Oct 7, 2020
House Oversight Hearing on IRS Operations Transcript October 7
The House Oversight Committee held a hearing on IRS operations during the COVID-19 pandemic on October 7. Read the transcript of the full hearing here.
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Gerry Connolly: (00:00)
When Republicans were in control of the Congress, lawmakers cut the IRS budget 20% in inflation-adjusted dollars resulting in a 22% staff reduction. 30% of these staff were in the IRS enforcement positions. After years of disinvestment in IRS enforcement capacity, unpaid annual taxes owed but not collected are estimated at $450 billion a year. The starvation and chronic underfunding also prevented the IRS from investing in IT systems. I ask unanimous consent to enter into the record the Treasury Inspector General for Tax Administration’s report entitled Legacy Systems Management Needs Improvement, which finds that nearly three quarters of the 400 active IRS systems reviewed by the TIGTA are legacy systems, meaning very old.
Gerry Connolly: (01:01)
Another disturbing finding in that report was that the IRS does not have a handle on how many legacy systems it actually has, or the costs associated with those systems. This does not sound like an agency ready to fully serve the American people during a pandemic. This past year has highlighted just how many individuals rely on the IRS. In addition to administering the two 2020 tax filing system, the IRS was also tasked with distributing emergency economic impact payments or stimulus checks to Americans. The IRS had to manage the effects of the pandemic while it was simultaneously expected to mail 170 million additional stimulus checks to Americans in need.
Gerry Connolly: (01:54)
Years of IT system neglect and a failure to modernize legacy systems that date back to the Kennedy administration in some cases prevented IRS from effectively transitioning to virtual operations. Like many agencies, the IRS sought to find ways to keep its workforce safe while trying to meet its expanded mission, but it didn’t stand the chance. Its gutted workforce and anachronistic IT systems were simply not enough to keep up. The pandemic forced the IRS to shut down many of its core operations across the country, including taxpayer phone lines and walk-in centers.
Gerry Connolly: (02:35)
The agency largely abandoned taxpayers, many of whom are our constituents, all of them are our constituents at a moment of great confusion and concern. As I’ve noticed, the IRS’s operational challenges did not happen overnight. As shown in the tables on the screen, since 2010, the previously controlled majority Congress ransacked the IRS’s budget and the agency was forced to reduce its workforce by 22%, that’s 20,000 full-time employees. These significant repeated budget cuts forced the IRS to make difficult resource allocation trade-offs. Leaders had to choose among providing quality customer service to taxpayers, enforcing tax laws and updating IT systems. The severe financial, technical and staffing problems are a direct result of years of partisan hostility, reckless so-called investigations and unwarranted budget cuts from the majorities then in control of Congress. And today when the American people are relying on the IRS the most, the agency is gasping for air.
Gerry Connolly: (03:55)
While our witnesses will testify that the IRS did what it could with the available resources, it’s what didn’t get done that’s troubling. It’s the millions of taxpayers who were unable and still are unable to get their refunds because they’ve filed a paper return. It’s the millions of tax returns that hit a snag and the corresponding taxpayers couldn’t get assistance because call centers were closed. It’s the 9 million Americans who have yet to receive that stimulus check from April, primarily because the IRS does not have their information or because their income is so low they don’t qualify to file a return.
Gerry Connolly: (04:39)
These are our nation’s most vulnerable people. We have a duty to help them in the midst of this crisis. Millions of people who desperately rely on the IRS to receive much needed financial assistance to pay for medical care, groceries, housing, are still waiting for those refunds and stimulus checks. These people are like my constituent Joseph, who did not receive his 2018 tax refund until February of this year because his wife passed away and the IRS held up his return to get more information. The same issue which the IRS promised Joseph would not be a problem again plagued his 2020 tax return, which still has not been processed. I ask we insert into the hearing record a statement from Joseph about his continued concerns with the IRS.
Gerry Connolly: (05:32)
Other constituents had followed the rules and filed and are being told to just wait. People can’t afford to just wait. They need this financial assistance now. On September 16th, I wrote the IRS asking about these types of delays and the inconsistent responses staff have provided our constituents, IRS staff. That was three weeks ago, I’ve yet to receive a response. It’s also important to point out the budget cuts to the IRS have burdened our nation’s poor in another important way. When the IRS collects taxes each year, it relies heavily on taxpayers to report their income and calculate the amount of tax they owe. Most people, in fact 99% of them, do.
Gerry Connolly: (06:22)
Some taxpayers, however, often the most wealthy among us, including potentially the current president of the United States, fail to properly pay their taxes. They hide earnings, claim dubious deductions such as $70,000 for hairstyling, not a deduction available to most of us; and they fail to properly pay their taxes as a result. Since 2010, as a direct result of these budget cuts from the past, the IRS has done less to enforce tax laws because it can’t. If you take a look at the chart on the screen you’ll see that between 2011 and 2019, the percentage of individual income taxes it examined drop by half. Half! That’s catastrophic, and it directly impacts revenue for the federal government.
Gerry Connolly: (07:18)
The weakening of these vital oversight efforts harms both taxpayers and public confidence in the tax system. It does, however, help the wealthy and encourages even more of them to skirt and cheat the tax system. I was pleased with the reports on Monday indicating that the IRS is finally investigating allegations of criminal tax fraud at the National Rifle Association. I’ve long led congressional efforts asking the IRS and the Department of Justice to investigate the NRA and its CEO, Wayne LaPierre.
Gerry Connolly: (07:49)
According to studies out of the University of Pennsylvania, by simply beefing up the auditing capacity of the IRS to allow for more oversight of the super wealthy, those claiming more than $10 million in adjusted gross income, our government would collect more than $7.5 trillion over the next decade, more than paying all of the pandemic-related expenses by this federal government combined. That’s the size of the tax gap with the wealthy who fear little consequence right now from a beleaguered IRS and they have left in our nation’s coffers. I look forward to hearing from our witnesses today in ways Congress can help support the IRS instead of politically targeting the agency and stripping it bare of the resources it desperately needs as we’ve done all too often in the past. We also hope to ensure that the IRS’s chief information officer and CIO throughout the federal government play a pivotal role in developing and meeting agency performance goals. I look forward to working with my colleagues on both sides of the aisle toward legislation that does just that. I hope this hearing will garner the evidence and justification needed for Congress to build back the agency that has so unjustly ravished over the last decade and so it’s prepared to help struggling Americans in dire need of assistance during the worst pandemic in 100 years. And with that, I call upon the distinguished Ranking Member Mr. Hice for his opening statement.
Jody Hice: (09:32)
Thank you Chairman Connolly. I appreciate the opportunity to have an opening statement. And like you, I also have constituents who are awaiting refunds and they’ve been seeking for them, many of them as far back as February, and I certainly share that. I would also just say Mr. Chairman that I believe it’s improper for you to accuse the president or seemingly accuse him of not paying his taxes. In the first place you don’t know that. And I hope this hearing today will stay focused on issues that are germane to the topic at hand, specifically IT modernization. That is what this should be focused on and I hope we do that.
Jody Hice: (10:23)
And with that, let me just say that this subcommittee has been tracking, as you all know, the legacy IT systems and the reality that those legacy systems pose a risk to federal agent missions and the purpose that many of our agencies have. And with many of these agencies, especially the IRS, some of these older IT systems, they are very complicated and they are going to require modernization. It is inexcusable for us to be facing some of the issues that we’re facing and for our constituents and the American taxpayers to be the ones who are taking it in the gut over this. And without modern technology systems that can meet modern day challenges, our agency missions are at risk and taxpayer resources will continue to be spent on archaic and inefficient technology systems of ages past.
Jody Hice: (11:34)
And this committee understands how the federal government continues to spend a majority of the IT budget merely maintaining these legacy systems instead of investing in IT modernization reforms, which needs to occur. With a majority of agency IT spending going to the operations and maintenance of these old systems, new investments are crowded out. I think that’s where we need to get some answers today. We have talked a lot about different approaches that can be utilized and bring multi-year IT funding mechanism to be established. I think we need to go beyond talk and start actually getting some answers and hearing what some of these agencies are doing to implement modernization efforts.
Jody Hice: (12:37)
And it is up to each of these agencies to utilize some of the resources that have been made available, with the IRS specifically. Some modernization efforts despite repeated large investments by Congress, which let’s keep in mind is really investments from the American taxpayer; in spite of these large investments, the IRS continues to drag on and seemingly never reach completion of modernization. We need answers for those type of problems. How in the world can Congress have faith that another 1 or $2 billion or whatever it may be at the end of the day that it will be proposed by the house and the Senate will actually get anything in return. Again, I say we need answers to these questions. This committee wants to understand how these pervasive and continual challenges can be addressed. This is a bi-partisan issue with potential bipartisan legislative solutions, but we have to understand the actual problems preventing agencies like the IRS from moving into modern, agile, and robust technology operation environments in the future. To be fair, we all know that in a rapid response to the global pandemic, there have been a number of emergency assistance programs that have been passed into law this year and it has been unprecedented. We all understand that. There have been a lot of mandates that have been involved.
Jody Hice: (14:20)
And as a result, we have seen nearly every American taxpayer received checks and that occurred in an extra ordinarily swift manner by the IRS. And for that, we’re grateful. I mean, you look back at the Economic Stimulus Act of 2008, it took weeks and weeks for that to be doled out. But like every other large enterprise in the world, the IRS has had its operational challenges related to the pandemic. We get that. There have been issues with the CARES Act stimulus payments reaching their intended destinations. There have been a number of issues, but not all the issues, and I get this as well, not all the issues and problems have been technologically related. There have been legal issues, procedural issues, workforce issues, data access challenges.
Jody Hice: (15:22)
But we need to understand the actual cause of problems before we can recommend any policy solutions. And I hope that the hearing today will provide some information in that regard. And to that point, Commissioner Rettig, I hope that you and the other witnesses today can help me and my colleagues understand how we can address the underlying barriers preventing successful technology modernization so that we can assure the success of the IRS is critical mission.
Jody Hice: (15:56)
Congress cannot afford to blindly continue throwing money at IT problems. We have got to find a new approach. We’ve got to have answers. We’ve got to have modernization. And so with that, Mr. Chairman, I want to thank you and I want to thank our witnesses for bearing with Congress in these proceedings, thank them for participating in today’s hybrid hearing. And I appreciate the opportunity to be able to have each of them here today. And with that, Mr. Chairman, I yield back.
Gerry Connolly: (16:30)
I thank the gentleman and I look forward to working with him and I thank him for the spirit, the bipartisan spirit he has laid out for us moving forward in terms of trying to address especially the technology challenges IRS is facing. I would also ask unanimous consent that series of articles talking about the president’s tax situation, including the assertion that in the last two years he paid $750 per year and no taxes for 10 of the previous 15 years; that’s not just the chairman’s opinion, that is a series of analyses based on documents, not denied by the White House, called Fake News, but not a single item, including the deductions and the payments I cited, has been denied by the White House. So I enter that into the record so that it’s clear it’s not just one member’s opinion, including this members. With that I see the chairwoman of our full committee is on and I want to defer to her for any opening remarks she may have with respect to this hearing. Welcome Chairwoman Maloney.
Carolyn Maloney: (17:42)
Thank you so much to my good friend and colleague Chairman Connolly for holding this important and timely hearing on the IRS in the pandemic. First, I want to congratulate you on already convincing the IRS to move back the deadline for low income individuals to register for an economic impact payment. Until Monday, the deadline to register for the EIP was next Wednesday, October 15th. And now these individuals who earned so little they don’t even qualify to pay taxes have until November 21st to claim this vital resource. And without this hearing and the chairman’s work, that extension was unlikely. So congratulations on improving the lives of those who need this money the most.
Carolyn Maloney: (18:36)
This is a huge victory for the subcommittee and for those struggling on the brink of poverty across this nation. For the past decade, there’s been a concerted effort to get the IRS and to starve it of the funding it needs to do its job on behalf of every taxpayer in this nation. Sadly after years of partisan attacks and neglect, it was no surprise that the IRS was not prepared to handle the unique circumstances that the Corona crisis presents. After all, this agency is operating on information technology systems that date all the way back to the Kennedy administration. We can now see the very real consequences of the past decade. We cannot simply decimate essential federal agencies and then expect them to miraculously meet their missions in times of crisis.
Carolyn Maloney: (19:29)
For example in June, just a few months into the pandemic, we discovered that the IRS sent roughly 1.4 billion in EIPs to dead people. Some of my constituents told me that they received EIPs for their dead relatives and were still waiting for their own checks. While the IRS had access to the Social Security Administration’s death file, the Treasury Department’s Bureau of Fiscal Service, which distributes the payments, did not. This fix seems simple. Let’s share the file and reduce improper payments in the next round of stimulus checks. If it needs to be a legislative fix, let’s make it happen.
Carolyn Maloney: (20:18)
Today we’re going to hear from witnesses who claim that the IRS did the best it could with what it had. But that’s not the real question. We need to be asking what the IRS could have done to help our country if it had been properly funded and adequately staffed, instead of being subjected to years of bitter Republican abuses. In another example, my constituents tell me they threw away IRS issued debit cards because they looked like a scam and the IRS failed to inform them that the cards were coming. Others said that the online ” Get My Payment” tool was confusing and made them think they were ineligible for an EIP when they were in fact eligible.
Carolyn Maloney: (21:10)
Today we will hear that individuals across our nation, including my constituents, are still waiting to receive money that their government owes them. Money they need to buy medicines, pay rent, put food on their tables. Past Republican congresses prevented the IRS from investing in staff and technologies that would have allowed for a smooth transition and a continuity of service to all taxpayers throughout the pandemic. Because of decades of partisan attacks, many individuals and small businesses might not see their tax returns any time soon. They may not see their economic impact payments or EIPs until September of 2021. They need this money now. Not in 11 months but now. That’s how Congress designed these stimulus payments and it seems clear that the IRS is not equipped to meet this moment.
Carolyn Maloney: (22:11)
The systemic, decade old gutting of the IRS forced the agency to shut down taxpayer services and assistance just when the rules were most confusing and taxpayer needs were greatest. But long term starvation of the IRS means that victims of domestic abuse can have their stimulus payments seized by their users because the IRS doesn’t have the resources and staff it needs to help address this problem. For many women who are domestic abuse victims, this lack of IRS resources means they can’t achieve economic independence and escape abusive relationships. This is a complicated problem but the IRS shouldn’t simply shrug its shoulders and point them to the court system, which they can’t afford to participate in. Let’s find a solution here today and help these women.
Carolyn Maloney: (23:11)
The lack of resources at the IRS means that the wealthiest residents of our nation, those reporting more than 10 million a year, can avoid paying property taxes because there are so few capable enforcement staff available to audit them. There’s little chance they’ll be audited, caught and prosecuted. Instead, the IRS has been auditing the poor and the vulnerable because it’s easier. Our government is leaving on the table trillions of dollars owed by the wealthy.
Carolyn Maloney: (23:43)
Finally, I want to express my support for the legislation. I know the chairman is working on legislation that would require agencies to think about how technology will improve service delivery and agency performance across the enterprise of our federal government. I support these types of critical measures that often take place under the legislative radar. Thank you so much Chairman Connolly for all of your hard work that you have done in this area. I am here to support your work in every way. It is important that we’ve reached this point of reckoning and we need to move forward. Mr. Chairman, again, congratulations on your achievements in holding the IRS responsible and moving forward with ideas to make them more up-to-date IT savvy for the future. I thank you so much and I yield back.
Gerry Connolly: (24:44)
I thank the distinguished Chairwoman of the full committee, Ms. Maloney, and I thank you for your leadership and for your support. Very much appreciated. Now I’d like to introduce our witnesses. Our first witness today is Charles Rettig who is the Commissioner of the Internal Revenue Service. Then we will hear from Erin Collins, the National Taxpayer Advocate at the Taxpayer Advocate Service. And finally we’ll hear from Vijay D’Souza, who is the Director of Information Technology and Cybersecurity at the Government Accountability Office. The witnesses will be… If you would all rise and raise your right hand. We swear in our witnesses as a matter of course here in the committee. Do you swear or affirm that the testimony you’re about to give is the truth, the whole truth, and nothing but the truth, so help you God. Let the record show that all three of our witnesses answered in the affirmative. Thank you. Without objection, your full written testimony will be entered into the record in full. With that, Commissioner Rettig, you’re now recognized for a five minute summation of your testimony. Welcome.
Charles Rettig: (25:57)
Thank you. Chairman Connolly, Ranking Member Hice and members of the subcommittee, thank you for the opportunity to discuss IRS operations and our efforts to help taxpayers during the COVID-19 pandemic. Nearly two years into my term as commissioner, I remain extremely proud to be working with the IRS. Knowing that 96% of the gross receipts of our country flow through the IRS has strengthened my belief that a healthy functional IRS is critical to the overall success and well-being of our country. The importance of the IRS to every American has become especially apparent since the spring as our nation has faced unprecedented challenges. The IRS has been at the forefront of successfully providing rapid economic relief to taxpayers during COVID-19.
Charles Rettig: (26:42)
The IRS response serves to illustrate how critical it is for the agency to receive consistent, timely, and adequate multi-year funding, such that we can succeed in providing the services that our country so rightly deserves. This funding is critical as the nation continues to weather COVID- 19 and will also help the agency prepare for future emergencies. IRS employees have worked around the clock since mid-March to implement major provisions of the CARES Act, especially the economic impact payments to help millions of Americans during this challenging time. So far, more than 160 million economic impact payments have been issued totalling more than $270 billion; with many of the payments recognizing more than two people, the payments for a household as opposed to an individual.
Charles Rettig: (27:31)
In delivering the economic impact payments, we balanced the statutory requirement to deliver these payments as rapidly as possible with the need for accuracy and a concern about potential fraud. I also want to call to your attention to an important number. The Treasury Inspector General for Tax Administration confirmed that the IRS correctly computed the payment amount for approximately 98% of the payments as of May 21. The 98% figure is great, however there is more to do. The strength of our agency is our employees. Our employees want to do more and we will do more with the assistance of Congress.
Charles Rettig: (28:13)
We have remained concerned about getting payments out to people who don’t normally file a return, including historically underserved communities of our nation such as the lower income taxpayers, homeless communities, and various others who do not normally interact with the government or certainly with the Internal Revenue Service. We’ve worked with our partners to translate economic impact payment outreach materials into more than 35 languages and have distributed these materials throughout the country. From the beginning, we have been aggressively seeking the assistance of community-based organizations and many others in identifying eligible Americans. We ask for your help and the help of every member of Congress in sharing and dispersing this information widely and broadly. We realize how difficult this period has been for so many Americans. For that reason, the IRS also provided important administrative relief. We postponed the filing deadline from April 15 to July 15, the latest tax day ever in the history of our country. We implemented the people first initiative under which we temporarily adjusted our processes to help people and businesses during these uncertain times. While pursuing our responsibilities with respect to the CARES Act and COVID relief, we had to adjust and redeploy resources and our employees have remained dedicated to delivering the 2020 filing season as they continued to process electronic returns, issue direct deposit refunds, and accept electronic payments.
Charles Rettig: (29:46)
As of September 25, we have processed more than 153 million individual returns and issued nearly 122 million refunds for a total exceeding $289 billion while we were also processing economic impact payments and preventing cyber attacks in a host of other areas. During this time, we’ve also focused on enhancing the experience of taxpayers who have limited English proficiency. For the first time ever, the Form 1040 filed next year will be available in Spanish. Basic and tax information is available in more than 20 languages. People who call in can get interpreter services for more than 350 languages. And for these actions, I am extremely proud of our employees.
Charles Rettig: (30:40)
On the enforcement side, we have redeployed resources to the best of our abilities to highlight and focus on certainly high income individuals and certain types of transactions that such individuals participate in. Our phased in reopening has been difficult, we understand, for members of Congress, for taxpayers and others. However, the health and safety of our employees had to remain paramount throughout. Our employees shared the same health and safety concerns as shared by every other American for themselves, for their family and for their neighbors and their community. And we had to focus on that while also trying our best to respect our responsibilities to this country, both with respect to filing season as well as with respect to the issuance of these payments, maintaining a vigilant, robust enforcement atmosphere, protecting cyber security issues.
Charles Rettig: (31:38)
And we receive more than two and a half million attacks per day on our systems. 1.6 billion per year. And we understood that in this situation where we scaled back our activities, where we closed the majority of our physical facilities, where we moved almost 57,000 people to teleworking, we undertook all of that while also doing our best to maintain our responsibilities to this country from every perspective.
Charles Rettig: (32:11)
With that, I want to just reemphasize that we depend on consistent multi-year funding to deliver top quality services to our taxpayers, to protect the health and safety of our employees, to conduct enforcement initiatives, to provide guidance and to support badly needed long-term modernization efforts. Chairman Connolly, Ranking Member Hice, and members of the subcommittee, this concludes my statement and I would be happy to take questions.
Gerry Connolly: (32:42)
Thank you Commissioner Rettig. Ms. Collins, you are recognized for your five minute statement.
Erin Collins: (32:50)
Chairman Connolly, Ranking Member Hice and distinguished members of the subcommittee, thank you for inviting me to testify today’s hearing, the IRS in the pandemic. I started my job as a National Taxpayer Advocate on March 30th, just after the IRS and much of the country-
Gerry Connolly: (33:06)
Let me interrupt without penalizing you, that’s my birthday. So congratulations.
Erin Collins: (33:12)
Well, thank you. It was a very important day for a lot of reasons. So at that point, most of the country was shutting down due to the pandemic and little did I know then how much the pandemic would impact both tax administration for the IRS, but also with respect to taxpayers. As we continue to grapple with the pandemic, my best wishes go out to all those impacted by the virus.
Erin Collins: (33:36)
In my statement today, I will share three predominant points about past six months. First, despite its constraints, the IRS has done its best job to handle more work with reduced funding. But taxpayer service and revenue collection has both suffered over the years as you have noted. In the height of this year’s filing season, it was given the task of dispersing the economic impact payments to some 160 million eligible individuals and their fam…
Erin Collins: (34:03)
To some 160 million eligible individuals and their families, millions of whom ordinarily don’t file a tax return with the IRS, and the IRS had to find them. This filing season, the overwhelming majority of taxpayers did not experience problems in filing their return or the receipt of the refunds. Over 90% of individual taxpayers filed their returns electronically, and eFile capabilities were operational throughout the pandemic.
Erin Collins: (34:28)
About 70% of the taxpayers claimed refunds. Most of those refunds were paid without delay, particularly 83% that were dispersed by a direct deposit. But as has been noted, it’s the people who did not receive the refunds that we’re most concerned with.
Erin Collins: (34:44)
Second, despite the IRS’s strong performance, many taxpayers experience significant delays resulting in financial hardship. Many taxpayers still file their returns on paper, either by choice or by necessity. In 2019, the IRS received about 18 million individual paper income tax returns. This year, for the protection of the health and safety of its employees, the IRS shut down its mail processing operations from March to early June. During that time, millions of tax returns, checks and other correspondence piled up. As of September 19th, the IRS estimated that it had a backlog of about 5.8 million pieces, including an estimated 2.8 million unopened returns. For taxpayers counting on those refunds to meet their basic living needs, the delays have been particularly painful.
Erin Collins: (35:39)
In a typical year, the IRS receives about a hundred million telephone calls and several million visits to its walk-in taxpayer assistance center. Due to the pandemic, the IRS shut down its toll free lines for about a month, and then slowly began resuming service. It also shut down its taxpayer assistance center for about three months. Some taxpayers also experienced delays in the receipt of the Economic Impact Payment. And as the commissioner noted, the inspector general found that the IRS correctly computed about 98% of the amount of the EIPs correctly, but based on 160 million payments, that leaves about 3 million payments of eligible individuals who are claiming additional amounts that they are now requesting from the IRS, and plus I believe we’ve identified several million cases where payments were not made at all.
Erin Collins: (36:31)
At first, the IRS took the position that most taxpayers who wanted their increased payment amounts would have to wait until they filed their 2020 return. But my office and others urged the IRS to find ways to correct some of these underpayments immediately. The IRS has since developed processes, and programs its systems to fix many of these problems. However, the IRS simply does not have the resources necessary to make a manual case by case adjustment in potentially several million cases. However the individuals still have a right to file it on their upcoming tax return.
Erin Collins: (37:06)
But that brings me to my final point. The IRS desperately needs more resources to do its job of helping taxpayers and collecting revenue. There’s an old expression, “You can’t get blood from a turnip.” If the IRS continues to be starved of its resources, it will continue to struggle. It needs more customer taxpayer representatives, agents, and to assist those taxpayers, it needs more modernization of its IT systems.
Erin Collins: (37:33)
The IRS’ IT struggles are known. And as the chairman noted, to compound its challenges, the IRS budget has been reduced by about 20% since 2010, while the number of tax returns has increased 13%. As a result, the IRS lacks the staffing it needs to serve taxpayers.
Erin Collins: (37:52)
Although I’m new at this job, it is clear that the IRS is well behind private sector financial institution in providing the much needed services. Americans are entitled to top quality service, and a tax administration they can trust and work with. Thank you for inviting me here today. And I welcome working with you and your staff in the future and happy to answer questions.
Gerry Connolly: (38:13)
Thank you, Ms. Collins. Mr. D’Souza, welcome. You’re recognized for your five minute summation.
Vijay D’Souza: (38:20)
Thank you, Chairman Connolly, Chairman, Ranking Member Hice, and members of the subcommittee. Thank you for the opportunity to testify today on GAO’s prior work relating to IRS’ IT operations and modernization efforts.
Vijay D’Souza: (38:34)
My name is Vijay D’Souza. I’m a director in GAO’s Information Technology and Cybersecurity team. But this statement draws in work conducted by our team as well as our strategic issues and financial management teams.
Vijay D’Souza: (38:46)
Effective IT is essential to IRS’ operations, and was, as everyone’s noted, important to the distribution of millions of Economic Impact Payments dispersed as part of the CARES Act. GAO currently has work underway looking at IRS’ efforts in this area.
Vijay D’Souza: (39:01)
For this most recent fiscal year, IRS spent over $3 billion on IT, of which a little more than 80% was for ongoing operations, and less than 20% was for modernization activities. IRS’ IT budget has been fairly flat over the last 10 years. One of IRS’ goals specifically, and the federal government’s in general, is to reduce the proportion of spending for ongoing IT operations.
Vijay D’Souza: (39:25)
Although IRS does make effective use of IT in billions of transactions a year, our prior work has found numerous issues related to IT operations and modernization. I’ll mention a few of these issues now.
Vijay D’Souza: (39:36)
First, GAO is responsible for auditing IRS’ financial statements. As part of this process, we assess the IT controls related to IRS’ financial systems, we identify cybersecurity issues and we make recommendations. We also track IRS’ progress in addressing prior year recommendations. Most recently in May, we identified 18 new cybersecurity recommendations. Including these new recommendations, a total of 132 cybersecurity recommendations remain outstanding.
Vijay D’Souza: (40:06)
Second, as part of our ongoing assessments of IRS operations, we identify IT issues that limit IRS’ ability to conduct its mission. I’ll highlight a couple of them for you here.
Vijay D’Souza: (40:16)
In January 2020, we reported on computer problems IRS customer service representatives experienced that caused some taxpayer phone calls to disconnect mid call. We recommended, and IRS agreed, that it should both identify the causes of this problem and track the resulting downtime.
Vijay D’Souza: (40:32)
In February, we reported that IRS could only capture certain business tax information in PDF format, which is harder for it to use than other electronic open data formats. These other formats would better allow the agency to analyze information in these returns for enforcement and other analytic activities. We recommended that IRS consider the costs and benefits of converting this information. Although IRS disagreed with our recommendation for one of its business units, we still think this is worth doing and would help IRS with compliance efforts.
Vijay D’Souza: (41:02)
Finally, we have conducted numerous examinations of IRS’ IT management activities, including those related to its efforts to modernize its computer systems, which as others have noted, some of which are based on programming languages more than 50 years old.
Vijay D’Souza: (41:17)
In May 2016, we reported on IRS’ use of older programming languages for key computer systems, most notably its individual master file, which is the core individual tax processing system. We recommended IRS develop a plan with timelines to replace IMF.
Vijay D’Souza: (41:33)
IRS does have an effort called K2 underway, which will replace core parts of the IMF, but does not yet have a plan for replacing the overall system. Recently, IRS’ acting CIO told us that IRS is beginning to develop such a plan.
Vijay D’Souza: (41:48)
In June 2016, we reported on IRS’ process for prioritizing its IT investments, both for ongoing operations and modernization activities. For modernization activities specifically, we found that IRS had not fully developed and documented a prioritization process. IRS’ acting CIO has told us the agency hopes to have this process fully implemented for fiscal year 2022.
Vijay D’Souza: (42:12)
In June 2018, we looked at IRS management of several operations and modernization investments. We found that IRS did not fully address a number of assessments and risk management activities that were needed around those investments. We also identified several weaknesses in IRS workforce planning activities. From this report, we made 21 recommendations. As of today, IRS has addressed three of these recommendations and taken steps to address others. And we’ve recently started work where we’re going to update this assessment.
Vijay D’Souza: (42:42)
Every aspect of IT, including cybersecurity operations and modernization efforts, is critical to IRS’ mission and service to the American taxpayer. Going forward, continued attention to the issues we have identified is important to IRS’ ability to meet the challenges it faces. Also important, as others have noted, is stable and consistent funding for IRS’ efforts. Mr. Chairman and Mr. Ranking Member, this concludes my statement. I’m happy to answer any questions you have.
Gerry Connolly: (43:09)
Thank you very much, Mr. D’Souza. Just a clarification. In your testimony you referred to the fact that the IRS budget has been relatively flat. Do you consider a 20% cut in its budget relatively flat that resulted in a 22% reduction in its workforce?
Vijay D’Souza: (43:28)
So I was specifically talking about the IT budget, not the overall budget. There’s definitely a difference.
Gerry Connolly: (43:34)
Right. Just wanted to clarify. Thank you. The Chair now calls on the distinguished Congresswoman from the District of Columbia, Ms. Norton, for her five minutes of questioning.
Eleanor Norton: (43:45)
Thank you. I thank my good friend from Maryland. Particularly for this hearing, I think the average taxpayer-
Gerry Connolly: (43:52)
Excuse me. I am from the great Commonwealth of Virginia, not from Maryland.
Eleanor Norton: (43:57)
What a terrible mistake, and I [crosstalk 00:44:01]-
Gerry Connolly: (44:00)
Yes. We love Maryland, but we love Virginia more.
Eleanor Norton: (44:05)
But I want you to know that the District was formed out of both Maryland and Virginia. So I thank you for that too.
Eleanor Norton: (44:11)
Mr. Chairman, I think if people were listening to this testimony, that the average taxpayer, and the statistics are that the American people are extraordinarily compliant, that they are astonished by what they have learned about the state of the IRS. I’m particularly interested in Economic Impact Payments. They go to people who don’t pay their income taxes because their earnings are not enough. Now according to the statistics I have, on September the 18th, the IRS said it was going to start mailing letters to these nine million Americans who don’t pay income taxes, but are due to get this Economic Impact Payment. These are people who have very low incomes.
Eleanor Norton: (45:06)
But I do want to say how happy I am that the IRS has just extended the registration deadline for these non-filers, these low income people, to claim this Economic Impact Payment to November the 21st, 2020. I’m asking all members to consistently email your constituents, to let them know, these people, you know that they are Democrats and Republicans, that they can still get an Economic Impact Payment up until November 21st. I think that’s our obligation.
Eleanor Norton: (45:45)
Mr. Rettig, this is my statement, this is my question for you. How many of these roughly nine million people were eligible to get these funds, this Economic Impact Payment, have yet to register a claim for an Economic Impact Payment, these low income filers, people? That’s… Mr. Rettig?
Charles Rettig: (46:11)
Yes. How many people have not received the EIP? Is that the question?
Eleanor Norton: (46:17)
Yes. Obviously nine million have not yet registered to claim an Economic Impact Payment. How many of these low income people have not-
Charles Rettig: (46:27)
That entire pool is not necessarily low income. That pool was put together through a variety of indirect methods, by a variety of federal agencies, and then tried to match it to our system. So I would not wrap that with… It’s about 8.4 million. The letters have gone out.
Eleanor Norton: (46:44)
8.4 million people. Okay, thank you. It’s nine million people. I just want to know, how many have yet to claim their Economic Impact Payment?
Charles Rettig: (46:55)
I’m having a little difficulty hearing you. Is the question, how many people have not claimed the payment? We are not able to quantify the number of individuals who have not been identified.
Eleanor Norton: (47:08)
Mr. Chairman, I ask that that number be required to be later given to the committee.
Eleanor Norton: (47:20)
Mr. Rettig, is it possible that an eligible income individual will not receive a payment? I mean, is everybody going to receive it?
Charles Rettig: (47:30)
We intend for everyone to receive it. We’re holding over seven outreach events this week, pretty much every week. We have provided toolkits to 535 members of Congress to be distributed to all of their local offices. We have interacted with 137 different ethnic media outlets around the country, hundreds and hundreds of homeless shelters. I have participated in person at homeless shelters around the country and other similar events.
Eleanor Norton: (48:02)
My time is so limited. I’ve got to go onto the next question, but that’s very good to hear. Mr. Rettig, the CARES Act says that provisions regarding the stimulus should be directed, that’s $1200, to every eligible individual. There’s no language in the statute to directly or even indirectly suggest that incarcerated people are not eligible. Why were incarcerated people not receiving their $1200?
Charles Rettig: (48:39)
That’s an issue to present to Treasury. And it’s an issue that is actually in litigation. And it would be inappropriate for me to comment upon litigation.
Eleanor Norton: (48:48)
Mr. Chairman, I just want to say that many of these are joint filers, they have family. They have child support payments. And I ask the committee to follow up on why incarcerated people do not receive these payments, which says, according to the statute, the CARES Act says every eligible person may receive. And I thank you very much for the time you’ve given me.
Charles Rettig: (49:12)
Gerry Connolly: (49:16)
I thank the Congresswoman. And I assure her we will follow up on that, because there is no language prohibiting such payments. Excuse me. The Chair now calls on the distinguished ranking member, Mr. Hice, who looks very relaxed and very comfortable for his five minutes of questioning, Mr. Hice.
Jody Hice: (49:38)
Thank you, Mr. Chairman. And I am very relaxed, but it’s good to focus here. I do want to respond. Ms. Collins brought up some interesting issues during her opening statement, and one of which, and its been said by some others here today, about the IRS starving in terms of funds, I would just, for the record, bring back to reality that in 2010, that was kind of a watermark year for IRS funding. And what did they do when they had that kind of funding? There were lavish conventions. There were ridiculous videos. There were targeting of conservative groups. And I think it’s important for these type of things to not be repeated.
Jody Hice: (50:28)
And Commissioner Rettig, we’re hopeful and trustful that you will be able to make sure that this type of wasteful spending does not happen again. But also was mentioned, I believe it was, and I think I’ve got these numbers correct, I was trying to write them down, 18 million paper filings of tax returns for this past year, 5.5 million in backlog. And I believe it was 2.8 million that were unopened. As it relates to the paper filings, those that were mailed in, that is certainly nowhere near 90 plus percent of completions. 18 million filed and 5.5 million backlog, then nearly three million unopened, is frankly an unacceptable amount. We are hearing from our constituents right and left why their tax returns have not come back.
Jody Hice: (51:26)
So really I’d just, in behalf of those constituents, not only in my district, but across the country, when can they expect those mailed in returns to be opened, dealt with, and then to receive their refunds?
Charles Rettig: (51:45)
Sir, as of September 25, we’ve received 12 point million paper returns. We have a current paper backlog of approximately 5.3 million, of which we estimate that approximately 2.5 million is returns. We are processing our backlog at the rate of about 1.3 million per week, which I think is exceptional. In March-April timeframe, we were at about a 23 million backlog. So we have about 1.3 million we’re going through per week, keeping in mind that we average somewhere between 300,000 to 500,000 pieces of mail each week. And so we need to open the mail to determine is it a return, or is it some other type of correspondence.
Charles Rettig: (52:33)
So we do prioritize the returns, in terms of the processing of the paper mail, including correspondence that is received. We process the returns on a priority basis, and of that, we process refunds on a priority basis. And so I can certainly tell you, sir, that our people are working really hard. We’re doing two shifts, and have offered overtime to all of our people to get through this.
Jody Hice: (52:59)
Okay. So it sounds like, to me, from what you’re saying, that most of the backlog should be pretty much dealt with by the end of this month. Is that correct? Ballpark?
Charles Rettig: (53:08)
I can’t say that, because it depends upon what they open. Sometimes they open something that’s complex and it takes particularly a period of time. If the straight averages work, we are going through 1.3 million per week. We have 5.3 million pieces total. But keep in mind, 300,000 to 500,000 come in on top of that. So it’s a process. I can vouch for the effort, and I can certainly vouch for the desire and the sensitivity. And remember that our workforce is reflective of the communities that they live in, and the communities that they’re processing these returns for. So we get it.
Jody Hice: (53:48)
I get that. And I thank you for your effort. But effort does not resolve the issue for those who are waiting. I do appreciate the effort, but we have a lot of people who are struggling.
Jody Hice: (53:58)
Let me hit on the IT question here. Congress has provided billions, as you well know, funding for IT modernization, and there’s mixed results. We still are a long ways behind. If more funding is given for IT modernization, how can you ensure the fact that those funds are going to be effectively used and managed so that we actually have the end result of IT modernization, rather than continually trying to maintain and support legacy systems?
Charles Rettig: (54:38)
Well, the appropriation earmarks, what the funding would be for, within the separate appropriations and allocations, I think that we could cover that. Also, in terms of efficiency, and IT efficiency, it should be noted that filing season 2019, we set records for processing per second, per hour, and per minute. And we broke those records in filing season ’20 during the COVID pandemic with most of our facilities shut down. And we came to 2.275 million returns processed per hour, 632 per second, without any technological errors.
Charles Rettig: (55:16)
And the same group of IT folks who handled our filing season were also responsible for implementing the EIP payments, which was not only for individuals that we had information, but individuals we did not have information. And then we inherited the programming for the Veterans Administration as well as for Social Security Administration. And we created portals that more than 14 million people came in through a non-filers portal. Our same IT folks took care of all of that. At the same time, we did not have a luxury of onboarding hundreds or thousands of folks to help us in that situation. We had people who had to multitask. And these particular folks worked 15 to 17 hour days, seven days a week, from March through July. And I would say that our folks performed. I would suggest and request on an IT appropriation oversight, specific appropriations for where we are.
Charles Rettig: (56:16)
The Taxpayer First Act was passed, strong bipartisan support, has tremendous provisions in it for modernizing the systems of the Internal Revenue Service, but it does not yet have any funding associated with it. So in my mindset, these things come together. We take our responsibilities to Congress, to the American people, and to our employees and the neighborhoods that our employees live very seriously. We want to perform, and want people to be proud of the Internal Revenue Service.
Gerry Connolly: (56:47)
Gentleman’s time has expired.
Jody Hice: (56:48)
Mr. Chair, that was a great answer, but I don’t believe it fully answered my question, but I know my time has expired, so [crosstalk 00:56:53].
Charles Rettig: (56:54)
I’m available for all of you on a one-on-one.
Gerry Connolly: (56:56)
Let me just say, Mr. Hice, I think it may be implicit in your line of questioning is, despite the accomplishments of the IRS under very adverse circumstances, remember that we also represent the community. And I think Mr. Hice is pointing out, and I’m certainly joining him, I gave some examples in my opening remarks, we’re hearing from constituents who aren’t being well-served, who are panicking in some cases about their refunds or the direct payments still. And we need a better response frankly, in terms of liaison with members of Congress, to be able to serve those taxpayers, our constituents. And I hope you’re hearing that, because generally we hear from people when things aren’t working. So that may be a small percentage, but it’s real human beings and real need. So I echo what my friend, Mr. Hice, has said. We need to really work on that. And I think frankly, having a stepped up liaison for us to be able to go to, some kind of ombudsman who can help solve problems for taxpayers, would be very welcome under these circumstances.
Charles Rettig: (58:13)
May I provide a brief comment?
Gerry Connolly: (58:15)
Yes, of course.
Charles Rettig: (58:15)
In conjunction with that, we had a phone line for Congress that got essentially overrun with the volume. So we’re sensitive and understanding. And then it was my bright idea to create an email box such that our folks could work it around the clock on emails received. We received, I think, over a hundred thousand emails from a house.gov or senate.gov. And so my bright idea really overran us as well. But it was an effort to try to get there.
Charles Rettig: (58:43)
Sir, I spent 36 years on the outside representing individuals with respect to the Internal Revenue Service and tax-related matters. I very much understand the concepts that each of you are there. I take these concepts to heart. And there’ve been some comments with respect to lower income individuals, as well as different ethnic communities.
Charles Rettig: (59:05)
And I’ve not been in front of many of you before, but I want to add into this two points that I’m very proud, and I’m closing here, but two points that I’m very proud. I am the first commissioner in the history of the Internal Revenue Service whose spouse came into the United States as a refugee from a refugee camp, and whose parents do not speak English, but happen to now live in the United States. I’m also the first commissioner to come to the Internal Revenue Service who has a son or daughter who is active duty United States military, who has deployed twice, who has the privilege of wearing the flag on his shoulder, and I take that to heart. Those are the issues as to why I came on board.
Gerry Connolly: (59:44)
Thank you, Mr. Rettig. And we certainly honor your personal history and commitment. Remember, members of Congress are also patriots and committed to their constituents-
Charles Rettig: (59:56)
We’re all serving.
Gerry Connolly: (59:56)
In trying to make things work under very adverse circumstances. And thank you, Mr. Hice, for allowing me to piggyback on that. The Chair now calls on the gentleman from Maryland, Mr. Sarbanes for his five minutes.
John Sarbanes: (01:00:10)
Thank you, Mr. Chairman. Can you hear me?
Gerry Connolly: (01:00:13)
Yes. We can hear you loud and clear.
John Sarbanes: (01:00:16)
Okay. Terrific. Thanks for the hearing. Mr. Rettig, Commissioner Rettig, I want to give you credit because you’re certainly putting a brave face on in view of these dramatic cuts that the IRS has experienced over a period of years now. I mean, the numbers are breathtaking. The workforce, having been reduced by 22% since 2010, has obviously undercut the IRS’ daily operations in a significant way. And I want to salute the frontline workers at the IRS, the rank and file, who are really engaged in acts of heroism every day, trying to lift up a caseload that I think is drowning them. So we have to get more resources to the IRS, and that has to be a number one priority for Congress, and I think it ought to be a priority of any administration. Unfortunately, we have not seen that from the Trump administration.
John Sarbanes: (01:01:27)
When the IRS doesn’t have enough resources, the fact of the matter is that the rich get richer, high-end tax cheats get away with not paying their taxes, fraudsters are able to get away with their schemes, and those who ought to be on the receiving end of severe and significant enforcement by the IRS are not. Meanwhile, those average Americans out there who play by the rules, and look to the IRS to engage with them in a straightforward way and get them their refunds, make sure the Earned Income Tax Credit is processed, make sure that these economic payments that come from these stimulus measures we’ve put in place are getting to them, they’re the ones that are getting a short [inaudible 01:02:29] here.
John Sarbanes: (01:02:29)
So I think that’s what’s so offensive to many of us, is when the IRS doesn’t have the resources that it should, it can’t do what’s necessary to enforce against those who are trying to evade their tax obligations on the one hand, and it can’t provide the kind of service to everyday Americans who are playing by the rules on the other hand.
John Sarbanes: (01:02:59)
Ms. Collins, can you talk a little bit more with us about how adequate funding around enforcement can actually pay huge dividends for the IRS, and clamp down when the kinds of schemes and efforts to avoid tax payment that we know are going on out there every single day… Put some numbers behind that for us.
Erin Collins: (01:03:27)
Well, sure. As we all know that our US tax system is a voluntary tax system, and we depend on people willing every year to sit down, fill out that form, and pay their appropriate amount of taxes. So I really think enforcement is a reward to those who voluntarily comply. And I think if the public does not see that the IRS is enforcing the laws, we’re going to be at risk of losing people continuing to voluntarily comply.
John Sarbanes: (01:03:56)
Well, I appreciate that, because sometimes those who want to attack the IRS on ideological grounds, so to say, “Be afraid, the tax man cometh,” but when the IRS is coming for those who aren’t paying their taxes, aren’t playing by the rules, that’s the appropriate kind of enforcement, and the resources that you can garner, if you do that enforcement well, can then be redeployed again to help serve those taxpayers out there that are playing by the rules, are looking for that refund, are looking for the benefits that can come when we use the IRS to distribute important stimulus payments in the midst of a pandemic, like we’re doing right now. So that’s the trade off we see.
John Sarbanes: (01:04:49)
And we have an obligation to make sure that the IRS is funded in a way that it can do its job, and do its job on behalf of that broad set of Americans that rely on this agency, to make sure resources get distributed in a fair fashion. So Mr. Chairman, thank you for this hearing. It, I think, emphasizes once again, why we, as a committee, why Congress, needs to work hard to get the resources to this agency, but also why we need leadership from the top. And I’m not talking about Commissioner Rettig right now. I’m talking about the President of the United States, who understands the valuable service that the IRS can provide. And with that, I yield back.
Gerry Connolly: (01:05:35)
I thank the gentleman. Mr. Grothman, gentleman from Wisconsin, is now recognized for his five minutes.
Gerry Connolly: (01:05:48)
Mr. Grothman, I see you.
Glenn Grothman: (01:05:51)
Yep. There we are.
Gerry Connolly: (01:05:52)
There you go.
Glenn Grothman: (01:05:53)
Now you hear me? Okay.
Gerry Connolly: (01:05:55)
Yes. We can hear you.
Glenn Grothman: (01:05:57)
Okay. First of all, I think I’d like to thank Mr. Rettig for being here. I think his agency is professional, and I think any implication that they are intentionally avoiding segments of the population, as it so frequently is, is misplaced and insulting.
Glenn Grothman: (01:06:15)
That being as it’s said, it’s not a perfect agency. So we have some questions for you. In Wisconsin, we had a lot of people who couldn’t get their tax refunds. And at least we were informed part of the problem was that they had shut down the Fresno office. Now that’s unrelated, as far as I can see, to the quality of IT. It’s just a decision to apparently have a lot of tax returns sitting there unopened, and as the result, people waiting months for their tax refunds, maybe some still don’t have them.
Glenn Grothman: (01:06:49)
I wonder if you could comment on the decision to shut down the Fresno Center, and what was or is being done to make sure that people were getting their tax refunds. After all, here we have money that people really already worked for, and are waiting to have come. And is it your belief that right now all or almost all the refunds that wound up in the Fresno Center are paid off?
Charles Rettig: (01:07:13)
Well, the Fresno Service Center is scheduled for a closing. We’ve closed two other centers, and I think there’s two others beyond that. That’s actually part of a consolidation that’s been going on for the Internal Revenue Service for years, as paper filings were reduced and electronic filings increased. And our current statistic on electronic filings is almost 92%. So it used to be 92%, let’s say, in paper filings. So we had campuses around the country, some dedicated to individual returns, some dedicated to business returns.
Charles Rettig: (01:07:44)
So the concept that Fresno would be in the process of closing, and it’s about a year project from now. And we are working, that you should know, very hard for the placement of our employees elsewhere within the Internal Revenue Service. And we’re also working with the private sector doing career days to place our folks on the outside. We are one family. But in terms of…
Charles Rettig: (01:08:03)
To place our folks on the outside. We are one family. But in terms of the-
Glenn Grothman: (01:08:03)
[crosstalk 01:08:05]… Can you hear me?
Charles Rettig: (01:08:06)
I’m sorry, yes.
Glenn Grothman: (01:08:09)
I don’t think you get the gist of the question. The problem is we are told that returns were sent to the Fresno office and whether it was your decision or the governor of California, I don’t know, but after returns were sent to the Fresno office, they were never opened and sat there. It’s not a matter of the longterm decision to shut down the Fresno office. I was told that the Fresno office was as a practical matter not working at all due to the coronavirus and therefore, people who sent tax returns there were not getting their refunds and they just remained there unopened. Is that accurate and if so, is the office now up and running or what has become of the refunds for people whose paper returns were sent to Fresno?
Charles Rettig: (01:08:57)
It was my decision to close almost 90% of our 511 facilities around the country based on health and safety concerns for our employees. We did it procedurally with respect to local guidance, although we were exempt from guidance, but during March, April, May, our physical facilities were shut down. Mail did create a backlog during that period of time, we have been working on that backlog and I indicated earlier a belief that we’re within a couple of million paper returns inside of a backlog, which is also why we would stress for people who have yet to file a return to file that return electronically because we are able to process it. As we opened various campuses around the country, we did shift physical mail from one campus to another when it was more of an ability to open based on health and safety in certain environments compared to others. So we were moving physical mail around the country to where we had the customer service representatives and others to process the mail. Similarly, we did the same thing electronically, but electronically, we could actually do it within 30 minutes shift entirely from one campus to another. Physical mail required trucks-
Glenn Grothman: (01:10:14)
[crosstalk 00:01:10:12]. I don’t mean to cut you off.
Charles Rettig: (01:10:15)
That’s all right.
Glenn Grothman: (01:10:16)
Have all of the returns, say, filed by April 15th that went to Fresno because if you’re in Wisconsin, I think you’re supposed to mail to Fresno, have they been processed all as far as you know?
Charles Rettig: (01:10:30)
I will get back to you with specifics, but my understanding is we’re already into July, so if somebody filed a paper return in March or April-
Glenn Grothman: (01:10:38)
I’ll give you one more question because I’m running out of time. A lot has been said about people not being able to get these $1,200 checks. As I understand it, they were not supposed to go to people who were here illegally. Are you doing [inaudible 01:10:50] to make sure that those refunds are not going to people who are here illegally?
Charles Rettig: (01:10:54)
We have a series of filters and checks and markers that go into our system, which are based on the information that we have. We don’t have complete information, as you can imagine, to every person, whether they’re domestic or foreign, but based on the information we have, our systems are in line with the information that we have as to who should or shouldn’t get payments.
Gerry Connolly: (01:11:15)
Gentleman’s time has expired. I thank the gentlemen.
Glenn Grothman: (01:11:19)
Gerry Connolly: (01:11:20)
Congresswoman from the United States Virgin Islands, Ms. Plaskett, is recognized for her five minutes.
Glenn Grothman: (01:11:25)
Ms. Plaskett: (01:11:27)
Thank you very much for the time, Mr. Chair, and thank you to the witnesses for being here. Mr. Rettig, just before I go into my line of questioning, I don’t want to leave that hanging out there as if there is a perception on the part of IRS that you have given checks to illegal “aliens” as they are being called. There is no reason to believe that the IRS are giving checks to individuals who have not filed income taxes and are therefore permanent residents and should be here lawfully. Is that correct?
Charles Rettig: (01:12:05)
To my knowledge, we’ve followed the law as the law is written. That’s correct.
Ms. Plaskett: (01:12:10)
Thank you. Thank you. Thank you for that. Let’s not begin thinking that these stimulus checks are being given out willy-nilly and are not serving the purpose for which Congress intended them, that being to assist Americans and those who are qualified to receive them from receiving them. I wanted to ask you some questions with regard to how this funding is being the COVID pandemic is panning out and you’re a tremendous support to the people of the territories and to the Virgin Islands. In September, I wrote a letter to you, Mr. Rettig, Commissioner and Secretary Mnuchin requesting temporary waiver of requirement that bonafide residents of the Virgin Islands be hospitalized in order to maintain physical presence in the territory for tax purposes on days that are spent on the mainland for medical reasons. As you know, due to our tax structure and for some individuals who utilize our economic development program and receive tax benefits for being in the Virgin Islands, they have a certain number of days that they have to reside in the territory. However, due to COVID pandemic, many of those are still on the main land or have medical purposes. Do you have a response or do you have any status to give me on the update of my request to you?
Charles Rettig: (01:13:43)
It’s my understanding that Treasury is responding and that that response will be coming. I’d hate to use the term soon, but my understanding is soon. And let me say that we have followed up, we will follow up and if soon is not in the space of less than 10 days, you’ll hear from me or somebody on my behalf giving you a better timeline, but Treasury is handling the response to you.
Ms. Plaskett: (01:14:10)
Thank you. In Washington, you hate to hear the word soon. That’s the kind of word that I give my kids when I say, “Maybe you can go somewhere.” It usually means no.
Charles Rettig: (01:14:20)
You heard my apprehension to it, I’m sure.
Ms. Plaskett: (01:14:24)
Thank you. I also wanted to find out, we had a terrible situation. IRS, you and Treasury were so good to support us in terms of when our governors gave you the number of individuals that were going to be receiving stimulus checks rather than seeking reimbursement for the money. Under the [inaudible 01:14:46] code, you gave money upfront and that has been really helpful to us based on those numbers. However, you may be aware that there was a snafu that occurred in that primarily those individuals who received social security checks were given two checks, one from Puerto Rico in form of a direct deposit and the Virgin Islands. Many of these are elderly people. Some of them rely solely on social security and they’re really concerned because they’ve been told to write a check to the government of the Virgin Islands for the money that may have come from Puerto Rico and the government of the Virgin Islands will then send that money to Puerto Rico for the double payments. People are concerned that Puerto Rico will still in turn come after them, that that money hasn’t been sent. Are you aware of this issue and is there any clarification on what the correct procedure is for those individuals who received those checks to take care of that?
Charles Rettig: (01:15:50)
Specific as to the Virgin Islands that came to my attention this week and I also am understanding of a situation where essentially there’s a concern that a person might issue a check, but also have the same amount removed from their account in which case they essentially received zero. Our intention is that every eligible American receive their payment and receive their payment in the correct amount. I will actually personally look into that deeper. And as far as the advice, we do have advice for people who’ve received duplicate checks and some of those issues are because we received information from multiple sources. We were trying to do as rapidly as possible. We did it to the best of our ability, but obviously, there were situations where things happened because of certain programs that couldn’t work together maybe and things like that. But as far as that, there is a payment provision on our site where people can send checks.
Charles Rettig: (01:16:49)
As far as the Virgin Islands folks sending it to Puerto Rico, I need to look that because I’m not sure personally of that connection. We do have people there, but our intention, desire and support is as strong for the people in the territories around the world as it is for people in downtown Washington DC, New York or wherever we understand the need and purpose of these payments and we are trying our best. You will hear back from me. And if not, I encourage you to-
Ms. Plaskett: (01:17:20)
Charles Rettig: (01:17:20)
Again, reach out to me. Something you sent forward yesterday did get on my desk, so you have the right channel.
Gerry Connolly: (01:17:27)
Gentlelady’s time has expired, but we’ll-
Ms. Plaskett: (01:17:29)
Thank you very much, Mr. Chairman.
Gerry Connolly: (01:17:29)
We’ll take you at your word that you will get back to the gentlelady in terms of that inquiry. I thank the gentlelady. Gentlemen from Alabama, Mr. Palmer, is recognized for five minutes.
Mr. Palmer: (01:17:42)
Mr. Rettig, we had a hearing before the oversight committee, I don’t know, a few years ago and I asked then Commissioner, Koskinen, about a problem that Chairman Connolly brought up and that is the tax gap. And I asked him why it is that we’re failing to collect about $450 billion a year and his response was the complexity of the tax code. I know our whole focus has been on the IT issue and certainly that’s a major issue, but isn’t that part of the problem?
Charles Rettig: (01:18:24)
Complexity is always a problem. The tax gap is sort of multifaceted. It runs from guidance to a strong, visible enforcement presence. It runs to information reporting, information reporting with withholding. It runs to the ability for the IRS to require electronic filing of returns, which are obviously quicker for us to process than paper returns. A lot of issues with respect to tiered partnerships. We have ramped up over the course of the last year our office of fraud enforcement, which is extremely visible. We’ve ramped up an office of promoter investigations with respect to individuals who participate in certain abusive transactions. Trying to maintain a visible presence on that side, criminal investigation forces have been extremely visible-
Mr. Palmer: (01:19:11)
Mr. Rettig, Mr. Chairman, I need to move on. I would like for you to respond to that in writing, if you don’t mind, because I do think that’s an issue. There’s another issue that I would like to discuss.And it’s something that I think the Chairman has been supportive of and that’s our work on dealing with improper payments. And a lot of that has to do with technology issues and other agencies, including the IRS. One of the suggestions that I’ve made and we’re trying to get into a legislative format to introduce is to allow agencies as they reduce their improper payments to take part of the funds that they save for use to modernize their IT systems. Is that something, Mr. Rettig, that you think would be helpful to the IRS?
Charles Rettig: (01:20:02)
The IRS is all in-
Mr. Palmer: (01:20:03)
Charles Rettig: (01:20:03)
On issues that lead to funding for the Internal Revenue Service, assuming they’re approved by Congress and appropriately appropriated.
Mr. Palmer: (01:20:12)
Well, then my next question would be with the realization that you’ve got these major it issues, does the IRS have a modernization plan that has clearly defined objectives, an achievable schedule because they’re issues that have been raised about the achievability of a schedule and a realistic budget for replacing the IT systems because I’ve heard that some of these legacy systems still operate on the old Cobalt system? Is that true and do you have a clearly defined objectives for modernizing your IT systems?
Charles Rettig: (01:20:51)
We do. We don’t have hardware that goes back to the sixties, but we do have language that goes back to the sixties and we have a modernization plan that was launched April of 2019. We also have modernization coming forth under the Taxpayer First Act. Both of those are running together, but independent so that there’s not overlap between those. And we’d be pleased to have our folks come up and do a briefing for you or for your staff, however it is appropriate to show you exactly where we are and where we’re headed.
Mr. Palmer: (01:21:23)
Well, I want to get back to the funding for this. I would propose that Congress amended the Payment Integrity Information Act to allow agencies to direct a portion of recovered improper payments into a fund for modernizing their IT systems. And this is not just an IRS problems. I said earlier, it is throughout the federal government and it included some of the states as well. I would like to, Mr. Chairman, work with the committee if we can in the time that’s left in this Congress on an initiative like that. In the last few seconds that I have left, I’m going to go off topic here, but I do want to congratulate the Department of Justice, the FBI, and our intelligence services in the arrest today of Alexanda Kotey and El Shafee Elsheikh. These are the alleged kidnappers of James Foley, Peter Kassig, Steven Sotloff, and Kayla Mueller. They are alleged to have kidnapped, tortured and murdered these people. And while we’ve been in this hearing, it was announced that they’ve been arrested and I hope this brings some peace and closure for those families who’ve been involved in that. And with that, Mr. Chairman, I yield back,
Gerry Connolly: (01:22:43)
I think my friend from Alabama and I welcome his comments on the need to systematically develop a plan for modernizing the IRS and bringing it into 21st century technology and I pledge to work with my good friend on developing such plans here in the subcommittee.
Mr. Palmer: (01:23:03)
I know you mean that and I thank the Chairman.
Gerry Connolly: (01:23:06)
I thank my friend. The gentleman from Maryland, Mr. Raskin, is recognized for his five minutes.
Mr. Raskin: (01:23:14)
Thank you, Mr. Chairman. Mr. Rettig, greetings. Last week, I sent to you a bipartisan letter from more than a hundred different members asking you to ensure that victims of domestic violence rather than their abusers get their stimulus checks. As you know, domestic violence has soared during the pandemic, but the IRS response has often been to tell abuse spouses to get their money through a divorce settlement, which is callous and irresponsible. Will you establish a process for domestic abuse survivors to notify the IRS that their payment has been stolen away by their abuser and will you issue catch-up payments to those who’ve had their payments stolen?
Charles Rettig: (01:23:58)
As tax administrator, we do not have the discretion to issue payments other than, as provided in the CARES Act. The CARES Act requires the IRS to use tax return information.To the extent we have it. In the situation involving domestic violence, if a joint return was filed, the IRS is required to issue in that context $2,400 plus $500 for if there’s dependence to the joint filers. And if there’s banking information that’s required to be deposited into that account, the CARES Act does not provide the Internal Revenue Service with discretion to add an additional, say in this context, $1,200 to the victim of domestic violence-
Mr. Raskin: (01:24:41)
Excuse me, Mr. Rettig, [crosstalk 01:24:42]-
Charles Rettig: (01:24:41)
We, as people, are very sympathetic-
Mr. Raskin: (01:24:46)
Excuse me, didn’t the IRS chief counsel conclude in 2009 that if a stimulus payment is stolen or not received, the IRS can issue a replacement payment. Why wouldn’t that apply in this circumstance?
Charles Rettig: (01:24:57)
That’s completely unrelated. If you’d like to get into specifics, we can do it. But some people are relying on the wrong issue there. When we make a payment into a joint account, the way that the statute requires us to make that payment, it goes into that joint account. What happens to it once the payment gets there-
Mr. Raskin: (01:25:15)
[crosstalk 01:25:15] with you later. Thank you. [crosstalk 01:25:16]-
Charles Rettig: (01:25:16)
But we can work with you specifically.
Mr. Raskin: (01:25:20)
But I wrote to Secretary Mnuchin on September 9th, expressing concern about the president’s plan to require federal employees to accept a payroll tax deferral. This move is a political ploy to make it seem as if federal employees are earning more money than they’re actually earning only to reach the end of the deferral period next year, when suddenly they’ll have a significant back tax payment. During the recent Senate hearing, I was encouraged to hear Secretary Mnuchin agree with my Senator, Chris Van Hollen, that it would be reasonable to give federal employees a choice in this matter. Mr. Rettig, do you agree with Secretary Mnuchin and will the federal government indeed allow employees to opt out of this tax deferral? If not, why not ?
Charles Rettig: (01:26:09)
The Internal Revenue Service is a Bureau of the Department of Treasury and I report to Secretary Mnuchin, so the way that he indicates for us to go on policy and other issues is the way the Internal Revenue Service will go.
Mr. Raskin: (01:26:26)
But my constituents have been calling to voice opposition to this plan. Federal employee groups are up in arms about it and we should not be using federal workers as pawns. Ms. Collins, I’d like to turn to you. In April, you told me that your office could not help the public with certain EIP payment issues. You updated that guidance in August and announced you could help with some, but identified four categories where office couldn’t help, this includes if the EIP was determined based on the wrong tax year. Your response has been that those tax payers will have to wait until sometime in 2021 to receive the money they’re owed. That is baffling to me for funds that were intended to provide immediate relief in an emergency. Ms. Collins, why isn’t your office advocating for people in that position?
Erin Collins: (01:27:14)
We are advocating for those people, but the challenge we have is at the time the payments were issued, the IRS relied on the CARES Act, which said that they had an option to rely on their 2018 return if the ’19 return wasn’t filed. The challenge these taxpayers have is the amount when it was issued was correct based on ’18, but the ’19 return, for example, someone had a child, so now they have a qualifying child, they’re entitled to another $500. That would have to be manually processed by someone within the IRS. That’s our challenge, is the IRS does not have enough staff to potentially do 3 million individual entries for those individuals. We are continuing to advocate for those people, but I do understand the problems that the IRS has in working these cases. It’s not something that they could automate. They would have to go through potentially 160 million returns to see what changed between the two years.
Mr. Raskin: (01:28:11)
Mr. Rettig, let me ask you then, when will the IRS set up necessary procedures and processes to allow Ms. Collins to assist all taxpayers who have not yet received their EIP funds?
Gerry Connolly: (01:28:22)
The gentleman’s time has expired, but Mr. Rettig may respond.
Charles Rettig: (01:28:28)
We currently have 11,300 customer service representatives available on phones. Obviously, we get more calls than that. We don’t have the ability and the staffing to answer all the calls, but we are doing our best and I can vouch for the fact that the Taxpayer Advocate has advocated for the issues presented. The Internal Revenue Service is in the scenario of needing to prioritize quite a few issues that when looked at individually clearly come across as an extreme high priority. And then when you look at it and you look at the volume of individuals in this country and provisions in the CARES Act, we have to prioritize those based on our resource availability. And we are doing our best, but certainly the CARES Act itself provided for a true-up of amounts based on 2020 filing and that’s where the language comes to to filing the return in 2020. And on the comments about extending the portal date to November 21 from October 15, I would hope that folks would take to heart the fact of our announcement on that called into the fact that any further extension of that would jeopardize our ability to handle the 2021 filing season. We are really trying to be cognizant of many, many issues. I thank you for the additional time, sir.
Gerry Connolly: (01:29:48)
Thank you. Gentleman from Florida, Mr. Steube, is recognized for five minutes.
Mr. Steube: (01:29:56)
Thank you, Mr. Chairman. My questions are for Mr. Rettig. First, I want to thank you for your service to our country and for being here today and also for your son’s service to our nation in the armed services. It’s been reported in the media and [GAO 01:30:11] has provided information that the IRS sent more than 1.4 billion in payments to deceased or incarcerated individuals. I got a lot of people in my district who received checks whose family members were deceased and a lot of people want to know how this could possibly happen.That would be my first question is how did that amount of money go to people who are deceased?
Charles Rettig: (01:30:34)
If you look at the stimulus payments that went out in 2008, you’ll see that the process for payments to deceased individuals and then Treasury looked at the specific issues on decedents about the third week in May and determined that deceased individuals were not eligible to receive payments. And so from the third week of May forward, those payments did not occur, but those were calls made outside of the Internal Revenue Service. And the vast majority of those funds have been sent back or payments not sent out, actually.
Mr. Steube: (01:31:12)
That was my follow up question was how much of that and what are you guys doing to recoup those funds?
Charles Rettig: (01:31:18)
I have the statistics. It would take me a moment to get to it, but I believe something on the order of, and I’ll get specifics, this is off the top of my head, but I think that something on the order of 1.1 billion of the 1.4 billion or 800 million of the 1.1 billion, something along those orders have been either returned or not sent out and so the net figure I believe is approximately 300 million.
Mr. Steube: (01:31:43)
If you can get me those numbers, I’d appreciate it at your convenience. What other changes has the IRS made to prevent improper payments of existing funds or if there’s future stimulus payments? Is there parameters in place to prevent that from going out?
Charles Rettig: (01:31:58)
Well, certainly there’s lessons learned anytime an agency undertakes a massive responsibility like we did through the CARES Act and the issuance of these payments and keep in mind, there were business provisions incorporated within the CARES Act as well that that our folks were there. We constantly monitor for lessons learned in terms of our ability and if there was to be another round, I know there’s been discussions, but if there was to be another round, we’re confident that we are able to do so. And it shouldn’t go unnoticed that we issued about 81 million payments for $147 billion within less than two weeks when the CARES Act was enacted and that required substantial programming by us. We’re as prepared as we could be, but we are better prepared than we were the last time and I think we did admirably the last time.
Mr. Steube: (01:32:50)
In your expertise and in your position, what specific legislative reforms do you think that Congress and this committee should be looking at?
Charles Rettig: (01:32:59)
Well, since 2011 every administration has proposed the program integrity cap, which is funds directed to enforcement. Pending this year, it’s about $400 million for enforcement. And the last program integrity cap actually approved by Congress was in 2010. I think that’s significant. In a lot of the areas in terms of like EITC payments, given the Internal Revenue Service, and this is congressional, correctable error authority would be substantial. It would lessen the burdens on individuals giving the Internal Revenue Service the ability to regulate return preparers would be substantial. Enhancing the requirements for electronic filing of forms would be substantial. Accelerating electronic filing of W2 forms to the Internal Revenue Service would be substantial. There’s a lot of issues that would come together to assist us both from a guidance perspective as well as an enforcement perspective. And in my mind, those two go hand in hand. The person who’s up late at night trying their best needs to understand what it is their requirements are, which is why we have gone wholesale into assisting people who either are not comfortable in the English language or do not speak English. We’ve also tried to simplify the languages. We’ve got Q codes on things that lead them directly to points on our website and such, but similarly, we’ve got to go out on the enforcement side and maintain a visible presence.
Mr. Steube: (01:34:32)
And I agree with that and if you could send those specifics that you just referenced, if you have more specifics and information on that, to my office, I would love to look at those issues. I thank you for your time today and my time has expired. Thanks for being here.
Gerry Connolly: (01:34:50)
Thank the gentlemen. The gentleman from California, Mr. Khanna is recognized for his five minutes.
Mr. Khanna: (01:34:57)
Thank you, Mr. Chairman. The IRS is responsible for collecting about $3.5 trillion in revenue. One of the things that I kept hearing from my constituents is why are people not getting the checks in time? Why is it taking so much time for the IRS to deliver stimulus checks or to process payments or collections? It turns out that the IRS is still reliant on legacy systems, some dating back all the way from the Kennedy Administration. And in Silicon Valley, they just don’t understand this. How is it that we haven’t had software updates since then? And so, as you know, in 2019 the IRS paid almost $3 billion to operate its current information technology and yet 2.3 billion of that was on legacy IT systems. Mr. D’Souza, could you describe the impact that the legacy IT systems have on the IRS’s ability to deliver services to its taxpayers and fulfill its overall mission?
Vijay D’Souza: (01:36:07)
Sure. Thank you. I’d be glad to. I do want to make sure folks know that although the systems rely on older technology, the underlying hardware, much of it has been updated, but what the limitations are of using these older technologies is one, most notably, it’s hard to find staff that know these skills. Programmers today aren’t coming out of school learning how to program in languages that are 50 years old. Secondly, it makes it harder for IRS to implement more online services because, to the extent it can use contemporary technologies, it’s easier for it to implement those. Relating to your point about the time it takes to do things, one of the biggest things that makes it easier for the IRS to do things more quickly is for people to do things electronically versus on paper. We have issued [inaudible 01:36:57], for example, where we’ve identified recommendations for IRS to look at implementing more online services and those kinds of things will help speed things along.
Mr. Khanna: (01:37:09)
And why did it take so long for the economic impact payments, the stimulus payments, to go out and how is that connected to the IT systems?
Vijay D’Souza: (01:37:19)
The vast majority of the payments did go out, I think, fairly quickly. I think any of the issues that we’ve talked about related to the payments had more to do with sort of policy and procedural issues versus the underlying technology, actually. I think the one outstanding issue is sort of identifying the remaining people who haven’t been able to claim their payments and getting them access to the online portal that we’ve talked about.
Mr. Khanna: (01:37:46)
How have the technology systems limited the ability to operate during the pandemic and what are one or two main things you would recommend need to be changed?
Vijay D’Souza: (01:37:57)
Well, a lot of IRS’s operations… Sorry, let me back up a second. Many of IRS’s employees do have the ability to work remotely already, but some of them didn’t. For example, those in customer service positions, those obviously opening mail, you can’t do that work remotely. To the extent that we can change work processes to allow more of those IRS folks to do work remotely, I think that would have longer-term benefits beyond the pandemic. That’s a primary area for them to focus on.
Mr. Khanna: (01:38:30)
Mr. Rettig, two questions for you. First, the CIO of the IRS does not report to you directly, is that correct?
Charles Rettig: (01:38:41)
The CIO does not report directly, but I talk to the CIO at least once a week and many times, seven days a week. That’s correct, but that’s a provision that is in the Taxpayer First Act and the IRS is being reorganized going forward. I think you’ll see that addressed.
Mr. Khanna: (01:38:57)
That’s good. And what do you think we need to do to modernize the IRS and to help deal with these legacy IT systems and what is the plan to do that?
Charles Rettig: (01:39:11)
We actually have a plan independent of the Taxpayer First Act and I think given the interest, I’m very familiar, I’m from California, very familiar with the Valley and I have three brothers in-law who are in IT in the Valley, so I’m understanding of where IT is, let’s say, in the Valley compared to where IT might be in terms of the Internal Revenue Service and I had visits up there. The Internal Revenue Service needs to come of age and it needs to come of age to be able to serve the people of this country in a manner that the people of this country deserve to be served. I think that, universally, we all support that and we want the best for our people. We don’t want a tax administrator that is behind the times. And so we have to earn that trust and respect through providing that information to them. I would welcome the opportunity for myself and others to meet with you or your staff to give you the details on the two separate plans. They’re independent. There is no overlap because one came on the scene first, but we are looking at them somewhat jointly. But we have a modernization business plan that was launched April 2019. We have yet to receive the funding requested on an annual basis, but it’s a six year plan for that. And then the Taxpayer First Act has modernization in it as well. But I think, as you’re all familiar with, there are no funding appropriations associated with the Taxpayer First Act. We need both of those.
Gerry Connolly: (01:40:38)
I thank the gentlemen. I thank the gentleman. Mr. Pascrell, the gentleman from New Jersey, is recognized for five minutes. Welcome. Mr. Pascrell, you need to unmute yourself.
Mr. Pascrell: (01:40:57)
We okay now?
Gerry Connolly: (01:40:59)
There you go.
Mr. Pascrell: (01:41:02)
Thank you. I want to thank you for this opportunity. And as chair of the oversight subcommittee of the Ways and Means Committee, I am very interested in the IRS’s operations. This pandemic and economic crisis has been brutally hard on a lot of our communities and constituents. We’ve heard some very, very good questions from both sides of the aisle today. There’s still neighbors in our not cities and towns without economic impact payments or the IRS refunds that could help make ends meet. I’m pleased the Commissioner is here to answer questions. It must be said that he’s utterly ignored the Ways and Means Committee in the 116 Congress. Mr. Commissioner, how can the Congress and the American people be assured that the audits of the president’s tax returns are being conducted in a fair and scrupulous way and without political interference? How can we be assured of that?
Mr. Pascrell: (01:42:03)
… and without political interference, how can we be assured of that?
Charles Rettig: (01:42:06)
Sir, as you know, I cannot speak to specific matters as to any taxpayer as to whether or not issues perspective to a return, to an examination of a return, to what might be in the return, to what might be in the examination. Earlier, there was a reference with respect to the criminal investigation of an organization. That reference did not come from the Internal Revenue Service and the information anyway associated with that did not come from the Internal Revenue Service. I cannot confirm or deny that information. Every taxpayer in this country is assured a confidentiality and privacy with respect to their tax matters. So as you know sir, under 6103 and otherwise I cannot speak that.
Mr. Pascrell: (01:42:51)
I don’t want to get into the debate about privacy. That was part of 6103 in the code. I understand that privacy is very critical. To me, my record is my record. But the point of the matter is it would seem that we put that aside when under the investigation of Commissioner Lerner. I believe it was 10 taxpayers who belong to certain organizations were made public without any apology because they found nothing wrong. So that answer’s not acceptable. The recent revelations of the president’s lifetime of tax abuse and malfeasance threatens public confidence in the IRS. I’m talking about the very legitimacy of our federal tax system. I’m not sure you understand or appreciate that, sir. To begin to restore this trust you must fulfill the Ways and Means Committee’s legally binding requests for the president’s tax returns, his business and personal tax returns under 6103(f). You have been illegally withholding them for the last 500, and today, 547 days. Will you lawfully fulfill Chairman Neil’s request?
Charles Rettig: (01:44:18)
Sir, as you know, that issue is pending litigation and it’s not appropriate for me to discuss pending litigation and the committee’s aware of that.
Mr. Pascrell: (01:44:31)
Mr. Rettig, you admitted in a recent report that the IRS audits low income tax payers disproportionally over wealthy tax cheats because it’s easy to pick on regular Americans. This is in part a funding issue, but this is also a leadership issue. Do you have an immediate plan to end this shameful disparity? I call it shameful. [crosstalk 01:44:57]
Charles Rettig: (01:44:58)
The report is absolutely false. Let me repeat it for people who didn’t hear it the first time. Absolutely false. For taxpayers who have more than $10 million in total positive income per year, we audit at the rate of 8.16%. For the EITC community, we audit at the rate of 1.129%. Those facts are in our data book that was issued for fiscal year 2019. So the earned income rate is 1.1%. Taxpayers over 10 million, it is 8.16% and taxpayers over 5 million, it’s about four point something percent and taxpayers between one and 5 million, it’s something on the order of about 3%. So those numbers are disparate. The issue with respect to the earned income tax is there’s a $17 billion improper payment associated with that per year. That the IRS does all it can do to get those payments out to the individuals as rapidly as possible. 98% of the EITC payments are issued within 21 days.
Charles Rettig: (01:46:07)
2% get pulled for issues with respect to the fraud filters and ID theft and other issues that require a manual look by a person and we process those in a priority fashion. So anybody who is going to assert that the Internal Revenue Service is in any way insensitive to any lower income, ethnic community, geographically diverse community, rural community is absolutely wrong and that should never come up. Those comments taint the hard working dedicated career employees of the Internal Revenue Service who create our audit plans. And that is not what the Internal Revenue Service is about. And I take, obviously, extreme discomfort in anybody asserting the contrary and we would meet with any, and every of you to go through that in detail-
Gerry Connolly: (01:47:02)
The gentleman’s time has expired. Let me just say on behalf of Mr. Pascrell, I think the question was not to disparage the IRS, it was to ascertain whether the reports about a discrepancy between the percentage of audits of people receiving the EITC was on par with the percentage of audits of people making more than, or reporting more than $10 million of disposable income. You have vigorously denied that report.
Charles Rettig: (01:47:36)
I respect Congressman Pascrell. There is chatter outside of our buildings that implicate what I’m there for, or implicate where I went with respect to that. And it’s unacceptable to the IRS-
Gerry Connolly: (01:47:49)
I understand that, but it’s not unacceptable for the distinguished member of Congress from the Ways and Means Committee waived onto this sub committee to ask that question.
Charles Rettig: (01:47:58)
No, sir. And I agree. And I said, I respect Congressman Pascrell considerably and I appreciate his question.
Gerry Connolly: (01:48:04)
Well, good. Then we are in agreement on that. We both respect Mr. Pascrell. Thank you, Mr. Pascrell for joining us. The chair now recognizes the gentle woman from California, Ms. Porter for her five minutes.
Ms. Porter: (01:48:20)
Commissioner Rettig, we’re going to start with just simple yes or no questions just to keep this moving. You have a responsibility to remain impartial and unbiased in your role as IRS commissioner, correct?
Charles Rettig: (01:48:34)
Ms. Porter: (01:48:36)
And as IRS commissioner, do you believe that it’s important to hold criminals accountable for tax fraud, evasion, or other violations of the tax code?
Charles Rettig: (01:48:47)
The Internal Revenue Service has a very aggressive criminal investigation service.
Ms. Porter: (01:48:51)
Wait, you’re impending my time. Mr. Rettig, let me make sure you can hear me because-
Charles Rettig: (01:48:53)
I am having difficulty hearing you ma’am.
Ms. Porter: (01:48:58)
As IRS commissioner, do you believe it is important that to hold criminals accountable for tax fraud, evasion, and other violations of the tax code? Yes or no?
Charles Rettig: (01:49:14)
The enforcement efforts in the Internal Revenue Service are there to pursue those who do not comply with the tax laws.
Ms. Porter: (01:49:22)
Reclaiming my time. Commissioner Rettig, I’m not trying to be difficult here. Do you believe in holding criminals accountable? Yes or no?
Charles Rettig: (01:49:30)
That’s what criminal investigation in the Internal Revenue Service does. Actually, we investigate, we do not prosecute.
Ms. Porter: (01:49:38)
And holding those criminals accountable through investigations stems from your sworn commitment to upholding the constitution, correct?
Charles Rettig: (01:49:45)
Ms. Porter: (01:49:47)
I asked that because in addition to the salary you receive as an IRS commissioner, you also earn between 100,000 and $200,000 per year from your ownership of two units at Trump International Waikiki. You have continued to earn this additional income while in office, correct? Yes or no?
Charles Rettig: (01:50:08)
Correct. And all of that was approved before I came on board and each year by the ethics officials of the Internal Revenue Service and other agencies, ma’am.
Ms. Porter: (01:50:17)
Mr. Rettig, did you disclose that information to the Senate Finance Committee when you were nominated for the position?
Charles Rettig: (01:50:25)
Absolutely. And anybody who asserts in any way, shape or form that there was a concealment is absolutely wrong. During my confirmation process, the Senate Committee received over 80 pages of invoices that specifically identified that property. The instructions for that property specifically say to put the city and state where all properties are located. That is exactly what transpired with respect to those properties and other properties that I own. And anybody who asserts to the contrary really does not know what they’re talking about or the process.
Ms. Porter: (01:51:12)
Okay. Commissioner Rettig, there is no need to get upset-
Charles Rettig: (01:51:15)
Ma’am, I’ve been dealing with that since I came on board and I do not take lightly anybody trying to disparage my reputation or my family’s reputation.
Ms. Porter: (01:51:24)
Reclaiming my time. Commissioner Rettig, I do not take lightly people attacking the members of this committee for simply trying to get-
Charles Rettig: (01:51:34)
I do not intend to attack you. And if so, if it was received like that, I apologize to you and others.
Gerry Connolly: (01:51:41)
The gentle lady controls the time.
Ms. Porter: (01:51:48)
Gerry Connolly: (01:51:51)
Ms. Porter: (01:51:54)
The time belongs to me. Mr. Rettig, since you’re getting upset about that line of questioning, I’d like to try another one. How many people are still waiting on their economic impact payments?
Charles Rettig: (01:52:12)
First, let me apologize to you if you took that as an attack, ma’am. I have to indicate that that issue has been out there. And if it came across as hostile or aggressive towards you, I do apologize. That is not who I am and I certainly would not imply that to you or other members of the committee. So I would hope that you would accept my apology with respect to that. With respect to individuals and payments that we are struggling to issue, it’s very difficult for us to identify people who do not interact with the government, with the Internal Revenue Service, with the homeless shelters and whatnot. We don’t have a figure for you. I have been asked earlier today to provide a figure. I can tell you we’re currently-
Ms. Porter: (01:52:53)
Let me reclaim my time here. It’s about 9 million. And since you said that some of these people haven’t reached out to the government, I just want to share our experience in our office where we have had 114 people reach out. 114 constituents in my district alone. And we have worked tirelessly, our casework team, to get answers for those people for months and months and months. At this point, we have answers for 13 of them. That is, as you know, 11%. So these other people, we have no information. 50 cases of these 114, we have not been able to get any response at all from the IRS. So I would respectfully ask you to please communicate with your team about responding in a timely way to congressional inquiries.
Ms. Porter: (01:53:48)
Because for every American who is reaching out to our office and is asking help; one, we’re not able to get them help because the IRS doesn’t respond to us in almost half the cases. And two, for every American who does reach out to us, there are literally hundreds of thousands of more who are just waiting and don’t have that information. So I really appreciate your going back to your team and getting the committee a clear answer of the estimated number of people who have not received economic impact payments who are waiting and how many outstanding and unresponded to congressional inquiries you have on both sides of the aisle. Thank you very much. With that I yield back.
Gerry Connolly: (01:54:29)
Thank you. And let me just say to Ms. Porter before she joined the hearing, I made that the same point. That there are a number of constituents in all of our respective offices who have not heard, who have confused instructions, have not received payments. And we represent those constituents. And the numbers you’ve shown are probably reflective of so many of us. And I might add it’s a bipartisan issue. Mr. Heist, the ranking member, made the same point about his constituency in Georgia. And what the chair asked Mr. Rettig to do was to go back and look at the liaison functions with members of Congress, because when somebody contacts our office, it means everything else has failed.
Gerry Connolly: (01:55:23)
And so we’ve got to have more responsive reactions from the IRS. And Mr. Rettig, I would say Ms. Porter, I believe committed to doing just that. And we will follow up on that. But Ms. Porter raises a very good issue and it is, I think, universally shared by members of Congress. Thank you, Ms. Porter for bringing that up and using that handy-dandy whiteboard you’re so adept at. Thank you.
Charles Rettig: (01:55:50)
And once again, congressman, I do apologize if it was received as hostile, but it’s obviously a personal issue. So thank you.
Gerry Connolly: (01:55:59)
Thank you. The chair now recognizes himself for five minutes.
Erin Collins: (01:56:03)
Chairman, can I interrupt for one sec?
Gerry Connolly: (01:56:05)
Yes, of course. Ms. Collins.
Erin Collins: (01:56:07)
I just wanted to point out, you had talked about a liaison on bondsmen. That is what we do. That is what our function is that Congress created the National Taxpayer Advocates solely for that purpose. So our local offices do have contacts with various staff members, and we’re happy to help on all these cases that we can help interact with.
Gerry Connolly: (01:56:24)
We appreciate that. But when a member of Congress calls a federal agency that falls under our purview, I expect an answer not through a third party, directly. When I write a letter, I expect that letter to be answered. I think for the record, I presented a letter I sent three weeks ago that has not yet been responded to. And again, there’s a certain urgency here. These aren’t just idle thoughts coming from members of Congress. We’re trying in real-time to help constituents for whom, for whatever reason, the system has not worked. So you’re quite right to remind us you’re a resource and you’re an asset that we should not overlook. But I think we were talking directly about communication with the agency and trying to get a better line of communication that works for everybody. Mr. Rettig, did you-
Charles Rettig: (01:57:16)
Sir, we accept that the Taxpayer Advocate is housed within the Internal Revenue Service. And we have a shared responsibility that when things come in through legislative affairs, certain items are automatically routed, certain items obviously are not. We accept and appreciate that we could do a better job. We will not give you excuses for staffing and funding and whatnot. I will only vouch for the dedication and desire of, I think, one of the most hardworking, dedicated workforces in the entire federal government.
Gerry Connolly: (01:57:46)
We’ll stipulate that. But again, remember-
Charles Rettig: (01:57:49)
I appreciate it. I’ll take that back, sir.
Gerry Connolly: (01:57:52)
We operate in real-time too. And-
Charles Rettig: (01:57:56)
Sir, if you’re not happy, we’re not doing our job.
Gerry Connolly: (01:57:59)
All right. We understand each other. Now, my line of questioning. Mr. D’Souza, I’m going to give Mr. Rettig a little bit of a break. What do we know about the scope of the IT challenge at IRS? I mean, we talk in generalization about legacy systems. Do we know how many legacy systems there are?
Vijay D’Souza: (01:58:23)
I think we actually had a finding that IRS didn’t have a complete inventory of its legacy systems, but I think generally we do. I think as we… go ahead.
Gerry Connolly: (01:58:35)
Can you give a number to that generally?
Vijay D’Souza: (01:58:39)
I would have to get back to you-
Gerry Connolly: (01:58:41)
Are we talking about hundreds of systems, dozens of systems? What?
Vijay D’Souza: (01:58:44)
Well, I think on the order of hundreds.
Gerry Connolly: (01:58:46)
Vijay D’Souza: (01:58:46)
But part of the thing, I guess, to keep in mind is it depends a little bit on how the agency defines a system. So that’s why I’ll get back to you with a more exact number.
Gerry Connolly: (01:58:56)
I would appreciate that. In fact, this subcommittee is going to formally request GAO for a comprehensive inventory of the scope of the problem and challenge. And by the way, what’s wrong with a legacy system?
Vijay D’Souza: (01:59:12)
Well, as we discussed, they rely on older technology and it can be harder to find people to employ to keep it up to date. You have a limited range of vendors that support that technology over time. If you’re-
Gerry Connolly: (01:59:27)
That’s all interesting, but I’m interested in how it affects capability. I mean, a system that’s 40 years old does not have the same capability of handling the mass volume Mr. Rettig has to handle than a contemporary system. Is that correct?
Vijay D’Souza: (01:59:46)
So I would say that actually the IRS’s systems do handle very large volume-
Gerry Connolly: (01:59:51)
That wasn’t my question. My question was, when you compare a legacy system’s capability to a system we would deploy today, the former is inadequate compared to the latter.
Vijay D’Souza: (02:00:06)
It is. But it’s not in terms of volume. It’s probably in terms of capabilities it provides. We talked about the ability to provide services online, provide information more quickly to taxpayers.
Gerry Connolly: (02:00:20)
Well, is it more costly to maintain?
Vijay D’Souza: (02:00:22)
Gerry Connolly: (02:00:23)
Yes. Any idea of what percentage of the IT budget Mr. Rettig overseas is devoted simply to maintaining legacy systems?
Vijay D’Souza: (02:00:33)
So 80% of the budget goes for ongoing operations. The exact percentage of that, that’s for legacy systems. Again, I need to get back to you on that.
Gerry Connolly: (02:00:44)
So what is your estimate of what it would cost to update completely the IT systems, both hardware and software and retire these legacy systems at the IRS?
Vijay D’Souza: (02:00:58)
I don’t have an exact number, but what I can say is that the modernization plans that we’ve talked about are good first steps, but they actually don’t fully address what it would take to retire these legacy systems. One of the things we asked the acting CIO is whether or not they had a full plan to retire IMF, which is one of the biggest legacy systems, and they said they were working on that. I think over time, they’ve taken various attempts at it and they haven’t been successful. So we’ll have to see what-
Gerry Connolly: (02:01:30)
Wait, Mr. D’Souza, that’s not an adequate answer. They haven’t been successful. Why have they not been successful? To what extent… this hearing’s about resources for the IRS to make sure it is as responsive as it can be to the American people. And we’ve documented how they were starved of resources and in fact, vilified by this very committee, I might add, for 10 years at the cost of re-investment. So how has this affected capability?
Vijay D’Souza: (02:02:01)
Sure. So as the budget for these modernization activities has been cut or as we’ve had situations like a lapse in appropriations or continuing resolutions, IRS has continually had to re-plan and reprioritize its efforts. That takes time. It slows things down. They have to move staff around. If they don’t have enough staff, then they have to triage and focus on high priority activities. They’re not able to do certain things. One of the things we reported on, it indirectly answers your question though, is with this most recent the Tax Cuts and Jobs Act, IRS had to shift its IT resources to implement those changes versus some ongoing activities that had planned to do to enhance its systems. So those are all some examples of trade-offs the IRS has to make when it doesn’t have resources.
Gerry Connolly: (02:02:50)
You say trade-offs, somebody might use a different image, cannibalization. By the way, it’s not just legacy systems, is it? I remember a few years ago when this committee was vilifying your predecessor, Mr. Koskinen, whom I consider an exemplary public servant. But nonetheless, members of this committee vilified Mr. Koskinen because of crashes with hard drives throughout the agency. And one of the things not discussed of course, because that would have been inconvenient was the age of the hardware we were talking about that. I mean, PCs. So in the private sector, when I was in the private sector for 20 years, excuse me, we kind of replaced our PCs about every three years. What is the age and replacement rate of PCs for IRS employees currently?
Vijay D’Souza: (02:03:48)
So I don’t have a current rate. What I can say is when we did look at this issue a few years ago, we found that the majority of IRS IT equipment was outdated. Since that time, we do know-
Gerry Connolly: (02:04:01)
Mr. D’Souza, outdated. How many years? How old?
Vijay D’Souza: (02:04:07)
Again, I’d have to get back to you with the specifics on that.
Gerry Connolly: (02:04:10)
Mr. Rettig, do you know?
Charles Rettig: (02:04:16)
To the extent we get funding, we’re making real inroads into updating our systems. Most of our systems are far beyond their useful life. For most of those systems, we have extended the useful life on things that you have like laptops and such. So we extend the useful life with warranties and whatnot. And then we ended up having to go beyond that because we don’t have the ability to replace. One comment just quickly on terms of efficiency as we were to update our systems, something that has always stayed in my head and it’s pretty simple is as we modernize and we bring in chatbots for people who call in, one employee can handle one telephone call, but one employee can handle four chatbots at the same time.
Charles Rettig: (02:04:58)
So that’s a four to one leverage. We have 11,500 customer service representatives. In theory, if it was direct math, you would put us up to 40,000 by getting us there. Our ability to leverage resources through a modernized system which includes both language, it includes software, it includes hardware would be greatly received by every employee of the Internal Revenue Service, as well as, I think, by every American.
Gerry Connolly: (02:05:22)
I mean, let me just say, Mr. D’Souza, we need more from GAO than what we got here. We need a comprehensive inventory of the nature of the IT systems, legacy systems, hardware, software, Zoom capabilities, whatever, so that we understand the scope of the problem. And we need dollar figures assigned to that so we understand the investments that are going to be required. The other thing we need is an assessment from you and with cooperation with the IRS, what’s the return on investment. I mean, we talk about GAO, the agency for which you work that roughly every dollar we invest in GAO, we get at least an eight or $11 return. Well, what’s the comparable figure for IRS? If IRS can do double the audits it does currently, presumably the return on that is quite considerable, especially when we know at least $450 billion is left on the table, taxes owed, but not paid because of capability.
Gerry Connolly: (02:06:25)
Capability of auditing, tracing, collecting, enforcing. And so those are important considerations in addition to we’re in a pandemic. And while I think Mr. Rettig and Ms. Collins have both indicated that they’ve done a very credible job in trying to respond under the most adverse circumstances with a history of disinvestment for 10 years. Nonetheless, we know things are on the table. With all of that, we know that millions of Americans still haven’t gotten their direct payment. Millions of Americans are still complaining about a responsiveness from IRS in terms of refunds or filing or processing a claim or making an appeal or dealing with an audit. And so the relationship between the investment in IT and the capability of the IRS to do its job on behalf of the American people and by the way, part of its job because of voluntary compliance which is so high in America, compared to other places is based on the fact that I perceive the system to be fair.
Gerry Connolly: (02:07:40)
That it’s going to treat me the same way it treats anybody else rich or poor. They’re going to hold that person and me accountable. And if that trust is damaged, compliance will fall and that will hurt the ability of the United States government to fund itself and the services it provides people, especially during this period of time which is so challenging. So we need the GAO to really look more closely and provide us with more comprehensive data in terms of the scope of the problem and what it will take to address that problem.
Vijay D’Souza: (02:08:21)
We do have work underway that’s looking at some of these issues and we’ll be glad to update you-
Gerry Connolly: (02:08:26)
Well, we want you to expand that so that it’s not some of these issues, it’s everything we’ve just described. That’s why we’re having this hearing. And we need GAO as a resource to help us understand the analytics and the boundaries of those analytics. Yes, Mr. Rettig.
Charles Rettig: (02:08:42)
We obviously will cooperate with GAO in that regard. And I just wanted to add on one thing about the compliance side of the house. We look at service and compliance together. We look at the desire of the IRS to earn the trust and respect of every American. When I made the comments about getting into different languages, lower income communities, expanding vital resources, expanding resources to low income taxpayer clinics. When you consider that fiscal 19, our gross receipts were $3.56 trillion, which is 96% of the gross receipts of the United States of America. And that the part of the tax gap, the voluntary compliance rate hovers around 83%. And that’s for Americans who timely file and pay essentially and maintain compliance. If we can help the folks who are trying to get it on their own by in language, simple language, understandable things, open up those avenues, answer the phones when they place those calls.
Charles Rettig: (02:09:35)
And we were only to bump the voluntary compliance rate 1%, sir, that’s $35 billion a year from Americans who want to get it right, who are proud to be Americans, who are proud to file tax returns. And there’s a lot of people there. This is the first time, to my knowledge, in the history of the Internal Revenue Service that we’ve done such an expansion into languages. I’m very proud to be the son of an immigrant and the husband of an immigrant. Very respectful for the challenges people have who come here. And it’s incumbent upon us, collectively sir, to make sure they have the ability to get it right. Modernization helps us significantly in that regard, it also helps our enforcement component. So we welcome the assistance of Congress.
Gerry Connolly: (02:10:19)
Well, thank you. And the fact that you are the son of immigrants, I’m a grandson of an immigrant and you married a refugee, I think just gives living proof to the fact that immigration rewards and enriches America, it doesn’t detract from it. And by the way, with respect to refugees, I will just say, editorially, curbing the number of refugees, people fleeing violence, is a very un-American thing from this member’s point of view. And we got to be doing exactly the opposite, opening our welcoming arms to people who are suffering violence and persecution abroad. That’s what refugee means and that’s what the refugee program is designed to provide.
Charles Rettig: (02:11:08)
Sir, to help you with perspective, my wife was born and raised in Vietnam. After the fall of Vietnam, April 30, 1975, her father was taken away to a reeducation camp for three years, nine months. She, in 1982, fled by boat. She’s a boat person for the term. I don’t mean it in a derogatory sense. I’m hugely proud of her and-
Gerry Connolly: (02:11:32)
As she should be.
Charles Rettig: (02:11:33)
Rescued at sea.
Gerry Connolly: (02:11:34)
And that’s the story of America.
Vijay D’Souza: (02:11:37)
Gerry Connolly: (02:11:38)
I know we’re digressing, but the idea we would cap the number of refugees who perhaps worldwide are now at a record number, at 15,000, is disgraceful and from my point of view un-American. Anyway, on to IRS. We need more progress, we need more help from GAO in broadening the scope. Mr. D’Souza, we’ll be glad to work with you and Mr. D’Addario on that. And Mr. Rettig, hopefully you and Ms. Collins, who’s new in the job, will be creating mechanisms to be more responsive to congressional inquiries. Because remember we’re also representing taxpayers, but taxpayers who have found that, for whatever reason, the system doesn’t work. With that, we have five days for additional questions that may be submitted to our witnesses. And we would ask for a speedy and expeditious response in writing should you get those questions through the chair. And with that, this hearing is concluded. Thank you.
Charles Rettig: (02:12:42)
Thank you, sir.