IRS: Is It Ready? — Hearing Before the Subcommittee on Government Operations (April 21, 2022)
Summary
This is the printed record of a hearing of the Subcommittee on Government Operations of the Committee on Oversight and Reform, House of Representatives, on April 21, 2022 (Serial No. 117-78), conducted via Zoom with Gerald E. Connolly presiding. The witnesses are Charles P. Rettig, Commissioner, Internal Revenue Service, and Erin M. Collins, National Taxpayer Advocate. In an opening statement, Mr. Connolly says the agency was asked during the pandemic to issue 479 million pandemic stimulus payments totaling $812 billion and send Child Tax Credit payments to 36 million families totaling $93 billion. Mr. Connolly says more than 195 million people called the IRS for help during the 2020 filing season and about 82 percent received busy signals or disconnections. The index lists GAO-22-104938, submitted by Chairman Connolly.
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“IRS: Is It Ready? — Hearing Before the Subcommittee on Government Operations (April 21, 2022).”
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[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
IRS: IS IT READY?
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HEARING
BEFORE THE
SUBCOMMITTEE ON GOVERNMENT OPERATIONS
OF THE
COMMITTEE ON OVERSIGHT AND REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
APRIL 21, 2022
__________
Serial No. 117-78
__________
Printed for the use of the Committee on Oversight and Reform
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: govinfo.gov,
oversight.house.gov or
docs.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-525 PDF WASHINGTON : 2022
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COMMITTEE ON OVERSIGHT AND REFORM
CAROLYN B. MALONEY, New York, Chairwoman
Eleanor Holmes Norton, District of James Comer, Kentucky, Ranking
Columbia Minority Member
Stephen F. Lynch, Massachusetts Jim Jordan, Ohio
Jim Cooper, Tennessee Virginia Foxx, North Carolina
Gerald E. Connolly, Virginia Jody B. Hice, Georgia
Raja Krishnamoorthi, Illinois Glenn Grothman, Wisconsin
Jamie Raskin, Maryland Michael Cloud, Texas
Ro Khanna, California Bob Gibbs, Ohio
Kweisi Mfume, Maryland Clay Higgins, Louisiana
Alexandria Ocasio-Cortez, New York Ralph Norman, South Carolina
Rashida Tlaib, Michigan Pete Sessions, Texas
Katie Porter, California Fred Keller, Pennsylvania
Cori Bush, Missouri Andy Biggs, Arizona
Shontel M. Brown, Ohio Andrew Clyde, Georgia
Danny K. Davis, Illinois Nancy Mace, South Carolina
Debbie Wasserman Schultz, Florida Scott Franklin, Florida
Peter Welch, Vermont Jake LaTurner, Kansas
Henry C. ``Hank'' Johnson, Jr., Pat Fallon, Texas
Georgia Yvette Herrell, New Mexico
John P. Sarbanes, Maryland Byron Donalds, Florida
Jackie Speier, California Vacancy
Robin L. Kelly, Illinois
Brenda L. Lawrence, Michigan
Mark DeSaulnier, California
Jimmy Gomez, California
Ayanna Pressley, Massachusetts
Russell Anello, Staff Director
Wendy Ginsberg, Subcommittee on Government Operations Staff Director
Amy Stratton, Deputy Chief Clerk
Contact Number: 202-225-5051
Mark Marin, Minority Staff Director
------
Subcommittee on Government Operations
Gerald E. Connolly, Virginia, Chairman
Eleanor Holmes Norton, District of Jody B. Hice, Georgia Ranking
Columbia Minority Member
Danny K. Davis, Illinois Fred Keller, Pennsylvania
John P. Sarbanes, Maryland Andrew Clyde, Georgia
Brenda L. Lawrence, Michigan Andy Biggs, Arizona
Stephen F. Lynch, Massachsetts Nancy Mace, South Carolina
Jamie Raskin, Maryland Jake LaTurner, Kansas
Ro Khanna, California Yvette Herrell, New Mexico
Katie Porter, California
Shontel M. Brown, Ohio
C O N T E N T S
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Page
Hearing held on April 21, 2022................................... 1
Witnesses
Charles P. Rettig, Commissioner, Internal Revenue Service
Oral Statement................................................... 9
Erin M. Collins, National Taxpayer Advocate, Taxpayer Advocate
Service
Oral Statement................................................... 11
Written opening statements and statements for the witnesses are
available on the U.S. House of Representatives Document
Repository at: docs.house.gov.
Index of Documents
----------
* GAO-22-104938, Tax Filling: 2021 Performance Underscores Need
for IRS to Address Persistent Challenges; submitted by Chairman
Connolly
The documents are available at: docs.house.gov.
IRS: IS IT READY?
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Thursday, April 21, 2022
House of Representatives
Committee on Oversight and Reform
Subcommittee on Government Operations
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:01 a.m.,
via Zoom; Hon. Gerald E. Connolly (chairman of the
subcommittee) presiding.
Present: Representatives Connolly, Norton, Lynch, Raskin,
Khanna, Porter, Hice, Clyde, and Biggs.
Mr. Connolly. The committee will come to order.
Without objection, the chair is authorized to declare a
recess to the committee at any time.
I want to welcome everyone to the hearing which seeks to
examine the operations and financial condition of the Internal
Revenue Service with a focus on how the Agency will bear this
tax season, which has now begun.
And I now will recognize myself for an opening statement.
Throughout the pandemic, we turned to the Internal Revenue
Service to keep our country from economic collapse. After
decades of partisan attacks and the intentional starvation of
the Agency, we asked the Agency to accomplish the impossible,
to process nearly 150 million tax returns worth $365 billion,
issue 479 million pandemic stimulus payments totaling $812
billion, and send Child Tax Credit payments to 36 million
families, totaling $93 billion, thereby lifting one-fourth of
children in the United States out of poverty. These evolving
responsibilities and requirements did not always go smoothly.
More than 195 million people called the IRS for help during the
2020 filing season, which is nearly four-and-a-half times more
calls than it received in 2019. Unfortunately, about 82 percent
of those callers received busy signals or disconnections, and
the taxpayers simply hung up out of frustration.
The IRS is entering the tax season with a massive backlog
of about 23.5 million tax returns and pieces of correspondence
related to last year's tax season. We are asking the IRS to
boil the ocean. Congress, at a minimum, must resource the IRS
appropriately, and then hold IRS leadership accountable for
making sure those resources are properly deployed to provide
the American people the level of service they deserve from this
vitally important agency.
Today's hearing will examine how the IRS can make it
through this tax season. We know constituents in every district
across the Nation struggle to get the help they need to receive
the money they are owed by their government. We will hear what
steps the IRS, Congress and the American people can take to
avoid busy signals, missing refund checks, and unnecessary
billion-dollar interest payments on delayed returns. We will
look at how decades of deliberate starvation of the IRS by the
Congress can be countered with robust appropriations and new
hiring flexibilities.
[Chart.]
Mr. Connolly. If you look at the figure on your screen, you
will see IRS appropriation levels for the past 20 years. The
blue line represents appropriations adjusted for inflation.
From 2010 to 2019, nine years, you will see a steady decline in
appropriations with a nadir in 2019. In the past two years, the
years that coincide with Democratic control of Congress, you
will see a reinvestment in the IRS. This chart does not include
a billion dollars appropriated to the IRS in the American
Rescue Plan that is targeted for long overdue IT modernization.
Years of IT system neglect and a failure to modernize have
left the IRS saddled with an operation highly dependent on
obsolete programming languages like COBOL, Visual Basic, and
assembler language code. Most of these languages are not even
taught in schools anymore. More than 23 percent of the IRS
applications, 287 out of 1,242, are considered legacy systems
because they are 25 years or older and they lack broad vendor
support. As of October 2021, about 14 percent of all IRS
hardware and 15 percent of its software is considered legacy.
It is unacceptable that so many software programs are two are
more versions behind the most recent vendor-released updates.
While the IRS knows these legacy systems hamstring its
potential, the Agency can't say what it will cost to modernize
those systems because of the way the Agency is required to
report costs to the Office of Management and Budget. This year,
those reporting requirements have changed. Let's hope that the
commissioner might soon have a clearer answer for us about the
IRS' IT modernization needs and plans for proceeding.
The IRS staffing trends tell a similar dismal story. If you
look at the screen again, you will see that the size of the IRS
work force shrunk from Fiscal Year 2010 through Fiscal Year
2018. In recent testimony before the Ways and Means
Subcommittee on Oversight, Commissioner Rettig stated that
staffing levels at IRS, currently hovering around 79,000, are
close to those of 1974, almost 40 years ago. Oh, actually,
almost 50 years ago. IRS enforcement staffing levels have
decreased by 30 percent while real gross domestic product
increased by 29 percent and filing population increased by 14
percent. Over the next six years, Commissioner Rettig, you
stated that you estimate you will need to hire 52,000 employees
just to maintain current understaffed levels. The severe
financial, technical, and staffing problems at the IRS were
predictable and a direct result of years of partisan hostility
here in Congress, reckless investigations, and unwarranted
budget cuts. And today, as we head into this year's tax season,
the IRS often finds itself gasping for air.
I hear from constituents every day who are battling the IRS
online, telephone, and in-person systems to get their refund
money they need to buy medication, groceries, or their
children's school supplies during a pandemic. I have assisted
an increasing number of constituents during the pandemic who
are struggling to file taxes on behalf of recently deceased
loved one, for example, a process the IRS sometimes does not
get right. I have a family in my district who filed their taxes
out correctly, but nonetheless have been threatened with
hundreds of dollars in fines because someone within IRS keyed
their return inaccurately. This family has been working since
2019 to find anyone within IRS to listen, to let them show the
IRS they did everything right.
Every member attending this virtual hearing has heard from
constituents who cannot reach a customer service
representative, people who spend countless hours on hold, on
the phone, or could only reach a busy signal. And they are
frustrated that the online Where's My Refund tool fails to give
them information that could help avoid having to make the call
in the first place. I have continuously engaged in oversight of
the IRS, including a hearing on the IRS in the pandemic on
October 2020. We have written oversight letters with my vice
chair, Ms. Porter, asking the IRS to prioritize processing the
tax returns of individuals on the brink of poverty who need
their refund to thwart eviction. I have asked about ways to
help address and prevent backlogs. Most recently, we have
joined again in encouraging our appropriators to give the IRS
the funding they have requested in order to make the
investments they need to staff and to provide modern IT to
better serve taxpayers.
We are here today to find ways to help IRS succeed. One no-
brainer is to support the $80 billion investment in the IRS
within President Biden's Made in America tax plan. The
independent Congressional Budget Office estimated, in response
to a request of information from Senator Lindsey Graham of
South Carolina, that the $80 billion investment requested by
President Biden would increase revenues by $207 billion,
thereby reducing the Federal deficit by $127 billion through
2031.
The other no-brainer is requiring the IRS to invest in 2D
bar coding technology. Again, partnering with our vice chair,
Ms. Porter, we introduced Streamlining IRS Operations Act,
which would require the IRS to use scanning technology on any
paper return generated using tax prep software. And I
congratulate Ms. Porter for her leadership in that legislation
and in bringing this issue to the forefront. When enacted, this
legislation would help eliminate the IRS backlog and increase
accuracy because it removes the need for IRS employees to
transcribe every digit and letter from a paper return, which,
of course, has a high error rate. The Taxpayer Advocate Service
has recommended the implementation of this technology for 18
years. And GAO also noted that the scanner technology benefits
outweigh any perceived cost. That is actually a pretty strong
stance for GAO.
I look forward to hearing from the commissioner and the
national taxpayer advocate today. We want to know how we are
going to make it through this tax season as efficiently as
possible. We need to know how we will build the IRS we need for
the future. We need to hear your vision, Commissioner Rettig,
for how to put the IRS on terra firma with hopefully strong
congressional support, and how we right the course, an
essential agency attempting to rebuild itself from years of
underfunding and disinvestment.
With that, I now recognize the distinguished ranking
member, Mr. Hice, for his opening statement, and after that, we
will recognize the vice chair of the subcommittee, Ms. Porter,
for her opening statement. Mr. Hice, welcome.
Mr. Hice. Thank you very much, Chairman Connolly. I
appreciate you holding this hearing, the title of which is
``IRS: Is it Ready?'' I think there is a very clear answer to
that, and the answer is, no, it is not ready. In fact, as we
speak, the IRS is seeking to hire an additional 10,000 people
just to get through this tax season to put to bed so much that
is out hanging for so many of the American people. And as The
Wall Street Journal and The New York Times both report, the IRS
is having a hard time competing with other employers. And,
quite frankly, that is not surprising when the job description
for these 10,000 or so people is to enter millions of numbers
and letters into a computer.
So, how is it that an organization which spends billions of
dollars every year on information technology end up in this
kind of position? In our recent hearing on program integrity,
we heard how COVID, as you mentioned, Mr. Chairman, we saw how
COVID exposed inherent weaknesses in Federal fraud prevention
capabilities, and this situation now, quite frankly, is no
different. The IRS may have gotten by with their paper-based
system before, but the challenges and complexities that are
associated with the pandemic brought all of that to a crumbling
halt. I, for example, and I am sure many of my colleagues have
heard from constituents who are absolutely at their wit's end,
they have not gotten their tax refunds, and they need that
money. They depend upon those funds. They cannot apply for
COVID relief because they are unable to get the required
documentation from the IRS. They cannot even get someone from
the IRS to answer the phones, for crying out loud. If they use
the Where's My Refund or Where's My Amended Return tools, they
get what, in essence, technologically, would be a shrugged
shoulder.
The IRS says all of this is because they did not receive
the type of funding that they need, and, unfortunately, in my
opinion, my Democratic colleagues are all too willing to go
along with this mindset. And they point to 2020--during the
Obama Administration when the Democrats had both sides of
Congress, they hold 2020 as the benchmark for IRS funding.
Well, of course they do. The IRS is a soulmate with the
Democratic Party, as evidenced by what has already been
referred to moments ago as a $80 billion request that was in
Build Back Better. But look, more funding alone is far, far,
far too simplistic of an answer, and it assumes that all that
money would be spent properly from the IRS, and that just
throwing more money at the IRS somehow is going to solve all
the problems.
But how can anyone possibly come to that kind of
conclusion? Just for example, the IRS is a home of the
Individual Master File, IMF. This is the backbone of what the
IRS uses, and the IMF has the distinction of being the oldest
system in the Federal Government. In the effort to replace IMF,
the Customer Account Data Engine started in 1999 to replace
this. The IMF goes back to the 1960's. 1999, the attempt to
replace it got under way, and that attempt failed. So, now we
are in CADE 2, transition State No. 2. A key milestone for CADE
2 was delayed for nine years, and, by the way, it is running
four times the cost that was estimated. And now the IRS is
saying that the best that we can expect is that they will have
a transition, a new system by 2030, eight years away, and even
then it is not going to be a full replacement of IMF.
Look, this is high profile, but this is yet another example
of the IRS' absolutely poor and unacceptable management of IT
projects. This has been going on far, far, far too long,
costing far, far too much money. And the IRS also has a
reputation of hiding the ball, of not providing information
until asked for, just as what is happening today, quite
frankly. So no, absolutely no, Republicans are not willing to
simply give the IRS more money on a long-term basis without any
accountability.
Proper oversight is what this committee is all about, and
proper oversight is what is needed, is what is required for the
IRS at this time. And how else can we possibly enable Congress
to get to the answers that are needed with the poor management
on multiple fronts that are taking place in the IRS? And most
of the funding, by the way, in the Build Back Better plan, the
$80 billion that my colleagues on the other side of the aisle
are requesting, is mandatory funding, which in itself reduces
oversight.
And so, it seems that my Democratic friends just simply
want to continue throwing money in a black hole that in itself
has no oversight, and we will never see how that money is going
to be spent to address the problems that are multiple at the
IRS. And to the point Democrats like to raise about staffing
levels at the 1974 levels, this, frankly, only further
illustrates my point.
The purpose of IT projects is to increase efficiency, is it
not? I mean, that is why we are trying to develop new
technology. It is to increase efficiency. And so are we saying
and are we somehow content to believe that after 50 years'
worth of technological advancements and untold billions and
billions of dollars spent, that the IRS has gained absolutely
no capacity to do more with fewer people? And so here we are
again with the IRS asking for another 10,000 people to be
hired. Where is the technology to help the entire Agency become
more efficient?
Look, the IRS has one main mission--one main mission--and
that is the completion of tax filing season successfully. And
can you really tell me that there was no risk assessment that
flagged a system that is based on manual keystroking as a
potential serious risk to the core mission? But that is what
they are asking for now, 10,000 people to come in and manually
type in numbers and letters so forth. And it just seems like we
have had a total waste of 50 years of trying to boost up and
increase technological advances. Some of the funding that you
received should have been spent on scanning capabilities to
address an obvious weakness. So, it seems that there was no
real risk assessment about stroking in numbers. Why don't we
use some of the money to scan some of the information?
And let me end by raising a second core responsibility of
the IRS, and this is a major, major problem as well, and that
is maintaining the trust of the American people. There is no
agency, I believe, in the Federal Government that has the
ability to impact lives for Americans as does the IRS. So, let
me remind everyone that since 2010, the Democrats' benchmark
for IRS funding, since 2010, we have seen the Lois Lerner
scandal in which many, many conservative groups that were
seeking tax exempt status were targeted. I would add that this
is a perfect example of the Federal employee that should be
covered by Schedule F which, quite frankly, I am personally
trying to seek some legislation.
But from 2010 to 2012, the IRS also spent $49 million on
lavish conferences, and then there was the famous Star Trek-
themed training videos. This past June, we saw leak of massive
amounts of taxpayer information to the press, making possible a
serious series of stories from ProPublica. And these stories
focus on the tax filings of high-profile individuals focusing
on the ultra-wealthy, like Elon Musk and Warren Buffet. And the
series of stories make the argument that these people are not
paying enough to the Federal Government, even though much of
their wealth is tied up in unrealized capital gain. It is very
interesting, oddly enough, that the Biden administration now
proposed taxing unrealized capital gains. So, it seems as
though the ProPublica stories and the leak from the IRS now
serve as a political agenda. Interesting the timing of all of
that.
But we are also interested in who is not paying their fair
share. If that is really an interest to all of us, then why
don't we start that type of investigation with the person who
says the buck stops with him, and that would be President Biden
himself. An IRS whistleblower, not a leaker, a whistleblower
alleges that the President and First Lady owe $127,000 in back
taxes. So, I am sure that my Democratic colleagues will join me
in calling for a public investigation of their tax filings,
just as they did with President Trump. And then there is Hunter
Biden, who, as The New York Times reported, took out a loan to
pay off more than a million dollars in back taxes. How about
Stacey Abrams here in my home state of Georgia? She wore her
$50,000 tax debt like a badge of honor.
And as for the ProPublica leak, this information should be,
is supposed to be held in the strictest of confidence. And
while committee Republicans have written seeking information
about all of this, we still have no idea whatsoever as to how
this happened. We actually wrote Chairwoman Maloney asking for
a hearing on this issue, but nothing has happened. We wrote to
Commissioner Rettig asking for detailed information, but to
this day, we still don't have the answers that we sought. All
of the examples I have raised highlighted the need for close
oversight over the IRS, Mr. Chairman. That is what is needed.
And yet Democrats continue to think that the only solution is
throw more money at the IRS with no accountability. I strongly
reject that notion.
And with that, and with the overall bird's eye view, I am
grateful for this hearing. I am looking forward to asking
questions, and hopefully we will get answers that, to this
point, have been refused to be provided.
With that, Mr. Chairman, I yield back.
Mr. Connolly. I thank the ranking member. I will remind all
members that that is why we are having a hearing today. This is
called an oversight hearing, and there are plenty of other
proposals on the table. Ms. Porter, I know, has come forward
with the barcoding proposal that has been advocated for 18
years by various incendiary parties. So, we will be exploring
lots of ways to try to help the IRS do its job. But we also, as
Members of Congress, need to take responsibility for our own
behavior. And I showed charts going from 2010 to 2019 that
shows clearly the downward trend by Congress in the
appropriations provided the IRS. So, for nine years, we not
only didn't throw money at the IRS, we didn't give it money,
and yet we expanded the role we expected it to undertake with
an expanding population, expanding demands, more complexities
in the Tax Code, and with antiquated IT. You can't ask IRS to
do all of that if you are not going to have trained personnel
and IT, that is contemporary, that isn't legacy.
And so, our subcommittee has a long history of looking at
those issues. Today's hearing is part of that long history of
providing oversight for IRS, and obviously we can do more, and
we will.
Mr. Hice. Mr. Chairman, if you are going to provide
commentary to my opening remarks, you certainly have the right
to do so, but as I mentioned, there are multiple problems. The
IRS has not been trusted with the money they have been
provided. There have been multiple scandals involved over the
years. There has been an enormous lack of oversight from this
committee, and yet Democrats continue, want to throw more money
with less oversight. These are not the appropriate ways to go.
And I do appreciate the chairman providing commentary, but if
we want to have a dialog back and forth, I would appreciate us
having the honesty and the openness to do so.
Mr. Connolly. I think we just did. Thank you.
The chair now recognizes distinguished vice chair of the
subcommittee, Ms. Porter, for her opening remarks. Ms. Porter?
Ms. Porter. Thank you, Chairman Connolly, for holding this
hearing on oversight of the IRS. The subcommittee has focused
on the IRS under the leadership of both parties for many years,
and I am glad we are continuing that undone work. The IRS is
failing to serve many Americans. Nearly 7 million taxpayers are
still waiting for the IRS to process their tax returns from
last year. Many taxpayers waited 10 months or more for their
refunds, and this is not an abstract issue. Families need their
tax refund to pay their rent. Small business owners need their
refunds to keep their doors open. It is their money and the
government should promptly return it to them.
Taxpayers are desperately seeking answers from the IRS. The
vast majority were met with silence when they called for help
last year. The IRS received 282 million phone calls from
taxpayers. Over 250 million of those waited on hold, never
getting connected. The IRS clearly needs more staff and better
technology to provide the service taxpayers deserve. The Agency
is serving more people than ever before, but its technology
systems are the same as in the 1960's. Congress has failed to
provide the sustained multi-year investment necessary to
improve the IRS' technology.
See here, this is what has happened to the IRS' funding,
and it is down 20 percent since 2010. The severe cuts have
undermined the IRS' ability to provide the quality customer
service to taxpayers and to prevent tax cheats from evading the
law. At the current funding levels, the IRS can't maintain its
work force at the levels the country needs. Today, the IRS has
as few employees, shown here in orange, as it did in the
1970's, despite a 60-percent increase in the United States'
population.
With staff stretched so thin, the IRS has predictably cut
back on enforcement. Since 2010, the IRS has reduced
enforcement staff by the equivalent of 15,000 full-time
employees, nearly one-third of the Agency's work force. This is
penny wise and pound foolish. Every dollar invested in
enforcement would return $5 in additional revenue collected.
Experts say our government could collect over $1 trillion in
the next decade by simply enforce existing tax law. This would
be more than enough money to pay for the staff needed to
conduct audits.
It should be an urgent priority for this Congress to
rebuild the IRS. Last month, Congress approved a spending
increase of $675 million for the IRS, the largest increase in
the IRS' budget since 2001. That is a big step forward, but it
is still going to fall short of what taxpayers need. House
Democrats have also advanced legislation to provide $80 billion
to the IRS over the next 10 years. And that long-overdue
investment would allow the Agency to rebuild its staff and
finally upgrade its outdated computer systems, which would get
families timely refunds of their money. According to the
Congressional Budget Office, this investment in the IRS would
decrease the deficit by $127 billion. But our legislation to
fully fund the IRS is stalled in the Senate. Americans can't
afford to wait another budget season for Congress to act. If we
fail to make this investment, the unprecedented delays that
taxpayers experienced in 2021 could be even worse this year.
In addition to funding the IRS properly, Congress has to
support reforms to make the IRS more efficient and effective.
Chairman Connolly and I have introduced the Streamlining IRS
Operations Act that would require paper returns to include a
scannable barcode. This legislation would speed up the IRS
processing of millions of paper returns. I am eager to work
with colleagues on both sides of the aisle to support this
reform, and to reduce the backlog of returns.
The people who work at the IRS are government servants, and
they are working hard. The service--I know that Commissioner
Rettig is working to improve the services. I recently tested
the IRS' phone number myself and was able to get connected to
an agent in under three minutes. I tested Where's my Tax
Refund, and it is on its way. So, I know you are working to
make improvements, Commissioner, but we have to provide you
with those resources, with the legislative directives to do it.
And then we have to hold you accountable to get the job done.
That is the spirit in which we are holding this hearing.
Congress has a job to do today, and it is not going to get done
by casting aspersions on the men and women of the IRS. It is
going to be done by providing them with the tools and resources
that they need. Today's hearing is an opportunity for us to
hear directly from the IRS on how it can serve taxpayers. I am
looking forward to working together to finally get the IRS the
funding and resources it needs and hold them accountable to
deliver on what taxpayers need.
Thank you very much, Mr. Chairman, for holding this
hearing, and I yield back.
Mr. Connolly. Thank you very much, Vice Chair Porter, and
thank you for your leadership for that legislation.
I now would like to introduce our witnesses. We have two
distinguished witnesses. First, we are very glad to welcome
back the United States commissioner for the Internal Revenue
Services, Mr. Charles ``Chuck'' Rettig. And our second witness
is the national taxpayer advocate for the IRS, Ms. Erin
Collins.
I would ask each of you to be unmuted and raise your right
hand. It is the custom of this committee and subcommittee to
swear in all witnesses. Erin, if you would raise your--yes,
thank you very much.
Do you swear to affirm that the testimony you are about to
give is the truth, the whole truth, and nothing but the truth,
so help you God?
[A chorus of ayes.]
Mr. Connolly. Let the record show that both witnesses
answered in the affirmative. I want to thank you.
And without objection, your written, your full written
statements will be made part of the permanent record.
And with that, Commissioner Rettig, you are now recognized
for your testimony. Welcome.
STATEMENT OF CHARLES P. RETTIG, COMMISSIONER, INTERNAL REVENUE
SERVICE
Mr. Rettig. Thank you very much, Chairman Connolly, Ranking
Member Hice, and members of the subcommittee. Thank you for the
opportunity to be able to provide you with information that you
request.
I would like to address a couple of points. I came on board
in 2018 as a proud American, not as a member of a political
party. But I came on board after 36 years in private practice
to hopefully work with both sides of Congress to absolutely
make a difference, to also work with taxpayers, to work with
tax practitioners, and everybody who has an interest in tax
administration, to improve the tax administration of the United
States, to improve services, to improve enforcement efforts, to
improve compliance and to improve technology not only for, but
significantly for taxpayers, and tax practitioners, and Members
of Congress, but also for the employees who are the backbone of
the Internal Revenue Service. Our people give a lot, and as we
have seen during the pandemic, those efforts have really come
home.
The Fiscal Year 2021 gross receipts of the Internal Revenue
Service were $4.1 trillion. That translates into approximately
96 percent of the gross receipts of the United States of
America. A successful, fully functioning Internal Revenue
Service is important to the continued success of this country.
We have been at the forefront of providing rapid economic
relief to taxpayers, distributing more than $1.5 trillion
during the pandemic in historic economic relief and individual
refunds.
From the date of my confirmation hearing in 2018 through
today, I have welcomed oversight by all Members of Congress. We
have been proactive. I believe that probably more Members of
Congress had my cellphone than probably all prior commissioners
combined. We have made many overtures to come up, not only
myself, but our subject matter experts, to come up and brief
Congress on what is transpiring. We hold briefings with staff
committee, staff for Ways and Means, for Appropriations, Senate
Finance Committee, every Friday at 2 p.m. during filing season,
where we provide information. And they are free to ask
questions, which are either answered at that point by the IRS
employees who are there, or they take it back, and we come back
and answer those questions the next week.
As far as funding and technology, the Federal Government,
and obviously the IRS as part of that, has endured more than
100 continuing resolutions since 2001. It is virtually
impossible for any agency, any organization, any private sector
organization to build out a robust, meaningful technology
infrastructure with the start/stop going on like that, 101 CRs.
Including--we got our omnibus budget last year on March 11. We
got our budget this year on March 15. So, we essentially have a
little more than six months to do our technology plans with the
funding that we received.
We're very grateful to Congress and to the administration
for our Fiscal Year `22 budget. We are hopeful for a Fiscal
Year `23 budget. But know that the buckets that Representative
Porter referred to in terms of allocations, we might get
additional funding in some buckets. But, importantly, for
fiscal `22, we are $100 million short on our operations support
budget. So, without the ability to move funds from one of the
other budgets, which the ones that are out there--taxpayer
service, modernization, and enforcement into operations
support--we need to make other cuts. And this is the Agency
long before I got on board, and it has certainly been my
experience with the Agency since I have been here.
The employees are the strength of the Agency. The issue
with respect to phone calls and the issue with respect to
inventories has nothing to do with the employee's dedication or
desire. I think we have tremendous, spectacular employees who
want to give it all, and I am more than prepared to walk
through either today, and obviously we have limited time, but
to come up and meet with each of you individually and to bring
up our people to give you the details so you can appreciate
where we are.
I appreciate the comments from Ranking Member Hice, and I
invite the oversight. I invite the interaction. None of you are
wrong in your comments, and the taxpayer advocate's comments
today, she is not wrong. We are in a very difficult situation,
but as you will see today, and if we come up later in a one-on-
one, currently we are trending in a good direction, that our
inventories are trending in a good direction. Our hiring, with
direct hiring authority, Congress rescued us by giving us, on
March 15, direct hire authority to deal with the inventories.
We could not hire before that.
So, with that, I will yield back, and I am pleased to take
questions, you know, after. Thank you.
Mr. Connolly. Thank you so much, Commissioner Rettig, and
thank you for your commitment to this mission.
It gives me a great pleasure now to recognize Ms. Collins,
our national taxpayer advocate, for her opening statement. Ms.
Collins, you are recognized.
STATEMENT OF ERIN M. COLLINS, NATIONAL TAXPAYER ADVOCATE,
TAXPAYER ADVOCATE SERVICE
Ms. Collins. Thank you. Chairman Connolly, Ranking Member
Hice, and distinguished members of the subcommittee, thank you
for inviting me to testify at today's hearing: ``IRS: Is it
Ready?''
As I wrote in the national taxpayer advocate's annual
report to Congress, 2021 was the most challenging year
taxpayers and tax professionals have ever experienced. Millions
of taxpayers are confused, frustrated, and still waiting for
their refunds. Taxpayers who called the IRS' toll-free line for
their refunds, only 11 percent of the time were the calls
answered, and this year, the ability to speak with an IRS
employee, unfortunately, is not much better. And thousands of
businesses are still waiting to receive the employee retention
credit and other benefits.
Although the IRS' Where's My Refund? tool received more
than 632 million hits last year and over 300 million hits so
far this year, the tool unfortunately was unable to answer or
provide useful information for those returns with processing
delays. Yet taxpayers continue to check, hoping to see a change
in status, and for millions of those taxpayers, they are still
waiting. So, a toxic combination of office closures early in
the pandemic, inadequate staffing, antiquated IT, and the need
to divert resources from our core work to administer three
rounds of the stimulus payments, the monthly Child Tax Credit
payments, and several financial relief programs has created an
unprecedented imbalance between the IRS' workload and the
resources it has available to do the work.
During the past two years, the inventory backlog has
snowballed. The IRS needs to get current on the inventory and
get out of the hole it finds itself in. The IRS needs to be in
a stable and healthy condition so it can perform its core
mission, which is the annual filing season. When I raised my
report last year, I said that paper is the IRS' kryptonite, and
the Agency is buried in it. I want to elaborate on that point
because paper remains at the heart of the Agency's challenges
in processing both tax returns and correspondence.
For context, the IRS received almost 170 million individual
income tax returns last year, and about 90 percent were filed
electronically. And if there were no problems, it was quickly
processed, and any refund that was due was paid under 21 days.
This filing season, electronic returns are also being processed
quickly, but paper is different. IRS still transcribes paper
returns line-by-line, number-by-number. Last year, the IRS
received about 17 million original paper individual returns,
and those processing delays are now running up to 12 months.
So, currently the IRS has about 3 million individual business
returns and about 3.6 million amended returns awaiting
processing from last year. So, the good news, it is down from
December, but we still have about 6 million to get through.
On top of that, the IRS also has about 5 million in returns
in suspense, waiting for taxpayers to resolve particular
issues. And currently, we have another 9 million-plus paper
returns which were filed in 2022. And we still have six months
left in the filing season for people to file on extension, so I
suspect that number will increase. So, the IRS processes
returns first in, first out, so any 2022 paper-filed return
will not be processed until the IRS gets caught up with prior
filings. And when the IRS requires additional information or
proposes a change to a taxpayer's return, it sends a written
notice. Taxpayers generally respond in writing, adding to the
paper correspondence backlog. All of these delays unfortunately
contribute to the taxpayers' frustration and confusion.
One question you and millions of taxpayers have been asking
is, when will the IRS be current with its paper inventory? And
as the commissioner has stated publicly many times, that they
are hopeful to have everything done by year end, and I applaud
that the IRS will get that done. But for those millions of
taxpayers, that is an unacceptable answer. Those refunds are
going to continue to be delayed for many months to come. So,
rather than the standard 21 days for processing those paper
returns, I anticipate it will take at least six or months
longer from the filing date for them to receive those refunds.
For years, my office has been recommending automating the paper
process through scanning technology so that the returns can be
machine read to avoid the need for employees to manually key in
every number. Today, that's not happening.
In closing, taxpayer service must improve. And for that to
happen, the IRS needs to eliminate the albatross around its
neck, pay out those delayed refunds, get current on its work,
and then return to improving taxpayer service and protecting
taxpayer rights. Thank you, and I look forward to answering any
of your questions.
Mr. Connolly. Thank you, Advocate Collins, and thank you
for your work on behalf of the American taxpayer.
We will now go into our round of questioning, and the chair
recognizes the distinguished Congresswoman from my neighboring
jurisdiction, the District of Columbia, for her five minutes of
questioning, Eleanor Holmes Norton. Welcome.
Ms. Norton. Thank you very much, Mr. Chairman. Let me begin
by taking a moment to introduce to you my constituent, Mike
Solomon, a taxpayer and dad to three children. Please play the
video.
[Video shown.]
Ms. Norton. I want to thank Mike for his willingness to
share his story with us, and everyone in this committee knows
that Mike's story is not an outlier. Please take a look at the
figure on the screen from a GAO report released earlier this
morning.
[Chart.]
Ms. Norton. In the 2021 tax filing season, the IRS received
195 million calls, more than four times more calls than the
Agency received in 2019, two years ago. At the end of the 2021
tax filing season, the IRS had 5.9 million pieces of unanswered
correspondence, nearly three times more than the 2 million
pieces in 2019. And as Mike described, GAO also found that the
Where's My Refund? tool is not actually helpful in explaining
why a refund is delayed.
Let me put up another figure.
[Chart.]
Ms. Norton. This figure shows the large increase in
telephone call volume over time at the IRS. The large gray bar
in 2021 represents nearly 160 million calls that were abandoned
by frustrated taxpayers, disconnected by the IRS, or who
received a busy signal. Mr. Rettig, what happened? Can you
describe what happened?
Mr. Rettig. Yes, it is a confluence of issues, as we have
testified, and also it is in my written testimony. We had
unprecedented demand in every lane. We have limited technology
to be able to serve that ARC. We have 15,000, but with COVID
funds we are able to bring on another 1,000 customer service
representatives. But at one point, we were receiving phone
calls at the rate of 1,500 per second. And if you go through
the entire system, we had legislative changes both in December
and during filing season, and the legislative changes could not
be put into an automated processing, which required between 25
and 30 million returns to be manually processed. We used our
ARC funding to bring in technology to the manual process and
the, really, success part of that. No part of this is success
if somebody can't get a refund, can't get through.
You know, we are all in that every American deserves to
have their telephones answered. We do have in-person taxpayer
assistance centers that, during COVID, went to an appointment
basis. But we also have online accounts. We have chatbots. We
have voice bots. We have live assisters online. And we have
now, this year, VITA is back, but VITA was not really operating
during the pandemic because of in-person interactions.
So, what I can say is, at the end of the day, what really
hit us was COVID-related demand, what also really hit us was
changes in legislation. As we have already done, our technology
for filing season 2021 and then during filing season 2021,
additional changes, and all of that required manual processing.
And, you know, the history of everything that we have been
talking about and, you know, what you all have said today, the
history of the Agency, we have not been able to upgrade,
create, and bring on board technology.
And we welcome oversight. We welcome oversight from this
committee. We welcome oversight from our taxpayer advocate. We
welcome oversight from Treasury inspector general for tax
administration. We welcome oversight from GAO. We welcome
oversight from the media. I mean, the media is as impactful on
an oversight basis as, quite frankly, the rest, and the Agency
and employees here are doing their best. I am confident that if
you were sitting in my chair, that you would look at it and you
would see the difficulties that we have. This Agency, and I am
not the first commissioner, I believe, to say this, has
constantly had to move resources from less visible options into
more visible options, and the pandemic caught up with that
processing. And maybe I should have said in the beginning, the
folks who handle phone calls in one of our lanes, the folks who
handle the phone calls also handle paper inventory and I am the
commissioner who shut down the Internal Revenue Service in July
2020. We had over 23 million pieces of unopened mail. We are
currently opening mail, current, presently opening mail,
current. We get one to 1-and-a-half million pieces of mail a
week. We process 1-to 1-and-a-half million pieces of mail a
week. Our current inventory on mail is about 380,000 opened,
and then it is pushed out to the various lanes. But when we
reopen, so there has been some talk about when are IRS
employees going to come back to work, on the onsite. In our
processing campuses, our people came back in June 2020,
socially distanced, working split shifts. We have had mandatory
overtime for more than 6,000 employees. For an extended period
of time we have authorized overtime. And I see my time is up,
so that is why I stuttered. Sorry, I will close. But we have
authorized overtime for more than 10,000 employees in those
lanes.
Mr. Connolly. Thank you, Commissioner Rettig. The
gentlelady's time has expired.
The chair now recognizes the distinguished ranking member,
Mr. Hice, for his five minutes of questioning.
Mr. Hice. Thank you, Mr. Chairman. Commissioner Rettig, on
June 29, 2021, Ranking Member Comer wrote a letter to you
seeking information regarding the leak of taxpayer information
that led to the story that I mentioned in my opening statement
in ProPublica. Basically, the letter from Mr. Comer draws
attention to the lack of an adequate audit trail system that
would record events occurring on the IRS' system, such as
people accessing sensitive files. And although I appreciate
your comments that you welcome oversight, the fact is, from our
experience, although you did answer some of the questions,
there were much in the letter from Mr. Comer that you never
answered.
So, let me ask. Has the IRS taken steps to improve its
audit trail capabilities in order to ensure that it knows who
is accessing sensitive taxpayer information?
Mr. Rettig. We have that in process, and we are trying to
do all we can. Taxpayers' security, taxpayer protection of
their data is really one of the highest priorities for the
Internal Revenue Service. The comments that were not answered
in that letter deal with specific instances. And I believe that
we referred Congress to Treasury Inspector General for Tax
Administration. They have sole jurisdiction over that
particular issue. And so detailed questions, I would refer to
TIGTA.
Mr. Hice. Well, let me ask you this. Does the IRS identify,
do you have any way to identify returns of and other type of
information on individuals who may be at higher risk for leaked
information? Do you red flag those? Is there any way of
identifying who might be high risk?
Mr. Rettig. There are certain systems for individuals in
certain categories. You know, when you are talking about high-
income folks and high net worth, whether they would fall into
that, but the protections for everyone are significant. And I
don't believe that there has been a public statement that it
actually was a leak or a breach from the Internal Revenue
Service where that data came from. So, you know, I put that on
pause. And, you know, Ranking Member, like you, I share the
concern here. The delay in getting answers for the public
certainly impacts the ability of the public to have trust and
respect for the Internal Revenue Service.
Mr. Hice. Yes, it sure does. And regardless where it came
from, there was a lot of sensitive information that was leaked
or that was made available, and we have got to have answers to
that, Mr. Commissioner. We have got to have answers. Are there
steps to limit access from IRS agents to certain individuals or
high-risk individuals?
Mr. Rettig. We have tracking. You know, the unauthorized
access is one of the highest reasons I believe that most IRS
folks might be terminated, other things on their own tax
returns, et cetera, et cetera. But we do have a tracking, and
actually TIGTA has the ability to see that as well in a fairly
timely manner. So, if somebody must----
Mr. Hice. Do you have any idea how frequently IRS employees
or contractors attempt to access information in an unauthorized
manner?
Mr. Rettig. I don't, but I believe TIGTA would have all of
that information.
Mr. Hice. I sure would like to get that information. Then
let me just----
Mr. Rettig [continuing]. Give a question for the record and
maybe see what we can find for you.
Mr. Hice. OK. I would do that, or let me ask you this, are
Biden administration political appointees, are any of them
under investigation in connection with the ProPublica leaks?
Mr. Rettig. You know, 6103 Internal Revenue Code, I am not
really able to speak to specifics as to any taxpayer, and I
think I have testified to that before this committee one time.
So, I can't really answer that.
Mr. Hice. Well, that answer really doesn't surprise me, I
suppose. But to be honest, considering the massive amounts of
leaks that took place in sensitive taxpayer information, and
the seemingly inability from the IRS to track who is accessing
that kind of information, and your unwillingness or lack of
ability, whatever the case might be, to answer to some of these
questions, no wonder there is a trust problem. And so I would
ask you, in light of all of this, why should the American
people continue to trust you with their tax information?
Mr. Rettig. The Internal Revenue Service protects the
rights of every taxpayer, and taxpayer privacy, taxpayer
information is the highest order for the Internal Revenue
Service. And if you look at the history of the organization,
and, you know, you are referring to a situation, you understand
that we receive about 1.8 billion cyberattacks each year. You
also understand that we have, you know, millions and millions
of interactions with taxpayers in an online situation. So, I
think if you actually look at the volume of information we
have, and I am not saying that one potential situation is
acceptable, no situations are acceptable, nobody having their
information made public is acceptable. But I am confident, and
I interacted with the IRS on the outside for 36 years, being on
the inside, I am confident if people became aware--we will come
and meet with you and all the rest to walk you through what
these programs are. We have done that with other committees as
well. But I am confident if you saw what we have, you would be
confident in the abilities of the system.
And I appreciate where you are coming from. I appreciate
the concern not only from the folks who might have been
referenced in the article or articles, but of every American.
And, you know, we take this to heart. It is a very serious
situation. It is a crime for somebody to breach the system, if
that is how this occurred, and take that information outside.
And, you know, like everyone else, we would hope that that
would be appropriately prosecuted against people if they
committed that crime. I----
Mr. Connolly. Thank you, Commissioner, and the gentleman's
time has expired. But let me say, Mr. Hice, if you are
interested in that briefing, the commissioner just offered,
would be glad to help, work with your staff to organize that.
Mr. Hice. I would be interested in that, Mr. Chair.
Mr. Connolly. OK. We will proceed. Thank you, Mr. Hice.
The gentleman from Massachusetts, who also represents my
family in Boston, the Honorable Mr. Lynch is recognized for his
five minutes.
Mr. Lynch. Thank you, Mr. Chairman. I want to thank both of
our witnesses. Commissioner, thank you, and the national
taxpayer advocate, Ms. Collins, thanks for your willingness to
help the committee with this work.
Commissioner, I actually chair the Subcommittee on National
Security within the Oversight Committee. And, you know, I am
sure you are well aware that President Biden has, through
executive order, instituted a number of severe and crippling
sanctions against Vladimir Putin and a number of individuals
very close to him. As part of our responsibility, we are trying
to gauge the effectiveness of that. And the Criminal
Investigations Unit at IRS is a key partner in making sure that
those sanctions are as effective as possible.
Now, we actually have a request from the President, and
which is supported by the majority in Congress, to give $30
million to the Criminal Investigations Unit so that we can get
after some of these oligarchs and some of these people who are
assisting Vladimir Putin, by going after their planes, their
real estate, other assets they may have, to shut those people
off and make sure that they feel the consequences of these
sanctions. Unfortunately, my colleagues on the other side of
the aisle, many of them have opposed the $30 million that we
would give to the Criminal Investigations Unit to go after
Putin's gang.
Can you just expand on--now this is not just throwing money
at the IRS. This is targeted to go after these oligarchs. This
is going after Putin's gang. And I know that in some corners of
the other side of the aisle, their party, there are Putin
apologists, which is shameful, but I think we should be going
after these people. You know, I just came back from Poland,
Romania, and Moldova, and I have seen what these people are
doing to the people of Ukraine, and I think we ought to stand
with them and go after these oligarchs and go after Putin's
gang.
And I don't know why my Republican colleagues are against
that, I can't figure that out. But could you tell us what
problems you are having and what benefit that additional $30
million would mean to the IRS Criminal Investigations Unit in
going after these oligarchs and Putin supporters?
Mr. Rettig. Of the $30 million, $22 million was for,
essentially, special agents, which are the IRS criminal
investigators, who I will flat out say, based on private and
public experience, are the absolute finest financial
investigators on the planet. Four million dollars was for
technology and the other $4 million was for support. We did not
get the $30 million. We are pursuing that. We moved funds from
other parts of the Agency where we could. This goes back to my
moving funds from less visible to more visible.
I would like you and the country to know that the IRS and
the people of the IRS, IRS Criminal Investigation and IRS
Criminal Investigations Cyber Crimes Unit, will do all we can
do to make sure that we, you know, look everywhere, we go
everywhere. It is our duty to locate financial assets, to go
through beneficial owner entities, track those, and IRS
Criminal Investigation does that better than anyone else. We
also operate in the dark net, if you will, and virtual
currencies, where I think, you know, the media has indicated
that there is a lot of activity in the space that you are
referring to, and, I will say, in those arenas to get some
degree of trust and confidence in the Internal Revenue Service.
I believe you may have seen about three months ago the
takedown of the largest virtual currency seizure in the history
of the United States. That was an IRS Criminal Investigation
Cyber Crimes matter from the beginning to the end, from 2016.
We also recently took down terrorism financing sites for Hamas,
al-Qaeda, and ISIS, same group. And what we were looking for
was to be able to supplement that group so that they could stay
in the other arenas. That same group took down the largest
child exploitationsite in history, was operating in the dark
net. So, taking our people offline there to move them where we
also need to be with respect to sanctions and our role in that,
you know, it has a negative impact on our operations in that
space. I should probably leave it there. But we will do all we
can do. I want people to know that this Agency and the people
are there for you.
Mr. Connolly [continuing]. Time has expired. I thank the
gentleman, and I thank my friend from Massachusetts, whose time
has now expired.
The gentleman from Arizona, Mr. Biggs, who seems to rival
Mr. Lynch for best library on this Zoom in the background.
Looks good. Mr. Biggs, you are recognized for your five minutes
of questioning.
Mr. Biggs. All right. Thank you, Mr. Chairman, and
Commissioner, thanks for being here today.
I consistently hear from my constituents about issues they
are having with the IRS. In fact, the caseload on IRS issues
has increased over the last few years, tenfold in my office--
tenfold. I am told by my staff that due to the broad impact of
COVID-19, the IRS has faced challenges in all return processing
operations, and that number would be even higher if the IRS and
the Taxpayer Advocate Service had not suspended or limited the
acceptance of individual and business taxpayer cases. So, I
want to share one example with you now of the case that my
office handled.
I have a constituent who is simply attempting to request a
repayment plan. It took her four years to get a resolution.
Even though she has been cooperative with the IRS requests, she
was locked out of the IRS portal, unable to verify her
identity, and unable to make electronic payments to her
balance. Long story short, this constituent has been getting
the runaround from the IRS. People do not return her calls, and
when she calls, she gets a series of automated options that all
eventually lead to her being disconnected. That is simply
unacceptable. That is just one case of many that my office has
worked on to resolve.
So Commissioner Rettig, in 2020, the IRS closed most of its
offices. Is that correct?
Mr. Rettig. In March 2020, we, as the rest of the country,
private and public sector, we shut down the Internal Revenue
Service, but we came back in June 2020.
Mr. Biggs. Or have you reopened all of your offices?
Mr. Rettig. We are fully reopened. The folks who are----
Mr. Biggs. Are all the offices reopened?
Mr. Rettig [continuing]. Spaces that people are supposed to
be in----
Mr. Biggs. Sir?
Mr. Rettig. Yes.
Mr. Biggs. Are all the offices reopened fully? So, let me
rephrase it for you, and I want to make this easier for you.
Are all the IRS employees working in their office, or are they
still rotating staggered schedules?
Mr. Rettig. The people who have non-telework eligibility
have been in the offices since June 2020. But like the private
sector and like many other offices, we have a virtual
operation, and we have agents who are frontline who are out in
the field conducting audits.
Mr. Biggs. So, you are still rotating staggered schedules
then. Is that correct?
Mr. Rettig. The staggered schedules, to the extent we have
split shifts that was socially distanced, but the same number
of people would be there on the split shifts for each turn.
Mr. Biggs. So, prior to the pandemic, how long did it take
for a taxpayer to receive the refund if they filed a paper
return or an amended return?
Mr. Rettig. I don't have those statistics. It is possible
that the taxpayer advocate, Erin Collins, has those statistics,
you know. And a lot of this----
Mr. Biggs. You don't know how long it is taking now? You
are the Commissioner. I would assume that you would know these
things. How long is it taking now?
Mr. Rettig. From prior to the pandemic, sir?
Mr. Biggs. Yes. So, I was asking, give us now what was it
taking. I mean, this was not a hard question. Prior to the
pandemic, how long, on average, did it take for a taxpayer to
receive the refund if they filed a paper return or an amended
return?
Mr. Rettig. Erin, I don't know if you have statistics. I
would say that for accurately filed returns that don't have
errors, don't have eligibility questions, it would be typically
maybe a 3-to 4-month process. But most of the backlog that we
have in processing is returns that have eligibility issues,
reconciliation issues, legislative issues----
Mr. Biggs. So, here is the thing, Commissioner. Here is the
problem that my constituents have, and I hear from my
constituents consistently. It is that they are not getting the
service that they need. They don't get these things quickly. If
there is an issue, they are not able to resolve that issue. I
just gave you the example of just one of many dozens and
dozens, dozens of cases that come to my office. So, what
measures have you implemented to ensure timely processing of
these returns and the release of a taxpayer's refund?
Mr. Rettig. First, let me say that if you can get a list of
those taxpayers, we will work with your people in your office.
We will arrange a call. Get us the information in advance, we
will arrange a call. We will advise you the status of those. We
are able to hit probably 80 or 90 percent of those when we work
with Congress on individuals to explain when we sent a letter,
what the issue is, where it is held up. We can also enlist the
services of the taxpayer advocate to assist with that. We also
have taxpayer assistance centers that are open. The last
Saturday for them will be May 9, but those offices are open.
They are staffed. We have 30----
Mr. Biggs. Commissioner, I have just a short time. I
appreciate those offers, and we have tried to use the taxpayer
advocate, and we will continue to do that, and we will reach
out to you. I will be trying to reach out to you. Thank you.
What is the current backlog?
Mr. Rettig. I will give you my cell phone number----
Mr. Biggs. Thank you.
Mr. Rettig [continuing]. And so on any of those, you should
contact me directly and we will bring that back in. Current----
Mr. Biggs. What is your current backlog?
Mr. Connolly. Excuse me. Excuse me. The gentleman's time
has expired, but the commissioner may respond.
Mr. Biggs. Thank you.
Mr. Rettig. The current backlog, we split it between
returns received in calendar year 2021 and returns received in
calendar year 2022. I am talking about paper returns. And so in
the paper lanes, we have about 2.4 million, give or take, from
the received in calendar year 2021, and we have about 2.6-ish
million. Remember it changes every week because we are still in
filing season. The filing deadline was April 18, but there is a
bubble that will continue to come through for at least the next
30 days. In the aggregate, it is right around 5 million paper
returns, and we have gone to an all hands on deck area there. I
think you have heard about surge teams, which are experienced
people coming back into process those returns or hiring
contractors. We are doing literally everything we can. And in
the interest of time, and I appreciate that, but if you either
contact me directly, and I will go through more detail or a
question for the record, we will get you more detail. And we
would certainly appreciate the opportunity to meet with you and
any others one-on-one at your convenience.
Mr. Connolly. Thank you.
Mr. Biggs. Thank you, Commissioner. Thank you, Chairman.
Mr. Connolly. Thank you, Mr. Biggs.
The gentleman from Maryland, Mr. Raskin, is recognized for
his five minutes.
Mr. Raskin. Thank you, Mr. Chairman. Please meet my
constituents, Megan Stone, from Maryland's beautiful 8th
District. If the clerks can play this video.
[Video shown.]
Mr. Raskin. Mr. Chairman, Megan called the IRS more than 50
times and never reached a real human being, and this experience
is not unique, but it is illustrative. As Ms. Collins
testified, only 11 percent of the 282 million total calls made
to the IRS were answered last year. That means that 8 out of 9
phone calls were not answered. Only 1 of 9 people ended up
connecting with a human being. So, why is this happening? Well,
the testimony tells us it is chronic understaffing. Let us put
a graph on the screen that shows IRS staffing levels from 2010
through 2020.
[Chart.]
Mr. Raskin. The IRS has lost more than 20,000 employees in
this time period due to funding cuts and ceaseless partisan
attacks, and now the IRS has as many full-time equivalent
employees as it did in 1974. The number of taxpayers has
increased by 14 percent since 2010, but the number of full-time
enforcement staff has decreased by 30 percent. Mr. Rettig, how
have these chronic staffing shortfalls affected your workers?
Specifically, if you could tell me quickly how much money does
the IRS fail to collect each year because of these chronic
understaffing situations?
Mr. Retting. I can go to the official in that arena. I will
give you the official tax gap numbers, which I believe are
significantly understated, but that is between 3 and $400
billion a year. And, you know, as far as staffing, it hit every
part of the Agency. And the inability--you know, I said earlier
in my opening, I will just close with this, but the inability
to have direct hiring authority to actually bring somebody on
quickly in this environment was really just death to the
Agency. And Congress rescued us on March 15 by giving us direct
hiring authority for tax examiners and clerks. We started
virtual and in-person job fairs in March, and we were looking
for 5,000 people this fiscal year. We have brought on a little
over 2,500 now, and we are going out with another round. And we
have been able to make job offers to 90 percent of the people
who show up to these job fairs. So, staffing is a real issue
here.
Mr. Raskin. So, Mr. Chairman, here is the point. Nobody
loves paying taxes, but what hardworking taxpayers hate the
most is rich corporations and people like Donald Trump getting
away with paying little or no taxes. It is only billionaire tax
cheats and scofflaws who profit from understaffing and under-
financing of the IRS, while constituents like Megan are stuck
on the phone calling 50 different times and never get a call
back. Let's invest in the IRS so we have a fair tax system for
everybody and people can stop getting away with ripping the
government off. I yield back.
Mr. Biggs. Mr. Chairman. Mr. Chairman, I have a point of
order. I am sorry. I couldn't hear. You are muted. Mr.
Chairman, a point of order.
Mr. Connolly. Sorry. The gentleman will state his point of
order.
Mr. Biggs. Yes. The point of order is this. You cannot
attack the President and former President, as Mr. Raskin just
did, and imply that he is some kind of a fraud and a tax cheat,
et cetera, and I ask that he reconsider his words and be
admonished.
Mr. Raskin. I didn't say anything about the President of
the United States.
Mr. Connolly. Chair----
Mr. Hice. You certainly did, Mr. Raskin.
Mr. Connolly. I would ask, I think it is Mr. Clyde. Was it
Mr. Clyde or Mr. Biggs that----
Mr. Biggs. Biggs.
Mr. Connolly. Biggs. Mr. Biggs, what exactly are you
objecting to in your point of order?
Mr. Biggs. I am objecting to his referral to former
President Donald Trump as a billionaire, a tax cheat, and the
things that he said in that vein. I think the House rules
proscribes, and I would ask him to be admonished to reconsider
his words.
Mr. Raskin. Well, Mr. Chairman, we shouldn't waste time on
this. I never called Donald Trump a billionaire tax cheat.
Mr. Biggs. It sure sounded like it, Mr. Raskin.
Mr. Raskin. Well, if you----
Mr. Connolly. All right. All right. Gentlemen. Gentlemen.
Mr. Hice. Mr. Raskin, you did make that implication very
clear.
Mr. Connolly. Mr. Hice, you are not recognized. Mr. Raskin,
neither are you. The chair rules that the gentleman's remarks
did not refer to, specifically or explicitly, to the previous
President. I would also point out, Mr. Biggs, you need to be on
camera to be recognized.
Mr. Biggs. I apologize, Mr. Chairman.
Mr. Connolly. No problem. No problem. The gentleman from
Georgia, Mr. Clyde, is now recognized for his five minutes of
questioning.
[No response.]
Mr. Connolly. Mr. Clyde, are you there? You were there.
There you are. Mr. Clyde, and then, Ms. Porter, I know you have
been waiting. Mr. Clyde?
[No response.]
Mr. Connolly. Mr. Clyde, we need to see you on camera. You
were just on. There you are. Mr. Clyde, you are recognized for
your five minutes.
Mr. Clyde. All right. OK. Thank you very much, Chairman
Connolly and Ranking Member Hice, for holding this hearing.
From unnecessarily long wait times for receiving tax
refunds, to overtly targeting conservatives, to inexcusably
conducting illegal civil asset forfeiture, it is no secret that
the IRS is woefully unpopular with the American people.
Unfortunately, I know IRS schemes and abuse all too well. In
2013, I was personally targeted by the IRS for improperly
depositing my legally earned and fully reported business income
in the bank. They seized $940,000 from my gun store. I took the
IRS to court and I got my money back, but it cost me $150,000
to do it, and I did not get that back. The IRS abuse was so
egregious that I was asked to testify in February 2015 before
the Oversight Subcommittee of House Ways and Means. And
Commissioner Koskinen at the time personally apologized to me
and the two other witnesses for the IRS abuse that we suffered.
In fact, in 2019, the Clyde-Hirsch-Sowers RESPECT Act, named
after the three of us who testified against the IRS, was passed
unanimously by both houses of Congress and signed into law by
President Trump July 1, 2019, as part of the Taxpayer First
Act.
While my story serves as a stark example of IRS abuse for a
law-abiding citizen, many Americans suffer from IRS negligence.
At the start of the COVID-19 pandemic, many agencies sent
employees home where no work was accomplished, dreadfully
expanding backlogs. In fact, as of April 8, 2022, it was
terrible. There were over 26 million items from tax years in
2020 and 2021 that still needed to be processed. This backlog
fiasco has only exacerbated wait times for individuals
expecting tax refunds, and that is just inexcusable. This
disadvantages many Americans that lack reliable internet access
and financial resources to e-file. Keep in mind, this comes at
a time when Joe Biden's inflation crisis has hit a 40-year high
when people truly need these refunds.
During the Obama Administration, the IRS shamefully
targeted conservative groups, particularly the most
conservative organizations that fearlessly opposed President
Obama's agenda. The Republicans on this very committee
investigated IRS abuse, and Democrats had called on the IRS to
scrutinize Republicans' organizations. The IRS was being used
as a political weapon, and that should never be allowed to
happen. Yet these glaring examples serve only part of the
various reasons the public has lost trust in the IRS. In June
2021, ProPublica published an article that contained large
swaths of illegally obtained private tax returns of wealthy
Americans. The tax information covered more than 15 years of
information. While it is a felony for a Federal officer or
employee to release this information, we are still waiting on a
full investigation on the cause of the disclosures.
And if it was an IRS employee that leaked this information,
then these employees need to be prosecuted to the fullest
extent of the law. If it can happen to the most wealthy of
Americans, then it can also happen to small businesses and
hardworking families. We know our Tax Code is riddled with
credits, deductions, and loopholes, and carve-outs for special
interest groups, all at the expense of taxpayers across the
income brackets. The American people deserve a sensible system
of taxation, a fair system of taxation. Individual tax returns
are an antiquated system filled with errors and vulnerability
of identity theft. And I think we have heard a lot of that this
morning already. Every Member of Congress has examples from
their constituents of IRS abuse or negligence and we have heard
plenty of them today already from both Democrats and
Republicans on this committee.
So, I have the solution, and many of my colleagues agree,
we need to completely eliminate the Internal Revenue Service as
we know it and go to a completely fair tax. H.R. 25, the Fair
Tax Act, is the solution. In fact, in 2023, when the
Republicans take over the majority of the House, I believe it
should be made H.R. top five--one of the top five priorities of
the House. This legislation would abolish the Internal Revenue
Service and establish a fair tax system that places a one-time
inclusive Federal sales tax on the new goods and services at
the point of sale. I wholly believe that our current tax system
is extremely outdated, complicated, and fully unsustainable,
and we have heard issue after issue after issue today to back
that statement up. Simply put, it is time we reform the system
and eliminate the IRS once and for all.
But in the meantime, Commissioner, I will certainly take
you up on your offer of your cellphone number so we can deal
with the IRS issues that Georgia's 9th congressional District
have, and there are a lot of them. So sir, I would welcome that
from you, and I yield back.
Mr. Connolly. I thank the gentleman. And, Commissioner
Rettig, I hope you take up that challenge before you are
abolished.
Mr. Hice. Mr. Chairman?
Mr. Connolly. Yes. Mr. Hice.
Mr. Hice. Thank you, Mr. Chairman. I would just like to ask
Commissioner Retting politely, who kindly offered his cellphone
to Mr. Biggs, I would just like to ask for that as well, if I
may.
Mr. Rettig. I will get it to you through our legislative
affairs person. And I would say that of the 535 Members of
Congress, probably more than 300 have my personal cellphone
number, and I would encourage you as well as your staff. It
doesn't need to be you to call if there is a need, and that is
why I am here.
Mr. Hice. Thank you.
Mr. Connolly. To your point, Mr. Hice, if the commissioner
would provide that to the chair's office, we will make sure all
members of the subcommittee can avail themselves of that
number.
Mr. Hice. Thank you, Mr. Chairman.
Mr. Connolly. Thank you, Mr. Hice. Ms. Porter, the ever-
patient Ms. Porter, you are recognized for your five minutes of
questioning.
Ms. Porter. Thank you very much. I want to start by asking
the committee to play the story of my taxpayer constituent in
Laguna Woods, California.
[Video shown.]
Ms. Porter. Thank you very much. And Jim is right. We need
to fund the IRS, and the IRS needs to focus its resources on
auditing the rich, not average taxpayers. From 2013 to 2018,
the 15 taxpayers with the highest incomes in our country
average at least $832 million in annual taxable income. And
with income that high, you would expect that these billionaires
will be paying close to the top marginal tax rate. But instead,
the tax return showed that these super-rich taxpayers paid a
total Federal tax rate of just 20 percent.
Commissioner Rettig, do you know the total Federal tax rate
for a married couple with one child earning $200,000?
Mr. Rettig. The current tax rates for 2022 started about 37
percent. And then as you come down, they go to 32 to 20----
Ms. Porter. Do you have a ballpark for me, Commissioner
Rettig, on a married couple, one child, earning $200,000 a
year?
Mr. Rettig. Yes, I actually have it somewhere, but I----
Ms. Porter. I love that. I love that you have answers.
Mr. Rettig. Yes, unfortunately, I don't have that page in
front of me.
Ms. Porter. That is OK. It is about 26 percent.
Mr. Rettig. I was going to say 28 based on knowledge.
Ms. Porter. Excellent, 26 percent.
Mr. Retting. But I do have that.
Ms. Porter. What that means is that the average family in
Irvine, California, is paying taxes at a higher rate than Bill
Gates or Jeff Bezos. Commissioner Rettig, how much more revenue
would the IRS collect if these 15 billionaires just paid the
same rate as the average family in Irvine?
Mr. Rettig. I can't speak to any particular taxpayer,
whether it is 15, 50, or 500, and also the complexities of the
Code as to whether they do or don't, are or are not paying, you
know, what the statutes require. The issue on our side would be
the ability to examine the taxpayers and make those
determinations, and that is where we really have our highest
rates of attrition. Every experienced technical revenue agent
is on the higher-income taxpayers. And as an example, we have
6,500, experienced frontline revenue agents. And just to give
you one lane, in partnership returns we received 4.1 million
returns last year. So, even if I was to take all of these folks
and put them in that one lane, it would leave the bigs, and the
super-bigs, and corporate and the rest. So, our ability to
look, I don't believe--give me one more moment, Ms. Porter. I
don't believe we can be jeopardized for conducting
examinations. We can be criticized for staying in examinations
we should not be in, and that is where technology would assist
us greatly in this world.
Ms. Porter. So, my point is actually more about the tax gap
and the net collecting. We know that the super-rich are legally
paying lower tax rates. Just 15 taxpayers, if they were paying
the same rate would be $1.1 billion. And your point about, you
know, this is tax policy and Congress should do something about
it, but tax evasion is another problem. So, let's get the facts
out really quickly about tax enforcement against the super-
rich. Since 2012, IRS has lost thousands of revenue agents, and
you have had to cut back on audits, especially of the richest
folks. Commissioner Rettig, compared to a decade ago, what is
the percentage decline in audits of millionaire taxpayers?
Mr. Rettig. We are down at least two-thirds, and in some of
the lanes, between some of the categories, it is much more
significant than that.
Ms. Porter. Excellent. You are the rare witness who got the
answer correct, and I appreciate your honesty. Tax audits of
millionaires declined by 66 percent. The super-rich are taking
advantage of the lack of enforcement to evade their taxes at
the expense of ordinary Americans. The Treasury Department says
the top 1 percent of taxpayers failed to pay $163 billion in
taxes due in 2019. That is enough money to give every American
taxpayer a tax cut of $1,000. That is real money for a mom like
me. I could get a dishwasher that actually cleans my dishes and
still have money left over. It is just not right that the
super-rich are evading their taxes while the average American
pays their fair share. I strongly support giving the IRS the
resources they need.
Thank you, Mr. Chairman, and I yield back.
Mr. Connolly. I thank the gentlelady. Her time is precisely
on, so thank you so much.
The chair now recognizes himself. And I think I have a
video as well. Is that video ready? My constituent.
[Video shown.]
Mr. Connolly. I thank my constituent for her testimony, and
I will avail myself, Mr. Rettig, of your offer to help on
individual cases, and we really appreciate that. Ms. Collins,
you have been lonely, and I want to make up for that.
Mr. Rettig. I was going to say I think I am the only one
that asked her any questions----
Mr. Connolly. Exactly. So, I am going to try to make up for
that. Ms. Collins, in your blog post you recommended that the
IRS, ``work with the tax software industry to implement 2D
barcoding.'' Could you expand on that? Why would that help? Why
should we do that, and why haven't we done it?
Ms. Collins. Yes, in my opinion, and, again, I am not an IT
expert, so I personally don't have a particular interest
whether they do 2D barcoding, versus OCR, versus whatever
technology there is. But what we really want is to have the
process automated so that we don't need human--we don't need
the employees to actually enter the information. My
understanding of 2D barcoding, the big advantage to it is it is
very accurate, and that would reduce any challenges or problems
entering the data in, OCR. But the challenge with 2D barcoding,
it is only for those returns prepared using software that
either private or the IRS would provide. So, it is about 50, 60
percent of those paper returns in our current estimate.
Mr. Connolly. And let me just ask the commissioner,
Commissioner, where are we on this? I mean, do you support
that? Do you agree that it would reduce human error which
sometimes is----
Mr. Rettig. I do, and we requested funding in our
congressional budget justification in 2013, 2014, 2015, 2016,
and 2017. And we were never funded for 2D barcoding or
scanning. So, the IRS as an agency pivoted into the electronic
filing, which certainly as you think people are aware, at least
currently is running at the rate of about 96 percent. And the
President's fiscal `23 budget also provides for funding to get
us into this space.
And yes, I come back again to what I mentioned earlier, and
I am trying to race through this. But with the current budget,
you know, although the Agency got significant funding for
Fiscal Year `22, when you look at how it plays out and the cost
of living adjustments, our operations support is down $100
million. That is real money. And so, why a lane may be X
dollars to create, we also have to have funding to keep that
operational going forward and we have to put in CR.
Mr. Connolly. Let me just say, I couldn't agree with you
more. And while some people may talk about throwing money at
the IRS, and that is not the solution, for a decade Congress
did the opposite. We took away money, and as I showed in that
opening chart, the gap grew and grew. And the IRS was not able
to perform, in some cases, some basic functions because of the
antiquated IT and because your staffing continued to go down as
the population went up, and inquiries to IRS for information
went up, and, of course, actually, so did the roles we in
Congress assigned to the IRS. So, at some point, disinvestment
means doing less with less, and we need to turn that around,
and we, Congress needed to take responsibility.
Mr. Rettig, one thing you've talked about my time is going
to run out, so I just wish you would address this. We used to
use the figure of $450 billion left on the table owed in taxes
but not collected every year, and then I remember distinctly a
year or two ago you saying that number actually is close to a
trillion? Could you elaborate?
Mr. Rettig. Yes, we are going to issue our tax gap estimate
this summer for the next three years. It goes in three-years'
cycles. The last cycle that we released was 2011 to 2013. The
next one is 2012, 2013, and 2014, but you are going to see us
do a projection for 2019. What is not in those estimates is
virtual currencies, and there is over a $2 trillion market cap
for virtual currencies. Last year, there was over $14 trillion
in transactions in virtual currencies. And the United States,
if you do relative GDP, the United States is somewhere between
35 and 43 percent of that $14 trillion. We know from our John
Doe summons activity in this space with respect to these public
actions Coinbase and others, but the compliance issues in the
virtual currency space are significantly low. And I am
enhancing the word ``significantly.''
What also is not in our tax gap estimates is foreign-source
income. The tax gap estimates that the IRS prepares are based
on information that the IRS is able to determine, not
information that we know is out there, but we are not able to
determine. You have seen in 2019 we added a virtual currency
question to the form 1040 on Schedule L. We moved it up to page
one last year to try to enhance compliance, and obviously we
are looking to get into that area significantly.
Mr. Connolly. Thank you, Mr. Rettig. And I know we are
going to want to talk to a lot about that because, if I can
paraphrase the late Senator Everett Dirksen, a trillion here, a
trillion there, pretty soon we are talking about real money.
Mr. Rettig. And our employees want this. We want to earn
the trust and respect. To Ranking Member Hice's comment, the
employees here are here for the right reasons. And, you know,
we live and work in these communities where you have people who
are, you know, making these comments, and we are very sensitive
and sympathetic. We want to get this right. People are here for
the right reasons, and we would like to interact with all of
you and try to address your concerns, comments. And where we
need to change, we will change.
Mr. Connolly. Thank you very much. And I think as we are
closing the hearing, I have a picture from 1977 of the IRS
computer center in Martinsburg, West Virginia, and what is sad
about that picture is here we are in 2021, and that picture
could be replicated today in many places. We have got to
upgrade our IT.
I would like to ask unanimous consent to insert in the
record at this time the GAO report to the congressional
committees called ``Tax Filing April 2022'' on 2021
performance.
Without objection, it is so ordered.
Mr. Connolly. Mr. Hice, have you got anything you want
added for the record?
Mr. Hice. No, thank you, Mr. Chairman.
Mr. Connolly. OK. If there are additional items, or if
there are additional questions for our two witnesses, I would
ask members, send them through the chair and through the next
five days. And I would ask our witnesses to try to get back to
us with answers as expeditiously as possible.
I want to thank Commissioner Rettig for his openness and
his availability to us, and I think you have gone a long way in
helping to illuminate where we are in this tax season. I want
to thank Erin Collins for her advocacy on behalf of all of us
as taxpayers, and keep on doing it, because as all of us kind
of have stories today. Republicans and Democrats, we have got
constituents who still have trouble in terms of getting access,
and that creates enormous stress when you owe taxes, or think
you might owe taxes, or when you deserve a refund, or just want
to know the status of something. So, we need to improve. We
need to make investments, and we will continue to provide
oversight, as Mr. Hice has requested, of the IRS.
With that, this hearing is adjourned. Thank you, everybody.
[Whereupon, at 11:39 a.m., the subcommittee was adjourned.]
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