[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
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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.]