[Senate Hearing 117-]
[From the U.S. Government Publishing Office]



 
  FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL 
                               YEAR 2023

                              ----------    
                              


                          TUESDAY, MAY 3, 2022

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

    The subcommittee met at 2:43 p.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Chris Van Hollen, (Chair) 
presiding.
    Present: Senators Van Hollen, Coons, Durbin, Manchin, Hyde-
Smith, Moran, Boozman, and Kennedy.

                        INTERNAL REVENUE SERVICE


             opening statement of senator chris van hollen


    Senator Van Hollen. Good afternoon. This hearing will come 
to order. And I want to start by welcoming our witness, IRS 
Commissioner Charles Rettig.
    Commissioner Rettig, thank you for your service. Thank you 
for being here. And I also want to take this opportunity to 
thank your staff for their professionalism and partnership, 
both preparing for the hearing, but throughout this Congress.
    The IRS has been consistently receptive to the work of our 
Committee, and my team and I are grateful to you and your team 
for your cooperation.
    At the outset I would like to highlight your diligent 
efforts over the past 2 years to implement several new COVID 
relief programs, especially those we passed under the American 
Rescue Plan. And because of the American Rescue Plan nearly 
three million Maryland families received direct relief payments 
of $1,400 a person, over one million Maryland children 
benefited from new tax cuts for families, you know, through the 
expansion of the Child Tax Credit, and over 250,000 Maryland 
workers got a tax break through the expansion of the Earned 
Income Tax Credit.
    The IRS played a key role in delivering these funds to 
Americans across the country. You did that while also working 
tirelessly to protect your own employees from COVID-19. The 
obstacles were enormous, but you and your agency delivered. And 
I want to salute you and the good men and women of the IRS who 
helped get that vital relief out the door.
    We also know that the agency, the IRS, continues to be 
underfunded and understaffed. And the massive tax return 
processing backlog at the IRS is the resultant, you know, we 
will talk some about that today.
    Many of my constituents are frustrated that they are still 
waiting for their 2021 and 2020 refunds. Just last month I 
heard from a mother of two in Maryland, who has to move homes, 
and is counting on her 2021 refund to cover the cost of a 
security deposit and the first month's rent. Her tax forms are 
stuck in the backlog, along with millions of others.
    Mr. Commissioner, I know you have made it a priority to 
address that backlog by hiring new staff at your processing 
centers, and by detailing experienced staff from other parts of 
the IRS to help with the backlog.
    I commend you for these efforts, and I want to make sure 
that this subcommittee is working with you to address this 
issue as fast as possible.
    As the Chairman of the Committee, I have made IRS funding a 
top priority, and I want to thank Ranking Member Hyde-Smith, 
for working together on these issues, so that we can help the 
IRS replace outdated technology and hire more staff.
    Less than 2 months ago, this subcommittee provided the IRS 
with its biggest funding increase in 20 years to do just that, 
to help serve our constituents, your clients.
    I look forward to seeing that investment improve service 
for working families, cut down on hold times, and reduce the 
backlog. As we work to improve customer service, we also need 
to improve IRS enforcement. Right now, as you, yourself, had 
pointed out Mr. Commissioner, there is anywhere from $500 
billion to $1 trillion in taxes, each year, that are owed but 
not paid, what is commonly referred to as the tax gap.
    These are billions of dollars that are legally due and 
owing under current tax law, while everyday Americans have 
their taxes withheld, and pay what they owe, we cannot allow 
the super-wealthy to evade the system. By enhancing the 
capacity of the IRS to track down wealthy individuals' unpaid 
taxes, and big businesses who sidestep their tax 
responsibilities, we can raise more revenue without changing 
the tax law. Those who refuse to meet their obligations, or 
avoid their obligations make everybody pay instead.
    I am proud of the work we have done to increase the IRS 
budget to meet these goals, but despite our efforts to 
prioritize IRS resources in this subcommittee, as a result of 
the overall caps, the funding we secured this year was less 
than you requested. And I believe less than you need, and we 
look forward to working with you this year so you can meet your 
mission.
    I have heard from some of my colleagues who say that the 
IRS problems we are seeing are not a budget issue at all. They 
just say that the IRS needs to hire more customer service 
agents, and upgrade their IT systems, and everything will be 
fine. Well, that would improve things, but that does cost 
money. And while money is not the only solution, it is a big 
part of the answer.
    Commissioner Rettig, I know that you understand the IRS' 
problems, and want to solve them. I will hope that this hearing 
is an opportunity for us to discuss how we can help the IRS 
access the tools it needs to delivery topnotch taxpayer 
services, and beef up enforcement of the super-wealthy who are 
not paying their fair share.
    But before we move to your testimony, I would like to 
return to Senator Hyde-Smith, and again thank her for her 
partnership on this subcommittee, and for her opening 
statement.


               opening statement of hon. cindy hyde-smith


    Senator Hyde-Smith. Thank you, Mr. Chairman, for that very 
kind welcome. And I certainly appreciate the opportunity to 
serve as the Ranking Member on this very important 
subcommittee, and I look forward to continuing to work with you 
in crafting responsible funding legislation for fiscal year 
2023.
    And I want to welcome the IRS Commissioner to our hearing 
today. And thank you for your service, and we look forward to 
your testimony this morning.
    The IRS entered this year's tax-filing season with a 
historically high backlog of unprocessed paper returns, and 
correspondence. When such issues arise, the IRS usually speaks 
about the need for more funding. However, the IRS received more 
than $3 billion in supplemental funding since 2020. Today, more 
than $1 billion of this amount remains unavailable and--I mean 
available and unobligated.
    Moreover, in this current fiscal year the IRS received 
$12.6 billion, its largest funding increase in two decades. 
Despite this robust funding, critical IT modernization projects 
lag, the tax gap remains wide, the backlogs remain high, and 
the customer service is at an all-time low.
    The IRS requests a total of $14.1 billion for the upcoming 
fiscal year. And I believe it is time for these funding 
increases to be met with fiscally responsible decisionmaking, 
decisionmaking that prioritizes that everyday taxpayer, and 
efficiency.
    I want to ensure that money appropriated to the IRS is no 
longer diverted away from measures and programs devoted to 
improving taxpayer services and enforcement. It is my hope that 
during today's hearing our priorities align to ensure utmost 
efficiency and fiscal responsibility with the IRS going 
forward.
    Mr. Commissioner, I know you have made some tough choices 
in responding to additional responsibilities placed on the 
agency. I thank you for your service. And I look forward to 
your testimony today.
    Senator Van Hollen. Thank you, Senator.
    Our first witness and only witness today is IRS 
Commissioner, Charles P. Rettig. Prior to his confirmation in 
September 2018, Commissioner Rettig worked in private practice 
for 36 years, representing thousands of individuals and 
businesses before the IRS. The Department of Justice Tax 
Division, Federal and State Courts, and State taxing 
authorities.
    He received a B.A. in Economics from the University of 
California, Los Angeles, as well as a JD from Pepperdine 
University, and an LLM in Taxation from New York University.
    Commissioner, thank you for coming back. I know that you 
have testified in front of a number of committees already this 
season, but we look forward to your testimony, and hope you can 
help us as we work with you to make sure you have the tools you 
need to do your job, and serve the American people. 
Commissioner Rettig?
STATEMENT OF HONORABLE CHARLES P. RETTIG, COMMISSIONER, 
            INTERNAL REVENUE SERVICE
    Commissioner Rettig. Yes. We have had a lot of hearings 
this year, but I should say that my wife appreciates it, 
because she likes to watch the hearings, so she knows exactly 
where I am, what I am saying, and it gives us a 3- or 4-hour 
discussion each evening as she critiques what I said, what I 
didn't say.
    It is an honor and a privilege to be in this role. It is an 
honor and a privilege to be in front of each of you. And 
Chairman Van Hollen, Ranking Member Hyde-Smith, and Members of 
the Subcommittee, thank you for the opportunity to discuss the 
Internal Revenue Service operations, the current filing season 
and the fiscal 2023 budget.
    As you know fiscal 2021 gross receipts for the Internal 
Revenue Service were approximately $4.1 trillion which 
translates to approximately 96 percent of the gross revenue of 
the United States of America. I would like to start by 
indicating the importance of the IRS, not only to Members of 
Congress, and not only to taxpayers in this country, but really 
to the rule of law, to the country that we have, and the 
support of the country.
    We don't make decisions as to the expenditure of the funds 
collected, but the importance of the IRS in supporting this 
country, from a financial perspective, at 96 percent of the 
total gross revenue of the country simply cannot be ignored. We 
need a fully functioning, successful, Internal Revenue Service 
to have a fully functioning, successful United States of 
America.
    And you know, I am a proud American. You are all proud 
Americans. That is why we are here. We are willing to give of 
ourselves to make this country continue as the greatest country 
on the planet. I believe that, and that is why I came. And I 
believe in the people of the Internal Revenue Service.
    The people of the Internal Revenue Service have given 
extraordinary efforts during the pandemic, and we look forward 
to oversight. From my confirmation hearing through today, I 
have welcomed all types of oversight. We do have oversight in 
certain lanes. Obviously, we have a Treasury Inspector General 
for Tax Administration, we have GAO, we have media, we have 
taxpayers, we have professional associations, we have Members 
of Congress.
    Oversight should not be a concern. We welcome that; I 
welcome that; I believe every Commissioner after me should 
welcome that. My term, as you are aware, is a statutory term, 
and it concludes November 12 of this year. It has been a 
privilege to be here, a privilege to interact. I want to bring 
that in because presumably this might be my last appearance 
before you.
    The employees of the Internal Revenue Service are the 
strength of the Agency, and they will continue to be the 
strength of the Agency, and collectively, we need to support 
them in the efforts going forward.
    I believe that the President's budget proposal for fiscal 
2023, supports the employees of the Internal Revenue Service, 
supports the mission. Again, we request oversight, because I 
think that that is a privilege for the tax administration 
agency to have people understand what it is, and specifically 
what it is not, for transparency, for people to see what we do, 
and what we don't do.
    I have read a lot of articles since I have been in this 
position that I can't wait to contest once I am no longer in 
this position. We are here, collectively, and I am speaking to 
both of you, but as well as to everybody else, to get this 
right so that we can proudly walk out the door and say, we are 
here supporting the United States of America.
    And I say that as a proud member of a military family. As 
you know, my son is a Major in the United States Army. I 
couldn't be more proud of his service, of what he does, 
literally, on a daily basis. And I think that most people 
should feel like that.
    I am more than willing to have discussions with respect to 
the ARP spend plan. We provided a detailed summary of what we 
are doing with respect to the spend plan on February 12 and we 
got an Omnibus Budget on March 15, so we are adjusting our 
spend plan. We will come back to you with an adjustment to 
that, so you can see how we are spending the balance of the ARP 
funds, but we have obligated about $966 million of those funds 
to date.
    But know that we have been in more than 100 continuing 
resolutions since 2001. It is impossible to build out a robust, 
meaningful, technology infrastructure without multi-year, 
timely, consistent funding. When we get our funding halfway 
through each fiscal year, it is impossible for us to plan 
multi-year expenditures.
    So with that, and not to go further over my time, I will 
turn it back to you. I am certainly available for questions. I 
am also available for meetings individually, with Members of 
this Committee, or with staffs of this Committee, with or 
without Members of the Committee.

    [The statement follows:]
          Prepared Statement of Charles P. Rettig Commissioner
                              introduction
    Chairman Van Hollen, Ranking Member Hyde-Smith and Members of the 
Subcommittee, thank you for the opportunity to discuss the filing 
season and the IRS budget.
    Taxpayer service remains the most significant IRS priority, and we 
have implemented many new, innovative strategies in an effort to 
improve our overall level of service and processing of our 
unprecedented current and projected inventories. The pandemic presented 
the IRS with a confluence of novel and critical demands at a time when 
we lacked the stable, long-term funding needed to appropriately serve 
the American people. Given these significant challenges, although we 
may not have always gotten it right or supported the important 
priorities of some, our employees have worked extremely hard to respond 
as best we could to a never-ending string of compounding challenges.
    I am pleased to report the 2022 filing season has gone well in 
terms of tax return processing and the operation of our information 
technology (IT) systems. Through April 15, the IRS processed more than 
118 million individual Federal tax returns and issued more than 78 
million refunds totaling more than $242,000,000,000. We worked 
diligently to open the filing season earlier this year than last, on 
January 24, 2022, compared to February 12, 2021. A detailed discussion 
of the filing season is provided later in this testimony.
    While the filing season has presented no major disruptions or 
surprises, we know we have a great deal of work to do in many other 
areas of the IRS. The IRS continues to focus on working to reduce paper 
correspondence inventory and process paper tax returns from 2021 as 
well as improve our response to an unprecedented level of phone 
demand--situations that have been compounded by the pandemic and 
related issues. For example, in fiscal year 2021, we received more than 
15 million individual paper returns. We also had a significantly higher 
error rate on individual returns due in large part to challenges 
associated with reconciling funds received through important stimulus 
programs like Economic Impact Payments (EIPs). We received far more 
than 10 million returns where the taxpayer did not properly reconcile 
the two EIPs received in 2020 to the amount of the Recovery Rebate 
Credit (RRC) stated on their return filed in 2021. Similarly, more than 
10 million individuals reported unemployment compensation on their 
return that was subject to the exclusion enacted during the 2021 filing 
season. In addition, millions of taxpayers elected to use 2019 rather 
than 2020 as the base year for determining their EITC (and the 
legislative change for that was enacted after our IT development for 
the 2021 filing season had been completed). Each of these returns 
required a manual review and resolution by an IRS employee.
    We will continue to do our best as we face new challenges. Our 
workforce is strong and remains our most important resource, with 
substantially all of our employees engaged on a full-time basis. We 
have taken numerous steps to address these challenges, and we continue 
to look for other ways so that we can improve these operations and get 
healthy by the end of the year.
    The IRS is serving more people and entities in a global environment 
than ever before, while handling new and bigger responsibilities. This 
was the case before the pandemic and has only increased since then. At 
the same time, we have experienced delays in updating our IT systems, 
which means the IRS and taxpayers must continue to use certain paper-
based processes. This use of paper processes can result in significant 
delays, contributing to IRS inventories and limiting taxpayers' ability 
to know the status of their cases.
    We are in this position because we have not had the sustained 
sufficient multi-year investment for IT modernization necessary to 
improve our technology and operating systems. I am here to tell you 
today that nothing is more important than having those resources in 
place to make it possible for us to appropriately serve the American 
people. Absent consistent, timely, multi-year funding we have largely 
been a paper-based organization operating in a digital world 
environment. In 2022, IRS employees should not be transcribing paper 
returns by hand. Taxpayers should not have to wait and wait on the 
phone--often to no avail. I want to better serve the American people--
and so do the dedicated employees at the IRS. They will finally be able 
to do so if you, and your colleagues, provide us the stable, multi-year 
funding we need.
    Like all Federal agencies, the IRS is best able to accomplish our 
mission when we receive the resources necessary to do so. And that 
mission is vital to the functioning of our government: The fact that 
the IRS collects approximately $4.1 trillion in gross revenue per year, 
representing about 96 percent of the gross revenue of the U.S., clearly 
shows that the success of our Nation is closely tied to the success of 
the IRS. The President's fiscal year 2023 budget proposal, which 
provides $14.1 billion for the IRS, will allow the agency to take 
important steps forward in improving taxpayer service, modernizing our 
systems and ensuring fairness in the tax system. But for the IRS to 
truly be able to deliver for the American people, it needs stable, 
multi-year funding to be in place to allow the agency to rebuild.
    Over the course of the last decade, the IRS's budget has decreased 
by more than 15 percent in real terms. Because of this decrease, in 
fiscal year 2021 we realized less than 79,000 full-time equivalents 
(FTEs), which is close to 1974 levels. Since 2010, IRS Enforcement FTEs 
have decreased by 30 percent, while the Nation's real Gross Domestic 
Product has increased by 29 percent, and the filing population has 
increased by 14 percent. Over the next 6 years, we estimate we will 
need to hire 52,000 employees just to maintain our current levels. 
Every measure that is important to effective tax administration has 
suffered tremendously in recent years, with profound deficiencies 
resulting from underinvestment in human capital and information 
technology.
    Although the IRS appreciates the $675,000,000 increase to our 
budget in the fiscal year 2022 Omnibus, sufficient funding remains a 
constraint to addressing the current paper inventory and supporting our 
IT operations adequately. For example, this year's funding left our 
Operations Support account, the account that funds all of the hiring, 
rent, laptops, and telecom for taxpayer services and enforcement 
employees, $100,000,000 short of our inflationary cost increases. 
Without shifting the funds to the appropriate accounts, we are left 
depleting resources from one less-visible program to pay for another 
essential program, which causes us to slow or stop work on updates to 
our systems that must be modernized to provide digital services that 
citizens expect from us. Mandatory multi-year, consistent funding would 
help us deliver meaningful services to taxpayers, conduct critical 
enforcement initiatives and support long-term modernization efforts to 
improve both service and compliance for the Nation.
    When we are confronted with long-term Continuing Resolutions (CRs), 
we typically freeze nearly all external hiring. We take this action to 
ensure we have funds to pay all employees, including any applicable pay 
raises. Last fall, we increased staffing despite the CR, hiring at risk 
without the funding in place to support these positions, but assuming 
future resources would be provided by the eventual enactment of the 
fiscal year 2022 appropriation, to help address our inventory. The full 
fiscal year 2022 President's budget request would have allowed us to 
maintain current staffing levels and fund 4,200 additional full-time 
equivalent employees. The Omnibus increased our Taxpayer Services 
account by $193,000,000 from fiscal year 2021, which covered the 
inflationary increases in Taxpayer Services (what we refer to as 
``maintaining current levels"), and about 42 percent of our requested 
program increases. We will now be required to use other funding sources 
to cover our remaining needs, including requesting an inter-
appropriation transfer, redirecting user fees, and realigning American 
Rescue Plan (ARP) funds. Although the Omnibus reflects an important 
down payment on the necessary investments in the IRS, it is far, far 
from what the dedicated IRS employees need to serve the American people 
they way they deserve.
    Even with appropriate funding, the IRS continues to experience 
significant challenges recruiting talent to support the critical work 
the agency does for taxpayers and our Nation, particularly in the 
current labor market. With our limited funding, we have been hard at 
work to do all we can to bring talent on board. For example, we have 
major processing center operations in Austin, TX, Kansas City, MO, and 
Ogden, UT, where we are working to attract eligible applicants for more 
than 5,000 vacant positions. We have been holding both in-person and 
virtual job fairs in Austin, TX, Kansas City, MO, and Ogden, UT where, 
using recently received Direct Hiring Authority (DHA), we have been 
able to make more than 2,500 conditional offers at the conclusion of 
the interviews.
    IRS employees want to do more to help taxpayers. We want to be able 
to answer the phones and respond to questions. We want to be ready, 
whenever crisis hits, to deliver economic relief quickly--as our 
employees demonstrated repeatedly during the current pandemic, working 
long hours to deliver crucial programs. During this challenging period, 
the IRS has been operating in an ``all-hands-on deck'' approach, 
leaving nothing off the table for consideration to improve overall 
service.
    Our employees continue to expend every effort to balance the 
confluence of multiple, unprecedented demands--including successfully 
starting the current filing season and working our inventory of 
unprocessed tax returns, as well as looking for additional ways to 
minimize burden for taxpayers, tax professionals and businesses. We 
will continue to rapidly adapt to changing circumstances when 
appropriate to do so. We remain committed to ensuring the tax system is 
administered fairly and impartially and that every American receives 
the nature and quality of services they deserve.
         effects of the covid-19 pandemic and the irs response
    This unprecedented pandemic illustrates the significant role that 
the IRS plays in the overall health of our country. We have been called 
to provide economic relief during this national crisis while also 
fulfilling our routine responsibilities of tax administration. The 
IRS's response to COVID-19 includes issuing more than $1.5 trillion in 
combined historic economic relief and individual refunds over the past 
2 years. This effort shows the level of dedication of our workforce and 
illustrates how important the IRS is to the functioning of our 
government and the success of the Nation.
    IRS employees have worked hard since March 2020 to implement major 
provisions of the Coronavirus Aid, Relief and Economic Security (CARES) 
Act, ARP and other COVID-related relief legislation. This work included 
delivering more than $800,000,000,000 in EIPs to help Americans cope 
with the financial effects of COVID-19--which involved creating the 
internal processes to accomplish this effort. The Treasury Inspector 
General for Tax Administration (TIGTA) noted in a report released March 
21, 2022, that the IRS computed the correct payment amount for more 
than 99 percent of the 175 million payments issued for the third round 
of EIPs. Our work also included delivering (and creating the internal 
processes for) more than 200 million advance payments of the Child Tax 
Credit totaling $93,000,000,000 that were made to eligible families 
between July and December of last year.
    Congress provided critical help to support our ability to implement 
the third round of EIPs and the advance CTC payments by appropriating 
$1.86 billion in supplemental funding for the agency under the ARP. 
These funds represent important 3-year funding (expiring fiscal year 
2023) and have provided, and will continue to provide, critical 
assistance in our effort to better serve taxpayers. As of April 12, 
2022, the IRS has obligated $928,000,000 of the total; we are 
continuing to use the funds over the remaining 2 years of the 
expenditure window provided by Congress in ways that are intended to 
maximize taxpayer service, including responding to taxpayer questions 
about EIPs and advance CTC payments. As identified in our ARP Spending 
Projections provided to Congress in February 2022, these funds are 
allowing us to help taxpayers efficiently obtain the payments they are 
rightfully due, with additional frontline staffing, systems and 
technology improvements to create safe and secure platforms, and with 
investments in long-term modernization enhancements that will pave the 
way for long-needed system improvements going forward.
    For both the third round of EIPs and the advance CTC payments, the 
IRS made an extensive effort to ensure we reached as many people as 
possible who might be eligible for these benefits. We worked with 
thousands of community groups, non-profits, associations, education 
groups and anyone else with connections to people with children to 
share critical information about EIPs, the CTC and other important 
benefits. As noted above, we are continuing to work this filing season 
to ensure that anyone eligible who did not receive an EIP understands 
they can claim the RRC on their return, and we continue reminding 
recipients of the advance CTC of the need to reconcile those amounts on 
their returns.
Reducing inventory of paper returns and correspondence
    The combination of the pandemic, new tax laws and numerous other 
factors led to an unprecedented amount of unprocessed tax returns and 
correspondence remaining in the IRS inventory during 2021.
    The IRS pursued significant actions during the 2021 filing season 
to address the return and correspondence inventory. But due to resource 
issues and numerous unique factors tied to new legislation and the 
pandemic, we have entered the 2022 filing season with a significant 
inventory of unprocessed returns and correspondence and, to date, the 
inability to meet our hiring goals. We must continue pursuing 
innovative strategies to fulfill our commitment to return inventories 
to a healthy level before entering the 2023 filing season.
    To reduce the current and projected inventory, we are taking 
aggressive actions that include:

  --Surge Teams. We presently have more Customer Service 
        Representatives (CSRs) onboard than ever before. We have 
        retained temporary CSRs on a permanent basis to concentrate on 
        the inventories. We took this risk in the context of an 
        uncertain funding environment, hoping the annual appropriation 
        process would deliver funding; however, this effort has not 
        been sufficient to reduce the current and projected inventories 
        The IRS is deploying surge teams, which are groups of employees 
        across the agency organized to temporarily assist with urgent 
        issues. For example, we temporarily moved approximately 900 
        employees with previous relevant experience back into key areas 
        from other organizations. In addition to this accounts 
        management surge team, which is now in place, we have assembled 
        a similar surge team for our submission processing area with 
        700 employees who started on this critical work in April.
  --Direct Hire Authority (DHA). Working with Treasury, the Office of 
        Personnel Management, and the National Treasury Employees 
        Union, the IRS recently secured direct hiring authority for a 
        total of 10,000 positions--5,000 employees with the goal of 
        onboarding them in the next several months, as well as an 
        additional 5,000 new hires to be made over the course of the 
        next year. Congress also helpfully provided hiring 
        flexibilities in the Omnibus to further expedite hiring in 
        critical positions. Due to the challenges of hiring during the 
        pandemic and competition from other employers for the same 
        talent, this environment is an exceptionally difficult one for 
        hiring. DHA may improve our ability to be competitive in cities 
        where these employees are most needed. We are extremely hopeful 
        to satisfy our hiring goal over the coming months. Also, for 
        the first time, we have partnered with the Military Spouse 
        Employment Program and are engaging contractors while 
        aggressively pursuing our hiring goals. We are grateful for the 
        specific direct hiring authority language included in the 
        recent Omnibus (Consolidated Appropriations Act, fiscal year 
        2022) that will enable us to bring talent on-board more swiftly 
        in needed locations.
  --Mandatory Overtime. We have implemented mandatory overtime and are 
        offering authorized overtime to certain employees to help with 
        the reduction in inventory, and we are doing so for the first 
        time in certain functions.
  --Increased access to online self-service tools. Over the last 
        several months, more than 10 million individuals have created 
        their individual online account through IRS.gov. Reducing call 
        volumes through increased online service allows us to devote 
        more resources to the inventories.
  --EIP/CTC letters. We sent more than 250 million letters to help 
        taxpayers match IRS records to prevent delays in processing. 
        IRS Letter 6475, Your Third Economic Impact Payment, and IRS 
        Letter 6419, 2021 Advance Child Tax Credit, set forth the 
        amounts that individuals received in 2021. Individuals can also 
        verify these amounts by accessing their individual online 
        account through IRS.gov. Given that more than 10 million 
        returns failed to properly reconcile two EIP payments received 
        in 2020 on their returns filed during the 2021 filing season, 
        it is critical that individuals (and their preparers) verify 
        the possibly six to eight payments received in 2021 before 
        submission of a 2021 return this year.
  --Innovating to expedite case closures. We are employing new tools to 
        help IRS employees review and process tax returns that include 
        errors and manual reviews, a piece that is already helping 
        taxpayers receive refunds quicker in 2022. These efforts have 
        already demonstrated positive results.
  --Expanded Saturday openings of certain Taxpayer Assistance Centers 
        (TACs) to assist taxpayers this filing season in more than 90 
        cities around the country. TACs provide important front line, 
        in-person taxpayer assistance. We maintain 358 TACs but, due to 
        attrition and resource limitations, 39 are presently not 
        staffed on a full-time basis (24 TACs presently provide a 
        virtual service delivery alternative to an in-person visit). 
        All staffed TACs offer appointments as well as the ability to 
        walk in.
  --Enhanced the EITC Assistant tool on IRS.gov to make it more user 
        friendly for individuals to determine their potential 
        eligibility (intended to reduce resources being dedicated to 
        erroneous EITC claims). This important tool serves taxpayers 
        and reduces erroneous claims, freeing up resources to help 
        process our inventories.
  --VITA/TCE. We are also continuing to notify taxpayers about ``Free 
        Tax Return Preparation for Qualifying Taxpayers'' by 
        encouraging use of the IRS's Volunteer Income Tax Assistance 
        (VITA) and Tax Counseling for the Elderly (TCE) programs, which 
        offer free basic tax return preparation to qualified 
        individuals.
  --Created and expanded self-service portals for taxpayers to 
        implement an Online Payment Agreement, request payment 
        transcripts, request an Identity Protection Personal 
        Identification Number (IP PIN), update their personal 
        information, etc. These efforts reduce call volume, which 
        releases resources to help process our inventories.
  --Expanded ``Customer Callback'' to approximately 70 percent of our 
        toll-free telephone demand. During fiscal year 2022, we have 
        offered this option to more than 5.3 million taxpayers with an 
        acceptance rate exceeding 57 percent. We estimate this feature 
        has saved taxpayers more than 1.7 million hours.
  --Implemented Online Live Assistance, Voice Bots and Chat Bots (in 
        English and Spanish) to better enable taxpayers to interact 
        with IRS. Online Live Assistance leverages limited employee 
        resources allowing a single employee to respond to multiple 
        taxpayers at a time. Our Advance CTC Voice Bot launched 
        February 18, 2022 (delivered 6-8 weeks ahead of schedule) and 
        handles the top 27 Advance CTC topics (English only at present, 
        but the Spanish version is coming soon) to assist callers who 
        need help reconciling the credits on their 2021 tax return. The 
        IRS, in recent weeks, has deployed Voice and Chat Bots in 
        English and Spanish for phone lines that assist taxpayers with 
        tax payment issues or understanding an IRS notice they may have 
        received. In addition to the payment lines, Voice Bots help 
        people calling the EIP toll-free line, providing general 
        procedural responses to the most frequently asked questions. 
        Voice Bots are software powered by artificial intelligence (AI) 
        that allow a caller to navigate an interactive voice response 
        (IVR) system with their voice, generally using natural 
        language. Chat Bots simulate human conversation through web-
        based text interaction, also using AI-powered software to 
        respond to natural language prompts. Taxpayers who request to 
        speak with a CSR are placed in queue for English or Spanish 
        telephone assistance. These efforts reduce call volume, 
        releasing resources to help process our inventories.
  --Reduced the percentage of our outdated hardware from more than 60 
        percent a few years ago to approximately 10 percent at present. 
        Funding provided by Congress has allowed us to pursue these 
        efforts, reducing the risk associated with an interruption to 
        our delivery of meaningful services.

    These steps are making a difference. Refunds for tax returns and 
amended tax returns in the inventory continue to flow out to taxpayers. 
We continue to consider and pursue additional relief measures while 
balancing the many other demands for our time and limited resources.
    We also instituted additional relief measures for taxpayers, such 
as:

  --On January 27, we announced the suspension of notices in situations 
        where we have credited taxpayers for payments but have no 
        record of the tax return being filed. Given that in some 
        situations the return is still waiting to be processed, 
        suspending this notice will help avoid confusion.
  --On February 9, we announced the suspension of more than a dozen 
        additional notices, including automated collection notices 
        normally issued when a taxpayer owes additional tax or has no 
        record of filing a tax return. As a result, we have now 
        suspended all known notices that are associated with 
        unprocessed original return inventory. Specifically, any 
        notices that are still being sent to taxpayers are associated 
        with ongoing programs and services that are not associated with 
        the unprocessed returns. Note that many other IRS notices are 
        statutorily required to be issued within a certain timeframe to 
        be legally valid.

    We are evaluating penalty relief options; however, we must also 
determine if systemic programming changes or manual intervention are 
required for the considered relief. Manual intervention would require 
re-direction of resources from processing original returns and amended 
tax returns, which complicates this area.
Other taxpayer assistance offerings
    Important Update Information Available at IRS.gov. The IRS 
workforce is working hard to reduce current and projected inventories, 
meet taxpayers' continuing needs and provide relief or assistance 
whenever possible. We have issued various announcements available on 
IRS.gov outlining important steps we've taken this filing season to 
assist taxpayers with the aim of reducing current and projected future 
inventories. On February 14, we issued a news release titled, ``IRS 
launches resource page on IRS.gov with latest details and information 
for taxpayers during filing season,'' (IR-2022-32, February 14, 2022) 
with a link to this important resource page ( ``Help for taxpayers and 
tax professionals: Special filing season alerts'' ).
    The IRS is continuing to assess other changes and system 
modifications to assist taxpayers on an array of issues. We have 
redeployed and reallocated resources throughout the IRS and have 
implemented innovative strategies in an ongoing effort to provide a 
meaningful reduction in our inventories. As we make additional 
adjustments, we will continue to make information available to 
taxpayers throughout the filing season and beyond.
    Important Steps for Current Filers to Get Their Refund as Quickly 
as Possible. To prevent future inventory problems, the IRS has also 
worked diligently to encourage people to take extra precautions this 
year so they can get their refund quickly and avoid processing delays. 
For this filing season, refunds on error-free electronically filed 
returns continue to be processed within approximately 21 days. 
Requesting direct deposit accelerates receipt of the refund by the 
taxpayer. There are three important steps people can take to get their 
refund as quickly as possible:

  --File electronically;
  --File an accurate return (verify amounts reflected as received for 
        the EIP and advance CTC payments), and;
  --Request a direct deposit of their refund.

    These steps are critical to accelerating delivery of the refunds 
people deserve and the IRS employees want to get out as quickly as 
possible. We have engaged in extensive outreach with community-based 
and professional organizations to reduce the otherwise manual review of 
returns that fail to reconcile these amounts. We're also encouraging 
taxpayers with questions to turn first to online resources, since we 
anticipate a continued high call volume again this year.
Responding to unprecedented demand for phone assistance
    The IRS provides phone service to individuals, businesses, tax 
professionals and tax-exempt entities. We have specialty lines for the 
hearing impaired, identity theft victims, the taxpayer protection 
program, and for making appointments at our TACs. We also offer over-
the-phone translation services in 350 languages.
    Taxpayer Service Remains Our Top Priority. The long-term erosion of 
our budget has depleted every function of the IRS. Even though our Wage 
& Investment division--which is where the current and projected 
inventories exist--remains the most well-staffed function of the entire 
IRS, it is well below the levels necessary to deliver the service we 
aspire to achieve. We have implemented several approaches to reducing 
current and projected inventories and reducing call volumes which 
allows us to devote more resources to the inventories.
    Our customer service representatives (CSRs) operate from 10 main 
campus sites and 14 smaller satellite locations across all mainland 
United States time zones, plus Puerto Rico. The CSRs work 7 a.m. to 7 
p.m. shifts staggered nationally according to time zones. When we 
temporarily closed most of our facilities in March 2020 to protect 
employees from COVID-19, our IT operation worked rapidly--within 
weeks--to provide our CSRs with laptops, related equipment and training 
so they could work remotely in a virtual environment.
    Against that backdrop, IRS phone operations have faced an unusually 
challenging environment over the past year, with an unprecedented level 
of phone assistance demand. In 2021, we answered four million more 
taxpayer calls than the year before but had a lower level of service 
than prior years because demand was so high. In the first half of 2021 
alone, we received more than 199 million calls--about 400 percent more 
calls than we get in an average year. For comparison, we received a 
total of 42 million calls in all of 2018, 40 million calls in 2019, and 
55 million calls in 2020. On March 15, 2021, we received 8.6 million 
calls on just that one day, which is an average of about 1,500 calls 
per second. The high call volume has significantly hampered our ability 
to manage telephone demand.
    At the same time, the average duration of each call has also 
increased due to the complexity of COVID-related tax law changes and 
because taxpayers have personally endured a great deal throughout the 
pandemic. Our average time per call was 12 minutes for calendar year 
2019. Thus far in 2022 (through April 16) the average time per call is 
16 minutes. Spending more time on each call to provide the needed 
customer service limits the CSRs' ability to handle more calls during a 
shift.
    We attempted to ease these challenges by starting the CSR hiring 
process for the 2021 filing season months earlier than normal. We 
repeated this approach for the 2022 filing season. During the pandemic, 
we transitioned into an entirely virtual recruiting and onboarding 
process for new employees to speed up the process. While we were able 
to hire an additional 3,800 CSRs, clerks and other support staff for 
the 2021 filing season, it was short of our goal of 5,000. While we did 
slightly better thus far in the 2022 filing season, we still have been 
able to hire just 4,131 of our overall goal of 5,000. The pandemic 
caused significant hiring challenges, including low applicant pools in 
some locations, delays in fingerprinting due to closed facilities, and 
delays in processing applicants virtually. And we routinely find 
ourselves being able to offer candidates significantly less than what 
the private sector can. We are trying innovative training approaches to 
get new CSRs ready to work the phones in less than the usual 14-week 
timeframe. Working with NTEU, OPM and Congressional Appropriators, we 
are also thrilled to have secured direct hire authority, discussed 
previously, which will allow us to be more successful in recruiting top 
talent by increasing the speed with which new employees can be 
onboarded.
                    update on the 2022 filing season
    The IRS successfully opened the 2022 tax season on January 24--two 
weeks earlier than the year before--giving taxpayers more time to file 
returns and delivering more than 1 million refunds in the first days of 
processing. Getting underway in January has given taxpayers as much 
time as possible to meet the Federal tax filing deadline, which this 
year was April 18 for most taxpayers.
    Due to many factors, the 2022 tax filing season has been a complex 
and challenging one for taxpayers, tax professionals and for the IRS as 
well. During this tax season, taxpayers faced a number of issues 
resulting from critical tax law changes that took place in 2021, as 
well as ongoing challenges related to the pandemic. Our dedicated 
workforce has done everything it can to prepare for the April 18 
deadline, and our focus has been on simplifying the taxpayer filing 
experience by streamlining the process, answering as many questions as 
possible and reducing the inventories mentioned earlier in this 
testimony.
    Our system that allows electronic filing of returns, Modernized 
eFile (MeF), took a major step forward this filing season. We made the 
latest in a series of changes that over time have made MeF more 
efficient, standardized and robust. This latest change expanded the 
availability of MeF so that our external partners who transmit returns 
electronically can access the system 24 hours a day, seven days a week. 
This upgrade is a win not only for the transmitters and ultimately 
taxpayers, but also for the IRS, because it allows us to perform MeF 
maintenance during the week, enabling more rapid deployment of critical 
updates.
Providing help to navigate a challenging filing season
    We believe the filing season has gone the smoothest for taxpayers 
who file electronically, file accurate tax returns and request direct 
deposit of their refund.
    In fact, filing electronically with direct deposit has been more 
important than ever this year, given the additional complexities on 
many returns, such as those who were eligible for an EIP but did not 
receive it and are now claiming the RRC, as well as those who need to 
reconcile advance CTC payments on their return.
    During the filing season we have worked to ensure families who 
added a dependent--such as a child, a parent, a nephew or niece, or a 
grandchild--on their 2021 income tax return who was not listed as a 
dependent on their 2020 income tax return to know they may be eligible 
to receive a 2021 RRC of up to $1,400 for this dependent. Additionally, 
all eligible taxpayers with qualifying children born or welcomed 
through adoption or foster care in 2021 have been encouraged to claim 
the CTC--worth up to $3,600 per child- on their 2021 tax return.
    Another important credit we've been highlighting is the Child and 
Dependent Care Credit, which was expanded for 2021. This means that 
more taxpayers will qualify this year than ever before, and the credit 
will be worth more. We've been working to remind people who pay 
expenses for the care of a qualifying person while working or looking 
for work that they may qualify for this important tax credit. Depending 
on their income, taxpayers can get a credit worth 50 percent of their 
qualifying child care expenses. For tax year 2021, the maximum eligible 
expense for this credit is $8,000 for one qualifying person and $16,000 
for two or more.
    We realize that taxpayers who are still waiting for their 2020 
return to be processed may be wondering whether they should wait to 
file their 2021 return. Our message to these individuals has been to 
file their 2021 return when they are ready. If a taxpayer is 
electronically filing their 2021 tax return and we have not yet 
processed their 2020 tax return, they should validate their 2021 
electronic tax return by entering $0 (zero dollars) as their prior year 
adjusted gross income (AGI). If a taxpayer used the Non-filer Sign Up 
tool in 2021 to register for advance CTC payments or an EIP, they will 
instead enter $1 as their prior year AGI.
    Given that incredibly high call volume has continued again this tax 
season, we understand the filing experience has been more difficult for 
taxpayers who need to interact with us. But we continue to make 
improvements and are confident this work will have us trending in the 
right direction. We are also encouraging taxpayers with questions to 
turn first to online resources. This area has been a huge focus for the 
IRS, and critical tools are available that people may overlook. These 
options range from the Where's My Refund online tool to several other 
automated tools now available through the Online Account on IRS.gov. 
For many, there are ways to get help without calling.
Improving service to diverse communities
    Amid the challenges posed for the agency by the pandemic and new 
tax law changes, the IRS has continued to focus on improving service to 
diverse communities. An important way we serve these taxpayers is by 
communicating with them in their most comfortable language. We are 
committed to enhancing the experience of all taxpayers, including those 
who have limited English proficiency. We know that these taxpayers 
respond to our efforts--as just one example, there were nearly 90 
million visits to non-English pages on IRS.gov last year. Already this 
year, through April 10, there have been about 17.7 million visits to 
non-English pages.
    Since 2021, the IRS has taken important steps to further improve 
the amount of service we offer in multiple languages:

  --Provided the Form 1040 in Spanish during the 2021 filing season for 
        the first time.
  --Gave taxpayers the opportunity to indicate on new Schedule LEP 
        (Limited English Proficiency) whether they want to be contacted 
        by us in a language other than English. This schedule, filed 
        with the 1040, allows taxpayers to select one of 20 languages 
        in which to receive communications from the IRS. During 
        calendar year 2021, the IRS received approximately 326,000 
        Schedule LEPs.
  --Made Publication 1, Your Rights as a Taxpayer, available in 20 
        languages.
  --Issued a new, streamlined version of Publication 17, Your Federal 
        Income Tax, that is available in seven languages.

    These efforts continue this year. We've completed conversion of 34 
Spanish notice inserts to Braille, text, audio and large print as of 
January. We also recently converted Form 1040 and its main schedules, 
as well as Form 1040 NR, Form 1040 SR, Form W-4 and six publications, 
into Spanish Braille, text, and large print. We continue working to 
increase our communications and outreach materials--including 
information shared on social media channels--into additional languages. 
To ensure that taxpayers can easily provide their preferences in this 
area, we also released new Form 9000, Alternative Media Preference, 
this filing season. This form allows taxpayers to tell us they want to 
receive notices in Braille, large print, audio, or text, and can be 
filed alone or with the 1040.
    While those steps are all important, the IRS is continuing to do 
more to enhance the taxpayer experience for those who are more 
comfortable using a language other than English. We are, for example:

  --Pursuing efforts to translate website applications for these 
        taxpayers. We have already identified 17 of the most frequently 
        used applications for translation into additional languages.
  --Exploring opportunities to employ machine translation to help us 
        add more multilingual content. This is a significant challenge, 
        given how complex many tax terms are. We will need to carefully 
        evaluate automated translation tools, so we anticipate this 
        effort will be ongoing for several years.
                    update on modernization efforts
    One of my highest priorities as Commissioner is ensuring the 
agency's IT infrastructure remains on a path toward modernization. 
Modernization is vital to all 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. Today, we do not have the steady, consistent multiyear 
funding to support these efforts the way we need to in order to deliver 
appropriately for the American people.
    We have long sought levels of funding that would enable necessary 
IT investments. As noted above, absent consistent, timely, multi-year 
funding we have largely been a paper-based organization operating in a 
digital environment. It is difficult to modernize a significant IT 
portfolio to improve processing and delivery of important taxpayer 
services when constantly funded through a CR.
    Until recently, we were operating under a CR for fiscal year 2022. 
This year's Omnibus (Public Law 117-103) represents the largest funding 
increase for the agency in two decades. But the agency's needs are much 
deeper. Unfortunately, because our budget has fallen so significantly 
in real terms over the course of the last decade, we have lost 
foundational staff at the agency and need to rebuild. From a 
modernization perspective, many of our priorities, including upgrading 
the Individual Master File, one of the oldest IT systems in the Federal 
Government, are multi-year efforts. This situation means we have not 
been able to invest in modernizing and integrating our technological 
infrastructure, which processes the more than 160 million returns we 
anticipate receiving this year. The situation also affects other 
important interests of tax administration. Modernized technology would 
significantly improve the ability of the IRS to respond to a crisis, 
pandemic-related or otherwise.
    Since the initial release of our Modernization Plan in 2019, our 
operations and infrastructure have changed significantly. We have 
received only limited funding for our efforts: from fiscal year 2019 
through fiscal year 2021, we received only 57 percent of the planned 
Business Systems Modernization funding. But within the funding 
received, we have delivered critical technology improvements and at the 
same time responded to unprecedented demand due to the pandemic. We 
accelerated the development of our digital services. We expanded 
customer callback availability on our toll-free telephone lines. We 
created new web applications such as ``Get My Payment'' to track EIPs. 
We also created the Child Tax Credit Update Portal to help people 
manage advance CTC payments, a first-of-its-kind endeavor. And in 
another milestone, we also achieved the long-time goal of making it 
possible for individuals to e-file their amended tax return.
    Another example of modernization at work involved creating a tool 
last year to help eliminate several steps in the process an IRS 
employee is required to do to reconcile RRC discrepancies between the 
two EIPs that were made in 2020 and what the taxpayer reported on their 
tax return. Prior to the automation, an employee could reconcile about 
100 returns per day. Once we completed the modernization improvement, 
the employee can now process 600 per day. Not only does this 
improvement speed up the ability for the taxpayer to receive their 
refund, but it also avoids adding further to the backlog of inventory.
    We continue to investigate new ways of doing business to optimize 
the important work of IRS employees and improve the taxpayer 
experience; for example, we hope to be able to scan in a paper form and 
file it electronically later this summer, which will help us identify 
the potential for this approach to be used for other forms in the 
future. We are also looking into our ability to leverage an approach 
that we call Scanning-as-a-Service, where we may be able to 
significantly increase the availability of digital images for IRS 
employees to use to perform their work without owning and maintaining 
expensive equipment or paying to store the paper records. Both efforts 
seem straightforward on the surface, and although we are cautiously 
optimistic of their progress to date, it is important to note that they 
are not a sure thing, and a significant amount of work remains to 
confirm the viability of these pilots, as well as their ability to 
scale to other use cases.
    In addition to the above, we continue taking steps to safeguard 
taxpayer data while modernizing platforms to improve taxpayers' 
experiences. Investments in cybersecurity are essential. In 2017, IRS 
was experiencing just over 1 million cyberattacks per day. Today, we 
sustain more than 1.5 billion attacks each year. While IRS network 
defenses mitigate threats and keep our core tax processing systems 
secure, we must continue to advance our cyber capabilities, so we stay 
one step ahead of the bad actors who are attacking IRS systems.
IRS Online Account
    An important focus of our efforts has been the development of IRS 
Online Account, which allows taxpayers to interact with us online and 
perform various types of transactions in a secure environment. For 
example, they can view their payment history, make a payment online or 
request previous years' tax information. Since the initial launch of 
IRS Online Account in 2016, we helped taxpayers securely access the 
information and services they need, with more than 23 million sessions 
and 8.37 million new users in fiscal year 2021. We are continually 
working to expand the transactions taxpayers can conduct through the 
online account.
    In July of last year, we launched a new online feature that allows 
individual taxpayers to authorize their tax practitioner to represent 
them before the IRS with a Power of Attorney (POA), and to view their 
tax accounts with a Tax Information Authorization (TIA). Tax 
professionals can go to the Tax Pro Account on IRS.gov to digitally 
initiate POAs and TIAs. Over time, we will continue building 
functionality so that other transactions involving tax professionals 
can be completed online in a secure digital environment.
    As we expand our digital options, security is always an important 
consideration. For that reason, in February we announced steps to 
change the way taxpayers authenticate their identities when signing on 
to their online accounts. Specifically, we began transitioning away 
from using a third-party service for facial recognition. The IRS is 
working closely with partners across government to roll out Login.Gov 
as an authentication tool for us. The General Services Administration 
is currently working with the IRS to achieve the security standards and 
scale required of Login.Gov, with the goal of moving toward introducing 
this option later this year.
                   efforts to improve tax compliance
    The IRS remains committed to doing everything we can, with our 
limited resources, to track down those who willfully refuse to fulfill 
their tax obligations or who commit tax fraud. We want to maintain a 
strong, visible, robust tax enforcement presence to appropriately 
support taxpayers who comply voluntarily. When taxpayers file their 
returns, they should feel confident others are doing the right thing 
too.
    Our efforts to ensure compliance with the tax laws cover a broad 
range of groups--individuals, small businesses, tax-exempt 
organizations and large entities. In our challenging resource 
environment, large entities are of particular concern because this 
group includes very sophisticated taxpayers--major U.S. corporations, 
multinational companies and complex multi-tiered partnerships--all of 
which require us to have highly trained, highly skilled enforcement 
personnel with special accounting and tax law skills, who can 
understand the issues raised by these returns, root out instances of 
noncompliance and litigate issues where necessary.
    We will continue emphasizing a number of special areas in our 
enforcement activities. This strategy includes keeping a focus on high-
income taxpayers engaged in offshore noncompliance, failure to file, 
unreported and improperly reported virtual currency transactions and 
abusive tax shelters, such as syndicated conservation easements and 
micro-captive insurance shelters, as well as monetized installment 
sales and Malta pension abuses.
    In this challenging environment, the IRS continues working to 
improve coordination of enforcement activities across the agency. In 
fact, the IRS's Office of Fraud Enforcement (OFE), which we created in 
March 2020, is actively encouraging and ensuring this coordination 
across the IRS, promoting compliance, strengthening the IRS' response 
to fraud and working to mitigate emerging threats. The Office of 
Promoter Investigations (OPI), created last year, is helping us better 
identify issues that involve abusive tax shelters as well as 
individuals promoting abusive tax transactions.
    It is vital that we improve our ability to identify and deter 
promoters, and that we do so more quickly--before they are able to 
widely market their transactions, as we have seen with syndicated 
conservation easements and micro-captive insurance. We are seeing many 
aggressive transactions being promoted on social media and the 
Internet, and we continually work to identify and evaluate potentially 
abusive trends and transactions to determine whether they need further 
enforcement actions. I have challenged OPI to lead our efforts against 
not only those who promote abusive tax avoidance transactions we know 
about, but to find the transactions that are being concocted today, and 
to coordinate our efforts to stop those promoters quickly and 
efficiently.
Recent accomplishments
    We have made progress in a number of enforcement areas. For 
example, over the past 2 years, we have shifted significant examination 
resources and technology to increase our focus on high-income and high-
wealth taxpayers. As a result, examination coverage of the taxpayers in 
the highest income category (taxpayers with over $10,000,000 of total 
positive income) increased to over 8 percent coverage for Tax Year (TY) 
2018, the most recent year for which complete statistics are available. 
This level is the highest coverage rate of this growing population 
since TY 2014, and we expect the TY 2019 numbers will show this level 
of coverage continued.
    Substantially all experienced examiners--those who are the most 
highly trained with substantial accounting and tax law skills--are 
almost entirely focused on tax returns that include complex issues, 
such as high-income taxpayers, pass- through entities, multi-national 
taxpayers involving international tax issues, large pension plans, 
private foundations and the most egregious situations. We also continue 
to focus on employment tax cases where employers have failed to pay 
over taxes withheld from employees or have failed to file their 
employment tax returns.
    An IRS initiative announced in 2020 involves improving tax 
compliance by increasing visits to those generally with incomes above 
$100,000 who failed to file tax returns. These Revenue Officer 
Compliance Sweeps (ROCS) focus on the most egregious non-filers. A 
partnership between our Field Collection operations, the OFE and our 
Criminal Investigation (CI) division also worked to identify common 
attributes of successful fraud referrals resulting in recommendations 
for criminal investigation for non-filers.
    Another example of our accomplishments involves the development of 
a comprehensive, coordinated enforcement strategy to address abusive 
syndicated conservation easement transactions, and we have worked 
closely with the U.S. Department of Justice to shut down the promotion 
of them. Subsequently, the U.S. Tax Court held in the government's 
favor in a number of conservation easement cases, supporting the IRS's 
position on the abusive nature of the underlying deductions in these 
cases. While continuing to investigate these transactions, the IRS has 
also made settlement offers to certain taxpayers with docketed cases at 
the Tax Court involving this type of transaction.
    Our efforts have also borne fruit in another important area--
employment tax fraud. Non-compliance in this area means employers cheat 
the system and their employees without consequence. In so doing, they 
gain an unfair advantage over their honest competitors. We continue to 
work with the Justice Department's Tax Division to identify 
opportunities to better address non-compliance. These opportunities 
include using data analytics to identify egregious noncompliant 
employers. To cite one instance, we used our Innovation Lab's Data 
Analytics Program to identify thousands of taxpayers who reported wages 
on their individual income tax returns where the employer who paid 
those wages did not file their W-2 forms with the Social Security 
Administration and neither filed employment tax returns nor remitted 
taxes withheld from their employees. Seriously noncompliant employers 
were further investigated by the IRS examination, collection and CI 
organizations. This agency-wide commitment ensures consistent treatment 
of taxpayers and fair application of the tax law.
    The IRS's enforcement efforts have extended to preserving COVID-
related financial relief for those legitimately in need of financial 
support during this crisis. For example, the IRS has been working 
diligently to thwart scams related to COVID-19 by alerting taxpayers 
and tax professionals to these scams--especially calls and email 
phishing attempts tied to the EIPs. The IRS and our partners throughout 
the country have been publicizing these scams. Another example involves 
the OFE's efforts to prevent ineligible claimants from obtaining $1.2 
billion in COVID-related employer credits. The credits were intended to 
help employers retain employees who would otherwise be unable to work 
during the pandemic, but bad actors saw an opportunity to exploit the 
program for their own financial gain. Working collaboratively with 
teams of seasoned enforcement employees who identified the questionable 
claims, OFE investigated the suspect claims and either administratively 
disallowed the claims and/or referred cases for further investigation.
    In noting accomplishments on enforcement, I continue to be 
extremely proud of the investigative work done by CI. To take just one 
recent example, CI's Cyber Crimes Unit played a key role in the largest 
cryptocurrency seizure ever recorded for the Federal Government, valued 
at more than $3.6 billion. In February 2022, the Justice Department 
announced the arrest of two individuals in connection with an alleged 
conspiracy to launder cryptocurrency stolen during a 2016 hack of 
Bitfinex, a virtual currency exchange. IRS-CI Cyber Crimes Unit special 
agents were critical in unraveling a sophisticated laundering 
technique, enabling them to trace, access and seize the stolen funds. 
As well as being the largest cryptocurrency seizure, this was also the 
largest single financial seizure recorded by the Federal Government.
    In regard to recent events, CI is prepared to support the U.S. 
government's efforts to impose sanctions on Russia. CI has a track 
record of successfully rooting out and stopping illegal kleptocracy 
money flowing into or through the U.S. CI's special agents expertly 
target those who launder money, including active investigations 
involving Russian oligarchs and politicians, as well as those who 
facilitate the illicit movement of money on behalf of sanctioned 
individuals or organizations. Agents on the Global Illicit Financial 
Team and throughout CI are not only experts in tracing assets and 
understanding the complex global financial world; they also work 
seamlessly with our domestic and global law enforcement partners to 
ensure the integrity of the U.S. financial system on behalf of U.S. 
taxpayers.
Resource challenges
    Despite the progress we have made, our ability to enforce the tax 
laws against non-compliant taxpayers with complex returns continues to 
be hampered by a lack of resources. We can no longer audit a 
respectable percentage of large corporations, and we are often limited 
in the issues reviewed among those we do audit. These corporations can 
afford to spend large amounts on legal counsel, drag out proceedings 
and bury the government in paper. We are, quite simply, ``outgunned'' 
in our efforts to assure a high degree of compliance for these 
taxpayers. It is unacceptable for the Nation's tax administrator to be 
outgunned when appropriately challenging the return positions of some 
of the most sophisticated taxpayers. We must receive the resources to 
hire and train more specialists across a wide range of complex areas to 
assist with audits of entities (taxable, pass-through and tax-exempt) 
and individuals (financial products; engineering; digital assets; 
cross-border activities; estate and gift planning; family offices; 
foundations; and many others).
    A lack of resources also threatens to reduce the effectiveness of 
our criminal investigative work. Much like other operating divisions in 
the IRS, CI is close to its lowest staffing level in the past 30 years. 
With fewer agents, we have fewer cases and fewer successful 
convictions. A strong, robust criminal tax enforcement presence 
provides significant deterrence to those willing to evade their lawful 
obligations to our country. Without adequate resources, we risk sending 
a much less powerful message to would-be and active tax evaders.
    Because of our current funding and staffing limitations across our 
enforcement functions, we are forced to make difficult decisions 
regarding priorities, the types of enforcement actions we employ, and 
the service we offer. Limited IT resources preclude us from building 
adequate solutions for efficiently matching or reconciling data from 
multiple sources. As a result, we are often left with manual processes 
to analyze reporting information we receive. Such is the case with data 
from the Foreign Account Tax Compliance Act (FATCA). Congress enacted 
FATCA in 2010, but we have yet to be appropriated any significant 
funding for its implementation. This situation is compounded by the 
fact that when we do detect potential non-compliance or fraudulent 
behavior through manually generated FATCA reports, we seldom have 
sufficient funding to pursue the information and ensure proper 
compliance. We have an acute need for additional personnel with 
specialized training to follow cross-border money flows. They will help 
ensure tax compliance by improving our capacity to detect unreported 
accounts and income generated by those accounts, as well as the sources 
of assets in offshore accounts.
    In other programs, we have information but are unable to select all 
high-risk cases identified due to resource and funding constraints. In 
these situations, to the detriment of tax administration, we must make 
difficult enforcement decisions based on resources, return on 
investment, coverage of all types of taxpayers, and other high priority 
work. For example, our information document reporting programs are 
identifying potential discrepancies with taxpayers who have received 
Form 1099-K, Payment Card and Third-Party Network Transactions 
(including potential non-filers), but not all of these have been 
addressed due to resource constraints.
    As we make enforcement decisions, we try to balance resource 
limitations across a number of factors, including evaluating overall 
compliance effect and focusing resources into special projects. For 
example, we currently have fewer than 2,000 revenue officers, the 
lowest number of field collection personnel since the 1970s, and we 
have over 100,000 collection cases in active inventory. In addition to 
our active inventory, we have over 1.5 million cases (more than 500,000 
of which are considered high priority) awaiting assignment to these 
same 2,000 revenue officers. We have classified roughly 85 percent of 
those cases as high priority, many of which involve delinquent business 
employment taxes.
    In discussing our resource situation, another major concern is our 
ability to investigate and take enforcement actions against abusive 
transactions. While we are doing our best with the resources available 
to us, it is important to point out that the lack of funds and staffing 
makes it increasingly difficult for us to keep up with--much less stay 
ahead of--those who promote abusive transactions and the tax evaders 
who engage in them. Shelter promoters continue to innovate and invent 
new ways of gaming the system. We continue working to find them and 
identify their methods, but in order to ensure we can take meaningful 
enforcement actions against them, it is critical that we receive 
adequate resources.
    It is becoming easier for tax shelter promoters to pitch their 
wares to the wealthy, and we are concerned such pitches are taking 
hold. While we are doing what we can, we need more resources if we hope 
to keep these activities in check and continue our efforts to inform 
taxpayers about the problems with these transactions so they will be 
dissuaded from participating in them. These activities shift the 
required funding of our country onto the backs of wage earners. 
Everyone should pay their fair share, and no one should be able to 
inappropriately avoid their obligations.
         looking to the future: irs taxpayer experience office
    Along with our day-to-day efforts to help taxpayers and enforce the 
tax laws, our agency is also committed to delivering on the promise of 
a new IRS. We are continuing the work begun in 2019 with passage of the 
Taxpayer First Act (TFA) to develop an innovative approach to the 
future of tax administration that will better serve everyone, including 
those in underserved communities. The IRS is using the implementation 
of the TFA to make significant improvements in the way we serve 
taxpayers, enforce the tax laws in a fair and impartial manner, and 
ensure our workforce collaborates and is well-trained.
    A key driver of these efforts is our Taxpayer Experience Office, 
launched last year to unify and expand the work being done across the 
agency to serve taxpayers. The Taxpayer Experience Office sets the 
strategic direction for improving the taxpayer experience and 
identifies opportunities to make continuous improvements in real time 
for taxpayers and the tax professional community.
    The Taxpayer Experience Office will identify changing taxpayer 
expectations and industry trends, focus on customer service best 
practices, and promote a consistent voice and experience across all 
taxpayer segments by developing agency-wide taxpayer experience 
guidelines and expectations. The office will be adding staff in the 
coming months to help support the effort.
    Some of the areas of improvement in the near term include expanding 
customer callback, expanded payment options, secure two-way messaging 
and more services for multilingual customers. These activities build on 
recent improvements such as digital tools to support EIPs and advance 
CTC payments, online chat and the online tax professional account.
                the president's fiscal year 2023 budget
    The President's fiscal year 2023 budget proposal for the IRS 
provides $14.1 billion, an increase of $2.2 billion, or 18 percent more 
than the fiscal year 2022 Annualized Continuing Resolution level of 
$11.9 billion, to administer the Nation's tax system fairly, collect 
more than $4 trillion in gross taxes to fund the government, and 
strengthen tax compliance. Because the Administration drafted the 
fiscal year 2023 budget submission ahead of the enactment of the fiscal 
year 2022 Omnibus, the submission was not able to reflect the final 
enacted fiscal year 2022 funding levels. The budget includes 
initiatives to improve the taxpayer experience that should ultimately 
lead to increased voluntary tax compliance. The request also aims to 
ensure we stay current with the paper inventory and improve telephone 
and in-person service; facilitates better oversight of high-income and 
corporate tax returns; and accelerates the development of digital tools 
to enable smarter communication with taxpayers. In addition, the 
Administration continues to support a multiyear investment in IRS 
enforcement to increase tax compliance. An appropriate level of funding 
for the IRS will allow the agency to continue enhancing the taxpayer 
experience, narrowing the tax gap to ensure equitable administration of 
the tax code, protecting IRS systems and taxpayer data, and modernizing 
our information technology systems.
Specific funding areas
    The fiscal year 2023 budget requests a total program increase of 
$1.31 billion, including the following:

  --Putting Taxpayers First: $320,200,000 to continue implementing the 
        Taxpayer First Act [TFA], which requires the IRS to put in 
        place a Taxpayer Experience Strategy to improve the taxpayer 
        experience with the IRS. The IRS's Taxpayer Experience Office, 
        in partnership with key internal and external stakeholders and 
        subject matter experts, identified certain areas of focus to 
        inform development and implementation. The fiscal year 2023 
        request focuses on: continuing to protect taxpayer data; 
        increasing outreach and taxpayer education efforts; developing 
        strategies to reach underserved communities; and providing 
        human resources support for implementing the TFA.
  --Enhancing Taxpayer Service: $389,100,000 for increasing the 
        telephone Level of Service (LOS) and enhancing information 
        technologies to improve taxpayer services. This investment will 
        build on the IRS's efforts to improve telephone services for 
        the underserved, such as those who are deaf or hard of hearing, 
        limited English proficiency communities, and victims of 
        identity theft. This investment provides a projected LOS of 85 
        percent in fiscal year 2023 assuming phone demand returns to 
        pre-pandemic levels and the IRS can provide in-person services 
        at pre-pandemic levels. The increase in funding also will 
        improve the ways taxpayers interact with the IRS by enhancing 
        and expanding the range of modern, digital tools provided by 
        the IRS to deliver a service experience comparable to that 
        available in the private sector. By empowering taxpayers to 
        address certain needs without requiring live assistance, 
        development of these tools is essential to the IRS's long-term 
        success in satisfying taxpayer expectations and meeting the 
        ongoing growth in demand for assistance.
  --Increasing Compliance to Ensure Fairness: $469,300,000 to allow the 
        IRS to continue improving upon its compliance strategies and 
        enforcement activities--including examination, collection and 
        investigation--to ensure fairness in the tax system and narrow 
        the tax gap. We continue to develop innovative approaches to 
        understanding, detecting, and resolving potential 
        noncompliance, which helps to maintain taxpayer confidence in 
        the tax system. It is important to note the IRS has an overall 
        enforcement return on investment (ROI) of about $5 for every $1 
        invested compared to the IRS appropriated budget, not including 
        significant deterrence effects.
  --Maintaining Critical IT Operations: $39,500,000 to sustain these 
        operations to maintain optimum network performance and 
        functionality. The IRS continues to transform its technological 
        landscape, and it has made progress on its modernization 
        journey to provide taxpayers with a seamless customer 
        experience, while empowering employees with the tools and 
        systems needed to provide top quality services and enforce the 
        tax law. These successes have increased the need to sustain 
        critical IT operations to maintain optimum network performance 
        and functionality. The IRS continues to deploy and incorporate 
        new, modernized tools for taxpayers, tax professionals and 
        employees. Taxpayer service improvements (additional digital 
        services, up-to-the-minute account information, etc.), 
        enterprise efficiency advances (automation, artificial 
        intelligence, machine learning, etc.) and new employee tools 
        (case management, collaboration, learning platforms, etc.) all 
        require additional bandwidth to sustain a high volume of users 
        processing digitalized capabilities.
  --Fostering Economic Development in Underserved Communities: 
        $10,200,000 to allow the IRS to cultivate new opportunities for 
        adults and students in underserved communities. One focus of 
        our efforts is the Mississippi Delta Region, which currently 
        has the highest rate of poverty in the United States, excluding 
        the U.S. territories. As an initial step, we are opening a new 
        Automated Collection System (ACS) call site in Clarksdale, 
        Mississippi, and have announced plans to hire contact 
        representatives to work at the call site. Initiatives in other 
        regions are already underway, including a significant staffing 
        increase for our ACS operation in Puerto Rico. We have 
        increased staff at this site from approximately 79 employees in 
        fiscal year 2020 to more than 400 as of February 2022. We plan 
        to add another ACS call site in Puerto Rico during 2022 that 
        will accommodate an additional 400 employees. The expansion 
        offers employment to Puerto Rico residents and allows for a 
        significant increase in bilingual ACS employees to better serve 
        taxpayers with limited English proficiency.
Structural changes to IRS appropriations to improve mission delivery
    The President's budget also proposes a change to the appropriations 
language that would allow Taxpayer Services and Enforcement funding to 
be used for certain associated support costs that are currently 
reserved for Operations Support funding. Currently, Taxpayer Services 
and Enforcement funding only pays for an employee's labor cost, not the 
cost to hire the employee nor the IT equipment and space needed to make 
them productive. There are significant benefits to this change: By 
including support costs, future IRS budgets would reflect the full cost 
of Taxpayer Services and Enforcement. The changes would also prompt IRS 
business units to be more efficient with their support costs because 
they would stand to directly benefit from savings.
    In addition to the IRS's fiscal year 2023 budget request, stable, 
multi-year funding for the IRS is necessary to facilitate the types of 
longer-term investments that the agency needs to make to adequately 
serve the American people and enforce the tax laws.
    legislative proposals in the president's fiscal year 2023 budget
    Along with the funding requested in the President's fiscal year 
2023 budget request, we are also asking for Congress' help 
legislatively in several important areas that would improve tax 
administration, including the following:

  --Information reporting by financial institutions and digital asset 
        brokers. Over time, the U.S. has established a broad network of 
        information exchange relationships with other jurisdictions 
        based on established international standards. The information 
        obtained through those relationships has been central to recent 
        successful IRS enforcement efforts against offshore tax 
        evasion. The ability to exchange information reciprocally is 
        particularly important in connection with the implementation of 
        the Foreign Account Tax Compliance Act (FATCA). Currently, 
        however, the U.S. provides less information to foreign 
        governments than we receive from them. The proposal would 
        expand reporting by financial institutions and digital asset 
        brokers in a number of ways--for example, by requiring 
        financial institutions to report the account balance for all 
        financial accounts maintained at a U.S. office and held by 
        foreign persons. These new reporting requirements would enable 
        the IRS to provide equivalent levels of information to 
        cooperative foreign governments in appropriate circumstances to 
        support their efforts to address tax evasion by their 
        residents. The proposal would be effective for returns to be 
        filed after December 31, 2023.
  --Require reporting by certain taxpayers on foreign digital asset 
        accounts. Section 6038D(b) of the Internal Revenue Code 
        contains an annual reporting requirement for individuals in 
        regard to two categories of foreign financial assets, but there 
        is no reporting requirement under this section for digital 
        assets. Against this backdrop, tax compliance and enforcement 
        with respect to digital assets is a rapidly growing problem. 
        The global nature of the digital assets market offers 
        opportunities for U.S. taxpayers to conceal assets and taxable 
        income by using offshore digital asset exchanges and wallet 
        providers. The proposal would amend section 6038D(b) to require 
        reporting with respect to a new third category of asset: that 
        is, any account that holds digital assets maintained by a 
        foreign digital asset exchange or other foreign digital asset 
        service provider. Reporting would be required only for 
        taxpayers that hold an aggregate value of all three categories 
        of assets in excess of $50,000. The proposal would be effective 
        for returns required to be filed after December 31, 2022.
  --Extend the statute of limitations for certain tax assessments. 
        Section 6501 of the Internal Revenue Code generally requires 
        the IRS to assess a tax within 3 years after the filing of a 
        return. But for complex audits in the largest cases, critical 
        issues may not be identified until late in the process of an 
        examination, and in many cases these issues cannot be pursued 
        further due to time and resource constraints. The proposal 
        would amend section 6501 to extend the 3-year statute of 
        limitations to 6 years if a taxpayer omits from gross income 
        more than $100,000,000 on a return. This change would give the 
        IRS enhanced agility and flexibility in evaluating and staffing 
        its case inventory and appropriately allocating its limited 
        enforcement resources.
  --Increase oversight of paid tax return preparers. Paid tax return 
        preparers have an important role in tax administration because 
        they assist taxpayers in complying with their obligations under 
        the tax laws. The proposal would amend Title 31, U.S. Code 
        (Money and Finance) to provide the Secretary with explicit 
        authority to regulate all paid preparers of Federal tax 
        returns, including by establishing mandatory minimum competency 
        standards. The proposal would be effective on the date of 
        enactment.
  --Expand and increase penalties for return preparation and e-filing. 
        Inappropriate behavior by paid tax return preparers harms 
        taxpayers through the filing of inaccurate returns, erroneous 
        refunds and credits and personal tax return noncompliance. Tax 
        return preparer misconduct continues, in part, because the 
        amounts of the penalties under current law do not adequately 
        promote voluntary compliance. The proposal would increase the 
        amount of the tax penalties that apply to paid tax return 
        preparers for willful, reckless or unreasonable 
        understatements, as well as for forms of noncompliance that do 
        not involve an understatement of tax.
  --Expand authority to require electronic filing for forms and 
        returns. Under this proposal, electronic filing would be 
        required for returns filed by taxpayers reporting larger 
        amounts or that are complex business entities, including: (1) 
        income tax returns of individuals with gross income of $400,000 
        or more; (2) income, estate, or gift tax returns of all related 
        individuals, eStates, and trusts with assets or gross income of 
        $400,000 or more in any of the three preceding years; (3) 
        partnership returns for partnerships with assets or any item of 
        income of more than $10,000,000 in any of the three preceding 
        years; (4) partnership returns for partnerships with more than 
        10 partners; (5) returns of real estate investment trusts, real 
        estate mortgage investment conduits, regulated investment 
        companies and all insurance companies; and (6) corporate 
        returns for corporations with $10,000,000 or more in assets or 
        more than 10 shareholders. Further, electronic filing would be 
        required for the following forms: (1) Forms 8918, ``Material 
        Advisor Disclosure Statement"; (2) Forms 8886, ``Reportable 
        Transaction Disclosure Statement"; (3) Forms 1042, ``Annual 
        Withholding Tax Return for U.S. Source Income of Foreign 
        Persons"; (4) Forms 8038-CP, ``Return for Credit Payments to 
        Issuers of Qualified Bonds"; and (5) Forms 8300, ``Report of 
        Cash Payments Over $10,000 Received in a Trade or Business.'' 
        Return preparers that expect to prepare more than 10 
        corporation income tax returns or partnership returns would be 
        required to file such returns electronically. The Secretary 
        would also be authorized to determine which additional returns, 
        statements, and other documents must be filed in electronic 
        form in order to ensure the efficient administration of the 
        internal revenue laws without regard to the number of returns 
        that a person files during a year.
  --Improve reporting for payments subject to backup withholding. The 
        proposal would treat all information returns subject to backup 
        withholding similarly. Specifically, the IRS would be permitted 
        to require payees of any reportable payments to furnish their 
        TINs to payors under penalty of perjury. The proposal would be 
        effective for payments made after December 31, 2021.
                               conclusion
    Chairman Van Hollen, Ranking Member Hyde-Smith and Members of the 
Subcommittee, thank you again for the opportunity to update you on the 
filing season and IRS operations.
    We continue to balance multiple unprecedented demands, including 
continuing the filing season and work on important new tax provisions. 
We remain focused on numerous taxpayer-related issues, and we have 
pursued innovative ideas and processes not previously deployed by the 
IRS in an effort to make improvements to the current inventory and 
provide meaningful taxpayer services.
    The reality at the IRS is that we know we need to do better; we're 
committed to doing better, and we are trending in a positive direction. 
We appreciate your patience and understanding and the many expressions 
of gratitude we have received for the efforts of our employees, who 
have consistently stepped forward despite their own health and safety 
concerns. Our employees are doing everything they can. But we need 
Congress to help us by providing adequate resources and a sustained, 
multiyear investment in the agency.
    I continue to be extremely proud of our workforce and their 
dedication to helping American taxpayers fulfill their tax 
responsibilities and resolve tax issues.

    Senator Van Hollen. Thank you. Thank you, Mr. Commissioner. 
I think we will do 6-minute rounds, and we may have more than 
one round. I don't know if other Members of the Committee will 
be joining us at this point or not. And I want to start my 
first round of questions, focused on the backlog and customer 
service issues.
    So Mr. Commissioner, you and I were talking a little bit. 
Can I confirm that it is your goal to eliminate the backlog by 
the end of this calendar year?
    Commissioner Rettig. It is my commitment to you, 
individually and as Commissioner of the Internal Revenue 
Service, for the IRS to eliminate the backlog, and you will 
hear us use and see us use in print is ``get healthy,'' which 
means through the eyes of the taxpayer, doing what they expect 
us to do by the end of this year.
    Senator Van Hollen. Got it. And one of the tools we gave 
you, in the last session, was Direct Hire Authority. I know you 
are using that, right?
    Commissioner Rettig. Absolutely. Congress rescued us. There 
is no other way for me to say that, with Direct Hiring 
Authority. It was part of the Omnibus budget, March 15. On 
March 16, we started with job fairs at our three big processing 
centers. For the last 2 weeks of March we went out on the 
ground, held job fairs and they have been extraordinarily 
successful. We are looking to hire 5,000 people this year and--
5,000 people next year, for a total of 10,000.
    To give you an example we went to the three processing 
centers, Ogden, Utah; Kansas City, Missouri, and; Austin, 
Texas. We went into Austin, Texas and we had 500 people show up 
with resumes, meaning their package is complete. We made 500 
offers on the spot. We have about a 93 percent offer rate to 
people who show up at our job fairs on the spot.
    We are also doing virtual job fairs. And in the next 30 
days, we are doing another round of job fairs at these same 
locations. They have been very successful. They have received a 
lot of local press, in a good way. The government is coming in 
and giving jobs, Federal jobs, to the community.
    Without the Direct Hiring Authority that we got in the 
budget I would not be able to report anything really positive. 
We cannot hire people at $15- to $17 an hour in these 
communities when we are competing with Amazon. We are competing 
with Target, that is $20 an hour. Walmart recently announced 
they are hiring 50,000 people. Walmart recently announced truck 
driver positions at $110,000 a year, and we come in $15 an hour 
Federal jobs. So we need to be able to hire on the spot.
    Senator Van Hollen. Good. Well, thank you for making use of 
that authority. And now just in terms of the, sort of the--and 
I know you have made some progress already, but the mountain 
that we need to tackle in order to achieve your goal, just so 
we are on the same page, and just quick yes or no answers, if 
you can, to confirm the numbers I have got. I am looking at a 
status of unopened mail and backlog inventory issued April 26. 
So it should be pretty current.
    Paper returns waiting to be processed, the calendar year 
2021, over 2.5 million; those received in calendar year 2022, 
just over 8.9 million, for a total of 11.5-plus million, is 
that the system----
    Commissioner Rettig. The paper returns for 2021, as of 
April 21, 2022, are at 1.8 million, received in 2022 are 4 
million, which somebody might dispute whether those were 
backlogged or not. We just concluded the April 18 filing date.
    Senator Van Hollen. Okay.
    Commissioner Rettig. The total paper returns that we are 
sitting on as of April 21, 2022 is 5.8 million.
    Senator Van Hollen. All right, let me stop you there. So 
whoever, just whatever information I have got here is obviously 
incorrect, I thought it came from the IRS but--I guess I have 
got some of the----
    Commissioner Rettig: I am reading the individual returns.
    Senator Van Hollen. Yes. Yes.
    Commissioner Rettig. And if you went to the right, you 
might be reading the total returns. It is the side with this--
--
    Senator Van Hollen. Oh. I am sorry. You are right. I am 
reading--I am reading the total individual in business; you are 
right. I have got--I guess the document that I have got, Status 
of Unopened Mail and Backlog Inventory, issued April 26th, 
2022, is the most up-to-date information?
    Commissioner Rettig. Correct.
    Senator Van Hollen. Yes. I got it. Thank you. So, you know, 
one of the frustrations, and I know you understand this, that a 
lot of taxpayers have, is they, if they get a Notice of 
Deficiency, and they want to get somebody on the line to 
explain it--let me modify that.
    They want to get in contact with somebody quickly, and as 
you well know, given the volume of phone calls that come in 
versus the operators and folks you have got answering them, it 
is really hard to get through by phone. So online, 
communication seems to be the answer. That is the way most 
people do a lot of business in the United States. I mean, you 
can communicate with your bank. You can communicate with other 
entities that way. When will a taxpayer be able to communicate, 
in real time, with someone at the IRS online?
    Commissioner Rettig. There are different levels of 
communication that we have online, but taxpayers can create a 
taxpayer online account, that they can go in and monitor their 
account, and they can change information. They can, on their 
own, without interacting with anybody at the IRS, enter into an 
installment payment arrangement if they owe less than $50,000.
    But we are also mindful that we live in a country where 
there are tens of millions of people who do not have broadband 
access, who cannot go online, who don't have a smartphone. So, 
it is critical that our resources also be deployed in our 
Taxpayer Assistance Centers, which are really our frontline 
retail operations, where somebody can walk in--we prefer by 
appointment--but even unannounced as well as telephone access.
    The driver of the inventories is, for the most part, that 
people who answer the phones also are responsible for 
conducting resolution of paper that we are left with. So, we 
have made various decisions. We leave people on the phones, and 
then in theory, when the phone volume would come down, they 
would move to the paper.
    We have not had either of those volumes come down in 2 
years. We currently have moved people into the paper 
processing, trying to answer the phones the best we can trying 
to get people to interact with us, it is just----
    Senator Van Hollen. Right, and just--thank you for giving 
me your commitment and goal in terms of an-end-of-year deadline 
for the backlog. Can you give us a sense of when I, as a 
customer, as a, you know, one of my constituents who has a 
question for the IRS about, you know, their tax return, when 
they are going to be able to communicate online with the IRS?
    Commissioner Rettig. It depends upon what they are looking 
for, but we get tens of millions of online contacts currently, 
and those operate seamlessly and successfully. Where we really 
want to be, we are about 5 years from being what the Agency 
should be in terms of the ability of the folks who want to just 
interact with us online, to do everything with us online, with 
the exception of filing a return.
    We don't have pre-populated returns, but otherwise to 
provide and interact with us online, I would say that we are 
about 5 years away from that. It could be a little more, 
depends upon the funding that we get, and it depends upon 
technologies that develop.
    Senator Van Hollen. Thank you. Ranking Member Hyde-Smith.
    Senator Hyde Smith. Thank you very much. Mr. Commissioner, 
we have heard a lot about the historically high backlog, and we 
have discussed your recent pledge that the backlog would be 
resolved by the end of 2022, in large part, due to the IRS' 
ambitious plan to onboard thousands of new employees. How is 
the challenging labor market affecting that hiring plan for 
you?
    Commissioner Rettig. Well, thanks to Congress, we got 
Direct Hiring Authority, so we are in a different world now 
than we were before March 15 when we received that authority. 
And what we are talking about is onboarding folks at our 
Submission Processing and our Accounts Management facilities 
around the country. Submission Processing is dealing with 
paper, whether that is mail or paper returns; Accounts 
Management is resolving a taxpayer issue that they may have 
with respect to an already-filed return.
    We have over 2,500 people coming on board, but we have also 
done a lot of other things that we have not previously done, to 
bring these volumes down. And simply, the way I summarize it is 
to say, we are trending in a good direction. I am comfortable 
sitting here today telling you that we are committed to--and I 
am committed to--being healthy by the end of this year.
    But obviously, not to play lawyer games, but another COVID 
or unforeseen circumstances could interrupt that. But where we 
are today, I am committed to doing that. If we see unforeseen 
circumstances, some type of a surge, whether it is COVID, or 
some other non-COVID-related issue that impacts us, I would 
come back up and let you know that I need to adjust.
    This is my reputation with you, our reputation with you, 
and we want you to see what we are doing. We have also engaged 
contractors to do what contractors could do, about 2,500 people 
coming in. I think it is well known, it has been played up a 
lot that we did surge teams. We brought back employees who have 
been in these two lanes within the last 2 years. We brought 
them back in to do that processing.
    And now we are going for the employees who left within 3 or 
4 years to bring more back in, and all the efforts that we have 
made show that we are trending in a good direction. And 
similarly, with respect to the current filing season, which 
just concluded - without extensions--on April 18.
    We did a lot of messaging and have lessons learned from 
filing season 2021 to filing season 2022, which we are in 
currently. We did a lot of messaging encouraging people to file 
electronically, file an accurate return, file for direct 
deposit. There was one large transmitter of returns for people 
that I heard. I am a tax guy, I came in from the tax 
community--and I heard in a roundabout way that one large 
transmitter was telling its franchisees to start submitting 
returns on January 4.
    I reached out and I said, do not submit returns on January 
4. You need to reconcile the Advanced Child Tax Credits, and 
the Economic Impact Payment that these folks receive before a 
return is filed. We sent out 200 million letters telling people 
what they got for an EIP. We sent out 57 million letters 
telling people who are under the Advanced Child Tax Credit. We 
encourage people to look into their online account and verify 
those amounts, because accurate, electronically filed returns 
where people requested a direct deposit, those are going 
seamlessly.
    Senator Hyde Smith. Okay. And about the employees that you 
are bringing in, the on board, how many of those you are going 
to have to train? Because I know it can take several weeks to 
train people once you get them there. But you are saying the 
ones you are bringing on are basically already trained?
    Commissioner Rettig. No.
    Senator Hyde Smith. The fact that they have been out of the 
system?
    Commissioner Rettig. No. Let me give you sort of a summary. 
And then if you want me to back it up and give you the 
individual information that. I think you might be inquiring 
about. All these efforts, when are you going to see an impact 
with trained people in these rooms, processing this 
information? It is going to be in the June range. But we have 
figured that in. When I am telling you we will be current by 
the end of this year, we know the process.
    And some of the people that we are onboarding are going to 
need 2 or 3 days to train. Remember, we are opening envelopes. 
We have people who open envelopes. We have people who monitor 
electronic accounts. It is a broad range of talent that we are 
looking at.
    But when I tell you the end of the year, it is on the 
assumption that these people are in, on board, in the June 
range, and trained. It doesn't help us to put an untrained 
person in these facilities.
    Senator Hyde Smith. But our information is telling us it 
could be 8 weeks to 37 weeks to properly get someone trained.
    Commissioner Rettig. Not at all. I don't know who told you 
37 weeks. I would like to meet with that person.
    Senator Hyde Smith. So you, when you come in by June, I 
mean, this is being May.
    Commissioner Rettig. Yes.
    Senator Hyde Smith. You are going to have all of these 
employees already trained?
    Commissioner Rettig. We don't have 37 weeks left in this 
year, I believe.
    Senator Hyde Smith. So they will all be trained by June? Or 
is that realistic, or?
    Commissioner Rettig. That is where we are with the people 
coming in. If the people continue to come in at the rates that 
they are coming in, the June range, having our people in the 
seats, trained and handling it, is realistic.
    Senator Hyde Smith. So you can have them--everybody trained 
in a month?
    Commissioner Rettig. Keep in mind, when we do these surge 
teams, these are already trained people that are just getting 
refreshed--that is a matter of days.
    Senator Hyde Smith. And that is the majority of the ones 
coming in, there is not newly hired?
    Commissioner Rettig. There is both.
    Senator Hyde Smith. That has never worked for the IRS 
before?
    Commissioner Rettig. There is both. We are doing every 
lane.
    Senator Hyde Smith. But you feel confident even those who 
have never worked for the IRS before you can have them trained 
by June.
    Commissioner Rettig. The person who has never worked for 
the IRS before is not going to on board and adjust some 
taxpayer's account because they reported unemployment 
compensation as non-taxable when it wasn't. That would be a 
different category. We have a broad category of people that we 
are bringing in for different levels of work.
    And if I may? If it is different, you will hear from me.
    Senator Hyde Smith. Okay. It is just an aggressive plan for 
hiring people, and have them all trained and ready to roll.
    Commissioner Rettig. Both of you and this country deserve 
an aggressive plan. We have done a lot of innovative things 
behind the scenes to make things work. We have used our ARP and 
other money for technology that radically improved our ability 
to process certain things, that in a different world we 
probably wouldn't have been able to do, or had the support to 
do it.
    We have also considered things that we did not implement 
because it didn't look like it was going to get us to where we 
needed to be or was more complex. We cannot add complexity when 
we are in the situation we are in.
    I think we have done as each of you would do if you were in 
this seat. We entertained and continue to entertain everything 
that we can to get this right. And we are not done being 
innovative where it will be helpful. We can't be innovative if 
it shorts us on what we are trying to do.
    Senator Hyde Smith. Thank you.
    Commissioner Rettig. Thank you.
    Senator Van Hollen. Thank you. Thank you, Mr. Commissioner. 
I have one final question on the issue of, you know, the 
backlog and taxpayer service, and then I am going to turn to 
enforcement issues.
    Paper returns, I know your life at the IRS would be made 
much easier if more taxpayers filed electronically, but we also 
know that we have to keep open the option for people filing 
paper returns. If you look at the backlog, as you have 
indicated, it is essentially those paper returns.
    And I am sure you are aware that the Taxpayer Advocate has 
said that, quote, ``Paper is the IRS' kryptonite, and the IRS 
is buried in it.'' And the Taxpayer Advocate has recommended 
that the IRS implement the 2D bar coding, and/or the optical 
character recognition technology to speed up the processing of 
paper returns.
    What plans, if any, do you have to implement this new 
technology that the Taxpayer Advocate argues would speed up the 
process?
    Commissioner Rettig. The technology is not new. We actually 
requested funding in our Congressional Budget Justification in 
2013, and then again in 2014, again in 2015, again in 2016, 
again in 2017, for 2D bar-coding, and we never got the funding. 
And so in 2018 the agency shifted to an emphasis on electronic 
filing.
    We are currently running about 95-96 percent--for the 
current filing season--of the individual returns that we are 
receiving e-filed. There are some returns and some forms that 
cannot be electronically filed. We need to get those so the 
taxpayers have the ability to e-file those. That is a 
technology draw. And we move our resources to areas that are 
there.
    But we are looking at this, and you will see our response 
to the Taxpayer Advocate Directive that was issued. This is not 
new, and it is not new for the agency.
    Senator Van Hollen. Right. Let me just ask you, because I 
agree, and I do appreciate your efforts to move people toward 
electronic filing for the reasons we have discussed. But do you 
agree with the Taxpayer Advocate's recommendations? I 
understand that you have asked for it in past budget requests, 
this new technology, and you haven't received it.
    I don't know if it is in your current request. I don't 
believe it is. And so I guess my question is: What is your 
current assessment of the Taxpayer Advocate's recommendation?
    Commissioner Rettig. I appreciate the efforts of the 
Taxpayer Advocate, and you will see us move in a direction that 
is expansive in this regard.
    Senator Van Hollen. In terms of deploying these 
technologies?
    Commissioner Rettig. It may not be these technologies. If 
we were asking for it in 2013, we are 10 years, essentially, 
technology wise beyond that.
    Senator Van Hollen. Right. Okay. So put aside the specific 
technologies, but I guess the question is, you would be looking 
for technologies that would allow you to convert a paper return 
much more quickly, to be processed rather than having to sort 
of keypunch every item; is that right?
    Commissioner Rettig. Absolutely.
    Senator Van Hollen. Okay.
    Commissioner Rettig. We have a digitalization office that 
is not only doing this--which is outward facing--we are doing 
it inward-facing too to help our employees.
    Senator Van Hollen. Got it.
    Commissioner Rettig. You know, transferring information.
    Senator Van Hollen. Good. Let me turn to enforcement, and 
you have spoken eloquently about the tax gap, and the need to 
get at it. Some have argued that, you know, we should not 
provide you with more authority to close the tax gap. And 
again, I remind people, this is collecting taxes that are doing 
owing; that we should not give you additional tools to do that 
because you are going to go after the little guy, you are going 
to go after small businesses. Is that in your intention, and 
that if you were given these resources what would you do? And 
what would the impact be?
    Commissioner Rettig. I note it is National Small Business 
Week too. I think the Committee should note that I was born and 
raised into a small business. I'm very respectful, and 
understand that small businesses, in my mind, are the backbone 
of this country. The folks that might not have another 
opportunity, employment-wise, tend to open a small business. So 
the respect there is huge.
    The resources that we are looking at when we talk about 
enforcement are at the high-end level. It is the big, and 
super-big corporations. We have cases where we have $10- $15 
billion of tax at issue. We get outgunned in those routinely, 
by the professionals they are able to hire, and the resources 
we are able to bring in, that it can come down.
    And the statistic I use frequently is: last year we had 
over 4 million partnership returns filed. I have 6,500 
frontline Revenue agents all in, and they are all currently, 
and would remain so, dedicated to the high end, most complex 
returns that we receive.
    And so the concept that we would expand examination 
resources to small businesses, or lower-income people, and the 
administration has called for nothing under $400,000. $400,000, 
quite frankly, if you look at where we are, it would be nothing 
under a number significantly greater than $400,000. Typically, 
for taxpayers with up to about a million dollars, we have 
information reporting; we have either W-2s or 1099s.
    When you go to a million dollars plus, you are talking 
about entrepreneurs that use multiple-layered entities, and 
that is where we should be. And it is where we are currently.
    Senator Van Hollen. Thank you. No, I appreciate that 
commitment. I just wanted to underscore that point. Let me ask 
you about conservation easements. These are one mechanism that 
are, if it is used for very wealthy people to escape their tax 
obligations. Can you talk about that particular device?
    Commissioner Rettig. There are criminal indictments in the 
conservation easement cases. There are cases in the United 
States Tax Court, civil cases, where we have amended petitions 
to assert civil fraud penalties that should be indicative of 
what the IRS and Department of Justice believe about the 
syndicated easements.
    We support the intent of Congress with respect to the 
purpose of conservation easements. The syndicated easements are 
different. They have been categorized as an abusive 
transaction. If you read any of the tax court opinions that are 
out there, you will see why, and notwithstanding, we have put a 
lot of resources into this space, from a counsel perspective, 
appeals, and exam perspective.
    We have listed this transaction in 2016, giving people 
notice that we believe this was an abusive transaction and 
notwithstanding our efforts, we have not had an impact on 
essentially slowing the volume of these transactions that we 
receive currently. We need Congressional help. We need a 
statute to help us curb this activity.
    Senator Van Hollen. Well, thank you for that distinction 
between legitimate and important uses of conservation 
easements, and the abuses that you mentioned.
    I do have some additional questions on enforcement, but my 
time is up with this round. And I will turn it again to the 
Ranking Member.
    Senator Hyde Smith. Thank you, Mr. Chairman.
    You had mentioned the 2D barcodes on tax forms, and the 
efficiencies that are associated with those things. Can you 
speak about the IRS' progress in implementing that on those tax 
form bar codes? Wouldn't the associated cost of implementing 
these--this technology be largely offset by the savings from no 
longer having to pay employees to manually enter this data?
    Commissioner Rettig. No, ma'am. 2D bar coding still 
requires us to receive a paper return that needs to be opened 
and processed. It is a paper return concept. Also with respect 
to transmitters and other returns, there is not a system that 
allows the IRS to seamlessly take the equivalent of a Xerox 
copy or a fax kind of a concept, that drops it into our system 
seamlessly, and all the numbers drop in.
    We still have a lot of manual provisions that we require, 
but we did seek funding to get into this arena. And we are 
going into the direction of being able to automate paper 
returns. As you indicate, it would help from a staffing 
perspective, it would help from a cost perspective, and I think 
it would help across the board in terms of shortening the tail 
on when we can get these returns processed, and get refunds 
out.
    Senator Hyde Smith. But it wouldn't offset the cost that 
much is what you are saying, although you get the technology?
    Commissioner Rettig. There is not a perfect system that the 
IRS can buy today without a significant cost, both in terms of 
human cost and resources to get us to where we need to be. But 
we are definitely going in that direction.
    Senator Hyde Smith. Okay. The IRS recently ended the 
practice of requiring individuals to provide biometric data in 
order to create an online account, and the IRS changes course 
by giving taxpayers the option to verify their identity through 
the biometric verification, or during a live, virtual 
interview.
    What level of confidence do you have that the biometric 
data that has already been provided, or will be provided, is 
protected?
    Commissioner Rettig. The biometric data that is provided to 
ID.me, and our memorandum of understanding, the agreement with 
ID.me,-- I think Congress has copies of those agreements--the 
information that somebody would provide currently is destroyed 
within 24 hours.
    Information that was provided prior to the time that we 
shifted was to be destroyed within 30 days. The only pieces 
that are not are where there--are indications of identity 
fraud, and there is considerable amount of identity fraud 
associated in the taxpayer world. We shifted to providing that 
option also with the recognition that we are looking at other 
options to provide taxpayers. And there have been a lot of 
questions as to why the IRS went to ID.me.
    We were receiving about a million visits a week, of people 
trying to create online accounts. The system we had before had 
about a 40 percent authentication rate. Taxpayers who would try 
to authenticate that, yes, this is Chuck Rettig. About 60 
percent were not getting into the system, and had to walk into 
a site, or had to call in, which when we are on our heels from 
an inventory perspective, is not a meaningful thing for the 
people in this country. They deserve better.
    With ID.me, the authentication rate is far in excess of 70 
percent, both on the biometrics part, which is facial 
recognition, but taxpayers have the alternative to get online 
with a live ID.me person. On the facial recognition, that is 
offered in eight different languages; the in-person is offered 
in more than thirty different languages.
    And I think you are aware that we have moved significantly 
from a service perspective, into our multilingual efforts have 
really been there. The last part is Login.gov can handle about 
less than 30 transactions per second. We need more, about 1,500 
transactions per second. We need a level two authentication 
that once this person is in, this is the person.
    We are looking at other alternatives, but know, as the 
level of authentication may come down, people that don't want 
facial recognition or the in-person, what we were hoping to get 
to, and I think the people in the country would help us to get 
to is, once I know this is you, that is your account, I can 
open up a whole list of services that you can do automatically 
online.
    When that authentication level might be different, we have 
to pull back because of the levels of fraud that we encounter. 
And some people think fraud is somebody sitting in their 
backyard, but we are up against nation states. And I think you 
are aware that we get about a 1.8 billion cyber attacks per 
year. And so, to protect the data that people trust us with, we 
have to be at a higher authentication level, or not have so 
many options available.
    And we will explain to you as we get there. These are some 
of the many difficult choices that have to be made, because I 
think, collectively, we all want the person who is capable of 
going online to be able to do 100 percent of their interactions 
with the IRS, online, seamlessly. If we open it up for one, we 
end up opening it up for all. So those are some of the 
decisions that have to be made.
    Senator Hyde Smith. Okay. Let us talk about the dollar 
figure. Do you know how much money has been spent to date on 
the IRS contract with the ID.me, and what is the status of that 
contract?
    Commissioner Rettig. I could get you the information on 
that.
    Senator Hyde Smith. You don't have a----
    Commissioner Rettig. I think the contract provided for up 
to something like $88 million, if I am not mistaken, but I can 
get you the information within a day.
    Senator Hyde Smith. And you had mentioned the Login.gov.
    Commissioner Rettig. Mm-hmm.
    Senator Hyde Smith. Of the fiscal year 2023 request seeks 
$27 million for user authentication. And how does the IRS plan 
to spend this increase? Will this funding be used to support 
that, the Login.gov?
    Commissioner Rettig. Well, we are----
    Senator Hyde Smith. On the 2023 request?
    Commissioner Rettig. We are where we are with ID.me. There 
is still facial recognition with an option for the interview. 
We actually are working with Login.gov to try to get their 
transaction-per-second rate up, and to try to get their 
authentication level up to a NIST Standard 2, IAL2 I think is 
the actual terminology. It is a higher authentication.
    And I believe we have the best IT people on the planet, and 
I have asked our people to coordinate with Login.gov. It is not 
an IRS agency, it is another agency.
    Senator Hyde Smith. Mm-hmm.
    Commissioner Rettig. But it would benefit all agencies. And 
we should bring the best talent there. And if they get to the 
point, I think that we have already indicated that we would 
shift. You would want us to shift, and I am not saying you 
personally, but people of the country want us to have the best 
system, seamlessly helping the people who want to go in that 
lane, and provide as many services as we can. And that is our 
desire as well.
    Senator Hyde Smith. Thank you.
    Senator Van Hollen. Thank you. And just to follow up on 
that. I mean, I understand the authentication challenges you 
have got, given the fraud situation. I do appreciate your 
moving to a volunteer system when it comes to facial 
recognition, but the more people can sort of volunteer into 
your authentication systems, you know, the better off the 
overall process, I think, will be.
    I want to go back to a couple of enforcement issues, 
because, we saw from a recent Treasury Department Report that 
one of the mechanisms that some employers--and I just want to 
address ``some''--use to avoid paying their payroll taxes that 
are due owing, it is employee misclassification.
    They found that, you know, workers being misclassified as 
independent contractors, contributed to a significant tax gap, 
and avoidance of paying the Social Security, Medicare, and 
other payroll taxes.
    What role, if any, do you believe the IRS has in 
addressing, employee misclassification?
    Commissioner Rettig. Well, certainly, people categorized as 
an employee receive wages through a W-2, that is the 
information reporting to the IRS that is withholding the 
accuracy in filing for those folks is typically around 99 
percent. When you get into a lack of withholding, and maybe a 
lack of 1099 type of thing, which gets you into the independent 
contractor status, it drops down below 50 percent, sometimes 
significantly below 50 percent.
    There is a significant issue here, because these are issues 
I was aware of on the outside. An employer would like to 
categorize a worker as a non-employee, so they don't have to 
pay the employer's portion of the employment tax regime that we 
have. So it is less expensive for the employer to do that.
    They might not be providing certain insurance, et cetera. 
But the person might actually be an independent contractor, and 
so that is a determination that the IRS needs to make, through 
a facts and circumstances test.
    There is a form that people can file, the SS-8, and on that 
form they indicate why they believe somebody is or is not, or a 
category of employees are or are not, an employee, and we don't 
get a lot of those forms each year. My reaction is, that 
employers don't want to hear that somebody is categorized as an 
employee, and they would probably rather take the risk.
    But to give you some numbers, in fiscal year 2021, we 
received 2,387 SS-8s, which is the request for a determination 
of employee status. We closed 1,953 of those with an average 
cycle time of about 240 days, which is exactly the cycle time 
we had in fiscal year 2018, meaning that those are not 
backlogged. But quite frankly, in a country the size that we 
have, and the number of workers that we have 2,387 for a fiscal 
year.
    Senator Van Hollen. Right. So I mean, but right now, and as 
I understand it, and the only mechanism, at least via the IRS, 
is this voluntary, mechanism of filing an SS-8 Form. I mean, 
you don't take other steps to try to resolve this; do you?
    Commissioner Rettig. Well, we do. I get all the statistics 
around the country, probably a day doesn't go by that I read 
about somebody either being sentenced or convicted for 
employment tax-related fraud. And all of those start in-house 
with our IRS Criminal Investigation Division.
    We are very aggressive in that arena. Essentially, in that 
case, if I withhold from an employee, withhold the payroll that 
I am supposed to--the taxes I am supposed to pay over to the 
Government, but I don't, and I go and buy a motor home or 
whatever, and that employee files a tax return, the government 
gives that employee credit for the amounts that I stole.
    So, we are hugely aggressive in those arenas. And once a 
person gets indicted, sentenced, and et cetera, those cases 
become public, and they hit the newspapers in the local 
communities and, typically, these are the cases where you do 
see somebody withheld X-dollars, and they have the trips, the 
motor homes, the houses.
    Senator Van Hollen. Right, but you are--these are the wage 
theft cases you are referring to.
    Commissioner Rettig. Yes.
    Senator Van Hollen. I am referring also, though, to these 
employee misclassifications in it.
    Commissioner Rettig. There are some----
    Senator Van Hollen. And I know they are related. Let me 
move on quickly, because I do want to ask you about the 
provisions in current law that says that if you want to be a 
government contractor, you have to be up to date on your tax 
payments. And I know that we have been working with you, and I 
know the IRS has initiative to be able to quickly determine 
whether somebody who is one of your contractors at the IRS, 
meets the test, that they have made their tax payments on time.
    But we want to extend that provision government-wide, and 
facilitate other agencies of being able to quickly determine 
whether or not a proposed government contractor that they would 
do business with, has met these requirements. Where does 
everything--where do we stand on that?
    Commissioner Rettig. Yes as you know, there is a provision, 
and Congress gave us the task to do it but there is not a 
waiver under 6103, which makes every taxpayer's information 
private and confidential. We created what we believed was a 
workaround that does not violate 6103, where a company could, 
essentially, come in and get a certificate from us. And we 
would issue a certificate that they would then take to the 
agency where they want to contract. And it would say: This 
person is current with their tax obligations.
    We are still talking to certain other agencies, but there 
are other agencies that believe that is too much of a burden on 
the taxpayer who is doing a government contract, to actually 
have to go into the system, they can do this automatically, and 
get this certification.
    And we cannot violate 6103, so we are working with the 
other agencies. You know, some Congressional assistance in this 
space I think would help get through the log jam. This needs to 
happen. I mean, I think we all would agree that somebody 
contracted with the United States Government should not be tax 
delinquent.
    Senator Van Hollen. Yes. And, we appreciate the efforts you 
are----
    Commissioner Rettig. We actually do it ourselves for our 
own contractors.
    Senator Van Hollen. Right, I know--I know you are dealing 
with that.
    Commissioner Rettig. And it is effective, so yes.
    Senator Van Hollen. We just want to make sure that the 
benefit of your expertise is shared with the rest of the 
Federal Government.
    And Ranking Member.
    Senator Hyde Smith. Thank you so much. And going back to 
the issues that my office gets calls on. You know, the high 
backlog, all of it. And you know, the call-answer rate that is 
at 20 percent now, and the customers having to wait an average 
of 28 minutes to speak to someone. Your budget request includes 
a $3.4 billion ask for its taxpayers' services appropriation. 
How will this money be used differently than in the past to 
address these customer service failures?
    And one of the things is: ``Where's My Refund'' tool that 
we hear about. So what is going to be different to address them 
in spending this money?
    Commissioner Rettig. One, I wouldn't say it is a failure. 
We did not get in the situation that we are in because of any 
issue for IRS employees' desire and dedication. We got here 
with changed legislation on these when we had already done our 
technology. During tax season confusion for taxpayers on the 
exclusion of the $10,200, et cetera, et cetera. And the 
inability of taxpayers to reconcile, which we have done better 
this year, and we sent out these letters too.
    We have done the best that we could with what we have. But 
with taxpayer service, what happens is that we have buckets, 
and part of this provision asks for the ability to change the 
buckets. I am where you are on what is referred to as an IAT, 
Inter Account Transfer, not taking money from enforcement every 
year and supporting taxpayer service or operations support.
    If Congress tells us it should be in that lane, that 
bucket, we have four distinct buckets: Taxpayer service, 
Operations Support, Modernization, and Enforcement, and 
Congress tells it should be there. We have an IAT that allows 
us to transfer, I think, up to 5 percent between those, but we 
need to be respectful to that.
    In the taxpayer service lane, what is going to be 
different? Where are we going to go? One, if we get our levels 
current, the taxpayer service funds combined with the 
modernization funds, this year we added a customer call back to 
70 percent of our toll-free lines, which is the lines people 
call when they have an issue. And they get a call back within 
the same business day.
    When I heard it initially, I thought, okay, so we plugged 
something into the system. We had to redo our telephone 
infrastructure to be able to bring that into the system that we 
have.
    There are a lot more complexities to what we have than 
necessarily just plugging something in. But also adding people, 
we received phone calls at the rate of 1,500 per second at 
various points in time during the year. We receive 400 percent 
more phone calls this year than any other year.
    If the country gets back to normal - and we are not 
organizing ourselves for normal, we are organizing ourselves 
that we need to be providing the services that we should be 
providing in the environment that we are currently in--if we 
got 10,000 more employees, but these sort of COVID-related 
issues subsided, I need to find a place to put those 10,000 
employees inside the IRS, to be respectful for the funds that 
we use to hire the people. We are looking at all of that, and 
that is really what we are talking about.
    Bottom line, what you want us to do is to answer the 
phones, open the mail, have our Taxpayer Assistance Centers 
open. We have 358 Taxpayer Assistance Centers which are our 
frontline retail operations. Some of them are in malls; some 
are associated with other agencies.
    You want the ability of any American to walk in and ask a 
question of somebody at the IRS, and have that person be 
trained and capable of answering that question there, whether 
they go into the system or otherwise. So we need to fully staff 
our Taxpayer Assistance Centers, we need to train the people 
who are in those. We are a long way from that. Attrition is 
significant with us. So that is another avenue and there is a 
whole list of needs.
    We need to do better in every lane. I am sure every 
Commissioner has asked for what I have asked for--but I combine 
it with oversight. We are not here to spend money and not have 
people see how we are spending it, or moves that we are 
thinking and making. But the funding concepts for an agency 
that touches literally every American, there are significant 
issues to be able to operate the agency, to the extent that I 
think you all want, but also that every American deserves.
    We touch more Americans than anybody on the planet. And 
during the pandemic, let it be known that Congress called on 
us, not the VA, not Social Security, not some other agency, to 
distribute over $1.5 trillion during the pandemic in three 
rounds of Economic Impact Payments, two rounds of Form 1040 
refunds, and another $93 billion in Advanced Child Tax Credit 
payments, which were distributed over a 6-month period.
    We had to create the vehicles to do that during a pandemic 
and handle the filing season. We are in our third COVID filing 
season. That is where I come to.
    You know I am the end of the runway. It is not my choice to 
leave, but it is the statutory term, November 12, but the end 
of the runway is there.
    And you will hear from me throughout this year and next 
year. Employees of the IRS, they are dedicated, they want to do 
it. And we have all levels. I will close with this. I met a 
lady my first year, in Covington, 61 years with the Internal 
Revenue Service. She showed up every single day at 6:30 a.m. to 
open envelopes. And when I went up and said, hi, I am Chuck. 
She was crying. She was so proud to be there.
    That is the employees that we have. Our employees, we're 
the front line for the United States Government in touching 
taxpayers who lost a spouse, who lost a family member, who had 
somebody in the hospital. One of the issues on phones, people 
are saying, the average time, or the difficulty to pick up, but 
I encouraged our employees to stay on that call.
    If somebody called in on an EIP, or a tax issue, stay on 
that call, because every one of those calls flipped to: I lost 
my husband. I don't want our employees, being representative of 
the United States Government saying, I have got ten more calls 
I have got to go answer.
    I want our employees to be human and say you lost your 
husband. That must be hard and wind that call down. We do this 
thing, Talk Story, where on Zoom I meet with 100-150 
employees--it is scheduled for an hour, and the shortest one we 
have done is about two-and-a-half hours. And we do them weekly, 
all around the country. I talk to employees in Guam.
    And I see our employees get emotional when they tell me the 
stories they are getting from taxpayers, but know that it is 
IRS employees, that we are touching people in their homes 
suffering from COVID during the pandemic, and it is IRS 
employees that made these distributions. And Congress asked us 
to do so as rapidly as possible, three times.
    I have told our employees--don't correct me if I am wrong--
but I have told our employees, Congress respects you. You only 
ask people once, twice, three times, four times when you know 
they can meet that challenge. And I am going to tell you today, 
and I will tell you after my term, our employees will meet that 
challenge.
    We have people on mandatory overtime. I have 6,000 
employees in mandatory overtime for far beyond what we should 
be asking these people to do. And I have 10,000 employees on 
authorized overtime. The reason I say ``far beyond'' is that at 
some point this creates morale issues.
    I am about ready to do a sort of tour to these campuses and 
go and sit with our employees, a thank you kind of a thing.
    I apologize for the long-winded response but we are proud 
of who we are, and we are going into communities. You are well 
aware of our initiatives. We are coming down into Mississippi. 
We went to Puerto Rico. No other agency is going into the 
communities we are going to. We are going to these communities; 
it is the right thing to do. We are not brick and mortar, we 
are not an institution, we are people helping people, but we 
are going to communities that have three and four generations 
unemployed, to bring in and train job skills. We are bringing 
Federal time----
    Senator Hyde Smith. I am over my time limit.
    Commissioner Rettig. So am I. And I apologize.
    Senator Van Hollen. Mr. Commissioner, first of all, I 
appreciate your initiative in going into underserved 
communities, I know you have 10 million in the budget 
specifically for that purpose and, look forward to working with 
you as you implement that.
    I have one last question for you here, I will submit the 
others for the record, and then I will ask the Ranking Member 
if she has any final questions, and then we will wrap it up. So 
my final question relates to cryptocurrency, as you know, in 
the Bipartisan Infrastructure Bill that we passed last year, we 
had a provision to raise some funds by extending financial 
reporting requirements on brokers to include cryptocurrency 
transactions.
    I have heard estimates that the annual tax gap due to non-
reporting of cryptocurrency gains is estimated at approximately 
$77 billion a year. My question to you Mr. Commissioner is: 
What steps have you taken to implement the provision from last 
year's bill? And how would you assess that figure I just gave 
you with respect to the tax gap in crypto transactions?
    Commissioner Rettig. Let me start by saying that the market 
cap for virtual currency fluctuates between $1.5- and $2.5 
trillion, depending upon if it is Wednesday, Thursday, or 
Friday. Last year there were $14 trillion in transactions in 
virtual currencies, if you do a GNP of the United States, of 
the world's GNP, we are somewhere between 30 and 40 percent of 
possibly $14 trillion in transactions.
    They are based on affidavits in John Doe summons cases, and 
we have done about five or six of these, where we have gone for 
the information, and we received information about taxpayers in 
certain exchanges that have indicia of U.S. contacts. So, we 
know there is a very significant compliance issue there.
    We need information reporting in the virtual currency 
space. We got FATCA as legislation, but we never got the 
funding to implement and modernize the systems to take care of 
the information that we get. It does not make sense to me to 
give us information reporting if we don't get the funding to 
put a system together to do that.
    You want it, and we want it, and we should not end up in 
the same place with virtual currencies. I think we have to have 
virtual currency reporting. We have to have the ability to use 
that information in a meaningful manner. And I am not saying, 
to be able to go after people. If we have the ability to match 
information, we will not go after people as much as we would go 
after unreported transactions.
    The people who report it don't need to hear from us, and we 
should be able to check that on our end before we send out a 
notice. So, it works both ways. Technology helps us know where 
not to go, as well as to know where to go.
    Senator Van Hollen. No, I appreciate that. I mean, this is 
not to prevent innovation in this space. This is, as you say, 
is simply to be able to, you know, collect gains that have been 
made that--that should be taxed like other gains in the 
economy.
    Senator Hyde-Smith, any final questions?
    Senator Hyde Smith. Yes. I do have a few more. And because 
I have a few more, if you could be brief with your answers----
    Commissioner Rettig. And I will try.
    Senator Hyde Smith [continuing]. That will be very much 
appreciated.
    Commissioner Rettig. And I apologize for--yes.
    Senator Hyde Smith. The fiscal year 2023 requests $10.2 
million to establish the Mississippi Delta Hiring Initiative. 
And can you discuss your vision for this initiative, including 
the benefits it will bring to the Mississippi Delta region?
    Commissioner Rettig. I expect the IRS to be the agency that 
revamps the Mississippi Delta region. I think you are aware; we 
are already open to hiring. We did an announcement for 15 
positions in a presently existing facility in Clarksdale. We 
had a tremendous response, which shows that we are headed in 
the right direction.
    We have people on the ground. I had more than a handful of 
people who spent the week there meeting with local officials, 
looking at sites, which GSA would handle. I would love to come 
to talk to you one-on-one with what we envision for 
Mississippi.
    We tried to hire 2,000 people in Austin, Texas, and we had 
100 qualified people. We went into Puerto Rico and did a 
hiring, and we would look for 500, and we got 600.
    So for the Mississippi Delta, your question might be: Well, 
why did this kid from L.A. running IRS in Washington, D.C., get 
to the Mississippi Delta? The equation is pretty simple. We 
looked at the EITC hot map. Where are the most EITC claims that 
we are dealing with? It is in the Delta. We are going to the 
Delta to bring Federal jobs into the Delta.
    What we are doing is pairing up with 4-year and 2-year 
universities and colleges, to bring job skills. It is unfair of 
us to say that every 26-year-old needs a 4-year degree to work 
for the IRS. You need some job skills, which we will do through 
these 2- and 4-year schools.
    And then somebody said to me, well what about what they 
think about the IRS?
    We have over a hundred high schools in this country that 
have VITA programs. We are bringing VITA programs to high 
schools in these communities, so that people understand the 
benefits of giving back to the community. People understand 
what IRS does, and then sort of build the pipeline.
    It is probably, and there is no magic to this, 6-year 
project, but my goal is that in the communities that we go 
into, rather than seeing subsidized housing, where somebody is 
painting an older building, that we see the developers come in 
with new housing, because you have got people with Federal 
jobs. And it is looking like we are going to make this a 
reality, and we are on the ground there.
    Senator Hyde Smith. And we appreciate that. And can you 
tell me the percentage of your workforce that is still working 
from home?
    Commissioner Rettig. Some of our workforce always works 
from home. We have people who have been telework eligible 
forever, but 99 percent of our workforce is working.
    Senator Hyde Smith. 99 percent of?
    Commissioner Rettig. Is working, but we have taken----
    Senator Hyde Smith. But you don't know the percentage that 
is working from home? I mean, what was the normal percentage 3 
years ago that was working from home?
    Commissioner Rettig. I would say that we are probably not 
that far away from where we are today. We have thousands and 
thousands of employees who are telework eligible, and some----
    Senator Hyde Smith. I mean, that the information I am 
getting is 50 percent work from home; is that accurate 
information?
    Commissioner Rettig. I would say that that is low for where 
we are.
    Senator Hyde Smith. It is higher than that who are working 
from home?
    Commissioner Rettig. You know, our frontline Revenue agents 
don't need to go into an office. Our frontline Revenue 
officers, our IT people will stay at home. Those are telework-
eligible people. We have a bargaining agreement with the 
National Treasury Employees Union as to who is telework 
eligible, and we abide by that agreement. We have all different 
categories.
    Senator Hyde Smith. Okay. But it is more than 50 percent is 
what you are saying? That that is a low number that works from 
home for the IRS?
    Commissioner Rettig. I would not hesitate to ask you 
something, but also where somebody is working, the physical 
location is mostly irrelevant, quite frankly, other than our 
people who are processing paper.
    Senator Hyde Smith. That doesn't hinder the process that 
you are trying to accomplish now?
    Commissioner Rettig. Zero. Those folks were back in June of 
2020 socially distanced, working split shifts. The people who 
process the paperwork split shifts, they have been in their 
facilities since June of 2020. The people on the phones are 
telework-eligible. We went into the pandemic with only 3,000 of 
15,000 telephone staff being telework eligible, and then, 
within 2 months, 15,000 of 15,000 people were telework 
eligible.
    Where that helped us was when we had hurricanes, 
earthquakes, snow, where we would shut down IRS facility, our 
employees continued to work from home on the phones, who were--
--
    Senator Hyde Smith. but that is inaccurate, more than 50 
percent are still working at----
    Commissioner Rettig. I don't have that number. We will get 
you that number.
    Senator Hyde Smith. Okay.
    Commissioner Rettig. If you want it, either as a question 
for the record, or we will just get it back to you.
    Senator Hyde Smith. Yes. When you said that was a low 
number, that there is--that that concerned me.
    Commissioner Rettig. I just know where the people are, and 
they are all working.
    Senator Hyde Smith. And the 2019----
    Commissioner Rettig. If the question is, how many of our 
people are working, more than 99 percent.
    Senator Hyde Smith. 2019 Report from the Office of 
Personnel Management found that the IRS employees spent 
hundreds of thousands of hours doing taxpayer-funded warrant 
for their labor union. Are you aware of the hours IRS employees 
spend on union time now? That was in 2019.
    Commissioner Rettig. I am not. But we just concluded our 
union contract. We can get you that, but we are locked into 
that by a contract.
    Senator Hyde Smith. And the IRS employees that dedicate 
time to union activities on the job; is that fair, instead of 
addressing the backlog of returns of unanswered calls? And 
making sure that that is the best way their time is spent?
    Commissioner Rettig. I would like to have every employee 
who is capable of answering phones, or opening or processing 
mail, doing that. I don't know the category of the folks in 
that. And again, all I can say is, we have a union contract 
that I am required to abide by.
    Senator Hyde Smith. Okay. And the religious freedom is one 
of the greatest cornerstones of our country. And I am really 
troubled to learn of Federal agencies, including Treasury and 
the IRS, tracking Federal employees who request religious 
exemptions. Can you confirm that the IRS is tracking this 
information on religious exemptions? Are you tracking that 
info?
    Commissioner Rettig. This is the first I have heard that we 
are tracking this. The only reason that we had issues with 
exemptions was under the mask mandate, or when we had a mandate 
that people had to be vaccinated or terminated; we had medical 
and religious exemptions. But I have no more information, and 
you can ask me a question for the record.
    Senator Hyde Smith. Okay, but----
    Commissioner Rettig. But you are the first I have heard of 
it, and I would oppose us tracking any religious information.
    Senator Hyde Smith. Okay. Well, my time is out again.
    Senator Van Hollen. Well, thank you. Thank you, Senator 
Hyde-Smith.
    Mr. Commissioner, thank you for being here today; I want to 
also take this opportunity to thank you for your service. I 
don't know if you will appear before this subcommittee again, 
but I am grateful for your testimony, and for the ongoing 
partnership with you and your staff.
    And believe that you were committed to doing the very best 
job you can on behalf of the American people in tough times.

                     ADDITIONAL COMMITTEE QUESTIONS

    Our Members will have one week to submit questions for the 
record. Those are due May 10th. And I would appreciate if you 
could--and your team--could get back to us as quickly as 
possible in response to any of those questions.
    With that, this subcommittee meeting is adjourned.
    [The following questions were not asked at the hearing, but 
were submitted to the Internal Revenue Service for response 
subsequent to the hearing:]
    No questions were submitted.
    Senator Van Hollen. Thank you all.

                          SUBCOMMITTEE RECESS

    [Whereupon, at 3:51 p.m., Tuesday, May 3, the subcommittee 
was recessed, to reconvene subject to the call of the Chair.]