[Senate Hearing 116-]
[From the U.S. Government Publishing Office]




 
  FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL 
                               YEAR 2020

                              ----------                              


                        WEDNESDAY, MAY 15, 2019

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

    The subcommittee met at 10:03 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. John Kennedy (Chairman) presiding.
    Present: Senators Kennedy, Daines, Lankford, Manchin, Van 
Hollen, and Coons.


      DEPARTMENT OF THE TREASURY AND THE INTERNAL REVENUE SERVICE

               OPENING STATEMENT OF SENATOR JOHN KENNEDY

    Senator Kennedy. All right. The subcommittee will come to 
order. Today's hearing will feature two panels from the 
Department of the Treasury.
    We will start Panel 1 with our esteemed Treasury Secretary, 
Secretary Steven Mnuchin.
    Prior to his confirmation in 2017, he served as founder and 
Chief Executive Officer of Dune Capital Management. He also 
founded One West Bank Group. He was Chairman of the Board and 
CEO there. Earlier in his career, the Secretary was a partner 
at Goldman Sachs, served as chief information officer.
    Secretary Mnuchin holds a bachelor's degree from Yale 
University.
    Our FSGG staff wrote me a very eloquent opening statement.
    In the interest of time, I am going to summarize it.
    The Department of Treasury is very, very important.
    [Laughter.]
    Senator Kennedy. And we look forward to hearing the 
Secretary's testimony today.
    With that, Mr. Secretary, if you would like to begin. I am 
going to leave plenty of time for questions. We have got a lot 
to talk about.
    I can see Senator Van Hollen is raring to go down there.
STATEMENT OF HON. STEVEN T. MNUCHIN, SECRETARY, U.S. 
            DEPARTMENT OF THE TREASURY
    Secretary Mnuchin. In an effort to follow your lead, I am 
going to read my first paragraph, and then I will put the rest 
in the record, so that you have that full statement.
    Chairman Kennedy, Ranking Member Coons, and Members of the 
subcommittee, I am pleased to be here with you today to discuss 
the President's fiscal year 2020 budget and our key policy 
priorities at the Treasury Department.
    President Trump's economic programs of tax cuts, regulatory 
relief, and improved trade deals is resulting in more jobs and 
higher wages for hardworking families.
    In the first quarter of 2019, we saw an annual GDP growth 
rate of 3.2 percent, far exceeding expectations. That rate 
follows 3 percent growth from Q4 of 2017 to Q4 of 2018, the 
fastest fourth quarter to fourth quarter growth in 13 years.
    Unemployment remains historically low at 3.6 percent, and 
earnings year-over-year by 3.2 percent as well.
    I appreciate the opportunity to be here in front of the 
subcommittee and talk about our budget and other important 
issues.
    Thank you very much, Mr. Chairman.
    [The statement follows:]
              Prepared Statement of Hon. Steven T. Mnuchin
    Chairman Kennedy, Ranking Member Coons, and Members of the 
subcommittee, I am pleased to be with you today to discuss the 
President's fiscal year 2020 budget and our key policy priorities at 
the Treasury Department.
    President Trump's economic program of tax cuts, regulatory relief, 
and improved trade deals is resulting in more jobs and higher wages for 
hardworking families. In the first quarter of 2019, we saw an annual 
GDP growth rate of 3.2 percent, far exceeding expectations. That 
follows 3 percent growth from Q4 of 2017 to Q4 of 2018, the fastest 
fourth quarter to fourth quarter growth in 13 years. Unemployment 
remains historically low at 3.6 percent, and earnings are up year-over-
year by 3.2 percent as well.
    These results are because America's economy is the most competitive 
in the world. The Tax Cuts and Jobs Act (TCJA) lowered business taxes 
and incentivized the investment of hundreds of billions of dollars in 
U.S. business operations, leading to more and better career 
opportunities for workers. It also cut the Federal income tax liability 
for a typical family earning $75,000 in half, saving them over $2,000 
per year because of lower rates, a doubled standard deduction, and 
enhanced child tax credit, among other benefits. Combined with 
increased earnings, a typical family is seeing as much as $4,000 
dollars more in their paychecks annually.
    I want to highlight the Opportunity Zones tax incentive, an 
important component of the TCJA. Opportunity Zones will ensure that the 
economic renewal we are experiencing reaches distressed communities. 
Opportunity Zones provide capital gains tax relief for investments in 
areas in need of revitalization. We are seeing great enthusiasm for 
this policy from entrepreneurs and communities seeking to partner with 
one another to make positive social impacts. We are confident that it 
will help to restore the promise of prosperity for more Americans.
    As you know, trade is a top priority for President Trump and this 
administration. I urge all members of Congress to support the United 
States-Mexico-Canada Agreement (USMCA). This deal will create the 
highest standards ever to protect workers and entrepreneurs in our 
hemisphere. It will strengthen intellectual property rights, support 
small businesses and manufacturing, and expand U.S. access to Canada's 
dairy, poultry and egg markets. I would also note that, for the past 
several months, Ambassador Lighthizer and I have engaged in intensive 
and serious negotiations with China to improve our trade relationship. 
China has recently retreated from many commitments they made during 
those negotiations. We will keep you apprised of any further 
developments.
    Turning to the President's fiscal year 2020 budget for the Treasury 
Department, it reflects our objectives of fostering strong economic 
growth and protecting our national security and technology 
infrastructure.
    I would like to highlight our request for funding for the IRS 
Integrated Business Systems Modernization Account. Our fiscal year 2020 
request for $290 million is an installment in our multi-year plan to 
update IRS systems and operations. Carrying out this plan will create a 
more efficient and effective customer-service experience for taxpayers, 
improve compliance and enforcement, and ultimately reduce the long-term 
costs of maintaining these systems. Through the implementation of new 
technologies, we will provide innovative resources that will not only 
reduce call and wait times for taxpayers and allow them to conduct 
business with the IRS online, but also continue to protect sensitive 
taxpayer data. I would also like to emphasize our program integrity cap 
adjustment that would provide an additional $362 million in fiscal year 
2020 for more effective enforcement procedures, including investments 
in data analytics and measures to identify and prevent fraud, identity 
theft, and other instances of non-compliance. The proposed investments 
will generate about $47.1 billion in additional revenues over 10 years 
and would cost about $14.5 billion, for a net revenue of $32.6 billion.
    We are requesting $35 million for the continued implementation of 
the Foreign Investment Risk Review Modernization Act, known as FIRRMA. 
This critical legislation passed with overwhelming bipartisan support. 
It modernizes the process through which the Committee on Foreign 
Investment in the United States, referred to as CFIUS, reviews 
transactions for national security risks while preserving the United 
States' commitment to maintaining an open investment environment.
    We are also requesting enhanced funding for Treasury's Office of 
Terrorism and Financial Intelligence and the Financial Crimes 
Enforcement Network (FinCEN). These funds are necessary to continue 
protecting our financial system from abuse by rogue regimes, 
terrorists, transnational organized criminal enterprises, and other 
actors posing threats to the American people and our allies. Our 
request includes funds for information technology improvements as well 
as mission-support capabilities. In particular, our request supports 
the Terrorist Financing Targeting Center and implementation of the 
Countering America's Adversaries Through Sanctions Act, known as 
CAATSA. We are also requesting further expansion of FinCEN's 
capabilities to combat cybercrime and prevent the illicit exploitation 
of emerging payment systems, such as cryptocurrency.
    Finally, I would note that the Budget includes additional support 
for the Office of Critical Infrastructure Protection and Compliance 
Policy to help Treasury identify and reduce emerging threats and 
vulnerabilities to our financial system.
    I am pleased to join you today to discuss our plans for creating 
more jobs, higher wages, and a more secure future for the American 
people. I look forward to your questions. Thank you very much.

    Senator Kennedy. Thank you very much.
    I do want to talk about your budget, but I want to talk 
about a couple of issues first, starting with our trade 
negotiations.

                           TRADE NEGOTIATIONS

    I know you are limited in terms of details that you can 
share, and I am not going to ask you to violate confidences. 
But I think we can all agree that we do not want to be enemies 
with our friends in China. We want to be their friends. Friends 
can compete. Competition makes all of us better.
    We often say to the point of becoming a cliche that we live 
in a global economy, but cliches become cliches because they 
are true. We do live in a global economy, and for a global 
economy to work, we have to have rules.
    China was admitted to the World Trade Organization with the 
support of the United States of America, which was significant 
support, on December 11, 2001.
    Intending no disrespect, China started cheating December 
12, and when a country manipulates its currency, when a country 
relies on subsidized state-owned industries and businesses, 
when a country steals intellectual property, when a country 
expects other countries to adopt a rule that says China can do 
business in other countries freely, but to do business in 
China, you have to follow their rules which are quite 
restrictive, then those positions are not conducive to a global 
economy.
    I do not know whether we are in a trade war or not. I know 
and I believe the President knows that the only way to win a 
trade war is do not fight the thing.
    Having said that, this is more than just trade. I do not 
want to overstate this, but this is about the future of the 
global economy. And I would encourage you, Mr. Secretary, for 
what my opinion is worth, to do the right thing and hang tough, 
with the end objective being we emerge out of this friends with 
China, friendly competitors, but with a set of rules that we 
are all going to abide by.
    I would like your thoughts, to the extent you can share 
them with us, about where we are in the negotiations and the 
potential, if we can connect this arrangement to the American 
economy, if we could open up China to American businesses.
    Secretary Mnuchin. Well, thank you, Mr. Chairman, and thank 
you for your thoughtful comments.
    I have been involved in these discussions with President 
Trump for almost the last 2 years now. From the original 
meeting at Mar-A-Lago with President Trump and President Xi, 
there was an acknowledgement that we needed to rebalance the 
trade relationship. That it was too far in one direction. Our 
economy was open to them, and their economy was not open to us. 
So under the direction of both Presidents, we started working 
on rebalancing the relationship.
    More recently, I would say since December of this year, I 
had been working very closely with Ambassador Lighthizer. I 
think we are in the 11th round of discussions. As I said 
several weeks ago, I thought we were very close to an historic 
agreement with China that would be good for us and good for 
them. If we can open up markets and compete fairly, I think 
this is one of the biggest opportunities for American workers 
and American companies. So we have been working hard on this.
    As I have said, this is a very detailed agreement. It has 
seven chapters dealing with lots of different issues. We have 
had the interagency discussion from all the Departments 
involved in this.
    I think, as you know, Ambassador Lighthizer and I gave a 
press conference a few weeks ago, 2 weeks ago now, that things 
had gone in a different direction.
    I think we had a constructive meeting with the Vice 
Premier, when he came here. We are continuing discussions. 
There is still a lot of work to do, but I can assure you that 
President Trump is determined that we have free and fair trade, 
and wants to have a fair relationship with rules that we can 
compete fairly.
    As I have said, my expectation is we will most likely go to 
Beijing at some point in the near future to continue those 
discussions, and I think it is President Trump's expectation to 
meet with President Xi at the G20 at the end of June.
    The President has put in place tariffs, to use that tool in 
a way to create a fair agreement.
    Senator Kennedy. Thank you, Mr. Secretary.
    I will save my other questions until my colleagues have a 
chance to weigh in.
    Senator Coons, would you like to make an opening statement 
and start your questions, sir, and then we will go to Senator 
Van Hollen, if that is okay.

               STATEMENT OF SENATOR CHRISTOPHER A. COONS

    Senator Coons. Thank you, Chairman Kennedy.
    Thank you for your graciousness and understanding. I was at 
a Police Week event, and, Mr. Secretary, I apologize for being 
late to the opening of the hearing.
    Senator Kennedy. No problem.
    Senator Coons. I just appreciate the opportunity for us to 
continue to work on this subcommittee, Mr. Chairman, on the 
wide range of things that we have before us. The Department of 
the Treasury, and the IRS particularly, takes up the lion's 
share of this subcommittee's budget and responsibility. So I am 
grateful for your time, Mr. Secretary, and for the IRS 
Commissioner who will be before us soon.
    I am pleased that you request an increase in funding for 
the Office of Terrorism and Financial Intelligence, which has 
the critical responsibility of enforcing sanctions.
    I just led a delegation to East Asia and had a chance to 
discuss the challenge we face in North Korea with our allies in 
Japan and South Korea. Sanctions are a critical security 
diplomatic tool, but they only work if they are enforced.
    I am also glad you requested additional resources for IRS 
enforcement activities, but I am concerned that that request is 
predicated on an adjustment to our allocation. And I want to 
talk with you about how we work through that.
    I also think you obviously face a significant challenge in 
terms of badly outdated IT systems. If I understand correctly, 
some of your core systems are written in COBOL, something that 
is as old as I am, and these systems are both expensive and 
difficult to maintain. So I have a few questions on that.
    I am, of course, disappointed your budget proposes to 
eliminate grants to Community Development Financial 
Institutions, which support development and create jobs in 
underserved neighborhoods, and I will question you about that.
    I also frankly am concerned about the overall adequacy of 
the budget for the IRS, and we will take that up with the 
Commissioner. But you are still a billion dollars below the 
budget for 2010, and I am concerned about responsiveness and 
service levels. All of us have constituents who spend long 
periods of time trying to get someone on the phone or trying to 
get responsiveness. That is no disrespect to the 
professionalism of the folks at Treasury or IRS in particular. 
It is just that I think we have understaffed and under-
resourced the IRS.
    So I very much look forward to hearing your testimony and 
appreciate, Mr. Chairman, your welcoming my opening statement.
    Let me ask just two questions, if I could, Mr. Secretary.

                           CHARITABLE GIVING

    First, charitable giving is something that has been a 
concern of mine. Senator Lankford and I have tried to address 
what may well be a significant drop in charitable giving. 
Thirty-seven million taxpayers had access to the itemized 
charitable deduction for giving prior to the enactment of the 
Tax Cuts and Jobs Act. Today only 16 million taxpayers will 
likely itemize their deductions and get a financial incentive 
to contribute to charity.
    I am concerned we may see a significant drop in giving to 
houses of worship, to other NGOs, and community charities. We 
talked about this at last year's hearing, and I have written to 
you.
    Now the first year's tax filings are coming in or complete. 
Are you doing an analysis of the impact of the Tax Cuts and 
Jobs Act (TCJA) on charitable giving, and what data will you be 
giving this subcommittee or the public about the impact on 
charitable giving?
    Secretary Mnuchin. Mr. Senator, thank you very much.
    First of all, I would just comment I appreciate your 
comments on the IRS. I shortened my opening statement, but I 
would like to highlight the IRS modernization and technology 
upgrade is our single biggest priority. For too long, we have 
underinvested in this technology. I think this is critical to 
everything we do, to customer service. Last year, we had a 
technology problem on tax day, so this is an investment that is 
very important for taxpayers.
    In regards to your question on charitable contributions, 
first, let me just say I, too, and the Administration very much 
believes in charitable giving. This is an important part of our 
community and our society. Given the old technology that we 
have, I tried to get information in advance of today to try to 
be responsive to you on this. It is too early for us to tell 
what the impact was. I am, obviously, hopeful that charitable 
giving did not go down, and I would hope within the next few 
months, as we have in all the data and we crunch it, we can be 
responsive to you and publicly talk about this.
    Senator Coons. Thank you.
    Secretary Mnuchin. But, again, this is one of these things 
if we had modernized technology, we would be able to queue the 
system and get this data in real time.
    Senator Coons. I think this is something about which I have 
heard very broadly from community organizations, houses of 
worship in Delaware, and I hope we can stay in regular touch 
about it. I think it is a likely unintended consequence of the 
Tax Cuts and Jobs Act, but it could be a really significant 
one.

                        TREASURY FORFEITURE FUND

    In February, you notified Congress you intended to transfer 
up to $600 million of the Treasury Forfeiture Fund to Homeland 
Security for a border wall construction. Historically, you have 
used accumulated surpluses in that fund to augment resources 
for Federal law enforcement partners supporting cybersecurity 
or cybercrime operations at the IRS or elsewhere, or Coast 
Guard equipment for searching drugs on ships at sea. These are 
two recent examples.
    What law enforcement activities might have gotten funded 
had you not diverted the $600 million to wall construction?
    Secretary Mnuchin. Thank you for that question.
    First, let me just say, as you have outlined, the 
Forfeiture Fund has been used in the past regularly for 
enforcement purposes.
    We did have a request from DHS to transfer money to them 
for enforcement purposes. DHS made the decision to allocate 
that money to the wall, and we send money over as they have 
specific needs.
    I think, as you are aware, there are always lots of good 
requests for this money, and I am not aware of specifically 
what the other uses would have been. But I acknowledge there 
are always good uses for funds, and that this was the priority 
of DHS.
    Senator Coons. Well, I will tell you that law enforcement 
leaders I have just heard from have a lot of pressing 
communications and security needs. I think it would perhaps 
have been better served there.

              COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS

    Last, I ask you about the Community Development Financial 
Institutions Fund, or CDFI. Your budget proposes a cut of $236 
million from last year's enacted level and says in 
justification, the CDFI industry has matured, and these 
institutions should have access to private capital needed to 
build capacity, extend credit, provide financial services to 
the communities they serve.
    My understanding from a number of CDFIs--and there are five 
that operate in Delaware--is that their ability to raise 
private-sector investment is greatly enhanced by funding of the 
CDFI Financial Assistance Fund and their awards, and the 
availability of those awards have made it possible for CDFIs to 
finance products in businesses in some of the most rural or 
most under-resourced communities in America.
    Has the Department reached out to the organizations and 
institutions whose capital is leveraged by CDFIs with financial 
assistance awards to gage their willingness to actually 
continue working with CDFIs in the absence of this Federal 
funding?
    This would almost completely shut them down in terms of 
their Federal support, and I, frankly, have difficulty with the 
credibility of the justification that they do not need Federal 
support, given what I have heard from the CDFI community.
    Secretary Mnuchin. Well, let me just comment that we had to 
make difficult decisions within a large budget where we were 
trying to be constrained on overall spending. So this was a 
relative decision of different priorities.
    Let me acknowledge that we do think that the industry is 
mature, but on the other hand, if the committee supports this 
program and thinks that there should be additional money funded 
to it, we would acknowledge that it does serve valid purposes 
in many communities, and we would continue to move forward with 
these funds.
    So, this was a relative decision where there are lots of 
important priorities within the Department.
    Senator Coons. I appreciate that answer. I will just say 
that this strikes me as a community that has a long record of 
leveraging significant multiples, and they most directly 
benefit the least wealthy or resources communities in America. 
And given some of the choices made in the tax bill, this struck 
me as a particularly hard choice to accept. That is part of our 
role in oversight. I appreciate your answer and the opportunity 
to work together.
    Mr. Chairman, I hope we will restore funding for the 
Community Development Financial Institutions.
    Thank you, Mr. Chairman.
    Senator Kennedy. Thank you, Senator.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. I share Senator Coons' concerns 
about the proposed elimination of CDFI.
    I also want to thank you and your team, Mr. Secretary, in 
the Department of Treasury for working to enforce the North 
Korea sanctions.
    As you know, Senator Toomey and I think we should go 
farther. We have proposed the BRINK Act again for secondary 
sanctions and look forward to that conversation with you.

                        TAXPAYER ACCOUNTABILITY

    Mr. Secretary, I have some questions about taxpayer 
accountability. We have a President who has bragged about not 
paying taxes. When he ran for President, he said, quote, That 
makes me smart, unquote.
    Just a week ago, the President tweeted that some of the 
write-offs he claims were, quote, a tax shelter. That is his 
words. He said, quote, It was sport.
    So, Mr. Secretary, would not you agree that Congress has an 
interest in verifying that the IRS is fairly enforcing the law 
and making sure that the President, who is in charge of the 
executive branch, making sure that the President is paying the 
taxes he owes?
    Secretary Mnuchin. We have communicated that if Congress 
wants to sit down with us, or representatives specifically of 
Ways and Means, to the extent that Congress wants to understand 
how the President is audited or the Vice President is audited, 
there are policies and procedures.
    Senator Van Hollen. Mr. Secretary, with all respect, that 
was not my question. My question----
    Secretary Mnuchin. I am sorry that I misinterpreted.
    Senator Van Hollen. Okay.
    Secretary Mnuchin. I did not mean to----
    Senator Van Hollen. My question relates to whether or not 
you agree that Congress has a legitimate interest in itself 
verifying that the President has paid the taxes due and owing.
    Secretary Mnuchin. Again, what I would say, and where I was 
going to go on this, is that I think Congress has a legitimate 
interest to make sure that the IRS is performing the function 
properly as it relates to any taxpayer.
    If you are referring to the specific request of the 
President's returns, I think, as you know, I have said before 
this is a very important issue that has a precedent way beyond 
any one President or Congress. It affects the weaponization of 
the IRS and could be used against anyone, and on this request, 
we have carefully reviewed this with the Department of Justice. 
And we will be responding.
    Senator Van Hollen. Mr. Secretary, you have not answered my 
question as to whether or not Congress has a legitimate 
interest in verifying whether the IRS is properly enforcing the 
tax law with respect to the President.
    Are you aware that Section 6103 of the IRS was first 
enacted because of congressional concern that a senior member 
of a former President's administration, a member of President 
Harding's administration, was being given special treatment by 
what was then called the Bureau of Internal Revenue? Are you 
aware of that fact?
    Secretary Mnuchin. I am.
    Senator Van Hollen. Okay. So Congress clearly was not 
convinced that the Bureau of Internal Revenue was providing 
them full information about tax payments due and owing by a 
senior member of the Harding administration, and that is why 
they passed the law to begin with, so that they could 
independently verify that. Is not that the case?
    Secretary Mnuchin. I am not sure if that is the case or 
not.
    Senator Van Hollen. Well, let me give you some additional 
history. There were allegations that President Nixon had not 
paid the taxes he owed, and in 1973, President Nixon famously 
said, quote, People have got to know whether or not their 
President is a crook.
    Nixon said that he had paid all the taxes he owed. Nixon 
also said the IRS had signed off on his returns, and it was 
true that the IRS had signed off on President Nixon's returns. 
But it turned out that Nixon was not paying the taxes due and 
owing, and we only learned about that when the congressional 
Joint Committee on Taxation, not the IRS, determined that Nixon 
owed over $400,000 in taxes.
    So, Mr. Secretary, I ask you again. Given that history, 
does not Congress, as a separate branch of Government, have an 
interest, a legitimate interest in determining whether or not 
the IRS is enforcing the tax laws with respect to a President 
of the United States?
    Secretary Mnuchin. Mr. Senator, I want to be respectful in 
answering this, and I am not trying to avoid your question. But 
the answer is that there is a difference in interpretation 
between Congress, and us and the Department of Justice around 
this law that not only impacts this President and this 
Congress, but has a very large impact on every single taxpayer 
in weaponizing the IRS. And this is why there are three 
branches of Government. So if there is a difference of opinion, 
this will go to the third branch of Government to be resolved.
    Senator Van Hollen. Just to finish up, if I could, Mr. 
Chairman.
    Mr. Secretary, I read the letter that you sent, the long 
letter and memo, first your letter of May 6th and then April 
23, and in there, you do not appear to challenge the fact that 
Congress would have a legitimate interest in determining 
whether or not the IRS had properly enforced the law. And that 
is the issue, the tax law before us right now.
    Thank you, Mr. Chairman.
    Senator Kennedy. Thank you, Senator.

                               OVERSIGHT

    But before I call on Senator Daines, I want to exercise my 
prerogative to ask one question. I followed Chris' line of 
questioning very carefully, and as usual, he asked very 
incisive questions.
    Legitimate interest. Do you think we should have a 
precedent, to put this in real-world terms? And I will put it 
in personal terms. I am interested in the IRS, and I am 
interested in what kind of job it is doing.
    So I think I would like to see, as a United States Senator, 
some tax returns. Let me think. How about you send me all the 
tax returns from every candidate among my Democratic friends 
running for President of the United States?
    Now, I am not interested in it for political reasons. I 
just want to study the IRS, and I think I will start with these 
returns. How much confidence do you think the American people 
will have in the Internal Revenue Service and the privacy 
concerns if we start doing that in this country?
    Secretary Mnuchin. Well, Mr. Chairman, I think it would be 
very dangerous to provide you with those returns. I think it 
would also be very dangerous to provide you with returns of 
Democrats or Republicans who make political gifts or leaders of 
industry or leaders of labor unions.
    Again, our concern is--the Nixon administration did try to 
weaponize the IRS. So, as I have said, this is an unprecedented 
issue. It is a very complicated issue. I take very seriously my 
obligation to follow the law, and that is why I consulted with 
the Department of Justice. And we will proceed on what is a 
very important issue to the American taxpayers.
    Senator Kennedy. Senator Daines.
    Senator Van Hollen. Mr. Chairman, not now, but I hope given 
that exchange, I will have an opportunity to follow up.
    Senator Kennedy. Absolutely. Absolutely, Senator.
    Senator Daines.
    Senator Daines. Thank you, Chairman Kennedy and Ranking 
Member Coons.

                        NEGOTIATIONS WITH CHINA

    Thank you, Secretary Mnuchin, for being here today.
    I sincerely applaud your efforts and thank you for holding 
China accountable. I said the only thing worse than doing 
something is doing nothing, and having spent 5 1/2 years on the 
ground, working there in Guangzhou years ago as an expat for 
Procter & Gamble, having managed the Asia-Pacific Region for 5 
years for a cloud computing company, I have a lot of experience 
of what it is like to do business on the ground there in that 
part of the world.
    But I will tell you we need results. I think we need them 
soon.
    As I travel around the State of Montana, I continue to hear 
the concerns from our farmers and ranchers. For perspective, 
our number one economic driver in Montana is agriculture. We 
are very dependent on experts. In fact, 70 to 80 percent of our 
wheat crop goes to Asia.
    I am also hearing concerns from folks being impacted by 
tariffs and uncertainty outside of Montana ag, including 
businesses that make up Montana's outdoor industry, which is 
about a $7 billion outdoor economic. In fact, one of those is 
Simms. In fact, they are right there in my hometown of Bozeman.
    To maximize the effectiveness of the administration's 
efforts and to reach a resolution to this dispute as quickly as 
possible, I do believe it is critical that we work with our 
allies in a multilateral fashion to confront their trade 
abuses, talking about China's trade abuses, and increase 
pressure on China.
    I think we need to take and make whatever structural 
reforms are necessary to level this playing field for Montana 
farmers, for Montana ranchers, for the outdoor industry, and 
for other businesses.
    My question, Mr. Secretary, is, how are you coordinating 
with our allies in the region and around the world, such that 
we have a united and strategic approach to countering the 
abuses that China continues to make as it relates to forced 
technology transfer, intellectual property theft, open 
violations of WTO?
    Secretary Mnuchin. Well, Mr. Senator, first, let me say I 
really do appreciate it. I have had the opportunity to talk to 
you about this many times, and I think your firsthand 
experience, having been there and understanding P&G, has been 
very helpful for me as we look at this.
    And as I said earlier, if we can get the proper deal, which 
would be a good deal for the United States, it would be a big 
opportunity for the P&G's of the world, our American workers, 
and American companies to open up their market on a fair and 
level playing field.
    Although we are conducting these discussions on a bilateral 
basis, I can assure you I am in constant touch with the Finance 
Ministers of the G7 and keeping them up to date.
    I will be traveling to the G20 Finance Ministers in June 
and will be having a separate meeting with the G7, and I will 
update them on the process when I am there. So, although this 
is something that we are working in bilateral discussions, I 
can assure you we also are working with our allies.
    And let me just comment I like Bozeman a lot. It is a 
lovely place. I have enjoyed the opportunity to visit.
    Senator Daines. And if you fly fish, you want to make sure 
you have a pair of Simms waders. They are the only waders left 
that are made in America. The rest are all made overseas. They 
are made in America.
    Secretary Mnuchin. I can assure I am not very good at fly 
fishing, but I do enjoy it.
    Senator Daines. And thank you.
    By the way, Mr. Chairman, they are actually made in 
Bozeman, Montana, as well. That is right, right there. No, they 
are great waders. The problem they have, they are such high 
quality, you only need one pair for your life. So you never 
have to replace them. They are wonderful.

                              POLYSILICON

    Anyway, thank you. I want to shift gears here and talk 
about polysilicon. I raised this important issue with you in a 
separate hearing in March. As you know, the U.S. polysilicon 
has long been targeted by retaliatory tariffs by China, in 
part, due to its Made in 2025 agenda, and these tariffs are 
threatening hundreds of high-wage manufacturing jobs at REC 
Silicon in Butte, Montana.
    It is critical that REC Silicon, one of the largest 
employers in the area--good jobs--and these other polysilicon 
manufacturers are able to compete truly on a level playing 
field.
    Secretary Mnuchin, is removing these tariffs on U.S. 
polysilicon a priority for you, and will you work to ensure 
that they stay on the agenda as negotiations with China 
continue?
    Secretary Mnuchin. Yes, I can assure you they are. I have 
received your letter, and I have worked with Ambassador 
Lighthizer, and we will continue to make this a priority.
    Senator Daines. Lastly, as you know, China is rapidly 
developing its own innovative ecosystem. In fact, Senator 
Kennedy has been over there with me touring China. It is 
competing and leading in critical technologies such as quantum 
computing or 5G. I think we need a multipronged approach that 
we can run faster. We need to go more quickly in innovation and 
innovate, but the fight and the outright theft of American IP 
in forced technology transfers, the policy that China is 
implementing, has certainly compromised that outcome.

                         INTELLECTUAL PROPERTY

    In response to recent reports of China reneging on its 
commitments, what are your current priorities to include in any 
agreement to create an effective deterrent to the multitude of 
IP abuses with China?
    Secretary Mnuchin. Well, the issues around intellectual 
property, forced technology transfer, and other issues are some 
of the most important issues that Ambassador Lighthizer and I 
have been dealing with.
    We made a lot of progress on those issues in a potential 
agreement. We are trying to continue to move forward on that 
basis.
    And I agree with you. American technology is important. We 
appreciate Congress' work on FIRRMA and us being able to 
protect it.
    I have great confidence in the U.S. and European 
consortiums on 5G and their leadership in the world.
    Senator Daines. Thank you, Mr. Secretary.
    Senator Kennedy. Mr. Secretary, I have a couple more 
questions, and I am going to leave plenty of time here for 
everybody.
    First, before I forget, I sit on the Banking Committee and 
have had the pleasure of hearing Chairman Powell testify a 
number of times, and I know you recommended him for service at 
this level. And I wanted to thank you for that. I just think he 
is very level-headed, very objective, and I have really learned 
a lot from listening to him.

                            IT MODERNIZATION

    Let me shift gears. You mentioned the IT modernization 
plan, and I know that we are going to ask the Commissioner 
about this, but obviously, this is within your purview. And you 
have a deep background in IT, which I appreciate.
    But the IRS has a deep background too, but its background 
is checkered in terms of modernizing its computer system. We 
have thrown a lot of money down a rat hole.
    Now, I understand the IRS wants to embark on yet another 
venture. I understand they have got an outside group, McKinsey, 
a pretty good group, that says they are on the right track.
    I also understand that this history of problems with 
computer modernization and technological modernization at IRS 
predates you. So you did not father this child, but you got to 
raise it. And I want to hear your thoughts. Why should we 
believe that it is going to work this time when it has not 
worked ever in the past after spending hundreds of millions of 
dollars?
    Secretary Mnuchin. Well, I am not an expert, and I cannot 
really comment why it has not worked in the past.
    I can comment on what our plan is here, and I personally 
have had a lot of experience in the technology sector. I was 
the Chief Information Officer of Goldman Sachs. So I understand 
these areas, and I have dedicated a significant amount of time 
over the last year to working with the IRS on this.
    What I can assure you is, and that there is no question, 
the IRS has very old technology----
    Senator Kennedy. Yes.
    Secretary Mnuchin [continuing]. And does not provide 
taxpayers with the service they should expect in this day and 
age, whether it is being able to access information in real 
time on the Internet, whether it is customer service, whether 
it is being able to schedule callbacks, whether it is being 
able to do chats online. Taxpayers deserve to be able to 
communicate effectively with the IRS in all means.
    I will also tell you that the IRS faces a challenge that 
many big companies have with legacy technology, and that it is 
hard to keep running and change at the same time.
    When you build things from scratch in your new business, it 
is easy to start them, but when you are managing one of the 
largest IT operations in the world, it is hard to balance the 
priorities of maintaining the system and investing in the 
future.
    I would leave this committee with this--if there is 
anything we could hopefully agree on, on a bipartisan basis, it 
is the need to invest in the technology. There is a need to 
make a long-term commitment. We cannot build IT modernization 
if we do not know there is long-term money. This is not 
something that is going to be built in any 1 or 2 years.
    Senator Kennedy. But you are sold on this effort?
    Secretary Mnuchin. I am sold on this effort.
    Senator Kennedy. Okay.
    Secretary Mnuchin. And this is, at least, a 6-year effort. 
The reason we have a 6-year plan and not a 5-year plan--most 
people have 5-year plans--is we could not deliver this, and 
McKinsey----
    Senator Kennedy. I get it. I want to say within the rules, 
Mr. Secretary.

                          ACCESS TO TECHNOLOGY

    Let me shift gears right quick. I am not trying to trick 
you. Do you know what a deemed export license is?
    Secretary Mnuchin. I am not an expert on it, but I have 
some familiarity with it.
    Senator Kennedy. Well, it is basically a license to share 
technology with somebody.
    We welcome students from all over the world, all over the 
world that come to our universities. We have got the greatest 
universities in the history of the world. I am not saying there 
are not good universities in other countries, but the higher 
education system in America is the best in the world. Sometimes 
we have problems with funding, but the quality, you cannot 
argue with.
    And a lot of our students want to come here, and some of 
them have access to our technology. And some of them take it 
back to their country, and sometimes that hurts America. 
Sometimes that hurts American security.
    I have got a bill, S. 937, called Protecting American 
Technology Act. It will require the Department of Commerce to 
require a deemed export license to be in place before foreign 
nationals can conduct scientific research and have access to 
some of this technology.
    I think we can do a better job. I am not going to ask you 
to support it here because I know I am catching you blind, but 
I wish you would take a look at it. I want foreign students to 
come to America. I want them to be our friends, but I do not 
want to tempt anybody to steal our technology. I think we can 
do a better job.
    Senator Coons.
    Senator Coons. Thank you, Chairman Kennedy.

                          ISSUANCE OF GUIDANCE

    Mr. Secretary, a bipartisan group of Senators worked a 
couple of years ago to extend a critical tax credit for 
emerging clean energy technologies. This includes carbon 
capture and sequestration. I am talking about 45Q, and there 
are companies and investors waiting for guidance from your 
Department so they can rely on the record and deploy new 
technologies.
    Some interim guidance would be helpful. Do you have any 
timeline for when there will be guidance available for this 
critical tax credit?
    Secretary Mnuchin. Yes. I can tell you it is a priority of 
ours. We are working on it as we speak. So I would hope that we 
have interim guidance out shortly, and I have personally been 
on calls recently, within the last few weeks--in no preparation 
for this--specifically on this, with some of the large CEOs. So 
we are taking advice. We will then put it out. We will take 
comments.
    But I share your view. This is very important, and we are 
taking it very seriously. And I hope that we get it out soon.
    Senator Coons. I think we have promising technologies in a 
number of areas that we ought to be racing to deploy.
    I recently led a delegation to East Asia. I went to Japan, 
South Korea, China, and Taiwan. I met with the Finance Minister 
as well as the Foreign Minister of Japan. I want to follow up 
on Senator Daine's question to you about what we are doing to 
coordinate with our allies.

                                TARIFFS

    I agree with the objective of challenging China's 
innovation mercantilism. I am concerned about the impact on our 
bilateral relations and our ability to mobilize our allies of 
having Section 232-justified tariffs in place against vital and 
close allies like Canada or South Korea, where I think it is 
hard to explain how they are a national security threat. And 
both privately and publicly, the strong impression I have 
gotten is that it is straining our relations, not just trade, 
but security.
    Is there a timeline for reliving the steel and aluminum 
tariffs on Canada or South Korea, given that by all measures, 
we have achieved--they have worked with us on the 
administration's identified trade objectives.
    Secretary Mnuchin. I can assure you that Canada and Mexico 
are the priority.
    Ambassador Lighthizer is in active discussions. The 
President has instructed us to try to figure out a solution, 
and this is a very important part of passing USMCA, which is a 
very important economic agreement for two of our largest 
trading partners.
    So I think we are close to an understanding with Mexico and 
Canada. I have spoken to the Finance Ministers. Ambassador 
Lighthizer is leading the effort on this, but I can assure you 
it is a priority of ours.
    I have not heard that South Korea is as big of an issue, 
but again, I can assure you we are working very closely with 
South Korea and Japan on the North Korea sanction issues, and 
that is our priority with them.

                               SANCTIONS

    Senator Coons. We recently read that the Department of 
Justice took possession of a North Korean ship used to 
illegally export coal from North Korea to China and Russia.
    On the issue of enforcing the sanctions against the DPRK, 
can you discuss whether China and Russia are actually abiding 
by the U.N. and our secondary sanctions against North Korea? 
Are they part of the problem? Where are we in terms of getting 
them to actually be good partners and enforcing sanctions on 
North Korea?
    Secretary Mnuchin. I think they are broadly being helpful 
in enforcing sanctions. That is not to say that there are not 
specific circumstances, and where there are specific 
circumstances, we are having conversations with both of them. 
To the extent they do not enforce it, we will put sanctions on 
specific companies.
    But I can tell you I was personally involved in the 
discussions with the Chinese to get them to move forward with 
us on the U.N. sanctions, which have been critical. And I can 
tell you as recently as my last trip to Beijing, in 
conversations with the Vice Premier and others, North Korea was 
high on the list.
    Senator Coons. Just again on the steel sanctions, I have 
heard from national leaders from Sweden to South Africa of 
countries that are our allies and partners in other ways, but 
where there is no demonstration that they are a country of 
transshipment of Chinese steel. And they felt, I think 
understandably, aggrieved by the imposition of sanctions that 
had an impact on their economies but was not clearly part of a 
coordinated effort targeted on the Chinese.
    I agree with the effort to go after Chinese innovation 
mercantilism. I am just greatly concerned about its impact on 
some of our countries that we enjoy positive and long-term 
relations with.
    I understand that in the case of Canada and Mexico, the MCA 
is the critical focus, but now over more than a year, I hear 
the same concerns from soybean farmers in Delaware, that 
Senator Daines cited from wheat farmers in Montana about the 
urgency of getting this done. I just think we need to engage 
our allies.

                              TAX RETURNS

    Let me ask you a last question about your decision not to 
comply with a request from the Chairman of Ways and Means to 
provide the President's tax returns. My understanding is that 
Section 6103 of the Tax Code says the Treasury Secretary shall 
furnish such committee with any return or return information 
specified in a request, and I just want to know. This has 
historically been a function delegated to the IRS Commissioner. 
Was there a reason you did not trust the IRS commissioner to 
handle this? Was there a meeting between IRS and Treasury 
leaders directing the IRS to stand aside or stand down on this, 
and have you discussed Neal's request with the President or 
anyone in the White House? And did you get any direction on how 
to handle this matter from the President?
    Secretary Mnuchin. Let me start with your last question 
first. I have not discussed this with the President or anybody 
in the White House. Again, I just want to clarify one of the 
things I publicly said earlier. Our legal department 
originally, early on in this process, before we received any 
request, did have a discussion, but it was not to seek guidance 
or anything else. And that discussion was way before we 
received any request. That discussion was just in the legal 
department. I have not had any discussions with the President 
or taken any direction from him or anybody else in the White 
House on this issue.
    Now, on the other issue--and, again, I appreciate your 
question, so I am happy to answer it very clearly. Again, I 
have a responsibility to supervise the IRS Commissioner and the 
IRS. Notwithstanding certain functions that I have delegated on 
a day-to-day basis, I have a responsibility, and I take that 
responsibility seriously as it relates to any taxpayer. And I 
have had many conversations with our legal department and the 
IRS's legal department to make sure that we are interpreting 
these issues correctly.
    Notwithstanding the delegating and my responsibility to 
supervise, I have had multiple conversations with the 
Commissioner and with our legal department and the legal 
department at the IRS on these issues.
    The Commissioner--and you are happy to ask him, and he can 
testify on this--has independently concurred with my decision. 
So notwithstanding the delegation and notwithstanding the issue 
of if we did not agree, he has specifically sent notices to 
Ways and Means concurring with my decision.
    Senator Coons. Thank you, Mr. Secretary. I appreciate your 
answer.
    Thank you, Mr. Chairman.
    Senator Kennedy. You bet.
    Senator Lankford.
    Senator Lankford. Thank you, Mr. Secretary. Thanks for 
being here.
    Let me talk through some budget issues and some issues that 
really affect the American people and, long term, our safety 
and security as a Nation.

                          TERRORIST FINANCING

    Talk to me a little bit about the request that you put in 
for terror financing and tracking terror financing and some of 
the work that has already happened with Treasury on trying to 
identify the financing of both drug cartels that are moving 
money and drugs in and out of our Country and also terror-
financing networks.
    Secretary Mnuchin. So let me just comment. I very much 
appreciate the support that we have had from Congress to 
increase funding for our Terrorism and Financial Intelligence 
(TFI) area for every year that I have been here, and we have 
grown it considerably. And I think there has never been a time 
when these tools are as important throughout the world.
    So, literally, every region, we look at the world. We use 
these tools. We have regular communications. I meet, normally, 
weekly or speak to Secretary Pompeo weekly. These are important 
tools to be used for all of our national security and foreign 
policy. So we have a coordinated effort between the 
intelligence community, DOD, Secretary of State, and ourselves.
    And I think specifically in your question--and drug cartels 
and others--in Mexico and other countries, we have used these 
tools very successfully. We will continue to use these tools 
very successfully, and we are determined to make sure that 
sources of illegal funding for these bad activities are shut 
off.
    I would also just comment that we are looking at these as 
it relates to cyber-currencies or cyber-assets. We have 
recently put out guidelines on this. I have had conversations 
at the G20 about this. This is not only just monitoring U.S. 
dollars, but we will very much enforce and carefully make sure 
that these crypto-assets cannot be used for illicit means as 
well.
    Senator Lankford. Thank you. We would encourage you to stay 
on that. That is one of the areas that as a committee we 
focused in on for several years, as you have mentioned, that we 
have increased funding. This FSGG Committee has been very 
aggressive to be able to make sure that you had the resources 
you needed.
    If you do not have what you need, you need to be able to 
come back and tell us. Obviously, we will want to know the 
details or the what and the where on that to be able to know 
what is needed, but that is a clear area that we need to be 
able to deal with terrorism and drug movement into our country.
    Secretary Mnuchin. Thank you for your support. We 
appreciate that.
    Again, this has been an area of great bipartisan work.

              OFFICE OF INFORMATION AND REGULATORY AFFAIRS

    Senator Lankford. Another area that we brought up and came 
about this subcommittee in some conversation in the past is for 
the IRS and the Office of Information and Regulatory Affairs 
(OIRA) in regulatory issues, to try to make sure there is 
cooperation between those two.
    Treasury and OIRA has had a memorandum of understanding to 
be able to go through the regulatory process.
    My question to you is that has now been in place for a 
year. How is it going? Have there been any hiccups in that 
process between Treasury, IRS, and the Office of Information 
and Regulatory Affairs?
    Secretary Mnuchin. I would say, generally, it is going 
well.
    I think we reached an agreement with OIRA, and we respect 
there are certain things that should be reviewed. Anytime we 
change these procedures, there are certain things, obviously, 
we wish would go a little bit faster. We will continue to work 
closely with OIRA on this to make sure that it does not slow 
down issues for taxpayers, but it is something we have a good 
working relationship on.
    Senator Lankford. That is great.

                           OPPORTUNITY ZONES

    You and I have talked before about Opportunity Zones and 
the regs that Treasury has put out for that. That is 
exceptionally helpful. Thank you for continuing to be able to 
get those out.
    There is still an unanswered question that is hanging out 
there that we have talked about before, and that is, if an 
activity is illegal in Federal law, can you apply and get an 
opportunity zone credit for that economic activity in a State?
    Specifically, this would apply in many States to marijuana 
businesses. So the question is, if a marijuana business tries 
to say they want to get an Opportunity Zone tax credit, it is 
illegal in Federal law, but it may be legal in a particular 
State. Has that been clarified yet in Federal policy?
    And my suggestion is what is illegal in the Federal 
Government, we should not give a Federal tax credit for, if you 
want my personal opinion on that, but I think this is an area 
that has not been clarified yet by Treasury.
    Secretary Mnuchin. I appreciate you bringing that up.
    First, let me comment. We obviously have a conflict in 
certain States----
    Senator Lankford. I have noticed.
    Secretary Mnuchin [continuing]. More broadly between 
Federal law and State law, and that creates significant 
problems for us at Treasury, particularly in areas of the IRS 
and other areas where we need to collect taxes, and we have to 
build cash rooms and everything else, as this has become a cash 
business.
    So without me making a policy view on this, I would 
encourage Congress that this is an issue that needs to be 
addressed because it has created issues.
    Specifically, in regards to your question--and we have not 
yet put out guidance, so I will defer to my team. But my 
recommendation to them would be that it is not the intent of 
the Opportunity Zones. That if there is this conflict that has 
not been cleared, that for now that we should not have those 
businesses in the Opportunity Zones. But I defer to my group to 
put out guidance on this.
    Again, I would just emphasize the broader issue is an issue 
that impacts us in many ways. That is an issue for Congress to 
look at.
    Senator Lankford. Mr. Secretary, thank you.
    Senator Kennedy. Thank you, Senator.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman.

                              TAX RETURNS

    Mr. Chairman, just in response to the comments you made, I 
want to point out--and the Secretary acknowledged this in his 
response--that Section 6103 of the IRS Code was originally 
enacted because of congressional concerns that a senior member 
of the executive branch was not paying taxes, and in that case, 
it was the Secretary of Treasury. Congress was concerned that 
the Secretary of Treasury at the time who oversaw the Bureau of 
Internal Revenue was not paying taxes due and owing, and that 
was the motivation for passing this law. Logic tells you it 
would apply equally to the boss of the Secretary of Treasury.
    So the concern was that the IRS, within the executive 
branch, may not properly enforce the tax laws of the United 
States against senior members of the executive branch, and that 
is the legislative history of this.
    Secretary Mnuchin, Senator Coons asked you about your 
conversations, and I think you testified that you did have 
conversations with counsel at the IRS; is that right?
    Secretary Mnuchin. Yes.
    But before I--I just want to clarify one thing on this. I 
acknowledge that is what you said the history of the law was. I 
have also acknowledged that I have read certain things, but I 
am not an expert in interpreting what Congress' intent was in 
passing this law originally. So I just wanted to clarify that.
    Senator Van Hollen. Okay. I will let the record speak for 
itself there.
    Secretary Mnuchin. Thank you.
    Yes, I have had conversations with the Commissioner and our 
legal Counsel and their legal Counsel jointly, as I would 
expect you think I would.
    Senator Van Hollen. No, I am not questioning the 
conversations.
    My question is, Did the IRS Chief Counsel, Michael Desmond, 
agree with the decision to refuse to hand over the President's 
tax returns in response to Chairman Neal's request?
    Secretary Mnuchin. Again, any comments that we would have 
with Counsel, I do not want to make a comment on what my 
Counsel said or speak for their Counsel.
    But, yes, my understanding is that is the case, and that 
the IRS Commissioner relied upon that advice, as I relied upon 
advice from my Counsel. So I believe that is the case----
    Senator Van Hollen. Did you have a conversation with the 
Chief Counsel at the IRS?
    Secretary Mnuchin. Again, I have had conversations with the 
four of us on the phone, yes, and I have never heard anything 
that the Chief Counsel thought otherwise.
    Senator Van Hollen. All right. Mr. Secretary, after it was 
learned that President Nixon had not paid the taxes due and 
owing, despite the fact that the IRS had reviewed those tax 
returns, the IRS began to require an automatic audit of the tax 
returns of the President of the United States.
    My question is this. If a person becomes President while 
they are being audited for tax returns from earlier years, does 
the IRS's automatic Presidential audit procedure also include 
the prior year tax returns as part of that audit?
    Secretary Mnuchin. I do not know the answer to that, but I 
can look into it.
    I do know that the audit requirements are the current 
years, but I would be happy to look into that issue and get 
back to you.
    Senator Van Hollen. I think the fact that it is difficult 
for you to answer that question, again, underscores the 
congressional concern about whether or not the tax laws are 
being fairly applied.
    Let me ask you this. Does the audit--does the automatic IRS 
audit include a review of all of a President's underlying 
business enterprises?
    Secretary Mnuchin. Again, since the President has publicly 
commented that he was under audit for prior years that was not 
an issue that I needed to look into.
    As it relates to the specifics of the audit requirements, 
again, I would be happy in a smaller, nonpublic setting to go 
through with the appropriate congressional members what exactly 
the audit procedures are.
    I would also just comment on this issue, and I know there 
is a lot of interest in both sides on this issue. Again, I 
think it is an important issue that impacts everybody, and if 
this issue goes through the courts, I think it is better that 
we have the courts' interpretation, if there is a difference, 
than establish a precedent that is weaponizing the IRS.
    Senator Van Hollen. With respect, Mr. Secretary, the 
automatic audit procedure that was established was established 
with respect to a President of the United States. That was the 
concern that led to that. Is not that the case?
    Secretary Mnuchin. And the Vice President, I might add.
    Senator Van Hollen. Right, okay. Fair enough.
    So that audit procedure was not set up for anybody, any 
elected official, any citizen. It was express concern about the 
President of the United States because the President, of 
course, is in charge of the executive branch, which ultimately 
oversees the IRS.
    And this is part of the manuals. It is a matter of public 
interest as to whether or not that special audit procedure 
includes a review of a President's business enterprises. That 
seems to me, Mr. Secretary, something that should be answered 
in public. I am not asking about any particular President at 
this point. I am asking what is the process of the IRS with 
respect to the automatic audit of a President.

                              TAX RETURNS

    Secretary Mnuchin. And, again, I have reviewed the process 
of the audit and how it works and everything else. I would be 
more than happy, the specific question, to get back to you on 
that.
    Senator Van Hollen. This is a question. You have a manual. 
It is a public manual, and I am asking you, because it is not 
clear in the public manual, whether or not a President's 
business enterprises are part of that automatic audit, yes or 
no.
    Secretary Mnuchin. And, again, I have told you that I am 
going to look into that and get back to you.
    Senator Van Hollen. So you do not know as of today?
    Secretary Mnuchin. Again, we have been focused on the 
procedures, and I think you appreciate it is my obligation not 
to interfere in any individual's taxes. That the procedures we 
have followed and the very specific question that you have 
answered, I said I would get back to you on it.
    Senator Van Hollen. Well, it underscores the reason 
Congress originally wanted to have an independent review about 
whether the IRS was properly enforcing tax laws with respect to 
a President of the United States.
    Secretary Mnuchin. The President has publicly said that his 
businesses and everything are under audit. So I do not think it 
is any surprise to any person in the public, or me, or anyone 
else. So I do not see why I would have asked that question as 
it relates to the current year when he has already publicly 
said it, but we will look into it and get back to you.
    Senator Van Hollen. Thank you, Mr. Chairman.
    Senator Kennedy. Senator Coons has one quick question, but 
I do not want to lose our train of thought here.
    I listened carefully to my good friend, Senator Van Hollen, 
and as usual, he asked really good questions. But I want to 
give you another perspective.
    You know, the Saints lost a chance to go to the Super Bowl 
this year. I am not blaming him. There was a defender for the 
Rams, Mr. Robey-Coleman, who hit our guy, pass interference, 
bigger than Dallas, in front of the world, did not call it. I 
was upset by it, but that has nothing to do with what I am 
about to ask you.
    I would like to see his income taxes, just to see if he is 
paying his taxes. Would you share them with me?
    Secretary Mnuchin. I was not sure if you were asking for 
the referee or both football players.
    Senator Kennedy. Well, how about both while we are at it? 
Let us look at Mr. Robey-Coleman and the referee.
    Secretary Mnuchin. Maybe you just want them all. Maybe you 
want them all so that you can find out which person you would 
be upset at.
    Senator Kennedy. Yes. I just want to know. That is my job 
is to make sure that people pay their taxes, and I would just 
kind of like to see their taxes. I am a United States Senator. 
You can trust me. I will not leak them.
    Secretary Mnuchin. I would be really curious about seeing 
lots of people's taxes as well, but I do not have that 
authority.
    Senator Kennedy. I do not mean to make light of this, and I 
know Senator Van Hollen. He is a very serious, intelligent man, 
and he makes very valid points. And I am going to let him 
respond.
    Senator Van Hollen. I appreciate----
    Senator Kennedy. But I used to collect taxes for the State 
of Louisiana. I was Secretary of the Department of Revenue, and 
people's taxes were sacrosanct. Nobody could see them. Nobody, 
especially, no disrespect; I am one of you, politicians.
    Senator.
    Senator Van Hollen. Well, Mr. Chairman, as you know, the 
referee of that game--and I happen to agree with you on the 
call, but come on. I mean, the referee of that game obviously 
does not oversee the Commissioner of the IRS, right?
    Senator Kennedy. That is true.
    Senator Van Hollen. Secretary of Treasury, beyond the 
Secretary of Treasury, the President of the United States. And 
that is the entire reason that the statute was put in place 
originally because of that power relationship within the 
executive branch, and Congress as an independent branch wanting 
to make sure that the laws are faithfully executed would be 
able to verify whether or not the IRS was properly enforcing 
the law.
    So I agree with you on the call on the Saints game, but 
with respect, that has nothing to do with whether or not the 
President of the United States--whether the Congress has a 
right to verify whether or not the IRS is properly enforcing 
the law there.
    And we have the precedent, of course, behind the original 
law. We have the example if President Nixon who stated publicly 
that the IRS had confirmed he had paid the taxes due and owing, 
and in fact, it was the joint congressional committee that 
determined that the IRS was wrong.
    So I appreciate the opportunity to say a few words. Thank 
you, Mr. Chairman.
    Senator Kennedy. Senator Coons has one quick question, he 
said.

                           OPPORTUNITY ZONES

    Senator Coons. I just want to follow up on opportunity 
zones, something Senator Lankford also spoke about.
    I was an original cosponsor of the Investing in Opportunity 
Act, which helped create them. I really want to see the program 
succeed. I believe it can.
    I was disappointed that some of the transparency measures 
in the original bill were stripped out when it was enacted.
    I know in order for us to assess whether Opportunity Zones 
are succeeding, whether we need to tweak them, we need data. I 
think Treasury should be collecting transaction-level data.
    Senator Bennett and I urged in a letter to you in November 
that you move forward on it. Thank you for your response to the 
letter and for issuing the Request for Information (RFI).
    I just wanted to hear a commitment that we will work 
together to implement strong transaction-level reporting 
requirements for opportunity zones so that Congress can conduct 
appropriate oversight and can work to make sure that 
opportunity zones are actually delivering the benefits for 
communities which, I think, all of us supported in the initial 
drafting.
    Secretary Mnuchin. First, let me just say my understanding 
was it was a technical issue as to why this was stripped out of 
the bill, not a policy issue.
    You have my personal assurance. First of all, we very much 
support Opportunity Zones. We think it is a very important 
effort that has bipartisan support, and we are fully committed 
to making sure we have the proper transparency on this for 
Congress.
    Mr. Chairman, if I could just make one other comment 
because----
    Senator Kennedy. Sure.
    Secretary Mnuchin [continuing]. There has been so much 
interest. I wish there was a much interest in IRS modernization 
at this committee as there is on this tax return issue.
    But let me just comment. I take great comfort in there are 
different views on this, and this is why we have a Constitution 
and we have a third branch of Government. That I am assuming, 
to the extent that Congress--to the extent that, first of all, 
we have not made a decision, but I think you can guess which 
way we are leaning on our subpoena. To the extent that we do 
not--and there is litigation--I take great comfort that there 
is a third branch of Government to deal with this important 
issue.
    Senator Kennedy. That is why God made Federal judges.
    Were you done?
    Senator Coons. I am.
    Senator Kennedy. All right. I have just got two quick 
questions. I do not know if they will be questions, and then we 
will get you out of here.
    I am going to read from my colleague's notes here so I do 
not get it wrong.

                        TREASURY OFFSET PROGRAM

    The IRS knows, and our Commissioner is coming in a moment, 
but I wanted you to hear this, if you would, Mr. Secretary, 
respectfully. The IRS knows who owes it money, and there is a 
list of people who owe it money. And I am not talking about it 
allegedly. There is a final judgment.
    That list goes to the Bureau of the Fiscal Service. Now, 
that is the part of Treasury that cuts the checks. Am I right 
so far?
    Secretary Mnuchin. Yes, you are.
    Senator Kennedy. The Bureau operates something known as the 
Federal Payment Levy Program. That cross-checks the payments to 
Federal contractors who owe the IRS money because we do not 
want to be doing business with consultants or contractors and 
give them taxpayer money when they are not paying their fair 
share. And I am not talking about a tax dispute. I mean, I am 
talking about final judgment. You owe it.
    According to the Treasury Inspector General for Tax 
Administration, a lot of Federal agencies do not participate in 
the levy program. I mean, we are paying out tens and tens and 
tens of millions of dollars every year to consultants and 
contractors that owe the United States Government money, and I 
need your help getting that straight.
    I am going to get a separate meeting with you and our IRS 
Commissioner, and I am going to ask him about this. I mean, 
this is low-hanging fruit. This is unconscionable.

                        MATURED UNREDEEMED DEBT

    The second thing I want to point out to you quickly and I 
do not know if you know this, and again, you did not birth this 
child. But you got to raise it. The Department of Treasury is 
holding on to $24 billion, not million, billion, nine zeroes in 
matured, unredeemed U.S. savings bonds. Now, these are savings 
bonds that had matured. So interest is no longer running, and 
the U.S. Department of Treasury has a list of all the Americans 
to whom this money is owed. It is their money; it is not our 
money. $24 billion.
    And do you know what we are doing to get it back to them? 
Nothing. Zero. Nada.
    Why do not we just turn that money over to the States, all 
of which have an unclaimed property program, and do the right 
thing? These are people who them are taxpayers. When they owe 
the Government money, the Government is all over them to pay. 
Now, Government owes them money. Why do not we give it back to 
them?
    I would like you to answer that one.
    Secretary Mnuchin. Okay. Well, first, I appreciate the 
Inspector General's work in raising this issue to us and to 
you. I think it is an important issue, and you have my 
commitment. We will work on that with you.
    I think the Commissioner and I share that view. This is 
low-hanging fruit.
    Now, on the second issue of unredeemed savings bond----
    Senator Kennedy. Yes.
    Secretary Mnuchin [continuing]. I would be happy to have a 
private meeting with you and your staff.
    I have spent time on this in preparation----
    Senator Kennedy. I know you have.
    Secretary Mnuchin [continuing]. For this issue. So let me 
first say this is not like other unclaimed property. This is a 
Federal obligation, and the Federal Government intends that any 
person who owns any of those bonds, that we will give them back 
their money.
    It is not as simple as us having a list. Some of this stuff 
goes back long periods of time. Some of this information is on 
microfiche. The cost of us going back and getting this 
information, and many times in a way that would be useful to 
find the taxpayer, would far exceed the amount of money. That 
in many cases, this is a couple hundred dollars.
    So one thing I would not do is go out and spend more of the 
Federal Government's money to try to find people than we owe to 
them.
    I can assure you we will work with the States, but if the 
money is unclaimed, our intention is--now, let me just say. In 
very specific situations, if someone has died without a will 
and things like that, in those cases, we will turn it over to 
the States, but I am not going to write a $24 billion check on 
behalf of the Federal Government to spend more money than to 
find it.
    But I can assure you we will work with the States in any 
way that is reasonable to deal with this issue.
    Senator Kennedy. Fair enough.
    You were this close to being done, and Senator Manchin 
came.
    Secretary Mnuchin. That is all right. I like Senator 
Manchin.
    Senator Kennedy. You were this close.
    Secretary Mnuchin. No, I am glad he is here. We have the 
opportunity to answer some of his questions. I always look 
forward to that.
    Senator Kennedy. Senator Manchin.
    Secretary Mnuchin. You have missed a lot of questions 
around the President's tax returns. So I am just going to say 
if you want to talk about the IRS modernization, I would really 
look forward to that.

              COMMITTEE ON FOREIGN INVESTMENT IN THE U.S.

    Senator Manchin. Mr. Secretary, I have a wonderful staff 
here, and obviously, I hope they get me up to speed.
    But I do want to talk about the CFIUS, and I know that we 
have talked about that before. I am familiar with the many 
illegal actions that foreign countries and companies take to 
undercut our economic infrastructure, such as stealing trade 
secrets, hacking our computer systems, but I have always been 
concerned about the attempts from foreign countries to make 
illegal investments and gain control.
    I think you and I might have talked one time or so about 
this before. So my question would be, Do you believe that CFIUS 
should require reviews of all foreign investments in the 
American stock exchange?
    Secretary Mnuchin. I am sorry. Could you just repeat the 
end? CFIUS----
    Senator Manchin. Do you believe that CFIUS--should require 
reviews of all foreign investments in American stock exchanges?
    Secretary Mnuchin. First of all, I very much appreciate 
what has been the bipartisan support on the Committee on 
Foreign Investment in the United States (CFIUS) and the updated 
Foreign Investment Risk Review Modernization Act (FIRRMA) 
legislation. I also appreciate this subcommittee looking at the 
money we need to do this.
    I do not want to make a specific answer on any--it would be 
unfair for me to comment on any specific industry or anything 
else.
    But I will tell you I personally spent a lot of time on 
this. These things all come to me to sign, and it is likely if 
there was an acquisition, as you have described, that would be 
subject to CFIUS jurisdiction.
    Senator Manchin. I am going to give you one example, and 
that is all. I will not elaborate on it.
    You know when the new--the drilling that we are doing, 
fracking in the Marcellus Utica Shale in Appalachia. West 
Virginia and Appalachia has an ocean of energy under it, and a 
lot of it has wet properties, which is butane, propane, and 
ethane. Those are building stocks for manufacturing.
    We do not have any CFIUS review on--I mean, we have had 
CFIUS review on export of oil or natural gas, LNG, but not on 
these products. These products, if a country such as China can 
buy every drop, which they are after, of our wet properties and 
have control of that stock stream, if you will, it takes us out 
of the ability to have manufacturing back in Appalachia or back 
in America because the building blocks are gone.
    So I am saying I have got a piece of legislation, which I 
am sure I would love to sit down with you and your staff to see 
if you think that that falls in the purview and it would be 
something you all could support. I am just saying a review, 
just a review of the products that are leaving our country that 
prevent us from having the economic vitality and manufacturing 
base that we had.
    Secretary Mnuchin. It sounds like a very good idea, and I 
welcome the opportunity to sit down with you and go through 
that, so thank you for bringing that up.
    Senator Manchin. Okay.
    Thank you, Mr. Chairman.
    I am quick. I am glad the Secretary is here on a few 
things, but this CFIUS thing is really personal. And it is 
going to hurt us, and we would love to--whoever I can see on 
your staff, you----
    Secretary Mnuchin. You have our commitment. We will follow 
up this afternoon and figure out a meeting.
    Senator Manchin. Thank you. We will get our people. We have 
a bill. I want you to look at the bill, and then we can tell 
you our purpose. Okay. Thank you very much.
    Senator Kennedy. Everybody else cool? We are all cool.
    Mr. Secretary, thank you. I thank you for your good work.
    If you are with the Secretary today on his team, raise your 
hand, please. It is okay. Thank you for your good work too. 
Okay. Thank you all.
    I appreciate your time, Mr. Secretary.
    Is our Commissioner here?
    All right. The subcommittee meeting will come back to order 
for our second panel.
    We have with us today Internal Revenue Service Commissioner 
Chuck Rettig. The Commissioner was sworn in on October 1, 2018. 
He is our 49th Commissioner of the Internal Revenue Service. He 
previously was in private practice of law for 36 years in 
Beverly Hills, California. He has represented in that capacity 
thousands of individuals and businesses before the IRS. So he 
has seen it for both sides. He has represented clients for the 
Department of Justice Tax Division, Federal court, State court, 
State taxing authorities. He has a bachelor's degree in 
Economics from the University of California at Los Angeles. He 
has a JD from Pepperdine, and he has an LLM in Taxation from 
NYU. Cannot do much better than that. That is a tough program.
    I am going to forego my opening statement and ask the 
Commissioner if he would not mind going forward with his 
testimony, and then we will ask questions. Is that okay, Mr. 
Commissioner? Welcome. Thanks for joining us today.
STATEMENT OF HON. CHARLES P. RETTIG, COMMISSIONER, 
            INTERNAL REVENUE SERVICE
    Mr. Rettig. Thank you.
    Chairman Kennedy, Ranking Member Coons, and Members of the 
subcommittee, thank you for the opportunity to discuss the IRS 
budget and the 2019 tax filing season. I am truly honored to 
serve as the 49th Commissioner of the Internal Revenue Service.
    Having spent more than 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 are, and they take pride in serving the 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 
cybersecurity. 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 English-as-a-second-language 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 
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 28 and has gone well. As of May 3, the IRS 
has received more than 141 million individuals returns, and we 
have issued more than 100 million refunds for a total of more 
than $274 billion.
    The fact that the filing season has gone so well is a 
tribute to IRS employees who have a long history of rising to 
all types of challenges demonstrating the strength of 
dedication to our mission, which should enhance the respect and 
confidence of every American. I am extremely proud of each and 
every employee at the Internal Revenue Service.
    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. The request proposes increasing funding in 
several critical areas.
    At the top of that list is technology modernization. In 
April, we issued our Integrated Modernization Business Plan, 
which will cost about 2.3- 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. The integrity of the Nation's voluntary tax compliance 
system depends on a modernized IRS and a modernized 
infrastructure, and we look forward to working with Congress to 
implement this plan.
    Another critical area where we propose to increase funding 
involves the IRS's 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 to require within the next 2 years. We must hire and 
train new employees before our most seasoned ones retire and we 
lose the ability to pass on their knowledge and experience to 
the next generation.
    To help us further in this arena, we are asking Congress to 
restore our streamlined critical pay authority, which expired 
in 2013. Without this authority, we are losing highly qualified 
candidates to other organizations that can hire them more 
quickly.
    Chairman Kennedy, Ranking Member Coons, and Members of the 
subcommittee, I appreciate the dedication and support that you 
have 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 statement follows:]
              Prepared Statement of Hon. Charles P. Rettig
                              introduction
    Chairman Kennedy, Ranking Member Coons and Members of the 
Subcommittee, thank you for the opportunity to discuss the IRS budget 
and provide you with an update on the 2019 tax filing season.
    I am honored to serve as the 49th Commissioner of the IRS and lead 
an agency of dedicated and talented public servants. Having spent more 
than 36 years in the private sector representing taxpayers before the 
IRS, I understand how important the agency is to the functioning of 
government and our Nation. In fiscal year 2018, the IRS collected $3.5 
trillion, or 95 percent, of all Federal receipts.
    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. It is clear our Nation 
needs a fully functioning IRS, and I am committed to ensuring the 
agency fulfills its mission of providing top-quality service to 
taxpayers and administering the tax laws in a fair, efficient and 
impartial manner, with neither a government nor taxpayer point of view.
                    update on the 2019 filing season
    I am pleased to report that the 2019 filing season opened on time 
on January 28. On that first day, we saw an hour when taxpayers e-filed 
more than 1.9 million returns, at a rate of 536 submissions per second. 
This set a one-hour record for our systems, breaking the previous 
record of 1.6 million submissions in an hour at 443 per second on 
January 29, 2018.
    The filing season has gone well in terms of tax return processing 
and the operation of our information technology systems. As of April 
19, the IRS received more than 137.2 million individual returns, and we 
have issued more than 95 million refunds for more than $260.9 billion. 
It is important to note that the work of the filing season continues 
well beyond the deadline, as IRS employees continue to process tax 
returns, including amended returns, and returns for which taxpayers had 
requested an extension beyond April 15.
    During my first months here, I have been extremely impressed by how 
hard IRS employees all across the agency have worked to make sure 
taxpayers had a smooth filing experience this year. This is especially 
impressive given the need to implement so many major changes made by 
the Tax Cuts and Jobs Act (TCJA). With hundreds of provisions providing 
relief to American families and making America's businesses more 
competitive, the TCJA required extensive work by the IRS to ensure 
taxpayers would be able to meet their filing obligations this filing 
season.
    The IRS's efforts to implement the TCJA's provisions and prepare 
for the 2019 filing season began even before the legislation was signed 
into law on December 22, 2017, and they continued throughout 2018 and 
into 2019. These efforts included:

  --Creating or revising more than 500 forms and publications;
  --Reprogramming information technology systems with special focus on 
        return processing, payment and fraud detection systems;
  --Providing clear, timely legal guidance to taxpayers and tax 
        professionals--an effort that will continue throughout 2019;
  --Training IRS employees so they could assist the public in 
        understanding how the tax law changes applied to them; and
  --Providing education and outreach to taxpayers and tax professionals 
        to increase their understanding of the various tax changes.

    I would like to note that our TCJA implementation team was 
recognized by a national tax publication as the ``Tax Person of the 
Year'' for 2018 based on their extensive efforts.
    Taxpayer demand for online services continues to be strong this 
filing season. For example, our website, IRS.gov, has been visited more 
than 421 million times in 2019 through mid-April. Taxpayers use IRS.gov 
to get forms and publications, find answers to their tax questions, and 
perform transactions such as paying their tax bills. The most heavily 
visited part of our website is the ``Where's My Refund?'' electronic 
tracking tool, which has been used more than 317 million times this 
filing season.
    We continue to experience strong demand on our more traditional 
service channels as well. Through April 19, our customer service 
representatives answered more than 8 million taxpayer calls. IRS 
automated information systems provided helpful information and answers 
to more than 17 million taxpayers calling those automated lines. We 
have also provided in-person assistance to nearly 800,000 people who 
visited one of our 358 Taxpayers Assistance Centers (TACs) around the 
country.
    As important as all these efforts are, everyone at the IRS wants to 
do more. As technology evolves, we will continue to explore additional 
methods of providing assistance to taxpayers. That includes continuing 
to improve the use of online tools and modernizing the taxpayer 
experience. It also means continuing to enhance opportunities for 
taxpayers and their representatives who may prefer other channels, 
including over the phone and in-person.
                          modernizing the irs
    One of my highest priorities as Commissioner is putting the 
agency's information technology (IT) infrastructure on a path toward 
modernization. Modernization is vital to all of our core functions: 
successfully delivering the annual tax filing season, ensuring the 
health of the Nation's tax system and supporting the Federal 
Government's financial strength.
    In April, the IRS released its Integrated Modernization Business 
Plan that provides a 6-year roadmap for modernizing IRS systems and 
taxpayer services. The IRS estimates gross costs of $2.3 billion to 
$2.7 billion over 6 years--including $290 million requested in the 
fiscal year 2020 President's budget--to fully implement the plan.
    The plan outlines a bold strategy to enable business transformation 
focused on improving services for taxpayers and the tax community while 
protecting taxpayer data. It is built around four ``modernization 
pillars'' that will help drive innovation and support the future of the 
IRS and its mission. The four pillars are: the taxpayer experience, 
core taxpayer services and enforcement, modernized IRS operations and 
cybersecurity and data protection.

    Under this plan, the IRS will improve its ability to:

  --Significantly improve the taxpayer experience by standardizing 
        customer workflows and by expanding access to information;
  --Reduce call wait and case resolution times through the use of 
        customer callback technology, online notices and live online 
        customer support;
  --Simplify identity verification to expand access to online services 
        while protecting data;
  --Increase systems availability for taxpayers and tax practitioners; 
        and
  --Make implementation of new tax provisions more straightforward.

    The modernization plan will help the IRS operate more effectively 
and efficiently, by stabilizing the cost of operating and maintaining 
our systems. It also includes milestones and accountability to ensure 
it is implemented properly.
    The integrity of the Nation's voluntary tax compliance system 
depends on modernizing IRS service and compliance systems, and we look 
forward to working with Congress to implement this plan.
    Importantly, the IRS Modernization Plan will also help us in our 
ongoing efforts to secure our systems and protect taxpayer data. The 
IRS is responsible for safeguarding a vast amount of sensitive 
financial and personal data, so investing and modernizing in this area 
will forever remain a top priority for this agency. IRS systems 
withstand approximately 1.4 billion cyberattacks annually (including 
denial-of-service attacks, unsuccessful intrusion attempts, probes or 
scans, and other unauthorized connectivity attempts). Many of these 
attempts are sophisticated in nature or represent advanced, persistent 
threats. To combat tomorrow's threats, the IRS will need to continue 
investing in cyber defenses as proposed in the plan.
    The IRS is also waging an ongoing battle to protect taxpayers and 
their information against tax-related identity theft. I'm pleased to 
report that we continue to see significant progress on this front, not 
only from using technology to increase protections at the point of 
filing, but also from collaborating with our partners in the Security 
Summit, which was launched in 2015 and includes State tax agencies and 
private-sector tax and financial partners. The Summit members work in 
partnership to put in place protections that safeguard the Nation's 
taxpayers.
    As a result of these efforts, the IRS is doing a better job of 
stopping identity theft tax returns up front. This means fewer 
fraudulent returns enter the processing system, which translates into 
fewer taxpayers reporting themselves as victims of identity theft and 
fewer fraudulent refunds being issued. Our efforts on the front end 
have significantly lessened the burden on taxpayers that arises from 
identity theft. The IRS has seen dramatic declines in several key 
areas.

    Between 2015 and 2018:

  --The number of taxpayers who reported they were victims of identity 
        theft fell 71 percent. In 2018, the IRS received 199,000 
        identity theft affidavits from taxpayers compared to 677,000 in 
        2015. This was the third consecutive year this number declined.
  --The number of confirmed identity theft returns stopped by the IRS 
        declined by 54 percent, falling from 1.4 million in 2015 to 
        649,000 in 2018.
  --The number of suspicious refunds recovered has declined by 66 
        percent. The financial industry is a key partner in fighting 
        identity theft, helping the IRS and States recover suspicious 
        refunds. But as fewer false tax returns enter the system, fewer 
        fraudulent refunds are being issued. In 2018, financial 
        institutions recovered 84,000 Federal refunds totaling $112 
        million for the IRS. By comparison, institutions recovered 
        249,000 refunds totaling $852 million in 2015.

    Despite all the progress that has been made, the IRS and its Summit 
partners will not let up in our efforts against tax-related identity 
theft. Identity thieves continue to become more sophisticated and look 
for new ways of obtaining taxpayer information so they can file false 
tax returns and claim fraudulent refunds. These criminals have the 
resources, the technology and the tax skills to carry on this fight. 
The IRS and its partners are committed to continuing to work together 
to protect taxpayers and our Nation's tax system against this common 
enemy.
                the president's fiscal year 2020 budget
    The President's fiscal year 2020 budget request is $11.472 billion, 
which is $170 million, or 1.5 percent, more than the fiscal year 2019 
enacted level of $11.303 billion. In addition to the base 
appropriations request, the Budget proposes a program integrity cap 
adjustment that would provide an additional $362 million in fiscal year 
2020 to fund investments in the IRS's tax enforcement program. It also 
proposes additional adjustments in future years to fund new initiatives 
and inflation. The proposed investments will generate about $47.1 
billion in additional revenues over 10 years and would cost about $14.5 
billion, for a net revenue of $32.6 billion. We must ensure we have a 
strong, visible, robust tax enforcement presence to promote voluntary 
compliance. The President's request provides funding to carry out the 
IRS mission and invest in high-priority programs that will allow the 
agency to become more efficient and effective in administering the tax 
laws.
    The President's request will allow the IRS to: help taxpayers meet 
their tax obligations by improving service on our various channels; 
protect the integrity of the tax system by enforcing the tax code; and 
partner with key stakeholders in the State and local tax 
administration, tax preparation, and international communities.
    The President's request will also help us cultivate and retain a 
well-equipped, diverse, flexible and engaged workforce. Our employees 
are the backbone of the Service, and it is imperative that we provide 
them with the tools and training they need to do their jobs. We also 
must recruit, train and motivate the next generation of IRS leaders. 
This is especially important given that a large portion of the IRS 
workforce is eligible to retire in the next several years.

    The President's request includes $344 million to invest in four 
high-priority areas:

  --Technology Modernization. The budget provides initial funding for 
        the 6-year IRS Integrated Modernization Business Plan mentioned 
        earlier in this testimony. The IRS continues to rely on legacy 
        IT systems, aged hardware and software, and outdated 
        programming languages, all of which make it increasingly 
        difficult for the IRS to carry out its mission. The 
        technologies provided for in the plan, such as customer call 
        back and online notifications, will simplify taxpayer 
        interactions with the IRS across all service channels and 
        improve the overall taxpayer experience. Modernization will 
        also simplify identity verification and expand access to online 
        services while protecting taxpayer data. In addition, the 
        agency will be able to stabilize and eventually reduce the 
        growing cost of operating and maintaining legacy systems.
  --Cybersecurity and Identity Theft. These funds will improve the 
        IRS's ability to combat tax-related identity theft in a number 
        of ways, including: improving fraud filters that catch false 
        returns before processing; acting on additional tax fraud leads 
        in real time to stop more fraudulent refunds; strengthening 
        safeguards for W-2 data; and increasing staffing in the 
        Criminal Investigation division to conduct more investigations 
        related to identity theft.
  --Data Analytics. This investment will enhance the IRS's ongoing 
        efforts to use data analytics to more effectively identify tax 
        compliance risks. While the IRS has made strides in this area, 
        the agency faces a constantly changing data environment and 
        needs to transform with it. The IRS will use these resources 
        to, for example: identify emerging trends in noncompliance and 
        build effective enforcement strategies; identify previously 
        unknown areas of noncompliance; and make effective use of new 
        data sources, such as the Organization of Economic Cooperation 
        and Development's Country-by-Country reporting regime. The 
        investment will also aid the IRS in enforcing the TCJA by 
        adapting current risk-assessment tools to account for 
        significant changes made by the new tax law.
  --Infrastructure. These funds will help the IRS deliver IT services 
        and solutions that drive effective tax administration. Funding 
        will be used to deliver core operation and maintenance services 
        and address aging infrastructure, reducing the percentage of 
        aged IT hardware from the fiscal year 2019 target of 44 percent 
        to 39 percent. The funds will also cover maintenance on various 
        investments, including those necessitated by tax reform 
        implementation.
    legislative proposals in the president's fiscal year 2020 budget
    Along with the funding requested in the President's fiscal year 
2020 budget request, we are also asking for Congress's help 
legislatively in several important areas that would improve tax 
administration and support the IRS in fulfilling its mission, including 
the following:

    Streamlined Critical Pay Authority. The IRS Restructuring and 
Reform Act of 1998 increased the IRS's ability to recruit and retain a 
small number of key executive-level staff by providing the agency with 
streamlined critical pay authority. This allowed the IRS, with approval 
from Treasury, to move quickly to hire well-qualified individuals to 
fill positions deemed critical to the agency's success and that 
required expertise of an extremely high level in an administrative, 
technical or professional field. This authority expired at the end of 
fiscal year 2013. The last appointment made under Streamlined Critical 
Pay authority expired on September 29, 2017. Without this authority, 
the IRS continues to face challenges recruiting and retaining top-level 
talent, especially IT professionals who can help modernize our IT 
systems and protect taxpayer data from cyberattacks. The President's 
fiscal year 2020 budget request proposes reinstating this authority 
through fiscal year 2023.
    Correction Procedures for Specific Errors. Under current law, the 
IRS has authority in limited circumstances to identify certain 
computation mistakes or other irregularities on returns and 
automatically adjust the return for a taxpayer. At various times, 
Congress has expanded this limited authority on a case-by-case basis to 
cover specific, newly enacted tax code amendments. The IRS would be 
able to significantly improve tax administration--including reducing 
improper payments and cutting down on the need for costly audits--if 
Congress were to enact a proposal in the President's fiscal year 2020 
budget to provide the IRS with greater flexibility to correct specific 
errors on taxpayer returns. This proposal would allow the IRS to 
correct errors in cases when: the information provided by the taxpayer 
does not match the information contained in government databases or 
Form W-2; the taxpayer has exceeded the lifetime limit for claiming a 
deduction or credit; or the taxpayer has failed to provide certain 
documentation required to be included with his or her return. This 
proposal would significantly lessen the burden on taxpayers from the 
IRS having to pursue the necessary adjustments administratively.
    Authority to Require Minimum Qualifications for Return Preparers. 
The President's Budget request proposes providing the Secretary with 
explicit authority to require that all paid tax return preparers have a 
minimum knowledge of the Code. This is especially important to ensure 
that the estimated 400,000 non-credentialed tax preparers can meet 
minimum standards for competency. Incompetent and uninformed tax return 
preparers harm taxpayers by subjecting them to potential audits and by 
potentially subjecting them to penalties and interest as a result of 
incorrect returns. Requiring all paid tax preparers to keep up with 
changes in the Code would help promote high-quality service from 
preparers, improve voluntary compliance and foster taxpayer confidence 
in the fairness of the tax system. This proposal would significantly 
lessen the burden on taxpayers having to otherwise administratively 
resolve errors in their returns.
    Lower Employer Threshold for Mandatory Electronic Reporting of W-2 
Data. Under current law, employers who file 250 or more Forms W-2 in a 
year must e-file these information returns, but those filing fewer than 
250 Forms W-2 in a year may choose to file on paper. The Budget 
proposes increasing the number of employers subject to mandatory 
electronic reporting of W-2 data, by reducing the W-2 e-file threshold 
from 250 to 10. Providing the IRS with more timely and accurate W-2 
information facilitates pre-refund verification of wage and withholding 
information, which in turn reduces the issuance of questionable tax 
refunds through early detection of identity related fraud and other 
erroneous refund claims. This proposal would significantly lessen the 
burden on taxpayers by accelerating the ability of the IRS to 
electronically match return information.
    Improve Clarity in Worker Classification and Information Reporting 
Requirements. The Budget proposes to establish a new safe harbor that 
allows a service recipient to classify a service provider as an 
independent contractor, and would require withholding of individual 
income taxes to this independent contractor at a rate of 5 percent on 
the first $20,000 of payments. The proposal would also raise the 
reporting threshold for payments for all independent contractors from 
$600 to $1,000, and reduce the reporting threshold for third-party 
settlement organizations from $20,000 and 200 transactions per payee to 
$1,000 without regard to the number of transactions. In addition, Form 
1099-K would be required to be filed with the IRS by January 31 of the 
year following the year for which the information is being reported. 
The proposal increases clarity in the tax code, reduces costly 
litigation, and significantly improves tax compliance.

    In addition, the President's fiscal year 2020 budget request also 
includes these two provisions related to tax administration:

    Require a Social Security Number (SSN) to Claim Certain Tax 
Credits. The proposal would require an SSN that is valid for work in 
order to claim the Earned Income Tax Credit (EITC), Child Tax Credit 
(CTC), and the credit for other dependents (ODTC). This requirement 
would apply to all taxpayers, including all qualifying children and 
dependents. This proposal would close an administrative gap to 
strengthen enforcement of these credit provisions, by ensuring that 
only individuals who are authorized to work in the U.S. could claim the 
credits.
    Exempt Certain Federal Student Aid Programs from Section 6103. 
Section 6103 of the Code provides that tax returns and tax return 
information are confidential and cannot be disclosed or used unless 
permitted under the Internal Revenue Code. The administration proposes 
to authorize the IRS to disclose tax return information directly to the 
U.S. Department of Education for administering programs authorized by 
Title IV of the Higher Education Act of 1965. The section 6103 
exception is expected to improve administration of student aid 
programs, enhance program cost estimation, increase servicing 
efficiency, and reduce improper payments.
                               conclusion
    Chairman Kennedy, Ranking Member Coons and Members of the 
subcommittee, thank you again for the opportunity to provide you with 
an overview of the filing season and budget request. The IRS is 
dedicated to improving service to taxpayers, modernizing its systems 
and maintaining the integrity of the tax system. The IRS is not just a 
large government institution, it is an institution run by people--
people who care.
    Taxpayers expect and deserve a high-quality customer experience 
when interacting with the IRS. Rapid advancements in the digital 
service experience offered by the private sector increase expectations 
of a similar service from government agencies, including the IRS. We 
want to provide that experience. To do that, the IRS must be properly 
resourced--consistent with the President's budget--to provide the best 
possible service to taxpayers.
    We must continue our efforts to strike the appropriate balance 
between service to taxpayers with an appropriate degree of enforcement. 
The integrity of the Nation's tax system will be strengthened through 
enhanced taxpayer services as well as enhanced enforcement activities. 
To be successful, we need both.
    Again, I am personally committed, during my term as Commissioner, 
to ensuring we administer the tax laws passed by Congress in a fair and 
impartial manner. With Congress's help, we will continue our efforts to 
operate the IRS efficiently and effectively, as we move the agency 
forward into the future. This concludes my statement, and I would be 
happy to take your questions.

    Senator Kennedy. Thank you, Mr. Commissioner.
    I have got a couple to start. Look, everybody ought to pay 
their taxes. If somebody does not pay their taxes, that means 
the rest of us have to pick up their share, and that is not 
right. And that is not fair, and it also undermines the 
integrity of the tax system.
    I know it takes money to run your agency and to collect 
those taxes.
    I want to talk about return on investment. I am just 
picking a figure out of the air. Let us suppose that the United 
States Congress appropriated to you $100 million to hire 
auditors and support staff, so $100 million outlay right now. 
Of course, that would be continuing.
    What kind of return will we get?
    Mr. Rettig. Looking strictly at numbers, before we get into 
sort of marginal issues with hiring and efficiencies associated 
with hiring, the typical numbers that we hear are between 5 to 
8 to 1, but those are actually the more hard numbers, a dollar 
of collection associated with the actual efforts.
    The number that is more difficult to quantify is the 
deterrent effect. The IRS----
    Senator Kennedy. I am sorry. The what?
    Mr. Rettig. The deterrent effect.
    Senator Kennedy. Yes.
    Mr. Rettig. The IRS essentially--if we are in every 
neighborhood, which is where we want to be, we want to do more, 
and if we are in every neighborhood with a visible presence, 
there is a deterrent effect associated with that.
    Similarly, if we are not in every neighborhood, 
neighborhoods being different types of tax issues, et cetera, 
et cetera, if we are not enforcing and touching issues, that 
deterrent effect gets lessened, and presently, we are dealing 
with about an 83 percent voluntary compliance rate, which is 
great in terms of an industrialized country. But if you turn it 
around, it is about a 17 percent noncompliance rate.
    By having a visible respected Internal Revenue Service, I 
think that the voluntary compliance rate would theoretically go 
up. If the IRS was not as respected, theoretically, the 
voluntary compliance rate would go down each 1 percent. If it 
went up 1 percent, that is about $36 billion a year, without 
enforced collection. If we dropped 1 percent through a series 
where people might not respect us as much, that is a drop of 
$36 billion, and obviously, a 2 percent swing is about $70 
billion-plus per year.
    So I am a huge believer in enforcement. I am a huge 
believer in taxpayer service. I believe that the taxpayers who 
are undergoing an effort to try to get it right, to try to get 
their filings right, need our assistance. They need our 
guidance. They need to be able to call us on the phone, have us 
answer the phone, talk to them, interact with them.
    Similarly, I am a believer in the enforcement side, and 
being out in the neighborhoods, we are taking a very hard look 
at that. And I am very focused on those two issues.
    Senator Kennedy. If we provided extra money for enforcement 
and service, which is equally important, would the agency just 
quietly shift it over to operations?
    Mr. Rettig. I am not a believer in shipping funds from 
enforcement operations at the present time. I am a believer in 
enforcement.
    The way that our accounting works, some of the figures that 
end up under an operations title are actually on the 
enforcement side, such as IT for the enforcement side of the 
house gets logged in on the operations side, so depending upon 
how you do that.
    But I am also a huge believer in having well-trained 
personnel, the ones answering the phones for taxpayers who want 
to----
    Senator Kennedy. I agree. Excuse me for interrupting, but I 
have got a couple more, right quick.
    I want some comfort on the IRS technology modernization. 
Now, we both know the history. A lot of money has been wasted, 
and I know McKinsey has blessed your new effort. They did not 
guarantee it, though.
    First, I would like to get a copy. I do not think we have a 
copy of the McKinsey report, do we? I would like to get a copy 
of the McKinsey blessing.
    Number two, why is this time going to be different?
    Mr. Rettig. I am aware of the history of the IRS with 
respect to IT efforts, and certainly, the agency is very 
sensitive to those issues, but we should also look at the fact 
that we had a very successful implementation of the Tax Cuts 
and Jobs Act (TCJA) that started about a year ago. Before 
December of 2017, our folks started, implemented. We had a very 
successful filing season. We had a historic high in terms of 
hourly processing of tax returns as well as per second, 
processed 536 tax returns per second. So on the IT side of the 
house, we have pulled forward.
    On the plan itself, we have a lot of specifics in there in 
terms of oversight, stages, milestones, meeting milestones 
before we go into a next stage, which was different. It is also 
focused on the business divisions, much more so than just 
strictly an IT plan. It is an integrated business plan, if you 
will, which I think is different, and also more than willing to 
come up as often as possible to meet with you and your staff 
and others to walk through the specifics of it. It includes 
oversight on an ongoing basis by independent contractors and 
also outsiders. It also includes our oversight by Congress, and 
we would look forward to that.
    Senator Kennedy. If we do it, I would like you, as part of 
this effort, to designate who is responsible for each different 
aspect of it. I mean like really who. What person with a 
beating heart if something goes wrong can we call and say, 
``What in God's name happened here?''
    Mr. Rettig. Yes. Ultimately, Senator, I am the 
Commissioner, and I am ultimately responsible, but----
    Senator Kennedy. Well, I understand, but you will not be 
Commissioner forever.
    Mr. Rettig. The individuals will be very well known to your 
staff and to others.
    Senator Kennedy. Great.
    Senator Van Hollen.
    Senator Van Hollen. Thank you. Thank you, Mr. Chairman, and 
welcome, Commissioner.
    Let me start by agreeing with the Chairman's opening 
comments that we need to make sure everybody pays the taxes 
that are due and owing, and everybody who does not means the 
rest of us are picking up the tab. So I support your efforts to 
strengthen tax compliance.
    Let me just follow up with a couple of questions that I 
asked Secretary Mnuchin with respect to the automatic audit 
procedures that are in place at the IRS with respect to 
presidential tax returns.
    I think you probably know the history here. When we learn 
that President Nixon had not paid the taxes that he owed, even 
though the IRS had signed off on his taxes, we put in place an 
automatic audit procedure.
    So my question is, if a person becomes President while they 
are being audited for tax returns from earlier years, does the 
IRS's automatic presidential audit procedure also include the 
prior tax returns for that President?
    Mr. Rettig. The audit procedures of the Internal Revenue 
Service pick up open years, tend to pick up open years, so 
those procedures should apply.
    Senator Van Hollen. So I am referring specifically here to 
the automatic audit procedures that apply to the President and 
the Vice President of the United States. So you are testifying 
that that special automatic procedure would apply to prior year 
returns of those individuals if they had been under audit in 
the prior years?
    Mr. Rettig. Yes, sir, that is my understanding.
    Senator Van Hollen. Are you sure of that? Is that the way--
is that the way this is being implemented at the IRS?
    Mr. Rettig. I am not personally involved in the examination 
of any individual taxpayer, as Commissioner of the----
    Senator Van Hollen. I understand that. What I am asking you 
is what the process--I am not asking you about any individual 
taxpayer. I am asking you as the Commissioner of the IRS. Is 
that the way the manual is implemented with respect to the 
automatic presidential audit?
    Mr. Rettig. Yes. And we are willing to come up and sit with 
you and your staff and provide significant details in terms of 
the manual provisions and how it works with respect to those.
    Senator Van Hollen. Right. No, I see the manual, and there 
is, as you may know, some ambiguity here. And there is some 
lack of clarity.
    Well, let me ask you this with respect to clarity. Does the 
automatic IRS audit include a review of all of a President's 
underlying business enterprises?
    Mr. Rettig. Again, it would be the same. The process of 
examining a President, the manual provisions provide that the 
President and Vice President would be audited, and the process 
of auditing any taxpayer, including a President and Vice 
President, should pick up the entities that that person is 
related to.
    The depth of examination of a particular entity would 
depend upon the judgment and skill of the examiners as to 
whether they believe there are issues there and how they would 
move on. The examiners make those decisions subject to a group 
manager, et cetera, on up----
    Senator Van Hollen. But you----
    Mr. Rettig [continuing]. For those and in the ordinary 
cases.
    Senator Van Hollen. But you would agree to make sure that 
an individual, in this case, the President or the Vice 
President, is paying the taxes due and owing, you would have to 
look at all those business enterprises, right?
    Mr. Rettig. Sir, myself and literally every employee that I 
have interacted with the Internal Revenue Service in the first 
7\1/2\ months take our responsibilities seriously. The career 
employees are career employees because they----
    Senator Van Hollen. I am not suggesting otherwise. What I 
am asking is whether that is part of the automatic procedure as 
applied.
    Mr. Rettig. Yes.
    Senator Van Hollen. Because you wrote in Forbes back in 
2016--you wrote an article, and I just want to quote from that 
article: For wealthy individuals, individual tax returns 
sometimes only provide a brief financial overview linked to 
numerous other conclusions and entities. To fully understand 
the financial status of Trump, one would likely need to see 
returns for multiple years, the work papers for the individual 
returns, and the returns for numerous related entities.
    I take it you still agree with that statement.
    Mr. Rettig. No different than what I have just testified 
to, sir.
    Senator Van Hollen. Yes. And my question is, Are you 
confident, because it is not clear in the manual, that the 
individuals reviewing the returns of the President, the Vice 
President, and others covered by automatic audits are looking 
into all of the underlying business enterprises?
    Mr. Rettig. Senator, our people would come up and give you 
a detailed briefing on exactly the process involved.
    For privacy and confidentiality provisions, I should not be 
discussing issues with respect to any particular taxpayer, 
whether it is a President, a Vice President, or some other 
taxpayer. And so on that, generically, when they get into an 
examination, I am confident that the examiners look into 
everything. That is correct.
    Senator Van Hollen. And just to conclude, Mr. Chairman, I 
think the precedent here, again, the precedent going back to 
the original purpose for the provisions where Congress is 
requesting the opportunity and the ability to verify this work, 
is exactly for the kind of reasons we are talking about here.
    I mean, these are in-depth issues, and it seems given the 
past history and the reasons for this law, Congress has an 
interest as a separate branch of Government in verifying, in 
independently verifying that all these procedures are being 
pursued with respect to senior members of the executive branch.
    So I thank you. I thank you, Mr. Commissioner.
    Senator Kennedy. Thank you, Senator.
    Mr. Rettig. Our people remain willing to meet, if someone 
would take us up on the offer. We remain willing to meet with 
staff or Senators or whoever to walk through the procedures, 
and I think, like myself, you would gain a high degree of 
confidence in the capabilities of our people.
    Senator Van Hollen. I would just say, Mr. Commissioner, the 
IRS--President Nixon stated that the IRS had signed off on his 
tax returns, and in fact, the IRS had signed off on his tax 
returns. It was later revealed that he owed another $400,000-
plus.
    Mr. Rettig. I would suggest somebody meet with our IRS 
people.
    Senator Van Hollen. The issue is one procedure.
    Mr. Rettig. I am not discounting what you are saying, 
Senator.
    Senator Van Hollen. I understand. I just think that given 
the history here and given the history of the statute, Congress 
has indicated a legitimate interest in having an independent 
review when we are talking about senior executive branch 
officials.
    Thank you.
    Mr. Rettig. And if I may?
    Senator Kennedy. Thank you, Commissioner.
    Let us go to Senator Lankford, and then we are going to go 
to Senator Coons.
    Senator Lankford. Thanks.
    Let me run through a couple things. Tax gap. We have asked 
for an update on tax gap. It is a decade old at this point. 
Where are we at this point? I am trying to get an update.
    Mr. Rettig. The update of tax gap would be for 2011 to 
2013. The information should be forthcoming, and we should be 
releasing it in either June or July of this year.
    Senator Lankford. Great. That would be very helpful.
    Senator Coons and I have been on the issue about nonprofits 
and how they are affected. It is an unanswered question for the 
tax change that happened in 2018 about how that will affect 
nonprofit giving.
    Typically, when we go back and ask for nonprofit records 
and where things are as far as giving records, not for 
individuals or for individual charities, but for percentages, 
it is usually 3 or 4 years old.
    This is a case where we are going to need records as 
quickly as we can get them to try to get estimates of what has 
happened on charitable giving because there were significant 
changes on that structure, as you know, for 2018.
    How quickly can we get a good estimate of nonprofit and 
charitable giving totals and compare them to previous years for 
the 2018 year?
    Mr. Rettig. I believe that I issued a letter to you, if I 
am not mistaken, on this point, and I think Senator Coons got 
it as well that we are working--we are sensitive to the issue. 
We are sensitive to the desire to get the information.
    I think that in my letter, I indicated that it should be 
forthcoming in July or August and that we would continue to 
update.
    But the one issue is taxpayers who do not itemize.
    Senator Lankford. Right.
    Mr. Rettig. We would not be able to pull information from 
them.
    Senator Lankford. Sure. And that----
    Mr. Rettig. But the rest, we should.
    Senator Lankford. We are just trying to get a best ball 
park to be able to try to figure what happened last year, 
previous years, and to be able to get an eyeball on it to be 
able to just see.
    Thank you for that. We will look forward to getting a 
chance to be able to go through that and review it.
    You had made a comment in your testimony about requiring a 
Social Security number for certain tax credits and just made 
just a policy recommendation there or just an idea, obviously, 
that would require action, I assume, on Finance Committee to be 
able to make corrections on that. Do you want to help provide 
even greater clarity for that?
    Mr. Rettig. It kind of relates to the tax gap. A big part 
of the tax gap is our difficulty in matching information, 
receiving certain information electronically, and the ability 
to coordinate that. And then if we get it electronically, we 
can actually process it a lot quicker than if we get it in a 
paper or other form or we have to manually input information.
    So issues like Social Security numbers, issues like 
electronic filing with respect to W-2's, there is a number of 
items pending that would help us and help the country, really, 
process returns quicker.
    Obviously, I think a higher degree of accuracy, if we can 
electronically move things through our systems rather than 
having to have people input.
    Senator Lankford. Right. The same thing you mentioned on 
student loans, that you are asking for greater ability with the 
Department of Education and the IRS to be able to cooperate 
together. What is missing at this point so that that student 
loan processing can go faster and oversight can go faster?
    Mr. Rettig. I will have to get back to you specifically on 
that. We have people working on it, and it is just not one that 
I am directly aware of.
    Senator Lankford. That is great. We want to be able to help 
correct that.
    You also mentioned hiring authority. You want to provide 
some greater clarity for what is needed for IRS and hiring 
authority. That is a committee that I work particularly with.
    Mr. Rettig. What is pending is the ability for us to get 
what is referred to as ``streamlined critical pay,'' which 
accelerates the onboarding process. It is the higher salary, 
but critical to us is the onboarding process for IT and 
cybersecurity experts.
    We need cybersecurity experts. We need everybody with 
respect to the IT and in our modernization, and the more 
standard onboarding process for the Federal Government, 
including the Internal Revenue Service, is a 6-to-8-month 
window. Streamlined critical pay would allow us essentially to 
get people on board within about 45 days, and in those arenas, 
people who are looking for positions in IT or cyber are not 
going to wait 6 to 8 months to come to work for the Internal 
Revenue Service.
    Senator Lankford. Right.
    Mr. Rettig. So it is an accelerant for the onboarding 
process.
    There are people who are willing to come in and have a 
patriotic desire to work with us. They understand what we are 
all about, but a 6-to-8-month process is difficult.
    And as one example, my understanding, there are 300,000 
cyber positions available in this country, with a zero percent 
unemployment rate.
    Senator Lankford. Right.
    Mr. Rettig. And we received about 1.4 billion attacks a 
year on our system, and so this is critical to security of the 
data that we are protecting.
    Senator Lankford. Okay. Thank you for that. We will 
continue to be able to work on that.
    I am going to make one quick comment, and this is one that 
you are going to inherit as it comes through and will pass on 
to the next generation in the days ahead.
    And I am just going to raise to you because we will bring 
it up at other moments as well. I have worked for years and 
with the previous administration, had multiple conversations 
with Commerce and with IRS. Every 10 years, we spend $14 
billion on doing a Census--$14 billion. Now, your total budget 
is $11.5 billion basically for everything that you do, touching 
every single person in the Country.
    We touch every single person in the Country with the Census 
for $14 billion. There has not been cooperation, as you shared 
before. If we can do that with education, that would help on 
our student loan processing. There has not been cooperation 
between IRS and Treasury and Commerce on the Census.
    You touch everyone every single year. Commerce does that 
every 10 years. I think there is some synergy that can be 
gained there. This is an area that I will come back and we will 
visit about more. I just want to be able to raise.
    I am not talking about for 2020. It is a little late in the 
game for that. It was not when I brought it up years ago, but 
it is now.
    But I would like for us to look out on the horizon and see 
if maybe we cannot save 4- or $5 billion in the next Census 
time by getting some synergy together between the IRS and 
between Commerce and see if we can help in this process.
    So I appreciate that, and we will talk about that more in 
the days ahead.
    Mr. Rettig. Thank you.
    Senator Lankford. Mr. Chairman, thank you.
    Senator Kennedy. Thank you.
    Senator Coons.
    Senator Coons. Thank you, Mr. Chairman.
    Thank you, Commissioner.
    I just want to ask you some questions about enforcement and 
tax gap and workforce, if I can.
    The tax gap, if I understand correctly here, is estimated 
about $400 billion. I think you said it earlier that a 1 
percent increase in voluntary compliance would generate roughly 
$35 billion. My math may not be the best, but that means just 
about a $400 billion tax gap.
    And it does not address the extent to which foreign tax 
evasion, Americans sheltering income in foreign accounts, 
contributes to that gap.
    Do you think the definition of the tax gap should be 
adjusted to include foreign tax evasion?
    Some of my colleagues have blamed the tax gap entirely on 
tax credits, like the earned income tax credit, which I think 
overstates the case.
    My impression is tax credits like the EITC are at most 10 
percent of the tax gap. Is that accurate? What is your sense of 
the contribution of tax credits to the tax gap?
    Mr. Rettig. Well, the EITC improper payment is about $18 
billion a year, and the remaining issues of the tax gap are 
spread throughout a lot of different issues. There is a tax gap 
map, which the last map that is available is tax years 2008 to 
2010. The net annual tax gap all across all issues is about 
$406 billion. The gross is about $458 billion per year.
    Senator Coons. Right.
    Would you agree we might benefit from redefining it to also 
include foreign tax evasion?
    Mr. Rettig. Senator, we are looking really hard at the tax 
gap and what comprises it.
    We actually have a group that is looking at the--I charged 
a group or I challenged a group to ignore what they have been 
doing in the past and using data analytics and everything, what 
would it look like today if you were to look at it, and one 
thing that people need to understand is going back in history, 
the tax gap was formulated around a time when most people filed 
their returns in paper. And so the information available was 
different.
    Also, the economy used to be different with respect to 
whether people used cash or people used credit cards. Items 
like Bitcoin did not exist. So we are in a different time.
    The current tax gap map that is coming out will be 2011 to 
2013. It is done essentially in the traditional manner, but we 
have challenged people. We want to know what it is. We want to 
know each of the individual arenas. I look at it sort of as not 
just a tax gap but an enforcement map. Where would you deploy 
the resources that we do have for the most significant impact? 
Not like we are going to ignore other areas. I am a big 
believer that we need to touch everyone, and we need to touch 
every issue. But where we would deploy maybe more skilled 
resources, I think the tax gap is a good map for that.
    I just do not have confidence in a map that--I do not have 
a high degree of confidence about a map that is done on a paper 
system when we are no longer on a paper system.
    Senator Coons. Right.
    Mr. Rettig. I need to look the next 5 years ahead, not 10 
years back.
    Senator Coons. I was encouraged. You requested increased 
funding for enforcement activities, but I was concerned that it 
is predicated on receiving a cap adjustment.
    Why not just include a robust request for enforcement 
activities in your base budget? Why make it conditional on a 
cap adjustment that last year, same scenario, requested a cap 
adjustment, did not get it?
    Your budget says that $360 million investment in additional 
enforcement could generate as much as $47 billion in additional 
revenue. At a time when we are seeing growing deficits that 
struck me as a worthwhile investment. Why not just put forward 
a more robust enforcement proposal in your base budget?
    Mr. Rettig. Our position is that we could operate within 
the President's budget. The cap would actually--I am a big 
believer in trying to get us that $362 million, of which $200 
million is enforcement and the balance is on operations side, 
and if you heard what I mentioned before, contingent of that 
operation is actually to serve the enforcement side of the 
house. It is not like administrative overhead.
    I am also a believer that we should be reporting what part 
of that is on the environment side, and I think that maybe 
people would realize that we need to go there, more so than if 
it gets buried on the--my terminology would be admin side.
    Senator Coons. I look forward to working with you on that 
because I think generating more revenue----
    Mr. Rettig. I am available to meet with you.
    Senator Coons [continuing]. From folks who should be paying 
their taxes is appropriate.
    Let me talk to you about taxpayer services. Your budget 
requested a cut of $90 million for taxpayer services, about 4 
percent. That means the telephone level of service fiscal year 
2020 would be about 68 percent or about one in three taxpayers 
would never reach a live service person.
    My concern is that the IRS just does not have the resources 
it needs to provide services to taxpayers. You are the one 
Federal agency that virtually every one of our constituents 
contacts at some point, has some interaction with.
    Back in 2004, the IRS answered nearly 90 percent of 
telephone calls. The average person waited 2 1/2 minutes. What 
are we going to do to return to that level of service? My 
concern is we are a billion dollars shy of what was the IRS 
funding just around the time that I became a Senator.
    We have gradually started down to a place where you have 
got very frustrated taxpayers waiting, in some cases, 
indefinitely. I recognize we are investing huge amounts in IT 
modernization to move towards--most of us are doing mobile 
banking now. I look forward to the day when the IRS can connect 
with taxpayers electronically.
    Can you give me any sense on what timeline every taxpayer 
will be able to get a meaningful answer via the Internet, and 
why not invest more rather than cut in taxpayer services?
    Mr. Rettig. A significant part of the modernization plan is 
devoted to taxpayer services and various digital options. A 
significant part of the Country does not have broadband 
service, and so we need to retain our ability to interact with 
people on the phone, in person, have them walk in through a 
taxpayer assistance center, or also the ability where we might 
not have a taxpayer assistance center be able to provide some 
type of virtual connection to us for maybe the more remote 
areas. So we are hugely sensitive to that.
    Ultimately, we come down to a bit of a guns-and-butter 
determination. We are left with so many dollars. How we 
allocate those dollars, I have said that I am an enforcement 
guy. I am a big believer in enforcement. I believe that 
enforcement supports the taxpayers who are trying to comply and 
give their best.
    I also believe that we need to be in the communities where 
taxpayers do not have representation, so the underserved 
communities, the English-as-a-second-language communities. We 
need to provide all the options that they get in the retail 
world, such as banking on your cell phone. We should be 
accessible to them in that manner.
    Another arena is we presently provides forms and certain 
services in six different languages. I think that our Country 
has somewhere on the order of 120-plus different languages. I 
think to get the respect of the taxpayers and a lot of the 
communities who are fully able and capable of living in a 
community in this Country, probably so, without the ability to 
speak English, to gain the respect of those communities, I 
believe that we need to get into those communities and deliver 
services in their language.
    So I think you are going to see a big movement for us in 
that direction. Literally, every employee of the Internal 
Revenue Service has heard me reach out and make that a top 
priority, the language issue, the underserved issue.
    I had the good fortune of--they call it ``double-
jacking''--being on telephones in Kansas City, Atlanta, and 
Austin with taxpayers who call in who have an issue, and the 
issue can be--it can be in any language the person has, and the 
IRS person needs to respond to that. It can be any issue the 
person has, and the IRS person needs to respond to that. I 
wanted to have a firsthand look and interaction on that to see 
how we are doing. I had no knowledge of that--no interaction 
with that on the outside, and I can say that I think every 
American can be hugely proud of our people who answer these 
calls. They are doing spectacular, and I was really, really 
proud.
    Senator Coons. Quick last question. Correctable error 
authority. Your budget requests that. It is something I am 
familiar with from previous hearings.
    The concern, I think, most of us would have is just what is 
the recourse. I recognize the improvement, where there is just 
an obvious single digit, but what kind of resource will 
individual taxpayers have if the IRS adjustments are erroneous, 
and how do we avoid a place where folks are caught in a sort of 
bureaucratic red-tape mess if the IRS exercises that 
correctable error authority and then folks are coming to us 
saying it was done in error?
    Senator Kennedy. Briefly, Mr. Commissioner.
    Mr. Rettig. Pardon me?
    Senator Kennedy. Briefly, if you could.
    Mr. Rettig. I will work on the briefly part.
    Senator Kennedy. That is okay.
    Mr. Rettig. Without correctable error authority, we make 
the adjustment, and the taxpayer is pushed into the 
administrative system where they might have a deficiency 
determination or an outright examination and kind of go through 
the exam appeals and, if they desire, the litigation angle on 
the issue, which is really unfair to a taxpayer.
    I look at correctable error authority as a service to the 
taxpayer. It allows us to get it right. Those correctable 
errors are based upon information that is otherwise in our 
system or in another Federal Government system, such as maybe 
it is a typo, a matching issue, and so if we have a W-2 or we 
have a 1099 and they picked up a different number, it allows us 
to insert that, without having to push the taxpayer into the 
administrative stream.
    So I think the ability to accelerate a resolution of that 
matter is significant, with correctable error, as opposed to 
what we are stuck doing now.
    Senator Coons. I am interested in it.
    Thank you for your testimony.
    Mr. Chairman, thank you for your----
    Senator Kennedy. You bet.
    Senator Coons [continuing]. Tolerance of my multiple 
questions this morning.
    Senator Kennedy. You bet.
    Senator Coons. Thank you.
    Senator Kennedy. I have just got a couple more, Mr. 
Commissioner. I am a Member of the United States Senate. Part 
of my job is to make sure the Internal Revenue Service is 
operating properly and that you are properly collecting taxes.
    So, as part of my job, I am going to ask you to send me a 
copy of the tax returns for everybody in my neighborhood back 
home. You can trust me. I just want to see them and make sure 
everybody is up to snuff. Why is that a bad idea?
    Mr. Rettig. Sir, the voluntary compliance rate that I 
referenced before is taxpayer who voluntarily pay--file and pay 
the amount that is appropriate, and that is about 83 percent. 
In significant part, it is based upon the integrity and respect 
that the Internal Revenue Service does have with the majority 
of----
    Senator Kennedy. Yes. But I am a member of the U.S. Senate. 
It is okay.
    Mr. Rettig. Every taxpayer has a concern of the privacy and 
the confidential nature of their tax return and tax return 
information, and it is our duty to responsibly handle that. And 
if we violate that duty, the voluntary compliance rate in the 
Country is at risk.
    Senator Kennedy. Can we agree that the American people 
would lose much confidence that they have in the evenhandedness 
of our tax collection system if they knew politicians and let 
me use a less pejorative term, elected officials could get a 
copy of their tax returns?
    Mr. Rettig. I believe that the American taxpayers take 
great pride in the fact that the information they provide to 
the Internal Revenue Service is private and----
    Senator Kennedy. How many members on your staff at the IRS? 
How many employees do you have?
    Mr. Rettig. The total employee staff is about 80,000.
    Senator Kennedy. Eighty thousand. Okay. Can each one of 
those 80,000 people just kind of wander in and look at people's 
tax returns?
    Mr. Rettig. No.
    Senator Kennedy. You have a carefully selective group, do 
not you?
    Mr. Rettig. We do.
    Senator Kennedy. Why is that?
    Mr. Rettig. Same reason, protect the integrity of the 
service, which is to protect the confidentiality and privacy of 
return information for each person and taxpayer.
    Senator Kennedy. Okay. Let me shift gears. I take it from 
your testimony, if I talk about improper payments, we are on 
the same wavelength. We have, as you know, about $144 billion a 
year in improper payments. That is nine zeroes. I am not 
blaming it on you.
    Mr. Rettig. Thank you.
    Senator Kennedy. And I know we will never get that down to 
zero, but there is some low-hanging fruit there. We keep paying 
dead people.
    Now, I have seen dead people vote, but when they start 
cashing checks, I mean, there is obviously some fraud there. 
Why cannot we stop that?
    Mr. Rettig. Senator, we have actually done incredibly well 
over the last 3 years with respect to identity fraud, identity 
theft, stolen identity theft, tax return-related fraud, in 
significant part, with a security summit involving outside 
software providers who had ideas.
    We have had about a 71 percent reduction in ID theft from 
2015 to 2018.
    Senator Kennedy. Excuse me for interrupting, but does not 
the Social Security have a master death file?
    Mr. Rettig. I believe that is correct.
    Senator Kennedy. Does everybody use it?
    Mr. Rettig. That, I am not--I do not have personal 
knowledge.
    Senator Kennedy. They do not. They do not. And, in fact, I 
will apologize later if I am wrong, but I do not think Social 
Security shares it with everybody. I think their policy for 
some people is in Government, we cannot show it to you.
    You are getting a note there. Do you want to stop and read 
it?
    Mr. Rettig. The IRS marks the taxpayer account when Social 
Security adds to the master file.
    Senator Kennedy. Okay. Well, other agencies do not, and we 
are paying dead people. And I have seen and I have done the 
analysis on this. I have seen bill after bill after bill 
passed, and it does not get any better. And I understand how 
hard it is to get that down to zero, but could not we start 
with the low-hanging fruit? I want to get an appointment with 
you and visit about this. I mean, paying dead people is a 
bridge too far.
    Number two, unpaid taxes. Federal Government does a lot of 
business with fine men and women as consultants and 
contractors, but some of them owe us taxes. And I do not mean 
allegedly owe us taxes. I mean, there is a final judgment. They 
owe us taxes, and there is a list at Treasury that says these 
folks owe us taxes. Do not contract with them, or if you do 
contract with them, get our money before you pay them. Why are 
we not doing a better job there?
    Mr. Rettig. Senator, we do a good job with respect to 
contractors who are paying through the Bureau of Fiscal 
Services (BFS). We can actually levy on the income stream to 
the contract.
    Senator Kennedy. Yes, but not all the agencies participate 
in the levy program.
    Mr. Rettig. That is correct, and that is where the issue 
is.
    Senator Kennedy. Can you get me a list of every agency that 
does not participate in the levy program?
    Mr. Rettig. We will reach back and see what we can provide 
for you.
    Senator Kennedy. I need that list.
    Mr. Rettig. Because without payment through BFS, we are 
required to issue individual levies on a continuing basis.
    Senator Kennedy. Well, I am not going to blame it on you, 
but I want a list of every agency that does not participate in 
the levy program.
    Mr. Rettig. We take the issue seriously.
    Senator Kennedy. I know you do.
    Mr. Rettig. Sir, I came on board to make a difference, and 
these kinds of issues are really of significance to me.
    Senator Kennedy. Now, everybody around this place, I am not 
talking about your place, my place, talks about how we need to 
spend taxpayer money more carefully. I do it too. Everybody 
around this place talks about the $22 trillion debt, and 
everybody around this place talks about we need to reduce our 
spending.
    But you know what it is like? It is like everybody wants to 
go to heaven, but nobody is ready to make the trip. We never 
get around to it.
    Now, this is low-hanging fruit. I am not fussing with you. 
Senator Coons knows what I am talking about here. He agrees, I 
bet. I do not mean to speak for him, but this is low-hanging 
fruit. This is paying dead people and giving taxpayer money to 
vendors. I am not saying they are not qualified, who owe us 
money, owe American people money. My God, we ought to be able 
to solve that.
    I want your help. I am impressed with your work. I think 
you are doing a great job. I think your heart is in the right 
place. You got a good staff.
    If you are on the Commissioner's staff, raise your hand. 
Thank you for your good work.
    But I need your help getting this straight.
    Mr. Rettig. Thank you, and thank you for the nice comments 
about our employees. Our employees work really hard.
    Senator Kennedy. I know they do. I know they do.
    Anything else?
    Senator Coons. Thank you, Mr. Chairman.
    Thank you, Commissioner, and thank you to the folks who 
work hard to make sure that we collect the revenue that is owed 
to the people of the United States, so that we have got the 
funding to deliver the services to the people of the United 
States.
    Mr. Chairman, it is a delight to hear your questioning and 
to work with you, and in the coming months, I think we will be 
quite productive. When someone comes to their service in 
Congress with detailed previous experience in an area like 
treasury, revenue collections, it is a welcome moment because 
not all of us come with that background.
    So I have enjoyed this hearing. I appreciate your service, 
and I look forward to our next one.
    Thank you, Mr. Chairman.
    Mr. Rettig. Thank you.
    Senator Kennedy. Thanks.
    Thanks, Mr. Commissioner.

                     ADDITIONAL COMMITTEE QUESTIONS

    The hearing record will remain open until next Wednesday 
for subcommittee members who wish to submit any statements or 
questions for the record.
    [The following questions were not asked at the hearing, but 
were submitted to the agencies for response subsequent to the 
hearing:]
             Questions Submitted to Hon. Steven T. Mnuchin
              Questions Submitted by Senator Patrick Leahy
    Question. Community Development Financial Institutions (CDFI) meet 
and exceed their mission to provide financial services to low-income 
and economically distressed communities. Vermont CDFIs are essential to 
our rural and lower income areas. Without CDFIs, Vermonters often have 
to put off expanding their small businesses or communities cannot 
afford to invest in affordable housing. The administration's fiscal 
year 2020 budget proposal again eliminates the Community Development 
Financial Institution Fund.
    Given that we are in an affordable housing crisis and lower-income 
communities continue to lack access to adequate capital to promote 
business and economic development to pull their communities out of 
poverty, why did your proposed budget eliminate the CDFI Fund?

    Answer. In the current fiscal environment, difficult budget 
decisions have to be made. The CDFI Fund budget eliminates 
discretionary grant funding to reflect the administration's priority to 
support fiscal responsibility and to focus resources on activities that 
promote national security and public safety.
    The budget requests $14 million in administrative funding for 
oversight of existing commitments and administration of the CDFI Fund's 
other programs, including management of the CDFI Bond Guarantee 
Program, the New Markets Tax Credit Program, as well as certification 
and compliance monitoring for all programs. The budget proposes to 
reauthorize the CDFI Bond Guarantee Program to allow $500 million in 
new guarantees. This program provides capital to CDFIs at no cost to 
the taxpayer. Effectively managing those resources will ensure that 
CDFIs have access to capital to continue to support urban and rural 
distressed communities.

    Question. Former Deutsche Bank anti-money laundering specialists 
have come forward alleging that they had flagged multiple transactions 
involving President Trump and his son-in-law, Jared Kushner, as 
suspicious. The specialists claim that the transactions in 2016 and 
2017 ``set off alerts in a computer system designed to detect illicit 
activity'' and warranted the filing of suspicious activity reports with 
the Financial Crimes Enforcement Network (FinCEN) in your Department. 
While it is not uncommon for the system to flag legitimate 
transactions, it is vital that suspicious transactions be flagged for 
FinCEN.
    What can the Department do to ensure legitimately suspicious 
activities are reported to FinCEN?

    Answer. The Bank Secrecy Act (BSA) authorizes the Secretary of the 
Treasury to issue regulations requiring banks and other financial 
institutions to take a number of precautions against financial crime, 
including the establishment of Anti-Money Laundering (AML) programs and 
the filing of reports that have been determined to have a high degree 
of usefulness in criminal, tax, and regulatory investigations and 
proceedings, and certain intelligence and counter-terrorism matters. 
The Director of FinCEN has been delegated the authority to implement, 
administer, and enforce compliance with the BSA and associated 
regulations.
    FinCEN's role in these efforts includes (i) issuing guidance to the 
financial industry that identifies red flags for suspicious activities, 
and shares money laundering and terrorist financing methodologies and 
trends; (ii) providing industry outreach and training on filing 
suspicious activity reports; (iii) conducting compliance examinations; 
(iv) coordinating with delegated examiners; (v) pursuing enforcement 
actions when appropriate for deficiencies in an institution's AML/
Countering the Financing of Terrorism program.
    In August 2014, FinCEN issued an Advisory to U.S. Financial 
Institutions on Promoting a Culture of Compliance. The Advisory 
highlighted that compliance staff should be empowered with sufficient 
authority and autonomy to implement an institution's AML program. An 
institution's interest in revenue should not compromise efforts to 
effectively manage and mitigate BSA/AML deficiencies and risks, 
including submission of appropriate and accurate reports to FinCEN. An 
effective governance structure should allow for the BSA/AML compliance 
function to work independently and to take any appropriate actions to 
address and mitigate any risks that may arise from an institution's 
business line and to file any necessary reports, such as Suspicious 
Activity Reports (SARs). AML compliance personnel should be listened to 
when they express concerns. This means that AML compliance should not 
be shut out of monitoring areas of operation. Compliance professionals 
should be empowered with sufficient authority, independence, and the 
tools needed to effectively implement the AML program within their 
institution. A culture of compliance means that every employee, from 
the top down, views AML compliance as part of his or her 
responsibilities.
    Financial institutions are regularly examined for BSA requirements. 
Generally, deficiencies found in the financial institution's BSA 
program would be discovered through this process and addressed 
appropriately.

    Question. Has FinCEN received any SARs for transactions conducted 
by President Trump or his immediate family, including his son-in-law 
Jared Kushner?

    Answer. Treasury does not comment on Suspicious Activity Reports, 
including whether such reports have been filed or exist.

    Question. How can the Department ensure Deutsche Bank's financial 
connections to President Trump and his family are not in conflict with 
their duty to file legitimate SARs?

    Answer. See above response to question (a).
                                 ______
                                 
               Questions Submitted by Senator Jerry Moran
    Twenty United States Senators wrote Secretary Mnuchin requesting 
that he reverse Treasury's current policy regarding matured, but 
unredeemed, U.S. savings bonds. These Senators asked that Treasury 
return the bond proceeds to States in order to improve the prospects of 
identifying their proper owners and returning the proceeds to them.
    According to these Senators, currently, more than $24 billion of 
matured bonds remain unredeemed by their owners. Many of these matured 
and unredeemed, unclaimed bonds are either lost, stolen, abandoned, 
forgotten, or destroyed. Unfortunately, Treasury has not made any 
affirmative effort, neither historically nor currently, to contact the 
owners of these bonds to assist them in redeeming their bonds. After 
they have matured, these bonds are no longer earning interest and there 
is no financial reason for their owners to refrain from redeeming them. 
Treasury has historically taken the position that States could take 
ownership of these abandoned savings bonds through title-based 
escheatment, a process by which a State may take title to abandoned 
property to allow it to reunite the property with its original owner. 
However, in a December 24, 2015 regulation, Treasury reversed course, 
stating that savings bonds are not subject to escheatment, further 
adding that States now seeking to obtain title must physically possess 
the certificates that correspond to each of the abandoned bonds in 
question. Because by definition no one knows the location of the more 
than $24 billion of lost bonds in question, and only Treasury holds the 
last-known names and addresses of the bonds' owners, this rule 
effectively eliminates the States' ability to use their escheatment 
power to assist in the location and redemption of these bonds.
    Those Senators asked Treasury to withdraw the December 24, 2015 
regulation that makes it impossible for States to reunite the rightful 
bond owners with the proceeds of these unclaimed bonds. Should the 
proceeds of these unclaimed bonds be transferred to the States, the 
States would make every effort to reunite the owners or heirs with the 
proceeds of these unclaimed bonds using their highly successful 
unclaimed property programs.
    When testifying before the Senate Appropriations Financial Services 
and General Government Subcommittee chaired, and questioned by Senator 
John Kennedy, Secretary Mnuchin indicated that unclaimed, matured U.S. 
Bonds are ``not like other unclaimed property.''
    To the contrary, unclaimed, matured U.S. bonds were treated like 
``other unclaimed property'' until Treasury passed the December 24, 
2015 regulation.
    Secretary Mnuchin also indicated, ``Some of this information is on 
microfiche. The cost of us going back and getting this information in 
many times in a way that would be useful to find the taxpayer would far 
exceed the amount of money that in many cases is a couple hundred 
dollars. So, one thing I would not do is go out and spend more of the 
Federal Government's money to try to find people, than we owe to 
them.''
    The States, however, have indicated to Treasury their willingness 
to prove that current technology exists, which allows Treasury records 
(microfilm, microfiche, etc.), to be successfully searched, in a timely 
manner, to identify the rightful bondholders contact information. The 
States have offered to do so at their own expense. In order to do so, 
Treasury would need to cooperate with and provide the States access to 
the records/data.

    Question. What is Treasury doing to identify the owners of matured 
and unredeemed U.S. Savings Bonds?

    Answer. Treasury is committed to this effort, has a dedicated team 
working on the issue, and is actively working on activities designed to 
help bond owners identify and redeem their matured savings bonds.
    Treasury already maintains records identifying the registered 
owners of all matured, unredeemed savings bonds. We encourage these 
bond owners to redeem their bonds, and just launched a new website that 
makes it easy to search for matured bonds issued after 1974. That 
website--TreasuryHunt.gov--enables people to determine whether any 
matured, unredeemed bonds issued after 1974 are registered to their 
social security number.
    Treasury is also seeking ideas from industry experts and the public 
about new technologies that may help us search our records more 
quickly, easily, and at lower cost. We recently conducted a series of 
industry days to learn about new technologies for producing high 
quality, electronically readable images of our records. These 
technologies, along with additional funding from Congress, may enable 
Treasury to more actively engage with bond owners who need help finding 
and redeeming their bonds.
    Treasury looks forward to collaboratively working with States to 
locate the owners of matured savings bonds, and encouraging States to 
share the link to TreasuryHunt.gov on their unclaimed property 
websites. Treasury will also work with States to explore and define how 
States can best receive information about matured unredeemed savings 
bonds while protecting bondholders' privacy.

    Question. Why did Treasury adopt the December 24, 2015 regulation?

    Answer. Treasury issued the December 2015 regulation to protect the 
rights of savings bond owners and to make explicit Treasury's 
longstanding position that it will not recognize escheat judgments for 
savings bonds that are not in the States' possession. Treasury issued 
the regulation after publishing a proposed rule and accepting comments 
from the public. To see a full explanation of Treasury's decision and 
our response to comments, please see 80 Fed. Reg. 80,258 (Dec. 24, 
2015).

    Question. Have States offered to enter a ``pilot program,'' at no 
cost to Treasury, to use current technology to owners of matured and 
unredeemed U.S. Savings Bonds?

    Answer. Treasury is not aware of a specific offer from States to 
conduct and fully fund a program to locate the current owners of 
matured and unredeemed savings bonds.

    Question. If so, why has Treasury not accepted the States' offer so 
that the owners or heirs of the unclaimed bonds can be reunited with 
the proceeds of these bonds?

    Answer. Please see our answer above.

    Question. What is Treasury's estimated cost for completion of this 
project and what evidence does the Secretary have for this cost 
estimate?

    Answer. We are uncertain what project this question addresses. In 
the context of litigation over State escheat claims, Treasury has 
estimated that the cost of searching for all matured, unredeemed 
savings bonds claimed by one State would exceed $100 million. This 
estimate was based on many factors, including the volume of records; 
the manner in which those records are indexed; the electronic and 
manual methods that would be used to conduct the search; the time 
required to search them; and the number of personnel to conduct the 
search. In the near future, Treasury plans to seek information from 
experts and the public about new technologies that may be capable of 
producing high quality, electronically readable images of our records 
at a reasonable cost. Our estimate of the cost and time required to 
search our savings bond records may change as a result of this new 
information.
                                 ______
                                 
            Questions Submitted by Senator Joe Manchin, III
    Last year, the U.S. imposed a $1.19 billion penalty against ZTE, 
one of China's biggest tech companies, after it was found to have 
violated U.S. sanctions. It's important to remember that in 2015, the 
Federal Bureau of Investigation determined that the Chinese government 
could access U.S. business communications through Chinese made 
technology.
    If the U.S. were ever to go to war with China, it's not farfetched 
to believe that China could potentially disable American cellphones or 
take control of American networks.
    Despite this information, the administration lifted a ban on U.S. 
companies selling to ZTE.

    Question. What specific information does the administration have 
that indicates that ZTE is not a threat to the U.S.'s national 
security? Are there mechanisms in place to make sure that ZTE is not 
using their products to covertly access U.S. business communications?

    Answer. On March 7, 2017, the U.S. Department of the Treasury's 
Office of Foreign Assets Control (OFAC) entered into a settlement with 
Zhongxing Telecommunications Equipment Corporation (ZTE) whereby ZTE 
agreed to pay $100,871,266 to settle allegations that it had engaged in 
251 transactions in apparent violation of the Iranian Transactions and 
Sanctions Regulations. ZTE's settlement with OFAC represented the 
largest sanctions-related enforcement action taken by the U.S. 
Department of the Treasury against a non-financial entity. The ZTE 
settlement with OFAC was part of an all-government approach to 
sanctions enforcement, as ZTE simultaneously entered into agreements 
with the Departments of Justice and Commerce to settle related actions 
against ZTE, representing a combined penalty of $1.192 billion. The ZTE 
settlement with OFAC requires ZTE to terminate the conduct that led to 
its apparent violations and maintain policies and procedures that 
prohibit similar conduct. The Departments of Justice and Commerce 
required additional actions by ZTE intended to mitigate the possible 
threat ZTE poses to U.S. national security. Questions regarding terms 
of the agreements between ZTE and other agencies should be directed to 
those departments.
    Treasury has access to all sources of information to identify 
potential violations of U.S. economic and trade sanctions programs, 
including the exportation or re-exportation of goods, services, or 
technology by U.S. persons or from the United States, directly or 
indirectly, to Iran. Treasury works closely with our interagency 
partners to constantly monitor for global activity that might indicate 
a violation of the settlement agreement or otherwise undermine the 
integrity of our sanctions and trigger our authorities.
    While Treasury does not speculate on possible sanctions violations 
or comment on possible or pending investigations, our actions over the 
past decade demonstrate our practice of vigorously enforcing the laws 
and regulations we administer. Treasury does not hesitate to pursue 
violative or sanctionable conduct when appropriate.

    Question. Was this a bargaining chip in the broader trade talks?

    Answer. OFAC settlements reflect careful consideration of the facts 
and circumstances relevant to each matter. OFAC's 2017 settlement 
agreement with ZTE was the result of close collaboration and 
coordination between multiple U.S. Government agencies and highlights 
the effectiveness of Treasury's enforcement authorities in pursuing 
egregious violations of U.S. economic sanctions.

    Question. The opioid epidemic is devastating too many American 
communities, especially in West Virginia. Today, the drug epidemic is 
not only fueled by prescriptions and drug cartels but also by illicit 
fentanyl from China. Just two milligrams of fentanyl will kill most 
people. I applaud Treasury's decision to sanction Chinese Fentanyl 
traffickers last year. This is why I was proud the Senate adopted my 
amendment (99-0) last year, providing Treasury $1 million to 
investigate the illicit fentanyl entering the United States from China.
    How have you spent the $1 million we gave you last year? What else 
is Treasury doing to combat the flow of fentanyl into the United 
States?

    Answer. Thank you very much for your support of Treasury's efforts 
to combat trafficking in illicit fentanyl production. Treasury 
appreciates the Senator's amendment to H.R. 6147 that identified 
specific funds for TFI's efforts in this regard. While the final 
conference bill did not include this language, we are working hard to 
fulfill the mandate that appeared in the final conference report, H. 
Report 116-9:

        Opioids.--Beginning in 2013, the number of deaths involving 
        synthetic opioids, dominated by fentanyl, rose precipitously. 
        According to the Drug Enforcement Administration, most illicit 
        fentanyl that reached the United States was produced in China. 
        The agreement includes funds for TFI to investigate the illicit 
        trade of synthetic opioids, particularly fentanyl, originating 
        from China.

    Treasury is deeply concerned about the devastating and lasting 
effects that the opioid crisis has had on the Nation. Opioids--both 
prescription and synthetic--were involved in 90,000 American overdose 
deaths since 2016, and drain an estimated $78 billion from the economy 
each year. Criminal networks and other illicit actors generate billions 
of dollars in illicit drug proceeds, and exploit the U.S. financial 
system to move, store, and use these funds.
    Treasury aggressively uses all of its tools and authorities in 
collaboration with other U.S. Government partners to address the 
financial aspects of the illicit fentanyl problem. As part of this 
effort, Treasury supports law enforcement investigations and actions; 
engages with financial institutions on the fentanyl problem; and 
sanctions individuals and entities responsible for the crisis in order 
to disrupt their financial activity and deny them access to the U.S. 
financial system.
    Treasury's FinCEN provides financial intelligence expertise to law 
enforcement efforts to combat fentanyl and opioid trafficking. FinCEN 
has produced intelligence assessments and over 40 targeting packages to 
facilitate ongoing investigations by Federal, State, and local law 
enforcement, U.S. departments and agencies, the Office of National Drug 
Control Policy, and various U.S. Attorneys' Offices. For example, 
FinCEN supported the criminal investigation of the Zheng Drug 
Trafficking Organization (DTO), a China-based fentanyl DTO that shipped 
fentanyl and other drugs to 37 States and 25 countries. The Department 
of Justice (DOJ) indicted individuals associated with this network in 
the summer of 2018. FinCEN also provides analytic support to Operation 
Synthetic Opioid Surge, a 2018 DOJ-led initiative to reduce and disrupt 
the supply of synthetic opioids in high impact areas and to identify 
wholesale distribution networks and international and domestic 
suppliers. FinCEN issues advisories, such as the 2014 Update on U.S. 
Currency Restrictions in Mexico: Funnel Accounts and Trade Based Money 
Laundering, to alert financial institutions to the risks and financial 
typologies that may be associated with narcotics trafficking. On August 
21, 2019, FinCEN issued an advisory to alert financial institutions to 
illicit financial schemes and mechanisms related to the trafficking of 
fentanyl, fentanyl analogues, and other synthetic opioids, and to 
assist them in detecting and reporting related activity. This advisory 
was part of a larger, United States Government Fentanyl advisory 
covering the movement, manufacturing, marketing, and monetary aspects 
of the trafficking of fentanyl and other synthetic opioids.
    Treasury's OFAC administers and enforces economic sanctions to 
combat the flow of illicit fentanyl and other synthetic opioids into 
the United States. As you have noted, on April 27, 2018, OFAC 
identified Chinese fentanyl trafficker Jian Zhang as a significant 
foreign narcotics trafficker pursuant to the Foreign Narcotics Kingpin 
Designation Act (Kingpin Act). OFAC further designated four additional 
Chinese nationals acting on behalf of Jian Zhang and Zaron Bio-Tech 
(Asia) Limited, an entity registered in Hong Kong that is owned or 
controlled by Jian Zhang and that was used to facilitate the unlawful 
importation of fentanyl and other controlled substances into the United 
States.
    On August 21, 2019, OFAC identified Chinese national Fujing Zheng 
(Zheng) and the Zheng Drug Trafficking Organization (DTO) as 
significant foreign narcotics traffickers pursuant to the Kingpin Act. 
OFAC also designated one additional Chinese national, Guanghua Zheng, 
for his support to the Zheng DTO's drug trafficking activities, as well 
as one Chinese entity, Qinsheng Pharmaceutical Co. Ltd., for being 
owned or controlled by Fujing Zheng. On the same day, OFAC also 
identified Xiaobing Yan (Yan) as a significant foreign narcotics 
trafficker pursuant to the Kingpin Act. The Chinese kingpins that OFAC 
designated, Zheng and Yan, run an international drug trafficking 
operation that manufactures and sells lethal narcotics, directly 
contributing to the crisis of opioid addiction, overdoses, and death in 
the United States. Zheng and Yan have shipped hundreds of packages of 
synthetic opioids to the United States, targeting customers through 
online advertising and sales, and using commercial mail carriers to 
smuggle their drugs into the United States. Both Zheng and Yan are 
known to use digital currency (bitcoin), and OFAC identified bitcoin 
addresses associated with these two drug traffickers to maximize 
disruption of their financial dealings.
    After almost 20 years, the Kingpin Act remains OFAC's most 
effective tool to disrupt the financial infrastructure of narcotics 
trafficking organizations worldwide. Kingpin Act designations uniquely 
target the finances that fuel the continued activities of major drug 
kingpins, and when used in conjunction with the tools of other law 
enforcement partners, result in a very powerful disruption tool. In the 
last year, OFAC reorganized its targeting efforts and deepened its 
interagency partnerships throughout the national security community to 
give higher targeting priority to synthetic opioids. OFAC will continue 
to leverage the Kingpin Act to disrupt and dismantle the financial 
infrastructure of traffickers worldwide that are contributing to the 
opioid crisis in the United States.

    Question. How can Congress help the Office of Foreign Assets 
Control (OFAC) target drug fentanyl trafficking networks in the future?

    Answer. OFAC continues to benefit from a very close partnership 
with Congress on the targeting of drug trafficking networks, including 
those trafficking fentanyl and other synthetic opioids. Under our 
existing Kingpin Act authority, OFAC has the ability to target 
traffickers of fentanyl and other synthetic opioids and their networks. 
OFAC has prioritized the targeting of fentanyl trafficking by 
dedicating significant investigative resources to this problem-set and 
by focusing on the components of the illicit fentanyl trade that would 
be most vulnerable to OFAC sanctions, including producers, 
transporters, dealers, and financial intermediaries that allow the 
trade to operate globally. OFAC has designated 231 foreign persons 
pursuant to the Kingpin Act during this administration alone, including 
for fentanyl and synthetic opioid trafficking, resulting in the 
disruption of the finances that fuel their activities. We appreciate 
Congress's longstanding support for and interest in OFAC's activities 
to help end the opioid epidemic, and welcome continued dialogue with 
Congress, including by providing reports on each identification of a 
significant foreign narcotics trafficker, briefing on ongoing or new 
OFAC initiatives related to fentanyl and other synthetic opioid 
trafficking, and offering technical feedback and assistance on proposed 
legislation.

    Question. Historically, trade agreements have not been good for our 
State of West Virginia. Foreign countries have benefited and grown, at 
the expense of our State's economy and hard-working West Virginians. We 
have played by the rules and that has gotten us a half a trillion 
dollar trade deficit and good jobs exported to foreign countries. When 
we have a level playing field, American workers will win every time as 
we will out work, out innovate and out compete anyone in the world. 
That's why I support the administration's willingness to hold China 
accountable for their intellectual property theft and unfair trade 
practices that undercut the American economy. I know you have been a 
leader in the trade talks with China.
    How close are we to a trade deal and what are the terms yet to be 
agreed upon?

    Answer. Under this administration, the United States has confronted 
China on its unfair trading practices, including its technology 
transfer requirements and intellectual property practices that threaten 
American innovation in critical sectors.
    Recently, the President announced that the United States and China 
are working on a ``phase one'' agreement that we hope to sign in the 
coming weeks. It will be enforceable and will cover intellectual 
property rights, agriculture, financial services, and currency 
practices. It will also address some aspects of the forced technology 
transfer problem. The President made clear that the two sides will 
focus their efforts on the remaining outstanding issues immediately 
after signing the ``phase one'' agreement.

    Question. Has Treasury been able to quantify the damage done by 
China's retaliatory tariffs?

    Answer. The administration is aware of the pain being unfairly 
inflicted on American farmers from Chinese retaliation. As the 
President recently noted, China should be making meaningful purchases 
of American agricultural products even while trade discussions are 
ongoing.
    The President has authorized the United States Department of 
Agriculture to provide up to $16 billion in programs to protect 
agricultural producers while the administration continues to work on 
free, fair, and reciprocal trade deals to open more markets in the long 
run.
    The trade discussions with China are occurring at a time when the 
economic outlook in the United States is strong as a result of this 
administration's positive economic agenda.
    Our strong economy puts the United States in a position of 
strength. We have maximum leverage to fix longstanding trade concerns 
and are able to sustain any short term disruptions.

    Question. What is the government doing to give those small 
businesses affected by the tariffs relief?

    Answer. The administration is sensitive to the concerns of American 
families and the potential that some costs could be passed on to 
consumers and small businesses. The administration has established a 
tariff exclusion process and public notice and comment procedures to 
allow stakeholders to share their views on the potential impact of 
tariffs. One of the factors in looking at exclusions may be the extent 
to which certain goods cannot be obtained from a country other than 
China, due to availability, supply-chain issues, and the like.

    Question. There is no doubt that enemies of the United States will 
increasingly use cyber capabilities--including cyber espionage, attack, 
and influence--to seek political, economic, and military advantage over 
the United States. These entities will stop at nothing to disrupt our 
way of life, especially our economy. I realize that many of the cyber-
attacks and vulnerabilities are at the State and local level. However, 
asking already cash-strapped localities to protect against a highly 
sophisticated foreign country's cyber efforts is just not practical.
    How vulnerable is our financial services sector to cybercrime?

    Answer. The U.S. financial services sector continues to face the 
risk of experiencing a material cyber incident and this risk is a 
product of vulnerabilities and threats. According to the Council of 
Economic Advisers' 2018 report, malicious cyber activity cost the U.S. 
economy between $57 billion and $109 billion in 2016.\1\ Firms share 
common cyber vulnerabilities given that many use the same software and 
hardware. For fiscal year 2020, Treasury has requested additional 
resources to understand these common vulnerabilities. In addition, 
scarce data and insufficient information sharing impede current 
cybersecurity efforts, making it difficult for Treasury staff to 
measure the sector's vulnerabilities.
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    \1\ https://www.whitehouse.gov/wp-content/uploads/2018/02/The-Cost-
of-Malicious-Cyber-
Activity-to-the-U.S.-Economy.pdf

    Question. How do we better protect our financial services sector 
---------------------------------------------------------------------------
from cyber-attacks?

    Answer. Both private and public entities have taken action to 
mitigate the consequences of a material cyber incident on the financial 
services sector and the global economy. These mitigation measures 
include establishing mechanisms for public-private engagement, 
developing and rigorously testing incident response plans (across both 
the U.S. Government and the private sector), and creating private 
sector bodies to identify and minimize the systemic risks associated 
with material cyber incidents. Treasury is in a unique position to work 
with both regulators and the private sector. Treasury works closely 
with several external partners, including the Financial and Banking 
Information Infrastructure Committee (FBIIC) and the Financial Services 
Sector Coordinating Council (FSSCC).
    Treasury chairs the FBIIC, a public sector committee focused on 
improving coordination and communication across the Federal and State 
financial regulatory community, enhancing the resiliency of the 
financial services sector, and promoting public-private partnerships. 
FBIIC member organizations regularly collaborate on strategic policy 
direction for financial services critical infrastructure issues, 
including cybersecurity.

    Question. How can the Federal Government substantively help States 
and localities defend themselves from cyber-attacks and espionage?

    Answer. Treasury, as the sector-specific agency for the financial 
services sector, assists the sector by leveraging services available 
from the Federal Government (e.g., those from the Department of 
Homeland Security/Cybersecurity and Infrastructure Security Agency). 
This includes investing in programs that increase the supply of 
cybersecurity experts, pursuing approaches to reduce IT 
vulnerabilities, and thwarting cyber threats to help reduce risks to 
the Nation. All of these are indicative of some of the challenges now 
facing financial institutions' ability to develop strong, adequately 
staffed, and internally-generated cybersecurity programs.
    Due to its sector-specific role, Treasury is not the primary 
Federal agency providing technical support to States and localities to 
defend themselves from cyber-attacks and espionage. The Department of 
Homeland Security can provide more information on their activities in 
this area.

    Question. On April 26th, Acting Office of Budget Management (OMB) 
Director Vought issued a memo announcing the government's new approach 
to improving the efficiency and effectiveness of government operations 
through adopting shared services. Also it designates management leads 
in Federal agencies to identify ways to use modern solutions to help 
improve services, referred to as Quality Services Management Offices 
(QSMO). It is my understanding that Treasury will be the QSMO for 
financial management.
    How will the Department of Treasury take on the role of the Quality 
Service Management Office for financial services?

    Answer. Effective April 26, 2019, Treasury has been ``pre-
designated'' as the Financial Management Quality Services Management 
Office (FMQSMO). Based on our long standing history as a leader with 
respect to the Financial Management Line of Business (FMLoB) and 
provider of Shared Services, Treasury is well-poised to establish, 
operate and continuously improve the FMQSMO. Currently, Treasury is 
developing a 5-year plan focused on establishing a cutting-edge 
marketplace to enable Agencies to transition to next generation 
financial software in the Cloud, and standardize, consolidate and 
automate their financial systems. The FMQSMO vision and mission are 
designed to directly support government-wide goals to: (i) standardize 
processes and data; (ii) reduce operation and maintenance costs; (iii) 
modernize and automate processes; and (iv) improve customer 
satisfaction in the financial management space.

    Question. Will Treasury need to hire additional personnel to handle 
this task?

    Answer. Treasury is in the process of developing an implementation 
plan that will detail the strategy, operating model, and governance of 
the FMQSMO. In addition, the proposed budget and personnel to establish 
and operate the FMQSMO is under development and will be considered in 
the upcoming budget cycle.

    Question. In my State of West Virginia, community development 
financial institutions (CDFIs) are critical in filling a large need 
that just isn't met in many rural areas. For example, Woodlands 
Community Lenders (WCL) in Elkins, West Virginia. They provides loans, 
business development services, and finance packaging for small 
businesses that are otherwise ``unbankable''. WCL takes an alternative 
approach to assessing and mitigating risk, allowing it to support small 
business development in ways that traditional lenders often cannot.
    Additionally, when CDFIs provide initial capital to small 
businesses it helps them get on their feet to eventually qualify with 
traditional lenders. The administration's budget reduces funding for 
Community Development Financial Institutions (CDFI) Fund grants to just 
$14 million. This is $236 million less than what was enacted in 2019.
    What is the reasoning for reducing CDFI funds in the President's 
budget?

    Answer. In the current fiscal environment, difficult budget 
decisions have to be made. The budget for the CDFI Fund budget 
discretionary grant funding reflects the administration's priority to 
support fiscal responsibility and to focus resources on activities that 
promote national security and public safety.

    Question. If these programs are eliminated, what do you believe the 
effect will be on rural areas utilizing this program?

    Answer. The budget proposes to reauthorize the CDFI Bond Guarantee 
Program to allow $500 million in new guarantees. The program provides 
capital to CDFIs at no cost to the taxpayer. Effectively managing those 
resources will ensure that CDFIs have access to capital to continue to 
support urban and rural distressed communities.
    Opportunity zones were added to the tax code by the Tax Cuts and 
Jobs Act on December 22, 2017. Opportunity zones are designed to spur 
economic development by providing tax benefits to investors for private 
investment in economically distressed areas.

    Question. How will Treasury ensure that the critical capital 
injections needed to support the transitioning economies in WV 
continue?

    Answer. The CDFI Bond Guarantee Program has provided long-term 
capital in West Virginia. This Program would continue to provide access 
to capital and investment needed to support economic development 
activity in West Virginia.
    Additionally, designated opportunity zones in West Virginia can 
spur economic development and job creation in distressed communities.
                                 ______
                                 
            Questions Submitted by Senator Chris Van Hollen
    Question. On May 22, the Washington Post released a draft IRS 
memorandum entitled ``Congressional Access to Returns and Return 
Information'' prepared by the IRS Office of Chief Counsel. Among other 
things, the memo stated the following:

  --``[S]ection 6103(f) is a provision that, by its terms, does not 
        allow for discretion as to whether to comply with a proper 
        request for returns or return information.''
  --``[S]ubsections (f)(1) and (f)(2) do not require the Ways and Means 
        and Finance Chair or JCT Chief of Staff to include a reason or 
        purpose for the request. Therefore, the Secretary's obligation 
        to disclose return and return information would not be affected 
        by the failure of a tax writing committee or the JCT to state a 
        reason for the request.''
  --``In general, the statutes provide that the Secretary shall furnish 
        returns and return information upon specific written request 
        from the Chair of the respective committees or the JCT Chief of 
        Staff. The only restriction is that the information must be 
        furnished to the committee while sitting in closed executive 
        session if it can identify directly or indirectly a particular 
        taxpayer.''

    The fact that this memorandum directly contradicts the position 
that both you and Commissioner Rettig have asserted in your letters to 
Chairman Neal demands much additional transparency.
    Please provide the names and titles of any Treasury Department 
staff who reviewed or received a copy of the draft memorandum, either 
electronically or in hard copy. Please also provide the dates on which 
those people reviewed or received copies of the memorandum.
    Did anyone from the Treasury Department, including yourself, direct 
the IRS not to finalize legal analysis similar to the analysis 
contained in the draft memorandum, or direct the IRS to stand aside or 
stand down on this issue? If so, please provide the names and titles of 
any such Treasury Department officials.
    Did you ever receive analysis with conclusions similar to those 
found in this memorandum from anyone in the Treasury Office of the 
General Counsel, any of your close advisors, the IRS Office of Chief 
Counsel, or any IRS senior staff?
    Have you, or has Treasury's counsel, spoken to the Office of Legal 
Counsel or anyone else at the Department of Justice concerning any 
requests from White House Counsel about Chairman Neal's request? If so, 
please summarize the substance of those discussions.

    Answer. As I stated in my testimony, I was not aware of that 
memorandum until the Washington Post published it the morning of my 
testimony. Someone showed me the memorandum as printed online. To my 
knowledge, the memorandum was not sent to anyone at the Treasury 
Department, nor was anyone at the Treasury Department aware of the 
memorandum's existence until it was made public. As stated in previous 
letters to Chairman Neal, Treasury reached its conclusion after careful 
analysis and in reliance on a memorandum from the Department of 
Justice.

    Question. At the hearing, I asked you about the decision not to 
provide the tax returns and return information requested by Ways and 
Means Committee Chairman Neal. You testified that you had had multiple 
conversations with Commissioner Rettig, Treasury's legal counsel, and 
the IRS's legal counsel.
    On April 9, 2019, the day before Chairman Neal's deadline, 
Commissioner Rettig testified before the Subcommittee on Financial 
Services and General Government of the House Committee on 
Appropriations. At that hearing, he had the following exchange with 
Chairman Quigley:

          Chairman Quigley: What have your legal experts told you? It's 
        hard to imagine, sir, that they are going to say at five 
        minutes until 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 whether to respond or to comply?
          Commissioner Rettig: I have not asked, and I think it would 
        be premature for me to speculate with you now.
          Chairman Quigley: Would it have been premature to ask them if 
        you have discretion?
          Commissioner Rettig: I have not asked.

    In light of your statements and Commissioner Rettig's statements to 
Chairman Quigley, please provide answers to the following questions:

          Was Commissioner Rettig's testimony incorrect?
          When did your meetings with Commissioner Rettig, Treasury 
        counsel, and IRS counsel take place?
          Did the IRS Office of Chief Counsel provide you any legal 
        advice as to whether section 6103 of the Tax Code provides for 
        discretion?
          Did the IRS Office of Chief Counsel provide you or any 
        Treasury staff with written guidance, in draft form or 
        otherwise, that examined how Section 6103(f) applies to 
        requests by the tax-writing committees?

    Answer. As I have repeatedly acknowledged, I discussed Chairman 
Neal's request for President Trump's tax returns with Commissioner 
Rettig, with Treasury's legal counsel, and with the Chief Counsel to 
the IRS. As noted above, the Department of Justice provided advice upon 
which I relied when I replied to Chairman Neal. I did not receive 
written guidance from the IRS Chief Counsel related to Chairman Neal's 
inquiry.
                                 ______
                                 
             Questions Submitted to Hon. Charles P. Rettig
            Questions Submitted by Senator Joe Manchin, III
    Question. When we first started talking about tax reform, I 
believed that real reform needed meet a few goals: it needed to focus 
on permanent relief for working class families; make small businesses 
and corporations competitive in a global economy; be fiscally 
responsible; and simplify the tax code.

  --I know that the tax bill did not meet those goals because anything 
        that is done in such a strictly-partisan way cannot be good for 
        West Virginia or the country as a whole.
  --Let me be clear, I've always supported tax cuts to grow our economy 
        and raise wages, but the tax bill unquestionably adds to our 
        already staggering national debt.
  --Our growing national debt significantly harms our military 
        readiness, the ability to equip our National Guard to answer 
        the call for domestic emergencies, and care for our veterans.

    What are the administration's plans to deal with the $22 Trillion 
national debt?

    Answer. Management of the national debt is not part of the 
responsibilities of the IRS; therefore, the following answer has been 
provided by the Treasury Department. The administration encourages 
Congress to enact the tax policy proposals in its fiscal year 2020 
Budget, which are fiscally responsible and would increase receipts by 
about $100 billion and reduce outlays by about $460 billion over 10 
years, for a total savings of $560 billion. The administration would be 
happy to work with Congress to develop and enact additional pro-growth 
tax proposals.

    Question. Can you tell me the ways in which working Americans have 
directly benefited from tax reform?

    Answer. Some of the TCJA provisions that benefit working Americans 
include reduced tax rates, the increase in the standard deduction, and 
the increase in the child tax credit. According to the Tax Policy 
Center, about 80 percent of families received a tax cut averaging about 
$2,100 in 2018. For example, according to Treasury's analysis, in 2017, 
a working couple with two children, earning $75,000 in wages, paid 
$3,983 in Federal income tax. In 2018, that family earning $75,000 saw 
their total taxes fall to just $1,739, a tax reduction of $2,244.

    Question. Because the Tax Cuts and Jobs Act (TCJA) was rushed 
through on a party-line vote, there were mistakes. One of which has 
actually made it harder for retailers and restaurant owners to invest 
in their businesses and create jobs. The depreciation period for 
qualified improvement property (QIP) was significantly lengthened under 
the current law--from 15 to 39 years and is not available for immediate 
expensing. In September of last year, before you were confirmed, I 
signed a letter to Secretary Mnuchin highlighting the error in the new 
tax law. I'm also an original co-sponsor of bipartisan legislation with 
Senators Toomey and Jones which corrects this error and restores the 
law to reflect the original congressional intent.
    Do you agree this was a technical error and that the original 
intent of the Tax Cuts and Jobs Act was for qualified improvement 
property to have a 15-year depreciation life and allow for 100 percent 
of immediate expensing? If so, why can't you fix it?
    Why do you need new legislative authorities to fix a drafting 
error?

    Answer. The Department of the Treasury is aware of the concern of 
many businesses that the TCJA unintentionally changed the recovery 
period for QIP to 39 years, thus making QIP ineligible for bonus 
depreciation under section 168(k), as amended by the TCJA. After 
carefully studying the issue, however, we have determined that we do 
not have regulatory authority to change this result through guidance. 
We would fully support a technical correction to address the issue.

    Question. Are there other important clerical errors that you 
believe the IRS cannot correct and require the action of Congress?

    Answer. The Department of the Treasury has provided technical 
assistance regarding possible clerical errors or clarifications. We 
would be in support of legislative actions to reduce any uncertainties 
in the tax laws.

                          SUBCOMMITTEE RECESS

    Thank you, Mr. Commissioner, for your time today.
    Mr. Rettig. Thank you for your time. Appreciate it, 
Senator.
    Senator Kennedy. The hearing is adjourned.
    [Whereupon, at 12:03 p.m., Wednesday, May 15, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]