[Senate Hearing 116-420]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 116-420

                      THE 2019 TAX FILING SEASON 
                        AND THE 21ST-CENTURY IRS

=======================================================================

                                HEARING

                              BEFORE THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 10, 2019

                               __________


               [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                                     
                                     

            Printed for the use of the Committee on Finance

                               __________

                 U.S. GOVERNMENT PUBLISHING OFFICE

                     43-753-PDF WASHINGTON : 2021




                          COMMITTEE ON FINANCE

                     CHUCK GRASSLEY, Iowa, Chairman

MIKE CRAPO, Idaho                    RON WYDEN, Oregon
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota             THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina         BENJAMIN L. CARDIN, Maryland
JOHNNY ISAKSON, Georgia              SHERROD BROWN, Ohio
ROB PORTMAN, Ohio                    MICHAEL F. BENNET, Colorado
PATRICK J. TOOMEY, Pennsylvania      ROBERT P. CASEY, Jr., Pennsylvania
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BILL CASSIDY, Louisiana              SHELDON WHITEHOUSE, Rhode Island
JAMES LANKFORD, Oklahoma             MAGGIE HASSAN, New Hampshire
STEVE DAINES, Montana                CATHERINE CORTEZ MASTO, Nevada
TODD YOUNG, Indiana

             Kolan Davis, Staff Director and Chief Counsel

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)



                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Grassley, Hon. Chuck, a U.S. Senator from Iowa, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3

                         ADMINISTRATION WITNESS

Rettig, Hon. Charles P., Commissioner, Internal Revenue Service, 
  Washington, DC.................................................     6

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Grassley, Hon. Chuck:
    Opening statement............................................     1
    Prepared statement...........................................    41
Rettig, Hon. Charles P.:
    Testimony....................................................     6
    Prepared statement...........................................    42
    Responses to questions from committee members................    47
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................    61

                             Communications

Center for Fiscal Equity.........................................    63
National Treasury Employees Union................................    65

                                 (iii)



 
                      THE 2019 TAX FILING SEASON 
                        AND THE 21ST-CENTURY IRS

                              ----------                              


                       WEDNESDAY, APRIL 10, 2019

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:15 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Chuck Grassley (chairman of the committee) presiding.
    Present: Senators Crapo, Enzi, Thune, Portman, Toomey, 
Scott, Cassidy, Lankford, Daines, Young, Wyden, Cantwell, 
Carper, Cardin, Brown, Casey, Warner, Hassan, and Cortez Masto.
    Also present: Republican staff: Jeffrey Wrase, Deputy Staff 
Director and Chief Economist; Andre Barnett, Tax Counsel; Chris 
Conlin, Tax Counsel; Mark Warren, Chief Tax Counsel; and John 
Schoenecker, Senior Investigator. Democratic staff: Joshua 
Sheinkman, Staff Director; Michael Evans, General Counsel; 
Christopher Arneson, Tax Policy Advisor; Adam Carasso, Senior 
Tax and Economic Advisor; Daniel Goshorn, Investigator; and 
Tiffany Smith, Chief Tax Counsel.

 OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM 
              IOWA, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. Before I give my opening statement and the 
ranking member gives his, members should be aware that we do 
have a vote at 11:45. There are three stacked votes. I hope we 
can wrap up this hearing by that point, or we could go until 12 
o'clock, I think, because they always hold the first vote a 
long period of time. So I urge Senators who want to ask 
questions to be ready when your name comes up.
    Senator Wyden. Mr. Chairman, just very briefly. You have 
always been fair to all the members. I am just going to need to 
check with our folks on how many are coming with respect to 
this request. But as we always do, we will try to figure out a 
way to get some common ground.
    The Chairman. You have always been very cooperative. So 
thank you.
    Commissioner Rettig, we welcome you. Thank you.
    I appreciate your willingness to testify today on the 2019 
tax filing season and IRS administration of our current laws. 
The current tax filing season has been the most scrutinized in 
a long, long period of time. In some ways that is 
understandable, being the first filing season after our tax 
code received the largest overhaul in 3 decades.
    The IRS has worked to update forms, publications, and 
systems on top of all the new guidance that the agency has 
provided in conjunction with the Treasury Department. All of 
that made you ready for the filing season. But if that were not 
enough, the filing season began shortly after our government 
shutdown, the longest in history.
    Despite these factors and some early misleading reporting 
in the press, the filing season has run rather smoothly. The 
filing season opened on time, and the IRS systems have been 
functioning as planned.
    Consistent with previous years, the IRS has processed over 
97 percent of the returns the agency received, and 80 percent 
of those returns resulted in a refund. The average refund size 
is $2,873. That happens to be in line with previous years.
    However, some lingering effects of the shutdown persist. 
The level of phone service is down, and wait times are longer. 
But I have to add that they are trending in the right direction 
as the filing season has progressed.
    Overall, Commissioner Rettig, you and your employees 
deserve significant credit for how well the filing season has 
gone, given headwinds that you face from a new law and from the 
fact that the government was shut down.
    It is no secret that in recent years there has been a 
contentious relationship between Congress and the IRS due to 
several instances of mismanagement. Most notably, there was an 
inappropriate targeting of certain conservative groups for 
extra scrutiny. We also saw inappropriate spending on 
conferences and bonuses, as well as a case of IRS employees who 
had previously been fired for misconduct being improperly 
rehired.
    I saw your confirmation last year as an opportunity to have 
a fresh start, particularly from some of these things about the 
mishandling of money at conferences, bonuses, and improper 
rehiring. Those are subjects that I investigated.
    It also provides a chance to move beyond past issues and 
for us to work together--meaning this committee and you and 
your staff--to address challenges facing the IRS for the 
benefit of all of our taxpayers. And, there is no doubt that 
there are challenges that need to be addressed.
    IRS information technology systems are woefully outdated. 
While there has been improvement, 45 percent of the IT 
infrastructure that the IRS is currently using is beyond its 
original useful life. Moreover, IRS has had difficulties 
retaining and hiring experienced IT personnel.
    Tax ID theft also remains a top concern. Great strides have 
been made in recent years, with the number of reported ID theft 
victims falling nearly 65 percent between 2015 and 2017. That 
is very good news for the taxpayers and the government, but as 
we often say on Capitol Hill when we are not totally satisfied, 
there is more that needs to be done.
    Taxpayers deserve a modernized IRS that offers the same 
type of online and electronic services they have come to expect 
in the private sector. Taxpayers also deserve to know that 
their rights will be respected and they will receive a fair 
shake in their interactions with your organization.
    To help address a number of these challenges, I joined 
Ranking Member Wyden in introducing the Taxpayer First Act of 
2019 last month. That Taxpayer First Act covers a wide range of 
issues intended to increase taxpayer protection, improve 
customer service, address identity theft, update cybersecurity 
and IRS information technology, and modernize the agency. These 
are just some of the provisions. Others include codifying the 
independent appeals process to strengthen its independence so 
taxpayers have equal footing with your organization, requiring 
your organization to develop a long-term plan to improve 
customer service, providing the IRS with streamlined critical 
pay authority so IT positions can be filled with qualified 
people, and codifying the Security Summit to ensure that the 
IRS continues to be able to participate fully in partnerships 
with State tax agencies and the private-sector tax industry to 
combat ID theft and take other security steps. There are dozens 
of additional provisions that I will not take time to mention.
    The committee received feedback from your team at the IRS 
about this legislation, which was valuable, and I want to thank 
you for that cooperation.
    I am pleased that the House passed the bill yesterday after 
several years of work in both chambers. We are working with our 
leadership now to see if we can get this bill cleared.
    The Taxpayer First Act is an important first step towards 
reforming the IRS and strengthening taxpayer protections, and 
there is more that can and must be done. I hope that we can 
continue to work collaboratively on further efforts to improve 
and modernize IRS to the benefit of all taxpayers.
    [The prepared statement of Chairman Grassley appears in the 
appendix.]
    The Chairman. Senator Wyden?

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman. And as 
you indicated, there are several issues that we need to zero in 
on today.
    First is oversight of the tax code. Last week the chairman 
of the House committee, the Ways and Means Committee, exercised 
his authority under section 6103 of the tax code to request 6 
years of the President's tax returns.
    I support his request completely. Chairman Neal raised a 
key point about oversight of the tax system that explains why 
this step is necessary. The IRS has a policy of auditing the 
tax returns of sitting Presidents and Vice Presidents each 
year. It is not clear that system is effective. Congress has an 
obligation to look into whether it is functioning properly and, 
if necessary, craft legislative solutions.
    Let us also clear up a misconception on the issue. This is 
not an obscure law that has sat around gathering cobwebs. Both 
committees that handle tax law, Finance and Ways and Means, use 
the authority regularly.
    The committee's majority used it earlier this year to 
investigate certain tax-exempt hospitals. This committee also 
used it between 2013 and 2015 during an investigation into the 
treatment of tax-exempt organizations.
    Because this type of request is so routine, the Treasury 
Secretary long ago delegated responsibility for complying with 
it to the IRS Commissioner. IRS Commissioners, in turn, have 
delegated it to agency employees. These requests do not cross 
the Treasury Secretary's desk.
    Furthermore, Congress is closely familiar with reviewing 
the tax returns of Presidents and Vice Presidents. The Joint 
Committee on Taxation reviewed President Nixon's tax returns. 
Congress reviewed the tax returns of past vice presidential 
nominees. This committee also reviews the tax returns of all 
nominees we process.
    With respect to Chairman Neal's request, the law says that 
tax returns shall be provided. The law does not give anyone, 
not the Treasury Secretary, not a White House official, the 
power to interfere.
    The administration has responded to Chairman Neal's request 
by launching a campaign of blatant political intimidation. I 
recall in the very recent past when the prospect of political 
interference in the IRS mattered greatly to both sides.
    So here is the bottom line. Chairman Neal's request is 
based on legal authority our two committees exercise regularly, 
and the process of obtaining and reviewing tax returns is 
routine. I believe this committee ought to make the same 
request for the President's tax returns. The committee must not 
punt on oversight and cede that role to the House.
    Two other issues I am going to touch on briefly, Mr. 
Chairman--one with respect to tax policy. Americans who work 
for a living have long understood that the tax code is rigged 
to favor the most fortunate. It is now becoming clear that tax 
enforcement is rigged in the same way.
    According to newly released data, the audit rate of 
corporations and those at the top is in freefall. Audits of 
those with more than $1 million in income were cut in half over 
a decade. Audits of the largest corporations, again, cut in 
half over a decade.
    A new report from ProPublica showed one clear example of 
how that came to pass. A decade ago there was an effort to 
bring together skilled investigators to crack down on tax 
cheating by the mega-wealthy. The mega-wealthy fought back with 
an army of lobbyists and lawyers. An effort to get the tax 
cheats to pay a fair share fizzled.
    So the most fortunate are off the hook. What about people 
who work for a living? Another ProPublica report showed that in 
Humphreys County, MS there is a higher audit rate than any 
other county in America. It is not because it is packed to the 
county line with money launderers or shell corporations. It is 
because Humphreys County is poor. It is poor and most of those 
folks claim the Earned Income Tax Credit.
    I do not take a back seat to anybody when it comes to 
working against improper payments or abuse. But how can the 
Congress stand by a tax enforcement system that punishes 
working people and gives the wealthy and the most powerful a 
green light to cheat? If a working family makes a simple 
mistake on their taxes, it gets hit with an audit. It could 
snowball into a huge financial setback.
    If a Wall Streeter concludes they can get away with tax 
cheating, it is like they just went out and discovered a new 
gold mine. One proposal that can help with this unfairness is 
the bill Senator Cardin and I are introducing tomorrow to 
require minimum standards for paid tax preparers.
    The idea is, if working people are less likely to run into 
a crooked or incompetent tax preparer, they are less likely to 
face an audit. Passing our bill would be a good first step. But 
this issue is going to take a lot more work, and the 
Commissioner knows a lot about Senator Cardin's and my 
interests in it.
    Finally, I want to wrap up with a quick point about how 
Americans file their taxes. I start with the proposition that 
filing ought to be simple, and taxpayers should not have to use 
a private company to file their taxes online.
    I support allowing Americans to file directly online with 
the IRS. I have also proposed bipartisan legislation several 
times to create an optional simple return system. Your forms 
show up completed, and all you have to do is check the numbers. 
No more headaches from a complicated filing process.
    And suffice it to say, the tax preparation industry, their 
software--tax preparation folks spent millions of dollars, 
millions of dollars to hold off those important reforms. Now, 
during the debate on the tax administration bill, the chairman 
mentioned it. My staff did push back on a longstanding policy 
that blocks the IRS from competing with private tax preparation 
companies. I am going to keep fighting, colleagues, for a 
simple return system and the right to file directly with the 
IRS online.
    In the meantime, the final package--and the chairman 
mentioned it--limits the role of private debt collection on 
working Americans, and it permanently extends a highly 
successful program that helps low-income taxpayers file their 
returns for free.
    And, Mr. Chairman, I did not even have a chance to go into 
this with you. Just a few minutes ago, I got confirmation from 
the IRS Chief Counsel that the IRS can terminate Free File and 
design their own direct-file product with 12-months' notice.
    We just received that, so I want to just tell my 
colleagues, because we just got it. I wanted you all to know 
about it.
    Mr. Chairman, obviously, there is a lot to talk about this 
morning. I look forward to working with you.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Yes, and now let me introduce the 
Commissioner. In 36 years of representing taxpayers, he was 
part of a highly respected law firm in California, where he 
practiced with individuals and businesses, both large and 
small, before the IRS, the Department of Justice Tax Division, 
Federal and State courts, and State taxing authorities. He 
served as a member and Chair of the IRS Advisory Council from 
2008 to 2011; chaired the Taxation Section of the State Bar of 
California; and served on the advisory boards of the Franchise 
Tax Board and the Board of Equalization in California.
    The Commissioner has received numerous professional honors, 
been a featured speaker at tax conferences--both in the United 
States and internationally--authored numerous tax-related 
articles, received a BA in economics from UCLA, a J.D. with 
honors from Pepperdine University, and an LL.M. in taxation 
from New York University.
    We are pleased to recognize you, and please proceed with 
your opening statement.

  STATEMENT OF HON. CHARLES P. RETTIG, COMMISSIONER, INTERNAL 
                REVENUE SERVICE, WASHINGTON, DC

    Commissioner Rettig. Chairman Grassley, Ranking Member 
Wyden, and members of the committee, thank you for the 
opportunity to discuss the 2019 filing season and the 21st-
century IRS.
    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 IRS, I 
understand how important a fully functioning IRS is to the 
overall success of our country.
    Our people interact with more Americans than any other 
institution, public or private. Our people make a difference, 
they care, and they take pride in serving 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.
    I am passionate about making sure we enforce the tax law. A 
robust enforcement effort assures compliant taxpayers that 
those who fail to comply risk the consequences of such non-
compliance.
    I am pleased to report that the 2019 tax filing season 
opened on time on January 28th and continues to go well. As of 
April 5th, the IRS has received more than 103 million 
individual returns, and we have issued almost 78 million 
refunds for more than $220 billion.
    The fact the filing season has gone so well given these 
major changes is a tribute to the 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, which 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 the list is technology modernization. We are 
finalizing our modernization business plan, which will cost 
about $2.3 billion to $2.7 billion over 6 years to help bring 
our critical IT systems up to date. The President's budget 
request includes $290 million in additional funding for this 
plan.
    The integrity of the Nation's voluntary tax compliance 
system depends on a modernized IRS IT infrastructure, and we 
look forward to working with you 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 cyber-attacks. It has also 
helped us in the ongoing battle to protect taxpayers and their 
information against tax-related identity theft.
    The funding called for in the 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 
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 area, we are asking to restore 
the streamlined critical pay authority which expired in 2013. 
Without this authority, we have found that we lose highly 
qualified candidates to other organizations that can hire them 
more quickly.
    Chairman Grassley, Ranking Member Wyden, and members of the 
committee, 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.
    This concludes my statement. I would be happy to take your 
questions.
    [The prepared statement of Commissioner Rettig appears in 
the appendix.]
    The Chairman. We will have 5-minute rounds. Normally I 
would ask that you not start your last question with 1 second 
left, but I will permit the Commissioner time to answer it. I 
hope members will not take advantage of it because of the tight 
time frame we are under.
    My first question: I have been a champion of the IRS 
whistleblower program. When I revamped the program in 2006, we 
intended the IRS would use its authority to look to 
whistleblowers as a resource during the course of an 
investigation. It is my impression that to date the IRS has 
never done so.
    So one of the modifications in the Taxpayer First Act 
specifically authorizes the IRS to exchange information with a 
whistleblower where doing so would be helpful to the 
investigation. It further makes clear that a whistleblower must 
keep any taxpayer information received totally confidential.
    So, simple question: if enacted--and it has passed the 
House--will you commit to utilizing this authority fully and 
use whistleblowers as a resource as appropriate?
    Commissioner Rettig. Yes, the IRS will follow the law.
    The Chairman. Okay.
    The Taxpayer First Act also would extend anti-retaliation 
provisions to IRS whistleblowers that are presently afforded to 
whistleblowers under other whistleblower laws such as the False 
Claims Act and the Sarbanes-Oxley Act. And by the way, I was 
involved in both of those from the whistleblower standpoint.
    Do you agree that extending these provisions to IRS 
whistleblowers is important to ensure whistleblowers can come 
forward without fear of employer retaliation?
    Commissioner Rettig. Yes.
    The Chairman. You are aware of the recent college 
admissions scandal being prosecuted in Boston. Last week, 
Senator Wyden and I sent you a letter discussing some of the 
apparent tax cheating that is based on publicly available 
documents from the Department of Justice. These examples 
included parents claiming charitable deductions for bribes and 
making illicit payments out of family foundations as well as 
their businesses, none of which would be proper for tax 
purposes.
    Can you assure us that the IRS is aware of these 
allegations of tax wrongdoing and will thoroughly investigate 
these cases?
    Commissioner Rettig. Mr. Chairman, we cannot comment on 
active investigations. Our Criminal Investigation unit has been 
co-lead on the investigation with the FBI since the inception 
of this case. Public records indicate that the lead defendant, 
Mr. Singer, was charged with and pleaded guilty to his role in 
a tax-related conspiracy to defraud the IRS.
    We expect numerous other individuals to be charged with 
criminal tax violation as the investigation continues. IRS 
Criminal Investigation ensures that when appropriate, 
criminally charged defendants are mandated to cooperate with 
the IRS to correct their returns and pay the outstanding 
liability to the U.S. Treasury, including interest and 
penalties.
    The Chairman. Your testimony discusses IRS's Integrated 
Modernization Business Plan and the need to modernize the 
agency's aging technology and information systems. I could not 
agree more with the importance of that. However, in recent 
years Congress has appropriated billions of dollars to update 
and modernize the IRS computer system.
    And GAO and the Inspector General for Tax Administration 
have raised significant concerns that those funds were not 
spent efficiently and effectively. What steps are you taking in 
this business plan to ensure that we do not have a repeat of 
the past? How can we be ensured that this new investment 
provides real improved service to the taxpayers and better 
protection of the information we require them to submit to the 
IRS as part of their tax returns?
    Commissioner Rettig. The plan includes specific goals and 
metrics that are to be verified by independent third parties. 
The IRS business divisions have been actively engaged with the 
IRS IT team and others in designing the plan, which sets 
specific business goals and includes multiple milestones, 
significant oversight, and various levels of accountability 
while expanding the analytics to more effectively serve and 
bring taxpayers into compliance, and we would look forward to 
working with your staff as we move forward with the plan.
    The Chairman. I have 25 minutes left. I will reserve it----
    Senator Wyden. Twenty-five minutes?
    The Chairman. Twenty-five seconds. [Laughter.]
    Senator Wyden. Thank you.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    Commissioner, at your confirmation hearing you were asked 
how you would respond to political pressure. You said, ``I 
would hope that the members of this committee and the American 
taxpayers see me staunchly independent or more so.''
    I bring this up because I am of the view that you are now 
on the receiving end of a very aggressive political campaign by 
the Trump administration. Last week the President's lawyer, 
presumably acting at the behest of the President, wrote the 
Treasury Department a letter insisting that you, the IRS, not 
comply with Chairman Neal's request.
    Yesterday, Secretary Mnuchin stated before another 
congressional committee that the Treasury Department had been 
in touch with White House lawyers about House Democrats 
requesting the President's tax returns. The law says that when 
the chairman of one of the tax committees makes a request under 
section 6103, the Treasury Secretary shall furnish such a 
committee with any return or return information on such 
requests.
    It is my understanding that the Treasury Secretary long ago 
delegated this authority to the Commissioner. And that 
delegation can only be withdrawn on notification to Congress. 
Finally, as far as I know, the Treasury Secretary has never 
been involved in response under section 6103.
    So my reading, putting all this together, is that it is 
your job, and your job alone, to respond to Chairman Neal's 
request. Do you agree with that?
    Commissioner Rettig. We received the letter. We are working 
on the letter with counsel, and we anticipate responding.
    Senator Wyden. So you do agree with me that it is your job, 
and yours alone, to respond to Chairman Neal's request? That is 
a ``yes'' or ``no.''
    Commissioner Rettig. When you say ``alone,'' remember that 
we are a bureau of the Treasury. We are supervised by the 
Treasury.
    Senator Wyden. But you heard me state the history. It is 
clear it is your job, and yours alone. And I want to move on, 
but I think it is unfortunate you are just not saying, ``It is 
my job, and my job alone,'' because that is----
    Commissioner Rettig. I am aware of the delegation order, as 
is Treasury. But you must be aware that we are a bureau of 
Treasury, and the Treasury, you know, the Treasury supervises 
us.
    Senator Wyden. Has anybody in the Trump administration at 
any time, including during your nominee vetting process, 
discussed with you how you would comply or not comply with the 
congressional requests to obtain the President's tax returns?
    Commissioner Rettig. No.
    Senator Wyden. Has anyone in or on behalf of the White 
House directly or indirectly instructed you to not comply with 
Chairman Neal's request?
    Commissioner Rettig. No.
    Senator Wyden. Will you pledge to inform this committee if 
anybody in the White House directly or indirectly asks you to 
not comply with Chairman Neal's request?
    Commissioner Rettig. Yes, and I believe the law also 
provides that we would--anybody in the IRS who would get such a 
request would be required to also advise TIGTA.
    Senator Wyden. I am just going to move on, but I just want 
to make sure you understand. You told us in the confirmation 
process, you told me--when we were visiting--you were going to 
resist political pressure. My reading--and that is why I went 
through all of the facts--is that it is your job, and yours 
alone, to respond to Chairman Neal's request, and I hope that 
will be the case.
    Commissioner Rettig. Senator, I believe based on our 
personal interactions, you have a pretty good read on me as a 
person. And I will leave it at that.
    Senator Wyden. Okay.
    I want to ask you now about Earned Income Tax Credit 
recipients being more likely to get audited and millionaires 
being less likely to get audited. You heard me go through the 
numbers, and this--I just think it is shameful that poor folks 
in Humphreys County, MS have the highest audit rate in America. 
But if you are a high-flyer or somebody running a shell 
company, you are not as likely to get audited. Earned Income 
Tax Credit audits make up a higher percentage of total audits 
since Republicans have taken the budget axe to IRS.
    So here is my question. My question is, is it really the 
intent of the Internal Revenue Service to audit taxpayers who 
are struggling to make ends meet while increasingly letting 
millionaires and multinational corporations off the hook? Is 
that the intent of the agency?
    Commissioner Rettig. No.
    Senator Wyden. What are you going to do about it?
    Commissioner Rettig. We are looking at the Earned Income 
Tax Credit. Part of the problem with the statistics and where 
you are is, there is an $18.4-billion overpayment each year 
associated with the Earned Income Tax Credit.
    We want to work with Congress. We are going back to see 
every proposal that has happened, I believe, since 1975 to 
reduce the complexity in the credit. The majority of the issues 
revolve around the definition of a qualifying child.
    We would hope that, working with Congress, we can come up 
with a better application or an understanding and acceptance 
that this is a social program, and----
    Senator Wyden. I told the chairman, like him, I would set 
an example of staying within my 5 minutes.
    Look, in my view, the stark contrast between the fact that 
the poorest and most vulnerable get audited more than these 
multi-millionaires is yet more hard evidence that the tax 
system is stacked in favor of the wealthy.
    I would like you to send us a plan, the chairman and 
myself, on how you are going to turn this around. Can we have 
that from you within, say, 30 days?
    Commissioner Rettig. You will. I would be willing to meet 
with you personally.
    Senator Wyden. I would like to have it in writing.
    Commissioner Rettig. My views on not only the Earned Income 
Tax Credit, but----
    Senator Wyden. I am over----
    Commissioner Rettig. We are looking at higher-end taxpayers 
as well.
    Senator Wyden. I am over my time.
    I would like it within 30 days, how we are going to change 
this system that is stacked against the most vulnerable. And I 
hope that you will send it to the chairman and me.
    Commissioner Rettig. We will address both the Earned Income 
Tax Credit and what we are doing with respect to other 
taxpayers.
    Senator Wyden. Thank you.
    Is 30 days all right?
    Commissioner Rettig. It should be.
    Senator Wyden. Thank you.
    The Chairman. Senator Enzi?
    Senator Enzi. Thank you, Mr. Chairman.
    And, Commissioner Rettig, thank you for your testimony, and 
especially for your help in reopening the Cheyenne, WY IRS 
Taxpayer Assistance Center after it was abruptly closed in 
January. The unannounced closure severely affected taxpayers in 
my State who sought assistance in complying with changes made 
by tax reform.
    At this point, it remains only partially open for 3 days at 
a reduced schedule. I am aware that my constituents have 
continued to have some challenges getting the assistance they 
need and deserve. Can the IRS expedite the process to have it 
open full-time?
    Commissioner Rettig. We are working very hard on Cheyenne 
and Sheridan in terms of trying to make sure the staffing--our 
issues have to do with attrition. The centers closed with 
respect to unexpected recent retirements. And so, as you know, 
we were doing 3 days a week, filling it with people from 
Denver.
    And so we are sensitive to the issues. I cannot confirm 
something to you sitting here, but I will be back in touch with 
you quickly on whether it is a 3-day or a 5-day.
    I should say that all of the 358 Taxpayer Assistance 
Centers in the country, 38 of which are unstaffed--but the way 
the system works now is, taxpayers call in for an appointment. 
For over 50 percent of the taxpayers who call in for an 
appointment, our phone assisters are able to resolve the matter 
on the phone. And so only half of them actually end up in an 
in-person appointment.
    But we are very sensitive to the issue of staffing the 
Taxpayer Assistance Centers and helping taxpayers.
    Senator Enzi. I appreciate that and would ask if you would 
agree to provide members of Congress with advanced notice about 
scheduled closures of the Taxpayer Assistance Centers in their 
States.
    Commissioner Rettig. We will, and I think there is also 
pending legislation that brings that about as well.
    Senator Enzi. Okay.
    Sometimes those retirements are not known, but----
    Commissioner Rettig. Right.
    Senator Enzi [continuing]. Often they are.
    On a different subject, I tell, particularly seniors that 
if they get a call from the IRS asking them to return the call, 
it may well be a scam because the IRS works through the post 
office. Then I looked at a 2010 report that highlighted the IRS 
at one point was spending almost $58 million per year on 
undeliverable taxpayer correspondence, which leads to degraded 
communication with the taxpayers and waste of taxpayer 
resources.
    Do you have any more recent information on what the Service 
is spending on undelivered correspondence?
    Commissioner Rettig. I do not, but we will work with your 
staff and get you some updated figures.
    Senator Enzi. Do you know if there are any plans to do 
something on that?
    Commissioner Rettig. We are looking at it seriously. That 
and all other budget-related issues have a strong focus 
internally, as you can imagine.
    Senator Enzi. Yes.
    Commissioner Rettig. These are not easy issues for us, nor 
any other, I guess, similar organization. But paying for 
undelivered mail is not something we want to be in the business 
of doing, for sure.
    Senator Enzi. It seems like the taxpayers' address ought to 
be fairly valid, but obviously they move. So I hope you are 
taking a look at some of the delivery tracking systems that are 
used by commercial businesses.
    But I do appreciate that they can rely on getting it 
through the mail so that those phone calls are scams and they 
can do something about it.
    I appreciate the advances you made and what you are 
planning on doing, and I look forward to hearing more of that.
    And I will yield back time to help out.
    The Chairman. Thank you.
    Senator Cardin, I think you are next.
    Senator Cardin. Thank you, Mr. Chairman.
    Mr. Rettig, first of all, thank you very much for your 
service.
    We had a very healthy town hall meeting this week with 
Senator Wyden and the Commissioner in Maryland with the 
workforce. And I thank you for your accessibility. You clearly 
have reached out to our workforce, and I know that they 
appreciate that.
    I say that in light of the fact that this is a budget 
review hearing on how this tax season is moving forward. There 
has been a long trend of not providing adequate resources to 
the IRS. And that has had an impact on the workforce, on their 
ability to carry out their mission, the modernization of the 
IRS as far as IT is concerned, being consumer-friendly, to be 
able to answer telephones and give advice, as well as dealing 
with the challenging enforcement with a lot of sophisticated 
taxpayers who can hire very sophisticated help in order to try 
to avoid paying their fair share of taxes.
    So it is important that you have the tools that you need. I 
am glad you mentioned the critical pay authority. I hope that 
we can get that resolved in this Congress. That is needed for 
you to have that ability to hire people to meet the challenges 
at the IRS.
    I also would just point out to the committee the impact of 
the government shutdown. The IRS itself was affected by that. 
That has had an impact on some talent who have decided either 
not to come to the IRS or to leave the IRS. You are always in 
competition with the private sector, which has never been 
thought to be as stable employment as the Federal Government. 
Now, it looks like it might be more stable than the Federal 
Government.
    So these challenges exist, and I think it is important for 
the Finance Committee--this committee, which is the authorizing 
committee--to make sure that we support adequate resources so 
that you can carry out the work that you are doing. And we are 
very much committed to what you are doing.
    Can you just share with us the challenges you have in 
recruitment, retention, and getting talent that is necessary to 
make our system the best that it is?
    Commissioner Rettig. Coming in from the outside--I have 
been on board about 6\1/2\ months now. I was sworn in on 
October 1st. The human resources side of the operation and 
workforce itself--all workforce-related issues present a 
challenge.
    The eligibility for retirement--about 45 percent of our 
workforce is eligible to retire within the next 2 years. I 
think less than 3 percent of our workforce is under the age of 
30. We had a hiring freeze from 2011 to 2018, when essentially 
we lost an entire generation of IRS employees through the 
hiring freeze.
    I guess across the Federal Government, I have come to learn 
that the normal process is 8 or 9 months to bring people on 
board, which in the private sector is almost unheard of. In my 
prior position, if I met somebody on Friday, they could be in 
the office next to me on Monday or Saturday. It is a radically 
different position.
    And so as we have had attrition, the experienced, 
knowledgeable people are leaving. We have had difficulty 
bringing people on board, and it just takes a while to train 
experience. And that has even been inside our Human Capital 
office, which then backs up across all of our business 
divisions if our Human Capital office cannot get out there to 
do the hiring.
    We have made some modifications inside. We have put some 
direct connections between Human Capital and the various 
business divisions. We have moved to a roster system, rather 
than a sort of specific system of hiring. So we kind of have a 
pool that has gone through the process. We are in the process 
of hiring about 4,300 compliance personnel on the enforcement 
side of the house, which will be significant.
    But among the biggest challenges are bringing people 
onboard and the timeline to bring people onboard. Streamlined 
critical pay, obviously, to bring people onboard in the IT and 
cyber functions, is extremely important. It expired in 2017. I 
think it was passed in 2013. We need the ability to compete 
with the private sector to get the talent to be able to protect 
the systems that protect the American taxpayers, and that is 
something that we will continue to work on with your staff, the 
committees, and anybody who is willing to work with us.
    We receive over 150 million returns a year. We are probably 
the world's largest data bank, and we receive about 1.4 billion 
attacks on our system each year. It varies, but you can----
    Senator Cardin. Give me that number one more time.
    Commissioner Rettig. One-point-four billion attacks on our 
system each year, many of which are sophisticated attacks from 
nation states.
    And we are committed, our people are committed to not 
having those attacks be successful.
    Senator Cardin. And critical pay authority--this is one of 
the areas where you would use that authority to protect us 
against those types of attacks.
    Commissioner Rettig. Absolutely. That is what it is 
designed for.
    Senator Cardin. Thank you.
    Commissioner Rettig. Thank you.
    The Chairman. Senator Portman?
    Senator Portman. Thank you, Mr. Chairman.
    Commissioner, thank you for being here, and congratulations 
on the progress so far in the filing season.
    As you know, I have been one of those people who believes 
the IRS need some fundamental reform. You know I have talked a 
lot about that. Senator Cardin and I have legislation intended 
to make the IRS more responsive to taxpayers.
    I also support the legislation that passed the House by 
voice vote just this week. And I know that Chairman Grassley 
wants to bring that up in the committee.
    I must say that I am impressed by the fact that since you 
have gotten there, we have seen some successes. And I think we 
are heading in the right direction, although we have a lot to 
do.
    One thing I will tell you that I want to point to is 
combating tax-related identity theft. This is something we 
talked about as you went through the confirmation process. You 
pointed out in your testimony that the number of reported 
victims of identity theft fell 71 percent since 2015. I will 
say, just in the last few months we have seen some success.
    To put an Ohio spin on this, back a couple years ago, my 
staff personally handled almost three dozen cases of tax-
related identity theft. Last year that number fell to just one 
case. So we have seen real progress back home too, and we 
appreciate your doing that.
    With regard to the IRS reforms, the streamlining, the 
critical pay authority for IT employees, is something I think 
you and Senator Cardin just talked about. And I think that is 
really important, reinstating that. I assume from your answer 
that you agree with that, and that having to rely on 
infrastructure that dates back to the Kennedy administration is 
another problem.
    So this outdated IT infrastructure is costing taxpayers 
money. It is causing you to have to go back and correct 
taxpayer information. Maybe you can talk a little about the 
need for you to have better IT infrastructure and what that is 
going to take in terms of funding.
    Commissioner Rettig. Yes. It is the code that goes back to 
the Kennedy administration. The hardware is somewhat newer than 
that, but nevertheless we have systems that need to be updated. 
They have been patched through the years, and the IRS systems 
have been asked to take on more and more tasks.
    We have about 60 different applications. I think we have 
12,000 or 13,000 servers on 12 mainframes. And it is difficult 
to continually patch. At some point, we need to replace. And we 
are definitely at that point.
    We are as well-posed as I think we have ever been to--and I 
was somewhat familiar with this while I was on the outside. The 
IRS is as well-posed as it has ever been to be able to 
modernize both the infrastructure as well as the language. And 
so we are moving forward with the ability to be agile, 
flexible, as newer technologies come along.
    Senator Portman. And what do you need in terms of funding? 
I know you have a budget request, but what do you personally 
think is needed in terms of funding to get this IT 
modernization effort underway?
    Commissioner Rettig. The funding request on the plan is, 
over a 6-year period, between $2.3 billion and $2.7 billion. 
And it is essentially two 3-year phases with independent 
outside appraisers looking at it.
    Senator Portman. Do you think that is adequate?
    Commissioner Rettig. From what I have seen, I believe it is 
today. And if it changes, I would certainly let you know. And I 
have been significantly involved in that from day one.
    Senator Portman. I hope you will continue to talk to this 
committee and the Ways and Means Committee about specifically 
what you need. I know that sometimes you are constrained by 
what is in the President's budget, but to the extent that you 
can, tell us what you really need to be able to modernize that 
IT, because that is so essential to taxpayer service and----
    Commissioner Rettig. Senator, if I might add to that. I was 
reminded that one of the critical functions as we move forward 
with modernization is the ability to have multi-year funding so 
we do not start and stop, and start and stop, so that our 
people can get the job done. And so that would also tie in with 
all that.
    Senator Portman. Yes, and I support that with regard to the 
infrastructure, with regard to the need to be able to have some 
certainty on your modernization effort.
    On the IRS's strategic direction, as you know, the IRS 
Oversight Board is something the House took out last year, out 
of their budget. Their proposal this year, it is back in. It 
does not have all the provisions of the Portman-Cardin 
legislation that makes the IRS Oversight Board, in my view, 
more of a strategic advisory board. It actually decreases the 
number of individuals. It has become defunct, in essence, over 
the last 5 or 6 years.
    Can you tell us what you think about the IRS Oversight 
Board? Does it have a role to play, in your mind? And what is 
your view of the House-passed bill?
    Commissioner Rettig. As you know, previously I participated 
on the IRS Advisory Council, which was not an oversight board, 
but it was an outside board. And I thought it was significant 
for the ability of the agency to bring in outside expertise and 
put the issues in front of them.
    I am in favor of an oversight board. I am actually in favor 
of oversight, generally, also as well for the IRS itself. I 
think it brings accountability and responsibility to everyone 
in the agency, including myself. And I think it allows us the 
opportunity to possibly get some expertise on a basis that we 
might not otherwise be able to.
    Senator Portman. I appreciate your support of that 
expertise.
    You also mentioned accountability. The third thing I would 
mention is sustainability.
    Commissioner Rettig. Yes.
    Senator Portman. In other words, the IRS has gone back and 
forth over the years with reforms, depending on who the 
Commissioner is, who the Treasury Secretary is. So this would 
provide some continuity.
    Thank you, Mr. Chairman.
    The Chairman. Senator Warner?
    Senator Warner. Thank you, Mr. Chairman.
    The Chairman. Senator Casey was ahead of you. I told 
Senator Warner he could go next. You will be next then, Senator 
Casey.
    Senator Warner. Thank you, Mr. Chairman, and thank you, 
Senator Casey.
    The Chairman. I hate to referee among the opposite party.
    Senator Warner. Just do not be taking my time, Mr. 
Chairman. [Laughter.]
    The Chairman. Start his time over.
    Senator Warner. I thank you, Mr. Chairman.
    Commissioner, it is good to see you. Thank you. I want to 
join my colleagues in commending you in terms of getting off to 
a good start in this tax filing season.
    I do want to go back to the line of questioning, though 
briefly, that the ranking member asked. I personally believe 
that 6103 is clear that this is a provision that gives the 
chairman of the Finance Committee, the chairman of the Ways and 
Means Committee the ability to examine the President's tax 
returns without any involvement of the Treasury, or White 
House, or others.
    I would simply point out--and I just want to get your view 
on this. Secretary Mnuchin recently appeared before the Ways 
and Means Committee in the House, and the statement he made was 
that he thought in terms of 6103 that this would not be 
something that he would sign off on, that it would be something 
that the IRS Commissioner would sign off on.
    And I just want to make clear for the record, you do not 
have any disagreement with the Secretary's interpretation of 
the law, do you?
    Commissioner Rettig. As I said before, the Treasury 
supervises the Internal Revenue Service. We are a bureau of the 
Treasury.
    Senator Warner. Well, I hope you will adhere to the 
Secretary's comments and make sure that, as you respond to 
Chairman Neal's request, you do it without any interference 
from the Treasury Secretary or anybody at the White House.
    Let me move my line of questioning, though, to the changing 
nature of the workforce, something I have been working on for 
the last couple of years. As people move away from full-time, 
permanent employment, we have seen estimates as high as one-
third of the American workforce today is in some level of 
contingent work--part-time, independent contractors, gig work.
    I have been particularly interested in the component around 
gig work, people moving off these platforms. I believe this is 
an area where there is a lot of complexity and also a lot of 
lack of clarity.
    Can you speak to what the IRS has been working on as more 
and more people go through self-reporting and some of the 
challenges that folks face with this kind of contingent work?
    Commissioner Rettig. Yes, you know self-reporting is--self-
reporting without a withholding, when there is not a third 
party reporting, does lead to compliance-related issues. I 
think the statistic is that if there is no third party 
reporting, about 37 percent of that is actually picked up and 
reported. But if there is reporting without withholding, I 
think the statistic is about 90 percent gets picked up because 
we are able to match information that comes in, whether 1099-
MISC, 1099-K, or wherever it might be. And then there is 
reporting with withholding, which is about a 99-percent 
accuracy rate.
    So we are supportive of reporting by third-parties who are 
actually handling payments with respect to a lot of these 
situations that are out there. We are focused on it.
    Senator Warner. Was there any way--because I know that the 
Treasury IG for Tax Administration issued a report in February 
that found a 237-percent increase in discrepancies between what 
is reported on a gig worker's income tax returns and payments 
reported to the IRS. And that report said that the agency 
lacked a strategic plan, and part of this was due to the 
underreporting in the IRS's automated reporting program.
    Are there technology fixes here, or is this--how big a 
focus will this be under your tenure to make sure that--because 
I do not think we are going to see a slowdown in people moving 
into different forms of contingent work. And it is, I think, 
really critical that we make sure that we monitor, follow, 
collect in that area.
    Commissioner Rettig. I agree with you, and it is an area of 
concern to me personally, as well as to the agency. And it is 
one that we are willing to get together on with you and your 
staff or the other staff here.
    We need to put a stop to the underreporting part of this 
economy.
    Senator Warner. Well, I would welcome that opportunity.
    I only point out, for the chairman and the ranking member 
as well, you know that close to a third of the American 
workforce--and this is not your bailiwick. I fear that they are 
operating--they may be doing well on paper, but because of our 
20th-century social insurance system, the only people whom we 
give benefits to are people who are full-time W-2 employees.
    So it would be the jurisdiction of this committee. Senator 
Young and I have an experimentation about portable benefits 
that I think is going to have to be the wave of the future. I 
firmly believe that anyone who is working, regardless of what 
classification of work, there ought to be some social insurance 
provided. And again, outside your bailiwick, but trying to make 
sure that we accurately report and collect from all that 
growing segment of the workforce is really important, and I 
hope the chairman will work with me and Senator Young on this 
kind of legislation.
    And since you gave me the extra time, I will cede back my 
last 20 seconds.
    The Chairman. Thank you very much, and both Senator Wyden 
and I heard what you said.
    Senator Casey?
    Senator Casey. Thanks very much, Mr. Chairman.
    Mr. Commissioner, thanks for being here. Thanks for your 
service.
    I wanted to start with a quotation from The Washington 
Post, quoting Marv Freelander, a former IRS official with 40 
years' experience at the IRS, including its exempt 
organizations. Here is what Mr. Freelander said after those 40 
years. He said, ``I personally saw there was corruption,'' and 
he lists a whole group of various groups. And then he says, he 
goes on to say, ``And the ability to begin by looking at large 
donations, whether tax-deductible or not, was a useful tool in 
pursuing the possibility of corruption.''
    So that is someone with a lot of experience, obviously, 
talking about having a useful tool, the tool really of 
disclosure, as a way to prevent and root out corruption.
    In July of 2018, the administration terminated the 
longstanding requirement that 501(c) nonprofit organizations, 
including dark money groups, disclose their large donors to the 
IRS. Another way of saying that is that nonprofit groups 
engaging in political activities will no longer be required to 
disclose the names of individual donors no matter how much 
money those donors give. That is the current state of affairs.
    To your knowledge, was IRS's Criminal Investigation 
division consulted prior to imposing this change in the 
disclosure of so-called dark money?
    Commissioner Rettig. I would not know that. I was not on 
board at that time.
    Senator Casey. So you have no knowledge either way about 
whether or not they were consulted?
    Commissioner Rettig. That notice came out before I was 
sworn in on October 1st.
    Senator Casey. I understand that. But----
    Commissioner Rettig. Yes, I have no knowledge. That was 
before me.
    Senator Casey. Do you have an opinion about whether or not 
when that kind of change would be made--which I think is a 
consequential change in terms of disclosure, in terms of 
taxpayers knowing the size of donations and who is giving 
them--if that were to be debated and you are the Commissioner, 
would you seek an opinion from the Criminal Investigation 
division?
    Commissioner Rettig. When the IRS is--I can explain 
generally. Since I have been on board, when the IRS is putting 
together information, maybe changing course, or adding and 
whatnot, the majority of the different divisions are aware of 
what is happening and have the opportunity to comment.
    But I do not have specifics on that as to Criminal 
Investigation.
    Senator Casey. Would you think it would be better to seek 
out an opinion or a point of view of the Criminal Investigation 
division in that kind of----
    Commissioner Rettig. I can certainly confirm that the Chief 
and Deputy Chief of Criminal Investigation look at everything 
that comes into their mailbox. And they are highly interactive 
with the rest of the agency.
    Senator Casey. And as you know, in your work as 
Commissioner, you are charged to fairly administer and 
faithfully execute the law. I know you understand that.
    A core function of the IRS is to investigate potential 
criminal violations of the tax code and related financial 
crimes. In fact, you are the only entity that can do so.
    It is shocking to me, and I think a lot of Americans, that 
in the intervening time since your confirmation you have not 
determined whether or not your workforce was consulted or 
signed off on that kind of a serious change in disclosure. What 
do you think we should do going forward?
    Commissioner Rettig. We can work with you. We can get the 
information for you with respect to Criminal Investigation and 
their position on that, if that is what you are looking for.
    Senator Casey. Well, I appreciate that, because I think one 
of the things that a lot of Americans are concerned about--and 
this is folks who are, no matter what their political point of 
view is--they see the rise of very powerful interests, probably 
now more than ever. That has always been a concern. And then 
they hear that those same major interests not only get to have 
a point of view in the public square, but to give sometimes 
unlimited donations with almost no disclosure.
    All I think they are asking for is a measure of disclosure, 
which was taken away when the administration changed that.
    Commissioner Rettig. When the organizations are examined, 
the Internal Revenue Service asks for the donor list. So it is 
just a matter that the donor list--the change was that the 
donor list was not on part of the form when it came in. And my 
understanding is part of that change came about because of some 
mistakes the IRS had with respect to unauthorized disclosures. 
I believe there were 11, each of which--my understanding is it 
cost about a million dollars for the unauthorized disclosures 
of donor information that had to be redacted.
    The information is still required to be maintained and be 
made available to us upon request.
    Senator Casey. I would still argue sunlight is still the 
best disinfectant.
    Thank you, sir.
    The Chairman. Senator Toomey?
    Senator Toomey. Thank you, Mr. Chairman.
    Commissioner Rettig, is a 501(c)(4) taxable or tax-exempt?
    Commissioner Rettig. Tax-exempt.
    Senator Toomey. That is my understanding.
    Contributions to 501(c)(4)s are not tax-deductible, are 
they?
    Commissioner Rettig. Correct.
    Senator Toomey. Right.
    So an individual making a contribution to a 501(c)(4) is 
making a contribution that he or she cannot deduct, and giving 
money to an entity that is not a taxable entity. I do not know 
what the criminal enforcement division of the IRS has to be 
concerned about, for the record.
    But I want to start with a brief discussion about some 
wildly misleading media coverage that I have heard recently. 
And the gist of it is that somehow people are not getting as 
big a refund this year, and therefore, they must be paying more 
in taxes.
    So first of all, do you have any data as far as average 
refund so far this filing season as compared to last filing 
season? Do you happen to know what the refund levels are?
    Commissioner Rettig. Year-to-date--so; as of April 5th--the 
average refund per taxpayer for this year is $2,833, $2,833.
    Senator Toomey. Yep.
    Commissioner Rettig. For last year, fiscal 2018, the 
average refund was $2,864.
    Senator Toomey. So it is almost identical. The figures are 
extremely close.
    But more importantly, if the only information you have is 
that somebody's refund from the IRS went down this year as 
compared to last year, is it possible to conclude whether they 
had a tax increase or a tax decrease from that information 
alone?
    Commissioner Rettig. The refund would be associated with 
the amounts withheld, not actually necessarily associated with 
the amounts of tax.
    Senator Toomey. So, to just answer my question directly, is 
it possible to know the total tax burden if all you know is 
what the refund amount was?
    Commissioner Rettig. No.
    Senator Toomey. Right, because, as you point out, the 
refund is a reflection of how much was withheld during the 
course of the year for which the refund applies.
    So to your knowledge, did the IRS change withholding tables 
in response to the tax reform that was enacted recently?
    Commissioner Rettig. The IRS changed the withholding tables 
in February 2018. The changes were made by career, longtime 
career IRS employees whom I do know and hold in high respect.
    Senator Toomey. Right.
    Commissioner Rettig. The changes to withholding tables were 
reviewed by TIGTA and GAO and approved.
    Senator Toomey. Right.
    And the changes that were made were constructed in a way 
that resulted in less money being withheld from workers' 
paychecks for a given dollar amount of income?
    Commissioner Rettig. The changes focused on--remember there 
is a broad range of taxpayers. So the changes focused----
    Senator Toomey. I am talking about individuals.
    Commissioner Rettig. Yes. The changes focused on basically 
single taxpayers, single employment. And so individuals, either 
married or individuals who had concurrent employment, multiple 
jobs at the same time, should have adjusted their W-4 
withholdings with their employers.
    Senator Toomey. The point is, the nature of the adjustment 
was to reduce the amount withheld from workers because the fact 
is, income tax rates declined in every income bracket. And so 
with withholdings reduced, people's take-home pay went up.
    And as it happens, the average refund is almost exactly the 
same, as you just testified. I appreciate that.
    Let me move on to another quick topic. And that is, last 
year before you arrived, the Treasury Inspector General issued 
a report stating that the IRS was not then in compliance with 
the improper payment requirements. And in fact, a number that 
is absolutely stunning to me is the improper payment rate for 
the EITC program. My information suggests that that was $16.2 
billion of improper payments in 2017.
    I think I heard you refer to a slightly larger number.
    Commissioner Rettig. Eighteen-point-four billion for 2018.
    Senator Toomey. So it went from $16.2 billion, improper 
payments. So these are payments presumably to people who were 
not supposed to receive them, or payments above the amount that 
a person was supposed to receive. Is that right?
    Commissioner Rettig. Essentially payments to people who 
should not have received it, did not have the right 
information.
    Senator Toomey. And that is, again, in 2017. It was almost 
a quarter of all EITC payments. Is that consistent----
    Commissioner Rettig. Correct.
    Senator Toomey. So what are we doing about this?
    Commissioner Rettig. I have been on board 6 months. We have 
had numerous meetings involved with EITC. And my understanding 
is, every Commissioner since 1975 has tried to deal with the 
EITC issue.
    The complexity of the code provision itself on what is the 
definition of a qualifying child is something that we would ask 
Congress to take a look at. We are hoping to be able to come in 
with some proposals.
    Some people look at it as a social program. And if so, it 
should be, I think, acknowledged as a social program, rather 
than a tax-related program. It is very, very difficult to 
administer based on filed information.
    And so where the audit rates happen is, correspondence 
audits go out. Letters go out asking to verify how this is your 
child. The definition of child is well beyond child or 
stepchild. It includes a lot of other capacities.
    So the ability for the Internal Revenue Service to verify 
some of that information is exceedingly difficult.
    Senator Toomey. Thank you.
    Mr. Chairman, I look forward to working with you. This is a 
big problem.
    The Chairman. Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    I agree on that issue and then also associate myself with 
the comments of the Senator from Pennsylvania with regard to 
all the media coverage of tax refunds, which seems to be sort 
of missing the point about people's actual tax liability.
    Mr. Rettig, would the best way to compare tax liability 
from one year to the next be to go to your tax return and look 
at the amount owed on the 2017 return versus the 2018 return?
    Commissioner Rettig. The tax figures would be on both 
returns.
    Senator Thune. Correct.
    So it seems to me that if you were going to get an 
assessment--now the liberal Tax Policy Center says that 90 
percent of middle-income families got a tax cut. So it seems 
like a lot of the coverage of this has been very misleading at 
best.
    Mr. Rettig, in your testimony you ask for Congress's help 
legislatively to improve clarity in work classification 
requirements. As you probably know, I have introduced 
legislation that would do just that. I have a bill called The 
New Gig Act which addresses the classification of workers and 
creates a safe harbor for those who meet a set of objective 
tests that would qualify them as an independent contractor, 
both for income and employment tax purposes.
    Given the importance of this issue to gig workers, to the 
administration, and to me, will you commit to working with me 
to add much-needed certainty to our worker classification rules 
as provided for by my bill?
    Commissioner Rettig. Yes.
    Senator Thune. Yesterday, the House passed the Taxpayer 
First Act, bipartisan legislation to modernize the IRS in a 
major pro-
taxpayer way. It is a big first step, and I look forward to 
working with my colleagues here on the Finance Committee and in 
the Senate more generally to get this reform bill across the 
finish line in this chamber.
    As you know, improved taxpayer service is something that I 
feel passionately about. I think it is something that I have 
long worked on, along with the chairman and with other members 
of this committee, and I know it is an area that you feel 
strongly about as well.
    As you work to implement a comprehensive customer service 
strategy, what do you believe will be the biggest obstacles to 
delivering the high-quality service that South Dakotans and 
other American taxpayers deserve and expect?
    Commissioner Rettig. The current issue we have is our 
equipment. It is certainly not the employees. It is not the 
dedication, or desire, or care of the employees. But we need to 
modernize the agency. And when we modernize the agency, I think 
we will be able to deliver real-time high-quality service to 
people, whether it is on the phone, whether it is online, or 
whether it is in person. I think that is what taxpayers expect, 
and certainly it is what they deserve. And it is certainly what 
our workforce wants to be able to provide.
    So it brings me back to the request for modernization of 
the agency itself. And we think there is appropriate oversight 
on the modernization plan, and I am always willing to listen if 
people have additional ideas. But I think that it is something 
that every member of Congress, that every person inside the 
Internal Revenue Service, and every person in this country 
could be proud about. And we should be able to deliver high-
quality service.
    Senator Thune. Well, that is something that--as I 
mentioned--Senator Grassley and I and others worked a long time 
on, and hopefully it can continue to make headway to make sure 
that taxpayers in this country are treated fairly, properly, 
and with the respect that they deserve.
    I want to follow up just on a question that was asked by 
Senator Toomey, and that has to do with the EITC number, which 
you mentioned was $18 billion in improper Earned Income Tax 
Credit payments this last year. And you mentioned that you have 
not been in there all that long.
    But with a quarter of those being made incorrectly, do you 
have any sense of what percentage of those improper payments 
are due to fraud, or what are due to the complexity of the 
rules? I mean, do you have a way of assessing that?
    Commissioner Rettig. We really do not, without doing a 
complete audit of the entire pool. And this is where people 
make comments that we are going after the appropriateness of 
the Earned Income Tax Credit.
    It is up to Congress and others to decide, should we leave 
it alone or should we go after it, with the net result that it 
is an $18-billion overpayment. If we can get the complexity out 
for a qualifying child, we should be able to readily identify 
fraud. But having that in there, it makes it more complex, more 
difficult for the IRS to actually be able to determine what is 
fraud and what is not.
    Senator Thune. Well, I hope that you will, as you continue 
in your efforts in this regard, come up with a way, a plan, 
that would be effective and successful. I mean, you are talking 
about, over a period of time, tens of billions of dollars over 
the course of several years.
    And to the degree that we can screen out those who are 
gaming that program or taking advantage of it in some way that 
is inconsistent with its intent and with the law, we need to 
figure that out. So, thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Hassan?
    Senator Hassan. Well, thank you, Mr. Chairman. And thanks 
to you and Ranking Member Wyden for holding this hearing.
    Commissioner Rettig, thank you as well for being here today 
to testify about the filing season.
    Before my questions, I want to address one of the biggest 
tax issues facing many Granite State businesses this filing 
season. It is the Supreme Court's backward Wayfair ruling which 
now requires small businesses in New Hampshire to collect 
Internet sales taxes for other States. You may know that New 
Hampshire does not have a sales tax.
    Last month a poll of federally licensed tax preparers 
indicated that 86 percent believe small businesses are 
unprepared to deal with the impact of the Wayfair decision. 
This is very concerning. And though State tax filing is not the 
subject of today's hearing, Internet sales tax collection 
requirements are under the jurisdiction of this committee.
    That is why, Mr. Chairman, I sent you and Ranking Member 
Wyden a letter today requesting that the Finance Committee hold 
a hearing on how these new sales tax collection requirements 
are impacting small businesses across the country. And I would 
appreciate your consideration of this request and would look 
forward to working with you on this issue.
    The Chairman. Obviously, we will do what you ask, consider 
it, and let you know. The only caution I have is, I get so many 
requests for hearings.
    Senator Hassan. Of course.
    The Chairman. So we have to prioritize them. I would ask 
your staff to talk to Senator Wyden and my Chief of Staff as 
well.
    Senator Wyden. Mr. Chairman, just for 2 seconds? The 
Senator is talking about something that is enormously important 
to my State as well as hers. So we would like to work with you.
    Senator Hassan. Thank you.
    Now, Commissioner Rettig, I want to turn to another topic. 
In 2017, Republicans promised that their tax law would simplify 
the tax code so much that it would allow taxes to be filed on a 
postcard. And after the tax law passed, Treasury tried to make 
good on that political promise.
    It shortened the core tax form, the 1040 form, by removing 
all of the real tax information that you need to actually 
determine your tax liability, and instead put that--really 
tried to hide that information on six separate, equally 
complicated schedules. So people now have the postcard, but 
then they have six additional schedules they have to fill out 
to do what the former 1040 used to do.
    So now we are learning that this hasty gimmick may be 
having serious real-world consequences, including disrupting 
financial aid for the 20 million students who use the Free 
Application for Federal Student Aid every year. That form, 
called FAFSA, allows students to use an IRS retrieval tool to 
automatically and accurately fill in their families' tax 
information.
    However, the tool draws from the Form 1040. And now that 
postcard no longer has that information. It no longer exists.
    Through its so-called ``postcard,'' the Treasury has broken 
FAFSA's tax data retrieval tool. As a result, millions of 
students may need to manually input their own tax data, leading 
to inaccuracies that could cause serious delays and even some 
students losing their financial aid.
    Commissioner Rettig, will you ensure that the IRS securely 
transfers tax information for students and families into the 
FAFSA despite the political games that Treasury played with 
these tax forms?
    Commissioner Rettig. Senator, we are working with the 
Department of Education on this issue. We are sensitive to the 
importance of the issue and will work with your staff as well.
    Senator Hassan. Well, thank you. We may only have several 
weeks to solve this problem before the FAFSA form is locked in 
for the application cycle that starts soon. So I am taking your 
answer as an assurance that the IRS retrieval tool will be 
ready in time for the upcoming FAFSA cycle that begins this 
fall.
    Commissioner Rettig. We will do our best. We are focused on 
the issue and working with Education.
    Senator Hassan. It is, as you know, a huge issue for so 
many students.
    Commissioner Rettig. I am very aware.
    Senator Hassan. Another question I had is about the 
research and development tax credit. It is one of the most 
important tools in the tax code for promoting innovation and 
small business growth. This tax credit incentivizes innovative 
work by startups all across New Hampshire, from new tech 
companies in the Manchester Mill Yard to small businesses grown 
within the New Hampshire business incubator network.
    The refundable R&D tax credit in particular is vital for 
new businesses that are not yet profitable enough to have 
taxable business income. I know the IRS has faced some 
challenges in administering the refundable R&D tax credit, some 
of which were highlighted in the Treasury Inspector General 
report from last December.
    As this committee looks at ways to build on the success of 
the R&D tax credit, it would be valuable to hear directly from 
you about steps the IRS is taking to ensure that the program is 
effectively administered. What progress has the IRS made in 
implementing the Inspector General's recommendation for the R&D 
tax credit?
    Commissioner Rettig. Senator, I do not have the information 
with me today. But we will work with you and your staff and get 
that information to you.
    Senator Hassan. All right, I would look forward to that. 
Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Now, Senator Cortez Masto.
    Senator Cortez Masto. Thank you, Mr. Chairman. Thank you 
for holding this hearing and to the ranking member as well.
    Commissioner, welcome. It is good to see you.
    I want to jump back to the Taxpayer Assistance Centers, and 
they are key. And in Nevada, I have had the opportunity to sit 
down with some of the folks who work there and talk about the 
impact--and the positive impact--they have on our taxpayers who 
need assistance.
    I also know in Las Vegas, the Taxpayer Assistance Center--
it was originally staffed by 20. And I think they are down now 
to seven staff in that Las Vegas office.
    So I guess--and I know you talked a little bit about it, 
but can you explain? Are you downsizing these centers?
    Commissioner Rettig. Not intentionally. People are 
retiring. People unexpectedly retire. As I indicated, I think 
45 to 55 percent of our workforce is eligible to retire within 
1- and 2-year time frames.
    We are hiring. We are trying to staff them to the extent we 
can. One of the things we did was, instead of just having it be 
a walk-in type service, we went to appointments, but we also do 
accept walk-ins at the TACs. And we found that for over 50 
percent of the people who call in for an appointment to a 
Taxpayer Assistance Center, our customer service representative 
on the phone whom they interact with, has been able to resolve 
their matter or steer them to a direction where they can 
resolve the matter. So it has brought down the actual foot 
traffic on the individual Taxpayer Assistance Centers.
    But personally I can tell you, I am a strong believer in 
inter-
personal interaction rather than----
    Senator Cortez Masto. I am too.
    Commissioner Rettig. And particularly with respect to sort 
of the elderly communities and the generally underserved 
communities, unrepresented taxpayers, English as a second 
language. From day one, everybody inside our organization has 
heard me express personal concerns in that regard, as far as it 
being a community that we need to pay particular attention to.
    And the TACs are one of the front lines on that.
    Senator Cortez Masto. So can I ask a question? I do not 
have much time.
    Commissioner Rettig. Sorry.
    Senator Cortez Masto. So I noted you highlighted a figure 
that you are hiring 4,300 FTE for enforcement. Is that correct?
    Commissioner Rettig. We are hiring elsewhere as well.
    Senator Cortez Masto. And so, how many would you say you 
are hiring with respect to the centers here to provide 
assistance to taxpayers?
    Commissioner Rettig. We have 358 TACs, 34 of which, I 
believe is the number, are not fully staffed. And so we are 
looking to staff our TACs to the extent we can.
    Now we move people from one location to another in order to 
accomplish that.
    Senator Cortez Masto. Okay.
    Commissioner Rettig. But we are focused on it, and we take 
the issue seriously.
    Senator Cortez Masto. So as you are dealing with your 
challenges in the staffing, what other options are available to 
taxpayers? Do you support the Volunteer Income Tax Assistance 
counseling----
    Commissioner Rettig. Absolutely.
    Senator Cortez Masto [continuing]. For the elderly program? 
And are there other programs that are available that also are 
staffed and can help individuals?
    Commissioner Rettig. We can coordinate with your staff. We 
do have quite a few programs. We are very engaged with that. We 
actually have--I was recently down in Texas and interacted with 
a high school group that is doing VITA for the 19th year in the 
high school. So we can help implement that.
    And in the bill, there is support for funding of VITA 
sites, matching programs for VITA sites, and we are really 
supportive of that.
    Senator Cortez Masto. What is your overall turnover rate 
per FTE?
    Commissioner Rettig. Pardon?
    Senator Cortez Masto. What is your overall turnover rate 
for FTE? I am curious. For your FTE, turnover rate?
    Commissioner Rettig. I would have to get back to you.
    Senator Cortez Masto. Okay; I would be curious about that.
    And then one final thing. I also understand, and the reason 
why I say this--and I know you have a staffing issue--but my 
understanding, after working and talking with our taxpayer 
advocates in the State of Nevada, I am also told that their 
phones are ringing nonstop. Taxpayers are calling the office 
because they cannot get through to the IRS.
    Telephone service is one area where the IRS has been 
performing sub-optimally. The level of service has dropped from 
nearly 80 percent to the mid-60 percent range from the last 
filing season. Is that correct, and if so, what are you doing 
to address the issue with calls?
    Commissioner Rettig. We are currently answering 6 out of 10 
calls. The modernization plan includes a lot of assistance with 
respect to calls, including a customer call-back service that 
we have in a pilot program now, which is, you place a call, you 
go into a wing, and then you do not lose your place. You come 
back exactly where you were.
    Senator Cortez Masto. So you do not have a system like that 
now?
    Commissioner Rettig. We have a pilot program.
    Senator Cortez Masto. But it does not--other than the pilot 
program----
    Commissioner Rettig. It depends on the line. We have 97 
different phone lines.
    Senator Cortez Masto. Right.
    Commissioner Rettig. So we put it on a line to test it for 
us, and we expect to roll it out----
    Senator Cortez Masto. And just so I know, when you first 
testified, you talked about a tech modernization program that 
is going to cost anywhere from $2.3 to $2.7 billion over a 2-
year period. Is that right?
    Commissioner Rettig. Six years.
    Senator Cortez Masto. Six years.
    Commissioner Rettig. It is two 3-year phases.
    Senator Cortez Masto. Included within that is the phone 
system and trying to address that.
    Commissioner Rettig. That is correct.
    Senator Cortez Masto. Okay.
    Thank you.
    Commissioner Rettig. We take our level of service very 
seriously. It is the front lines, and we want taxpayers to have 
a positive experience with us.
    Senator Cortez Masto. Thank you.
    I appreciate you being here.
    The Chairman. Thank you.
    Senator Cassidy?
    Senator Cassidy. Hey, Mr. Commissioner.
    Let me first give some credit where credit is due. A few 
years ago, I was the victim of identity theft. It wrapped my 
tax return around an axle in terms of getting my return.
    I noticed that, through your Security Summit, you have 
decreased the number of fraudulent returns identified from 
close to, I guess, $858 million in 2017, down to $15 million in 
2019. So, good job for you and the folks with whom you work. So 
just to say that.
    Commissioner Rettig. Thank you.
    Senator Cassidy. Now, let me go on. In your testimony, you 
reference correction procedures for specific errors. And I 
think that you may have been alluding to that somewhat in your 
answer to Senator Thune.
    Your proposal would allow the IRS to correct errors in 
cases where the information provided by the taxpayer does not 
match the information in government databases or the W-2 form: 
they have exceeded the lifetime limit for claiming the 
deduction or credit, or they fail to provide certain 
documentation.
    Now, going back to your conversation with Senator Thune in 
terms of prior improper payments, we have to do something. We 
have to formulate a solution.
    Can you lay out the financial impact if we do not formulate 
these solutions for the taxpayer?
    Commissioner Rettig. Well in EITC, it is $18.4 billion in 
overpayment for 2018.
    Senator Cassidy. In just 1 year.
    Commissioner Rettig. In just 1 year.
    Senator Cassidy. But also the education tax credits, I 
gather, are also----
    Commissioner Rettig. And the child care credits. There are 
a lot of areas.
    If we have the ability to correct based on information 
otherwise available to us, internal information, we also look 
at that as a taxpayer service. Because if we do not have the 
ability to correct on our end, then we issue notices that can 
either be in the form of an audit, a correspondence audit, et 
cetera, et cetera.
    And if a taxpayer does not respond to that, then they get 
another notice. So it is resources on our side. But it also 
uses up a lot of the taxpayer information.
    Senator Cassidy. So it is $18 billion in 1 year for EITC. 
Assuming that it did not grow, but it most likely will, over 
the course of 10 years, the 10-year window, that would be $180 
billion?
    Commissioner Rettig. Correct.
    Senator Cassidy. And you add all the others. So this is 
real money.
    Commissioner Rettig. We are trying to get the returns 
correct based on information we have.
    Senator Cassidy. Now, when I was subject to my identity 
theft, the person who stole my identity had no dependents. So 
you can see on my previous tax returns, I had dependents.
    So now it could have been a car wreck and all my family 
killed, but also they had no dependents; formerly I did. That 
clearly--they told me at the time though that there was no way 
for these computer systems to interrelate.
    Yes, they knew it. But somehow they could not correlate 
with the current fraudulent return. Has that now been 
corrected?
    Commissioner Rettig. Yes. I cannot go into the--I should 
not in a public forum go into the specifics of some of the 
filters that we do have. But we have some pretty spectacular 
filters that have allowed us to bring the numbers into where 
they are. And we are continuing to----
    Senator Cassidy. So it is my point that if we actually put 
the enabling legislation out there, you now have the 
capability--whereas, formerly you did not--you currently have 
the capability to use that to save the taxpayer $180 billion a 
year, even from the EITC alone--thereabouts or approaching 
that?
    Commissioner Rettig. That would be part of the intent.
    Senator Cassidy. Yes. And I do know that--I think Senator 
Wyden raised the point: why are we going after EITC as opposed 
to millionaires? We should go after millionaires if they are 
fraudulent. But I also point out that, of all the programs we 
have here, the IRS programs, the type of program and the level 
of risk identified, EITC is the only one that is listed at 
high-risk. And the rest of these are at medium or low risk.
    And so that does seem to be kind of the Willie Sutton law: 
that is where the money is. And obviously if somebody deserves 
it, they should get it. But if somebody is somehow gaming the 
taxpayer, we have to be fair to the taxpayer. And so I am with 
you on that.
    Let us see what else I have. You have a separate 
legislative proposal which requests authority to require 
minimum qualifications for tax preparers. Would this require 
additional--if you have a CPA or someone who is already 
accredited by a licensing agency, will there be further 
requirements upon them?
    Commissioner Rettig. No. The CPAs have their own--in terms 
of education requirements--and their education requirements 
would satisfy for this. This is really for the unlicensed 
people, to be able to regulate them. Also, to make sure they 
get the appropriate education and training so they can 
provide----
    Senator Cassidy. And this would be a Federal, not a State 
requirement, because it is a Federal reform?
    Commissioner Rettig. That is correct.
    Senator Cassidy. Okay.
    Thank you. I yield back.
    The Chairman. Senator Young?
    Senator Young. Mr. Commissioner, thanks so much for being 
here, and welcome. You can be at ease for a moment. I do not 
typically start off with a statement, but I will have a 
question for you, sir.
    I would like to speak to the medical device tax. The 
suspension of this tax is set to expire at the end of this 
year. And with that in mind, medical device companies must make 
contingency plans to potentially pay this onerous tax.
    The money to pay the tax must be set aside now and cannot 
be used to hire new workers, invest in R&D, or expand 
businesses. A Department of Commerce study projects that in 2 
years the tax, when it was in effect, cost an estimated 29,000 
jobs.
    Beyond the tax, there are also significant compliance costs 
to allowing the medical device tax to resume. I think it is 
good for all of us on the committee to recognize that these 
compliance costs would not be recoverable even with a 
retroactive fix, or a fix just weeks away from the tax 
resuming, which we have a habit of doing around here.
    This is why I am working with my colleagues here in the 
Senate to eliminate or immediately delay this harmful tax 
before it comes into effect. I want to spend a minute focusing 
on the IRS's role in the collection of the medical device tax. 
It is an excise tax that taxpayers will be required to pay on a 
semi-monthly basis if the suspension ends, beginning in January 
of 2020.
    And as I understand it, the IRS would have to go through a 
cumbersome process, for both it and for industry, of refunding 
payments to companies if we were to be in a position to 
retroactively address this problem. I have been told that the 
process of refunding any retroactive payments to companies 
could take months, leading to a further delay in deploying 
capital, in hiring new workers, or spending more on research 
and development.
    So with those thoughts in mind, I just ask my colleagues on 
this committee, I ask colleagues who may be watching these 
proceedings, to not allow this devastating tax to be 
reinstituted on the American economy. Retroactive action by 
Congress next year cannot fully undo the impact of allowing 
this tax to be triggered on January 1, 2020.
    And just as an aside, I should certainly add that Indiana 
is a robust medical device development and production State. So 
this is really important to Indiana's economy.
    Turning now to the Earned Income Tax Credit. I believe that 
the EITC has been an incredibly positive part of our tax code 
for a number of years. It encourages Americans to work, reduces 
poverty, and can help move folks off of traditional welfare 
programs, just as Milton Friedman sort of envisioned it as the 
negative income tax a number of years ago.
    I agree with my colleagues across the aisle that we need to 
look at the EITC as a model that might be expanded when we know 
the credit is getting to the taxpayer it is designed to help. 
However, EITC continues to suffer from a high improper payment 
rate. This is due at least in part to the complexity of 
applying the credit to the individual taxpayers' particular 
situations. It is also due to some measure of fraud.
    I believe if we could work together in a bipartisan fashion 
and drive down the improper payment rate, we could start a real 
conversation about putting those savings towards a more robust 
EITC. I really want this to happen.
    Commissioner Rettig, what lessons have you learned about 
how to improve the EITC this past filing season? Is it all 
enforcement and compliance, or are there ways the IRS could 
simplify EITC for taxpayers?
    Commissioner Rettig. From the IRS perspective, the IRS has 
provided much outreach and education, not only to taxpayers, 
but also to preparers. It is a routine topic at a lot of 
different--they are called tax forums that IRS hosts around the 
country trying to educate preparers, trying to educate 
taxpayers, online information, hard copies of information.
    And with that, the effort went from $16 billion in 
overpayment in 2017 to $18 billion in 2018. So it is an issue 
that we have a lot of resources devoted to. My personal 
reaction is, it requires a congressional fix to the statute 
itself to make it a statute that is easier to administer. And 
the majority of the issues come down to, what is the definition 
of a qualifying child, which does not necessarily mean it is a 
child who in the ordinary sense we would say is related to me, 
but they do qualify.
    And then we need to verify that. And so that process is 
very complex for us.
    Senator Young. So you answered my second question. You need 
greater guidance from or leadership in Congress on this issue.
    Would you or members of your team dedicate yourselves to 
working with my staff on this?
    Commissioner Rettig. Absolutely. We are very interested in 
it.
    Senator Young. Thanks so much.
    Mr. Chairman, I yield back.
    Senator Daines [presiding]. Senator Lankford?
    Senator Lankford. Thank you, Mr. Chairman.
    Commissioner, thanks for being here. Thanks for all the 
work. This is an incredibly busy season for you to be able to 
walk through this, for you and for your team. So I appreciate 
your time and your engagement.
    Walk me through something you and I have talked about 
before, that is, the question of legacy hardware and legacy 
software at the IRS, what the status is of getting that up to 
speed.
    Commissioner Rettig. Our systems--you know, the IRS has 
been tasked with a lot of new projects almost on an annual 
basis. And so they need to--essentially they had one project on 
top of an existing project. And at some point, the entire 
system needs to be brought about and replaced.
    We also have legacy in terms of the code, the language that 
is being used. That is actually what goes back to--there was a 
comment about the Kennedy era. It is not the hardware, but it 
is the code that we have that goes back to that era.
    And the private sector would not be operating in the sense 
that we are operating. I think it is a tribute to our IT and 
other folks inside the Internal Revenue Service, to the level 
and extent that we are operating. They delivered not only a 
seamless implementation of the tax act, but also a seamless 
filing season so far.
    Senator Lankford. So what is the time period on getting the 
code up to date?
    Commissioner Rettig. Well, under the modernization plan, it 
is within a 6-year time frame, and we expect that that plan is 
realistic. It has been reviewed by outside, independent third 
parties, both as to the schedule and the capacity to deliver, 
and approved.
    Senator Lankford. Okay.
    So we are in year one of the 6-years right now, or next 
year is year one?
    Commissioner Rettig. We are in year one now.
    Senator Lankford. Okay.
    What about the staffing side of it? It has to be 
progressively harder and harder to be able to get IT folks to 
be able to work on software that is 40 years old.
    Commissioner Rettig. Not only that, but part of the same 
issue is cyber. There are 300,000 cyber positions available in 
our country with a zero-percent unemployment rate, which brings 
me back to streamlined critical pay. We are competing with all 
the other entities that you can imagine. Onboarding people is a 
difficult process outside of that.
    We have worked really hard trying to raise the morale of 
our employees. I like to say that each employee in the Internal 
Revenue Service is an ambassador for the Internal Revenue 
Service and works hard with us to try to bring other people on. 
The hiring is a very difficult issue.
    Senator Lankford. Any way that we can help, that you need 
help from us directly on?
    Commissioner Rettig. Streamlined critical pay would help us 
a lot. I have read some general circulation articles about 
efforts to streamline the normal onboard hiring process, cut us 
down from an 8- or a 9-month process, allow us to be somewhat 
competitive with the private sector. That would help 
significantly.
    Senator Lankford. Okay.
    Let us talk about the tax gap. You and I have talked about 
this before. The tax gap number out there is very old. So we 
are all guessing on what the tax gap really is.
    How do we get an updated number?
    Commissioner Rettig. June 2019, we will release tax gap 
figures for the 2011 to 2013 time frame.
    We are actually looking at other ways of--tax gap comes 
about as a result of actual physical audits.
    Senator Lankford. Right.
    Commissioner Rettig. We are looking at, and I have tasked a 
department of the Internal Revenue Service to try to use data 
analytics to maybe get us a more current, possibly more 
accurate number--not that the other one is not, but using 
current information.
    The world has changed from 2011 to 2013 to 2019.
    Senator Lankford. Yes, quite a bit.
    So you and I have also talked about prioritization, in that 
when I talk to attorneys who handle tax issues in the private 
sector, and I will pull them aside and say, ``As a taxpayer, 
what drives you crazy about what you do?'', the first thing 
that they mention is the lack of prioritization at IRS, that 
they will have three cases in front of them, and they will 
randomly draw one.
    But this one may be a million dollars in tax and this one 
may be $10,000 in tax, and they are just as likely to go get 
the $10,000 and allow the one that is a million dollars in tax 
liability to expire 3 years from now as they go through the 
process.
    Commissioner Rettig. Yes. That is not my personality.
    Senator Lankford. Yes.
    So how are we fixing that?
    Commissioner Rettig. My personality is that we should use 
our resources across the board. We need to touch everybody, and 
we need to be in as many neighborhoods as possible.
    We do not need to take over the neighborhood, but we need 
to touch the neighborhoods. And we intend to do that. We have a 
lot of concepts that we are working on in terms of changing 
maybe the structure of how we operate on the enforcement side. 
We are not there yet, but I did come in with a lot of ideas to 
try to improve the enforcement side of the house and 
compliance.
    I believe that strong, robust, visible enforcement is a 
definite component of taxpayer service. The person who is doing 
it right needs to know that the other people are at risk. We 
intend to get there.
    Senator Lankford. And that is a great challenge. We have a 
lot of taxpayers who do it right. They go through the process, 
from millions and millions of people filling out their forms, 
going through all the software, talking to their CPA. They want 
to get it right, and it really bugs them when somebody is 
ripping the system off.
    Our job is not to protect people cheating the Federal 
Government. We want to be able to get good, low taxes and the 
fairest system that we can possibly get, but not to protect a 
tax cheat in the process.
    Commissioner Rettig. I completely agree.
    Senator Lankford. Okay. Thank you, Mr. Commissioner.
    Thank you, Mr. Chairman.
    Senator Daines. Senator Brown?
    Senator Brown. Thank you, Mr. Chairman. Mr. Chairman, I 
liked Senator Wyden's opening statement.
    I find it curious, Commissioner, that virtually every 
Republican, at least since I have been sitting here, almost 
everyone has brought up EITC and the $18 billion, in some cases 
suggesting most of it is fraud. It is not at all clear that it 
is.
    I just find it curious they bring that up, but rarely or 
never the kind of fraud--Senator Lankford just mentioned, any 
kind of fraud. I appreciate that.
    But when you look at corporate audits in the last number of 
years, they have plunged by 50 percent. In 2010, 96 percent of 
the largest companies, $20 billion or more in assets, were 
audited compared to only 28 percent in 2018. And we also know 
that the audits, they found $23 billion in unpaid taxes in 
2010; now it is $12 billion.
    So this is the same political party that fell all over 
itself in this committee a year ago to give tax cuts to the 
richest people in this country, and I just do not get it. I 
call out those--Senator Young, and what he said in his 
comments, that he really does want to find ways to expand the 
Earned Income Tax Credit, especially to people without children 
and others, and we are going to work together. And I always 
appreciate his approaching us and working together like that.
    I just have a series of mostly yes/no questions, if I could 
just ask you, Commissioner.
    Is it true under our current tax code that someone can earn 
enough working to be above the poverty line and then because of 
the payroll tax, other taxes, be pulled into poverty?
    Commissioner Rettig. I do not actually have the information 
to be responsive.
    Senator Brown. But you can see that that would be the case?
    Commissioner Rettig. If you are looking at hard dollars, 
and then you end up with less than that amount of hard dollars, 
the concept certainly makes sense to me. And I can certainly 
work with you and get back on specifics.
    Senator Brown. Can you tell me how many workers not raising 
children are actually taxed into poverty or taxed deeper into 
poverty?
    Commissioner Rettig. I do not have that information.
    Senator Brown. Okay.
    Commissioner Rettig. We could try to figure out----
    Senator Brown. Well, the answer is 5 million who are 
already in poverty or slightly above poverty. The Earned Income 
Tax Credit is not enough to buoy them, if you will, and the 
payroll tax pulls them further into poverty.
    Can you tell me what level of Earned Income Tax Benefit a 
65-year-old in Mansfield, OH working full-time at a low-wage 
job is eligible for, a 65-year-old?
    Commissioner Rettig. I think the married figure is $6,437, 
and the individual figure is $3,000.
    Senator Brown. At 65, it is zero. At 64 and under, that 
would be the answer.
    Commissioner Rettig. Okay.
    Senator Brown. If they are 65, they are not eligible, as 
you know. Maybe I did not ask the question clearly enough.
    Can you tell me what level of Earned Income Tax Credit 
benefit a 19-year-old recent high school grad is eligible for 
working full-time at minimum wage, hoping to save for community 
college? Is he or she going to get any EITC benefit at 19?
    Commissioner Rettig. No.
    Senator Brown. Okay. Thank you.
    So the President's tax law, as we know, gave massive tax 
cuts to millionaires and corporations, the same corporations 
that, as we have seen in the case of General Motors, send jobs 
overseas. And yet it did nothing to make sure hard-working 
people cannot be taxed into poverty and did not boost the EITC 
for people who are starting out in their careers or still 
working hard at age 65, as so many people who are barely making 
it have to.
    Let me switch to CTC in my last couple minutes. A recent 
report from the National Academy of Sciences told us an 
increased CTC alone could reduce deep poverty by half. Experts 
across the political spectrum, left to right, agree that 
expanding the Child Tax Credit is critical to lifting millions 
of kids out of poverty.
    While President Trump and congressional Republicans claim 
to have doubled the Child Tax Credit, millions of low-income 
families are not eligible for that expansion; correct?
    Commissioner Rettig. That is correct.
    Senator Brown. Okay. It is 26 million kids who are left out 
of the CTC increase.
    And another question: is it true the President's tax law 
made couples who make up to $400,000 per year--and if you are 
making $400,000 year after year as a couple, you are probably a 
millionaire. The President's tax law made those people eligible 
for the maximum Child Tax Credit, but chose to say that low-
income families do not get the maximum Child Tax Credit? Is 
that true?
    Commissioner Rettig. I will have to accept your statement. 
I have not personally looked at that.
    Senator Brown. Okay. I would not say it if it were not 
true.
    The conclusion of this, Mr. Chairman, is there are 441,000 
kids--and in my State of Ohio, a State of 12 million people, 
families get a token $75 increase or less in their CTC from the 
President's tax law.
    The average household in the top 1 percent is estimated to 
get a $55,000 tax cut. It means the President's tax law gives 
some Americans a tax break larger than the entire median annual 
income, $55,000, while a single mom in Ohio gets an extra $75. 
That $75 does not go very far, obviously, paying for day care.
    And I will just conclude with this. Senator Bennet, who has 
been a real leader in this, Senator Wyden, the ranking member, 
many of our colleagues, have introduced a bill to fix that and 
put more money in the pockets of workers and families who were 
left behind by the President's tax cuts for the wealthy. It is 
called The Working Families Tax Relief Act.
    It expands two programs we know work: the Earned Income Tax 
Credit and the Child Tax Credit. It will give a much-needed 
raise to millions of hardworking Americans and help give more 
kids a fighting chance.
    It could be the basis, as Senator Young suggests, for real 
bipartisan tax reform to make our tax system work better.
    Commissioner, thanks for the service.
    Commissioner Rettig. Senator, we are supportive of working 
with Congress on the Earned Income Tax Credit and in other 
arenas. We are actually trying to pull information together 
that we hope would be helpful for all your consideration.
    Senator Brown. For the expansion of EITC and CTC?
    Commissioner Rettig. And where the difficulties are. We are 
tax administrators, and so we do not necessarily do messaging 
or policy, but we need to administer. So where the practical 
aspects of ease of administration would help everybody----
    Senator Brown. Thank you, sir.
    Senator Daines. Senator Carper?
    Senator Carper. Thanks, Mr. Chairman.
    Commissioner, how are you?
    Commissioner Rettig. Good. How are you doing?
    Senator Carper. Great to see you.
    Commissioner Rettig. Good to see you.
    Senator Carper. Thank you for your willingness to tackle a 
very difficult and challenging job, but an enormously important 
one for our country.
    Commissioner Rettig. Thank you.
    Senator Carper. John Koskinen was your predecessor, as you 
know. And when you and I met before you were confirmed, I urged 
you to continue a conversation with him. He was so good at what 
he did, a very good leader, so I hope that you have had that 
opportunity. I am sure he would be pleased to continue to be a 
resource.
    Commissioner Rettig. I have talked to every Commissioner 
going back to Mort Caplin, who was Commissioner under President 
Kennedy.
    Senator Carper. Yes.
    I was elected State Treasurer at the age of 29 in Delaware, 
right out of the Navy, right at the end of the Vietnam War. And 
we had the worst credit rating in the country. We could not 
balance our budgets for nothing. We were not very good at 
collecting revenues.
    And years later when I was Governor, the Delaware Quality 
Award went to the Delaware Division of Revenue. We went from 
worst to first in terms of the quality of our service and our 
ability to collect revenues that were owed.
    And one of the things we sought to do was make sure we had 
the resources within the Division of Revenue to collect the 
revenues owed on the corporate side, the individual side, and 
also to make sure we were able to provide good advice to 
taxpayers who would come in our doors or call us or contact us 
by mail or by email.
    For our country, we had balanced budgets for 4 years. I 
think it was 1998, 1999, 2000, and 2001, with a Democratic 
President, Republican House and Senate. And during those 4 
years, revenue as a percentage of GDP was about 20 percent. 
Spending as a percentage of GDP was about 20 percent.
    Today, revenue as a percentage of GDP, I believe it is 
somewhere between 16 and 17 percent. Spending is over 20 
percent. And that delta led us to a budget deficit last year of 
$750 billion. This year we are looking at about $850 billion. 
Next year may be a trillion dollars.
    We need to collect revenues from folks who owe taxes, 
whether they happen to be in businesses, or whether they happen 
to be individuals. We need to collect revenues. We need to 
provide better service to people who darken our doors, or 
contact us to ask, ``How do I file my taxes?'' We just changed 
the tax code and made it more difficult in some cases and, in 
some cases, maybe a little easier.
    But from my time as Treasurer, Congressman, Governor, and 
now, I have loved to do customer calls. I do customer calls 
every week. I visit businesses, large and small, all over my 
State.
    I ask them three questions. How are you doing? How are we 
doing--our congressional delegation, Federal Government, State 
of Delaware? And what can we do to help?
    Just give me three quick things that we can do to help you, 
your employees, your team, and then help us to do a better job 
of answering people's questions about the tax code, help them 
to file, and also collect the revenues that are owed. Just give 
me three quick ideas, and that will be our to-do list.
    Commissioner Rettig. And this not only comes from me, but, 
Senator, I have had visits throughout the metro DC area with 
IRS, also down in Atlanta Service Center, and in Austin, TX 
Service Center. I am going to Kansas City Service Center.
    Senator Carper. Going to Kansas City. Kansas City here I 
come.
    Commissioner Rettig. Yep; I will be there next week.
    Senator Carper. All right.
    Commissioner Rettig. And I met with thousands and thousands 
of IRS employees one-on-one. I got on a number of calls where 
taxpayers call in. And I did not get to talk to them, but I got 
to listen to the calls.
    Senator Carper. Okay.
    Commissioner Rettig. So I can tell you that, not only from 
my perspective, but from the perspective of our front-line 
employees, as I have indicated, modernization is huge for us. 
The ability of our employees to provide top-quality service to 
the taxpayers, the ability of taxpayers to receive the service 
similar to what they get in the private sector when they call 
any other organization, I think is critical. It will enhance 
the respect and credibility of the IRS as an agency, which I 
think will positively impact the voluntary compliance rate that 
now hovers around 83 percent.
    I think that is a huge issue. It will bring a morale boost 
to our employees.
    I have talked a lot today about streamlined critical pay, 
the ability of the IRS to bring on IT and cyber workforce 
quickly, the ability for us to compete with the private sector, 
where there is little or no unemployment for these particular 
people. We draw people in based on their desire for government 
service, to serve this country, and the value of service to 
this country. And I draw on my own experience, as you know, 
both my wife and my son, in talking to people about that.
    And then maybe an indirect one; there are other things that 
I could add, but----
    Senator Carper. How about paid tax preparers; anything 
there?
    Commissioner Rettig. Regulation of preparers, education of 
prepares--and the regulation of preparers is significant to 
help us, both so that the returns that come into the system get 
it right, also so that the preparers who operate in certain 
communities in this country who do not get it right, maybe 
intentionally or maybe, you know--there are pockets of the 
preparer community that prey upon individuals who do not 
otherwise know. Often these are in the underserved, under-
represented communities.
    Regulation allows us to help identify who did what return, 
allows us to require minimum standards for education and 
knowledge and whatnot. And that helps the quality of the 
returns that come into our system.
    Senator Carper. Great.
    The last thing I would say--I know we are out of time. Just 
very briefly.
    One of the things we used to do with John Koskinen is, we 
would meet with him, members of this committee. And I would 
welcome the opportunity--actually, to host, maybe, a small 
meeting with Democrats and Republicans from this committee and 
go through a to-do list addressing some of the three issues 
that you just discussed. We cannot get anything done here 
without you doing it on a bipartisan basis.
    Commissioner Rettig. We would welcome the opportunity. We 
would welcome the opportunity for you to come and visit us at 
the Internal Revenue Service.
    I think, as you know, I eat in the cafeteria every single 
day at a community table. Anybody there who wants to sit down, 
sits down. We have had members of Congress come and join us at 
the table and interact with our employees. And everybody on the 
committee is invited. Staffers are invited as well to come 
join.
    I would give you the menu, but I did that yesterday at the 
Appropriations Committee, and my wife said, ``Honey, I cannot 
believe you told everybody the menu in the cafeteria.'' So I 
will hold back to show I have some filter.
    Senator Carper. Thank you. Thank you. Thank you.
    Senator Daines. Commissioner Rettig, thank you for being 
here today. I appreciate your efforts to modernize the agency's 
IT infrastructure, reduce identity theft, and combat fraud and 
tax evasion.
    Speaking of fraud, in late 2016, the IRS issued a notice to 
combat the abuse of the conservation tax easement deduction. 
The IRS notice considered these tax shelters as listed 
transactions if the deduction equals 250 percent of the land's 
initial cost.
    Abusing this deduction robs Montanans of their hard-earned 
taxes and discourages the legitimate conservation projects that 
are helped by it. I have introduced legislation, The Charitable 
Conservation Easement Program Integrity Act, to put a stop to 
this bad behavior permanently by codifying the parameters set 
out in the IRS notice.
    Mr. Rettig, have the abusive transactions declined since 
the IRS issued its notice, and if not, why have promoters been 
allowed to continue to sell these abusive tax shelters?
    Commissioner Rettig. Syndicated transactions have 
absolutely not declined. They are still there. I think that you 
may also be aware of the fact that, at our request, the 
Department of Justice not long ago filed an injunction action 
against a promoter down in Georgia. We have a number of the 
syndications under examination, both as to the taxpayer side 
and as to the promoter side.
    The promoter side indicates they have valuations that say 
that something that--there is an example that is in one of the 
statements that somebody buys something for $2 million. They 
sell it to a syndication for $8 million. And then it goes out 
to the taxpayers at $40 million, and all those values happened 
within 1 year.
    That is what we are seeing. So we would like to work with 
you on your legislation. It is an area that we are focused on.
    Senator Daines. Thank you.
    What it does is, it undermines the legitimacy of 
conservation easements, which are a great tool for us in 
Montana. And my various land trusts are strongly supporting 
this legislation, because they are doing it the right way. We 
have to get rid of these very bad actors who are abusing it.
    I want to go back to the Bipartisan Budget Act from last 
year. Congress reformed and significantly increased the section 
45Q tax credit for carbon sequestration. This provision 
requires Treasury to issue regulation defining what companies 
have to do to show that captured CO2 stays in the 
ground, which unlocks their ability to claim the tax credit.
    The issuance of the Treasury's guidance is integral to 
ensuring the effectiveness of the law. Especially important for 
me in Montana is that the 45Q tax credit could help save 
Montana's Colstrip power plant, one of our largest economic 
drivers, one of the largest parts of our tax base, and it could 
save it from the obstruction brought by Washington State by 
helping this plant sell carbon captured for oil production in 
the Cedar Creek Anticline, but only if the Treasury guidance is 
fixed.
    While I work on legislation to clarify this guidance and 
statute, the first step towards getting this rule done is to 
gather information from stakeholders. The IRS has drafted a 
document to do this. I am told it is sitting on the General 
Counsel's desk awaiting publication.
    My question, Mr. Rettig, is, when does the IRS plan to 
issue this document to kick-start the rulemaking process at 
Treasury?
    Commissioner Rettig. As you know, the IRS is actively 
working on that. We have a new Chief Counsel who came on board 
about 3, 4 weeks ago.
    There will be an announcement seeking public comments that 
will go out within 45 days. We have received comments from many 
others before even issuing the announcement.
    So we are focused on it and moving forward. And when the 
public announcement goes out seeking guidance, we will let your 
office know.
    Senator Daines. Thank you.
    And it sounds like I have your commitment, then, that you 
will get this document published expeditiously so the 
stakeholders can engage the IRS on how to implement this very 
vital credit.
    Commissioner Rettig. We are working on it.
    Senator Daines. Thank you.
    My last question regards section 199A. The IRS created a 
new presumption standard for independent contractors, whereby 
these ICs, independent contractors, will be ineligible for 
applying the 199A deduction to any payments they receive from 
former employers unless they can proactively prove to the IRS 
that they are bona fide ICs.
    While the final regs did clarify a couple of outstanding 
questions about how this new presumption standard will be 
applied, I still have some questions about how it is going to 
actually work in practice.
    The question is, how will the IRS determine which payments 
are ineligible for 199A under this new presumption standard?
    Commissioner Rettig. The IRS is working with Treasury on 
additional guidance with respect to this issue. And we will 
work with your staff on that going forward. It is an issue that 
we are aware of.
    Senator Daines. Great.
    And then there is a question about how the appeals process 
is going to work.
    Commissioner Rettig. Correct.
    Senator Daines. Will a contractor have to go through a 
formal audit to appeal the determination that a payment was 
ineligible, or can they send supporting docs when they file 
their return?
    Commissioner Rettig. Generally speaking, we are trying to 
streamline everything, and to the extent we could, a one-stop 
shop so things will be resolved at the earliest moment 
possible.
    So we are supportive of that.
    Senator Daines. Yes; I appreciate that.
    And as an example, if a contractor is audited as part of 
investigating whether they are a bona fide independent 
contractor, will the IRS also investigate whether the 
contractor is misclassified for payroll tax purposes?
    Commissioner Rettig. Correct. We are looking at everything.
    Senator Daines. Okay.
    Thank you. That concludes my questions, and I think we are 
out of Senators here.
    Commissioner Rettig. And I do not have any questions.
    Senator Daines. So this is a chance to end the hearing 
here. So I will do so.
    I want to thank you, Commissioner Rettig, for your 
testimony today on the 2019 filing season and the IRS's 
continuing efforts to improve taxpayer service while collecting 
the Nation's tax revenues. I truly appreciate you being here. 
You are very knowledgeable on the subjects, and I thank you for 
your hard work during this tax season. I look forward to you 
testifying before this committee in the future.
    And I will close by noting that any written questions 
members may have for the record need to be submitted by close 
of business on Wednesday, April 24th. With that, the hearing is 
adjourned.
    [Whereupon, at 12:08 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


              Prepared Statement of Hon. Chuck Grassley, 
                        a U.S. Senator From Iowa
    Commissioner Rettig, thank you for joining us this morning. I 
appreciate your willingness to testify today on the 2019 tax filing 
season and IRS administration matters generally. The current tax filing 
season has been the most scrutinized season I can remember. In some 
ways that's understandable. It's the first filing season after our tax 
code received the largest overhaul in 3 decades.

    The IRS has worked to update forms, publications, and systems on 
top of all the new guidance the agency has provided in conjunction with 
the Treasury Department, all to be ready for the filing season. And if 
that was not enough, this filing season began shortly after our 
government experienced the longest shut down in history. Despite these 
factors, and some early misleading reporting in the press, this filing 
season has run rather smoothly. The filing season opened on time and 
all IRS systems have been functioning as planned.

    Consistent with previous years, the IRS has processed over 97 
percent of the returns the agency received, and 80 percent of those 
returns resulted in a refund. The average refund size of $2,873 is also 
in line with previous years. However, some lingering effects of the 
shutdown persist.

    The level of phone service is down, and wait times are longer. But 
both have been trending in the right direction as the filing season has 
progressed. Overall, Mr. Commissioner, you and your employees deserve 
significant credit for how well the filing season has gone given the 
headwinds you faced.

    It is no secret that in recent years there has been a contentious 
relationship between Congress and the IRS due to several instances of 
mismanagement. Most notably, there was the inappropriate targeting of 
certain conservative groups for extra scrutiny. We also saw 
inappropriate spending on conferences and bonuses, as well as the case 
of IRS employees who had previously been let go for misconduct issues 
being improperly rehired.

    I saw your confirmation last year as an opportunity for a fresh 
start. It provides a chance to move beyond past issues and for us to 
work together to address challenges facing the IRS for the benefit of 
all taxpayers. And there's no doubt that there are challenges to be 
addressed.

    IT systems are woefully outdated. While there has been improvement, 
45 percent of the IT infrastructure that the IRS is currently using is 
beyond its original useful life. Moreover, the IRS has had difficulties 
retaining and hiring experienced IT personnel.

    Tax ID theft also remains a top concern. Great strides have been 
made in recent years, with the number of reported ID theft victims 
falling nearly 65 percent between 2015 and 2017. That's very good news 
for taxpayers and the government, but more needs to be done.

    Taxpayers deserve a modernized IRS that offers the same type of 
online and electronic services they have come to expect from the 
private sector. Taxpayers also deserve to know that their rights will 
be respected and they will receive a fair shake in their interactions 
with the IRS.

    To help address a number of these challenges, I joined Ranking 
Member Wyden in introducing the Taxpayer First Act of 2019 last month. 
The Taxpayer First Act covers a wide range of issues intended to 
increase taxpayer protections, improve customer service, address 
identity theft and cybersecurity, update IRS information technology, 
and modernize the agency.

    Some of the more prominent provisions include:

          Codifying the independent appeals process to strengthen its 
        independence so taxpayers are on equal footing with the IRS;

          Requiring the IRS to develop a long-term plan to improve 
        customer service, modernize the IRS, and implement an 
        information technology strategy;

          Providing the IRS with streamlined critical pay authority 
        for IT positions to help the IRS compete with the private 
        sector for top-notch IT personnel; and

          Codifying the Security Summit to ensure the IRS continues to 
        be able to fully participate in a partnership with State tax 
        agencies and the private-sector tax industry to combat tax ID 
        theft and cybersecurity threats.

    There are dozens of additional provisions that are just as 
important.

    Mr. Commissioner, the committee received feedback from your team at 
the IRS about this legislation, which was very valuable in putting it 
together. So I want to thank you for your willingness to work with us 
on this package. I am pleased that the House passed the bill yesterday 
after several years of work in both chambers. We're working with our 
leadership now to try to clear it in the Senate so the President can 
sign this bill into law.

    The Taxpayer First Act is an important first step toward reforming 
the IRS and strengthening taxpayer protections. But there's more that 
can and must be done.

    I hope we can continue to work collaboratively on further efforts 
to improve and modernize the IRS to the benefit of all taxpayers and 
successful future filing seasons.

                                 ______
                                 
             Prepared Statement of Hon. Charles P. Rettig, 
                 Commissioner, Internal Revenue Service
                              introduction
    Chairman Grassley, Ranking Member Wyden and members of the 
committee, 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 (FY) 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 28th. 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 1-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 continues to go well in terms of tax return 
processing and the operation of our information technology systems. As 
of March 22, the IRS received more than 84 million individual returns, 
and we have issued more than 65 million refunds for more than $191 
billion. It is important to note that, although the tax filing deadline 
for individuals is less than two weeks away, 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 15th.

    During my first few months here, I have been extremely impressed by 
how hard IRS employees all across the agency have worked to make sure 
taxpayers have 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 320 million times in 2019 through mid-March. 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 270 million times this 
filing season.

    We continue to experience strong demand on our more traditional 
service channels as well. Through March 15, our customer service 
representatives answered 4.5 million taxpayer calls. IRS automated 
information systems provided helpful information and answers to more 
than 12 million taxpayers calling those automated lines. We have also 
provided in-person assistance to approximately 434,000 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.

    The IRS recently developed the 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 FY 
2020 President's budget--to fully implement the plan. This investment 
will position the IRS to greatly improve and expand the services we 
provide to taxpayers--with new technologies such as customer call back 
and online notifications--while strengthening our enforcement 
capabilities. It will also help us operate more efficiently and 
effectively, by stabilizing the cost of operating and maintaining our 
systems. 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, both 
as a result of using technology to increase protections at the point of 
filing and also 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 fy 2020 budget
    The President's FY 2020 budget request is $11.472 billion, which is 
$170 million, or 1.5 percent, more than the FY 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 FY 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 Organisation for 
        Economic Co-operation 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 FY 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 fy 2020 budget
    Along with the funding requested in the President's FY 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 
FY 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 FY 
2020 Budget request proposes reinstating this authority through FY 
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 FY 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 31st 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 FY 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 Grassley, Ranking Member Wyden, and members of the 
committee, 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.

                                 ______
                                 
      Questions Submitted for the Record to Hon. Charles P. Rettig
               Questions Submitted by Hon. Chuck Grassley
    Question. Recently, the Taxpayer First Act, which was introduced in 
the House and Senate with bipartisan support, has come under criticism 
for a provision that codifies the IRS Free File program. Critics claim 
this provision bans the IRS from ever developing its own online filing 
software that might be offered for free to individual taxpayers.

    Does the IRS regard section VII.D of the October 2002 Free Online 
Electronic Tax Filing Agreement as well as article 10.3 of the October 
2018 Eighth Memorandum of Understanding on Service Standards and 
Disputes Between the Internal Revenue Service and Free File, 
Incorporated as language that allows the IRS to opt out of its non-
compete agreement with industry members of the Free File program when 
it comes to providing free filing software to individual taxpayers?

    Answer. Yes. The IRS may opt out pursuant to the non-compete clause 
in the agreement with Free File, Inc. and its industry members. These 
sections permit the IRS to offer free, online tax return preparation to 
taxpayers and require only that the IRS provide immediate notification 
to Free File, Inc. if it takes certain steps to do so. The notice 
requirement in section 10.3 of the current (Eighth) MOU would be 
triggered if the Service ``commit[s] funding'' to such efforts. Free 
File, Inc. would then have the option to terminate the agreement 
governing the Free File Program in accordance with the provisions of 
that section.

    Question. Recently, critics of the Free File program have called 
for the IRS to provide individual taxpayers with free online filing 
software in time for the 2020 filing season. Is this feasible?

    Answer. The IRS would need to consider the full scope of eligible 
taxpayers and which forms would be included before estimating how long 
and how much it would cost to provide this service. It is highly 
unlikely the IRS could create and appropriately test free online 
software for the 2020 filing season, which will likely open sometime in 
late January 2020.

                                 ______
                                 
                 Question Submitted by Hon. Pat Roberts
    Question. On May 7, 2018, I sent a letter to Acting Commissioner 
Kautter regarding Federal excise tax refund and credit claims for 
diesel fuel exports, and the ongoing confusion in the marketplace 
surrounding eligibility and proper procedures for claimants. On June 
19, 2018, Acting Commissioner Kautter sent a response letter on this 
issue stating that the IRS was aware of this confusion, and that 
additional information from market participants would help to determine 
whether published guidance would bring clarity to this situation. It is 
my understanding that additional information was provided by market 
participants and that the IRS was considering including this issue in 
its Priority Guidance Plan.

    This topic was not included in the recently published second 
quarter update to the 2018-2019 Priority Guidance Plan. Would you 
please provide an update on whether the IRS has plans to issue guidance 
to provide greater certainty to market participants?

    Answer. We are aware that there is some uncertainty about who is 
the proper claimant for a credit or refund when diesel fuel is 
exported, which has led to inconsistent market practices. Aside from 
your May 7, 2018 letter identifying the problem, we have not received 
any requests for guidance or any other information from market 
participants outlining whether and how published guidance could provide 
clarity to this situation. Such requests for guidance or information 
would help us as we determine additional projects to include on future 
Priority Guidance Plans (PGP). As explained more fully in our Notice 
2018-43 and Notice 2019-30 (which invites recommendation for items that 
should be included on the PGP, recognizing our current focus on 
implementing the Tax Cuts and Jobs Act), the Treasury Department and 
Internal Revenue Service select projects based on several conditions. 
These include whether the recommended guidance resolves significant 
issues relevant to many taxpayers and whether the recommended guidance 
can be drafted in a manner that will enable taxpayers to easily 
understand and apply the guidance. The public guidance process is most 
successful if we have the benefit of the experience and knowledge of 
taxpayers and practitioners who must apply the rules implementing the 
tax law, so we welcome additional information on this issue.

                                 ______
                                 
             Questions Submitted By Hon. Michael F. Bennet
    Question. What was the effect of the shutdown on taxpayers during 
the tax filing season? What kind of disruptions occurred at IRS as a 
result of the shutdown? Would you agree that shutdowns are bad for the 
American taxpayer?

    Answer. The lapse in appropriations presented an opportunity for us 
to demonstrate to the American people our strength of dedication to our 
mission. I am proud of our employees. They care deeply about their 
duties and responsibilities and have consistently delivered for the 
Nation every tax season and through national disasters and emergencies. 
The shutdown created challenges for our employees, who generally were 
unpaid during this period. Despite the lapse, the IRS implemented the 
largest tax law change in over 30 years, started the filing season on 
time and as planned, and issued nine out of ten refunds within 21 days. 
Almost 96 million refunds were issued this filing season, totaling over 
$260 billion paid to taxpayers.

    Nevertheless, the lapse in appropriations did impact some of the 
services the IRS provides to taxpayers. For example, taxpayer meetings 
and responses to correspondence and phone calls were delayed. This 
means that some taxpayers with outstanding tax balances, lien requests, 
seized property, and other issues faced delays in having their cases 
addressed. Self-help tools on IRS's website were available during the 
shutdown. We anticipate that examinations that were open at the time of 
the shutdown require an additional 45 days to complete.

    Other processing programs that experienced a backlog due to the 
shutdown include Certified Professional Employer Organization 
application and renewals; Form 637, Application for Registration for 
Certain Excise Activities; and Form 8300, Report of Cash Transactions 
over $10,000 Received in a Trade or Business processing into the FinCEN 
system.

    Question. In response to my questions when you were here for your 
confirmation hearing, you said that ``bringing the IRS's IT systems 
into the 21st century is one of my top goals.'' I share that goal. Can 
you please tell me what you've done in your time at IRS so far to 
improve the IRS's IT systems and what you plan to do? What level of 
funding would allow you to completely overhaul the IRS's IT systems to 
your satisfaction and bring them into the 21st century?

    Answer. Modernizing the IRS continues to be one of our highest 
priorities. Modernization is essential to all our core functions which 
include delivering a successful tax filing season every year, improving 
service to taxpayers, securing our systems and taxpayer data, and 
maintaining the overall health of the Nation's tax system.

    During my short time at the IRS, we have successfully delivered an 
historic filing season. Beginning on January 28th, after resuming full 
operations following the lapse, the IRS opened the 2019 filing season 
with its systems ready to handle a new streamlined version of the Form 
1040 and the largest number of mandated legislative changes in 
decades--the Tax Cuts and Jobs Act. IT systems maintained 100-percent 
uptime, which ensured return processing, fraud detection, and the 
ability for taxpayers to make online payments continued without 
interruption. On April 15, 2019, the IRS processed the largest single-
day filing volumes ever recorded (approximately 15.3 million returns) 
and observed record-breaking utilization of IRS Online Account and 
Direct Pay applications. During the 2019 filing season, we also 
processed the largest hourly and per-second filing volume ever recorded 
(1.9 million returns and 536 returns, respectively). Visits to the IRS 
website, which has tools to help taxpayers address most tax law 
questions, continued to rise as well, with a nearly 9-percent increase 
compared to the same period during the 2018 filing season. In filing 
season 2019, even with myriad programming changes required by the Tax 
Cuts and Jobs Act, the IRS Return Review Program (RRP) systems 
continued to perform well. Between 2015 and now, RRP has protected more 
than $9 billion, with another $4 billion protected by other legacy 
systems such as the Dependent Database, which continue to provide 
value. RPP is now estimated to be delivering a return on investment of 
more than 1,700 percent.

    We also focused on ensuring the resiliency of the agency's IT 
systems with strategic investments that build in redundancy and backup 
measures for the primary filing season storage array. This helps 
mitigate the risk of major outage events such as the one that occurred 
during last year's closing day on April 17, 2018. These new resiliency 
measures extended to the Modernized e-File and systems that allow 
taxpayers to make online payments and are enabling taxpayers to file 
and pay electronically, independent of the mainframe systems. One 
result of these investments is greater revenue collection. We collected 
more than $1 billion through IRS Direct Pay at times when in the past 
the tool would have been unable to accept payments due to maintenance, 
momentary network communication issues, or other unplanned outages.

    Dedicated investments over the last year have also helped the IRS 
to significantly reduce its aged hardware infrastructure. The challenge 
of operating a large technology ecosystem is significant. On average, 
of the agency's more than 200,000 hardware assets, approximately 20 
percent ages each year, which requires rigorous planning and deployment 
schedules and strong cybersecurity measures to keep our dynamic 
environment well-protected and current.

    Although it may be common to think that the IRS runs on equipment 
from the 1960s because the IRS continues to use legacy programming 
languages from that era, the agency's hardware infrastructure is 
modern. We continue phasing out old equipment, and the percent of aged 
infrastructure is declining, from 52.3 percent in FY 2017 to 45.5 
percent in FY 2018, and anticipate even more success in FY 2019. We are 
also refreshing IRS employees' equipment every 4 years, upgrading 
operating software on employee work stations and replacing over half of 
the agency's work stations over the next year.

    We also recognize that reaching modernization goals and bringing 
the IRS into the 21st century requires a strong workforce. As 
Commissioner, I am extremely focused on the training, career 
opportunities, recruitment and retention of employees, and we are 
making gains in some areas. Since I became Commissioner on October 1, 
2018, we have hired and trained a new cadre of IRS technologists to 
fill gaps in the IT organization. Investing in our employees remains 
among our highest priorities; our employees are the absolute strength 
of the agency.

    Going forward, with consistent and appropriate funding from 
Congress, we will continue the positive momentum coming out of filing 
season by delivering on the IRS Integrated Modernization Business Plan 
submitted to Congress in April of this year. This plan outlines a bold 
strategy to enable business transformation with a focus on protecting 
taxpayer data, improving service for taxpayers and the tax community, 
and modernizing IRS systems. This strategy will enable the IRS to 
pursue areas of significant tax noncompliance as we continue to drive 
achievement of all six strategic goals in the IRS Strategic Plan FY 
2018-2022. The modernization plan builds on the agency's taxpayer-
focused objectives and will enable modernized IT over the next 6 years 
(and beyond) by delivering capabilities that allow the IRS to:

        Significantly improve the taxpayer experience by standardizing 
customer workflows and by expanding access to information;
        Reduce call wait and case resolution times with 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 plan has two, 3-year phases beginning in FY 2019 and through FY 
2024. The IRS budgeted $300 million for this mission-critical effort in 
FY 2019 (including discretionary appropriations and user fees) and 
requests $290 million in discretionary appropriations in FY 2020.

    We have already delivered several key capabilities that deliver 
significant value to taxpayers and the government in terms of 
operational efficiencies.

    We are offering new on-line Identity Theft Verification (ID 
Verify), a service offered previously only through phone and walk-in. 
This helps the taxpayer when the IRS receives a Federal income tax 
return with the person's name and taxpayer identification number that 
appears suspicious. In these situations, the IRS must verify the 
person's identity before processing the return and until we have 
verified the identity, the IRS locks the taxpayer's account and holds 
any refund until the IRS receives sufficient verification. In prior 
years, a taxpayer would be required to travel to a Taxpayer Assistance 
Center or call the IRS and possibly wait on hold. This new online 
verification capability allows the taxpayer the opportunity to 
conveniently provide that important information online to the IRS, 
without the taxpayer calling or traveling to an IRS office, and this 
helps prevent an identity thief from getting a refund using the 
legitimate taxpayer's account. The final phase of the new application 
became available in October 2018, and in the first 2 months of 
operation during the tax filing season (through March 31), nearly 
60,000 taxpayers logged in and 86 percent of the unique cases reached 
final determination online. This has significantly benefited taxpayers, 
especially those in more remote locations.

    We also deployed a new customer callback capability on the 
``balance due'' toll-free line used by taxpayers and on IRS's 
Enterprise Service Desk used by our employees to resolve workplace 
equipment issues. Customer callback is an established industry 
technology that allows a person to hold their place in queue without 
remaining on hold on the phone. For taxpayers offered this new service 
when calling the IRS to make a payment, the overall experience has 
clearly improved. Approximately 77 percent of those offered the option 
to receive a call back chose the option, and over 90 percent of 
callbacks successfully reconnected the taxpayer to an IRS customer 
service representative.

    As we invest in new processes and tools, we are making measurable 
improvements in delivering systems and applications rapidly, frequently 
and more reliably. This results in low-risk releases, faster digital 
services for users, lower costs, greater efficiency, and better overall 
quality. For example, in some scenarios or instances, we are seeing 
build, test and deployment times reduced from several hours to minutes.

    The IRS is striving to enhance the taxpayer experience by operating 
``through the eyes of the taxpayer.'' It is necessary to pursue the 
next generation of IT infrastructure in order to be able to leverage 
ever-advancing technologies in a way that benefits both taxpayer and 
practitioner communities as well as our workforce. As we expand 
available digital options and the delivery of services across multiple 
channels, we will not ignore traditional methods of taxpayer 
interactions. We are committed to the effort to modernize the IRS.

    The integrity of the Nation's voluntary tax compliance system 
depends on modernized IT, and we look forward to working with Congress 
to implement the IRS Integrated Modernization Business Plan. Success 
depends, in part, on a number of legislative proposals and regulatory 
authorities such as ensuring the continuation of direct hire authority 
for IT modernization positions streamlined critical pay authority, and 
funding our budget requests.

    Question. Mr. Rettig, what would the ideal tax system look like in 
your view? What would we have to provide in funding and what kind of 
services would you be able to deliver to the American people?

    Answer. The IRS, working closely with Treasury and partners, has 
developed an ambitious plan to modernize and transform the Nation's tax 
agency to enhance taxpayer services and to better serve the Nation. 
Released in April, the Integrated Modernization Business Plan is a 6-
year plan in two separate, 3-year phases beginning in 2019 through FY 
2024.

    The plan envisions leveraging every dollar and every opportunity to 
improve both taxpayer service and enforcement, modernize IRS 
operations, and further secure sensitive taxpayer data and systems.

    This plan is critical to helping the IRS make progress toward an 
ideal tax system.

    Under an ideal tax system, interactions with the IRS would be 
convenient for the taxpayer, robust, and seamless. The IRS is 
responsible for supporting diverse, often unrepresented, taxpayer 
communities. It should be able to do so across multiple channels, 
including options with customized, in language, culturally-sensitive 
services that allow them to satisfy their filing and reporting 
obligations. The IRS should be able to maintain appropriate levels of 
staffing at points of significant taxpayer contact, enabling it to 
provide timely, clear and meaningful guidance to all taxpayers. In 
providing service to taxpayers, the IRS should be able to interact in 
the same way that individuals interact with their banks and financial 
institutions.

    The IRS plans to provide taxpayers with an account where they, or 
their authorized representatives, can log in securely, get information 
about their tax account, and interact with the IRS as needed. The IRS 
realizes that not all taxpayers are capable of, able to, or comfortable 
with interacting with us online, and for this reason we will maintain 
the ability for taxpayers to discuss their tax situation with us in 
person at an IRS assistance center or by telephone through our toll-
free taxpayer assistance line. Our goal is to make online systems 
available for the many taxpayers who want to interact with us this way, 
freeing up more resource-intensive in-person assistance for those 
taxpayers who are unable or uncomfortable communicating with us 
electronically.

    On enforcement, the IRS also aims to make interactions with 
taxpayers about issues or potential noncompliance timelier, which means 
identifying issues earlier, contacting taxpayers sooner, and resolving 
issues faster. Self-correction and early opportunities to provide 
additional information and explain anomalies could help reduce 
contentious compliance issues in later years. The ability for the IRS 
to find errors and issues in a tax return within a short time after the 
taxpayer files that return is central to detecting and resolving 
discrepancies early and efficiently. This contrasts with today, when 
the taxpayer may wait months or more after filing a return to hear from 
us. Developing better up-front issue identification capabilities would 
help us take immediate actions such as keeping a false refund out of 
the hands of an identity thief or finding an unclaimed tax credit on 
the taxpayer's return. Under the ideal tax system, the IRS would ensure 
that taxpayers experience seamless interactions with us, no matter 
which of our employees or teams are working with them. An integrated 
case management capability would also increase IRS efficiencies by 
allowing us to move information to and among the right workgroups 
electronically, without delays caused by mailing of case files.

    To help put us on this path, the Integrated Modernization Business 
Plan calls for an investment of $2.3 to $2.7 billion over the next 6 
years. The IRS, along with Treasury, believes this plan is the right 
approach. We are pursuing this plan to enhance the taxpayer experience, 
as seen through the eyes of the taxpayer.

    Further, to appropriately support those who voluntarily comply with 
their filing and reporting obligations, we must also maintain a 
constant, visible, robust enforcement presence across the taxpayer 
spectrum. The IRS must be able to effectively coordinate cross-
functional enforcement efforts throughout the agency. Where possible, 
an ideal tax system would incorporate increased electronic third-party 
information reporting (and withholding); improved compliance matching; 
enhanced e-
filing capabilities; expanded correctable error authority, return 
preparer oversight; enhanced data and information sharing opportunities 
and compliance strategies with States and foreign governments; enhanced 
guidance and educational opportunities for taxpayers and return 
preparers; modernized operating systems allowing the IRS to better 
leverage emerging technologies; and maintain appropriate levels of 
trained enforcement staffing at points of significant taxpayer contact.

    Question. A recent ProPublica article found that ``while the number 
of [IRS] audits has fallen across the board, the impact has been 
different for the rich and poor. For wealthy taxpayers, the story has 
been rosy: not only has the audit rate been cut in half, but audits now 
tend to be less thorough. . . . In 2017, EITC recipients were audited 
at twice the rate of taxpayers with income between $200,000 and 
$500,000. Only households with income above $1 million were examined at 
significantly higher rates.''

    When ProPublica reached out to the IRS for a comment, the agency 
declined to answer questions about EITC audits. I'd like to give you 
another chance--can you explain why there is an imbalance here?

    Answer. The IRS enforces the tax law in a number of ways. The 
primary way is through the examination of individual tax returns that 
are identified as having the highest potential noncompliance. IRS 
employees conduct examinations or audits in one of two ways. The first 
is by mail (called correspondence) and the second is face-to-face 
examinations. Correspondence examinations are performed at IRS campus 
locations by tax examiners who are a grade 5, 6, 7 or 8. Generally, the 
questionable issues include the EITC, Additional Child Tax Credit, 
American Opportunity Tax Credit, medical expenses, contributions, 
taxes, or employee business expenses. Tax examiners receive training on 
these issues but are not required to have accounting skills.

    We continue to administer refundable credits through a balanced 
program which includes education, outreach, and compliance efforts. The 
IRS staffs a year-round toll-free telephone line to answer questions on 
EITC correspondence audits. We employ several EITC educational tools 
such as the EITC Assistant on IRS.gov, which is an interactive online 
tool that helps taxpayers determine if they have met the eligibility 
requirements for the EITC, and the Form 886-H Toolkit, which is an 
online tool that helps taxpayers determine the correct documents needed 
if selected for an EITC audit. Our annual EITC Awareness Day promotes 
increased participation, decreased erroneous payments, and improved 
accuracy of filed returns. Since resources are limited, we use a 
variety of treatments to address noncompliance. For example, in some 
cases when we identify a discrepancy between information provided by a 
taxpayer and existing third-party information, we may send an 
educational notice to allow the taxpayer to correct their information 
prior to any compliance activity.

    During tax year (TY) 2018, over 25 million taxpayers received over 
$63 billion in EITC benefits (refundable in excess of taxes paid or 
withheld). In FY 2017 and FY 2018 the IRS sent correspondence to 
326,500 EITC claimants and 330,460 EITC claimants, respectively. That 
is a coverage rate of 1.2 percent of all EITC claimants for each year. 
EITC correspondence examinations are single-issue audits worked at IRS 
campus locations and take an average time of 5 hours in examination 
time per return to complete. Return selection is based on the 
likelihood of EITC noncompliance; income is not a factor in determining 
which returns will be selected for audit.

    Estimates from the IRS National Research Program indicate that the 
EITC is overclaimed on approximately 50 percent of the returns claiming 
an EITC. In other words, the 50 percent represents the proportion of 
returns claiming EITC where the taxpayer claimed more EITC than they 
should have. The improper payment rate is estimated to be about 25 
percent. The improper payment rate, which is an estimate of dollars and 
not return counts, reflects the proportion of the dollar amount of EITC 
claims that were improper payments. This includes overclaims, but is 
limited to those that were actually paid to the taxpayer and not 
stopped by IRS pre-refund enforcement activities. It also includes 
underpayments where the IRS incorrectly disallowed some or all of the 
taxpayer's claim during processing, although those are rare. In 
addition, the IRS estimates that the tax gap attributable to credits, 
which includes the EITC, is about $40 billion per year and the EITC 
accounts for about two-thirds of that.

    The exchange of correspondence with EITC claimants is the least 
intrusive method by which the IRS can maintain the integrity of the 
EITC program, assist EITC claimants in complying with the EITC's 
statutory complexities, and prevent others from submitting erroneous or 
fraudulent claims for the refundable EITC. For years, many have called 
upon Congress to modify the EITC statute in a manner that would enhance 
both taxpayer compliance and ease the burden on EITC claimants and tax 
administration. The IRS would welcome such efforts and recognizes the 
2020 President's Budget proposes changes to help accomplish these 
goals, including providing the IRS with greater authority to address 
errors and regulate paid preparers.

    Face-to-face examinations involve the most complex returns, such as 
high-income, high-wealth individuals, corporate, partnership, and other 
flow-through returns. These examinations require our most highly 
trained and experienced employees with substantial tax and accounting 
skills. These employees are generally highly experienced revenue agents 
who are grade 9, 11, 12, 13, and 14.

    The IRS groups taxpayers for applying audit resources by total 
positive income (TPI). TPI is the sum of all positive amounts shown for 
the various sources of income reported in the individual tax return 
and, therefore, excludes losses, such as losses from flow through 
entities. Audit coverage in the $10 million and over TPI class was 15.6 
percent for FY 2017 and 8.1 percent in FY 2018. The average time to 
complete these audits ranges from 61 hours to 251 hours. Even with 
limited resources, face-to-face examinations audit coverage in the 
larger TPI grouping is far greater than correspondence contacts with 
EITC claimants that fall in a lower TPI range.

    Every interaction with every taxpayer is important to us and to our 
country. At the IRS, we value our diverse and inclusive community of 
IRS employees located around the world and are proudly respectful and 
reflective of the taxpayer communities that interact with us. Further, 
we value our efforts in running a balanced enforcement program to 
ensure integrity in our tax system. A voluntary compliant tax system 
requires a presence across all income groups, including high- and 
middle-
income taxpayers as well as EITC claimants.

    Question. I am all for fair audits, but can you explain why there 
is so much of an emphasis on lower-income taxpayers while audits of 
higher-income taxpayers have been falling?

    Answer. There is no emphasis on lower-income taxpayers because of 
their income. The IRS's focus on EITC overpayments is based on 
available information about the risk of EITC overclaims as reflected in 
the share of taxpayers who have filed returns where the EITC is 
overclaimed and the amounts of EITC that have been overclaimed as is 
explained in my response above. Also, in the short term, the IRS has 
continued expanding audits in the category of TPI of $10 million and 
over. At the end of FY 2018, the IRS had 5,220 audits open in this TPI 
grouping and has increased the number of open audits in this TPI 
grouping.

    Question. The ProPublica article notes that ``The five counties 
with the highest audit rates are all predominantly African-American, 
rural counties in the Deep South. [. . .] The States with the lowest 
audit rates tend to be home to middle-
income, largely white populations.''

    Mr. Rettig, can you please explain how this has come to be the 
case?

    Answer. The selection criteria do not include any components or 
factors related to the geographic location (including mailing address) 
or ethnicity of the taxpayers. Audit selection criteria are determined 
by dedicated, diverse, career IRS employees based upon various other 
factors, including having a historically high rate of non-compliance 
based upon actual examination data. At the IRS, we value our inclusive 
community of career IRS employees located around the world and are 
proudly respectful and reflective of the taxpayer communities that 
interact with us. The tax-gap estimates of the Net Misreporting 
Percentages (NMP) indicate that the percentage of income misreported is 
1 percent for income subject to substantial information reporting and 
withholding. This rate increases to 5 percent without withholding and 
to 55 percent if there is little or no information reporting or 
withholding. The IRS would welcome congressional support for more 
substantial information reporting and withholding. The 2020 Budget also 
includes several proposals to increase information reporting.

    Question. Can you also please commit to reviewing the audit 
priorities of the IRS to ensure that resources are allocated fairly and 
in a manner that most efficiently targets efforts to close the gap 
between taxes owed and taxes paid?

    Answer. See responses above. The IRS is continually evaluating 
examination priorities in an effort to maintain a balanced enforcement 
program to ensure integrity in our tax system. Although resource 
challenged, the IRS is pursuing all reasonable efforts to close the tax 
gap. Further, the 2020 budget includes proposals to increase 
information reporting, expand correctable error authority, and allow 
oversight of paid tax return preparers. In addition, the 2020 budget 
includes additional resources for enforcement staffing. The proud, 
diverse IRS workforce wants to do more to enhance the experience of 
every taxpayer interaction, improve voluntary compliance, and increase 
appropriate enforcement efforts in support of those who voluntarily 
comply.

           Questions Submitted by Hon. Catherine Cortez Masto
                       local offices understaffed
    Question. In Nevada alone, our Las Vegas Taxpayer Assistance Center 
used to be staffed by approximately 20 Individual Taxpayer Advisory 
Specialists to assist taxpayers who could walk in for help. The Las 
Vegas Taxpayer Assistance Center is only staffed by seven Individual 
Taxpayer Advisory Specialists and services are by appointment only. 
Taxpayers say they have difficulty getting appointments in time to 
resolve their concerns. Clearly these local offices are understaffed 
and over worked, particularly in growing communities like those in 
Nevada.

    Are you downsizing the Taxpayer Advocate Offices?

    Are personnel moving within the Department and away from Taxpayer 
Assistance Centers?

    Answer. The IRS recognizes that some taxpayers' issues are complex 
and must be handled with the help of an employee. Our efforts to 
modernize taxpayer interactions will not ignore traditional methods of 
interaction, including both telephone and face-to-face services. The 
proud, diverse IRS workforce wants to do more to enhance the experience 
of every taxpayer interaction.

    Previously, the IRS operated two separate groups within the Las 
Vegas, Nevada Taxpayer Assistance Center (TAC) consisting of 16 
permanent full-time and 3 seasonal technical employees. Over time, many 
employees retired or accepted positions in other organizations or 
agencies. The Las Vegas TAC is currently staffed by one group with 
eight technical employees. I have personally visited the Las Vegas TAC 
and, like others, the TAC personnel are dedicated, helpful, and caring 
individuals. We are pleased to report that we are in the process of 
hiring additional technical employees for this office.

    Most taxpayers can resolve their issue by visiting our website or 
by calling our toll-free line, 800-829-1040, from the convenience of 
their home or office. Resources available on IRS.gov include:

        Forms and publications.
        Interactive tax law tools.
        Get Transcript by Mail.
        Where's My Refund?
        Direct Pay.
        Online Payment Agreement.
        Understanding Your IRS Notice or Letter.

    In addition, the IRS2Go mobile application allows taxpayers to 
check their refund status, make a payment, find free tax preparation 
assistance, sign up for helpful tax tips, and more. IRS2Go is available 
in both English and Spanish.

    Taxpayers without Internet access can use their telephones to 
access our toll-free automated response systems that provide recorded 
information on a variety of topics. We also created Publication 5136, 
IRS Services Guide, to help taxpayers and practitioners locate the 
services they need.

    Starting 3 years ago, all TACs began offering appointments in 
advance, a process that the IRS has found cuts wait times for TAC 
customers and allows some taxpayers to avoid an in-person visit. 
Taxpayers in the Las Vegas area who are seeking an appointment in our 
TAC can call the dedicated TAC appointment line at 844-545-5640. The 
IRS assistor will attempt to resolve the issue immediately or offer a 
convenient self-service option. Our trained assistors are able to 
resolve a substantial portion of the issues presented in the initial 
call, avoiding the need for the taxpayer to visit the TAC. When a face-
to-face service is still needed, the assistor schedules an appointment 
and reminds the taxpayer what documents they need to bring, increasing 
the likelihood of a productive appointment. Appointments are not needed 
to drop off a non-cash payment or a current year tax return, or to pick 
up individual tax forms during operating hours. However, these services 
are conveniently available through the mail or online at IRS.gov.

    Taxpayers in Nevada also have access to volunteer tax return 
preparation services in their community. Volunteer Income Tax 
Assistance/Tax Counseling for the Elderly (VITA/TCE) sites, throughout 
the State, offer free assistance with return preparation. VITA sites 
serve people who generally make $55,000 or less and people with 
disabilities or limited English ability. Military VITA sites serve 
active military personnel on military bases. TCE offers free tax 
preparation for all taxpayers, particularly those who are 60 years of 
age or older. It specializes in questions about pensions and 
retirement-related issues unique to seniors. Last year, there were 
nearly 11,000 VITA sites (including 78 high school locations where 
students prepared returns) with more than 82,000 trained volunteers 
(600 IRS employees) and 2,300 local, State, and national partners. 
There are also numerous low-income taxpayer clinics (LITCs) providing 
legal assistance throughout the country, supported by the IRS and 
others.
            audit rate for tribal people and people of color
    Question. We are at a tipping point regarding tax compliance, 
enforcement, and administration. We see in the news very high-profile 
cases of tax abuse by some of the wealthiest Americans, while at the 
same time working poor families--especially native families and 
families of color--are more likely to be audited than higher income 
white taxpayers. Data released by ProPublica shows a heat map where 
counties that are most audited include tribal lands especially apparent 
in South Dakota, North, Dakota, Montana, and Arizona.

    Given your years of practice, what do you believe accounts for this 
rise in audits for families of color and tribal families?

    Answer. The audit selection process applies the same business 
rules, filters, and scoring to all returns to identify potentially non-
compliant taxpayers. We continue to administer refundable credits 
through a balanced program which includes education, outreach, and 
compliance efforts. The IRS staffs a year-round toll-free telephone 
line to answer questions on EITC correspondence audits. We employ 
several EITC educational tools such as the EITC Assistant on IRS.gov 
which is an interactive online tool that helps taxpayers determine if 
they've met the eligibility requirements for the EITC; the Form 886-H 
Toolkit which is an online tool that helps taxpayers determine the 
correct documents needed if selected for an EITC audit. Our annual EITC 
Awareness Day promotes increased participation, decreased erroneous 
payments, and improved accuracy of filed returns. Since resources are 
limited, we use a variety of treatments to address noncompliance. For 
example, in some cases when we identify a discrepancy between 
information provided by a taxpayer and existing third-party 
information, we may send an educational notice to allow the taxpayer to 
correct their information prior to any compliance-related activity.

    During tax year (TY) 2018, over 25 million taxpayers receive over 
$63 billion in EITC benefits. In FY 2017 and FY 2018 the IRS closed 
326,500 EITC audits and 330,460 EITC audits respectively. That is an 
audit coverage rate of 1.2 percent for each year. EITC examinations are 
single issue correspondence audits worked out of our campus locations. 
EITC examinations take an average time of 5 hours in examination time 
per return to complete the audit.

    Estimates from the IRS National Research Program indicate that the 
EITC is overclaimed on approximately 50 percent of the returns claiming 
an EITC. In other words, the 50 percent represents the proportion of 
returns claiming EITC where the taxpayer claimed more EITC than they 
should have. The improper payment rate is estimated to be about 25 
percent. The improper payment rate, which is an estimate of dollars and 
not return counts, reflects the proportion of the dollar amount of EITC 
claims that were improper payments. This includes overclaims, but is 
limited to those that were actually paid to the taxpayer and not 
stopped by IRS pre-refund enforcement activities. It also includes 
underpayments where the IRS incorrectly disallowed some or all of the 
taxpayer's claim during processing, although those are rare. In 
addition, the IRS estimates that the tax gap attributable to credits, 
which includes the EITC, is about $40 billion per year and the EITC 
accounts for about two-thirds of that.

    The IRS actually groups taxpayers for applying audit resources by 
total positive income (TPI). TPI is the sum of all positive amounts 
shown for the various sources of income reported in the individual tax 
return and, therefore, excludes losses, such as losses from flow 
through entities. Audit coverage in the $10 million and over TPI class 
was 15.6 percent for FY 2017 and 8.1 percent in FY 2018. The average 
time to complete these audits range from 61 hours to 251 hours. audit 
coverage is greater in the larger TPI grouping than coverage of EITC 
returns that fall in a lower TPI range.

    The IRS cannot simply shift examination resources from single issue 
correspondence audits to more complex higher income audits because of 
employee experience and skillset. The rate of attrition is 
significantly higher among the more experienced examiners. It is also 
important to maintaining the voluntary compliance level that the IRS 
has an audit presence across all income groups, including EITC filers.

    Question. What is the IRS doing to ensure that tribal families are 
not unfairly targeted for audit?

    Answer. The audit selection process applies the same business 
rules, filters, and scoring to all returns to identify potentially non-
compliant taxpayers. The selection criteria do not include any 
components or factors related to the geographic location (including 
mailing address), immigration or tribal status, or ethnicity of the 
taxpayers. At the IRS, we value our diverse and inclusive community of 
IRS employees located around the world and are proudly respectful and 
reflective of the taxpayer communities that interact with us.

    Question. Do you believe if taxpayers lose confidence in our tax 
system, or feel they are being unfairly targeted, then they are more 
likely to be noncompliant?

    Answer. Based upon my 36 years in private tax practice and year as 
Commissioner, I am confident that the IRS expends every effort to 
administer the tax law in a fair and impartial manner, and the IRS 
should be able to further enhance efforts aimed at taxpayer education 
and guidance such that taxpayers would be better able to understand and 
comply with their filing and reporting obligations. In this manner, 
taxpayers would be more confident in the IRS, as well as in the IRS 
workforce.

    The audit process aligns with the IRS mission statement which 
includes enforcing the tax law with integrity and fairness to all. The 
IRS enforces the tax law in a number of ways. The primary way is 
through the examination of tax returns that are identified as having 
the highest potential noncompliance.

    We continually reinforce expectations related to fairness and 
integrity when developing or changing selection criteria for audit 
selection. To ensure integrity and accountability, all changes to the 
selection criteria require input from all impacted functions and 
executive approval. Additionally, we advise all employees of the fair 
and equitable treatment of taxpayers under the law. Our dedicated, 
diverse, career IRS employees generally reside within the local 
communities, are reflective of such communities, and proudly give back 
to such communities through organized and individual charitable and 
social activities. Although the IRS is a large Federal institution, it 
should not be ignored that it is operated throughout by people who 
care--who care about fairness and integrity, everyone they interact 
with on behalf of this country, and this country (almost 10 percent of 
our workforce are proud military veterans; many more are members of 
military families).

            inability to meet taxpayer demand for assistance
    Question. In Nevada, our State Taxpayer Advocate said to me that 
their office phones are ringing non-stop. Taxpayer's are calling the 
office because they cannot get through to the IRS. Telephone service is 
one area where the IRS has been performing sub-optimally. The ``Level 
of Service'' has dropped from near 80 percent to the mid-60s percent 
from last filing season. I am concerned that the term ``Level of 
Service'' does not accurately reflect calls answered by the IRS. 
Rather, it represents callers waiting on hold, only to receive an 
automated message to call back later--too many calls from taxpayers do 
not get through, or end up resulting in taxpayer hang-ups or automated 
responses. It is reported that the percentage of calls answered by a 
human is closer to 20 percent.

    Does that sounds accurate? Does that seem adequate and responsive 
to answer the call volume?

    Answer. The IRS defines level of service (LOS) as the relative 
success rate of taxpayers that call for services seeking assistance 
from a Customer Service Representative (CSR). As a result, the CSR LOS 
measure represents a subset of all calls. Roughly 68 percent of all 
call attempts, annually across the enterprise, come in to the customer 
service telephone lines during the open hours of operation (generally 7 
a.m.-7 p.m. local time). The IRS's toll-free telephone line constitutes 
one of the world's largest customer service phone operations. It is a 
key part of the IRS's taxpayer service delivery and is just one of the 
many channels available to taxpayers for assistance. Taxpayers calling 
the IRS toll-free customer service line first navigate through 
automated menus informing them how to get their questions answered by 
selecting from menu options of frequently asked topics such as refund 
status, transcripts, tax reform law, individual and business tax 
topics, and how to find information on IRS.gov. Many taxpayers have 
their questions answered through automated responses or choose the 
option to go to IRS.gov. Calls answered through automated self-service 
options are not included in the CSR LOS measure because an assistor was 
not needed.

    At the ``annualized fiscal year 2018 Continuing Resolution'' level, 
our CSR LOS was targeted at 80 percent for Filing Season (FS) 2019 and 
75 percent for Fiscal Year (FY) 2019. Following the shutdown, and 
calculation of resulting budget and workload impacts, the LOS targets 
were reset to 65 percent for filing season and 63 percent for the 
fiscal year. As of April 20, 2019, CSR LOS for FS 2019 was about 66.9 
percent and 68.5 percent for FY 2019.

    Although toll-free is a high-service channel, the IRS also services 
taxpayers who write or respond via mail to the IRS, which is received 
as paper inventory. The IRS receives general correspondence from 
taxpayers requesting information, changes to their accounts, or other 
activities. Due to the lapse in appropriations, no inventory was worked 
from December 21st through January 21st and, due to excessive phone 
demand, only limited paper was worked the first 2 weeks following the 
shutdown. The impacts of not working inventory can result in duplicate 
work, follow-up calls to the IRS, and a significant amount of resources 
and time to become current on receipts. As of the week ending May 4, we 
had nearly 1.3 million pieces of inventory compared to only 1.1 million 
the same time last year (an increase of 10 percent).

    The average speed of answer (wait time), a measure of the average 
amount of time taxpayers spend on hold prior to being connected to an 
assistor, is steadily improving. The wait time this filing season has 
been less than 10 minutes (as of April 20, 2019), with an average of 
9.7 minutes from October 1st through April 27th. These results are 
specific to contacts from tax practitioners, individuals, and business 
owners seeking assistance regarding their accounts or general tax law 
questions. Performance results for other types of calls involved in 
compliance activity, i.e., balance due, are reported separately.

    We received 53 million customer service calls between January 1st 
and April 27, 2019. About 9.3 million calls came in after our hours of 
operation (although 3.4 million of those calls were still answered 
through self-service automation). Almost 14.8 million callers hung up 
or were otherwise disconnected (calls are often disconnected, or 
blocked, when the system reaches capacity) and 8.1 million callers 
transferred out to non-taxpayer service lines (e.g., Automated 
Collection System). Of the roughly 21 million calls remaining, almost 
13 million were answered in automation and over 8 million were answered 
by CSRs.
                        impact of tcja on audits
    Question. As you know, The Wall Street Journal reported that audits 
have fallen to a 15-year low. The rate of audits has fallen 
significantly more, however, for high-income taxpayers than for those 
of working families. When Congressman Crist asked you about this during 
your hearing before the House Appropriations Committee, you cited 
wealthier individuals utilizing one or more forms of pass-through 
income as complicating the audit process for individuals in those 
cases.

    How has implementation of the Tax Cuts and Jobs Act impacted your 
ability to thoroughly vet and audit tax filers?

    Answer. Implementation of the Tax Cuts and Jobs Act has not 
impacted our ability to vet and audit tax filers. The IRS will continue 
to utilize available internal and external information to select tax 
returns for examination and document matching activities.

    Question. Have portions of the tax bill such as the creation of the 
section 199A pass-through deduction eased or further complicated the 
process for taxpayers and for the IRS in properly vetting those 
returns?

    Answer. The Tax Cuts and Jobs Act has not complicated the process 
for the IRS to review tax returns. While some provisions of the law, 
such as section 199A, Qualified Business Income Deduction, added 
complexity for some taxpayers, other provisions, such as the increase 
in the standard deduction, have reduced complexity for many taxpayers 
since they no longer need to itemize deductions.

    Question. Does the complexity of a filer's tax report regularly 
discourage the IRS from auditing them?

    Answer. No, the complexity of a tax return is not a factor in 
identifying or selecting returns for examination.
                              tax evasion
    Question. How can the IRS reduce tax evasion?

    Answer. IRS can reduce tax evasion through criminal and civil 
enforcement. Technology plays an increasingly important role in the 
IRS's enforcement strategy and has increased our capacity to identify 
and prevent noncompliance while also making it easier for taxpayers to 
comply voluntarily. IRS Criminal Investigation (CI) in particular is 
leveraging technological advances and is now using more advanced data 
analytics systems to help identify and develop high-value criminal 
investigations. These systems are significantly more advanced and 
efficient compared to the technology available 10 years ago. CI's 
Nationally Coordinated Investigations Unit (NCIU) is in its second year 
of operation and is already making an impact by providing a roadmap to 
identifying areas of noncompliance in an environment where financial 
crimes are increasingly complex.

    CI's investigative efforts in the international tax fraud arena 
continue to grow. CI has ten foreign attache posts already in service 
around the globe.

    Civil enforcement through examinations also plays a role in 
deterring tax fraud and minimizing the tax gap. Our compliance 
employees have a commitment to fraud awareness.

    The IRS recently made progress in the area of transparency of 
entity ownership through newly effective rules that provide an 
information reporting requirement for foreign-owned LLCs. These rules, 
in addition to revisions to the form used to apply for taxpayer 
identification numbers, will increase availability of beneficial 
ownership information and help prevent those using shell entities from 
disguising beneficial ownership and facilitating tax evasion.

    IRS CI and Treasury are pleased to provide a briefing to the 
committee to discuss any of the issues or pending legislation in 
further detail.

    Question. In your testimony to the House Ways and Means Committee, 
you called yourself an ``enforcement guy'' and spoke of your vision for 
IRS enforcement. However, a budget cut in enforcement would tell a 
different story.

    How do you reconcile this vision and cuts to enforcement?

    Answer. The funding level for the enforcement account is important 
but is not the only indicator of the IRS's tax enforcement efforts.

    We use a multi-prong approach to identify the highest potential 
noncompliance, using scoring mechanisms, data driven algorithms, third 
party information, whistleblowers and information provided by the 
taxpayer, and we are making great strides. I believe a strong, robust, 
and visible enforcement presence promotes public confidence in our 
voluntary compliance system and supports the vast majority of taxpayers 
who voluntarily comply. Those who do not comply continue to run a 
substantial risk of being detected.

    We are investing in both people and technology as we pursue areas 
of significant tax noncompliance. Investments in data analytics and 
modernized fraud detection capabilities are delivering significant 
returns on investment. The voluntary compliance rate remains steady and 
year-over-year, the Return Review Program (RRP) continues protecting 
billions of potential fraud revenue and delivering a return on 
investment of more than 1,700 percent.

    Our Integrated Modernization Business Plan will also innovate and 
support the future of tax administration. To modernize core enforcement 
activities, the IRS will make targeted investments that help improve 
the fairness of the tax system and the ability to adapt with changing 
tax laws. For example, we will create new models and filters based on 
emerging schemes and patterns of noncompliance. We have coordinated 
certain enforcement efforts on key issues across our functions. We will 
also develop new fraud detection functionalities and enhance automated 
verifications for certain business returns using RRP. We are leveraging 
technologies to develop new enforcement tools made possible by advanced 
data and analytics.

    Enforcing the tax law with integrity and fairness requires ensuring 
fairness to the taxpaying public, equitable processes, and a focus on 
taxpayer rights to due process and appeal. All taxpayers have certain 
responsibilities and obligations, and we continue to pursue those 
individuals and businesses who fail to comply with their tax 
obligations. Our vision is to continue taking enforcement actions using 
leading-edge technologies in a sophisticated, scalable and adaptable 
manner. A visible, robust enforcement effort helps deter those who fail 
to comply and supports those who exercise their best efforts to 
voluntarily comply.
      irs budget and resources for low-income families and elderly
    Question. Like many of my colleagues here, and tax professionals I 
speak to in Nevada, are concerned that after the Tax Cut and Jobs Act 
Federal income tax withholding tables were adjusted to generate larger 
paychecks and reduced Federal income tax withholding. Now, about 8 
million individuals who received a tax refund last year may owe this 
year.

    Besides the online ``Paycheck Checkup'' resource, what is the IRS 
doing to support taxpayers who may not have access to computers or 
online resources, or frankly the sophistication to navigate these 
resources?

    Answer. We recognize that our obligation to serve all taxpayers 
requires the IRS to provide multiple ways to get assistance. To support 
the major changes following TCJA and withholding, the IRS embarked on a 
sweeping, year-long effort encouraging people to check their 
withholding. This effort did not just focus on those with digital 
access, it reached out to partner groups and others that directly 
interact with taxpayers. The effort encouraged employers and payroll 
providers to share information with their employees, along with 
information to share about how to check their withholding and adjust 
their form W-4. This effort also focused on sharing information with 
the tax community, since many people use a tax professional and filing 
the tax return is an ideal time to think about withholding for the 
following year. And to reach non- or limited English-speaking 
audiences, key information about withholding, such as news releases, 
was translated into multiple languages, including Spanish, and shared 
widely with partner groups active in a diverse set of communities.

    Question. If the local Taxpayer Assistance Centers are 
understaffed, like in Las Vegas, what are other options for taxpayers?

    Answer. Taxpayers in Nevada also have access to volunteer tax 
return preparation services in their community. Volunteer Income Tax 
Assistance/Tax Counseling for the Elderly (VITA/TCE) sites, throughout 
the State, offer free assistance with return preparation. VITA sites 
serve people who generally make $55,000 or less and people with 
disabilities or limited English ability. Military VITA sites serve 
active military personnel on military bases. TCE offers free tax 
preparation for all taxpayers, particularly those who are 60 years of 
age or older. It specializes in questions about pensions and 
retirement-related issues unique to seniors. Last year, there were 
nearly 11,000 VITA sites (including 78 high school locations where 
students prepared returns) with more than 82,000 trained volunteers 
(600 IRS employees) and 2,300 local, State, and national partners. 
There are also numerous low-
income taxpayer clinics (LITCs) providing legal assistance throughout 
the country, supported by the IRS and others.

    The IRS provides a wealth of tax information on IRS.gov. In late 
summer 2017, we launched a redesigned IRS.gov website. The refreshed 
design improves how taxpayers interact with the IRS online. While tax 
issues can often be complex, the IRS.gov transformation should make it 
easier for taxpayers to navigate both the IRS website and tax law. One 
of the most important changes was to make IRS.gov 
mobile-friendly. This means the site will resize and adapt based on the 
screen size or the type of device used, including a smartphone, laptop, 
tablet or desktop.

    We have also provided more ways for taxpayers who need to come into 
compliance, easier ways to do so. For example, the IRS

        Online Payment Agreement, a secure, safe, and easy process 
taxpayers can use to set up a payment plan and pay their tax 
obligations over time. A total of 571,000 online payment agreements 
have been set up so far, this fiscal year.

        Direct Pay, which provides taxpayers with a secure, free, 
quick and easy online option for making tax payments. This tool was 
used 10.2 million times in FY 2017. The IRS is also continuing the 
development of online accounts at the IRS where taxpayers can log in 
securely, obtain the information they need about their account, and 
interact with the IRS as needed.

    Online account: In 2016, the IRS took the first step toward a fully 
functional IRS online account with the launch of an application on 
IRS.gov that provides information to taxpayers who have straightforward 
balance inquiries. The IRS followed that up with another feature that 
lets taxpayers see recent payments posted to their account.
                  burdensome tax compliance and scams
    Question. I am concerned that cuts in the IRS budget undermine 
access to tax justice for many millions of taxpayers, including 
Nevadans who do not have the resources to deal with a complicated and 
underfunded tax system. Tax compliance becomes burdensome and 
overwhelming for hardworking families. With ever changing tax forms and 
complicated tax rules, filing has become more and more expensive and is 
not well regulated, inviting unscrupulous participants.

    What interagency partnerships does the IRS engage in to combat the 
increase in phone scams and mail scams, particularly those targeting 
our senior citizens and low-income families?

    Answer. We conducted an aggressive, extensive consumer education 
effort on tax scams and schemes for several years, making it a key part 
of filing season information for taxpayers, sharing information with 
hundreds of partners such as AARP and conducting major media campaigns 
and highlighting this as part of our annual Dirty Dozen tax scam news 
releases.

    In addition, we have made this a central component of 
communications work in the Security Summit effort. The Summit, a joint 
project between the IRS, State tax agencies, and the private-sector tax 
industry, has highlighted Identity Theft (IDT) and tax scams in joint 
communications since 2015. This outreach effort has included working 
with numerous private-sector partners as well as government agencies, 
including the Federal Trade Commission (FTC). We have actively 
participated for several years with the FTC's identity theft efforts, 
participating in panels, issuing joint communications, and sharing 
information on their respective websites. To help push this information 
out to as many groups as possible, the IRS and the Summit partners have 
conducted National Tax Security Awareness Weeks, holding press 
conferences and events across the country to share information about 
scams and schemes as well as raising awareness about how people can 
protect themselves from identity theft, whether on the phone or online.

    Locally, IRS representatives meet with various stakeholder groups 
and routinely discuss the need for taxpayers as well as tax 
professionals to maintain a heightened awareness of the possibility of 
such scams. These scams are harmful to taxpayers and adversely impact 
taxpayer confidence in the IRS. As these scams continue to evolve and 
change, the IRS will continue to respond aggressively to raise 
awareness and help protect taxpayers from these threats.

    Question. What procedures can you implement to expand efforts to 
combat the increased rate of IRS phone scams?

    Answer. We have devoted and continue to devote significant 
resources to fighting tax scams and our work has had a measurable 
effect. The criminal prosecutions by India and the United States 
resulted in a measurable drop in calls by scammers. Initially, the 
number of calls reported to TIGTA dropped from 40,000 a week to 1,000 a 
week.

    A major part of our effort related to scams has focused on the 
Security Summit and protecting taxpayers against identity theft. Over 
the last several years, the IRS and partners in the States and the 
private-sector tax industry have made steady progress against identity 
theft, thanks to the unique and collaborative efforts of the members. 
This strong, unique partnership between the public and private sectors 
has allowed us to coordinate efforts on many different levels and put 
in place many new and productive safeguards. These efforts to date have 
significantly affected the tax ecosystem. We continue to devote 
significant time and attention to this challenge and are committed to 
doing all that we can to prevent the payment of fraudulent refunds, 
pursue the perpetrators, and assist the victims.

    Our work is showing results, reflected in the falling number of 
taxpayers who are victims of identity theft 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.

    Question. I am concerned with the increased reliance on mail 
correspondence audits for EITC recipients, including the fact that 99 
percent of EITC audits are through mail correspondence, and the 
transitory nature of these taxpayers. Do you think this is an efficient 
and secure use of resources?

    Answer. Correspondence audits are an efficient and effective manner 
to conduct most EITC audits. Correspondence audits are less expensive 
than face-to-face audits and generally take less time to resolve. 
Unlike face-to-face audits, which often require taxpayers to take time 
off work, correspondence audits allow taxpayers to submit their 
documentation by mail.

    Correspondence audit procedures require employees to research 
taxpayer accounts for a new address whenever IRS correspondence is 
returned undelivered. If a new address is found before the issuance of 
the Statutory Notice of Deficiency (SNOD), IRS will resend the notice 
and provide the taxpayer additional time to submit the documentation. 
If IRS has issued the SNOD and the notice was mailed after the address 
change, IRS will reissue the notice and give the taxpayer an additional 
106 days to respond.

    We continue to administer refundable credits through a balanced 
program which includes education, outreach, and compliance efforts. The 
IRS staffs a year-round toll-free telephone line to answer questions on 
EITC correspondence audits. We employ several EITC educational tools 
such as the EITC Assistant on IRS.gov which is an interactive online 
tool that helps taxpayers determine if they've met the eligibility 
requirements for the EITC; the Form 886-H Toolkit which is an online 
tool that helps taxpayers determine the correct documents needed if 
selected for an EITC audit. Our annual EITC Awareness Day promotes 
increased participation, decreased erroneous payments, and improved 
accuracy of filed returns. Since resources are limited, we use a 
variety of treatments to address noncompliance. For example, in some 
cases when we identify a discrepancy between information provided by a 
taxpayer and existing third-party information, we may send an 
educational notice to allow the taxpayer to correct their information 
prior to any compliance activity.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    There are a few subjects I need to address today. First, oversight 
of the tax code. Last week the chairman of the House Committee on Ways 
and Means exercised his authority under section 6103 of the tax code to 
request 6 years of the President's tax returns. I support his request 
completely. Chairman Neal raised a key point about oversight of the tax 
system that explains why this step is necessary. The IRS has a policy 
of auditing the tax returns of sitting Presidents and Vice Presidents 
every year. It's not clear that system is effective. Congress has an 
obligation to look into whether it's functioning properly, and if 
necessary, craft legislative solutions.

    Let's also clear up a misconception on this issue. This is not an 
obscure law that has sat around gathering cobwebs. Both committees that 
handle tax law--Finance and Ways and Means--use this authority 
regularly. The committee's majority side used it earlier this year to 
investigate certain tax-exempt hospitals. This committee also used it 
between 2013 and 2015 during an investigation into the treatment of 
tax-exempt organizations.

    Because this type of request is so routine, the Treasury Secretary 
long ago delegated responsibility for complying with it to the IRS 
Commissioner. IRS Commissioners in turn have delegated it to agency 
employees. These requests do not cross the Treasury Secretary's desk.

    Furthermore, Congress is closely familiar with reviewing the tax 
returns of Presidents and Vice Presidents. The JCT reviewed President 
Nixon's tax returns. Congress reviewed the tax returns of past vice 
presidential nominees. This committee also reviews the tax returns of 
all nominees we process.

    With respect to Chairman Neal's request, the law says the tax 
returns ``shall'' be provided. The law does not give anyone--not the 
Treasury Secretary, not a White House official--the power to interfere.

    The administration has responded to Chairman Neal's request by 
launching a campaign of blatant political intimidation. I recall in the 
very recent past when the prospect of political interference in the IRS 
mattered to both sides of this committee.

    So here's the bottom line. Chairman Neal's request is based on 
legal authority our two committees exercise regularly, and the process 
of obtaining and reviewing tax returns is routine. I believe this 
committee ought to make the same request for the President's tax 
returns. This committee must not punt on oversight and cede that role 
to the House.

    Now to shift to another key tax policy issue. Americans who work 
for a living have long understood that the tax code is rigged to favor 
the most fortunate. It's now becoming painfully clear that tax 
enforcement is rigged in the same way.

    According to newly released data, the audit rate of corporations 
and those at the top is in freefall. Audits of those with more than a 
million dollars in income--cut in half over a decade. Audits of the 
largest corporations--again, cut in half over a decade. A new report 
from ProPublica showed one clear example of how that came to pass. A 
decade ago there was an effort to bring together skilled investigators 
to crack down on tax cheating by the mega-wealthy. The mega-wealthy 
fought back with an army of lobbyists and lawyers. The effort to get 
the tax cheats to pay a fair share fizzled.

    So the most fortunate are off the hook. What about people who work 
for a living? Another ProPublica report showed that Humphreys County, 
MS has a higher audit rate than any other county in America. It's not 
because it's packed to the county line with money launderers or shell 
corporations. It's because Humphreys County is poor, and most of them 
claim the Earned Income Tax Credit.

    I take a back seat to nobody when it comes to working against 
improper payments or abuse. But how can the Congress stand by a tax 
enforcement system that punishes working people and gives the wealthy a 
green light to cheat?

    If a working family makes a simple mistake on their taxes and gets 
hit with an audit, it can snowball into a major financial setback. If a 
Wall Streeter concludes they can get away with tax cheating, it's like 
they've discovered a gold mine.

    One proposal that could help fix this unfairness is the bill 
Senator Cardin and I are introducing tomorrow to require minimum 
standards for paid tax preparers. The idea is, if working people are 
less likely to run into a crooked or incompetent tax preparer, they're 
less likely to face an audit. Passing our bill would be a good first 
step, but this issue is going to take a lot more work.

    As I wrap up, I want to address an issue regarding how Americans 
file their taxes. I start with the propositions that filing should be 
simple, and taxpayers should not have to use a private company to file 
their taxes online. I support allowing Americans to file directly 
online with the IRS. I've also proposed bipartisan legislation to 
create an optional ``simple return'' system: your forms show up 
completed, and all you have to do is check the numbers. No more 
headaches from a complicated filing process.

    During the debate on the tax administration bill, my staff pushed 
back on a longstanding policy that blocks the IRS from competing with 
private tax preparation companies. I'm going to continue fighting for a 
``simple return'' system and the right to file directly with the IRS 
online. In the meantime, the final package limits the role of private 
debt collection on working Americans, and it permanently extends a 
highly successful program that helps low-income taxpayers file their 
returns for free. Just this morning, I've also gotten confirmation from 
the IRS Chief Counsel that the IRS can terminate Free File and design 
their own direct-file product with 12 months' notice. So, colleagues, 
there's a lot to discuss this morning. I look forward to questions.

                                 ______
                                 

                             Communications

                              ----------                              


                        Center for Fiscal Equity

                        14448 Parkvale Road, #6

                       Rockville, Maryland 20853

                      [email protected]

Chairman Grassley and Ranking Member Wyden, thank you for the 
opportunity to address this issue. Our focus will be on tax reform and 
how we can make taxation easier in the future, rather than the present 
season. For most people, this year will be much the same as last year, 
although many will no longer itemize, but they will also lose 
exemptions. The new forms will at least let paper filers know that 
there is a change. For those who use tax preparers or preparation 
software, there will be little difference.

The Tax Cut and Jobs Act gave most people neither a real tax cut or 
jobs. The goal was to stimulate an already growing economy by giving 
tax breaks to ``job creators.'' The reality is that these cuts went to 
asset speculators, as they always do. It does not matter what the asset 
markets do, they are their own master and their prices are about too 
much money chasing too few good instruments, which leads to funding 
such garbage as Bitcoin. Eliminating that inflation through bond sales 
is a good method, as is making such sales unnecessary through higher 
tax rates on the wealthy, preferably from an income and inheritance 
surtax.

Even with inequality growing, many enjoy their civic duty to file 
taxes, but those who use preparers probably do not, which is most 
people. The rich will likely use accountants who have other money 
management duties and who, like the IRS employees, must figure out the 
new tax rules on pass-through income. For some, these rules equalize 
the treatment of ownership income between corporate and non-
corporate firms, to others this is just another giveaway to donors. For 
all businesses, the ending of corporate income taxation and its 
replacement with a value-added tax and/or a net business receipts/
subtraction VAT or our new Asset VAT proposal would have been so much 
easier, save for the resistance of the former Chairman.

The reality is that an implicit hidden value-added tax is already in 
force. It is the tax withheld by employers for the income and payroll 
taxes of their labor force. A VAT simply makes these taxes visible 
while an NBRT makes them more manageable, allowing employers to adjust 
pay more easily for larger families, pay for health care or insurance 
and fund public and non-public schools for dependents and college or 
technical training for workers, as well as retirement plans that give 
employees a stake and a say in the firm and a more secure retirement.

We preface our remaining comments with our newly revised comprehensive 
four-part approach, which will aid members' familiarity with its 
points, inform new committee members and provide context for our 
comments.

      A Value-Added Tax (VAT) to fund domestic military spending and 
domestic discretionary spending with a rate between 10% and 13%, which 
makes sure every American pays something. Carbon taxes are included in 
this category.
      Personal income surtaxes on joint and widowed filers with net 
annual incomes of $100,000 and single filers earning $50,000 per year 
to fund net interest payments, debt retirement and overseas and 
strategic military spending and other international spending, with 
graduated rates. Capital gains taxes will be replaced by an Asset VAT 
or A-VAT of between 20% and 30%. At inheritance or at the exercise of 
options, previous tax payments will be set to zero. Brokers will 
collect these taxes and remit them to the SEC. Sales to qualified ESOPs 
will remain tax free. Short-term trades will be subject to a Tobin Tax.
      Employee contributions to Old-Age and Survivors Insurance (OASI) 
with a lower income cap, which allows for lower payment levels to 
wealthier retirees without making bend points more progressive.
      A VAT-like Net Business Receipts Tax (NBRT), which is 
essentially a subtraction VAT with additional tax expenditures for 
family support, health care and the private delivery of governmental 
services, to fund entitlement spending and replace income tax filing 
for most people (including people who file without paying), the 
corporate income tax, business tax filing through individual income 
taxes and the employer contribution to OASI, all payroll taxes for 
hospital insurance, disability insurance, unemployment insurance and 
survivors under age 60.

The collection of the Employee Contribution to Social Security will be 
exactly as it is now. Like proposals for a FairTax, the Value-Added Tax 
and NBRT/Subtraction VAT will be collected by the states. If the basic 
structure of reform is adopted in the states, the biggest change will 
be the need for a common base between federal and state consumption 
taxes.

Shifting from retail sales taxes and gross receipts taxes to value 
added taxes and VAT like net business receipts taxes will change the 
nature of most state taxation, while enabling ease of collection of 
taxes on online sales, since taxes would be levied at every stage of 
the production process. The IRS will assist states in this process, 
which will likely take the form of some federal-state compact 
commission to draft and approve the transitional rules.

If a common base agreement can be negotiated for these taxes, state 
treasurers can collect both their own taxes and the federal taxes, as 
well as analytical information on tax credit usage, which can then be 
shared with the U.S. Internal Revenue Service in order to track income 
accruing to payers of the federal high income surtax, as well as to 
recipients of the federal child tax credit, which would be paid to 
employees with wages under the NBRT and then verified by a mailing from 
both the employer and the Internal Revenue Service, with employees 
verifying that their employees paid every dollar to them reported as a 
credit.

There will likely be problems to resolve in our proposed system, where 
the states collect by the Value Added Tax and the Net Business Receipts 
Tax and forward the money and records to the Internal Revenue Service. 
This will not impact most taxpayers, since once they have bought a 
product, no further action is necessary.

The IRS will likely supplement state-based auditing with reviews of 
their own, but this is a small price to pay for a reform that will 
reduce the income tax payment and audit workload by at least 80%. 
Indeed, income tax simplification (through the elimination of all but a 
few deductions), will further eliminate the workload generated by 
remaining income tax payers. As you see, this is a much bigger change 
than reform around the edges.

Employees with children will need to annually verify the information 
provided by employers and, if they received less than was reported to 
the government, notify the IRS who will send a refund and collect the 
difference from the employer. This may trigger a dispute, but likely 
most employers will simply pay if there was an error. Fraud is another 
matter, which is criminal not a dispute to be settled. Other disputes 
may involve parents double dipping on two jobs or two earners, but 
these will likely work out a payment plan or contact their divorce 
lawyers to negotiate who pays.

Individuals making over $50,000 per year and joint filers making over 
$100,000 will have their wage and dividend income information submitted 
to the IRS as part of NBRT filings, which will be stored to compare to 
tax filings, unless the Congress authorizes an automatic filing system 
where all income surtax payers will receive notification when all data 
should have arrived and what their refund or payment will be once they 
correct the information or certify it is correct already. Banking 
information should be on file, so authorization for payment, either at 
once or installments should be easy. Very little IRS Administration 
will be required to do this. Indeed, data management and mailing could 
be contracted out. All IRS employees could fit in a bathtub with room 
for Grover Norquist.

Thank you again for the opportunity to add our comments to the debate. 
Please contact us if we can be of any assistance or contribute direct 
testimony.

------------------------------------------------------------------------
                                                              Amount of
                      Boundary in   Effective    Taxes Paid   Debt Owed
       Strata          $Thousands    Tax Rate        In           in
                                                 $Billions    $Trillions
------------------------------------------------------------------------
Bottom 50%                     $0         3.7%        $43.9        $0.57
------------------------------------------------------------------------
50% to 75%                    $40        15.6%       $158.5        $2.06
------------------------------------------------------------------------
75% to 90%                    $81        17.8%       $238.0        $3.09
------------------------------------------------------------------------
90% to 95%                   $140        21.1%       $162.1        $2.11
------------------------------------------------------------------------
95% to 99%                   $198        23.5%       $301.6        $3.92
------------------------------------------------------------------------
Top 1%                       $481        26.9%       $538.3        $7.00
------------------------------------------------------------------------
Top 1,409 Households                                  $46.9        $0.61
------------------------------------------------------------------------


                                 ______
                                 
                   National Treasury Employees Union

                          1750 H Street, N.W.

                         Washington, D.C. 20006

                             (202) 572-5500

          Statement of Anthony M. Reardon, National President

    Chairman Grassley, Ranking Member Wyden, and distinguished members 
of the committee, I would like to thank you for allowing me to provide 
comments on the Administration's FY 2020 budget request for the IRS. As 
President of the National Treasury Employees Union (NTEU), I have the 
honor of representing approximately 150,000 federal workers in 33 
agencies, including the men and women at the IRS.

    Since FY 2010, IRS funding has been cut by almost $845 million and 
those funding reductions have forced the IRS to reduce the total number 
of full-time employees by more than 23,000 across every state. In 
addition, since FY 2011, the IRS has had to operate under an exception-
only hiring policy, which has limited its ability to replace employees 
lost through attrition.

    At the same time the IRS has been operating with reduced funding 
and a declining workforce, workloads and responsibilities for the 
agency have increased. In particular, since FY 2010, several unfunded 
legislative mandates , including the Affordable Care Act (ACA), the 
Foreign Account Tax Compliance Act (FACTA), the Achieving a Better Life 
Experience (ABLE) Act, reauthorization of the Health Coverage Tax 
Credit (HCTC), the seriously delinquent debt certification program and 
the 2015 Protecting Americans from Tax Hikes (PATH) Act, have expanded 
the IRS's responsibilities and required the diversion of resources from 
core tax administration responsibilities.

    In addition, last year the IRS was tasked with implementing and 
carrying out the most extensive changes to the U.S. tax code since 
1986. Implementation of this drastic overhaul of the tax code required 
the IRS to, among other things, (1) interpret the law; (2) create or 
revise nearly 500 tax forms, publications, and instructions; (3) 
publish guidance and additional materials; (4) reprogram 140 
interrelated return processing systems; and (5) hire additional staff 
and train its workforce to help taxpayers understand the law.

    The lack of sufficient staffing coupled with a rising workload has 
strained IRS's capacity to provide America's taxpayers with top quality 
service to enforce our nation's tax laws.

    NTEU was disappointed that the Administration's FY 2020 budget 
calls for just $11.4 billion in base funding for the IRS, a minimal 
increase over the current FY 2019 level. We believe the $11.4 billion 
in proposed base funding is wholly inadequate and will do little to 
help the IRS reverse the adverse impact of previous budget reductions. 
Indeed, despite calling for an overall increase in funding, the 
administration's request is projected to reduce overall staffing at the 
IRS by more than 1,600 FTEs.

    While we are disappointed in the Administration's proposal for 
funding base taxpayer service and enforcement activities, we strongly 
support the Administration's request for an additional $362 million in 
enforcement funding for FY 2020 through a program integrity cap 
adjustment for high revenue generating enforcement activities. This 
$362 million would fund new and continuing investments in expanding and 
improving the effectiveness and efficiency of the IRS's overall tax 
enforcement program. These investments are expected to generate an 
additional $47 billion in additional tax revenue over 10 years.

    Recognizing the wisdom of small spending increases when they will 
be more than offset by larger returns on investment, both Democratic 
and Republican Administrations have requested, and Congress has 
approved, integrity cap adjustments for IRS enforcement activities. The 
Budget Control Act of 2011 specifically allows for other program 
integrity cap adjustments for Social Security disability claim reviews 
and health care fraud and abuse programs. Legislation recently 
introduced by the Chairman of the House Budget Committee and co-
sponsored by House Appropriations Chairwoman Lowey, H.R. 2120, the 
``Investing for the People Act of 2019'' also includes an IRS 
enforcement program integrity cap adjustment.

    NTEU strongly supports providing the IRS with additional 
enforcement funding for FY 2020 via a program integrity cap allocation 
adjustment.

                           Taxpayer Services

    Continued reductions in funding and staffing have seriously 
impaired IRS's ability to provide taxpayers with the service they need 
to comply with their tax obligations. Providing quality taxpayer 
service is a critical component of the IRS's efforts to help the 
taxpaying public understand its federal tax obligations while making it 
easier to comply with the tax system. Unfortunately, the IRS's ability 
to provide quality taxpayer service has been severely challenged due to 
reduced funding in recent years which has forced the IRS to reduce the 
overall number of staff supporting taxpayer service activities by more 
than 8 percent, including Customer Service Representatives (CSRs) which 
fell from 10,209 in 2010 to 9,209 in 2017.

    The reduction in employees assigned to answer taxpayer inquiries in 
recent years led to a rapid decline in the phone level of service 
(LOS), resulting in just 38 percent of taxpayer calls being answered 
during the 2015 filing season, down from 74 percent in FY 2010. In 
addition, wait times to speak to IRS representatives increased to an 
average of 23 minutes.

    Recognizing the adverse impact that funding reductions were having 
on IRS taxpayer service activities, Congress provided the IRS with $290 
million in targeted funding in fiscal years 2016 and 2017 to improve 
the phone level of service rate, among other things. With this funding, 
the IRS was able to hire additional temporary telephone assistors which 
drastically reduced taxpayer wait times and helped the IRS raise the 
phone level of service from 38 percent during the 2015 filing season to 
72 percent during the 2016 filing season, and to 79 percent during the 
2017 filing season. The Administration has noted additional resources 
in FY 2018 helped the IRS achieve an 80 percent FY 2018 filing season 
LOS.

    Unfortunately, despite acknowledging that additional funding 
enabled the IRS to drastically reduce taxpayer wait times and improve 
the phone level of service during recent filing seasons, the 
Administration's FY 2020 budget request calls for reducing funding for 
taxpayer services by almost $90 million below the current level and 
reducing overall staffing for taxpayer services by almost 2,200 FTEs 
from the FY 2019 CR level. The Administration acknowledges this level 
of funding would lower the phone level of service from 76% in FY 2018 
to just 68% in FY 2020.

    NTEU believes it is critical that the IRS is able to provide 
taxpayers with timely assistance, particularly for those that are 
victims of identity theft and other types of tax refund fraud. These 
cases are extremely complex cases to resolve, frequently touching on 
multiple issues and multiple tax years, and the process of resolving 
these cases can be very frustrating for victims. While the IRS has made 
considerable progress in this area, additional work remains. Fighting 
identity theft is an ongoing battle as identity thieves continue to 
create new ways of stealing personal information and using it for their 
gain. Therefore, it is critical that the IRS has the resources and 
staffing necessary to prevent refund fraud from occurring in the first 
place, to investigate identity theft-related crimes when they do occur, 
and to help taxpayers who have been victimized by identity thieves as 
quickly as possible.

    Mr. Chairman, it is clear that drastic funding reductions in recent 
years have seriously eroded the IRS's ability to provide taxpayers with 
the services they need. Without additional funding, taxpayers will 
continue to experience a degradation of services, recent progress in 
providing taxpayers with timely assistance on the phone will be 
reversed, and correspondence inventories, including letters from 
victims of identity theft and taxpayers seeking to resolveissues with 
taxes due or looking to set up payment plans, will increase.

                              Enforcement

    Mr. Chairman, NTEU believes a strong enforcement program that 
respects taxpayer rights, and minimizes taxpayer burden, plays a 
critical role in IRS's efforts to enhance voluntary compliance, combat 
the rising incidence of identity theft, and reduce the tax gap.

    Unfortunately, funding reductions in recent years are undermining 
the Service's ability to maximize taxpayer compliance, prevent tax 
evasion and reduce the deficit. Since FY 2010, funding for enforcement 
activities has been slashed by almost $645 million which has forced the 
IRS to reduce overall enforcement staffing by 27 percent, including IRS 
revenue officers (ROs) who are critical to IRS enforcement efforts. 
According to data from the Office of Personnel Management (OPM), the 
total number of ROs declined by nearly 40 percent between FY 2011 and 
FY 2017 and entry level ROs declined by 86 percent during the same 
period.

    The adverse impact of funding and staffing reductions to IRS 
enforcement was highlighted in a March 2019 report by the GAO (GA0-19-
176). The report noted that reduced staffing for enforcement has forced 
the IRS to scale back a number of program activities, including audits 
of individuals and large corporations. According to the report, between 
FY 2011 through 2017, the number of individual returns audited has 
declined by 40 percent. Additionally, audit rates of large corporations 
with assets $10 million or greater declined from 17.7 percent in FY 
2011 to 7.9 percent in FY 2017.

    The report also noted budget reductions had resulted in the loss of 
more than 18 percent of IRS tax examiners who are responsible for 
responding to taxpayer's inquiries regarding preparations of variety of 
tax returns, related schedules and other documentation, resolving 
account inquiries, advising taxpayers of enforcement actions, adjusting 
taxpayer accounts, preparing and issuing manual refunds and computing 
tax, penalty and interest. According to the IRS, in 2018, and in 
response to declining tax examiner personnel, IRS doubled the dollar 
amount threshold examiners use to select refunds for additional audit. 
The IRS said this means thousands of refunds that would have received 
additional scrutiny due to errors or anomalies are no longer considered 
for follow-up review by examiners. This means the government is 
potentially miss in g significant opportunities to collect revenue and 
enforce tax laws.

    Concerns over IRS's ability to enforce tax laws has led GAO to 
include tax enforcement in its high-risk list since 1990. In 
particular, GAO has identified IRS's ability to address the tax gap, 
and combat identify theft refund fraud as major challenges. In their 
most recent report, (GA0-19-157), GAO notes IRS's capacity to implement 
new initiatives, carry out ongoing enforcement and taxpayer service 
programs, and combat identity theft (IDT) refund fraud under an 
uncertain budgetary environment remains a challenge.

    NTEU knows that if the IRS is to continue making progress in 
combating identify theft and closing the tax gap, it must be provided 
with additional staffing. Without sufficient staffing to effectively 
enforce the law, ensure compliance with tax responsibilities and combat 
fraud, our voluntary tax compliance system is at risk. And as the 
former IRS Commissioner repeatedly noted, a simple one-percent decline 
in the compliance rate translates into $30 billion in lost revenue for 
the government.

    Despite the clear evidence that reductions to enforcement funding 
and staffing are hampering IRS's efforts to enforce our nation's tax 
laws, NTEU was disappointed to see the Administration's FY 2020 budget 
request would reduce funding for enforcement by almost $154 million 
below the current level. Because it will have fewer staff available to 
work cases, the IRS announced it is lowering the target rate for 
collection coverage, as well as for exam coverage, for individuals and 
businesses with assets of more than $10 million for FY 2020.

    Mr. Chairman, the adverse impact of recent and continued funding 
cuts on the IRS's ability to provide taxpayers with the service they 
need and to enforce our nation's tax laws is clear. NTEU strongly 
believes that only by providing the IRS with additional resources will 
the IRS be able to meet the rising workload, stabilize and strengthen 
tax compliance and customer service programs, and allow the Service to 
address the federal deficit in a serious and meaningful way.

                          GOVERNMENT SHUTDOWN

    Mr. Chairman, I would be remiss if I didn't mention the 35-day 
partial government shutdown and the devastating impact it had on the 
IRS and its employees. The shutdown impacted nearly 70,000 employees at 
the IRS who were furloughed or were designated ``excepted/exempt'' and 
forced to work without pay. These dedicated employees went over a month 
without pay and were terrified about how they would pay their mortgage, 
rent, student loans, child care, and credit card bills. The uncertainty 
of their financial situation caused employees to pull back on expenses 
and inquire about or even file for unemployment. And those employees 
who were forced to work without pay were left without the ability to 
earn additional income with part-time work and were unable to get 
unemployment benefits. At the same time, they incurred additional 
expenses going to work every day which exacerbated their financial 
distress.

    In addition to the human toll on IRS employees, the shutdown 
severely impacted IRS's ability to provide critical services to 
American taxpayers and, in particular, to prepare for the 2019 filing 
season when most provisions from the most extensive change to the U.S. 
tax code in 30 years were being reported on tax returns for the first 
time.

    Among the critical functions that IRS was unable to carryout was 
the processing of amended returns, all audit functions, and IRS call 
sites and taxpayer assistance centers (TACs) around the country were 
closed. Additionally, because the shutdown occurred immediately prior 
to the start of the filing season, it prevented the IRS from completing 
hiring and training of seasonal employees. In recent testimony before 
congress, Nina Olson, the National Taxpayer Advocate, highlighted the 
adverse impact the shutdown on IRS's ability to deliver a successful 
filing season, and in particular, on the phone level of service (LOS) 
and correspondence inventories.

    According to Olson, through Feb. 23, 2019, the LOS for all IRS 
telephone lines dropped from 71 percent last season to 48 percent and 
hold times increased from 10 to 17 minutes. As a result, taxpayers, 
businesses and tax professionals have struggled to get the answers they 
need to file accurate returns. If taxpayers are not provided the 
assistance they need to understand their tax obligations, they may 
inadvertently file an incorrect return which could necessitate the need 
for IRS to undertake post-filing actions that are costly and burdensome 
to both the taxpayer and the IRS.

    In addition, the shutdown led to a drastic increase in 
corresponding inventories. According to Olson, by the final day of the 
shutdown, the IRS had over 5 million pieces of unprocessed mail. Olson 
noted that typically the IRS shifts employees in Accounts Management 
between answering calls on the toll-free phone line and processing 
correspondence, but with correspondence inventories up 152 percent 
compared with the previous filing season, the IRS could not shift 
employees to improve telephone responsiveness without falling further 
behind in addressing taxpayer correspondence.

    Mr. Chairman, during the shutdown, IRS employees suffered both 
personal hardship and, because of their dedication to their public 
service work, they were troubled by the critical services they knew 
were not being carried out on behalf of American taxpayers. It is 
essential that the Congress and the President never allow such a 
shutdown to happen again.

                               CONCLUSION

    Mr. Chairman, thank you for the opportunity to provide NTEU's views 
on the Administration's FY 2020 budget request for the IRS. We believe 
that to ensure the IRS is able to continue making improvements in 
taxpayer services while handling a growing workload, it is imperative 
that the agency is provided with the resources and staffing necessary 
to meet these challenges. With the complexity of tax administration and 
future workloads only expected to rise, the IRS will be under a great 
deal of pressure to improve customer service standards while 
simultaneously enforcing the nation's tax laws.