IRS Commissioner Testimony House Oversight Hearing Transcript November 20

Mr. Pascrell: (00:00)
… here in the hearing room, as well as approximately 10 members on the remote platform. That’s outstanding, and I want to thank them for joining us. Before we turn to today’s important topic, I want to remind the members of a few procedures to help us navigate the terrain here. First, consistent with regulations, the committee will keep microphones muted for those participating virtually to limit background noise.

Speaker 1: (00:33)
Pause for one moment. The committee will pause for one moment. [inaudible 00:00:33].

So we will pause for one moment. Members are responsible for unmuting themselves and muting themselves when they seek recognition or when recognized for their five minutes. Members here in the hearing room are also reminded to keep your microphones muted when you are not recognized.

Second, for the members participating virtually, you must have your cameras on at all times. If you need to step away from the proceeding, please leave your camera on rather than logging out. Third, we will dispense with our practices of observing the Gibbons Rule, and instead go in order of seniority for questioning, alternating between minority and majority, beginning with members of the oversight subcommittee, of course. I thank you all for you-

Speaker 2: (01:46)
We are troubleshooting, a quick technical issue, trying to get the streaming from 1100 to show up. So it’ll just be another minute. Just so you’re aware, the audio is streaming on YouTube already. So the video will be going live as well once we get the chairman on.

Speaker 1: (02:12)
We are good now.

I thank you all for your continued patience as we navigate these new procedures in order to continue serving our country together in this great time of need. And with that, I will now turn to the important topic of today’s sharing, a conversation with the commissioner of the Internal Revenue Service. That’s why we’re here.

So good morning. I welcome my colleagues and our only witness. Today, the commissioner of the Internal Revenue Service, Mr. Charles Rettig, will join us, and I appreciate that personally and professionally. Mr. Rettig, this committee has waited a long time for you to join us, and we were waiting anxiously, nearly two years.

It is astonishing. This is the first time you’re appearing before the chief tax-writing committee in the House. I mean, put yourself in our shoes. We’re trying to do our job. You’re trying to do your job, and we have very little communication. With a brand new administration on the horizon, this may be your first or your last appearance before us. I’m not suggesting either, but the point of the matter is we’re glad you’re here.

I am disappointed you refused to join us for our important hearing on taxpayer fairness a few weeks ago. Historically, the United States has had an excellent record of compliance with our tax laws. Americans dutifully pay their taxes, assuming the system is fair for all, whether you’re rich as Rockefeller or just a regular Joe. Because of that, our voluntary tax system has been a model for the world. It really is, at least until recently.

Our hearing demonstrated how our system of voluntary compliance has come under assault by the president and members of his government. For five years, the president refused to disclose his tax returns. The president broke with the history of every president since President Nixon. In so doing, he sabotaged public faith in our tax system. You have aided and abetted him, as is your job, I guess.

Since 2017, I have led Congress’s efforts to request Mr. Trump’s business and personal tax returns, not because I’m a snoop. I’m far from it, just the opposite. The law is clear though. Under 26 United States Code, Section 6103F, our committee is legally and absolutely entitled, our committee is legally and absolutely entitled to review anyone within the executive branch of government. The law is very clear. And for 591 days, you and Secretary Mnuchin have broken the law to keep that hidden. I don’t know what we’re hiding, but we have not found out yet.

It is our responsibility to restore the public’s trust in our tax system. The president’s business and personal returns must be audited impartially and without political interference. Yet every time we ask a question, we’re reminded it’s still being ordered since 2016, before 2016. So we have some questions. The American people have a right to know whether that’s what’s going on.

Time is of the essence. Just last month, the New York Times reported that self-proclaimed billionaire, Mr. Trump, paid only $750 in taxes in 2017 and 2018, $750. And in 10 of the last 15 years, he reportedly paid no taxes. When you listen to the explanation of why that happened, having nothing to do with you, but when you listen to it, you have to wonder, is this reading out of a cartoon magazine, or is this really happening? Is this is a fantasy or reality?

Teachers and firefighters, police officers, the people who collect our garbage in our districts are paying a heck of a lot more. The taxpayer fairness issue manifests itself in many other ways. Mr. Commissioner, we hear over and over from our constituents who have failed to receive their economic impact payments. I’m very angry over that, and I’m sure you are too, on time and time again, on time even at all.

I look forward to discussing how the IRS is rectifying these dire situations. No one who is eligible should have to wait for their check, especially during a pandemic. We are hearing similar complaints about 2019 refunds. Our constituents have waited for months to get their refunds and their records straight. I have a constituent who was told not to expect a response from the IRS on her 2019 return until January. January? I want to know if that is acceptable to you. I hope you will bring us up-to-date on your efforts to get through the backlog in returns and collecting dust at IRS.

And Mr. Commissioner, we’ll be following up on my question at the Oversight and Government Reform Committee hearing. Are you not auditing wealthy taxpayers and corporations more extensively than low-income Americans? Let me now yield to my good friend, a gentle lady from Indiana.

Ms. Walorski: (08:34)
Thank you for all of-

Ms. Walorski, we are honored that you’re here.

Thank you, Mr. Chairman.

You’ve got five minutes.

I’m thrilled to be here. I’d also like to thank you, Commissioner Rettig, for being here, for your hard work and leadership at the IRS during an incredibly challenging time. I also want to thank the dedicated men and women of the IRS around the country that have worked so hard during the pandemic to keep the agency up and running to provide services to our fellow American taxpayers. Congress has asked the IRS to go above and beyond this year in response to the coronavirus crisis.

The CARES Act required that the IRS take on a number of tasks, but none was greater than finding a way to send the economic impact payments to more than 160 million Americans. That was a huge undertaking, and we should acknowledge that the IRS got most of those payments out the door in just a matter of weeks. So we thank you for that, Commissioner.

Now, with that said, I think you would acknowledge that the IRS still faces a number of challenging things going forward, and I have concerns about how the agency plans to meet those challenges. There are just a few main issues I think the agency needs to address. I hope you’ll be able to provide the committee with some answers on how the agency plans to do so.

First, I am concerned about the current backlog of mail and unprocessed returns that has built up since the initial lockdown in March and April. My understanding is that the IRS has millions of pieces of unopened mail and an even greater number of unprocessed tax returns. That means millions of taxpayers are still waiting on refunds for tax returns they filed as far back as March and April.

Second, given that this mail backlog may not be resolved until well into 2021, I am concerned about the agency’s ability to prepare for what is likely to be another major difficult filing season.

Third, on the EIP payments, I’ll say that the number of payments you sent out and how quickly you did so it was incredible. But I have heard from a lot of our constituents, and I know my colleagues have as well, about the situations where folks are still eligible for EIPs, but still have not received anything. So I would appreciate hearing more about what the IRS has done and will do to make sure everyone who is eligible for an EIP receives their payment.

And then I also want to acknowledge that the IRS this week released guidance on the paycheck protection program related to the tax treatment of expenses paid with a PPP loan that has not been forgiven. Many small businesses are struggling to stay afloat right now all over this country. We need to pull together to ensure these small businesses have relief, especially those forced to close their doors due to state and local COVID restrictions.

I’d also like an update on the implementation of the bipartisan Taxpayer First Act. As you know, we enacted this important law last year as a result of a bipartisan work on this committee. This historic overhaul of the IRS requires implementation work on the part of the agency, and I’d appreciate an update on your progress and what challenges you’re facing. I want to make sure we don’t let our response to the pandemic hinder the long-term work that still needs to be done to improve and modernize the IRS. With that, I thank the commissioner for his testimony and I yield back, Mr. Chairman.

Thank you. We will dismiss Mr. Kelly. We’ll next hear from our only witness, and that is Commissioner Rettig. And I thank him again for appearing before us today. Your opening statement will be made part of the record in its entirety. I ask that you summarize your testimony in five minutes or less. To help you with that time, please keep an eye on the clock and the lights in front of you. If you do go over your time, I will notify you with the tap of my gavel, but we’re here to listen to you. Commissioner, you may begin.

Commissioner Rettig: (12:37)
Thank you, Chairman Pascrell. Thank you, member, and the rest of the members who are here. I appreciate the opportunity to discuss IRS operations and our efforts to help taxpayers during the COVID-19 situation.

Initially, Mr. Chairman, respectfully, I would like to indicate that I disagree and take exception to the terminology aided and abetted, but I cannot speak to any matters associated with that since those matters are in litigation, as well as those matters involved specific taxpayer information, which I’m not able to discuss. But I respectfully wanted to make the record on that for you, sir.

Now, more than two years into my term as commissioner of the IRS, I remain extremely proud to be working with the IRS and the exceptional employees of the Internal Revenue Service. 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 economical relief to taxpayers during COVID-19. 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 and our citizens so rightly deserve.

IRS employees have worked since mid-March to implement major provisions of the CARES Act, especially the economic impact payments, which have helped millions of Americans during these challenging times. So far, approximately 160 million economic impact payments have been issued totaling about $270 billion. Many of these payments recognize more than two people in a family.

Delivering the economic impact payments, the Internal Revenue Service employees balanced the statutory requirement to deliver these payments, quote, as rapidly as possible as dictated by the CARES Act with a need for accuracy and a concern about potential fraud. The IRS correctly computed the amount of the payments, of the first 157 million payments, according to our Inspector General, 98% of the time. I think that’s miraculous, and it’s a tribute to the strength of our employees and the dedication of our employees.

However, we readily acknowledge that there is more to do. Although the strength of our agency is the employees, the interaction of our employees in the communities in which they reside is equally important. During this period of time, our employees have been out involved in and engaged with community or local community organizations trying to generate economic impact payments for people who are needy and were essentially into the point of interacting with the unsheltered communities. We have interacted directly with more than 4,000 homeless shelters, numerous different organizations around the country, all as more specifically set forth in my more lengthy written testimony.

Tomorrow is the deadline for registration of the economic impact payments on our non-filers portal, and I would like to encourage people who have not yet provided information through the non-filers portal to do so. During the pandemic, within a matter of days, we initiated the People First Initiative, which postponed the deadline for filing to July 15, the latest time in the history of our country. We also temporarily adjusted numerous processes to help people and businesses during these uncertain times.

As we will discuss, we have also delivered a historic filing season 2020, not only in terms of the volume of tax returns that have been processed, refunds that have been processed, but also in terms of the number of tax returns processed per minute and per second. We have importantly, and one of the matters that I’m probably as proud as anything else and we have a lot to be proud of, and I would do want to extend the opportunity to meet with each of you individually, collectively at your leisure. When you ask, we will be there.

But importantly, for the first time in the history of the Internal Revenue Service, we will be delivering the Form 1040 this year in both English and Spanish. Taxpayers will have the opportunity to check a box to indicate the language they wish us to interact with them. Taxpayers who call on our phone lines will have the option to receive translation services in more than 350 languages. Sir, when I got on board, these numbers were between six and nine, and this all came together by the … I opened the doors for our employees, but our employees proudly walked through these doors to provide services in the underserved communities of our country.

Our phased-in reopening was couched in terms of trying to maintain the health and safety of our employees, balancing that with our responsibilities to this country, which we take seriously. And sir, before I turn it back over to you, I would be remiss if I didn’t call attention to somebody who’s been by my side since I came on board two years ago, who has been at every hearing that I’ve testified in the House as well as the Senate, and respectfully is more than my right-hand, the person I look up to more than probably anybody else in the Internal Revenue Service, who is not only a sounding board, but is sitting right behind me, Diane Grant.

On December one of this year, we are celebrating her 50th anniversary with the Internal Revenue Service. And I do appreciate, sir, your acknowledgement of her. She’s an amazing individual. So now that I have embarrassed her, sir, I will turn it back to the committee.

I’m glad, Commissioner, to hear somebody in the administration say something nice about our employees, and you have, and that’s-

Sir, I came on board for the employees, taxpayers, and you guys.

Thank you for bringing that to our attention, and congratulations, Ms. Grant. I will open the hearing for questions without objection. Each member will be recognized, and we’re joined by my good friend, Mr. Kelly, of Pennsylvania. He walked all the way from Pennsylvania to get here this morning. Each member will be recognized for five minutes to question our witness. If the witness will respond with short and concise answers, if the congressmen will ask questions short and concise. That’s unusual, but we’ll try. All members should be able to ask questions.

As mentioned earlier, we will not observe to Gibbons rule. We will instead go in order of seniority for questioning, alternating between minority, majority, beginning with the members of the oversight subcommittee. Members attending remotely are reminded to unmute yourselves when you are recognized for your five minutes. And I will begin by recognizing myself for questions, Mr. Commissioner.

Mr. Rettig, when President Trump took office, former Commissioner Koskinen volunteered to resign before his term ended. You stated this week that you plan to finish your term. That term ends in 2022, if I’m not mistaken. Do you agree that you serve at the pleasure of the president? Yes or no?

Yes.

Mr. Rettig says yes, and I want to thank the commissioner, and I’m glad we agree. Will you pro-offer your resignation to President-Elect Biden? Yes or no?

No.

Well, you’re saying no to that particular question, right?

Correct.

I’m asking you, Mr. Commissioner, to pro-offer your resignation to the incoming president to facilitate the transition to the new administration. And I want to recommend that it be accepted. Mr. Commissioner, under a new administration, if you are asked to provide soon-to-be former President Trump’s tax returns to the committee, will you comply?

Sir, as you are aware, I cannot discuss issues pertaining to the tax returns since they are involved in the litigation.

So you’re not answering that question. I’m not asking anything, but will you provide if you’re asked.

Sir-

And you answered no.

I’m not going to speculate, and I cannot address the question.

So you didn’t answer no. You said you’re not going to answer at this time.

I cannot answer the question, sir.

Mr. Commissioner, Internal Revenue Code, Section 6103F, and you are familiar with that by now, correct?

Correct.

Gives the committee clear and unambiguous authority to obtain anyone’s tax returns. In fact, the IRS has never before denied the committee access to any tax returns requested under this particular authority. Mr. Commissioner, with the current backlogs, will the 2021 tax filing season start in January? And if not, what month do you expect it will begin?

We actually accelerated our programming testing. We’ve gone through health tests for our equipment, our technology and whatnot. We accelerated that by more than a month so that we would be prepared since we were not aware of what might happen with respect to continuing resolution or a lapse. So we are on schedule. And per our acting chief information officer, we are cautiously optimistic, which is for a risk-averse agency, the highest level of assurance that we can give you, that we will open on time.

We do not make the time determination and have never made the time determination until mid-April, once we have gone through the rigors of our programming, testing, development. And we actually test, I think the number is more than a million returns, before we indicate that we’re ready to go. Historically, tax season has opened in the end of January. I think on occasion, it has happened early in February, and we have no reason to believe that it will be later than that timeframe now. But we will advise you if there is something that causes that to change.

Well, Mr. Commissioner, do you intend to tell the President-Elect before he raises his hand on January 20th where we are in the schedule anyway? Do you think the next administration, regardless of who it is, deserves to know beforehand? And at that transitional point, will you tell them and give them the information?

Sir, my interactions are not with the White House. My interactions are with Treasury, and so that would be the course of conduct and discussions that I would have with people.

I mentioned in my opening statement, I am extremely concerned by the unfairness in the IRS’s audit priorities. With many low-income taxpayers, especially EITC recipients, being audited more than wealthy individuals, that’s on the record. While I do not have a specific question for you at this time, I want you to know that I have asked the GAO to look into this question and provide data on audits by income group to the Congress. I think it’s important enough to look into.

Mr. Commissioner, I am concerned by the recent executive order that would reclassify what you called at your confirmation hearing absolutely world-class career IRS workers as political appointees. This would undermine the impartiality of the IRS. How has the IRS taken any steps on this executive order, and how many employees do you expect to reclassify?

The executive order is under review. As I understand it, it requires a response on January 19. And I would support the comment that I made before and I think that you endorse, that we do have world-class employees, and we have demonstrated that every single day during my two years and before I came on board.

Yeah, I have no problems with the employees, as you well know. My problem is, before you got here too, how we operate day-to-day, how we put a budget together. And since you’re part of the administration, is your idea of the budget the same as the president’s? You brought up the subject, I didn’t, of funding. Are you satisfied with the funding of … You don’t have to answer this question, a rhetorical question. Are you satisfied with the funding of the IRS at this particular time? Including personnel. I know what the numbers are every year.

… including personnel. I know what the numbers are every year since 2010. And I know when each president submits its budget, as every other congressmen does, and I know what we finally vote on.

Can I respond, sir?

I didn’t ask a question.

I know that. [inaudible 00:26:20]

I now recognize Ms. Walorski for five minutes to ask her questions, and thank her for staying.

Thank you, Mr. Chairman, Commissioner Rettig. I wanted to switch gears here for a second. My office has experienced some difficulty in resolving constituent case work in a timely manner due to the backlog at the Kansas City Air Resolution operation. My understanding is the current backlog is close to 60 days, so I know my office isn’t alone in the concern that the IRS has a backlog of approximately 3 million pieces of unopened mail and 7.6 million unprocessed tax returns. I’m fully aware of what’s going on during the pandemic has taken a significant toll on all of your operations, and I know we have to do better. I have hardworking Hoosiers in my district who are hurting financially, and they need a swift resolution to their cases so they can continue to put food on the table. Given that many IRS employees who handle these paper returns have been on COVID-related leave for months, can you give us any kind of a quick update on the operating status at the Kansas City center, and then how we plan to get through this backlog?

Yeah, let me clarify that the unprocessed return inventory is about 1 million. The mail backlog is about 3 million. The returns in process, which means that they’ve gotten through the system and they’re about to be posted, is 6.8 million.

Okay.

And as we’ve carried into fiscal ’21, we’re a little bit higher on our carry over from fiscal ’20 to fiscal 21, but not noteworthy in terms of risk to the operations, if you will. And in terms of Kansas City, and similarly the other three submission processing sites, Kansas City is about six weeks behind. We have actually trans-shipped paper to some of the other sites, Memphis, Fresno, and Austin. And one of the sites that we have, on November 7 was processing receipts that came in November 6. Another site, on November 7 was processing receipts that came in on November 2nd. The third one I think is about October 20 on November 7. They were that caught up. And Kansas City was at October 2nd.

We’re working split shifts and obviously we’re socially distanced, but given the fact that we have so many people teleworking, we hit our high this week of 59,000 employees, teleworking, which is definitely a record for us, that has given us more space. So we can socially distance in space where previously we had employees sitting doing something else. And so, we have really done all that we could do. We’ve also offered the processing employees overtime and weekend work. And what I can say is, on behalf of the Internal Revenue Service and every employee, for literally every American, we appreciate the patience and understanding they have had with us. This is not an excuse, but I will say that our employees went through the same exact thing as every other American during COVID with respect to consumer health and safety concerns for themself, for their family, for their neighborhood, their communities. And it was a highly uncertain thing, to the extent it’s created significant hardships.

We were doing our best. I was doing my best. I was with one of my idols behind me, and we were trying to figure out everything we could do on a daily basis to lessen burden on people. We did not always, nor would anybody else, get things right. I do think as far as a federal agency, that we did at least as well as any other federal agency, given the monumental tasks that we inherited in terms of EIPs and all the business issues. And we took on EIP programming for both the Veterans administration, Social Security Administration, while we were doing our filing season, which is our normal high-risk visible.

But at the end of the day, I am the person that shut down about 511 of our facilities at the end of March, based on health and safety concerns for our employees. And I’m also the person that was instrumental in figuring out how we would do a phased-in reopening. And we did that in coordination with local authorities. And we have a COVID czar, if you will, who not only interacted with all other federal agencies, but interacted with tax authorities throughout the world as what they were doing to lessen the burden on their people, and letting them know what we were doing similarly. So, I will say we tried our best.

An example of where you all have a right to complain is, we did the congressional mailbox. That was an effort for us to be able to work those in-bounds overnight, rather than a phone situation where we were not going to be able to answer the volume of phones that were coming in. That was one of my bright ideas, thinking, “Well, let’s put them in this congressional mailbox.” It got overrun and created a series of problems on its own. On a go forward, which you all have questions about, we now have a web-based scenario that we’re doing. So you don’t have to go into an email inbox and get transferred several down. So we have lessons learned, as you would hope and I think expect.

I appreciate it. Thank you. Thank you, Mr. Chairman. I yield back.

Based on the members in attendance and consistent with committee guidance and practice, we will move to two-to-one questioning. The Chair now recognizes Ms. [Delbene 00:31:56] for five minutes. [crosstalk 00:32:00].

Ms. Delbene: (31:59)
Thank you, Mr. Chairman.

You’re welcome.

Thank you, Mr. Chairman, and thank you, Commissioner, for joining us today. In July, I led a bipartisan letter with 111 of my colleagues, detailing concerns that our constituents have raised regarding the economic impact payments. Since the CARES Act was signed into law, I’ve had several constituents reach out who are facing financial hardship due to the COVID-19 pandemic, and they’re still waiting for their economic impact payment, or are waiting for an error in their EIP to be resolved. In your response to our letter, and you referred to this a little bit ago, you cited technical challenges related to the congressional EIP mailbox. You set up saying those challenges are, “attributable to the capacity of the email system being used for the mailbox and the challenges posed by the inventory management tools on the platform.”

Commissioner, you talked a little bit about what you’d do differently. What do we need to do? What technical challenges do you face? And clearly, systems modernization is a very important issue at the IRS. I wonder if you can address what needs to happen in order to make sure we can respond better to issues like this in the future.

Thank you. And as I indicated, I am the person who made the decision on the mailbox. We implemented that within a matter of days. It seemed like the right decision at the time. It did get overrun. And I think I have, and I will continue to apologize. In terms of modernization, in April of 2019, the IRS issued its integrated business modernization plan, which was a six-year plan with a funding requirement between $2.3 billion and $2.7 billion. The first two years of that plan, the funding that has been allocated has been about half of what was requested, and therefore, obviously it’s extended beyond a six-year timeframe. So we have, and would certainly welcome the opportunity to sit with you, to go through what we are planning for modernization, both under our modernization plan, as well as you’re aware that we’re implementing a plan which we will deliver soon up on the Hill, for the Taxpayer First Act, which has its independent set of modernization features and whatnot.

But the last part of your comment I think is, what can you expect from us going forward? What you can expect from us going forward is, we have lessons learned, we have a lot of partnerships and a lot of industry specialists on the outside that we contract with. So it’s not an IRS alone project in terms of modernization, and I would include Congress in that same feature, as we’re in it together. And we have done a lot briefings. Our staff have done a lot of briefings on the Hill. We would continue to do so, so if invited, we will come up to the Hill to do briefings where we are with respect to modernization. And I think you’re going to receive briefings, depending on calendars, but either in December or early January with respect to the Taxpayer First Act, which has also an independent set of significant monetization features to it.

Mr. Commissioner, how would your IRS plans for fiscal year ’21 be cut back if funding is not increased over the fiscal year ’20 levels? We know that Senate appropriators have not increased IRS funding. So what would happen if that funding is not increased in fiscal year 2021?

The agency has a history of reacting to funding challenges, let’s say that. And we operate through a variety of ways. I think you’re aware that about 70% of our budget is staffing, and that we have significant rates of attrition. And so, not by choice, but that tends to be one of the first issues that goes. We do not cut funding for our mission critical core activities, nor would we. But we will adjust, and we will adjust as the agency has done throughout. I would like to make one quick point also, in addition to all of that. I believe that just about every administration since 2010, has made a request in the administration’s budget for a program integrity cap, which is specialized funding specifically addressing and appropriated for enforcement activities. And I believe that since 2010, that has never been approved or funded. And so, as long as I’m here, if I could take that opportunity to make a pitch that it would help if folks would look in that direction for the agency.

I understand the importance of modernizing the technology. Having a great workforce is also critically important, and so those cutbacks are having an impact on our constituents and the response they get. So I appreciate you raising how critical it is that we have those resources available. My time’s expired. Thank you, Mr. Chairman. I yield back.

Thank you.

… has expired, and we’re going to continue two-to-one questioning. And I’m going to call on, in a second, Ms. Sanchez from California, the General Lady. But I want to say this, Commissioner. Since 2010, and in the last years leading up till now, in the enforcement area, which is under your guidance and responsibility, we’ve gone from 50,524 employees, you know these figures better than I, to 33,529. That’s down 17, 000 employees. And that’s all wonderful, and we both agree to praise the workers because they [inaudible 00:38:10], because they very seldom get it. But these are our numbers. Employees did not vote for this. And in the taxpayer service, it’s less of a hit. Went from 32,000 to 29,000. So, that’s a 3,000 difference. You cannot enforce the law, I would say, and you may disagree with me, with 17,000 less employees than you had nine, 10 years ago. [inaudible 00:38:40]

Sir, I’m not only going to disagree with you, but I think it’s appropriate at this time to indicate that from 2011 to 2018, we had a hiring freeze as well. And so, with attrition and a hiring freeze, I will say that two commissioners ago made comments that, ” We’ll do more with less.” The last commissioner indicated, “We’ll do less with less.” And I have not said that because I think that puts the burden on our employees, and the ones who are with us are working really hard and get it, and they want to do it. And what I have said during my two years is, “We want to do more. We don’t vote for funding, we will work within the funding that we receive.”

It’s my job and the job of our leadership team to allocate that funding as best we can and as appropriate we can. And you’ve heard us, or should have heard us, talk about being in every neighborhood. We will not only be in the more visible areas, but we need to provide services across the board, and sometimes we need to take funding appropriations from one issue to another issue, which lowers a level of service or lowers a level of enforcement.

All right, reclaiming my time. Thank you, Mr. Commissioner. I want to thank you, and we return to our regular order. And thank Mr. Kelly. I now ask the gentlelady from California, Ms. Sanchez. The floor is yours for five minutes.

Ms. Sanchez: (40:10)
Thank you, Mr. Chairman. Mr. Commissioner, thank you for joining us today. I’d like to start with an issue that I raised at our previous hearing regarding the extent to which the IRS has unfairly been focusing on the wrong population for audits. All taxpayers need to follow the law, but the current tale of two tax systems is unacceptable. And specifically, I’m speaking of the audit rate for taxpayers earning over $1 million dollars per year. As I’m sure you likely know, Mr. Commissioner, the audit rate for those taxpayers has been cut in half, but the automated program that audits low taxpayers is chugging along at higher rates. We recently took testimony from experts regarding how audits impact tax law compliance and deter cheating. Mr. Commissioner, do you agree that audits impact compliance and deter cheating?

Do I agree that… I missed the last part, ma’am.

Do you agree that audits impact compliance and deter cheating?

Correct. I agree.

Okay. Then why is your agency choosing to go after the lowest return amounts at far higher rates, while leaving the wealthy nearly unchecked?

Ma’am, I believe you’re referring to the earned income tax credit examinations, which are the correspondence examinations that we perform. There is a 25-

No, no, no, no. Mr. Commissioner, I am referring to audits overall. And overall, taxpayers who make over $1 million dollars, their audit rates have been cut in half. And yet audit rates for very low income Americans have continued to increase. Why are you not equally enforcing our tax laws across income levels?

We are enforcing it. I’d be willing to sit with you to walk you through the statistics on that. As far as also the staffing that we have on that, I can tell you that substantially every experienced revenue agent, which are our top end examiners, are focused on the high income taxpayers and are absolutely not focused on the lower income taxpayers.

Well, that’s not the information that we’ve been receiving.

But I would appreciate the opportunity to sit with you.

I welcome that opportunity. Nobody loves to pay taxes, but I think most Americans feel like they don’t mind paying their fair share, so long as everybody is paying their fair share. But statistically speaking, and we will sit down at a later date and I will go through the statistics with you… Statistically speaking, wealthy Americans are not being scrutinized, and very low income Americans are. And it’s no wonder that they feel frustrated that they’re being targeted when wealthy Americans seem to have a different IRS experience altogether. But, we will sit down at a future date because I absolutely will take you up on that, because I absolutely know for a fact that that is true.

Well, I’m not looking to meet to debate the issue, I’m looking to meet-

Moving on, I’d like to ask you about another issue that is important, which are reports that suggest that the IRS backlogs may be preventing some Americans from receiving the advanced payments of the premium tax credit for 2021 marketplace health coverage. That delay could lead them to become uninsured. I want to know if the IRS and you will commit to working with others in the administration, such as CMS, to fix that issue during an ongoing pandemic. Because, unless you disagree, I think it’s pretty important for people to have their healthcare coverage during a pandemic. So could you provide an update in writing on resolving the backlog, as well as an assessment of how many people eligible for APTC are potentially impacted? Do I have your [inaudible 00:44:20] on that?

Yes. Can I give you one real brief comment? Individuals self-attest to that as of January 1, and the CMS actually comes back in March to reconcile that. And so, there’s no involvement, or lack of involvement in the Internal Revenue Service that would preclude anyone in this country from receiving that insurance. But we can certainly go through that, and I’d be available to discuss that with you either later today or next week, or at your convenience, to provide that information. Because I did read the same thing. [crosstalk 00:44:55]

I would appreciate your cooperation with that. I have no further questions. Mr. Chairman, I yield back the balance of my time.

The Lady’s time has expired. And I’m glad we agree that this is a critical issue that Ms. Sanchez has featured. And we’ve seen numbers of where the audits are happening, and over the years how they’ve changed. And we’d like to have some solid numbers from you, that you would verify and give to all the members of not only this committee, but perhaps everybody should know. I mean, there’s no secret here. And I want to thank the gentlelady for bringing that issue. As I mentioned earlier that issue, but you were very explicit and I thank you. The Chair now recognizes for five minutes, the gentleman from Pennsylvania, Mr. Kelly.

Mr. Kelly: (45:53)
Thank you, Chairman. Thanks for having me at this hearing. Mr. Commissioner, thank you so much for being here today. First of all, I just want to mention a piece of legislation that Mr. Kind and I had submitted. It’s called the Personal Health Investment Today Act, or FIT, in the world of acronyms, and it would allow for the reimbursement of physical activity expenses using pre-tax dollars. This would allow folks to use the money in their health savings accounts for these expenses. And to do this, we propose an expansion the definition of medical expenses to include qualified physical activities like sports leagues, health club dues, and exercise classes as a form of disease prevention. So allowing people to use this money on their health savings account for these expenses, would go a long way towards helping to encourage people to engage in physical exercises and a healthy lifestyle. So, I wanted to bring that up.

Mr. Kelly: (46:41)
One other thing I would like to mention, because this was a big day for all of us, we did the Taxpayer First implementation act with Mr. Lewis. That was a great day for us, and I think that one of the things we look fondly back at the time we spent with Mr. Lewis. But that act does require some longterm implementation work by the agency. The challenges you’re facing with that, is there anything that you need from Congress to help out with that?

Funding.

Mr. Kelly: (47:11)
Funding?

Yeah. That act passed with no funding attached to it.

Mr. Kelly: (47:14)
Yeah. So, we ask you to do something, but with no money to do it. [inaudible 00:47:19] Yeah, yeah. Yeah, we are good doing things like that. My kids tell me that all the time, too. I want to bring up this audit rate thing, because I think that somehow we keep getting this thing rolled around and rolled around. And I guess if you say it long enough and loud enough, some people listen to it and say, “Oh, there must be some truth to it, or they wouldn’t keep saying it.”

Mr. Kelly: (47:37)
But I just want to go over this because Ms. Sanchez brought up a very good point. And when it comes to the earned income tax credit, the fact that somehow we are really going after these folks at a much higher rate than we would people that are higher income. So, just to reiterate what you said back in October, for taxpayers with income over $10 million per year, the audit rate is 8.16%. For taxpayers with an income over $5 million, the audit rate is around 4%. For taxpayers with an income between $1 million and $4 million, the audit rate is around 3%. And for EITC, the audit rate is 1.129%. Now, I don’t have a degree in math, but I do have the ability to look at these numbers, and if anybody can tell me that somehow EITC recipients are being really audited more than anybody else, the figures don’t lie. It’s not magic, it’s math. Would you reiterate that? Because I think we could clear this up and we wouldn’t have to keep rolling this thing around, because the truth of it is, it doesn’t exist.

Yes. And the chairman asked about the numbers as well. The numbers are published annually in our data book. The last published data book is the 2019 data book, which we will make available to every member of your subcommittee. Our 2020 data book will come out sometime March, April of next year. But the individuals over $10 million is 8.16%, individuals between $5 million and $10 million is 4.39%, individuals between $1 million and $5 million is 2.39%, and for EITC claimants, the audit rate is 1.1%. And I would like to indicate that there is no focus on lower income taxpayers, and there’s definitely no focus from the Internal Revenue Service on any of our systems with respect to the individuals who make up any of these taxpayer groups.

But to the extent people indicate that the EITC is focused on lower income individuals, whoever is in that population is in the audit selection process, that we don’t look to any characteristics other than what is or should be in a return and things like that in audit selection. But annually, and the last one, fiscal ’19, in the EITC world, there were about 25 million people claiming $63 billion of the EITCs. And there was a 25% improper payment rate, which means that the Internal Revenue Service paid, for fiscal ’19, $17.4 billion to that group that we were unable to verify they were entitled to it.

I agree with every member on this committee that this is important money for important people. It’s a subsidy that my personal belief is, by and large, is getting to the right people. But it’s a subsidy that is characterized in the Internal Revenue code, giving a responsibility to the tax administrator on some things that are very complex. The code itself for EITC needs to be addressed by Congress at the appropriate time.

Mr. Kelly: (50:46)
Okay, I appreciate that. This committee in particular is responsible for oversight, and what we’re talking about is the hard-earned dollars of hardworking American taxpayers. Anybody that has a 25% improper payment rate, nobody would run a private business like that and think, “Things are just okay.” I really appreciate the time you’ve put in and your dedication. And Mr. Chairman, I yield back.

We need to take a look at this. Mr. Chairman, I think we already… Commissioner, we already talked about this, I think. Mentioned that seeing the numbers, percentages of [inaudible 00:51:25], I think that’s very important to look into. But we’ve only concentrated on that one aspect. We haven’t concentrated on the fact that affluent people, and there’s nothing wrong with affluency, that’s for sure, have cores of lawyers which other people do not have. And this is not your fault or problem, and we can’t lay it on your lap. But the fact is we have two systems of taxes because those who have the lawyers and those don’t. And if you want to challenge and you want your lawyers to look up loopholes-

… and you want your lawyers to look up loopholes and you have no lawyers. Well, you have no choice either. So I think all parties are right here. And I think that we need to take a very close look at this because people feel they’re being ripped off. And if that’s not true, we have to clarify. I want to please go to Mr. Souzzi and [crosstalk 00:52:27]

Mr. Souzzi: (52:27)
Thank you, Mr. Chairman. Thank you Mr. Chairman. The commissioner, thank you so much for being here today. It’s good to have you testify before this committee. We’ve been waiting some time for that and we’re happy to have you here. And you’re in a tough spot. I mean, IRS is always a punching bag as it is, and you’ve lost so many resources as an agency since 2010. I know you’re a dedicated professional. You’ve got a great background and you’re a committed public servant but you’re really in a tough spot.

Mr. Souzzi: (52:54)
And on top of that, you’ve got this whole issue with the president’s taxes, which I would hope that the the future treasury secretary, doesn’t direct you to do it because I think it has to go through this litigation because we need to demonstrate once and for all the power of this committee to review the issue of auditing the IRS’s own regulations that say that you must audit the president and the vice president. And we need to review how that’s been done. And I think the court case is going to be very, very important for us to go through. Anyway, so you’re in a tough position. So you agree that the IRS has had 17,000 employees cuts since 2010? Do you agree with that?

Those are the statistics.

Mr. Souzzi: (53:34)
And do you agree that the staff reductions are about 22% overall?

That’s correct.

Mr. Souzzi: (53:39)
And revenue agents are down by 35% since 2010?

That’s correct.

Mr. Souzzi: (53:44)
And as a result, the audits that have taken place are down 45% since 2010?

That’s correct. We should… I hesitate to say this because the audits are down. We do have technological advances and we do us AI but it does not make up for the drop in staffing.

Mr. Souzzi: (54:05)
We need to prove the technology at the IRS, don’t we? We need to spend at least $3 billion to upgrade the technology at the IRS. Is that correct?

It’s significantly more than $3 billion.

Mr. Souzzi: (54:15)
How much do you think we need to spend to improve the technology at the IRS?

It depends. If we want to get to, I think-

Mr. Souzzi: (54:21)
We want to be the best we can be.

… what the American people deserve, it’s going to be somewhere between 6 and $7 billion. To frame that large banks are spending 10 to 12 billion a year to modernize their systems.

Mr. Souzzi: (54:32)
So we need 6 or $7 billion. Of the money we spend now, how much goes towards fixing the old systems versus putting in new systems? Is it 50-50?

It’s at least a third, sir.

Mr. Souzzi: (54:41)
A third is for existing systems?

And we spend billions of dollars just for ops and maintenance.

Mr. Souzzi: (54:46)
Right. Just for taping bubble gum to hold everything together. So we need to modernize the IRS with better technology. We need money to do that, correct?

I agree.

Mr. Souzzi: (54:58)
And we need more employees for the IRS and we need money to do that, right?

And we need to train our employees.

Mr. Souzzi: (55:06)
And we need money to do that?

We do.

Mr. Souzzi: (55:08)
And if we had the money-

And our employees deserve to be trained.

Mr. Souzzi: (55:09)
And the money we invested in modernizing, the money we invest in getting better employees, we’ll make more money as a federal government by bringing more money in from improving upon the tax cap. Is that correct?

That’s correct. The ratio is, and everybody’s come up here before me and said the same thing. It’s between 5 and $7 return on investment-

Mr. Souzzi: (55:28)
So for every dollar we put in, we get $5 or $7.

And that doesn’t take into account the deterrent effect in the enforcement arena which is significant.

Mr. Souzzi: (55:36)
So one of the things that we’re very concerned about, commissioner, is that right now, corporations that have over a billion dollars in assets, I don’t know if it’s a billion dollars in assets or they bring in a billion dollars a year in revenue. Let’s see. A billion dollars a year in assets. A billion dollars in assets. Their audits are down 51% since 2010. Is that correct?

I don’t have that statistic in front of me, but I would not be surprised by that.

Mr. Souzzi: (55:59)
And for people who make a million dollar… Oh, no, strike that. For people who have a million dollars in assets or more, their audits are down 61% since 2010?

I think that’s an income number.

Mr. Souzzi: (56:11)
Okay. So for people who make a million dollars or more, their audits are down 61% since 2010.

We’re down across the board. So I’ll go with you on the 61%.

Mr. Souzzi: (56:22)
Okay. So the bottom line is you need more money for technology upgrading. You need more money for employees. If you had better technology, you had more employees, you could do a better job auditing all different types of people, especially those with the most assets and the most money. And you’d bring in more money. You’d bring in five to seven times more than is invested.

And we would also be able to provide better service for every American.

Mr. Souzzi: (56:48)
Okay. Thank you commissioner. I yield back.

Chair now recognize just for five minutes, the gentle lady from California, Ms. Chu. Thank you for being here.

Ms. Chu: (57:04)
Thank you Mr. Chair. I am grateful that the IRS closed its operations for several weeks to protect its own workforce during the initial weeks of the pandemic this spring and recognize that it created a huge backlog of mail that the IRS is still working through. But I’m disturbed that the IRS is continuing to issue levy and lien notices while processing that backlog of mail. Taxpayers and businesses who have in fact filed on time are being penalized because the IRS still has not processed their filings. So I request unanimous consent to submit a letter, for the record, to Commissioner Rettig from the American Institute of Certified Public Accountants dated November 5th, detailing some common sense options that the IRS can implement to alleviate the financial difficulties for these tens of thousands of taxpayers.

Ms. Chu: (57:58)
Well, Commissioner Rettig, my understanding is that the IRS has not established and expedited phone service for tax professions to dispute the lien and levy notices that are being sent to taxpayers despite the backlog. Do you have a current estimate of how large the mail backlog is? And would you also provide some rationale for not setting up such a process to date and whether we can have such a process?

I did go through the mail backlog figures. We have an aggregate of about 3 million pieces of mail backlog of which about a million are tax returns, which is not unusual or whatnot for us. And as to the AICPA letter, and I know your background as well, ma’am. As to the AICPA letter, 36 years in the outside, I’m in touch with thousands of practitioners on the outside, AICPA as well as others. And what they were asking for was this to go beyond the first time abate and beyond reasonable cause for individuals. With a comment saying, first time abate and for a failure to pay, failure to file, failure to estimate penalty, you get an automatic abatement. And one of their comments was, well, if somebody already has one of those, they don’t get a second one, but then they default to reasonable cause.

We have procedures in place. The individuals in the Internal Revenue Service were not merely career employees who looked at this, but more than 10 people who came on board from private practice, similar experience to mine, looked at this as well and were not willing to provide an open forum for people, professionals, particularly, who might not be addressing their responsibilities during this. So we took a hard look at that. And AICPA is aware as are other practitioners.

Ms. Chu: (59:39)
Well, commissioner, they understand your objection to just a blanket kind of approval. But what they’re talking about is an expedite of phone service for tax professionals to at least make their case.

We do have a practitioner priority line that is staffed. And so I’ll go back… I have personal friends who are-

Ms. Chu: (01:00:03)
Okay. If you could look at that. If I can go to a second question.

Commissioner Rettig: (01:00:06)
[crosstalk 01:00:06] the AICPA. So these are not conversations that happen in isolation.

Ms. Chu: (01:00:09)
Well, we have talked quite a bit about your tighter annual budgets and the hiring freezes and the decreased workforce that is able to conduct audits. And I believe that Congress has to provide IRS the resources it needs to effectively and fairly enforce our tax code against tax dodgers and fraudsters to hide income. The high income individuals who are avoiding taxes altogether. And it’s estimated that if there was proper funding, the IRS could bring in $1.3 trillion by 2030. So I know you have had recent calls for a multi-year budget for the IRS. In your opinion, are there of the IRS budget that should be prioritized for mandatory multi-year spending? And if so, what should they be? Should enforcement be a priority?

Enforcement is a component of taxpayer service. The taxpayers who are compliant need to know that the taxpayers who are not are at risk. So they go together. The modernization, mostly when we talk about modernization, people look at it as having the ability to provide better services. Whether it’s chat bots or it’s online and this and that. But enforcement is one of our core components and one of our core missions. And a visible enforcement effort is significant in terms of creating deterrence on the outside. So I’ve used the terminology, ma’am, that we need to be in every neighborhood. Unfortunately we have had, say, 15 priorities each of which costs a dollar to get off the ground and we have $1.

Ms. Chu: (01:01:52)
Mr. Rettig, what about the issue of the multi-year spending and budget?

The multi-year spending is for modernization as much as anything else for us and what it does… Our IT side of the house. We get knowledge of a number and we gear up and often we get it late in the year and we can’t actually implement the number by the close of that year and we have to deal with the funding. And then we start it over again next year and over the year after, and the year after. It’s very difficult for us that’s why the multi-year component, so we can plan accordingly and we can actually acquire product accordingly. Having to do it annually, it’s just not the way it should be done.

Ms. Chu: (01:02:34)
Right. And I still hope that it would be for enforcement.

Yeah.

Ms. Chu: (01:02:38)
I yield back.

I’m an enforcement guy, ma’am.

Speaker 3: (01:02:51)
Well, thank you, Mr. Chairman. And I want to thank ranking member Walorski and Commissioner Rettig for being here today. I appreciate you taking the time out of your busy schedule to address and discuss IRS efforts. First, I’d like to commend you and your staff and all the IRS employees and how the agency has confronted the coronavirus pandemic. It is a true testament of the IRS’s dedication and commitment to delivering quick meaningful guidance to taxpayers. Commissioner Rettig, within a matter of weeks after passage of the CARES Act, the IRS was sending out economic impact payments to taxpayers.

Speaker 3: (01:03:33)
This was real money that supported many of my constituents and people all across the country through the most challenging months that they faced and the country faced. This money went to groceries, rent, car payments, and other living necessities. Moving forward, those who did not receive an economic impact payment had the opportunity to claim the recovery rebate credit for the 2020 filing season. Commissioner Rettig, many of my constituents are interested in claiming this credit next year. Can you provide any details on the process for claiming the recovery rebate credit? Will it be as simple as checking a box from the tax form?

There is a scheduled worksheet that will be included with the 2020 return that provides for individuals to not only claim the credit, but if they received an amount of a credit that they disagree with, they can put the worksheet together to get the additional credit that they believe they’re entitled to. We would obviously check that. But it would be part of the return.

Speaker 3: (01:04:39)
And that worksheet that you referenced, is that something that has been distributed already?

I’d have to get back to you on that. I’m not sure it’s public yet, but that’s certainly the concept.

Speaker 3: (01:04:52)
Okay. Changing topics, I’d like to discuss with you and I know it’s been mentioned previously, the IRS modernization efforts. As you know, many taxpayers faced challenges interacting with the IRS this year due to the closed taxpayer assistance centers and limited staff and long wait times with the call centers. Further complicating this situation was the IRS inability to process paper while service centers were closed. The Senate Republican HEALS Act included $2 billion for funding for IT modernization to help address some of these challenges. Commissioner, how important is it for Congress to make that investment in modernization? And could those improvements prevent our constituents from having to face similar challenges in the future?

That figure was carefully determined. And that would be a game changer for every American from perspective of EIPs and otherwise. The $2 billion would be specifically appropriated for IT and technology, and would literally be a game changer and assure every American that we are able to provide the services, including if we get another round of EIPs or similar. So the significance of that certainly can not be understated, sir.

Speaker 3: (01:06:12)
Well, thank you commissioner. Appreciate it. Thanks for your service. Those are all my questions.

Speaker 4: (01:06:18)
Thank the gentleman from Illinois. The chair now recognizes, for five minutes, gentlelady from Wisconsin, Ms. Moore.

Ms. Moore: (01:06:31)
Thank you commissioner for your appearance here today. And I want to join the rest of my colleagues in really thanking the hardworking people at the IRS for all that they do. I just want to commend them on standing up some really outstanding interventions with the economic impact payments, and particularly putting together the portal, and I’ll discuss that a little bit in a minute, To identify those taxpayers who were non-filing taxpayers that really, really, we needed to redress their extreme poverty during this time. Many of my colleagues or most of my colleagues on both sides of the aisle have really left me a really clear path to ask this next question. It seems like what was in common with all of the questions, whether they were from Chairman Pascrell or from ranking member Walorski seemed to deal with the backlogs, with those people who have not gotten the economic impact payments so far.

Ms. Moore: (01:07:37)
The disparity between those people who are audited and those who are not. You did talk about the $66 billion burden that the earned income taxpayers provide on a annual basis. But I just want to note that the tax gap is something like $446 billion a month. So it’s really worthy of that. So my question is real simple. Just say, for example, that you are reappointed or that you continue your appointment, I guess, as the commissioner of the IRS, what would you provide in the way of a budget submission to increase IRS funding, to sort of cover these clear gaps that we have in enforcement and training, as you mentioned? What would be your increased budget request?

On a top end? I mean, certainly what I can say is I think that the adjusted for inflation, the 2010 budget figure today would be about $14.1 billion. And that would get us to the equivalent of 2010, which realistically might not take into account a hiring freeze from 2011 to 2018, patchwork on our systems to get us to where we are. The strength of our agency and to the extent that we’ve earned and continue to earn trust and respect of the American public is attributable to our employees, and the frontline employees specifically as well as our approximately 7,000 employees in our IT departments and our wage and investment departments.

Ms. Moore: (01:09:15)
I agree with you so much commissioner. That the employees are just awesome, but you do need more money as you just have indicated and that’s on the record. I wanted to talk a little bit about the problems of this pandemic, which sometimes are not [inaudible 01:09:29]. I co-authored a letter along with Congressman Raskin and most of the members, a matter of fact, the Ways and Means Committee have signed onto it, talking about the impact of COVID-19 on domestic violence. We’ve seen a real huge uptick in domestic violence, where staying at home has not been safer for people. One of the impacts has been… As you know, we sent you a letter. One of the impacts has been that victims have not gotten their payments.

Ms. Moore: (01:10:02)
And there has been a ruling on your part that in fact, you cannot make replacement payments because of US 31. But we have had some advice from Nancy Olson. You know her. She used to be a taxpayer advocate who has said that in consultation with the GAO, that you really do have the ability to book a category for payments that provide these desperately needed payments along with affidavits or police reports or something. That, and what do you plan to do in 2021 as this continues to be a problem? And I would yield to you for that answer.

First, our request would be that on legislation such as this, that the IRS be part of it to help in terms of what we can administer. The CARES Act’s very specific as to who is an eligible American. And in the context of domestic violence, those payments were properly made in accordance with the income tax returns. And if it was a direct deposit or a check, they were properly made with respect to the CARES Act-

Ms. Moore: (01:11:09)
Commissioner, I’m aware of that, but the GA has said that you had the flexibility that you could have [crosstalk 01:11:16] going forward. How would you do it?

Ma’am, we’re extremely sensitive, I think as every American is, to victims of domestic violence. And certainly we have employees and family members and whatnot that are victims of domestic violence. If we had discretion or believed we had discretions to do so, we would do so. We can not do something that’s contrary to legal and statutory authorities. That’s why on a go forward, and if there is another round with respect to economic impact payments, we would appreciate the opportunity to be at the table to indicate not only with respect to that, but a couple of other provisions that we would make suggestions, perhaps, how we might be able to administer better for some people who really were sort of left in between.

We’re certainly underserved at the end of the day. But Nina Olson is not counsel for the United States government. Counsel for the United States government for the Internal Revenue Service is chief counsel and then you’ve got Department of Justice, you’ve got Treasury and whatnot. If I felt that I could, actually with the stroke of a pen, make payments to people I would do so. But the IRS… I am a tax administrator and the IRS is required to follow a statutory law. And-

Ms. Moore: (01:12:30)
Well, Mr-

So we would like to work with you.

Ms. Moore: (01:12:35)
Mr. Chairman, my time has expired, but I would ask unanimous consent to put Nancy Olson’s analysis in the record pursuant to this testimony. And I would put that without objection, sir. Mr. Chairman.

Mr. Pascrell: (01:12:58)
Without objection.

Ms. Moore: (01:13:00)
Thank you, Mr. Chairman. And with that, I would yield back.

The chair now recognizes, for five minutes, the gentleman from Pennsylvania, Mr. Boyle.

Mr. Boyle: (01:13:16)
Thank you Mr. Chairman. And I appreciate you having this hearing. One of the benefits of doing hearings like this is not just the opportunity for members of Congress to exercise oversight and take testimony from the witness, but it’s also for us to be able to listen to the experiences of other colleagues. And I’ve been on this hearing since the beginning at 10:00 AM. And I’ve really been struck by just how remarkably similar the experiences of constituents in other districts have been to my own. Specifically, the very first Republican member to speak, Ms. Walorski. She said almost verbatim what I was going to read in terms of the 2019 tax refund backlogs. So commissioner, and I appreciate you being here. And when you initially reached out to me way back pre COVID to sit down and talk about how the IRS can work better and more efficiently for all American taxpayers.

Mr. Boyle: (01:14:25)
I want to just reiterate, my constituents in Philadelphia, Pennsylvania are having the same exact issues with 2019 tax returns. I’ve been in office six years now and this was by far the most IRS constituent service issues that we’ve gotten. And then specifically the backlog at that Kansas City site, as you probably know. For my constituents, when they have an issue, it’s the Kansas City, Missouri site of the IRS that processes them. Our ability as a congressional office on the front lines, dealing with constituents has really been impacted by the fact that it’s been so difficult to get information from them. I would also just point out as constructive criticism, the way it’s been set up right now in IRS with the congressional liaison office, they aren’t able to get us the information that we need to be able to relate to our constituents.

Mr. Boyle: (01:15:25)
And changing that is really important because we’re the ones who are on the front lines, dealing with people. I have four different district offices in my district because we prioritize constituent service. For a lot of our constituents, they don’t even… For a certain segment, they don’t necessarily even look at voting record or policy. It’s the nuts and bolts of constituent service that matters. And so when I have someone who is waiting on a tax refund far larger than the EIP, and they haven’t been able to get it and they haven’t been able to even get information. And the taxpayer advocate office is so swamped that they can’t hear anything, it’s enormously frustrating. And the folks in my office who also live in and around Philadelphia have been doing an excellent job attempting to service them. I want to specifically recognize Jim Kennedy in my office who’s developed a real expertise on these issues.

Mr. Boyle: (01:16:26)
But it’s enormously frustrating. So I would pass along that as reiterating or kind of underscoring what some of my colleagues have already talked about because we’ve been having the same experience. And if we can reform that system with the Congressional Liaison office, it would just be a better experience for our constituents. Moving on, let me speak about the EIPs, the economic impact payments. Again, my constituents having very similar experience to the issues that were raised by my colleague, Suzan DelBene. Simple things like getting an EIP for $6 and 50 cents instead of $650, and then having to wait nine months for that to be corrected. So these are two areas that need to be addressed. And I think they all point to the third point that I want to recognize.

Mr. Boyle: (01:17:22)
And I’m sorry, I can’t see the timer here. So forgive me, Mr. Chairman. Well, there we go. It looks like I have about a minute left so I’ll just conclude with this. And perhaps this is going to be something that we can work on a bipartisan basis. The 35% reduction staff since 2010 is clearly part of the problem. And if we can work on a bipartisan basis to restore the IRS workforce, it would, in the end of the day, actually save far more taxpayer money than it costs. So commissioner, I know I covered three different areas there, but if there’s anything that you wanted to-

Mr. Boyle: (01:18:03)
… areas there, but if there’s anything that you wanted to address in that, would certainly welcome it.

No, invite me back for another one-on-one, and we can go into more details. I would indicate a pitch for people to file electronically. During the pandemic, we still got-

Mr. Boyle: (01:18:19)
Commissioner, I’m sorry to interrupt, I should’ve mentioned this earlier, a lot of the constituents who we’re servicing don’t have the ability to do it online. That is part of the problem.

I recall our meeting before, but generally for the others, because there’s resources here and resources there.

Commissioner, can you, by chance write something, put something together for Mr. Boyle? The time is out, but I want to give you the opportunity to respond to him. Could you write something to him within the next week or so?

I will. And I’ve met with him before and we’ll meet again.

Is that, is that okay with you, Mr. Boyle?

Mr. Boyle: (01:19:00)
Yeah. Great. Thank you commissioner. And I appreciate that chairman.

Thank you. Before I call on Mr. Wenstrup, it just occurred to me a couple of things, looking at some notes here. I think using percentages, Mr. Commissioner, when we talk about audits is very misleading. I’ll tell you why I think. If you look at real numbers, taxpayers with incomes of over $10 million, 10 million or more, there’s 1500 audits. And EIT taxpayers, which many of the members have brought up today, 380,000. And one might say, “Well, there aren’t as many millionaires obviously, or multimillionaires as there are people on EIT.” But we’re focusing on EIT taxpayers. You’re talking about individual taxpayers and the grief they have to go through. I don’t think percentages are the whole answer. That’s all I would say to that.

Can I comment?

Sure.

I agree with you. The questions that we’ve been fielding are that the audits at lower incomes are disproportionate as a class to the audits at higher incomes.

Right.

We’re not out of sync on this. We need to-

What do we need Mr. Commissioner?

We need the resources to do it better. The EITC should not be an issue for any American. We need to change that statute. Diane Grant has been working this since 1975. We have ideas, but it takes congressional action to change it so we’re not collectively in this situation and that we are not burdening the lower income taxpayers, who need and deserve these funds.

Thank you, Mr. Commissioner. I recognize Mr. Wenstrup, the gentlemen from mile and it’s good to see you here.

Mr. Wenstrup: (01:21:20)
Thank you, Mr. Chairman. Thank you commissioner for being here. I want to echo some of the sentiments of my staff, on behalf of my staff who have taken on a lot of issues since this pandemic as you all have as well, and particularly Kelly Shively from my office. But I appreciate the comment and your testimony commissioner that you believe the IRS has to operate from the taxpayer’s perspective. And that’s important because obviously as members of Congress, that’s who we end up taking the view of. About two months ago, one of my constituents reached out and asked for some guidance regarding the use of their dependent care, flexible spending account. And she’d been notified she wouldn’t be able to use that to pay for virtual preschool. And unfortunately, for many Americans around the country, in person school is not being given to them as an option right now.

And so they face a situation, and while I hope that all schools, not just some schools can safely and smartly reopen, this is an issue that we face right now. And it’s a burden, not often of their choice, but it’s a burden placed on a lot of families. And so as you know, many families save for their children’s education by putting funds into these accounts. Recently, I sent a letter to the IRS requesting what I think is a reasonable accommodation to allow the DCFSA account dollars to cover the costs associated with virtual dependent care services. And so my first question is commissioner, does the IRS, are you able to issue guidance on allowable uses for these accounts?

Sorry. I do recall your letter and I, my recollection, it was also to treasury, and my further recollection is that treasury responded to your letter. This would be a policy call. We’re just tax … but we’re tax administrators on the IRS side. That the policy question about where to open that up too, would be a treasury decision. IRS did issue an announcement, I’m speculating on, it was three, four, five, six months ago. Indicating that it could be a problem for people who have the automatic withholdings going in, but are not using the funds on the back end, with the ability to actually stop making those withholdings. And having said that often, at the government where we’re quick to say, “Well, we issued an announcement with the assumption that everybody reads our announcements.” And I understand that’s not the case. So I’m saying, we did something, but I’m not saying it is it solved the problem, sir.

So they can temporarily use these dollars?

The announcement was that they should stop contributing during the pandemic if they’re actually doing the homeschooling, stop not contributing to the account. Treasury responded that to you, I believe, and I believe there were several others. To take it into consideration and I would suggest interactions with treasury. I don’t have that.

And we’re doing that as well. I just was asking if you’re able to issue guidance on that and what the [crosstalk 01:24:26] are from-

If the policy decision is, maybe I don’t go back to our building today, but if the policy decision was made, I would hope that we could promptly issue that guidance.

Not the other way around, I guess.

I can’t without the … it’s the policies-

Guidance, suggestion, whatever.

Well, I think the suggestion has been made and keep in mind that the people who review these things are also people with families.

I get it. And I know you do. And one other question, one of my constituents who’s a CPA, has reached out raising some concerns about penalties that would be leveled on tax preparers around the country for failing to meet the deadlines to submit returns, due to some of the delays that are beyond their control. What advice do you give there?

Sorry. I personally know thousands, if not thousands and thousands of accountants, CPAs, enrolled agents and others. And similarly, know probably more than a thousand tax lawyers and have immediate family members who are in the practice. They have a first time abate, which is an automatic abatement of this, and then also reasonable cause. And under the guise of the pandemic, reasonable cause should be looked at liberally by everybody at the Internal Revenue Service. And I’ve said that publicly.

That’s very helpful. Thank you very much, and I yield back.

Dr, pleasure. And again, thank you for being here today. The chair now recognizes for five minutes. My good friend, the gentleman from Illinois, Mr. Davis.

Mr Davis: (01:26:05)
Thank you very much, Mr. Chairman for giving me the opportunity to participate, though I’m not a member of the subcommittee. Commissioner, let me thank you for your service and thank you for being here with us. And I also want to give a word of commendation to the taxpayer advocates in the regional office in Chicago, who have been steadfast and very helpful to my office during this period.

Mr Davis: (01:26:35)
I remember the unlawful denial of VIP’s to incarcerated individuals, as well as their families during the historic economic crisis has illuminated further the pandemic’s disproportionate effects on communities of color, and unequivocally harmed African Americans who are vastly over- represented in the prison population. When ordered by the courts to stop denying EIPs to the incarcerated, the Internal Revenue Service insisted that the incarcerated complete a complicated form, knowing that they lacked access to the technology to use the non-filers portal, given that the Internal Revenue Service has the prisoner file by which it can validate incarcerated status, failure to [inaudible 01:27:33] a simpler form comparable to the non-filers portal seems like an intentional effort to limit the EIP claims by the incarcerated, which again, disproportionately harms African-Americans. Commissioner, will you meet with the leadership of the Congressional Black Caucus to discuss our concerns about the disparate racial implications of recent internal revenues decisions?

Sir, I would be honored to meet with you and others. I met with John Lewis on three occasions, a highlight of my personal and professional career. And one, I take umbrage to the term intentional, and I realized the context within which you made it, sir. But we are very proud of our diverse workforce and our respect for all people in this country. And we reflect the people that we serve, which includes incarcerated people, I have a workforce of 80,000 people. I absolutely guarantee you that we have thousands of family members who are incarcerated and who were entitled to these EIPs. We are no different than any other cognitivism of the United States, but I’d be honored to meet with you and others.

Mr Davis: (01:28:53)
Thank you very much. And we look forward to that. Almost eight months after the CARES Act became law. I’ll ask, when are you going to pay the spouses of the incarcerated?

It’s my understanding that all of the payments associated with prisoner related issues have gone out, keeping in mind that we’re getting information through our portal currently, but we’re current, when that information comes in within a week or so those payments go out. But I think the intention was that all precedent related payments be made by the end of November.

Mr Davis: (01:29:32)
My time is going to run out. So we would look forward to a review of that information. Mr. Scott, a colleague of mine from Virginia had a constituent who is a Social Security beneficiary who contacted the Internal Revenue Service because he did not receive an EIP. The IRS told him he was deceased. Representative Scott then contacted this subcommittee for help. And although the IRS corrected his record, it refused to process his EIP this year because he had already been considered for an EIP when he was listed as deceased and making the gentleman wait until next year. Could he be paid immediately?

First, the death master files maintained by Bureau of Fiscal Services, so we get the information from them and the way that the EIPs were issued, because the mandate was as rapidly as possible, a marker was put on an account. And so to undo one, we actually would have to undo all of them. We are aware we have not yet been able to work through this, but we are definitely aware of this issue, sir.

Mr Davis: (01:30:48)
Well, thank you very much. And can I ask, I have a constituent that it has taken more than two months to trace a check to reissue a payment. Is there a reason this has taken so long?

I’d like to have the person’s information. There could be a lot of reasons. There could be fraud filters that are on there, there could be ID theft filters and whatnot. But we would be able to track relatively quickly to find out what the issue is that held it up. It could be something unknown to the individual, as well as the Internal Revenue Service. I will have somebody reach out to your office this afternoon. I don’t know if you have a power of attorney or the people in your office have power of attorney that we can get that information, which we need. If you don’t, we can not speak to you. We could speak to the person.

Mr Davis: (01:31:40)
All right. Thank you very much. I appreciate your responses. Mr. Chairman. I ask unanimous consent to have two letters submitted for the record from the Congressional Black Caucus.

Mr. Davis. You always stand for the voiceless of the most vulnerable. And I think that’s what the main question is today. Reduce perceptions that there’s two tax systems in reality. I don’t think that’s political. And now the chair now recognizes for five minutes, the gentleman from Illinois, Mr. Schneider.

Mr. Schneider: (01:32:37)
Thank you Mr. Chairman and commissioner Rettig. Thank you for joining us today. I do want to say, as others have said that many of the issues we’re hearing are issues I’m having in my district. So before I ask some questions, first, I’ll commend you. We are seeing improvements in surface, but my office has been in touch with a lot of constituents that have yet to receive their economic impact payments like others you’ve heard today. We’ve been working with these constituents who have the cases pending with the IRS error resolution section. And so my first request is until these cases are resolved, our constituents aren’t able to enroll in the ACA, process their FAFSA received their tax refund. We continue to forward the details, the privacy release forms and all the other information your office has requested. Can you commit today that you and your staff will ensure that these cases are resolved as quickly as possible, and let my team know how we can expedite that and give realistic timeframes to our constituents?

Some of your comments were a little … I couldn’t actually hear your comments, but I will commit to having somebody on my behalf contact your office this afternoon.

Okay. I was just asking, I have so many people waiting. So I would appreciate that. Can you hear me now?

Can you speak again? Interestingly, when I had my button on, it seemed that I heard you.

Are you able to hear me?

I can hear you now.

All right. So as I move on, I’d like to go through a couple of issues related to tax exempt non-profit organizations. Tax exempt exempt nonprofit organizations benefit our communities, they are critical social service providers, education groups, community building. Because of their charitable social welfare missions, taxpayers effectively subsidize these organizations to provide tax-exempt status enshrined in the tax code. However, with this privileged status comes an expectation that these organizations work towards their mission and don’t abuse their status. So what I’d like to do is go through some different scenarios and get your take. I asked similar questions of treasury inspector general for tax administration, Jay Russell George at a hearing in May. First, suppose a nonprofit organization, annually contracts with the company for millions of dollars in products or services. Companies run by one of the nonprofit’s board members and the company regularly inflates prices for its goods and services. Would you find such an entanglement troubling, please answer just yes or no,

Sir. I believe these questions are beyond a hypothetical. It might be related to a referral that we received. I would not want to speculate on any particular matter. I find areas of noncompliance for all taxpayers, which includes tax exempt non-profits to be troubling. And I can certainly say that to you.

Yeah. And again, I’m not singling out any organizations specifically at the moment, but if an organization has a provider and they’re directing millions of dollars annually to that provider, but they have a stake in that company, would that be a source of concern to you?

I got they’re a provider, but they have something.

A nonprofit organization has a financial interest in a provider to the organization, a vendor. And they’re directing business to that vendor. It appears, I would argue that’s a conflict of interest. Would that cause concern for you?

I’m not going to speculate again, but I come back to the same thing, particularly in the nonprofit and tax exempt world is not only compliance, but the appearance of improprieties is I think equally important because as you said, they’re essentially supported by taxpayer dollars that have gone elsewhere.

Yeah, I think it’s fair to say that we would want our nonprofit organizations who are getting this tax advantage status to hold up to the highest level of ethics. Conflicts of interest, personal self-dealing, all of these are issues that are restricted by non-profits. Is that correct?

Yeah. There’s a whole host of provisions specific to nonprofits that are there for a reason. And it’s not just in the ordinary sense, for a taxable tax payer, it’s sort of the tax dollars interest and penalties. I’m here to use my term. It’s not a code term, but the appearance is, I think at least equally important, because they have benefits that other taxpayers do not.

Right. So I’m about to run out of time, but obviously you know I’m talking about the NRA and the self-dealing that has been reported. I know you can’t report on an investigation, but the level of concern related to the activities that have been reported are very disturbing. And I just hope that the IRS has taken all of the appropriate steps to make sure that we protect not just taxpayers, but the donors to these organizations who are taking advantage. They’re not making donations to subsidize people’s lifestyles or habits. With that, I yield back.

I’d like to thank our witnesses. In this case, one witness, the commissioner for joining us today. Please be advised that members have two weeks to submit written questions to be answered later in the writing. Those questions and your answers will be made part of the formal hearing record. Mr. Commissioner, I believe that I adhere to the conditions of our meeting today. I kind of stayed away from the president’s taxes with your direction.

Kind of.

Kind of. But I want you to know to me, this is not a political issue. And to me, this is, as I said on February the 19th, 2017, when I asked Mr. Kevin Brady, who was at that time, the chairman of the Ways and Means Committee, we asked these questions in a bipartisan manner, so that we’d avoid which we did not avoid, it becoming, “A partisan issue.” Because I think the people out there watching in terms of fairness, the subject I did get into today and which you did answer and respond respectfully. But this is a bigger issue. And I hope someday you’ll be able to come before us and talk about it and feel free to do that. But I want you to know, I am not impugning your lack of response to this. And because you told me you were going to not respond and that’s where we’re at. So thank you for being here today. I hope that this begins a process of you being here once in a while.

Invite us back. And we didn’t refuse your earlier letter, we declined to speak about the topics that you wanted to speak about, which I cannot speak about. And we indicated that I would appear in November and I am here in November. And I will come back, sir, and I’ll come back individually or to the committee and I’ve-

We had debate over what would get discussed and whatnot. And I’m not going to question your response, but I would say this is a very big issue. It’s not going after anybody. It almost came up with Mr. Schneider’s questions. The question about who the IRS investigates and who the IRS audits. Because if you remember in the 24th, this before you, this is pre Rettig. The IRS investigated the IRS commissioner Lois Learner. And at the end of all of the questioning, they questioned 10 people, quote unquote, called in some ways liberal, belonged to organizations. Those people were questioned and their names were made public.

Because 6103 deals with privacy as well. They were questioned and nothing was found after their were names are made public. And one has to wonder, there was no apology ever given to these people. So when people say, keep politics out of it, I return to that issue, all the time, because those were the facts. And I can tell you one thing you don’t know anything about me and I know very little about you, but I’m not going to get off the issue, regardless of whether I ask you the questions or not. But I do appreciate sincerely you’re coming today and making yourself available. And I’m sure we’re going to meet again. We are adjourned.

IRS Commissioner Testimony House Oversight Hearing Transcript November 20

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