billions of dollars in 
backup withholding.
    In 2017, we reported that case selection processes resulted 
in billions of dollars in potential employer underreported tax 
not being addressed.
    More recently, we reported in 2019 that billions of dollars 
in nonpayroll tax withholding discrepancies are not being 
addressed.
    In conclusion, the IRS can more effectively reduce the Tax 
Gap by development of compliance strategies for the changing 
economy and using its resources and financial reporting more 
effectively.
    Congress can assist by ensuring the IRS has the compliance 
resources necessary and by reducing the information Tax Gap 
wherever possible.
    Chairman Quigley, Ranking Member Graves, members of the 
subcommittee, this ends my statement. Thank you for letting me 
share my views.
    [The prepared statement of Mr. George follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]      
    
    Mr. Quigley. Thank you.
    You talked about the tax gap. I would like your perspective 
on how I opened, which is the concern that increasing audits 
for poor Americans versus decreasing audits for wealthier 
Americans.
    Can you elaborate on your understanding of this and the 
reasons for such a policy?
    Mr. George. The short answer is resources. It is the amount 
available to the IRS.
    Mr. Quigley. So if you have fewer resources, it makes sense 
to audit poorer people more?
    Mr. George. Well, it is somewhat complicated in that a lot 
of the work that relates to poorer people, and let's use the 
earned income tax credit, for example, is the type of work that 
is relatively simple for the IRS to conduct, especially with 
the work of junior IRS employees.
    The more sophisticated the income tax, the more involved it 
is, the longer it takes, and it really boils down to how they 
allocate their resources, sir.
    Mr. Quigley. But they must recognize the inequity of the 
result of this.
    Mr. George. You know, again, most of this should be 
directed to the IRS, of course. None of our work has shown any 
evidence that a bias is occurring in terms of those with money 
versus those with less money, but there is no question that 
more low income people are being examined than upper income 
people.
    Mr. Quigley. Sure.
    Mr. George. My colleague may want to add something to this, 
but----
    Mr. McKenney. Right, and I take his point there, and I 
think that is the point the IRS has made, is that it is a 
little more difficult for them to replace, you know, the higher 
level employees that do the more sophisticated audits.
    So I think that the reduction in resources has affected 
that a bit more than it has affected the lower income 
taxpayers.
    Now, in terms of their strategy, and that is one of our 
concerns, is the person having a central point to oversee that 
to make sure that is allocated equitably because it is 
important to balance their examination coverage between the 
different categories of income.
    Mr. Quigley. Thank you.
    Let me ask you. Was TIGTA involved in the deliberation of 
the President's tax submission to Congress with the IRS, 
Department of the Treasury, and the Department of Justice?
    Mr. George. The tax----
    Mr. Quigley. I am referencing section 6103(f) of the 
Internal Revenue Code, the right for several House committees 
to obtain this. The request was made April 3, 2019. We still do 
not have the returns.
    Somebody is making these decisions. Was TIGTA involved at 
all in those decisions?
    Mr. George. No, we were not.
    Mr. Quigley. You were not consulted in any way?
    Mr. George. That is correct.
    Mr. Quigley. You did not attempt to become involved in any 
way?
    Mr. George. Did I attempt to? No, I did not.
    Mr. Quigley. IRS guidelines also specify that individual 
tax returns by a sitting President and Vice President are 
subject to a mandatory audit by the IRS.
    First, I want to ask: is TIGTA involved in investigating 
any allegations of possible misconduct with this program?
    Mr. George. We are not. We have not been asked to do so.
    Mr. Quigley. How long----
    Mr. George. Well, Mr. Chairman, let me ask him.
    Mr. Quigley. Sure.
    Mr. Jackson. We have not--I guess can you rephrase the 
question again, sir?
    Mr. Quigley. The question was to know if you were involved 
in investigating any allegations of possible misconduct within 
this existing presidential audit program.
    Mr. Jackson. I guess there are news reports out there that 
there is a whistleblower. Someone came forward and said there 
was some impropriety going on. We cannot confirm or deny that 
we may or may not be doing anything.
    I can tell you though that any time we do get any kind of 
allegation in this world, in this realm, we investigate it 
aggressively, and then when we are completed, we have----
    Mr. Quigley. Well, you can comment that there was a 
whistleblower, but the question was more along the lines of are 
you involved in the investigation on this.
    Are you aware of any misconduct that has occurred on this?
    Mr. Jackson. We are not aware of any misconduct, no.
    Mr. Quigley. Thank you.
    Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman.
    Just on a different note, I know, Mr. George, over the last 
several years, we talked a lot about taxpayer fraud and the 
significant amount of dollars that were erroneously sent to 
criminals, and it appears that there have been a lot of steps 
taken to begin correcting that.
    And then since then there is an emerging threat, a 
cybersecurity threat as well that is impacting all agencies 
throughout the Federal Government, State governments, local 
governments, and certainly the private sector.
    Can you just give us a little bit of a report on how the 
IRS and Commissioner Rettig is addressing the cybersecurity 
threats that exist and to what extent they do exist?
    I mean, my understanding is maybe a million attempts a day 
potentially, cyberattacks a day towards the agency. Can you 
just give us an update?
    Mr. George. Yes. And I am also going to ask Mr. Jackson to 
weigh in with much more detail, but the bottom line is thus far 
the IRS has not been breached, during my time as the Inspector 
General.
    As you noted, there are constant threats to the system, but 
there has not been a breach to the point that it disrupted 
their ability to fulfill their mission.
    There have been instances where there have been computer 
glitches, but we did not find evidence of maliciousness at that 
point.
    But I would say for the most part, they are doing a 
relatively good job in ensuring the security of the tax 
systems, keeping in mind, of course, sir, that it is a 
constantly moving target, and they have to be on top of their 
game at all times.
    But Mr. Jackson has a little bit more detailed information 
that he can share.
    Mr. Jackson. So, yes, sir. You mentioned that the IRS is 
constantly under attack. It is like a bank of the U.S., and 
they are the accounts receivable for the United States.
    Constantly under attack. We work with them constantly. We 
have a cyber team set up that is directly outside of their 
computer security center that works with them on a daily basis 
to investigate or look at any attacks or any attempts against 
the IRS.
    There have been lots of attempts to misuse the IRS systems. 
That is a common occurrence, and that usually occurs when an 
outside entity has stolen personal identifiable information, 
and they use that to exploit IRS systems, to file false tax 
returns.
    We are constantly working with the IRS to investigate those 
types of attempts.
    Ransomware attempts, as you kind of alluded to, there have 
been several attempts. The IRS has successfully thwarted the 
attempts. I do not want to get into specific numbers in this 
environment because that would kind of violate the security 
posture.
    We have done a really good job, but the environment is 
continuously changing, and we are continuously working to adapt 
to that, and our team sits on a tabletop desk exercise to run 
through security scenarios to see how we react, lock down 
certain parts of the IRS to make sure something would not 
spread if it did not spread, and again, also training.
    The IRS is constantly and their staff is constantly in 
training to identify suspicious emails or suspicious activity 
happening on the IRS network to alert security officials to 
shut it down.
    But it requires money and funds, and a team like our team, 
we have teams embedded with the FBI task forces, and when we 
see something, it is like an early warning setup. So we can 
actually see something happening. We can help the IRS identify 
things and put filters in place, and if we see something with 
the IRS, we can work with the FBI partners and say, ``Are you 
seeing this?'' and maybe find someone who is seeing the same 
type of scenario and shut it down.
    Mr. Graves. Well, it is encouraging to hear that there has 
been successful defense of all this personal data because 
clearly it is the private information of the American people 
and businesses.
    I do not really know the answer to this question, but maybe 
you could help me with it. When an attempt occurs, so let's say 
there are a million attempts a day. When does that become a 
criminal act?
    And when is that pursuit of that criminal occurring and 
potential prosecution?
    Mr. Jackson. Right. So it is----
    Mr. Graves. We do not hear about that end of it, just the 
attempts. We never hear about the criminal actually being 
prosecuted.
    Mr. Jackson. Right. It is like one of those things where if 
you are not home and someone comes by and rattles your door, 
they do not actually get in.
    This is when someone would get in, is where we would work 
with IRS, their cybersecurity force. And the big thing is we 
would use our analysts and work with our analysts, perform the 
analysis, and get something to leave the fence line and go 
tracking people down.
    When it comes to misuse of IRS systems, that has happened. 
Back in 2015, I believe, there was a major misuse of the IRS' 
EFIN cases system. We worked with the IRS. We actually helped 
the IRS identify what they thought was an anonymous service and 
started collecting information and putting out subpoenas, doing 
search warrants, and trying to collect the data and backtrack.
    In that investigation there, I do not have all of my 
numbers here.
    Mr. Graves. Is that only after a breach or is that prior to 
a breach?
    Mr. Jackson. It is after a breach. A crime has not 
officially been committed until there is some sort of misuse or 
data is taken or someone has exceeded their access and they are 
actually in the system.
    Mr. Graves. So it is not a criminal act until they are 
successful.
    Mr. Jackson. Basically, sir, yes. It would be hard to find 
an Assistant U.S. Attorney to go after that unless it was an--
--
    Mr. Graves. So intent does not play a part?
    Mr. Jackson. It is kind of hard. I mean, if we have any 
evidence to show that they actually did something other than 
the attempt or they found a way to stop the American taxpayers 
from being able to utilize the IRS systems remotely.
    Mr. Graves. Thank you for the explanation.
    Thank you, Mr. Chairman.
    Mr. Quigley. Thank you.
    Mr. Bishop.
    Mr. Bishop. Thank you very much.
    Welcome to you, Mr. George, and your associates. Thank you 
for your work. You obviously have a tremendous task with 
limited resources.
    And this is the Financial Services and General Government 
Appropriations Subcommittee. So I would like to address your 
fiscal year 2020 budget request.
    With the implementation of the Tax Cuts and Jobs Act and 
the Taxpayers First Act, it is imperative that the Inspector 
General for Tax Administration be well staffed. However, the 
President's fiscal year 2020 request as well as our 
counterparts in the Senate's proposed $166 million, this is 
$4.2 million below the current budget.
    How will a $4.2 million reduction impact your office and 
the FTEs and the number of reports that you are able to do?
    And did Treasury express to you any concerns about your 
work or why your budget was cut lower than your current budget?
    And how do you plan to absorb the President's 2.6 percent 
pay increase with a lower budget allocation than it had in 
fiscal year 2019?
    I would like to add that the subcommittee funded you above 
fiscal year 2019 and the President' request at $171.3 million, 
and I would appreciate your response so that we can share it 
with our Senate counterparts when we conference our bill.
    Mr. George. Thank you, Mr. Bishop. A very important 
question.
    The short answer, sir, is with less resources we will be 
able to do less work. That is across the board. We will have to 
reallocate where we can our resources to prioritize mandatory 
requirements.
    We have many audits that are required by law that they be 
conducted. As it relates to the investigative side of the 
house, it is really catch as catch can. You never know when 
someone is going to engage in criminal behavior, but you 
nonetheless would have to still prioritize.
    We have a nationwide, if not a worldwide, responsibility to 
protect the system of tax administration. So no one at Treasury 
has indicated to us if they were disappointed in any of the 
work that we were doing. The numbers were established by OMB, 
but with additional resources we would be able to do more.
    And of course, absorbing that pay increase, if no 
additional resources were provided, would in effect serve as a 
cut to us and would require fewer people filling jobs or us 
having the ability to hire additional people for whatever 
vacancies exist.
    Mr. Bishop. I can imagine that it has to be somewhat 
frustrating. Of course, in July the President signed into law 
the Taxpayer First Act, focusing on expanding taxpayer rights, 
and it requires you to develop a strategy for customer service, 
including the availability of the online services' improvements 
to the customer service phone line and best practices to train 
the IRS telephone assisters.
    All of this is a step in the right direction, but how can 
we foster the successful implementation of the Taxpayer First 
Act other than by additional resources?
    And since the law impacts almost all facets of what you do, 
have you considered a reorganization to better align yourself 
with the Taxpayer First Act provisions?
    How much will you need to implement the act in 2020? Where 
specifically should those funds be directed?
    And do you have any insight on whether IRS plans to 
transmit a budget or a supplemental request to Congress?
    Mr. George. As for the last question, I have no information 
about the IRS submitting a supplemental request.
    Mr. Bishop. Would you need a supplemental request?
    Mr. George. Would we need it?
    Mr. Bishop. Yes.
    Mr. George. Or would the IRS need it? You know, that is two 
different----
    Mr. Bishop. I am sorry. Would you need it?
    As the Inspector General, you should have some sense of 
what the IRS needs. So would the IRS need it?
    Mr. George. Well, let me give you this response, sir. As 
you know, the Act will ensure significant changes to how the 
IRS engages with taxpayers. It is estimated that the IRS will 
need $430 million, will encounter $430 million in new costs, 
and over 700 full-time equivalents, FTE equivalents over the 
next 3 years to implement the legislation.
    This would include their ability for expansion of the 
Identity Protection Personal Identification Number program. 
That is at $129 million.
    The development of an Internet platform for a new Form 1099 
filings, and they estimate that to be around $83 million.
    And there are a number of other items that we could provide 
you in detail, with, you know, time permitting or submitting it 
for the record.
    Mr. Bishop. Can you submit it for the record?
    Mr. George. We certainly can.
    Mr. Bishop. I appreciate that very much because we really 
want to know how we can really help you and help IRS do what it 
needs to do.
    Mr. George. We appreciate that very much, sir.
    Mr. Bishop. To meet the requirements that we as Congress 
have placed on you.
    Mr. Quigley. Thank you, sir.
    Mr. George. Thank you.
    Mr. Quigley. Mr. Stewart.
    Mr. Stewart. Thank you, Mr. Chairman and to the gentlemen 
for joining us today.
    I do not think I will take much time. I want to hit a 
couple things that we have already talked about and maybe with 
a little more detail.
    A couple of observations, if I could. I do not know of many 
organizations that have a store of private information that is 
equal to you. There are some banks and others, but they have a 
portion of the population. You have nearly everyone or at least 
nearly every adult, and most of that is some of the most 
sensitive information available to you, which begs the obvious 
question. Your security has to be better than everyone else's, 
at least as good and hopefully better because you are certainly 
a target and a prime target.
    A second observation is the damage that could be done, the 
potential damage. For example, you look at the breach at OPM 
and you think, ``Well, you know, so they got some personnel 
records of people,'' but I can tell you from a national 
security perspective alone, it was extraordinarily damaging.
    And a breach in your office would, I think, have some of 
the same implications, as well as just a breach of privacy.
    And I know I am preaching to the choir. You all are looking 
at me and you are nodding your heads as if you agree, and I 
appreciate that, and I am not telling you something you do not 
know. But I do think it is worth making the observation.
    You know, we have been told that you have about a million 
cyberattacks a day. I would be shocked if it is not much, much 
higher than that, and I would ask you to respond to that if you 
could, if you actually have a tally on the figure.
    And do you know? Have you been able to do some analysis? 
How many of them are nation states versus criminal elements?
    And do you know or do you have information where they are 
targeting specific individuals? Are there some public figures 
or are there some others who we think would be at a much 
greater risk than others? And do you know if they are targeting 
individuals?
    Can you respond to those very quickly?
    Mr. George. Before asking Mr. Jackson to get into the 
details of your question, I just want to make sure it is clear. 
It is not that TIGTA controls that information that the IRS has 
on all taxpayers.
    Mr. Stewart. Yes.
    Mr. George. So we do not physically maintain that 
information. We have access to it when necessary, but we do not 
maintain it.
    Mr. Stewart. Okay. And I understand that, and I did not 
mean to indicate otherwise.
    Mr. George. Okay. I just wanted to make that clear.
    Mr. Jackson. Yes. The IRS does. We routinely work with the 
IRS where our office is housed. They monitor and they watch and 
we can get you those numbers, and I think we used to do a by-
country where the source of attacks were from or the attempts 
were from.
    A lot of times you just have to be very careful that a lot 
of times people will wrap themselves through third countries 
and ask about other people.
    One of our biggest threats because from the external side, 
we are not really seeing they are actually attacking one 
person. They are just trying to get in the system unless it is 
an email computer system attack going after a name. Like they 
are trying to use the Commissioner's name to get a foothold in 
the system to expand through the system.
    The other thing is the insider threat is what we worry 
about, too, that is really big, and we have a program called 
Unauthorized Access Detection. Working with the IRS, we have a 
really unique and highly advanced set of filters and monitoring 
going on.
    So any time an IRS employee or internal employee would go 
in looking at a taxpayer without a business reason, it would 
set off some kind of trip flare and let us know what is going 
on, and we get those and we run those.
    But the only external attacks that I guess you would say 
were actually directed at somebody was the misuse of external 
programs the IRS has to access the type of information either 
from, again, have stolen PII from another breach, another 
agency----
    Mr. Stewart. All right. So it is for financial gain, not 
for--
    Mr. Jackson. Yes, and fraudulent tax returns.
    Mr. Stewart. Okay. I will just conclude, and I can actually 
give back some of my time.
    But would you follow up with some of the analysis? And part 
of the reason I am curious about that is I want to know how 
capable you are of understanding those numbers and where the 
threat is and where they originate from and whether they are 
criminal versus nation states.
    The second thing I will say when we look at leaks that have 
happened in, you know, areas of intelligence and national 
security, many times they are because of someone within the 
organization was either sloppy or had criminal intent, and I 
think that is true for you as well.
    And I appreciated it. That was actually going to be, James, 
my follow-up question.
    What precautions have we made against an internal threat? 
Because I think, you know, we like to think that every employee 
that is in our organization is honest and has no nefarious 
intent, but the truth is that there is one or two out there who 
may.
    So we appreciate your safeguards in that as well.
    And, Mr. Chairman, I yield back.
    Mr. Quigley. Thank you.
    Mrs. Torres.
    Mrs. Torres. Thank you, Mr. Chairman.
    And thank you, sir, for being here with all of your staff 
and being prepared to answer our questions.
    I want to talk to you a little bit about the IRS private 
debt collection program. I represent a district that is made up 
of the working poor, people that are working two or three jobs 
just to make ends meet.
    It has been reported that 12,000 recipients of Social 
Security disability insurance have a debt outsourced to private 
firms within a 6-month span. A third of these folks were on 
disability. You know, they pay their debt. They were making 
$7,000 annually, annually.
    What has the IRS done to reduce the number of hardship 
cases sent to private debt collectors?
    And why would we refer these?
    I know that times are hard for you, but to try to squeeze 
something out of someone who has nothing, it does not matter 
how many times they get called on or harassed; they do not have 
it. Many of these people have fallen into homelessness as a 
result of their hardships.
    Mr. George. I understand completely what you are----
    Mrs. Torres. I know this is not mean-spirited. Please do 
not take it that way.
    Mr. George. No, no, no.
    Mrs. Torres. I am trying to get to the root of that.
    Mr. George. No, I appreciate that. Once again, it is not 
the program that we run. It is the program that the Internal 
Revenue Service runs.
    Mrs. Torres. Right.
    Mr. George. We oversee its implementations----
    Mrs. Torres. Yes.
    Mr. George [continuing]. And how it is working.
    There have been various iterations of the private debt 
collection program, and in the most recent one, and recent 
changes have been mandated in the program, including taxpayers 
with incomes at or below 200 percent of the poverty level will 
now be excluded from the debt collection program.
    And then the types of accounts that are being sent to debt 
collection agencies have been reduced. The amount of time 
between the money being due and the time that the debt 
collector receives it, that is going to be shortened to help.
    The program overall is earning money. The cost of running 
it is less than the amount of money that is raised. At the same 
time, it is not as efficient as the private sector in terms of 
return on investment in the program.
    But as it relates to policies as to who is subject to it, 
that is really something for the IRS to address, Congresswoman.
    Mrs. Torres. So you would not have some type of feedback 
for us. Is this an issue that we maybe need to legislative?
    You know, do not be mean-spirited to people who have 
nothing and that are homeless. I do not know how to legislate 
that. I am look for your advice and expertise.
    If common sense does not tell you, not you, but what does?
    Mr. McKennel. We have conducted some reviews of that 
program, and I am not positive exactly what the breakdown was, 
but there were cases that went forward to a private debt 
collector that we had concerns about that we thought they 
should bring back, and the ones that you are referring to, you 
know, I think that that would be a concern.
    And exactly what percentage of those, and I am not positive 
we have the exact numbers, but I believe we could get some 
information for you back on that as to whether there is 
anything in addition to what the Taxpayer First Act prescribes 
that would be of benefit to that.
    Mrs. Torres. Okay. So on the issue of scammers, obviously 
that is a growing problem. What are we doing to ensure that the 
folks that we are contracting with are protecting that privacy 
of the people whose information we are turning over to them?
    Mr. George. I'm going to ask Mr. Jackson to address that.
    Mrs. Torres. Before you do, I am going to give you this 
letter that I wrote November 4th of 2015, asking for you to 
review a couple of audits on the L.A. County Fairgrounds.
    The county did an audit. The State did an audit. Some, you 
know, real abuses here. I have not gotten a real response back 
from you. So I am going to give this over and we can talk about 
it another time.
    Mr. George. Oh, certainly.
    And, again, do you want to address that?
    Mr. Jackson. So what is your specific question, ma'am, on 
this issue?
    Mr. George. Scammers.
    Mrs. Torres. For scammers when we are providing these 
companies that we are contracting with and we are providing 
them all of the information, you know, background on specific 
individuals whose accounts are already under collection.
    How are we ensuring that they are securing that 
information?
    Mr. Jackson. So we could work with the IRS Business Unit to 
get down to the nitty-gritty. We do on the investigation side. 
We work with them constantly because there was kind of a 
concern that people would think the private debt collectors 
were scammers themselves, and we kind of got that thwarted and 
that back on track.
    That arose under a big, major IRS impersonation scan, and 
we do not want those two to kind of meld together and take on a 
life of their own, but I will get into that.
    Any time that there is any kind of a complaint related to 
the private debt collectors, we have a reporting process to get 
that information to us, and we would investigate that, but we 
have not seen anything other than people thinking that they are 
the scammers because they have been told that if someone calls 
you and says they are from the IRS, hang up, or they get into 
like a telephone assault situation, and we get those reports, 
that kind of thing.
    But we have had no reports of misuse, yes.
    Mr. Quigley. Thank you.
    Mr. Joyce.
    Mr. Joyce. Thank you, Mr. Chairman.
    And I would second that. I have also received those phone 
calls, not only on my home phone, but also my cell phone, as 
well as my wife, that say from the IRS and you are going to 
levy all of my accounts.
    Is there anything that you are doing to head that off 
education-wise?
    Because I can tell you when you do these things with 
seniors, these types, almost every hand goes up that they got 
the call from the IRS. So somehow, they are getting not the 
technical data necessarily, but they are still using the phone 
number and calling and representing as though they are the 
agency.
    Mr. George. We have a very sophisticated process, and I 
will, again, ask Mr. Jackson to describe it.
    Mr. Jackson. So, yes, sir. We have been working on this 
thing since 2016. It has taken up pretty much all of our 
resources. Over 2.5 million Americans have actually been 
touched by this scam there.
    We have over 15,000 victims that have purportedly paid over 
$79.7 million to the scam caller prior to this. We track the 
top five states. The major population centers is where we are 
tracking it down to.
    But we attacked this aggressively. We have worked with 
other law enforcement partners because there are similar scams, 
again, that kind of overlap.
    To date we have basically had 152 individuals charged 
related to this. Collectively, 89 of them have actually been 
sentenced and collectively received over 387 years of 
imprisonment, collectively.
    We have 31 people that actually remain fugitives external 
to the United States, and we are working with the Department of 
Justice to actually put boots on the ground in the country that 
we believe is the source of where this activity is coming from 
because the scammers think that they are untouchable.
    We actually flew a team over with Homeland Security, over 
to Singapore to actually extradite someone who had left a 
country nearby and they were in Singapore on a vacation, I 
guess, using the proceeds, and basically, they arrested them, 
and we extradited them back to the United States for 
prosecution.
    So it is constantly a development, but we beat it so hard. 
They have sadly moved to another agency. I do not want to give 
the agency away. I can tell you later, but I can tell you----
    Mr. Joyce. We will get those next week.
    Mr. Jackson. The numbers have dwindled. Two weeks ago, we 
had two reported victims. Last week we had zero. This week we 
had one, but I can tell you tomorrow we could shoot through the 
roof again.
    Mr. Joyce. Sure.
    Mr. Jackson. And we stay on top of it. We actually call the 
numbers back and get the numbers shut down that they are using, 
to keep them busy and get them shut down as soon as we can.
    Mr. Joyce. It is a whack-a-mole thing though.
    Mr. Jackson. Yes, sir.
    Mr. Joyce. Your budget request also had proposed 
investments to implement Commission Rettig's Integrated 
Modernization Business Plan, to modernize IRS' sensitive 
taxpayer services in two 3-year phases beginning in fiscal year 
2019.
    The Federal Government and the IRS have sort of had a poor 
history of the implementation of modernization plans, but I 
know Commissioner Rettig is committed to improving this, and I 
certainly hope all due speed and success to you in doing that.
    Would this modernization plan improve the long-term 
operations of the IRS and the service that is being provided to 
the taxpayers and the businesses?
    Mr. George. It has the potential to do that, sir, but as 
you pointed out, this has been a nightmarish experience for the 
IRS dating back decades and involving billions of dollars.
    And so the most recent iteration that they are looking at, 
again, applies approximately $2 to $3 billion. If implemented 
effectively, it would achieve the goals that you just stated 
that they state they want to achieve, more efficient 
information to taxpayers and the ability to process tax forms, 
again, more efficiently.
    However, if past is prologue, it is going to be a challenge 
for them.
    Mr. Joyce. That is not necessarily good news.
    Mr. George. I have been told to tell truth to power. So.
    Mr. Joyce. Yes, basically. I certainly appreciate that 
perspective.
    And I know that in implementing the new tax law changes 
that have taken place, how did the IRS do in implementing 
those?
    Mr. George. We would give them a positive assessment at 
this stage, one, given the resource challenges that they 
encountered, some of the late tax extenders, again, the 
government shutdown. Notwithstanding all of those factors, they 
have been able to do a reasonably good job in the 
implementation of the most recent changes.
    Mr. Joyce. What would you say are the biggest 
implementation issues?
    Mr. George. Well, of course, getting information out to 
taxpayers. The change in the tax forms and what most people do 
not realize, changing the form is one aspect of it. You have to 
change all of the instructions, which sometimes run 20, 30 
pages, and of course, changing the computer systems within the 
IRS so that they can effectively interact with the legacy 
systems.
    I mean, you literally have IRS systems that use COBOL 
language, which dates back decades.
    Mr. Joyce. Right.
    Mr. George. In addition to the most current one, and so 
they have to interface, and you have to have the technicians 
who still have the skill set to monitor these things, and they 
are quickly moving on to other things.
    Mr. Joyce. I realize that I am out. Could I ask one more 
question along that line?
    The idea that, you know, we are going to continue to 
implement modernization on top of an old system like COBOL, 
that does not make a lot of sense, correct?
    Mr. George. That is correct. It does not make sense.
    Mr. Joyce. Is there, in fact, some thought into something 
that would start in 2020 or 2021 and discard all of that legacy 
stuff and start on something that is actually, you know, up to 
speed?
    Mr. George. You know, again, whether it was the customer 
account data engine Version 2, there have been attempts, sir, 
to do that, but whether it is because, again, of resource 
limitations, expertise, or just change in priorities because of 
whether it is implementing a new tax code or whatever the 
situation might be, the IRS just has not succeeded there.
    So, yes, that would make sense, but it has not happened 
yet, and I would certainly suggest that you direct that 
question to the Commissioner to see how he would respond.
    Mr. Joyce. Thank you very much.
    I am out of time. Thank you, Mr. Chairman.
    Mr. Quigley. Thank you, sir.
    Is it harder to hack a program that is so old, COBOL?
    It is just so old you have to have old equipment to hack 
it? I always wondered about that.
    Mr. Crist.
    Mr. Crist. Thank you, Mr. Chairman.
    And, Mr. George, thank you for being here today with your 
colleagues.
    Mr. George, your memo, ``Management and Performance 
Challenges Facing the Internal Revenue Service for Fiscal Year 
2019,'' to Treasury Secretary Mnuchin states, quote, ``The IRS 
must balance tax compliance activities against the rights of 
taxpayers to receive fair and equitable treatment,'' end quote.
    We know that over the past several years the IRS budgets 
have been slashed and audits are down about 42 percent. We also 
know that the audit rates have dropped disproportionately more 
for wealthy individuals making over half a million dollars a 
year, at 69 percent, than for working families, at only 36 
percent.
    That does not appear to be fair or equitable, going after 
the poor while letting the very wealthy off the hook.
    Another concerning trend is who is being targeted, what 
they look like, the color of their skin, their historic 
language, their tribal status.
    ProPublica published this disturbing map behind me, a heat 
map, if you will, of where IRS is auditing more, but it could 
also be a heat map of where black, Hispanic, and Native 
Americans are most concentrated.
    When I showed this map to IRS Commissioner Rettig, he saw 
an earned income tax credit map, and that may be what he 
intends it to be, but to most Americans this map looks like the 
IRS is targeting black, Hispanic, and Native American 
populations for audit.
    It is not good enough to testify as the Commissioner did 
that the inputs are race blind, especially when the outputs so 
starkly and disproportionately hurt minorities. Disparate 
impact, where you measure racist impact instead of the 
intention is an important way to identify racist policies and 
procedures in fair housing and fair lending.
    We should not treat fair audits any differently than those.
    Are you aware of efforts underway at the IRS to reevaluate 
policies or at least look back at who is disproportionately 
being audited?
    Mr. George. May I answer your question by giving you the 
following bit of information?
    Suffice it to say that we have not uncovered any 
intentional bias in how the IRS audits earned income tax credit 
recipients. The IRS' earned income tax audits track to where 
the EITC claims are, and most of those EITC claims are from the 
States that have large populations, Texas, California, New 
York, and Florida.
    However, there are certain States with higher concentration 
rates of poverty, and that is where a lot of the earned income 
tax credits go. And so it would appear that you are focusing on 
areas that have a certain demographic.
    But our work has not shown that, sir. I mean, this is not 
new to us, this issue.
    It is also important to point out that in fiscal year 2018, 
the IRS audited about 383,000 EITC claims, about 95,000 claims 
of high income taxpayers, and which means about 1 percent of 
the EITC claims were audited. However, the IRS generally audits 
a higher percentage of high income taxpayers.
    So I know that that map, which is not unfamiliar to me, 
appears to show a bias based on, again, demographics, but we 
have not found that to be the case.
    Mr. Crist. Thank you.
    Am I correct to assume that your office would be charged 
with investigating an IRS policy which would violate the civil 
rights of black, Hispanic, and Native Americans?
    Mr. George. Yes.
    Mr. Crist. Will you commit to investigating the policies 
and practices of IRS auditing to eliminate unfairly impacting 
protected minorities?
    Mr. George. I will make certain that--we have an audit 
plan, Mr. Crist, that lays out for the entire fiscal year the 
areas that we are going to audit, and I am certain we can add 
this subject to that plan, and perhaps your staff could work 
with my staff to craft the exact issue as you would like us to 
look at it.
    Mr. Crist. Thank you, Mr. George. I appreciate that very 
much.
    Mr. George. Certainly, sir.
    Mr. Crist. Thank you. I yield back.
    Mr. Quigley. Thank you.
    Mr. Graves, any final thoughts or questions?
    Mr. Graves. Just one final thought. I want to follow up 
with Mr. Crist there. Prior to your arrival today, Mr. Crist, I 
was recognizing Mr. George for his many years of service, 15 
years, in fact, in his position across multiple 
administrations, and he has always proven to have been fair and 
represent the facts correctly.
    So, Mr. George, I would just like to follow up on Mr. 
Crist's point because it is a valid point.
    Have you noticed any difference today in that audit heat 
map under this administration over the previous administration 
or over any other administration?
    Is there any change in that audit policy that might lead to 
the concerns Mr. Crist has?
    Mr. George. Well, we, again, have not yet done significant 
work as it relates directly to your question. No is the answer. 
So we have not done the work yet.
    Mr. Graves. Thank you. Thank you, gentlemen.
    Thank you, Mr. Chairman.
    Mr. Quigley. I want to thank the panel. I want to thank all 
of you for your work and your service and your attendance 
today. We appreciate that, and we look forward to following up 
with you on the work we all care about.
    Thank you so much. This meeting is adjourned.
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