[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
IRS RETURN ON INVESTMENT AND THE NEED
FOR MODERNIZATION
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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
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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
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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
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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
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IRS RETURN ON INVESTMENT AND THE
NEED FOR MODERNIZATION
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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:]
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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:]
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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:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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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