    [House Hearing, 119 Congress]
    [From the U.S. Government Publishing Office]

                     IRS RETURN ON INVESTMENT AND THE NEED
                               FOR MODERNIZATION

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

                                    HEARING

                                   BEFORE THE

                           SUBCOMMITTEE ON OVERSIGHT

                                     OF THE

                          COMMITTEE ON WAYS AND MEANS
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               FEBRUARY 11, 2025

                                   __________

                              Serial No. 119-OS01

                                   __________

             Printed for the use of the Committee on Ways and Means

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                    __________

                       U.S. GOVERNMENT PUBLISHING OFFICE
    59-659                    WASHINGTON : 2025

    -----------------------------------------------------------------------------------

                          COMMITTEE ON WAYS AND MEANS

                        JASON SMITH, Missouri, Chairman

    VERN BUCHANAN, Florida               RICHARD E. NEAL, Massachusetts
    ADRIAN SMITH, Nebraska               LLOYD DOGGETT, Texas
    MIKE KELLY, Pennsylvania             MIKE THOMPSON, California
    DAVID SCHWEIKERT, Arizona            JOHN B. LARSON, Connecticut
    DARIN LaHOOD, Illinois               DANNY DAVIS, Illinois
    JODEY ARRINGTON, Texas               LINDA SANCHEZ, California
    RON ESTES, Kansas                    TERRI SEWELL, Alabama
    LLOYD SMUCKER, Pennsylvania          SUZAN DelBENE, Washington
    KEVIN HERN, Oklahoma                 JUDY CHU, California
    CAROL MILLER, West Virginia          GWEN MOORE, Wisconsin
    GREG MURPHY, North Carolina          DON BEYER, Virginia
    DAVID KUSTOFF, Tennessee             DWIGHT EVANS, Pennsylvania
    BRIAN FITZPATRICK, Pennsylvania      BRAD SCHNEIDER, Illinois
    GREG STEUBE, Florida                 JIMMY PANETTA, California
    CLAUDIA TENNEY, New York             JIMMY GOMEZ, California
    MICHELLE FISCHBACH, Minnesota        STEVEN HORSFORD, Nevada
    BLAKE MOORE, Utah                    STACEY PLASKETT, Virgin Islands
    BETH VAN DUYNE, Texas                TOM SUOZZI, New York
    RANDY FEENSTRA, Iowa
    NICOLE MALLIOTAKIS, New York
    MIKE CAREY, Ohio
    RUDY YAKYM, Indiana
    MAX MILLER, Ohio
    AARON BEAN, Florida
    NATHANIEL MORAN, Texas
                           Mark Roman, Staff Director
                     Brandon Casey, Minority Chief Counsel
                                     ------

                           SUBCOMMITTEE ON OVERSIGHT

                      DAVID SCHWEIKERT, Arizona, Chairman
    MICHELLE FISCHBACH, Minnesota        TERRI SEWELL, Alabama
    BETH VAN DUYNE, Texas                JUDY CHU, California
    NICOLE MALLIOTAKIS, New York         SUZAN DelBENE, Washington
    RUDY YAKYM, Indiana                  THOMAS SUOZZI, New York
    MAX MILLER, Ohio                     LLOYD DOGGETT, Texas
    AARON BEAN, Florida
    NATHANIEL MORAN, Texas

                            C  O  N  T  E  N  T  S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Hon. David Schweikert, Arizona, Chairman.........................     1
    Hon. Terri Sewell, Alabama, Ranking Member.......................     2
    Advisory of February 11, 2025 announcing the hearing.............     V

                                   WITNESSES

    Hayden Dublois, Data and Analytics Director, Foundation for
      Government Accountability......................................     3
    Pete Sepp, President, National Taxpayers Union...................    12
    Minesh Ladwa, Global Solution Manager, Tax and Revenue
      Management, SAP................................................    25
    Kristen Kociolek, Managing Director for Financial Management and
      Assurance Team, Government Accountability Office (GAO).........    34
    Nina Olsen, Executive Director, Center for Taxpayers Rights......    43

                       PUBLIC SUBMISSIONS FOR THE RECORD

    Public Submissions...............................................   137

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                        IRS RETURN ON INVESTMENT AND THE
                             NEED FOR MODERNIZATION

                                  ----------

                           TUESDAY, FEBRUARY 11, 2025

                      House of Representatives,
                             Subcommittee on Oversight,
                                   Committee on Ways and Means,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:02 a.m., in
    Room 1100, Longworth House Office Building, Hon. David
    Schweikert [chairman of the subcommittee] presiding.
        Chairman SCHWEIKERT. The subcommittee will come to order.
        As we get going, this is our first one, and I would like to
    actually say I am elated to have Ms. Sewell sitting next to me,
    one of the people I genuinely like, and my little boy is
    fascinated with your jacket. If you hear sudden noise, I have a
    2-year-old in the little room right behind us.
        So shall we actually get going?
        I can let you introduce your witness. Do you have a
    witness?
        Ms. SEWELL. I do.
        Chairman SCHWEIKERT. I am going to let you--when we get
    done with--
        Ms. SEWELL. Okay.
        Chairman SCHWEIKERT. So let's do opening statements, and
    then let's get this going.
        First, good morning. Welcome to the 119th Congress and our
    first Ways and Means Oversight hearing. I have a script here,
    but I am going to go off of it because I already shared with
    you, for many of us, we have had a couple of years here, the
    fussing back and forth between the cash that was put in the
    Inflation Reduction Act, hiring lots of people. The fact of the
    matter is we now have data of how hard it has been, almost
    impossible, to hire those very staffers. We actually have data
    in here that we would like to present and walk through on the
    actual spend versus the actual projected collections now that
    we are, what, 30-plus months in and how far off target we are.
    We have data in here talking from the IRS's own information
    when 31 percent of the phone calls during tax season are
    actually being answered.
        Is the solution an army of more bodies in the same
    environment where when they had even the resources they were
    not able to hire, or is it ultimately a technology solution,
    just as so much of the rest of the world has actually stepped
    into?
        My personal fixation is how do you modernize the IRS so it
    can meet its mission and actually reduce the friction with the
    population taxpayers, those who are just trying to survive and
    trying to understand?
        Our history here, particularly when you get near the IRS,
    it becomes a partisan whipping boy, but the fact of the matter
    is you have a country that is borrowing about $70,000, $80,000
    every second. And by the end of this decade, those numbers go
    autopsy dramatically.
        Maybe actually understanding what we are doing, how we are
    doing it, could we do it better, could we do it fairer, could
    we do it with more public understanding, and maybe less sense
    of hostility between the agency, Congress, and the very public
    we represent.
        And with that, let me hand it over to the ranking member
    whom I am elated to be sitting next to.
        Ms. SEWELL. Thank you, Mr. Chairman.
        As the new ranking member of the Oversight Committee, I
    would like to first thank you for your warm words of
    introduction as well as for the opportunity to work with you on
    behalf of the American people. I also want to welcome my
    Democratic colleagues to our first subcommittee hearing. I look
    forward to working with everyone on this subcommittee on
    important oversight issues before Congress.
        Today, I am pleased to have the opportunity to talk about
    the Internal Revenue Service and the historic Inflation
    Reduction Act. The IRA made a once-in-a-generation investment
    in modernizing the IRS. The results have been record-breaking.
    The IRS announced that it collected $1 billion from high-wealth
    taxpayers due to the IRA funding. It dramatically improved
    taxpayer service, including answering more calls, providing
    extended in-person outreach to rural and underserved taxpayers,
    and simplifying notices and letters.
        I can tell you that in my district, in the Black Belt of
    Alabama, we have some of the highest audit communities for the
    EIT recipients. EITC, as we know, the Earned Income Tax Credit,
    is for moderate- to low-income folks being able to reduce their
    tax liability if they so qualify. These are hardworking
    Americans who make less than the minimum wage, with a median
    income close to $30,000 in my district. The IRS attempts to
    even the playing field giving resources that ensure the IRA--
    sorry--the Inflation Reduction Act with those monies we attempt
    to even the playing field by giving resources that ensure
    wealthy individuals who have evaded taxes are audited
    proportionately. And we still have a lot of ways to go.
        Yet my colleagues on the other side of the aisle want to
    hamstring the IRS at a very important point where the IRA
    funding is actually making a difference.
        This is abundantly clear by the fact that they have
    rescinded over $20 billion in enforcement funds, and they have
    frozen another $20 billion in the previous continuing
    resolution. We need to fix this issue, and slashing funds is
    not the solution. The IRA funding is not an endless piggy bank
    for the majority.
        Mr. Chairman, I would be remiss if I did not mention the
    elephant in the room, which is, of course, this faux Department
    of Government Efficiency, or DOGE, and its unlawful access of
    the taxpayers' sensitive payment systems and confidential
    taxpayer information. DOGE's takeover of the Federal payment
    system is an egregious invasion of the privacy of every
    American, especially every American taxpayer. Federal tax laws
    specifically ensure that Americans' tax return information is
    confidential. As you know, unauthorized disclosure of this
    information is a felony. Elon Musk and DOGE should not be
    rummaging around in the confidential information of private
    taxpayers and private citizens.
        No one knows what information DOGE has accessed or how it
    will use such information. And, Mr. Chairman, we should all be
    concerned that our private confidential taxpayer information
    has been exposed.
        Today I want to welcome all of our witnesses. I really look
    forward to the opportunity to hear from you and for us to have
    a substantive conversation about the IRA funding for the IRS.
        Thank you. And I yield back.
        Chairman SCHWEIKERT. Thank you, Ms. Sewell.
        All right. Now let's do some quick introductions, and I am
    going to let you introduce Ms. Olson.
        Is it Hayden Dublois?
        Mr. DUBLOIS. Dublois.
        Chairman SCHWEIKERT. Dublois. I was never going to get that
    right.
        Mr. DUBLOIS. That is okay.
        Chairman SCHWEIKERT. Who is a data analytics director at
    the Foundation for Government Accountability.
        Pete Sepp is president of the National Taxpayers Union.
        Minesh Ladwa.
        Mr. LADWA. Chairman, it is Minesh Ladwa.
        Chairman SCHWEIKERT. All right. Is global solution manager
    for tax and revenue management at SAP.
        And Kristen----
        Ms. KOCIOLEK. Kociolek.
        Chairman SCHWEIKERT [continuing]. Kociolek. That one I
    might have gotten--is managing director for financial
    management and assurance team at the Government Accountability
    Office.
        Ms. SEWELL. And I would like to introduce probably the
    easiest pronounced name on this witness list, Ms. Nina Olson.
    Ms. Olson is a former national taxpayer advocate. She is now
    the executive director of the Center for Taxpayer Rights.
    Welcome, Ms. Olson, to this subcommittee hearing, and we look
    forward to your testimony.
        Chairman SCHWEIKERT. Each of you will have 5 minutes, and
    at that point we will begin statements and questions.
        Hayden.

       STATEMENT OF HAYDEN DUBLOIS, DATA AND ANALYTICS DIRECTOR,
                FOUNDATION FOR GOVERNMENT ACCOUNTABILITY

        Mr. DUBLOIS. Well, Chairman Schweikert, Ranking Member
    Sewell, and members of the committee, thank you for having me
    here today and for hosting this very important hearing.
        My testimony is going to differ just slightly from some of
    my counterparts and focus on a related issue of the capacity of
    the Congressional Budget Office to accurately estimate the
    fiscal effects of legislation, including the Inflation
    Reduction Act. Unfortunately, CBO tends to underestimate the
    costs associated with measures that would increase the size of
    government and overestimate the cost of tax relief for
    Americans. And one of the most prominent examples of that, of
    course, pertains to the Inflation Reduction Act which is
    obviously relevant to today's hearing.
        Following the enactment of the Inflation Reduction Act, CBO
    predicted the legislation would decrease the Federal budget
    deficit by $58.1 billion over the following decade. But a 2024
    update by CBO suggested the law would actually increase the
    deficit by roughly $300 billion.
        It turns out the CBO's revision reflected a $224 billion
    upward adjustment in green energy expenses. And additionally,
    CBO projected that the nearly $80 billion dedicated to IRS
    enhanced enforcement measures would actually reduce the deficit
    by $180 billion, but by the end of fiscal year 2024, the IRS
    announced just $1.3 billion had been collected through those
    increased enforcement measures, compared to the $7.2 billion
    CBO projected it would have collected in that first year. In
    fact, more money had been spent to hire these new IRS agents
    than they had collected in revenue. For every $1 in new revenue
    gained, these enforcement efforts had cost $1.04.
        According to the Economic Policy Innovation Center, the
    CBO's faulty estimates are a result of the projected far higher
    rate of return on IRS enforcement efforts than what actually
    occurred. As a result, CBO's estimated return on investment was
    off by more than sixfold.
        And this is not the first time that CBO has made these
    mistakes. In 2010, the CBO projected that approximately 13
    million Americans would enroll through Medicaid expansion under
    the Affordable Care Act in all 50 States. By 2019 actual
    enrollment had reached 19.5 million in just 34 States.
        In the food stamp program, CBO estimated that food stamp
    changes contained in the 2009 stimulus bill would have cost
    approximately $20 billion. A decade later CBO revised its
    estimate and said food stamp driven spending from the stimulus
    bill had reached $43 billion, more than twice as much as their
    initial estimates.
        Likewise, another provision of the 2009 stimulus was the
    enhanced unemployment benefits which CBO predicted would cost
    $39.2 billion. Six years later, CBO revised their score to $64
    billion.
        And on the revenue side, as Ways and Means Committee
    Chairman Smith has correctly noticed, actual 2024 corporate
    receipt collections reached $529 billion well ahead of the $421
    billion predicted by CBO following the passage of the historic
    Tax Cuts and Jobs Act. In fact, cumulative revenues are half a
    trillion dollars above where CBO estimated they would be
    following the passage of TCJA.
        Now, there are a variety of reasons why CBO has made these
    inaccurate estimates. Through the Inflation Reduction Act, they
    failed to account for developments in green energy markets and
    substantially overestimated the IRS's return on investment. For
    Medicaid, they dramatically understated enrollment. For the
    2009 stimulus package, they were wrong about their assumptions
    regarding the record slow Obama economic recovery. And for
    TCJA, they failed to predict the tremendous impact that lower
    taxes would have on the middle class.
        Unfortunately, the cumulative effect of these errors
    demonstrates CBO's implicit bias for more government spending
    through provisions like the IRA and higher taxes. Now CBO will
    undoubtedly have a role to play in scoring key pieces of
    legislation, especially as it relates to the ongoing
    reconciliation conversation. But already the baseline CBO uses
    misleads Congress, because CBO assumes, one, certain
    discretionary appropriations will continue without statutory
    budget authority; two, all discretionary appropriations will
    continue to grow with inflation; three, certain mandatory
    spending programs will continue beyond their expiration; and
    four, Social Security and Medicare payments will continue at
    their current levels even after the trust funds are depleted.
        Finally, by using a current law baseline rather than a
    current policy baseline, the likely effect of various programs
    on outlays is distorted. Congress should not only evaluate
    CBO's fiscal scores with scrutiny but also consider amending
    law to have the baseline more accurately resemble reality.
        Thank you for the opportunity to testify today, and I am
    happy to answer any questions.
        [The statement of Mr. Dublois follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman SCHWEIKERT. Thank you.
        Mr. Sepp.

      STATEMENT OF PETE SEPP, PRESIDENT, NATIONAL TAXPAYERS' UNION

        Mr. SEPP. Chairman Schweikert, Ranking Member Sewell,
    members of the committee, you honor NTU and taxpayers
    everywhere by holding this hearing. As you know, NTU has had a
    long history of involvement in the tax administration space. We
    thank you, Mr. Chairman, for kicking off the Taxpayers FIRST
    event that we held last year. That was fantastic. Our taxpayer
    defense center continues to be very active in presidential
    litigation, but I would like to focus on a couple of points
    here.
        Surprise, the IRS needs more money. It needed more prior to
    the Inflation Reduction Act, and if the IRA money for IRS is
    zeroed, we will have to scale up from there. However, point 2,
    the IRS must prioritize any additional funding it receives
    toward taxpayer services and modernization. Three, Congress,
    the IRS, and Treasury must develop a genuine detailed strategic
    plan for that modernization with transparent benchmarks and
    accountability safeguards if those benchmarks aren't achieved.
    And four, the damaged system of IRS oversight needs to be
    repaired so that Congress has more partners in ensuring the
    funding is properly spent.
        Now, there are lots of illustrations over the history of
    IRS modernization that I can go into. Hopefully we will when we
    get more technical in the Q&A period, but I would like to point
    out two comparisons and contrasts here.
        The IRS Restructuring and Reform Act of 1998, that was the
    product of 2 years of commission work, hundreds of testimonies,
    multiple committee hearings, and a 184-page bill set up that
    tripartite system of IRS oversight that ensured for a few years
    at least the Service was actually transforming, meeting the
    objectives of its strategic plan. That system began to weaken,
    which I will discuss a bit later, but that was generally a
    success.
        Contrast this with the Inflation Reduction Act, which took
    all of nine paragraphs to describe an agency transformation,
    three paragraphs to describe how 99 percent of the funds would
    be spent. This was not a real transformation. It was an attempt
    to meet a score in the Inflation Reduction Act. That is what
    the funding was really intended for. And unfortunately, the
    strategic planning, the resulting strategic operational plan,
    and now the implementation roadmap, well, those came long after
    the money was let out the door, and it shows.
        It is folly to think that as we discuss estimates ranging
    from $180.4 billion to $316 billion for the collections the
    agency could get from the IRA funding when, again, we were
    trying to meet a score, not modernize. We need to move forward
    with the real modernization here. And, again, it is going to
    take money. There is no apparent project in the implementation
    roadmap for modernizing the individual master file, or the
    business master file. Customer service priorities are starting
    to lag.
        These are a few reasons why our evaluation of the IRS's
    report card of IRA funds earned an overall D grade, and I would
    be happy to explain further as to why that grade was given, but
    I will just recommend here, we need to restore the strength of
    that tripartite accountability system I mentioned going
    forward. If modernization is going to succeed, we have to have
    more itemized spending plans for the IRS going forward beyond
    the 100-odd page budget justification that Members of Congress
    see. We have to have more detailed real-time data on service
    levels in the IRS. That will help us figure out where we need
    to shift personnel and how we can better use technologies like
    AI. And we have to measure the fiscal benefits of modernization
    and customer service on compliance. Several witnesses here can
    talk in greater detail about that as well as myself.
        But let me close this oral presentation with an important
    and inspiring quote. ``Even in the most difficult times, we can
    come together as a Nation, as a people, and as a Congress to
    accomplish important things for the American people.'' That was
    said 5.5 years ago by the late great John Lewis who many of you
    know from this panel.
        History can repeat itself. It wasn't that long ago when you
    worked together to produce that legislation. Let's do it again.
        Thank you.
        [The statement of Mr. Sepp follows:]
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        Chairman SCHWEIKERT. Thank you.
        Mr. Ladwa.

      STATEMENT OF MINESH LADWA, GLOBAL SOLUTION MANAGER, TAX AND
                        REVENUE MANAGEMENT, SAP

        Mr. LADWA. So, Chairman Schweikert, Ranking Member Sewell,
    and distinguished members of the subcommittee, my name is
    Minesh Ladwa, and it is an absolute honor to be here today from
    London to discuss this opportunity about modernizing the IRS,
    to put technology at the forefront of modernization. That
    drives economic growth, compliance efficiency, and taxpayer
    engagement.
        So with the right strategy, the IRS can become the world's
    leading tax authority, setting a global benchmark for modern
    tax administration.
        It is not just about compliance and enforcement. It is
    about ensuring that America's tax system remains competitive,
    scalable, and cost efficient in the digital economy.
        So for nearly two decades, I have worked with tax agencies
    worldwide to modernize systems, implement AI-driven automation,
    and enhance compliance strategies. I have seen firsthand what
    works and what doesn't work.
        So governments across Europe and Asia are not building IT
    systems from scratch. They are leveraging commercially
    available scalable IT solutions to increase efficiency, enhance
    compliance, and improve taxpayer engagement.
        So today, I want to focus on three critical--I was going to
    call it actions, but I will say suggestions. Number one,
    transforming the IRS into a technology first agency, moving
    beyond fragmented custom built IT solutions. Number two,
    leveraging AI automation and digital services to reduce
    administrative burdens while improving compliance. And number
    three, implementing a modernization in a phased, controlled
    manner, ensuring seamless revenue connection and taxpayer
    services.
        This is how we do it, and I want to share some ideas.
        So one of the biggest challenges tax agencies face globally
    is data fragmentation, disconnected systems, and inconsistent
    taxpayer records, and inefficiencies that increase compliance
    risks and costs.
        So there is a better way. So I would like to think about a
    real-time, AI-enabled tax platform that can provide things like
    360-degree views of the taxpayer obligations, or to make things
    like case management and call center, reducing manual reviews
    and errors while improving accuracy, enable digital self-
    service tools making compliance easier and faster.
        So how do you do it? Where do you begin with the scale that
    the IRS is? So one option for consideration, rather than a
    full-scale transformation, is taking a pragmatic approach. I
    would suggest we prototype, we leverage good taxpayers. Big
    large corporations are willing to participate in pilot
    programs. We sometimes focus on, Hey, let's solve, you know,
    the big master of our problem. Well, yes, it is a big issue,
    but how do we begin in a way that we don't have risk to
    revenue, but we can pilot these new programs with commercially
    available solutions?
        So if modernization is implemented effectively, here is
    what I believe the IRS can achieve and what I have seen sort of
    globally from around the globe. The potential is anywhere
    between 5 to 40 percent improvement in tax debt collection
    using AI-driven compliance solutions. So I have been reading
    some stats. Over $600 billion net tax gap, you know, just 5
    percent of that would be about $30 billion, you know, in tax
    debt collection. 8 to 12 percent reduction in IT costs,
    eliminating things like outdated systems, and hopefully, an
    automation of over 170 tax administration processes.
        I am going to say that modernization tax systems must not
    come at the expense of security or taxpayer trust. That is why
    leading tax agencies use secure cloud-based solutions that made
    things like FedRAMP standards, ISO standards that ensures that
    the IRS remains in full control of tax data.
        So my final thought, Chairman Schweikert, Ranking Member
    Sewell, and distinguished members of the subcommittee, the IRS
    stands at a pivotal crossroads. So modernization isn't a
    choice. It is an economic necessity. The opportunity in front
    of us is to turn the IRS into the intelligent AI-driven tax
    agency that provides unified taxpayer views internally and
    externally, uses AI and automation to enhance compliance, and
    delivers seamless digital taxpayer services.
        By adopting proven commercially available solutions, the
    opportunity is now for the IRS to modernize that scale becoming
    the global benchmark for technology-first tax administration
    and setting a new standard for efficient, intelligent
    governance that serves the American people.
        I appreciate your time, and I look forward to your
    questions later.
        Thank you.
        [The statement of Mr. Ladwa follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    STATEMENT OF KRISTEN KOCIOLEK, MANAGING DIRECTOR FOR FINANCIAL
    MANAGEMENT AND ASSURANCE TEAM, GOVERNMENT ACCOUNTABILITY OFFICE

        Ms. KOCIOLEK. Chairman Schweikert, Ranking Member Sewell,
    and members of the subcommittee, I am pleased to participate in
    today's hearing. I have been asked here today to discuss the
    Department of Treasury's payment process and related systems.
        Treasury operates and maintains systems that are critical
    to the government's financial infrastructure. This includes the
    disbursements of payments to the American public and
    businesses, the collection of taxes and revenues, and the
    borrowing of funds necessary to run the Federal Government. The
    General Fund of the U.S. Government is the reporting entity
    responsible for accounting for the cash activity of the Federal
    Government. The Secretary of the Treasury has delegated
    management of the General Fund to the Bureau of the Fiscal
    Service.
        In fiscal year 2022, the General Fund reported $23.2
    trillion of cash inflows, primarily debt issuances and tax
    collections, and $22.8 trillion of cash outflows, primarily
    debt repayments.
        My statement today discusses our understanding of the
    payment process as they relate to the General Fund, and
    knowledge of the audit activities over the payment systems.
    This statement is based primarily on work we performed as part
    of our financial statement audit of the fiscal year 2022
    schedules of the General Fund. We are currently auditing the
    fiscal year 2024 schedules of the General Fund, and we plan to
    issue that report in March of this year. Our fiscal year 2022
    report provides more detailed information on the objectives,
    scope, and methodology for our audit.
        We conducted the work in which the statement is based in
    accordance with generally accepted government auditing
    standards. Those standards require that we plan and perform the
    audit to obtain sufficient appropriate evidence to provide a
    reasonable basis for our findings and conclusions based on our
    audit objectives, and we believe that our audit evidence
    provides a reasonable basis for our findings and conclusions.
        We audited the fiscal year 2022 schedules of the General
    Fund because of their significance to the consolidated
    financial statements of the U.S. Government. The Secretary of
    the Treasury, in coordination with the director of the Office
    of Management and Budget, is required to annually submit
    audited financial statements for the executive branch of the
    U.S. Government to the President and Congress. GAO is required
    to audit these statements.
        Our most recent report on the U.S. Government's
    consolidated financial statements, discusses progress that has
    been made but also underscores that much work remains to
    improve Federal financial management, and that the Federal
    Government continues to face an unsustainable long-term fiscal
    path.
        We continue to encounter limitations that prevented us from
    expressing an opinion on the fiscal year 2022 schedule of the
    General Fund or on Fiscal Service's internal control over
    financial reporting relative to the schedules. We have provided
    recommendations to Fiscal Service to address these limitations
    in their financial reporting processes. Treasury agreed with
    our recommendations and has plans to address them. We will
    provide an update on their status in our fiscal year 2024
    report.
        Our audit procedures included obtaining an understanding of
    the Federal payment process and related internal controls over
    financial reporting relevant to our audits. The U.S. Government
    disburses cash payments for various reasons. This includes
    Federal debt redemptions and interest, Federal income tax
    refunds, benefit payments, vendor and salary payments, and
    other miscellaneous payments.
        The majority of Federal entities, such as individual
    departments and agencies process their payments through Fiscal
    Service's Treasury disbursing offices. These Federal entities
    internally review and approve payments to be made and submit
    certified payment schedules to Fiscal Service using Fiscal
    Service systems.
        Federal entities are responsible for maintaining the
    detailed information supporting their payment transactions and
    related internal controls, such as controls designed to prevent
    improper payments, including fraud. Fiscal Service then
    processes the payment schedules via several system applications
    and submits payment files to the Federal Reserve to make the
    payments which are primarily electronic fund transfers.
        Fiscal Service's processes include certain edit and format
    checks which can include checking scheduled payments against
    certain information in the do-not-pay portal. After payments
    are made, various Fiscal Service systems capture payment
    information for accounting and reporting purposes.
        Since our initial audit of the schedules of the General
    Fund, we have conducted limited audit procedures over
    information system controls. These include procedures related
    to access controls, configuration management, and security
    management.
        During the course of our audit, we also consider the
    results of relevant information system controls performed as
    part of Treasury's consolidated audit. In addition to audit
    procedures performed as part of recurring financial audits,
    Treasury's Office of Inspector General annually evaluates the
    effectiveness of Treasury systems in accordance with the
    Federal Information Security Modernization Act.
        Chairman Schweikert, Ranking Member Sewell, and members of
    the subcommittee, this completes my prepared statement. I would
    be pleased to respond to questions that you may have.
        [The statement of Ms. Kociolek follows:]
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        STATEMENT OF NINA OLSON, EXECUTIVE DIRECTOR, CENTER FOR
                            TAXPAYER RIGHTS

        Ms. OLSON. Chairman Schweikert, Ranking Member Sewell, and
    members of the subcommittee, thank you for holding this hearing
    today and inviting me to testify on IRS return on investment
    and modernization.
        I view these topics through the lens of taxpayer rights,
    rich or poor, multinational or small business, native-born or
    immigrant, U.S. taxpayers deserve to be treated with dignity
    and respect. Because taxpayer dignity is closely correlated
    with taxpayers' trust of the tax agency and willingness to
    comply with the tax laws, taxpayer rights' protections will not
    only increase taxpayer trust but also increase the efficiency
    and effectiveness of the tax system.
        The IRS is a large organization that touches nearly every
    person and business entity in the United States, yet its
    operations have been mired in mid-20th century processes and
    technology that create inefficiencies and frustrate taxpayers
    and IRS employees alike.
        The IRS has over 60 case management systems so there is no
    360-degree picture of the taxpayers' data, interactions, and
    filings with the IRS. The situation creates significant
    inefficiencies. Phone assisters cannot assess or access certain
    databases, and, therefore, cannot help the taxpayer in real-
    time. IRS case selection does not reflect all of the
    information available in IRS systems and databases leading to
    no-change audits and false positives. Documentation taxpayers
    have sent in is not available for review by the employee with
    whom they are speaking. The sheer waste of taxpayer and IRS
    employee time is both infuriating and costly.
        According to the Inspector General, however, with IRA
    funding, the IRS IT organization, quote, ``is making
    significant technical advances in the areas of AI, automation,
    cloud capabilities, data access, data quality, and data
    standards. The IRS is undergoing multiple new processes, and
    once fully operational, they will pave the way for a new
    technology era across the enterprise,'' end quote. In my 50
    years of working in tax, I have never seen an IG report praise
    the IRS like this.
        Through 2024, using IRA funding, there has been significant
    improvements to taxpayer service on the phones, and online
    account to the fairness of the tax system by focusing on areas
    of complex noncompliance, and to efficiency and effectiveness
    through digitalization. Digitalization requires both the
    retention of employees who have institutional knowledge and
    hands-on experience in tax administration and the hiring of new
    employees who are bring new skills and outside-the-agency
    experience. The balance between seasoned employees and those
    with new skill sets will not be achieved if government service
    is vilified and current IRS employees are painted as inept, or
    even worse, corrupt. Moreover, with a Tax Code as complex as
    ours, digitalization cannot replace in-person assistance. In
    many instances, human judgment and intervention are required.
        Through June 2024, the IRS spent $1.4 billion or 44.3
    percent of IRS funding dedicated to taxpayer service. If the
    IRS continues to apply IRA funding to make up for the annual
    appropriation gap, it projects it will run out of IRA taxpayer
    service funding at the end of this fiscal year. That means that
    taxpayers will experience a cliff. In one filing season they
    are able to get through on the phone and have their returns
    processed relatively quickly and the next filing season will go
    back to pandemic levels of assistance that is almost no
    assistance at all. This path is unsustainable and violates the
    trust of U.S. taxpayers.
        I close my testimony with the fundamental right to
    confidentiality of returns and return information. Indeed the
    efficiency and effectiveness of our self-assessment tax system
    is dependent on taxpayers' trust that information they
    voluntarily provide the IRS will be held confidential. Congress
    has recognized that tax returns and tax return information can
    be very helpful in administering nontax administration
    policies, but every single exception to confidentiality in the
    Code contains language restricting such use and disclosure,
    quote, ``for the purpose of and only to the extent necessary,''
    end quote, for carrying out that nontax administration purpose.
        Congress has only granted exceptions to 6103 where it has
    carefully balanced the compelling need for disclosure against
    the fundamental taxpayer guarantee that if they voluntarily
    provide the IRS with personal and private information it will
    remain confidential. We all need to ensure that protection and
    right is not violated.
        Thank you.
        [The statement of Ms. Olson follows:]
       [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman SCHWEIKERT. Thank you to our witnesses.
        Now we begin the fun part. We try to educate those of us
    sitting up here.
        Ms.--and I apologize to everyone.
        Ms. KOCIOLEK. Kociolek.
        Chairman SCHWEIKERT. Kociolek. Maybe the single thickest 5
    minutes I think we have ever had someone sitting there. But I
    want to walk through just a couple of things and get my head
    around it.
        Are you familiar with RAAS, Research Applied Analytics and
    Statistics Division?
        Ms. KOCIOLEK. I am not.
        Chairman SCHWEIKERT. Okay. Apparently, they are the ones
    that are supposed to do certain data. They also do apparently
    data sharing agreements for researchers. Apparently right now,
    there are more than 50 researchers that have that type of
    access.
        And part of my reason for this is, you know, I know the pop
    culture right now is to attack DOGE and those things, but the
    fact of the matter is the data we have says there are 50
    researchers. How do you think groups on the left and the right
    write their, you know, reports on so and so are being picked on
    or so and so aren't paying enough? But we also have letters
    going back a couple of years--and you touched on this--that for
    those who do have access for research, that we probably need
    additional protocols for privacy and security, because it turns
    out right now from what we are finding in our own quick
    research, which took us a half an hour, that 50 researchers out
    there actually look like they have more access over history
    than the current DOGE process does. So that will be fun to dig
    into and figure out what is true and what is pop culture.
        What if you--am I on track?
        Ms. KOCIOLEK. So what I can say about access to sensitive
    systems, certainly there is an expectation that anybody
    collecting sensitive information, tax information, any kind of
    information----
        Chairman SCHWEIKERT. My point was just are you familiar
    with the fact that we are coming up with over 50 different
    research groups that have access already.
        Ms. KOCIOLEK. Yes. And there should be agreements in place,
    so that is what I was getting at. Any time there is someone
    with access to information, there are policies that are
    expected to be followed, yes.
        Chairman SCHWEIKERT. Could I beg of you for probably all of
    us out here who have an interest in that, could you please just
    grab some of that and send it our direction.
        Ms. KOCIOLEK. Absolutely.
        Chairman SCHWEIKERT. And you made a comment that--was it in
    the 2022 audit that you almost weren't able to complete that?
    Could you put some more information around that?
        Ms. KOCIOLEK. Yes. So on both the General Fund audit and on
    the consolidated financial statements audit of the U.S.
    Government, GAO is unable to express an opinion on the
    financial statements given various limitations in data
    available.
        At the General Fund level, much of the information that is
    in the systems, like I said, details are maintained at
    agencies, and summary information is in some of the systems,
    and that prevents us from having the detailed information that
    would allow us to provide an opinion on the financial
    statements and the line items there.
        At the consolidated financial statement level, there are
    several reasons we are not able to give an opinion on those
    statements. One being challenges at the Department of Defense,
    and them being able to have good financial management systems
    and processes in place; the second being the ability of the
    government to eliminate the transactions between each other;
    and then the third being in the consolidation process.
        So there are a variety of reasons that we are unable to
    give opinions on the statements, yes.
        Chairman SCHWEIKERT. Okay. And for years I have been trying
    to get an AI audit of the Pentagon just because they failed now
    for 8 years. Now it turns out we should probably do the same
    with the IRS.
        Mr. Ladwa, could your system solve GAO's problem?
        Mr. LADWA. I think we would have to look at the intricacies
    without a resounding yes or no. I think there are sort of lots
    of complexities and processes between what I have just heard in
    order to do that.
        I would say there are, you know, as I said, solutions that
    we provide that look at things like that to provide those----
        Chairman SCHWEIKERT. Well, Ms. Olson pointed out something
    that I am surprised none of the rest of you did, 60 different
    sort of tracking systems for the individual taxpayer. You have
    done this now in other countries. If we reached out to you and
    said fix it, how would you deal with that?
        Mr. LADWA. So I think there was a few conversations around
    this master file that I have read a little bit about and know a
    little bit about the architecture in terms of tracking and
    audit. I think if I was going to tackle it and think about, you
    know, how you solve this problem, it is about consolidation and
    understanding where the data is, how it is being stored, how it
    is being accessed. And my first thing would be understanding
    and moving away from sort of old archaic, custom-built file
    systems like this. That is the first to ensure that we have got
    consolidated taxpayer record.
        Chairman SCHWEIKERT. And for those of us who are not very
    bright, would you build a mirror, run the systems, run them
    parallel, and then do a switchover? I mean, how do you do the
    migration and how quickly could migration happen?
        Mr. LADWA. Yes. So I think the first and foremost is that--
    for example, the complexity of the master file system from what
    I understand has a lot of detailed information about the
    taxpayer, right, obligations, previous history, and various
    other sort of artifacts.
        What I would do, you know, what is in my migration period,
    I would first start with a fresh level of thinking. So first I
    would understand what is important when we are administering
    the various taxes at this Federal level. That is needed for a
    transparent taxpayer journey and the efficiencies internally of
    the tax agency. Because there are solutions which basically
    consolidate and that you can deploy very, very quickly.
        Then it becomes a question of historic. So do I need to
    look at the intricacies of what is in the master file now to
    bring it over? And I would essentially--mirroring is probably,
    I would say, a--it could be a consideration. I would say we
    would look at, if we were going to do this again from scratch,
    how would we do it rather than rely on, you know, how we have
    built things in the past.
        Chairman SCHWEIKERT. Okay. Absolutely perfect.
        A couple of others just because these are idiosyncrasies.
    So even with the stepped-up funding--and this is a little
    different, the facts I am holding here in my dataset and
    actually from a press release from the IRS itself--during the
    tax season, only 31 percent of the phone calls were actually
    being answered.
        If I came to you today and said, I need you to design me a
    hyper accurate, hyper friendly--so my mom calls, bless her
    soul, but calls. An IRS chatbot stays on the phone, helps her
    fill out the form, maybe sends you a text message of the
    YouTube video of how to do the form, maybe a PDF if you don't
    have the form, instead of a world where only 31 percent of the
    phone calls are being answered. And then I have the whole
    statistics here of how many of the responses are actually not
    accurate on those calls.
        How difficult would be that type of the outreach
    technologically?
        Mr. LADWA. Chairman, I don't think it is that difficult. I
    don't think it has to be that----
        Chairman SCHWEIKERT. Just stop right there. That was a
    brilliant answer. No, no, please go on, because this is a
    fixation because, first off, that is not right or left. It is
    just decency.
        Mr. LADWA. Yeah. And I would like to take tax
    administration right down to its basics. Right? It is
    understanding what you need to populate and then populating it
    and processing it. So in order to help, you know, there are
    solutions that exist which do exactly those types of things.
    Right? So depending on the channel, you could absolutely, you
    know, guide and do it effectively as long as you know exactly
    who the taxpayer is and what they are trying to file based upon
    their previous history, or them as an individual. It is not
    that hard.
        Chairman SCHWEIKERT. If I came to you--and this is one for
    anyone this would have comfort. Ms. Sewell and I have had this
    running conversation for years on--let's first just use certain
    core tiles, Earned Income Tax Credit populations. Past years
    they delayed it by 2 months because of the amount of fraud of
    duplicate, you know, tax forms are being put in, but that also
    ends up being a population now that will get multiple letters
    of inquiries, technically not audits, but please explain this
    to us.
        We have had a data scientist in our office a couple of
    years ago who basically said if you just did a data match, you
    could wipe out the fraud because the quality--and it could be
    blinded public databases, commercial databases. If I came to
    you right now and said, I have a population here which
    qualifies under the law for an Earned Income Tax Credit, we
    want to get rid of the 2-month delay, but we want to eliminate
    the fake, the fraudulent tax forms being turned in trying to
    steal someone else's credit, do you do that through an AI
    algorithm, a data bounce off commercially available databases?
    How do you solve both of our problems, fixation on fraud, the
    morality of people getting something they are earned faster?
    Walk me through real quickly how you solve both of our
    problems.
        Mr. LADWA. That is a great question. We have got 2 hours,
    right?
        So, first and foremost, Chairman, I think the understanding
    before we talk about technology, yes, technology exists to be
    able to use things like machine learning algorithms,
    configurable business rules to be able to detect battens, to
    understand who are our highest-risk customers, should refunds
    be made, things like receipt submissions in terms of
    extractions and understanding what someone is claiming is what
    they are due.
        So I think, first and foremost, the technology is there. It
    exists. I think the question would be is what are the rules and
    what are the sort of legal and policies that allow us to
    configure those rules in order to quickly be able to identify
    those.
        Chairman SCHWEIKERT. Right. My eccentricities have been
    dominating this far too long.
        Ms. Sewell.
        Ms. SEWELL. So my questions, my initial questions are to
    our managing director of GAO. And I really do want very simple
    yes or no because I only have 5 minutes and there are a lot of
    things I want to cover.
        So my first question is that--well, it is really not really
    a question. It is yesterday in the New York Times five former
    Treasury secretaries wrote an op-ed entitled ``Our Democracy is
    Under Siege.''
        Without objection, I would like to submit this article op-
    ed for the record.
        Mrs. FISCHBACH [presiding]. Without objection.
        [The information follows:]
       [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Ms. SEWELL. In the op-ed the former Treasury secretaries
    noted that the Nation's payment systems have historically been
    operated by a very small group of nonpartisan career civil
    servants until recently when that norm was upended. They also
    express significant data privacy cybersecurity and national
    security threats with, quote, ``political actors from the so-
    called Department of Government Efficiency being involved.'' I
    too am quite concerned about the privacy of my constituents and
    American taxpayers being accessed.
        So, my question, yes or no, does GAO know what confidential
    tax or sensitive information was accessed and shared with DOGE?
    Yes, or no?
        Ms. KOCIOLEK. No, we do not.
        Ms. SEWELL. So, GAO does not know what was shared.
        Please answer yes or no: Does GAO know who accessed the
    data or what code was rewritten?
        Ms. KOCIOLEK. No. We have not done work on that.
        Ms. SEWELL. So, I understand that there are audit laws that
    keep track of who accessed the payment systems. Can you answer
    yes or no, is it possible for management to override controls
    in place and delete those audit logs?
        Ms. KOCIOLEK. Logs are designed to--I want to just mention
    the concept of segregation of duties. So when access is
    granted----
        Ms. SEWELL. I just have a few minutes----
        Ms. KOCIOLEK [continuing]. There have to be different
    people to do the audit logs.
        Ms. SEWELL [continuing]. So yes or no, ma'am. You can say
    you don't know.
        Ms. KOCIOLEK. Yeah, we can get back to you. Generally you
    would have someone separate from who creates the audit logs
    monitoring them.
        Ms. SEWELL. So, Ms. Olson, please just answer yes or no. Is
    there confidential taxpayer information protected by section
    6103 in the Treasury payment systems?
        Ms. OLSON. Yes.
        Ms. SEWELL. Do you know what confidential taxpayer
    information is in the Treasury payment systems? Yes, or no?
        Ms. OLSON. Yes, at the very least.
        Ms. SEWELL. So, Ms. Olson, I am very concerned that this
    DOGE and unelected folks have access to this payment
    information. As the previous national taxpayer advocate, do you
    share my concerns? And what do you think I should say to my
    constituents who are really afraid that their taxpayer
    information, their confidential private information is being
    exposed?
        Now I do know that the managing director did say that there
    were--there may have been like 50 or so researchers, but they
    had contracts that specifically required them to keep that
    confidential private information confidential and private.
        So, can you talk to us a little bit about that concern? And
    then I want to ask you, how do we address this with no budget,
    with no budget for the IRS to actually do what it is supposed
    to do? I think everyone on this panel has said a couple of
    things: first, that the IRS needs to be reformed; and secondly,
    that the IRS has an outdated technological technology system
    and we have to update it. All of those things take cost, and I
    would like to know your concerns and how you would address
    them.
        Ms. OLSON. Well, I am very concerned about anyone accessing
    confidential taxpayer information. I am a confidentiality hawk
    in that regard. And I think that if the law is followed, then
    the inappropriate people will not get access to that. There are
    criminal sanctions for improper inspection and disclosure. The
    issue is how do you detect that? And that is really something
    that not only is for GAO and the Inspector General to look at,
    but also Congress to make sure that----
        Ms. SEWELL. I think the Inspector General--I think all of
    them have been summarily dismissed.
        Ms. OLSON. Pardon?
        Ms. SEWELL. I think the Inspector Generals have been
    summarily dismissed.
        Ms. OLSON. Right, but that is their function to look at
    fraud, waste, and abuse.
        I also think that there should be notification procedures,
    you know, where someone's information has been accessed
    improperly, and that would give someone the right, an
    individual, or any taxpayer, the right to sue in a private
    cause of action, either the Federal Government employee or an
    independent contractor or any person is what the law says. The
    problem is getting that disclosure, and that is what is serious
    right now. We don't know.
        Ms. SEWELL. I am running out of time. I think what you are
    saying is we need more transparency in government and
    accountability in government. I think all of us agree that the
    IRS can do it more efficiently and more effectively, but I just
    want this committee to know we cannot do it when funds are
    frozen, and we are not getting access to the IRS to actually
    complete any of these tools.
        I, like the chairman, do agree that certain populations I
    feel are targeted for audits. They are low-hanging fruit. They
    are people who literally don't make more than $50,000 a year.
    Using the Earned Income Tax Credit, they are able to decrease
    their liability, and that is fair. But why are they four times
    more likely to be audited than some complicated tax return?
        Having said that, I look forward to working on this
    committee to address the concerns that have been laid out by
    all of our witnesses on the panel.
        Thank you for your indulgence.
        Mrs. FISCHBACH. Thank you very much.
        And pursuant to committee practice, we will now move to 2-
    to-1 questioning, and I recognize Chairman Smith.
        Chairman SMITH. Thank you, Madam Chair Fischbach. That is a
    great, great thing to say.
        The Congressional Budget Office has a track record of
    wildly missing the mark when it comes to projecting economic
    and fiscal outcomes. In 2022, Democrats gave the IRS an $80
    billion windfall that CBO initially projected would bring in
    $200 billion in revenue. Not surprisingly, the CBO has been
    proven wrong again on this point. The IRS has missed CBO's
    initial revenue projection from enhanced IRS resources by 56
    percent, which adds up to billions of dollars.
        Mr. Dublois, I was in the back office watching your
    testimony, and you were speaking my language because you are
    dead-on with the failures of Joint Tax and CBO because they
    work hand-in-glove when it comes to tax policy. They have
    proven to be wrong. Whether it is the Tax Cut and Jobs Act of
    2017, or whether it was the Inflation Reduction Act, they were
    off by hundreds of billions and, in some cases, trillions of
    dollars in their scores. And if we as lawmakers have to make
    decisions based on CBO and Joint Tax's analysis, you bet it had
    better be right, and it hasn't been.
        So, Mr. Dublois, as you know, part of today's hearing is
    focusing on the return on investment from the Inflation
    Reduction Act. Based on your previous research related to CBO
    projections and government funding, why do you think CBO has
    been so incorrect on their projections?
        Mr. DUBLOIS. Well, thank you for the question, Chairman
    Smith.
        I think you are exactly right. Specifically, regarding
    their accuracy on the Inflation Reduction Act and the enhanced
    enforcement efforts, I think it is pretty clear CBO
    dramatically overstated the efficiency of the IRS. It is
    readily apparent when considering the estimated ROI they had
    for the enhanced enforcement effort returns compared to the
    actual ROI, which is off by a factor of sixfold, just for
    fiscal year 2024. The actual ROI is less than one, meaning for
    every $1 in revenue gained through the enhanced enforcement
    efforts, the IRS has already spent more than $1 to gain that.
        But consider today--and I know you have spoken to this in
    the past--under the CBO's broken model, if Congress were to
    rescind this slush fund to the IRS, they would assume that the
    deficit would increase. In reality, I think it is pretty clear
    that an $80 billion fund to the IRS isn't all that helpful
    towards deficit reduction, and the early results seem to
    suggest that.
        I would add more broadly, as I mentioned in my testimony, I
    think CBO does contain an implicit bias of underestimating the
    costs of increasing the size of government and overstating the
    costs associated with tax relief. This is due to a number of
    factors, from incorrect assumptions about welfare enrollment,
    the pace of economic recoveries, organic revenue growth that is
    generated when you give substantial tax cuts to the middle
    class. And I think these errors reflect this implicit bias that
    requires on CBO's part some serious self-reflection in order to
    make sure we don't make the same mistakes again in the future.
        Chairman SMITH. Thank you.
        Mr. Sepp, first off, welcome back to the best committee in
    Congress.
        Mr. SEPP. I agree.
        Chairman SMITH. Thank you. This is why you are invited
    back. We appreciate you being here to share your expertise as
    it relates to the modernization efforts at the IRS.
        We have read your organization's report which gave the IRS
    a D grade for modernization. Can you share with the committee
    more about the IRS's history of modernization efforts? And what
    is the biggest factor that led to giving the agency a D in
    their modernization efforts?
        Mr. SEPP. Glad to do so.
        The history of IRS modernization really dates back to the
    1950s. There was an interesting headline in Time Magazine in
    1962 that the IRS is developing a computerized system of
    taxpayer records that will frighten the living daylights out of
    taxpayers. Since then we have had various modernization
    programs under acronyms like ERP, TISM, TAS, TSR, all kinds of
    different modernization systems that have ballooned in costs
    dramatically, sometimes doubling in cost and falling behind.
        We are witnessing that now with the replacement of the
    individual master file. Back in 2009, the IRS had projected
    that this project would take until 2028 to complete. What is
    the date now? It is still 2028. Did the infusion of funding
    from IRA have any impact on that? Were they falling behind and
    it is allowing them just barely to keep up? We don't really
    know that the because the metrics aren't adequate. That is one
    thing that went into the D grade in our report, and we brought
    copies of it along by my colleague, Debbie Jennings, who
    contributed very well to this testimony along with Demian
    Brady, but there are other elements in the overall grade of D.
        The IRS actually did better in simplifying notices,
    letters, and forms, a B grade. I think that reflects some of
    what Nina had said, TIGTA is praising some of these
    modernization efforts. But in others, like I just said,
    progress and scanning technologies, customer service
    technologies, they are still not making the grade. We have got
    to help them do better.
        Chairman SMITH. Thank you.
        Any American who has spent one minute interacting with the
    IRS knows the agency desperately needs to be modernized. But
    the main goal behind modernization ought to be improving the
    taxpayer experience, not just giving an agency with a horrible
    track record of betraying the trust of taxpayers billions of
    more dollars in additional funds to hire more people and
    increase audits.
        Mr. Ladwa, in your opinion as an expert in tax
    administration with nearly two decades of experience in
    modernizing tax agencies across the world, what can the IRS do
    to modernize its operations? And where does the IRS rank
    compared to other tax agencies when it comes to utilizing new
    technologies, such as artificial intelligence and machine
    learning?
        Mr. LADWA. Thank you, Chairman. I also would like to be
    invited back.
        I think we touched upon it in terms of if I first start
    with taxpayer experience, and I think in order to get the best
    taxpayer experience, I think we need transparency, and real-
    time transparency, not waiting to see once I have submitted a
    tax return what the amount I owe or am due is.
        In order to do that, we have to start with modernizing the
    databases that hold these types of customer records, the
    taxpayer records. We call them customers in the U.K.
        How does the IRS rank in terms of AI and modernization? In
    general, I think I have seen from working with different
    countries that the first real sort of journey that people go on
    is actually recognizing that they need to modernize. Some
    countries don't even recognize that they need to modernize. I
    am aware that there are sort of AI prototypes and things going
    on, but I think in parallel to deploying tactical solutions on
    top of old architectures, I think there needs to be a real
    review, and my colleague next to me said the same thing, in
    terms of really holding how we move away from the old cobalt-
    based systems into newer technologies, as well as deploying AI
    capabilities that can help increase tax revenue.
        Chairman SMITH. Thank you, Mr. Chair.
        Chairman SCHWEIKERT. Thank you.
        Mrs. Fischbach.
        Mrs. FISCHBACH. Thank you very much.
        And, Mr. Dublois, Chairman Smith kind of got at it and was
    mentioning some of the CBO's overestimating and some of the
    biases. And, you know, I was just wondering if maybe you could
    expand on some of those--getting at more of those biases? And
    what are some of the other biases that you think CBO has
    demonstrated, how do you think they shape those incorrect
    projections and recognizing them, I guess? So just looking
    maybe to drill down a little bit more on what we were having
    the discussion with Chairman Smith.
        Mr. DUBLOIS. Sure. Happy to, Congresswoman. So a couple
    things. I think if you look over the last 15 years to some of
    the most substantial pieces of legislation that had been placed
    before Congress, whether it is 2009 stimulus bill, the
    Affordable Care Act, the Inflation Reduction Act, we see an
    error rate that is alarming because it means that Congress is
    not being equipped with the information that they need to make
    accurate decisions at the time they are voting on legislation,
    because the actual costs associated with that legislation
    differs so substantially from the fiscal reality that occurs.
        And as I alluded to in my testimony, what is most
    concerning to me, is that those errors frequently tend to be on
    the side of a fiscal mistake that underestimates the cost of
    new or increased government programs and overestimates the
    costs associated with tax relief. We have seen it time and time
    again with legislation after legislation.
        Now, if I were the CBO, I would be thinking, How can we
    adjust some of our assumptions about things like the IRS is our
    ally? How can we not make the same mistake that we did about
    welfare benefits when we looked at the post-2009 recession
    economic recovery, and it came out to be record slow? What can
    we do to make sure we don't make those mistakes again?
        I would hope those conversations are happening at the CBO's
    level. But I am concerned that they are not. And I am concerned
    that even the baseline itself that Congress uses from--that CBO
    uses to inform Congress is itself containing flaws that will
    continue to lead Congress down a road towards making inaccurate
    decisions because it is based on inaccurate information.
        Mrs. FISCHBACH. And maybe without going into it too much--
    --
        Mr. DUBLOIS. Sure.
        Mrs. FISCHBACH [continuing]. Do you think that Congress
    needs to take action to make some of those things happen that
    you are----
        Mr. DUBLOIS. Yeah, I think--two things, first, I would like
    scores with somewhat of a grain of salt, number one. Number
    two, I think Congress should seriously look at amending
    requirements about how the baseline is constructed, and also,
    think about viewing it differently. I mean, I have briefly
    alluded my testimony to whether we look at a current law
    current or policy baseline. This shouldn't be controversial, it
    should be bipartisan. When the Bush tax cuts were up for
    expiration in the early 2010s, it was the Obama administration
    who was advocating for a current policy baseline.
        I think considering the current policy baseline in light of
    conversations around reconciliation is the right way to go, and
    yet, CBO is continuing to use a current law baseline. So I
    think we need to have those conversations, and Congress should
    play a very important role in that.
        Ms. FISCHBACH. Thank you very much.
        And, Mr. Sepp, Chairman Smith did kind of get at
    modernization a little more broadly. And I wanted to ask you,
    you know, a little bit about the direct file return. And, you
    know, the Inflation Reduction Act contained $15 million for
    them to study the feasibility and cost of establishing the
    direct file program. Yet, the Biden administration overstepped
    its authority and created the pilot program which cost the IRS
    around $129 million without congressional approval.
        You know, do you agree that Congress did not authorize the
    establishment of the direct file program in the IRA?
        Mr. SEPP. Yeah, I would agree with that.
        Mrs. FISCHBACH. And the IRS had previously indicated that
    they are considering expanding the program. Given the over-$900
    per filer they spent in 2024, do you think this would provide a
    good return on investment for taxpayers?
        Mr. SEPP. No, because there are other imperatives that the
    IRS could be using these resources for. Let's pick a number. It
    is between $114 million, which is what the IRS set aside first
    year of direct file, and $250 million to run the system a year.
    That is the high-end projection. Let's take a middle one at 200
    million a year for a direct file going forward. Over a 10-year
    period of time, $2 billion.
        Now, the service has said that it needs an additional $3
    billion for modernization outside of what was given in IRA.
    Shift it out of direct file, and you are two-thirds of the way
    there in meeting that. Or take a look at low-income tax clinics
    and the Voluntary Income Tax Assistance Program, the Elderly
    Tax Counseling Program combined, that is about $80 million a
    year. You could more than double the funding for those
    organizations which serve moderate- and low-income taxpayers
    rather than direct file. I mean, those are choices Congress
    should be considering right now.
        Mrs. FISCHBACH. Thank you very much. And thank you all for
    being here. And I yield back.
        Chairman SCHWEIKERT. Thank you, Mrs. Fischbach.
        Ms. Chu.
        Ms. CHU. Ms. Olson, thank you for your 18 years of service
    as our country's national taxpayer advocate. You know the
    system inside out. And one of your accomplishments as taxpayer
    advocate was working with the IRS to adopt the Taxpayer Bill of
    Rights to more clearly articulate taxpayers' rights to the
    public and the IRS.
        And one of those 10 rights is the right to confidentiality
    in which it says: Taxpayers have the right to expect that any
    information they provide to the IRS will not be disclosed
    unless authorized by the taxpayer or by law. Taxpayers have the
    right to expect the IRS to investigate and take appropriate
    action against its employees, return preparers, and others who
    wrongfully use or disclose taxpayer return information.
        Well, taxpayers entrust the IRS with their most sensitive
    information, and Congress has gone to great lengths to ensure
    that it be kept safe and treated with respect. In fact, you
    asked us to imagine what would happen to that trust and to
    voluntary compliance if taxpayers' confidential information is
    inspected or disclosed by actors outside of the you--IRS.
        And yet, we have Elon Musk, so-called Department of
    Government Efficiency, which has gained access to the
    Treasury's Bureau of Fiscal Service, the sensitive payment
    system responsible for paying out more than $6 trillion in
    benefits, tax refunds, Treasury bonds, and other payments each
    year. And what that means is that unvetted, unaccountable
    billionaires and their staff could access People's Social
    Security numbers, bank information, and tax returns, which are
    protected under Section 6103 of the Tax Code.
        Can you specify the types of confidential taxpayer
    information that is in the payment system that is endangered
    through this action? And also, can you imagine for us what the
    consequences are to the voluntary system of taxpayer compliance
    with this action?
        Ms. OLSON. Well, the very, very basic information that is
    available is the taxpayer's name, the taxpayer's identity, the
    amount--their address, their Social Security number, the amount
    of the refund, the type of tax that the refund relates to, the
    type of--the year, if BFS is levying--is issuing a levy or
    doing an offset, you have all of that information, what the
    total debt is, et cetera.
        This is very personal information and can be very damaging
    to taxpayers. The fact that there is debt that you have is
    something that is closely guarded, unless the IRS has decided
    to file a notice of federal tax lien, and that is a very
    considered opinion, you know, a considered decision.
        Ms. CHU. And I want you to imagine what would happen to
    taxpayer compliance.
        Ms. OLSON. Well, I personally believe that confidentiality
    is core why taxpayers agree to send in and self-assess. Let me
    repeat, self-assess their tax liabilities on the 1040, or
    whatever income tax return they are using. And if they believe
    that that information is widely disseminated throughout other
    Federal agencies or State agencies or local agencies, then this
    will actually be a bar to people. It will chill people
    reporting information.
        Ms. CHU. Ms. Olson, the Trump administration sent an email
    to almost all Federal employees, including IRS employees about
    a so-called deferred resignation. But in reality, this was an
    attempt to pressure and corner civil servants into quitting.
        What impact will that have on taxpayers who rely on the
    IRS? And will these coerced job cuts and firings even save the
    taxpayers money?
        Ms. OLSON. Well, I am concerned about the IRS workforce and
    my former employees. And I think what I said in my testimony
    that in order to do true modernization, you have to retain the
    people who have institutional knowledge while you are bringing
    on more people. And trying to just willy nilly disappear people
    or get them to retire means that you will very likely get the
    most talented people leaving because they can find their places
    in the private sector.
        So what you have done is a brain drain from the IRS which
    will mean that modernization will not occur with that
    knowledge. Outside contractor cannot bring that internal
    knowledge of tax administration and the tax system, no matter
    how talented they are.
        Ms. CHU. And will it save us money?
        Ms. OLSON. I doubt it, in the long run.
        Ms. CHU. Thank you. I yield back.
        Chairman SCHWEIKERT. Ms. Van Duyne.
        Ms. VAN DUYNE. Ms. Olson, do you have any evidence that
    confidential taxpayer data has actually been illegally accessed
    or illegally disclosed?
        Ms. OLSON. As GAO has said, we have not seen that. That is
    part of the problem there is no transparency----
        Ms. VAN DUYNE. So we have absolutely seen no evidence that
    that has happened, even though we heard it today? Except for
    the fact that we actually had existing IRS policies that
    allowed security measures to fail that prevented an employee
    from un-authorizing access in leaking the tax returns of Donald
    Trump, and approximately 76 other individuals way before we
    ever even saw Elon Musk take an interest in this. We do know
    that that happened.
        Ms. OLSON. You know what, I know that IRS employees are
    trained from day one about----
        Ms. VAN DUYNE. But we do know----
        Ms. OLSON [continuing]. Confidentiality and information.
        Ms. VAN DUYNE. I am going to take my time back, Ms. Olson,
    thank you very much. Ms. Olson, thank you very much.
        But in stark contrast, you know, Elon Musk's approach to
    this is about transparency. It is about open systems. And we
    say, ``transparency in government,'' it doesn't mean that were
    allowing rogue employees to weaponize confidential records. It
    actually means creating systems where access is properly
    monitored, security logged, and justified with clear oversight.
        The IRS scandal demonstrates what happens when
    unaccountable bureaucrats control private citizen data with
    very little transparency or consequences. Musk's vision by
    contrast--and he has been very clear about this, as is
    President Trump's vision--it represents a future where
    government efficiency is achieved through technological
    safeguards, open auditing mechanisms, and a commitment to
    individual privacy.
        So as much as we have heard all of these things about an
    unelected member of our community having access, we have seen
    what has happened when unelected bureaucrats have access, and
    we have seen thousands of information on taxpayers, I would
    argue, on Republican or highly conservative members of our
    society have been leaked. That is a fact, that has happened.
        Ms. OLSON. May I respond?
        Ms. VAN DUYNE. I actually have a statement I would like to
    make, but if you want to respond in writing later on, I would
    appreciate that.
        But I do want to get back to the point of this entire
    hearing, which I would hope that both sides would want to do
    that. In conversations with north Texans, I have repeatedly
    heard complaints regarding the IRS' poor system delays. Their
    poor customer service and lack of responsiveness in
    transparency. Ironically, we continue to hear claims that the
    IRS just needs more funding to improve. But the fact is that
    when the government agency was given a significantly larger
    budget, it doubled its employee count. Customer service
    actually declined. But harassment of law-abiding American
    taxpayers increased.
        And rather than focusing on improving the core functions of
    the IRS, the previous administration spent their time and our
    money creating misguided and expensive pet projects like the
    new direct file scheme. In its 2024 annual report to Congress,
    the National Taxpayer Advocate found that it took the IRS
    almost two years to resolve identity theft cases and issue
    refunds to victims.
        The advocate noted that, quote: These delays impacted
    nearly half a million taxpayers and were even worse than the
    delays seen in fiscal year 2023. The delays were deemed
    unconscionable by the taxpayer advocate, and I could not agree
    more.
        In addition to egregious delays in the process that ERTC
    claims, delays in the processing of regular tax returns have
    hurt people across our country, especially small businesses and
    their most basic operations of the IRS. It must be modernized
    to better serve and protect small businesses. I think that is
    exactly where you see the focus of this administration.
        Mr. Sepp, would you agree that IRS should focus on
    congressionally mandated functions before working on
    questionable initiatives, like the direct file program?
        Mr. SEPP. Absolutely it should. There are many priorities
    that should be in the front of the line here, and touching on
    this cybersecurity question, which we haven't really explored
    in detail, GAO has warned that the IRS lacks an oversight
    structure to protect taxpayer data from cyber as well as
    internal threats since 2018.
        And so how do we approach that comprehensively? I think it
    is a first-things-first kind of operation. We have to look at
    individual master file, business master file, cybersecurity,
    and devote the resources there.
        Ms. VAN DUYNE. Thank you very much.
        And, Mr. Dublois, as is mentioned, CBO failed to accurately
    project the amount of revenue that IRA funding would bring into
    the IRS, suggesting that perhaps the funding was not properly
    used on enhanced enforcement efforts in this instance.
        What can be done to improve the IRS' return on investment?
    And it is really enhanced enforcement efforts, or is it
    something else?
        Mr. DUBLOIS. Thank you, Congresswoman, for the question. I
    would say doubling down on the enforcement efforts would be a
    mistake. That is what caused the mess, so to speak. And I think
    evaluating the fundamental assumption that these enforcement
    efforts are a good idea is something that we need to do. It is
    not just bad fiscal estimates and a poor ROI, it is the reality
    that these collection efforts are going to hit middle-class
    Americans.
        So collectively, I think Congress needs to reevaluate this
    $80 billion venture, realize it was a mistake that shouldn't be
    repeated, but also relieve the IRS of that funding, and engage
    in better activities in the first place.
        Ms. VAN DUYNE. Thank you very much. I yield back.
        Chairman SCHWEIKERT. Ms. Malliotakis.
        Ms. MALLIOTAKIS. Thank you, Mr. Chairman. I want to use my
    time to highlight a real critical problem that has been facing
    my constituents, and that is the issue of stolen IRS checks.
    This has cost my constituents alone millions of dollars. And in
    2022, there was $4.7 billion that was purposed for IRS business
    system modernization.
        The IRS' need for information technology modernization is
    critical with the potential to reallocate IRA funds from
    enforcement to IT improvements, the key priority of the newly
    established Department of Government Efficiency.
        The IRS plays a critical role in ensuring taxpayers receive
    their hard-earned refunds securely and efficiently. However,
    outdated IT infrastructure and delivery systems have left many
    vulnerable to fraud and stolen tax reimbursement checks.
        In my district alone, 377 cases of stolen checks totaling
    $5 million--$5,399,808 to be exact. Nationally, it has been
    reported that the IRS--that for IRS checks alone,
    approximately, 40,000 checks have been stolen in 2024, up from
    just 100 in 2022.
        So, obviously, we are going backwards, despite the funding
    that was put in place for IT modernization. The numbers are
    getting worse. The value stolen has been approximately $1
    billion as well as the hardship and stress that the intended
    recipients had to ensure as they seek to get their checks.
        Modernizing these systems is no longer optional. It is
    necessary to protect taxpayers, enhance efficiency, and reduce
    fraud. And we know the fraudsters are always ahead of the game.
    Right, they are two steps ahead.
        By investing in secured digital payment options, real-time
    tracking, and enhanced verification measures the IRS can better
    safeguard taxpayer funds and restore trust in the system. It is
    time for meaningful upgrades to ensure the agency meets the
    demands of the 21st century and prevents financial harm to
    American taxpayers.
        I was pleased to learn that the Bureau of the Fiscal
    Service recently launched a pilot program to leverage existing
    technology and services offered by the U.S. Postal Service to
    track the transmittal of checks. And I also recently introduced
    the Recovery of Stolen Checks Act with my colleagues
    Congresswoman Terri Sewell and Congressman David Kustoff. It is
    bipartisan legislation. It is common sense. And it would allow
    taxpayers who have had tax refunds stolen in the mail to
    receive a replacement check, via direct deposit, which believe
    it or not has been incredibly difficult to get the IRS to move
    people to direct deposit so they don't become victims again.
    And my legislation will fix that.
        So the IRS' failure to modernize and adapt has led to a
    significant rise in stolen checks and billions and dollars in
    fraud. But despite these ongoing issues, the agency still lacks
    the ability to offer taxpayers that direct deposit option when
    their checks are stolen.
        And so I will start with, I guess, Mr. Ladwa, but I am
    happy to anyone who wants to chime in. Based on your experience
    working with these tax agencies from around the world, can you
    speak to the impact that modernizing will have on preventing
    fraud and abuse? And if you have any particular example of an
    effort that has led to secured tax refunds.
        Mr. LADWA. Thank you, Congresswoman. So I think it is an
    interesting--listening to, you know, the inherent problem we
    have this fraud here, especially when it comes to checks.
        So, first thing I will say with my experience is that
    around the world I have seen that tax agencies are phasing out
    checks more and more often to move to digital-based solutions,
    right, which essentially can speed up the refund prices in a
    matter of, like, sort of minutes or seconds with real-time sort
    of the digital payments that happen or requests for refunds.
        Technologies exist, which allow us using things like
    machine learning to categorize taxpayers, high-risk taxpayers
    based upon previous behaviors, for example. So we know that if
    someone is requesting a refund, what is the sort of profile
    based upon prior submissions, based upon prior behavioral
    patterns. Have we sent them an enforcement letter before, or
    some type of debt collection letter? Should we be having a
    human being audit this person before a refund can be sent? So
    that is the first thing I will say.
        In regards to specific references, I can get back to your
    staff in regards to----
        Ms. MALLIOTAKIS. Mr. Sepp, I saw you nodding your head. Do
    you have anything you would like to add there.
        Ms. OLSON. If I might add something?
        Ms. MALLIOTAKIS. I would like for both of you to comment if
    time allows. Just a minute.
        Mr. SEPP. Let me just add, there is a parallel experience
    going on right now in development of farm bill reauthorization.
    Food stamp fraud is a real problem.
        Ms. MALLIOTAKIS. Also----
        Mr. SEPP. And there are electronic payment solutions being
    discussed there. So you probably have some great synergy with
    members who are crafting that bill.
        The other thing I would like to point out, Mr. Ladwa's
    experience and that of many other private sector individuals
    can and should be harnessed through something like the IRS
    Oversight Board that was created in the 1998 bill. It was
    tailor-made to bring private sector expertise to problems like
    these.
        Chairman SCHWEIKERT. Ms. Olson, just within seconds.
        Ms. OLSON. Yes, I was just going to say for decades I have
    recommended that Treasury creates a debit card similar to what
    you have in Social Security where people don't have bank
    accounts, they are unbanked, but they get their Social Security
    payments direct deposited on a debit card has been negotiated
    by the U.S. Government. And that is another solution to avoid
    some of these lost checks.
        Chairman SCHWEIKERT. Thank you. Good. Thank you.
        Ms. DelBene.
        Ms. DelBENE. Thank you, Mr. Chairman. And I want to thank
    all our witnesses for being with us here today.
        At the direction of President Trump, Elon Musk and the
    DOGE, they have gained access to Americans' most sensitive,
    personal data. President Trump and Elon Musk have clearly no
    respect for the rule of law. We have seen the IG fired,
    employees fired for disagreeing.
        In fact, I would like to insert this article into the
    record titled: The U.S. Treasury Claimed DOGE Technologist
    Didn't Have Right Access--when he actually did.
        Mr. Chairman.
        Chairman SCHWEIKERT. Without objection.
        [The information follows:]
       [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Ms. DelBENE. Thank you.
        Elon Musk has called for the impeachment of the judge who
    blocked DOGE's access to Treasury's database and has called for
    the President to defy judicial court orders. This is
    unprecedented, it is dangerous, and it is illegal. Five former
    Treasury Secretaries wrote about the dangers of providing
    unfettered access to our Nation's payment systems to political
    actors, like Elon Musk and his team.
        Ms. Olson, thank you for all of your service. I wondered if
    you could talk about what events during the Nixon
    administration led to the major reform of what is now Section
    6103, and what are the parallels between the events of nearly
    50 years ago and those being taken by the Trump administration
    today? Your mic.
        Ms. OLSON. Before I do, I would like to correct the record
    that Craig Littlejohn was not an IRS employee. He was in fact
    an IRS contractor. And he is serving time in jail for his
    unlawful leaking of individual taxpayer return and return
    information. So it was not the IRS employees who leaked that.
        Regarding 1970s, what happened was that prior to 1976 and
    the Tax Reform Act of 1976, the President controlled the
    decisionmaking as far as who had access to return and return
    information. So the Department of Agriculture asked for all
    return information and returns on all American farmers. And
    that triggered Congress to be very concerned. What were you
    doing with this information? Why were you getting this
    information?
        At the same time, there was concern about the White House
    using return information, both to target enemies, but also, to
    inquire and interfere with audits of allies of the White House.
    So that politicization of return information led Congress to
    flip so that whereas before 1976, the President and the
    executive branch controlled who had access to that information.
    6103 says very clearly that return information is
    confidential--returns and return information is confidential,
    and it is not to be shared except by statute, namely, where
    Congress describes where and now it is going to be shared and
    subject to what limitation.
        Ms. DelBENE. Thank you. Can you speak to the importance of
    Treasury maintaining the disbursement of congressionally
    unauthorized payments and the risks of breaching a fundamental
    trust and suspending those funds?
        Ms. OLSON. Well, I just think this is very personal
    information. And if we are asking people to come in and give us
    their financial information so we don't have to spend billions
    of dollars seeking it and tracking people down, then it is very
    important that they know that that information is held closely
    to the government's chest and not shared willy-nilly around
    agencies. Only for specific purposes that Congress has
    authorized.
        Ms. DelBENE. And, finally, how did the actions of the DOGE,
    the Department of Government Efficiency and Elon Musk threaten
    the fundamental rights of taxpayers? And how does that impact
    the efficiency of our tax system?
        Ms. OLSON. Well, see that is very hard to answer because we
    don't know what they are doing. So we don't if what they are
    doing is actually pursuant to some--at a illegally authorized
    exception, or it is not. And that is where we have to have
    greater transparency on this. And I think the question marks
    are creating uncertainty and concern among taxpayers about how
    their information is being used and who is getting it. And that
    will erode trust in the tax system.
        Ms. DelBENE. And in the absence of an Inspector General to
    provide accountability, who is going to provide that?
        Ms. OLSON. I don't know. If you find out your information
    has been improperly accessed, you have access to the courts to
    be able to sue. And if it is by a third party, it is subject to
    punitive damages.
        Ms. DelBENE. And that is after the effect?
        Ms. OLSON. That is after the effect. And for the taxpayers
    who Craig Littlejohn unconscionably exposed their information,
    that is small comfort.
        Ms. DelBENE. So, if we want transparency, one should have
    an unbiased Inspector General. Two, Congress needs to have a
    knowledge of what is going on. And then you ask to be approved.
        Ms. OLSON. That is the Inspector General's task to attack
    fraud, waste, and abuse. And in the tax agency, they
    particularly look at violations of 6103. It is their job to
    investigate that.
        Ms. DelBENE. It is unfortunate that there is not bipartisan
    consensus on that. Thank you so much. I yield back, Mr.
    Chairman.
        Ms. MALLIOTAKIS [presiding]. Thank you. And the chair
    recognizes Mr. Yakym from Indiana.
        Mr. YAKYM. Thank you, Madam Chair. And thank you to our
    witnesses for being here today.
        Ms. Olson, Mr. Littlejohn was an IRS contractor that stole
    the tax returns for thousands of Americans, including President
    Trump. He pled guilty to, do you know how many counts of
    unauthorized disclosure of tax return?
        Ms. OLSON. I don't know. I understand maybe 70-some odd.
        Mr. YAKYM. One count. One count he pled guilty on.
        And we prosecute, by the way, for serial killers. We don't
    prosecute them just on one count. We go after everything. But
    on this one, we went after truly ultimately one count.
        There are 5,000 IRS contractors today that have access to
    confidential taxpayer data.
        Ms. Olson, do you know if the IRS has closed all of the
    vulnerabilities that allowed Mr. Littlejohn to steal this
    information?
        Ms. OLSON. I don't know that. I do know in preparing for
    this hearing that I found an Inspector General report that
    reported this summer that the IRS had not retrieved laptops, et
    cetera, from contractors or limited their access, and I am very
    concerned about that.
        Mr. YAKYM. In short, the answer is no. The IRS has not
    closed the vulnerabilities that allowed Mr. Littlejohn----
        Ms. OLSON. Well, I can't answer that question because I
    don't know what vulnerabilities there were that Littlejohn
    accessed.
        Mr. YAKYM. I am giving you the answer. The answer is no.
        So the largest wholesale theft of confidential taxpayer
    information--we had just one charge. How many years is he doing
    in prison? Do we know the answer to that?
        Ms. OLSON. Under 724--I forget the statute. But under the
    statute, you can only get up to 5 years in prison. And it
    doesn't matter how many returns you have accessed. So that is
    something Congress should look at.
        Mr. YAKYM. I completely I agree.
        Ms. OLSON. Then maybe make that statute per return or per
    access.
        Mr. YAKYM. That is absolutely something that we should look
    at. The Biden administration prosecutors argue that just the
    one count covered Mr. Littlejohns multitude of thefts. And he
    leaked confidential tax and returns to two news outlets. Do you
    know, are those news outlets authorized to view confidential
    tax information on those thousands of Americans?
        Ms. OLSON. No, they are not.
        Mr. YAKYM. All right. So as far as we know, do the outlets
    still have ongoing access to the thousands of confidential tax
    returns that were stolen earlier?
        Ms. OLSON. I don't know that.
        Mr. YAKYM. Thanks. So my colleagues are talking about the
    sanctity of tax returns while whistling past the graveyard of
    the largest theft of tax returns in history by Mr. Littlejohn.
        He stole thousands of confidential tax returns, including
    President Trump's tax returns, from our fellow Americans, but
    he has been labeled as a quote, unquote, ``public hero'' by
    left-wing groups because of whose tax returns he actually stole
    and leaked.
        Ms. Olson, in your testimony, you know that the IRS'
    progress in improving its level of service since the passage of
    the Inflation Reduction Act. The taxpayer advocate found that
    during the 2024 filing season, the IRS achieved an 88-percent
    level of service with an average answer speed of three minutes.
    Does that mean that 88 percent of all taxpayer calls to the IRS
    were answered in three minutes?
        Ms. OLSON. No, this is part of the problem with that
    measure. What that measure does is it measures how many calls
    that were routed by the phone tree system to a live assister
    were answered. What it doesn't mean is how many calls overall
    actually were routed to a live assister out of all the calls.
    And that is where you get to 32 percent. Only 32 percent of the
    calls were routed to a live assister.
        Mr. YAKYM. Indeed, because this level of service only
    counts for 10 million calls out of the nearly 40 million it
    received. It does not include taxpayers calling with other
    questions----
        Ms. OLSON. Right.
        Mr. YAKYM [continuing]. Like tax law questions, compliance
    issues, identify-theft issues, collection matters, nor does it
    count the calls routed, as you said, to an automated to a live
    assistant.
        So when you tally all that up, we are talking about only 32
    percent. So, when Janet Yellen, President Biden's Treasury
    Secretary, promised, quote: ``The vast majority of callers will
    be connected to live assisters.'' That was not true
    necessarily, was it?
        Ms. OLSON. Well, not when you count all the calls. That is
    correct.
        Mr. YAKYM. So when something up, by quoting the taxpayer
    advocate one more time, the Biden IRS, quote: Add allocated
    resources to hit ambitious but arbitrary goals that mean less
    than meets the eye, and consequently, have required the IRS to
    neglect calls to other telephone lines and work streams like
    paper correspondence.
        The pomp and pageantry surrounding the Inflation Reduction
    Act's improvements to the IRS customer service is, I think, of
    a bit if a mirage. It is like looking at Sunday's Super Bowl
    result and saying, ``Well, yeah, you know but Patrick Mahomes,
    he threw for 257 yards, I think, a bit of a mirage.'' It is
    like looking at Sunday's Superbowl result and saying, ``Well,
    yeah, you know, but Patrick Mahomes, he threw for 257 yards,
    but Jalen Hurts only threw for 221.''
        So sometimes the underlying stats don't only always tell
    the real and actual story of the game. And with that Mr.
    Chairman, I yield back.
        Chairman SCHWEIKERT. I was wondering how long it was going
    to be before someone did a Super Bowl reference.
        Mr. Miller.
        Mr. MILLER of Ohio. Thank you, Mr. Chairman. And thank you
    to our witnesses for their time and testimony today. We are
    here to discuss the importance of ensuring taxpayer dollars
    yield a real return when invested in IRS modernization efforts.
        The need for a modernized IRS is clear and urgent as we
    have heard today. Taxpayers deserve an agency that keeps up
    with the times, operates efficiently, and acts as a responsible
    fiduciary of the American people's money, which is, I believe,
    what the IRS was intended to do.
        Modernization isn't just about convenience, it is about
    safeguarding taxpayer information and delivering a better
    customer service experience to the American people. They are
    entitled to this.
        We know that deploying new, efficient, and secure digital
    tools could save the Federal Government billions of dollars.
    Unfortunately, the IRS has struggled to deliver these intended
    outcomes and rather than investing in new and more secured
    technologies, which is somewhat puzzling to me, and we will get
    into it--the agency continues to utilize decades-old systems,
    which only make sensitive taxpayer more vulnerable.
        Mr. Sepp, by now, we are all well aware of the legacy
    system of the IRS. Not only does the IRS continue to utilize
    hundreds of old and obsolete systems, including fax machines to
    store and analyze and transfer sensitive taxpayer information.
    But the IRS also fails even to attempt to improve these
    systems. And let's be real. It looks like I just graduated from
    high school 2 days ago. I haven't even seen a fax machine out
    in the wild. I mean, anyone here that is working in technology
    or innovation in business and technology, or even for the
    public, you know, government to operate off for the American
    people, I don't even know what a fax machine looks like. Excuse
    me. It is confounding to me. And I understand that to a certain
    extent, you may say it is more secure because of a phone line.
    But I am not buying it anymore. It is 1960s technology. I was
    born in 1988. We need to do better.
        Going back, Mr. Sepp, can you speak to the risk associated
    with continuing to use or failing to maintain or update these
    legacy IT systems, especially considering the sensitive and
    private taxpayer information that is stored on them?
        Mr. SEPP. There is a huge risk. It is not only a 6103 risk
    with disclosure being in play, but accidental data breaches
    that could be massive. I mean, how many other agencies have one
    billion, billion individuals on their master file? I mean, that
    would rival Social Security, if not exceed it.
        And again, GAO has said since 2018 those systems are
    vulnerable. If we don't devote the resources to that kind of
    security, and we continue to worry about fax machines and
    keeping them up, we are headed for a major disaster.
        And I would just point out, we still don't have a clear
    idea of the milestones that the IRS intends to make with
    modernization, and whether they're keeping them.
        Paperless processing initiative is one of them. By this
    year, the Service is supposed to have all, all paper tax forms
    digitized. I don't know. Maybe someone on the panel knows had
    they met the 100 percent goal yet?
        Mr. MILLER of Ohio. We know the answer to that one.
        Mr. SEPP. You do?
        Mr. MILLER of Ohio. Well, I would speculate. So I shouldn't
    say we know the answer. But I would speculate that we know the
    answer to that. And throughout all these conversations, I would
    think to truly believe the IRS would do something to meet
    somewhere in the middle amicably between a fax machine and
    where we are today in 2025, which I think is pretty reasonable
    that there is some other system that could be put in place that
    would be a lot more safe, secure, and protective of the
    American people's sensitive information as we are talking about
    here today.
        And you know what? This is where I see a need for an
    outside individual to look at something like the IRS to make
    sure it is running more efficient and responsible for the
    American people, as we still have fax machines that are still
    in an agency, which is 1960s technology, which confounds me up
    and down.
        You know what? I'm glad for Mr. Musk, and I am glad that he
    is doing what he is doing with the federal government to clean
    this nonsense up, and to make it more secure and more safe for
    the American people.
        Mr. Ladwa, I am going do my best to squeeze this one in. If
    not, we will try. I will just go right to the question.
        Can you provide us a real-world example of tax agency
    utilizing AI and how this technology can help improve
    operations and efficiency?
        Mr. LADWA. Sure, Congressman. So I am bound by some privacy
    agreements for my customers. But I can certainly get back to
    you and your staff in terms of references and maybe even
    contacts to said tax agency. But let me answer your question on
    how they are doing it.
        So we talked a lot about AI. AI is lots of different
    things, not just a chat box. So one of the use cases we have is
    embedded machine learning. So embedded AI, which doesn't
    essentially leave to go outside of a sort of consolidated
    system, which is owned by the government, for example. And we
    are using things like predictions of taxpayer behavior, so we
    can be more empathetic to the taxpayers who can't pay, and a
    lot stricter with higher enforcement for the taxpayers who
    basically are not willing to pay or are trying to do some
    unfortunate activity. And we have got examples of that. As I
    said in my statement, five percent returns on investment.
        Mr. MILLER of Ohio. Thank you, Mr. Ladwa.
        Chairman SCHWEIKERT. The gentleman from New York.
        Mr. SUOZZI. Mr. Chairman, I first want to register my
    objection to the idea of two Republicans to every one Democrat,
    considering we have the same number of people when we started
    this hearing. I know it is in your power and purview to do
    that, but I find it offensive.
        Let me just first start by saying, you know, we really got
    to work together to try and solve the problems that we have
    here instead of fighting with each other. So, I want to just
    try and get some basic questions answered.
        There is a thing called the tax gap. How much money is owed
    to the IRS, and how much is collected by the IRS? And the IRS,
    in 2022, projected that there is $696 billion that was owed
    that was not paid.
        I wanted to ask each of the witnesses: Do you agree that
    there is a tax gap? And do you agree it is as big as $696
    billion?
        Mr. Dublois.
        Mr. DUBLOIS. I think there is a tax gap. I am not sure it
    is that large. And I don't think that the methods employed
    during the Inflation Reduction Act were the appropriate
    measures.
        Mr. SUOZZI. Okay. But I am just asking. Do you think there
    is a tax gap of--do you have any idea of the magnitude of it.
        Mr. DUBLOIS. I don't, I don't.
        Mr. SUOZZI. Is it hundreds of billions of dollars?
        Mr. DUBLOIS. I don't have an idea.
        Mr. SUOZZI. Is it hundreds of billions of dollars?
        Mr. DUBLOIS. I don't have an idea of the magnitude.
        Mr. SUOZZI. Okay. Mr. Sepp.
        Mr. SEPP. Yes and no.
        Mr. SUOZZI. Yes, you think there is a tax gap; you don't
    think it is $690 billion?
        Mr. SEPP. Correct.
        Mr. SUOZZI. How much do you think it is? Do you have any
    sense of that?
        Mr. SEPP. Less than half that. When you account for
    currently noncollectible tax debts and estimates that cannot
    possibly account for things when the IRS----
        Mr. SUOZZI. But $350 billion.
        Mr. SEPP. Or less.
        Mr. SUOZZI. Mr. Ladwa, do you have any sense of this?
        Mr. LADWA. I would say, yes, there is a tax gap. It is
    probably inappropriate of me from being from the United Kingdom
    to comment on the U.S. tax gap.
        Mr. SUOZZI. Okay. Ms. Kociolek.
        Ms. KOCIOLEK. Yes, GAO has reported on the tax gap, and we
    can get back to you with the details on the specifics.
        Mr. SUOZZI. Ms. Olson.
        Ms. OLSON. Yes, there is a tax gap. I think there are whole
    portions of it that can be accurately estimated. I think the
    hardest part is the unreported income. You don't know what you
    don't know.
        Mr. SUOZZI. Do you think it is as high as $696 billion?
        Ms. OLSON. It could be $400 billion.
        Mr. SUOZZI. Okay. So, hundreds of billions of dollars.
        Okay. So what's the best way for us to get that money? I
    need quick answers from people. What's the best way for us to
    collect that money?
        Ms. OLSON. So it is a combination of doing audits and
    collection, but also taxpayer service. And if I may just talk
    about return on investment for a minute----
        Mr. SUOZZI. No, no, no. I don't want to hear it. Ms.
    Kociolek, what is the best way for us to collect that money?
        Ms. KOCIOLEK. I can get back to you on that. I think we do
    have----
        Mr. SUOZZI. Mr. Ladwa, what is the best way for us to
    collect that money?
        Mr. LADWA. Understand who is filing late, who is paying
    late, and why they are paying late.
        Mr. SUOZZI. Mr. Sepp.
        Mr. SEPP. Taxpayer service and modernization come first.
        Mr. SUOZZI. And that includes the technology that Miller
    was referring to. We got this crazy outdated system.
        Mr. SEPP. Yes.
        Mr. SUOZZI. Mr. Dublois.
        Mr. DUBLOIS. I would wholeheartedly agree with Mr. Sepp's
    answer on that, modernization and taxpayer services.
        Mr. SUOZZI. Okay. People who come to work for the Federal
    Government, if you are a cabinet official, you have to go to
    these big hearings, a lot of people have to go through
    background checks, a lot of people have to go through security
    checks, if they get a security clearance. What kind of
    background checks or transparency into the background of Mr.
    Musk or the people that are working for him has been done? Do
    you know, Mr. Dublois.
        Mr. DUBLOIS. I don't know the background checks. I know
    President Trump had an electoral mandate to create the----
        Mr. SUOZZI. No, no, no, I understand that. He has an
    electoral manager to hire cabinet officials----
        Mr. DUBLOIS. Sure.
        Mr. SUOZZI [continuing]. But they have to go through
    hearings and things like--Mr. Sepp, do you know how these
    people are vetted?
        Mr. SEPP. No.
        Mr. SUOZZI. Mr. Ladwa, do you know how they are vetted?
        Mr. LADWA. No.
        Mr. SUOZZI. Ms. Kociolek, do you know how they are vetted?
        Ms. KOCIOLEK. We have not looked at these specific
    individuals.
        Mr. SUOZZI. Ms. Olson, do you know how they were vetted?
        Ms. OLSON. No.
        Mr. SUOZZI. What kind of access does Mr. Musk and his team
    have? What kind of changes have they been making to the
    computer programs? How many of those changes to computer
    programs are permanent? And how will that affect people going
    forward?
        Mr. Dublois, what is he doing?
        Mr. DUBLOIS. I don't know what he is doing----
        Mr. SUOZZI. You don't know. Okay.
        Mr. Sepp, do you know what he is doing?
        Mr. SEPP. No.
        Mr. SUOZZI. Mr. Ladwa, do you know what he is doing?
        Mr. LADWA. It would inappropriate for me to comment.
        Mr. SUOZZI. Ms. Kociolek, do you know what he is doing?
        Ms. KOCIOLEK. We have not looked at that.
        Mr. SUOZZI. Ms. Olson.
        Ms. OLSON. No.
        Mr. SUOZZI. Does anybody here know what they are doing?
    Does anybody here know what kind of keystrokes changes they are
    making and they are permanent? Does anybody know what their
    backgrounds are? Does anybody know what they are doing with the
    information that they have and how they are using it?
        And I agree with my colleagues who noted before that Mr.
    Littlejohn, who disclosed this information as a criminal and
    deserves to be in jail, and I am happy that he has been
    prosecuted. And anybody who has violated 6103, that takes
    private data and shares it with other people should be
    prosecuted to the full extent of the law.
        We in Congress have an obligation as an equal branch of
    government to monitor what is going on right now. We are all
    for finding cost efficiencies. I know Mr. Bean, for example,
    has the DOGE Committee. That is a great thing for us to look
    for efficiencies, to root out waste, fraud, and abuse. But
    there is a thing, a pesky thing called the United States
    Constitution, and it has the responsibilities of the United
    States Congress and the oversight and power of the purse. I
    yield back, Mr. Chairman. Thank you.
        Chairman SCHWEIKERT. Mr. Bean.
        Mr. BEAN. Thank you very much, Mr. Chairman. Good morning
    to you. And good morning, Ways and Means Committee. I know
    there are many members of the minority party that want to
    create a scandal out of President Trump's desire to know how
    many improper payments our government sends out each year. And
    as the co-chair of the House DOGE Caucus, I just want to take
    just one little tiny moment and set the record straight.
    Business as unusual is no longer acceptable. President Trump
    campaigned on changing Washington, and that is exactly what he
    is doing.
        President Trump is head of the federal government, and
    Secretary Bessent is in charge of the Treasury Department. If
    President Trump and Secretary Bessent want to open the books on
    Treasury payment systems, that is their prerogative. And we
    encourage him to do so, subject to applicable legal rules.
        After review and sign-off by career Treasury Department
    attorneys, Secretary Bessent gave read-only access to two
    Treasury department officials subject to safeguards that will
    prevent them from making changes to the payment system. Elon
    Musk himself does not have access to the system. Neither he nor
    DOGE have the power to cut off Social Security checks, Medicare
    benefits, or tax refunds.
        To clear up other issues, Elon Musk is a federal employee,
    special government employee. And he currently holds a top-
    secret security clearance that was granted by President Biden
    in 2022.
        The U.S. DOGE service is a dually created organization
    within the executive office of the President, and there is
    simply no evidence to suggest that Secretary Bessent or DOGE
    has compromised taxpayer privacy or broken any law.
        If you are doing what is right, you welcome audits. You
    welcome the sunshine. You welcome to open the books, and you
    want the world to see what you are doing. But if not, if not,
    what do you do? You criticize the messenger. You criticize the
    auditor. So it doesn't make any sense to me why this is such an
    issue. The American taxpayer is dancing in the street and
    saying finally. Finally, somebody is auditing the books that
    had been hidden in the shadows far too long.
        Ms. Kociolek, is there any evidence at all that
    confidential taxpayer data has been illegally accessed or
    illegally disclosed?
        Ms. KOCIOLEK. We have not done any work to identify that
    that has occurred.
        Mr. BEAN. In short, and no, there is no evidence, there is
    no evidence. So there is smoke, and there is accusations, but
    no evidence. So let's talk modernization.
        Mr. Dublois, Mr. Sepp, Mr. Ladwa, the IRS has been given a
    D on the grade of modernization. Is the D the correct grade? Is
    that fair that they have been given a D?
        Mr. DUBLOIS. In our report card, which Debbie Jennings and
    my colleague, Demian Brady, contributed to, we think it is a
    fair grade.
        Mr. BEAN. It is a fair grade. But wait a minute. We are
    using technology in your testimony, Mr. Sepp. You said we are
    using technology from the sixties. From the sixties. Wouldn't a
    grade of F be more appropriate?
        Mr. SEPP. That was the overall grade based on a B in form
    design, a C in other gadgets.
        Mr. BEAN. So it is still a low grade, we agree, Mr. Ladwa.
    You see it the world over. You see foreign nations' IRS's. Is
    it just us, or is everybody stuck in the sixties? Or is it just
    the United States IRS tax collection?
        Mr. LADWA. And there are other countries, but a lot of them
    have already started their modernization some time ago.
        Mr. BEAN. Okay. Very good.
        Mr. Dublois, why? Why is the IRS stuck in the decade of
    rotary phones and black and white televisions that were 3 feet
    wide.
        Mr. DUBLOIS. Well, I think--it is a great question,
    Congressman--and I think that is the question that the folks
    over at DOGE and Mr. Musk want to answer, which is why they are
    rightly turning a microscope under this agency that comes with
    an electoral mandate from President Trump. There was a pullout
    this morning, I saw it coming in, that DOGE has a net approval
    rating well outside the margin of error. As a taxpayer, I am
    glad we are getting scrutiny on that.
        Mr. BEAN. Amen.
        Mr. DUBLOIS. And I would add that there have been a lot of
    comments about unelected individuals having access to
    information. The entirety of the Internal Revenue Service is
    unelected. I welcome a microscope on that type of expenditure.
        Mr. BEAN. Amen. And you like me, like any taxpayer is ready
    to do a dance in the street. Finally, finally, they are getting
    some accountability. But I just can't understand why the IRS is
    not going forward. It can't be money. We gave them $80 billion,
    and they doubled down on more fax machines in the same
    technology that has got us here.
        So, Mr. Chairman, thank you for the hearing on
    modernization. Let's get to it. I yield back.
        Chairman SCHWEIKERT. Mr. Moran.
        Mr. MORAN. Thank you, Mr. Chairman. I want to thank all of
    you for taking the time today and be here and testify about the
    importance of making sure that the U.S. Government is working
    for her citizens and putting them first.
        We have all heard about the negative effects of the $80
    million that was given to the IRS through the Inflation
    Reduction Act, and what that negativity has done on Americans.
    But I want to focus on how this increased funding to the IRS
    exacerbated external as well as internal threats.
        If you go back last year, at the end of last year, the U.S.
    Treasury Department experienced more than one cybersecurity
    breach by the Chinese Government and the sensitive U.S.
    financial information. In these breaches, Chinese hackers stole
    thousands of documents. We still don't know exactly the impact
    these breaches have had on our national security. But if it
    involves China, I think everybody in this panel would agree, it
    is not good. Not good at all.
        The breach comes amid a number of cybersecurity breaches
    all over the country due to outdated cybersecurity
    infrastructure that has proven to be vulnerable to foreign
    operatives on a number of occasions. While these threats are
    growing, the IRS is spending more federal funding on targeting
    American taxpayers through enforcement than it is on improving
    cybersecurity and modernization to protect the American
    taxpayer. It is amazing to me.
        The IRS directed $4.75 billion of the $80 billion it
    received from the IRA towards system modernization. That is
    puny. To put that in comparison, the agency spent $45.64
    billion on increasing informant efforts against American
    taxpayers, mainly the middle class.
        In August of 2024, the U.S. Treasury Inspector General for
    tax administration released a report stating that the IRS had
    made little to no progress on implementing safeguards for
    Americans making less than $400,000 a year, even though they
    continued to jack up their enforcement efforts against those
    very individuals. That puts Americans in the crosshair, and
    leaves China out of the crosshair, when they need to be in the
    crosshair.
        I find this unfortunate and very ironic given the inability
    of the IRS simply to answer questions and respond to my
    constituents. I hear from them every day that they send an
    inquiry. My taxpayer sends back information, and the IRS will
    not respond timely and will not provide information.
        Mr. Ladwa, could you explain the ways you have seen other
    modernized countries throughout the world ramp up cybersecurity
    efforts within their tax and revenue systems to thwart
    potential threats, particularly from adversarial nations like
    China and Russia?
        Mr. LADWA. Thank you, Congressman. What I will say without
    going into the details of cybersecurity is that these
    commercially available solutions in terms of infrastructure, in
    terms of application access and stuff, which essentially has
    and has taxpayer records and taxpayer information are battle-
    tested and are created specifically for cybersecurity attack by
    spending private sector companies spend like millions, hundreds
    of millions of pounds ensuring that we are preventative against
    these types of measures.
        Mr. MORAN. Yeah, does anybody on the panel--if you do,
    raise your hand. Does anybody think we need to be spending more
    money of the money allocated to the IRS toward enforcement
    against American taxpayers, or should we be doing it more
    towards enforcement and protection against cybersecurity
    threats of China?
        I think everybody on the panel would say we need to protect
    the American taxpayer, we need to put more into cybersecurity
    threats and protecting our American taxpayer data than we
    should about enforcing these mechanisms against the American
    taxpayers. Do you guys agree with that? Does anybody disagree
    with that?
        Ms. Olson, do you disagree that we need to be doing more
    for cybersecurity efforts----
        Ms. OLSON. I absolutely agree. And I wanted to make a point
    about the IRA funding. That right now, it is limited--it is in
    different budget categories. And so the IRS is limited with how
    much it can move from the enforcement category to
    modernization.
        Mr. MORAN. So that means we should probably go back and
    prioritize where that money goes. Would you agree with that?
    And the priority should be first to protect the American
    taxpayer and their data from cybersecurity threats by Russia
    and China instead of going after them on these bogus
    enforcement actions. Would you agree with that?
        Ms. OLSON. Well, I don't think they are bogus enforcement
    actions. But I think you need to protect them from
    cybersecurity checks.
        Mr. MORAN. And that should be our number one priority on
    the use of the money and reallocated towards that. Would the
    rest of the panel agree on that? I see the heads bobbing up and
    down.
        Mr. Sepp, considering our focus on modernization and
    innovation, what are some of the ways we may not have touched
    on yet to think that the IRS, that you think the IRS could do
    to make it more efficiently work for the American taxpayer?
        Mr. SEPP. Certainly improving customer service measurements
    is important, as my colleague, Demian Brady, has pointed out.
    Also, the quality of the advice. You know, if you managed to
    get through to a live assister, there are 130 topics that are
    considered out of scope. If you ask a question, that is a
    problem. We also need to be looking at other states, not just
    other countries when it comes to improving and modernizing tax
    systems. A member of the Electronic Tax Administration Advisory
    Committee was from Missouri. He was at one of our panel
    presentations, describing how Missouri strove for and largely
    attained a 100 percent phone service level. And they were very
    good at it.
        Mr. MORAN. Thank you for that. My time is up. I will end by
    saying this: Taxpayers, in my opinion, are the client, not the
    target. Mr. Chairman, I yield back.
        Chairman SCHWEIKERT. Thank you. Mr. Doggett.
        Mr. DOGGETT. Mr. Chairman, you know my respect for you and
    understanding of your interest in the topics that are here
    today. But I don't see how we can explore some of these topics
    and ignore what is going on with the rampage through our
    government that Mr. Musk and Mr. Trump are engaged in at
    present. These are not normal times.
        My understanding was that Speaker Johnson committed to
    holding a hearing today before our committee on DOGES, as I
    call it, or DOGE unprecedented access to sensitive information.
    Where is the DOGE representative here today? I agree fully with
    the comments that our colleague just made from the--as head of
    the DOGE caucus he tells us about if you don't have anything to
    hide, let the sun shine in. Well, where is the sun shining in
    on DOGE today?
        We have had our witnesses questioned by Republican members
    as to whether they know anything about whether sensitive
    information has been out there or whether any improper use has
    been made of this data. Of course they don't know. Because it
    has all been hidden from them and from the world.
        What we do know is that DOGE really deserves the name dodge
    because it is dodging the law, dodging accountability, dodging
    this Congress. And a Federal judge has determined that there is
    irreparable harm from what they have been doing and has
    enjoined them from doing what they have been doing and from--
    has asked that they return the documents that they took.
        But there is no one here today to explain there has been no
    accountability. We don't know how many people. We don't know
    whether they had any background clearance. We don't know what
    use they have made. Though there have been claims made today
    and prior to today that they were read-only, there is plenty of
    evidence that it went far beyond reading and has been used to
    cut off funds.
        Mr. Musk has never been elected to anything, and yet
    through his minions, his musketeers, he has been afforded
    access to the most confidential information on every American
    citizen, information about Social Security, about healthcare,
    about bank accounts, about tax returns. Return information that
    is so sensitive that if you expose it improperly you can go to
    prison for 5 years.
        The safeguards on this abusive use of this information are
    lacking. Now, there was reference to the Inspector General.
    Would that we had an Inspector General, but remember that as a
    part of insulating himself from any independent accountability,
    the watchdog over at the Treasury Department was fired by
    President Trump, along with 17 other inspectors who had the
    responsibility of safeguarding the public interest and looking
    for waste, fraud, and abuse.
        The former career official, 35 years at the Treasury
    Department, a nonpartisan guardian of our privacy, he was
    pushed aside because he had the audacity to question this 25-
    year-old Musk minion coming in and going through the records of
    every American. This is highly sensitive and confidential
    information. What we do know--and we don't know much about this
    25-year-old, but we know that he recently boasted that, quote,
    ``For the record, I was racist, before it was cool,'' and urge
    that we, quote, ``normalize Indian hate, as he denigrated
    Indian Americans.''
        That is the kind of person that has been assigned the
    ability to look at the record of every single one of us, and it
    cannot be at all clear as to what misuse and abuse of those
    records may be made.
        At the same time, within the last 48 hours, the Vice
    President sent up a trial balloon, and Mr. Elon Musk joined in.
    Perhaps they don't even need to follow the judge who said that
    there had been such harm caused by what they have already done.
        Mr. Musk contends that anyone who disagrees with him is a,
    quote, corrupt judge. And so he put that brand on the judge who
    found irreparable harm. And Mr. Vance has suggested that maybe
    they don't need to follow court orders. Well, they do.
        There was a vote in the last election for a change, and we
    should honor that as we did. We were never the election
    deniers. But defending the Constitution and the laws of the
    United States are vital, and respecting the independence of
    this body and of the courts is vital. And that is what is in
    question today. And what is not being addressed adequately in
    this hearing as the big dodge has taken place on DOGE. I yield
    back.
        Chairman SCHWEIKERT. Thank you very much. The chair now
    recognizes the gentleman from the great State of California,
    Representative Thompson.
        Mr. THOMPSON. Thank you, Mr. Chairman. I want to thank
    everyone on the panel today.
        I waived on today's subcommittee. I am not on this
    subcommittee, but when I heard the topic, I was sure to waive
    on because at home, my phone is ringing off the hook in all of
    my district offices, in my Capital office. When I go home on
    the weekend, people stop me on the street, in the supermarket,
    and talk to me at events because they are very concerned about
    this chaos that we are seeing in Washington, D.C., especially
    as it pertains to this unprecedented access to our Nation's
    taxpayers' data. They are concerned. So, I assumed that that is
    what we were going to be talking about today and we have. Thank
    you to my Democratic colleagues for bringing this up, but this
    is something that deserves the oversight of this committee.
        And I know that Ways and Means Republicans care deeply
    about taxpayer privacy, given that every one of them who are on
    the committee last year cosponsored and voted for our
    chairman's bill to increase the criminal penalties for
    unauthorized disclosure of data when our committee marked it up
    last May.
        And let me be clear, I don't know how anybody could think
    that anyone on this side of the aisle is cheering the illegal
    activities of Mr. Little john. I think he is a criminal. He is
    where he belongs. He is in jail, and that is where he should
    stay.
        But when we took that bill up, we had near-unanimous
    support for the bill. And the fact that this committee
    recognized that this crime is serious is evident by the fact in
    that bill we increased the fine from $5,000 to $250,000, and we
    increased the prison sentence up to 10 years rather than 5.
        So, given how important this issue is to all of the members
    of this committee, and to our constituents, it only makes sense
    we carefully investigate the credible allegations that Mr. Musk
    and his DOGE folks violated Federal law by gaining access to
    taxpayer data. This unlawful disclosure of millions of
    Americans' most sensitive data is just flat wrong. It is so
    wrong, in fact, that a Federal judge has ordered those who are
    prohibited from accessing this data to immediately destroy all
    copies.
        I would like to enter for the record a copy of that judge's
    opinion.
        [The information follows:]
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        Mr. BEAN [presiding]. Without objection.
        Mr. THOMPSON. So, it is troubling today to hear my
    Republican colleagues being so silent on this, obviously,
    serious issue that is before us and is troubling our
    constituents.
        So, Ms. Olson, as a former United States taxpayer advocate,
    you were responsible for assisting millions of taxpayers. In
    your time at the IRS, was it ever imaginable that an outside
    billionaire would be given access to the sensitive information
    of millions of American taxpayers that you advocated on behalf
    of?
        Ms. OLSON. I will have to say that Commissioner Rossotti
    was a billionaire, but he divested himself of his holdings that
    would create any conflict of interest.
        Mr. THOMPSON. And he was the commissioner. He wasn't
    somebody brought in from the outside because they were a big
    campaign donator.
        Ms. OLSON. Exactly. And under his statutory duties, it was
    his duty to administer the Internal Revenue laws of this
    country.
        Mr. THOMPSON. And if you were the current taxpayer
    advocate, what message would you send to the IRS commissioner?
        Ms. OLSON. Oh, I would be saying that he needs to be very
    careful about who is getting in and looking at this and that
    everything needs to be cleared through the statutes, that their
    access is under a congressionally mandated or required, you
    know, access, grant of access to the return information.
        Mr. THOMPSON. Thank you.
        I agree with my Republican colleagues that we need to be
    working with the IRS to bring them up to speed and bring them
    up into the time and make sure that they are working
    effectively and efficiently for our constituents. But isn't it
    true, Ms. Olson, that the IRS has been woefully underfunded for
    years in being able to address these needed upgrades?
        Ms. OLSON. Yes.
        Mr. BEAN. Ms. Olson, be quick in answering. Quick.
        Ms. OLSON. Yes.
        Mr. THOMPSON. Thank you. I yield back.
        Mr. BEAN. Very good. Thank you very much.
        Let's go to the great State of Illinois. Representatives
    Davis, you are recognized.
        Mr. DAVIS. Thank you very much, Mr. Chairman. And I also
    want to thank all of the witnesses.
        You know, I was surprised that this hearing was framed as
    highlighting the lack of return on investment on the critical
    funding given to the Internal Revenue Service. Frankly, the
    only way that statement is true is if acting president Musk
    gives his millionaire buddies who cheated on their taxes, back
    the $1 billion in revenue that the Biden IRS collected. And
    sadly, I have a concern that he may do just that.
        President Trump allowed the biggest Federal data breach in
    history when he allowed Elon Musk and his hackers to steal
    Americans' extremely private financial and health information
    from the Treasury Department. We don't know if Mr. Musk will
    illegally stop one's Social Security tax on Medicare payments.
    We don't know if he'll sell our Social Security numbers or bank
    account information to the highest bidder, or delay government
    contract payments or grants to his competitors, the people he
    dislikes.
        Ms. Olson, given statements made by this administration
    that it can decide unilaterally to stop funds to people or
    organizations that it does not think deserves certain funds,
    can you please talk about the power of the Internal Revenue
    Service to levy taxpayer accounts and to use the Treasury
    Offset Program? If this administration decided it didn't think
    certain Americans or entities deserved certain funds, could the
    IRS freeze funds from Americans' bank accounts?
        I am asking whether it is legal or ethical to take
    Americans' money like this, but could the IRS or Treasury
    freeze funds from someone's bank account, or subject them to
    Treasury offset if it wanted to?
        Typically, we learn about improper access of taxpayer data
    from the IRS policing itself. If the IRS ignores its
    responsibility to oversee fair tax policy administration, I
    believe the only way we will know that the Trump historic data
    breach of people's private financial or health information is
    when those individually affected people notice the harm.
        So, Ms. Olson, could you speak about the importance of
    confidentiality at the IRS and Treasury, and why these orders
    and memos undermining that confidentiality are so, so dangerous
    to the American public?
        Ms. OLSON. So in response to your question about could the
    IRS or Bureau of Fiscal Service retrieve funds from people's
    bank accounts, I would think that mechanically they would be
    able to. Is it legal? They would need to have a basis in law.
    They would need to do an assessment. They would need to
    identify an improper payment. And if the law allowed them to do
    it, then they could do that. And I think those legal
    authorities are limited and have due process protections.
        I would also say that as our colleague from GAO has said,
    that internally, it is the agencies that decide what is a
    fraudulent payment or a legitimate payment, and they send that
    over to BFS. BFS then issues that payment. It has its own fraud
    detection by looking at the death master file or if someone is
    incarcerated or something like that, and whether that is an
    improper payment. But the agencies themselves are the ones that
    execute the improper payments.
        The problem is if someone has access to all of that
    information and overrides all of those checks and balances that
    are built into the system, and that is what we don't know is,
    are those checks and balances being overridden or are they not?
    And that creates great uncertainty in the American populace.
        Mr. DAVIS. Thank you very much.
        And I yield back, Mr. Chairman.
        Mr. BEAN. Thank you very much.
        Let's go to the great Commonwealth of Virginia where
    Representative Beyer is standing by. Representative Beyer, you
    are recognized.
        Mr. BEYER. Mr. Chairman, thank you for your enthusiasm.
        I thank all of you very much for sitting in with us. And I
    want to make the point that I think everyone on the Ways and
    Means Committee strongly agrees with the need to modernize.
        I would like to point out that in the 24 years of this
    millennia, 12 years led by Republican Presidents, 12 years by
    Democratic Presidents, it is not a good idea for us to blame
    this on one party or the other. I fact, I think our primary
    argument about putting the $80 billion in for IRS was to
    modernize, was to bring us to the 21st century.
        I know SAP has some wonderful ideas about what to do. I
    don't think you are going to do that for free. I have been
    around politics for a long time and seen technology companies
    try to modernize things, sometimes successfully. Sometimes they
    get halfway through and walk away leaving the government with
    the debt. So, I know you would never do that, but we are going
    to have to spend money to make this modernization happen.
        Ms. Olson, you noted in your testimony that section 6103 of
    the Internal Revenue Code provides taxpayers with the right to
    confidentiality once they file their returns with the IRS. And
    there are only a handful of circumstances in which it is lawful
    for government officials to disclose or even view a taxpayer's
    return or information found on a return.
        With that in mind, I would like to ask you a hypothetical
    question. If an unqualified nonIRS political appointee were
    granted access to the Bureau of Fiscal Services payment system
    and they inspect confidential taxpayer information for
    political purposes not authorized by law, could that be a
    crime?
        Ms. OLSON. If it is not authorized by law, it would be a
    crime, in my opinion.
        Mr. BEYER. Could it also be a crime for this individual to
    share private taxpayer information gleaned from rummaging
    around the Fiscal Service's payment system with his boss an
    unelected, unconfirmed billionaire?
        Ms. OLSON. It would be a crime to share it, to disclose it,
    yes, to people who do not have authorization to receive it.
        Mr. BEYER. And, finally, what are the penalties for
    violating section 6103? And is there a statute of limitation?
        Ms. OLSON. So under 7214, the penalties as we have
    discussed earlier, it can be a fine up to $10,000, and then
    also up to 5 years imprisonment, or both. And it is the normal
    statute of limitation for criminal offenses, 6 years; 3 years
    from the occurrence, and then in certain aggravated instances,
    6 years.
        Mr. BEYER. Thank you very much.
        So, if I am understanding that correctly, this individual
    would be subject to criminal prosecution 6 years after the end
    of this current administration or 6 years after the offense?
        Ms. OLSON. It could be if it involved fraud of some sort.
        Mr. BEYER. Thank you.
        Mr. Chairman, I am almost done.
        But, Mr. Dublois, I was fascinated by your testimony, and I
    intend to send it to the Congressional Budget Office, because I
    would love to see the other side of the equation. I am not
    accusing you of cherry-picking data but just based if that is
    the only thing I heard, I would be horrified. I would love to
    hear what the other side is and the defenses.
        Once again, this is a nonpolitical organization. You may
    believe that they have a leftist bias, but I think I have been
    here 10 years and mostly my Republican friends use their data
    as often as we do to justify the things that they do.
        Mr. DUBLOIS. Well, if I could respond to that, Congressman.
        Mr. BEYER. Sure.
        Mr. DUBLOIS. And I appreciate that, and I would welcome to
    hear CBO's response to that.
        I think looking at the evidence over the last 15 years, it
    is concerning, and we are--I can shine a little bit of light on
    something that we are going to be releasing in the next week
    regarding a research paper matching OPM data for a wide number
    of government agencies, including CBO, with voter files that
    demonstrates throughout the bureaucracy an imbalanced Federal
    bureaucracy. It demonstrates that the civil servants,
    especially in higher ranking positions, aren't nonpartisan as
    is often thrown around. They do have a partisan affiliation
    that leans to the left side of the political spectrum. And I
    think when you see that reflected in scores that dramatically
    wind up being substantially wrong years afterwards and it tends
    to lean again and again on one side favoring one side of the
    side of growing government being underestimated, the side of
    providing tax relief being overestimated in terms of cost, that
    is a cause for concern. And I would hope the CBO would have
    some good answers as to why that might be the case.
        Mr. BEYER. I think that would be--let me interrupt too----
        Mr. DUBLOIS. Yeah.
        Mr. BEYER [continuing]. If I may, just because we are
    running out of time, but that would be fascinating. I am
    looking forward to reading that. My very first response is what
    a huge difference in commitment to public service based on the
    party that you align with, your willingness to take a smaller
    salary in order to serve the public. And that may well be true.
        With that, I yield back.
        Mr. BEAN. Thank you very much.
        Let's go to the Silver State, better known to the great
    State of Nevada. Representative Horsford, you are recognized.
        Mr. HORSFORD. Thank you, Mr. Chairman, and to the ranking
    member, Ms. Sewell, for holding this hearing.
        I really have to follow up on the last statements and the
    question from my colleague to the witness, because it actually
    goes to my biggest concern that we are not addressing today,
    which is a data breach, the largest data breach in U.S. history
    that is happening right now under this administration's watch,
    and there is absolutely nothing that the Republicans in the
    House are doing to protect the American people from a data
    breach.
        And if the witness is saying that you have matched
    employees' information from OPM, Office of Personnel
    Management, with data files, voting files in order to determine
    their political affiliation, in order to reach certain
    conclusions about what? Their civil service? I am not asking
    you a question. You already explained your position, and I'll
    be looking forward to the report.
        But this is the concern, Mr. Chairman. Why are we not
    addressing the major issue, which is the largest data breach in
    U.S. history that is impacting all of our constituents, not
    Democrats, not Republicans, not Independents, all Americans.
        Instead of worrying about the harm a data leak on the
    Internal Revenue Service could mean for the American people and
    making that the center of this hearing, this administration has
    instead asked the IRS to deputize their employees to assist
    other agencies, including ICE, in their enforcement. All the
    while, my constituents, and yours too, Mr. Chairman, our
    constituents' taxpayer data is less safe, and we are not
    addressing that. Yet, under Internal Revenue Code 7803, it
    provides that taxpayers have the right to confidentiality. It
    was Chairman Smith who rightfully noted that it is this
    protection that should be afforded every citizen. This
    fundamental right has been reinforced time and again by several
    Congresses and administrations, including by the Taxpayer FIRST
    Act which I supported in 2019, and tightened protections for
    section 6103.
        The American people trust our civil service to meet their
    needs, not the billionaire class, and I don't want to know
    people's political affiliation. When people call my office, I
    don't ask them what party they belong to. I ask them what they
    need, and how my office can help support them.
        Ms. Olson, I would like to focus on your testimony. You
    note that the IRS holds information spanning from family and
    business relationships, financial dealings, employment,
    investments, and medical and educational information. I agree
    that the effectiveness of our tax system is dependent on
    taxpayers' trust that the information that they voluntarily
    provide to the IRS will be held confidential.
        Can you explain what would happen to that system if there
    was widespread disclosure of this information?
        Ms. OLSON. I think that people would stop disclosing
    information on their returns. They would also be calling you,
    you know, yelling about this, but I think it would really erode
    the voluntary compliance system that our tax administration is
    based on.
        Mr. HORSFORD. And the fact that an unelected billionaire,
    the richest person in the world, and his hackers have now
    broken into the agencies and taken this information illegally
    puts who at risk?
        Ms. OLSON. Well, I don't know what they are doing, but if
    someone is accessing IRS information, or tax return and return
    information without authorization under the statute, it is
    undermining that right to confidentiality, and that will chill
    taxpayers' willingness to participate in the tax system and
    voluntarily disclose their information.
        Mr. HORSFORD. And this is the fundamental issue. At a time
    when we already have tax evasion occurring by the very wealthy,
    meanwhile my constituents to try and qualify for the Earned
    Income Tax Credit get audited at a higher rate, the
    disproportion affects working people, but yet, we are going to
    not protect their information. It is fundamentally wrong, and
    this should be the priority of this committee and every other
    committee until it is resolved. It is not authorized. It is
    illegal. Elon Musk and his hackers have caused the largest data
    breach in U.S. history, and they need to be held accountable
    now.
        I yield back.
        Mr. BEAN. Thank you very much.
        We are nearing the end of our committee. We have had a
    great day. It has been brought up three times, and that is the
    overwhelming support this committee is giving the Taxpayer Data
    Protection Act. It was overwhelmingly supported by this
    committee. We have talked about it several times. It is stuck
    in the Senate right now. So members are encouraged to reach out
    to their Senator and say let's get that Data Protection Act for
    the taxpayers.
        Witnesses, you did a great job. Thank you so much. You will
    always have this day to say this was the day I went before
    Congress and testified. It is your own time. It is your own
    dime. We appreciate you very much.
        Members are reminded that they have 2 weeks from today to
    submit written questions to be answered later in writing. Maybe
    you will have homework. Those questions and your answers will
    be made part of the formal hearing record.
        With that, the subcommittee stands adjourned.
        Have a great day.
        [Whereupon, at 12:23 p.m., the subcommittee was adjourned.]

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