[Senate Hearing 117-585]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 117-585

                   THE IRS'S FISCAL YEAR 2022 BUDGET

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                                HEARING

                               BEFORE THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 8, 2021

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                                     
                                     

            Printed for the use of the Committee on Finance

                               __________

                                
                    U.S. GOVERNMENT PUBLISHING OFFICE                    
50-980-PDF                  WASHINGTON : 2023                    
          
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                          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......................     2

                         ADMINISTRATION WITNESS

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

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Crapo, Hon. Mike:
    Opening statement............................................     2
    Prepared statement...........................................    47
Rettig, Hon. Charles P.:
    Testimony....................................................     5
    Prepared statement...........................................    48
    Responses to questions from committee members................    54
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................    97

                             Communication

Center for Fiscal Equity.........................................    99

                                 (iii)

 
                   THE IRS'S FISCAL YEAR 2022 BUDGET

                              ----------                              


                         TUESDAY, JUNE 8, 2021

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10 a.m., 
via Webex, in Room SD-215, Dirksen Senate Office Building, Hon. 
Ron Wyden (chairman of the committee) presiding.
    Present: Senators Cantwell, Menendez, Carper, Cardin, 
Brown, Bennet, Warner, Whitehouse, Hassan, Cortez Masto, 
Warren, Crapo, Grassley, Thune, Portman, Toomey, Cassidy, 
Lankford, Daines, Young, and Sasse.
    Also present: Democratic staff: Adam Carasso, Senior Tax 
and Economic Advisor; Joshua Sheinkman, Staff Director; and 
Tiffany Smith, Chief Tax Counsel. Republican staff: Gregg 
Richard, Staff Director; Don Snyder, Tax Counsel; and Jeffrey 
Wrase, Deputy Staff Director and Chief Economist.

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

    The Chairman. I will give my prepared remarks in a moment. 
First, a brief comment on this morning's breaking news. This 
morning there appears to be a massive unauthorized disclosure 
of taxpayer records. The source of this information is unclear. 
Given the IRS's responsibility to protect taxpayers' data, it 
has a responsibility to investigate the source of this 
disclosure.
    In the meantime, as reported by ProPublica, what this data 
reveals is that the country's wealthiest, who profited 
immensely during the pandemic, have not been paying their fair 
share. I will have a proposal to change that.
    Now with respect to today's hearing, the Finance Committee 
welcomes Commissioner Rettig to discuss the President's 2022 
budget request for the IRS. The Commissioner knows well that 
this committee's interest in closing the tax gap, improving 
enforcement, and fighting the unfairness in our tax laws, is a 
special priority for this committee.
    That starts, in my view, by going after cheating by the big 
guys at the top. A few key examples, starting with wealthy 
taxpayers who skip filing their tax returns altogether. 
According to a 2020 report from the Inspector General for Tax 
Administration, nearly a million wealthy taxpayers failed to 
file returns between 2014 and 2015, dodging a total of $46 
billion in taxes. Tax season came and went, they disappeared 
from the radar.
    Senator Whitehouse and I insisted on some explanations. Two 
weeks ago, he and I got a letter from the Internal Revenue 
Service that said that the agency brought charges against only 
200 taxpayers for failing to file a return over a period of 6 
years. Something is really out of whack here, colleagues.
    On the one hand, you have a fortune going unpaid by wealthy 
individuals who essentially blow off the responsibility they 
share with every other American taxpayer. On the other hand, 
only a couple hundred non-filers are facing charges. You would 
think that the IRS would be aggressively following up on the 
affluent non-
filers, but the evidence just does not show that that is the 
case.
    Here is a sickening example of high-earners escaping real 
scrutiny. More than $2 out of every $3 earned by partnerships 
in this country goes to the top 1 percent of earners. These are 
sophisticated entities that bring in big revenue. However, the 
most recent data shows that out of millions of partnership 
returns filed in 2018, only 140 were audited. If you are a 
wealthy cheat in a partnership, your odds of getting audited 
are slightly higher than your odds of getting hit by a 
meteorite. It is an audit rate of 0.00004 percent.
    On the other hand, taxpayers who claim the EITC have been 
much more likely to get audited. Again, something is just out 
of whack with respect to enforcement. For the sake of fairness 
and for the sake of the budget, it makes a lot more sense to go 
after cheating by the big guys than focusing on working people.
    The President's budget proposal has a lot to say on those 
issues. The funding increases for enforcement personnel and 
information technology would help to build up the IRS's ability 
to handle the premier cases, which are tax evasion by the 
wealthy.
    At the same time, it is important to recognize that there 
is history here. And the history is that the IRS has a history 
of going after the little guy too often. The budget proposes 
expanding the information that major financial institutions 
must report about client accounts. It is absolutely critical 
that the focus of that information reporting be on the wealthy 
tax evaders. The budget also includes a proposal that has been 
a big priority for this committee for a long time: the 
authority to regulate paid tax preparers. Too many Americans 
who need help filing their taxes are falling victims of 
fraudsters and incompetent individuals. Taking a smart approach 
and creating rules in this area will help lots of people avoid 
a tax refund nightmare, particularly those of modest income who 
depend on their refund every spring to make ends meet.
    So there is a lot for this committee to discuss. I want to 
thank Commissioner Rettig for joining us and look forward to 
the discussion.
    And let's now hear from our friend, 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, Senator Wyden. And like you, 
before I begin my formal statement, I want to comment on the 
ProPublica information that came out today.
    Essentially, as the chairman has said, we are seeing 
information today that appears to be 15 years' worth of leaked, 
confidential individual tax data from the IRS. We do not know 
the details of what happened here yet or not, but this 
information today is very relevant, in my opinion, to some of 
the proposals that the administration has on the table to 
expand the IRS's access to data on people; not just to their 
tax filings, but for individuals and companies to have their 
data, and financial institutions to have open access to the 
IRS. And these are issues that are very significant and require 
resolution.
    As to my formal statement, again, Mr. Chairman, I thank you 
and Commissioner Rettig for joining us today. It is safe to say 
that we all support efforts to administer our Nation's tax laws 
and collect taxes that are legally due.
    Today we will hear from Commissioner Rettig about proposals 
to massively increase the budget at the IRS, aimed largely at 
increased compliance and enforcement efforts.
    Commissioner Rettig, you have the chance to provide your 
perspective on an array of issues, including any updated tax 
gap analysis your agency is preparing, various compliance or 
enforcement-related proposals contained in the President's 
budget, and recently enacted spending programs that the IRS 
will soon begin implementing.
    Focusing on the administration's discretionary funding 
request for the IRS, I look forward to hearing about how the 
IRS would spend the $1.2 billion in additional funding in 
fiscal year 2022, including the specific activities that the 
funds would go toward, and what the expected outcome from these 
activities will be.
    The President's Fiscal Year 2022 budget proposes not only a 
significant increase in IRS funding, but also a dedicated 
mandatory flow of funding for the IRS over a 10-year period 
based partly on some speculative and questionable assumptions 
and analysis. Multiyear guaranteed appropriations like this are 
rare, and it is important to understand whether the 
circumstances actually warrant it.
    It is also important to understand how much additional 
funding the IRS can efficiently use, as well as the specific 
implementation plans the IRS has to put any additional funding 
and receipts to good use. Much has been said about the decline 
in IRS funding from the 2010 fiscal year. Less has been said 
about data suggesting the IRS has become at least somewhat more 
efficient in the aftermath of these declines, such as the fact 
that the IRS gross revenue collections have increased every 
year, year over year, since 2010 from $2.34 trillion in 2010 to 
$3.56 trillion in 2019.
    Further, the IRS's cost of collection has decreased every 
year, year over year, since 2010, from 53 cents in cost per 
$100 collected in 2010, to 33 cents cost per $100 collected in 
2019. Moreover, we need to better understand the actual 
correlation between the IRS's enforcement budget and the 
enforcement revenue it collects.
    For example, IRS data shows enforcement revenues actually 
increased between fiscal years 2012 to 2013, from 2013 to 2014, 
2015 to 2016, 2016 to 2017, and 2017 to 2018, despite actual 
enforcement spending decreasing in each of those periods.
    Similarly, between fiscal years 2019 and 2020, enforcement 
revenue declined by $6.4 billion, despite actual enforcement 
spending increasing by $317 million. Suffice it to say we need 
to better understand the facts at play here, particularly 
before we rush to adopt multi-billion-dollar funding increases.
    And as we all know, revenue comes from the economy, and 
revenue collected is far more sensitive to the state of the 
economy than it is to the size of the IRS budget, or the scope 
of its enforcement. When the economy grows, revenues rise. And 
when the economy shrinks or grows sluggishly, revenues fall or 
grow slowly.
    The administration's budget proposes several new reporting, 
compliance, and enforcement regimes, including a proposal to 
require near-universal disclosure to the IRS of gross inflows 
and outflows for both traditional and nontraditional financial 
accounts for businesses and for individuals, as well as for 
third-party settlement entities.
    I have long been very critical of big data collection 
activity and oppose turning banks and brokers into government 
tax collectors. And I have strong concerns about proposed IRS 
big data requirements.
    According to the budget request--and I am quoting--``This 
requirement would apply to all business and personal accounts 
from financial institutions, including bank loans and 
investment accounts, with the exception of accounts below a 
low, de minimis growth flow threshold of $600, or fair market 
value of $600.''
    Commissioner Rettig, you may recall that expanded 1099 
information reporting was enacted in the Affordable Care Act to 
include any payment over $600. And the American people soundly 
rejected that provision, leading to its rapid repeal a year 
later.
    Absent bipartisanship in developing enhanced compliance and 
enforcement activities, and public acceptance of their 
legitimacy, the administration's proposals will not be durable. 
The key issue for the IRS and for those of us who oversee it is 
to strike the appropriate balance between rigorous enforcement 
of the tax laws and heavy-handed, stifling intrusiveness.
    I am concerned about the implications of many of the 
President's budget proposals, including requiring additional 
and highly burdensome information reporting when some existing 
reporting is duplicative, and much is still not being utilized 
to the fullest extent.
    Proposals to increase compliance and enforcement can have 
merit, but there is risk of turning the IRS--and perhaps even 
private financial institutions--into huge gatherers of 
information that is not necessary for tax administration and, 
in my opinion, violates the privacy of Americans.
    Also, in regard to compliance, I would be remiss if I did 
not indicate my continued disappointment in the lack of 
responsiveness of the IRS and Treasury to my inquiries. You 
appeared before this committee on April 13th, Commissioner 
Rettig, and I have yet not received responses from you to 
questions that I asked for the record.
    I also sent you a letter on May 10th with a series of 
questions about the speculative and questionable tax gap 
projections that you have recently put forward. I only received 
a partial response to my questions late yesterday afternoon.
    It is somewhat surprising for the administration to request 
outsized and mandatory funding for the IRS while at the same 
time not complying with basic transparency and accountability 
responsibilities.
    Commissioner Rettig, I look forward to your testimony, and 
I do thank you for appearing here before us today.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Crapo appears in the 
appendix.]
    The Chairman. Thank you, Senator Crapo.
    Commissioner, please proceed.

  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 our proposed budget for Fiscal Year 2022 and our 
efforts to help taxpayers, especially during the COVID-19 
pandemic, and our ongoing efforts to address the tax gap.
    Before I begin, I would like to thank Congress for 
recognizing the efforts of our employees during the pandemic on 
behalf of the country. We are proud to serve our country and 
want to provide meaningful services of nature and quality every 
American deserves.
    The problems facing tax administration today are not new. 
It will take time to overcome the challenges of the past, and 
without adequate, consistent, timely multiyear funding, the 
agency will continue to struggle to replace more than 50,000 
employees expected to be lost through attrition over the next 6 
years, expand and train our workforce, and support 
implementation of our multiyear integrated business 
modernization plan, the Taxpayer First Act, as well as 
continuing to enhance both meaningful service and compliance 
efforts.
    Like all Federal agencies, the IRS is best suited to 
provide the services Americans deserve and appropriately 
enforce the tax laws in support of compliant taxpayers when it 
receives the resources it needs to do so. At a time when the 
IRS has faced consequential resource challenges, it has also 
been called upon to take on new significant responsibilities.
    I believe that our response to the unprecedented COVID 
challenges illustrates the importance of every American to the 
IRS, and the importance of the IRS to every American. During 
the pandemic, in a bit more than 14 months, IRS and Treasury 
employees delivered more than $800 billion through more than 
474 million payments in three rounds of Economic Impact 
Payments, including refunds for filing season 2020. And so far, 
in filing season 2021, the IRS and Treasury have distributed 
more than $1.3 trillion.
    Turning to the 2021 filing season, I am pleased to report 
that the filing season has generally gone smoothly. On filing 
day, May 17th, we received a record of 15.36 million returns. 
Through May 28th, the IRS has processed more than 137 million 
individual returns, including 101 million refunds totaling more 
than $281 billion.
    We are working through backlogs in returns, but we are 
current on all returns received by us during calendar year 
2020. Our Error Resolution System currently has about 9.4 
million returns in process, which are principally due to 
inconsistencies between reconciling amounts of EIPs received 
for the return recovery rebate, EITC claimants claiming with 
respect to 2019 versus 2020, and identity theft. We are working 
through these using mandatory overtime for our employees and 
exercising every effort that we can.
    We are also current in opening mail. We receive between 1 
and 1\1/2\ million pieces of mail per week. All of the mail is 
opened within a week of receipt by the Internal Revenue 
Service.
    In 2021, we received more than 150 million phone calls, and 
at peak we were receiving calls at the rate of 1,500 per 
second. Between live and automated systems, we answered more 
than 36 million calls. We have had more than 1.4 billion visits 
to IRS.gov. We are on track with respect to implementation of 
the statutory requirements for the Advance Child Tax Credit, 
with the first payments to be received July 15th.
    More than 30 million households, and more than 65 million 
children, will be receiving monthly payments beginning July 
15th. We will soon launch the online tools, and we invite 
members and staff for a demonstration of our CTC online tool 
which includes a Non-filer tool that will soon be launched, a 
CTC update tool that will be launched by the end of June, an 
eligibility tool, and other relevant information.
    We have been doing outreach, including recently 
distributing more than 30 million letters to potentially 
eligible individuals. Congress can help us in our efforts by 
providing direct hiring authority and consistent, timely 
multiyear funding sufficient for us to provide meaningful 
services on behalf of every deserving American.
    You have referenced the President's Fiscal Year 2022 budget 
proposal, which has three critical components--the 
discretionary budget request of $13.2 billion, a 10.4-percent 
increase above the 2021 enacted level; and two other portions 
which are intended to build back the IRS: the Program Integrity 
Allocation Adjustment, and the American Families Plan. These 
streams, we believe, are important. We are willing, as Treasury 
is, to meet with members and staff to discuss them. And 
ultimately, we will do our best with the funding that Congress 
provides, and we realize, and you realize, that we are a tax 
administration agency, and we will try our best.
    So, Mr. Chairman, Ranking Member, with that I invite 
questions and thank you for having us appear today.
    [The prepared statement of Commissioner Rettig appears in 
the appendix.]
    The Chairman. Thank you very much, Mr. Rettig. Let me start 
with a Treasury Inspector General for Tax Administration report 
that showed that 900,000 high-income taxpayers dodged $46 
billion in taxes by failing to file a return between 2014 and 
2016.
    When we asked about the legal consequences, your office 
replied in a May 25th letter that the IRS asked the Department 
of Justice to charge 200 taxpayers for failing to file a return 
between 2014 and 2020. Everybody else appears to have just 
gotten away with not paying the taxes that they owed.
    Let's start by having you explain why so few persons were 
charged with failing to file a tax return over the past 6 
years, when the Inspector General and others are saying tens of 
thousands of high-flyers got away with shirking their duty.
    Commissioner Rettig. Every high-income non-filer from tax 
year 2016 forward is involved in compliance actions with the 
Internal Revenue Service. The reference that you are referring 
to is under 7203, which is a misdemeanor for a failure to file 
an income tax return. And the statistics you have are 
statistics that we provided.
    There have been legislative proposals, even recently, about 
making a multiyear non-filer matter a felony, as opposed to a 
misdemeanor. The system is not designed to effectively address 
misdemeanors. We have limited resources in our Criminal 
Investigation function. Decisions have to be made based on 
resources. The same people in Criminal Investigation, who are 
specular at what they do, who would look at misdemeanor cases, 
and the majority of misdemeanors in the Department of Justice, 
if they bring those cases--that is their decision to indict--if 
they bring those cases, in the majority of those cases, the 
individual does not receive a period of incarceration. In the 
majority of the felony cases that are brought, people receive a 
period of incarceration. The incarceration is not only a 
deterrent to the individual who ends up in prison, but it is 
also a deterrent to other similarly situated taxpayers.
    The Chairman. Let's stay----
    Commissioner Rettig. We share your concerns, Senator.
    The Chairman. Let's stay with this question of how the 
wealthy always seem to be able to skip out on their 
obligations. In 2018, the IRS audited 140 partnerships. By my 
math, that is less than 0.00004 percent of the 4 million 
partnership returns filed that year.
    So you have a better chance of being struck by lightning 
than being audited, if you are a partner in a partnership. And 
this is exceptionally concerning, given that around 70 percent 
of all partnership income accrues to the top 1 percent of 
households.
    So this is another example of the tale of two tax codes. 
You have the nurses in Medford, OR, this morning treating COVID 
patients. They pay taxes with every paycheck. But if you are a 
millionaire who can arrange their assets through a 
sophisticated, complex web of partnerships, you can abuse the 
system essentially with impunity.
    And I would like to know what you are going to do to have a 
significant reform in this area: enforcement of large 
partnerships. I think that is key to my proposition--and that 
will be the heart of my proposal; it is the heart of my 
proposal--to ensure that the wealthy pay their fair share.
    And so, explain to me how you intend to deal with this 
significant gap in tax fairness.
    Commissioner Rettig. We share your concerns. Our highest 
rates of attrition are in our most specialized senior 
examiners. The President's budget, not only under the 
discretionary budget which has funding for enforcement and 
services, but under the PIA, as well as the mandatory 
provisions, specifically provides for increased resources for 
specialized agents looking at partnerships, wealthy 
individuals, and corporations. And I believe it was at this 
hearing in April, if I am not mistaken, where I indicated that, 
in those arenas, we are outgunned; that the resources outside 
the Service on a particular case more often than not far exceed 
the resources we are able to devote. And out of 4.2 million 
partnership returns--we cannot touch 4.2 million when, Service-
wide, I have 6,500 field revenue agents. And I need to deploy 
those as best I can.
    The Chairman. So just tell us for the record, with the 
added money for enforcement that is going to get my support, 
how much of an increased effort will you direct to these very 
wealthy partnerships where there just has not been the focus 
and scrutiny that enforcement requires?
    Commissioner Rettig. Our enforcement focus--and I need to 
address also that the budget also involves funding, and in the 
discretionary part of the budget, the most significant increase 
is in taxpayer service and modernization. But speaking to the 
enforcement point, which is what we are addressing here, our 
specialized agents whom we are looking to bring onboard--and it 
is a significant hiring for us, and it is at three separate 
levels. We are not just hiring under 5-year--if we receive the 
budget--under 5-year people. We are looking at that category of 
individuals. We are looking at mid-career people in their 30s 
and 40s who have a degree of experience. And we are looking for 
people at my level who also have a degree of experience who can 
not only instruct our people but can work these cases from the 
moment they come on board.
    But our focus is on--and I have the list; if I have a 
moment, I can provide it to you, sir. Our focus is on high-net-
worth individuals, global high wealth, large pass-throughs, the 
largest pass-throughs, large corporate compliance, the ultra-
large corporate compliance, employment tax field examinations, 
employment tax correspondence examinations and--I'm finishing--
transfer pricing, non-filer virtual currency, Bank Secrecy Act 
Forms 8300, and abuse of transactions, both promoters and 
taxpayers.
    And that is our list that we are requesting the ability to 
bring on specialized agents to make a determination on.
    The Chairman. I would like, in writing, additional detail 
about how you intend to focus in those areas. All right?
    Commissioner Rettig. We will do that.
    The Chairman. I would like to have it within a week, 
because we are going to have to move pretty quickly on these 
issues.
    Senator Crapo?
    Senator Crapo. Thank you very much, Mr. Chairman. I am 
going to follow up on the same general topic, but from a 
different perspective, Commissioner Rettig.
    I completely agree that we need to make sure that those who 
fail to pay taxes due are identified and are forced to pay the 
tax that they owe, and pay the necessary penalties for tax 
avoidance.
    That being said, the President's budget calls for a new 
change in the law, allowing the IRS to have what I see as near-
universal access to the reporting of Americans' financial 
account information to the IRS--transactions over $600.
    This proposal will carry with it a significant amount of 
privacy concerns, in my opinion. Like I said, I do not have a 
problem with helping the IRS get stronger ability to focus and 
specialize in dealing with these wealthy individuals, 
partnerships, and corporations who are avoiding tax owed under 
the law. But I do not think that Americans would support giving 
up access to their own private financial information to the 
IRS, or to any government agency, and the information we got 
today in the ProPublica circumstance is just evidence of why 
Americans, I think, are going to be very concerned about giving 
the IRS direct access to their financial data.
    The question I have for you is, do you believe that the 
American people support having their banks effectively act as 
IRS agents and report on, quote, ``flows of deposits into or 
withdrawals from their checking and savings accounts that 
amount to more than $600''?
    Commissioner Rettig. As a tax administrator, it is probably 
not appropriate for me to comment on what I believe. But you 
know, we see the media reports going in both directions.
    The information reporting does get provided to the Internal 
Revenue Service in the event of an examination. It is one of 
the first things, obviously, that agents request. And they can 
request informally or formally. And in part, I think there is a 
strong belief that modernized systems and the ability to 
actually use the information that we have and would receive 
will help us lessen the burdens on some taxpayers by having us 
not audit certain taxpayers, and maybe streamline the 
examinations of others. But as I said, ultimately, we are tax 
administrators, and we will implement to the best of our 
ability what Congress approves.
    Senator Crapo. Well, Commissioner, I have been working for 
years, and I believe Senator Wyden has too, on privacy on the 
Internet. I think that people have a right to privacy of their 
data. And I do not mean just financial data, but their 
activities on the Internet--and the data collection that 
private-sector companies are collecting on Americans now is 
phenomenal. And I think Americans are fed up with it.
    I think that this proposal to literally increase the IRS's 
ability to, in my opinion, violate the privacy and access the 
private financial information of individuals in a manner that 
is far in excess of what currently exists, is of great concern.
    How can the IRS assure Americans that the information it 
would receive under this proposal would be used for proper 
purposes? And in light of the ProPublica information report we 
saw today, how can it protect people from that kind of 
violation of their own privacy?
    Commissioner Rettig. The IRS is one of the largest data 
warehouses in the world presently. And the IRS has 
significant--I cannot speak to the ProPublica article, as I 
think we have discussed; I cannot speak to anything with 
respect to specific taxpayers. I can confirm that there is an 
investigation with respect to the allegations that the source 
of the information in that article came from the Internal 
Revenue Service. Upon reviewing the article, the appropriate 
contacts were made, as you would expect, and the investigators 
will investigate and ultimately that will be there. But we also 
have, as you know, a very strong Inspector General in TIGTA, 
the GAO. We have a Taxpayer Advocate whose purpose that came in 
through the 1997-1998 IRS Restructuring and Reform Act was to 
provide oversight and be in-house in the IRS and uncover, if 
there are issues that need to be uncovered and dealt with.
    So you know, we will find out about the ProPublica article, 
but we do have quite a few systems in place. And I would say 
for the volume of data that we have and that gets exchanged, I 
think the IRS has been very successful in protecting that data. 
But we are not insensitive to your comments.
    Senator Crapo. Well, thank you very much. My time has 
expired, so I will not ask--I have a number of additional 
questions that I will submit for the record, but I do want to 
let you know that I am going to follow up on whatever we 
received from you yesterday with regard to your analysis of the 
tax gap. I think that we need to get much deeper into that.
    Commissioner Rettig. And for all members, I am available 
for one-on-ones. Members of our staff are available for one-on-
ones with members, or with your staff. I am available to meet 
with your staff.
    Senator Crapo. Thank you.
    The Chairman. Senator Grassley?
    Senator Grassley. You just answered my first question when 
you said that you are investigating this ProPublica release of 
secret IRS files. I assume that, if your investigation finds a 
violation of the law, you are going to see that people are 
prosecuted. Is that right?
    Commissioner Rettig. Absolutely. I share the concerns of 
every American for the sensitive and private and confidential 
nature of the information the IRS receives. As you all are well 
aware, I spent 36 years on the outside. I think that trust and 
confidence in the Internal Revenue Service are sort of the 
bedrock of asking people and requiring people to provide 
financial information. And we have, as I said, turned it over 
to the appropriate investigators, external and internal.
    Senator Grassley. After the April 13th hearing we had, I 
submitted written questions to you regarding the IRS's 
administration of the Private Debt Collection program and its 
implementation of changes enacted under the Taxpayer First Act. 
However, I have yet to receive a response. When should I expect 
to receive a response to that letter?
    Commissioner Rettig. Sir, as you know, I am a huge 
proponent of private debt collectors. I think that they have 
been a significant help to the Internal Revenue Service, as 
well as--we often have discussions about whistleblowers and 
where we are headed. I see whistleblowers as a critical 
component of the future of the IRS.
    The responses to the questions for the record are in 
clearance. They are outside of my immediate domain, if you 
will. So I would anticipate soon. We have pushed to get those 
released to you. And I do not take lightly the concept that, 
for the ranking member, we released the letter to him last 
night. I get it that that is not sufficient time to look at a 
letter for a follow-up. And same with the QFRs, you should have 
received them before today. I will only comment that internally 
and in the clearance process, which is outside of the IRS, 
people are pushing really hard. It is not an excuse, sir, it is 
an explanation. But the shorthand answer is, soon. And I am 
trying to be on top of that to get that information to you.
    It is not without lack of attention, if you will, sir.
    Senator Grassley. Last month, the Inspector General for Tax 
Administration released an updated report on improper payment 
rates for refundable tax credits. The report indicates the IRS 
continues to struggle to meaningfully reduce improper payments 
for refundable credits. Yet, according to the report, IRS and 
Treasury have requested the Office of Management and Budget to 
exempt refundable credits from improper payment reporting 
requirements.
    This comes at the same time that the current administration 
is seeking massive expansion of several refundable credits. Why 
would the IRS and Treasury seek to limit information available 
to Congress to evaluate these credits and their proposed 
expansion?
    Commissioner Rettig. I do not think it is limiting 
information available to Congress. I think it is more in terms 
of the accounting, the Internal Revenue accounting, and would 
be pleased to follow up with you. The figures will not go away. 
Those figures are significant, as you are aware, if you have 
seen the report. With respect to EITC, the rate is about 25 
percent, about $17 billion per year. With CTC it is about 12 
percent, $4.5 billion per year.
    There have been proposals on the credits to essentially 
merge credits and make them more administrable by the Internal 
Revenue Service into something maybe along the orders of a 
family credit where the IRS can rely on information in its 
systems.
    We do not have, for these refundable credits, information 
as to, say, the residence of a dependent and such. And it makes 
it extremely difficult to administer those in the ordinary 
sense.
    So, I will follow up with you in terms of the background 
for that, but it is not to prevent Congress--I am a huge 
believer in your oversight, this committee and others, a huge 
believer in transparency, and equally that you are a meaningful 
part of tax administration with us on behalf of this country.
    So, there is no intent or incentive or desire to withhold 
information. To the contrary: we need you.
    Senator Grassley. I am going to have to submit my other 
questions for answers in writing, but the important one for you 
to answer in writing is in regard to Tax Administration saying 
that there is an improper payment rate of 27.4 percent, the 
highest rate of any credit, when it comes to the premium tax 
cut. So, I would like to have you look at that. Thank you.
    [The questions appear in the appendix.]
    The Chairman. I thank my colleague.
    Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman.
    Commissioner, let me start off by thanking the dedicated 
employees of the IRS. I hope you will share that with them, 
especially for their tireless work during the last year to get 
stimulus checks into the hands of hardworking Americans.
    Thanks to the American Rescue Plan, 27 million children 
nationwide, and more than 1.6 million children in New Jersey, 
are estimated to benefit from the historic expansion of the 
Child Tax Credit.
    So, Commissioner, given the issues with the stimulus 
payments last year, how is the agency working to ensure that 
all taxpayers who are eligible for the Child Tax Credit 
payments will receive these payments on July the 15th and each 
month thereafter?
    Commissioner Rettig. Individuals who we have information 
for will receive the payments commencing July 15th. It will be 
based on a 2020 return, if not a 2019 return. This week we are 
in process, and will complete the process by June 16th, of 
sending out over 30 million, I think the number is actually 36 
million, letters to potentially eligible people. It is not 
saying they are eligible, but it is people we may have 
information on that might indicate they might be eligible.
    We have a very significant outreach program. As I indicated 
earlier, we are launching one of our online tools this week. We 
are launching a second online tool in the very near future. We 
have invited members of this committee, and members of Congress 
and staff members, for a demonstration of our online tools.
    Part of our inquiry and invitation is to get feedback from 
members of Congress and staff as to the tool. We are very 
proud. We think Congress will be very proud. But that does not 
mean that we have all the answers. We have been working with a 
lot of people, and we also realize that individuals 
generically, individuals do not always go to IRS.gov to get 
their information, so we are working with literally thousands 
and thousands of community-based organizations around the 
country to distribute information. Information will be 
distributed in multiple languages. A lot of this is information 
that we learned in the first round of EIP, EIP1, EIP2, EIP3, 
the outreach that we conducted.
    We have been very fortunate to interact with more than 
10,000 different organizations around the country that 
previously were not interacting with the Internal Revenue 
Service, based on what our core processes were. So, we have 
quite a bit of outreach.
    We will also be providing members of Congress and staff 
with toolkits and social media that you can use in your 
districts--you know, both Twitter and relevant types of things.
    We need help getting the word out, as we did need help with 
the EIP1, 2, and 3. We believe that the systems that are going 
to launch will be as seamless as possible. That is not saying 
it will be seamless. We have tested. We are testing and, you 
know, with each round in this type of situation, we learn and 
get better.
    Senator Menendez. I appreciate that, and I will have my 
staff take advantage of this offer. And we certainly want to be 
a partner in this regard. You know, the reason I asked is, last 
year an estimated 41 million taxpayers did not receive the 
stimulus check because they received an advance on their 
refund, or they did not file a tax return in advance of the 
July 15, 2020 tax filing deadline.
    In addition, many taxpayers, especially those with young 
children, received checks that were incorrect and did not 
properly reflect the number of children in their household. Now 
I heard you mention an online portal. Are you launching an 
online portal that allows working families to update their 
information with enough time to ensure that this money can get 
into their pockets by July 15th?
    Commissioner Rettig. When the portals launch, they will 
launch with the statutory requirements. And because, as you 
know, we have moved the filing season back a month, the same 
people who work on filing season EIP in the IT context are the 
same people who work on this. So we got crunched, if you will, 
a little bit on time. But we will launch with the statutory 
requirements, and on a monthly basis thereafter, we will update 
the portals.
    And I should also indicate, you know, coming to the comment 
that everybody does not go to IRS.gov, they will be able to 
walk into an IRS office. We will have paper interactions. 
People will be able to update on the phone, once they are 
authenticated. We will be able to update on the phone, and 
ultimately people will be able to use their personal online 
account at IRS.gov to do these updates. And ultimately, we will 
also be in Spanish.
    Senator Menendez. Well, that is good to hear. I know you 
mentioned on the phone. I just want to say that the National 
Taxpayer Advocate has continually ranked the IRS customer 
service as one of the most serious problems facing the agency. 
With the 150 million calls that went to the IRS this year, only 
7 percent of the calls reached an IRS employee.
    So I am glad that we are going to have that service. But we 
have to have a service that actually works. There is nothing 
more frustrating to a taxpayer, to a citizen, to say you can 
avail yourself of this service, and then when you avail 
yourself of it, you cannot get someone to answer your question.
    Commissioner Rettig. If I may comment, the level of 
service, and particularly the phone, is an appropriated item. 
And as I said, in the President's budget, the President asked 
for funding for 75 percent. We are supposed to answer 7\1/2\ 
out of 10 calls. That is an item that, if we get that funding, 
in the normal circumstances, we will be answering 7\1/2\ out of 
10 calls. The calls currently are about 19 minutes. 
Historically they were 12 minutes. Our people are proudly 
interacting with Americans. We are principally the government 
agency, other than SSA and VA, to interact.
    And I have called on people to spend a few more minutes on 
our folks' calls who are emotional. A lot of people in this 
country have endured a lot of hardship, and we tend to be the 
people that they reach out to. So the calls are longer calls, 
and they increase volume, and have crunched that. But if, for 
example, instead of 7\1/2\, it would go to 8\1/2\, that extra 
10 percent of calls to be received, we would need an 
appropriation of another $100 million. And every IRS employee, 
myself included, wants us to answer 10 out of 10 calls. It is 
not our choice.
    Senator Menendez. Thank you, Mr. Chairman.
    The Chairman. I thank my colleague.
    Next is Senator Carper, and I think he is on the web. 
Senator Carper?
    Senator Carper. Thank you.
    The Chairman. Senator Carper, your connection is not great. 
Let's try again.
    Senator Carper. There you go. Is that better?
    The Chairman. Yes.
    Senator Carper. Commissioner Rettig, I wanted to thank you 
and your staff for spending some time with my team and me, as 
we try to figure out how we are going to pay for major 
investments in surface transportation--our roads, highways, 
bridges--and to do so in a way that the burden does not fall 
inordinately on low-
income families.
    I thank you very much for trying to help us think outside 
the box as we do that. So that's just a ``thank you,'' and we 
look forward to continuing to work with you on that front.
    Second, I want to follow on what Senator Menendez was just 
questioning about, and that's customer service. What was the 
old cartoon? It was Pogo, the old cartoon was Pogo--it was a 
long time ago--and he said, ``We have seen the enemy, and it is 
us.'' And when it comes to the poor service, the Congress and 
previous administrations just cut the heck out of the IRS, year 
after year after year. And we continue to change the tax code; 
we make it more complex.
    We have for years now not provided extra resources and 
technology. It is no wonder the folks whom we are serving are 
not satisfied with the service they get. We can do something 
about that. I hope my colleagues and I will do our job now 
going forward.
    I want to ask a question. How would the IRS budget proposal 
before us help the agency close the tax gap? And would the 
tools in the Biden plan complement your efforts in your agency 
to improve enforcement?
    Commissioner Rettig. The President's proposal has three 
critical components, each of which has an impact on the tax 
gap. The discretionary proposal provides for basically taking 
care of the attrition of the Internal Revenue Service. The PIA 
and the mandatory provisions have the ability to essentially 
build back the Internal Revenue Service, to rebuild both our 
service and enforcement side of the house.
    I think the committee is aware that we are down 17,000 
enforcement personnel over the last decade, and that the tax 
complexities have increased significantly. The challenges and 
duties and responsibilities of the Internal Revenue Service 
have similarly increased significantly over this same time 
period.
    The complexities of structured transactions, if you will, 
by taxpayers on the outside, both corporate individuals and 
pass-through entities, have increased significantly. The filing 
of partnership returns, I think the most current data, is about 
4.2 million partnership returns. And I think, as I have 
indicated earlier, I only have about 6,500 field revenue agents 
to deploy in every one of these neighborhoods, which is a 
compliance challenge.
    There are also provisions in the President's budget 
proposal for additional information reporting, including 
information reporting in the virtual currency context. We are 
well aware that there are compliance challenges for folks 
engaged in virtual currencies. It is a high priority for the 
Internal Revenue Service and myself, together with others, and 
we need to make resource decisions among those.
    The President's budget is designed to provide considerable 
assistance to the taxpayer service side of the house, to the 
modernization side of the house, to the enforcement side of the 
house, as well as operations support. And it is those four key 
components that create tax administration for the Internal 
Revenue Service, for the people of this country, for Congress. 
And we know we can do it better, but we need appropriate 
mandatory, multiyear, consistent funding to get there.
    It is also critical for us, if we were to get this 
legislation, that we receive direct hiring authority, which 
would allow us to quickly onboard the specialized level of 
individuals that we are looking for at the mid- and toward the 
end of the normal career who are interested in coming on board.
    And so, there is an entire package. And, sir, as we 
discussed the other day, I am more than willing to meet with 
you and your staff and others to get into details on what we 
plan to do.
    I will say, the IRS, proudly--employees of the IRS, IRS 
leadership--have been working on a plan for many months. So if 
Congress enacts something, do not expect us to wait 6 months to 
show you what we intend to do. We are pretty close to there.
    And I did a June 1st mandate a while ago for our leadership 
of what I wanted to see in terms of something to ultimately be 
able to share, and we were ahead of schedule. And I think you 
will be proud. We need the funding. If we get the legislation, 
we will show you quickly what we intend to do. But we do not 
intend to wait 6 months to implement what we hope Congress 
provides to us. We will be ready.
    Senator Carper. Thanks so much.
    Lastly, how will this budget proposal improve access to tax 
filing services for both low-income and vulnerable taxpayers?
    Commissioner Rettig. Well, you know, the income equality 
issues--Treasury, and I know there are other Senators who are 
very interested in this as well. We have worked hard with 
Treasury on issues involving income equality, income 
inequality, and there are working groups at Treasury who are 
focused on this. We are the tax administrators. Our role in 
that is essentially implementation and administrability of what 
Congress and the administration might do.
    And as far as the voluntary income tax, and prefile, and 
the rest, you are hitting my sweet spot. The lower-income 
taxpayers, the vulnerable taxpayers, the taxpayers who are 
challenged with the English language, are the people whom I 
think we all have a high degree of moral responsibility to, but 
it is a privilege to help these folks get it right.
    They, by and large, are the ones who are trying to get it 
right. They get preyed upon by preparers. They may be a little 
confused, and they are not comfortable with the language, but 
personally I can say, for most of the IRS employees, we 
consider it a privilege to be very active in these communities. 
And we will continue to be so.
    Senator Carper. Oliver Wendell Holmes once said, ``Taxes 
are what we pay for a civilized society.'' Thank you for what 
you and your team do at the IRS. We have to make sure that we 
collect the taxes that are needed, so thank you.
    Commissioner Rettig. Thank you, sir.
    The Chairman. The time of the gentleman has expired.
    Senator Cardin?
    Senator Cardin. Thank you, Mr. Chairman.
    Commissioner Rettig, it is a pleasure to see you.
    This hearing is about your budget. I have been one of the 
members who has been advocating for increased resources to the 
IRS for a long time. This budget is certainly a welcome budget, 
to see the increase in the President's budget for IRS. But I 
think it is important to point out that, if you look at the 
historic decline of support for the Internal Revenue Service, 
we are just making up for what we should have done in the past, 
and we still have a long way to go in regard to the resources 
necessary to efficiently collect the taxes of this country.
    I was listening to your exchange with Senator Menendez in 
regard to the service issues, and I think we all recognize that 
you play a critical role. And your workers are on the front 
line and need always to have a smile with their service, 
recognizing the frustration of our constituents may be directed 
at them.
    So I just first want to thank the workers at the IRS and to 
acknowledge that I hope this is a trend that will continue: to 
give you the support you need to carry out your mission.
    I want to talk a little bit about the Taxpayer First Act, 
which deals with some of the issues we have already talked 
about. Your customer service strategy deals with cyber 
concerns. It deals with protecting taxpayers, and low-income 
taxpayers. It was put on hold, or sidelined as a result of 
COVID-19, the implementation on some of these issues.
    Can you just give us a realistic target date, if this 
budget is approved by Congress, as to the implementation of the 
Taxpayer First Act?
    Commissioner Rettig. Quite frankly, I think that the IRS 
might be living in a perfect storm. If the budget is to pass--
we have brought on a new Director of the Taxpayer First Act 
office, Heather Maloy. She is instrumental in looking at 
increasing staffing across all lanes. The Taxpayer First Act 
provisions are critical for that.
    Heather is now in daily meetings with myself in her role. 
We actually launched yesterday, referring to IRS NEXT. The 
Taxpayer First Act provisions will be enacted extremely 
quickly. The best I can do--I am not trying to give you a 
lawyer answer, but I can tell you that all hands are on deck. 
What we are seeing and how we are looking at things between 
funding resources, staffing, modernization, customer service--
which we know is important to you; it is very important to us--
all of these come together as a multifaceted approach to be 
able to provide Americans what they deserve. And that is where 
we are headed.
    We are very focused on private-sector interactions with the 
customer base, if you will. We are trying to replicate or 
exceed where we can. We are trying to modernize our systems. 
And part of the President's proposal is a catch-up, if you 
will, for funding that we did not receive.
    As you know, we have only received about 55 percent of the 
funding that was requested for the integrated business 
modernization plan. We have had to delay other projects in 
order to keep that project on target. That part of the 
President's proposal actually catches us up and allows us to 
move at a faster pace.
    So, if you will, wrapped within the Taxpayer First Act, all 
lanes are coming together. As I am sure you are aware, we did 
not get funding under the Taxpayer First Act, so we have been 
operating essentially without funding to do what we can do. But 
I will say that we have done quite a bit and, critically, I 
think most of you are aware that we brought on a taxpayer-
experienced officer, Ken Corbin, and I am confident that all of 
your staff are very familiar with Ken. And importantly, Ken and 
I actually do randomly selected IRS employee Zoom calls. We 
send out 150 invitations. About half of those who respond--the 
first half to respond get a link. Multiple times a week, 
employees all around the country, from Guam to Puerto Rico to 
Washington, DC, get on a Zoom call with Ken and me.
    Senator Cardin. So let me take you up on your offer of 
keeping us informed. As you said, if you could, tell us how the 
implementation is occurring, and where we are together on 
expectations of what we can achieve. We know it is a challenge, 
and if you would keep us informed on that----
    Commissioner Rettig. Absolutely.
    Senator Cardin. I want to cover one other question, if I 
might, dealing with paid preparers. We talked about this 
before, the lack of authority, and we have to do something 
about it. The chairman has been very active and engaged in 
trying to give the authority to the IRS.
    But I have seen the President's budget. You are increasing 
the fine against ghost preparers. That is great. But can you 
enforce it? What type of enforcement are we going to have in 
regard to those who are receiving fees from taxpayers but are 
not reporting that on the IRS return?
    Commissioner Rettig. Yes. The ghost preparers are 
individuals who prepare returns but do not sign them, and they 
do charge. The line on the return is for a paid return 
preparer. And we do indicate, when we--I cannot explain exactly 
how we get there. I know how we get there, but in a public 
forum I should not indicate how we get there. But a word to the 
ghost preparer community is: we know you are there. We are 
focused. And we have this option coming up in terms of civil 
penalties, and there could be criminal penalties. Because these 
returns tend to have similar errors, and they batch returns 
with the same errors, they get identified.
    So we will get there. We need all the tools we can get in 
terms of return preparers. And as you are well aware, they are 
preying on the most vulnerable taxpayers, and not only the 
lower-income folks but folks who are not comfortable with the 
English language. And if you sit in one of these cases and you 
see what happens to these individuals involved, you would be 
highly motivated to get us all the tools you can on the 
preparer world.
    Senator Cardin. Thank you.
    Mr. Chairman, I think this is an area that you are 
interested in, and I think we should really follow up on it.
    The Chairman. I very much appreciate your leadership on 
this, Senator Cardin.
    Senator Brown is next.
    Senator Brown. Thank you, Mr. Chairman. Thanks very much 
for today's hearing, and welcome back, Commissioner. You have 
spent a lot of time in this committee, so thank you.
    Let me start by joining my colleagues in thanking the men 
and women in the IRS. You have been withstanding drastic budget 
cuts, a pandemic, and frankly a Congress that has not done its 
job in providing the resources you need.
    As you know, Senator King and I have led efforts to provide 
you with more funding. I am very happy the President has put 
forward a proposal to do this. And I echo the words of the 
Senators I have listened to in the last few minutes--Senators 
Carper and Cardin, I know others, Senator Menendez also--who 
talked about this.
    One of the most important parts of the American Rescue Plan 
was the expansion of the Child Tax Credit. As you know, I have 
asked you about this before. Secretary Yellen is going to begin 
in July, given what she is doing with the Child Tax Credit, the 
monthly payments. We, in the Rescue Plan, also expanded the 
Earned Income Tax Credit for workers not raising children in 
the home.
    We know that 20 percent of people eligible for the EITC do 
not claim it--one out of five. Many families, because of the 
Rescue Plan, will be eligible for the first time. So I want to 
follow up on Senator Menendez's questions.
    Commissioner, how will the IRS use increased funding to 
better reach and better serve filers eligible for the EITC, and 
now the CTC, and to increase take-up of the EITC? What are your 
plans?
    Commissioner Rettig. I will indicate that present 
indications are that we will spend more than the funding that 
we have been appropriated with respect to the CTC, given the 
extent of outreach efforts that we are undertaking and plan to 
undertake.
    This includes meetings around the country that we have 
already had, a CTC summit with more than 25 representatives of 
community groups. We have had interactions with a lot of people 
around the country. We sent out 30 million letters this week. 
They will be completed by the 16th.
    We have three rounds of outreach letters going out to 
individuals about awareness. We are launching our online tools 
soon, which include four different tools: IRS.gov landing page, 
the Non-filer tool, the CTC update tool, frequently asked 
questions that will be posted. And an eligibility tool will be 
similar to the EITC assistance tool that many of you are 
familiar with. And in terms of the outreach, we are 
coordinating with the same community groups and trying to 
expand that with respect to EIP1, 2, and 3. And we are on the 
ground throughout the country.
    We also, as I may have indicated earlier, will be providing 
tool kits to every member of Congress, as we did with respect 
to EIP. We will be providing tool kits to different State 
agencies, as well as State taxing authorities around the 
country, and agencies that principally are providing other 
types of benefits to individuals.
    We have a lot of media outlets, and the scope, if you will, 
of outreach for the IRS has greatly expanded really as a result 
of EIP1, 2, and 3. This has been fantastic for us in terms of 
getting into the community.
    Senator Brown. Thank you, Commissioner. There are a number 
of people on this committee who care about this. I just saw on 
my screen one of the real leaders in this, Senator Bennet, and 
he and I and others will continue to talk to you, particularly 
as the July date approaches.
    Let me shift in my last couple of minutes, Mr. Chair, to 
compliance. My constituents in Ohio, whether they punch a clock 
or swipe a badge, they have to pay the taxes they legally owe. 
And when people beat the system, that means that workers doing 
an honest day's work in small businesses playing by the rules 
are exploited by the rich guys outrunning the IRS.
    Part of the problem is that their income--for IRS, 
obviously, their income is more complex. We do not have 
adequate reporting, and the money is harder to follow, making 
it easier for them to get away with not paying what they owe. 
You obviously know that.
    Tell us, if you would--I mean, the President's proposal 
benefits honest taxpayers who have to compete with the 
dishonest cheats. Tell me--tell us, how much revenue would this 
bring in, without raising taxes by a penny, that we could use 
to pay for investments in infrastructure and other things, if 
we were able to get 100-
percent compliance? What would it mean?
    Commissioner Rettig. Well, you know, I really leave the 
computations to the Office of Tax Analysis at Treasury and 
others, and I think, like you, we have seen figures that range 
from $1.4 trillion, $700 billion, to hundreds of billions of 
dollars. What I can indicate, based on my private practice 
experience and my tenure here at the Internal Revenue Service, 
is that giving us the appropriate resources will be an absolute 
game changer for this country, both in terms of services to 
taxpayers, and enforcement.
    And enforcement supports compliant taxpayers, the more that 
people understand that the IRS is doing its job. And to do our 
job we need resources, we need consistent, multiyear funding. 
We need mandatory funding. We need direct hiring authority. We 
will do our job. We will hire the people we need to hire. But 
we absolutely have to have the resources to do so.
    We will work with Congress. I am more than willing to come 
up, meet collectively, individually, and walk through it. And I 
think previously at this hearing I indicated that my 
anticipation was we should be able to collect--whatever the 
actual tax gap is--we should be able to collect somewhere 
between 10 and 20 percent with an understanding that, with the 
people we bring on board, there will be a curve. We will not be 
as effective initially when we onboard everybody, but this 
agency, with the desire of our employees, is very good at what 
it does, and we respect the rights of taxpayers.
    I am incensed at the folks who say that we are going to 
treat taxpayers on the street unfairly. We are not. And our 
employees live in the communities that we examine, that we 
interact with, and we are very proud to do so. So this is not 
an agency--and I am familiar with the history of Senator Roth's 
hearings in 1998, and what led to those hearings--this is not 
that agency.
    Our employees--and I think they have shown it with respect 
to EIP1, 2, and 3 and getting back into the office--our 
employees are proud to do what they are doing. Give us the 
resources, and we will make you proud as well.
    The Chairman. Thank you very much. It is an important 
issue, Senator Brown.
    Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman.
    Thank you for being here today, Commissioner. Following up 
on that resource question, I know that the IRS has lost a lot 
of employees since 2010, tens of thousands of employees since 
then. And so there is a lot of discussion today about 
corporations and high-income filers, and you have made 
statements that some of the budget requests by the 
administration, I think 4,500 new employees you are proposing, 
would work on those high-income filers and those 
investigations.
    But you know, we have just had roundtables with some of our 
small business owners, and I heard a longstanding concern, 
which is just that we need more people at the IRS to be 
answering phone calls about basic things for small businesses.
    So what portion of that new hiring do you think would go to 
those kind of activities?
    Commissioner Rettig. In the President's budget request, the 
highest in the discretionary, the highest allocation--and I am 
searching for the number which I have here somewhere--is 13 
percent for taxpayer services, which is exactly the folks that 
you are referring to. And it is about 9 percent for 
enforcement, and then it is about 36 percent for modernization, 
which also provides taxpayer services, the ability to interact 
with us in a seamless and comfortable manner.
    So that is all in the discretionary budget for the 
administration. The PIA is enforcement-oriented because we are 
down 17,000 enforcement personnel. And when I use the term 
``enforcement,'' that is not just front-line revenue agents, 
revenue officers, but that would include appeals officers, it 
would include taxpayer advocate representatives, it would 
include IRS counsel people. It is sort of a package. We cannot 
just increase one piece of the IRS when the IRS's tax 
administration is a process.
    And at a House hearing recently, I made a comment. 
Everybody is focused on the IRS, and budget, and staffing, and 
resources. Keep in mind that in the district courts, the claims 
courts, the bankruptcy courts, and in criminal prosecutions, 
the Department of Justice handles those matters for us. They 
represent the interests of the Internal Revenue Service. And if 
we get a significant increase in staffing and the Department of 
Justice, specifically the Tax Division, does not, you should 
anticipate a bottleneck on us giving them cases that they are 
unable to handle because of their staffing issues.
    They are a significant part of both civil and criminal tax 
administration in this country. But we are focused on all lanes 
of the IRS, and significantly in the service lane.
    Senator Cantwell. So is it----
    Commissioner Rettig. I--excuse me. I come from a small 
business family. I was a small business owner on the outside 
and, you know, we do not intend to leave anybody behind.
    Senator Cantwell. Great. Well, I am definitely hearing from 
people that they are feeling left behind, at least in some of 
the cases where they're affected, so I am appreciating that 
that largest amount, you are saying 13 percent, would go to 
that. So if someone could follow up with me just on what you 
think that would mean as it relates to services, or improvement 
in services, that would be so helpful.
    Thank you, Mr. Chairman.
    The Chairman. I thank my colleague.
    Senator Portman?
    Senator Portman. Thank you, Mr. Chairman.
    Commissioner, welcome back.
    Commissioner Rettig. Thank you.
    Senator Portman. We had a good conversation with you only 
about a month and a half ago, and I definitely need to talk 
about a number of those issues, but in terms of compliance, you 
and I had a discussion about the need for better taxpayer 
service.
    Senator Cardin and I wrote this bill called the Protecting 
Taxpayers Act, some of which is now being implemented, and I 
appreciate that. It is part of the Taxpayer First Act.
    But this modernization effort is never-ending. And the 
challenges are more sophisticated. I want to talk about 
cryptocurrency for a second.
    We talked about digital assets and cryptocurrency back in 
April when you were before us, and you talked about the low 
visibility of these taxpayers and the importance of their 
compliance in closing the tax gap. I talked about how we were 
working on potential legislation to address that.
    I want to ask you a couple of questions about it. I noticed 
in the budget that you have $41 million to expand cyber-crimes 
efforts, and $32 million for crypto-related enforcement 
operations. You have also proposed additional information 
reporting for businesses that receive crypto assets with a fair 
market value of more than $10,000.
    In addressing the issues related to information reporting 
on cryptocurrency, do you feel that the IRS has the necessary 
authority to issue appropriate regulations?
    Commissioner Rettig. I think we need congressional 
authority. When we get challenged--as you are aware, we get 
challenged frequently. And to have a clear dictate from 
Congress on the authority of us to collect that information is 
critical. And the most recent market cap in that world, in the 
crypto world, exceeded $2 trillion and more than 8,600 
exchanges worldwide. And by design, most crypto virtual 
currencies are designed to stay off the radar screen. So you 
know, we will be challenged.
    Right now, what we do is we issue John Doe summonses, and 
it is highly public. We recently did that. We are very active 
in both the civil and the criminal enforcement world. We do 
need additional tools, and we absolutely need additional 
resources.
    Senator Portman. Okay. Well, I appreciate that answer. And 
as you know, we want to work with you. We have circulated some 
ideas, including with some of the stakeholders, and we want to 
be sure that we get your input on that as it relates to 
cryptocurrency and digital assets.
    Commissioner Rettig. We would appreciate the opportunity to 
work with you.
    Senator Portman. Thank you.
    On the issue of staffing, I support more resources for the 
IRS. I have for years, since I was involved in the reform 
efforts a couple of decades ago. And for my small business 
constituents back in Ohio, and individuals who are having to 
struggle with this over-complicated tax code, you want smart, 
effective people at the IRS to work with. And the 
professionalism is important; the training is important.
    One of my concerns is, you are asking for a lot of new 
people, and it takes a lot to train them up. And I see that you 
have asked for hiring of at least 5,000 new personnel for 
enforcement alone, but you say it should not exceed a 
manageable 15 percent per year. Over 10 years, it seems that 
probably would double the IRS workforce.
    So do you have the ability to train these people up and to 
make them effective? And second, do you have the workforce out 
there to tap into? In other words, are you having trouble 
hiring people?
    Commissioner Rettig. We are actually looking at hiring, and 
I may have indicated earlier, we started developing a plan 
months ago. We went a little bit at risk, if you will. And so, 
if we receive legislation, we will be able to implement quickly 
upon that receipt of the legislation. But our view, and my view 
is, we are looking at different categories and individuals. We 
are not looking necessarily, as one might think, for 
individuals with less than 5 or 10 years of experience on the 
outside. We are looking for that category, certainly, but we 
are also looking for the mid-career people, maybe aged 35 to 
45.
    We are also looking for people at my age category, and 
those last two categories can come in and hit the ground 
running, both in terms of managing a team of, if you will, 
examiners if they are on the enforcement side, as well as being 
instructors. And we need private-sector people to come in and 
help us in terms of instructing, particularly in the 
partnership and virtual currency world, to come in and serve as 
instructors to the middle and lower--lesser experienced, if you 
will--folks.
    So we have a variety of plans. We also are working on our 
outreach to different communities; not just the professional 
communities, but colleges, institutions, and others. We also 
are working on facilities where we would place facilities for 
the increase in personnel. And I think the committee may be 
aware that, proudly, we recently opened a facility in Puerto 
Rico. And for the first time in a long time, we received more 
applicants, more qualified applicants, than we posted for that 
position, and we benefited with the folks there who were also--
many of them were also multilingual.
    We are also looking at opening facilities in certain 
underserved communities, and we are already on the ground in 
those communities. We are going to see what we can do in terms 
of opening facilities, should we receive legislation.
    I give you that as an indication that we are not waiting 
for legislation. We will be ready.
    Senator Portman. But you will need the appropriation of 
additional funding to be able to follow through on it.
    Commissioner Rettig. Absolutely. Without the funding----
    Senator Portman. Well, thank you, Mr. Chairman. I think the 
oversight responsibilities of this committee are such that it 
would be good to continue to have this discussion and be sure 
that, you know, we are on board with regard to the plans.
    The Chairman. We have Senator Thune waiting, and I 
certainly share your thoughts there.
    Senator Thune?
    [Pause.]
    The Chairman. Senator Thune? The report was that you were 
on----
    Senator Thune. I've got you. Sorry. I'm sorry, Mr. 
Chairman; I did not push the button.
    The Chairman. Go right ahead.
    Senator Thune. Thanks. Commissioner, good morning, and 
welcome back to the committee. And thanks again for your 
service.
    According to the IRS, overall tax compliance rates have 
been holding steady around 85 percent since the 1980s. 
Voluntary tax compliance has been around 82 to 84 percent, and 
net tax compliance around 85 to 86 percent after late payments 
and enforcement.
    Would you say that the U.S. has a relatively high and 
stable tax compliance rate----
    Commissioner Rettig. I believe that----
    Senator Thune [continuing]. And how does the U.S. voluntary 
tax compliance rate compare with other countries, particularly 
OECD countries, would you say?
    Commissioner Rettig. I do not have the data on the OECD 
countries, but I do believe that, particularly among 
sophisticated countries, a compliance rate in the low 80s is 
meaningful. And keep in mind that the compliance rate is based 
on the data that we are aware of based on identified 
noncompliance.
    Senator Thune. So given the number, different numbers being 
thrown around about the size of the tax gap, I am wondering, 
like a lot of people are, how we deal with the measure of 
whether we are narrowing that gap, if we cannot even agree on 
the size of it.
    The latest official IRS estimates show a reduced tax gap 
compared to prior years in this century, which is a good thing, 
but the tax gap clearly remains a problem. Let me ask you, what 
is the agency doing to improve how it estimates the tax gap so 
we can get a number that is more timely and more accurate?
    Commissioner Rettig. Well, when I got on board--the last 
tax gap estimate when I got on board was a few years prior to 
2019, estimating tax gap information for 2011 and 2013.
    Personally, I think it was unacceptable in terms of 
developing an audit plan moving forward. One, it is already, at 
this time, about 7 years old. Two, it's an economy that is not 
a digital world economy. Three, we looked to an economy that 
did not have a virtual currency, and many other types of 
monetary type of transactions that were out there. It also did 
not address inbound transactions, if you will. Foreign-based 
taxpayers doing business in the United States are completely 
absent from our computations.
    So I gave the challenge to our RAAS unit, which is our 
research unit. And in the recent testimony, the Acting Director 
of RAAS testified that he believed that the 2019 tax gap figure 
was about $646 billion, before you get to the rest of the 
items.
    What we are comfortable saying is, the tax gap is 
significant. Significant resources will help us put a 
significant impact, if you will--and I apologize for using that 
term three times--on the tax gap. And we have said that we 
believe that we can, with appropriate resources, with 
modernization, and the implementation of that staffing and 
training and all that, that we should be able to recover about 
between 10 and 20 percent of the tax gap on an annual basis.
    I think that the desire of every IRS employee is to recover 
more of that, more than the 20 percent. I think it is fair for 
Congress to hold us to, if you give us the resources, to 
provide you with metrics of what we are doing, how we are 
doing, and the impact it has in terms of taxpayer service, as 
well as on the enforcement side of the house. And you know, 
what ultimately should be the question on measurement is the 
deterrent factor rather than what we are able to actually 
capture.
    But we are going to issue tax gap reports for 2012, 2013, 
and 2014 in 2022. We are also going to issue some forecasting 
into the current years, because this data is important for us 
to determine what we are doing currently. So having 7-year-old 
data, personally I thought was somewhat unacceptable to develop 
work plans today.
    And for about 2 years now--and I have been on board less 
than 3 years--but for about 2 years now our RAAS group has been 
working very hard and has made a lot of progress, and we hope 
to be able to share that with you.
    So, during 2022, we will issue the next group, if you will. 
We need to get this data more current. We know you want to know 
it, and we need to know it. So we are focused. We have been 
focused on that. And the tax gap is both--service and 
enforcement have an impact. And voluntary taxpayers need help. 
If we just increase those rates that you mentioned 1 percent--
and you consider IRS brings in about $3.5 trillion each year--a 
1-percent increase in voluntary compliance by itself is $35 
billion per year.
    The Chairman. I thank my colleague----
    Senator Thune. Mr. Chairman, I would quickly point out 
before my time expires--I would just say to the Commissioner 
that I think one of the reasons too is people cannot get 
through, and I think high-quality customer service will help 
with voluntary tax compliance. And we get lots of calls from 
people who wait for hours on the phone. According to the 
National Taxpayer Advocate, only about 2 out every 100 phone 
calls were getting through.
    So I think that would be a huge improvement as well.
    The Chairman. I thank my colleague.
    Senator Lankford is next.
    Senator Lankford. Mr. Chairman, thank you. Commissionr, it 
is good to see you again. Thanks for being here and going 
through so many different questions.
    Can I ask a question on just your operations? When will you 
get operations fully up, post-COVID, for face-to-face meetings, 
for interactions? What is your time frame at this point?
    Commissioner Rettig. We are open. Our submission processing 
centers are open. They are actually working multiple shifts. 
They are working weekends. This is our filing group. Our mail 
is--we get about 1 to 1.5 million pieces of mail per week. We 
got 1.2 million pieces of mail last week.
    The mail is being opened in less than a week and put into 
processing. So that is people on the ground doing it, and the 
quality of the employees that we have is spectacular.
    Our interactions--we flipped to a virtual environment, like 
the rest of the world. We will stay in a teleworking virtual 
environment somewhat indefinitely. I do have a concern in 
onboarding people. A lot of people out in the private sector 
want to have a virtual environment. We need to train. You 
cannot train--my example, 704(b) regs--remotely when people are 
multitasking. We need to have people understand what we are 
training them.
    And similarly, the collegiality and learning what it is 
that we do and what we do not do, we need to have people--I am 
a little old-school, and I understand that--but in my mind, 
people need to be around people to pick up some of that. So we 
have to hit the right blend. We are working with NTEU 
significantly on what is the right model for our agency.
    And we have different categories of individuals.
    You know, we have people who open mail right through to the 
most sophisticated cybersecurity folks on the planet. And we 
intend to get this right. But I will say, a silver lining, in 
March of 2020, our customer service representatives, the folks 
who answer the phone, only 3 percent were telework-eligible. A 
hundred percent are currently telework-eligible. And where that 
came as a benefit is when we had the snowstorms and the cold 
fronts and had to shut down some of our facilities; those folks 
could go to work at home. So we have had some benefit.
    Senator Lankford. I am going to have some follow-up with 
you on that, on dealing with remote work long-term and the 
possibility that you could expand your pool of individuals to 
be able to hire from anywhere across the world. Quite frankly, 
if they are working for some of our U.S. military and their 
spouses and other folks, I would love to be able to work with 
you and be able----
    Commissioner Rettig. We are engaged with military spouses, 
and they tend to be excellent employees for us----
    Senator Lankford. So let's discuss that.
    I want to ask about this bank reporting proposal that has 
come out in the President's budget. His proposal is requiring 
financial institutions, banks, to report any transactions of 
$600 or more. Obviously, that captures a tremendous number of 
transactions from banks.
    I think a lot of American people already do not know that 
$10,000 or more is already reported, and this would take that 
to $600 or more. So my questions are, do you need that level, 
that granular level of information from banks for the IRS to be 
able to validate reporting?
    Commissioner Rettig. Similar with what happened when FATCA 
came in and we got FATCA reporting, we did not have the funding 
to modernize our systems to handle the reporting that we were 
receiving. So we remained behind the curve in our ability to 
use that information.
    To the extent that we get additional reporting information 
here, we absolutely must have funding. And these are somewhat 
separate lanes, but it is all interconnected, funding to 
actually process information. And critically, it is not just--
everybody is focused on our ability to process information for 
enforcement and examination leads. It is similarly important 
for us to be able to process information so we know the 
taxpayers not to examine, to lessen the burden that we would 
otherwise place on taxpayers based upon information there.
    So, we need modernization. We need analysts. And we need, 
you know, service representatives on that.
    Senator Lankford. What would you need budget-wise to just 
fulfill that? And is that $600 transaction amount something 
that IRS requested to be included? Where did that number come 
from?
    Commissioner Rettig. Those proposals are from the 
administration and from Treasury.
    Senator Lankford. So, what level of funding would you need 
to be able to process that level of information? Because that 
is a lot of information the administration is asking for.
    Commissioner Rettig. Yes, I would have to get you the 
specifics on that breakout. I do not have the specifics----
    Senator Lankford. Well, I would assume it is exponentially 
larger than the $10,000. With the $10,000 transactions turning 
around now and dropping it to $600, it is going to catch, I 
cannot even imagine how many more. You are telling me now you 
do not have the resources to be able to fulfill the $10,000 
reports that are coming in. Is that correct?
    Commissioner Rettig. We need resources across all lanes to 
be effective. Giving us one lane and then--you know, quite 
frankly, it has been troublesome being on board when we see our 
Inspector General say IRS is not doing this, this, and this, 
but we do not have the funding to do that. So we sort of get 
caught in that. So, all lanes need to be funded. These 
provisions are interconnected.
    Senator Lankford. Okay. Thank you, Mr. Chairman.
    The Chairman. The time of the gentleman has expired.
    Senator Casey is next.
    Senator Casey. Thank you, Mr. Chairman. I want to thank the 
Commissioner for his appearance and for his public service.
    I want to thank you as well, Commissioner, for the 
remarkable and, what can only be described as an enormous 
effort you have had to undertake, and your team has undertaken 
in the course of the pandemic. And I have and will continue to 
advocate for the IRS to have the resources which are so 
critical to fulfill its responsibilities.
    In this committee's April hearing, you projected that the 
tax gap could be as high as $1 trillion, meaning $1 trillion in 
taxes going unpaid every year. We know that many of these non-
filers are high-income individuals. I have heard from many 
Pennsylvanians since then, since April, who are concerned, if 
not outraged, about this gap and would like to see all 
taxpayers play by the same rules.
    The President's 2022 budget request has funding requested 
to scale up both staffing and operations at the IRS to expand 
both enforcement and compliance. Can you explain how that 
additional funding would assist the IRS in going after tax 
cheats and ensuring that all taxpayers are paying their fair 
share?
    Commissioner Rettig. You know, I have 17 months left in my 
term. If Congress gives us the funds, we will implement. We are 
ahead of the curve to implement legislation that has not yet 
passed. That should be--and we are willing to come up and show 
what we have and where we do it. But that should give an 
indication of the desire--it is not just me, but me and 
everybody else. We want to be impactful on services. We want 
people to receive the services they deserve from the Internal 
Revenue Service. And we are well aware--I came in with the same 
thing, I think, probably in my confirmation hearing, but 
certainly through today, I have always said the same thing. And 
I have said it for 36 years on the outside, that enforcement 
supports compliant taxpayers; that the bulk of the revenue this 
country receives comes from compliant taxpayers.
    You are well aware that my--I am very proud, but I think I 
am the first Commissioner whose spouse came to this country as 
a refugee. My in-laws are not comfortable in the English 
language. I have a line of sight into vulnerable communities. I 
come from a mother who was raised in a storeroom to a diner, 
and I learned as a child how you take a shower with a sink in a 
diner.
    We have lines of sight there. We can improve the conditions 
for every American. And the people who make an effort to comply 
need to know that we are there to help them. I think 
significantly during 2020, I could have come to you and said, 
``We have a plan for languages.'' But in September of last 
year, we launched a language program during the pandemic when 
we were on our heels in so many different directions. And the 
2020 1040 is in English and Spanish.
    You can call into our centers and get your information 
services in more than 350 languages. And there is a Schedule 
LEP on the 2020 1040 where individuals can check a box and ask 
the Internal Revenue Service to communicate in a different 
language. As of March, more than 220,000 individuals checked 
that box.
    Those types of services, to me, are equally important as 
the enforcement side. I only have 6,500 field revenue agents. 
We need more. And I am running out of runway, as they say, on 
the outside in terms of my term. This agency will do the right 
thing well beyond me, but I, like you, want to help them get 
there.
    People came on board when I did with considerable private 
practice experience in the lanes that we are going to receive 
funding to be impactful in, and we are doing our best. So I 
think you will be proud, but without funding--if you just look 
at one category, 6,500 field revenue agents, 4.2 million 
partnership returns, that is before we get to the high-wealth 
individuals and the corporations and the this and the that.
    Senator Casey. Commissioner, thanks. We look forward to 
working with you on those human resources, because I think the 
Congress, both parties, both Houses, are duty-bound to get you 
the resources, if we believe what we say.
    Last--and I know I am out of time. Maybe I will submit this 
for the record. It might be easier for the committee purposes. 
But I want to send you a question about tax scams. But I am 
running out of time, so I will make sure that we send you that 
question for the record.
    Commissioner Rettig. And I am available to meet with the 
members one on one, or just to meet with your staff. Place the 
call. We are here. That is what we do.
    [The question appears in the appendix.]
    Senator Casey. Commissioner, thank you very much. Thank 
you.
    The Chairman. And thank you for your efforts, particularly 
as chair of the Aging Committee, in going after tax scams, 
Senator Casey.
    Next we have Senator Bennet, who I think is online.
    Senator Bennet. Thank you, Mr. Chairman. Can you hear me, 
Mr. Chairman?
    The Chairman. We can hear you, Senator Bennet.
    Senator Bennet. Thank you very much. And thank you, 
Commissioner, for your testimony today.
    And I know others have asked about the Child Tax Credit, 
which, as you know, the American Rescue Plan significantly 
expanded. The expansion is based on my bill with Senator Brown, 
the American Family Act, which will give 96 percent of American 
families advanced payments of $250 per month per child or $300 
per month per child under the age of 6. This expansion will cut 
childhood poverty nearly in half this year, with even larger 
effects for kids of color.
    I am deeply grateful, I want to first say, Commissioner, 
for what you and the IRS staff have done to ensure that 
Americans will receive a monthly CTC payment starting on July 
15th. And I am really pleased by Treasury's announcement that 
88 percent of children will receive these benefits without 
further action needed from their families.
    I think it is fair to say, Commissioner, that you were a 
big part of making sure that that could happen, because of the 
work that you had done before.
    I wonder if you could talk a little bit about how the 
resources in your fiscal year 2022 budget request help IRS 
ensure payments get to the hardest-to-reach populations. And I 
also should say that I am thrilled that the Biden 
administration is committed to extending the State and monthly 
CTC through at least 2025.
    I plan to do everything I can do in my power, along with 
Senator Brown and many of our colleagues, to make it permanent. 
In the long term, if extended or made permanent, what 
additional resources, both ongoing and one-time, should 
Congress consider giving the IRS to ensure monthly CTC payments 
are made as smoothly and as systematically as possible to reach 
all eligible children?
    Commissioner Rettig. The amount of money--if Congress was 
to pass legislation, we would be able to provide information as 
to the amount of funding required to operate this on a 
permanent basis. But we would need to see the legislation to 
see what the requirements are for us to be able to do so. And 
we would be able to do so--we would really appreciate, and we 
do appreciate the fact that, to the extent Congress works with 
us on legislation, it is very important, I can say from what I 
have seen in my almost 3 years, that we get involved in terms 
of helping with respect to the administrability of provisions 
so that we can provide seamless assistance to the folks.
    I will say, with respect to CTC, you should expect, and you 
should hope, and you should require that we do historic 
outreach--and we are doing historic outreach. We are 
capitalizing on the outreach that we did with respect to the 
three rounds of EIP--EIP1, 2, and 3--I guess affectionately 
referred to now on the street as the ``stimmies.'' But we 
learned a lot. We created a lot of partnerships, if you will, 
with community organizations. Those have served us well.
    We have, this week, sent out 30 million letters that will 
be completed for potentially eligible people. We have four 
rounds of letters going out. If we need to do more letters, we 
will do more letters. I made a comment earlier that our present 
estimate is that we will be spending more money than we were 
funded with respect to the 6 months because of outreach. This 
is not an agency that folds up when there is no more money left 
to spend. We actually delay other activities so that we can do 
what you would want us to do. And the outreach is a significant 
component here.
    So, I think you will be proud of the online tools, and I 
invite you and your staff to a demonstration of those tools.
    Senator Bennet. Well, Commissioner, again, one of the 
partners you got during the previous work you were talking 
about was my office. I am very grateful for the spirit with 
which you are approaching this work. So, anything we can do to 
help, we stand ready to help.
    Turning to a different subject in the last minute that I 
have, Commissioner, I--and I know a number of my colleagues on 
this committee--are deeply, deeply concerned that some of our 
Nation's largest, most successful companies like Amazon and 
their exceedingly well-off owners pay little or no Federal tax. 
Now many small businesses have lost income, and families have 
lost jobs during the pandemic. Many of these large companies 
have seen profits soar to unprecedented heights.
    In your view, how much of this problem is caused by 
loopholes or tax expenditures written into our Nation's tax 
laws? And how much of it is due to actual evasions, such as 
companies shifting income overseas? And how will the fiscal 
year 2022 budget request help IRS address tax evasion by large 
companies?
    Commissioner Rettig. I think it is a combination. You know, 
I was on the outside between, you know--well, until I came on 
board here--but what we saw in terms of transactions and 
structuring happened when the IRS essentially was on its back 
from the Roth hearings from 1998 through about 2002, 2003.
    I do not think it is a coincidence that structuring got 
much more aggressive in the planning community. I am not saying 
that it is appropriate or inappropriate that people tend to 
take advantage if they see the IRS is vulnerable.
    We are not vulnerable when we are on the scene. We are not 
vulnerable as to the taxpayers that we are able to contact. And 
in the transfer pricing--I think that is one of the comments 
that you made--in the transfer pricing arena, we have cases 
that are exceeding $5 and $10 billion. And if you are the 
taxpayer in one of those cases, you are going to spend a 
billion dollars to save, you know, $4 to $9 billion. And keep 
in mind, IRS has a budget of maybe $12 billion total to run the 
entire operation.
    We need funding to be impactful. We need specialized 
agents. We need training. We need people from the outside. We 
need people from the inside. And none of what I have said about 
hiring people from the outside should be disparaging to the 
people on the inside. We need a blend of expertise, and we need 
to be able to be on watch. This country deserves to have the 
best tax administration agency on the planet. It should 
appropriately fund the agency.
    We need direct hiring authority. We need consistent, 
multiyear, timely funding, mandatory funding. And I believe, 
and with your oversight and interactions, I believe you will be 
proud of what we do to get to the term that people use: 
``Everyone pays their fair share.''
    There is a difference between evasion, as you have 
identified, between evasion and aggressive transactions. But 
the aggressive transactions, in my estimation--I was not on the 
planning side on the outside; I was a controversy lawyer--but 
they get more aggressive if they think that we are vulnerable. 
And you know, I've got to tell you, we are not vulnerable to 
the people we are able to touch, but the taxpayers that we are 
not able to touch, we are not able to touch. Help us. Help us 
get there. The desire is there.
    Senator Bennet. Thank you, Commissioner.
    Thank you, Mr. Chairman.
    The Chairman. I thank my colleague.
    I believe Senator Warner is going to go next, and he is on 
the web.
    Senator Warner. Thank you, Mr. Chairman. I appreciate you 
holding this hearing.
    Commissioner Rettig, first of all let me--and I am sure 
other members have said this--express my thanks to you and all 
of your staff. I hope you will convey that. I know it has been 
a challenging last 15 months, and I have had, and my staff has 
shared some of the frustrations with closed offices and all. I 
do think the agency, writ large, has performed well.
    You just, in your last impassioned statement to Senator 
Bennet--I would like to pick up on a couple of those threads. 
Can you talk a little bit about how much more effective and 
predictable it would be, and what are the specific benefits 
that would come from a stable, multiyear funding stream for the 
agency? How much money is wasted, or how many activities are 
put on hold because of some of our bad behavior in Congress in 
terms of continuing resolutions and threats of budget 
shutdowns?
    Commissioner Rettig. You know, the lack of consistent 
funding causes the agency--the way the agency adjusts its 
budget is, it has attrition. And when we do not get funding, we 
do not replace the people who retire.
    We have been stellar in the last 3 years in our ability to 
hire and move people around internally. And it has made a huge 
difference. When I got on board, one of the comments that I 
heard was that we will be able to replace, you know, plan on 
replacing maybe 25 percent of attritions. That is of an agency 
that already has, if you will, 17,000 fewer enforcement agents.
    How can that be? How can you plan on having tax 
administration in the greatest country on the planet and only 
replace 25 percent of the most experienced people you have, 
when you need those people to train the new people? We had a 
hiring gap from 2011 to 2018 which means that--you know, I use 
that in terms of recruitment. I tell people, ``There is nobody 
above you. To the extent you have come on board, you train, and 
you learn, you can be all you want to be inside our agency.'' 
And that is true. And we are very hopeful to get the funding to 
be able to be impactful to provide both services. And you know, 
the press seems to just pick up on the enforcement side of the 
President's budget, but the highest category in the 
discretionary budget is for services and for modernization--13-
percent increase for services, 36-percent for modernization.
    Those two go to helping underserved communities. They go to 
helping us answer the phones, to getting chat bots, to having 
it be an experience like people would have in dealing with the 
private sector.
    We want to be there. The desire is there. The staffing 
issues that we have are significant. We have 52,000 people to 
replace in the next 6 years. That is the net figure. That is 
our experience on the----
    Senator Warner. Let me just ask on that note, on 
replacement, are there additional--you have talked about the 
need to get specialized personnel. Are there additional 
authorities you need beyond the money for you to be able to go 
out and hire the right people?
    Commissioner Rettig. Absolutely. We must have direct hiring 
authority. I cannot go into the private sector and try to 
recruit mid-level, even new, but mid-level or senior-level 
people to come on board who would be immediately impactful, 
people who have my experience--maybe not my age, but maybe my 
age--who can come in and be impactful and run teams of 
examiners, or teams of lawyers, or teams of appeals officers in 
the entire compliance side of the house, immediately. To have 
the experience on the outside, but without direct hiring 
authority I cannot keep these people interested in coming 
onboard for a 3-, 6- or 9-month period. They will go elsewhere, 
or decide they are just going to either retire or do what they 
are doing.
    We need to capitalize on the interest that we are able to 
generate. There are a lot of people like myself who want to 
come on board for the good of the country, if you will, but we 
need to bring them on board when we have that interest. You 
know, interest wanes with time. And the mid- and senior career 
people are not coming on board for the economics of it. I did 
not come on board with the idea to go get my dream job after 
being Commissioner. I left my dream job with my best friends, 
and I have frequently said in public, my next job is not going 
to involve suits----
    Senator Warner. Let me get in one last quick question, 
which is--and this may have been asked, and if it has, I 
apologize. I think you made a good point earlier. We have 
focused on tax evasion, but the other half of that is just 
plain aggressively pushing the edge, trying to be legal but 
pushing the edge.
    When we think about that tax gap, the $700 billion or $1 
trillion, or whatever number, could you give us some 
guesstimate on how much of that is evasion, and how much of 
that is overly aggressive behavior?
    Commissioner Rettig. If I look at my experience on the 
outside, in terms of numbers, the higher-income people are 
surrounded by highly experienced lawyers, accountants, 
economists--you know, tax specialists--and all those folks are 
not typically going to be involved in an evasion, a potential 
criminal case. Although we do call them on it, and we are 
active, and we are active in terms of a lot of different arenas 
that I probably should not go into publicly.
    So I would say that the majority is folks who tend to get 
aggressive in the structuring of transactions, maybe with an 
eye that the IRS will not be there. It is completely 
inappropriate to play what is known as the ``audit lottery'': 
will the IRS audit this taxpayer? If so, do they step in and 
say, oh, we made a mistake? Multiple mistakes, multiple years, 
is a pattern, and that creates a criminal case. And I think 
people are familiar with that.
    You know, keep in mind that the largest criminal tax case 
in the history of the United States involved professionals, not 
taxpayers. It was out of the Southern District of New York, and 
it was at a time when the IRS was perceived to be vulnerable 
between 1998 and 2000, and it was in 2002.
    So, although I come from the practitioner community and I 
hold practitioners in high regard, it is a very difficult 
occupation. It never bends. They are also part of tax 
administration, and they need to do the right thing.
    I was at a program early on in my career as Commissioner, 
in front of more than a thousand colleagues, and I made one 
comment, and I would repeat that comment to you all today, and 
to any of them who are watching, and I know that a lot of our 
employees are watching. And my comment was: when I came on 
board as Commissioner, I respected pretty much every tax 
practitioner that I ever interacted with in practice. I get it. 
It is tough, whether you are a preparer or you are in a 
different function. And my comment to my colleagues at that 
time, and my comment today is: when I leave as Commissioner--
and I am in my last 17 months--they ought to all hope I have 
that same respect for them. I expect my colleagues to step up 
and do the right thing and not take advantage of an IRS that 
some may perceive to be challenged, with resources or 
otherwise. And if Congress helps us--and we do need help--if 
Congress helps us, we will respond appropriately and, I think, 
make everybody happy.
    Senator Warner. Thank you, Mr. Chairman.
    Senator Crapo [presiding]. Thank you, Senator Warner.
    Next is Senator Cortez Masto.
    Senator Cortez Masto. Thank you. Commissioner, thank you. I 
echo comments of my colleagues on the challenges that the IRS 
has faced, particularly being underfunded. And I know, even in 
Nevada--I have had Nevadans reach out to me in frustration 
because they were unable to reach anyone at the IRS. And I 
think this hearing today is helpful to hopefully have people 
understand the challenges that you are facing right now, 
particularly being underfunded.
    So my first question to you is, you mentioned to Senator 
Warner that there are 52,000 positions that you have to 
replace? Is that correct?
    Commissioner Rettig. 52,000 is our attrition over the next 
6 years. So if we do nothing, if we hired zero, we would go 
from about an 83,000 employee operation, and you would take 
52,000 out of that. That is the net number, and thankfully IRS 
employees have a history of staying onboard about 5 years 
beyond their eligibility for retirement.
    Senator Cortez Masto. Thank you. So I just wanted to 
understand. So those are not vacant positions? Those are 
anticipated after people retire and leave, and your need over 
that next period of 5 years to fill those positions. Correct?
    Commissioner Rettig. I have to replace those just to stay 
with what we are able to do today
    Senator Cortez Masto. Right. No, I just wanted an 
understanding if they were currently vacant or not. So that 
is----
    Commissioner Rettig. No, no, no; those are people who are 
on board today. Sorry.
    Senator Cortez Masto. I appreciate that.
    So let me ask you this. The Low-Income Taxpayer Clinics 
provide critical services to working taxpayers who are unable 
to hire representatives to advocate on their behalf in 
addressing their Federal tax disputes.
    While there are many in my home State that could benefit 
from these services, the last of these clinics, unfortunately, 
closed in Nevada. And so my question to you is, can increased 
funding for the IRS help to ensure broad accessibility to Low-
Income Taxpayer Clinics to all eligible taxpayers in States 
like Nevada, and hopefully open up these clinics to service 
Nevadans?
    Commissioner Rettig. I am not aware that the last clinic in 
Nevada closed, but I will look into that. But we need 
appropriated funding for the clinics. I am a tremendous 
supporter of the clinics and have done a tremendous amount of 
Zoom interactions with clinics all around the country.
    One of the benefits of Zoom is the ability to do that. But 
we will look into it. The Low-Income Taxpayer Clinics are 
critical to the operations of the Internal Revenue Service. 
They are in the communities that we need to operate in. The IRS 
could not effectively do tax administration, particularly in 
these communities, without LITCs, without the VITA sites, 
without tax counseling for the elderly. It is a critical 
function, and that is why, in part, the IRS is involved in the 
operation, if you will, of these programs.
    Senator Cortez Masto. I agree, and thank you. And we look 
forward to working with you. And please let us know your needs, 
for the very reasons you talked about. They are critical 
services.
    Let me jump to another topic: tax scams. It is an area that 
I worked on as a former Attorney General. I worked with IRS 
Enforcement. They were just incredible in helping us address 
the tax scams that we see across the country.
    My question to you is, what are you seeing? And with the 
limited amount of resources now, and the struggles you are 
having with the staffing, how are you addressing those needs to 
really educate the public on the types of scams that are out 
there so that they can also be aware and prevent themselves 
from becoming victims?
    Commissioner Rettig. Our partner in the tax scam world, if 
you will, is the Treasury Inspector General for Tax 
Administration, TIGTA. And like us, they are very aggressive. 
We do run undercover operations. I think that is pretty well-
known. I am not saying something that is not already public. 
And we do a lot of outreach.
    Every local office of the IRS is engaged in outreach. The 
majority of these scams that we see tend to go to underserved, 
more vulnerable communities. And we are very active in those 
communities, together with community groups, trying to focus on 
what they are. We try to get on the cutting edge. With the 
EIPs, the three rounds of EIPs, 1, 2, and 3, we saw the scams 
with that increase significantly. But we did not reduce 
resources in oversight of those scam type of operations at all. 
We did not pause any interactions during the pandemic. And you 
know we have to make certain decisions, and priority decisions, 
but certainly that is a huge priority. And we have maintained 
that.
    Senator Cortez Masto. That is great to hear. Commissioner, 
thank you.
    Commissioner Rettig. Thank you.
    Senator Crapo. Thank you.
    Senator Hassan?
    Senator Hassan. Well, thank you, Ranking Member Crapo, and 
thank you, Commissioner, for your work and for testifying 
today. And before turning to my questions, I would like to 
emphasize, as a number of my colleagues have, the importance of 
the IRS prioritizing delivery of the Child Tax Credit starting 
in July. Based on issues with roll-outs of other programs over 
the past years, IRS really needs to ensure that it is able to 
deliver these benefits in a timely way.
    Commissioner, Granite Staters continue to contact my office 
about the backlog of unprocessed 2019 and 2020 tax returns, 
which has delayed tax refunds for families who need economic 
assistance and cash flows.
    My office has also been contacted by constituents who tell 
us that they are going to be denied a mortgage because the 
mortgage company cannot verify their information with the IRS. 
These constituents submitted their tax returns months ago, and 
now they are worried that they will be unable to buy their 
house or will lose their deposit.
    At our April hearing on the filing season, you committed to 
clearing the backlog this summer by dedicating more employee 
hours to processing returns. Can you update us on the IRS's 
progress since April in clearing the backlog? And, when in this 
summer will you have the backlog cleared?
    Commissioner Rettig. At that hearing I said that we would 
do it within 60 days, and I think I may have indicated that 
might have been a lawyer answer, given the curve. We have 
processed every return received at this point before January 1, 
2021, so every return received during 2020. And a lot of those 
were prior-year returns, not just 2019, but 2016, 2017, 2018. 
There are people who catch up, if you will.
    But we caught up, and we are very proud of that. We also 
have caught up on our mail. You may remember the mail backlog.
    Senator Hassan. Right.
    Commissioner Rettig. All mail is now being opened within a 
week of receipt. Some is being opened within 2 weeks. Our four 
mail processing centers, Austin, Fresno, Kansas City, and Ogden 
are operating at full speed. We last week received 1.2 million 
pieces of mail. We tend to receive between 1 and 1.5 million, 
and we are current in our operations on opening the mail.
    Our Error Resolution System, where some of your--and I 
would like to coordinate a call, maybe later today, or this 
week, or sometime to discuss one of the issues you discussed, 
and maybe we can provide some assistance. But the Error 
Resolution System--we currently have about 9.4 million returns 
in that process. The top reasons that the issues are being 
called out is people having difficulty--our difficulty--
reconciling what they say they received in EIP1 and 2, with the 
return recovery rebate.
    We have people who used 2019 for their EITC, and we need to 
verify that. So it is not an automated process that gets called 
out. We have people with the Advance Child Tax Credit that does 
not match what we have as the ACTC. We have math verification 
issues, and also we have a tremendous amount of folks who 
failed to file the Form 8962 for the Advance Premium Tax 
Credit. And, interestingly, the private software even directs 
you to provide that form.
    So we are not able to process. Those are the top five, 
which leads to 9.4 million. We are operating at full capacity 
to get those taken care of.
    Senator Hassan. Well then, I will look forward to following 
up with your office on these particular issues, because we have 
people who are obviously needing to confirm their information 
so that they can buy a home.
    So let us move on to a topic that I asked you about for the 
record in April. The American Rescue Plan contained my 
bipartisan bill with Senator Braun to provide assistance to the 
Employee Retention Tax Credit to new businesses that were 
started during the pandemic.
    Startups will be eligible to receive this assistance 
beginning in July. It is obviously crucial that the IRS issue 
guidance as soon as possible so that new businesses are able to 
quickly access this assistance next month.
    When will the IRS issue updated guidance for the Employee 
Retention Tax Credit?
    Commissioner Rettig. Let me say that the response to your 
questions for the record--and I mentioned this one earlier--
they are in clearance. And you know, we all would have hoped 
that you would have received them timely. It is not--we are 
backed up on a lot of different things, but we are very 
respectful and try to get those out as quickly as possible. But 
they are in clearance, and they are outside of our building.
    Senator Hassan. So let's just get to the issues that we 
have. Businesses that started during the pandemic that need the 
guidance about how they can claim the Employee Retention Tax 
Credit----
    Commissioner Rettig. We should get that out--I have to give 
you a lawyer term, and I apologize, and you can call me on it--
promptly. You know, we are working as hard as we can. And I do 
have, and I sent the response to you on the statistics of what 
we have received and where we are, and how we are processing.
    Senator Hassan. Okay. They are just looking for guidance, 
right, because they are trying to decide whether they are 
hiring, who they can get a credit for, what their cash flow is 
going to look like.
    Commissioner Rettig. I come from that community.
    Senator Hassan. Yes, I know you do. I know. I am almost out 
of time, so I am just going to say that I am encouraged that 
your 2022 budget request mentions the IRS's plan to retire and 
decommission its legacy systems, including those that use 
antiquated programming languages, something I have been really 
focused on on the Emerging Threats and Spending Oversight 
Subcommittee of Homeland Security, and I will look forward to 
learning more about your project there. Thank you.
    Thank you, Mr. Chairman.
    Commissioner Rettig. Thank you.
    Senator Crapo. Thank you, Senator Hassan.
    We have a number of--we have two votes underway right now, 
Commissioner, which is why you see----
    Commissioner Rettig. I did not take it personally.
    Senator Crapo. I am not aware of any Senators who are back 
from the vote yet. Are there any? If there are any remotely, 
would you speak up?
    Commissioner Rettig. I am available for one-on-ones with 
members and staff.
    Senator Crapo. Understood. We do expect a couple more are 
on their way, so I will ask a couple of questions that I did 
not get to ask you during my first round, until one of them 
gets back.
    Commissioner, what I wanted to do is to go through with you 
some of the tax gap information. As you know, I have sent you 
two letters on it, and we have already talked about the fact 
that you are in the process of getting those back. We got one 
yesterday, but it did not really provide the kind of detail 
that I was asking for. So I would like to ask you to follow up 
with more detail on what I asked in my May 10th letter about 
the tax gap.
    And let me get into what that is, right now. When you 
testified earlier before the committee, you estimated, if I 
recall correctly, that the gap could be as high as a trillion 
dollars. Is that----
    Commissioner Rettig. Let me say that your letter--and I 
think you have seen my response to your letter because you made 
comments about how others said I said it, and that is why I put 
the quote in there of what I said. And so you had that right. 
But yes, a trillion dollars is the number that got picked up.
    Senator Crapo. All right. And then I see Senator Warren is 
back. Senator Warren, I am just going to finish a statement 
here, and then I will--I will not ask you to respond to this 
right now, but I would like you to respond back with more 
clarity.
    When you testified before us, you mentioned that some of 
the reasons for the increase in the $441-billion tax gap 
estimate that was 10 years old were inflation, cryptocurrency, 
and at that time you indicated unreported or concealed income 
offshore, and in pass-through entities. I just wanted you--and 
I would like to ask you, not now, but I would like to ask you 
to parse out how you get to that trillion-dollar figure in 
terms of where we are losing the collections of lawfully due 
taxes, so that we can have a better idea about how we can 
assist you in getting those taxes collected.
    [The question appears in the appendix.]
    Senator Crapo. Senator Warren?
    Senator Warren. Thank you, Mr. Acting Chairman. And I agree 
with that question. It is a good question. We should do that.
    So thank you. A decade of budget cuts have hollowed out the 
IRS, so it just does not have the resources to go after wealthy 
tax cheats. And that is why I have introduced the Restoring the 
IRS Act to provide $31.5 billion in mandatory annual funding to 
allow the IRS to fairly enforce the tax code, to modernize its 
IT systems, and to improve taxpayer services.
    I am glad that President Biden and you, Commissioner 
Rettig, agree with me on the importance of making big 
investments in the IRS. But it is crucial to make sure that 
this money is going towards making our tax enforcement fairer, 
not reinforcing inequities like the racial wealth gap.
    So, Commissioner Rettig, what data and analysis has the IRS 
developed on how its enforcement activities effect low-income 
black Americans?
    Commissioner Rettig. Treasury's Office of Tax Policy and 
Office of Tax Analysis are the ones that handle that. IRS is 
the tax administration agency, if you will. So we provide data 
to Treasury.
    I can say that Treasury has multiple working groups in this 
space, and the appropriate thing would be to have Treasury 
interact with you and give you a heads-up on really what they 
are looking at, what they have looked at, data they have 
received. But the IRS itself does not collect data with respect 
to race, as you know.
    Senator Warren. Okay, so you are not collecting race data 
right now. But you know I was glad to see President Biden issue 
an executive order on racial equity back in January, including 
a call for more data. But I want to see some concrete actions 
coming out of it, and that includes concrete actions at the 
IRS.
    This is important because the IRS does not just 
mechanically enforce our tax rules. The IRS has significant 
discretion, for instance, when it comes to audits. Research 
shows that the IRS disproportionately targets poor black 
communities in the South for audits.
    We also know that an estimated 20 percent of eligible 
taxpayers do not receive the Earned Income Tax Credit, which 
provides social support to low-income working families. Likely, 
many of these families who are not getting this lifeline are 
families of color, but we need more analysis to know for sure 
that is happening.
    So, Commissioner Rettig, let me ask: will you commit the 
IRS to conducting a thorough analysis of the racial impacts of 
IRS services and enforcement activities?
    Commissioner Rettig. I think I need to dispute your first 
comment. I think the data are contrary to that, but we can go 
into that----
    Senator Warren. They are contrary to what?
    Commissioner Rettig. That we disproportionately look at 
lower-income taxpayers or people of color. The data are 
contrary to that.
    Senator Warren. So it is not the case? I thought your data 
showed that there are more audits in poor areas in the South 
than there are, for example, of rich people in the North.
    Commissioner Rettig. The IRS--the only lower-income 
individuals audited by the Internal Revenue Service are with 
respect to the Earned Income Tax Credit, which is about a 1.1-
percent rate. And the reason that we even look in that 
direction--we have a $17.4-billion improper payment rate 
there--the only reason we look in that is, because of IPERA we 
are required to report an improper payment rate, and our RAAS 
group, our research group, are the ones that come up with what 
that is. And they require us essentially to have a 1-percent 
audit rate for them to be able to extrapolate off of that to 
what it would be.
    Senator Warren. Fair enough, on what may be the reason for 
the audit, but I guess the question--let me just go back to the 
question that matters the most to me. And that is, will you 
commit the IRS to conducting thorough analyses of the racial 
impacts of IRS services and enforcement activities?
    Commissioner Rettig. And I will come back to my original 
comment, which is, Treasury is doing that.
    Senator Warren. So you think Treasury is collecting enough 
data? You have no more data collection responsibilities or 
opportunities? Is that what you are saying to me?
    Commissioner Rettig. Not at all. I'm Bureau of Treasury; I 
report to the Secretary, and we work with Treasury. And they 
have the economists and others who do this type of work.
    Senator Warren. So they are the ones who will decide if you 
collect this data or not?
    Commissioner Rettig. I would assume Treasury would make all 
the information public, and if not, then, maybe you ask.
    Senator Warren. But the question I am asking, though, is 
are you collecting these data so we can do the analysis of 
the----
    Commissioner Rettig. We do not have race data.
    Senator Warren. That is my point. So are you committed to 
providing the kind of data collection that you can to be able 
to study the racial impact of the decisions you make?
    Commissioner Rettig. With what we are doing, we give data 
to Treasury, and Treasury gets other data, and then their 
Office of Tax Analysis matches that. And I think, I don't mean 
to play semantics with you, because it might sound like that, 
but that is where the work is being done. And there is a 
significant effort. There are a lot of people looking at this 
within the administration, including at IRS. We are working 
with Treasury on this. So the answer is, ``yes.''
    Senator Warren. I just want the IRS to be a good partner in 
this. The paper I was talking about earlier found that the IRS 
disproportionately audits poor black communities in the South. 
It was written by a former IRS economist in 2019. And if this 
is what a former IRS employee can show with existing publicly 
available data, it seems to me that the IRS both can and should 
deploy its own resources to examine racial inequities in its 
enforcement and other activities, and then move to address 
those inequities.
    You know, I believe in data. And armed with better data, a 
revitalized IRS can make sure that it is pursuing its audits 
fairly, and that expanded tax credits and taxpayer services are 
reaching the American families that most need their help. And I 
hope we can be partners in this.
    Commissioner Rettig. I share your concerns, and I think, as 
we have indicated on the phone, we look forward to ongoing 
communications with you in this space. I do believe that when 
people write articles, they should write them on actual data. 
And everybody is invited to look at our 2019 and our 2020 data 
books that have the actual numbers in there. If you look at the 
2019 data book, page 34, Table 17-A, it breaks out exactly the 
numbers there. And you will see.
    If I could go on?
    Senator Warren. It's up to the chairman.
    Senator Crapo. Briefly, please.
    Commissioner Rettig. I apologize. But quite quickly, when 
we look at what is loosely referred to as the ``heat map'' on 
EITC examinations, if you will, which are correspondence 
examinations where we ask people, ``Did this child reside with 
you for 6 months?'', we look at it--and we do not have race 
data, and I am not discounting what you are saying, and I do 
not want anybody to think that the IRS is insensitive to this 
issue. I am not, and we are not. But also, when we look at a 
heat map personally, we look at it from the perspective of, we 
need to do more outreach and be more on the ground in these 
communities, and we need to make sure that people know what 
they are eligible for, and to get them the payments that we all 
want them to get.
    Our people live in these communities----
    Senator Warren. Mr. Commissioner, I understand. I just hope 
that ``on the ground'' does not mean more audits. And when I 
look at what a former IRS employee has put together with 
existing publicly available data, I am deeply troubled by the 
reports there. And I hope that the IRS is not part of the 
problem, but part of the solution.
    Commissioner Rettig. Page 34, Table 17-A----
    Senator Crapo. We need to move on.
    Senator Warren. We will take a look. Thank you.
    Commissioner Rettig. Thank you.
    Senator Crapo. Next is Senator Young.
    [Pause.]
    Senator Crapo. Are you with us, Senator Young?
    Senator Young. Can you see me, Mr. Chairman?
    Senator Crapo. Not yet, but I hear you.
    Senator Young. Okay; here we go. Okay, I think I am----
    Senator Crapo. All right, we can see you now.
    Senator Young. Okay. Thank you, Mr. Chairman.
    Mr. Commissioner, in your last hearing in April, you 
testified that the IRS was up to date on opening its mail. 
However, that very same day the Taxpayer Advocate Service 
representative informed my staff that the processing center in 
Kansas City was still opening mail from June 2020.
    Now, my Hoosier constituents continue to be told by the 
Internal Revenue Service employees that the IRS is currently 
opening and processing mail from July 2020. What is going on 
here?
    Commissioner Rettig. That is false.
    Senator Young. Who in not telling the truth?
    Commissioner Rettig. The information you are getting from 
the Taxpayer Advocate Service is not accurate. I would 
encourage you, if you or your people--and I put this to all the 
members--get information that does not make sense to you, 
please reach out to me. Most of you have my cell phone number. 
My cell phone is available to all of you. We will schedule one-
on-one meetings with you.
    The IRS has four mail services, and those mail services are 
processing mail currently within days of receipt. So whatever 
information the Taxpayer Advocate or local taxpayer advocate is 
getting to you, they do not have the current information. And I 
can tell you, we have four services. Austin is opening mail--as 
of May 29th, was opening mail from May 24th; Fresno, on May 
29th, opening mail received May 28th; Kansas City on May 29th, 
opening mail received May 24th; Ogden, on May 29th, opening 
mail received May 28th.
    We receive between 1 and 1.5 million----
    Senator Young. Commissioner, I understand----
    Commissioner Rettig [continuing]. Pieces of mail a week. We 
process all the mail within a week of receipt. So I apologize 
that the information is not accurate, but my request, sir, 
would be to please reach out to me.
    Senator Young. I will, indeed. I am going to get to the 
bottom of this on behalf of my Hoosier constituents, and I 
thank you for addressing that, sir.
    It is curious to me, it is peculiar that the Taxpayer 
Advocate Service would be so wrong so consistently. If this has 
been a problem, and if indeed this is a matter of conviction 
for you, as it seems to be, have you had dialogue with them to 
ensure that their discrepancies and their inaccuracies can be 
remedied? They would have no reason to promulgate inaccurate 
information, presumably.
    Commissioner Rettig. The Taxpayer Advocate is thoroughly 
engaged with every facet of the Internal Revenue Service. And, 
as you would imagine, the Taxpayer Advocate herself is 
significantly engaged with our processing centers and the wage 
and investment, which is where all the processing happens.
    So what gets into the field for Taxpayer Advocate in the 
local offices I am unaware of. But I am aware that they do have 
the information. And I am not sure when your folks got that 
information, but I can tell you--and I would look forward to 
the opportunity to talk to you on the phone, so maybe we could 
get additional information and figure out how that happened. 
But I can tell you that we are current, and this did not just 
happen yesterday.
    Senator Young. We received that information in April, again 
the same day you testified before this hearing. So we are going 
to have to get clarity on this. You indicated that the Taxpayer 
Advocate Service has visibility into all aspects, but it is not 
getting--some of that information is not finding its way into 
the field.
    Commissioner Rettig. That would be my impression. They are 
an independent operation within the Internal Revenue Service, 
so I do not know how their information flows. But they want to 
get the right information to you and your people as well. We 
are all-in trying to make everything as best as possible for 
taxpayers, for members of Congress, for your staff, and 
whatnot. So again, I would appreciate the opportunity to follow 
up. And I would encourage the members to interact directly with 
the Taxpayer Advocate herself--you know, interact with me and, 
separately, interact with her.
    Senator Young. Okay. Would you, sir, or a member of your 
team, follow up with the IRS processing center in Kansas City, 
just to ensure that nothing has been overlooked with respect to 
the opening of mail and outstanding paper returns from 2019?
    Commissioner Rettig. The 2019 returns are current, if you 
are referring to Kansas City. If you are referring to the Error 
Resolution Service, which is out in Kansas City, that is a 
separate issue from the mail. And I may have indicated earlier 
that in Errors currently we have about 9.4 million individual 
returns. And that was the May 28th date. And the majority of 
those were pulled out for one of five reasons, which are 
reconciliation of return recovery rebate, which is the EITC 
reconciliation; additional Child Tax Credit math verifications; 
missing Form 8962; and whatnot. But we can give you specifics.
    But that may be a separate issue than physical mail. 
Physical mail is current. In the Errors, what we are trying to 
do is to work with the taxpayers that we need additional 
information from to free those up. And it is those items we are 
missing on the return processing, and they cannot be 
automatically processed, and it gets kicked out to manual, and 
the manual process is to verify and to reconcile the issues 
that were there.
    And I would appreciate the opportunity maybe that we walk 
you through that with your people.
    Senator Young. Well, I am grateful. I am going to take you 
up on that opportunity of you, Mr. Commissioner, and my office, 
and, if necessary, the Taxpayer Advocate Service so we will get 
some answers for my constituents, because they are being told 
that their paper 2019 returns have not even been opened or 
processed yet. That is the bottom line. And----
    Commissioner Rettig. Also, when we talk one-on-one, if your 
folks could be prepared, assuming you have the authority, with 
the authorization to give us some specific information, that 
would help.
    Senator Young. If we are lacking in any authorizations, we 
will----
    Commissioner Rettig. Right. That was a heads-up to try to 
get that before the call, because there are a lot of things we 
can resolve when we have that.
    Senator Young. Thank you, sir.
    Lastly, and I will keep this one tight----
    Senator Crapo. We need to wrap up pretty quickly.
    Senator Young. Okay. About half of the U.S. population over 
the age of 12 was fully vaccinated against COVID-19, and almost 
90 percent of vulnerable seniors have received at least one 
dose. Now that Americans have broad access to COVID-19 
vaccines, how is the IRS planning to get employees back in the 
office and reopen those in-the-field taxpayer assistance 
centers to help more Americans resolve their tax troubles?
    Senator Crapo. And if you could be brief.
    Commissioner Rettig. We expect to reopen any closed centers 
that we have staffing for promptly. And the President's budget 
provides staffing for us to actually reopen all centers, which 
would be significant.
    Senator Young. That would be helpful, as----
    Senator Crapo. Thank you.
    And next will be Senator Daines, followed by Senator 
Whitehouse.
    Senator Daines?
    Senator Daines. Great. Thanks, Mr. Chairman. Thanks, 
Commissioner Rettig, for being here.
    I want to start by joining Ranking Member Crapo and others 
who have been expressing my shock about the leak of individual 
IRS tax data in the ProPublica article this morning. To see 15 
years' worth of confidential individual and business data 
leaked is most concerning, particularly at a time when the 
administration is proposing a massive increase in the amount of 
data the IRS will collect from individuals and businesses.
    I am very glad to hear you are investigating the source of 
the leak, and that you will prosecute any violation of law in 
this instance, because violations of individual privacy and 
confidentiality could easily happen to ordinary Americans and 
small businesses, probably more than anything else. So thank 
you.
    Turning to my question, we had a hearing earlier this year 
on the tax gap, at which witnesses spoke about how to close it, 
and we examined whether President Biden's proposals were 
realistic.
    The Congressional Budget Office projects increasing IRS 
funding by $40 billion would net $63 billion in increased 
revenue. But the Biden administration estimates that $80 
billion in funding would produce an additional $637 billion in 
additional revenue.
    Commissioner Rettig, can you explain why there might be 
such a really massive difference between the administration's 
revenue collection estimate and the estimate from CBO?
    Commissioner Rettig. The administration's estimate was 
performed by the Office of Tax Analysis within Treasury, which 
are essentially their career economists. And as you were 
commenting, I was thinking that, from the outside, what we used 
to try to do is get all the experts in a room and have them 
work together and figure out who is on target.
    The IRS is not involved in forecasting what we can recover. 
We go after everything to the best of our ability, which 
includes funding, modernization, staffing, training, and the 
rest. And we would look forward to the opportunity to do so. We 
will recover as much as we possibly can both from enhanced 
taxpayer services--relationships, communications, and whatnot--
as well as enforcement, which I mentioned earlier I am a huge 
advocate of, and for almost 40 years now, inside and outside, I 
have said that enforcement supports compliant taxpayers.
    And similarly, we need to not be examining taxpayers that 
we should not be. We need to lessen the burden on taxpayers and 
take the resources we do have and focus them appropriately. And 
I think that, with the oversight of this committee and other 
committees in Congress, we have the ability to do so.
    I do see all of this as an opportunity, collectively, for 
us to provide enhanced tax administration to the people of this 
country at a level, nature, and quality that they deserve. I 
think we are close to that, and I think that--you know, I 
understand and share the bipartisan look that the IRS should 
collect the fair amount of tax from taxpayers. And it should 
not burden, and unduly burden taxpayers, and we should do the 
best we can. And I can tell you, from being on the inside, 
employees think like I do.
    Senator Daines. Yes; it is a thoughtful answer.
    Just to follow up on that, former IRS Commissioner Koskinen 
recently stated that he is not sure that the IRS could use $80 
billion effectively. Do you disagree with that statement? And 
if so, is there a dollar amount that you think would be about 
the right amount that the IRS could basically digest and use 
effectively?
    Commissioner Rettig. The IRS, as I indicated earlier--we 
actually months ago started working on our workforce plans, if 
you will, moving forward, which include modernization. Just the 
modernization plan in the house alone could use a substantial 
amount of money. I think former Commissioner Rossotti recently 
mentioned that what we spend--about $2 to $2.5 billion in terms 
of modernization--the largest banks in the world that have a 
fraction of the information we do spend $10 to $12 billion per 
year, and we are doing between $2 and $2.7 billion total.
    And so, you know, the modernization side of the house could 
use a lot of help. And that helps both compliant taxpayers, and 
it helps us focus, appropriately, on the compliance-challenged 
taxpayers.
    At the appropriate time, I look forward to coming up and--
either in front of the committee or our folks briefing staff of 
the committee--talking about what we see as the workforce plan. 
We have put a lot of effort into it. You know, I will say--let 
me go back to the EIPs.
    We worked really hard on those. That was a new line of work 
for us. We did not always get it right, but to the extent we 
made mistakes, it was because we were trying our best. We are 
here trying our best as well, and I hope that untimately, 
Congress and history look at the IRS that, in a very difficult 
environment, meaning pandemic and otherwise--the people of the 
IRS performed admirably. People can say what they want about 
me, but the respect for our employees, I think, is among the 
highest of any Federal agency.
    Senator Daines. But back to your earlier point, I am 
concerned that, on the enforcement, we might present undue 
burdens on law-abiding businesses. And I am not sure that this 
would actually produce the amount of revenue the administration 
believes it will. And then lastly--I have to be quick because I 
am over--can you tell us the steps the IRS would take to make 
sure it is not putting undue burdens on small businesses who 
are paying their taxes right, and so forth, as part of their 
enhanced enforcement efforts?
    Commissioner Rettig. I made a comment earlier. I come from 
a small business family. Basically, my dad had a truck. I was a 
participant in small businesses when I was on the outside, 
before I got to the Internal Revenue Service. I have a very 
strong line-of-sight into the small business communities, as 
well as supporting them with appropriate services.
    Often they are challenged. They do not have the resources. 
Their effort is to try to get income, and less of an effort 
goes into sort of the back end of the house--you know, the 
accounting and whatnot. Part of our job at IRS is to issue 
clear, timely, meaningful guidance in terms that people can 
understand.
    It is not appropriate to point to a 700-page regulation 
maybe at IRS.gov, maybe not, and say, ``Well, we told you so.'' 
But the outreach to the small business communities will be 
enhanced under the President's proposal. And certainly I have a 
strong focus, and other people in the IRS share that. And I 
have said numerous times today that I have a 17-month runway, 
but people in the IRS share the concerns that I have. And 
supporting the small business community and not burdening the 
small business community, particularly during a pandemic, I 
think should be important for every American.
    Senator Daines. Commissioner Rettig, thanks for your 
thoughtful answers. I appreciate it.
    Senator Crapo. Thank you.
    And next is Senator Whitehouse. Are you with us?
    Senator Whitehouse. Yes, I am, Mr. Chairman. Thank you very 
much. And thanks, Commissioner, for being back with us again.
    When you were before us earlier you said that money stashed 
in foreign accounts could be part of why the tax gap may be 
more than twice as large as official IRS estimates. There has 
been some skepticism expressed about that in the committee, and 
I just wanted to give you a chance to add any clarification or 
amplification, and ask whether or not you still stand by the 
point that you made.
    Commissioner Rettig. I still stand by the point I made. Our 
Director of Research separately testified in a House hearing, 
built with the same blocks, and before he got to illegal-source 
income--the transcript is out there--his comment was that the 
comments of the Commissioner are not unreasonable. And I do 
stand by that. And we do not know what we do not know, but 
these are educated guesses.
    Senator Whitehouse. So the Treasury Inspector General for 
Tax Administration noted at a hearing that the IRS had taken 
virtually no compliance actions to meaningfully enforce the 
Foreign Account Tax Compliance Act.
    What can we do to help improve that record? Are there 
resources or regulations? What focus do we need to do to----
    Commissioner Rettig. Absolutely. FATCA was passed with the 
idea that the U.S. Government, the IRS, would receive data with 
respect to foreign accounts for individuals throughout the 
world. And unfortunately, we did not get the resources to 
implement a modernization of our systems to be able to 
appropriately use the data that we receive under FATCA.
    And part of the President's budget provides us with the 
resources to modernize our systems to get there. And I think it 
can be instrumental, what we might find, as well as, you know, 
if we find out that there is no ``there'' there, that would 
also be instrumental. And I think everybody should support that 
effort.
    Senator Whitehouse. Do you know if that is a separate line 
item in the President's budget proposal, or do we have to go in 
to break it out? I will ask for the record for somebody on your 
team to let us know whatever we can do to break out the 
elements of FATCA enforcement.
    So on to kleptocracy. The President has issued a memorandum 
on establishing the fight against corruption as a core United 
States national security interest. We have just passed good 
beneficial ownership disclosure laws. Are you comfortable with 
the Treasury process and the IRS aspects of implementing that 
rule? Any report you can give? It is really important that 
Treasury, the DOJ, and the IRS all be happy with where we are. 
Are you?
    Commissioner Rettig. The IRS will do the best that it can 
with the resources that it receives to implement the 
legislation that impacts areas that are in the IRS's domain. 
And so as to--I am a believer in transparency and full 
disclosure, and all the rest. And you know, I can confirm and 
commit to the fact that we will do our best, and certainly 
try----
    Senator Whitehouse. And are you comfortable that you are 
being heard in the regulatory process of developing the rules 
to enforce and implement the legislation?
    Commissioner Rettig. We have weekly--excuse me, bi-weekly 
meetings with the Office of Tax Policy at Treasury that, not 
only myself but our leadership team and counsel, are engaged 
in. So, yes.
    Senator Whitehouse. Okay, last question, and you are 
welcome to take this one for the record. It relates to 
501(c)4s. You answered just a few days ago a question that I 
had about the number of referrals that the IRS has made to the 
Department of Justice for investigations involving nonprofit 
organizations. There were about 200 over the last 5 or 6 years.
    Could you--again, you can take this for the record. I would 
like to know if any of those, and if so how many of those, 
involved potential false statements made by nonprofits 
regarding political activity. And I would also like to know if 
you are aware of whether any of them actually were taken to 
prosecution, what the record was of them being taken up over at 
DOJ. Would you be able to get me that info?
    Commissioner Rettig. With appropriate safeguards, we will 
reach out to DOJ and try to get the information for you.
    Senator Whitehouse. Great. At this point, I think I am just 
looking for numbers. So there should not be any problem with 
it. How many of the 200 involved potential false statements 
about political activity, and how many were actually taken up 
by DOJ of the 200.
    Commissioner Rettig. It is not always so easy for us to get 
information when the lawyers get involved, but--being a 
lawyer----
    Senator Whitehouse. I just want to make it a question for 
the record. Thank you very much.
    [The question appears in the appendix.]
    The Chairman. Thank you.
    Commissioner, we are winding down here from a long morning. 
Just a couple of comments, first with respect to tax 
enforcement, which has come up repeatedly over the course of 
the morning. And I know this does not surprise you, my interest 
is making sure that this is not just another chapter in the 
tale of two tax codes in America. When a nurse--a nurse is sure 
to owe a penalty if her W-2 does not match her return, but a 
millionaire can arrange their assets through a sophisticated, 
complex web of partnerships and can abuse the system with no 
risk of detection. That is the status quo today. And that is 
what I want to change.
    So we are going to be talking to you more about 
enforcement, and you said you would get us some information 
with respect to your targets. But that is what I am really 
concerned about, and it undergirds my whole view with respect 
to the tax code in America.
    Then, with respect to, again, the ProPublica information of 
today, I am going to ask about this repeatedly, because I want 
it understood that the IRS has a responsibility to protect 
taxpayer data. And you have confirmed this morning that this 
matter is being investigated.
    And then from the policy side, the big picture is, this 
data shows that the country's wealthiest, who profited 
immensely during the pandemic, have not been paying their fair 
share. And they can essentially line up their lawyers and 
accountants and their professionals and can defer and postpone 
and put off paying, and to a great extent live off money 
borrowed against their assets while not paying any taxes for 
very long periods of time.
    And the nurses and firefighters I represent in Oregon 
cannot play those games. They pay their taxes with every 
paycheck.
    I am just going to close. We will be talking with you and 
others in the future, because I am going to have a proposal to 
fix this broken system and have it ready to be released soon.
    With that, the committee also notes that questions for the 
record have to be delivered by next Tuesday, a week from today. 
And 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 again today. It is safe to say we all support efforts to 
administer our Nation's tax laws and collect taxes that are legally 
due. Today, we will hear from Commissioner Rettig about proposals to 
massively increase the budget at IRS, aimed largely at increased 
compliance and enforcement efforts.

    Commissioner Rettig, you have the chance to provide your 
perspective on an array of issues, including any updated tax gap 
analysis your agency is preparing, various compliance- or enforcement-
related proposals contained in the President's budget, and recently 
enacted spending programs that the IRS will soon begin implementing. 
Focusing on the administration's discretionary funding request for the 
IRS, I look forward to hearing about how the IRS would spend the $1.2 
billion in additional funding in FY 2022, including the specific 
activities the funds would go toward and what the expected outcome from 
these activities will be.

    The President's Fiscal Year 2022 budget proposes not only a 
significant increase in IRS funding, but also a dedicated, mandatory 
flow of funding for the IRS over a 10-year period, based partly on some 
speculative and questionable assumptions and analysis. Multiyear, 
guaranteed appropriations like this are rare, and it is important to 
understand whether the circumstances actually warrant it. It is also 
important to understand how much additional funding the IRS can 
efficiently use, as well as the specific implementation plans the IRS 
has to put any additional funding it receives to good use.

    Much has been said about the decline in IRS funding from the 2010 
fiscal year. Less has been said about data suggesting the IRS has 
become at least somewhat more efficient in the aftermath of these 
declines, such as the fact that IRS gross revenue collections have 
increased every year, year over year since 2010, from $2.34 trillion in 
2010 to $3.56 trillion in 2019.

    Further, the IRS's costs of collection have decreased every year, 
year over year since 2010, from $0.53 in costs per $100 collected in 
2010 to $0.33 in costs per $100 collected in 2019. Moreover, we need to 
better understand the actual correlation between the IRS's enforcement 
budget and the enforcement revenue it collects.

    For example, IRS data shows that enforcement revenues actually 
increased between fiscal years 2012-2013, 2013-2014, 2015-2016, 2016-
2017, and 2017-2018, despite actual enforcement spending decreasing 
between each of these periods. Similarly, between fiscal years 2019-
2020, enforcement revenues declined by $6.4 billion despite actual 
enforcement spending increasing by $317 million.

    Suffice to say, we need to better understand the facts at play 
here, particularly before we rush to adopt multi-billion-dollar funding 
increases. And as we all know, revenue comes from the economy, and 
revenue collected is far more sensitive to the state of the economy 
than it is to the size of the IRS budget or scope of its enforcement. 
When the economy grows, revenues rise; and when the economy shrinks or 
grows sluggishly, revenues fall or grow slowly.

    The administration's budget proposes several new reporting, 
compliance, and enforcement regimes, including a proposal to require 
near-universal disclosure to the IRS of gross inflows and outflows for 
both traditional and non-traditional financial accounts for businesses 
and for individuals, as well as for third-party settlement entities. I 
have long been critical of big data collection activities, and oppose 
turning banks and brokers into government tax collectors. I also have 
strong concerns about the proposed IRS big data requirements.

    According to the budget request, ``This requirement would apply to 
all business and personal accounts from financial institutions, 
including bank loans and investment accounts, with the exception of 
accounts below a low de minimis gross flow threshold of $600 or fair 
market value of $600.''

    Commissioner Rettig, you may recall that expanded 1099 information 
reporting was enacted in the Affordable Care Act to include any payment 
of over $600, and the American people soundly rejected that provision, 
leading to its rapid repeal a year later. Absent bipartisanship in 
developing enhanced compliance and enforcement activities and public 
acceptance of their legitimacy, the administration's proposals will not 
be durable.

    The key issue for the IRS, and for those of us who oversee it, is 
to strike the appropriate balance between rigorous enforcement of the 
tax laws and heavy-handed, stifling intrusiveness. I am concerned about 
the implications of many of the President's budget proposals, including 
requiring additional, and highly burdensome, information reporting when 
some existing reporting is duplicative, and much is still not being 
utilized to the fullest extent.

    Proposals to increase compliance and enforcement can have merit, 
but there is the risk of turning the IRS, and perhaps even private 
financial institutions, into feared gatherers of information that is 
not necessary for tax administration. Also, in regard to compliance, I 
would be remiss if I did not indicate my continued disappointment in 
the lack of responsiveness of the IRS and Treasury to my inquiries.

    You last appeared before this committee on April 13th, and I have 
not yet received responses from you to questions that I asked for the 
record. I also sent you a letter on May 10th with a series of questions 
about the speculative and questionable tax gap projections that you 
have recently put forward. I only received a partial response to my 
questions late yesterday afternoon.

    It is somewhat surprising for the administration to request 
outsized and mandatory funding for the IRS, while at the same time not 
complying with basic transparency and accountability responsibilities.

    Commissioner Rettig, I look forward to your testimony, and thank 
you for appearing today.

                                 ______
                                 
             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 IRS budget and provide you 
with an update on IRS operations.

    I am pleased to report the 2021 filing season, which was extended 
to May 17th, went smoothly in terms of tax return processing and the 
operation of our information technology (IT) systems. Through May 28, 
the IRS received more than 149.6 million individual Federal tax returns 
and issued more than 101.2 million refunds totaling more than $281.4 
billion. In 2021, we have had had more than 1.4 billion visits to 
IRS.gov and have received more than 150 million taxpayer phone calls 
(more than 300 percent of normal; at one point we were receiving calls 
at the rate of 1,500 per second) and have answered more than 37 million 
calls through our automated systems and live phone assistors. Although 
the filing deadline has passed, I would note that the work of the 
filing season goes on well beyond the deadline--IRS employees continue 
to process tax returns, including amended returns and returns for which 
taxpayers had requested an extension beyond May 17th.

    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. Through June 4th, we 
have disbursed more than 169 million payments totaling approximately 
$395 billion. We have printed and mailed more than 175 million reminder 
notices, answered more than 30 million EIP calls, issued more than 105 
FAQs, and coordinated our outreach efforts with more than 11,000 
external partners and 400 Federal and State agencies.

    The IRS is also coordinating with Treasury on another important 
provision, which provides periodic advance payments of the Child Tax 
Credit (CTC) to eligible Americans. The IRS is working hard to deliver 
this program quickly, efficiently and on time. We recently announced 
the advance CTC will be disbursed in monthly payments beginning July 
15th. We have already issued nine news releases and started sending 
more than 30 million outreach letters to inform potentially eligible 
taxpayers of the advance CTC payment and to promote awareness of the 
CTC page on IRS.gov that will provide additional relevant information. 
The letter is educating taxpayers who filed a processed 2019 or 2020 
return that claimed the CTC about the advance CTC and options for the 
future. We will soon provide Congressional members with outreach 
packages so that they build awareness of the advance CTC with their 
constituents.

    Now in my third year as Commissioner, I remain extremely proud of 
our employees, and I'm excited about the future of our agency. 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. As such, in part, the success of our country depends upon a 
successful IRS. 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.

    Decisions significantly impacting the people of this country should 
not be 
resource-driven. Like all Federal agencies, the IRS is best suited to 
provide the services Americans deserve and appropriately enforce the 
tax laws in support of compliant taxpayers when it receives the 
resources it needs to do so. At a time when the IRS has faced 
consequential resource challenges, it has also been called upon to take 
on new responsibilities impacting almost every American. Our response 
to the unprecedented COVID-19 challenges illustrates the importance of 
every American to the IRS and the importance of the IRS to every 
American.

    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 more than $800 billion in Economic 
Impact Payments together with more than $500 billion in individual 
refunds 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 
multiyear 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. 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.
         the president's fiscal year 2022 discretionary budget
    The President's Fiscal Year (FY) 2022 discretionary budget proposal 
for the IRS provides $13.2 billion, an increase of $1.2 billion, or 
10.4 percent, above the 2021 enacted level, to administer the Nation's 
tax system fairly, collect $3.5 trillion in taxes to fund the 
government and strengthen tax compliance.

    In addition to the base appropriations request, the budget proposes 
a program integrity allocation adjustment that would provide an 
additional $417 million in FY 2022, to fund investments in expanding 
and improving the effectiveness and efficiency of the IRS's overall tax 
enforcement program, for a total of $13.6 billion for the agency in FY 
2022.

    The President's budget proposal supports fair and equitable tax 
administration for all Americans, including increasing oversight of 
high-wealth individuals and corporations to ensure compliance and move 
toward closing the tax gap. It also improves the taxpayer experience by 
providing new and improved online tools for taxpayers to communicate 
with the IRS easily and quickly. The budget also supports the IRS's 
efforts to continue improving telephone and in-person taxpayer customer 
service, as well as expansion of the agency's outreach and assistance 
to underserved communities. These increased resources represent a 
significant investment in tax administration, because the IRS has an 
overall return on investment (ROI) of about $5 for every $1 invested, 
excluding significant deterrence effects.
Specific Funding Areas
    The FY 2022 budget requests a total program increase of $915.5 
million, including the following:

        Taxpayer First Act (TFA): $176.1 million for implementing 
major TFA initiatives, including a Taxpayer Experience Strategy to 
improve the American taxpayer's experience with the IRS through 
expanded digital services, increased multilingual services, and an 
increased presence in hard-to-reach, historically underserved 
communities. Another major TFA initiative involves enhancing identity 
proofing and authentication tools, to ensure taxpayers have secure 
access to online services.
        Enforcement: $340 million for continuing to establish 
enforcement strategies that will ensure a fair tax system, by allowing 
the IRS eventually to double its compliance efforts on partnerships and 
high-wealth returns and devote more resources to examining large 
corporations with balance sheet assets greater than $10 million. Other 
initiatives supported by this investment include: the Cross Border and 
Treaty and Transfer Pricing Operations; expansion of oversight efforts 
against cybercrime; increased use of applied data analytics in 
enforcement activities; and enhancing taxpayer confidence in the tax-
exempt sector.
        Taxpayer Service: $318 million to increase taxpayer assistance 
via the various communication channels taxpayers use to reach us, 
including phone calls, correspondence, and in-person visits. This 
investment provides a projected phone level of service (LOS) of 75 
percent in FY 2022, assuming phone demand returns to pre-pandemic 
levels and the IRS is able to provide in-
person services at pre-pandemic levels. These funds will also be used 
to reduce the current projected FY 2022 ending correspondence inventory 
by about 400,000 pieces.
        Modernization: $78.1 million for IT modernization activities. 
This investment will support IRS efforts to continue implementing its 
Integrated Modernization Business Plan for upgrading IT systems and 
retiring legacy applications. With this funding, the IRS will be able 
to take the next steps on such significant modernization initiatives as 
Enterprise Case Management, Taxpayer Digital Communications and 
customer callback on its taxpayer phone lines.

    The IRS dedicates itself to improving the taxpayer experience so 
that taxpayers and their representatives can understand and meet their 
tax obligations with minimal burden. The IRS's aim is to increase 
voluntary compliance through simplifying the tax filing, correction, 
and payment processes. To help achieve this, the IRS will focus on 
improving education and outreach on taxpayer rights and obligations and 
enhancing service channels to meet taxpayer needs.
Efforts to Narrow the Tax Gap
    We are proud to serve our country and want to provide meaningful 
services of a nature and quality every American deserves. In support of 
compliant taxpayers, we must pursue meaningful enforcement efforts, 
appropriately balanced with our support of taxpayer service, taxpayer 
rights, and privacy rights. The IRS continues to develop innovative 
approaches to understanding, detecting, and resolving potential 
noncompliance to maintain taxpayer confidence in the tax system.

    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 is intended to represent, in dollar terms, the annual 
amount of tax noncompliance with our tax laws. It does not distinguish 
between underreporting, 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, given restrictions in data availability, it is extremely 
difficult to empirically estimate the level of tax gap associated with 
all noncompliance activities in the current state of the economy. Our 
most recently published tax gap estimates for calendar years 2011-2013 
are not intended to represent an all-inclusive, current measure of 
global tax non-compliance by U.S. taxpayers. They are outdated, under-
inclusive, and are based on limited types of detected information. The 
2021 digital world economy is significantly different from the world 
economy of 2011-2013. Published estimates have traditionally relied on 
historical audit and collection data for certain identified non-filers, 
underreporters, and underpayers. For at least the past 18 months, we 
have been working on updating and enhancing the underlying approach and 
methodology, improving the currency of the estimates and considering 
how to better identify and incorporate additional information that may 
assist us in forecasting emerging compliance issues.

    We will soon be implementing new tax gap approaches and 
methodologies, including more operational audit data and identifying 
additional sources contributing to more inclusive estimates that are 
reflective of the actual tax gap. In addition, advancements in 
artificial intelligence, advanced data, and analytic strategies have 
enhanced our capabilities to identify areas of noncompliance in ways 
that were not remotely possible just a few years ago. These new tax gap 
data and methodologies will assist us in determining and coordinating 
the deployment of our limited enforcement-related resources, both to 
minimize burden on compliant taxpayers and to concentrate on reaching 
noncompliant taxpayers.

    While a portion of the unpaid tax obligations that make up the tax 
gap result from a lack of knowledge or ambiguity and complexity in tax 
law, willful evasion is also a significant contributing factor. The 
2022 budget includes a program integrity allocation adjustment, which 
includes targeted investments in enforcement activities to help IRS 
address this evasion.

    The tax gap has many underlying causes, including complexity, 
opaque sources of income and insufficient IRS enforcement. Budget cuts 
over the past decade have resulted in an agency that lacks the capacity 
to address sophisticated tax evasion efforts. Appropriations for the 
IRS have fallen by about 20 percent (adjusted for inflation) since FY 
2010. The decline in the overall IRS budget has resulted in a 15 
percent decline in the number of full-time employees at the agency 
since FY 2010.

    The effect of personnel lost is most visible in enforcement 
activities. Among the 33,378 full-time personnel lost between FY 2010 
and FY 2020, more than 13,388 were enforcement personnel. These losses 
included revenue agents and revenue officers who audit tax returns and 
perform collection activities, as well as special agents who 
investigate tax-related crimes and other issues.

    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, multifaceted 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. Multiyear, 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 
investment 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.

    Efforts necessary to raise compliance levels are resource-
intensive. We remain committed to ensuring that the tax system is 
enforced fairly, taxpayers receive the nature and quality of services 
they deserve, and that no one at any income level feels safe cheating 
on their taxes. In addition to the need for the IRS to run a balanced 
enforcement program, the tax gap--and the underlying components--
illustrate that we also need to continue focusing on solid, meaningful 
taxpayer service to help people understand and satisfy their filing and 
reporting obligations.
      the president's long-term plan to improve tax administration
    As a part of the American Families Plan, the President recently 
made a series of proposals that would overhaul tax administration and 
provide the IRS with the resources and information it needs to address 
tax evasion over the long term. All told, these reforms will generate 
an additional $700 billion in tax revenue over the course of a decade, 
net of the investments made. A key component of this initiative is the 
provision of a sustained, multiyear stream of funding for tax 
administration. Receipt of consistent, timely, multiyear funding is 
critical to the future success of tax administration.

    This proposal directs nearly $80 billion to the IRS over a decade 
to hire new specialized enforcement staff, modernize antiquated 
information technology, and invest in meaningful taxpayer service--
including the implementation of the newly expanded credits including 
newly expanded Child Tax Credit and Child and Dependent Care Tax 
Credits aimed at providing support to American families.
Components of the Plan
    The proposal to provide the IRS with nearly $80 billion over 10 
years has two primary components:

        A multiyear program integrity allocation adjustment of $6.7 
        billion over a decade. It is estimated to generate $38.6 
        billion in new direct revenue and protect $11.6 billion over 10 
        years. This ROI is likely understated because it does not 
        reflect the effect that enhanced enforcement has on deterring 
        non-compliance.

        Approximately $72.5 billion in mandatory funding over the 
        budget window. A portion of these proposed IRS resources would 
        fund improvements and expansions in enforcement and compliance 
        activities. The proposed mandatory funding would also provide 
        the IRS with resources to enhance its information technology 
        capability--including implementation of the proposed financial 
        information reporting regime described later in this 
        testimony--and to strengthen taxpayer service. The proposal 
        would direct that additional resources go toward enforcement 
        against those with the highest incomes, rather than Americans 
        with actual income of less than $400,000.
Absorbing Additional Resources Over the Next Decade
    The proposal includes year-by-year estimates of the additional 
resources that will be directed toward the agency as well as the 
specific activities that these resources would support. The plan 
allocates the mandatory funds over a 10-year period, and the plan 
design ensures that the IRS is able to absorb and usefully deploy 
additional resources over the entire 10-year horizon.

    The plan provides enforcement resources, including a significant 
investment in revitalizing the IRS's examination of large corporations, 
partnerships, and global high-wealth individuals. It also includes 
funding for other important IRS priorities that support tax 
administration. It includes nearly $6 billion for IT modernization. 
Modernization funding will allow the IRS to address core technology 
challenges and transform IRS provision of meaningful taxpayer services 
and tax enforcement efforts. It also includes $4.5 billion to implement 
a new information reporting regime as well as additional resources to 
protect against imminent threats to the security of the tax system, 
like cyberattacks.

    Additional IT tools will help support a staff capable of deploying 
new analytical techniques and ensure that enforcement personnel have 
the most up-to-date tools to support their work to enhance compliance. 
Investing in developing machine learning capabilities will enable the 
IRS to leverage the information it collects to better identify tax 
returns for compliance review.
Initial Hiring Plans and Estimates for Return on Investment
    The IRS is committed to appropriately, efficiently and wisely using 
the resources we receive from Congress. The IRS is developing a hiring 
plan that will allow us to hire the necessary people with the right 
skills. We will hire people with a mix of experience; that is, along 
with people just or recently out of college or graduate school, we will 
also hire people at the mid-point and beyond in their careers who would 
have greater levels of experience and expertise, so that we could 
greatly accelerate the impact their hiring would have in the 
enforcement and service areas for which they are selected.

    We will hire enforcement staffing to support our base enforcement 
functions but also hire a balanced mix of staffing, including employees 
in our research division, our Criminal Investigation division, Chief 
Counsel, Appeals and the Taxpayer Advocate Service.
                 the president's legislative proposals
    In addition to the multiyear IRS funding plan in the American 
Families Plan, the budget includes several important proposals that 
would improve tax administration and provide the IRS with a blueprint 
to address various facets of the tax gap. These proposals align with 
the President's plan for sustained, multiyear funding of the IRS. The 
major tax compliance and administration proposals include the 
following:

        Increase oversight of paid tax return preparers. Paid tax 
return preparers have an important role in tax administration because 
they assist taxpayers in complying with their obligations under the tax 
laws. The proposal would amend title 31, U.S. Code (Money and Finance) 
to provide the Secretary with explicit authority to regulate all paid 
preparers of Federal tax returns, including by establishing mandatory 
minimum competency standards. The proposal would be effective on the 
date of enactment.
        Increase penalties on ghost preparers. So-called ghost 
preparers are compensated for preparing returns but refuse to identify 
themselves on the returns purposely to avoid detection. The proposal 
would increase the penalty amount to the greater of $500 per return or 
100 percent of the income derived per return by a ghost preparer. The 
proposal would also increase the limitations period during which the 
penalty may be assessed from 3 years to 6 years. The proposal would be 
effective for returns required to be filed after December 31, 2021.
        Introduce comprehensive financial account information 
reporting. This proposal would create a comprehensive financial account 
information reporting regime. Financial institutions would report data 
on financial accounts in an information return. The annual return will 
report gross inflows and outflows with a breakdown for physical cash, 
transactions with a foreign account, and transfers to and from another 
account with the same owner. This requirement would apply to all 
business and personal accounts from financial institutions, including 
bank, loan, and investment accounts, with the exception of accounts 
below a low de minimis gross flow threshold of $600 or fair market 
value of $600. Other accounts with characteristics similar to financial 
institution accounts will be covered under this information reporting 
regime. In particular, payment settlement entities would collect 
Taxpayer Identification Numbers (TINs) and file a revised Form 1099-K 
expanded to all payee accounts (subject to the same de minimis 
threshold), reporting not only gross receipts but also gross purchases, 
physical cash, as well as payments to and from foreign accounts, and 
transfer inflows and outflows. Similar reporting requirements would 
apply to crypto asset exchanges and custodians. Separately, reporting 
requirements would apply in cases in which taxpayers buy crypto assets 
from one broker and then transfer them to another broker, and 
businesses that receive crypto assets in transactions with a fair 
market value of more than $10,000 would have to report such 
transactions. The Secretary would be given broad authority to issue 
regulations necessary to implement this proposal. The proposal would be 
effective for tax years beginning after December 31, 2022.
        Expand authority to require electronic filing for forms and 
returns. Under this proposal, electronic filing would be required for 
returns filed by taxpayers reporting larger amounts or that are complex 
business entities, including: (1) income tax returns of individuals 
with gross income of $400,000 or more; (2) income, estate, or gift tax 
returns of all related individuals, estates, and trusts with assets or 
gross income of $400,000 or more in any of the 3 preceding years; (3) 
partnership returns for partnerships with assets or any item of income 
of more than $10 million in any of the 3 preceding years; (4) 
partnership returns for partnerships with more than 10 partners; (5) 
returns of real estate investment trusts, real estate mortgage 
investment conduits, regulated investment companies and all insurance 
companies; and (6) corporate returns for corporations with $10 million 
or more in assets or more than 10 shareholders. Further, electronic 
filing would be required for the following forms: (1) Forms 8918, 
``Material Advisor Disclosure Statement''; (2) Forms 8886, ``Reportable 
Transaction Disclosure Statement''; (3) Forms 1042, ``Annual 
Withholding Tax Return for U.S. Source Income of Foreign Persons''; (4) 
Forms 8038-CP, ``Return for Credit Payments to Issuers of Qualified 
Bonds''; and (5) Forms 8300, ``Report of Cash Payments Over $10,000 
Received in a Trade or Business.'' Return preparers that expect to 
prepare more than 10 corporation income tax returns or partnership 
returns would be required to file such returns electronically. The 
Secretary would also be authorized to determine which additional 
returns, statements, and other documents must be filed in electronic 
form in order to ensure the efficient administration of the internal 
revenue laws without regard to the number of returns that a person 
files during a year.
        Improve reporting for payments subject to backup withholding. 
The proposal would treat all information returns subject to backup 
withholding similarly. Specifically, the IRS would be permitted to 
require payees of any reportable payments to furnish their TINs to 
payors under penalty of perjury. The proposal would be effective for 
payments made after December 31, 2021.
        IRS Centralized Services Fund/Working Capital Fund. The budget 
includes appropriations language to establish a working capital fund 
for IRS centralized services. The fund will allow the IRS to achieve 
cost savings, promote economies of scale, establish more consistent 
processes and policies, and improve how it delivers facility services, 
technology, and other centralized services for its business units. For 
FY 2022, the fund proposes to start with several pilot projects that 
would test use of the fund, including, potentially, IT development and 
operations projects, facilities projects, and/or postage funding.
                               conclusion
    Chairman Wyden, Ranking Member Crapo, and members of the committee, 
thank you again for the opportunity to discuss the IRS budget and 
update you on IRS operations. The agency remains 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. John Barrasso
    Question. On June 8, 2021, ProPublica published an article titled, 
``The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How 
the Wealthiest Avoid Income Tax.'' The article states that ProPublica 
has obtained IRS data on the tax returns of thousands of Americans. 
This could be the largest breach in the IRS's history, represents a 
serious breach of privacy, and is a criminal violation of our tax laws. 
It damages the American taxpayers' confidence that the IRS will keep 
their personal information confidential.

    While I appreciate that the Federal Bureau of Investigation is now 
investigating the breach, I hope that the IRS will fully cooperate with 
that investigation. After the recent IRS scandal involving the agency's 
targeting of conservative groups, thousands of IRS emails were 
destroyed despite a preservation order and congressional subpoenas. 
Once again, at the very least, there is a perception that the IRS is 
being used for political ends. This erodes American taxpayers' 
confidence in the agency.

    The American people have a right to know how and why confidential 
information was allegedly obtained or leaked from the IRS.

    Do you commit to fully cooperate with Congress and Federal 
investigators on this serious breach of American taxpayer's 
confidential information?

    Answer. The IRS will fully cooperate with each and every 
congressional and Federal investigation into the ProPublica article. 
Congress may wish to reach out directly to any investigative 
organization that may be conducting an investigation.

    Question. I believe the Taxpayer Advocate service is an important 
tool the IRS has to help taxpayers. Dealing with the IRS can be 
intimidating, confusing, stressful, and never-ending. The Taxpayer 
Advocate does not have the resources or authority to resolve every 
problem taxpayers encounter with the IRS. The issues they can help with 
are limited, but their assistance and guidance can be invaluable.

    If the IRS is sincere in its desire to treat taxpayers fairly 
throughout the process, I believe it is important that the IRS maintain 
a robust and effective Taxpayer Advocate office.

    What needs to be done to enhance the visibility and role of the 
Taxpayer Advocate's office? Can you detail how the IRS will ensure that 
the Taxpayer Advocate has the necessary resources to improve their 
ability to advocate for and provide guidance to taxpayers?

    Answer. The IRS works to ensure the visibility of the Taxpayer 
Advocate Service (TAS) in a variety of ways. Although the TAS is 
independent in the IRS, key communications are shared through broader 
IRS communications channels, including IRS.gov, news releases, social 
media, partner outreach, and information shared to local congressional 
offices.

    The mission of the Taxpayer Advocate's office is an important one, 
and the IRS has a good working relationship with the National Taxpayer 
Advocate. The TAS exists to assist taxpayers in circumstances of 
economic hardship or when a case has not been handled properly, while 
advocating with both the IRS and Congress for systemic changes, 
taxpayer rights, and improved service.

    A key aspect of the Taxpayer First Act (TFA) reorganization was the 
creation of the Chief Taxpayer Experience Office. The National Taxpayer 
Advocate and the Taxpayer Experience Officer are holistically focusing 
on taxpayer service and taxpayer rights from the taxpayer's 
perspective. This joint effort recognizes the important role of the 
Taxpayer Advocate's office and should further enhance its visibility 
within the agency.

    The minimum funding levels for TAS provided in the appropriations 
acts are important to ensuring its independence and that it has the 
resources necessary to successfully advocate on behalf of taxpayers 
without the need to request additional funds from the Commissioner.

    Question. The IRS traditionally requires handwritten signatures on 
a wide array of forms. Last year, because of the COIVD-19 situation, 
the IRS started accepting electronic or digital signatures for a number 
of these forms.

    From a taxpayer's standpoint this was a welcome change. The ability 
to use a digital signature can somewhat streamline what is frequently a 
confusing and time-consuming process.

    Have you found that accepting digital documents and signatures has 
streamlined administration on the IRS's side?

    Answer. Yes, accepting digital documents and signatures contributed 
significantly to the IRS's ability to process information during the 
COVID-19 pandemic. The expanded digital options not only promoted 
efficiency but also helped preserve health and safety. Digital options 
for taxpayers, tax professionals, and IRS employees are fundamental to 
effective tax administration.

    Question. Is the IRS considering implementing permanent changes 
based on this experience? It seems to me that this kind of 
modernization would help makes the processes more efficient overall.

    Answer. While these flexibilities created efficiencies, they do not 
fully satisfy the standards for electronic signatures as established by 
the National Institute of Standards and Technology or the IRS 
Electronic Signature (e-signature) Program. Therefore, rather than 
making these exceptions permanent, we are currently preparing to extend 
them through 2023, pending the development of new tools that will 
satisfy the requirements for electronic signatures and secure document 
exchange.

                                 ______
                                 
               Questions Submitted by Hon. Sherrod Brown
    Question. The IRS is currently accepting applications to serve on 
the IRS Advisory Council (IRSAC) for 3-year terms beginning in January 
2022. Many low- and 
moderate-income workers and families do not access tax credits that 
they are eligible for, and the IRS is currently rolling out critical 
Earned Income Tax Credit and Child Tax Credit expansions under the 
American Rescue Plan.

    Will you ensure that the IRS prioritizes selecting applicants for 
the IRSAC who have expertise on tax administration and compliance 
issues affecting low- and 
moderate-income families?

    Answer. The IRSAC Membership Balance Plan emphasizes the selection 
of members representing a diverse set of taxpayers. Balance factors 
identified as important for IRSAC membership are geographic, work 
sector, and taxpayer diversity.

    As you recall, before joining the IRS, I proudly served on the 
IRSAC, ultimately serving as the IRSAC Chair. You likely also recall my 
significant priority as Commissioner in the IRS: appropriately serving 
lower-income and historically underserved communities. Together with 
various outreach programs and initiatives, the IRSAC is a critical link 
between the IRS and our efforts to enhance the awareness and education 
of individuals who may be eligible for the Earned Income Tax Credit, 
the Advance Child Tax Credit, and other benefits.

    The IRS will continue to prioritize the selection of applicants for 
the IRSAC who have expertise in tax administration and compliance 
issues affecting low- and 
moderate-income families. This year, the IRS received applications from 
some individuals who daily work with low- and moderate-income families 
through the IRS VITA program. Wherever possible, special consideration 
is given to these applicants.

    Question. IRSAC membership should reflect the full spectrum of 
racial, ethnic, and gender identities found among the American 
taxpayers that the IRS serves. IRSAC should also have the expertise 
needed to provide input on the IRS's implementation of Executive Order 
13985 (EO 13985), which asks Federal agencies to pursue equity, meaning 
``consistent and systematic fair, just, and impartial treatment of all 
individuals,'' including those in various underserved communities as 
outlined by EO 13985.

    Will the IRS prioritize selecting a diverse cohort of new members 
for the IRSAC and applicants with expertise needed to evaluate the 
racial equity implications of Federal tax policy and administration?

    Answer. The IRSAC was established to provide an organized public 
forum between IRS officials and representatives of the public for 
discussing relevant tax administration issues. Its duties are to 
research, analyze and make recommendations to the IRS on a wide range 
of issues affecting Federal tax administration and IRS operations. 
Specific subject matter and technical expertise in Federal tax 
administration issues, Circular 230, information reporting or tax-
exempt and government entities are generally required to accomplish the 
tasks of the IRSAC. Each IRSAC member is appointed to represent the 
point of view of a customer segment, with the goal of having as great a 
diversity of views as possible.

    The IRS will continue to prioritize the selection of a diverse 
cohort of new members for the IRSAC, including applicants with 
expertise needed to evaluate the racial equity implications of Federal 
tax policy and administration. IRSAC members are selected through a 
structured application process that seeks individuals with substantial, 
disparate experiences and diverse backgrounds. Wherever possible, 
special consideration is given to selecting members who can reflect and 
represent a diverse set of taxpayers.

                                 ______
                                 
             Questions Submitted by Hon. Benjamin L. Cardin
    Question. Fire and EMS chiefs have sought relief from tax policies 
that classify unmarked vehicles issued to fire chiefs as taxable 
income. These unmarked vehicles are needed to ensure the safety of a 
fire chief, their family, and home. These vehicles often are covered by 
policies that prohibit their use for personal reasons. Given these 
restrictions and need for fire chiefs to respond to emergencies outside 
normal business hours, fire departments hope they would be included in 
the same ``non-
personal use'' exemption afforded to unmarked cars issued to law 
enforcement officers. Simply put, the same vehicle issued to a fire 
chief and a police chief would have different tax liabilities.

    You have previously indicated your agreement with these concerns 
and a willingness possibly to include unmarked fire and EMS chief 
vehicles in the ``Non-Personal Use'' designation. Can you share a 
status update on the IRS's assessment of the issue?

    Answer. As you are aware, an employee's personal use of an 
employer-provided vehicle is generally treated as a taxable fringe 
benefit. Personal use includes use of the vehicle to commute to and 
from work. However, under the code, an employee's authorized personal 
use of a vehicle that meets the definition of a qualified nonpersonal 
use vehicle is not treated as a taxable fringe benefit. A qualified 
nonpersonal use vehicle is any vehicle the employee isn't likely to use 
more than minimally for personal purposes because of its design. All 
employee use of a qualified nonpersonal use vehicle is treated as a 
tax-free working condition benefit.

    According to final Treasury Regulations published in 2008, the 
following vehicles are treated as qualified nonpersonal use vehicles:

        Clearly marked, through painted insignia or words, police, 
fire, and public safety vehicles, provided that any personal use of the 
vehicle (other than commuting) is prohibited by the governmental unit.
        Unmarked vehicles used by law enforcement officers if the use 
is officially authorized. Any personal use must be authorized by the 
employer, and must be related to law-enforcement functions, such as 
being able to report directly from home to an emergency situation. Use 
of an unmarked vehicle for vacation or recreation trips can't qualify 
as an authorized use.

    Note that a fire chief and a police chief would not necessarily 
have different tax liabilities relative to their work vehicles. Both 
clearly marked fire and police vehicles can qualify for the same tax-
free treatment as qualified nonpersonal use vehicles. Also, not all 
police officers or other law enforcement personnel are permitted to 
make tax-free personal use of unmarked vehicles. Only personal use of 
such vehicles that is incident to specific law enforcement functions 
including reporting directly from home to a stakeout or surveillance 
site, or to an emergency situation, can be treated as tax-free.

    We are continuing to study the important issue of whether it is 
necessary and appropriate to issue regulatory guidance amending the 
definition of qualified non-
personal use vehicle to include unmarked fire and EMS chief vehicles 
under the same or similar standard as unmarked law enforcement 
vehicles. When the regulations were last amended in 2008, the 
Department of the Treasury and IRS declined to adopt commenters' 
suggestions to eliminate some of the requirements pertaining to 
qualified nonpersonal use vehicles, including the requirements that the 
vehicles be clearly marked and specially equipped. In declining to 
adopt these suggestions, we stated ``[i]f the vehicle is not required 
to be specially equipped or clearly marked, the vehicle will function 
easily as a personal use vehicle and is not readily distinguishable 
from vehicles routinely used for personal purposes.'' T.D. 9483, 75 
F.R. 27934, 27935.

    We note that the tax treatment of unmarked law enforcement vehicles 
as qualified nonpersonal use vehicles is, in part, an acknowledgment of 
the fact that, for both safety and practical reasons, law enforcement 
personnel who engage in undercover work or conduct surveillance require 
the use of an unmarked vehicle that is equipped for police work. As we 
consider any expansion of the regulatory framework to include unmarked 
fire and EMS vehicles, we welcome additional information as to how 
unmarked vehicles are used for fire and EMS chief purposes, including 
how the qualified nonpersonal use vehicle exclusion would apply to 
voluntary fire departments and what kind of specialized equipment is 
required to be installed in fire and EMS vehicles to allow the 
personnel to effectively do their jobs. Please be assured that we are 
diligently revisiting this issue as it applies to unmarked fire and EMS 
chief vehicles.

    Question. The President's budget request for the IRS includes a 
plan to hire thousands of new employees. Typically, when establishing 
multiyear agreements to find office space, agencies will use the GSA 
leasing process, both to establish certainty and to ensure fair 
competition and cost effectiveness.

    How does the IRS plan to house or locate newly hired employees 
across the Nation quickly and efficiently? Is the agency considering 
alternatives to traditionally acquired GSA office space?

    Answer. The IRS plan to house new hires is a layered approach 
including (1) using existing underutilized space, (2) leveraging 
existing telework programs to move out-of-office employees to shared 
workstations and free up space for new hires, (3) using existing shared 
conference and/or training space, and (4) acquiring space using 
traditional and non-traditional methods where applicable.

                                 ______
                                 
            Question Submitted by Hon. Robert P. Casey, Jr.
    Question. My office has heard reports of increased tax scams over 
the past year. These scammers seek to take advantage of countless 
Americans, including vulnerable seniors, and often reference Economic 
Impact Payments or other tax benefits related to COVID-19.

    How would this proposed budget help the IRS address tax scams and 
protect taxpayers, including these new COVID-related tax scams?

    Answer. The IRS takes tax scams seriously, especially when those 
scams attempt to abuse resources and benefits designed to help people 
during the COVID-19 pandemic. The IRS set up intentional screening of 
Forms 7200, Advance Payment of Employer Credits Due to COVID-19, and 
was able to block $133 million in refunds from being issued to 
scammers.

    Increasing the IRS's budget would allow for more resources to reach 
taxpayers regarding tax scams. We will be able to hire additional 
front-line employees such as revenue agents, revenue officers and 
contact representatives. Revenue agents and revenue officers make face-
to-face contacts with taxpayers, their representatives, and third 
parties in the field. During those contacts, they are available to 
answer questions about tax scams. Hiring additional contact 
representatives will increase the number of taxpayer telephone calls we 
are able to answer, increasing our opportunities to answer questions 
and to educate taxpayers on tax scams.

    Proposed budget increases will also allow the IRS to keep pace with 
rapid changes in technology and acquire the best available tools to 
identify and stop schemes as early as possible, protecting vulnerable 
segments of the U.S. population, including seniors, from fraud.

    The IRS.gov webpage on scams (https://www.irs.gov/newsroom/tax-
scams-consumer-alerts) provides reporting information, including 
contact information for the Treasury Inspector General for Tax 
Administration (TIGTA) and the email address [email protected]. We 
provide alerts and information to taxpayers about scams to be aware of 
through such publications as the annual Dirty Dozen listing.

    As the law enforcement arm of the IRS, the Criminal Investigation 
(IRS-CI) division plays a leading role in protecting taxpayers and the 
integrity of the tax system against scams and illegal activity. This 
includes combating fraud related to Advance Child Tax Credit, Economic 
Impact Payments, Paycheck Protection Program, and Employee Retention 
Credit. Since the CARES ACT, IRS-CI has investigated more than 550 tax 
and money laundering cases nationwide totaling upwards of $820 million 
in fraud. These investigations covered a broad range of criminal 
activity including fraudulently obtained loans, credits, and payments 
meant for American workers, families, and small businesses.

    Additional funding would allow us to significantly increase our 
investigative technology and data analytics capabilities and hire more 
employees to prevent, identify, and aggressively investigate criminals 
engaged in illegal activity. This includes significantly increasing our 
capabilities to pursue the illicit use of digital assets and 
cryptocurrencies to commit tax and financial crimes. More information 
on how IRS-CI would utilize increased funding on technology, data 
analytics, and personnel can be found in pages 18-20, 24-25, 63-67 and 
137-139 of the IRS FY22 budget request.

                                 ______
                                 
                 Questions Submitted by Hon. Mike Crapo
    Question. In your April 13th appearance before the committee, you 
indicated that it was realistic that the current tax gap equals $1 
trillion per year, and gave several possible reasons for that number. 
While I have previously asked for additional details on how you arrived 
at the $1 trillion figure, I have not received a clear, direct 
response.

    The most recent official tax gap estimates relate to tax years 
2011-2013, and were released in 2019. The published gross tax gap for 
those years is $441 billion.

    To get from $441 billion official estimate for 2011-2013 to your 
hypothesized estimate of $1 trillion for today involves, according to 
what you have said: inflation in the value of the dollar; the rise of 
cryptocurrency; and unreported or concealed income offshore and in 
pass-through entities--none of which were included in the official 
estimate.

    How much of the roughly $600 billion difference between the $1 
trillion tax gap you hypothesize and the 2011-2013 value of $441 
billion is attributable to each of those factors: one, inflation in the 
value of the dollar; two, the rise of cryptocurrency; three, unreported 
or concealed income offshore; and, four, unreported or concealed income 
in pass-through entities?

    Answer. The tax gap represents, in dollar terms, the annual amount 
of tax noncompliance with our tax laws. It does not distinguish between 
intentional and unintentional noncompliance with tax laws. Further, it 
does not report obligations, domestic or foreign, legal or illegal 
source income, etc. In addition, because our published estimates are 
based on available information there are acknowledged gaps that prevent 
it from serving as an all-inclusive measure of global tax non-
compliance by U.S. taxpayers.

    The 2011-2013 estimates apply to returns filed for tax years 2011-
2013 and subsequently audited. They therefore cannot fully represent 
the compliance landscape in 2021. The 2021 digital world economy is 
significantly different from the world economy of 2011-2013 and 
therefore it would be incorrect to think that these estimates fully 
capture the current scope of the tax gap. At the May 11, 2021 hearing 
on the tax gap before the Senate Finance Committee, Subcommittee on 
Taxation and IRS Oversight, Barry Johnson, Acting Chief of RAAS, 
testified that simply using asset and price growth information to 
adjust the 2011-2013 gross tax gap estimates would yield an initial 
estimated adjusted gross tax gap for Tax Year 2019 of approximately 
$600 billion.

    Further, an IRS research team working with others used operational 
audit data to review sophisticated tax evasion by certain taxpayers 
though the use of offshore bank accounts and/or complex pass-through 
business structures. This information is not fully captured by our 
legacy tax gap estimation methodology. IRS researchers estimated 
evasion limited to the use of offshore bank accounts and/or complex 
pass-through business structures contributed an additional $33 billion 
to the 2011-2013 tax gap. Adjusting this estimate would increase the 
Tax Year 2019 tax gap by an additional $46 billion. With this increase, 
Mr. Johnson estimated the overall gross tax gap for Tax Year 2019 is 
approximately $646 billion.

    This estimate does not account for factors including the rise of 
cryptocurrency, additional undetected income offshore or concealed in 
pass-through entities not identified in the referenced research, 
additional areas of noncompliance including conservation easements, or 
illegal source income (which is not included in the tax gap estimate). 
Cryptocurrency alone has grown to a world-wide market of $2 trillion. 
Reporting compliance falls far short of what would be expected given 
the number of users, transactions, and value that virtual currency 
exchanges publicize on an annual basis. Recognizing compliance 
challenges, the IRS has focused significant enforcement resources over 
the past 2 years in the virtual currency environment.

    In addition to most taxable virtual currency transactions, the tax 
gap estimate for tax years 2011-2013 also doesn't fully reflect 
noncompliance related to various undetected international or foreign-
based taxable transactions and activities, illegal source income (which 
is taxable and is pursued by the IRS often in coordination with other 
Federal and State agencies), and other types of undetected, concealed 
taxable income. Previous Tax Gap estimates only generally measured 
international activities by domestic tax return filers but not from 
taxpayers with addresses abroad, foreign businesses and others. The IRS 
is generally aware of significant noncompliance associated with the 
foregoing but does not currently have an estimate of how much it would 
impact the tax gap; however, we are committed to conducting the 
research necessary to produce estimates in the future.

    Finally, Mr. Johnson noted that it has been well publicized that 
IRS audits have significantly declined. RAAS research consistently 
finds that audits have a deterrent effect and noted that the recent 
decline in audits is likely to have the opposite effect, leading to an 
increase in the tax gap.

    In consideration of the foregoing points, it would not be 
unreasonable to believe that the actual tax gap could approach and 
possibly exceed $1 trillion per year.

    To address some of the above challenges, Mr. Johnson confirmed that 
for at least the past 18 months, RAAS has been working on updating and 
enhancing the underlying tax gap methodology, the goal of improving the 
currency of the estimates by considering how to identify and 
incorporate additional information and emerging compliance issues.

    Question. In his May 11th testimony before the Subcommittee on 
Taxation and IRS Oversight, Acting IRS RAAS Chief Barry Johnson 
indicated that, on a preliminary basis, the IRS believes the 2019 tax 
gap is $646 billion.

    I believe you sited this figure in your testimony before the 
committee. I have a few questions related to this.

    (a) Can you confirm whether or not $1 trillion is your estimate of 
the current tax gap? If not, whose estimate was/is it?

    (b) If so, please break down by dollar amounts what accounts for 
the more than $350-billion difference between Acting RAAS Chief 
Johnson's 2019 estimate and your current estimate?

    (c) If the 2019 estimate is as preliminary as Acting RAAS Chief 
Johnson testified, and in light of the fact that the IRS only intends 
to publish an updated official 2014-2016 tax gap in 2022 (with 2019 to 
obviously come after this), how is it possible for you to even arrive 
at an estimate of the current tax gap?

    Answer. See the response to question 1. The tax gap represents, in 
dollar terms, the annual amount of tax noncompliance with our tax laws. 
It does not distinguish between underreporting, 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 potential current tax gap is an 
extrapolation of the RAAS estimate for 2019 of about $646 billion and 
is also based on a specific awareness of much of what is, and is not, 
included in our most recent ``official'' tax gap estimate for tax years 
2011-2013.

    Question. The IRS has been tasked with delivering Advance Child Tax 
Credits for 2021.

    When you last appeared before the committee, you noted the IRS was 
working to ensure that the information portal for parents to provide 
additional information or opt out of receiving advance credits for 2021 
would be fully operational, with robust outreach underway, before the 
checks would be sent out.

    More recently, we have heard that advance payments will start to be 
sent on July 15th, notwithstanding that the portal will have only 
limited functionality. At that point, the IRS will use systems and 
processes that it has never used before and there will not have been 
robust outreach. We have also heard that the IRS is currently 
unprepared to handle the likely significant volume of taxpayer outreach 
it will receive with respect to the credit.

    Given that, are you concerned that we are going to see a 
significant number of advance payments issued that are inaccurate and 
even unwanted, and that this could lead to families seeing unexpected 
tax obligations or smaller than expected tax refunds during next year's 
filing season?

    Answer. Per the American Rescue Plan Act of 2021 (American Rescue 
Plan), we determined eligibility using information from the taxpayer's 
2020 tax return (or 2019 tax return if a return was not filed for 
2020). This includes information entered into the Non-filer tool. We 
implemented a robust communication strategy to inform taxpayers about 
the Advance Child Tax Credit (CTC) payments and how they can unenroll 
from these payments or report changes that impact their advance payment 
amount.

    We hosted Advance CTC Free Tax Prep Days and CTC outreach events in 
select cities across the country in June and July to supplement our 
ongoing communications. During these events, IRS employees, key 
community stakeholders, and volunteers helped eligible families file a 
2020 tax return, if needed, to begin receiving their monthly Advance 
CTC payments. More events are planned for the future.

    Communications, outreach, and assistance will continue through the 
2022 filing season. To provide the latest information, we developed a 
special Advance CTC 2021 page on IRS.gov to provide the most up-to-date 
information about the credit and the advance payments. The site 
includes direct links to the CTC Update Portal as well as two other 
online tools (the Non-filer Sign-up Tool and the Child Tax Credit 
Eligibility Assistant), a set of frequently asked questions, and other 
useful resources.

    The IRS launched new online tools designed to help taxpayers 
determine eligibility and manage Advance CTC payments. The Non-filer 
Sign-up Tool helps families not normally required to file an income tax 
return to quickly register for the CTC. The new CTC Eligibility 
Assistant allows families to answer a series of questions to determine 
whether they qualify for the advance credit. The CTC Update Portal 
allows families to verify their eligibility for the payments and if 
they choose to, unenroll from receiving the monthly payments so they 
can receive a lump sum when they file their tax return next year. If 
needed, families have the option to update their bank account 
information and receive their monthly Advance CTC payment through 
direct deposit quickly and easily. Families also have the option to 
quickly and easily update their mailing address using the portal. This 
feature will help any family that chooses to receive their payment by 
paper check avoid mailing delays or even having a check returned as 
undeliverable. More functionality will be added later this year to the 
CTC Update Portal.

    Question. How many fully trained customer service reps are 
currently available who are focusing on this issue? How many additional 
CSRs will be ready and working as of July 15th? And what is the 
ultimate number expected to be working on this issue, and when will 
they all be fully trained and ready to go?

    Answer. The IRS has fully trained approximately 3,800 Customer 
Service Representatives (CSRs) to handle Advance CTC payment calls. We 
estimate the expected daily phone line need will be approximately 1,800 
CSRs. Having 3,800 fully trained CSRs, which is 2,000 beyond our 
expected need, will allow us to apply additional resources as 
necessary. While there are no plans to train additional CSRs at this 
time, the training is less than two hours, and we can quickly skill up 
additional CSRs at any given moment if required.

    Question. Does the IRS currently have all necessary and vetted 
strategic and operational plans in place to accommodate opening the 
funding floodgates to the degree proposed by President Biden's budget 
request? If not, what plans remain outstanding?

    Answer. Almost 75 percent of the IRS's funding request in the FY 
2022 President's budget and the IRS's portion of the American Families 
Plan is labor which, in addition to technology, is a key component to 
increasing tax enforcement and overall tax administration. We are 
developing and deploying focused strategies to ensure we are well-
positioned to recruit, hire, train, support and retain the highly 
skilled, agile workforce needed to achieve the IRS mission. We have 
started the following activities to prepare for increased staffing from 
either the FY 2022 President's budget or American Families Plan 
funding:

        In the 3rd quarter of FY 2021, all IRS business organizations 
used the OPM 5-Step Workforce Planning Model to develop a holistic view 
of FY 2022 (planned) hiring projections. We are analyzing the data to 
inform a comprehensive IRS FY22 Recruitment and Hiring Strategy.
        To prepare for anticipated hiring needs, we are deploying 
deliberate rebranding, marketing, and recruitment strategies through 
social media, student and graduate programs, and collaboration with 
unemployment offices, educational institutions, and Federal employment 
programs. We are also developing internal and external hiring 
strategies to navigate challenges in an extremely competitive hiring 
market.
        To support increased hiring efforts, we are implementing 
internal operating plans to increase hiring capabilities, optimize 
efficiencies, streamline onboarding, and obtain contractor support 
(where applicable).
        To support onboarding and employee development, we are 
implementing a comprehensive training strategy, as outlined in the 
Taxpayer First Act report to Congress. This strategy will instill the 
importance of taxpayer service in all employees, develop employee skill 
sets, improve morale, increase productivity, enhance knowledge transfer 
between employees, and foster innovation.
        We are also investing in several efforts to enhance the IRS 
employee experience through enhanced technology solutions, thoughtful 
human capital solutions, and workforce strategies informed by ``Future 
of Work'' efforts aimed at transforming the IRS workplace, optimizing 
operations, and modernizing employee, partner, and taxpayer experiences 
to position the IRS as an ``employer of choice.''

    In addition to increasing staff, we are also busy planning for 
where these people will sit and augmenting the information technology 
(IT) infrastructure to support the new hires across the IRS network.

    The FY22 President's budget seeks to reduce the tax gap, improve 
level of service, implement improvements as outlined in our Taxpayer 
First Act report to Congress, continue to modernize our IT technology 
as outlined in our IT Modernization Business Plan, and begin to replace 
our vehicle fleet with electric vehicles. With the American Families 
Plan Tax Compliance Agenda, the administration proposes an ambitious 
program to foster a tax system where Americans pay the taxes they owe. 
The proposal has four transformational elements:

        Provide the IRS the resources it needs to address 
sophisticated tax evasion.
        Provide the IRS with more complete financial information and 
resources to intake and analyze the data.
        Overhaul outdated technology to help the IRS identify tax 
evasion and serve customers.
        Regulate paid tax preparers and increase penalties for those 
who commit or abet evasion.

    Question. What specific steps would the IRS take to ensure that 
additional funding of this magnitude is used in a productive as opposed 
to a reactive manner--for example, to develop modernized systems and 
streamlined and efficient process as opposed to simply maintaining 
outdated infrastructure and further enshrine red tape?

    Answer. 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. The President's 
budget requests $144 million to build the technology components of 
three program increases included in the President's budget--Taxpayer 
Experience Strategy, Ensure Fairness of the Tax System, and Improve 
Live Assistance.

    In April 2019, we released the Integrated Modernization Business 
Plan (Modernization Plan). The 6-year plan outlines the major 
components necessary to transform IRS technology and enhance the 
taxpayer experience. We have implemented the Modernization Plan over 
the years delivering meaningful taxpayer and IRS business benefits 
across four modernization pillars--Taxpayer Experience, Core Taxpayer 
Services and Enforcement, Modernized IRS Operations, and Cybersecurity 
and Data Protection.

    While the current Modernization Plan has been successful in 
improving the taxpayer experience and launching transformative IT 
initiatives, it is constrained by both time and funding. The American 
Rescue Plan modernization funds will allow us to accelerate existing 
Modernization Plan initiatives, address most initiatives scheduled to 
begin in ``Phase 2,'' and introduce new initiatives based on emerging 
needs and technologies. However, given our significant modernization 
needs, ongoing funding is still necessary to keep pace with cyber 
threats, technology advances, compliance trends, and taxpayer service 
needs.

    The American Families Plan requests $7,171 million to modernize IRS 
systems and maintain the new systems. It includes funding to complete 
and go beyond the current IRS Modernization Plan, including funds for 
expanding Case Selection and Anomaly Detection to leverage information 
to improve identification of potential non-compliance, detect issues 
earlier, reduce the tax gap, generate revenue, and enable employees to 
work cases more efficiently.

    We are building a comprehensive modernization portfolio that we 
will continue to effectively manage independent of the funding source 
or origin. The proposed IRS budget will provide consistent funding for 
us to boost voluntary compliance and narrow the tax gap. This 
investment will support our efforts to increase the size of our 
workforce, increase audit, collection, and criminal investigation 
coverage, introduce new financial account information reporting, and 
address core technology challenges by upgrading IT systems and retiring 
legacy applications.

    We will continue to be transparent in reporting on our 
modernization progress and evolution in the quarterly Omnibus IT 
Investment Report and the Annual Key Insights Report (AKIR).

    Question. Particularly in light of the apparent, historical breach 
of sensitive taxpayer information that just came to light, I have 
several additional questions about the bank reporting proposal in the 
President's budget:

    First, how would the IRS utilize the information it received from 
this proposal?

    Answer. Information reporting received by the IRS is typically used 
in our compliance activities within our Examination and Collection 
functions.

    Question. Second, is this type of information already available in 
another place, for example, through the BSA/AML regime, and if so what 
is preventing the IRS from utilizing such information?

    Answer. The information related to the proposed reporting 
requirement is not currently available. The new proposed reporting 
requirement would impact financial institutions that are not governed 
by the Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) program. The 
IRS is delegated authority for enforcement and regulation of BSA 
compliance with respect to Non-Banking Financial Institutions (NBFI) 
and banks and credit unions that do not have a Federal Regulator per 31 
CFR section 1010.810 Enforcement.

    Question. Third, how long would it take before IRS is in a position 
to make sense of the information it would receive under this proposal, 
and what technological hurdles must one assume are overcome to reach 
this outcome?

    Answer. The time depends on how quickly the IRS can acquire the 
technology and specialists, such as data scientists, data analysts, and 
cybersecurity experts.

    Question. Fourth, how can the IRS assure Americans that the 
information it would receive under this proposal would be used for 
proper purposes and what specifically would be done to safeguard it 
from improper use, disclosure or theft?

    Answer. Protecting taxpayer information is a fundamental IRS 
principle. Every employee takes annual training on unauthorized 
disclosure of taxpayer information. This training clearly defines when 
a disclosure is authorized and clarifies the consequences of an 
unauthorized disclosure under section 6103 of the Internal Revenue 
Code. Those consequences include potential termination of employment, 
fines, and imprisonment.

    The IRS has strong protections in place to safeguard taxpayer 
information. TIGTA regularly audits employee access to taxpayer 
information. The IRS provides an annual report to the Joint Committee 
on Taxation that describes all disclosures of taxpayer information 
during the year and the statutory authorization for each disclosure. 
The Government Accountability Office also provides oversight on the 
protection of taxpayer information.

    Question. As you have testified more than once, our tax system is 
founded upon the principle of voluntary compliance, and without 
voluntary compliance it simply could not work. This view is shared by 
wide swathes of stakeholders, including my colleagues, the broader 
community of tax professionals, and all taxpayers more generally.

    Voluntary compliance requires, among many things, trust. Taxpayers 
must trust that the IRS will do ``the right thing'' and also that the 
sometimes extremely personal and sensitive information they provide 
taxing authorities is safe from abuse of any kind (e.g., targeting, 
leak, etc.).

    In your view, how much harm does the apparent release of upwards of 
15 years of sensitive taxpayer information of all kinds do to the trust 
that Americans have in the IRS?

    Answer. Historically, the IRS has been extremely effective in 
protecting the taxpayer data we collect because of the various levels 
of security, oversight and training discussed in response to the 
question above. It is among our highest duties, and one we take 
personally and seriously. We strive every day to live up to the level 
of trust that the public has bestowed upon us. The IRS has and will 
continue to fully cooperate with each and every congressional and 
Federal investigation into the ProPublica article. We will immediately 
take action to respond to any risks identified through an 
investigation.

    Question. The administration is proposing significant tax increases 
on U.S.-based multinationals by doubling the GILTI minimum tax rate and 
other changes that would apply the rules more harshly to U.S. 
companies. One such change is applying GILTI on a ``jurisdiction-by-
jurisdiction basis.'' Based on the limited information provided in the 
Greenbook, this change would require taxpayers to calculate their 
effective tax rate and available foreign tax credits separately for 
each country, imposing significant new compliance burdens on taxpayers 
and the IRS. For some companies this could mean hundreds of separate 
calculations, where currently, GILTI allows an aggregate approach to 
avoid this kind of complexity. What additional costs and resources 
would be required to administer the proposed GILTI regime, including 
personnel and programming costs, developing necessary forms and 
instructions, and hiring and training personnel to handle the review 
and audit of companies' effective tax rate calculations by 
jurisdiction?

    Answer. In general, the implementation of legislative enactments, 
including changes such as the proposed changes to Global Intangible 
Low-Taxed Income (GILTI), require IRS resources--including personnel, 
technology, and systems--to effectuate and enforce the change to the 
tax code. We have a framework for adapting to changes in tax law. This 
framework includes developing formal and informal guidance; updating 
tax forms, instructions, and educational materials; training our 
employees; ensuring stakeholder outreach; and developing a compliance 
strategy. Also, our implementation efforts proceed in a manner that is 
informed by our taxpayers' experience, responsive to stakeholder 
feedback, and maintains the appropriate balance between compliance 
burden and risk.

    Depending on the extent of legislative changes overall, these 
efforts would require additional IRS resources or reallocation of 
existing resources in terms of people, systems, and technology. 
Specifically with respect to the proposal to apply GILTI on a 
jurisdictional basis, we do not yet have complete information to 
develop detailed direct or indirect cost estimates related to the 
change; however, we will closely monitor and continue to assess the 
proposals as they are considered by Congress. While potentially less 
costly than the initial adoption of GILTI, the proposed modification 
could require revisions to the foreign tax credits rules and expense 
allocation and apportionment. Consequently, we would need to apply the 
framework described above for addressing tax law changes. From the 
taxpayer's perspective, we would likely anticipate additional guidance 
and changes to several forms, including Forms 5471, 8992, 1116, 1118, 
and 8975.

    Question. The administration has also proposed an entirely new 
regime, called the Stopping Harmful Inversions and Ending Low-Tax 
Developments or ``SHIELD.'' The proposal seems to acknowledge that U.S. 
companies would once again be driven to invert or could become 
attractive targets for foreign acquisition. Similar to the GILTI 
proposal, the SHIELD proposal would require U.S. companies that make 
payments to any foreign-related parties to calculate the effective tax 
rates of all members included in its financial reporting group. Based 
on the limited information provided in the Greenbook, this provision 
would require taxpayers to calculate the effective tax rate separately 
for each member, imposing significant new compliance burdens on both 
taxpayers and the IRS. What additional costs and resources would be 
required to administer the proposed SHIELD regime, including personnel 
and programming costs, developing necessary forms and instructions, and 
hiring and training personnel to handle the review and audit of 
companies' effective tax rate calculations by jurisdiction?

    Answer. Like any change to the Internal Revenue Code, Stopping 
Harmful Inversions and Ending Low-Tax Developments (SHIELD) would 
require additional IRS resources to implement and administer the new 
code provision.

    At this point, we do not have complete information on the proposal 
to develop detailed cost estimates related to the potential adoption of 
SHIELD; however, we will closely monitor and continue to assess the 
proposals as they are considered by Congress.

    As with any new legislation, such as the 2017 tax legislation, 
SHIELD would require development of new forms, instructions, and formal 
guidance, thus requiring additional personnel, systems, and IT 
resources. Moreover, because of the potential need to develop 
personnel, systems, and IT resources relating to, for example, foreign 
financial accounting standards, we anticipate the need for additional 
new resources. Consequently, the IRS would need to apply the framework 
described above for addressing tax law changes. Because the Greenbook 
proposes to replace the Base Erosion and Anti-Abuse Tax (BEAT) with 
SHIELD and eliminate Foreign Derived Intangible Income (FDII), the IRS 
could reallocate resources from those regimes to SHIELD. Additionally, 
from a taxpayer perspective, repeal of BEAT and FDII could, to some 
extent, reduce the taxpayer compliance burden, at least for those 
taxpayers that are subject to BEAT but would not be subject to SHIELD.

    Question. The Taxpayer First Act included a provision (section 
2201) to modernize the disclosure of taxpayer information for third-
party income verification. Third-party income verification, as you 
know, is a critical step in ensuring that a consumer is qualified for a 
mortgage. The modification of this process, which is being funded 
completely by transaction fees charged to users of the system (mostly 
residential lenders), requires the solution to be fully automated and 
accomplished in as close to real time as practicable. My understanding 
is that the typical way of providing real time access to information is 
via application programming interfaces, or APIs. It has come to my 
attention that the solution that the IRS has developed requires a 
convoluted, multistep process that will not provide the real time 
access intended by Congress when the law was passed. Could you explain 
how the designed process fulfills the intent of Congress for a real 
time automated process?

    Answer. In accordance with National Institute of Standards and 
Technology guidance, the IRS is required to verify the identity of the 
taxpayer to prevent the unauthorized release of Federal Tax 
Information. For the Income Verification Express Service (IVES) Target 
State, this verification is done through the creation of an IRS Online 
Account that will allow the taxpayer to electronically sign the Form 
4506 request submitted by the IVES Participant. Once the taxpayer signs 
the Form 4506 electronically, the IVES fully automated process will 
begin. It is expected that the automated process will reduce the 
delivery time of the transcript to the IVES Participant from the 
current time frame of within 3 business days to close to real time.

    Question. Please provide names, affiliations, and terms of service 
of anyone external to the IRS who was made an IRS employee through the 
Intragovernmental Personnel act of 1970 (5 U.S.C. 3371-3376) and who 
worked through the Joint Statistical Research Program of the Statistics 
of Income Division of the IRS on projects in any period within the past 
15 years involving confidential taxpayer information, including work 
performed at IRS facilities and/or on IRS computers.

    Answer. See below. Note, the Joint Statistical Research Program did 
not begin until 2012.


------------------------------------------------------------------------
             First                                             Inactive/
Last Name     Name       Affiliation        Status     Active   Expired
------------------------------------------------------------------------
Abraham    Katharine  University of      IPA                   YES
                       Maryland
------------------------------------------------------------------------
Agarwal    Ashish     University of      IPA/Student           YES
                       Texas at Austin     Volunteer
------------------------------------------------------------------------
Alm        James      Tulane University  IPA          YES
------------------------------------------------------------------------
Altshuler  Rosanne    Rutgers            IPA          YES
                       University
------------------------------------------------------------------------
Armstrong  Daphne     University of      Student      YES
                       North Carolina     Volunteer
------------------------------------------------------------------------
Balsam     Steven     Temple University  IPA                   YES
------------------------------------------------------------------------
Bass       Steven     Investment         IPA          YES
                       Company
                       Institute
------------------------------------------------------------------------
Battles    Joseph     University of      Student      YES
                       Chicago            Volunteer
------------------------------------------------------------------------
Belnap     Andrew     University of      IPA/Student  YES
                       North Carolina      Volunteer
------------------------------------------------------------------------
Boller     Lysle      Duke University    Student      YES
                                          Volunteer
------------------------------------------------------------------------
Bourne     Jennifer   Carleton College   IPA          YES
------------------------------------------------------------------------
Brady      Peter      Investment         IPA          YES
                       Company
                       Institute
------------------------------------------------------------------------
Burd       Samuel     University of      IPA          YES
            ``Drew''   Chicago
------------------------------------------------------------------------
Campbell   Richard    University of      Student      YES
                       Illinois at        Volunteer
                       Chicago
------------------------------------------------------------------------
Chen       Shannon    University of      IPA          YES
                       Arizona
------------------------------------------------------------------------
Conway     Karen      University of New  IPA          YES
                       Hampshire
------------------------------------------------------------------------
Dadey      Reigne     University of      Student      YES
                       Chicago            Volunteer
------------------------------------------------------------------------
Denes      Matthew    Carnegie Mellon    IPA          YES
                       University
------------------------------------------------------------------------
Dunbar     Amy        University of      IPA          YES
                       Connecticut
------------------------------------------------------------------------
Duxbury    Andrew     James Madison      IPA          YES
                       University
------------------------------------------------------------------------
Dvis-      Asher      University of      Student      YES
 Djerassi              Michigan           Volunteer
------------------------------------------------------------------------
Favreault  Melissa    Urban/Brookings    IPA          YES
                       Tax Policy
                       PCenter
------------------------------------------------------------------------
Feenberg   Daniel     National Bureau    IPA                   YES
                       of Economic
                       Research
------------------------------------------------------------------------
Galle      Brian      Georgetown         IPA          YES
                       University
------------------------------------------------------------------------
Garin      Andrew     University of      IPA          YES
                       Illinois at
                       Urbana-Champaign
------------------------------------------------------------------------
Gelman     Michael    Claremont McKenna  IPA          YES
                       College
------------------------------------------------------------------------
Ghilarduc  Teresa     New School for     IPA          YES
 ci                    Social Research
------------------------------------------------------------------------
Grozovsky  Max        Dartmouth College  IPA          YES
------------------------------------------------------------------------
Gurley-    Tami       University of      IPA                   YES
 Calvez                West Virginia
------------------------------------------------------------------------
Haidorfer  Anton      Center for         IPA          YES
                       Housing Risk
                       PResearch
------------------------------------------------------------------------
Harris     Erica      Villanova          IPA                   YES
                       University
------------------------------------------------------------------------
Harris     Timothy    Illinois State     IPA          YES
                       Univ
------------------------------------------------------------------------
Hartley    Caitlin    Carnegie Mellon    IPA          YES
                       University
------------------------------------------------------------------------
Heckman    James      University of      IPA                   YES
                       Chicago
------------------------------------------------------------------------
Henry      Erin       University of      IPA          YES
                       Arkansas
------------------------------------------------------------------------
Hoopes     Jeff       University of      IPA                   YES
                       North Carolina
------------------------------------------------------------------------
Horton     Emily      University of      Student      YES
                       Michigan           Volunteer
------------------------------------------------------------------------
Houck      Oskar      University of      IPA          YES
                       Chicago
------------------------------------------------------------------------
Hoxby      Caroline   Stanford           IPA          YES
                       University
------------------------------------------------------------------------
Isaac      Elliott    Tulane University  IPA          YES
------------------------------------------------------------------------
Iselin     John       University of      IPA/Student  YES
                       Maryland           PVolunteer
------------------------------------------------------------------------
Jackson    Emilie     Stanford/National  IPA          YES
                       Bureau of
                       Economic
                       Research
------------------------------------------------------------------------
Kaas       Tobey      University of      Student      YES
                       Minnesota          Volunteer
------------------------------------------------------------------------
Kancherla  Sreeraahu  University of      Student      YES
            l          California,        Volunteer
                       Berkeley
------------------------------------------------------------------------
Koustas    Dmitri     University of      IPA          YES
                       Chicago
------------------------------------------------------------------------
Manoli     Dayanand   Georgetown         IPA          YES
                       University
------------------------------------------------------------------------
Marx       Benjamin   University of      IPA          YES
                       Illinois--Urbana
------------------------------------------------------------------------
May        Thomas     University of      Student      YES
                       Minnesota          Volunteer
------------------------------------------------------------------------
McClellan  Robert     Urban/Brookings    IPA                   YES
 d                     Tax Policy
                       PCenter
------------------------------------------------------------------------
McGrattan  Ellen      University of      IPA          YES
                       Minnesota
------------------------------------------------------------------------
McPherson  Carl       University of      Student      YES
                       California,        Volunteer
                       Berkeley
------------------------------------------------------------------------
Meiselman  Ben        University of MD   IPA                   YES
                       Baltimore County
------------------------------------------------------------------------
Menzer     Tyler      University of      Student      YES
                       Iowa               Volunteer
------------------------------------------------------------------------
Moffitt    Robert     Johns Hopkins      IPA          YES
                       University
------------------------------------------------------------------------
Mullaney   Michele    University of      IPA          YES
                       North Carolina
------------------------------------------------------------------------
Nessa      Michelle   Michigan State     IPA          YES
                       University
------------------------------------------------------------------------
Neupane    Krishna    George Mason       Student               YES
                       University         Volunteer
------------------------------------------------------------------------
Novgorods  David      University of      Student               YES
 ky                    Chicago            Volunteer
------------------------------------------------------------------------
Nunns      James      Urban/Brookings    IPA                   YES
                       Tax Policy
                       Center
------------------------------------------------------------------------
Organ      Paul       University of      Student      YES
                       Michigan           Volunteer
------------------------------------------------------------------------
Patel      Elena      University of      IPA          YES
                       Utah
------------------------------------------------------------------------
Plesko     George     University of      IPA          YES
                       Connecticut
------------------------------------------------------------------------
Prisinzan  Richard    Penn-Wharton       IPA          YES
 o                     Budget Model
------------------------------------------------------------------------
Quinby     Laura      Boston College     IPA          YES
------------------------------------------------------------------------
Rao        Nirupama   University of      IPA          YES
                       Michigan
------------------------------------------------------------------------
Reck       Daniel     London School of   IPA          YES
                       Economics
------------------------------------------------------------------------
Richmond   Jordan     Princeton          Student      YES
                       University         Volunteer
------------------------------------------------------------------------
Risch      Max        Carnegie Mellon    IPA          YES
                       University
------------------------------------------------------------------------
Robbins    Jacob      University of      IPA          YES
                       Illinois at
                       Chicago
------------------------------------------------------------------------
Rork       Jonathan   Reed College       IPA          YES
------------------------------------------------------------------------
Rosenberg  Joseph     Congressional      IPA                   YES
                       Budget Office
------------------------------------------------------------------------
Sacerdote  Bruce      Dartmouth College  IPA          YES
------------------------------------------------------------------------
Sacher     Maxwell    Carnegie Mellon    IPA          YES
                       University
------------------------------------------------------------------------
Sanzenbac  Geoffrey   Boston College     IPA          YES
 her
------------------------------------------------------------------------
Setzler    Bradley    University of      IPA                   YES
                       Chicago
------------------------------------------------------------------------
Shaheen    Joseph     George Mason       Student               YES
                       University         Volunteer
------------------------------------------------------------------------
Siliciano  Robert     Boston College     IPA          YES
------------------------------------------------------------------------
Slemrod    Joel       University of      IPA                   YES
                       Michigan
------------------------------------------------------------------------
Smith      Karen      Urban/Brookings    IPA          YES
                       Tax Policy
                       Center
------------------------------------------------------------------------
Soltes     Eugene     Harvard            IPA          YES
                       University
------------------------------------------------------------------------
Song       Zhiyan     University of      IPA          YES
            (Jane)     Georgia
------------------------------------------------------------------------
Stallwort  Phillip    Urban/Brookings    IPA                   YES
 h                     Tax Policy
                       Center
------------------------------------------------------------------------
Standridg  Kevin      Duke University    Student      YES
 e                                        Volunteer
------------------------------------------------------------------------
Strauss    Robert     Carnegie Mellon    IPA          YES
                       University
------------------------------------------------------------------------
Stuart     Ellen      University of      Student      YES
                       Michigan           Volunteer
------------------------------------------------------------------------
Stuart     Bryan      George Washington  IPA/Student           YES
                       University          Volunteer
------------------------------------------------------------------------
Suarez     Juan       Duke University    IPA          YES
 Serrato    Carlos
------------------------------------------------------------------------
Towery     Erin       University of      IPA          YES
                       Georgia
------------------------------------------------------------------------
Tsoutsour  Margarita  Cornell            IPA          YES
 a                     University
------------------------------------------------------------------------
Utke       Steven     University of      IPA          YES
                       Connecticut
------------------------------------------------------------------------
Vernon     Mary       University of      Student      YES
                       Wisconsin          Volunteer
------------------------------------------------------------------------
Waldock    Katherine  Georgetown         IPA                   YES
                       University
------------------------------------------------------------------------
Webb       Anthony    New School for     IPA          YES
                       Social Research
------------------------------------------------------------------------
Wettstein  Gal        Boston College     IPA          YES
------------------------------------------------------------------------
Wilde      Jaron      University of      IPA/Student           YES
                       Iowa                Volunteer
------------------------------------------------------------------------
Wilking    Eleanor    Cornell            IPA          YES
                       University
------------------------------------------------------------------------
Williams   Braden     University of      IPA          YES
                       Texas at Austin
------------------------------------------------------------------------
Yagan      Danny      University of      IPA          YES
                       California,
                       Berkeley
------------------------------------------------------------------------
Zahn       Matt       Johns Hopkins      Student      YES
                       University         Volunteer
------------------------------------------------------------------------
Zidar      Owen       Princeton          IPA          YES
                       University
------------------------------------------------------------------------
Zinsser    Dawn       University of      IPA                   YES
                       Michigan
------------------------------------------------------------------------
Zwick      Eric       University of      IPA          YES
                       Chicago
------------------------------------------------------------------------


    Question. Please provide a clear and complete description of all 
protocols and protections to guard private and confidential taxpayer 
data from being shared externally by researchers, from within IRS and 
those hired from outside the IRS but who had or have been made IRS 
employees through the Intragovernmental Personnel Act of 1970 (5 U.S.C. 
3371-3376).

    Answer. The IRS utilizes a wide variety of security controls and 
data loss prevention tools to prevent sensitive data from being shared 
inappropriately. In addition, the Office of Management and Budget (OMB) 
Circular A-130, Managing Information as a Strategic Resource, and IRS 
policy require IRS personnel (including contractors, interns, 
volunteers, Intragovernmental Personnel Act (IPA) employees, etc.) to 
complete training and a background check before gaining access to 
sensitive data. IRS personnel must complete all required training (IRS 
annual and role-based privacy, information protection, and disclosure 
training requirements, Unauthorized Access (UNAX) awareness briefings, 
records management briefings, and all other specialized privacy 
training) and a background investigation before access to Sensitive But 
Unclassified (SBU) data (including personally identifiable information 
(PII) and Federal Tax Information) may be granted.

    As a baseline, all IPA employees are required to meet the same 
standards applicable to IRS employees and contractors, including 
standard background checks and the annual completion of all data 
security training, including UNAX training. UNAX training explicitly 
notes the penalties for violations of any UNAX requirements. IPA 
employees can only access data using IRS issued laptops, which connect 
to IRS systems through the IRS VPN and are subject to standard IRS 
cybersecurity protections and protocols. All access to various IRS data 
systems requires management approval through a centralized access 
control system. Access to PII data is controlled through a separate 
access request and granted on a limited basis. PII access requests 
require elevated managerial approval only after demonstrating that such 
access is integral to the project. All database accesses are captured 
in system audit logs following Federal Information Security 
Modernization Act standards. Historically, Joint Statistical Research 
Program (JSRP) participants have been required to perform all work in 
IRS facilities. As a temporary response to the pandemic evacuation 
order, a limited number of exceptions allowing remote access were made 
for JSRP project teams whose work was deemed time critical. In these 
cases, protocols identical to those that apply to IRS employees were 
followed.

    In addition, JSRP project proposals are reviewed by IRS Research, 
Applied Analytics and Statistics (RAAS) staff and leadership, the 
Treasury Office of Tax Analysis, and relevant IRS business functions 
prior to acceptance. On approval of a JSRP project, the project is 
assigned to a senior employee in RAAS who is responsible for project 
oversight. This role includes reviewing project progress to ensure that 
the work conforms to the approved proposal, reviewing all output to 
ensure IRS statistical disclosure standards are met, and coordinating 
subject matter review of any research discussion of IRS processes, as 
needed, with relevant business functions.

                                 ______
                                 
                Questions Submitted by Hon. Steve Daines
    Question. There are several hundred abusive syndication deals 
either being audited or in litigation, involving billions in improper 
deductions costing the Treasury more than $20 billion in revenue. Can 
you detail the progress IRS has made? We are now in the 5th year of a 
coordinated effort in combating this problem. So, of the billions in 
lost revenue, how much has the IRS been able to recoup through 
enforcement or settlement?

    Answer. Efforts necessary to raise compliance levels are resource 
intensive. We remain committed to ensuring that the tax system is 
enforced fairly, taxpayers receive the nature and quality of services 
they deserve, and that no one at any income level feels safe cheating 
on their taxes.

    We are committed to putting an end to abusive Syndicated 
Conservation Easement (SCE) transactions. We continue to commit 
significant examination and investigative resources to vigorously audit 
and investigate the entities and individuals involved in this scheme, 
including those who promoted the transaction and those who failed to 
properly disclose their participation as required. We have made 
progress with at least 18 percent of the tax year 2016-2018 identified 
SCE transaction cases in appeal and/or litigation. The remaining 
population is in Examination, and all potential enforcement tools are 
being utilized, including applicable appropriate penalties, fraud 
considerations and criminal investigations. The IRS is also vigorously 
pursuing promoters of the SCE transaction.

    The full life cycle of an examination is lengthy. As the 
examination closes, taxpayers can agree to the examination adjustments 
or dispute the adjustments and go to Appeals, the United States Tax 
Court, or appropriate United States District Court. Revenue is not 
recouped until either (1) the taxpayer agrees to the adjustments, (2) 
the taxpayer choses to enter into, and finalizes, a Chief Counsel 
settlement, or (3) all litigation and appeals are completed.

    To date, either through settlement, concession, or the opinion of 
or decision entered by the Tax Court in unsettled litigation cases, 
approximately $343 million in adjustments to claimed section 170 
deductions in SCE cases have been agreed to by the taxpayer or 
determined by the Tax Court. This amount does not include penalties on 
the tax resulting from these adjustments. Chief Counsel expects an 
increase to this amount once additional settlements are finalized and 
as litigation proceeds.

    The Office of Chief Counsel is responsible for the majority of SCE 
litigation and has successfully pursued these abusive transactions in 
the United States Tax Court. Chief Counsel expects its inventory of 
abusive SCE cases to continue to rise as Examination pursues all 
available compliance options.

    To date, the promoters and investors in these SCE shelters have 
chosen to litigate their cases. The IRS has prevailed in Federal 
appellate court on issues related to grossly inflated easement values 
and the conservation easement's failure to comply with the requirements 
for qualified conservation contributions under section 170. The IRS has 
also succeeded in thwarting attacks on the validity of the regulations 
under section 170. There are taxpayer appeals on this issue currently 
pending in the Federal appellate courts. The IRS has also successfully 
challenged SCE transactions for violations of section 170. In calendar 
year 2020, we received 13 opinions from the Tax Court and numerous 
orders holding in the government's favor. Many of these opinions and 
orders were issued to address motions for partial summary judgment and 
do not resolve the cases in their entirety since the valuation of the 
easement, for purposes of the 40-percent gross valuation misstatement 
penalty, must be litigated.

    The Office of Chief Counsel offered to settle certain SCE cases 
docketed in the United States Tax Court with the taxpayer fully 
conceding the section 170 deduction, the IRS allowing certain out-of-
pocket expenses, and the application of a reduced accuracy-related 
penalty. For more information about the settlement, see Chief Counsel 
Notice 2021-001, Settlement of Syndicated Conservation Easement 
Transactions in Cases Docketed Before the U.S. Tax Court Additional 
Information.

    While Chief Counsel is working through the settlements, many 
taxpayers are undeterred and are opting for litigation, clogging up the 
Tax Court with litigation. In 2020, there were a total of 107 petitions 
filed involving SCE transactions. So far in 2021, there have been 54 
such petitions filed. The Office of Chief Counsel anticipates that 2021 
petitions will outnumber those from 2020.

    In addition to the volume of docketed cases, these cases are 
expensive and time consuming to litigate, often involving voluminous 
discovery and expert reports. At a minimum, these cases require 
valuation expert testimony to support the 40-
percent gross valuation misstatement penalty, and could require other 
experts, such as mining experts. The time between the completion of the 
audit and a decision from the Tax Court in a litigated case can be 
lengthy. For example, it is not uncommon for cases in litigation to 
take multiple years to resolve, not including any potential appeal from 
a Tax Court decision. Cases docketed in Tax Court involve tax years 
2009 through 2017.

    IRS Criminal Investigation (IRS-CI) is not involved in the civil 
collection process, but IRS-CI is integral to calculating court ordered 
restitution at sentencing. To date there have been no SCE defendants 
sentenced. As a result, restitution has not been ordered.

    Question. Could you provide an overview of the number of IRS exams, 
appeals, and litigation of syndicated conservation easement 
transactions?

    Answer. Efforts necessary to raise compliance levels are resource-
intensive. We remain committed to ensuring that the tax system is 
enforced fairly, taxpayers receive the nature and quality of services 
they deserve, and that no one at any income level feels safe cheating 
on their taxes. The IRS has conducted or is in the process of 
conducting examinations for the following tax years:

      Tax Year 2016: 249 pass-through entities claiming total 
charitable contributions in the amount of $5.9 billion.
      Tax Year 2017: 245 pass-through entities claiming total 
charitable contributions in the amount of $6.8 billion.
      Tax Year 2018: 297 pass-through entities claiming total 
charitable contributions in the amount of $9.2 billion.
      Tax Year 2019: The IRS has identified 179 pass-through entities 
claiming total charitable contributions in the amount of $5.7 billion. 
For tax year 2019, the IRS is in the process of beginning the 
examinations and completing the identification of any remaining 2019 
entities that may have claimed charitable contribution deductions. 
These numbers are expected to increase as additional analysis is 
completed.

    As of June 1, 2021, we have asserted penalties under Internal 
Revenue Code (IRC) section 6695A for substantial and gross valuation 
misstatements attributable to incorrect appraisals in the amount of 
$3,639,500. We have also asserted penalties under IRC section 6707A for 
failure to include reportable transaction information with return in 
the amount of $210,000.

    The Office of Chief Counsel has 213 cases docketed in the United 
States Tax Court, with several on appeal. There are three refund suits 
pending in United States district courts. Referrals to the Office of 
Professional Responsibility are made, when applicable.

    In coordination with the IRS civil business operating divisions, 
IRS-CI is pursuing criminal violations related to abusive SCEs. As of 
June 30, 2021, three individuals were charged via Information/Criminal 
Complaint or Indictment and there are 24 active investigations. Links 
to the cases involving the charged individuals can be found in the 
links below:

    https://www.justice.gov/usao-wdnc/pr/atlanta-tax-professionals-
plead-guilty-promoting-syndicated-conservation-easement-tax.

    https://www.justice.gov/opa/pr/georgia-cpa-indicted-promoting-
syndicated-conservation-easement-tax-scheme-involving.

                                 ______
                                 
               Questions Submitted by Hon. Chuck Grassley
    Question. The President's budget calls for unprecedented amounts of 
funding for IRS enforcement to tackle the tax gap. Nina Olson, the 
former Taxpayer Advocate, recently expressed some misgivings about the 
recent increased focus on the tax gap. In testimony before this 
committee, Ms. Olson noted that the tax gap wasn't necessarily equal to 
tax evasion and that the distinction was important because, ``if you 
treat every single taxpayer the same way, you really risk converting 
compliant taxpayers into non-compliant taxpayers because they feel like 
they have been treated badly, poorly.'' Are you concerned that a new 
focus on enforcement could alienate honest taxpayers who want to pay 
what they owe? Would you also agree enforcement mustn't come at the 
expense of customer service and a respect for taxpayer rights?

    Answer. 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 underreporting, 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.

    We strive to serve those taxpayers who are trying to comply with 
the tax laws but need assistance with their return or a tax issue. We 
must earn the trust and respect of every American by providing 
meaningful support and assistance on behalf of compliant taxpayers 
while effectively pursuing non-compliant taxpayers. We remain committed 
to ensuring that the tax system is enforced fairly, all taxpayers 
receive the nature and quality of services they deserve, and that no 
one at any income level feels safe cheating on their taxes. Due to 
funding and the need to protect our employees during the pandemic, we 
have recently been unable to satisfy our goal. The FY 2022 budget 
contains $318 million to increase the level of service on our phones as 
well as in-person visits. 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.

    We are proud to serve our country and want to provide meaningful 
services of a nature and quality every American deserves. Receipt of 
consistent, timely, multiyear funding is critical to the future success 
of tax administration. In support of compliant taxpayers, we must also 
pursue meaningful enforcement efforts, appropriately balanced with our 
support of taxpayer service, taxpayer rights and privacy rights. 
Working with Congress and the administration, we will increase the 
services that we provide while protecting taxpayer rights.

    Question. TIGTA has identified the premium tax credit as a high-
risk program. In fiscal year 2019, the IRS estimated the premium credit 
to have an improper payment rate of 27.4 percent, the highest rate of 
any credit. Yet, for fiscal year 2020 the IRS did not calculate an 
improper payment rate for the program. The decision not to report an 
improper payment rate on the premium credit is highly suspect. The 
premium credit was greatly expanded in the administration's COVID 
relief bill and the President's budget would extend its expansion. Can 
you commit to me that going forward the IRS will report the improper 
payment rate for the premium credit so Congress can fully evaluate the 
effect of its expansion on improper payments?

    Answer. The IRS's Tax Gap Estimate Program and Enterprise Risk 
Management program better equip the IRS to analyze and address 
noncompliance throughout the Federal tax system. This includes 
monitoring refundable credits claimed on tax returns, including the Net 
Premium Tax Credit.

    The IRS determines the error rate for IRS programs that are 
susceptible to improper payments and reports these to the Department of 
the Treasury (Treasury). Treasury reports improper payment rates via 
its annual Agency Financial Report (AFR). In 2019, the IRS conducted a 
risk assessment over the Net Premium Tax Credit program and determined 
the program was susceptible to improper payments. Per the Payment 
Integrity Information Act of 2019 and OMB Circular A-123, Appendix C, 
Treasury was not required to report an estimated improper payment error 
rate via its AFR until the year after conducting the risk assessment or 
beginning with fiscal year 2020. This was noted in the TIGTA audit 
report 2020-40-025. However, in 2019, the IRS estimated a Net Premium 
Tax Credit improper payment rate as a corrective action from a 
Government Accountability Office (GAO) report.

    Furthermore, as determined by both GAO and TIGTA, refundable tax 
credit errors are not IRS internal control weaknesses, financial 
management deficiencies, or reporting failures. As a result, refundable 
tax credit errors are not improper payments that we can improve with 
better controls, management, or reporting.


    In FY 2020, OMB issued a memorandum on June 17, 2020, Risk Based 
Financial Audits and Reporting Activities in Response to COVID-19, 
instructing agencies to leverage Enterprise Risk Management to 
prioritize work. With the enormous responsibility both the IRS and 
Treasury had in ensuring COVID-19 relief got distributed, Treasury 
notified OMB that it was delaying reporting the Net Premium Tax Credit 
improper payment estimate to focus resources toward COVID-19 
activities.

    With ongoing implementation of COVID-19 relief activities, Treasury 
notified OMB of a delay to FY 2021 reporting as well. However, the IRS 
continues to work with the Centers for Medicare and Medicaid Services 
(CMS) on a joint methodology for estimating premium tax credit improper 
payments. While the IRS administers the Net Premium Tax Credit through 
the tax system, CMS administers the advance payments of the tax credit. 
Compatible methodologies for Advance Premium Tax Credit and Net Premium 
Tax Credit will ensure a complete and comprehensive picture of payment 
errors.

    Question. The premium tax credit is fairly unique as until recently 
it was the only existing advanceable credit. In this respect it's the 
credit most analogous to the recently enacted Advance Child Tax Credit 
program. Given IRS's experience with improper payments in the premium 
credit program, would you expect the new advance feature of the Child 
Tax Credit to result in an increase in its already high improper 
payment rate?

    Answer. Per the American Rescue Plan, we determined eligibility 
using information from the taxpayer's 2020 tax return (or 2019 tax 
return if a return was not filed for 2020). This includes information 
entered on the Non-filer tool. We implemented a robust communication 
strategy to inform taxpayers about the Advance Child Tax Credit (CTC) 
payments and how they can unenroll from advance payments or report 
changes that impact their advance payment amount.

    Taxpayers must reconcile their Child Tax Credit when they file 
their 2021 tax return. They will need to compare: (1) the total amount 
of the Advance CTC payments received during 2021; with (2) the amount 
of the CTC that they can properly claim on their 2021 tax return.

    Excess CTC Amount: If the amount of CTC exceeds the total amount of 
Advance CTC payments, taxpayers can claim the remaining amount of CTC 
on their 2021 tax return.

    Excess Advance CTC Payment Amount: If they receive a total amount 
of Advance CTC payments that exceeds the amount of CTC that they can 
properly claim on your 2021 tax year, they may need to repay to the IRS 
some or all of that excess payment depending on whether they qualify 
for repayment protection.

    In January 2022, the IRS will send Letter 6419 to provide the total 
amount of Advance CTC payments that were disbursed to the taxpayer 
during 2021. Taxpayers can refer to this letter when they file their 
2021 tax return during the 2022 tax filing season.

    Although we can't guarantee the improper payment rate will not 
increase under the new system, there is no reason to believe that the 
advancement feature alone will increase improper payments. Also, we are 
taking every step possible to address overclaims, including education 
and outreach to taxpayers and tax preparers. Through our efforts, we 
explain RTC availability and eligibility requirements. When there is 
non-compliance, the IRS uses enforcement tools, including audits, to 
recover RTCs paid in error or prevent their issuance in the first 
place.

    The payment integrity provisions of the Protecting Americans from 
Tax Hikes Act of 2015 and provisions in the Tax Cuts and Jobs Act of 
2017 have helped the IRS combat RTC noncompliance. However, we need 
more assistance from Congress to significantly reduce RTC overclaims. 
The administration's past or current budget includes the following 
legislative proposals:

        Provide the IRS with greater flexibility to address 
correctable errors. This proposal would expand the instances in which 
the IRS could correct a taxpayer's return, including cases where: (1) 
the information provided by the taxpayer does not match the information 
contained in government databases or Form W-2, or from other third-
party databases as the Secretary of the Treasury determines by 
regulation; (2) the taxpayer has exceeded the lifetime limit for 
claiming a deduction or credit; or (3) the taxpayer has failed to 
include with their return certain documentation that is required to be 
included on or attached to the return. This proposal would make it 
easier for the IRS to correct obvious taxpayer errors, directly 
improving tax compliance and reducing Earned Income Tax Credit and 
other RTC overclaims without intrusive and resource-intensive audits.

        Provide the IRS increased oversight of paid tax return 
preparers. This proposal would grant the IRS the authority to require 
minimum standards for an estimated 400,000 paid tax return preparers 
currently without credentials, which would reduce the number of 
unscrupulous preparers filing erroneous and fraudulent tax returns. In 
administering RTCs, we have two primary goals--increasing anticipation 
for those entitled to the credits and reducing errors that lead to 
improper payments. We take our role in administering RTCs seriously. 
We're constantly considering new ways to ensure eligible taxpayers 
claim the credits and ineligible taxpayers do not. Our strategy is to 
block overclaims early in the filing process. The IRS addresses 
overclaims through its compliance programs, as well as through 
expansive outreach and education efforts to taxpayers and preparers. 
Additional information about our corrective actions and barriers are 
discussed in the Fiscal Year 2020 Agency Financial Report.

                                 ______
                                 
               Questions Submitted by Hon. James Lankford
                             funding levels
    Question. Can you please provide additional information regarding 
the more than $1-billion funding increase that the IRS is seeking for 
FY 2022?

    What exactly will these funds be used for?

    Answer. The FY 2022 budget requests $915.5 million in program 
increases including: $176.1 million for continuing the implementation 
of the Taxpayer First Act; $340.3 million for establishing enforcement 
strategies that will ensure a fair tax system; $318.0 million to 
increase live assistance including telephone level of service, 
correspondence, and in-person visits; $78.1 million for IT 
modernization activities; and $3.0 million to lease and maintain a 
fleet of electric vehicles.

    In addition to the base appropriations request of $13.2 billion, 
the budget proposes a $417-million discretionary program integrity 
allocation adjustment (PIAA) in FY 2022 to fund investments in 
expanding and improving the effectiveness and efficiency of the IRS's 
overall tax enforcement program. The budget proposes $287.5 million for 
the Enforcement account and $129.4 million for the Operations Support 
account. If funded throughout the 10-year program, these investments 
will generate $38.6 billion in new direct revenue and protect $11.6 
billion over 10 years, while costing a total of $6.7 billion. This 
return on investment (ROI) is likely understated because it does not 
reflect the effect that enhanced enforcement has on deterring non-
compliance.

    Question. Regarding the proposed $80-billion request over the 10-
year budget window, I understand that a significant portion of these 
funds would go towards enforcement and compliance activities and 
implementation of the proposed financial information reporting regime.

    What portion of funds will go towards improving customer service?

    Answer. We remain committed to ensuring that the tax system is 
enforced fairly, all taxpayers receive the nature and quality of 
services they deserve, and that no one at any income level feels safe 
cheating on their taxes. The President's budget requests $318 million 
to increase live assistance including telephone level of service, 
correspondence, and in-person visits. It also requests $149 million to 
implement a Taxpayer Experience Strategy which includes expanding 
digital service (such as digitizing more forms and expanding payment 
options), expanding the Automated Callback service, and developing 
strategies to reach underserved communities. These customer-focused 
initiatives complement the enforcement requests that are part of the FY 
2022 President's budget and the AFP. The $89-billion American Families 
proposal also includes $253 million for research that includes efforts 
to understand the taxpayer experience, $373 million for Wage and 
Investment and Taxpayer Advocate to assist with the expected increases 
in cases associated with increased enforcement, $2,809 million to 
improve telephone and in-person assistance, and $3,979 million for 
administering a permanent Advance CTC payment.

    Question. What portion of funds will go towards the modernization 
of existing systems?

    Answer. 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. The President's 
budget requests $144 million to build the technology components of 
three program increases included in the President's budget: Taxpayer 
Experience Strategy, Ensure Fairness of the Tax System, and Improve 
Live Assistance.

    Modernizing IRS systems is a key component of the American Families 
Plan request. It includes $7,171 million to modernize IRS systems and 
maintain the new systems. It includes funding to complete and go beyond 
the current IRS Modernization Plan. It also includes funds for 
expanding Case Selection and Anomaly Detection to leverage information 
to improve identification of potential non-compliance, detect issues 
earlier, reduce the tax gap, generate revenue, and enable employees to 
work cases more efficiently.

    Question. It's my understanding that the IRS has over 200 ``open'' 
recommendations from GAO, with at least 15 ``priority'' recommendations 
not yet addressed.

    What portion of the budget request will go towards addressing 
outstanding recommendations from GAO and TIGTA?

    Answer. The IRS determines and sets due dates for corrective 
actions associated with recommendations it accepts from GAO and TIGTA 
based on the nature of each recommendation, and in consideration of the 
estimated level of complexity, time, and resources required to 
implement each recommendation. Other factors may also impact the 
implementation time frames, including whether the recommendation 
requires further research and analysis, whether coordination with other 
entities or stakeholders is required, and whether guidance, regulation, 
or legislation is needed. The IRS communicates to both TIGTA and GAO 
its planned corrective actions to recommendations with which it agrees 
and inputs those actions into a database. Progress in completing 
corrective actions is monitored on an ongoing basis, with status 
updates provided to IRS senior leadership and to TIGTA and GAO. Any 
delays to the completion of corrective actions are also communicated to 
the aforesaid stakeholders.

    Under my direction, the IRS began placing additional focus and 
effort in FY 2019 to address GAO Priority Open Recommendations and we 
regularly apprise GAO of our progress. Of the 40 recommendations cited 
by GAO in their 2019, 2020, and 2021 letters, we have closed 16, and 
two more have been submitted to GAO for review and closure. Five have 
planned completion dates in the future, five are from recent reports 
for which corrective actions are still being determined, and nine are 
being reworked by the IRS and GAO. The remaining three are under review 
by the IRS. Because of the range of factors associated with attaining 
closure of each recommendation, we do not have a total estimate of the 
budgetary resources that would be required to close all of the 
outstanding recommendations from GAO and TIGTA. However, if we are 
provided with additional funding, we anticipate accelerating the 
completion of corrective actions that may have been deferred or delayed 
for budgetary reasons. It would also allow us to consider shorter 
timeframes for the enactment of future recommendations from GAO and 
TIGTA.
                  financial account reporting proposal
    Question. I understand that the Greenbook and the President's FY 
2022 budget articulate a new reporting requirement on financial 
accounts. This would require financial institutions to report data on 
financial accounts with a de minimis gross flow threshold of $600.

    It's my understanding that financial institutions are already 
required to provide various 1099s and comply with reporting 
requirements under the Bank Secrecy Act, including the filing of a 
currency transaction report for every deposit or withdrawal of more 
than $10,000, as well as suspicious activity reports (or SARs).

    Can you provide additional information regarding what information 
the IRS already collects?

    Answer. Current regulations require financial institutions to file 
information reporting for specific types of income such as interest, 
dividends, proceeds from broker and barter exchange transactions, and 
pension or retirement distributions. In addition to the currency 
transaction report and suspicious activity reports, Bank Secrecy Act 
(BSA) legislation requires the following information reporting.

        Form 8300, Report of Cash payments Over $10,000 Received in a 
Trade or Business is required to be filed by a trade or business that 
receives more than $10,000 in cash or cash equivalents.
        Financial Crimes Enforcement Network (FinCEN) Form 114, 
Foreign Bank Account Reporting is required to be filed by a U.S. person 
that has financial interest, signature, or other authority over certain 
foreign financial accounts, the aggregate value of which exceeded 
$10,000 at any time during the calendar year.
        Designation of Exempt Persons is a form which relinquishes the 
Currency Transaction Reports (CTR) filing requirement by the financial 
institutions.

    IRS Criminal Investigation (IRS-CI) has access to all BSA 
information maintained by the FinCEN, including Suspicious Activity 
Reports (SARs), CTRs, Forms 8300, Reports of International 
Transportation of Currency or Monetary Instruments, Registration of 
Money Services Business, and others. During investigations with a tax 
nexus, IRS-CI has access to information reports filed with the IRS by 
financial institutions, such as Forms 1099 reporting interest and 
dividend income. Additionally, IRS-CI has the authority to issue 
summonses and serve subpoenas (in grand jury investigations) for 
financial information in established investigations.

    Question. What information mismatches do you identify in what you 
currently collect?

    Answer. The IRS utilizes the various Forms 1099 and Form W-2 to 
determine if a taxpayer underreported income or overreported 
withholdings. However, FinCEN does not receive information that can be 
reconciled or matched to other tax returns. FinCEN compares data 
sources such as CTRs and SARs to identify irregularities or 
inconsistencies in filings. FinCEN is prohibited from using title 26 
information to conduct BSA title 31 examinations without special 
approval.

    Question. What exact information are you lacking?

    Answer. We are lacking comprehensive information reporting on the 
inflows and outflows of financial accounts, which will increase the 
visibility of gross receipts and deductible expenses to the IRS. 
Increased visibility of business income will enhance the effectiveness 
of IRS enforcement measures and encourage voluntary compliance.

    The combination of additional third-party information reporting for 
cryptocurrency transactions and account inflows and outflows from 
financial institutions would provide insight on areas where the IRS 
does not have information today. This additional information will 
improve our ability to effectively administer the tax code leading to 
higher rates of compliance--especially those whose sources of income 
are not currently subject to information reporting. Given the IRS's 
past experience with information reporting, this is an effective means 
of increasing the compliance rate.

    Critical to the success of any new information reporting regimes is 
providing budget support for the IRS to acquire the tools and analysts 
necessary to use the information effectively. These tools include 
modernized systems intaking, storing, and analyzing data we have and 
may receive to identify potential cases for examination leading to 
improved enforcement outcomes, and hiring additional experts to improve 
our ability to best use these tools. Modernization of our systems 
coupled with receipt of meaningful information reporting will continue 
to enhance services to compliant taxpayers and make tax avoidance by 
others more visible and more difficult.

    Question. Does the IRS have access to FinCEN information or any 
other relevant account information already provided to banking or 
financial regulators?

    Answer. IRS has access to BSA data collected by FinCEN.

    Question. In our hearing on June 8th, you stated ``Well, similar 
with what happened with when FATCA came in and we got FATCA reporting, 
we did not get the funding to modernize our systems to handle the 
reporting that we were receiving. So we remain behind the curve on our 
ability to use that information.''\1\
---------------------------------------------------------------------------
    \1\ See https://plus.cq.com/doc/congressionaltranscripts-6250581?2.

    Are you currently not able to utilize all of the FATCA information 
---------------------------------------------------------------------------
that you collect?

    If that's the case, do you believe that more granular information 
is needed?

    If yes, how do you know?

    Do you believe it makes sense to provide the IRS with more 
information--massive amounts of taxpayer information--if the IRS cannot 
use or process the information that it already receives?

    Answer. Our ability to utilize FATCA information, including 
conducting data analysis of, as well as comparisons between, Forms 8938 
filed by U.S. account holders and Forms 8966 (or FATCA reports) filed 
by or on behalf of foreign financial institutions (FFIs) has been 
adversely impacted by the following factors:

        Forms 8938 and 8966 apply divergent reporting thresholds, 
foreign currency conversion standards, and exceptions and alternatives 
to reporting that significantly complicate analysis and use of FATCA 
data and preclude straightforward form-to-form matching as a means to 
identify non-compliance. These data do not lend themselves to the 
automated matching models of the Automated Under Reporter system, but 
rather require resource-intensive review and comparison of the data. 
Moreover, current law (including intergovernmental agreements with 
other countries that provide FATCA information to the United States) 
does not require that FFIs report their Global Intermediary 
Identification Numbers (GIINs) to their U.S. account holders, and 
similarly current regulations do not require U.S. account holders to 
report the GIINs of the FFIs with whom they maintain reportable 
accounts on their Form 8938 filings because of concerns that it might 
be difficult for individuals to obtain GIINs without such reporting 
from FFIs. Similarly, guidance has allowed for the deferral of taxpayer 
identification number (TIN) reporting by FFIs on Forms 8966 in many 
instances through the 2019 tax year. The absence of these reporting 
requirements significantly increases the resource load on the IRS, both 
in terms of information technology and employees, in making optimal and 
timely use of data relevant to FATCA enforcement. Accordingly, enhanced 
TIN reporting and reporting of GIINs by individual account holders 
would improve the ability to utilize the data currently being received.
        IRS information technology limitations have made it difficult 
to conduct queries and analysis of data relevant to FATCA enforcement. 
By way of example, development of new capabilities for the primary 
database intended to house data from Forms 8938 and 8966 was halted in 
2018 due to budget and resource constraints prior to deployment of 
functionality that would have made it easier to query, extract, and 
analyze FATCA data. An interim reporting solution has produced more 
limited and less usable output. More effectual utilization of FATCA 
data currently requires highly specialized and trained IRS employees 
who must develop complex code.
        Both information technology and human resource limitations 
have caused delays in the time it takes to make FATCA data available 
for analysis and use. Moreover, taken together, the constraints set 
forth above have precluded the development of fully automated data 
matching capabilities.

    Further, after the data are available for use, resource constraints 
in our compliance functions have impacted the magnitude of compliance 
activities we are able to conduct regarding both the individual and 
financial institution populations.

    Question. Under the proposal, this new requirement would apply to 
all business and personal accounts from financial institutions, with 
the exception of accounts below a de minimis gross flow threshold of 
$600 or fair market value of $600.

    Are you concerned about the pure volume of data that this would 
produce, not all of which could be useful?

    Do you have any concerns about the amount of personal taxpayer 
information that would be flowing into the IRS?

    Can you assure the American people that their information will not 
leak out?

    Are you confident the IRS could use, track, and process all of this 
information?

    Could you please provide specific information regarding the level 
of funding necessary to process this level of information?

    Answer. The 2022 President's budget provides for modernizing many 
IRS systems, which would make it easier for us to address a new 
reporting requirement on financial accounts but did not include funding 
for this project. The administration's American Families Plan did 
include a rough, order of magnitude estimate of $4.5 billion over 10 
years for financial account information reporting capability. As the 
requirements for this capability are further developed, our estimate 
may change accordingly.
    improper payments: earned-income tax credit and child tax credit
    Question. The President's FY 2022 budget and corresponding 
Greenbook call for extensions and expansions of the Earned-Income Tax 
Credit (EITC) and Child Tax Credit (CTC), including making permanent 
the EITC childless worker expansions included in the American Rescue 
Plan, extending the expanded CTC for an additional 5 years, and making 
the CTC permanently refundable.

    In a Treasury Inspector General for Tax Administration (TIGTA) 
report from May 10th of this year, TIGTA noted that ``the IRS has made 
little progress in reducing the improper payments associated with the 
refundable tax credit programs that it administers.''\2\ For example, 
for FY2020, the IRS estimated 24 percent of EITC payments were 
improper, totaling $16.0 billion.
---------------------------------------------------------------------------
    \2\ See https://www.treasury.gov/tigta/auditreports/2021reports/
202140036fr.pdf.

    In the hearing on June 8th, you told my colleague Senator Grassley 
that, with regard to improper payments, ``Those figures are 
significant, as you're aware if you've seen the report. With respect to 
EITCs, the rate is about 25 percent, about $17 billion per year. CTC, 
it's about 15 percent, 4.5-12 percent, excuse me, $4.5 billion per 
year.''\3\ You are correct that this is not an insignificant amount of 
funds.
---------------------------------------------------------------------------
    \3\ See https://plus.cq.com/doc/congressionaltranscripts-6250581?2.

    Given this, do you believe it prudent to expand these refundable 
tax credits at a time when the IRS has struggled to address error rates 
---------------------------------------------------------------------------
and improper payments?

    What is the IRS doing to mitigate improper payments within these 
recently expanded programs?

    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 the COVID-
Related Tax Relief Act of 2020. As an administrative agency, the IRS 
will work to deliver all that the law requires. We leveraged our 
experience successfully delivering three rounds of Economic Impact 
Payments (EIPs) under similar circumstances. We recognize the 
importance of enforcing tax laws, properly distributing tax credits and 
payments, and collecting the revenue necessary to fund essential 
programs and services for our country.

    Per the American Rescue Plan, we determined eligibility using 
information from the taxpayer's 2020 tax return (or 2019 tax return if 
a return was not filed for 2020). This includes information entered 
into the Non-filer tool. We implemented a robust communication strategy 
to inform taxpayers about the Advance CTC payments and how they can 
unenroll from advance payments or report changes that impact their 
advance payment amount.

    Taxpayers must reconcile their Child Tax Credit when they file 
their 2021 tax return. They will need to compare: (1) the total amount 
of the Advance Child Tax Credit (CTC) payments received during 2021; 
with (2) the amount of the CTC that they can properly claim on your 
2021 tax return.

    Excess CTC Amount: If the amount of CTC exceeds the total amount of 
Advance CTC payments, taxpayers can claim the remaining amount of CTC 
on their 2021 tax return.

    Excess Advance CTC Payment Amount: If they receive a total amount 
of Advance CTC payments that exceeds the amount of CTC that they can 
properly claim on their 2021 tax year, they may need to repay to the 
IRS some or all of that excess payment depending on whether they 
qualify for repayment protection.

    In January 2022, the IRS will send Letter 6419 to provide the total 
amount of Advance CTC payments that were disbursed to the taxpayer 
during 2021. Taxpayers can refer to this letter when they file their 
2021 tax return during the 2022 tax filing season.

    Refundable Tax Credits (RTCs) provide benefits to millions of 
taxpayers. However, the nature of the RTCs themselves, as well as a 
lack of information needed to verify taxpayer eligibility at the time 
of filing, makes it challenging to administer them through our 
voluntary tax system. It is important to note that improper payments 
are not necessarily fraudulent. The complexity of RTC eligibility 
criteria, particularly those pieces that are difficult for IRS to 
verify, are a significant contributor to RTC improper payments. For 
example, IRS' inability to verify whether a taxpayer is eligible for an 
RTC is considered an improper payment even if that taxpayer ultimately 
is eligible for the RTC. The improper payment rate also does not take 
into account post-return recoveries of improper payments.

    Although we can't guarantee the improper payment rate will not 
increase under the new system, we are taking every step possible to 
address overclaims, including education and outreach to taxpayers and 
tax preparers. Through our efforts, we explain RTC availability and 
eligibility requirements. When there is noncompliance, the IRS uses 
enforcement tools, including audits, to recover RTCs paid in error or 
prevent their issuance in the first place.

    The payment integrity provisions of the Protecting Americans from 
Tax Hikes Act of 2015 and provisions in the Tax Cuts and Jobs Act of 
2017 have helped the IRS combat RTC noncompliance. However, we need 
more assistance from Congress to significantly reduce RTC overclaims. 
The administration's past or current Budget includes the following 
legislative proposals:

        Provide the IRS with greater flexibility to address 
correctable errors.
         This proposal would expand the instances in which the IRS 
could correct a taxpayer's return, including cases where: (1) the 
information provided by the taxpayer does not match the information 
contained in government databases or Form W-2, or from other third-
party databases as the Secretary of the Treasury determines by 
regulation; (2) the taxpayer has exceeded the lifetime limit for 
claiming a deduction or credit; or (3) the taxpayer has failed to 
include with his or her return certain documentation that is required 
to be included on or attached to the return. This proposal would make 
it easier for the IRS to correct obvious taxpayer errors, directly 
improving tax compliance and reducing Earned Income Tax Credit and 
other RTC overclaims without intrusive and resource-intensive audits.

        Provide the IRS increased oversight of paid tax return 
preparers.
         This proposal would grant the IRS the authority to require 
minimum standards for an estimated 400,000 paid tax return preparers 
currently without credentials, which would reduce the number of 
unscrupulous preparers filing erroneous and fraudulent tax returns. In 
administering RTCs, we have two primary goals: increasing anticipation 
for those entitled to the credits and reducing errors that lead to 
improper payments. We take our role in administering RTCs seriously. 
We're constantly considering new ways to ensure eligible taxpayers 
claim the credits and ineligible taxpayers do not. Our strategy is to 
block overclaims early in the filing process. The IRS addresses 
overclaims through its compliance programs, as well as through 
expansive outreach and education efforts to taxpayers and preparers. 
Additional information about our corrective actions and barriers are 
discussed in the Fiscal Year 2020 Agency Financial Report.

                                 ______
                                 
              Questions Submitted by Hon. Robert Menendez
    Question. The Washington Post reported last May that thousands of 
Americans received incorrect Economic Impact Payments. They identified 
taxpayers who received checks that did not correctly reflect the number 
of dependent children under the age of 17 or a dependent that was born 
in 2019.

    How has the IRS improved its systems and information reporting to 
ensure that thousands of Americans who are eligible to receive the 
Advance Child Tax Credit (CTC) are able to do so on July 15th and every 
month thereafter? How has the agency improved its systems to ensure 
that these amounts reflect the correct number of dependents in their 
household?

    Answer. Per the American Rescue Plan, we determined eligibility 
using information from the taxpayer's 2020 tax return (or 2019 tax 
return if a return was not filed for 2020). This includes information 
entered into the Non-filer tool. If eligible, taxpayers will receive 
the Advance CTC payments automatically without needing to take any 
additional action.

    For tax year 2021, the CTC is increased from $2,000 per qualifying 
child to $3,600 for children ages 5 and under at the end of 2021, and 
$3,000 for children ages 6 through 17 at the end of 2021.

    The CTC Update Portal allows families to verify their eligibility 
for the payments and if they choose to, unenroll from receiving the 
monthly payments so they can receive a lump sum when they file their 
tax return next year. If needed, families have the option to update 
their bank account information and receive their monthly Advance CTC 
payment through direct deposit quickly and easily. Families also have 
the option to quickly and easily update their mailing address using the 
portal. This feature will help any family that chooses to receive their 
payment by paper check avoid mailing delays or even having a check 
returned as undeliverable. More functionality will be added later this 
year to the CTC Update Portal.

    Question. You responded to my question about outreach around the 
Advance CTC by stating that the IRS was working with thousands of 
organizations to provide historic outreach for the Advance CTC, 
including outreach in Spanish, based off of the agency's Economic 
Impact Payment outreach.

    Could you please provide my office with documentation regarding 
this outreach? I am specifically interested in the nationwide 
organizations that the IRS is working with to provide this outreach, 
the organizations the IRS is working with in New Jersey, and the 
various languages the IRS is providing this outreach in.

    Answer. Throughout 2021, the IRS has conducted a multipronged 
national outreach effort related to COVID-19 pandemic relief for 
taxpayers. These efforts included the third round of Economic Impact 
Payments (EIP3), the 2020 Recovery Rebate Credit (RRC), the Earned 
Income Tax Credit (EITC) and the CTC.

    We asked partners and organizations to ``help us help others'' by 
providing information on EIP3, RRC, EITC and CTC to clients and 
audiences, posting information on their web pages and social media, and 
to act as a trusted partner. One example is allowing homeless persons 
to use a trusted partner's physical address to receive the EIP3. If an 
organization agreed, we performed a series of checks to determine if 
the organization could be considered a trusted partner. Approximately 
7,300 organizations were contacted to provide information to more than 
6.9 million underserved or displaced individuals. More than 350 
organizations agreed to become trusted partners.

    For the Advance CTC, we developed a comprehensive outreach plan, 
implementing a far-reaching education and awareness campaign to ensure 
taxpayers understand the benefits of the credit and how it will work. 
IRS outreach encompasses four key components.

        Leverage existing and establish new communication and outreach 
outlets. Expand existing relationships and build new ones to enhance 
efforts to inform and educate this targeted audience.
        Focus on multilingual partners and organizations and seek new 
relationships with multilingual groups and organizations. Many IRS 
products to be translated into several languages including English, 
Spanish, Russian, Chinese Traditional, Chinese Simplified, Korean, 
Vietnamese, and Haitian Creole.
        Coordinate outreach with tax practitioners/preparers and equip 
them to help taxpayers understand the details of the Advance CTC.
        Collaborate with State revenue departments, Federal Government 
agencies (including Treasury, the Department of Education, the 
Department of Health and Human Services (HHS), the Department of 
Agriculture (Supplemental Nutrition Assistance Program), and other 
child-focused agencies), and other groups with potential reach into 
these communities like organizations that work with schools and 
teachers
Outreach Partners and Organizations
    As soon as the American Rescue Plan was enacted in March, we began 
enlisting current partners and bringing on new ones to help the agency 
inform the taxpaying public about the Advance Child Tax Credit. We 
fostered relationships with tens of thousands of organizations, tax 
practitioner groups, State and local governments, community groups, and 
a host of other businesses across the country. The charts below 
represent a small sample of the lists we have compiled and continue to 
compile to deliver information to American families.


                    Partner Lists--Specific Segments
            Partners for Reaching Specific Audience Segments
                 (high-level view; others will be added)
Homeless/          Underserved        Military/         Seniors with
 Transitional                          Veterans          qualifying
 living                                                  children
 (including non-
 filers)
------------------------------------------------------------------------
 United States     211.org (200      American         AARP
 Interagency        counties           Legion, VFW &     United Way
 Council on         nationwide         DAV
 Homelessness       assisting low-     Department of
 National Low-     income             Veterans
 Income Housing     residents)         Affairs
 Coalition          AARP HQ and       State Veterans
 Foundation        State offices      Affairs
 Communities        Local/Regional    Code of
 Men of Valor      Grocery stores     Support
 (newly released    (example: La       Foundation
 prisoners)         Superior           (serving all
 Shelters for      Mercado's)         members of the
 abused women,      Chambers of       military,
 men, children      Commerce           veterans and
                    United Way        families)
                                       Wounded
                                       Warrior Project
                                       Coalition to
                                       Salute
                                       America's
                                       Heroes
                                       Fisher House
                                       Foundation
------------------------------------------------------------------------
Parent/Teacher     Diverse            Low income (inc.  Colleges and
                                       non-filers)       Universities
------------------------------------------------------------------------
 National PTA      Black Economic    No Kid Hungry    Large colleges
 National Foster   Alliance           Feeding          and
 Parent             Black Futures     America           universities
 Association        Lab                California       and their Small
 National          Color of Change   Association of    Business
 Education          National          Food banks,       Development
 Association        Council of Asian   Food Bank for     Centers
 American          Pacific            New York City,    HBCUs
 Federation of      Americans          and other local
 School             Native American   and regional
 Administrators     Finance Officers   food banks
 American          Association        Action Against
 Association of     Center for        Hunger
 Teachers of        Community Change   Bread for the
 Spanish and        and Community      World Institute
 Portuguese         Change Action      Freedom from
 National          Congressional     Hunger
 Association of     Black Caucus       The Hunger
 Parents            Congressional     Project
 National          Hispanic Caucus    Heifer
 Association of     Congressional     International
 Independent        Asian Pacific      Meals on
 Schools            American Caucus    Wheels
                                       Food for the
                                       Hungry
                                       World Central
                                       Kitchen
                                       So Others
                                       Might Eat
------------------------------------------------------------------------
Tax Professionals  Advisory           HR and Payroll    Government
 and                PCommittees        POrganizations    PAgencies
 Organizations
------------------------------------------------------------------------
 CERCA/Tax         IRSAC             American         241 government
 Industry           ETAAC             Payroll           organizations
 partners           Taxpayer          Association       across the
 Tax               Advocacy Panel     National         country
 practitioner                          Payroll           Federal,
 organizations:                        Reporting         State, and
 500+                                  Consortium        Local
 Individual                           (NPRC)            Government
 unaffiliated tax                      Independent      partners: 224
 practitioners                         Payroll           541
 Latino Tax Pros                      Providers         congressional
 AAA-CPA                              Association       offices, with a
 National                             (IPPA)            total staff of
 Conference of                         Society for      approximate
 CPA                                   Human Resources   33,530 in the
 Practitioners                         Management        Legislative
 AICPA Tax                            (SHRM)            Branch
 Section                                                 HUD
 American Bar                                           HHS
 Association Tax                                         Department of
 Section                                                 Education
 National                                               Department of
 Society of                                              Agriculture
 Accountants                                             (SNAP)
 (NSA)                                                   Department of
 NAEA                                                   Transportation
 NATP                                                   (State level)
 NSTP                                                   City Councils
 TEI National                                           U.S.
 Association of                                          Conference of
 State Boards of                                         Mayors
 Accountancy
 (NASBA)
------------------------------------------------------------------------
Private Companies/ Faith-Based        Think Tanks       Children's
 Large Employers/   POrganizations                       PHospitals and
 Employee                                                Charities
 Organizations/
 PFinancialP
 Institutions
------------------------------------------------------------------------
 75 with           Jewish            Roosevelt        St. Jude's
 potential to       Federations of     Institute         Shriners
 reach over 100     North America      Earth            Make-a-Wish
 million            Catholic          Institute         Save the
 taxpayers          Charities USA      Kaiser Family    Children U.S.
 105 large         Civitan           Foundation
 industry and       International
 association        Habitat for
 partners           Humanity
 potentially        International
 reaching 41.8      Jewish Founders
 million            Network
 individuals        Lutheran
 IRS Security      Services in
 Summit Financial   America
 Institution        Volunteers of
 partners           America
 Retailers         YMCA and YWCA
 Grocery Stores    Southern
 Pharmacies        Baptist
 Gig economy       Convention
 companies          American
                    Baptist Churches
                    United
                    Methodist Church
                    Presbyterian
                    Church in
                    America
                    Seventh-day
                    Adventist Church
                    United Church
                    of Christ
                    The Church of
                    Jesus Christ of
                    PLatter-Day
                    Saints
                    Church of the
                    Nazarene
                    Theological
                    Seminaries
------------------------------------------------------------------------

Outreach Events
    The IRS, in conjunction with Volunteer Income Tax Assistance (VITA) 
partner sites, is hosting Advance CTC outreach events to offer free tax 
preparation services to eligible individuals who haven't filed a 2020 
tax return or were not aware of a filing requirement. Events were held 
in 12 cities on June 25th, June 26th, July 9th, and July 10th. More are 
planned for the future.
New Jersey Outreach
    The IRS has connected with and provided educational materials to 
more than 50 partners and organizations in New Jersey, including nine 
multilingual partners. We contacted and provided information to faith-
based organizations, community groups, retailers, media outlets, 
support services groups, and others across the State.
Examples include:
        Center for Family Services
        Women's Rights Information Center
        Catholic Charities of the Archdiocese of Newark
        New Brunswick Housing Authority
        Trenton Area Soup Kitchen
        New Jersey 211
        Family Focused Treatment Association
        Family Promise
        Subaru of America
        Wakefern
        AARP New Jersey
        The Boys and Girls Clubs of Monmouth
        Latin American Economic Development Association, Inc. in 
Camden

    Question. You stated during your testimony to Senator Bennet that 
the IRS did not have enough funding to conduct the historic outreach 
related to economic impact payments and that the agency does not have 
the necessary funding to conduct the necessary outreach for the 
advanced CTC.

    How much more funding would the agency need to conduct proper 
outreach on the advanced CTC?

    What metrics will the agency use to ensure that the payments are 
reaching all eligible taxpayers? How will the agency troubleshoot its 
efforts if it realizes that its efforts are not successful?

    Answer. We are doing everything we can with the resources 
immediately available to reach as many potential recipients of the 
Advance CTC as possible. Part of this includes a sweeping outreach and 
communications effort to raise awareness around the CTC, with a special 
focus on those people who normally aren't required to file a tax 
return. We are working closely with partners and organizations from 
coast to coast--including non-profit organizations, churches, community 
groups and others--to help people get the assistance they need as well 
as providing special tools on IRS.gov.

    As I testified, we are reaching beyond traditional groups in the 
tax community. This involves thousands of organizations on the ground, 
and we're building on our experiences from delivering Economic Impact 
Payments (EIPs) in 2020 and 2021 to reach people who don't normally 
file tax returns.

    The IRS and partners in non-profit organizations, churches, 
community groups and others hosted events in 12 cities in June and July 
to help people who don't normally file a Federal tax return to register 
for the monthly Advance CTC payments. More of these events are in the 
works.

    In addition, the IRS is working with partners inside and outside 
the tax community to share information as widely as possible to people 
who may be eligible for CTC and EIPs. This effort includes various 
community and online events. The IRS and Treasury are also partnering 
with a variety of agencies across the government on this effort, 
including the Consumer Financial Protection Bureau, Federal Deposit 
Insurance Corporation, HHS, Small Business Administration, and Social 
Security Administration, as well as State and local governments.

    We encourage our partners to use available online tools and 
toolkits to help non-filers, low-income families and other underserved 
groups sign up to receive the Advance CTC. To help reach more people, 
much of the information is available in multiple languages.

    Key metrics we will be watching are the number of people using our 
different IRS.gov online tools. This will help us determine how many 
non-filers are coming in and how many people are accessing our CTC 
Update Portal to manage their payments.

    Going forward, we will continue to assess the success of these 
outreach efforts and determine what additional staffing or budget 
resources are needed in the future.

    Question. You responded to my question about telephone customer 
service at the IRS by informing me that this is an appropriated item. 
You also stated that the agency's target rate was 75 percent.

    Could you please provide us the requested and allocated budgets for 
telephone customer service at the IRS for the last ten fiscal years? At 
the same time, could you please provide us with the telephone service 
rates for the last 10 fiscal years?

    Answer. Note: The funding levels below represent actual 
expenditures (not allocations) for 2011-2020. Numbers have been 
rounded.

[GRAPHIC] [TIFF OMITTED] T0821.002


    .epsQuestion. The National Taxpayer Advocate has listed--for 
years--telephone customer service in its annual ``purple book'' of the 
10 most serious problems encountered by taxpayers each year. The 
National Taxpayer Advocate recommends implementing estimated wait times 
and automated callback features in order to better serve taxpayers.

    How much more in appropriations would the IRS need to improve its 
telephone customer service rates, as suggested by the National Taxpayer 
Advocate?

    Answer. An investment of approximately $287 million with an 
increase in full-time employees of approximately 4,000 will allow us to 
increase the telephone level of service (LOS) and significantly reduce 
the correspondence inventory. The IRS toll-free telephone customer 
service operation is a key part of our service delivery. This 
investment provides a projected LOS of 75 percent in FY 2022, assuming 
phone demand returns to pre-pandemic levels and the IRS can provide in-
person services at pre-pandemic levels. These funds will also be used 
to reduce the current projected FY 2022 ending correspondence inventory 
by about 400,000. The FY 2022 projection is down from a projected FY 
2021 ending correspondence level of about 1.4 million. Providing 
quality taxpayer service is crucial to ensuring voluntary compliance.

                                 ______
                                 
                Questions Submitted by Hon. Rob Portman
    Question. It is critical that the IRS is able to adapt as 
technology evolves, and I'm optimistic about the potential for 
modernization to improve both the experience for taxpayers and the 
ability of the IRS to carry out its mission. As we've discussed, 
Senator Cardin and I recognized these challenges and introduced the 
Protecting Taxpayers Act to aid the IRS in modernizing. The IRS budget 
requests $305 million, an increase of $78 million over last year, for 
business systems modernization and expands the Secretary's authority to 
require electronic filing of certain returns.

    During the pandemic, the IRS provided temporary relief to enable 
electronic signature for certain filings and some forms, including 
section 83(b) elections, entity classification (Form 8832), and time 
extensions due to hardship (Form 1127). These e-signatures create 
efficiencies for both taxpayers and the IRS by digitizing--providing 
faster filing speeds and easier processing at the IRS, with limited 
risk of fraud.

    This change was made due to the unique challenges of the pandemic 
and is only temporary. The IRS should seize this opportunity to 
modernize and continue to allow e-signatures for IRS filings and forms 
on a permanent basis--an easy step towards a modernized IRS.

    Do you plan to extend the ability for taxpayers to use e-signatures 
for these filings, some of which do not have forms, on a permanent 
basis?

    If so, will you commit to continuing the temporary relief until a 
more permanent solution is developed and adopted?

    If not, how will the IRS prioritize its transition to electronic 
modernization? Are there specific issues that arose by allowing e-
signatures which would prevent further adoption?

    Answer. In January 2021, the IRS established a cross-functional 
team to evaluate the long-term viability, benefits, and risks of the 
temporary relief and develop recommendations as to whether these 
temporary policies should be extended and the number of specific forms 
available for electronic signatures expanded. Although these 
flexibilities were well received by both taxpayers and employees, they 
do not fully satisfy the standards for electronic signatures as 
established by the National Institute of Standards and Technology or 
the IRS Electronic Signature (e-signature) Program.\4\ Therefore, 
rather than making these exceptions permanent, we are currently 
preparing to extend them through 2023, pending the development of new 
tools that will satisfy the requirements for electronic signatures and 
secure document exchange.
---------------------------------------------------------------------------
    \4\ See IRS Internal Revenue Manual 10.10.1.

    How does the IRS plan to work with relevant stakeholders as 
partners in modernizing the agency, and how would it suggest interested 
---------------------------------------------------------------------------
parties engage the agency to help advance its modernization effort?

    Answer. We work regularly with a wide variety of public and private 
stakeholders who serve as partners in providing ideas to modernize the 
agency and provide many opportunities to engage the IRS. We also 
facilitate ongoing dialogue and collaboration with our partners through 
regular outreach activities and communications. The Internal Revenue 
Service Advisory Council and Electronic Tax Administration Advisory 
Committee provide an organized public forum for IRS officials and 
public representatives to discuss tax administration issues. The 
Nationwide Tax Forums, the IRS's annual marquee outreach event, offer 
continuing education opportunities from IRS leadership and association 
partners to more than 10,000 tax professionals per year, and provide an 
opportunity to collect feedback and input from diverse stakeholders. In 
addition, several organizations within the IRS work closely with 
various partners across the country. We develop and build relationships 
with organizations outside traditional tax communities, including 
partners who work with underserved communities to assist the homeless, 
the underserved and underrepresented, and those with limited English-
speaking proficiencies, as well as partners who assist those in the 
military.

    The Taxpayer Experience Strategy, developed in accordance with the 
Taxpayer First Act, focuses on moving the IRS even further toward more 
customer-focused operations and creating an environment where critical 
leadership decisions are driven by customer and employee insights. The 
Taxpayer Experience Strategy's Community of Partners focus area builds 
on our longstanding and successful partnerships and recommends 
developing new ones to create a network that finds innovative and 
modernized ways to reach taxpayers, improve service and reduce taxpayer 
burden.

    As the IRS moves forward, the platform provided by advisory 
committees and stakeholder forums will continue to offer opportunities 
for input on tax administration policy, programs, and initiatives, 
delivering significant and relevant advice in addressing ongoing 
modernization.

    In addition to advisory committees and stakeholder forums, we also 
request feedback from the public through multiple surveys on the 
IRS.gov website, automated web applications, and through surveys of in-
person and telephone services. We encourage users to continue 
participating in these forums and surveys and will continue to use 
stakeholder feedback to improve our services and shape future plans. 
The IRS Taxpayer Experience Office will work with both internal and 
external partners to continue to identify methods of communicating 
ideas for improvement and modernization of the services offered.

    Question. At the hearing, we discussed IRS staffing and the plans 
to expand the workforce. I asked about the ability of the IRS to train 
both new and high-skilled staff and whether there is a workforce 
available to tap into for these hiring needs. I was glad to hear that 
the IRS is building on its outreach strategies for hiring. You noted 
that one of the primary reasons for this need for hiring is due to the 
decline in IRS funding over the past decade, especially considering 70 
percent of the IRS budget is for labor. The lost staff included revenue 
agents and revenue officers, who audit tax returns and perform 
collection activities, as well as special agents who investigate tax-
related crimes and other issues.

    As I understand it, the lost capacity has not solely been in the 
number of people conducting audits, but in the ability to keep pace 
with increasingly sophisticated tax avoidance strategies being employed 
in the private sector. This suggests the IRS needs more than just 
additional staff, but also requires training and new ways of addressing 
evolving tax avoidance strategies.

    What is involved and how long does it take to fully train a new 
hire to be an effective enforcement agent, whether in an auditing or 
criminal investigation role?

    Answer. It takes approximately 3 to 5 years to fully train a new 
hire to be an effective enforcement agent in auditing complex mid-size 
and large businesses. Such audits are handled by our Large Business and 
International (LB&I) Division. This training process is comprised of 
the following factors: prior tax and industry experience (5 years 
minimum); acclimation to government operations--work environment, 
practices, and procedures; completion of LB&I formal training (52-Week 
Core Curriculum); and completion of specialists training (as 
applicable) and essential on-the-job experience and development.

    The 52-Week Core LB&I Curriculum has 4 Learning Phases: (1) 
Orientation--New Hire Administration, IRS Organization Overview, LB&I 
Division Overview; (2) Flexible Blended Learning--Online Learning with 
Virtual and Personal On-the-Job Instructor Assistance--101 Sessions on 
Administrative, Technical, and Procedural Matters; (3) Audit Techniques 
Virtual Classroom Training--Virtual Classroom Case Study Based Learning 
using a facilitative delivery approach (augmenting and enhancing the 
previously covered Flexible Blended Learning delivery); and (4) On-the-
Job Training--Working fundamental corporate training cases on a just-
in-time basis--commensurate with learning progression previously noted.

    Upon completing the initial 52-week core curriculum, additional on-
the-job learning is executed as follows:

Revenue Agents

      Securing experience on more fundamental corporate exams moving 
to increasing levels of complexity and/or specific focused exams (i.e., 
campaigns, claims, etc.).
      Attending local workshops and informal training sessions 
delivered by the Team Manager, On-the-Job Instructor, and/or Senior 
Revenue Agents.

Specialists

      Core Specialists Training over a 1-3 year period (the length 
varies based on area of specialty--Cross Borders (International), 
Transfer Pricing, Financial Products, Engineering, Computer Audit, 
Foreign Payments Practices, Individual International Compliance, etc.).
      Training case assignments with in-depth emphasis on specialist 
related issues and examination practices.

Beyond This Training, Field Experience Is Secured Through

      Working a series of increasing complex cases and issues.
      Attending 40 hours of Continuing Professional Education 
annually.
      Attending specialized issue training as developed and delivered.
      Attending designated community network calls on specialized 
issue developments.

    Question. Outside of staffing, what is necessary to ensure that the 
IRS is at the cutting edge of tax enforcement, and keeping pace with 
evolving tax avoidance strategies?

    Answer. Our ability to reach the cutting edge of tax enforcement 
and keep pace with evolving tax avoidance strategies requires four 
elements: timely access to accurate and relevant data; capacity to 
develop and use advanced technological tools and techniques to identify 
compliance risk; highly skilled employees; and relevant and high-
quality training.

    Staffing has been addressed in prior IRS input, so this response 
will focus on data access, technology, and training.

    Data access. Identifying and responding to compliance risks 
requires good data. Our ability to access timely, accurate and relevant 
data will benefit greatly from an expansion of electronic return filing 
and other methods of ``native digital'' data intake. In some areas, 
legislative changes will be necessary to facilitate this expansion. 
Additionally, both the IRS and taxpayers will benefit from augmented 
capacity to validate the accuracy and completeness of data in real 
time--i.e., before we accept tax and information returns for 
processing. Improving and speeding data validation and error resolution 
would reduce costs for the IRS and taxpayers alike.

    Technology. The data needed to identify compliance risks is both 
voluminous and complex. Advanced technological tools and techniques are 
essential to the task of making the best use of this data. Upgrades to 
information technology infrastructure and analytical tools will speed 
the development, testing, validation, and deployment of increasingly 
sophisticated workload selection methods that promise to do a better 
job of identifying compliance risks while reducing the proportion of 
``false positives.'' Judicious use of external experts in data science 
and data analytics can accelerate the IRS's own learning curve. 
Increasing use of technology will also serve to automate processes that 
are currently done manually, thereby improving efficiency and reducing 
costs.

    Training. Augmented, high-quality training is necessary to properly 
utilize improved access to data, better technology, and a highly 
skilled workforce. For current and new IRS employees to be efficient 
and effective, they must be equipped with the training necessary to 
administer complex tax laws in an ever-changing environment. This 
requires ongoing investment in identifying and developing training 
curricula, knowledge management tools and continuing professional 
education, including external training opportunities. To stay at the 
leading edge of emerging tax avoidance strategies, increased 
availability of external and improved internal training resources would 
provide just-in-time information and data rather than chasing schemes 
and strategies years after their widespread implementation.

                                 ______
                                 
                 Questions Submitted by Hon. John Thune
    Question. When did you and your staff first learn about the IRS 
data breach of confidential taxpayer information to the media outlet 
ProPublica?

    Answer. I first became aware of a potential ``insider threat'' 
violation upon reading the first ProPublica published article on the 
morning of June 8, 2021.

    Question. What administration officials and agencies did you 
consult with about the apparent leak of personal taxpayer information 
before testifying before the Senate Finance Committee hearing on June 
8, 2021?

    Answer. On June 8, 2021, within an hour after ProPublica published 
its article, I contacted Russell George, the Treasury Inspector General 
for Tax Administration (TIGTA). I asked him to open an investigation to 
find out if an IRS employee was the source of the tax return 
information. He immediately confirmed receipt of our referral.

    On June 8th, the Department of the Treasury indicated they also 
referred this matter to the Treasury Inspector General, the FBI, and 
the U.S. Attorney's Office for the District of Columbia. Each of these 
offices has independent authority to investigate.

    Question. What steps has the IRS taken to ensure such a breach of 
confidential taxpayer information does not happen again?

    Answer. Protecting taxpayer information is a fundamental IRS 
principle. Every employee takes annual training on unauthorized 
disclosure of taxpayer information. This training clearly defines when 
a disclosure is authorized and clarifies the consequences of an 
unauthorized disclosure under section 6103 of the Internal Revenue Code 
(Code). Those consequences include potential termination of employment, 
fines and imprisonment.

    The IRS has strong protections in place to safeguard taxpayer 
information. TIGTA regularly audits employee access to taxpayer 
information. The IRS provides an annual report to the Joint Committee 
on Taxation that describes all disclosures of taxpayer information 
during the year and the statutory authorization for each disclosure. 
The Government Accountability Office also provides oversight on the 
protection of taxpayer information.

    Historically, the IRS has been very effective in protecting the 
taxpayer data we collect because of the various levels of oversight and 
training. At this time, the source of the information is currently 
unknown. We will immediately take action to respond to any risks 
identified through an investigation.

    Question. What are the criminal penalties for IRS employees, 
including employees made possible by the Intragovernmental Personnel 
Act of 1970, who share confidential taxpayer information or tax returns 
with those unauthorized to view the information?

    Answer. The criminal penalties for the willful unauthorized 
disclosure of returns or return information are outlined in section 
7213 of the code, which provides that a willful unauthorized disclosure 
``shall be a felony punishable upon conviction by a fine in any amount 
not exceeding $5,000, or imprisonment of not more than 5 years, or 
both, together with the costs of prosecution, and if such offense is 
committed by any officer or employee of the United States, he shall, in 
addition to any other punishment, be dismissed from office or 
discharged from employment upon conviction for such offense.'' The 
criminal penalty applies to any IRS employee, including employees made 
possible by the Intragovernmental Personnel Act of 1970.

    Question. Would you agree that the release of confidential taxpayer 
information is an egregious violation of public trust in the IRS?

    Answer. Absolutely. Any unauthorized disclosure of confidential 
government information is illegal. We take such disclosures seriously; 
we have and will continue to pursue all available measures. However, 
the source of the information is currently unknown.

    Question. Will you commit to updating me about the IRS's 
investigation into the unauthorized release of taxpayer information?

    Answer. TIGTA has sole jurisdiction over potential ``insider 
threat'' violations should this information have originated from an IRS 
employee. Since TIGTA is independent from the IRS, you may wish to send 
your request to Russell George, the Treasury Inspector General for Tax 
Administration.

    Question. The Biden administration proposed requiring banks to 
report annual account inflows and outflows to the IRS. Should the IRS 
gain access to such information, is it possible that private bank and 
financial information of taxpayers could be released from the IRS?

    Answer. Protecting taxpayer information is a fundamental IRS 
principle. Every employee takes annual training on unauthorized 
disclosure of taxpayer information. This training clearly defines when 
a disclosure is authorized and clarifies the consequences of an 
unauthorized disclosure under section 6103 of the Internal Revenue 
Code. Those consequences include potential termination of employment, 
fines, and imprisonment.

    The IRS has strong protections in place to safeguard taxpayer 
information. TIGTA regularly audits employee access to taxpayer 
information. The IRS provides an annual report to the Joint Committee 
on Taxation describing all disclosures of taxpayer information during 
the year and the statutory authorization for each disclosure. The 
Government Accountability Office also provides oversight on the 
protection of taxpayer information.

    Historically, the IRS has been extremely effective in protecting 
the taxpayer data it collects because of the various levels of 
processes, procedures, oversight, and training. This duty is one we 
take very seriously. Every day, we strive to live up to the level of 
trust the public has given us.

    Question. Has the IRS conducted an analysis of any new compliance 
measures that taxpayers would face under the administration's bank 
reporting proposal? If so, can you describe the new compliance burdens 
and any related costs to taxpayers?

    Answer. This question should be addressed to Treasury's Office of 
Tax Policy.

    Question. The administration estimates that increasing IRS funding 
by $80 billion over 10 years would yield $700 billion. But the 
nonpartisan Congressional Budget Office estimates that increasing IRS 
funds by $40 billion over 10 years would increase revenues by $103 
billion, resulting in a net $63 billion decrease in the deficit.

    How does the administration's revenue projections from increased 
IRS enforcement differ so significantly from the nonpartisan CBO's 
projections?

    Answer. IRS estimated that revenue from a 10-year investment of 
approximately $80 billion will generate $316 billion in direct 
enforcement and protected revenue. Treasury's Office of Tax Analysis 
estimated that adding an additional reporting requirement for financial 
accounts would account for the additional $463 billion, for a total net 
revenue of approximately $700 billion. Although the cost to administer 
this new reporting requirement is included in the $80 billion, the 
additional savings is largely attributable to predicted improvement in 
voluntary compliance, which rises when third parties provide financial 
information to the IRS.

    The CBO analysis is more directly comparable to the estimate of 
$316 billion in enforcement and protected revenue. The latter analysis 
implies around $4 returned to the Treasury for every $1 spent on 
enforcement activity, whereas the CBO analysis implies $2.6 for every 
$1 spent. Most recently, CBO estimated that the administration's 
proposal to increase funding for the IRS by $80 billion over the 2022-
2031 period would increase revenues by approximately $200 billion over 
those 10 years.

    CBO, in its analysis, states that their starting point for their 
estimates was the IRS Return on Investment (ROI) for new enforcement 
initiatives, and the peak ROI, i.e., the ROI when the new hires are 
fully trained, ranges from $5 to $9 for every $1 spent in recent 
years.\5\ When the IRS prepares ROI for these initiatives, it uses 
historical data to build up an expected return for the proposed set of 
enforcement activities. In this analysis, the IRS lowers the historical 
productivity by 10 percent-20 percent to account for the marginality--
the presumption that additional enforcement cases could yield lower 
revenue because the most egregious cases are selected first. By further 
reducing these already conservatively prepared ROIs, the CBO moved the 
predictions even further below the historical rates of returns for 
enforcement actions.
---------------------------------------------------------------------------
    \5\ https://www.cbo.gov/publication/57444.

    Over the last 10 years, IRS enforcement has declined significantly. 
The following table from the IRS Data Book illustrates this. There is a 
very large pool of enforcement actions available to us, but we cannot 
address all of them at our current staffing level. The significant 
increases proposed would reverse some of these trends, but not in a way 
---------------------------------------------------------------------------
that can be easily extrapolated past actual experience.

[GRAPHIC] [TIFF OMITTED] T0821.001


    .epsWe are confident that the methods used to estimate ROI for this 
investment are sound and, if anything, are already conservative. We 
disagree with the CBO's assertion that there would be a dramatic fall-
off in revenue as we restore enforcement.

    Question. As a follow-up to my question at the hearing, how does 
the U.S. voluntary tax compliance rate compare with other countries, 
particularly OECD countries?

    Answer. Because the tax regimes of OECD countries vary widely, they 
are not easily comparable. For example, many of the OECD countries 
include a value-added tax (VAT) as part of their tax regime, while the 
United States does not. In the UK, payments for both National Insurance 
and VAT are included in their tax gap estimates. In their 2020 release, 
HM Revenue and Customs reports an estimated gap of 4.7 percent, that is 
analogous to the net tax gap reported in the IRS tax gap report 
(computed as the gross tax gap less enforced and other late payments). 
This equates to a net compliance rate of 95.3 percent as compared to 
the net compliance rate of 85.8 percent we reported in ``Federal Tax 
Compliance Research: Tax Gap Estimates for Tax Years 2011-2013.'' The 
UK does not include a measure of the voluntary compliance rate, i.e., a 
compliance rate without accounting for enforced and other late 
payments, in their report.

                                 ______
                                 
               Questions Submitted by Hon. Mark R. Warner
    Question. The Form 6166 is a letter printed on U.S. Department of 
Treasury stationary that certifies that a person or company is a U.S. 
resident for purposes of the income tax laws of the U.S. for the fiscal 
year indicated on the form. Companies need Form 6166 to claim income 
tax treaty and other tax benefits while doing business in foreign 
countries. Many U.S. tax treaty partners require this proof of U.S. 
residence from the IRS when a person or business entity is claiming 
income tax treaty benefits. Form 6166 is also used to claim exemption 
from VAT (Value-Added Tax) imposed by a foreign country. Taxpayers 
generally submit IRS Form 8802 in the latter part of the year preceding 
the fiscal year the Form 6166 is applicable for, and the Forms 6166 
historically have been received within 60 to 90 days from the date of 
submitting the Form 8802. I understand that the IRS has been facing a 
backlog in a variety of areas as you have seen increased 
responsibilities from recent legislation. Specifically, I have heard 
from companies who operate globally and have filed their Form 8802 but 
have not yet received their Form 6166. It is my understanding that 
these forms are usually turned around in about 60 to 90 days, but 
companies are now facing wait times almost twice that. I am concerned 
about the impact this delay is having on American companies and their 
ability to conduct business abroad. Without this form, companies could 
be subject to double taxation or increased tax withholdings as well as 
prevented from receiving vendor payments.

    Are you aware of this delay in sending out Form 6166, and can you 
provide me with a timeline for when the IRS will be able to address the 
backlog? For a company who has filed Form 8802 at the beginning of the 
year, what is their expected turnaround time?

    Answer. United States Certification (US Cert) program continues to 
experience delays due to the pandemic. The inventory level as of June 
26, 2021 was approximately 23,000. This is an increase of nearly 9,000 
(+64 percent) compared to the similar week ending in FY 2019, but a 
reduction of almost 12,000 (-34 percent) compared to the similar week 
ending in FY 2020. The processing site was closed for an extended 
period of time in FY 2020 due to the pandemic and did not begin 
processing inventory again until mid-July.

    A contributing factor to the delay in processing this inventory is 
the delay in processing tax returns. IRS instructions for Form 8802, 
Application for United States Residency Certification, advise the 
customer it may take less time to process the application if they 
submit a copy of their recently filed return. However, we find that 
this rarely occurs. If the return is not processed, and we do not have 
a copy of the return, we have to contact the customer to obtain a 
signed copy of the return. The application is held in inventory pending 
the customer's response before the certification(s) can be issued.

    Telework has been implemented for US Cert employees, which has 
allowed us to continue processing this inventory during the pandemic, 
weather related incidents, and civil disturbances. Employees are 
working overtime, and we continue to pursue approval of a long-term 
electronic solution, including the capability of automation for this 
program.

                                 ______
                                 
              Questions Submitted by Hon. Elizabeth Warren
    Question. A May 2020 report by the Treasury Inspector General for 
Tax Administration found that the IRS did not work the cases of nearly 
900,000 high-income individuals who did not file their taxes from 2014-
2016, with estimated owed tax of $45.7 billion.\6\
---------------------------------------------------------------------------
    \6\ Treasury Inspector General for Tax Administration, ``High-
Income Nonfilers Owing Billions of Dollars Are Not Being Worked by the 
Internal Revenue Service'' (May 29, 2020), https://www.treasury.gov/
tigta/auditreports/2020reports/202030015fr.pdf.

    In the year since the report was released, how has the IRS 
addressed these nearly 900,000 cases? Has the agency started to work 
---------------------------------------------------------------------------
any of these cases?

    Answer. We are committed to ensuring our enforcement efforts are 
fair across the board and that no one at any income level thinks they 
are safe cheating on their taxes. Tax cheats undermine the integrity of 
our tax system and addressing high-income non-filers (HINFs) is a major 
enforcement priority for us. We have selected 100 percent of the HINFs 
for tax years 2016, 2017 and 2018 to receive delinquency notices and, 
should the HINF not respond, to be placed into a taxpayer delinquency 
investigation (TDI).

    Of the approximately 879,000 HINFs identified by TIGTA in its May 
2020 report, 510,000 (approximately 58 percent) were selected and 
pursued under one of the downstream collection enforcement efforts. We 
entered 42,601 of the remaining 369,000 cases into the TDI inventory 
but could not pursue them because other cases took priority. The other 
326,399 cases were mostly tax year 2015 HINFs who were never entered 
into the TDI inventory. At that time, we had paused our normal non-
filer process to realign resources. Ultimately, enforcement decisions 
are often 
resource-driven, and we must allocate available enforcement resources 
among numerous enforcement priorities.

    In FY 2020 we initiated ``issue based'' Revenue Officer Compliance 
Sweeps (ROCS) across the country to work these HINF cases. We 
reassigned experienced revenue officers (ROs) to perform these 
compliance sweeps, working in-person with the affected taxpayers (and, 
if applicable, their representatives). To increase the impact, we 
promoted our strategy through the national media to improve future 
voluntary compliance. We also routinely discuss these efforts at 
national, regional and local conferences throughout the country.

    We conducted a ROCS on 684 high-priority cases in parts of five 
States between November 2019 and February 2020. Many of these cases 
involved high-income taxpayers, both non-filers and those with 
associated balances due, as part of the overall high priority taxpayer 
case population. In February 2020, we conducted a ROCS focused on 
egregious high-income delinquent filers. That effort resulted in 157 
taxpayers contacted during a 2-week effort of RO field visits: 36 
percent of these taxpayers had multiple years of high income; 95 
percent of these taxpayers had income of $1 million dollars or more in 
at least 1 year between 2016 and 2018; and 43 percent had an associated 
balance due along with unfiled returns.

    Due to COVID, we significantly limited in-person field activities 
for our ROs beginning in March 2020, but continued to direct the 
assignment and work of HINF and balance due cases in Field Collection 
through telephone/remote contacts.

    In 2021, we conducted 40 virtual ROCS between February and June, 
during which we initiated virtual contacts with high priority 
taxpayers, including HINFs and those with associated balances due, in 
33 States. Thirteen of these ROCS were specifically focused on 
addressing HINFs in 21 States. In August 2021, we initiated a second 
series of ROCS to further address egregious HINFs. During this series 
of ROCS, we plan to work more than 700 egregious HINF cases nationwide, 
approximately 300 of which have associated balances due totaling over 
$113 million.

    Question. What changes has the IRS made to ensure non-filing high-
income individual cases are worked?

    Answer. HINF cases are prioritized during our non-filer 
identification process when we open new cases. All HINFs for tax years 
2016 through 2018 were selected, and received a notice if they did not 
file a return. Taxpayers who fail to respond to the notice become part 
of our queue for assignment to revenue officers. We plan to continue to 
select all HINFs in the future. The Director for IRS Collection 
Inventory, Delivery, and Selection issued a directive to ensure that 
100 percent of HINF cases for return delinquency are selected and put 
into our work stream. Additionally, our automated substitute for return 
case selection process was updated to prioritize high liability cases 
and our field case management system continues to prioritize HINF 
inventory as a high priority for field collection case selection.

    Question. Would mandatory funding and new third-party reporting 
from financial institutions help the IRS to work these and other cases 
of nonfiling high-income individuals?

    Answer. Third-party reporting enables our ROs to more effectively 
and efficiently address HINF cases by making it easier for ROs to 
identify these taxpayers' sources of income, assess proper amounts of 
tax under authority of IRC 6020(b), and appropriately refer taxpayers 
for examination/audit.

    Question. Testifying before the Senate Finance Committee in April, 
you noted that people have estimated that ``with resources the IRS 
could probably bring in 10 percent, 15 percent, 20 percent'' of the $1-
trillion annual tax gap, but ``a modernized IRS could actually beat 
that.''

    How do you define a ``modernized IRS,'' and what kind of 
investments are needed to modernize the IRS so it can close the tax gap 
to this degree?

    Answer. In our Taxpayer First Act report to Congress, we described 
an aspirational vision, building on work already underway. This vision 
includes high-quality, personalized service to help taxpayers 
understand and comply with their filing and reporting obligations; 
well-trained employees providing excellent taxpayer service; and a 
streamlined organizational structure making it easier for taxpayers and 
employees to navigate the agency and get the help they need when they 
need it. A positive taxpayer experience increases trust in government 
and promotes voluntary tax compliance. Similarly, the advanced 
analytics strategies described in the report and employed to improve 
taxpayer services operations would also improve our workload selection 
and the effectiveness of our compliance actions. However, without the 
commitment of significant multiyear funding, we cannot make the 
taxpayer improvements necessary to maintain trust and confidence in the 
Federal Government and its tax collection system.

    Better service alone will not reduce the tax gap. Investments in 
IRS staffing ensures adequate compliance coverage, which not only 
directly reduces the tax gap but also has a potentially even larger 
deterrent effect as the greater public is more aware that IRS tax 
compliance is being applied fairly across taxpayer segments.

    Increased third-party information reporting will also drive tax gap 
reductions as is demonstrated by compliance rates exceeding 95 percent 
on income for which we receive substantial third-party information 
reporting (e.g., interest and dividends, pensions and annuities, 
unemployment and Social Security payments, and State income tax 
refunds). Better use of artificial intelligence and data analytics will 
deliver greater accuracy in identifying potential compliance risks 
which will help the IRS adapt more quickly to changes in the compliance 
environment.

    Modernizing IRS systems will increase efficiency of IRS operations 
and productivity of the average revenue agent or special agent. 
Additionally, modernization funding would enable enhancements to 
information return processing and those systems that identify, select, 
and ultimately enable compliance activities. The Integrated 
Modernization Business Plan, delivered in April 2019, was developed to 
establish the underlying infrastructure required to modernize the IRS. 
Strong technology infrastructure is critical to delivering on the IRS's 
vision and consistent, dependable multiyear funding is critical for us 
to deliver the modernized IRS that American taxpayers deserve.

    Question. Recent reporting from ProPublica showed what we already 
know--the ultrarich pay little to nothing in taxes, and far less than 
average Americans.

    How would the administration's tax proposals help ensure that the 
ultrarich pay their fair share?

    Answer. This question should be addressed to Treasury's Office of 
Tax Policy.

    Question. In response to questioning, you indicated support for 
Congress granting the IRS additional authority to collect information 
on crypto assets.

    Describe the consequences of a lack of reporting requirements for 
cryptocurrency exchanges to ensure tax compliance, including how the 
absence of such requirements has impacted the gap between the amount of 
taxes collected versus the amount owed each year.

    Answer. Research demonstrates that misreporting tax information is 
55 percent when income amounts are subject to little or no information 
reporting, compared to only 5 percent where substantial information 
reporting exists. Taxpayers are less likely to accurately report and 
pay taxes on income that is not independently reported to the IRS by a 
third party.

    Cryptocurrency transactions are inherently devoid of the identity 
of the person conducting the transaction and rely instead on one or 
more pseudonyms in lieu of identifying information. We currently cannot 
easily identify taxpayers who engage in virtual currency transactions 
due to a lack of reporting requirements. An information reporting 
regime requiring reporting to the IRS on cryptocurrency transactions 
would benefit tax compliance by helping to close the information gap 
with respect to these assets.

    Existing information reporting rules do not specifically address 
how certain transactions involving cryptocurrency must be reported to 
the party who disposes of the cryptocurrency in exchange for cash, 
account credit, services, stored-value cards, or other property 
(including a different type of cryptocurrency). In addition to 
improving income reporting compliance, information return reporting 
allows IRS Document Matching Programs, such as Automated Underreporter, 
to conduct time- and cost-efficient compliance activities.

    Question. Do you believe that the lack of reporting requirements, 
particularly relative to stock brokerages, make cryptocurrencies 
appealing for individuals engaging in illicit financial activities or 
tax avoidance?

    Answer. Generally, disparate reporting requirements may result in 
bad actors moving assets from entities with reporting requirements 
(e.g., stock brokerages) to entities with limited or no reporting 
requirements. The peer-to-peer nature of cryptocurrencies compounded by 
the pseudo-anonymous nature of publicly available transactional 
information and lack of reporting requirement makes cryptocurrencies 
appealing for individuals engaging in illicit financial activities or 
tax avoidance.

    Question. The Internal Revenue Service has a longstanding 
commitment to racial and ethnic diversity in its staffing, 
substantially outpacing the diversity of the national civilian 
workforce (see IRS Databook 2019, 72).

    According to the IRS Internal Revenue Manual, IRS's Research, 
Applied Analytics and Statistics Division (RAAS) group ``combines 
advanced analytics, dynamic testing, reporting, and prototyping with 
appropriate scientific rigor and deep IRS domain expertise to deliver 
valid and actionable insights using diverse sources of data,'' and 
contains eight data labs, including a data exploration lab and a policy 
and program impact lab.\7\
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    \7\ IRS Internal Revenue Manual Sec. 1.1.18.1, https://www.irs.gov/
irm/part1/irm_01-001-018.

    Given the public reporting of the race and ethnicity of IRS 
personnel, would you agree that racial equity issues in other areas of 
---------------------------------------------------------------------------
IRS policies and practices merit data gathering and analysis?

    Are any of RAAS data labs studying the disparate racial impacts of 
IRS procedures using matching and imputation techniques? If not, why 
not?

    Answer. Tax returns do not ask taxpayers to report information on 
race and/or ethnicity; therefore, these factors are never considered in 
any aspect of our tax administration activities. There is a concern 
that the public may not be comfortable with the IRS having information 
on individual taxpayers' race and ethnicity, and that discomfort could 
erode the current voluntary compliance rate.

                                 ______
                                 
             Questions Submitted by Hon. Sheldon Whitehouse
    Question. Politically active groups often report different amounts 
of political spending to the IRS than they do to campaign finance 
regulators like the FEC. In some cases, they tell the IRS they will not 
engage in any political activity but then go on to report election 
spending to the FEC. However, the Department of Justice will not 
investigate absent an IRS referral.

    Of the more than 200 total criminal referrals the IRS made to the 
DOJ involving 501(c) organizations during FY 2015 through May 2021, 
have any involved false statements made by such nonprofits about their 
political activity? If so, how many of those referred cases were 
authorized by the DOJ tax division for prosecution?

    Answer. From FY 2015 to the present, the IRS Exempt Organization 
function referred 5 cases to IRS-CI, which in turn would determine 
whether to pursue the cases with the Department of Justice (DOJ). None 
of these cases relate to a failure to properly disclose political 
election campaign activity.

    None of the criminal referrals involving 501(c) organizations that 
IRS-CI made to DOJ involved false statements about the organizations' 
political activity. The investigations that were referred involved 
evasion of income, using the organization to shelter income, or 
diverting money for personal benefit. Numerous investigations involved 
embezzlement from 501(c) organizations, using the organizations to 
launder proceeds from drug activities or fraud, and using the 
organizations to perpetrate scams.

    Question. It has now been over a decade since Congress passed the 
Foreign Account Tax Compliance Act (FATCA) to allow the IRS to lift the 
veil on secret offshore accounts. While the IRS has done much to 
implement that law, the Treasury Inspector General for Tax 
Administration noted in testimony before the Senate Finance Taxation 
and IRS Oversight Subcommittee that ``the IRS has taken virtually no 
compliance actions to meaningfully enforce'' FATCA.

    In the President's FY22 budget request, how much is allocated for 
the enforcement and implementation of FATCA? Is this amount sufficient 
to implement and enforce the law?

    Answer. Since the 2018 TIGTA report (2018-30-040), we have 
continued and initiated new FATCA compliance activities. For example, 
we have developed campaigns that use automated risk assessment 
processes to identify potential tax noncompliance related to taxpayers' 
failures to report the proper income and tax and/or failure to properly 
submit required information returns associated with these offshore 
accounts. The automated risk assessment processes also identify 
potential tax noncompliance related to foreign financial institutions' 
(FFIs') failures to appropriately report taxpayer accounts by comparing 
information reported on Form 8966, FATCA Report, with what is reported 
on Form 8938, Statement of Specified Foreign Financial Assets. FATCA 
data is also associated with individual exam cases involving offshore 
related issues; utilized to ensure proper FFI certifications and remove 
FFIs from the registered list, as appropriate; and reconciled in other 
compliance activities on an ad hoc basis. Our 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 we have significantly increased our 
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. First, I would like to take the opportunity to thank you 
for our conversation during the hearing regarding the IRS's processing 
of my constituents' tax returns. I appreciate your offer to work with 
me and my staff on the ongoing issues faced by my constituents, 
particularly related to the processing of 2019 Federal tax returns. I 
commend your staff for their prompt attentiveness to this issue 
following the hearing and look forward to continuing our collaboration 
on behalf of Hoosier taxpayers.

    Like many of my colleagues, I am concerned about the tax gap and 
want to ensure we close the gap in a targeted, effective manner. I hope 
that we can work toward bipartisan solutions to achieve improved tax 
compliance.

    In order to identify the best policy solutions for the tax gap, it 
is important for us to understand the nature and source of that gap, 
the ways in which our complex tax code contributes to that gap, and the 
reforms needed within the IRS to improve efficiency and restore public 
confidence. A prominent topic of conversation during the hearing was 
your characterization of and thoughts on addressing the tax gap. During 
the hearing titled, ``The 2021 Filing Season and 21st Century IRS,'' 
before the Senate Finance Committee on April 13, 2021, you estimated 
the tax gap could approach $1 trillion per year. This greatly exceeded 
prior IRS and third party estimates of the tax gap.

    Can you please explain in detail how you calculated this estimate?

    Answer. The tax gap represents, in dollar terms, the annual amount 
of tax noncompliance with our tax laws. It does not distinguish between 
intentional and unintentional noncompliance with tax laws. Further, it 
does not report obligations, domestic or foreign, legal or illegal 
source income, etc. In addition, because our published estimates are 
based on available information, there are acknowledged gaps that 
prevent it from serving as an all-inclusive measure of global tax non-
compliance by U.S. taxpayers.

    The 2011-2013 estimates apply to returns filed for tax years 2011-
2013 and subsequently audited. They therefore cannot fully represent 
the compliance landscape in 2021. The 2021 digital world economy is 
significantly different from the world economy of 2011-2013 and 
therefore it would be incorrect to think that these estimates fully 
capture the current scope of the tax gap. At the May 11, 2021 hearing 
on the tax gap before the Senate Finance Committee, Subcommittee on 
Taxation and IRS Oversight, Barry Johnson, Acting Chief of RAAS, 
testified that simply using asset and price growth information to 
adjust the 2011-2013 gross tax gap estimates would yield an initial 
estimated adjusted gross tax gap for Tax Year 2019 of approximately 
$600 billion.

    Further, an IRS research team working with others used operational 
audit data to review sophisticated tax evasion by certain taxpayers 
though the use of offshore bank accounts and/or complex pass-through 
business structures. This information is not fully captured by our 
legacy tax gap estimation methodology. IRS researchers estimated 
evasion limited to the use of offshore bank accounts and/or complex 
pass-through business structures contributed an additional $33 billion 
to the 2011-2013 tax gap. Adjusting this estimate would increase the 
Tax Year 2019 tax gap by an additional $46 billion. With this increase, 
Mr. Johnson estimated the overall gross tax gap for Tax Year 2019 is 
approximately $646 billion.

    This estimate does not account for factors including the rise of 
cryptocurrency, additional undetected income offshore or concealed in 
pass-through entities not identified in the referenced research, 
additional areas of noncompliance including conservation easements, or 
illegal source income (which is not included in the tax gap estimate). 
Cryptocurrency alone has grown to a world-wide market of $2 trillion. 
Reporting compliance falls far short of what would be expected given 
the number of users, transactions, and value that virtual currency 
exchanges publicize on an annual basis. Recognizing compliance 
challenges, the IRS has focused significant enforcement resources over 
the past 2 years in the virtual currency environment.

    In addition to most taxable virtual currency transactions, the Tax 
Gap estimate for tax years 2011-2013 also doesn't fully reflect 
noncompliance related to various undetected international or foreign-
based taxable transactions and activities, illegal source income (which 
is taxable and is pursued by the IRS often in coordination with other 
Federal and State agencies), and other types of undetected, concealed 
taxable income. Previous Tax Gap estimates only generally measured 
international activities by domestic tax return filers but not from 
taxpayers with addresses abroad, foreign businesses and others. The IRS 
is generally aware of significant noncompliance associated with the 
foregoing but does not currently have an estimate of how much it would 
impact the tax gap; however, we are committed to conducting the 
research necessary to produce estimates in the future.

    Finally, Mr. Johnson noted that it has been well publicized that 
IRS audits have significantly declined. RAAS research consistently 
finds that audits have a deterrent effect and noted that the recent 
decline in audits is likely to have the opposite effect, leading to an 
increase in the tax gap.

    In consideration of the foregoing points, it would not be 
unreasonable to believe that the actual tax gap could approach and 
possibly exceed $1 trillion per year.

    To address some of the above challenges, Mr. Johnson confirmed that 
for at least the past 18 months, RAAS has been working on updating and 
enhancing the underlying tax gap methodology, the goal of improving the 
currency of the estimates by considering how to identify and 
incorporate additional information and emerging compliance issues.

    Question. You had indicated in the April 13th hearing that 
increased enforcement could recapture at most 20 percent of the gap, 
but we know that relying on audits to chase down complex tax evasion is 
costly and unreliable. More promisingly, you had referenced the 
potential of a modernized IRS to collect taxes due more efficiently.

    What structural reforms are necessary for the IRS to more 
effectively fulfill its mission?

    Answer. To provide America's taxpayers top-quality service and 
enable them to voluntarily meet their tax responsibilities while 
enforcing the law with integrity and fairness to all, we are 
modernizing our organizational structure to better align operations 
with our mission, increase agency-wide collaboration, and remove 
operational silos. An important first step was the appointment of our 
first Taxpayer Experience Officer earlier this year and the 
establishment of the Taxpayer Experience Office. We are in the process 
of evaluating the steps needed to establish more integrated service 
operations under our Relationships and Services Division and 
consolidated enforcement operations under our Compliance Division.

    Question. What, if any, barriers currently exist that are 
preventing the IRS from implementing these structural reforms?

    Answer. The IRS Restructuring and Reform Act of 1998 (RRA 1998) 
directed us to restructure the IRS by eliminating or substantially 
modifying the three-tier geographic structure (national, regional, and 
district) that was in place at that time and replacing it with an 
organizational structure featuring operating units to serve particular 
groups of taxpayers with similar needs. Recognizing this barrier, the 
writers of the Taxpayer First Act had the foresight to include the 
following language:

        Beginning 1 year after the date on which a comprehensive plan 
        to modify the organization of the IRS is submitted to Congress, 
        the provision removes the RRA98 requirement of an 
        organizational structure that features operating units serving 
        particular groups of taxpayers with similar needs.

    Therefore, this legislative barrier to moving forward with our 
restructuring efforts will expire in January 2022.

    Question. Do you believe that steps to reduce complexity would 
incentivize more voluntary compliance from taxpayers without throwing 
billions more of taxpayer dollars at this issue with limited results?

    Answer. Tax law complexity contributes to taxpayer errors when 
filing their tax returns and increases the taxpayer compliance burden. 
The complexity also requires IRS resources to deliver quality 
assistance to taxpayers, to correspond with taxpayers on errors on 
their returns and, in some situations, to take enforcement actions.

    Question. How strong are current whistleblower protections for 
those who seek to report noncompliance?

    Answer. Protections for whistleblowers who seek to report 
noncompliance are found in section 7623(d) of the Code. Subsection (1) 
of section 7623(d) states:

        No employer, or any officer, employee, contractor, 
        subcontractor, or agent of such employer, may discharge, 
        demote, suspend, threaten, harass, or . . . discriminate 
        against an employee in terms and conditions of employment . . . 
        in reprisal for any lawful act done by the employee--

        (a) to provide information, cause information to be provided, 
        or otherwise assist in an investigation regarding underpayment 
        of tax or any conduct which the employee reasonably believes 
        constitutes a violation of the internal revenue laws . . . , or

        (b) to testify, participate in, or otherwise assist in any 
        administrative or judicial action taken by the Internal Revenue 
        Service relating to an alleged underpayment of tax or any 
        violation of the internal revenue laws. . . .

    A person alleging discharge or reprisal under the anti-retaliation 
provisions must file a complaint within 180 days after the date on 
which the violation occurs. Enforcement actions under section 7623(d) 
are handled by the Department of Labor. If not resolved within 180 
days, whistleblowers can bring an action at law or equity in the 
appropriate district court of the United States. Compensatory damages 
include reinstatement, 200 percent of back pay and 100 percent of lost 
benefits and compensation for any special damages sustained.

    Question. In your opinion, would enhanced protections help 
encourage individuals to come forward?

    Answer. Historically, most whistleblowers that file Form 211 
whistleblower claims with the IRS have severed relationships with their 
employers and have no desire for reinstatement. However, the Department 
of Labor enforces section 7623(d) and may have views on whether 
enhanced protections in 7623(d) might encourage whistleblowers to come 
forward.

    Question. President Biden's recently released Fiscal Year 2022 
budget included an increase of over $13 billion in funding for the IRS.

    Do you believe that efforts to expand the size and scope of the IRS 
should be predicated on ensuring that taxpayer protections are 
respected?

    Answer. The IRS has strong protections in place to safeguard 
taxpayer information. TIGTA regularly audits employee access to 
taxpayer information. The IRS provides an annual report to the Joint 
Committee on Taxation that describes all disclosures of taxpayer 
information during the year and the statutory authorization for each 
disclosure. The Government Accountability Office also provides 
oversight on the protection of taxpayer information.

    Question. I am interested in the Treasury Inspector General for Tax 
Administration's 2020 audit of the IRS. Included in the report is a 
description that the IRS--at the height of the pandemic and facing 
record backlogs--was unable to function properly due to printer issues 
that persisted for months. Unbelievably, the primary reason given by 
the IRS is that many of these devices were simply out of ink or the 
waste cartridge was full.

    Of course, the pandemic was a challenge to operations everywhere, 
but this seems like a problem that should not occur. In Indiana, many 
of my constituents are still waiting on the IRS's processing of their 
2019 tax returns, and the possibility that these delays are in part due 
to printers being out of ink is troublesome.

    On the heels of the Inspector General's report, I am very concerned 
about discussions of expanding the IRS's scope or funding without 
addressing the agency's underlying issues.

    Do you believe that expanding the power and scope of the IRS 
without increased oversight and taxpayer protections could lead to 
further abuses, putting at risk not only taxpayers' dollars but also 
their privacy?

    Answer. The IRS has strong protections in place to safeguard 
taxpayer information. TIGTA regularly audits employee access to 
taxpayer information. The IRS provides an annual report to the Joint 
Committee on Taxation that describes all disclosures of taxpayer 
information during the year and the statutory authorization for each 
disclosure. The Government Accountability Office also provides 
oversight on the protection of taxpayer information. We welcome 
oversight by the Congress.

    Question. On the topic of taxpayer privacy, I believe that it is of 
utmost importance that the IRS safeguard confidential taxpayer 
information against unauthorized disclosures. Taxpayers must have faith 
that their sensitive financial information will be protected by the IRS 
and not exploited for political or other gain. To that end, I recently 
joined my Senate Finance Committee Republican colleagues in sending a 
letter to the Inspector General for Tax Administration regarding the 
June 8, 2021, ProPublica article titled, ``The Secret IRS Files: Trove 
of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income 
Tax.''\8\ That article strongly suggests that the taxpayer information 
described therein originated from within the IRS, which, if true, 
constitutes a serious breach of privacy and is a criminal violation of 
our tax laws. My Senate colleagues and I requested that Inspector 
General George immediately investigate this apparent leak.
---------------------------------------------------------------------------
    \8\ https://www.propublica.org/article/the-secret-irs-files-trove-
of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-
tax.

    Do you believe that maintaining confidentiality of taxpayer 
information is paramount to ensuring taxpayers fully and completely 
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report their income and earnings to the IRS?

    Answer. Yes; taxpayers have a right to privacy and confidentiality. 
The expectations for confidentiality are outlined in section 6103 of 
the code, and the penalties for failing to meet these requirements are 
severe. The IRS fosters a culture of privacy and confidentiality that 
ensures personnel limit information collected to what is relevant and 
necessary to administer the tax laws, and to share it only with those 
who have both a need to know and the ability to receive the information 
as allowed by the individual or law.

    Question. If taxpayers do not trust the IRS to safeguard their 
financial information, do you anticipate this would only exacerbate the 
tax gap as taxpayers may be more reluctant to fully report their income 
and activities?

    Answer. While we anticipate most taxpayers will continue to meet 
their tax obligations, some could use lack of trust as a reason to not 
fully report their income.

    Question. What taxpayer protections have you implemented during 
your tenure at the IRS, and, particularly in light of the ProPublica 
data release, what do you think still needs to be done?

    Answer. Protecting taxpayer information has been and will continue 
to be on the forefront of all that we do at the IRS. During my tenure 
at the IRS, we have leveraged congressionally provided funds to 
implement a multi-layered defense strategy. We continuously identify 
and implement the most current cybersecurity protections available. 
With regard to the ProPublica data release, we do not yet know the 
source of the information and, therefore, we cannot make any 
recommendations at this time.

    Question. Do you commit to ensuring the IRS cooperates fully and 
promptly with any investigation into the ProPublica data release, 
including but not limited to investigations by the U.S. Department of 
Justice and the Inspector General for Tax Administration, and do you 
commit to taking immediate action to remedy any shortcomings identified 
by any such investigation?

    Answer. Yes, the IRS will fully cooperate with each and every 
congressional and Federal investigation into the ProPublica article.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    Colleagues, I'll have prepared remarks in a moment. First, a brief 
comment on the breaking news. This morning there is what appears to be 
a massive, unauthorized disclosure of taxpayer records. The source of 
this information is unclear. Given the IRS's responsibility to protect 
taxpayer data, it has a responsibility to investigate the source of 
this disclosure.

    In the meantime, as reported by ProPublica, what this data reveals 
is that the country's wealthiest--who profited immensely during the 
pandemic--have not been paying their fair share. I'll have a proposal 
to change that.

    Moving to the subject of today's hearing, the Finance Committee 
welcomes Commissioner Rettig this morning to discuss the President's 
2022 budget request for the IRS. Commissioner Rettig knows well this 
committee's interest in closing the tax gap, improving enforcement, and 
fighting the unfairness in our tax laws. That starts, in my view, by 
going after cheating by the big guys at the top.

    A few key examples, starting with wealthy taxpayers who skip filing 
tax returns altogether. According to a 2020 report from the Inspector 
General for Tax Administration, nearly a million wealthy taxpayers 
failed to file returns between 2014 and 2016, dodging a total of $46 
billion in taxes. Tax season came and went, and they disappeared from 
the radar.

    Senator Whitehouse and I wanted some explanation. Two weeks ago, he 
and I got a letter from the IRS that said that the agency sought 
charges against only 200 taxpayers for failing to file a return over a 
period of 6 years.

    Something here is totally out of whack. On the one hand, you've got 
a fortune going unpaid by wealthy individuals blowing off the 
responsibility they share with every other American taxpayer. On the 
other hand, only a couple hundred non-filers are facing charges. You 
would think the IRS would be aggressively following up those affluent 
non-filers, but the evidence shows that doesn't seem to be the case.

    Here's a second example of high-earners escaping real scrutiny. 
More than 2 out of every 3 dollars earned by partnerships in this 
country go to the top 1 percent of earners. These are sophisticated 
entities that bring in big revenue. However, the most recent data shows 
that out of millions of partnership returns filed in 2018, only 140 
were audited.

    If you're a wealthy tax cheat in a partnership, your odds of 
getting audited are slightly higher than your odds of getting hit by a 
meteorite. It's an audit rate of 0.00004 percent. On the other hand, 
taxpayers who claim the EITC are much, much likelier to get audited. 
Again, something is out of whack when it comes to enforcement.

    For the sake of fairness--and for the sake of the budget--it makes 
a lot more sense to go after cheating by the big guys than focus on 
working people. The President's budget proposal has a lot to say on 
these issues. With funding increases for enforcement personnel and IT, 
it would help to build up the IRS's ability to handle the most 
important cases: tax evasion by the wealthy.

    At the same time, it's important to recognize that the IRS has a 
history of going after the little guy too often. The budget proposes 
expanding the information that major financial institutions must report 
about some client accounts. It's absolutely critical that the focus of 
that reporting be on the wealthy tax evaders.

    The budget also includes a proposal that's been a big priority for 
this committee for a long time, the authority to regulate paid tax 
preparers. Too many Americans who need help filing their taxes are 
falling victim to fraudsters and incompetent individuals. Taking a 
smart approach to creating rules in this area will help a lot of people 
avoid a tax refund nightmare, particularly people of modest incomes who 
depend on their refund every spring to make ends meet.

    There's a lot more for the committee to discuss today. I want to 
thank Commissioner Rettig for joining us, and I look forward to the 
discussion.

                                 ______
                                 

                             Communication

                              ----------                              


                        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. These comments echo our submission on the 2021 
filing season. We will discuss funding post-pandemic, distributing the 
child tax credit, tax reform and tax administration after reform.

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. We welcome the President's 
proposals in this area, at least for now, although our proposed Asset 
Value-Added Tax will end the need to increase audit resources. As with 
clearing the backlog, hiring back or contracting with former revenue 
agents will provide a quick bang for the buck in doing auditing, and it 
decreases the pool of former agents who help their clients avoid 
taxation.

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 six 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 $85,000. 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, the biggest untold subsidy in the tax code is the exception 
mutual funds enjoy from pay capital gains and dividend taxes. This 
needs to end. Shifting from personal income tax collection of capital 
gains and revenues (and payouts from mutual funds), ends the logic for 
this exception. It is time to tax transactions, not people!

Sixth 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.

Should the tax reform proposed here pass, there is no need for an IRS 
to exist, save to do data matching integrity. States and the Customs 
Service would collect credit invoice taxes, states would collect 
subtraction VAT, the SEC would collect the asset VAT and the Bureau of 
the Public Debt would collect income taxes or sell tax prepayment 
bonds. See the second attachment for details on this.

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--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. A single rate also stops gaming forms 
of ownership. Lower rates are not as regressive as they seem. Only the 
wealthy have capital gains in any significant amount. The de facto rate 
for everyone else is zero.

The mutual fund exemption will be repealed. It is the biggest tax 
shelter is the use of money market funds to accumulate capital gains 
and income without taxation. This practice must end if salary surtaxes 
no longer include non-salaried income. 75% of such funds are held by 
the top 10% of households as measured by the 2019 Survey of Consumer 
Finance by the Federal Reserve. I suspect the other 20% are held by 
high income retirees. The working class will not be harmed. Applying 
the Pareto Rule to higher income households leaves the top 1450 
households with 30% of wealth. The proof of this proposition is the 
shareholders list of Berkshire Hathaway.

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--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.

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