[Senate Hearing 117-336]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 117-336

                         THE 2021 FILING SEASON
                          AND 21ST-CENTURY IRS

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 13, 2021

                               __________

                                     





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            Printed for the use of the Committee on Finance
                             _________
                              
                 U.S. GOVERNMENT PUBLISHING OFFICE
                 
48-296-PDF               WASHINGTON : 2022

















                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
MARIA CANTWELL, Washington           CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey          JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland         RICHARD BURR, North Carolina
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania   TIM SCOTT, South Carolina
MARK R. WARNER, Virginia             BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island     JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire         STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada       TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts      BEN SASSE, Nebraska
                                     JOHN BARRASSO, Wyoming

                    Joshua Sheinkman, Staff Director

                Gregg Richard, Republican Staff Director

                                  (ii)





















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     1
Crapo, Hon. Mike, a U.S. Senator from Idaho......................     3

                         ADMINISTRATION WITNESS

Rettig, Hon. Charles P., Commissioner, Internal Revenue Service, 
  Washington, DC.................................................     5

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Crapo, Hon. Mike:
    Opening statement............................................     3
    Prepared statement...........................................    49
Rettig, Hon. Charles P.:
    Testimony....................................................     5
    Prepared statement...........................................    50
    Responses to questions from committee members................    61
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................   100

                             Communications

Center for Fiscal Equity.........................................   103
Desai, Anand.....................................................   107
Lee, Nicholas Matthew............................................   108
Professional Managers Association................................   112
U.S. Citizen.....................................................   115

                                 (iii)

 
                         THE 2021 FILING SEASON 
                          AND 21ST-CENTURY IRS

                              ----------                              


                        TUESDAY, APRIL 13, 2021

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10 a.m., 
via Webex, in Room G-50, Dirksen Senate Office Building, Hon. 
Ron Wyden (chairman of the committee) presiding.
    Present: Senators Cantwell, Menendez, Carper, Cardin, 
Brown, Bennet, Casey, Warner, Whitehouse, Hassan, Warren, 
Crapo, Grassley, Thune, Portman, Toomey, Cassidy, Lankford, 
Daines, Young, Sasse, and Barrasso.
    Also present: Democratic staff: Chris Arneson, Tax Policy 
Advisor; Adam Carasso, Senior Tax and Economic Advisor; Michael 
Evans, Deputy Staff Director and Chief Counsel; Joshua 
Sheinkman, Staff Director; and Tiffany Smith, Chief Tax 
Counsel. Republican staff: Andre Barnett, Senior Tax Counsel; 
Courtney Connell, Senior Tax Counsel; and Gregg Richard, Staff 
Director.

   OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM 
             OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The Senate Finance Committee will come to 
order.
    This morning the Finance Committee is joined by IRS 
Commissioner Rettig for our annual hearing that typically marks 
the end of tax filing season. However, 2021 is no typical year. 
There's lots to talk about, and I am going to start with the 
tax gap, the difference between taxes owed and what is 
collected.
    Even the most conservative estimates of the annual tax gap 
put it in the hundreds of billions of dollars a year. My own 
view is, the annual tax gap is at least double the official 
estimate and growing.
    The most recent official estimate pegs the tax gap at $381 
billion a year, but it looks all the way back to data from 2011 
through 2013. That means the estimates are out-of-date as soon 
as released.
    The fact is, our economy has changed and expanded. In 2011, 
one Bitcoin could not buy you a ham sandwich. Today's 
cryptocurrencies and other technologies create huge new 
opportunities for the tax cheats to rip off the American 
people.
    More and more wealth is building up in the hands of the 
fortunate few and big corporations. They are the ones with the 
high-priced lawyers and accountants who specialize in 
concealing income with sketchy bookkeeping, money laundering, 
and shell companies.
    I am coming off 10 town hall meetings in Oregon. When I 
hold those meetings--especially during tax season--lots of 
Oregon taxpayers tell me they have a gut feeling they are being 
cheated. They hear about the massive tax gap, and they are 
rightfully ticked off. Close even a portion of the tax gap and 
you are better able to fund care for the elderly at home, 
assistance to needy kids, and affordable housing.
    The IRS needs more resources to tackle this challenge, but 
it is only just beginning to recover from a decade of 
Republican budget cuts. Those cuts hobbled our ability to root 
out cheating by high flyers and their high-priced accountants. 
Criminal tax evasion cases have fallen nearly by half. The 
number of IRS tax enforcement staff--the experts who know how 
to break down tax evasion cases--has now fallen by nearly a 
third. Wealthy tax cheats have proven that with enough attack 
dog lawyering, they can litigate the IRS into submission and 
rip off working taxpayers for big money.
    Meanwhile, the burden of tax audits has shifted unfairly to 
working people. That is because it is a lot cheaper and easier 
to hassle a working mom over a tax credit overpayment than it 
is to decipher the latest money laundering schemes.
    My bottom line is, it is time to throw out business as 
usual on this. Business as usual has proven to be a rainmaker 
for cheaters and criminals and unfair to everybody else.
    The IRS needs more highly skilled investigators and better 
technology to keep up with these modern crooks. The Biden 
administration's new budget proposal calls for a 10-percent 
increase in IRS funding. That is a good start. I believe there 
is room for a more comprehensive strategy that will lower the 
tax gap.
    The committee is going to kick off a new policy this 
morning. On my watch, the annual filing season from this point 
on will put a special focus on what the IRS has done over the 
previous year to catch the cheats and close the gap. There is a 
lot of catching up to do.
    Let me wrap up with just a couple of other comments. First, 
Commissioner, I am going to give you a formal introduction, but 
I want to thank you and the staff for working many, many long 
hours during the pandemic to get three rounds of relief 
payments to the public. Millions of hurting families got 
desperately needed relief payments, and our country got an 
economic boost.
    The committee, the Finance Committee, also led an important 
effort to make sure that Americans who got unemployment 
benefits did not get a painful tax surprise this year.
    Finally, Commissioner, we are going to want to hear about 
getting the new Child Tax Credit payments up and running. It is 
a big job, and millions of Americans are counting on the IRS to 
get it done.
    Commissioner, we will give you a formal introduction after 
we hear from Senator Crapo.
    Thank you for joining us, Senator Crapo.
    [The prepared statement of Chairman Wyden appears in the 
appendix.]

             OPENING STATEMENT OF HON. MIKE CRAPO, 
                   A U.S. SENATOR FROM IDAHO

    Senator Crapo. Thank you, Mr. Chairman, and welcome, Mr. 
Commissioner. I appreciated our phone call the other day.
    The past 23 months have brought unprecedented challenges 
not only for the American people, but also for the Internal 
Revenue Service.
    In addition to its role as our Nation's tax collector, 
Congress has recently given the IRS an expanded mission and a 
central role in delivering our economic recovery. So far, this 
has included distributing three rounds of over 150 million 
Economic Impact Payments and implementing a variety of 
temporary tax incentives to keep employees on payroll, 
guarantee paid leave for employees who contract COVID-19, and 
help taxpayers bridge the gap through the pandemic. Soon, it 
will also include the distribution of millions of advance 
payments of the Child Tax Credit in a temporary policy that 
vastly changes the scope and mission of the IRS.
    Commissioner Rettig, I commend you and your staff for your 
diligent efforts to balance all of these competing priorities. 
At the same time, given how much is at stake for our economy 
and the American people, it is critical that we get it right. 
Filing season and Economic Impact Payment issues are the most 
frequent topics I hear about from Idahoans.
    I am extremely concerned about the reports of a backlog of 
millions of tax returns from last year's filing season that 
have not yet been processed. This means that millions of 
taxpayers are having to wait longer to receive their refunds in 
the middle of a pandemic.
    Further, IRS call center wait times remain unacceptably 
long, and many taxpayers have been sent confusing automated 
notices indicating that they have not yet filed their return, 
when in fact it was filed but has not yet been processed by the 
IRS.
    Confusion has also been generated because of the massive 
fraud in unemployment compensation programs. State workforce 
agencies have been taxed because the Federal Government tells 
victims of identity theft who have Federal tax issues to figure 
it out with State agencies.
    Meanwhile, in the midst of filing season, a brand-new 
waiver of Federal taxes on unemployment compensation was passed 
into law, causing yet more confusion for filers.
    Today you have the opportunity to explain how the IRS plans 
to remedy taxpayer confusion and tackle the backlog of prior-
year returns without falling further behind--a formidable task.
    I also have a number of concerns about the implementation 
of the Child Tax Credit advance payment program. Former Finance 
Committee chairman Grassley and I sent you a letter a few 
months ago requesting reasonable information about the timeline 
of implementation, the cost of implementation, and how the IRS 
plans to tackle fraud and other risks associated with the 
administration of this new program. What we received from your 
staff was untimely and unresponsive.
    Today is an opportunity for a real conversation about the 
timeline that the IRS envisions for getting the online portal 
up and running and issuing the first advance CTC payments.
    The IRS must assure us that this implementation will not 
mean putting the filing season on the back burner, nor rushing 
to get payments out before we have accurate information from 
taxpayers regarding eligibility. To date, absent any contrary 
indication from the IRS, I am left with the impression that the 
aggressive July 1st payment deadline imposed by congressional 
Democrats will be challenging to meet by an IRS staff that is 
already stretched thin, without cutting corners or reassigning 
staff who should be focused on processing tax returns.
    If congressional intent was really to get these advance 
payments out at all costs as soon as possible, then the logical 
approach would have been to simply provide an extra bonus in 
the Economic Impact Payment of each qualifying low-income 
child. Congress could have put those increased payments in the 
hands of those parents a month ago with that approach.
    Instead, the legislation created a complicated new program 
for these periodic advance payments, with a clearly stated goal 
of making this temporary program permanent. With that in mind, 
fully setting up the required online portal and equivalent 
secure mechanisms for those without Internet access, in order 
to ensure that any advance payments issued are both accurate 
and desired by parents, must be considered at least as much of 
a controlling priority as the requirement to begin issuing 
advanced payments this summer.
    Finally, we are now approaching 2 years since Congress 
passed the Taxpayer First Act, an important bipartisan measure 
that will enhance taxpayer protections, modernize the IRS's 
organizational structure, and improve its customer service and 
information technology. Commissioner Rettig, I look forward to 
hearing an update today on the IRS's efforts to implement these 
reforms and to usher forth a 21st-century IRS.
    Thank you again for appearing before us today, and for your 
tireless efforts on behalf of our taxpayers.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Crapo appears in the 
appendix.]
    The Chairman. Thank you, Senator Crapo.
    Our witness today is Charles P. Rettig, the 49th 
Commissioner of the IRS. Previously, he was a highly respected 
law firm partner for 36 years. He has represented thousands of 
individuals, businesses, and corporate taxpayers before the 
IRS, the Department of Justice Tax Division, Federal and State 
courts, and State taxing authorities.
    Mr. Rettig has served as a past chair and member of the IRS 
Advisory Council. He also served as chair of the Taxation 
Section of the State Bar of California, and has served on the 
advisory boards of both the Franchise Tax Board and the Board 
of Equalization in his home State of California. He has a B.A. 
in economics from the University of California in Los Angeles, 
as well as a J.D. with honors from Pepperdine University, and 
an LLM in taxation from New York University.
    Welcome. Please proceed, Mr. Commissioner.

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

    Commissioner Rettig. Chairman Wyden, Ranking Member Crapo, 
and members of the committee, thank you for the opportunity to 
discuss the current filing season and our efforts to help 
taxpayers during the COVID-19 pandemic.
    Before I begin, I want to thank Congress, each of the 
members of this committee, and each of your staff for working 
with us during drafting of the recently enacted stimulus 
packages. The ability to administer legislation passed by 
Congress is almost as important as the content of the 
legislation that is passed. We also thank you for providing the 
IRS with resources to enable us to implement the tax-related 
portions of such important legislation.
    It will take time for the IRS to overcome the challenges of 
the past decade, and the agency will continue to struggle to 
replace workers lost through attrition and to expand our 
workforce and support implementation of our multi-year 
integrated business modernization plan as designed. We will 
continue enhancing meaningful service and compliance efforts on 
behalf of every American.
    With respect to the COVID response, our response 
illustrates the importance of every American to the IRS, and 
the importance of the IRS to every American. IRS employees have 
worked hard since mid-March of last year to implement the major 
provisions of the CARES Act, the COVID Tax Relief Act, and more 
recently the American Recovery Plan; to deliver three rounds of 
Economic Impact Payments; to deliver filing season 2020 and 
filing season 2021; and to help millions and millions of 
Americans during the pandemic.
    In a bit more than 12 months, IRS and Treasury employees 
delivered the first round of EIP1, totaling almost $275 
billion. They issued refunds during filing season 2020 of over 
$320 billion. We issued EIP2 of over $142 billion. We are in 
process with respect to EIP3, and to date we have delivered 
another $372 billion. And with respect to filing season 2021, 
to date we have issued over 62 million refunds totaling more 
than $180 billion.
    In a bit more than 12 months, the IRS has been instrumental 
in delivering almost $1.3 trillion to individuals in our 
country, and we are proud to have had the opportunity and the 
privilege to do so.
    I want to emphasize and recognize the amount of advance 
preparation of our employees to achieve such quick turnaround. 
I believe the committee is aware of the fact that the first 
EIP1 payments went out within 2 weeks. EIP2 payments went out 
within 2 days, and the first round of EIP3 payments were issued 
in less than 24 hours after the date of enactment.
    This is a tribute to the quality, dedication, and caliber 
of the employees that we have. We care, and we know the 
importance of our role. It is also a call for consistent, 
timely, adequate, multi-year funding to support our business 
system's modernization. It should not impede our ability to 
deliver quickly, promptly, and most of all accurately--and I do 
understand and we accept that we did not get it perfect, but we 
did try our best--but the ability to do so should not translate 
into the fact that we do not need a modernized system.
    Our systems are built on the legacy systems of the IRS, and 
we need to replace our legacy system to have the IRS in a 
position to move forward effectively when called upon to do 
so--and as part of our normal daily operations.
    Turning to tax season 2021, filing season 2021, it 
continues to go smoothly. We have received, at peak, 335 
submissions per second. We have received more than 93 million 
individual returns and, as stated, have issued more than 62 
million refunds totaling $180 billion.
    As you are aware, we also process returns for various 
States. We also process business returns and other related 
matters. To date, that category, all in, we have received over 
206 million Federal, State, and business returns--keep in mind, 
during the pandemic.
    The late start of the filing season did not impact our 
ability to issue refunds. The first rounds of refunds--we 
opened filing season on February 12th. The first round of 
refunds for the most needy individuals, the EITC and ACTC, went 
out on February 16th and February 18th.
    As you are aware, we recently issued Notice 21-21 extending 
the current filing season to May 17th. That extension was not 
based upon any operational challenges of the Internal Revenue 
Service. The Internal Revenue Service is operating smoothly 
with respect to filing season.
    With respect to the unemployment insurance and the 
exclusion of $10,200 per individual, the IRS announced in IR-
2021-71 on March 31st, that for people who filed their returns, 
we will automatically issue the refunds. We will first be doing 
the refunds--we will adjust the returns when we are first doing 
the refunds for single filers, followed by married filers. 
Taxpayers do not need to file amended returns to claim the 
exclusion with respect to their unemployment insurance, if they 
previously reported it. And we expect to be issuing the refunds 
in May.
    Turning to level of service, this has been a challenging 
year. As you are aware, we have a congressional mailbox. The 
input and intake for each of you was challenging, but keep in 
mind that our level of service is an appropriated budget item, 
which was determined before there was a pandemic, before there 
was an EIP1, before there was an EIP2, before there was an 
EIP3.
    Our call volumes have more than doubled. We have received 
at peak more than 1,500 calls per second. We have received 1.1 
billion visits to irs.gov. We have had to deploy some of our 
customer service representatives to FEMA work with respect to 
hurricanes, wildfires, earthquakes, and the more recent extreme 
cold weather.
    During the pandemic, we adjusted to a virtual operation as 
quickly as we could, but we realized that that was not seamless 
for the people who had to interact with us, and we greatly 
appreciate the patience and understanding of others as we tried 
to operate to the best of our abilities. And I think the 
foregoing--personally, I am very appreciative of the efforts of 
our employees, and people generally, and I am not going to call 
out our people separately. I know everybody had a difficult 
time. But I asked a tremendous amount of every employee of the 
Internal Revenue Service.
    We got the best of the best. They stepped in. They were 
creative. They were innovative. They came up with plans in a 
hurry to allow us to do as well as we did. The success and 
strength of the Internal Revenue Service is the employees of 
the Internal Revenue Service.
    Chairman Wyden, Ranking Member Crapo, and members of the 
committee, this concludes my statement, and I would be happy to 
take your questions.
    [The prepared statement of Commissioner Rettig appears in 
the appendix.]
    The Chairman. Thank you very much, Commissioner. And again, 
we very much appreciate all the efforts to get those checks out 
through the pandemic.
    And now we are going to look to the future. And Oregonians 
come up to me at home, and they say, ``Ron, what is the deal 
with the taxes that the big guys owe that don't get 
collected?'' Then they tell you they pay taxes with every 
paycheck, lots of them, and they want to know what is being 
done to collect from the cheaters.
    I went through the estimates, which seem like they are from 
the Dark Ages--you know, a decade ago--and I have been digging 
into this, and I have come to the conclusion that the tax gap 
is in fact far greater than has been officially reported.
    So what I would like to start with, Commissioner, is what 
is your personal opinion about how big the annual tax gap 
actually is?
    Commissioner Rettig. The published tax gap estimate of the 
Internal Revenue Service, the current one that is out--and we 
will be issuing one next year--but the published tax gap 
estimate for tax years 2011 to 2013 has a gross tax gap of $441 
billion.
    As you indicated, Mr. Chair, in 2011 folks were generally 
unaware of the term cryptocurrency, Bitcoin, and all--there are 
more than 8,600 cryptocurrencies, virtual currencies, in the 
marketplace. And the market cap worldwide for cryptocurrencies 
is almost $2 trillion.
    Our tax gap map for 2011 to 2013 is based on information 
that is from 2011 to 2013. It does not include any focus with 
respect to virtual currencies, which I indicated now are about 
a $2-trillion market cap. It does not include much information 
with respect to foreign source income. It does not include 
information with respect to illegal source income, which is 
still taxable, and which we do chase. More recently, within the 
last 2 weeks, there was a report published that included two 
IRS researchers from our RAAS organization that indicated that 
the top 1 percent of all taxpayers by high income account for 
as much as an additional $175 billion in the tax gap 
computation. And that is associated with their look at only two 
issues, which were pass-through entities and offshore income 
associated with the top 1 percent.
    If you aggregate the points that I am talking about, and 
you look at the fact that there is a current estimate by folks 
on the outside that the tax gap is $7.5 trillion over the next 
10 years, and you add in the component pieces that I have 
referenced--there are more; I've just referenced the ones that 
are most highly visible at this point. If you add those in, I 
think it would not be outlandish to agree that the actual tax 
gap could approach and possibly exceed $1 trillion.
    The Chairman. Thank you. And that is something that we very 
much want to focus on on this committee. We think we can do it 
in a bipartisan way. A trillion-dollar tax gap--and that is 
very much in line with our analysis and reflects the amount 
that is owed that we are not collecting from cheaters. So I 
very much appreciate your clarifying that.
    What would the IRS do with an increase in funds for 
enforcement to better be able to collect that trillion-dollar 
annual tax gap? And what would the rate of return be on those 
kinds of efforts?
    Commissioner Rettig. To approach the tax gap and have a 
meaningful reduction in the tax gap, we need a multi-faceted 
approach. So you have asked with respect to enforcement.
    Our figures with respect to--if we received a billion 
dollars for enforcement, we could bring onboard 4,875 front-
line enforcement personnel, which also includes the component 
parts for taxpayer advocate service, appeals, counsel, and 
whatnot. It is our package, if you will, to go down that road.
    We would also need to use some of those funds to modernize 
our systems. We are today able to identify evidence of tax 
fraud, the signatures of tax fraud if you will, and tax 
evasion, that even 2 years ago we could not identify. But it is 
an example of how we are heading in the right direction. We 
need to get there ahead of time. We are up against more 
sophisticated elements in the community, practitioners and 
others, and the tools that they are using.
    So essentially, the key priorities would be to modernize 
our system, and onboard enforcement personnel. Realistically, 
we are down 17,000 enforcement personnel over the last decade. 
So to replenish that, we could not do that in 1 year. We could 
not absorb that. We have about 50 to 55,000----
    The Chairman. I am almost out of time, Commissioner.
    Commissioner Rettig. I'm sorry.
    The Chairman. Do you need, in addition to the financial 
resources, any changes in either regulation or statute to be 
able to more aggressively go after the tax cheats?
    Commissioner Rettig. We do. We need information reporting 
almost across all lanes. The statistics are that when there is 
substantial information reporting and withholding, about 99 
percent of those income items get reported. Without information 
reporting, it fluctuates down around 45 percent. Electronic 
filing of most returns in most systems would obviously enhance 
our ability to take a look and focus our resources in the 
appropriate areas.
    And there is, you know, correctable error authority, return 
preparer regulation. As I said, it is a multi-faceted approach. 
And nobody should discount the desire of any employee of the 
IRS to get there. We want to get there, but we do need your 
help.
    The Chairman. Good. And I am going to do everything I can 
to make this a bipartisan effort.
    Senator Crapo?
    Senator Crapo. Thank you much, Senator Wyden.
    Commissioner Rettig, I want to follow up on Senator Wyden's 
questions for just a minute. First of all, I completely agree 
that if there are those who are cheating on their taxes and 
causing us to have such a large tax gap, which I do not doubt, 
we should address that.
    We often see many allegations that there are corporations 
who pay no income taxes for one reason or the other. In fact, 
the reasons are not given. And I am not quite sure I understand 
why. But one response that has been given back to me when I try 
to check that out is that many corporations are being accused 
of using legal provisions in the tax code, such as the R&D tax 
credit or other tax credits and the deductions and options that 
they can, in order to manage their tax liabilities.
    As you calculate these numbers you just talked to us about 
involving the tax gap, you are not counting the utilitization 
of legal provisions in the tax code like the R&D tax credit and 
so forth. Is that correct?
    Commissioner Rettig. Definitely not. There is no part of 
the tax gap that should include legal transactions that are 
authorized by the code and the courts and whatnot.
    Senator Crapo. The reason I asked that question is because 
often in the political discussion of this, what we see in the 
media at least, is this notion that there are so-called 
``loopholes'' that taxpayers are taking advantage of. And to 
me, I wonder what those loopholes are. If they are legal 
provisions in the code, we ought to know that and determine 
whether they are in fact some valid tax credit that we want to 
continue to allow, or whether they are some unjustified tax 
policy.
    But that is a whole different discussion than the tax gap, 
correct?
    Commissioner Rettig. Correct.
    Senator Crapo. Okay. And that is a discussion I think we 
should engage in as well, Senator Wyden.
    I am going to conclude with the questions that I referred 
to you when we were on the telephone the other day with regard 
to the CTC advance payment provision.
    The first is, the experience with the 2017 tax reform law 
showed that many American taxpayers have an ongoing expectation 
of receiving a sizeable refund. And when given the option to 
get that refund earlier, many households opt to take the refund 
when they file their taxes because they choose to get it in 
that fashion.
    Based on that experience, has the IRS estimated what 
percentage of eligible CTC recipients it might expect to opt 
out of receiving advance payments?
    Commissioner Rettig. We do not currently have that 
information, but you are accurate that that is the information 
that we are getting: that this for many people is their largest 
annual refund.
    We are working on that, as you can imagine, because we are 
implementing--our teams are working on the implementation of 
the requirements and priorities and whatnot. And I would hope 
that we would have that for you soon. And I do acknowledge you 
have asked for that on more than one occasion.
    Senator Crapo. Well, thank you. And again on the same 
issue, many lower-income and rural individuals and families do 
not have access to the Internet. And that makes it very 
difficult for them to use a portal to update their status, or 
opt out of receiving advance payments.
    Can you address how the IRS intends to reach such filers to 
ensure that they have the same opportunities for access to the 
portal?
    Commissioner Rettig. If people do not have broadband--and 
there are tens of millions of people in this country who do not 
have access or are not comfortable with it--they will end up 
needing to deal with us either through paper sources, the U.S. 
mail, or visiting an IRS office, which certainly is not ideal 
if they are adjusting. And the portal is statutorily required, 
and it is there for people to identify changed circumstances, 
and also to opt out.
    And so we will make instructions for the forms available 
for folks who want to opt out in avenues other than the portal.
    Senator Crapo. And when do you project that both the secure 
online portal and the equivalent non-electronic processes will 
be fully operational?
    Commissioner Rettig. We will launch the portal for CTC by 
July 1st, which is the statutorily mandated date. And we have 
already put our teams together and our working groups together, 
and we are looking at communication strategies and all the 
rest.
    We will launch by July 1st, with the absolute best product 
we are able to put together. We might need to address that. We 
did that with respect to the EIP online portals we would 
monitor. And we may need to adjust that. But we are trying to 
get it as user-friendly as possible, but we will launch by July 
1st.
    Senator Crapo. Thank you. And clearly a number of important 
steps have to be taken to achieve that. As such, can you assure 
us that the IRS will not issue advance CTC payments until the 
online portal and its secure nonelectronic counterpart process 
are fully operational, and that all potentially eligible 
taxpayers have been given the full opportunity to update their 
status and information, and to opt out of receiving any advance 
payments if they choose to?
    Commissioner Rettig. We will do so. We will follow the 
statute, and the statute requires us to do so by July 1st. If 
we are not prepared--as I indicated to another congressional 
committee a few months back--if we are not prepared, we will 
not launch. We are not going to risk our systems. We are not 
going to open our systems up to possible fraudsters and the 
rest, and to a series of errors.
    We will test, retest, and get it right before we launch. 
And we are not--the statute requires July 1st, but if we are 
not ready July 1st, we will tell you that. As of now, we will 
launch July 1st, but we will not risk our system.
    Senator Crapo. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Crapo.
    Senator Cantwell is next.
    [No response.]
    The Chairman. Senator Grassley is after Senator Cantwell.
    Senator Grassley. Okay. The American Rescue Plan included 
major temporary modifications of the Child Tax Credit, 
including making the credit fully refundable and advanceable.
    I have concerns that these changes will drastically expand 
the IRS role into kind of social welfare-oriented, at the 
expense of its primary mission of tax collector. As Erin 
Collins, the National Taxpayer Advocate said, quote, ``The 
challenge is, the IRS was not set up for that purpose, and 
their IT is not structured for that,'' end of quote.
    It is clear that setting up periodic advance payment and 
associated infrastructure will be a significant undertaking for 
your agency. In addition to the dollar cost of this program, 
can you expand upon the amount of work hours and the number of 
personnel it is estimated it will take to set up and administer 
what is now a temporary program?
    Commissioner Rettig. The budget to implement the CTC 
program--and we have to create an entirely new structure for 
the Internal Revenue Service. We are not, historically, a 
benefits delivery Federal agency--but we are setting that up. 
The cost for that program is $391 million. Right now, it will 
be somewhere around--and this is my guess, but it is an 
educated guess--a minimum of 300 to 500 people, which includes 
folks who will have to handle the phone service, because we 
will have increased phone service.
    The Taxpayer Advocate Service will get additional touch 
points. Criminal Investigation, to the extent fraudsters try to 
come into the system, will need additional resources there. So 
it is pretty widespread.
    What we have done to date, and the IRS--and again I thank 
Congress for this--we were part of getting the July 1st date as 
opposed to an earlier date, and that is very meaningful to the 
Internal Revenue Service because, as you know, we have filing 
season, normally April 15th but we moved it to May 17th, but we 
also have the third round of Economic Impact Payments. It would 
have been extremely difficult for the IRS to launch a CTC 
program at any time before July 1st. It is a challenge to do it 
by July 1st, but it would have been really difficult----
    So what we are in process on now--and you have asked as 
well for additional information, and we will continue to update 
you and update members of the committee--but what we have done 
now is put together our working groups to figure out the points 
such as what you are asking. Who do we need? Where do we need? 
What are the requirements to launch this portal?
    So we have working groups with respect to guidance and 
policy changes. We have working groups with respect to chief 
counsel on what we are able to do and what we are not able to 
do within the scope of the law, and outside the scope of the 
law. We have working groups in IT working with respect to the 
authentication levels. As you can imagine, every time--this is 
a risk-averse agency. Every time we open some system up, it 
becomes a risk issue for the agency, and we are not going to 
allow undue risk.
    Senator Grassley. I think you have satisfied me for now.
    Commissioner Rettig. Okay; I will follow up----
    Senator Grassley. You said you would give updates. So I am 
also concerned that the Advance Child Tax Credit program might 
have the possibility of fraud. According to the Treasury 
Inspector General for Tax Administration, in 2019 the improper 
payment rate in the program exceeded 15 percent, or $7.2 
billion.
    The IRS's experience with the advanceable premium tax 
credit, which TIGTA estimated has an improper payment rate of 
27 percent, suggests a proposal to make the Child Tax Credit 
advanceable could result in billions more of improper payments.
    How would you expect the advanceability of the Child Tax 
Credit to affect improper payment rates clearly associated with 
the credit?
    Commissioner Rettig. Opening up the system and having 
people have the ability to modify their circumstances monthly 
is another element of risk that the IRS is required to assume 
under the statute. And so, I cannot quantify it because we are 
not there, but there is definitely a risk there.
    I will say that our Criminal Investigation division is 
best-in-class, and they are engaged with us with respect to the 
planning on this. And you know, we will work from a deterrence 
perspective, but we will also chase those who come in 
unlawfully.
    Senator Grassley. And my last question will have to be 
this: the current IRS private debt collection program was 
established in 2015 on a bipartisan basis to collect tax debts 
that are due but are not currently being worked by the IRS. The 
program has proven its ability to collect hundreds of millions 
of dollars in otherwise uncollectible tax debt on an annual 
basis, including generating nearly half a billion dollars in 
net revenue in 2020.
    However, I was recently informed that the contractors of 
the program were told IRS decided to delay the delivery of the 
new cases until the end of September.
    Do you agree this program has allowed tax debts to be 
collected that otherwise would not have been? And can you 
assure me that the program will continue to be operated on the 
full extent required under law?
    And the reason for the question--and I will quickly stop--
is that you know the program was put on hold by the previous 
Obama administration but is now operating and bringing in 
money, and I would hope that does not happen again.
    Commissioner Rettig. I have about 18 months left in my term 
as Commissioner. I am a believer in the private debt 
collectors. We have a high degree of oversight with respect to 
the companies that are doing this. There are three companies. 
They have a 600,000 case backload at present. We are providing 
1,000 to 1,500 updates to them, addresses and evidence of 
activity for folks that they have to collect. And overall, I 
think it has worked well.
    We do work with them so that they do not overly breach. 
There are a lot of rules in the country generally, and also 
with respect to tax collection. And so we watch all of that, 
and we have teams that do that.
    The Chairman. Thank you, Senator Grassley.
    Our next questioner will be Senator Menendez, on the web.
    Senator Menendez. Thank you, Mr. Chairman.
    Commissioner, I appreciate the work that you and all of 
those public employees at the IRS have done, incredible work, 
despite having their funding undermined for years by 
congressional Republicans.
    The IRS budget shrank by 20 percent, resulting in 20 
percent of its workforce being laid off over the last 10 years. 
Now middle-class families and small businesses bear the brunt 
of the IRS customer service problems. Wealthy individuals and 
large corporations are all too happy to take advantage of the 
IRS's limitations.
    Indeed, according to a recent study by the National Bureau 
of Economic Research, the top 1 percent of households do not 
report nearly 21 percent of their income. Overall, some experts 
estimate that the agency has missed out on $630 billion in tax 
revenue in just 2020 alone.
    Now, I certainly do not blame you for the tax gap. That 
problem is rooted in the chronic underfunding of a budget for a 
decade. It is estimated that for every dollar invested in the 
IRS, the agency brings back $7 to our Treasury.
    So, Commissioner, would the agency be able to better pursue 
corporations and high-income earners that are cheating the tax 
system if the agency's budget was increased?
    Commissioner Rettig. The IRS absolutely needs more 
resources across all lanes of the Internal Revenue Service. And 
you know, we do get out-gunned. There is no other way to say 
it. We are using our resources--I am confident, and I can 
assure you we are using our resources to the absolute best of 
our ability. It is not a dedication or a people issue. It is a 
numbers issue.
    We have about 6,500 front-line revenue agents who handle 
the most complex, sophisticated individual and corporate 
matters. Substantially every one of them is dedicated to either 
high-income individuals, the most egregious cases, or the 
largest corporations.
    Senator Menendez. So then it is a resource problem. Who 
pays the price of tax evasion by the very wealthy and large 
corporations?
    Commissioner Rettig. Well ultimately, you know, if people 
are not paying their fair share, it is borne by the other 
people who are paying their fair share.
    Senator Menendez. Yes, and that is overwhelmingly middle-
class and working families. I certainly believe that we can do 
better by giving the resources to the agency so that everybody 
pays their fair share and there is not a disproportionate 
burden.
    Let me ask you--I included into law a provision that gives 
immediate relief to those whose student loans have been 
forgiven during the pandemic through 2025. Do you think that 
most borrowers who had their student loans forgiven would be 
aware that their debt relief would be considered taxable 
income, if it were not for the Student Loan Tax Relief Act?
    Commissioner Rettig. Hit and miss, probably. If you are 
asking me a percentage, maybe 30 or 40 percent. I know a lot of 
folks from those programs who went to professional schools and 
whatnot, from my time on the outside, and many people are not 
aware that debt forgiveness is a taxable item for them.
    But you know, I would speculate 30 or 40 percent. I really 
cannot identify it. But certainly many are not aware.
    Senator Menendez. And finally, I agree with you that many 
are not. And we have seen cases who got debt relief and then 
got a $7,000 tax bill. So I am glad we were able to get this 
provision into law to create the relief from that being a 
taxable event.
    Our colleagues on the committee--Chairman Wyden and 
Senators Brown and Bennet and others--have been very active 
about the CTC provisions of the American Rescue Plan that have 
a historic enhancement that can cut child poverty in half.
    Commissioner, could you provide us with an update on the 
progress you are making on implementing the expanded and 
enhanced Child Tax Credit, and where your agency is on 
providing recurring advance refund payments?
    Commissioner Rettig. As I indicated to Senator Grassley, we 
put together working groups. We have put together working 
groups within our counsel, within our IT, within wage and 
investment, to determine the requirements, to determine the 
legal abilities, to determine our ability to do certain things; 
what is the most user-friendly path to launching? And we fully 
anticipate to launch by July 1st, which is the statutorily 
mandated date.
    Senator Menendez. All right; I will look forward to seeing 
that happen. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Menendez.
    Next in the queue--Senator Thune asked that we wait--would 
be Senator Carper on the web--excuse me, in person. And then he 
will be followed by Senator Portman. I did not see you, Senator 
Carper. You are next.
    Senator Carper. Good morning, Mr. Chairman, and to our 
ranking member, and to my colleagues. It is good to see you.
    Commissioner, the last time you were before us that I 
remember, I think your wife was with us. She's a native of 
South Vietnam, a place where I served in the Southeast Asian 
Vietnam War, and we send her a warm welcome. Tell her we say 
thanks for sharing you with us, especially to find time to be 
with us today. I believe you have a son who is an Army doc, and 
I think he is on his way to Fort Benning----
    Commissioner Rettig. He was just promoted to Major. We are 
very proud of him.
    Senator Carper. Tell him we said navy salutes army.
    We have been talking with our colleagues about the need at 
the IRS for resources that include people, that include 
technology, that include money. And we have heard several of my 
colleagues who have said that for every dollar that we provide 
in additional resources to the IRS, the payback to the Treasury 
is something like 7 bucks.
    When I was elected to the House of Representatives a 
million years ago, I think Chuck Grassley had just been elected 
to the U.S. Senate. And I think Senator Wyden and I served 
together for a number of years in the House. And those are 
years when we measured the Federal deficit in terms of tens of 
billions of dollars a year--tens of billions of dollars a year.
    Today we measure the Federal deficit in terms of like 
trillions of dollars a year, trillions of dollars a year. And 
when you tell us, and you have--and the President has said this 
as well in his budget offering--that for every dollar in 
additional resources we provide to the IRS, we get an extra 6 
or 7 bucks in revenue to the Treasury, we need every buck that 
we can bring into the Treasury.
    The thing that we lose track of a little bit is, in 
addition to reducing this enormous deficit, there is a problem 
with providing good service. And we make the tax code more 
complicated every year, and we say to you and the folks who 
work for you, ``Deal with this. Provide good constituent 
service.'' So how, by providing additional resources, will it 
actually help us on that side?
    Commissioner Rettig. The service is a component of the tax 
gap as well, because the enforcement side supports the 
taxpayers who comply. And you know the deterrent effect of 
enforcement helps keep the honest people more honest.
    On the service side, the easiest category to identify is 
what we refer to as level of service, which is our telephone 
service. We currently have 13,760 folks online answering the 
phones. Only 3 percent of them were telework-eligible before we 
went into the pandemic; 100 percent of them are telework-
eligible today. And that was not only important for the 
pandemic, but when we ran into cold weather, we did not skip a 
beat.
    But the easily identifiable number there, when people are 
looking at our budget, is every 10-percent increase in level of 
service, so each 10 percent--out of 10 calls to answer one more 
globally--for the IRS, is $100 million. So we want a 30-percent 
increase; that would be $300 million.
    What we are caught in now is, the budget is appropriated 
for level of service, and this budget was, as I said earlier, 
determined pre-pandemic, pre-EIP1, 2, and 3, and our call 
volumes have gone up between 2 and 4 times, depending on the 
time of service. And we have 13,760--Congress did appropriate 
1,000 more in the last budget. It takes us 14 weeks to train 
those folks. They will be coming onboard in the summer.
    Senator Carper. I have a question for the record. You and I 
talked on the phone about the IRS's Free File program, which 
allows people, for free, to get help in filing their taxes. And 
I am going to ask you to, for the record, provide that 
response, to share your views with us on the future of the Free 
File program, what can be done to make this program more widely 
used and more effective.
    The other thing I would ask you to respond to, for the 
record, is, we have four committees that have jurisdiction over 
surface transportation legislation, and one of those is the 
Environment and Public Works Committee. The others include the 
Banking Committee, which has transit; the Commerce Committee, 
which has rail and safety; and this committee, whose 
responsibility is to figure out how to pay for things.
    The gas and diesel tax in this country has not been raised, 
I think, since 1993. We have been stuck at 18 cents per gallon 
on gasoline, 24 cents a gallon on diesel. Meanwhile, we have 
seen the shortfall for monies we provide through the user fees 
for roads, highways, bridges, and so forth, transit, that has 
now ballooned to like hundreds of billions of dollars.
    I am interested in exploring, for the record, a response 
from the IRS. If the gas and diesel tax were raised maybe about 
a penny a quarter, a penny per quarter, starting in the next 
calendar year, 4 cents over a year, for a number of years, is 
there some way to somehow rebate that money, approximately, to 
families whose savings income is below median family income? 
Could you use the tax code to do that?
    I do not expect you to do this on the fly, but I want you 
to talk with your folks about it. The administration has 
expressed a reluctance to do anything that affects folks whose 
income is under $400,000 a year, raising user fees like this. 
And my response is, you mean somebody who is making $300,000 a 
year should not have to help pay for our roads, highways, and 
bridges?
    I am looking for ways that we could possibly use the tax 
code to rebate to families below a certain income level and 
make them whole. If you can do that for the record, I would be 
most grateful.
    Commissioner Rettig. We will take a look.
    The Chairman. I thank my colleague.
    Senator Portman is next.
    Senator Portman. Thank you, Chairman Wyden. And, 
Commissioner, I really appreciate your being here and, more 
importantly, what you and your team have done over the past 
year. I know it has been a big challenge for you, including 
workforce challenges you have had with COVID, and people 
working remotely, and also being asked to do so much by us, 
including the direct payments and CTC changes and others.
    I appreciate your staying in touch with us. On the tax gap, 
I was intrigued hearing earlier the comments from Chairman 
Wyden and other members of the committee. I think this is a 
great opportunity, and it has always been kind of a 
frustration, you know--how do you get at it?
    You mentioned more electronic filing. That is happening. 
That should make it easier. As you know, we exceeded our 
expectations on that. You also mentioned information reporting 
to help close it. We are working on a cryptocurrency bill which 
would define cryptocurrency for tax purposes and try to provide 
appropriate reporting rules.
    Can you give us any specific suggestions on what reporting 
would be helpful on the cryptocurrency side, and would that 
help in closing the tax gap?
    Commissioner Rettig. Absolutely, reporting with respect to 
cryptocurrencies would be important. I think it is noteworthy, 
if you go back and you look at the 2019 Form 1040, I was 
instrumental in adding a provision--together with Diane Grant, 
who is here with me today--adding a provision in there asking 
the question, did you have transactions in cryptocurrency? That 
got on, because of timing, it got on a schedule further in. But 
on the 2020 Form 1040, right under the address portion, is a 
cryptocurrency question similar to the FBAR question. It is a 
yes/no question.
    So visibility--and we could give you a lot of guidance from 
what we see with respect to areas in the crypto world. It is 
replicating itself constantly. And so now we have these non-
fungible tokens, which are essentially collectables in the 
crypto world. These are not visible items by design. The crypto 
world is not visible.
    I will say, in the criminal context, the IRS Criminal 
Investigation Cyber Crimes Unit has been spectacular operating 
in the dark web, engaging with cryptocurrency-related 
transactions. So we have a lot of experience there.
    Senator Portman. Great. We would like your input on it and 
to get some technical advice. We are working on the bill; it is 
meant to be bipartisan and something that can help to close the 
tax gap in that area. Obviously there are a lot of other issues 
related to cash businesses, and frankly going to the issue of 
modernization. Back many years ago when I was working on IRS 
reform, I remember getting this call from a constituent saying, 
``I had to wait on the line for 45 minutes. I am not going to 
keep waiting on the line that long.'' And here we are again, 
waiting on the line for 45 minutes, and therefore this 
individual chose not to file.
    So part of the modernization efforts that we have been 
trying to undertake is about closing that gap as well. Do you 
agree with that? And let me ask you specifically about what 
happened with the filing season in 2019.
    We still have people who filed paper returns who have not 
heard. And this is tough for them. One is actually a cousin of 
a Tax Court judge who happens to live in Ohio, who calls every 
couple of months and says, ``You know, I've got to have my 
certification from the IRS that I have at least filed my tax 
return, because you cannot get a mortgage.'' In some cases, 
people are not getting their refunds, because some people who 
file by paper do actually expect a refund, and they have not 
been able to get it.
    It has caused a lot of complications. And some have 
received this CP-59 notice for failing to file a tax return, 
even though they filed it over a year ago. So I know you have 
made some progress in reducing the mail backlog, but 
unfortunately a large delay still exists. What do you plan to 
do to mitigate the impact on these taxpayers? And how does this 
delay impact the processing of the 2020 returns with these same 
individuals?
    Commissioner Rettig. We have about 1.7 million returns 
still in process that were filed prior to January 1st of 2021. 
Those for the most part will be 2019 returns filed in 2020.
    We are current with respect to our mail. At one point we 
had over 20 million pieces of unopened mail. We are current, 
and that standard is actually right around a million pieces of 
mail. We always have substantial mail.
    As far as processing returns, it is all hands on deck in 
our submission processing. We have mandatory overtime, split 
shifts, dual shifts, mandatory weekends, processing as quickly 
as we can. And we expect to get through this--you know, the 
term that we use, fortunately or unfortunately, is summer.
    Being a lawyer on the outside, I used to categorize things 
and say, ``Well, that is kind of a lawyer answer.'' It is, 
because summer could be May or it could be September. I can 
just assure you that we are giving it our best.
    Folks who did not get an EIP who have not had their 2019 
return filed, must file a 2020 return to get the EIP. And we 
have a lot of avenues to help them with that.
    Senator Portman. Well on that, in particular, we have heard 
from constituents who cannot file electronically in 2020 
because they do not have the Adjusted Gross Income from 2019, 
because they have not received from the IRS the processed 
return.
    So it does look like your 2020 filing season as well. So I 
appreciate you throwing a lot at it. I think you should let us 
know what more we can do to be helpful, because this is causing 
real heartburn for people.
    On the modernization effort--and this is an issue that you 
and I have talked about--one thing we got into legislation in 
2019 was to have an Independent Office of Appeals. There is a 
concern about the independence of that office. It is that the 
IRS employees, particularly during COVID, did not have the 
ability to have video conferences. Often they were held by 
telephone, making it more difficult. And there are other 
concerns that they are not following the rules of independence 
that we laid out in that legislation.
    How is the IRS protecting taxpayer data as employees work 
from home? And what technology is the IRS using to allow IRS 
employees to review but not retain protected taxpayer data such 
as trade secrets?
    Commissioner Rettig. As you can imagine, because we are one 
of the largest data warehouses on the planet--other than maybe 
a few organizations that probably do not have an identity--but 
because of that, we collect data from everybody who does 
business in the United States, as well as every American.
    So we take to heart the protection and security of the data 
that we do have. Tying that into the Independent Office of 
Appeals, I also, from the outside, worked with Appeals for 36 
years. I truly respect the independence of Appeals. Most 
matters that are not resolved in exam are actually resolved 
inside Appeals. And the training and effort--every employee 
could not become telework-eligible because every employee did 
not have a particular secluded area maybe at their home, or did 
not have broadband, did not have this or that.
    So the ability to telework, work from home, and 
particularly to use accessed taxpayer data, was determined on 
an individual basis, based on the employee's circumstances. We 
do have employees who we could not get into----
    The Chairman. We are going to have to move on, Senator 
Portman.
    Senator Portman. Thanks, Mr. Chairman.
    The Chairman. I look forward to following up with you.
    Senator Cardin, on the web.
    Senator Cardin. Thank you, Mr. Chairman. And, Commissioner, 
thank you for your service, and thank you for being before our 
committee.
    You have heard so many of our colleagues talk about the tax 
gap, which is shocking--a trillion dollars. That is obviously 
of concern to every member of our committee.
    I want to question on the other end. That is, those who are 
entitled to benefits under the tax code but have a hard time 
accessing those benefits. Some use paid tax preparers. Others 
are having a hard time getting through the requirements in 
order to get the qualifications. The Earned Income Tax Credit 
is more challenging than it was before.
    I regret that we were not able--and I know the chairman 
worked very hard on this--to give you back the regulatory power 
in regards to paid tax preparers. But can you just share with 
us your concern as to being able to protect some of our most 
vulnerable taxpayers without the ability to regulate the paid 
tax preparers?
    Commissioner Rettig. We absolutely need the ability to 
regulate paid tax preparers--and we talk in terms of the most 
vulnerable taxpayers, the EITC recipients, individuals living 
in different communities, and also in ethnic communities, 
individuals who are challenged with the English language. Some 
of the preparers--you know, they look to somebody, or if they 
are in fear of the U.S. Government, they look to somebody who 
might have a comfort factor there, and it is not at all unusual 
for those individuals, the taxpayers, to be taken advantage of.
    In the EITC context, 51 percent of the EITC returns are 
prepared by preparers. A majority of the mistakes--the mistakes 
made by preparers in the EITC context--are significantly 
greater than mistakes made by individuals who prepare their own 
EITC returns. Individuals generally know whether a child 
resided with them or not for more than 6 months. They generally 
know whether they provided more than half of the support. 
Preparers, in certain contexts, certain preparers take 
advantage of the situation.
    If you look at the Criminal Investigation cases that we 
refer to the Department of Justice, the vast majority are of 
preparers. And in the last year, IRS Criminal Investigation ran 
450 undercover operations. Many of those were posing as 
taxpayers in the preparer community. And many of those led to 
referrals to the Department of Justice for prosecution.
    So without regulation of paid preparers, it is very 
difficult for us to monitor them. And most preparers, 
obviously, it goes without saying, are amazing and help the tax 
administration in this country. They provide comments to you. 
They provide comments to us. But there is definitely an element 
out there, as there would be in any type of a community, that 
takes advantage. And we need to go after that element. And 
without regulation, we are left with either criminal cases or 
civil fines, which are a much more complex thing.
    Regulation gives us the ability to preclude them from 
interacting with the Internal Revenue Service, essentially 
precluding them from having the ability to prepare returns. We 
absolutely need that ability.
    Senator Cardin. You know, Mr. Chairman, you have expressed, 
and we have all expressed concerns about the accuracy of the 
applications for the Earned Income Tax Credit and others. And I 
think what the Commissioner is telling us is, a lot of this 
rests with the paid tax preparers.
    So I would hope that we will once again try to find a 
bipartisan way forward to provide reasonable authority to the 
IRS to regulate tax preparers. It is in the consumer's 
interest. It is also in the taxpayers' interest that we do 
this.
    Mr. Commissioner, I want to ask you one additional 
question, if I might, and that is about your outreach to the 
underserved communities. We have the VITA programs. What are 
you doing in order to try to assist those who find it more 
challenging to get services from government to deal with our 
tax code?
    Commissioner Rettig. Well we, with respect to this last 
year, opened up the Low-Income Taxpayer Clinics to actually 
prepare returns. Obviously, we have the VITA sites.
    We partnered with more than 11,000 different organizations 
during the past year with respect to EIPs in filing season. We 
partnered with over 400 homeless shelters to be able to have 
what we call trusted partners to receive information for 
unsheltered homeless individuals.
    We did a historic launch in the language area for the first 
time in history. The Form 1040--the Form 1040 for 2020--is in 
English and Spanish. Individuals who call in to our phone 
service get translation services in up to 350 different 
languages.
    And if I might add one more point, the 2020 1040 has a 
Schedule LEP, Limited English Proficiency. An individual can 
check one of 20 boxes as to what language they would like us to 
communicate with them in writing.
    So far, we have received over 220,000 of those forms 
completed. And I give this--the benefit of all this is IRS 
employees. I opened those doors on languages. As you know, I am 
sensitive to the communities. I opened those doors, and our 
employees went through with passion and were really creative 
and dedicated.
    Senator Cardin. I would just ask you, as you request 
additional funds, if additional funds are needed to reach 
underserved communities, I hope that is part of your request.
    So thank you, Mr. Chairman.
    Commissioner Rettig. Absolutely. Thank you, sir.
    The Chairman. Thank you, Senator Cardin. And thank you for 
all your leadership on the tax preparer question, which is 
hugely important to protecting consumers.
    Senator Whitehouse is next.
    Senator Whitehouse. Thank you, Mr. Chairman. Commissioner, 
it is good to have you here.
    When you were here for your confirmation, I asked you about 
the 501(c)(3), 501(c)(4) reporting problem. As you know, a lot 
of these organizations report that they have nothing to do with 
politics when they file with the IRS, consistent with IRS 
regulations. And then they turn up in election filings at the 
Federal and State level with tens of millions of dollars 
claimed in spending in political races.
    That would seem to be a pretty flagrant predicate for a 
false-statement investigation, and yet we have a failure in the 
government between your organization and the Department of 
Justice.
    The Department of Justice will not look at these flagrant, 
obvious predicated false statement concerns without a referral 
from the IRS. I have a separate problem with the Department of 
Justice over that policy, which I think is idiotic.
    But setting their problems aside, on the IRS side, have you 
made any referrals since you have been here for any of these 
discrepancies in reporting out of 501(c)(3)s and particularly 
501(c)(4)s?
    Commissioner Rettig. I don't have that data, but I will get 
you that data. But I will say that----
    Senator Whitehouse. Would you mind telling me when, because 
I have a very long record of executive agencies saying that 
they will get me things, and then never doing it.
    Commissioner Rettig. I will let you know this week when we 
know.
    Senator Whitehouse. Great, thanks.
    Commissioner Rettig. And our office will get back to you. 
But people should not assume that we are not doing something 
just because it is not visible.
    Senator Whitehouse. Okay; well, that is what I want to find 
out. Because I think this referral policy is a mutually 
agreeable situation between DOJ and IRS where powerful special 
interests get to get away with things, and neither organization 
has to deal with any backlash because you do not make 
referrals, and they demand referrals. And to me that is just 
not appropriate when you are seeing public reporting showing 
what seems to be really strong predication for a false-
statement case. Because both of these statements are filed 
under oath, and both are different. And it is hard to see how 
both can be true.
    On to the Treasury IG for Tax Administration report. The IG 
said that wealthy taxpayers are paying 39 percent of what they 
owe; that $2.4 billion in revenue was lost to the Federal 
Government as a result; that this is not a collection priority 
for your collection folks; that there is no strategy to address 
nonpayment by high-income taxpayers; and the Treasury IG for 
Tax Administration made a number of recommendations, and you 
rejected five of them.
    Can you tell me why?
    Commissioner Rettig. I think, one, I disagree with their 
report entirely, and I am more than willing to have a 
discussion with you separately about that, or anybody else, 
with respect to sometimes what might be in those reports.
    But I would draw your attention to the management report 
there. And I think that the statement that high-income non-
filers are not a priority is absolutely false.
    Senator Whitehouse. All right. Well, I would love to see 
that, because you are the first person who has----
    Commissioner Rettig. I will meet with you personally and 
walk you through it, and I will bring our team.
    Senator Whitehouse. Great. No, I would love to see some 
evidence of that, because all the evidence seems to be the 
exact opposite way: that you are more likely to get audited if 
you get an Earned Income Tax Credit as a very poor person----
    Commissioner Rettig. That is false.
    Senator Whitehouse [continuing]. Than you are to be audited 
if you are a very wealthy person surrounded by lawyers.
    Commissioner Rettig. 2019's Data Book, page 34, Table 17-A: 
high-income taxpayers are audited more than any other taxpayer 
there; over 8 percent of the people over $10 million. In EITC 
folks, it is 1.12 percent. And those are actually hard 
statistics. We are about ready to issue the 2020 data book----
    Senator Whitehouse. I want to get to the bottom of this 
with you.
    Commissioner Rettig. I am more than willing to come and sit 
with you on that as well, sir.
    Senator Whitehouse. The last topic is that Congress, on a 
bipartisan basis--much thanks to the leadership of Senator 
Crapo, the ranking member on this committee--passed a new law 
obliging shell corporations to report their true beneficial 
owner to FinCEN at the Treasury so that we can look behind the 
screen of these corporations and see what criminals, tax 
evaders, foreign kleptocrats, and other evildoers are up to 
using the American corporate shield as their device.
    Could you give us--in my last minute here--an overview of 
what you are doing to implement that new law?
    Commissioner Rettig. We have teams that, when legislation 
passes, they do it. But the real implementation happens in the 
trenches. It is our front-line employees, so, training the 
employees on new legislation, and having them go seek. Our 
struggle, as you are aware, is our front-line agents, which are 
the examiner revenue agents, who are our most highly capable 
employees. We only have 6,500 of them, and they are fully 
deployed in the high-wealth context.
    In terms of organizations and nonprofits--that is tax-
exempt government entities--I think the committee is aware that 
our Deputy Commissioner of Services Enforcement, Sunita Lough, 
just moved over to TEGE, and she has a strong history with 
TEGE. She was formerly a Commissioner in TEGE, and I would 
encourage you to invite us up for briefings in that space.
    Senator Whitehouse. All right. It sounds like, at this 
point, the implementation is primarily in the training of 
front-line----
    Commissioner Rettig. No, I would not say that. It takes us 
a while to train, but it is not just in the training. It is in 
the----
    Senator Whitehouse. What else? For instance, have you got a 
link of some kind with FinCEN so that you can make appropriate 
requests when it bumps into the----
    Commissioner Rettig. I will have somebody brief you on 
exactly what is happening there. That is not something that I 
am directly involved in, as you are aware.
    Senator Whitehouse. That ends my questioning and my time, 
but, Mr. Chairman and Mr. Ranking Member, this may be something 
that, given the bipartisan support and interest in this 
committee in getting this shell corporation problem solved, 
should perhaps be done as a committee-wide briefing so that 
everybody has the chance to understand what is going on to 
enforce the law that we passed.
    I am happy to take the briefing myself, but I think it is 
probably going to be of interest to all of the--or a great many 
of our members.
    The Chairman. I will follow up with the ranking member on 
that. And the point really is--and the Commissioner is seeing 
this--there is a connection between these issues. We are seeing 
huge tax gaps. We are seeing the question of the shell 
companies. We are seeing how modern crooks are constantly being 
more inventive and have better resources than the people who 
are trying to catch them when they abuse the laws. So we have a 
lot of heavy lifting to do here.
    Commissioner Rettig. We are fully supportive of that.
    The Chairman. We appreciate that.
    And Senator Cassidy, I believe, is going to be next on the 
web.
    Senator Cassidy. Can you hear me, Mr. Chairman?
    The Chairman. Yes.
    Senator Cassidy. Okay. Mr. Commissioner, thank you very 
much for your service and for the service of all the Treasury 
Department employees. Thank you for what you all are doing.
    One thing that I proposed is that in Louisiana, with our 
geography, we tend to get more hurricanes than almost anybody 
else, maybe more than anybody else, and almost every time there 
is a major disaster in whatever stage it occurs, there is going 
to be some tax provision that allows disaster tax relief.
    My question is, I propose making this permanent. Would it 
help the IRS if, as opposed to waiting until it is passed to 
then implement, if you knew that once there was a federally 
declared disaster of some magnitude, that you would immediately 
begin to click into the implementation of this? I am maybe 
begging the answer, but I still think it is important for the 
record.
    Commissioner Rettig. Yes, I think you are begging the 
answer a little bit. Everybody should know that we monitor 
legislation. We plan for that legislation. And when there are 
multiple bills pending and they start to merge, our planning 
merges. And that is why--I think it is obviously clear--we are 
able to launch our activities as quickly as we are.
    So you know, we would be supportive. We have to follow the 
law. We cannot launch until there is actually a law that 
supports our ability to do so.
    Senator Cassidy. So if the law was in place then--granted, 
the efficiency of your staff somehow overcomes it--but if the 
law was in place, obviously you could launch before, because 
the law would already be in place. And I do not think I am 
begging that answer; I think I am just pointing out the 
obvious.
    Commissioner Rettig. Correct.
    Senator Cassidy. Going to a different issue, in May of 
2020, Senator Brown and I introduced legislation to ensure that 
lower-
income families impacted by the coronavirus outbreak could use 
their wages reported in the 2019 tax return to determine their 
eligibility for the EITC and the CTC on their 2020. This was 
included in the December 2020 relief bill.
    Can you just give me an update on what IRS has done to make 
sure that folks will know they are eligible for this relief?
    Commissioner Rettig. Yes; again our outreach, I think, has 
been more significant than any outreach by the IRS, possibly 
than any Federal agency in history. Unfortunately, as a Federal 
agency, sometimes when we think we are doing great, if we put 
something for example on irs.gov, or we issue notices, there 
sometimes tends to be a belief that folks might actually look 
there. But in this context during 2020, as I indicated earlier, 
we partnered with over 11,000 different organizations. We 
partnered with every other Federal agency. We partnered with 
HUD, and aggressively so, in terms of getting the word out, 
getting forms out, getting instructions out.
    We had people on the ground throughout the country in 511 
different offices, and our folks started coming back in June. I 
did shut it down in March, but our folks started coming back in 
June. And the vast majority of people who had a reason to be in 
the office, who could not otherwise telework, were in our 
facilities.
    Senator Cassidy. Got it. Let me ask you one more thing--we 
talked about it yesterday on the phone--the stimulus checks for 
prisoners. Last year when Congress passed the CARES Act, IRS 
determined prisoners were not eligible.
    As we spoke about, the 9th Circuit ruled otherwise. I 
proposed an amendment in this latest COVID relief package to 
prevent those who have been convicted of a crime and sentenced, 
and currently are incarcerated, from receiving stimulus checks. 
Surprisingly, that turned out to be partisan, with every 
Democrat opposing not giving a check to a rapist or a murderer 
or a terrorist. It was just the most amazing thing. But I 
recently saw press reports indicating that prisoners in some 
States had received debit cards which were unusable and had to 
be replaced. Knowing that the IRS is somewhat stretched thin, 
there are some folks in my State still waiting on their 
stimulus check.
    So I guess, what are the priorities here? Replacing the 
debit cards for the inmates or getting folks who are not 
incarcerated their stimulus checks? It is just kind of amazing 
that we are giving them to prisoners anyway. And are there 
administrative challenges to providing stimulus checks for 
prisoners that take up IRS resources that could be used for 
other purposes?
    Commissioner Rettig. First, Secretary Mnuchin is the one 
who made the policy decision on not paying prisoners last year, 
and then we reversed that when the 9th Circuit--excuse me, when 
the District Court ruled against us.
    With respect to the debit cards, I think as most people 
know, we actually do the files. We deliver the files to the 
Bureau of Physical Services to determine--for unbanked people, 
they determine whether it is a check or a debit card. Those 
debit cards should not have been issued by the BSF to 
prisoners. There is a note on the individual's forms that 
indicates that. And those debit cards came back and will be 
replaced by checks.
    And as far as the decision or the policy on prisoners 
receiving or not receiving, we are only a tax administrator. 
But the individuals could file a 2020 return. There is a 
separate issue with, for prisoners having access to the 2020 
return, having access to the online ability.
    We are distributing over 200,000 simplified Form 1040 
packages to over 200 different prison institutions in the 
country to facilitate their ability to file 2020 returns.
    The Chairman. I thank my colleague. Senators obviously have 
a hectic schedule this morning. The order now is Senator 
Cantwell, Senator Brown, and Senator Lankford for the next 
three questioners.
    Senator Cantwell?
    Senator Cantwell. Good morning, Commissioner.
    Commissioner Rettig. Good morning.
    Senator Cantwell. Commissioner Rettig, I appreciate you 
being here today and all your hard work, particularly in such a 
busy season. I know you already know that you are receiving, or 
have received, a letter from myself and Senator Toomey about 
the tax season payment, wishing that the first quarter 
estimated tax payment deadline would be extended to 
individuals.
    We do not get this difference between individual filers and 
estimated filers, and the confusion that we think is being 
caused. And so do you have a comment about the letter? I mean, 
you do have the ability to do this, correct?
    Commissioner Rettig. It would be a Treasury call, and I 
have not received the letter. I am obviously familiar with the 
issue, and we will not be extending the estimated payment 
beyond April 15th----
    Senator Cantwell. Well, if it is a Treasury call, then why 
are you saying that?
    Commissioner Rettig. Because we are working with Treasury. 
Obviously the first call was made with Treasury, and this call 
was made with Treasury. And I am a bureau of Treasury 
supervised by the Secretary.
    Senator Cantwell. I think I understand that. So we will 
take it up with the Secretary of the Treasury then as well, and 
the White House, because, look, this makes no sense.
    You have mom and pop businesses that have a hard time 
anyway complying with complex regulations. And now we make it 
seem like they do not have to file until May. But then all of a 
sudden, they start the process and they realize that, oh, they 
were supposed to make a payment anyway.
    And so this, I think, is confusing. I think it is 
unnecessarily confusing. You also probably have some 1099 
individuals who are not--you know, if you talk about the gig 
worker--also really not sophisticated tax filers, and they are 
also confused by this deadline.
    So the deadline that is May 17th, but really requires 
people to do something beforehand is, I think, at least for 
this segment of the population, confusing. I just do not get 
it. I just do not get why we are creating this level of 
uncertainty in this environment, particularly when there are 
probably other complexities related to the COVID packages and 
what people might have done in the COVID packages.
    So then you create more work for yourself later in the 
process when people overpaid or underpaid, and then we have to 
figure that out later. I don't know, it just seems to me that 
it adds to a lot of confusion when we could be saying to 
everybody, ``The deadline is May 17th; that is the deadline.''
    Commissioner Rettig. There are numerous other deadlines 
that were not extended. The only deadline that was extended was 
the filing of the Form 1040 and affected taxpayers associated 
with the 1040. We did not extend any other deadlines.
    Last year was different. This year is different.
    Senator Cantwell. I think, Mr. Chairman--personally, I 
think Senator Toomey and I have a well-founded point, 
particularly as it relates to small businesses and the 
confusion.
    I have certainly heard from lots of people in the State of 
Washington over this. I am sure we will hear more about it 
later. So I certainly will push my case to continuation with 
the rest of Treasury and the administration.
    Thank you, Mr. Chairman--oh, one other question, actually, 
since I have a minute here. I want to understand--the IRS 
recently put out proposed regulations on income averaging which 
create a set-aside test that operates completely differently 
than the other set-aside tests within the Low-Income Housing 
Tax Credit.
    So I am concerned about that. I understand there was a 
hearing on this in March and would like to know if the IRS is 
considering any changes to the income averaging regulations to 
bring them more in line with other LIHTC set-aside tests?
    Commissioner Rettig. I do not have the updated information 
at the hearing, but we will brief you or your staff, and do 
that in short order.
    Senator Cantwell. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Cantwell.
    Senator Brown, you are next on the web.
    [No response.]
    The Chairman. And then Senator Lankford is next, while we 
wait for Senator Brown. Senator Lankford?
    Senator Lankford. Thank you. Thank you, Mr. Chairman.
    Mr. Rettig, thanks for all the work. There is a lot going 
on, to say the least. The IRS is being tapped right now to send 
checks when you are really designed to be able to receive taxes 
and be able to process those efficiently.
    There is a tremendous backlog right now that you are 
working through, I understand. Can you give us an update on the 
backlog, on the mail coming in and what the status is for being 
able to answer mail? We still get a tremendous amount of calls 
from people saying they are calling the office, trying to get 
through as well. So help us understand the status on that.
    Commissioner Rettig. We are current on our mail, which 
means that we have a more typical backlog, which is about a 
million pieces of mail being processed.
    In terms of returns, we have about 1.7 million returns that 
came in during 2020. And that is a priority for us to get 
through those returns.
    In terms of level of service and the phone calls, the 
volume of inbounds has probably gone up as much as four times, 
depending upon the time of the day. I think I might have 
indicated earlier that we have received as many as 1,500--one 
thousand, five hundred--phone calls per second on some of the 
days.
    Our irs.gov has had over 1 billion hits in calendar year 
2021. And one of the issues is that the level of service, and 
the staffing, and whatnot inherent with that is determined 
about 2 years in advance, and it is an appropriated item.
    We did get budget to bring on board 1,000 people from the 
last act, and those people are in training. It takes 14 weeks 
to train them, to get them on the phones, because obviously, 
somebody who is trained is better on the phones than somebody 
who is not trained.
    So all I can really say is, we appreciate the patience and 
understanding of everyone. We are operating, I used the term 
earlier, at ``all hands on deck.'' We are doing that 
everywhere.
    For a lot of these activities, we cannot take somebody from 
one position and move them to another one. One, we need them in 
that position; two, they might not be trained. But what we have 
done, where people have moved off of a certain position and 
they were previously trained, we have taken those folks back 
into that position to try to do our best. And we get it, that 
it is far from perfect.
    Senator Lankford. All right; that is helpful to be able to 
get the update and be able to get that out.
    Economic Impact Payments, when they went out last year, 
individuals who received those checks were fine, they received 
those; others who did not receive them for whatever reason, 
they had to then file for them on their taxes.
    What I am finding from some of my constituents now is they 
file it on their taxes, and if they have outstanding debt, that 
debt is being withdrawn. They are calling our office and 
saying, ``If I received the check, then I would have just 
received the entire thing. If there was other debt that was 
outstanding, it is being withdrawn from it.'' Can you help to 
provide any clarity there?
    Commissioner Rettig. Yes, that is the--there are certain 
provisions in certain areas that allow for an offset as far as 
the EIPs with respect to tax debt. EIP1 was different than 
EIP2, and EIP3 was different than EIP1 and EIP2. You know, 
individuals should reach out to us if they are in that 
situation, but essentially we are following the law. We are 
trying to do our best. Where we can exercise discretion, we are 
exercising discretion.
    Senator Lankford. Let me ask about cryptocurrency. I have 
had folks who have asked about a very confusing aspect of our 
law, and again what I want to try to get from you is, what 
clarity is needed on this? Any time a cryptocurrency is cashed 
in or changed into a fiat currency, it is a taxable event 
because it is property that is actually moving into that.
    What would you suggest is the best place to be able to get 
information? And what do we need to do in Congress to be able 
to deal with the cryptocurrency issues, and to be able to 
clarify what is a taxable event, a nontaxable event, and how 
they can actually manage that?
    Commissioner Rettig. Yes, we have issued some guidance. We 
will continue to issue guidance and work with Treasury with 
respect to the issuance of guidance. And you know, it is not 
too dissimilar than other property-type issues and the 
interests that people have.
    There is some uniqueness to it, you know, in terms of split 
forks and such. But by and large, it is there. In terms of 
assisting us in that arena, obviously information reporting 
would be significant and huge in helping us, going forward. 
That is kind of a universal answer for us on our behalf, but it 
definitely works. More information reporting assists us in tax 
administration.
    Senator Lankford. What would that look like for you to get 
more information reporting for that?
    Commissioner Rettig. 1099s.
    Senator Lankford. For each of those events?
    Commissioner Rettig. If they are electronically filed, yes. 
Paper filed, we might trim it down.
    Senator Lankford. Obviously, lots of folks use 
cryptocurrency for a lot of transactions, just in their daily 
or regular life--it may not be daily, it may be monthly, it may 
be weekly even, for different events. So you would consider 
each of those a 1099 taxable event?
    Commissioner Rettig. I am saying 1099s. I am not saying 
that they are taxable events. You can have transfers. You can 
split. You can do a lot of different things that are not 
taxable events. That is the guidance that we need to issue, and 
that is between us and Treasury to get that guidance out. But I 
think we have issued a considerable amount of guidance, 
considering the volume of crypto that is out there.
    Senator Lankford. Okay. Thank you. Thank you, Mr. Chairman.
    The Chairman. I thank my colleague. The next three 
questioners will be Senator Brown, Senator Casey, and I see 
Senator Daines--the next three.
    Senator Brown, on the web.
    Senator Brown. Thank you, Mr. Chairman. I hate to go before 
Bob Casey on his birthday, but you called on me, so I will.
    Commissioner, first of all I want to start by saying 
``thank you'' to your outstanding employees at the IRS. You and 
your workers, the professionals at the IRS, have withstood 
years of budget cuts, then the pandemic, and a Congress that 
keeps giving you more and more work to do, even right in the 
middle of a filing season.
    The IRS has been under-resourced for years. You have my 
commitment to get you the resources you need--I know Chairman 
Wyden cares about that--to hold corporations accountable for 
taxes they owe; getting working families the tax returns they 
need, including that they have earned, including the 
significant expansion of the Earned Income Tax Credit and the 
Child Tax Credit we passed in the American Rescue Plan, 
including monthly distributions as we talked about, 
Commissioner, of the CTC. The expectation from me and from 
Senator Bennet, especially on this committee, and other members 
of Congress, is the distribution will start going out monthly 
starting in July.
    My question is simple: is the IRS on track for monthly 
payments starting in July?
    Commissioner Rettig. We are. If we end up not being on 
track for some unforeseen situation, we will advise you and the 
committee.
    Senator Brown. Thank you for that, Commissioner.
    On a related note, I want to address the alarmism we hear 
from some of my friends across the aisle about improper 
payments with the EITC and the CTC. That alarm ignores the 
billions in revenue we are losing out on from corporations and 
wealthy people who use every trick in the book to try to get 
out of paying their fair share.
    I remind my colleagues, we have already passed the set of 
program integrity measures with their support in 2015, as part 
of the PATH Act. There are two additional bipartisan measures 
we can take to reduce improper payments and make sure Americans 
get the refunds they have earned. One of them Senator Cardin 
mentioned--I thank him for leading that effort--is regulating 
paid tax preparers. Just to follow up on that question, would 
we see fewer improper payments if IRS could set minimum 
competency standards for paid tax preparers?
    Commissioner Rettig. I believe absolutely, yes.
    Senator Brown. Thank you. And I appreciate our private 
conversation last week about that. As I run out of time, I will 
raise another bipartisan way to ensure more accurate returns, 
by supporting VITA, the Volunteer Income Tax Assistance 
program. VITA has a 94-percent accuracy rate, as you know, 
Commissioner. If you want an accurate EITC or CTC return 
prepared, have it done by a VITA volunteer.
    Commissioner, I know that VITA is stretched thinner than 
ever. Will you use part of the IRS funding from the American 
Rescue Plan to support VITA through the calendar year to help 
families get their stimulus checks and their Child Tax Credit?
    Commissioner Rettig. VITA is an appropriated item, and we 
are using every resource, including numerous IRS employees who 
volunteer for VITA. I just got an email yesterday from an 
employee expressing her pride at the volume of folks coming in 
to do returns and getting EIPs out. She said that over 98 
percent of the ones that she has done returns for have received 
their EIPs, and she is very proud to participate in that. And 
that goes throughout our agency.
    Senator Brown. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Brown, and especially for 
recognizing our wonderful volunteers. That is such an 
incredible asset right now. Senator Daines--no, excuse me, 
Senator Casey is next, and then Senator Daines.
    Senator Casey?
    Senator Casey. Mr. Chairman, thanks very much. And I want 
to thank you, Mr. Chairman, for the work that you did working 
with Senator Brown, Senator Bennet, and others on the expansion 
of the Child Tax Credit, and so many other provisions in the 
Rescue Plan that relate to children and seniors. I know we have 
more work to do, but I want to commend and salute your work.
    Some of the questions that I will raise to the Commissioner 
are critically important to the people of Pennsylvania, as the 
Commissioner knows, and I want to thank the Commissioner not 
only for his public service, but for spending the time 
recently, as he did, with so many members, to meet with us, 
with me and my team, and to discuss some of the challenges that 
Pennsylvanians are facing in tax filing.
    We understand--or at least I have some sense of the tasks 
that your team has undertaken this past year. I have in the 
past, and will continue to advocate for the IRS to have the 
resources available to fulfill its responsibilities to 
taxpayers.
    My office, as the Commissioner knows, has heard from 
Pennsylvanians whose returns have been referred to the Error 
Resolution System, but have not received communication from the 
IRS as to why their return was flagged, or how to correct their 
return.
    So I would start with this question, Commissioner. Can you 
explain the steps that the IRS is taking now to ensure 
taxpayers understand why, why their returns are being flagged?
    Commissioner Rettig. We have done a fairly--again, IRS-
speak, you know, maybe not in the private sector or other 
people--but for us, we believe we have done a pretty fair 
amount of outreach, and we continue to do so.
    In terms of the Error Resolution Service, historically it 
has been about a 3- to 5-day process. It is currently running 
about 10 to 14 days. We currently have an inventory of about 1 
million--exceeding 1 million, but about a million matters 
there.
    Where we could, in other arenas we have actually 
transshipped physical items and returns to other campuses. I 
think as everybody knows, the Error Resolution System operates 
out of Kansas City.
    The top five issues of why returns are in there, just 
quickly, are return recovery rebate matching EIP1 and EIP2 
against their RRC claim; the EITC with people who elected for 
2019 as opposed to 2020; the additional Child Care Credit they 
claim on the return does not match the information that we 
have; EITC math errors; and the last one is that they received 
a premium tax credit but they did not file the Form 8962. And 
for individuals who do their own returns, the software actually 
requests that.
    But those have been the most prevalent, and they are fairly 
consistent across the board as to what is pulling returns out, 
and Error Resolution System is a manual process. And we have 
put as many folks in there as we can. We get it, and those need 
to be processed. We are doing the best we can. That does not 
mean that we are doing well, but we are doing the best we can.
    Senator Casey. Well, Commissioner, thanks for your 
attention to that issue.
    I wanted to make reference to a report in March in The 
Washington Post. The Post reported that a caller was told by an 
IRS call center agent that over 7 million returns were sent 
into the Error Resolution System to, quote, ``buy time,'' 
unquote.
    I would ask, just by way of follow-up, can you share how 
the number of returns being routed to Error Resolution this 
filing season compares to previous years? And also, a second 
question is, what is the IRS plan to resolve this?
    Commissioner Rettig. First, let me just say, we do not do 
something to ``buy time.'' If somebody gave that comment, they 
did not know what they were saying and should not be working 
for the Internal Revenue Service.
    We are a service organization on behalf of the people in 
this country, and that is just outrageous. Nobody should say 
that. We do our best. We have processes, and those processes 
are in place.
    In terms of Error Resolution, historically we did not have 
issues with respect to individuals who could elect, say in this 
year, 2019, as opposed to 2020, for their EITC. We did not have 
the matching with respect to the EIP1, EIP2, and the return 
recovery rebate.
    Those are the top two of the five most prevalent issues as 
to why things get into ERS. And you know, it has certainly 
increased the volume. If you want a year-to-date item, I do not 
have that present, but I certainly could give it to you. But 
you know, we got hit with a couple of additional issues. We got 
hit with the pandemic. We got hit with staffing issues, and we 
have had difficulty hiring during this period of time.
    And we are hiring, for anybody who might be watching and 
listening. And on behalf of every member of the committee, now 
or at other times, I would encourage and invite you to visit 
some of our facilities. Our employees would very much like to 
see you, the ones who are on-site. And you know, it is quite 
meaningful when people do show up.
    We have had people show up, you know. Members of Congress 
show up at some of our facilities, and it does help the 
motivation of our employees.
    Senator Casey. Commissioner, thank you very much.
    Thanks, Mr. Chairman.
    The Chairman. I thank our colleague. And if it did not come 
through, a big ``happy birthday'' to our friend.
    Our next questioner will be Steve Daines.
    Senator Daines. Thanks, Mr. Chairman.
    Commissioner Rettig, thank you for being here today. As 
Montana's U.S. Senator, and bringing 28 years of private-sector 
experience to this job, I truly believe we are here to serve 
and not to be served. I believe it very important that 
government works to make life easier for Montanans, and all 
Americans, on issues they are facing every day. For example, 
paying taxes.
    A Montanan from Billings brought an issue to my attention 
that I would like to briefly discuss. This individual lost his 
mother in January of 2020, and only then found out that she had 
not filed taxes for fiscal years 2017, 2018, and 2019, due to 
the fact she was ill. He completed and mailed the returns to 
the IRS in April of 2020, so about a year ago. This Montanan is 
trying to close out the estate. However, he cannot do so until 
he receives the refunds as a result of filing these tax 
returns.
    The IRS is not showing they received the returns. My office 
submitted copies of these returns to the IRS to ensure that 
they had them. I have heard from other Montanans who have e-
filed returns that are not showing up in the IRS system as 
having been received. And in some instances, this backlog has 
prevented individuals from even receiving their Economic Impact 
Payments.
    A question, Commissioner Rettig--and I thank you for your 
passion in the comments you made about service; I think that is 
really important in the role that you have, and we all have. 
Could you provide any sort of timetable for when the IRS might 
fully clear out its mail backlog and help Montanans who are 
navigating through tough situations like this constituent from 
Billings?
    Commissioner Rettig. Our mail is current. We have a million 
pieces of mail. We get about a million to a million and a half 
pieces of mail per week, and we work through a million to a 
million and a half pieces of mail per week.
    Obviously, we are a large operation in terms of that. So 
our mail is current. On the matters that you referenced, I 
would encourage your staff to reach out to me, or to my staff, 
and I think pretty much everybody on the committee has my 
cellphone. I have handed that out to members of the committee 
with the intent that you do so, and feel free to use it to me, 
and also the Deputy Commissioner Jeff Tribiano, because items 
that seem unusually long--and certainly April seems unusually 
long with respect to the estate--we will have somebody look 
into that.
    Senator Daines. I appreciate that, and the Montanans as 
well, and we will do that. We will follow up. Thanks for that 
open door.
    Switching gears, I want to talk briefly about conservation 
easements. This is something that we talked about on the phone 
last week. I was glad to see it mentioned in your written 
testimony. Thank you.
    Senator Stabenow and I will soon reintroduce our Charitable 
Conservation Easement Program Integrity Act, which seeks to 
restore faith in this very valuable conservation incentive by 
cracking down on these abusive syndicated conservation easement 
transactions.
    Montana in fact is the national leader in the number of 
acres under conservation easement, with over 2.6 million acres 
conserved by these voluntary agreements. That is a big reason 
why I am very passionate about eliminating the abuse, these bad 
actors that are taking this tax deduction.
    Could you provide a brief update of where things stand with 
syndicated conservation easements, for instance: approximately 
how many cases has the IRS prosecuted?
    Commissioner Rettig. By a head count, we have 28,000 
taxpayers under examination in those easements. We have cases 
in Tax Court. We have cases in various other courts. We have 
cases on IRS appeals. You know, we have in excess--well, for 
tax years 2016, 2017, and 2018, we had about $21 billion of 
deductions that we do not believe people are entitled to.
    We will soon have information with respect to 2019. I know 
the committee has held hearings in the space of syndicated 
conservation easements. We have criminal matters--we recently 
received two guilty pleas down in Georgia from some advisors.
    We have just announced this week somebody agreed to a 
lifetime injunction to preclude themselves from the ability to 
participate in these. We have quite a few cases, civil and 
criminal, with respect to advisors and others. But really to 
get through it, I think most people would say we absolutely 
need legislation. The legislation has been pending. We would 
certainly like to work with members of Congress on legislation 
and administrability of such legislation.
    Senator Daines. What is your sense of approximately what it 
might cost the IRS to litigate these cases one by one? It has 
to be a very costly endeavor.
    Commissioner Rettig. It is absolutely hundreds of thousands 
of dollars. We are up against people who are funding litigation 
to the extent of millions and millions of dollars per case.
    Senator Daines. And do you think these resources could be 
put to use elsewhere, if legislation like the Charitable 
Conservation Easement Program Integrity Act is signed into law?
    Commissioner Rettig. There is no shortage of places for the 
IRS to put its resources. We are resource-challenged. So in 
this space, we have many hundreds of employees, from lawyers 
down through agents and everybody in between, plus support 
folks. And you know, it just needs to be stopped.
    Senator Daines. Thank you. And I want to thank you, 
Commissioner Rettig. Please pass along my gratitude to your 
workforce, which I know has been working very, very hard in the 
past 12 months under difficult circumstances.
    Commissioner Rettig. I appreciate that.
    Senator Daines. Thank you.
    The Chairman. I thank my colleague.
    And next will be Senator Warner, who I think is going to be 
questioning on the web. Senator Warner, are you out there in 
cyberspace?
    Senator Warner. Yes, I am, Mr. Chairman; thank you.
    The Chairman. Great.
    Senator Warner. Let me follow up, pick up from where my 
colleague, Senator Daines, just left off.
    Commissioner, thank you and your workforce. I know, with 
the pandemic, with the stimulus payments being sent out, it has 
been an incredibly challenging year. And I am going to take you 
up on your invitation to go out and visit the workforce.
    I know--I think Senator Casey tried to ask you though, 
because we are both still hearing from a number of constituents 
who are concerned about the fact of 2019 tax returns still not 
being processed. I believe Senator Casey asked if you had any 
idea of the backlog. And I would be curious, how many tax 
returns prior to January 1, 2021, are still being processed? 
Can you get us that number at some point for the record?
    Commissioner Rettig. One-point-seven million.
    Senator Warner. One-point-seven? Thank you. And you had 
said, I believe, in your testimony before the House that you 
were going to try to get through this backlog by the summer. 
Are you still on track to do that?
    Commissioner Rettig. We are.
    Senator Warner. I think also, as we get into the 
President's new proposal on infrastructure and how we pay for 
it, one of the areas where there might be broad-based 
understanding is this tax gap, which I understand by some 
estimates--the National Bureau of Economic Research said it is 
about $600 billion. I understand, Commissioner, you have said 
it may be as large as a trillion dollars. I think President 
Biden has moved forward with an increased funding proposal of 
about 10 percent.
    I know former Commissioners Rossotti and Goldberg have 
argued for a more dependable multi-year income stream. Have you 
seen a proposal out there on a multi-year income stream that 
might give you and your workforce a little more assurance about 
funding that you would be willing to support?
    Commissioner Rettig. I personally, and as Commissioner of 
the Internal Revenue Service, fully support every proposal from 
every person with respect to funding. What we need is 
consistent, adequate, multi-year funding. And it needs to be 
appropriated in the right positions. And there are accounting 
financial issues as to where it needs to go so that we can get 
the best use for it.
    We proudly serve more Americans than any other 
organization, public or private. I think it is in everybody's 
best interests--and I think folks are aware that we account for 
96 percent of the gross revenue of the United States of 
America. Our last gross revenue, Fiscal 2019, was $3.56 
trillion. And when we look at the tax gap, we know that we 
could do better.
    The desire of our employees to do better is there. We need 
the tools. We need the resources. We need the staffing. We need 
the training. We need modernization. We need information 
reporting. It is a multi-faceted approach, but I believe in my 
interactions with members of the committee, I think there is 
strong bipartisan support to get us there. And I know that it 
is our responsibility to handle any funds we get efficiently 
and appropriately. And we intend to do so.
    I have invited, from before I became Commissioner, 
oversight from this committee and everybody else of any funds 
that the Internal Revenue Service gets. I see us in this 
together. Tax administration does not just belong to the 
Internal Revenue Service. It belongs to members of Congress. It 
belongs to taxpayers. It belongs to tax professionals. And I 
think we can get to a better place.
    Senator Warner. One of the things I hope to work with you 
on--and one of the disappointments in the March package we just 
completed was that we did not do the full level of IT 
modernization that, again, is not a silver bullet, but we do 
know your systems need to be upgraded.
    In my last minute, I just want to raise the issue of gig 
workers--16 million gig workers in America. I do not think we 
are going to go back to a traditional 40-hour W-2 work week for 
all workers going forward.
    One of the most important things I think we did in the 
initial CARES Act, under the chairman's leadership, was to 
expand unemployment to cover gig workers. I know in the 
American Rescue Plan we made some additional steps forward on 
making sure that those workers who make more than $600 a year, 
that employers or payers would send out 1099s.
    Commissioner, could you talk about other programs that you 
are looking at, at the IRS, and how we can deal with this 16 
million and growing contingent of the American workforce that 
does contingent or gig work, and how we can make their 
interactions with the IRS easier?
    Commissioner Rettig. Part of the issue with gig workers is 
our need for outreach, guidance, education, and the rest. And a 
lot of folks who get into a certain element of gig work, if you 
will, do so temporarily. Or it is a second job, and then they 
move on to another job, or they move on to education, and they 
do a lot of different things.
    So from that perspective, it is somewhat of a transient 
workforce. And it is difficult for us to actually connect with 
them directly when we do that. And again, you know, mainstream 
media tends to be one of the best outlets, much more so than 
irs.gov, because the average gig worker is not necessarily 
going on irs.gov to see our latest notice. And my point there 
is that it is a collective responsibility for the IRS, for 
members of Congress, as well as folks on the outside, to get 
our messages across clearly, in single syllables, and be direct 
and timely.
    And we take that to heart. And we do our best.
    Senator Warner. Thank you. Thank you, Mr. Chairman.
    The Chairman. I thank my colleague.
    Senator Young, I believe, is next on the web.
    Senator Young. Well, welcome to the committee, Commissioner 
Rettig. And thanks for taking time out of your schedule. I know 
it has been a really busy time for the IRS. You have seen your 
role greatly increase over the past year in the midst of this 
pandemic.
    Your employees have been asked to undertake all manner of 
COVID-related duties, like distributing each round of Economic 
Impact Payments to Americans, and still taking all necessary 
requirements to keep IRS employees safe amid the pandemic.
    I understand the challenges presented to the IRS, but I 
have to say, I do have deep concerns regarding the delays that 
Hoosiers continue to see over a year into this crisis. An early 
and recurring complaint that I receive from constituents 
involves the backlogs from our regional offices, namely, the 
IRS processing center in Kansas City.
    Even with the involvement of local taxpayer advocates, we 
still have constituents waiting on 2019 refunds, sometimes with 
no reason provided for the delay. Can you please explain the 
process that the IRS has adopted in order to process the 
backlog of tax returns, sir?
    Commissioner Rettig. It is our submission processing 
element of what we refer to as the Wage and Investment 
Operating Division, and as I indicated, we have all hands on 
deck. We are doing multiple shifts, mandatory overtime. We are 
doing weekends. Folks who were trained in that lane who went on 
to other positions within the Internal Revenue Service have 
been detailed back into that.
    So we have the maximum amount of folks dedicated to that. 
About 5 million returns that are in process are actually 
returns where we have asked for additional information, whether 
it is a form, or certain information in the EITC space 
verifying that, you know, children are qualifying children for 
EITC. And so we have actually sent out requests for that 
information, and that ties into our mail side. Because of those 
folks who have actually responded in paper mail--in our mail 
side of the house, our mail backlog is about a million pieces 
of mail, which is actually current. It is not a backlog. We 
average a million to a million and a half pieces of mail a 
week. And that is what we process. And ``process'' means we 
open it, and we enter it into our system, and we redirect it to 
where it needs to go.
    We are moving that as quickly as possible. I get it, and I 
am very sensitive to the fact of--you mentioned things like 
refunds and whatnot, and certainly in addition to that, refunds 
for the most vulnerable taxpayers, the EITC, CTC folks out 
there.
    I want to assure you, we are doing everything we can. There 
is a high degree of concern and dedication. And I get it that 
doing everything we can did not get somebody their payment 
earlier. But we are doing everything we can in that space. We 
have used every resource possible.
    Senator Young. Right, including addressing major 
bottlenecks. The errors department in Kansas City and the 
processing of unopened mail from over a year ago have been a 
challenge, but what I am hearing from you is, you are diverting 
resources to attend to challenges like that. Is that accurate, 
sir?
    Commissioner Rettig. We are. And we transship physical mail 
among our four different campuses for processing, specifically 
out of Kansas City into Austin, Memphis, and Ogden, to handle 
that. And the errors are now averaging about 10 to 14 days, 
where historically it was about 3 to 5 days to process.
    Senator Young. Thank you, Commissioner.
    In my remaining time, I would like to discuss an issue that 
is of great concern to me: the tax gap. As you know, the tax 
gap is the difference between the taxes legally owed and taxes 
that are actually paid.
    The gap results from individual taxpayers and businesses 
under-reporting their income, over-reporting tax-preferred 
activities, failing to file, or under-paying taxes owed.
    Mr. Commissioner, the law needs to be followed. And I think 
we should all obviously agree on that. In response to the 
chairman's questioning earlier, Mr. Commissioner, you shared 
your estimate that the tax gap could approach $1 trillion per 
year.
    Now just to re-emphasize the point, you are stating that if 
everyone paid exactly what the tax code says today, without 
increasing current tax rates, no increases in tax rates, the 
IRS would collect an additional $1 trillion every year. Is this 
correct?
    Commissioner Rettig. That is what the tax gap represents. 
But it must be acknowledged that, I think historically most 
people have indicated, with resources, the IRS could probably 
bring in 10, 15, 20 percent. I think a modernized IRS could 
actually beat that. I am just relying on historical estimates.
    But when I see--you know, I came from the private sector. 
When I see the employees and the dedication--you see it in 
their eyes, you know where their heart and soul are to try to 
get this done. Our people are equally offended by people who do 
not comply.
    And the other side of that is, they want to support those 
who do comply. And so both components of that are there. And I 
think a modernized IRS--give us the tools, give us the 
resources, let us bring on people. We are down 17,000 
enforcement people over the last decade. That has to have an 
effect, and it does.
    And you know, certain elements of society take advantage of 
an agency like ours if they think we are on our back.
    Senator Young. Well, Mr. Commissioner, I am going to follow 
up with you about that----
    Commissioner Rettig. I would appreciate that.
    Senator Young [continuing]. So I can better understand what 
constitutes a modern IRS, and how we might work together to 
address this.
    It is my understanding that high-income taxpayers account 
for most of the tax gap. Is that accurate, sir?
    Commissioner Rettig. And corporations, yes.
    Senator Young. And corporations. Why might the IRS have 
difficulties in verifying certain high-earning taxpayers' 
income to ensure that they are paying what they legally owe?
    Commissioner Rettig. If you look at the report that was 
recently published on NEBS, two IRS researchers were involved, 
and they looked at two different components. One is offshore 
and the offshore FATCA, and other components helped with 
respect to offshore. And obviously IRS ran various programs in 
the offshore arena.
    But the other area that they looked at, where we need help, 
is in pass-throughs, partnerships, S corporations; tiered 
partnerships are sometimes used to mask. You add some foreign 
elements there, you add a private foundation in there--it is 
very difficult for us to get there. We did just bring on--we 
had a hiring in the pass-through arena. We brought on more 
agents--sophisticated, experienced folks from the private 
sector--than we ever have before.
    The Chairman. Senator Young, we are just going to have to 
move on. We appreciate the areas you are looking at.
    Senator Cortez Masto is next.
    Senator Cortez Masto. Thank you, Mr. Chairman.
    Commissioner, it is good to see you again. Thanks for 
coming before the committee. As you remember, we exchanged 
letters about making sure that survivors of domestic violence 
could access their Economic Impact Payments. My letter included 
a list of steps the IRS could take to help survivors get their 
checks. And I was on telephone calls with you as well regarding 
this.
    In your last hearing before this committee, you said that 
many of the suggestions were good, and yet you have implemented 
very few of them to date. I am frustrated that your verbal 
commitment to me on this issue does not seem to match the 
agency's actions.
    So my question to you is, what are you currently doing to 
help domestic violence survivors get their Economic Impact 
Payments? And please tell me the systems you have put in place 
to help these survivors really to, not only address their 
concerns about getting this relief, but also in the future.
    Commissioner Rettig. I think you are aware, the issue on 
domestic violence victims is not in the statute for us to be 
able to peel out and make a duplicate payment to somebody if 
the abuser, if you will, received both payments and took both 
payments, and whatnot. And I know initially folks took the 
position that it is a civil matter between the abuser and the 
abuse victim.
    And I realize and am sensitive to the fact that that is not 
an appropriate answer for the victim. But as an administrative 
agency, we have limited discretion in a lot of different 
arenas. There was nothing in the EIP3 that addressed this issue 
either. And if the IRS actually had the authority to issue a 
duplicate payment for victims of domestic violence and had the 
ability to demonstrate that--and there are areas where we can 
put information in our system to identify not to share 
information belonging to one spouse with the other spouse. We 
have that ability, but we do not have the discretion to 
actually make a duplicate payment.
    Senator Cortez Masto. Well, let's--I get the fact about the 
duplicate payment. What else are you doing to address the 
concerns that we highlighted for you, now and in the future, 
for domestic violence survivors?
    Commissioner Rettig. We have guidance. We have outreach. 
Our people have been on the ground with presentations. We have 
done remote presentations through Zoom and the rest. And you 
know, I will follow up with you and get you more specifics. I 
am sensitive to your initial comments. And if that is how you 
feel, I would like to talk to you individually. I think you 
also have my cellphone, and I consider myself pretty reachable.
    Senator Cortez Masto. Commissioner, thank you. Yes, but my 
frustration is that this is the same conversation we have 
already had. And you were responsive in the sense that you got 
on the phone with me and talked about how we can work together.
    Commissioner Rettig. Maybe we can work together on 
legislation.
    Senator Cortez Masto. I hope so. Listen, I hope so.
    Let me ask you this: I understand the IRS is preparing a 
change-of-circumstances portal to allow taxpayers to update 
changes in information that determines their ability to access 
their stimulus payments, and other payments.
    Talk to me a little bit about that. What gives you the 
authority to make that change-of-circumstances portal? And what 
is that all about?
    Commissioner Rettig. That is in the statute with respect to 
the CTC, to launch by July 1st. And people who have changed 
family circumstances, or people who want to opt out of what 
will be monthly payments for the CTC, will be able to use the 
portal beginning July 1st. A challenge will be somebody who has 
changed family circumstances: they put information in there in 
July, and they are expecting their August payment to be 
different. That will be a challenge for the agency, but we will 
do our best. We will also have to messenger around that. If we 
cannot make it for the next month, we need to let people know 
that in advance. But it is in the statute.
    Senator Cortez Masto. So this potential portal could help 
survivors of domestic violence as well address some of the 
concerns that they have?
    Commissioner Rettig. As it is going to launch on July 1st. 
But let me get back to you on that. I appreciate the question.
    Senator Cortez Masto. Okay. Yes, please do. There is an 
opportunity here, and if we have to pass legislation, we will 
look at legislation. I think there are innovative ways that we 
can talk about. Across the country, Secretaries of State are 
doing innovative things about how we address survivors of 
domestic violence to make sure that they are getting access to 
the mail that they need, the information that they need. And I 
think there is a way for the IRS to do it as well. And I am 
hopeful that we can work together.
    The last thing I want is for folks at the IRS to say, ``No, 
we just do not do it that way.'' I am looking for somebody who 
is innovative, who really is looking forward and thinking, 
``Yes, maybe there is a way we could figure something out and 
look at legislation.'' I was hopeful that we would be able to 
do something when I initially contacted you years ago. So I am 
hopeful we can try to address this.
    And I really would look forward to you reaching out to some 
of the advocate groups that are out there that have been 
bringing forward these issues to really look out and fight for 
our survivors around domestic violence.
    So thank you for being here, and I will follow up with you.
    The Chairman. I thank my colleague.
    Senator Sasse is next on the web.
    Senator Sasse. Thank you, Mr. Chairman.
    Commissioner, thanks for being here. I would like to talk 
about the Employee Retention Credit that is part of the CARES 
Act--and obviously the congressional purpose in it was to 
encourage employers to keep employees on their payrolls during 
the pandemic and the lockdowns.
    In December of last year, Congress made some changes to the 
credit to try to enhance its usefulness. And one of the 
purposes there was to retroactively allow employers who took 
PPP loans to be eligible for the credit. Given the economic 
strain caused by the pandemic, it is obviously incredibly 
important that businesses are incentivized to both rehire and 
to retain their employees.
    Can you just discuss a little bit the IRS's implementation 
of this credit, as well as any efforts you are making to 
retroactively provide refunds to businesses that became 
eligible because of the December change, please?
    Commissioner Rettig. Yes. Where we can, we do recoveries. 
But with respect to the retention credit, I think that we have 
actually processed--we actually received around 56,000. I think 
we have processed about 47,000. Many of them that were rejected 
were rejected because they otherwise filed a 941. And so rather 
than getting the advance, they should have it with respect to 
the 941 itself.
    But we have been processing those as quickly as possible.
    Senator Sasse. So help me understand that on the 941 point, 
because we are hearing about this from some Nebraska 
businesses. Your number was 56,000 applied, and 47,000 got it?
    Commissioner Rettig. It was 56,017 or something like that 
received, and I think we have processed about 47,000 of those, 
which would leave a current pool, if I am correct, of about 
10,000. I will get you the specific numbers, but that is the 
number that I recollect as within the last week or so.
    Senator Sasse. Okay, but as for the 10,000, is that just a 
backlog? Or do you mean those are people who applied for it on 
both sides and they should have only applied on one?
    Commissioner Rettig. Some of the 47,000 are folks who have 
applied for both sides and were given information back 
indicating that if they have already done a 941, it comes under 
941 not the 7200. So we had that situation. And we can get you 
specifics. We have quite a bit of data here, and I know some 
other members of the committee have asked questions in this 
space as well.
    So let me get you up-to-date, accurate data as far as the 
ones that are pending, why they are pending, and then the ones 
that have been processed yet--my term would be ``rejected''--
but why they were rejected. And we should be able to provide 
that for you in short order.
    Senator Sasse. That would be great. I have three follow-up 
questions in that lane, but I will just wait for your data, 
because you are probably going to speak to what I was going to 
ask there.
    So then I will just conclude by asking, could you give us a 
bit of a status check on the interaction between you all, the 
IRS and the Small Business Administration, on whether or not we 
think we have adequately explained to small businesses and to 
their tax advisors any complications in this space? Just give 
us a status report on the interaction between the two agencies.
    Commissioner Rettig. Again, you know--let me put that in 
two pieces: one, as somebody who was in private practice for 36 
years; two, as somebody who is with the government. I think the 
government view is that we do really great with respect to 
outreach. And this is not to be disparaging of anybody in our 
communications and other departments, or of SBA, or of others, 
but we sometimes are narrowly focused on the lanes that we 
know, and the lanes that historically our agency has been in.
    And certainly, with respect to PPP and other issues that 
have come up during the pandemic, those lanes are not 
sufficient to actually get the information out to members of 
the public.
    I think we have done well in terms of outreach beyond our 
normal lanes, but I think we all would agree we could all do 
better. And we constantly try to do better. We have modified--
we have learned lessons from March of last year through June of 
last year, through September of last year, through today. We 
are doing things better. Our outreach is better. And you know, 
that is kind of what I would give it.
    And I get it on the outside why some people in certain 
lanes say, ``Hey, I just did not know this.'' And I had that in 
private practice as well. So I can only really say that we are 
trying our best. We do think, from an agency perspective, that 
we have done amazingly well. But every time somebody did not 
get something, obviously that calls out that we could do 
better.
    Senator Sasse. Thank you, sir. I am out of time, but thank 
you for being here.
    Commissioner Rettig. We will follow up.
    Senator Sasse. Thank you.
    Senator Crapo [presiding]. Thank you very much.
    And we will next move to Senator Bennet.
    Senator Bennet. Thank you, Commissioner. I do not know if 
you can see me, my video----
    Senator Crapo. We cannot see you, but we can hear--oh, 
there you are.
    Senator Bennet. Commissioner, I want to thank you for being 
here, and for your service. I also want to thank your staff for 
their incredible hard work in the last few months.
    Commissioner Rettig. We appreciate that.
    Senator Bennet. I want to go back to the Child Tax Credit. 
As you know, the American Rescue Plan today is a significant 
expansion of the Child Tax Credit modeled after my American 
Family Act I built with Senator Brown, which would cut 
childhood poverty nearly in half.
    Our bill advances payments of $250 a month per child, or 
$300 per month for children under the age of six. I had a 
meeting at the Boys and Girls Club of Pueblo, CO last week with 
parents, and I was asking them whether it was important for 
them to get these checks on a monthly basis, or whether a 
periodic payment would work for them? And not surprisingly, as 
any parent can tell you, expenses like diapers and formula and 
child care cannot wait until tax time. And monthly payments are 
particularly important during the pandemic when so many low- 
and middle-income families are experiencing significant 
challenges.
    I think Congress's intent was clear with the American 
Rescue Plan, and that was for the expanded CTC payments to be 
available monthly starting in July of this year.
    So I would ask you, Commissioner, whether you can commit to 
sending CTC payments starting in July and delivering them on a 
monthly basis?
    Commissioner Rettig. We fully expect to launch in July. We 
expect to launch with payments going out on a monthly basis. I 
think I might have commented earlier to the effect that we will 
launch the portal, that it is going to be as user-friendly as 
possible. But as we did with respect to the Non-Filers portal, 
as we did with respect to the Get My Payment portal, as we did 
with respect to pretty much every IT product that we provide 
certainly externally, we will enhance that over the course of 
probably the first 6 months, 3 to 6 months or so, to make it 
more so. We will monitor the traffic. We will monitor the 
activity. If we see people having difficulty on certain 
aspects, we will have to deal with that and monitor that.
    There is an authentication level that will be moderately 
significant. Any time we open a system to allow an individual 
to provide information as to that individual, we need certain 
levels of verification. And the more information that they are 
able to provide, the higher that level of verification needs to 
be. And so that will be one area that will certainly be 
monitored closely. But we will pay attention, and we expect to 
launch July 1st.
    Senator Bennet. I deeply appreciate that.
    Commissioner Rettig. If we are unable to do so, you will 
hear from me as well.
    Senator Bennet. That is all I was going to ask for. I 
deeply appreciate that answer, and please let us know if there 
is anything that we can do between now and then to make sure 
that we do whatever we can do to make sure you and your folks 
are successful at that.
    One of the most important steps we took in the American 
Rescue Plan was to make the Child Tax Credit fully refundable. 
As you know, previously a third of all children, 27 million 
kids, were left out of the full CTC, mostly because their 
parents earn too little to qualify for the full credit. We 
fixed that flaw for this coming year, and I sincerely hope we 
are going to make that fix permanent going forward.
    Many of these newly eligible children are in the Nation's 
most vulnerable families, families who face barriers to 
navigate, as you were just saying, our complex tax code, 
especially during the pandemic. And many of them may not have a 
filing requirement at all.
    I was worried when I heard you say in March that families 
will need to file a 2020 tax return in order to receive their 
Advance Child Tax Credit. And I was wondering whether it would 
be possible for the IRS to use information from a 2019 return, 
if they filed one, or the Social Security Administration, or 
the Veterans Administration, to locate many of these families 
and determine their eligibility.
    Are there more creative ways for us to skin this cat?
    Commissioner Rettig. We do work closely with other Federal 
agencies, and certainly I think everybody is aware, during the 
pandemic, with SSA, VA, and others. We also work with a lot of 
State agencies and others, and where we can, we try our best.
    One issue with respect to the filing of tax returns is, tax 
returns get us the information so that we know the amount of 
the credits that we are to provide by law, under both the CTC 
and the EITC, and otherwise. And without that return 
information--and certainly current information is better than 
old information.
    And in addition, banking information is critical, and 
current banking information is extremely critical.
    Senator Bennet. I appreciate that answer as well, and I 
think that the work that you are doing on the Non-Filer portal 
is going to be enormously important to answering these 
questions in a way that gets the American people the help that 
they need.
    So, Mr. Chairman, I will yield back. Thank you for having 
me.
    Senator Crapo. Thank you, Senator Bennet.
    Senator Barrasso?
    Senator Barrasso. Thank you very much, Mr. Chairman.
    Shortly after passage of the American Rescue Plan Act, I 
got an email from a constituent in Wyoming. She is a tax 
preparer, and she let her feelings be known about the inclusion 
in the bill of retroactive provisions that were implemented 
during the middle of the tax filing season.
    She had already filed taxes for some of her clients. And 
then, when you get a sudden change in the law, what she had 
done was now wrong. I know that is not your doing, that is the 
law. That is the mistake made by the way that this was passed 
through Congress. But essentially she was asking for a reading 
between the lines. Are we all nuts for doing this sort of thing 
while we have preparers all around the country who are working 
and sending in things, and clients who have signed forms that 
are now incorrect?
    You know, trying to explain that does not make it any 
better for what she is going through, or for her clients as 
well.
    So can you understand the anger that my constituents are 
experiencing, having the rules change after the work was 
completed correctly and submitted?
    Commissioner Rettig. I personally know more than 1,000 tax 
return preparers--let me just leave it at that--including my 
wife.
    Senator Barrasso. So you can appreciate the----
    Commissioner Rettig. I hear everything in the system every 
single day, in the morning, in the evening, and sometimes I get 
phone calls.
    Senator Barrasso. So in terms of the resources and manpower 
that you use at the IRS, what is the impact on your own staff 
when you have to deal with situations like this?
    Commissioner Rettig. We--I will say that the IRS as an 
agency, and the employees of the IRS, have been spectacular in 
rising to challenges. The unemployment, the exclusion, was a 
significant challenge for us. And I think that the innovation 
of our employees allowed us to be able to do something where 
people will not have to file amended returns who had already 
filed returns. And it would be easier for me to say this if I 
was on the outside, but I think that is absolutely spectacular 
of our employees, but it is absolutely a challenge. And it is 
more challenges, and more challenges, and more challenges.
    Senator Barrasso. Along those lines--Senator Cantwell 
touched on this during her questions, and I would like to add 
my support to what Senator Cantwell had to say.
    Because the Treasury Department and IRS agreed to extend 
the tax filing deadline for individuals from April 15th to May 
17th, after visiting with a number of CPAs back home, I do not 
understand the logic of the limited extension, in particular 
since the deadline to file the estimated payments was still 
left at April 15th. So, individuals who have to make estimated 
payments must virtually complete their 2020 return to determine 
what their estimated tax payment is going to be for the first 
quarter so they can get it in by this Thursday.
    So the extension to a month from now really was of no 
benefit to those taxpayers. In fact, I would argue that the 
extension created more confusion and stress for the taxpayers 
and the professionals working with them.
    So were you given an explanation by your boss, the 
Secretary of Treasury Janet Yellen, as to the logic behind not 
extending it beyond this, especially as it relates to taxpayers 
who need to file their estimated taxes?
    Commissioner Rettig. There are two ways--I was a small 
business owner on more than one occasion, different businesses 
on the outside. I grew up in a small business. My dad had a 
truck. I probably know hundreds of small business owners, and I 
probably know hundreds of tax preparers preparing returns for 
small business owners. And the issue that is being floated 
around is actually the difficulty, if you will, for small 
business owners.
    Let me give you an example of a small business owner, a 
small business owner who for calendar 2021 might have $100,000 
net profit. Over that--and I would start to argue it is no 
longer a small business owner--but if I had a $100,000 net 
profit, and I had $32,000 of taxable income, you divide that by 
4, theoretically I owe $8,000 as of April 15th.
    I file my return, Schedule C. I file that return as of May 
17th. I pay my $8,000 on May 17th. And I will do that. And the 
question that people are raising--and I have had discussions 
with members of this committee; I have had discussions with 
people in the House. And we have received substantial amounts 
of comments from people on the outside, including people inside 
organizations that are sending letters to you all disagreeing 
with the content of the letters you are receiving.
    But in the example I just gave--$100,000 net income, 
$32,000 of tax, $8,000 first quarter--I make my payment on May 
17th. People who are referring to the penalty, it is an 
interest penalty. What I owe on May 17th--if by way of calendar 
year 2021 I have not paid 90 percent of my income, my tax for 
the year is $20. So it is $8,020 if I make that payment on May 
17th; $8,000 times 3 percent for 1 month, so 112 times 3 
percent times $8,000, and I actually do not owe that $20 when I 
make my payment on May 17th.
    There is a true-up at the end of the year, and I can 
qualify. It is not based on just did I do last year's income, 
do I have that number? Section 654 of the code provides two 
alternatives.
    I will also say that a majority of small business owners 
that I am aware of are not going to make that $8,000 payment to 
the Internal Revenue Service. They are going to pay rent. They 
are going to buy chicken. They are going to buy whatever it is 
their business is, and they are going to pay what the 
equivalent would be of a 3-percent interest charge on money 
that they used in their business as working capital during the 
year. And the code allows that.
    It is an interest charge, because the taxpayer who gets 
withholding has withholding out of every single check, so they 
pay as they go. For people who are 1099 and Schedule C, the 
pay-as-you-go is, you make quarterly payments during the course 
of the year. If you fail to do so, and many people choose to 
not make those payments and retain the funds, the $8,000 in my 
example, at the end, when there is a true-up when you file your 
2021 return, you owe 3 percent on that.
    There is not a penalty on the penalty. It is an interest-
based penalty.
    The Chairman. We are just going to have to move on. We have 
additional colleagues.
    Senator Hassan is next.
    Senator Barrasso. We can follow up. Thank you.
    Senator Hassan. Good afternoon, Commissioner Rettig, and 
thank you, Mr. Chairman and Ranking Member Crapo, for holding 
this hearing.
    Commissioner Rettig, I just want to reiterate what many of 
my colleagues have said, and thank the employees of the IRS who 
are, as you point out, doing double time, overtime, and really 
trying to work their way through an enormous amount of work. So 
we are grateful to them.
    Commissioner Rettig. We appreciate those comments.
    Senator Hassan. And I really want to emphasize that.
    I want to start with following up on something Senator 
Sasse was asking you about, which was the Employee Retention 
Tax Credit, and the general awareness around it.
    The December relief package was a bipartisan bill that I 
worked on with Senator Burr and others to provide the Employee 
Retention Tax Credit to businesses that received Paycheck 
Protection Program assistance. The relief package also directed 
the IRS and Treasury to raise awareness of the tax credit among 
small businesses.
    And so you talked a little bit about some of the things you 
are doing, but we are still hearing from small businesses and 
preparers that they do not know much about it. So how can 
Congress, or members of this committee, work with you to 
increase the outreach and the awareness generally?
    Commissioner Rettig. I think the responsibility is ours to 
do the outreach, but it is not ours alone. I mean, I appreciate 
your comments for assistance from Congress, but also with 
respect to particularly local community groups. The pandemic 
has put us in touch with more local community groups--churches, 
social organizations, and whatnot--than we ever had access to.
    So they are now, if you will, on our outreach campaigns and 
participating. We have folks on the ground who participate. 
When local organizations have events, we participate on the 
ground.
    Could we do better? I believe that we could. Do I have an 
idea where we have a deficit? I do not.
    Senator Hassan. Just because my time is limited, my issue 
is not that you guys are not doing a lot----
    Commissioner Rettig. No, I get it----
    Senator Hassan. But what I am hearing is, they are not 
aware of it, right? So we want our small businesses to be able 
to use this Employee Retention Tax Credit, and we want them to 
know about it.
    So let's move on to another question. But this is an 
invitation from me and other members of the committee: we would 
be eager if there are ways that we can partner with all of you. 
It would be, I think, in everybody's interest, our 
constituents' interests, to get it done.
    I want to turn to the issue of the backlog in unprocessed 
2019 tax returns. You have heard a lot about it from members of 
this committee. I sent you a letter in January urging the IRS 
to clear the backlog of unprocessed 2019 tax returns. And 
obviously, I have been hearing from constituents, as all my 
colleagues have.
    You have discussed in your answer to Senator Portman and 
others the steps that the IRS is taking to address this 
backlog, but could you explain how or if IRS is working to 
mitigate the impact of unprocessed returns on affected 
taxpayers?
    Commissioner Rettig. We are working--we are doing 
everything we can to process--which is not the impacts on them, 
but actually processing to try to get to the ``there'' point 
sooner. And in terms of mitigation, there was an example given 
where we issued a CP59 notice. That notice was a mistake. It 
absolutely should not have been sent out. I think we issued 
about 278,000.
    We found out about that. We notified Congress. We corrected 
that. We issued corrected notices. So you know, we do have 
issues. Those are not mitigation. They are making it worse, 
right?
    Senator Hassan. Right. I mean, what I am thinking about is 
examples of somebody who cannot close an estate. They cannot 
get a mortgage. And if there are ways that the IRS can say, 
yes, this person has actually filed the return, we are 
processing--something like that that would help the taxpayer be 
able to get on with the rest of their business, right?
    Commissioner Rettig. Actually, we have 1.7 million returns 
in process that came in before January 1st. Those, our system 
is aware of. Our system has those returns, which I think is 
critical. That has not always been the case.
    Senator Hassan. Okay.
    Commissioner Rettig. You know, we have a lot of avenues for 
folks. For example, the estate, or the mortgage, or whatnot--
through the pandemic, we were doing a lot of things for folks 
in those situations. And if you become aware of that, I would 
appreciate it if you let our staff work with your staff. We 
should be able to find those and resolve them.
    Senator Hassan. Okay. Thank you.
    I also want to thank you for acknowledging the impacts that 
the IRS's dependence on legacy IT has had. I have been working 
to reduce reliance on outdated IT systems at a number of 
Federal agencies, including the IRS. They cost more to maintain 
than newer systems, while they also deliver worse service.
    So how would reducing your reliance on outdated IT systems 
at the IRS help reduce the issues with processing tax returns, 
prevent future backlogs--and I assume it would save you money 
over time.
    Commissioner Rettig. I would assume that many of you 
probably woke up sometime in the night during 2020 wondering 
whether we were going to be delivering the next day. So one 
thing is, it will get people a lot more sleep to have the 
reliability of our system.
    Our systems work. They operate. But unfortunately, they 
are--you know, we have had to build through the years systems 
on systems on systems, and ultimately the foundation cannot 
hold what we are building on those systems.
    So the ability for the IRS to be agile, to be nimble, to 
deliver services, to deliver in the enforcement arena, both 
internally and externally, is where we are headed. And I think 
collectively, including members of the committee, I think we 
all agree, it is what the people of this country deserve.
    Senator Hassan. Okay; thank you. I look forward to working 
with you on that. And I thank you, Mr. Chair. I will ask you 
another question about the Employee Retention Tax Credit for 
startups for the record. Thank you.
    The Chairman. I thank my colleague.
    Senator Warren is next.
    Senator Warren. Thank you, Mr. Chairman.
    Our tax system is rigged in favor of wealthy individuals 
and giant corporations that can use lawyers and accountants and 
lobbyists to avoid paying their fair share in taxes.
    One problem is the tax code that shields the wealthy and 
the wealth of ultra-millionaires. And I have proposed solutions 
like a wealth tax to be able to fix that. But the tax code is 
only part of the problem.
    Right now, we are not actually enforcing the laws on the 
books and catching people who fail to pay what they already 
owe, particularly the ultra-rich. The top 1 percent of 
Americans account for more than a third of all unpaid Federal 
income tax. And this adds up.
    Over the next decade, IRS will fail to collect an estimated 
$7.5 trillion in taxes owed. That is money we are leaving on 
the table under current law, money that could be invested in 
child care, education--a whole bunch of other priorities.
    So let me ask you, Commissioner Rettig. One of the best 
tools the IRS has to ensure that people are paying their taxes 
is to audit them, check their numbers, force them to pay up if 
they are cheating. But since 2010, audit rates have fallen 
nearly 60 percent overall, and they have fallen nearly 80 
percent for taxpayers with more than $10 million in income. Why 
has the audit rate fallen most sharply for the richest 
taxpayers?
    Commissioner Rettig. In the last decade, our enforcement 
personnel--we have lost 17,000 enforcement personnel. So we 
have 17,000 fewer people to do exactly what you are asking. And 
the point is, we actually have 6,500--that is our population--
who go after the high-income taxpayers, the most egregious 
cases in the corporate world.
    So if you were to add 17,000 to 6,500, I think you would 
see a reversal in those numbers. We are very hopeful. We feel 
some momentum, bipartisan momentum, for our support if we 
manage our operations effectively. But also there are amounts 
that we can absorb, and probably absorb 5,000 to 7,000 per 
year.
    We are ramping up our Human Capital office----
    Senator Warren. I appreciate that. Republicans deliberately 
targeted the IRS with budget cuts, which depleted its ability 
to enforce our tax laws. So even as the wealthy and 
corporations engineer increasingly creative tricks to game the 
system, the IRS is forced to play catch-up with an enforcement 
staff that is now 30 percent smaller than it was 10 years ago--
and a technology system that is built on computer programming 
that is nearly 60 years old.
    It is clear we need a bold investment in the IRS, which 
President Biden has called for in his infrastructure plan. And 
Chair Wyden has been a champion for more enforcement funding 
for years.
    But the solution is not just more funding. It is about more 
stable funding that is targeted toward catching the biggest 
fish and that is protected from lobbyists that try to chip away 
at that funding.
    Most of the IRS's funding is discretionary, meaning that 
Congress decides every year how much the agency should get. But 
this leaves the IRS budget unpredictable and vulnerable to 
cuts.
    By contrast, mandatory funding would provide funding on an 
ongoing basis, ensuring that the IRS has a stream of funds that 
is steady, that is predictable, that is sustained. Congress has 
provided this kind of funding for important purposes like 
preventing fraud in Medicare and Medicaid.
    So let me ask you, Commissioner Rettig, would additional 
mandatory funding, on top of what the IRS gets through the 
annual appropriations process--would that kind of mandatory 
funding strengthen the IRS's ability to go after wealthy tax 
cheats?
    Commissioner Rettig. Absolutely. Mandatory, consistent, 
adequate, multi-year funding allows us to plan appropriately. 
Every time we go into hiring, we have a concern whether we can 
actually feed those folks the next year.
    Senator Warren. Well, I am glad to hear that this would be 
helpful, because I am working on legislation to do exactly 
that. It is one of the biggest ways that the wealthy and 
corporations hide their income and avoid paying taxes by 
claiming they have much less income than they really do.
    This legislation would also require more third-party 
verification of the reported numbers, the same way that wages 
and interest are already reported to the IRS for the rest of 
us.
    Rebuilding the IRS is about making sure that we have a 
playing field that is level and making sure that we have a 
government that works for everyone.
    Thank you, Mr. Rettig. And thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Warren. I know we are 
going to be working closely together on these issues.
    So, Commissioner, just a quick comment on where we are 
going to go from here. I asked you, close to 3 hours ago, about 
the tax gap. I thought that the official estimates were just a 
fraction of what the real tax gap was. And you have delivered 
this morning, now this afternoon, a jaw-dropping figure of a 
trillion dollars annually.
    So in the budget window in the U.S. Congress, we are 
talking about $10 trillion that does not come into government 
coffers because of cheaters. That is what this means when you 
set aside all of the government lingo and the like. And the 
fact is that nurses and firefighters have to pay with every 
paycheck, and so many high flyers can get off using fancy 
accountants and lawyers to figure out how to avoid paying 
taxes. And then some just do not pay at all.
    So that is what we are dealing with here. And what I think 
was helpful, especially this morning--and by my count, about 
half of the members of the Finance Committee on both sides of 
the aisle have asked you about this, reflecting the seriousness 
of the matter--we have now broken down some of the big areas 
where taxpayers get fleeced: crypto global market cap, $2 
trillion; foreign source income; illegal source income; the top 
1 percent pass-through and offshore kind of activity. This is a 
real blueprint for where you have to go, and a number of my 
colleagues brought up constructive ideas for getting that money 
from the cheaters into the government coffers.
    The Biden administration has proposed increasing the IRS 
budget by 10 percent. I have made it clear I think that more--
and particularly targeted enforcement efforts--is necessary. 
And you know, the reality is that we are going to have to, in a 
50/50 Senate, have a bipartisan effort. And I have been talking 
with Senator Crapo about this, and my hope is, on the basis of 
the number of members who brought this up this morning, we can 
have an aggressive, proactive effort that reflects the 
seriousness of this.
    We have big debates about all kinds of future tax policy. 
How about telling people that we are really serious about going 
after the cheaters who are figuring out ways to not pay their 
taxes, when millions of law-abiding Americans are?
    So I have paid attention to your comments, especially about 
how funding for the IRS will yield substantial, like 7-, 8-fold 
amounts of revenue collected. I indicated that Senator Crapo 
and I have talked over the course of the morning about wanting 
to tackle this in a bipartisan way.
    I thank you for delivering this important wake-up call to 
this committee about the enormity of the cheating that is 
taking place in America with respect to taxes. That is what 
this morning has really been all about for me. We have a lot of 
heavy lifting to do on a variety of issues, but this has been a 
wake-up call, particularly at a time when Americans are asking 
what is going to be done to promote more fairness in the tax 
system.
    Well, I think we had a pretty good assessment of what the 
job is all about.
    So with that, the Finance Committee is going to be 
adjourned, but, Commissioner, know that we are going to be 
following up. And every year we are going to be asking, when we 
have this hearing, what has actually been accomplished to 
reduce the tax gap from the last time this was discussed. A 
trillion dollars is a big number, and we are going to want to 
see big results in the next year.
    With that, the committee is adjourned.
    [Whereupon, at 12:37 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


                Prepared Statement of Hon. Mike Crapo, 
                       a U.S. Senator From Idaho
    Thank you, Mr. Chairman, and thank you, Commissioner Rettig, for 
joining us today.

    The past 12 months have brought unprecedented challenges not only 
for the American people, but also for the Internal Revenue Service. In 
addition to its role as our Nation's tax collector, Congress has 
recently given the IRS an expanded mission and central role in 
delivering our economic recovery.

    So far, this has included distributing three rounds of over 150 
million Economic Impact Payments and implementing a variety of 
temporary tax incentives to keep employees on payroll; guaranteeing 
paid leave for employees who contract COVID-19; and helping taxpayers 
bridge the gap through the pandemic.

    Soon, it will also include the distribution of millions of advance 
payments of the Child Tax Credit, in a temporary policy that vastly 
changes the scope and mission of the IRS.

    Commissioner Rettig, I commend you and your staff for your diligent 
efforts to balance all of these competing priorities. At the same time, 
given how much is at stake for our economy and the American people, it 
is critical that we get it right. Filing season and Economic Impact 
Payment issues are the most frequent topics I hear about from Idahoans.

    I am extremely concerned about the reports of a backlog of millions 
of tax returns from last year's filing season that have not yet been 
processed. This means that millions of taxpayers are having to wait 
longer to receive their refund in the middle of a pandemic.

    Further, IRS call center wait times remain unacceptably long, and 
many taxpayers have been sent confusing automated notices indicating 
that they have not yet filed their return, when in fact it was filed 
but has not yet been processed by the IRS. Confusion has also been 
generated because of massive fraud in unemployment compensation 
programs. State workforce agencies have been taxed because the Federal 
Government tells victims of identity theft who have Federal tax issues 
to figure it out with the State agencies.

    Meanwhile, in the midst of a filing season, a brand new waiver of 
Federal taxes on unemployment compensation was passed into law, causing 
yet more confusion for filers. Today, you have the opportunity to 
explain how the IRS plans to remedy taxpayer confusion and tackle the 
backlog of prior year returns without falling further behind.

    I also have a number of concerns about the implementation of the 
Child Tax Credit advance payment program. Former Finance Committee 
Chairman Grassley and I sent you a letter a few months ago requesting 
reasonable information about the timeline of implementation, the cost 
of implementation, and how the IRS plans to tackle fraud and other 
risks associated with administration of this new program. What we 
received from your staff was untimely and unresponsive.

    Today is an opportunity for a real conversation about the timeline 
that the IRS envisions for getting the online portal up and running, 
and issuing the first advance CTC payments. The IRS must assure us that 
this implementation will not mean putting filing season on the back 
burner, nor rushing to get the payments out before we have accurate 
information from taxpayers regarding eligibility.

    To date, absent any contrary indication from the IRS, I am left 
with the impression that the aggressive July 1st payment deadline 
imposed by congressional Democrats will be challenging to meet by an 
IRS staff that is already stretched thin, without cutting corners or 
reassigning staff who should be focused on processing tax returns.

    If congressional intent was really to get these advance payments 
out at all costs, as soon as possible, then the logical approach would 
have been to simply provide an extra bonus in the Economic Impact 
Payment of each qualifying low-income child. Congress could have put 
those increased payments in the hands of those parents a month ago, 
with that approach.

    Instead, the legislation created a complicated new program for 
these periodic advance payments, with a clearly stated goal of making 
this temporary program permanent.

    With that in mind, fully setting up the required online portal, and 
equivalent secure mechanisms for those without Internet access, in 
order to ensure that any advance payments issued are both accurate and 
desired by parents, must be considered at least as much of a 
controlling priority as the requirement to begin issuing advance 
payments this summer.

    Finally, we are now approaching 2 years since Congress passed the 
Taxpayer First Act--an important bipartisan measure that will enhance 
taxpayer protections, modernize the IRS's organizational structure, and 
improve its customer service and information technology.

    Commissioner Rettig, I look forward to hearing an update today on 
the IRS's efforts to implement these reforms and usher forth a 21st-
century IRS.

    Thank you again for appearing before us today and for your tireless 
efforts on behalf of taxpayers.

                                 ______
                                 
             Prepared Statement of Hon. Charles P. Rettig, 
                 Commissioner, Internal Revenue Service
                              introduction
    Chairman Wyden, Ranking Member Crapo, and members of the committee, 
thank you for the opportunity to discuss the filing season and IRS 
operations, especially the work we have been doing to help taxpayers 
during the COVID-19 pandemic.

    I am pleased to report the 2021 filing season is going smoothly in 
terms of tax return processing and the operation of our information 
technology (IT) systems. Through April 2nd, the IRS received more than 
93.2 million individual Federal tax returns and issued more than 62.3 
million refunds totaling more than $180.2 billion. A more detailed 
discussion of the filing season is provided later in this testimony.

    At the same time, the IRS is working closely with the Treasury 
Department to implement the American Rescue Plan Act of 2021 (ARP Act) 
as quickly as possible to help the Nation's taxpayers. As part of these 
efforts, we took immediate steps to begin delivery of the third round 
of Economic Impact Payments (EIP) to millions of Americans within days 
of the legislation being signed on March 11th. Thus far, we have 
delivered about 156 million payments totaling approximately $372 
billion. The IRS is also coordinating with Treasury on another 
important provision, which provides periodic advance payments of the 
Child Tax Credit (CTC) to eligible taxpayers. The IRS will be working 
hard to deliver this program quickly and efficiently.

    Now in my third year as Commissioner, I remain extremely proud to 
be working for the IRS and excited about the future of our agency. We 
are grateful for the increased and multi-year funding that will allow 
the IRS to (i) modernize our systems, (ii) increase our workforce and 
their capabilities through a robust recruitment and training program, 
(iii) implement the provisions of the Taxpayer First Act, including 
improving the taxpayer experience, and (iv) conduct compliance 
activities that support our voluntary tax compliance system.

    My experiences as Commissioner have strengthened my belief that a 
fully functioning IRS is critical to the success of our Nation. In 
Fiscal Year (FY) 2019, the IRS collected $3.56 trillion in taxes and 
generated almost 96 percent of the funding that supports the Federal 
Government's operations. We serve and interact with more Americans than 
nearly any other public or private organization.

    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.

    I am proud that IRS employees have responded admirably to the 
COVID-19 situation by quickly facilitating financial assistance and 
administrative relief to hundreds of millions of deserving and needy 
Americans--including distributing nearly $800 billion in Economic 
Impact Payments since the spring of last year. People at the IRS 
continually demonstrate just how much they care, and how important the 
agency is to our country, by their heroic response to events over the 
past year. At the same time, the IRS remains focused on its core 
mission, striving to serve taxpayers in a manner that facilitates 
voluntary compliance by providing meaningful guidance and proper levels 
of staffing and support at points of significant taxpayer interaction.

    Given the events of the past year, we appreciate the $3.1 billion 
in additional funding we received from Congress to respond to the 
COVID-19 pandemic and implement the EIPs and other tax changes. In 
addition, our base FY 2021 funding level (excluding these additional 
resources) represents a 3.6-percent increase over FY 2020. However, it 
will take time to overcome the challenges of the past decade, and the 
agency will continue to struggle to replace employees lost through 
attrition and expand our workforce, support implementation of our 
multi-year Integrated Modernization Business Plan as designed, and 
continue enhancing meaningful service and compliance efforts that will 
earn the trust and respect of every American and improve our working 
relationships with taxpayers and others in the tax community.

    We respect and proudly serve all taxpayers, none more or less so 
than any other. We must operate from their perspective, through their 
eyes, enhancing their experiences while striving to provide clear, 
meaningful guidance and services, in the language of their choice, 
wherever possible. In support of compliant taxpayers, we must 
aggressively pursue non-compliant taxpayers by maintaining robust, 
visible civil and criminal enforcement efforts. We are making a 
difference, and we want to continue to successfully pursue our mission 
on behalf of our great country.
                    update on the 2021 filing season
    The IRS workforce navigated preparation for the 2021 filing season 
while continuing to implement COVID-related relief measures and 
delivering an extended 2020 filing season. These circumstances 
challenged our ability to make the necessary annual changes for filing 
season 2021. Nonetheless, as a result of the ongoing efforts of our 
employees, the IRS is on track to deliver a smooth filing season again 
this year.

    I'm pleased to report the filing season opened successfully on 
February 12th. To give you an idea of how well our systems performed, 
the IRS over that initial weekend received a total of 55 million 
submissions, which includes individual Federal returns along with other 
items such as State tax returns, amended returns and returns filed by 
businesses. At the peak that weekend, our IT systems enabled us to 
successfully receive 335 submissions per second.

    The February 12th opening of the filing season was slightly later 
than in previous years. The delayed start gave the IRS time to do 
additional programming and testing of our systems following the 
December 27th tax law changes that provided the second round of EIPs 
and other benefits. The additional programming and testing ensured that 
people would receive their needed tax refunds quickly, and also receive 
any remaining stimulus tax credits they might be eligible for as 
quickly as possible.

    The delay in the start of the filing season did not add any 
additional delays to refunds on returns claiming the Earned Income Tax 
Credit (EITC) or the Additional Child Tax Credit (ACTC). By law the IRS 
cannot issue these refunds before February 15th. This filing season, 
the IRS was able to issue refunds for EITC and ACTC returns on February 
16th and 18, 2021. We expect those refunds were promptly available in 
taxpayer bank accounts if they chose direct deposit and there were no 
other issues with their tax return. We encourage taxpayers to e-file 
their returns and to check the Where's My Refund online tool on IRS.gov 
or the IRS2Go app to find out their estimated refund date.

    On March 17th, Treasury and the IRS announced that the deadline for 
individuals to file Form 1040 and pay their Federal income tax has been 
extended from April 15, 2021 to May 17, 2021. IRS Notice 2021-21 
provides details on the additional tax deadlines which have been 
postponed until May 17th. After carefully considering all the options, 
the Department of the Treasury and the IRS determined a limited 2021 
filing season deadline extension for individuals filing Form 1040 to 
May 17, 2021, was in the best interest of tax administration.

    All individuals can get an automatic extension of time to file a 
Federal income tax return until October 15, 2021. Taxpayers can request 
the filing extension on paper or online, including through various free 
online tax services. They must request the filing extension on or 
before May 17, 2021. For most, the request only requires their name, 
address and Social Security number. Many States will also grant an 
extension to file a State return without requiring a form. Those 
anticipating a Federal income tax liability must also pay that 
estimated tax liability no later than May 17, 2021.

    While we recognize the desire and importance of requests to further 
extend the 2021 filing season deadline or expand the scope of the 
extension, doing so poses a significant potential risk to implementing 
the ARP Act. Additionally, it could further delay delivery of Recovery 
Rebate Credits (RRCs) and the third round of EIPs, as well as refunds--
including EITC and CTC payments--to the most vulnerable Americans.

    As part of our work on the filing season, the IRS continues to 
spread the word about EIPs by reminding people who didn't initially 
qualify for a payment--or didn't receive the full amount--that they 
should check to see if they qualify to claim the payment as an RRC. The 
EIPs represented advance payments of the RRC, and this credit can be 
claimed on the 2020 tax return, by taxpayers and by individuals who 
don't normally file. The 2020 Instructions for Forms 1040 and 1040-SR 
include a worksheet that can be used to calculate the amount of any RRC 
for which a taxpayer is eligible. Individuals are encouraged to file 
electronically to claim this credit, and most can do so at no cost with 
IRS Free File, including those who do not have a filing requirement. 
This process should not be a burdensome action for individuals, 
including those who normally do not file. We realize that delayed 
processing of some 2019 returns could affect the ability of some 
taxpayers to claim the RRC, so we are working as quickly as possible to 
process outstanding returns.

    Another important filing season reminder involves people who 
received unemployment compensation during 2020. We are working to make 
sure they understand the tax law governing unemployment benefits they 
received pursuant to U.S. law or that of a State. In general, these 
payments are taxable and must be reported as income on taxpayers' 
Federal returns. These individuals should receive Form 1099-G showing 
the amount they were paid, along with any Federal income tax they 
elected to have withheld. Since some States do not mail Form 1099-G, 
some recipients will need to get the electronic version of the form 
from their State's website.

    However, the ARP Act exempts the first $10,200 in unemployment 
compensation from Federal taxation for individuals with income below 
$150,000. For those who received unemployment benefits last year and 
have already filed their 2020 tax return, they should not file an 
amended return.

    As set forth in an IRS news release (IR-2021-71) issued on March 
31, 2021, because the change occurred after some people filed their 
taxes, the IRS will take steps in the spring and summer to make the 
appropriate change to their return which may result in a refund. The 
first refunds are expected to be made in May and will continue into the 
summer. For those taxpayers who already have filed and figured their 
tax based on the full amount of unemployment compensation, the IRS will 
determine the correct taxable amount of unemployment compensation and 
tax. Any resulting overpayment of tax will be either refunded or 
applied to other outstanding taxes owed. For those who have already 
filed, the IRS will do these recalculations, in two phases starting 
with those taxpayers eligible for the $10,200 exclusion. The IRS will 
then adjust returns for those married filing jointly taxpayers who are 
eligible for the $20,400 exclusion and others with more complex 
returns.

    There is no need for taxpayers to file an amended return unless the 
calculations make the taxpayer newly eligible for additional Federal 
credits and deductions not already included on the original tax return. 
For example, the IRS can adjust returns for those taxpayers who claimed 
the EITC (or other credits) and, because the exclusion changed the 
income level, they may now be eligible for an increase in the EITC 
amount which may result in a larger refund. However, taxpayers would 
have to file an amended return if they did not originally claim the 
EITC but now are eligible because the exclusion changed their income. 
These taxpayers may want to review their State tax returns as well.

    The IRS is also working to alert taxpayers to an identity theft 
scam involving these payments. There have been instances of criminals 
using stolen identities to fraudulently apply for and receive 
unemployment compensation. For many individuals who did not claim 
unemployment compensation last year, this issue came to light when they 
began receiving 1099-G forms with amounts they never applied for or 
received. We encourage anyone in this situation to file an accurate 
return only reporting the taxable funds they actually received, report 
this fraud to the State agency that issued the 1099-G, and ask the 
agency to issue them a corrected 1099-G showing the correct amount. 
They can also go to dol.gov/fraud for more information about how to 
reach their State workforce agency and report this type of fraud.

    During this filing season, the IRS will continue to emphasize the 
safety and health of taxpayers and our employees. For that reason, our 
face-to-face operations will continue to be limited to appointment 
services, with provision for assisting taxpayers with hardships on a 
walk-in basis. We believe that this year, it is more critical than ever 
for taxpayers and tax professionals to take advantage of e-filing and 
online and virtual services to help them with their taxes. We continue 
to encourage taxpayers to use electronic tools to the extent possible, 
including IRS.gov, where they will find a wealth of helpful 
information.

    For taxpayers who need help preparing and filing their returns, I'm 
pleased to report that the Volunteer Income Tax Assistance (VITA) and 
Tax Counseling for the Elderly (TCE) programs supported by the IRS are 
again providing free assistance to eligible individuals. I'm very proud 
of the work our VITA and TCE partners are doing during the filing 
season to help taxpayers at approximately 8,000 sites around the 
country, including military bases. This year, to ensure the health and 
safety of taxpayers and volunteers, many volunteer tax preparation 
sites are offering virtual help to taxpayers, either over the phone or 
online. Some sites still offer in-person tax help, but safety and 
social distancing will be emphasized.

    Understanding the need to plan for the future and the desire to 
maintain a safe operating environment, the IRS will continue operating 
under its current posture until further notice, and we will continue to 
follow--and where possible, exceed--applicable CDC guidelines for 
public health and safety and measures. We will continue to balance 
responding to urgent tax administration needs with doing everything 
possible to protect taxpayers and our employees.

    We appreciate the patience and understanding of taxpayers and tax 
professionals as we work to deliver the filing season during this 
challenging time. I am confident the IRS will deliver for the Nation, 
just as it has during other times of national urgency.
Phone Level of Service During the 2021 Filing Season
    An important service delivery channel, during the filing season and 
throughout the year, continues to be our toll-free telephone line, 
which constitutes one of the world's largest customer service phone 
operations. This filing season through April 2nd the IRS has received 
approximately 21.4 million taxpayer calls, with about one-third, or 
6.94 million, handled by our Customer Service Representatives (CSRs). 
The rest were calls made to lines providing automated messages 
containing helpful tax information.

    When we were submitting our Congressional Budget Justification 
level of service (LOS) estimates for the 2021 filing season last spring 
(before the pandemic, EIP1, EIP2, EIP3, partial exclusion of 
unemployment compensation, and other tax law changes emanating from 
several rounds of legislation), there was no way to predict the 
pandemic and the impact it would have on our call volume, filing 
season, and hiring. We are still working through the impacts of COVID-
19, which created staffing shortages and closures, and we have been 
experiencing a much higher-than-expected call volume coupled with an 
increase in call handling time caused by greater call complexity due to 
three rounds of EIPs and other tax law changes.

    We attempted to mitigate these issues by starting the CSR hiring 
process for the 2021 filing season earlier than normal, with the 
anticipation that the high unemployment rate throughout the country 
might result in larger applicant pools in all locations. However, this 
was not the case. We set a CSR hiring goal for FY 2021 of 5,000 CSRs 
but have encountered significant hiring challenges during the pandemic, 
including low applicant pools in some locations, delays in 
fingerprinting due to closed facilities, and delays in processing 
applicants virtually. As such, the IRS has onboarded approximately 
3,800 CSRs (our largest-ever hiring of phone assistors for a filing 
season), for a total of approximately 13,760 CSRs. We also expect to 
hire an additional 1,000 CSRs to be ready this summer with the funding 
provided in the ARP Act for implementation of the child tax credit 
changes, to address potential call volume increases. Accordingly, we 
are currently estimating a LOS for the 2021 filing season that is 
significantly less than where we want to be, and that may fluctuate 
further based on increasing call volumes.
Improving Service to Diverse Communities
    We view our efforts through the eyes and experience of those we 
proudly serve. An important way the IRS serves taxpayers during the 
filing season and throughout the year is by communicating with them in 
their most comfortable language. In preparing for the 2021 filing 
season, the IRS took important steps to further improve the amount of 
service we provide in multiple languages.

    Prior to this filing season, the IRS for years had been working to 
provide tax information in additional languages. For example, many 
pages of IRS.gov are available in Spanish, Vietnamese, Russian, Korean, 
Haitian Creole and Chinese (Simplified and Traditional), and basic tax 
information is available on the website in 20 languages. And the IRS 
continues to expand its efforts to post and link to information 
available in multiple languages on social media platforms, including 
Twitter and Instagram.

    I'm proud to say that this filing season, we are providing the Form 
1040 in Spanish for the first time. Also for the first time, the 2020 
Form 1040 will give taxpayers the opportunity to indicate whether they 
wish to be contacted in a language other than English.

    Other recent changes include making Publication 1, Your Rights as a 
Taxpayer, available in 20 languages. In addition, we have issued a new, 
streamlined version of Publication 17, Your Federal Income Tax, that is 
easier to navigate and faster to download than previous versions, and 
is now accessible on most personal electronic devices. The new 
Publication 17 is available in English, Spanish, Chinese (traditional 
and simplified), Vietnamese, Russian, and Korean.

    Additionally, taxpayers who interact with an IRS representative now 
have access to over-the-phone interpreter services in more than 350 
languages. The IRS has also recently begun inserting information about 
translation services and other multilingual options into the high-
volume notices we send out to taxpayers. Our diverse workforce is proud 
to be reflective of the diverse communities we serve.
       providing relief to taxpayers during the covid-19 pandemic
Delivering Economic Impact Payments
    While delivering last year's filing season--which was the longest 
in history--and preparing for the one now underway, IRS employees also 
worked many long hours to implement major provisions of the Coronavirus 
Aid, Relief and Economic Security (CARES) Act, including developing new 
tools and meaningful guidance to deliver the first round of EIPs in 
record time. In fact, millions of Americans started seeing EIPs show up 
in their banking accounts within 14 days after the March 27, 2020 
enactment of the CARES Act. IRS employees successfully delivered more 
than 160 million payments of nearly $275 billion in this first round of 
EIPs.

    The IRS also quickly delivered the second round of EIPs included in 
the Tax Relief Act enacted on December 27, 2020. The IRS delivered 
approximately 147 million payments totaling about $142 billion and in 
many cases, these payments started posting to bank accounts just two 
days after the law's enactment. IRS employees worked nonstop through 
the holidays to get these payments out, while remaining hard at work 
preparing for the 2021 tax filing season. I want to emphasize the 
amount of advance preparation our employees did, once it started to 
become apparent that a second round of payments would be enacted, in 
order for us to achieve such a quick turnaround.

    Another factor helping us speed the effort on the second round of 
EIPs was our ability to build off and use the data we had accumulated 
in delivering the first round. That accumulation of data again helped 
us move quickly on delivery of the third round of EIPs that began last 
month.

    The vast majority of people did not need to take any action to 
receive an EIP, either in the first or second round, and we have been 
working to ensure the same is true for the third round of EIPs. The IRS 
calculated and automatically sent the payments to taxpayers as well as 
others eligible, including many people who may not normally need to 
file returns, such as senior citizens with modest incomes, others 
receiving Social Security retirement, survivors or disability insurance 
benefits, and railroad retirees. The IRS also issued EIPs last year to 
those whose only income is from Supplemental Security Income (SSI) 
benefits and people receiving disability compensation, pension or 
survivor benefits from the Department of Veterans Affairs (VA).

    In our initial work on EIPs during the spring of 2020, the IRS 
worked cooperatively with the Social Security Administration (SSA), the 
VA, and other government agencies to pull these agencies' information 
into our systems to ensure that we could send payments to these groups 
of people without requiring them to file a return or take any other 
action. These agencies provided critical help that allowed the IRS to 
reduce the burden for these individuals, including reducing the need 
for them to seek in-person tax return preparation to file a return. 
This effort was a significant step beyond anything the IRS was able to 
do during previous stimulus efforts to help taxpayers.

    Again this year, the IRS began working with the SSA and the VA 
early on to help ensure we could deliver the latest round of EIPs as 
soon as possible to non-filers who receive Federal benefits such as 
those described above. Because information about who receives Federal 
benefits changes over time, the IRS needed these agencies to provide 
updated 2021 information, and we requested this information as quickly 
as possible so we could process the beneficiary data and make these 
automatic payments. For the first round of EIPs in the spring of 2020, 
these groups received their payments in four to six weeks after the 
CARES Act was signed into law.

    For the EIP3, we are on track to meet or surpass last year's time 
frame, and we will continue working to get these payments out to 
Federal beneficiaries as soon as possible. As of April 7th, we 
delivered more than 19 million EIP3 payments with a total value of more 
than $26 billion to Retirement, Survivors, and Disability Insurance 
(commonly referred to as ``Social Security'') program beneficiaries who 
didn't file a 2020 or 2019 return and who did not use the Non-Filers 
tool last year. We have also delivered more than 3 million payments to 
SSI beneficiaries with a total value of nearly $5 billion, and nearly 
85,000 payments with a total value of more than $119 million to 
Railroad Retirement Board beneficiaries.

    In its efforts last year to quickly deliver EIPs and provide 
information to eligible recipients, the IRS provided two new online 
tools:

        The Non-Filers tool, which was launched on IRS.gov on April 
10, 2020 and available through November 21, 2020 in both English and 
Spanish, allowed people who normally don't have a filing obligation to 
enter basic information so that they could receive their payment.

        The Get My Payment tool, which launched on IRS.gov on April 
15, 2020 and is available in English and Spanish, allows many taxpayers 
to check the status of their payment or enter their bank account 
information to receive their payment electronically, if it was not 
already provided on a 2019 or 2018 tax return or through the Non-Filers 
tool.

    Since the launch of Get My Payment, nearly 350 million successful 
status checks have been made using this tool. And nearly 15 million 
people have successfully provided their banking information, meaning 
they received their payments much more quickly via direct deposit.

    The IRS has taken significant steps to reach all potential EIP 
recipients throughout each round of EIPs. We extended our reach far 
beyond our normal contacts to many lower-income, military, veterans, 
retired, older, limited English proficient, and homeless communities 
around the country. In fact, we worked with our partners to distribute 
EIP outreach materials in 35 languages within these communities.

    We have continued to ask for assistance from hundreds of local 
community groups and religious organizations, as well as the national 
associations to which they belong, and numerous others to reach into 
their respective communities. We worked with thousands of homeless 
organizations, including more than 300 organizations that became 
``Trusted Partners'' where an unsheltered homeless individual could 
designate to receive their payment. We also expanded the authority of 
Low-Income Taxpayer Clinics (LITCs) to provide return preparation 
assistance for individuals seeking their EIPs. To support these ongoing 
efforts, we developed a special online toolkit containing helpful 
information for groups to use in identifying and getting the word out 
to people who qualify for EIPs. The toolkit, IRS Publication 5420, can 
be found on IRS.gov. We also provided information regarding a similar 
online toolkit to every member of Congress.

    Also as part of this effort, we mailed a letter in September 2020 
to millions of Americans who might be eligible, but hadn't received an 
EIP and didn't file a return for either 2018 or 2019. We obtained these 
names by performing an extensive internal analysis of records 
corresponding to individuals who did not file returns or receive 
Federal benefits and were not responsive to other EIP outreach efforts. 
These individuals did not typically have a tax return filing 
requirement but had received Forms W-2, 1099s and other third-party 
statements. We sent letters to these individuals to notify them of 
their potential eligibility as we lacked information on: whether they 
would qualify; whether they had eligible dependents; or whether an 
individual may be ineligible due to being claimed as a dependent by 
someone else.

    To help these groups, we extended the initial access to the Non-
Filers Tool five weeks to November 21, 2020. This new deadline provided 
additional time for individuals to use the tool without adversely 
affecting our work on the 2021 filing season. On November 10th we held 
National EIP Registration Day (and supported other similar events), to 
encourage people who had not received a payment to use the Non-Filers 
tool before the November 21st deadline.

    Our outreach effort during delivery of this third round of EIPs 
includes reminding people who did not receive payments in the first or 
second rounds last year that, if they qualify for them, they can 
receive those payments by filing a tax return and claiming the RRC. We 
are also encouraging these people, when filing their return, to check 
to see if they qualify to claim other tax credits, including the EITC 
and the CTC.

    The IRS has also been providing support to members of Congress who 
have been receiving inquiries from constituents about the payments. To 
help provide these answers, the IRS set up a special online ``EIP 
Mailbox'' last May to which congressional staffs could send inquiries.

    The EIP Mailbox proved even more popular than anticipated, with the 
number of emails received averaging 700 a day at first and reaching 
1,000 a day by the summer. To make sure we helped as many people as 
possible, we modified our processes and temporarily reassigned IRS 
employees to respond to these inquiries. By the time we closed the 
mailbox in December, we had received a total of more than 130,000 
inquiries and resolved an estimated 90 percent of the questions. To 
accommodate inquiries related to the second round of EIPs, we reopened 
the EIP mailbox on January 11, 2021, and it has remained open since 
then. Currently, we are receiving approximately 150 emails a day.
Implementing Business Tax Relief
    Along with EIPs for individuals, the IRS has also been working to 
make sure businesses know about important tax relief available to them, 
and we continue to provide guidance about business tax relief. This 
assistance was originally provided in COVID-relief legislation last 
year. Two important measures, the Employee Retention Credit and the 
Credit for Sick and Family Leave, have already resulted in, as of 
January 2021, credit amounts claimed on returns of nearly $10 billion. 
These measures were extended and/or modified by the ARP Act as follows:

        Credit for Sick and Family Leave. Eligible employers are 
entitled to receive a refundable (and advanceable) tax credit for the 
qualified sick leave and family leave they provide to employees dealing 
with specified health and family issues related to the coronavirus 
between April 1, 2020, and September 30, 2021.

        Employee Retention Credit. This refundable credit is designed 
to encourage businesses to keep employees on their payroll. As amended 
by the American Rescue Plan, the refundable credit is 70 percent of up 
to $10,000 in qualified wages paid by employers financially affected by 
COVID-19. Qualifying wages--including health plan expenses--are those 
paid after June 30, 2021 and before January 1, 2022. The credit was 
modified to include: eligibility for certain startup businesses; 
special rules for ``severely financially distressed employers'' that 
experienced a gross receipts reduction of more than 90 percent; and a 
5-year statute of limitations for the IRS to make an assessment of any 
amount attributable to the employee retention credit.

    In addition, for the Credit for Sick and Family Leave and the 
Employee Retention Credit, the IRS set up a system that allowed 
businesses to claim these refundable credits in advance during 2020 and 
thus have more funds available to keep their workers employed without 
having to wait to claim the credits on tax returns filed in 2021.

    Another important area where Congress provided relief involves net 
operating losses of businesses. The CARES Act includes a provision 
allowing businesses to carry back net operating losses over 5 years and 
obtain tax refunds for those years. The IRS issued Revenue Procedures 
2020-23 and 2020-24 and Notice 2020-26 to clarify this provision and 
help businesses and partnerships take advantage of the relief it 
provides.
Providing Administrative Relief and Protecting Taxpayers
    Along with implementing the CARES Act, the IRS provided significant 
administrative relief in 2020 to ease the burden on taxpayers:

        A postponement of the deadline for individuals to file Federal 
returns and pay Federal income tax from April 15, 2020, to July 15, 
2020. This relief covered all taxpayers with a tax return filing 
deadline or payment due date between April 1, 2020, and July 15, 2020. 
As noted above, this year we provided a more limited extension, 
applying to individuals filing Form 1040, to May 17, 2021.

        The IRS People First Initiative, under which we temporarily 
adjusted our processes to help people and businesses during these 
uncertain times. This included limiting certain collection and 
examination activities.

    While it has been important to the tax system, and the Nation, for 
the IRS to resume its critical tax compliance responsibilities, we 
continue to assess the wide-ranging impacts of COVID-19 and other 
difficulties people are experiencing.

    To that end, the IRS continues to offer a wide range of taxpayer 
relief options. We are:

        Doing everything we can under existing rules for immediate, 
broad-based relief from unpaid liabilities resulting from COVID-19 
issues, including those affected by IRS mail processing and 
correspondence delays;

        Removing bureaucratic barriers and expanding flexibilities to 
all taxpayers whose financial condition has been affected by COVID-19; 
and

        Balancing the relief provided against the need to serve all 
taxpayers and uphold the Nation's tax laws.

    When appropriate, the IRS can help taxpayers by abating penalties, 
extending payment plans, expanding access to installment agreements, 
and providing relief for taxpayers having difficulty meeting the terms 
of previously accepted offers to settle tax debts.

    Our new initiatives offer help in a variety of ways. Taxpayers 
without income or the ability to pay can request a temporary suspension 
of collection activity through the Currently-Not-Collectible program. 
Taxpayers with balance due amounts may qualify for installment 
agreement options with generous terms and timeframes, and taxpayers 
with existing Online Payment Agreements, or Direct Debit Installment 
Agreements can propose lower monthly payment amounts and update their 
payment due dates. Other penalty relief options include first-time 
abatement for reasonable cause.

    The IRS has also been diligently working to alert taxpayers and tax 
professionals to scams related to COVID-19, especially calls and email 
phishing attempts tied to the EIPs. The IRS and its partners throughout 
the country have been publicizing these scams.
               maintaining irs operations during covid-19
    The IRS's initial efforts to provide relief to taxpayers came 
during Filing Season 2020 and at a time when the agency had to 
temporarily scale back operations to protect the health and safety of 
both IRS employees and taxpayers. Even with our reduced operations, the 
IRS continued to successfully deliver the 2020 filing season, by 
processing electronic tax returns, issuing tax refunds, and accepting 
electronic payments.

    During COVID-19, the IRS has been using innovative approaches to 
make sure our employees can deliver on the agency's mission:

        We have set records for the number of IRS employees 
teleworking, thanks to the continued support of our Information 
Technology (IT) division;

        Our IT systems continue to perform at a high level. Our 
internal networks are supporting nearly 61,000 employees online at the 
same time, all in a secure environment;

        IT provided the equipment necessary to allow thousands of our 
customer service representatives (CSRs) to telework, which gave 
critical help to the IRS in its efforts to resume phone assistance to 
taxpayers while maintaining the safety of employees during the COVID 
pandemic;

        Our external-facing IT systems also continue to work extremely 
well in a time of increased demand, including filing season systems as 
well as IRS.gov tools; and

        We have been able to continue bringing on new employees 
through the use of a successful virtual onboarding process.

    As part of these efforts, the IRS continues to find ways to provide 
new virtual services and online tools for practitioners to ensure the 
critical work of the agency continues.

    Last summer, for example, we moved quickly to shift our Nationwide 
Tax Forums for tax professionals into an all-virtual setup rather than 
handling these in person at locations across the country. And in our 
30th year of offering the forums, I'm proud to report our virtual 
version last year still attracted more than 10,000 practitioners from 
across the country.

    Another great example is our announcement earlier this year that we 
are giving tax professionals a new online option to obtain signatures 
from individual and business clients and submit authorization forms 
electronically. This option applies to Form 2848, Power of Attorney and 
Declaration of Representative, and Form 8821, Tax Information 
Authorization. This development is an important first step in our 
ongoing efforts to expand digital options for tax professionals using 
electronic signatures and online uploads.

    New options for taxpayers include the launch last year of an 
electronic filing option for those who need to amend their income tax 
returns. Providing an online filing option for the amended individual 
income tax return--also known as Form 1040-X--has been an IRS goal for 
many years and is a major milestone for us. Electronically accepting 
Form 1040-X posed a number of unique challenges, but we succeeded 
thanks to a great deal of hard work by employees across the agency.
Resuming Operations and Answering Taxpayer Needs
    Last summer, the IRS began resuming operations for non-portable 
services, as more States and local areas also began reopening. As we 
have continued our work during this unusual period, we have been aware 
of the continuing taxpayer needs and the backlog of work at our campus 
and office locations.

    One area we have worked hard to improve upon is opening the mail. 
Because we had to scale back mail-processing functions last spring due 
to the pandemic, we developed a backlog of unprocessed paper returns 
and other mail. At one point, the backlog reached more than 20 million 
pieces. But since last summer, we have been working through this 
backlog, and we are now current.

    While working to reduce the paper backlog, we also have provided 
relief for taxpayers who sent us mail that was unopened for a period of 
time. For example:

        For people who had tax refunds affected by our closure, the 
IRS has paid interest on refunds. These payments, which can sometimes 
show up as a second deposit, averaged $18 for nearly 14 million 
taxpayers.

        For people who made a payment but where there was a delay in 
when the mail was opened, we credited people on the date the mail was 
received, not the day we processed the payment.

    As difficult as these last months have been, we have seen many 
examples of how this crisis has brought out the best in people, 
including the IRS workforce. I am proud of what our employees have 
accomplished during the pandemic. Our employees shared the same health 
and safety concerns for themselves and their families as every other 
American. However, they not only went the extra mile in doing their 
jobs; they also made a difference in their communities.

    For example, we saw IRS employees across the country doing some 
amazing things: getting out their sewing machines and creating homemade 
face masks for family members and friends; donating essentials to 
protect first responders on the front lines in their communities; and 
delivering ``care packages'' to seniors in nursing homes. During last 
summer's Feds Feed Families Campaign, employees at our Memphis Campus 
donated a record-breaking 51,800 pounds of food to the Mid-South Food 
Bank!

    Another good example of providing help during the pandemic involved 
our Criminal Investigation division. A group of 12 special agents 
deployed to Travis Air Force Base in Fairfield, CA in March 2020. They 
helped provide security and quarantine enforcement at hospitals and 
other locations, such as COVID-19 quarantine sites operated by the 
Department of Health and Human Services (the Assistant Secretary for 
Preparedness and Response and the Centers for Disease Control and 
Prevention).

    It is important to note that, in addition to their efforts during 
the pandemic, IRS employees routinely deliver in times of need for the 
Nation when disasters strike. Since 2012, more than 10,000 IRS phone 
assistors have stepped up to help take the burden off the Federal 
Emergency Management Agency's (FEMA) call centers in the aftermath of 
hurricanes and other natural disasters, answering an estimated 1.6 
million calls from storm survivors seeking help. We have also had many 
agents from our Criminal Investigation division provide their help and 
expertise during disasters. For example, in September 2020, a team of 
about two dozen special agents deployed to Oregon in support of those 
fighting wildfires in that State. More recently IRS phone assistors 
were called upon to be ready to help FEMA with respect to the weather-
related difficulties in Texas.
                        ensuring tax compliance
    Enforcement activities of the IRS affect revenues directly, through 
the collection of unpaid taxes, and indirectly, by influencing 
taxpayers' behavior. Nearly all of the IRS's funds are appropriated 
annually by Congress. Appropriations for the IRS fell by about 20 
percent (adjusted for inflation) since FY 2010. About 70 percent of the 
IRS's overall budget is for labor, and thus the decline in the overall 
IRS budget resulted in a 15-percent decline in the number of full-time 
employees at the agency (since FY 2010) and a 31-percent decline in the 
number of full-time employees working in enforcement roles (since FY 
2010). The number of examining revenue agents, who handle complex 
enforcement cases, fell by 35 percent, and field collection revenue 
officers, who manage difficult collections cases, dropped by 48 
percent. The loss of approximately 17,436 enforcement employees since 
2010 has resulted in the examination rate for individual returns 
falling by about 45 percent; for businesses with assets equal to or 
exceeding $10 million, the examination rate fell by about 72 percent.

    Despite these resource challenges, the IRS remains committed to 
having a strong, visible, robust tax enforcement presence to support 
voluntary compliance. When taxpayers file their returns, they should 
feel confident others are doing the right thing too. Enforcement of the 
tax laws is critical to ensuring fairness in our tax system. IRS 
employees who collect taxes, audit returns and investigate fraud, as 
well as tax-related identity theft, work hard throughout the year to 
enforce the tax laws while treating taxpayers fairly and respecting 
their rights. This commitment is true across our agency--our divisions 
that deal with individuals, large businesses, small businesses and 
exempt organizations are highly coordinated. In fact, the IRS's Office 
of Fraud Enforcement (OFE), which was created in March 2020, is 
actively encouraging and ensuring this coordination across IRS, 
promoting compliance, strengthening the IRS's response to fraud and 
mitigating emerging threats.

    Over the past 2 years, we have shifted significant examination 
resources and technology to increase our focus on high-income and high-
wealth taxpayers. For example, an IRS initiative announced last year 
involves improving tax compliance among high-income taxpayers by 
increasing visits to those generally with incomes above $100,000 who 
failed to file tax returns in 2018 or previous years. Substantially all 
experienced examiners--those who are the most highly trained with 
substantial accounting 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.

    As reported in the IRS's most recently published Data Book (2019), 
the exam coverage rate (closed and in-process) for Tax Year 2015 of 
taxpayers with income of $10 million or more was about 8.16 percent 
(down from almost 23.06 percent in 2010). The rate for taxpayers with 
income between $5-10 million was 4.39 percent; for those with income 
between $1-5 million was about 2.39 percent; for those with income 
between $500,000-$1 million was about 1.13 percent; and for those with 
income between $200,000-$500,000 was about 0.55 percent. The IRS 
receives more third-party information (Forms W-2s, Forms 1099, etc.) 
for taxpayers with income between $200,000-$1 million than for those 
above $1 million. These audit rates are higher than for any other 
category of individual filers. Tax Year 2015 is the last year for which 
we know the actual final audit rates, because the IRS can still open 
audits for more recent years, so the data for more recent years is not 
yet complete but we expect to see that trend generally continue with 
Tax Years 2016, 2017, and 2018.

    We also have new compliance programs addressing virtual currency 
(non-filers and filers), return preparer non-filers, those who fail to 
file Form 8300, Report of Cash Payments Over $10,000, and others. These 
programs require experienced, specialized examiners.

    Along with launching our OFE, where technical advisors provide 
fraud policy and operations support to all IRS operations, we also 
created an Office of Promoter Investigations (OPI) within the past 
year. OPI is focused on taxpayers and the promoters of abusive tax 
avoidance transactions, including abusive syndicated conservation 
easements and abusive micro-captive insurance arrangements, as well as 
the use of virtual currencies, offshore transactions and other 
transactions to inappropriately avoid or under-report tax. 
Substantially all of these transactions are engaged in by high-income 
individuals. OPI coordinates Service-wide enforcement activities, most 
often interacting with our Large Business and International division, 
our Small Business/Self-Employed division, OFE, the Office of Chief 
Counsel, and our Criminal Investigation division.

    We are also investing in our Human Capital Office to ensure that we 
can hire the necessary enforcement personnel in our priority areas, 
such as the oversight of large corporations, partnerships and other 
pass-through entities, and high-income/high-wealth taxpayers.

    The IRS is committed to pursuing those who would intentionally 
evade their tax obligations and commit fraud. We are also pursuing 
those who promote and make use of abusive tax shelters, and are 
especially concerned about certain variations, including abusive 
syndicated conservation easements and micro-captive insurance shelters. 
The IRS Office of Chief Counsel, which appointed a National Fraud 
Counsel last year, is working closely with IRS compliance officers to 
properly and fully develop cases with indicators of fraud across all 
operating divisions, in pursuit of a civil fraud penalty where 
appropriate, or for the most egregious violations, a criminal fraud 
referral. Our Criminal Investigation division also does important work 
to uncover tax fraud,

    Additionally, the IRS--in particular, the OFE and the National 
Fraud Counsel--has been focused on preventing COVID-19-related fraud 
and scams, working closely with the Small Business Administration, the 
Bureau of Fiscal Service and the Department of Justice to prevent and 
stop improper claims for tax credits and see that the unscrupulous 
individuals face appropriate civil and criminal sanctions.

    Importantly, the IRS is using technology to develop new enforcement 
tools. Our advanced data and analytic strategies allow us to catch 
instances of tax evasion that would not have been possible just a few 
years ago. We also recognize that we must evolve our enforcement 
efforts to address new types of tax fraud and criminal behavior. For 
example, the IRS has been working to ensure taxpayers with virtual 
currency transactions understand the tax laws governing virtual 
currency and meet their tax obligations. Our Criminal Investigation 
Cyber Crimes Unit has been involved in new complex types of tax 
enforcement, including: taking down the largest child exploitation site 
operating in the Dark Net utilizing virtual currencies; uncovering 
international money laundering operations involving the theft of 
virtual currencies; and the seizure of terrorism financing sites 
maintained on behalf of al Qaeda, Hamas, and ISIS.
              taxpayer first act: update on implementation
    Even during this challenging period, the IRS is meeting not only 
the immediate needs of taxpayers but is also developing an innovative 
approach to the future of tax administration that will better serve 
everyone, including those in underserved communities.

    The IRS is using its implementation of the Taxpayer First Act 
(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. In January, pursuant to 
the statutory requirement, we submitted our TFA Report to Congress. 
This report includes strategic recommendations to improve the taxpayer 
experience, employee training, and the current agency organizational 
structure. The report is the culmination of input and feedback from our 
employees, our partners in the tax community, and other stakeholders.

    I'm pleased to report that we will have strong, experienced leaders 
guiding us in our efforts to improve the taxpayer experience:

        We recently announced that Heather Maloy, a former IRS 
executive, has returned to the agency to be the new director of the 
Taxpayer First Act Office. Heather held many prominent positions while 
at the IRS, including Commissioner of our Large Business and 
International Division.

        Just 2 weeks after issuing the Report to Congress, we 
announced the creation of the Chief Taxpayer Experience Officer 
position to unify and expand efforts across the agency to serve 
taxpayers. We selected Ken Corbin, the Commissioner of our Wage and 
Investment Division for this role. With more than three decades at the 
IRS, Ken Corbin is ideally suited to lead our efforts to improve 
interactions with the IRS for taxpayers and the tax professional 
community.

    As we move forward on TFA implementation, our Enterprise Case 
Management initiative (ECM) is a major part of our Integrated 
Modernization Business plan and is a critical component in the 
implementation of long-term TFA changes. ECM will allow us to modernize 
key IRS business processes and migrate them to a common case management 
platform. This in turn will allow us to decommission as many legacy 
components and systems as possible. For our employees, implementing ECM 
will mean giving them appropriate access to a 360-degree view of a 
taxpayer's account and also support our ability to give taxpayers more 
digital options in their interactions with us. The employees who 
interact with taxpayers are helping to develop features and services 
that will best help their customers, and they have been the key to the 
success of ECM thus far.

    The Tax Exempt/Government Entities Division's (TE/GE) Exempt 
Organizations Correspondence Unit process was the first business 
process to migrate to our new ECM platform in 2020. This milestone 
transitioned paper-based processes to an electronic format that enabled 
the Correspondence Unit to work more efficiently, speeding up the 
response time to organizations that interact with TE/GE. The lessons 
learned while migrating this business process to ECM will allow us to 
build on this initial success and migrate other business processes 
quickly and efficiently in the coming years. We are currently working 
on migrating the IRS Grants Management program in time to award grants 
under the new system in 2021 to organizations participating in the VITA 
and TCE programs.

    Our progress thus far on implementation of the TFA shows how 
committed IRS employees are to serving the Nation. With our TFA Report 
guiding us, and with ongoing support and feedback from our employees 
and partners in the tax community, we will continue to make 
improvements to ensure the IRS can serve the needs of the Nation's 
taxpayers well into the future.
                               conclusion
    Chairman Wyden, Ranking Member Crapo, and members of the committee, 
thank you again for the opportunity to update you on IRS operations, 
especially our responses to the COVID-19 situation. The IRS is 
dedicated to improving service to taxpayers, modernizing its systems 
and maintaining the integrity of the tax system, while also protecting 
the health of its workers and American taxpayers.

    We believe we have made great strides over the past year and will 
continue this progress with the help of Congress, as we move the agency 
into the future. This concludes my statement, and I would be happy to 
take your questions.

                                 ______
                                 
      Questions Submitted for the Record to Hon. Charles P. Rettig
                 Questions Submitted by Hon. Ron Wyden
    Question. 26 U.S. Code Sec. 7203 makes the willful failure to file 
a tax return and failure to pay Federal income tax a crime. As you are 
aware, the Treasury Inspector General for Tax Administration (TIGTA) 
published a report last year which found that hundreds of thousands of 
high-income taxpayers did not file tax returns for tax years 2014-2016, 
collectively owing an estimated $45.7 billion in taxes to the U.S. 
Treasury. While the IRS has moved to resolve and collect revenue from 
this group, you recently told the committee that over $34 billion in 
taxes from this group of taxpayers remains uncollected.

    I am particularly concerned that IRS has not fully addressed the 
problem posed by repeat offenders, high-income non-filers with multiple 
years of unfiled tax returns. The IRS recently estimated that there are 
almost 50,000 high-income non-filers owing $7.1 billion in tax with 
multiple unfiled returns for TYs 2014 through 2016. This amount is 
likely even higher as this figure is dated and the annual amount of 
owed taxes uncollected by the IRS has only continued to increase.

    For cases involving high-income non-filers with multiple years of 
unfiled returns, has the IRS made any criminal referrals to the tax 
division of Department of Justice for the willful failure to file a tax 
return or pay estimated tax? If so, please provide the number of cases 
the IRS has referred for prosecution.

    Answer. The IRS is the sole law enforcement agency with title 26 
authority. Beyond the investigation of tax crimes associated with a 
particular taxpayer, a significant component of any IRS Criminal 
Investigation (IRS-CI) investigation is deterrence of similar conduct 
by others. The willful failure to file a return, supply information or 
pay a tax is generally a misdemeanor offense under Internal Revenue 
Code (IRC) section 7203. As a misdemeanor, violations of IRC 7203 are 
limited to a maximum 1 year term of incarceration. Historically, 
sentencing courts have imposed probation or limited terms of 
incarceration for violations of IRC 7203.

    During Fiscal Year (FY) 2014 through FY 2020, IRS-CI recommended 
approximately 134 IRC 7203 violations only to the Department of Justice 
for prosecution consideration. For that same period, we recommended 
approximately 229 IRC 7203 violations along with other felony charges 
to the Department of Justice for criminal prosecution. During FY 2014-
FY 2020, the Department of Justice indicted approximately 196 IRC 7203 
matters associated with IRS-CI prosecution recommendations and 
approximately 244 indictments for IRC 7203 violations along with other 
felony charges.

    IRS-CI's primary goal is deterrence. After considering all relevant 
options, including the allocation of limited investigative and 
prosecutorial resources, every opportunity is taken to maximize the 
impact of potential deterrence effect upon the public in deciding which 
cases to investigate and, when appropriate, which to recommend for 
prosecution to the Department of Justice. Investigations by IRS-CI are 
not public, but, generally, the filing of a Criminal Information or 
Indictment by the Department of Justice is a public document. 
Deterrence is most significant in the criminal tax context when 
unlawful conduct results in a successful prosecution followed by period 
of incarceration for those involved. To ensure that our limited 
criminal investigation resources are primarily used to further the goal 
of deterrence, IRC 7203 prosecutions are less favored than felony 
violations when pursuing criminal tax fraud.

    Question. Please describe the process and criteria used by the IRS 
to initiate a criminal investigation regarding cases involving 
taxpayers with multiple years of unfiled tax returns and significant 
amounts in unpaid taxes. Please also describe how the IRS assesses 
whether a taxpayers failure to file tax returns in multiple years is 
considered ``willful'' and criminal as described in 26 U.S. Code 
Sec. 7203.

    Answer. IRS-CI identifies taxpayers with multiple years of unfiled 
returns in a variety of ways. Many come from Internal Revenue Service 
(IRS) civil operating divisions, who make a fraud referral when in the 
course of their operations they encounter a taxpayer who has a history 
of not filing in an effort to evade their tax obligations. Other ways 
non-filing taxpayers are identified include: whistleblower filings, 
walk-in informants, complaints from law enforcement partners, spin-offs 
of existing criminal investigations, and data analytics at the field 
office level. After a potential subject is identified, IRS-CI evaluates 
the information to determine if a criminal investigation (referred to 
as a Subject Criminal Investigation) is warranted. In this process, 
referred to as a Primary Investigation, special agents use IRS records, 
interviews of the IRS employee who made the fraud referral, interviews 
of other IRS employees who had contact with the taxpayer, real estate 
public records, Department of Motor Vehicle data, other law enforcement 
records, State corporate filings, and public court records to determine 
filing requirements and the scope of the potential tax loss. During the 
Primary Investigation, no contacts are made with non-governmental, 
third-party witnesses in order to maintain taxpayer confidentiality. 
The special agent decides, based upon the information evaluated, if the 
case warrants a Subject Criminal Investigation, or should be forwarded 
to IRS civil operating divisions for civil enforcement consideration or 
closed. The initiation of a Subject Criminal Investigation requires 
approval by the Special Agent in Charge of the field office.

    The criteria used to initiate a Subject Criminal Investigation 
include, but are not limited to: if the failure to file is part of a 
broader scheme to evade taxes, the amount of tax due, the number of 
years or pattern of non-filing, any prior history of tax non-
compliance, if the subject is involved in other criminal activity, if 
the subject is in a position of trust, the complexity of the subject's 
non-compliance scheme, the number of participants in the subject's 
scheme, if the subject is promoting tax non-compliance to others, how 
prosecution will promote voluntary compliance by others, the health of 
the subject, and the likelihood of the case being prosecuted by the 
Department of Justice.

    Willfulness is an element of title 26, United States Code, 
Sec. 7203. The U.S. Supreme Court has defined willfulness in criminal 
tax violations as a ``voluntary, intentional violation of a known legal 
duty'' [United States v. Bishop, 412 U.S. 346, 360 (1973)]. Proving a 
subject's willfulness is done with direct evidence and/or 
circumstantial evidence. Direct evidence of willfulness is obtained 
through subject admissions or accomplice testimony. Circumstantial 
evidence of willfulness is determined through multiple sources, 
including but not limited to: prior tax filing history, providing 
fraudulent tax documents to financial institutions, statements to 
witnesses, soliciting cash payments, false statements on Forms W-4 
claiming exemption from taxation, specialized education or work 
experience, statements to State tax agencies, titling and movement of 
assets to place them beyond government reach, use of nominee accounts, 
and deliberate use of business entities to obfuscate beneficial 
ownership and income.

    Question. According to a recent analysis by TIGTA, a group of 
64,005 high-income taxpayers each owe over $100,000 to the IRS, with a 
total balance of over $28 billion in unpaid taxes. How many of these 
taxpayers have multiple years of unfiled returns?

    Answer. In TIGTA's final report for Audit # 2021-30-015 (``High-
Income Taxpayers Who Owe Delinquent Taxes Could Be More Effectively 
Prioritized''), it is reported in Figure 1 that as of May 2019, there 
were 64,005 taxpayers who had a balance due of at least $100,000 and 
who reported an Adjusted Gross Income (AGI) of $200,000 or more on at 
least one Form 1040, U.S. Individual Income Tax Return, filed for Tax 
Years 2013 through 2017.

    The IRS continues to select (and since tax year 2016 has selected) 
all high-income non-filers for compliance action since, including the 
taxpayers identified in this group. We estimate that almost 8 percent 
of the 64,005 taxpayers (5,120 taxpayers) have multiple unfiled returns 
where the taxpayer likely has a filing requirement.

    This estimate was derived based on an independent analysis 
conducted by IRS's Collection organization as the list of taxpayers 
corresponding to TIGTA's analysis in Audit # 2021-30-015 was not 
provided to the IRS.

                                 ______
                                 
             Questions Submitted by Hon. Michael F. Bennet
    Question. One of the most important steps we took in the American 
Rescue Plan was to make the Child Tax Credit fully refundable. 
Previously, one-third of all children--27 million kids--were left out 
of the full CTC, mostly because their parents earned too little to 
qualify for the full credit.

    We fixed that flaw for this coming year and I sincerely hope we 
will make that fix permanent going forward. Many of these newly 
eligible children are in our Nation's most vulnerable families--
families who may face barriers to navigating our complex tax code, 
especially during a pandemic. Many of them may not have a filing 
requirement at all.

    I was disappointed to hear you say in March that families will need 
to file a 2020 tax return in order to receive their advance Child Tax 
Credit payments.

    Could the IRS use its forthcoming CTC portal to collect sufficient 
information to send out payments instead of requiring them to file a 
2020 return?

    Answer. The Advance Child Tax Credit (Advance CTC) payments will be 
based on a processed tax year 2020 tax return or 2019 tax return 
(including information entered into the Non-Filer tool for Economic 
Impact Payments on irs.gov in 2020).

    Last year the IRS established a new online tool in collaboration 
with outside partners for the Economic Impact Payments. This year, IRS 
worked with its partners to develop and deliver the Non-filer Sign-up 
Tool. This tool is a new online tool designed to help eligible families 
who don't normally file tax returns register for the monthly Advance 
CTC payments scheduled to begin July 15th. This new tool provides a 
free and easy way for families who don't have a return-filing 
obligation to provide the IRS the information needed to figure and 
issue their Advance CTC payments if eligible. Often, these are families 
who receive little or no income, including those experiencing 
homelessness, the rural poor and other underserved groups. This new 
tool will be available only on irs.gov.

    This effort includes a robust outreach strategy that will inform 
eligible taxpayers about the Advance CTC payments and how they can make 
modifications as needed. The IRS has started sending letters (Letter 
6416 and 6416-A) to more than 30 million American families who, based 
on tax returns filed with the agency, may be eligible to receive 
monthly Advance CTC payments We have developed a portal for taxpayers 
to opt out of the advanced payment or provide new information that is 
relevant to determining their eligibility and advance payment amount.

    As is the case with any IRS initiative including Economic Impact 
Payments (EIPs) and the Rebate Recovery Credit (RRC), we will work with 
a broad and growing partner base to reach those individuals who may be 
eligible for the Advance CTC so that they can prepare for the 
opportunity to receive advance payments later in 2021. We have 
established relationships or built upon many existing partnerships that 
will help the IRS reach the underserved with this important information 
and communicate the necessary steps to take to access the Advance CTC. 
The IRS is exploring other outreach opportunities that may help address 
the special needs of the homeless and other hard to reach communities.

    Question. Will the IRS provide supplemental funding to enable 
volunteer income tax assistance (VITA) sites to remain open all year to 
help non-filers claim the CTC?

    Answer. The IRS is unable to provide supplemental funding to VITA 
sites. The VITA grant program is a matching program, and the partner 
sites must have the funding to match the amount of the grant. Matching 
funds are a legislative requirement. Most grant recipients have 
received their grant funds; therefore, the matching requirement has 
been met for Filing Season 2021. However, the IRS and its partners in 
non-profit organizations, churches, community groups and others will 
host events to help people who don't normally file a Federal tax return 
to register for the monthly payments.

    Question. I hope the IRS will seek support from a broad range of 
State, local, and community organizations to reach families who do not 
typically file or have trouble interacting with the IRS. What efforts 
is the IRS making engage to agencies and nonprofits that wish to 
conduct their own outreach, and what information will be shared with 
such organizations?

    Answer. For Advance CTC outreach we plan to build off and expand 
the extensive campaign we undertook for the Economic Impact Payments. 
The IRS has taken significant steps to reach all potential EIP 
recipients throughout each round of EIPs. We extended our reach far 
beyond our normal contacts to many lower-income, military, veterans, 
retired, older, limited English proficient, and homeless communities 
around the country. In fact, we worked with our partners to distribute 
EIP outreach materials in 35 languages within these communities. On May 
19th, the IRS issued a release, IR 2021-116, explaining how community 
groups can assist those taxpayers without a permanent address receive 
their payments. We also have a section on irs.gov dedicated to 
providing outreach materials on a variety of subjects to partners and 
volunteers: https://www.irs.gov/individuals/partner-and-volunteer-
resource-center.

    We have continued to ask for assistance from hundreds of local 
community groups and religious organizations, as well as the national 
associations to which they belong, and numerous others to reach into 
their respective communities. We worked with thousands of homeless 
organizations, including more than 300 organizations that became 
``Trusted Partners'' which an unsheltered homeless individual could 
designate to receive their payment. We also expanded the authority of 
Low-Income Taxpayer Clinics (LITCs) to provide return preparation 
assistance for individuals seeking their EIPs. To support these ongoing 
efforts, we developed a special online toolkit containing helpful 
information for groups to use in identifying and getting the word out 
to people who qualify for EIPs. The toolkit, IRS Publication 5420, can 
be found on irs.gov. We also provided information regarding a similar 
online toolkit to every member of Congress.

    Question. As you know, last year the IRS created a Non-Filer portal 
to help families claim their checks under the CARES Act. During last 
year's filing season hearing, you told this committee that tools like 
the Non-Filer portal are ``the future of the IRS.'' While the tool was 
not without its flaws, I was disappointed to learn that the IRS plans 
to discontinue the Non-Filer portal.

    How many households ultimately used the Non-Filer portal to access 
their stimulus payments?

    Answer. The total number of households who accessed Economic Impact 
Payments during the first round of distribution on the Non-Filers: 
Enter Payment Here Tool portal was 8,518,600.

    Question. Why did the IRS decide to discontinue the Non-Filer 
portal, despite your statement about such tools constituting ``the 
future of the IRS''?

    Answer. Last year, the IRS established a new online tool in 
collaboration with outside partners, called the Non-Filers: Enter 
Payment Info Here tool, which was launched on irs.gov on April 10, 2020 
and was available through November 21, 2020 in both English and 
Spanish, allowing people who normally don't have a filing obligation to 
enter basic information so that they could receive their EIP.

    The Non-Filers tool was designed to capture limited information 
from taxpayers who did not have a filing requirement, but who may have 
been eligible for an EIP. The information captured was used to 
determine EIP eligibility and to produce a very simple tax return with 
no income or tax liability calculated.

    The Non-Filers tool did not capture essential information about an 
individual's eligibility to claim the earned income tax credit (EITC) 
and any other refundable credits to which the taxpayer may be entitled. 
The utility only captured limited information used to determine EIP 
eligibility.

    Because of income changes in 2020, people may qualify for the EITC 
when they didn't previously. We encourage taxpayers to file a tax 
return to determine eligibility for other credits they may be entitled 
to. Taxpayers may use their 2019 earned income to figure their Earned 
Income Tax Credit if they earned more income in 2019 than in 2020. The 
same is true for the Additional Child Tax Credit. This could increase 
the credit for someone who lost their job or worked reduced hours 
because of the pandemic.

    Most taxpayers can e-file for free using IRS Free File. If they 
earned $72,000 or less during 2020 they can click ``browse'' on the 
page to review the options, or IRS Free File has a look-up tool to help 
you find an offer that best meets your needs. You can find it on 
irs.gov or the IRS2Go app. For taxpayers who need help preparing and 
filing their returns, the IRS sponsored Volunteer Income Tax Assistance 
and Tax Counseling for the Elderly volunteer sites will again provide 
free assistance, including free electronic filing, to low-income 
taxpayers, those who are older, people with disabilities and those 
whose primary language is not English. Some volunteer sites will offer 
virtual help to taxpayers in place of face-to-face assistance. This 
allows volunteers to help taxpayers over the phone or online to 
complete their returns. While virtual volunteering will be an option 
this tax season, some VITA/TCE sites will still offer in-person free 
tax help. However, safety and social distancing will be emphasized. 
Filing electronically is the fastest and most accurate way to file. The 
safest and fastest way to get a tax refund is to combine electronic 
filing with Direct Deposit.

    However, the IRS is using a similar approach for the monthly 
Advance CTC payments. The IRS worked with the Free File Alliance to 
create the Non-Filer Sign-up Tool. This tool is a new online tool 
designed to help eligible families who don't normally file tax returns 
register for the monthly Advance CTC payments scheduled to begin July 
15th. This new tool provides a free and easy way for families who don't 
have a return-filing obligation to provide the IRS the information 
needed to figure and issue their Advance CTC payments if eligible. 
Often, these are families who receive little or no income, including 
those experiencing homelessness, the rural poor and other underserved 
groups. This new tool will be available only on irs.gov.

    Question. Many low-income individuals and families don't claim 
benefits for which they're eligible, such as the EITC or CTC, because 
they face difficulty filing or accessing overburdened resources like 
VITA. Others hand over large portions of these benefits to paid 
preparers in exchange for help filing. Should the IRS build and 
maintain an easy-to-use point of access for individuals who might not 
otherwise file, as the non-filer portal was intended to be?

    Answer. The IRS cannot determine at the time of filing if the 
taxpayer has met certain key eligibility requirements for claiming the 
EITC without a qualifying child without obtaining additional 
information from the taxpayer. For example, based on the information on 
the Form 1040, the IRS cannot determine if a taxpayer can be claimed as 
a dependent on another return or if the taxpayer lived in the United 
States for more than six months. Therefore, issuing the EITC 
automatically, based solely on return information, could lead to 
erroneous refunds which would hinder the IRS's ongoing efforts to 
reduce improper payments.

    Without legislative and policy changes, current processes do not 
allow for accurate determination of automatic taxpayer eligibility for 
the credit at the time of filing.

    The IRS will continue to send notices to taxpayers who appear to be 
eligible for the EITC and ask them to provide additional information.

    Question. In 2020, despite the pandemic, 3,700 volunteer income tax 
assistance (VITA) sites across the Nation prepared more than one 
million returns for free, helping taxpayers claim more than $1.7 
billion in refunds. VITA sites will be instrumental in ensuring low-
income taxpayers--especially those who do not usually file a return--
can access the CTC, EITC, and stimulus payments for which they are 
eligible.

    However, VITA programs only receive funding from Treasury during 
the traditional filing season, and face a 50-percent matching 
requirement, entailing extensive fundraising efforts. Without 
additional funding--and a request to remain open--most VITA programs 
will close in mid-May.

    Will the IRS communicate with VITA site grantees about the 
importance of remaining open for the rest of the year, giving programs 
as much lead time as possible?

    Answer. The IRS works collaboratively with external partners to 
operate VITA sites nationwide. While the IRS provides guidance and 
oversight to partners that run these sites, we do not determine 
operating hours including open and close dates. Partners have the 
flexibility to operate sites that fit their IRS certified volunteers' 
schedules. For instance, in contrast to those sites that are open on a 
regular schedule throughout the filing season, some sites are open just 
a day or a few days during the filing season. Additionally, there are 
volunteer sites located in donated space, such as libraries and may not 
have the flexibility to remain open past April 15th. Traditionally, 
some VITA sites may be open year-round depending on the partners' time 
and resources. Not all VITA partners receive grant funding. In some 
cases, whether grant-supported or not, the volunteers may not be 
available after the traditional filing season due to other commitments.

    Question. Will the IRS commit to funding VITA sites to remain 
operational for the remainder of 2021, without requiring matching 
funds, using some of the funds it received in the American Rescue Plan?

    Answer. The IRS is unable to commit to VITA sites remaining open, 
regardless of matching grant funds or American Rescue Plan funding. 
While the IRS provides guidance and oversight to partners that run 
these sites, we do not determine operating hours including open and 
close dates. Partners have the flexibility to operate sites that fit 
their IRS certified volunteers' schedules. However, the IRS and its 
partners in non-profit organizations, churches, community groups and 
others will host events to help people who don't normally file a 
Federal tax return to register for the monthly payments.

                                 ______
                                 
              Questions Submitted by Hon. Thomas R. Carper
    Question. The Highway Trust Fund will become insolvent in 2022, and 
over the next 10 years, the total shortfall just to maintain baseline 
spending will be nearly $200 billion. It is clear that we need to find 
new revenues to provide for the long-term solvency of the Highway Trust 
Fund. However, it's also clear that we need to consider the equity of 
the impact of any new taxes, and President Biden has stated that 
households making less than $400,000 per year should not face any 
increase in their tax burden.

    My question to you is this: if we were to raise gas taxes and 
collect those taxes from all drivers, is there a way to use the tax 
code to rebate the cost of that tax increase for households earning 
less than median family income, whether it be the exact amount of gas 
tax they paid, or an average amount for all households??

    Answer. Under the current tax code, taxpayers who use or sell 
certain fuels for a nontaxable use or produce alternative fuels, can 
claim a refundable tax credit on their income tax return using Form 
4136, Credit for Federal Tax Paid on Fuels. The credit is treated as a 
payment towards a taxpayer's tax liability and is fully refundable even 
if a taxpayer has no tax liability. Any expansion to allow additional 
taxpayers to claim a rebate on a potential gas tax increase would have 
to be analyzed to determine feasibility, taking into account factors 
such taxpayer burden, IRS resources, cost, and information technology 
programming changes.

    Question. Last Congress, I served as the ranking member of the 
Permanent Subcommittee on Investigations (PSI), which conducted a 
bipartisan review of the IRS Free File program. As you know, Free File 
is a partnership between the IRS and online tax preparation companies 
that allows the majority of taxpayers--this year, those making less 
than $72,000--to file their taxes for free. Unfortunately, the Free 
File program is greatly underutilized. The Treasury Inspector General 
for Tax Administration (TIGTA) found that 14 million taxpayers could 
have filed their taxes for free using Free File, but instead paid for 
tax preparation services.The program has also experienced challenges, 
including findings that Free File partners manipulated search results 
to direct consumers to paid products, and one of the largest Free File 
partners recently leaving the program.

    With the Memorandum of Understanding (MOU) between the IRS and Free 
File members expiring in October this year, can you share whether the 
IRS has any plans to change its MOU based on the findings from the 
Permanent Subcommittee on Investigations, Treasury Inspector General 
for Tax Administration, and Government Accountability Office? If so, 
what changes does the IRS plan to make to the Free File program?

    Answer. In 2019, the IRS commissioned an independent assessment of 
the IRS Free File program, leveraging MITRE to obtain objective 
feedback on the program. In September 2020 we made improvements to the 
IRS web pages. We improved web searches and implemented random surveys 
of taxpayers by Free File, Inc. (FFI). We also responded timely to all 
follow up status requests from TIGTA regarding their recommendations, 
and we have made progress on five of their nine recommendations. IRS's 
MOU with the Free File members is scheduled to expire in October 2022. 
The IRS is developing the agency's renegotiation position inclusive of 
the appropriate reports recommendations. This work is evolving as we 
continue to balance demands and resources.

    The MITRE report is available at https://www.irs.gov/newsroom/irs-
statement-on-free-file-program on irs.gov. It includes a section on 
consumer choices and decisions. In late 2021, MITRE will provide a 
report to the IRS on overall taxpayer behaviors and what shapes choices 
that taxpayers make for the tax preparation methods.

    An addendum signed December 26, 2019, was added to the MOU that 
states: ``FFI Members are prohibited from engaging in any practice that 
would cause the member's Free File Landing Page to be excluded or 
lowered on the order of search results from an organic Internet search. 
Each FFI member shall standardize the naming of its Free File offer 
listed on the IRS Free File Website and the member Free File Landing 
Page so taxpayers can link to the member's Free File Landing Page from 
organic searches.'' Membership in Free File is by company choice: each 
company makes its own business decision whether to participate in Free 
File Inc. The IRS cannot speak to business decisions made by any 
company for provisioning free services via FFI.

    Question. Reports by the Permanent Subcommittee on Investigations, 
Treasury Inspector General for Tax Administration, and Government 
Accountability Office have found that the Free File program has 
suffered from a lack of marketing funds and IRS oversight for many 
years. Last year, you told us about some of the outreach efforts the 
IRS has conducted to increase awareness of the Free File program.

    What resources does the IRS currently dedicate to marketing and 
overseeing the Free File program? What additional resources does the 
IRS need to improve taxpayer uptake of Free File, and what resources 
does the President's upcoming full FY 2022 budget include for the IRS 
to better market and oversee the Free File program?

    Answer. As of April 26, 2021, 3.3 million IRS Free File tax returns 
have been submitted in the 2021 Filing Season.

        Oversight:

          The Free File Program Office is a part of the 
Industry Engagement and Strategy Office under e-File Services. 
Currently, the IRS uses one temporary detailee and three full-time 
employees to administer the program. This group includes a team lead, 
two senior program analysts, and a temporary business analyst detailed 
into the program. The senior manager of the Industry Engagement and 
Strategy Branch divides management time among the duties of that office 
and the other demands under her purview.

          In order to implement many of the recommendation 
changes, and to manage and monitor the impact of the changes, the IRS 
is considering allocating additional staffing to this program. This 
needed staff will need to be focused on: interpreting survey results in 
order to create actionable next steps; working with Online Services to 
design on-line Real-Time website surveys; working with Communications 
and Liaison (C&L) to help develop proposals and outreach/education 
plans; and assisting with performing in-depth reviews of Free File 
websites and software.

        Marketing:

          It is important to note that a mature multi-
billion-dollar tax preparation software industry exists against which 
the IRS would be competing for consumer attention. This industry spends 
a considerable amount, exceeding $1 billion annually, to advertise 
their commercial products which include ``free'' tax preparation 
commercial products. For example, in 2019 based on public filings, H&R 
Block spent $269.8 million and Intuit spent $800 million advertising 
their commercial products. Any government funded advertising would 
necessarily have to compete with these commercial efforts in the tax 
preparation marketspace. As can be interpreted from these marketing 
budgets for private industry, IRS would need to spend significant 
amounts on marketing to garner any attention.

          The IRS Free File team works with the shared 
service of W&I Communications and Liaison to utilize existing 
communication and promotion vehicles that are available to all IRS 
programs. This group manages production and posting of press releases 
before and during the filing season, tax tips, and fact sheets as part 
of the IRS's larger, annual campaigns. The IRS also employs social 
media to promote Free File, actively posting on Facebook, LinkedIn, 
Instagram and @IRSNews and @IRSenEspanol. Their efforts have helped 
drive an increase in volume this year compared to last year; we ended 
the 2020 year with a 50 percent growth.

    In addition to the more typical messaging channels the agency 
employs, in the 2021 filing season the Free File team led an effort to 
send 2.5 million postcards to prior year paper filers eligible for the 
IRS Free File program. These postcards were to promote the IRS Free 
File and VITA programs. The IRS Free File team, working with W&I 
research, will assess the efficacy of this effort to determine if it 
should be used in subsequent years.

    Question. As you know, the IRS is currently working through a 
backlog of 2.4 million 2019 paper tax returns filed by individuals. 
These processing delays have slowed the delivery of much-needed tax 
refunds and Economic Impact Payments to many of my constituents who are 
struggling to get by during this pandemic.

    Can you please share the specific actions that the IRS is taking to 
address this backlog of 2019 paper returns and what Congress can do to 
help? What is the IRS's timeline for clearing this backlog?

    Answer. The backlog of all individual paper returns received in 
2020 has been cleared and they are now in the processing pipeline. We 
took all necessary steps to address this, including transshipping 
backlogged work between our centers and shifting resources between 
functions to address backlogs. This is also attributable to our four 
Submission Processing Centers working day, night, and weekend shifts 
(16 hours per day) along with mandatory overtime to open mail and 
process tax returns and taxpayer correspondence.

                                 ______
                                 
                Question Submitted by Hon. Bill Cassidy
    Question. Incentives for historic preservation in the tax code are 
extremely important to Louisiana, and easements and other preservation 
programs have made it viable to protect and rehabilitate buildings in 
New Orleans and other cities that would otherwise likely have been 
bulldozed.

    Some preservationists in my State report that actions by IRS have 
led to uncertainty and delay. I recognize there are instances of abuse 
in conservation easement transactions, and recommend that historic 
preservationists be included in the conversation as the IRS addresses 
these abuses.

    I am told your team recently met with historic preservationists to 
discuss ways to differentiate valid historic preservation easements 
from inappropriate abuses of the tax code, and appreciate your taking 
the time to hear from the group.

    Moving forward, can you work towards bringing together a working 
group, which includes stakeholders such as historic preservationists, 
to work on detailed IRS guidance?

    Answer. The Internal Revenue Service recognizes that Congress 
authorized the charitable contribution deduction for conservation 
contributions--historic preservation--to provide taxpayers with a 
valuable incentive to preserve historic structures. We recognize the 
importance of providing such taxpayers with guidance that will create 
certainty and with advice that helps taxpayers ensure that their 
contributions comply with the law and conserve historic structures in 
perpetuity, as Congress intended. As such, we are committed to the 
continued development of, and encourage members of the public to 
suggest topics for, such guidance and advice.

    We are currently formulating this year's Priority Guidance Plan 
that focuses our resources for guidance items that are the most 
important to taxpayers and tax administration. We encourage the public 
and other stakeholders to engage us in developing the Priority Guidance 
Plan by submitting items for consideration, pursuant to Notice 2021-28.

                                 ______
                                 
                 Questions Submitted by Hon. Mike Crapo
                            irs enforcement
    Question. Your testimony expressed a need for further information 
reporting, and indicated that with information reporting 99 percent of 
items get reported.

    What areas of information reporting currently present the greatest 
gaps for the IRS?

    Answer. Our research on the compliance of filers of individual 
income tax returns indicates that income subject to substantial 
information reporting and withholding has the least amount of 
misreporting with a net misreporting percentage of 1 percent. Income 
subject to substantial information reporting but not withholding also 
has high voluntary reporting with a net misreporting percentage of 
about 5 percent.

    ``Gaps'' in the information reporting and withholding system fall 
into the following general categories:

        (1)  Exclusions of certain type of ``payee'' entities from 
        being subject to information reporting.
        (2)  Exclusions of certain type of entities from a requirement 
        to report on certain types of payments.
        (3)  Exclusions of certain types of payments.
        (4)  Lack of requirement/option for withholding.
        (5)  Information and other detail.
        (6)  Timing.

    Many of the choices previously made related to the above gaps were 
made in a different era of technology. Substantial advances in 
technological capabilities and expectations over time make what once 
would have been considered overly burdensome or complex requirements 
more feasible in our current and future environments.

    The ``visibility'' chart below shows the relationship between 
information reporting/withholding and reporting compliance. The income 
items associated with each level of information reporting are specified 
in the footnotes.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    .epsWe also note that the usefulness of information reporting for 
tax enforcement depends to a large extent on the IRS's ability to 
electronically capture and analyze the information received. Electronic 
filing of tax returns and information returns is the most efficient way 
to ensure availability of data. The existing framework for mandating 
electronic filing covers a patchwork of tax forms and entities, 
however, it also leaves several comparable filings out of reach for an 
e-filing requirement. It would be most effective to authorize the 
Secretary to determine which returns, statements, and other documents 
must be filed electronically, to apply without regard to the number of 
returns that a person files, and with an exception for any individual 
filing forms in the Form 1040 series. Paper returns, and even pdf 
attachments filed electronically, are only of use for data aggregation 
and analysis if they are digitized after the fact. While we do this, 
those processes are resource-intensive, time-consuming, and often 
error-laden. IT funding is critical for the development, 
implementation, and maintenance of business requirements for existing 
and new information reporting.

    Another category of income that is subject to little information 
reporting is income derived from virtual currency transactions. The 
virtual currency market has grown substantially over the past several 
years reaching a market cap in excess of $2 trillion for more than 
8,600 different virtual currencies. We believe that there is a high 
degree of noncompliance involving reporting of taxable virtual currency 
transactions. We are receiving information reports in some cases from 
virtual currency exchanges; however, more complete data are needed to 
administer the tax law on this segment. Comprehensive reporting from 
brokers, exchangers and payment facilitators for virtual current 
transactions and payments are needed. Additionally, Currency 
Transaction Reports (CTRs) are required to be filed by U.S. financial 
institutions with the Financial Crimes Enforcement Network (FinCEN) for 
each deposit, withdrawal, exchange of currency, or other payment or 
transfer, by, through, or to the financial institution which involves a 
transaction of currency of more than $10,000. As with cash 
transactions, businesses that receive cryptoassets with a fair market 
value of more than $10,000 could also be reported on.

    Question. Do you have authority to address any of these key areas 
via regulation?

    Answer. The Secretary has general authority to propose regulations 
that would close many of the gaps discussed above. For example, the 
Secretary has the authority, and is currently working on, proposed 
regulations that would expand broker reporting for virtual currency 
transactions and payments. The Secretary also likely has the authority 
to require employers reporting wages to indicate the amount of total 
wages paid using virtual currency.

    Question. Are there areas where legislation is necessary, and if 
so, what are they?

    Answer. Many of the gaps discussed above would require or benefit 
from legislation to resolve because the underlying statutory language 
might not provide sufficient authority to make the necessary changes. 
The President's FY 2022 Budget includes a number of legislative 
proposals to expand information reporting:

        Create a comprehensive financial account information reporting 
regime, including reporting on crypto exchanges, to increase the 
visibility of business income to the IRS.
        Apply the current law reporting requirements to cases in which 
taxpayers buy crypto assets from one broker and then transfer the 
crypto assets to another broker, and to cases in which businesses 
receive crypto assets in transactions with a fair market value of more 
than $10,000.
        Expand broker information reporting with respect to crypto 
assets to include reporting on beneficial owners of entities holding 
accounts with the broker, and allow the United States to share such 
information with appropriate partner jurisdictions.
        Expand the Secretary's authority to require electronic filing 
for tax forms and returns.
        Allow the IRS to require payees of any reportable payments to 
furnish their taxpayer identification numbers (TINs) to payors under 
penalty of perjury.

    Details of these legislative proposals can be found in this budget 
document: https://home.treasury.gov/system/files/131/General-
Explanations-FY2022.pdf.

    Question. Assuming regulations or legislation were put in place to 
address information reporting gaps, how long would it take before such 
reporting had a material impact on the tax gap?

    Answer. The tax gap estimates are aggregated at a very high-level 
which makes it difficult to decouple the impact of any legislative or 
regulatory changes from general economic factors which are much more 
likely to have a material impact on the tax gap. For example, the most 
recent reported tax gap, pertaining to tax years 2011-2013, computed an 
annual gap of $441 billion, and it's important to note that the revenue 
collected from all enforcement programs in a given year is 
approximately 12 to 14 percent of that total. That said, there are 
alternatives available to estimate or track the impact of any 
regulatory or legislative changes outside of the framework of the tax 
gap.

    Following legislation, we draft and promulgate regulations to 
provide guidance to the third parties who will collect and report the 
information. Once the guidance is in place, the reporter may need time 
to update their system to collect the data. The data would then be 
collected starting on January 1st of the new tax year and reported to 
the IRS in the spring of the following calendar year. Then, the IRS 
will conduct document matching processes during that calendar year and 
select returns for compliance activities. This process may take two to 
four years for results to be reflected in tax gap estimates. We will 
also need the funds to support electronic receipt of the information 
returns and to build the document matching processes.

    Question. What tradeoffs would exist with respect to enacting such 
greater information reporting, including estimates of the specific 
costs to taxpayers (financial and time spent)?

    Answer. Information reporting typically imposes burden on one set 
of taxpayers (the issuers) and reduces burden on another set of 
taxpayers (the recipients). In addition, information reporting creates 
a paper trail between the issuer and the recipient which facilitates 
better tax administration. Thus, when considering imposing a new 
information collection, one must consider the impact on the issuer, the 
recipient, and tax administration to understand whether that new 
information collection requirement is reasonable.

    The IRS conducts surveys to gather information from taxpayers about 
the time and money they spend to meet their information reporting 
responsibilities. This information could be used to estimate the costs 
associated with a new reporting obligation. However, the accuracy of 
such an estimate is dependent on how similar the new reporting 
requirement is to an existing reporting requirement for which the IRS 
has previously collected survey data. When a specific burden estimate 
is not possible, a decision to impose a new information collection can 
be informed by a general understanding of how the burden of information 
reporting varies by taxpayer. A taxpayer who already keeps the records 
to be reported, has the infrastructure in place to electronically 
process and submit the returns, and can benefit from economies of scale 
faces a much lower per-return burden than a small business that 
manually prepares a few of the same information returns each year. For 
example, a tax year 2014 information return issuer compliance cost 
survey indicates that issuers responsible for completing a single Form 
1099-MISC incur approximately 3.5 hours and $40 of burden while issuers 
responsible for completing over 500 Forms 1099-MISC incur approximately 
15 minutes and $3 of burden per information return.

    Information reporting works the most efficiently when the issuer 
has an incentive to report the information and the recipient benefits 
from the information. For example, Form W-2 serves as an employer's 
documentation of wages paid and removes all wage record-keeping 
requirements for the employees. If the recipient has documentation of 
income or expenses (such as invoices), receipt of an information 
document provides little benefit to the recipient. In such a case, it 
may be reasonable to require the issuer to report the information only 
to the IRS.

    While we must always consider the taxpayer burden, there are times 
when the need to collect information to facilitate tax administration 
outweighs any burden imposed. In this case, IRS strives to impose the 
minimum amount of burden necessary.
                            child tax credit
    Question. In order for the IRS to move forward with beginning to 
make advance child tax credit payments on July 1st:

    What are the specific metrics that must be met as far as 
availability of and level of security with respect to the portal?

    Answer. The Advance CTC monthly payments will begin on July 15th. 
In compliance with National Institute of Standards and Technology 
(NIST) Special Publication 800-63-3, the portal Identity Proofing 
requirement is Identity Assurance Level 2 and Authentication 
requirement is Authentication Assurance Level 2. These security metrics 
will provide enough rigor of ID proofing such that the IRS will have 
confidence that only legitimate individuals are accessing their 
accounts on the portal.

    Question. How far along must the IRS be in its outreach process to 
those without the ability to access the portal via the Internet and 
what are the appropriate metrics?

    Answer. We developed an implementation strategy for the Advance CTC 
credit as provided in the American Rescue Plan Act of 2021. The 
strategy includes the portal and non-portal (non-electronic) processes 
for taxpayers to opt out of the advanced payment or provide new 
information that is relevant to determining their eligibility and 
advance payment amount. This effort includes a robust outreach strategy 
that will inform eligible taxpayers about the periodic Advance CTC 
payments and how they can make modifications as needed. The IRS has 
started sending letters (Letter 6416 and 6416-A) to more than 30 
million American families who, based on tax returns filed with the 
agency, may be eligible to receive monthly Child Tax Credit payments.

    Question. Once the portal and non-electronic process are fully 
available, how long will you give individuals to opt out of receiving 
any advance payments before you start issuing the first batch of 
payments?

    Answer. The specific timeline is still being developed; however, we 
plan to issue a notice to eligible taxpayers prior to issuing advance 
payments to provide them instructions on how to opt out if they are not 
interested in receiving advance of payments. This effort includes a 
robust outreach strategy that will inform eligible taxpayers about the 
periodic Advance CTC payments and how they can opt-out or make 
modifications as needed.

    Question. What is your estimate of the percentage of advance 
payments issued starting on July 1st that will be completely accurate 
and desired by the recipients to be received as advance payments?

    Answer. The Advance CTC payments will begin on July 15th and will 
be based on a processed tax year 2020 tax return (or tax year 2019 if 
the tax year 2020 tax return has not been filed). We developed an 
implementation strategy for the advance payments of the child tax 
credit as provided in the American Rescue Plan Act of 2021. The 
strategy includes the portal and non-portal (non-electronic) processes 
for taxpayers to opt out of the advanced payment or provide new 
information that is relevant to determining their eligibility and 
advance payment amount.

    Question. Your senior staff previously told us it will take 12 
weeks to hire and fully train each new customer service representative 
needed to handle the responsibilities related to this new program. How 
many new customer service representatives will you require to be hired 
and fully trained before going forward with issuing any advance 
payments?

    Answer. Our implementation team is still developing the portal and 
procedures, so we have not finalized the length of training at this 
time. We are also still working with our research division to get a 
better projection of how many calls we may receive. Until we have a 
firm projection, we are unable to determine how many assistors will be 
needed to answer these calls. We plan to hire additional Customer 
Service Representatives between June 21st and August 30th, but we can 
redirect existing staff to answering these calls if they begin coming 
in before the new hires are fully trained.

    Question. With respect to non-filers: will a current non-filer, who 
is the parent of a qualifying child, be in a position to receive an 
advance payment on July 1st solely based on whatever non-filer 
information that individual provided to the IRS to prove eligibility 
for their EIP?

    Answer. The Advance CTC payments will be based on a processed tax 
year 2020 tax return (or tax year 2019 if the tax year 2020 tax return 
has not been filed). The IRS worked with its Free File Alliance to 
develop a new Non-Filers Sign-up tool for taxpayers to report their 
qualifying child tax credit dependents to be used to determine 
eligibility for the advance payments. This tool is a new online tool 
designed to help eligible families who don't normally file tax returns 
register for the monthly Advance CTC payments scheduled to begin July 
15th. This new tool provides a free and easy way for families who don't 
have a return-filing obligation to provide the IRS the information 
needed to figure and issue their Advance CTC payments if eligible. 
Often, these are families who receive little or no income, including 
those experiencing homelessness, the rural poor and other underserved 
groups. This new tool is available only on irs.gov.

    Question. Or, to receive an advance payment on July 1st, or any 
other date, will the individual have to first file and have processed a 
complete 2020 tax return, even if that individual otherwise has no 
obligation to file a return?


    Answer. Please see our response immediately above.

    As is the case with any IRS initiative including Economic Impact 
Payments (EIPs) and the Rebate Recovery Credit (RRC), we will work with 
a broad and growing partner base to reach those individuals who may be 
eligible for the Advance CTC so that they can prepare for the 
opportunity to receive advance payments later in 2021. We have 
established relationships or built upon many existing partnerships that 
will help the IRS reach the underserved with this important information 
and steps to take to access the Advance CTC. The IRS is exploring other 
outreach opportunities that may help address the special needs of the 
homeless and other hard to reach communities.

    Question. How many individuals, who otherwise have no need to file 
or interact with the IRS, will need to go through the process of 
actually filing a tax return in order to receive the full amount of the 
credit?

    Answer. We developed an implementation strategy for the Advance CTC 
as provided in the American Rescue Plan Act of 2021. This effort 
includes a robust outreach strategy that will inform eligible taxpayers 
about the Advance CTC payments and the new Non-Filer Sign-Up tool that 
individuals with no filing requirement may use to register for the 
advance payments.

    Question. With respect to all filers: what is your estimate for the 
overall increased burden (both in terms of cost and time) on taxpayers 
in terms of return filing and provision of information updates with 
respect to the credit?

    Answer. We developed a portal for taxpayers to opt out of the 
advanced payment or provide new information that is relevant to 
determining their eligibility and advance payment amount. The 
applicable tax forms, instructions and publications will be updated and 
we will provide each taxpayer a notice no later than January 31, 2022, 
that provides the aggregate amount of Advance CTC payments made in 2021 
to aid in completing their tax year 2021 tax return. We keep the 
customer experience at the forefront of all our efforts, and we strive 
to minimize taxpayer burden.

    Question. How would these costs change (if at all) if the provision 
is made permanent?

    Answer. Taxpayers only need to take action to receive the Advance 
CTC if they do not have a filing requirement, wish to opt out of 
receiving advance monthly payments, or need to make some other change 
not already included in their most recent tax filing, such as recording 
additional children, or changing bank account information. Otherwise, 
the payments will be automatic based on information from their most 
recent tax return filed. If this law were to be made permanent, 
depending how the law is written, we believe the additional burden 
would mostly be on those who would not have a filing requirement, as 
they would still be required to report certain information through the 
portal annually.

    Question. With respect to potential delivery issues on the advanced 
refundable CTC: notwithstanding the diligent efforts of IRS employees, 
the economic impact payments have been plagued by both accuracy and 
timeliness issues. Elsewhere, various States have had significant 
challenges providing enhanced jobless benefits to recipients. How will 
delivery issues compare (i.e., better, worse, etc.) between advance 
refundable credits and economic stimulus payments?

    Answer. The IRS stands ready to deliver and serve the American 
taxpayers, much like we did when implementing major provisions of the 
Coronavirus Aid, Relief, and Economic Security Act and COVID-Related 
Tax Relief Act of 2020. The IRS is an administrative agency and will 
take steps to deliver whatever is asked of us as we did with the 
delivery of Economic Impact Payments (EIPs) and will leverage our 
experience in successfully delivering three rounds of EIP payments 
totaling more than $800 billion as we deliver the Advance CTC payments.

    Question. To what extent will the use of debit cards impact the 
rate (and dollar amount) of improper payments and other delivery 
issues?

    Answer. The IRS defers to the Treasury Department's Bureau of 
Fiscal Service to address these concerns.
                      roi/$1-trillion ``tax gap''
    Question. In July 2020, the nonpartisan Congressional Budget Office 
estimated that ``increasing the IRS's funding for examinations and 
collections by $20 billion over 10 years would increase revenues by $61 
billion'' and that ``increasing such funding by $40 billion over 10 
years would increase revenues by $103 billion.''\1\
---------------------------------------------------------------------------
    \1\ See https://www.cbo.gov/publication/56467.

    Please explain whether, and why or why not, the IRS methodology 
would confirm CBO's projections that a $20 billion ($40 billion) 
increase in IRS funding for examinations and collections over 10 years 
---------------------------------------------------------------------------
would increase revenues by $61 billion ($103 billion).

    Answer. The CBO estimate is based on the IRS methodology with some 
minor adjustments as detailed on page 19 of the July 2020 ``CBO Trends 
in the Internal Revenue Service's Funding and Enforcement'' document 
(excerpt below).

        Although CBO's estimates start with the IRS's calculations of 
        the revenue it would collect per dollar of enforcement 
        spending, CBO made two adjustments to better approximate the 
        marginal return on that spending. The first is an adjustment 
        for taxpayers' learning. After the third year of an initiative, 
        CBO judges that taxpayers will have adapted to a new 
        enforcement activity and developed ways to evade that 
        enforcement. CBO therefore reduced the marginal return on each 
        activity after the third year. The second adjustment 
        incorporates the expectation that the IRS prioritizes 
        enforcement activities that it projects to have the highest 
        average return; therefore, the spending associated with the 
        2021 initiative would have the greatest return, and initiatives 
        that start in the 2022-2025 period would have progressively 
        lower returns.

    It is worth noting that while our current model does not directly 
address a learning curve on the part of taxpayers, we do include a 
learning curve on the part of newly hired employees. Specifically, the 
revenue potential is low within the first 2 years for each wave of new 
hires because new hires will generally not reach full productivity 
until year 3, and we also assume no new revenue generating work 5 years 
after hire to account for new hire attrition and turnover. Once 
assessments are made, revenues can be generated across the 10-year 
statute of limitations to collect an assessment. We estimate the 10-
year revenue stream based on (i) the estimated assessments from work 
completed by successive waves of new hires during their respective 5 
years of work and (ii) the past observations of how long it takes to 
collect revenue following an assessment. Like the CBO, we include 
marginality adjustments to account for the assumptions that any new 
hires will be working cases lower in priority than current staff.

    Question. Please provide the specific IRS empirical basis for 
computing returns on investment to additional funding for examinations 
and collections, including assumptions and estimation methodology.

    Answer. This ROI methodology uses 10 years of direct enforcement 
revenue attributed to enforcement activity in constant weighted dollars 
to calculate a revenue per FTE estimate. Using a 10-year constant 
dollar-weighted average discounts the importance of any particular year 
that may be influenced by unusual events or economic cycle, while 
recognizing that recent years are more predictive than older years and 
that a dollar collected 10 years ago is not the same as a dollar 
collected last year.

    Adjustments are made to account for the date of hire, the learning 
curve of new employees (productivity), training costs, and an 
assumption that new work will generate less revenue than current work 
(marginality). This is divided by the FTE cost, which includes the cost 
of the FTE along with other costs associated with bringing in a new 
hire, such as training, information technology, and other support 
costs.
Revenue Estimation Model Data
        Enforcement Revenue Information System (ERIS) Data
            Recommended/Assessed/Collected Dollars
            Direct Hours
            Business Operating Division (BOD)
        Input from the BODs
            Number of FTE--By Position Type (Example: Revenue Agent/
Revenue Officer)
            Type of Work Assumed (Example: Activity Codes 278-281)
        Gross Domestic Product (GDP) Deflators
Adjustments to Revenue
        Enter on Duty Date (Reduced for January/April hire date)
        Productivity Adjustments
            Year 1-60 percent; Year 2-80 percent; Year 3-100 percent
        Marginality Assumption
            The next cases worked will be 90 percent as productive as 
the previous cases
        Training (FTE in years 1 and 2 are reduced by hours employees 
and trainers spend in training)

    Question. Please explain why specifically the IRS concurs or does 
not concur with the diminishing returns to additional funding for 
examinations and collections that are reflected in CBO's projections.

    Answer. The IRS concurs that there are diminishing returns to 
hiring additional enforcement staff, and we incorporate them into our 
revenue estimates. However, we also believe that with the current level 
of staffing, we are far from reaching the level of diminishing returns 
that would dramatically affect ROI assumptions in most enforcement 
areas. And we account for that when determining the type of enforcement 
activities to emphasize in budget requests.

    Question. Your testimony cited past ``tax gap'' estimates, and you 
indicated that those estimates did not, or perhaps did not fully, 
account for things like virtual currencies, foreign-source income, and 
illegal-source income. You identified that past estimates also do not 
reflect more recent findings of researchers, including IRS researchers, 
who have focused on pass-through entities and offshore income of the 
``top 1 percent.'' Regarding the latter, you suggested that the recent 
research findings suggest perhaps $175 billion per year which could be 
added to a tax gap estimate. It appears that the research you referred 
to is the March 2021 National Bureau of Economic Research (NBER) 
Working Paper 28542 (``Tax Evasion at the Top of the Income 
Distribution: Theory and Evidence,'' by J. Guyton, P. Langetieg, D. 
Reck, M. Risch, and G. Zucman). I have several questions about basing a 
tax-gap estimate on results of the recent paper, and on the research 
findings themselves.

    The NBER working paper, as identified on its title page, has not 
been peer-
reviewed or been subject to the review by the NBER Board of Directors 
that accompanies official NBER publications. Is it reasonable to assign 
to what we believe might be the tax gap results from very recent 
research that has not yet been peer-reviewed?

    Answer. Section 61 of the Internal Revenue Code generally defines 
``gross income'' as ``all income from whatever source derived. . . .'' 
Taxable income is that portion of gross income that is properly subject 
to taxation under applicable provisions of tax law. The tax gap is 
defined as the difference between the amount of tax owed by taxpayers 
for a given year and the amount that is actually paid voluntarily and 
timely. The tax gap represents, in dollar terms, the annual amount of 
tax noncompliance with our tax laws. It does not distinguish between 
under-reporting, non-filing or underpayment of tax based on a good 
faith misunderstanding of the tax law, intentional evasion of filing or 
reporting obligations, domestic or foreign source income, legal or 
illegal source income, etc. However, our published estimates are based 
on limited types of information and are not intended to represent an 
all-inclusive measure of global tax non-compliance by U.S. taxpayers.

    The most recent ``official'' tax gap estimates relate to tax years 
2011-2013 and were released in 2019. The 2021 digital world economy is 
significantly different from the world economy of 2011-2013. 
``Official'' tax gap estimates have traditionally relied on historical 
audit and collection data for certain identified non-filers, 
underreporters, and underpayers. Estimates currently in use represent a 
substantial challenge for the IRS, are outdated, and under-inclusive. 
For at least the past 18 months, we have been working on updating and 
enhancing the underlying methodology, improving the currency of the 
estimates and considering how to identify and incorporate additional 
information and emerging compliance issues. By including more 
operational audit data, the IRS anticipates that we'll be able to 
produce estimates that are more reflective of the actual tax gap, more 
timely, more inclusive and that include forecasting of emerging issues.

    This NBER working paper has received several rounds of comments 
from internal IRS reviewers and external reviewers as well prior to 
posting as an NBER working paper. Earlier drafts of this working paper 
were accepted to the program of the National Bureau of Economic 
Research (NBER) Conference on Research in Income and Inequality (March 
2020) and the Annual Meetings of the National Tax Association (November 
2019 and November 2020). The current draft was accepted to the program 
on the NBER Public Economics Program Meeting. As noted in the text, the 
work is grounded in work by other, well respected economists and 
consistently uses assumptions from relevant sources in that literature 
while providing sensitivity analyses around those assumptions. 
Therefore, we believe findings to be of high quality and credible.

    Question. The title page of the working paper identifies that ``The 
views expressed here are those of the authors and do not necessarily 
reflect the official view of the Internal Revenue Service or the 
National Bureau of Economic Research.'' Does the IRS endorse the 
findings and views of the paper?

    Answer. Yes, the IRS endorses the findings of the paper.

    Question. The title page identifies that ``All data work for this 
project involving confidential information was done at IRS facilities, 
on IRS computers, by IRS employees, and at no time was confidential 
taxpayer data ever outside of the IRS computing environment.'' Can you 
substantiate those claims?

    Answer. Yes, all data work for this project involving confidential 
information was done at IRS facilities, including telework locations 
approved as part of COVID-19 mitigation, on IRS computers, and by IRS 
employees. At no time was confidential taxpayer data outside of the IRS 
computing environment.

    Question. The title page identifies that authors ``Reck and Risch 
are IRS employees under an agreement made possible by the 
Intragovernmental Personnel Act of 1970 (5 U.S.C. 3371-3376).'' Please 
provide copies of the agreements for each author to my Senate Finance 
Committee staff.

    Answer. Copies of these agreements are attached.

      MOU IC Risch
      IPA Risch
      Dreck 2018 JSRP IPA Addendum
      DRsigned DReck IPA MOU Date Change
      DRSigned Dreck modified IPA OF 69
      IPA Reck LSE completed

    Question. Please list all outside researchers deemed to be IRS 
employees under any agreement, including the Intragovernmental 
Personnel Act of 1970, and the terms of their employment.

    Answer. Below we have provided a list of current/active IPA's/
Student Volunteers working with the Research, Applied Analytics and 
Statistics division. Documentation addressing the terms of employment 
are attached--the OF-69 and the supplemental IPA/SV agreements/
addendums.


------------------------------------------------------------------------
                                                                IPA-SV
  Last      First      Affiliation     Status      IPA-SV     Expiration
  Name       Name                                Start Date      Date
------------------------------------------------------------------------
Anderson  Brandon    Stanford Univ.  IPA           4/1/2020     4/1/2022
------------------------------------------------------------------------
Black     Emily      Stanford /CMU   Student       3/1/2021     3/1/2023
                                      Voluntee
                                      r
------------------------------------------------------------------------
Elzayn    Hadi       Stanford Univ.  IPA         10/26/2020   10/26/2022
------------------------------------------------------------------------
Goldin    Jacob      Stanford Univ.  IPA          12/5/2019    12/5/2021
------------------------------------------------------------------------
Henderso  Peter      Stanford Univ.  Student       6/1/2020          n/a
 n                                    Voluntee
                                      r
------------------------------------------------------------------------
Hess      Ryan       Stanford Univ.  IPA           5/3/2021     5/3/2023
------------------------------------------------------------------------
Ho        Daniel     Stanford Univ.  IPA          9/30/2019    9/30/2021
------------------------------------------------------------------------
Paul      Mansheej   Stanford Univ.  Student      11/5/2020          n/a
                                      Voluntee
                                      r
------------------------------------------------------------------------
Reck      Daniel     London School   IPA           8/1/2016    8/31/2021
                      of Economics
------------------------------------------------------------------------
Risch     Max        Carnegie        IPA         10/15/2019   10/15/2021
                      Mellon
                      University
------------------------------------------------------------------------
Smith     Evelyn     Stanford/Univ   Student      4/30/2018          n/a
                      of MI           Voluntee
                                      r
------------------------------------------------------------------------


    Intergovernmental Personnel Act (IPA) agreements are governed by 
OPM. A link to the relevant policy document is included below: https://
www.opm.gov/policy-data-oversight/hiring-information/intergovernment-
personnel-act/#url=Provisions.

    Question. Results from the paper rely on data that involve 
confidential taxpayer information, and therefore are replicable only by 
a researcher having access to such information. To have access, what is 
required of a non-IRS-employee researcher? Please document any 
processes through which a non-IRS-employee can access confidential and 
sensitive taxpayer information, including the process that was used to 
assign Reck and Risch to be IRS employees.

    Answer. Please see the attached document--JSRP Program Description.

               joint statistical research program (jsrp)

I. Goals

     The Joint Research Program is intended to increase the use of tax 
microdata by researchers outside the Federal Government in order to 
provide new insights that provide new understandings of taxpayer 
behavior that could impact the administration of the tax system. 
Research may also that will advance the understanding of the ways that 
existing tax policies affect people, businesses, and the economy 
Finally this research will benefit RAAS employees by providing 
developmental opportunities through joint research with the Nation's 
leading economic researchers, improving RAAS's ability to hire and 
retain a talented and highly motivated work force.

II. Soliciting Projects

     Projects for the program are solicited bi-annually, resources 
permitting. RAAS consults a variety of sources, including a panel of 
internal and external stakeholders, to develop a list of specific 
research topics for each annual solicitation. Applicants, however, can 
propose additional ideas for consideration. (The 2018 Call for 
Proposals can be found at: https://www.irs.gov/pub/irs-soi/
18jsrpapplication.pdf)

III. Evaluating Projects

     Review team: The composition of the team will include RAAS and 
Treasury staff. Review Criteria: Selection criteria will include 
factors such as:

        Relevance to Tax Policy and/or Tax Administration (as defined 
in Internal Revenue Code (IRC) 6103(b)), with preference given to 
projects with a direct impact on current tax policy questions;
        Available RAAS resources--includes data, human capital, 
financial;
        Degree of RAAS Employee involvement included in the proposal;
        Issue's contribution to IRS/OTA research goals;
        Research team's demonstrated ability to do the work, based on 
past performance, qualifications, etc.

IV. Data Access

     Researchers can be granted microdata access through one of three 
mechanisms: Intergovernmental Personnel Act (IPA), Student Volunteer 
program, or a contract executed under IRC 6103(n).

     Intergovernmental Personnel Act: This program is available for 
Non-IRS researchers who are employees of non-profits or State 
governments, and who meet the other requirements of the program (see 5 
CFR part 334). Under an IPA, a researcher is treated as an employee 
administratively, subject to background investigation and all 
applicable disclosure restrictions and penalties, sworn in as an 
employee and assigned to a manager who provides oversight of the 
project. The researcher's primary employer remains solely responsible 
for his/her salary and benefits as long as both the researcher's 
organization and RAAS benefit from the arrangement. The term of the 
agreement is usually 2 years but can be extended. These agreements are 
reviewed and processed by the IRS human resources function, with 
additional approval from the CFO office.

     Student Volunteers: This program is available for Non-IRS 
researchers who are students at accredited institutions, and who meet 
the other requirements of the program (see 5 U.S.C. 3111). Under this 
program, a researcher is treated as an employee administratively, 
subject to background investigation and all applicable disclosure 
restrictions and penalties, sworn in as an employee and assigned to a 
manager who provides oversight of the project. The researcher's 
institution must approve the student's participation in the project and 
the project must be clearly related to the student's area of study. 
Participation ends when the project is completed or when the 
participant graduates or leaves the institution. These agreements are 
reviewed and processed by the IRS human resources function, with 
additional approval from the CFO office.

     IRC 6103(n) Contracts: IRC 6103(n) contracts are approved and 
administered through the IRS procurement system, with oversight by a 
RAAS contracting officer's representative and an RAAS/SOI manager. The 
researchers are generally awarded a sole source contract and the cost 
is limited to cover travel fees that allow contractors to meet with SOI 
and OTA staff over the course of the 2-year contract in order to 
discuss the work and present findings. For the 2016 JSRP, these 
contracts are used only for research partners from other Federal 
agencies or organizations.

     Regardless of the mechanism used to grant data access, an RAAS 
manager will be assigned to oversee each project. Researchers who are 
given access to tax microdata are subject to the following conditions:

        Must undergo a background clearance prior to accessing data.
        All tax data remain in a secure IRS system and are accessed 
using IRS-issued equipment.
        All software access is requested and approved through the IRS 
Online 5081 system by the manager of record and annually recertified.
        Researchers accessing tax data must take UNAX/FMSS/ISS data 
security training courses on an annual basis. Failure to complete 
training timely would result in cancellation of all system access 
privileges.

     Project team members who are neither IPAs, Student Volunteers or 
contractors will be required to sign an MOU acknowledging that they 
will not be permitted to access taxpayer data. They will only be 
permitted to access RAAS disclosure-protected output.

V. Periods of Performance and Extensions

     Given that the scope of all approved research projects will be 
narrowly focused, research arrangements will last 2 years, with an 
additional extension of up to 2 years available on a case-by-case 
basis. Additional extensions may be granted, for example, if a project 
is significantly delayed due to unexpected administrative issues, for 
example delays in completing background investigations, issuing ID 
cards, or configuring computer hardware/software.

VI. Disseminating Results

    1.  Research projects should result in a paper that will be 
suitable for presentation at a professional conference and may also be 
submitted for publication in economic or statistical journals. 
Completed papers will also be included in the SOI Paper Series and will 
be made available to the public via the Tax Stats pages on irs.gov 
(https://www.irs.gov/uac/SOI-Tax-Stats-SOI-Working-Papers).

    2.  Prior to publication or presentation, all papers are reviewed 
to ensure:

          The work complies with disclosure prevention protocols as 
outlined in IRS Publication 1075 and SOI's disclosure rules as 
articulated by its Disclosure Review Board.
          The text is consistent with the approved research project 
purpose and clearly articulates the tax administration purpose for 
which it was undertaken.
          The text accurately describes the data and tax law.
          The tone and content comply with OMB statistical policy 
directives (see https://www.whitehouse.gov/omb/inforeg--statpolicy).

    Question. The paper contains numerous assumptions, methodological 
choices, and interpolation. Does the IRS endorse all assumptions, 
choices, and interpolations used?

    Answer. Yes, the IRS endorses the assumptions, choices and 
interpolations used in this paper. As is common in the literature, this 
working paper relies on a series of other published papers and reports 
as a starting point. The paper conducts a variety of sensitivity 
analyses around many of the required assumptions, acknowledging that 
the current estimates fall within a broader range of plausible 
estimates. As a research paper developing new estimation methods, it 
has been released as a working paper to provide an opportunity to 
receive feedback on methods for further refinement prior to submission 
for independent peer review.

    Question. The paper uses wealth estimates and estimation 
methodology constructed by the often-cited authors Zucman and Saez. 
Those estimates and the methodology used by those authors have been the 
subject of substantial controversy within the economics, finance, and 
tax research communities. Some have speculated that political agendas 
may influence some of the methodological choices made, rather than 
adherence to the scientific method. Are you aware of any controversy 
surrounding research by any of the authors of NBER Working Paper 
28542--a paper from which you suggested we may find useful information 
for estimating the tax gap?

    Answer. It is common practice to reference relevant prior work as 
part of the context of developing new analytical methods. Work by 
Zucman with Saez on the distribution of income and separately on 
offshore evasion are important parts of the current literature in this 
area. That said, the work by Zucman does not play a major role in the 
magnitude of additional misreporting identified in this paper. Earlier 
drafts of this working paper were accepted to the program of the 
National Bureau of Economic Research (NBER) Conference on Research in 
Income and Inequality (March 2020) and the Annual Meetings of the 
National Tax Association (November 2019 and November 2020). The current 
draft was accepted to the program on the NBER Public Economics Program 
Meeting. Drafts of the paper have been presented twice to the staff of 
the Treasury Office of Tax Analysis and have seen extensive internal 
IRS review. We believe the paper makes important contributions to our 
understanding of the challenges in the detection of certain forms of 
offshore and pass-through income even as the exact measures and their 
distribution across the population are reviewed and refined through the 
professional feedback process of working paper releases prior to 
submission for independent peer review for an academic journal.
                        unemployment assistance
    Question. The Department of Labor's Office of Inspector General has 
estimated that more than $63 billion of unemployment assistance under 
COVID-19 relief packages has been paid out improperly, either through 
fraud or errors, which is roughly 10 percent of the total amount paid 
under COVID pandemic-related unemployment programs. As of March, the 
State of California alone estimates that there has been about $11 
billion in fraudulent payments and an additional $19 billion in suspect 
accounts. Other States have also similarly been affected.

    You noted in your testimony that individuals who received a 1099-G 
form that should not have received the form should notify their State 
agency. Does the IRS intend to work with these State agencies to 
compile data on who fraudulently received 1099-G forms as a way to 
track the fraud as well as prevent fraud in the future?

    Answer. We have taken proactive measures to address unemployment 
identity fraud to minimize the burden on fraud victims and in December 
2020 conducted training sessions with State workforce agencies to 
instruct them not to file Forms 1099-G with the IRS in cases where they 
have determined benefits were fraudulently paid. We've also presented 
and issued an alert to the Federation of Tax Administrators and the 
State Departments of Revenue who in turn issued a bulletin to their 
membership.

    Question. How can the IRS, working with the DOL, ensure that as UI 
funds continue to be sent to Americans, fraudulent activity is capped?

    Answer. If taxpayers are concerned that someone has stolen their 
personal information and they want to protect their identity when 
filing their Federal tax return, they can request an Identity 
Protection PIN (IP PIN) from the IRS. An IP PIN is a six-digit number 
that prevents someone else from filing a tax return using the 
taxpayer's Social Security number. The IP PIN is known only to the 
taxpayer and the IRS. Using an IP PIN helps the IRS verify the 
taxpayer's identity when they file their electronic or paper tax 
return.

    We have raised awareness and educated taxpayers on steps they may 
take if they become victims of fraudulent unemployment claims. Actions 
we've taken include:

        Issued identity theft guidance for unemployment compensation 
reporting on irs.gov, as requested by States (December 2020).

        Issued a press release and an additional guidance alert to 
taxpayers on identity theft involving unemployment benefits (January 
28, 2021).

        Held ongoing IRS Security Summit meetings to talk with the 
Federation of Tax Administrators (FTA) and other partners to share best 
practices on identifying irregularities and how to share and 
disseminate information.
                              tigta report
    Question. In your testimony, you indicated that you disagreed 
``entirely'' with the TIGTA report and its conclusions. Can you 
elaborate as to the specific bases for why you so disagree?

    Answer. Please see the Management Response to the TIGTA Report 
Number: 2021-30-015, High-Income Taxpayers Who Owe Delinquent Taxes 
Could Be More Effectively Prioritized. Decisions regarding IRS 
workplans are made by career employees based on consideration and an 
evaluation of all available options, including significant enforcement 
resource limitations, leading to determinations that are deemed to be 
in the best overall interests of tax administration. Tax enforcement 
has both a direct effect on taxpayers actually contacted, but also an 
indirect ``deterrence'' effect on taxpayers generally. Unfortunately, 
decisions significantly impacting the people of this country are often 
driven by the lack of available resources. Criticism for not deploying 
sufficient resources to a specific issue or type of taxpayer often 
ignores the importance to tax administration of maintaining meaningful 
compliance coverage across all segments of society, compliance issues, 
etc. With that coverage requirement in mind, and after considering all 
the options, including the tax dollars involved, the IRS determines the 
best overall solution for tax administration by devoting our limited 
enforcement resources across numerous areas with significant perceived 
non-compliance. Reporting that the IRS fails to ``prioritize'' any 
single enforcement option, without appropriately referencing the need 
to spread extremely limited resources across many different areas of 
noncompliance is not appropriate.

                                 ______
                                 
               Questions Submitted by Hon. Chuck Grassley
    Question. I've heard concerns from a number of accountants and tax 
preparers in Iowa on the current filing deadline. While the IRS has 
postponed the deadline 1 month, many say additional time is still 
needed given the delayed start to filing season, changes in tax law 
late last year, and COVID related issues. Can you explain why the IRS 
has been reluctant to extend the filing deadline further? Also, why 
wasn't the postponed deadline extended to estimated tax payments?

    Answer. We appreciate and respect the comments we received both for 
and against a filing extension. Those requesting a FS21 deadline 
extension included members of Congress and several associations 
representing tax professionals and others. Those requesting that we not 
extend the FS21 deadline included the following:

        Federation of Tax Administrators, representing State tax 
administrators around the country;
        Council for Electronic Revenue Communication Advancement, 
representing a wide diversity of industry participants, including tax 
software firms, large tax preparation companies, technology 
integrators, and financial services companies; and
        American Coalition of Taxpayer Rights, helping more than 110 
million taxpayers each year through tax preparation solutions.

    We also had direct talks with members of Congress, tax 
professionals, and others about whether to extend the FS21 deadline and 
the nature of any potential extension.

    After carefully considering all the options, the Department of the 
Treasury (Treasury) and the IRS determined a limited FS21 deadline 
extension for individuals filing Form 1040 to May 17, 2021, was in the 
best interest of tax administration.

    IRS Notice 2021-21 sets forth the details of the extension. Notice 
2021-21 only applies to income tax returns for individual taxpayers. It 
does not extend the filing deadline for any other type of tax return 
and does not change the April 15, 2021 deadline for estimated tax 
payments.

    While we recognize the desire and importance of requests to further 
extend the FS21 deadline or expand the scope of the extension, doing so 
poses a significant potential risk to implementing the American Rescue 
Plan Act (ARP). Additionally, it could have delayed delivery of the 
Recovery Rebate Credits (RRCs), ARP Economic Impact Payments (EIP3), 
and refunds--including Earned Income Tax Credit (EITC) and Child Tax 
Credit (CTC) payments--to the most vulnerable Americans.

    The IRS is continuing to help taxpayers navigate the unusual 
circumstances related to COVID-19, while also meeting its important tax 
administration responsibilities for our country. The IRS frequently 
faces competing priorities for the same set of limited resources, 
especially customer support and information technology.

    We currently have more than 13,700 IRS customer service 
representatives (CSRs) assisting taxpayers on the phone and they will 
remain available through the May 17, 2021 extended FS21 deadline. ARP 
included funding to bring an additional 1,000 CSRs onboard this summer. 
Following the end of the filing season, CSRs begin sorting and working 
through our correspondence inventory. This correspondence often 
includes taxpayer responses to our requests for additional information 
required to complete processing some filed returns. Extending the 
filing season deadline delays the CSR correspondence assistance. This 
delay, in turn, potentially slows the resolution of taxpayers' accounts 
and results in delayed refunds, including EITC and CTC payments.

    For many taxpayers, refunds are often their largest source of funds 
each year, and they use this money to purchase necessities and pay down 
debt. When we extend the filing season deadline, many taxpayers 
postpone filing their return. This postponement, in turn, delays 
refunds and impairs the timely benefit of EITC and CTC payments. For 
FS21, it also delays distribution of RRCs, which is the only way 
eligible taxpayers can claim any unreceived payments from the first and 
second rounds of EIPs. Further, under ARP, the IRS bases EIP3 
eligibility and amount on information in the 2020 return or, if not 
filed, the 2019 return. If a taxpayer who received an EIP3 based on 
2019 return information then files a 2020 return showing they are 
entitled to a larger EIP3, the IRS promptly issues a supplemental EIP 
to that taxpayer for the difference. A delayed 2020 return means a 
delayed supplemental EIP.

    Extending any filing season also compresses the development cycle 
for the entire tax ecosystem, including the IRS, the State departments 
of revenue, and the tax software development companies. The IRS 
typically begins preparing for the next filing season shortly after the 
traditional April 15th deadline. This preparation includes developing 
the programming and form changes needed to implement recent tax 
provision changes. Extending the filing season deadline limits the time 
to identify, test, and build changes for the next filing season and 
introduces risks of problems or even an unsuccessful filing season. It 
also affects programming and preparation challenges for industry 
stakeholders. Continued changes and uncertainty in the filing season 
deadlines create confusion and affect taxpayer confidence and 
understanding of compliance deadlines.

    The IRS and Treasury also remain highly sensitive to the numerous 
challenges facing small business owners in general and especially 
during the pandemic. The estimated tax ``penalty'' is an interest-based 
addition to tax, based on the IRS's current interest rate. We are aware 
that, during the pandemic, many small businesses are choosing to absorb 
the estimated tax penalty and retain the funds as working capital or to 
pay down other obligations with a higher interest rate.

    Small businesses choosing to make the first quarter estimated 
payment on May 17th instead of April 15th will have to pay an estimated 
tax penalty equal to \1/12\ of the annualized interest rate (currently 
3 percent) times the estimated payment amount. For example, a first 
quarter estimated tax liability of $8,000 paid on May 17th would incur 
an estimated tax penalty of $20 (\1/12\  3 percent  $8,000). 
Meanwhile, the business would retain any economic benefit of having 
such funds in its possession during the period from April 15th to May 
17th.

    Individual taxpayers must pay taxes as they earn or receive income 
during the year, either through withholding or estimated tax payments. 
Most individual taxpayers have their taxes automatically withheld from 
their paychecks and submitted to the IRS by their employer. Individuals 
whose income is not subject to income tax withholding must make 
quarterly estimated tax payments to the IRS. However, there are certain 
exceptions and special rules that apply to some groups, including 
farmers, fisherman, those who recently became disabled, recent 
retirees, and those who receive income unevenly during the year. 
Estimated taxes can be paid online using IRS Direct Pay, credit card, 
Electronic Fund Withdrawal (EFW), or the Electronic Federal Tax Payment 
System; through the mobile application IRS2Go using EFW or credit card; 
by phone using EFW or credit card; or in person or mail using a check 
or money order and the Estimated Tax Payment Voucher.

    Individuals do not need to rely solely on their prior year's taxes 
to properly estimate their first quarter estimated income tax payment. 
Section 6654 of the Internal Revenue Code imposes an addition to tax on 
individuals for failing to timely pay estimated income taxes. The 
addition to tax is calculated by using the lesser of the following:

        100 percent of the prior year's tax (110 percent for higher-
income individuals), or
        90 percent of the current year's tax.

    Individuals also retain the ability to automatically extend the 
filing date of their 2020 income tax return. There are many online 
services that allow most individuals to automatically extend their 
filing deadline without cost for such services. As noted above, 
businesses that do not report income on an individual tax return are 
not affected by the extended filing season deadline.

    Question. I appreciate your response to my question on the 
importance of the IRS Private Debt Collection (PDC) program during the 
Finance Committee hearing. This program allows the IRS to engage 
private debt collectors to collect delinquent tax debts that in most 
cases the IRS has stopped pursuing. This means that the PDC program 
brings in revenue that would otherwise not be collected, and allows the 
IRS to use the proceeds to hire more revenue agents.

    According to IRS data, the PDC program has collected more than $623 
million from FY 2017 through September 17, 2020, with more than $320 
million collected in FY 2020 alone. Combined with revenue collected by 
additional IRS personnel funded by the program, the PDC program has 
provided more than $678 million to the U.S. Treasury.

    Despite the clear success of this program, I am concerned by 
reports that the IRS has made a decision not to provide new cases for 
the program until the end of September, 2021.

    What is the basis for the decision to delay the delivery of new 
cases to PDC companies?

    Answer. The IRS considered several factors when making the decision 
to delay the delivery of new cases to the private collection agencies 
(PCA):

        Current status of the filing season and processing delays the 
IRS and taxpayers are experiencing. The IRS continues to work through 
backlogs in some of our operations that affects the eligible inventory.
        Contract transition activities including IT development work 
for new capabilities and compensation structures
        Each PCA has approximately 670K open cases that in total 
averages $6.8B in balances due.
        In addition to the open cases, the IRS is still delivering new 
tax debts on the accounts that are already assigned to a PCA. Since the 
end of January 2021, we have placed about 50,000 new tax debts 
(modules) totaling $379M in balances due.

    Question. Is the date which the PDC companies have been given for 
new cases, which I understand is September 27th, final, or will the IRS 
attempt to provide new bases before that date?

    Answer. The date is firm, for the same reasons as stated above.

    Question. I also want confirm the full inventory of ``outstanding 
inactive tax receivables'' is being made available to the PDC program 
as intended by law. Aside from the recent pause in cases delivered to 
PDC companies, I am concerned by a finding in a report issued by the 
Treasury Inspector for Tax Administration (TIGTA) on March 10, 2021. In 
this report, titled ``High-Income Taxpayers Who Owe Delinquent Taxes 
Could Be More Effectively Prioritized,'' ``TIGTA identified 3,185 high-
income taxpayers whose accounts were not sent to a private collection 
agency at any point since the program started in Fiscal Year 2017 and 
who owed $110 million on modules that were shelved in an inactive 
inventory as of May 14, 2019.''

    In light of these concerns, I have the following questions 
regarding the available inventory of cases eligible to be assigned for 
the Private Debt Collection program.

    The Taxpayer First Act generally exempted taxpayers under 200 
percent of the Federal poverty level from the program. However, at the 
same time, the time period for when accounts may be assigned to the 
program was shortened from over 3 years after assessment to 2 years. 
This shorter timeline became effective at the beginning of 2021. Can 
you confirm that the IRS has updated its pool of eligible accounts for 
the program based on this updated timeline? How many additional 
accounts has this resulted in being eligible for the program?

    Answer. The IRS updated the pool of eligible accounts for the 
program based on this change. The change from 3 years to 2 years 
currently adds about 80,000 additional cases to the pool of eligible 
accounts. Note that many cases older than 2 years are already swept 
into inventory by other parts of the statute, because they are already 
shelved due to lack of resources or there has been no taxpayer contact 
for over a year.

    Question. Please provide the most recent estimate of the gross 
dollar amount of tax debt receivables and number of tax modules in the 
Individual Master File.

    Answer.

------------------------------------------------------------------------
 Individual Master File \2\  Number of Entities    Gross Dollar Amount
------------------------------------------------------------------------
                                     15,665,114         $303,618,588,929
\2\ All figures for the
 tables in this response
 are as of April 22, 2021.
------------------------------------------------------------------------


    Question. Please provide the most recent estimate of the gross 
dollar amount of tax debt receivables and number of tax modules in the 
Business Master File.

    Answer.


------------------------------------------------------------------------
    Business Master File     Number of Entities    Gross Dollar Amount
------------------------------------------------------------------------
                                      3,379,230         $165,784,958,068
------------------------------------------------------------------------


    Question. Please provide the most recent estimate of the number of 
tax modules in each file that meet the requirements of ``inactive tax 
receivable'' as defined under section 6306 of the tax code without 
regard to section 6306(d).
    Answer.


------------------------------------------------------------------------
 
------------------------------------------------------------------------
Inactive Tax Receivables (accounts/entities)                   2,886,404
------------------------------------------------------------------------
Individual Master File                                         2,340,150
------------------------------------------------------------------------
Business Master File                                             546,254
------------------------------------------------------------------------


    Question. Please provide the most recent estimate of the number of 
tax modules in each file that have been designated by IRS as eligible 
for transfer to PDC companies.

    Answer.


------------------------------------------------------------------------
 
------------------------------------------------------------------------
Eligible for Transfer (accounts/entities)                        704,398
------------------------------------------------------------------------
Individual Master File                                           359,187
------------------------------------------------------------------------
Business Master File                                             345,211
------------------------------------------------------------------------


    Question. Please provide the most recent estimate of the number of 
tax modules that are excluded from the PDC program according to each 
exception under IRC section 6306(d).

    Answer.


------------------------------------------------------------------------
               Legislative Exclusions                        Count
------------------------------------------------------------------------
Pending or Active Offer in Compromise                              1,117
------------------------------------------------------------------------
Pending or Active Installment Agreement                          106,121
------------------------------------------------------------------------
Open Examination                                                  17,191
------------------------------------------------------------------------
Litigation and Bankruptcy                                          1,103
------------------------------------------------------------------------
Currently Under Levy                                             125,894
------------------------------------------------------------------------
Right to Appeal--Collection Due Process                           23,765
------------------------------------------------------------------------
Innocent/Injured Spouse                                            3,883
------------------------------------------------------------------------
Combat Zone/Military Deferment                                    13,525
------------------------------------------------------------------------
Deceased                                                         183,186
------------------------------------------------------------------------
Less than 18 Years Old                                             2,362
------------------------------------------------------------------------
Identification Theft                                             365,046
------------------------------------------------------------------------
SSDI                                                             125,329
------------------------------------------------------------------------
Low Income                                                       396,205
------------------------------------------------------------------------
Criminal Investigation                                             1,385
------------------------------------------------------------------------
    Total                                                      1,366,112
------------------------------------------------------------------------


    Question. Please provide the number, if any, of tax modules that 
are excluded from the program for any reason other than as an exception 
under section 6306(d) of the tax code and the reason for exclusion.

    Answer. In addition to the exceptions identified in section 
6306(d), there are other operational conditions that excluded an 
account from the program. The operational conditions include IT 
constraints, data limitations, and the complexity of an account.


------------------------------------------------------------------------
                Operational Condition                        Count
------------------------------------------------------------------------
Individual Master File (IMF) Balance Due and Sole                 37,688
 Proprietorship BMF assigned at IRS (not inactive)
------------------------------------------------------------------------
Earliest Collection Statute Expiration Date is zero,             246,819
 incorrect, or about to expire
------------------------------------------------------------------------
Financial Classification is write-off                            104,214
------------------------------------------------------------------------
IRS/Federal Employee                                                  36
------------------------------------------------------------------------
Restricted Interest                                              170,961
------------------------------------------------------------------------
Complex IMF-Spousal Split Assessments; Additional                 23,865
 Tax on Qualified Retirement Plans
------------------------------------------------------------------------
IMF Joint liability and Spouse has also Separate                  51,877
 Balance Due at IRS (not inactive)
------------------------------------------------------------------------
Non-Master File Account                                            5,647
------------------------------------------------------------------------
Individual Taxpayer Identification Number (ITIN)                 145,487
 (Primary or Spouse)
------------------------------------------------------------------------
Foreign Address/International                                     14,220
------------------------------------------------------------------------
Invalid TIN                                                          699
------------------------------------------------------------------------
Private Collection Agency (PCA) Block (Cases                       1,732
 returned from PCA)
------------------------------------------------------------------------
Private Debt Collection/Caution Upon Contact                         362
 Indicator
------------------------------------------------------------------------
Active Passport Program                                            1,243
------------------------------------------------------------------------
Taxpayer Advocate Service                                             29
------------------------------------------------------------------------
Sole Proprietor Business Master File with IMF                     11,015
 account at IRS (not inactive)
------------------------------------------------------------------------
    Total                                                        815,894
------------------------------------------------------------------------


                                 ______
                                 
                Question Submitted by Hon. Maggie Hassan
    Question. The American Rescue Plan contained the Recovery Startup 
Assistance Act, my bipartisan bill with Senator Braun to provide 
assistance, through the Employee Retention Credit, to new businesses 
that started during the pandemic. Startups will be eligible to start 
receiving this assistance in July. When do you expect that the IRS will 
issue guidance around this assistance for new businesses?

    Answer. We are working with the Department of Treasury on 
additional guidance on the Employee Retention Credit, specifically with 
regard to the changes made to the credit by the American Rescue Plan 
Act of 2021. We understand that employers will need guidance in advance 
of taking the employee retention credit under the American Rescue Plan 
Act beginning with the third quarter of 2021. In addition, employers 
who are eligible due to a full or partial suspension of business 
operations or a decline in gross receipts may still claim the credit 
based on existing applicable employee retention credit guidance found 
in Notice 2021-20 and Notice 2021-23, relating to calendar quarters in 
2020 and the first and second calendar quarters of 2021, respectively.

                                 ______
                                 
               Question Submitted by Hon. Robert Menendez
    Question. Section 2201 of The Taxpayer First Act requires the IRS 
to modernize the disclosure of taxpayer information for third party 
income verification. Third party income verification is crucial for 
consumers to access many financial products and services, including 
home mortgages. The modification of this process is intended to 
increase speed, accuracy, and taxpayer data privacy. This process is 
funded by transaction fees charged to users of the system, which often 
times are residential lenders. Congress requires the solution to be 
fully automated and accomplished in as close to real time as 
practicable.

    Will you please provide us an update on the status of attaining a 
real time automated process for the Income Verification Express Service 
(IVES) Program?

    Answer. TFA section 2201 requires an Internet platform and 
automation of the current Income Verification Express Service (IVES) by 
January 1, 2023. This automation will reduce IVES request processing 
time from 3 days to ``as close to real time as possible'' and will be 
compliant with applicable security standards and guidelines. The IRS is 
on track to deliver the solution by January 1, 2023.

                                 ______
                                 
                Questions Submitted by Hon. Rob Portman
    Question. My bipartisan legislation with Senator Cardin, the 
Protecting Taxpayers Act, included many provisions that were 
incorporated in the 2019 law, the Taxpayer First Act. One of these 
provisions provided that the IRS establish an Independent Office of 
Appeals and strengthen taxpayers' right to an appeals. As you are 
working to implement the law, it seems that there are still challenges 
to ensuring taxpayers feel the Independent Office of Appeals is truly 
independent--in that not only are the reviews fair, but that they 
appear fair and free from conflict of interest.

    First, many Appeals officers were former IRS examiners and this 
often provides an implicit bias (if not explicit) for making a 
determination. Second, Appeals officers could benefit from training 
with the Taxpayer Advocate Office to better understand the issues 
taxpayers are facing. Next, transparency is key. While the pandemic has 
provided challenges for all of us, I understand Appeals conferences are 
often over the phone or if they are by videoconference, most IRS 
participants do not utilize the camera. This leads to a sense of 
distrust as taxpayers do not know who is in the room, the reaction of 
the Appeals officer to the argument, and whether others are being 
consulted to make the decision. Finally, as many IRS employees are 
still working from home, there's a challenge for ensuring taxpayers 
data is being protected.

    What additional steps will the IRS take to ensure taxpayers feel 
Appeals is truly independent? How is the IRS protecting taxpayer data 
as employees work at home? What technology is the IRS using to allow 
IRS employees to review, but not retain, protected taxpayer data such 
as trade secrets?

    Answer. Since passage of the Taxpayer First Act, the Independent 
Office of Appeals (``Appeals'') has taken various steps to reinforce 
our (actual and perceived) independence. For example:

        Appeals held a series of all-employee continuing education 
sessions to focus on the independence-related provisions of the 
Taxpayer First Act and to reemphasize our role as impartial arbiters 
who listen to taxpayers and seek to resolve cases without litigation. 
We will continue to emphasize these themes with existing employees, and 
we are incorporating these themes into mandatory training for new hires 
as well.
        Appeals is working with IRS Chief Counsel and the Department 
of Treasury to issue regulations clarifying the broad scope of access 
to an independent Appeals review contemplated by the Act and also is 
working with the IRS Chief Taxpayer Experience Officer to increase 
awareness of Appeals among unrepresented taxpayers.
        Appeals developed recruiting materials this year that are 
directed toward encouraging professionals outside of the IRS to 
consider a career in Appeals. We currently are recruiting applicants 
from private industry and public accounting on the theory that an 
independent Appeals should have a workforce with a diversity of 
professional backgrounds.
        Following passage of the Taxpayer First Act, Appeals 
leadership began a series of discussions with tax practitioners to 
identify their concerns with Appeals and to seek their views on 
ensuring the best taxpayer experience in Appeals. We also met with the 
IRS Advisory Council (IRSAC) and solicited their input specifically on 
the Taxpayer First Act and any Appeals policies or procedures that 
should be reconsidered to better meet the letter and spirit of Appeals 
independence in the Act. These conversations are helping to promote 
policies and procedures that ensure fair and impartial hearings for 
taxpayers.

    An independent Appeals as contemplated by the Taxpayer First Act 
requires a continual focus by Appeals leadership on ensuring that 
Appeals employees treat taxpayers fairly and with respect, and that 
they endeavor to settle cases in a manner that reflects the litigating 
hazards that would be faced by each side (taxpayer and government) were 
the case to proceed to court. We are proud of the professionalism and 
the expertise of our employees; we will continue to emphasize the 
importance of impartiality, fairness, and taxpayer rights; and we will 
continue to review our internal policies and procedures to ensure they 
adequately protect Appeals' independence.

    The IRS has strict data protection standards to ensure taxpayer 
data is protected from loss and to protect against unauthorized 
disclosure of taxpayer information. IRS employees approved for telework 
must complete required telework security training. IRS security 
measures cover all aspects of the information systems, including paper 
files, storage devices, and telecommunications equipment (laptops, 
PDAs, and cell phones). These security measures include:

        Equipment, data, files, and other information must be secured 
under lock and key when not in an employee's possession.
        Sensitive information must be disposed of in accordance with 
established procedures.
        Trade secrets and other protected taxpayer data must be 
safeguarded in accordance with established procedures.
        IRS laptop computers have a special folder to encrypt 
sensitive but unclassified data.
        Employees must connect to the IRS network from home over a 
secure virtual private network using their HSPD12-Smart ID government 
identification badges.
        COVID-19 emergency procedures allow Appeals' employees to 
email taxpayers using Secure Zip to encrypt data, while IRS data loss 
prevention technology stops attempts to email sensitive unencrypted 
data.
        The Taxpayer Digital Communications system, secured by the IRS 
eAuthorization process, is used for secure messaging with taxpayers.
        Virtual conferencing software used to interact with taxpayers 
and review documents is configured to prevent any downloading of 
protected taxpayer data displayed during the conference.

    It also is important to note that Appeals employees are not 
investigators. Appeals' access to taxpayer records is limited to 
material included in the casefile compiled by the IRS Compliance person 
who conducted the audit or collection action.

    Finally, Appeals has made significant strides in our ability to 
offer videoconferences to taxpayers who want to meet with us ``face to 
face'' but cannot do so during the pandemic. Appeals proactively 
negotiated a Memorandum of Understanding with the National Treasury 
Employees Union that requires Appeals employees use the full 
capabilities of the videoconference equipment and software when holding 
``virtual'' conferences with taxpayers. We provided comprehensive 
training to employees about how to conduct a virtual conference and 
Appeals leadership promotes virtual conferencing efforts in each of our 
outreach events to tax practitioners. We will continue to offer virtual 
taxpayer conferences, as well as in-person and telephonic conferences, 
when the IRS returns to more normal business operations.

    Question. Additionally, what steps has the IRS taken to ensure 
greater uniformity in the taxpayer experience with Appeals? Is there 
guidance from the Appeals Team Case Leaders on the number of attendees 
from Compliance at an Appeals Conference? What procedures does Appeals 
follow to ensure that a taxpayer's settlement discussions only begin 
after the Compliance team is excused from the meeting?

    Answer. All Appeals employees receive training and continuing 
professional education about the importance of providing high-quality 
taxpayer service and adhering to internal procedures. Appeals 
leadership also holds interactive employee town hall meetings to 
discuss important issues, including consistent treatment of taxpayers, 
and we reinforce these points throughout Appeals' training. In 
addition, Appeals maintains its own internal staff of technical tax 
guidance specialists who serve as issue specialists to advise Appeals 
Officers on the consistent application of the law to taxpayers.

    Regarding IRS Compliance attendance at Appeals conferences, Appeals 
has concluded the Appeals Team Case Leader (ATCL) conferencing pilot 
that was intended to test the mandatory inclusion of Compliance 
employees in Appeals conferences. Following the pilot, ATCLs reverted 
to the longstanding Appeals policy under which they retain the 
discretion, but are not required, to invite Compliance personnel to the 
non-settlement portion of the conference. While there is no formal 
guidance limiting the number of attendees at Appeals conferences, the 
expectation for any conference attended by Compliance is that 
Compliance attendees should have been involved with the case before it 
came to Appeals or will provide some value to the process by attending. 
If Compliance personnel accept an invitation to attend a virtual 
conference, they, along with Appeals personnel, are expected to fully 
identify themselves and use their cameras.

    Appeals policy has consistently been that, when invited, Compliance 
may attend only the non-settlement discussion portion of a conference 
unless the taxpayer consents to mediation. In response to external 
feedback received during the ATCL conferencing pilot, Appeals published 
a series of policy statements and FAQs to clarify and reinforce that 
settlement discussions for pilot cases were to be held solely between 
the ATCL, the taxpayer and their authorized representatives. Appeals 
continues to assess whether changes to IRM policy are needed to ensure 
impartial and fair hearings for taxpayers.

    Although the ATCL conferencing pilot has ended, Appeals leadership 
believes that it is critical to our ATCLs' understanding of the case 
that they retain the discretion to include Compliance personnel in the 
non-settlement portion of the conference in appropriate cases. For 
example, in complex transfer pricing or valuation cases where both 
sides rely on expert reports, each side may seek to challenge the other 
side's report. Our ATCLs find it helps significantly to be able to hear 
each side respond to challenges raised by the other side. This 
discussion can lead the ATCL to understand the essence of the dispute 
more fully and thus better assess the litigating hazards faced by each 
side. In all cases, however, settlement discussions must be between 
only Appeals personnel and the taxpayer and must not include Compliance 
personnel. Our guidance is clear on this point.

    Question. What guidance does the IRS provide to its Appeals 
Officers to ensure they remain independent, consider the facts and the 
law, exercise their own judgment, and do not merely concede their 
decision-making authority to other segments of the IRS?

    Answer. Appeals is dedicated to resolving tax controversies, 
without litigation, in a manner that is fair and impartial to both the 
taxpayer and the Government. The core values of independence, 
impartiality and quality decision-making are reflected in employee 
training and continuing professional education, as well as a variety of 
IRS policy statements, administrative guidance and IRM policies. In 
particular, Appeals training focuses on key competencies, including 
fair and effective case resolution, relevant tax law changes, 
independent decision-making, taxpayer service, etc. Appeals Officers do 
not concede decision-making authority to other segments of the IRS. 
Sole authority to settle a case remains in Appeals' jurisdiction. If 
technical guidance is needed on specialized issues in a case, Appeals 
retains its own cadre of issue specialists who provide this advice. 
Appeals does not rely on IRS Compliance specialists to advise on our 
settlements. These policies help to promote Appeals independence and 
encourage independent judgment of our Appeals Officers and their 
managers.

    Question. Thank you for your response to my letter and for the 
March 8th guidance which clarified (as Congress intended) that ADA-
accessible wheelchair ramps are permitted as an exterior modification 
on buildings where historic preservation easements are claimed. On a 
related issue, both in the letter and in questions to Secretary Yellen 
and Deputy Secretary Adeyemo, I requested that the IRS issue guidance 
on conservation easements and provide sample deed language for 
taxpayers looking to utilize this program appropriately.

    Can you please provide an update on the status of that guidance? 
Will you commit to engaging stakeholders including land and historic 
preservationist to develop this guidance?

    Answer. The Treasury Department and the Internal Revenue Service 
recognize the importance of providing guidance that will create 
certainty for taxpayers who make conservation contributions, guidance 
and advice that helps those taxpayers ensure that their contributions 
comply with the law and conserve historic structures and other 
significant conservation interests in perpetuity, as Congress intended. 
As such, we are committed to developing, and encourage members of the 
public to suggest topics for, such guidance and advice.

    We are currently formulating this year's Priority Guidance Plan 
that focuses our resources for guidance items that are the most 
important to taxpayers and tax administration. We encourage the public, 
and other stakeholders to engage us in developing the Priority Guidance 
Plan by submitting items for consideration, pursuant to Notice 2021-28 
(irs.gov).

    Question. Under Sec. 41(h), qualified small businesses (QSBs) are 
authorized to elect to apply up to $250,000 of an R&D tax credit 
claimed under IRC 41 against its payroll tax obligations. To receive 
this credit, QSBs must first calculate and claim the credit on their 
corporate income tax return. Many QSBs use Professional Employer 
Organizations (PEOs) for payroll tax services and other services that 
are important to small businesses and their employees, such as human 
resources assistance and access to quality health insurance, retirement 
plans and other employee benefits. PEOs report and remit QSB payroll on 
an aggregate basis on the PEO's quarterly Forms 941 and other payroll 
tax returns, including applying any R&D tax credits that a QSB elects 
to apply against its payroll tax obligations. In accordance with IRS 
guidance, PEOs report quarterly each QSB that is applying R&D tax 
credits against its payroll tax obligations. We understand that the IRS 
may seek reimbursement from the PEO for disallowed R&D payroll tax 
credits applied by these PEOs on behalf of their small business 
clients. PEOs are a service provided and have no way to determine if a 
client's tax credit is accurate.

    Given that a QSB's R&D tax credit is claimed on the QSB's corporate 
income tax return, does the IRS plan to examine these credits on the 
QSB's return? Or on the PEO's aggregate payroll return?

    Answer. A QSB may claim the credit on their income tax or their 
employment tax return and either of these returns may be selected for 
examination. If a taxpayer utilizes a Professional Employer 
Organization, the research credit could be claimed on the PEO's 
aggregate payroll return; thus the PEO's aggregate payroll return may 
be examined as well.

    Question. If the IRS plans to examine these credits on the PEO's 
aggregate return, how will the IRS ensure that R&D tax credits for 
unrelated QSBs that were applied on the PEO's aggregate payroll tax 
return are not delayed?

    Answer. When the Service conducts an examination of a Form 941 
filed by these types of third-party providers, the Service is examining 
the aggregated amount of the line item claimed by the third-party, 
using the client by client allocation information provided on Schedule 
R as part of the examination. The Service does not issue refunds or 
make credit adjustments to the client entities themselves, but rather 
any allowable credits/refunds are paid to the third-party provider.

                                 ______
                                 
              Question Submitted by Hon. Patrick J. Toomey
    Question. Improper payments continue to be a pressing and expensive 
issue. One specific area of concern is the Advance Premium Tax Credit 
(APTC). When an individual enrolls in marketplace coverage, he or she 
must provide his or her household income estimate. The self-reported 
income estimate is then used to calculate the APTC. If income is 
underestimated, a taxpayer will receive a higher APTC than eligible 
for. However, required repayment of any excess credit received is 
limited based on income level. Further, the American Rescue Plan of 
2021 (Pub. L. 117-2) eliminated all required repayments for the 2020 
plan year regardless of income level.

    In Fiscal Year 2015, the Office of Management and Budget 
established an interagency working group to assess the risk of improper 
payments across all payments made from the Premium Tax Credit (PTC) 
budget fund, including APTCs, and to define the improper payment rate, 
which is necessary to determine if any additional controls are needed. 
The working group included representatives from the Internal Revenue 
Service, the Treasury Department, the Centers for Medicare and Medicaid 
Services, and the Department of Health and Human Services. However, to 
date, an improper payment rate has not been reported.

    Can you provide an update on the improper payment rate 
determination and a timeline for completion?

    Answer. The IRS and the Centers for Medicare and Medicaid Services, 
with the support of the Department of the Treasury and the Department 
of Health and Human Services, have been collaborating to develop error 
rates and to ensure there are no gaps or overlaps in reporting. The 
Department of the Treasury provided notification to the Office of 
Management and Budget (OMB) that it will delay the annual reporting, 
within Treasury's Agency Financial Report (AFR) for Fiscal Year (FY) 
2020 and 2021, of improper payment estimates for the net PTC program 
pursuant to the Affordable Care Act. This delay stems from significant 
new and persistent demands placed upon Treasury and IRS in connection 
with the Coronavirus Disease 2019 (COVID-19) crisis. Consistent with 
the OMB's guidance on prioritizing work based on risk, issued via a 
June 17, 2020 memorandum, Risk Based Financial Audits and Reporting 
Activities in Response to COVID-19, we have given top priority to 
implementing the COVID-19 programs under both the American Rescue Plan 
Act of 2021 and the Consolidated Appropriations Act of 2021.

                                 ______
                                 
               Question Submitted by Hon. Mark R. Warner
    Question. The pandemic highlighted the need for safe digital 
services, like remote online notarization, which is one of the reasons 
I introduced the SECURE Notarization Act last Congress with Senator 
Cramer. The bipartisan legislation would permit nationwide use of 
Remote Online Notarizations, a type of electronic notarization where 
the notary and signer are in different physical locations (provided 
they have a multi-layered process to prevent fraud). Moving forward, 
bringing the notarization process into the 21st century seems like the 
right direction to move in. During the pandemic, the IRS allowed people 
to use remote online notarization for things like spousal waivers under 
qualified retirement plans.

    Does the IRS have plans to extend or make permanent access to make 
digital services, like remote online notarization?

    Answer. Yes, although the IRS does not make extensive use of notary 
services (in-person or remote), extending, improving and launching new 
digital services is a core part of our IRS Integrated Modernization 
Business Plan as well as the Taxpayer First Act (TFA) Report to 
Congress. Subject to available resources, the IRS plans to make great 
strides towards providing taxpayers with permanent access to new 
digital services with robust fraud prevention, including additional 
Online Account functionality that will continue to enhance the customer 
experience with the Service seamlessly and securely.

    TFA section 2302 mandates that the IRS publish guidance to 
establish uniform standards and procedures for the acceptance of 
taxpayers' electronic signatures on Forms 2448 and 8821, which 
authorize disclosure granted by a taxpayer to a practitioner or power 
of attorney. The IRS successfully launched a new online capability on 
January 25, 2021, allowing tax professionals to remotely obtain 
signatures from individual and business clients in different physical 
locations and submit authorization forms electronically.

    The ``Submit Forms 2848 and 8821 Online'' option is part of a 
broader IRS effort to expand options for electronic signatures on 
authorization forms as required by TFA. In the summer of 2021, the IRS 
plans to launch the initial release of additional Online Account 
functionality, which consists of two parts: a new application tax 
professionals can use to initiate authorization requests for taxpayers 
to sign, and new functionality within the individual Online Account, 
called Authorizations, to be used by taxpayers to sign and manage their 
authorizations. The IRS expects this new digital service will 
dramatically speed authorization processing and allow for almost 
immediate access to transcripts and other services.

    Additionally, in response to industry concerns about face-to-face 
interactions during the COVID-19 pandemic, the IRS issued interim 
guidance allowing taxpayers and representatives to use electronic or 
digital signatures when signing certain forms. The Service has also 
issued similar interim guidance to permit electronic transmittal of 
documents and acceptance of digital signatures on documents related to 
the determination or collection of tax liability. This guidance has 
been extended through December 31, 2021.

    The Secure Access Digital Identity (SADI) effort addresses the 
IRS's need to conform with National Institute of Standards and 
Technology (NIST) Special Publication 800-63-3 Digital Identity 
Guidelines and consider additional technology, customer experience, and 
security drivers to provide taxpayers with a seamless and secure user 
experience when interacting with the IRS online. Launched in late June 
of this year, SADI implements updated digital identity proofing and 
authentication solutions that better protect taxpayer data while 
enhancing access to safe digital services.

                                 ______
                                 
             Questions Submitted by Hon. Sheldon Whitehouse
    Question. During the hearing, you asserted ``high income taxpayers 
are audited more than any other taxpayer,'' noting that the audit rate 
is ``over 8 percent of the people over $10 million.'' You cited table 
17a of the IRS Data Book. This table also shows that in tax year 2014, 
and each subsequent year, taxpayers earning between $500,000 and 
$1,000,000, a range that includes taxpayers in the top 1 percent of 
income earners, were audited at a lower rate than recipients of the 
Earned Income Tax Credit.

    How do you justify auditing low-income EITC taxpayers at higher 
rates than those earning in the upper six-figures?

    Answer. Examinations are a critical piece of our compliance efforts 
and help ensure fairness in the tax system. The Service takes pride in 
ensuring our examination selection process is fair and impartial. As 
reported in the IRS's most recently published Data Book (2019), the 
exam coverage rate (closed and in-process) for Tax Year 2015 of 
taxpayers with incomes of $10 million or more is about 8.16 percent. 
The coverage rate for taxpayers with incomes between $5-10 million was 
4.39 percent; for those with income between $1-5 million was about 2.39 
percent; and for those with income between $500,000-$1 million was 
about 1.13 percent. The IRS receives more third-party information 
(Forms W-2, 1099, etc.) for taxpayers with income between $200,000 and 
$1 million than for those above $1 million. These audit rates are 
higher than for any other category of individual filers, and we expect 
to see that trend continue with Tax Years 2016, 2017, and 2018. Tax 
Year 2015 is the last year for which we had the actual audit rates when 
I testified, because the IRS could still open audits for more recent 
years, and the data for more recent years was not yet complete.

    The IRS averages a little less than 300,000 EITC audits per year 
out of the universe of 27 million, which is a rate somewhat smaller 
than 1.11 percent. The challenge with auditing fewer lower-income 
taxpayers claiming EITC is that around 50 percent of the returns 
claiming EITC have overclaimed the credit, and individuals claiming 
more EITC than allowed make up 11 percent of the individual income tax 
underreporting gap, contributing $27B or more of the overall tax gap 
each year. There are several factors behind why the EITC is such a 
large component of the individual income tax underreporting tax gap. 
Despite significant guidance provided by the IRS and others, some 
people (including tax preparers) simply misunderstand the complex EITC 
rules; other people misreport income. Each year, at the start of the 
tax filing season, the IRS participates in EITC Awareness Day events 
throughout the country in an effort to increase participation by 
eligible people and enhance the rate of compliance.

    The IRS fully appreciates the importance of the refundable EITC and 
the significant difference it makes for people. More than 25 million 
people claim EITC per year, generating more than $63 billion each year 
to people in need. This program lifts millions of Americans out of 
poverty, and the IRS is proud to work hard each year to raise awareness 
about the program since many, many EITC-eligible people simply overlook 
claiming this important refundable credit.

    Question. The Treasury Inspector General for Tax Administration has 
found the IRS defines ``high income,'' for the purposes of identifying 
taxpayers for potential examination, as earning above $200,000. It has 
suggested increasing that threshold, since focusing audit resources on 
higher-income taxpayers yields more revenue per audit hour spent.

    Has the IRS considered increasing the annual income level used to 
identify ``high-income'' taxpayers for potential examination? Why or 
why not?

    Answer. Although the current definition of ``high-income'' 
references ``above $200,000,'' that has not precluded the Service from 
increasing our focus on those taxpayers in higher income ranges, well 
above $200,000. Audit rates for taxpayers with income greater than $1 
million are higher than for any other category of individual filers. We 
have also initiated a Compliance Initiative Project to ensure that we 
maintain a high audit coverage of taxpayers at the highest income 
category.

    Question. You explained during the hearings that the annual tax 
gap--the difference between what is owed and what the IRS collects--may 
be as high as $1 trillion per year, which is more than double the most 
recent IRS estimate. You cited foreign-source income as one potential 
reason why the gap may be significantly higher than prior estimates.

    In 2010, Congress enacted the bipartisan Foreign Account Tax 
Compliance Act (FATCA) to crack down on offshore tax cheats who hide 
their wealth in foreign bank accounts. A 2018 TIGTA audit found that 
eight years after the law's enactment, the IRS ``ha[d] yet to begin 
holding taxpayers and [foreign financial institutions] accountable for 
noncompliance.'' The IRS accepted a number of TIGTA's recommendations.

    What progress has the IRS made in accomplishing the objectives set 
out in its FATCA Compliance Roadmap? What challenges does the IRS face 
in meeting these objectives?

    Answer. Since the 2018 TIGTA report (2018-30-040), the IRS has made 
significant progress with its compliance enforcement efforts 
surrounding the Foreign Account Tax Compliance Act (Act). While the 
TIGTA audit report focused on the FATCA Compliance Roadmap as a means 
to measure compliance enforcement efforts, the roadmap was not intended 
to be a static comprehensive plan and was superseded by myriad 
compliance efforts and task-specific documents that address changing 
circumstances to identify and combat individual and foreign financial 
institution non-compliance. The roadmap served as an initial framework 
to create an infrastructure that could support compliance efforts and 
could not envision future policy changes and/or potential information 
technology or human resource constraints.

    Over the past several years, the IRS has continued and initiated 
new compliance activities and has developed campaigns that use 
automated risk assessment processes to identify potential tax 
noncompliance related to a taxpayer's failure to report the proper 
income and tax and or failure to properly submit required information 
returns associated with these offshore accounts. One component of the 
campaigns is cross referencing information reported on Form 8966, FATCA 
Report, with what is reported on Form 8938, Statement of Specified 
Foreign Financial Assets. Significant discrepancies of both individuals 
and Foreign Financial Institutions (FFIs) are identified for compliance 
follow-up. Additionally, FATCA data are associated with individual exam 
cases involving identified offshore-related issues. Third-party FATCA 
information received is also reconciled in numerous compliance 
activities on an ad hoc basis. Automated risk assessment processes are 
also in place to identify those entities that have FATCA Reporting 
obligations but do not meet all their compliance responsibilities. The 
Service's business operating divisions address noncompliance and errors 
through a variety of treatment streams, such as soft letters, 
examinations and termination of an entity's FATCA status.

    While the Service has significantly increased its compliance 
efforts in recent years, compliance efforts continue to be limited by 
technological and human resource limitations in light of budgetary 
constraints.

                                 ______
                                 
                 Questions Submitted by Hon. Todd Young
    Question. I am interested in the ongoing improvements to the IRS 
process for distributing the Economic Impact Payments. It is not 
uncommon for constituents to have had no issues receiving one or two 
rounds of payment, then have issues with a later round. While the EIP 
portal is a step in the right direction, there is still a wide 
variation in timeliness and accuracy of responses.

    How has the IRS changed its systems or protocols for the 
distribution of these payments during each round?

    Answer. The IRS continues to build on programming improvements and 
changes that we have made since the first round of Economic Impact 
Payments (EIPs). Indeed, by leveraging these upgrades, the IRS 
successfully issued the majority of the EIP2s through a single payment 
file in late December before the opening of the 2021 tax filing season.

    Building on our success, the IRS sent out the first round of EIP3 
payments the Friday after the enactment of the American Rescue Plan 
Act. This first round included those individuals with 2020 or 2019 tax 
return and where the IRS has direct deposit information. It also 
included EIP3 payments to non-filers who used the Non-Filers Tool in 
2020. The IRS issued a second round of EIPs the next week for those 
recipients with a 2020 or 2019 tax return but where the IRS did not 
have direct deposit information (such as those returns where a taxpayer 
received a paper check for their refunds, where the taxpayer did not 
owe tax, or where the taxpayer owed tax). It also included payments to 
recipients with newly processed 2020 or 2019 returns with direct 
deposit information. As of May 26, 2021, we have distributed 
approximately 167 million EIP3s worth more than $391 billion.

    The IRS initiated and led a cross-agency coordination effort to 
accelerate EIP3 disbursement to certain Federal benefit recipients who 
are not tax filers. We coordinated with the Social Security 
Administration, Railroad Retirement Board, and Department of Veterans 
Affairs to issue automatic payments to their recipients who have not 
already received an EIP3 based on a tax return (or use of the Non-
Filers Tool in 2020).

    On Friday, April 2nd, we started making the first round of ongoing 
supplemental payments for people who earlier in March received payments 
based on their 2019 tax returns but are eligible for a new or larger 
payment based on their recently processed 2020 tax returns. These 
``plus-up'' payments could include a situation where a person's income 
dropped in 2020 compared to 2019, or a person had a new child or 
dependent on their 2020 tax return, and other situations. As of June 4, 
we have distributed approximately 338,416 of these payments totaling 
more than $609 million.

    To ensure that the public remains informed throughout the 
disbursement of EIP3, the IRS continues to issue frequent news releases 
to share current volumes of EIP3 disbursements and the populations 
included in each week's distribution. To better manage tax refund and 
EIP3 issuance, the IRS has worked diligently with the Bureau of the 
Fiscal Service to eliminate any potential disruption to the tax refund 
process.

    Question. What challenges persist, and what is the IRS doing to 
address those challenges?

    Answer. To increase the success of this third round of Economic 
Impact Payments (EIP3), the IRS and Bureau of the Fiscal Service (BFS) 
continue to work collaboratively to reduce the volume of paper checks 
and the number of direct deposits rejected by designated financial 
institutions. A direct deposit may be rejected for a variety of 
reasons, including because the eligible recipient's account is closed 
or otherwise is invalid. Despite this, EIPs sent electronically are far 
more likely to be successfully delivered than both paper checks and 
debit cards sent by mail. As of March 30, 2021, the rate of return for 
direct deposits issued during EIP3 is 2.0 percent, which is lower than 
for the first two rounds of EIPs.

    By leveraging our experience gained during the first two rounds of 
Economic Impact Payments (EIP1 and EIP2), the IRS and BFS evaluated all 
eligible individuals who previously received a paper check or a debit 
card. Specifically, BFS performed an analysis of these paper check and 
debit card populations to locate available direct deposit information 
from recent payments made to or from the Social Security 
Administration, Railroad Retirement Board, and Department of Veterans 
Affairs that could be used to increase disbursements of EIP3 through a 
direct deposit. As part of this process, BFS leveraged an account 
verification service as appropriate to confirm account validation and 
ownership. As a result, the IRS was able to issue direct deposits of 
EIP3s to more than 12 million recipients who would have otherwise 
received a mailed payment. This significantly expedited payment 
delivery for these recipients including many who receive benefits from 
the Social Security Administration and Department of Veterans Affairs. 
It also helped ensure that those who receive Federal benefits payments 
on a Direct Express card would be more likely to receive their EIPs on 
their cards, instead of by check or a newly issued EIP Card. Less than 
one-half of 1 percent of these payments have been returned as 
undeliverable by financial institutions as of March 30, 2021. In 
addition, the IRS issued millions of additional electronic payments to 
Social Security, RRB, and VA recipients who do not normally file a tax 
return and for whom direct deposit information would otherwise be 
unavailable. The majority of these beneficiaries have received their 
EIPs.

    In preparation for EIP3, the IRS worked with the financial and tax 
industries to validate banking information provided on tax returns. The 
IRS undertook these efforts to prevent unsuccessful disbursements of 
EIP3 to temporary accounts used for tax refund purposes. By validating 
this banking information, the IRS has dramatically reduced EIP3 
disbursement to temporary accounts. Prior to the enactment of the 
American Rescue Plan Act of 2021, we had intended to leverage the 
account verification service available through BFS to test this data in 
advance of EIP3 disbursements. However, to comply with that 
legislation's directive to disburse these payments ``as rapidly as 
possible,'' we used our validation efforts instead and begin disbursing 
EIP3 within days of the legislation's enactment. We continue to work 
with BFS on options to validate account information, while following 
all disclosure provisions and legislative authority for EIPs, tax 
refunds, and other non-tax payments from the IRS.

    Question. You had referenced a few metrics in our discussion during 
the hearing of the backlog of 2019 returns which I would like to 
revisit. You stated that your mail processing is ``current, not a 
backlog'' of 1 million parcels, which is the amount you can process in 
a week. I find this troubling, as we continue to hear from the Taxpayer 
Advocate Service that the Kansas City facility is continuing to open 
mail from June 2020.

    Can you please identify exactly how many parcels of mail remain 
unopened that were delivered to the IRS within the last 6 months? 
Within the last 9 months?

    Answer. All mail that remains unopened in our four Submission 
Processing (SP) centers was received in 2021. As of June 5, 2021, there 
were approximately 120,000 pieces of mail waiting to be processed, with 
the oldest work received on June 1, 2021. Although TAS identified work 
from our Kansas City SP center being received from June 2020, this was 
an anomaly. SP has requested any additional feedback of instances TAS 
may see of this issue. As of June 11, 2021, we have not received any.

    Question. Exactly how many parcels is the IRS able to process per 
week, and how are these being prioritized if not by date of delivery to 
the IRS?

    Answer. Over the past 4 weeks, we have averaged opening 1.8 million 
pieces of mail per week. All mail is being opened on a First In/First 
Out (FIFO) basis. We are opening mail within normal timeframes.

    Question. Can you please identify the exact number of 2019 tax 
returns that have yet to be processed? If a taxpayer has not received 
any communication from the IRS regarding their 2019 tax return filed 
over six months ago, should they now file a duplicate return?

    Answer. The backlog of all individual returns received in 2020 has 
been cleared and they are now in the processing pipeline. We do not 
recommend filing a duplicate return.

    Question. There have been a wide variety of problems in the 
distribution of stimulus checks that I understand arise from the IRS's 
usage of outdated information. While annual updates to personal 
information via tax returns makes sense, this process alone is simply 
inadequate to ensure urgently needed stimulus payments are accurately 
directed to the correct recipient.

    During a year in which so much has changed for so many people, what 
processes has the IRS been able to set up in order to quickly update 
individual records?

    Answer. The Coronavirus Aid, Relief, and Economic Security (CARES) 
Act, the COVID-Related Tax Relief (CRTR) Act, and the American Rescue 
Plan (ARP) Act were the largest economic rescue packages in U.S. 
history. Legislation directed the IRS to issue payments as rapidly as 
possible to provide relief to U.S. citizens. Implementing these Acts 
was an extraordinary test of IRS's core mission and function which 
presented numerous challenges requiring rapid delivery timeframe, 
unprecedented coordination, taxpayer outreach, and increased risk 
tolerance.

    Though implementing these laws was a challenge, the IRS built on 
prior lessons learned and recognized the need to establish customer 
facing tools that did not require a phone call or face-to-face contact. 
Working with our external partners to help facilitate payments and 
share information with the public, we quickly launched two innovate 
wed-based tools. This included the Non-Filers: Enter Payment Info Here 
tool for individuals who did not have a filing obligation so they could 
quickly and easily provide relevant information to receive their EIPs. 
Additionally, to help individuals who had not previously provided their 
bank information, we collaborated with our external partners to develop 
the Get My Payment tool which allowed many individuals to receive their 
EIPs quicker through direct deposit into their bank account. We also 
quickly established a dedicated webpage with evolving Frequently Asked 
Questions where customers could, find information about EIP payments 
and get answers to their questions.

    Question. What factors have you seen in the past year that have 
prevented the IRS from more quickly updated such records?

    Answer. The IRS performed an internal review that included the 
following lessons learned:

    1.  Coordination across agencies was imperative and will be further 
enhanced for future tax legislation packages, including that associated 
with EIP3.
    2.  Payment files were prepared using IRS's IT infrastructure with 
input(s) from other Federal agencies' databases. Opportunities exist 
for more similar formatting of data to allow for smoother ingestion of 
data.
    3.  The IRS leveraged industry partnerships and has identified 
opportunities while beginning to broaden and expand these 
relationships.
    4.  Continue to expand virtual infrastructure to facilitate virtual 
workforce in multiple locations.

    We recognize that when appropriate, we will begin IT planning while 
legislation is being finalized. We will also introduce standardized 
processes for data intake from external delivery partner agencies 
(i.e., SSA, SSI, VA, RRB) to reduce the need for heavy manual 
``perfection'' of data.

    Question. The Taxpayer Advocate Service plays an important role in 
assisting Hoosiers and resolving issues with the IRS. Given the added 
challenges faced by the IRS in the past year, I am wondering how 
individuals working in this crucial role are best empowered to address 
the needs of Hoosiers. a. In the past year, have taxpayer advocates 
been granted any additional roles or responsibilities in order to speed 
up the processing of cases?

    Answer. In 2020, we agreed with Taxpayer Advocate Service (TAS) to 
expand authorities to resolve one Error Code (EC) in our Error 
Resolution System (ERS). TAS secures needed documentation and resolves 
the error, allowing the return to continue processing. We plan to work 
with TAS further to review authorities to allow TAS to resolve more 
taxpayer cases. In addition, TAS and the IRS collaborated extensively 
over the past year to develop and implement strategies to resolve the 
backlog of cases that resulted from the shutdown of our service centers 
and subsequent reduced onsite staffing in response to the COVID-19 
pandemic.

    Question. What concerns do you have with granting advocates limited 
administrative rights, including updating addresses or unlocking files 
for surviving spouses?

    Answer. The actions TAS takes are routine and follow very specific 
instructions not exercising any judgement on these cases while 
resolving certain EC and ERS taxpayer account cases. It is not a 
substitute for authorities performed by IRS operating divisions and 
functions. This collaboration is mutually beneficial to TAS and the 
IRS, as it allows TAS to actively assist some taxpayers whose returns 
and associated refunds have been delayed due to the COVID-19 pandemic. 
This also allows IRS functions to reallocate resources to resolving 
other outstanding matters. We plan to work with TAS further to review 
authorities to allow TAS to resolve more taxpayer cases.

    Question. Commissioner, I appreciate you addressing the issue of 
the tax gap during the hearing, and I am interested in continuing to 
understand the nature, causes, and potential solutions for the tax gap 
in this country. During your testimony, you shared your estimate that 
the tax gap could approach $1 trillion per year.

    How does the tax gap in the U.S. compare to the tax gaps in other 
advanced countries?

    Answer. Tax law, tax administration, the size of an economy, and 
many other factors that affect the nature and extent of tax 
noncompliance differ across countries. The data and estimation methods 
used for estimating tax gaps also differ. For these reasons, the U.S. 
tax gap estimates are not comparable to the estimates of other 
countries.

    The Organisation for Economic Co-operation and Development (OECD) 
biennially issues a tax administration comparison covering OECD and 
other economies. These documents include comparative information about 
tax administration characteristics including summary information about 
countries producing and/or issuing tax gap estimates. Below are links 
to recent documents.

    Tax Administration 2019: Comparative Information on OECD and Other 
Advanced and Emerging Economies (oecd-ilibrary.org)

    Data tables (oecd-ilibrary.org)

    Tax Administration 2017: Comparative Information on OECD and Other 
Advanced and Emerging Economies (oecd-ilibrary.org)

    Question. I understand that workers get W-2s or 1099s from their 
employers and from their banks and other financial institutions, and 
that those employers and financial institutions report that information 
to the IRS, which enables the IRS to easily confirm those tax filers' 
income and other information. As you mentioned during the hearing, 
there are certain sources of income that do not have that kind of 
third-party reporting.

    How does compliance with tax laws differ between income that is 
also reported by a third party and income that is not?

    Answer. Our research on the compliance of filers of individual 
income tax returns indicates that income subject to substantial 
information reporting and withholding has the least amount of 
misreporting with a net misreporting percentage of 1 percent. Income 
subject to substantial information reporting but not withholding also 
has high voluntary reporting with a net misreporting percentage of 
about 5 percent.

    The ``visibility'' chart below shows the relationship between 
information reporting/withholding and reporting compliance.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Question. When we left off in our hearing conversation, you 
acknowledged that most of the tax gap is due to high-income taxpayers.

    Is it accurate that high-income taxpayers are more likely to have 
income sources that are not subject to third party reporting?

    Answer. Although high-income taxpayers account for a significant 
portion of the tax gap, taxpayers at all income levels underreport 
their taxes. High-income taxpayers are more likely to have income 
sources that the IRS classifies as subject to little or no information 
reporting. High income taxpayers are also more likely to have flow-
through and capital gains income. Although these sources of income are 
covered by some information reporting, the extent and completeness of 
the reporting is likely less than other types of income, such as wages, 
interest, or dividend income.

    Question. Given that audits are useful tools but inadequate to 
capture all lost revenue, how does the IRS make sure taxpayers with 
income that is not reported by others are paying the taxes that the tax 
laws require?

    Answer. Examinations are a critical element of tax administration, 
and during audits our examiners utilize various analytical tools to 
identify other sources of income not reported by third parties, such as 
interviewing the taxpayer/representative, conducting a tour of the 
business, probing for additional sources of income, and reviewing 
related returns (i.e., corporate, partnership, employment tax, and 
excise tax returns). Since 2018, we have shifted significant 
examination resources and technology to increase our focus on high-
income taxpayers. With technological advances, we are now able to 
identify instances of evasion that would not have been possible just a 
few years ago. Our Examination personnel are conducting audits of high-
income taxpayers identified with a risk of non-compliance at an 
examination rate higher than any other category of individual filers. 
We have also initiated a Compliance Initiative Project to ensure that 
we maintain a high audit coverage of taxpayers at the highest income 
category. Examiners across our operating divisions are assigned work to 
cover this important category of taxpayers.

    In addition to examinations, the Service utilizes other approaches 
to address taxpayer noncompliance. In our Collection division, high-
income taxpayers are also a focus of our work. High-income taxpayers 
with balances due receive high prioritization for enforcement action. 
For high-income taxpayers who fail to file a return, we have programs 
that address their compliance through notices as well as field 
presence.

    Within the past 2 years, we launched our Office of Fraud 
Enforcement (OFE) where technical advisors provide fraud policy and 
operations support to all IRS operations. A robust fraud program is an 
essential deterrent to all type of taxpayers who may consider engaging 
in non-compliance. OFE is currently engaged in a project focused on the 
development of various signatures associated with the hidden ownership 
of virtual currencies to better enable the IRS to pursue undisclosed 
taxable transactions. Within the past year, we have created an Office 
of Promoter Investigations (OPI) focused on taxpayers and the promoters 
of abusive tax avoidance transactions, including abusive Syndicated 
Conservation Easements, abusive Micro-Captive insurance arrangements, 
and other transactions. Many of these transactions involve income or 
deductions not subject to third party reporting.

    Most investigations conducted by our Criminal Investigation 
division (IRS-CI) involve high-income individuals and their advisors. 
Our Nationally Coordinated Investigations Unit (NCIU) supplements case 
development by identifying, promoting, and supporting innovative 
investigations, delivering high-impact investigations, and addressing 
emerging issues to advance the mission of the IRS and IRS-CI. During 
the past year, IRS-CI has conducted approximately 450 undercover 
investigations, many focused on high-income individuals and their 
advisors. If completion of a criminal investigation leads to an 
indictment by the Department of Justice, the publicity surrounding the 
indictment often has a deterrent effect helpful to tax administration.

    The IRS's Global High Wealth (GHW) enterprise approach is another 
way that the IRS seeks to ensure compliance of high-income taxpayers 
where there is not a lot of third-party reporting. GHW uses a holistic 
look at a taxpayer's entire sphere of financial activities with which 
they are involved. This would include related/
controlled pass-through entities, charitable entities and gifting. The 
information is found through in-depth requests for information and 
detailed interviews.

    Question. What impact do you think the Biden administration's 
proposed increase of the corporate tax rate to 28 percent will have on 
total taxes collected?

    Answer. The Biden administration's proposed increase of the 
corporate tax rate to 28 percent is expected to raise corporate tax 
revenues dramatically. Together with the other provisions of the 
American Jobs Plan, according to the Treasury, the package is expected 
to raise about $1.7 trillion over the coming 10 years.

    Question. Could this rate, which as I understand it, would be among 
the highest of all OECD member countries, actually contribute to 
increasing the tax gap over the next decade?

    Answer. Any change in tax rates must be viewed holistically, 
alongside changes to the tax base. The administration's full tax plan 
includes many provisions that tighten loopholes, including provisions 
that address the discrepancy between the tax treatment of foreign and 
domestic income. In addition, the administration's tax plan proposes to 
direct resources to the IRS in order to improve tax compliance. Thus, 
we'd expect the package to reduce the tax gap.

    Question. During our conversation, you had indicated that the most 
optimistic analyses of the tax gap showed that at most 20 percent of 
the loss could be recaptured through increased enforcement mechanisms. 
Further, you expressed your own view that more could be recaptured 
under a so-called ``modern IRS.''

    What are some of the major structural or process changes that the 
IRS should make in order to meet the needs of 21st-century taxpayers 
while addressing the threats posed by 21st-century tax evaders?

    Answer. There's no single solution to achieving a meaningful 
reduction in the tax gap or one type of taxpayer responsible for it. 
Reducing the tax gap requires a comprehensive, multi-faceted strategy 
and effective execution from the IRS coupled with appropriate 
safeguards and accountability to taxpayers. Investment in our service, 
enforcement and compliance efforts is extremely important. Multi-year, 
consistent, timely and adequate funding helps us deliver meaningful 
services to taxpayers, conduct critical enforcement initiatives, and 
support long term IT modernization efforts that help improve 
compliance. Greater investments in technology can help us properly 
assist compliant taxpayers. Modernization of our systems coupled with 
technological advances in artificial intelligence, data and analytics 
will continue to enhance services to compliant taxpayers and make tax 
avoidance by others more visible and more difficult.

    In January, we delivered our Taxpayer First Act Report to Congress 
detailing how the IRS intends to modernize our structure and processes 
to provide a better taxpayer experience, increase efficiencies and 
improve operations. Our modernized organizational structure will better 
align operations with our mission, increase 
agency-wide collaboration, and deconstruct operational silos. Key 
elements include:

        Realigning the IRS's organizational structure to increase 
consistency across compliance functions and improve our ability to 
address the more complex areas of non-compliance through multi-
discipline teams.
        Improved services through broader line of sight across the 
entire taxpayer experience.
        Improving the leadership structure, reducing organizational 
redundancies, and removing silos.
        Providing solutions to best position the IRS to combat 
cybersecurity and other threats.

    Our Organizational Redesign Strategy focuses on the following key 
areas:

        Improve the Taxpayer Experience and Provide a Continued 
Emphasis on Taxpayer Rights
            In January, we appointed IRS's first Chief 
Taxpayer Experience Officer (CTXO). Leading our new Taxpayer Experience 
Office (TXO), this Senior Executive will drive strategic direction for 
improving the taxpayer experience across the IRS-including both service 
and compliance interactions.
            The TXO provides an enterprise level holistic 
view of the taxpayer experience. This Office will identify 
opportunities to modernize service delivery, increase access and drive 
continuous improvements in real time.
            The new structure combines and centralizes 
taxpayer-facing program offices to streamline responses to taxpayer 
inquiries and increase coordination across the agency.
            The CTXO reports directly to the IRS 
Commissioner and plays a key role in our senior leadership team to 
ensure continued focus on improving the taxpayer experience and 
protecting rights.

        Improve Operational Efficiencies
            The modernized structure consolidates 
previously segmented examination operations into one function to reduce 
internal duplication and fragmentation of activities and provide 
consistent outcomes for resolving taxpayer compliance issues;
            Our new Relationships and Services Division 
operationalizes the taxpayer experience; and
              u  Consolidates all toll-free telephone and taxpayer 
assistance center operations under one, ``Assisted Services'' 
organization.
              u  Combines all outreach activities under one 
organization.
              u  Combines all third-party partnership activities within 
one division.
            By establishing Data Office and an Enterprise 
Digitalization and Case Management Office we will improve our use of 
data to reduce manual processes, reliance on paper, and improve 
compliance operations and taxpayer service initiatives.

        Enhance Innovation
            Establish a direct line from the Commissioner 
to the Information Technology Division to enhance critical focus on 
cutting-edge business processes and technology.
            Continue our emphasis on innovation in existing 
offices that are already driving or enabling creative taxpayer 
approaches across the IRS, such as Procurement and Information 
Technology, to build an even more innovative culture throughout the 
organization.

    While tax enforcement is necessary and, from a financial 
perspective, worthwhile, significant mitigation of the tax gap will 
also require policy and other changes. Proposals for legislative 
expansions of IRS authority, reduced complexity, increased information 
reporting, as well as policy changes that improve the IRS's access to 
relevant data, have historically included:

        Giving the IRS clear statutory authority to regulating return 
preparers and require they have a minimum knowledge of the tax code, to 
improve the accuracy of the returns they prepare.
        Expanded electronic filing for individuals, corporations, 
partnerships, and tax exempt organizations to provide tax return 
information in a more uniform electronic form, which will enhance the 
ability of the IRS to more productively focus its audit activities, 
lessening audits of compliant taxpayers and overall taxpayer burden.
        Expanding the scope of information returns.
        Requiring early filing and electronic submission of all 
information returns.
        Requiring withholding on certain Form 1099 income, especially 
1099-MISC and 1099-NEC (non-employee compensation).
        Providing the IRS with greater flexibility to correct specific 
errors on taxpayer returns, such as math errors or taxpayer 
identification numbers, with appropriate safeguards, where information 
doesn't match information in government databases would also avoid 
burdensome audits.
        Requiring all payers to obtain and maintain TINs (Form W-9) 
for all information documents subject to back-up withholding and expand 
TIN matching.
        Clarifying and strengthening worker classification rules.
        Making repeated willful failure to file a tax return a felony.

    Question. When the IRS verifies information and processes tax 
returns, how much is still done manually, and how much is automated?

    Answer. On average, a little less than 10 percent of individual 
returns and over 25 percent of business returns received are paper 
returns and have to be manually processed. In addition, electronic or 
paper filed returns that fall out to Error Resolution System (ERS), 
Rejects, or Unpostables might require a manual touch. Some Unpostables 
are not related to return processing and some are systemically closed 
and do not require manual intervention.

    2020 and 2021 production was affected by Submission Processing 
Center closures and the subsequent backlog experienced as a result of 
those closures. ERS fallout has been especially high for electronic 
returns this year due to legislative changes.

    Question. Compared to other countries and to the States, how do we 
compare on the use of modern technology?

    The IRS's tax ecosystem is among the most complex in the world 
requiring a vast technology environment to support it. When the IRS's 
information technology is compared to other countries or those of our 
Nation's States, the IRS's technology environment is much larger, 
generally older and more complex, and incumbered by legacy software, 
hardware, and a complex, ever-changing tax code.

    In addition, the IRS must also be strategically aligned and 
compliant with Federal mandates and guidelines that ensure the IRS not 
only protects the security of taxpayer data, but also ensures 
information and communication technology is accessible to the public. 
To maintain the public trust, the IRS must remain ahead of its 
adversaries and expanding cyber-threats that risk the confidentiality, 
integrity, and availability of taxpayer data.

    The IRS has already begun to embrace modern technologies. 
Nevertheless, IT modernization requires consistent and available 
funding to be maintained. We remain committed to modernizing our 
technology as it plays a critical role in protecting the integrity of 
the tax system and enabling taxpayers and their representatives to 
voluntarily meet their tax obligations.

    Question. How could modernizing the IRS's information technology 
infrastructure to better identify errors in tax returns help close the 
tax gap?

    Answer. Many of the tools and technologies described in the IRS 
Modernization Plan and Taxpayer First Act Taxpayer Experience Strategy 
are intended to improve voluntary compliance--when taxpayers timely 
file, report, and pay the correct amount of tax with no or minimal 
assistance from the IRS. This frees up assistors to address more 
complex cases versus simple inquiries that could be resolved online or 
with better information and awareness of the tax law. For example 
digital tools, like the IRS's online account, transparently provide an 
up-to-date account balance, payment options and payment history, copies 
of notices, and options to respond to the IRS. While some of these 
services exist today, as resources allow, the IRS will expand and 
better integrate options for taxpayers to seamlessly upload documents 
in response to a notice, securely email or chat with an agent or 
assistor, and authorize tax professionals to assist with tax matters. 
This expansion will allow the IRS to work more cases, more productive 
cases, and work more efficiently to help narrow the tax gap.

    Question. Is our tax system unusually complex by global standards, 
and if so, does it make technological adoption and use more difficult?

    Answer. The IRS believes this question is better addressed by 
Treasury's Office of Tax Policy.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    This morning the Finance Committee is joined by IRS Commissioner 
Rettig for our annual hearing that typically marks the end of tax 
filing season. However, 2021 is no typical year. There's a lot for us 
to talk about, so I'll start with the tax gap, the difference between 
taxes owed and what's collected.

    Even the most conservative estimates of the annual tax gap put it 
in the hundreds of billions of dollars a year. My view is, the annual 
tax gap is at least double the official estimate and growing. The most 
recent official estimate pegs the tax gap at $381 billion per year, but 
it looks all the way back to data from 2011 through 2013. That means 
these estimates are out of date as soon as they're released.

    The fact is, our economy has changed and expanded. In 2011, one 
Bitcoin couldn't buy you a ham sandwich. Today cryptocurrencies and 
other technologies create huge new opportunities for tax cheats to rip 
off the American people.

    More and more wealth is building up in the hands of the fortunate 
few and big corporations. They've got the high-priced lawyers and 
accountants who specialize in concealing income with sketchy 
bookkeeping, money laundering, and shell companies.

    I'm coming off 10 town halls in Oregon. When I hold those 
meetings--especially the ones during tax season--lots of Oregon 
taxpayers tell me they have a gut feeling they're being cheated. They 
hear about the massive tax gap, and they're rightfully ticked off. 
Close even a portion of the tax gap, and you're better able to fund 
care for seniors at home, assistance to needy children, and affordable 
housing.

    The IRS needs more resources to tackle this challenge, but it's 
only just beginning to recover from a decade of Republican budget cuts. 
Those cuts hobbled our ability to root out cheating by high flyers and 
their high-priced accountants. Criminal tax evasion cases have fallen 
nearly by half. The number of IRS tax enforcement staff--the experts 
who know how to break down tax evasion cases--has fallen by nearly a 
third.

    Wealthy tax cheats have proven that with enough attack dog 
lawyering, they can litigate the IRS into submission and rip off 
working taxpayers for big money. Meanwhile, the burden of tax audits 
shifted unfairly onto working people. That's because it's a lot cheaper 
and easier to hassle a working mom over a tax credit overpayment than 
it is to decipher the latest money laundering schemes.

    Bottom line, it's time to throw out business as usual on this 
issue. Business as usual is a rainmaker for cheaters and criminals and 
unfair to everybody else. The IRS needs more highly skilled 
investigators and better technology to keep up with these modern 
crooks. The Biden administration's new budget proposal calls for a 10-
percent increase in IRS funding. That's a good start. I believe there's 
room for a more comprehensive strategy that'll lower the tax gap.

    This committee will kick off a new policy today. On my watch, this 
annual filing season hearing will put a special focus on what the IRS 
has done over the previous year to catch the cheats and close the gap. 
There's a lot of catching up to do.

    Wrapping up, we appreciate Commissioner Rettig and the staff at IRS 
for working long hours during this pandemic to get three rounds of 
relief payments to the American people. Millions and millions of 
hurting families got desperately needed relief payments, and our 
country got an economic boost. This committee also led the effort to 
make sure that Americans who got unemployment benefits didn't get a 
painful tax surprise this year.

    Finally, we'll want to hear about getting the new Child Tax Credit 
payments up and running. It's a big job, and millions of families are 
counting on the IRS to get it done.

                                 ______
                                 

                             Communications

                              ----------                              


                        Center for Fiscal Equity

                      14448 Parkvale Road, Suite 6

                          Rockville, MD 20853

                      [email protected]

                      Statement of Michael Bindner

Chairman Wyden and Ranking Member Crapo, thank you for the opportunity 
to address this issue. This tax season raises four issues. The first is 
dealing with the pandemic.

The 2021 tax filing season has been overcome by the signing of the 
American Recovery Act. Families that would have relied on their refunds 
because of the overpayment of taxes and using the Earned Income Tax 
Credit to catch up on their bills and spend money on a few luxuries are 
receiving stimulus payments, many this week. Those who, for whatever 
reason, do not usually file will do so this year. There is simply too 
much money on the table to do otherwise.

Many who simply do not know how to go about getting help in filing 
taxes need direction on where to find it. The President, members of 
Congress, the IRS, state and local government, (especially social 
services agencies) and community institutions can all help with this 
effort. Even members who did not support the legislation will be eager 
to be part of this solution. Politics is both the art of the possible 
and the stage of the ironic.

As the pandemic recedes (there are only so many possible vectors for 
the virus remaining), the IRS can begin to bring people back to work. 
Contractors, including former revenue agents, can be helpful in 
clearing the backlog. Such relationships should continue so that the 
portion of the tax gap due to non-compliance can be closed. As more 
well off individuals face enforcement, others will do a better job of 
paying what they owe under the law.

IRS funding is not adequate at present to meet the immediate challenge. 
The recent change in government should bring about more of a 
willingness to spend the necessary funds.

The second issue is distributing the increased child tax credit to 
eligible families. For middle income taxpayers whose increased credits 
are less than their annual tax obligation, a simple change in 
withholding tables is adequate. Procedures are already in place to 
deliver refundable credits to larger families. For the coming year, 
they merely need to be expanded to all families with children. This 
fact was likely already included in Mr. Rettig's testimony. If not, I 
am sure he can easily confirm that this is the case.

Employers can work with their bankers to increase funds for payroll 
throughout the year while requiring less money for their quarterly tax 
payments (or estimated taxes) to the IRS. The main issue is working out 
those situations where employers owe less than they payout. This is 
especially true for labor intensive industries and even more so for low 
wage employers. A higher minimum wage would make negative quarterly tax 
bills less likely. Indeed, no one should have to subsist mainly on 
their child tax payments.

A further challenge is fraud. I am not speaking of fictional 
dependents, but of hiring more employees than workload demands in order 
to reduce tax payments. Once the American Relief Act expires, any 
permanent increase to and refundability of the child tax credit (and 
ideally an even more generous credit) will require permanent tax 
reform. At that point, the issue of possible fraud must be addressed. 
Even without comprehensive reform, corrective legislative language will 
be necessary.

Senior committee members and staff are likely familiar with the 
Center's proposals for tax reform which, as usual, are included as an 
attachment. A summary of individual policy changes has been added. As 
the reader has likely surmised, tax reform is the third issue.

Allow me to highlight five points.

First, the difference between changing quarterly withholding and 
enacting a subtraction VAT is six of one and a half dozen of the other.

The reason for this is that the proposed subtraction VAT is based on 
the notion that employers would be responsible for paying and 
reconciling the taxes now filed by employees. This would add little 
additional burden to employers (especially the self-employed) but end 
the burden of filing for all but the highest salaried employees.

The second is that this debate has gone on so long that the numbers 
have changed. What used to be proposed at $75,000 per year should now 
be delivered at $84,000. Proposals should always be indexed.

Third, for the sake of parity, the minimum wage should be set to $10 
per hour immediately, with a phase in to $12 per hour to restore wages 
to the level of productivity found in 1965. $15 should be treated as 
either a bargaining chip or as the inflationary position to reach the 
same buying power $12 wage would provide now.

Fourth, enacting an asset VAT allows for higher tiered subtraction VAT 
(as proposed by Lawrence B. Lindsey) to replace some or all taxation of 
higher incomes at progressive, rather than proportional rates. The only 
advantages of keeping filing in place for high income individuals 
(rather than households) are that keeping the highest salary rate and 
the Asset VAT rate the same will reduce the incentive to game income 
streams to avoid taxes and to allow higher income individuals to 
purchase tax prepayment bonds, thus reducing the national debt sooner 
than later.

Fifth is that in reality, explicit and implicit value added taxes are 
already in force.

Individuals and firms that collect retail sales taxes receive a rebate 
for taxes paid in their federal income taxes.

Tax withheld by employers for the income and payroll taxes of their 
labor force is an implicit VAT. A goods and services tax simply makes 
these taxes visible.

A second attachment on tax fairness and the third on tax administration 
details the impact of tax reform on federal and state governments.

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

 Attachment One--Tax Reform, Center for Fiscal Equity, March 5, 2021

Individual payroll taxes. These are optional taxes for Old-Age and 
Survivors Insurance after age 60 for widows or 62 for retirees. We say 
optional because the collection of these taxes occurs if an income 
sensitive retirement income is deemed necessary for program acceptance. 
Higher incomes for most seniors would result if an employer 
contribution funded by the Subtraction VAT described below were 
credited on an equal dollar basis to all workers. If employee taxes are 
retained, the ceiling should be lowered to $85,000 to reduce benefits 
paid to wealthier individuals and a $16,000 floor should be established 
so that Earned Income Tax Credits are no longer needed. Subsidies for 
single workers should be abandoned in favor of radically higher minimum 
wages.

Wage Surtaxes. Individual income taxes on salaries, which exclude 
business taxes, above an individual standard deduction of $85,000 per 
year, will range from 6.5% to 26%. This tax will fund net interest on 
the debt (which will no longer be rolled over into new borrowing), 
redemption of the Social Security Trust Fund, strategic, sea and non-
continental U.S. military deployments, veterans' health benefits as the 
result of battlefield injuries, including mental health and addiction 
and eventual debt reduction. Transferring OASDI employer funding from 
existing payroll taxes would increase the rate but would allow it to 
decline over time. So would peace.

Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes, 
dividend taxes, and the estate tax. It will apply to asset sales, 
dividend distributions, exercised options, rental income, inherited and 
gifted assets and the profits from short sales. Tax payments for option 
exercises and inherited assets will be reset, with prior tax payments 
for that asset eliminated so that the seller gets no benefit from them. 
In this perspective, it is the owner's increase in value that is taxed.

As with any sale of liquid or real assets, sales to a qualified broad-
based Employee Stock Ownership Plan will be tax free. These taxes will 
fund the same spending items as income or S-VAT surtaxes. This tax will 
end Tax Gap issues owed by high income individuals. A 26% rate is 
between the GOP 24% rate (including ACA-SM and Pease surtaxes) and the 
Democratic 28% rate. It's time to quit playing football with tax rates 
to attract side bets.

Subtraction Value-Added Tax (S-VAT). These are employer paid Net 
Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including

      Health insurance or direct care, including veterans' health care 
for non-
battlefield injuries and long term care.
      Employer paid educational costs in lieu of taxes are provided as 
either 
employee-directed contributions to the public or private unionized 
school of their choice or direct tuition payments for employee children 
or for workers (including ESL and remedial skills). Wages will be paid 
to students to meet opportunity costs.
      Most importantly, a refundable child tax credit at median income 
levels (with inflation adjustments) distributed with pay.

Subsistence level benefits force the poor into servile labor. Wages and 
benefits must be high enough to provide justice and human dignity. This 
allows the ending of state administered subsidy programs and 
discourages abortions, and as such enactment must be scored as a must 
pass in voting rankings by pro-life organizations (and feminist 
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.

The S-VAT is also used for personal accounts in Social Security, 
provided that these accounts are insured through an insurance fund for 
all such accounts, that accounts go toward employee-ownership rather 
than for a subsidy for the investment industry. Both employers and 
employees must consent to a shift to these accounts, which will occur 
if corporate democracy in existing ESOPs is given a thorough test. So 
far it has not. S-VAT funded retirement accounts will be equal-dollar 
credited for every worker. They also have the advantage of drawing on 
both payroll and profit, making it less regressive.

A multi-tier S-VAT could replace income surtaxes in the same range. 
Some will use corporations to avoid these taxes, but that corporation 
would then pay all invoice and subtraction VAT payments (which would 
distribute tax benefits. Distributions from such corporations will be 
considered salary, not dividends.

Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on 
purchase invoices. The rate varies according to what is being financed. 
If Medicare for All does not contain offsets for employers who fund 
their own medical personnel or for personal retirement accounts, both 
of which would otherwise be funded by an S-VAT, then they would be 
funded by the I-VAT to take advantage of border adjustability. I-VAT 
also forces everyone, from the working poor to the beneficiaries of 
inherited wealth, to pay taxes and share in the cost of government. 
Enactment of both the A-VAT and I-VAT ends the need for capital gains 
and inheritance taxes (apart from any initial payout). This tax would 
take care of the low-income Tax Gap.

I-VAT will fund domestic discretionary spending, equal dollar employer 
OASI contributions, and non-nuclear, non-deployed military spending, 
possibly on a regional basis. Regional I-VAT would both require a 
constitutional amendment to change the requirement that all excises be 
national and to discourage unnecessary spending, especially when 
allocated for electoral reasons rather than program needs. The latter 
could also be funded by the asset VAT (decreasing the rate by from 
19.5% to 13%).

As part of enactment, gross wages will be reduced to take into account 
the shift to S-VAT and I-VAT, however net income will be increased by 
the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will 
replace pass-through and proprietary business and corporate income 
taxes.

Carbon Value-Added Tax (C-VAT). A Carbon tax with receipt visibility, 
which allows comparison shopping based on carbon content, even if it 
means a more expensive item with lower carbon is purchased. C-VAT would 
also replace fuel taxes. It will fund transportation costs, including 
mass transit, and research into alternative fuels (including fusion). 
This tax would not be border adjustable.

Summary

This plan can be summarized as a list of specific actions:

    1.  Increase the standard deduction to workers making salaried 
income of $425,001 and over, shifting business filing to a separate tax 
on employers and eliminating all credits and deductions - starting at 
6.5%, going up to 26%, in $85,000 brackets.

    2.  Shift special rate taxes on capital income and gains from the 
income tax to an asset VAT. Expand the exclusion for sales to an ESOP 
to cooperatives and include sales of common and preferred stock. Mark 
option exercise and the first sale after inheritance, gift or donation 
to market.

    3.  End personal filing for incomes under $425,000.

    4.  Employers distribute the child tax credit with wages as an 
offset to their quarterly tax filing (ending annual filings).

    5.  Employers collect and pay lower tier income taxes, starting at 
$85,000 at 6.5%, with an increase to 13% for all salary payments over 
$170,000 going up 6.5% for every $85,000- up to $340,000.

    6.  Shift payment of HI, DI, SM (ACA) payroll taxes employee taxes 
to employers, remove caps on employer payroll taxes and credit them to 
workers on an equal dollar basis.

    7.  Employer paid taxes could as easily be called a subtraction 
VAT, abolishing corporate income taxes. These should not be zero rated 
at the border.

    8.  Expand current state/federal intergovernmental subtraction VAT 
to a full GST with limited exclusions (food would be taxed) and add a 
federal portion, which would also be collected by the states. Make 
these taxes zero rated at the border. Rate should be 19.5% and replace 
employer OASI contributions. Credit workers on an equal dollar basis.

    9.  Change employee OASI of 6.5% from $18,000 to $85,000 income.

Attachment Two--Taxpayer Fairness, October 13, 2020

To start, we must distinguish between fairness and justice. Fairness is 
having your say. Justice is getting or paying what is due to or for 
you.

Lower income taxpayers depend on the fairness of the system, rather 
than individual fairness. It is costly to make one's case to the IRS 
when disputes arise. To an extent, they must pay and obey. As long as 
they can provide information when it is lacking or work out payment 
arrangements when they do not have funds available the system is fair. 
Generally, they do, although currently the unopened mail resulting from 
the pandemic stretches that fairness, as Chairman Neal noted in August 
(2020).

Higher income taxpayers have more room to argue, as well as more to 
argue about. Sometimes their attempts to hide income are too clever by 
half. If they succeed in beating the system, the result for all of us 
is both less fair and unjust. A wealth tax, because the elements are 
both debatable and gameable, compound the problems inherent in current 
capital gains taxation.

The tax rate on capital gains is seen as unfair because it is lower 
than the rate for labor. This is technically true, however it is only 
the richest taxpayers who face a marginal rate problem. For most 
households, the marginal rate for wages is less than that for capital 
gains. Higher income workers are, as the saying goes, crying all the 
way to the bank.

The injustice in the system is baked in by the maldistribution of 
income in the economy at large. Prior to the Kennedy-Johnson tax cuts, 
high marginal rates prevented the extraction of economic rent from 
workers. Any labor cost savings went to the government, so gains in the 
economy were shared by all. In 1981, the problem got worse and in 1986, 
higher marginal rates were traded for reduced tax benefits, with 
corporations taking the hit. The class warfare which began in 1965 was 
over twenty years later. Labor lost, both organized and otherwise.

Recently, tax rates for corporations and pass-through income were 
reduced, generally, to capital gains and capital income levels. This is 
only fair and may or may not be just. The field of battle has narrowed 
between the parties. The current marginal and capital rates are seeking 
a center point, as most as if the recent tax law was based on 
negotiations, even as arguments flared publicly. Of course, that would 
never happen in Washington. Never, ever.

Compromise on rates makes compromise on form possible. If the Pease and 
Affordable Care Act provisions are repealed, a rate of 26% is a good 
stopping point for pass-through, corporate, capital gains and capital 
income. A single rate also makes conversion from self-reporting to 
automatic collection through an asset value added tax levied at point 
of sale or distribution possible. This would be both just and fair, 
although absolute fairness is absolute unfairness, because there would 
be little room to argue about what is due and when.

Ending the machinery of self-reporting also puts an end to the Quixotic 
campaign to enact a wealth tax. Out of fairness, if the revenue 
committees do give its proponents and opportunity to testify, it must 
hear from me as well. It would only be fair.

 Attachment Three--Tax Administration, Treasury Budget, February 12, 
                    2020

Shifting to a single system for all business taxation, particularly 
enacting invoice value added taxes to collect revenue and employer-
based subtraction value-added taxes to distribute benefits to workers 
will end the need for filing for most, if not all, households. Any 
remaining high salary surtax would be free of any deductions and 
credits and could as easily be collected by enacting higher tiers to a 
subtraction VAT.

Subtraction VAT collection will closely duplicate the collection of 
payroll and income taxes--as well as employment taxes--but without 
households having to file an annual reconciliation except to verify the 
number of dependents receiving benefits.

Tax reform will simplify tax administration on all levels. Firms will 
submit electronic receipts for I-VAT and C-VAT credit, leaving a 
compliance trail. S-VAT payments to providers, wages and child credits 
to verify that what is paid and what is claimed match and that children 
are not double credited from separate employers.

A-VAT transactions are recorded by brokers, employers for option 
exercise and closing agents for real property. With ADP, reporting 
burdens are equal to those in any VAT system for I-VAT and A-VAT and 
current payroll and income tax reporting by employers.

Employees with children will annually verify information provided by 
employers and IRS, responding by a postcard if reports do not match, 
triggering collection actions. The cliche will thus be made real.

High salary employees who use corporations to reduce salary surtax and 
pay I-VAT and S-VAT for personal staff. Distributions from such 
corporations to owners are considered salary, not dividends.

Transaction based A-VAT payments end the complexity and tax avoidance 
experienced with income tax collection. Tax units with income under 
$84,000 or only one employer need not file high salary surtax returns. 
Separate gift and inheritance tax returns will no longer be required.

State governments will collect federal and state I-VAT, C-VAT, S-VAT 
payments, audit collection systems, real property A-VAT and conduct 
enforcement actions. IRS collects individual payroll and salary surtax 
payments, performs electronic data matching and receive payments and 
ADP data from states. SEC collects A-VAT receipts.

I-VAT gives all citizens the responsibility to fund the government. C-
VAT invoices encourage lower carbon consumption, mass transit, research 
and infrastructure development. A-VAT taxation will slow market 
volatility and encourage employee ownership, while preserving family 
businesses and farms. Very little IRS Administration will be required 
once reform is fully implemented. All IRS employees could fit in a 
bathtub with room for Grover Norquist.

                                 ______
                                 
                    Letter Submitted by Anand Desai
Re:  Transparency on challenges and results no less essential than 
funding to a ``21st-Century IRS''

Dear U.S. Senate Committee on Finance:

    Thank you for addressing ``The 2021 Filing Season and 21st-Century 
IRS'' on April 13, 2021. As a citizen (and writing only for myself), 
I'd like to share these recommendations for the hearing record.

    Chairman Wyden's prepared opening statement posits that the ``tax 
gap, the difference between taxes owed and what's collected'' is 
several hundred billion dollars a year; that ``the fortunate few and 
big corporations [have] high-priced lawyers and accountants who 
specialize in concealing income with sketchy bookkeeping, money 
laundering and shell companies;'' and that ``wealthy tax cheats have 
proven that with enough attack dog lawyering, they can litigate the IRS 
into submission and rip off working taxpayers for big money.''

    I urge the Committee to consider more litigation--which simply 
means the government preparing and explaining its side of a tax dispute 
for a court to resolve openly--and overall publicity as part of the 
tax-gap solution. As remote access to Tax Court and others' hearings 
should now help demonstrate, the process is reasonably orderly, even-
handed, and standardized in a way that professionals soon pick up. 
Along with finding one's voice amid a fast-paced environment, respected 
authorities, and occasional bluster--much like in politics.

    If a case turns out as the IRS expects, it'll apply more clearly to 
similarly situated taxpayers, who can at least be content that paying 
won't put them at a competitive disadvantage. And if it isn't, the 
bureau is on notice to reconsider its practices or update its 
regulations, and Congress, to debate the relevant tax laws and IRS 
funding levels. This is fairer to the average taxpayer and can make 
government more responsive than under patterns of small settlements on 
large matters (but generally not the underlying demands or rationales 
for compromise) occasionally spotlighted by internal-watchdog 
investigations years after insiders must be able to figure out the 
general situation.

    To this end, I specifically suggest the Committee (1) balance the 
requirement of section 7803(e)(5) of the Internal Revenue Code (26 
U.S.C.) to tell Congress about any ``designation'' of cases for 
litigation rather than internal settlement, with an expectation to 
report persistent challenges that might need a more robust approach; 
(2) amend IRC 6110(b)(2) for release of major settlement ``closing'' 
agreements in anonymized form to mitigate ``secret law'' problems, as 
the section already does for other kinds of ``written determinations;'' 
and (3) request more comprehensive and granular statistics under IRC 
6108 on efficiency and results throughout the tax reporting and 
controversy process.

    As many Americans' most noticeable point of contact with the 
federal government, an effective, responsive IRS can build confidence 
that other parts' budgets are worthwhile too. Skeptics of spending 
levels and particular tax laws stand to benefit as well: who better to 
point out a policy's costs and incentive issues than a large, 
sophisticated business with no choice but to confront them head on?

Respectfully submitted,

Anand Desai

                                 ______
                                 
                Letter Submitted by Nicholas Matthew Lee

U.S. Senate
Committee on Finance

Dear Senators,

While I appreciate the sentiments expressed by Ranking Member Senator 
Wyden about closing the tax gap and holding tax cheats accountable, I 
find it necessary to draw attention to the Committee's failure to 
respond to and prioritize recommendations that are necessary to provide 
a reasonable, fair, and just tax filing experience to the 9 million 
overseas U.S. citizens that are obliged to file in, pay into, and 
conform to a tax system that is from their perspective foreign.

This comment will contain three sections:

    1.  Comments on specific discussion items in the hearing.
    2.  Reminders of previous National Taxpayer Advocate 
recommendations to Congress that have not been substantively responded 
to.
    3.  Raising additional concerns not covered by those other two.

I emphasize that if the United States wishes to uniquely assert this 
extraterritorial tax on nonresident citizens, it has a strong moral and 
practical obligation to provide adequate taxpayer services to overseas 
taxpayers.

Commenting on Specific Aspects of the Hearing:

Unacceptable Hold Times

The Senate Finance Committee lambasted the IRS for what it considered 
to be unacceptably long hold times to talk to a human at the IRS.

In the context of non-resident taxpayers, this is particularly 
damaging.

I am fortunate in that I have the technical know-how to maintain an 
affordable international calling setup using Voice over IP (VoIP). 
Without it, I would be paying =0.65 ($0.75) per minute via my Dutch 
phone provider.

I have needed to contact two IRS help lines in recent months--the 
general help line, and the Taxpayer Advocate Service intake line. In 
the former case, I spent approximately 30 minutes on hold. In the 
latter case, I spent 6 hours on hold before eventually reaching an 
intake advocate that accepted my case and assigned a case number. These 
two international calls to the IRS would have respectively cost $22.50 
and $270 respectively.

It is unacceptable that the IRS provides no easy or affordable means of 
contact to international taxpayers. If the United States asserts that 
it has a right to tax overseas citizens, contrary to global norms, it 
has a moral and practical obligation to provide international toll-free 
numbers in each and every country that overseas taxpayers reside in.

Lack of Online Access

During the pandemic, the IRS switched to reliance on its online account 
system to reduce the burden on its phone lines and mailed processing 
facilities.

Per the norm, this left overseas taxpayers in the cold. The online 
account system explicitly does not work for any taxpayer with a foreign 
address on file. For a number of months, it was impossible to request 
tax transcripts because the only means of requesting them were via 
overloaded phone lines or via mailed forms that were not being 
processed.

According to some reports, the IRS hopes to add online account support 
for overseas taxpayers sometime between 2025 and 2030, though funding 
has not been procured or allocated for this.

This lack of urgency is astounding, given that the United States 
asserts a global right to tax, when it very clearly lacks a basic 
capability to offer tax payment related services outside of U.S. 
borders.

COVID Stimulus Checks

In 2020, it was well documented that overseas American taxpayers had 
immense difficulty in obtaining their COVID stimulus payments, for 
three key reasons:

    1.  The web page for checking status and providing direct deposit 
information did not support foreign addresses until after many checks 
were mailed, sometimes to incorrect addresses.
    2.  International postal systems were severely affected by travel 
restrictions. To illustrate this, I was receiving letters sent from the 
U.S. in March 2020 in October 2020.
    3.  Many overseas citizens lack U.S. bank accounts, leaving them 
unable to receive a direct deposit or to cash a check. The last bank 
cashing checks in the Netherlands stopped processing them in February 
this year, preventing the third stimulus payment from being received by 
many.

Furthermore, in the context of the cost and complexity of overseas 
American tax preparation, the stimulus checks were a slap in the face. 
I can say that not a penny of the received check has gone towards 
necessary living expenses--it has instead gone towards covering a 
fraction of my tax preparation costs, which are inordinately expensive 
compared to those by resident U.S. citizens.

While I appreciate the taxpayer funded discount towards my 2021 filing 
costs, it goes back to one of my fundamental complaints regarding the 
U.S. extraterritorial tax regime--it lines the pockets of accountants 
more than it provides funding for the government.

Ordinary Americans, in ordinary living situations, with ordinary 
incomes, paying higher than ordinary (in the U.S.) taxes to the 
governments of the countries they live in, often have to spend hundreds 
to thousands of dollars to stay compliant on their U.S. tax 
obligations--while also not owing any money to the government. I would 
rather pay taxes to the IRS than to pay fees to my accountant.

The Tax Gap

Foreign Sourced Income

Chairman Wyden and Commissioner Rettig asserted that part of the tax 
gap consists of overseas tax cheats hiding foreign source income.

While I do not deny that there are most likely overseas Americans that 
have failed to pay their taxes, please be aware that by failing to 
acknowledge the existence of ordinary, tax-paying overseas Americans 
unfairly stigmatizes us and conflates us with bad actors in an 
emotionally charged discussion.

For more information about how we are unfairly lumped in with tax 
cheats, I encourage you to read The Criminalization of the American 
Emigrant, written by Laura Snyder, a member of the IRS Taxpayer 
Advocacy Panel. It can be located and read for free here: https://
papers.ssrn.com/sol3/papers.cfm?abstract_id=3655145.

Previous National Taxpayer Advocate Recommendations not Acted Upon

All recommendations here can be located in the ``NTA Purple Book'' 
reports that are submitted on an annual basis to Congress.

None of the following recommendations pertaining to overseas taxpayers 
have been acted on by Congress, even when raised repeatedly on an 
annual basis:

2020:
        Adjust the Filing Threshold for Taxpayers Filing as Married 
Filing Separately and Nonresident Alien Individuals
        Harmonize Reporting Requirements for Taxpayers Subject to Both 
the Report of Foreign Bank and Financial Accounts and the Foreign 
Account Tax Compliance Act by Eliminating Duplication and Excluding 
Accounts a U.S. Person Maintains in the Country Where He or She Is a 
Bona Fide Resident

2019:
        Harmonize Reporting Requirements for Taxpayers Subject to Both 
the Report of Foreign Bank and Financial Accounts and the Foreign 
Account Tax Compliance Act by Eliminating Duplication and Excluding 
Accounts a U.S. Person Maintains in the Country Where He or She Is a 
Bona Fide Resident
        Allow a Period of Notice and Comment on New Intergovernmental 
Agreements and Require That the IRS Notify Taxpayers Before Their Data 
Is Transferred to a Foreign Jurisdiction

2018:
        Harmonize Reporting Requirements for Taxpayers Subject to Both 
the Report of Foreign Bank and Financial Accounts and the Foreign 
Account Tax Compliance Act by Eliminating Duplication and Excluding 
Accounts a U.S. Person Maintains in the Country Where He or She Is a 
Bona Fide Resident

2017 (First Purple Book Report):
        Harmonize Reporting Requirements for Taxpayers Subject to Both 
the Report of Foreign Bank and Financial Accounts and the Foreign 
Account Tax Compliance Act by Eliminating Duplication and Excluding 
Accounts a U.S. Person Maintains in the Country Where He or She Is a 
Bona Fide Resident

Please note that these recommendations by the National Taxpayer 
Advocate, not acted upon, are purely those that directly fall under the 
scope of Congress. The more general ``Annual Report to Congress'' has 
numerous recommendations that have similarly been neglected over the 
years.

There, we see many items under ``Most Serious Problems'' that are 
similarly ignored.

      (2011) Numerous International Issues raised in the 2011 report, 
available here: https://www.taxpayeradvocate.irs.gov/wp-content/
uploads/2020/08/2011_ARC
_MSP-7-12.pdf.
      (2012) The IRS's Offshore Voluntary Disclosure Programs 
Discourage Voluntary Compliance by Those Who Inadvertently Failed to 
Report Foreign Accounts.
      (2012) Challenges Persist for International Taxpayers as the IRS 
Moves Slowly to Address Their Needs.
      (2013) REPORTING REQUIREMENTS: The Foreign Account Tax 
Compliance Act Has the Potential to Be Burdensome, Overly Broad, and 
Detrimental to Taxpayer Rights.
      (2014) FOREIGN ACCOUNT REPORTING: Legislative Recommendations to 
Reduce the Burden of Filing a Report of Foreign Bank and Financial 
Accounts (FBAR) and Improve the Civil Penalty Structure.
      (2015) FOREIGN ACCOUNT REPORTING: Eliminate Duplicative 
Reporting of Certain Foreign Financial Assets and Adopt a Same-Country 
Exception for Reporting Financial Assets Held in the Country in Which a 
U.S. Taxpayer Is a Bona Fide Resident.
      (2015) INTERNATIONAL TAXPAYER SERVICE: The IRS's Strategy for 
Service on Demand Fails to Compensate for the Closure of International 
Tax Attache Offices and Does Not Sufficiently Address the Unique Needs 
of International Taxpayers.
      (2016) PASSPORT DENIAL AND REVOCATION: The IRS's Plans for 
Certifying Seriously Delinquent Tax Debts Will Lead to Taxpayers Being 
Deprived of a Passport Without Regard to Taxpayer Rights.
      (2016) TAXPAYER RIGHTS: The IRS Does Not Effectively Evaluate 
and Measure its Adherence to the Taxpayer's Right to a Fair and Just 
Tax System.
      (2016) FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA): The IRS's 
Approach to International Tax Administration Unnecessarily Burdens 
Impacted Parties, Wastes Resources, and Fails to Protect Taxpayer 
Rights.
      (2017) INTERNATIONAL PENALTIES: Provide Uniformity for the 
Reasonable Cause Exception to Initial and Continuation Penalties for 
the Failure to File Information Returns Under IRC Sec. Sec. 6038, 
6038A, 6038D, 6677, and 6679.
      (2018) FOREIGN ACCOUNT REPORTING: Authorize the IRS to 
Compromise Assessed FBAR Penalties It Administers.
      (2019) MULTILINGUAL NOTICES: The IRS Undermines Taxpayer Rights 
When It Does Not Provide Notices in Foreign Languages.
      (2020) INTERNATIONAL: The IRS's Assessment of International 
Penalties Under IRC Sec. Sec. 6038 and 6038A Is Not Supported by 
Statute, and Systemic Assessments Burden Both Taxpayers and the IRS

The lack of improvement in this area shows an appalling neglect to 
address the needs and respect the rights of international taxpayers.

Without improvement in this area, discussion of the issue, or 
acknowledgement that there is even a problem, the United States 
continually erodes its relationship with overseas U.S. citizens. Where 
most countries recognize the ``soft power'' value of a diaspora that 
loves its country, the United States broadly vilifies its emigrant 
population, merely regarding it as a source of revenue.

Other Issues:

Administrative Complexity:

The complexity, and therefore cost, of preparing a non-resident citizen 
tax return is disproportionately expensive compared to that of a 
resident.

IRS Forms 5471 and 8621 are particularly egregious examples of this, 
not being supported by any mainstream tax preparation tools and 
requiring substantive and expensive accountant support.

For foreign retirement accounts held by or small businesses run by 
overseas U.S. Persons, the sheer complexity of compliant filing is 
problematic. Often, it forces individuals to choose between excessive 
filing costs and non-compliance.

Poor Quality of IRS Literature:

Much of the aforementioned complexity stems from tax filing 
requirements that are unclear in relation to how the U.S. Tax Code maps 
onto 180 different foreign jurisdiction.

Understanding how to report a foreign retirement account in a compliant 
manner according to instructions on various IRS forms requires an 
understanding and reading of:

      The U.S. tax code.
      International tax treaties.
      Updates to tax treaties.
      Auxiliary documents related to the tax treaties.
      IRS Revenue Procedures.
      Foreign laws and tax codes.

Furthermore, the IRS does not publish a ``current'' reading of the tax 
treaties that includes all amendments made--it is instead necessary to 
``layer'' documents over each other to understand the current state of 
affairs.

As this is all related to classification and how to interpret 
something, tax filing software and instructions associated with forms 
are woefully inadequate. The complexity obligates overseas Americans to 
seek professional help, at great expense.

Inadequate Access to Assistance Interpreting Tax Treaties

Continuing in the same vein, the IRS provides no affordable means of 
consulting it to determine how it would interpret an international tax 
situation. All such procedures for doing this are applicable only to 
international business entities, but not individuals.

The position of the IRS appears to be ``we will interpret foreign 
situations as we see fit and fine individuals for non-compliance if we 
disagree with their interpretation, but we will not provide individuals 
any way of proactively understanding their tax situation in the eyes of 
the IRS.''

Should the United States wish to subject individuals to this inordinate 
complexity, it must provide ways of managing and resolving that tax 
complexity for individuals.

There are many countries in which the average net annual income is not 
sufficient to cover the cost of qualified tax advice and preparation. 
Residents of these countries are put in impossible situations with 
regards to their U.S. tax obligations.

Conclusion:

It is vitally necessary for the Senate Finance Committee to schedule a 
hearing to discuss the problems and challenges faced by overseas 
taxpayers. The situation with regards to Non-Resident Citizen U.S. 
taxpayers has continually worsened in the past decade, and we are in 
urgent need of reform.

The United States tax experience imposes separate, more punitive, and 
more complicated tax obligations on overseas U.S. citizens. On the 
basis of nationality, U.S. Citizens are not afforded the favourable tax 
treatment granted to Non-Resident Alien taxpayers. In an international 
context, this is discussed as a violation of fundamental rights.

It is unthinkable that in discussing ways in which the IRS must change, 
there is zero thought given towards heeding advice that was already 
given, issues that were raised by the citizens this tax code is meant 
to serve, and concerns raised by foreign governments about a lack of 
respect by the U.S., for U.S. citizens. To date, there has been more 
sympathy and understanding expressed by foreign governments than the 
United States Congress--a truly distressing situation.

The U.S. treatment of its non-resident taxpayers is an aberration that 
must be recognized and corrected. Previous discussion on this topic, by 
some members of the Senate Finance Committee, shows a myopic view that 
fails to consider how exceptional this poor treatment is.

It is American Exceptionalism in all the worst ways, ranking up there 
with our approach to gun violence and unaffordable health care.

Hold a hearing on tax issues faced by overseas Americans, and correct 
the injustices.

                                 ______
                                 
                   Professional Managers Association

                 700 12th St., NW, Ste. 700, PMB 95968

                          Washington, DC 20005

                              202-793-6262

                      https://www.promanager.org/

April 13, 2021

Hon. Ron Wyden                      Hon. Mike Crapo
Chairman                            Ranking Member
U.S. Senate                         U.S. Senate
Committee on Finance                Committee on Finance
Washington, DC 20510                Washington, DC 20510

RE: Professional Managers Association Statement for Committee Hearing 
on ``The 2021 Filing Season and 21st-Century IRS'' held on April 13, 
2021

Dear Chairman Wyden, Ranking Member Crapo, and Members of the 
Committee:

On behalf of the Professional Managers Association--the non-profit 
professional association that has, since 1981, represented professional 
managers, management officials, and non-bargaining unit employees at 
the Internal Revenue Service (IRS)--I write to provide a statement 
regarding the April 13, 2021 hearing, ``The 2021 Filing Season and 
21st-Century IRS.''

PMA appreciates this Committee's focus on the IRS. As our nation's 
revenue collector, the success of the IRS is critical to the success of 
our entire federal government. IRS employees have been administering an 
extended 2021 filing season while grappling with retroactive tax law 
changes, expanding credits, delivering nearly a half billion economic 
impact payments, and continuing to manage dozens of complications 
impacting both the 2021 and the still-ongoing 2020 tax filing seasons. 
These conflicting missions call upon the IRS to be far more than just a 
tax administration agency. The IRS now also serves as a benefits 
administrator and an emergency relief agency.

This phenomenon did not originate during the pandemic. Since 1993, the 
Congressional mandates falling on the IRS, outside the traditional 
filing season and tax administration roles, have dramatically 
increased. The IRS has been called upon to manage healthcare expansions 
and alternative energy credits. During the 2008 economic crisis, the 
Congress called on the IRS to stabilize the housing market but did not 
provide tools for the IRS to independently research land deeds and 
titles resulting in the widespread burden falling on taxpayers to 
provide documentation. Unlike the Department of Housing and Urban 
Development (HUD), the IRS is not equipped to interpret deed and title 
recording practices varying from county to county, or town to town.

In order to administer the Individual Taxpayer Identification Number 
program, which provides SSN-type numbers to non-citizen taxpayers, the 
IRS needed to learn how to examine foreign passports, foreign medical 
records, and foreign birth certificates, among others. Unlike 
Immigration and Customs Enforcement (ICE), IRS employees are not 
forensic examiners for foreign documents.

To administer generous, refundable tax credits for families, the IRS 
must determine legal parentage and navigate complex custody issues. 
There is no centralized database the IRS can rely upon to independently 
verify custody. As a result, taxpayers are burdened and must provide 
extensive documentation demonstrating legal custody. Because 50/50 
custody arrangements are popular in family court, this can become an 
absurd exercise where the IRS must ask parents for calendars marking 
each night their child slept in their home.

PMA needs the Congress to understand how difficult it is to administer 
these types of credits and programs.

Despite expanding mandates, the IRS has not seen a commensurate 
increase in funding. In 2019, the National Taxpayer Advocate \1\ 
highlighted this conflict in noting the IRS is neither funded nor 
staffed to serve as a benefits agency. This hinders the IRS's ability 
to perform critical functions such as collecting $3.5 trillion in 
revenue, processing 253 million tax returns, and issuing $452 billion 
in tax refunds.
---------------------------------------------------------------------------
    \1\ https://www.irs.gov/newsroom/national-taxpayer-advocate-nina-
olson-releases-comprehensive-report-intended-to-improve-eitc-
administration-publishes-subway-map-of-taxpayers-journey-through-the-
tax-system.

If Congress wishes to continue expanding the IRS mission, it must 
provide the resources and funding to support this new, reimaged Federal 
agency. Instead, Congress has consistently cut funding while 
criticizing the IRS for its perceived poor performance in administering 
these programs. From a peak in FY 2010 to FY 2019, the IRS budget was 
reduced by 20 percent adjusting for inflation and the IRS workforce 
lost 29,000 full-time positions. Budget increases in the last two 
years, while appreciated, still fail to return the IRS to FY 2010 
---------------------------------------------------------------------------
levels let alone enable the IRS to meet all current requirements.

Funding issues underlie almost every tax administration challenge the 
IRS faces. When the IRS lacks mission resources, it is unable fully 
execute its mission. The Congressional Budget Office \2\ (CBO) 
estimates increasing the IRS's funding for examinations and collections 
by $20 billion over 10 years would increase revenues by $61 billion, 
and increasing funding $40 billion over 10 years would increase 
revenues by $103 billion. No other agency can boast such a return on 
investment. The research is clear--consistent, robust funding will 
enable the IRS to collect all the revenues due by law to be collected.
---------------------------------------------------------------------------
    \2\ https://www.cbo.gov/system/files/2020-07/56422-CBO-IRS-
enforcement.pdf.

The President's FY 2022 Budget Request \3\ of $13.2 billion for the IRS 
includes a modest $0.9 billion increase in resources for tax 
enforcement, including welcomed multiyear funding. While better than 
years of budget cuts, this single increase, if enacted, will not 
provide the IRS the stability it needs to ensure a fair and equitable 
tax system. PMA commends President Biden for requesting a 10.4-percent 
increase above the 2021 enacted funding level. However, PMA believes 
this amount will also prove insufficient for modernizing the capacity 
of the IRS. As previously mentioned, the IRS remains a long way from FY 
2010 levels, and will require the ongoing investment of billions to 
effectively close the tax gap to collect a potential of $1.4 trillion 
in unpaid taxes.\4\
---------------------------------------------------------------------------
    \3\ https://www.whitehouse.gov/wp-content/uploads/2021/04/FY2022-
Discretionary-Request.pdf.
    \4\ https://www.nytimes.com/2021/03/20/opinion/sunday/unpaid-tax-
evasion-IRS.html.

The IRS must upgrade and integrate its 60+ overlapping taxpayer 
databases, used by more than five generations of IRS employees. The 
Individual and Business Master Files are the oldest computing systems 
still in use within the Federal government. These systems were 
developed with appropriations under President Eisenhower and 
implemented in the Kennedy administration. The IRS cannot be expected 
to meet modern needs with archaic technology. IRS systems face unique 
risks due to a continued reliance on legacy programming languages, 
outdated hardware, and a shortage of staff with critical skills needed 
---------------------------------------------------------------------------
to maintain these systems.

The Department of Treasury Inspector General \5\ recently found that in 
FY 2019, the IRS spent over $2.86 billion to operate its current 
information technology infrastructure, nearly $2.04 billion (71 
percent) of which was on operations and maintenance. In other words, 
the IRS spends nearly 20% of its annual budget merely trying to 
stabilize its outdated systems, and this does not include the 
additional costs incurred due to losses in productivity as employees 
experience IT-related work stoppages. Until the IRS is able to dedicate 
consistent time and funding to update its technology, the IRS will 
continue spending more to maintain legacy systems than to modernize 
them.
---------------------------------------------------------------------------
    \5\ https://www.treasury.gov/tigta/auditreports/2020reports/
202020044fr.pdf.

Without robust, multiyear funding the IRS will continue to struggle to 
undertake the necessary long-term transformation envisioned by the 
Taxpayer First Act to enter the 21st Century and meet modern taxpayer 
needs. PMA strongly supports the IRS request for $4.1 billion in 
dedicated funding over a five-year period to allow full implementation 
of TFA. Without this sustained funding, the IRS continues to struggle 
with improving taxpayer experience, coordinating Service-wide 
---------------------------------------------------------------------------
initiatives, and reaching traditionally underserved communities.

As the Committee dedicated to tax policy, we urge Members to appreciate 
the additional strain placed on the IRS and assist the IRS by 
clarifying and then appropriately funding its core mission. IRS 
employees consistently display their dedication to serve the American 
people in every way requested of them. However, it is unfair to 
taxpayers and employees alike to continue placing additional burdens on 
the Service without providing the requisite support. Only by adequately 
investing in its workforce and technology can the IRS be transformed 
into a 21st-Century tax administration agency.

In summary, PMA calls on the Congress to provide multiyear budgets for 
both IT Modernization and for Taxpayer First Act implementation so this 
crucial work can be completed without being undermined in the annual 
appropriations process. We request the Congress provide the IRS with 
Correctable Error Authority so that we can serve taxpayers efficiently, 
correct errors as we identify them, and proactively stop improper 
payments. We also ask that the Congress pass legislation giving the IRS 
authority to regulate tax return preparers so that we can protect 
taxpayers from economic harm caused by bad actors in our tax system.

Thank you for your consideration of PMA's perspective. Please contact 
PMA Washington Representative Natalia Castro 
([email protected]) if we can be of further assistance.

Sincerely,

Chad Hooper
Executive Director
Professional Managers Association

                                 ______
                                 
                    Letter Submitted by U.S. Citizen
The Honorable Ron Wyden
Chairman
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Mike Crapo
Ranking Member
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

April 19, 2021

RE: Hearing 2021 Filing Season and 21st-Century IRS, April 13, 2021

Honorable Committee Members,

I write today for your consideration on the serious matter of taxation 
recently discussed during the hearing with IRS Commissioner, Mr. 
Charles Rettig on April 13, 2021.

In the hearing, Mr. Rettig stated a priority for ensuring tax 
compliance, delinquencies and collections.

Please be reminded of the most devastating financial crisis the United 
States has ever experienced beginning in 4Q 2008 thru 2009. The 
trillion dollar Financial Crisis left many small business owners 
(myself included), investors, low and high-
earning individuals without the ability to pay ordinary tax liabilities 
incurred prior to the free-fall crash. For some, the devastation of 
this financial crash is easily forgotten now in the shadows of COVID 
payouts and, a decade passed with now, all-time high equity markets. If 
any staff members need a reminder of the devastation to taxpayers, they 
can always conduct the most cursory search of the Internet for; 
``Financial Crisis'' or, read the US Department of Treasury's own 
writing, ``The Financial Crisis Response in Charts'' April 2012. It is 
easy to play Monday morning quarterback now and assume that everyone 
has recovered from those debilitating losses and simply, turned the 
page with a, ``buy the dip'' mentality.

Unfortunately, there are tens of thousands of individuals and entities 
that have never recovered from this event; psychologically or 
financially. Some without any financial ability to return or rebuild. A 
risk event of this magnitude scars for life. As a small, closely held 
corporation actively involved in real estate, livestock, and automotive 
finance during the relevant years and prior thereto; I recall the 
losses as if they occurred yesterday. They haunt us daily. Literally, 
we witnessed all of the ordinary earnings and capital holdings from the 
same year 1Q-3Q 2008 and prior years, completely disappear in a few 
weeks in the 4Q of 2008! It felt like just a few minutes as everything 
was in free-fall and capital evaporated from the accounts daily. Every 
telephone call we received at the office during that turbulent time was 
to inform us that projects were being shelved, lines of credit frozen, 
demand for curtailments and capital calls, etc. We attempted to hold on 
with financial investments however, they were too volatile and remained 
in free-fall. We were diluted from all projects requiring capital 
contributions.

Most of us, unsophisticated taxpayers would assume that those losses 
could be deducted and off set against the same year earned income. 
Sadly, this was not the case. According to our experienced tax 
preparer, taxpayers could not deduct these ``capital'' losses against 
ordinary income in that year or anytime thereafter ($3K/year is 
unpalatable). In our case, this involved a small seven figure amount of 
ordinary income and seven figure amount of capital loss. This created 
an immediate insolvent position for the entity. There was no way for 
the entity to continue. It would never recover without any working 
capital, frozen debt markets, depreciating assets that had to be 
liquidated in fire-sales and, a significant six-figure tax liability. 
Never mind the capital loss carry-forward. That is a worthless 
proposition when you can't pay the rent or keep the lights on the next 
month. Our tax advisor and preparer repeatedly reminded us that the IRS 
would never accept a 165 extraordinary loss deduction that generated 
from the most severe, trillion dollar financial crisis recession of all 
time. If the financial crisis of 2009 doesn't align with the 
legislative intent of 165 casualty loss stated by the 88th Congress in 
1963, ``the most fundamental purpose of the deduction was to minimize 
the financial hardships of extraordinary losses'' (HR Rep. 749, 88th 
Congress, 1963); what could possibly be a more appropriate application 
of this extraordinary loss event?

Please be further reminded, during the trillion dollar financial 
crisis, no relief was afforded to small businesses or taxpayers. As you 
know, there was also an administration change in the middle of this 
crisis that added to the inefficiency of any purported relief. No 
consideration whatsoever was extended for these described tax liability 
situations. Only the large, too big to fail corporations and banks were 
saved. The worst financial crisis in history and not even a foreclosure 
moratorium. This created a gross inequity among taxpayers and further 
eliminated thousands of entrepreneurs. Further, TARP never provided the 
promised, ``shovel-ready'' jobs for small businesses to recover.

Pursuant to IRS collection and assessment limits, it is precisely now 
that all, or most of those 2008 and 2009 filed tax delinquencies would 
presumably appear on the commissioner's delinquency reports. Likely 
making up a significant amount of the growing delinquency that Mr. 
Rettig referenced in the hearing.

Sadly, I did not hear mention or read any subsequent comments from any 
committee members inquiring about the cause and effect of the largest 
financial crisis recession in U.S. history contributing to the overall 
delinquency.

As a committee, you now have an opportunity to repair some of the short 
falls from the prior handling of this devastating financial crisis. A 
crisis far greater damaging than COVID with far less relief. Please 
consider reminding Commissioner Rettig of the scenarios outlined herein 
and request that he forego collection of these years before releasing 
aggressive collection agents to further attack financial crisis victims 
or target small business owner.

The committee has an opportunity to extend some small relief to those 
taxpayers that were devastated by this crisis a decade prior.

Out of fear of retaliation and future, on-going targeting from the 
agency, I would request that the committee please accept this anonymous 
writing as a synopsis and allow serious consideration for all taxpayers 
that find themselves in a similar situation.

U.S. Citizen
Taxpayer
Small Business owner
Financial Crisis Victim

                                   [all]