On many essential attributes of a plan. It would be extremely challenging too used to document as a document to hold the iris, the Treasury Department, or anybody else accountable for missteps. The few things it almost entirely lax are quantitative targets to measure against, backup data to analyze, and various key operational details including, for example, who at the irs or Treasury Department is ultimately responsible for making decisions on any particular issue. This does not give any detail on how the irs will implement secretary yellens 400,000 dollar pledge. And details really matter here. It also does not estimate what any of the 42 initiatives or 190 odd key projects are expected to cost or clearly answer the basic question of which initiative or key projects can be fully implemented with the 80 billion dollars in funding. What the document quietly admits is astonishing. Despite contrary rhetoric, the irate did not give the irs enough funding to fully realize the plans division. This, despite having given the agency a slug of funding more than six times its annual budget. The irs is annual budget justification goes for, theyre asking for 15 increases in the irs is discretionary appropriations to make up the short term for areas where the i. R. A. Funding for short, particularly in tax Player Services and i. T. Monetization. The irs annual budget justification also warns that if Congress Fails to increase future irs discretionary budgets on top of the 80 billion, and in particular spend even more for Taxpayer Services and i tomorrow night is a shun. The irss future Service Delivery will actually suffer. Finally, the president s budget requests still more irs funding for future enforcement efforts. 29. 1 billion dollars more. That is on top of the 80 billion dollars. Americans rightly have a hard time understanding how an agency provided more than six times its annual funding can still claim poverty. Given that the plan the irs delivered is not transparent and does not allow for any meaningful accountability, this plea is essentially for another blank check. Ive heard some argue that future uncertainty prevents the iris from making firm estimates beyond a fiscal year or two. Indeed, that sounds like a tacit admission that circumventing the new appropriations process for the 80 billion dollars was a huge spent first plan later mistake. But this uncertainty excuse falls completely flat when one observes the countless other examples of long term budget revenue and cost eliminating both in the public and private sectors. When you last testified before us you promised to write really update the irss spending plan and solicit this committees feedback. Based upon what has just been delivered, i strongly suggest you accelerate your timeline and return to this committee in short order with an actual plan. Returning to the subject of this hearing. My colleagues and i eagerly await discussing the irises and you will discretionary budget request and current performance measures. Ive learned more in the last few weeks about the sometimes puzzling ways the irs measures its own effectiveness, such as on entering phones. What i have learned would be more troubling, if not for the hope that you will adhere to your promise to enhance the rigor and meaningfulness of the irss Data Collection and analysis. I recognize that you are only a few weeks into your tenure. And are already facing momentous decisions that will likely have lasting consequences. I was encouraged by your commitments, which include full and prompt transparency. Utilizing best management practices, making decisions based on sound and unbiased data. Ensuring the irs is strictly nonpartisan, not making any policy decisions that are congresses responsibility. And turning to congress at every possible opportunity for guidance and authorization. How will you adhere to these promises will it determine the legacy you leave the irs in the american tax pitchers as well as you relationship of congress. I urge you to walk the street course and set up positive trajectory. And above all, keep the irs out of the partisan gamesmanship. Thank, you mister chairman thank my colleague and as my colleagues all, know we will have further briefings this week on the Strategic Operating plan by mr. Werfel, we appreciate that. Our witness today is daniel werfel, 50th commissioner of the 1y irs. He has previously amended drink partner at the Boston Consulting Group before it joining the boston its nominate to be controller of the office of management and budget where he served for four years before becoming acting commissioner of the irs in 2013. He began his career at omb in 1997, we welcome. Him why dont you go ahead mr. Werfel and will have questions. Chairman wyden, Ranking Member crapo and members of the committee, thank you for the opportunity to testify on the Filing Season and the irs budget. I am pleased to report that the irs provided substantially Better Service to taxpayers during the 2023 Filing Season. We delivered a strong tax season for the nation. The best in several years. Through april 7th, the irs received more than 101 million individual federal returns and issued more than 69 million refunds. Totaling about 199 billion dollars. Irs employees were able to make substantial improvements this tax season because of the Funding Congress provided to the Inflation Reduction Act. This funding made a difference. It allowed us to hire more than 5000 phone a sisters which led to a phone Level Service averaging 87 during the Filing Season. The average wait time on the phones was four minutes. This is a major improvement from last year. One Service Levels were under 15 and wait times average 27 minutes. Perhaps most telling was this, irs employees answered 6. 5 million calls to help taxpayers, that is 2. 5 million more calls than last year. And improvements were seen in other areas, we increased face to face visits at our Taxpayer Assistance Centers to 474,000. That is up more than 30 from the year before. We expanded digital scanning efforts to speed up the processing of paper returns. Providing a better Filing Season experience this year was an important step but more work remains. The long term funding from the Inflation Reduction Act gives us a unique opportunity to transform our agency over the next decade. Historically, the irs receives funding that allows our staffing and operations to keep pace with the size of the u. S. Population. In 2010, that changed. Cuts in annual funding caused iris Staffing Levels to decline by nearly 17 to less than 80,000 fulltime employees by 2022. While the irs shrank, the u. S. Population grew by more than 7 . Reaching 334 million. These reductions caught up with us. You could see that in the poor taxpayer Service Levels in previous years, including last year. We were able to improve this Filing Season by shifting Inflation Reduction Act funds over to our day to day operations. If we continue using Inflation Reduction Act funding this way, however, focused on short term operations, rather than long term systemic improvements, we will not be able to transform the taxpayer experience, modernize outdated Iris Technology and deliver more effective enforcement of the tax laws as the Inflation Reduction Act in visions. The i. R. A. Funding was designed to restore irs core operations and prepare the agency to serve the nation and its future. But that work is outside of our base level funding. That level of funding, which is 12. 3 billion dollars for fiscal year 2023, has not materially increased since the fiscal year 2010, in fact, in real terms, we are 33 below our funding level and fiscal year 2010 if we had just received inflationary in just minutes. It is not enough resources to fund a tax system in an economy that grows in size and complexity every year. So i ask for your help to build on the remarkable progress we saw this Filing Season by supporting the 1. 8 billion dollars in incremental discretionary funding requested for fiscal year 2024. This funding will enable us to maintain our current performance in the next Filing Season, while allowing us to use the Inflation Reduction Act resources as congress intended, to modernize our operations so that we can sustain and improve our service to taxpayers into the future oceanic operating plan lays out in detail our path forward, describing how we will improve all aspects of our operations. The plan, which i call our public to do list, lays out roughly 200 projects from improvements for taxpayers, Tax Professionals and irs employees that will transform our work on the phones, in person and online. Inflation reduction act funding also gives us an important opportunity to improve enforcement efforts to promote fairness while respecting taxpayer rights, the agency will follow secretary yellens directive, not to raise audit rates above historical levels for Small Businesses and households making less than 400,000. I want to be crystal clear, we are not increasing audit rates for hard working taxpayers making under 400,000. That is my pledge, there is no surge of new audits coming for workers retirees and others. We have plenty of other areas we need to focus on. Instead, we will build capacity to pursue high income and high wealth individuals, complex partnerships and large corporations that are not paying the taxes that they owe. We will use Inflation Reduction Act resources to hire highly skilled employees to address noncompliance among this group of taxpayers. I plan to provide regular updates to congress in the public on our efforts to transform the irs and i would be happy to delve deeper into the details with committee members. For example, i will provide a supplemental document that provides in one place extensive details on planned expenditures over a tenyear period and on hiring over a threeyear period. Within the next 3 to 6 weeks, i will be able to add more detail, showing expected hiring across the full tenyear window. I am optimistic that we can build on the accomplishments of this Filing Season. The question is not whether the irs can improve service to taxpayers, this year we proved that dramatic improvement is possible. The question is whether we can continue to improve. I am confident that we continue this trajectory if we have adequate annual funding for daytoday operations coupled with the long term resources, combined, these will transform the irs over the long term and into an agency the taxpayers and the nation expect and deserve. Chairman wyden, Ranking Member crapo, and members of the committee, that concludes my statement. I would be happy to take your questions. Thank, you mr. Werfel, we know in this country, we have a tax gap of hundreds and hundreds of billions of dollars. This is money owed to the american taxpayer, but not collected. Your predecessor sat where you are this morning, not very long ago and he said the tax gap maybe as high as a trillion dollars a year. And he also said that you are not going to be able to collect those monies, deal with the tax gap unless you go after the very wealthy tax cheats. And that is because, and youve mentioned, this the workers who have wages and salaries, we already know essentially a lot about them with respect to the taxes owed. It is that wealthy tax cheats who can pretty much decide what they want to, pay when they want to pay it, they are the challenge. So my question is, a couple of weeks ago, the Senate Finance committee can leak pleaded a long investigation, finding that the big bank credits wes violated a plea deal with the department of justice where, again, you are seeing massive tax evasion by thousands of wealthy americans. Our Investigations Team uncovered an ongoing conspiracy in one instance involving a single familys failure to disclose 100 Million Dollars in secret offshore accounts. If that wasnt bad enough, the investigation found the credit sweeps in total concealed from u. S. Authorities, 23 large accounts worth more than 700 million. And this kind of flagrant abuse, flagrant attacks of asian highlights the point that you and i have been talking, about this ball game is all about going after these wealthy tax cheats. So my question to you is, commissioner how will they agencies, the irs use the funding you have got to step up enforcement to crack down, for example, on the use of secret offshore accounts. Something that is ongoing by wealthy americans. How are you going to use the funds to tackle that . Well, as i have said, mister chairman, the enforcement funds in the Inflation Reduction Act will be focused to improve capacity in these areas of reviewing the taxes of high wealthy individuals, large compressions complex partnerships. Its a place where weve been severely under resourced to take on and the Inflation Reduction Act provides muchneeded resources for us to finally build the capacities that we havent had. To your point, its critical to doing this to i. D. Certain patterns of activity where tax dodging is most rampant. And you point out, you know, offshore, youre not the only one to point that out. In a recent g. A. O. Report on the tax gap, and they i. D. d abusive tax shelters as an area where the irs has to do more. So our plan is to build capacity, and that means subject matter experts, specialized accountants, data scientists, lawyers, all of which understand how these things are set up and how it can help us navigate them and figure out where the funds are that should have been paid back to the nation that havent been. And so you will go after foreign banks like Credit Suisse and the reason i want to ask that question first is, Credit Suisse got busted almost a decade ago. For doing what we found they have continued to do, in other words, they came to the federal government, their ceo raised his right hand, promised 100 percent compliance and then all of the sudden, what we found is we are dealing with it all over again. So youve got recivet people who have ripped off the american taxpayer because it is those working class people that pay when the wealthy americans get out of their obligations. And i think it is very important that the American People hear that when you are talking about a recidivist, like Credit Suisse, who promised that they would stop doing it and then continue to do it, i think its important that we know those are the kinds of people that you are going to go after. Mister chairman, im prohibited from discussing individual taxpayer in a public setting im talking about the kind of action that i believe needs to be a priority. You dont need to go into specifics. I was going to say, lifting up absolutely the goal is to understand these patterns of behavior across these very complicated organization they haves. Many divisions an subdivisions operating across different countries, different financial structures. It is a lot to impact. My time has expired. Your last point is very much on point where you said the patterns are what is important. Credits weeks, the pattern was all there. Huge violations. Huge violations, entered an agreement with the government and basically after a little time goes by they do the same thing. When you talk about patterns, it is exactly the kind of issue credit suites presented because after they made these grandiose promises they went back to ripping off the american taxpayer. I want to start with an issue my colleague, senator wyden, raised where we have a disagreement, whether the irs should be the entity that prepares peoples taxes for them. Some want the irs to prepare tax returns for taxpayers and several colleagues of introduced legislation in congress to authorize the irs to do that. The ira gave the irs 15 million to study such a thing. That idea is concerning and not just because of the apparent bias in favor of doing so by those selected to conduct this study but for a lot of other reasons. Having the irs act as tax preparer, Tax Collector and tax enforcer raises significant conflicts of interest in many of our minds. It would incur billions of dollars of cost in developed and and expose exponentially more taxpayer information to misuse or abuse. The private industry, the private sector of this country already prepares and files free tax returns for tens of millions of americans and millions more of americans are already eligible for that. The irss Strategic Plan has an entire initiative devoted to an irs run Tax Preparation Program which seems to me because it is still being studied right now. The question i have for you is has the irs made the determination that it is going to pursue this and if so where does the irs find its statutory authorization to do so or the funding allocated to do so . No decision has been made on moving forward with direct File Solutions because of the point you raise, the Inflation Reduction Act mandated the irs produce a study on the feasibility of such a solution, that studies do in midmay, i dont want to jump ahead of the conclusion because the studies not done yet. We are still working through. What we plan to produce will hopefully create an important dialogue between the irs, the administration and this committee on what the study says and whether is feasible and what the various issues are. You raised some questions and hopefully the study will help us have a good dialogue. Im glad to hear your answer but it is not a predetermined outcome. Can we agree that the decision is one Foot Congress can make, not the irs independently . I am not sure of where the legal authorities are. It is a good question to ask in the context of issuing a report. The report really focuses on operationally what it would take to produce such a solution. Your question in terms of who has Legal Authority is something im not sure is in the scope of the report that it is clearly an important question to ask. I encourage you to recognize that congress has the authority to make this determination. My time is running out. Have you done an analysis or has the irs done an analysis you can show us as to where the tax lies . Im referring to Something Like we have seen from the joint Tax Committee that goes by income increment or cohort. Wheres the tax gap, whether we can decide on the amount of that, where is the tax gap among people who live in the United States who are taxpayers . We released our latest tax gap assessment in october of 2022. It covers 2,014sixteen. I dont think we have time to unpack all of the rich content but it does give us a good roadmap for where to assess where theres a difference tween the balance owed and the balance paid. One of the things thats important to understand as we are constantly trying to improve the way we measure the tax gap. When i was answering chairman widens question, when we have better capacity to assess high income tax and complex partnerships, we will learn more about how those financial structures are laid out and hone more detail in terms of what the tax gap is in those areas. I was very interested in your making the pledge that you will not increase taxes on those making audits on those making less than 400,000. As you gathered from my opening statement, im concerned the Strategic Plan, nothing to flesh out the details of this and i dont have time for you to get into it today but we do know even less about what the irs believes will happen to actual audit members for people making less than 400,000 and we did before. Theres a Historical Rate being referenced, some kind of, theres a pledge now from secretary yellen and you but we need to get details as exact, as to how this pledge will be honored as we move forward. Im prepared to provide additional details. May be additional questions that are coming up. I know we have a Member Meeting tomorrow. I understand theres a request for more details and i think the plan that was issued is robust. Doesnt answer every question . No, thats because we want to work with you to figure out what the questions are that we need to answer to make sure what we are doing is clear as far as how to improve the irs. Thank you for being here. Congratulations on this tax season. You have triaged the irs in order to deal with the Necessary Services to taxpayers and youve done it well and i appreciate the point you make, that is that you need to have the ability now to invest for the future in regards to technology and workforce so that you can maintain that type of service level. One of my highest priorities for the irs is recognize it needs to be a customer based organization, you need to be able to answer questions of the taxpayers and provide those services. So i thank you for giving us the hope that we can in fact do that in a more acceptable way. I want to first acknowledge our chairman and Ranking Member have been very sensitive to the concerns of Small Businesses. I shared the Small Business committee and we are going to have some joint efforts between this committee and the Small Business committee to deal with the challenges that Small Businesses are confronting in regards to our tax code. As you know, Small Businesses depend very much on the irs improving its Customer Service and technology. It will help the investments you are talking about making. Small businesses dont have the same tax literacy Larger Companies have and they dont have the personnel to deal with complexities in the tax code related to their businesses if they only have one or 2 employees and are trying to struggle with the challenges of a young, new entrepreneur. I appreciate the discussion you have with the Ranking Member and chairman regarding direct filing in the study being done. I would encourage you to include Small Businesses in the impact it could have on the Small Business population, trying to simplify the way they can comply with the tax code. I just point out the Authority Issue is interesting because, we havent given you the authority you need, one of the issues for low income families, theres Free Tax Service available but they are paid providers and we are not sure they are getting value in all these circumstances. We dont have the accountability that is necessary. I hope your advice will be comprehensive particularly how we deal with low income families and Small Companies in getting through the tax code more efficiently. Lastly, we urge you to give us areas you believe the tax code needs to be modified as it relates to Small Companies that are using the individual tax returns to deal with their taxes and it is not as convenient as the Corporate Tax system is generally and we need your help in making that a reality. Give me a brief reply to the work you are doing now to help smaller businesses deal with our tax code. Thank you. I want to start by acknowledging the point about the Filing Season weve had, all credit goes to the irs workforce. Im fortunate enough to be here and talk about it and talk about their success but thats a Remarkable Group of employees that care so much and so dedicated to this mission we have. Please extend our appreciation. We recognize this is a stressful period for everyone particularly the irs workers dedicated to the mission recognizing importance of Public Service. I agree with you. The Ranking Member made reference to the plan as being dense, and it is. I want to list, what are the three main things we are trying to achieve with the plan and in doing so i will get you a question about Small Businesses, first, we want to build capacity to do better Customer Service. That is the first thing. The second thing is we want to build capacity to ensure that wealthy and very wealthy pay what they owe, that is individual corporations and large compex partnerships. And we need to modernize the irs infrastructure to better protect data and better automate our processes. And all the planning those of the three things that i want taxpayers to take away. If you are a Small Business, based on what i just read and what im committing to. Our focus is improved service. It is not some wave of audits. Its improved service which how to improve service for Small Businesses . Meet them where they are, help them understand their obligations under the tax law, figure out how to put new Solutions Online for them to make their journey easier. If they are paper filers, is there a bridge to get them to electronic files so they can get their refunds and have tax certainty more clearly . If we can modernize the irs, we can also keep pace with how complex the law is and meet taxpayers where they are more effective. We havent been able to do that because of the incremental funding cuts that have happened since 2,010 but the Inflation Reduction Act provides an opportunity. If you are a Small Business, our focus, what i will go to thinking about is how do we help Small Businesses meet their obligations. Thank you. Senator cornyns next. Commissioner, isnt it true that a tax credit or tax subsidy, dollar for dollar, ads to federal expenditures, in the case of a 31 trillion debt it adds to the debt . In other words tax credits are just another way for the federal government to spend money, correct . Technically it is like an outlay or spend with respect to measuring the deficit. We talked a little about the Inflation Reduction Act. In addition to throwing gasoline on the fire of inflation with 700 billion of additional spending and added to the debt, as part of the Inflation Reduction Act, this partisan bill that was voted on by our friends on the democratic side of the aisle, signed into law by the president , leverages rich subsidies for electric vehicles up to 7500 tax credit for electric vehicles and i want to point out the contrary to the original estimate of how much this would actually cost in terms about ways, it was originally advertised as being a 30 billion expenditure and the truth is it looks like it is going to be closer to 200 billion, 6. 5 times higher than advertised. The president , as you know, has said by 2032 he wants, by his magic wand, say two thirds of all the vehicles being built will be electric vehicles even though we now have 280 million cars on the road and almost all except 2 or 3 or 4 are internal combustion engines. Added to that, 60 of electricity that would be needed to charge those batteries come from fossil fuels. Only 22 of electricity is generated by renewables and this mandate and expenditure, this lavish expenditure for the rich would do virtually nothing to reduce carbon emissions. I want to ask you about the supply chain. 77 of the batteries made in the world are made by china. They are on a path to increase their capacity to build electric batteries by 7 fold by 2027. Is there any way this mandate of President Biden has ordered with the stroke of his pen, anyway that it will do anything except increase the sale of chinese made batteries in the United States . I dont know the answer to that question. I do know the iris responsibilities to issue regulation and guidance for how these credits will be evaluated and who will be eligible for them based on an intricate array of requirements that are in place. What we are doing now is issuing regulations. The questions you are raising, the policy tensions you are raising will be fleshed out. The comments we receive on regulations, i will need to be able to come back on his chair and be more illuminating in terms of what those comments are and what those tensions are. He will agree that those regulations have to be consistent with what is in the law . Absolutely. The Inflation Reduction Act, misnamed i might add, actually provides a smorgasbord of credits for electric vehicles, for example theres a 4000 credit for used electric vehicles, section 205v, theres a 40,000 tax credit for commercial electric vehicles, section 405w and theres a tax credit for fuel cell cars which is section 30 be. Do you know these other credits have the same critical mineral and battery sourcing requirements as the 70 ev credit . I dont know that at my fingertips but i can provide you information on that. I appreciate that because it appears to me the american taxpayer will be subsidizing the purchase of chinese made commercial and use electric vehicles by virtue of these tax credits so we would appreciate your getting back to us with that information. We will go to senator johnson but i want to say as the lead author of this package of 200 billion in Clean Energy Tax credits we felt very strongly about the point senator cornyn talked about about batteries being made in china and the legislation at my direction provides incentives for batteries made in the United States. Something we worked on. If i could just respond briefly. It is not possible to meet that requirement due to the constraint on supply chain and battery manufacturing. It will either subsidize chinese made batteries or it is an illusory promise. Plenty of supplychain issues, the fact is, i will go to senator johnson, the point i agree with, batteries being made in china, something we took direct action to deal with when we were marking up that legislation. We want batteries made in the United States. Senator johnson. Excuse me. I am sorry for getting out of order. Senator thunes next. I know how you love that when people come in. Thank you for being here. I know you are probably answering a lot of questions on this front but at the confirmation hearing you said you have dual priorities at the irs, focused on improving Taxpayer Services and approving the irss capacity to unpack complex returns and i appreciate and respect your aspirations but the Funding Priorities in the Inflation Reduction Act and the president s budget show different priorities. The 80 billion provided the irs and the partisan ira, more than half are 46 billion directed toward enforcement activities, only 4 of the 80 billion, 4 , 4 was earmarked for improving Taxpayer Services. President biden proposed boosting the iris budget by 15 above the massive funding increase the iris received from the Inflation Reduction Act. The president s budget would provide a separate additional 29 billion for enforcement in addition to the 46 billion for enforcement the irs received last august. Given the overwhelmingly disproportionate funding compared to Taxpayer Services would you agree some of the ira enforcement funds could be more effectively sent to improving Customer Service . That is a good question, senator. I think that we actually need funds to do both. I worry that if we were to redirect funds out of one bucket into another, we would lose important ground that we need to cover in one particular area. I know it seems like for the enforcement dollars that theres a lot, the reality is that today, we have 2600 staff that work on high income individuals, corporations and complex partnerships, there are more than 390,000 of those. 390,000 high wealth, high income taxpayers, and 2600 staff. A lot of these filings are thousands of pages, tens of thousands of pages, some come in hundreds of thousands of pages. Every dollar we move off of our efforts to build the capacity to unpack those returns means we are leaving money on the table for the American People in terms of our ability to close the gap, what is paid versus what is owed. I dont dispute the fact that there could be some need for additional enforcement. Just seems like the way this skews, you think about 4 for Taxpayer Services, 90 of the phone calls to the irs were answered in 2021 and it was a little better last year. Then youve got this massive amount of funding infused into the enforcement not just the ira but also out of the president s budget which we are talking about today but one other point that was touched on by senator cornyn but the Inflation Reduction Act, 3 , 4. 2 billion of overall funds to Taxpayer Service, the irs Inflation Reduction Act, Strategic Operating plan recently released 45 days late i might add poses a total of 3. 9 billion for Energy Security which includes one. 2 billion of the total allotment for Taxpayer Services. By Energy Security the irs is referring to all of the above energy approach including conventional Energy Production were simply provisions related to green energy . The funds we need to implement the energy credits, its a lot of work, a lot of Customer Service reps we need. For example, in the budget for 2024, weve asked for a one. 8 billion incremental increase. Part of that one. 8 billion is to fund about new Customer Service agents and staff to help us implement the energy credits. We are going to get a lot of questions and we have to process additional applications for credit. That is where that funding is talking about. As irs commissioner, what is the higher priority for delivering better Taxpayer Services or research new green deal policies which i will note are projected to blow way past initial cbo projections . Is it Taxpayer Service or Green New Deal priorities. s service. The budget request the irss responsibilities to administer the laws enacted by congress. We dont take policy preferences. We basically try to manage the portfolio. You do have to prioritize. You have certain located resources. 4 is going to Taxpayer Services. With the deplorable record the rls hairs in responding to be blood across the country, i am all for secure and Sustainable Energy policies but im deeply concerned that the irs has made more ira funds committed to promoting the admin iterations radical Energy Agenda than improving Taxpayer Services. I know my time has expired. Working with senator grassley on an irs funding accountability act which hopefully will bring some transparency and accountability in the massive infusion of resources and employees the irs now has. I urge you to reconsider your priorities. Very quickly, we will go next to senator warner. On this question you started with with respect to service and enforcement you and i have worked on so many tax issues over the years i would hope we would not say these are mutually exclusive. We need to improve services, citizens are telling us that is important but we also need enforcement because that is what the tax is about. We wont get money from these wealthy people but i will look forward to the proposals you are going to be making and always willing to work with you. Thank you, thank you for holding this hearing. It is good to see you. You dont look much worse for wear. I think many of us on both sides of the aisle regardless of where we may disagree or agree with specific policies are grateful for your willingness to take on this job and i know the chairman has already mentioned this and i commend the fact is that we are working through that backlog and we will have an efficient taxpaying season which i will drill down on two issues, one that i raised with you already and one that i have not. The first, this is the call we had in late march, the Employee Retention tax credit, what of the things we put in place during covid, bipartisan piece of that legislation which was well intended to make sure folks, employers kept people on during covid rather than putting them on unemployment. As i shared with you, there are a number of businesses in virginia and this is probably the case in other states as well where there has been a backlog, cant get clarity, not getting tax rates which i think they deserve and since these are businesses that had policies that we thought was the right thing to keep folks employed during that period, can you update us on the overall erc backlog and where we stand. Thank you for the question. What i would like to do is walk you through the situation as im finding it in my first week at the irs, the actions we are taking on the results that i expect. The situation is the employer retention credit is a complicated filing to process. It is often coming through an amended return and you have to align resources across multiple tax years. Staff at the irs have a lot of work to do and they come into make sure they are processed. They can become you see a lot of potential fraud and issues in terms of nefarious individuals seeking refunds when they are not or these credits when they are not eligible or dupe people into thinking they are eligible. Thats the situation. The action is now that Filing Season has ended we now expect less calls coming in, most filed their taxes. We can redeploy people a the phones and reset so we are managing paper. Prior to this move of moving people off the phones we were resolving 20,000 of employer retention credits a week using over time and any downtime where the phones arent up, moving people to do it. Every resource is an all hands on deck situation. Post this Filing Season now that we can reset staff, we can double per week the amount of credits we are processing. That the action we are taking and in particular i want to make sure. Ive talked to the team about making sure we go with the older ones first, those who have been waiting the longest, really focused on 2,022 or prior because they are still coming in. Under the law they can come in until 2025 so this is a filing we will be dealing with for years but we will make progress. A great answer but i took away the you double per week the number of these, how many, how much backlog is being taken care of on a weekly basis . 20 k a week. We can look at 40 k a week. You set it on the record. Last question. Section 127 of the code has something that has again been bipartisan supported for years which allows an employer to go ahead and send an employee back to school to get additional education and that additional education up to 250 a year goes taxfree to the employee, great retention tool, great ability to get additional skills. Something my friend john thune and i put in said we do this on a Going Forward basis. Shouldnt we also allow those employees who have student debt to go ahead and qualify as well and be able to pay down that 250 a year taxfree . We had it put in place for a year. The takeup rate seems like such a nobrainer, the takeup rate has been not great. What can we do to further promote, this is an area where regardless how we feel about student debt, everyone is all in. A great retention tool. I know im over time. I would appreciate an answer. Absolutely. As i mentioned, the three priorities of our work going ahead are to improve Customer Service, increase capacity, assess high income filers and build a backbone of the irs into a more stable, modernized footing. That First Priority, Customer Service, that is doing the outreach, making sure taxpayers are aware of the credits they are eligible for. Theres an education gap of what is available in the sense that the irs is so complicated even those that benefit might be there, how do i navigate the tax laws. These are two things we have to close the gap on. We have to make sure people understand what they are eligible for and make sure they understand we are working hard to create a much easier path for them to navigate these rules. The gentlemans time is expired. Thank you very much for this hearing. It is great to see you. I want to congratulate you on your recent confirmation and thank you for testifying today. Before turning to my questions i want to highlight the importance of remote notarization for consumers and Small Businesses, something i just heard about from some constituents last night. I encourage you to look closely at permanently extending the irss commonsense policy that makes it easier for families and businesses to use secure remote notarization for tax paperwork. Now to my question. Recent reporting has shown how emerging Artificial Intelligence technology such as chat gpt could be used to scam taxpayers by impersonating irs employees. These ai tools could be used to generate many well composed convincing messages the trick taxpayers into providing scammers with personal financial information. One expert used chat gpt to generate a scam message on the Employee Retention credit the requested Sensitive Information like Social Security numbers. How do you expect ai tools to change how the irs protects taxpayers from scams . Are the antifraud programs wellsuited to combat scams that use emerging Ai Technology . Great question, and we do have, embedded in our operations, tools, forensic tools, fraud detection, data and analytics that have been strengthened over time and i find as i arrive at the irs to find it to be in very good shape in terms of our understanding of the portfolio of fraud out there and how we can detect it but we have more work to do and this is fastmoving. Theres a concept of moores law in terms of how exponentially things move. This is why Inflation Reduction Act funds are so important. The difference between us be in under resourced and allowing these scams and ai had these emerging things to outpace us or the ability for us to keep pace and i would look forward to continuing the conversation with you about ways to make sure you are all in a position where you can deal with evolving threats. The National Taxpayer advocate has called paper tax returns the irss kryptonite. Many of the frustrating irs issues faced by my constituents are because of the backlog of unprocessed paper returns. The issues range from families who are struggling to get their refunds to Small Businesses waiting for Employee Retention tax credit payments. How does the irs plan to approve processing of paper returns and how we will help our constituents stuck in the backlog . A couple things, scanning is a critical part of this and we have started to scale the investment in scanning solutions. We are scanning hundreds of thousands of paper forms and that makes the process seem much quicker. I anticipate Getting Better and better at it week by week and i think we will start to do a lot more scanning especially the next tax Filing Season but right now to deal with our backlog, the second thing i mention, to senator warner, the end of tax Filing Season, we need to start redeploying people who were on the phones and move them to paper processing, a good seasonal adjustment of workforce and i anticipate substantial progress on some of the paper backlog as a result of resetting where the employees sit but there are other things we could go into. I go back to the fact that we have to make a decision in terms of what we want from the irs. If we are funded at a steady level and all we can do is maintain current operation we have to make investments to deal with the complexity of what we see today. I have a bipartisan proposal that would use barcodes, i hope you will look into that. One last thing before my time runs out. A recent report found innovative partnerships, can help firsttime mothers fully access the tax benefits available to families. The nurse family partnership, nurses connect new mothers to tax filing information and tools that can help get benefits like the child tax credit. How does the irs support new mothers accessing tax benefits and how can the irs best promote these innovative partnerships . I love the idea of partnering with hhs, center for medicare and Medicaid Services to do more to figure out how we can support these individuals. It goes back to a significant priority of improve Customer Service, meeting taxpayers where they are, making sure they understand what they are eligible for but some need more help than others and if you are a new mother, struggling in financially in another situation i want the irs to have a better understanding of that portfolio of different taxpayer situations and better strategies to reach them and we can work with federal agencies to do it. Senator lankford is next. Youve jumped right into the front and theres a lot of things that need to be done and grateful you are engaging in this but we lack a lot of details as you mentioned. Some detail is coming on this. One of the things, we are tracking one of the issues you raised where we wont do increased audits for the individuals and businesses 40,000 or less. Janet yellens statement from treasury, difficult to track what historic levels may mean. If i look at it, weve gone back to look at what are the historic levels of what audits were taught a 40,000 or less. Some years it was very low and some particularly high. We dont know if thats a number or a percentage or if it is a percentage or a number which years that is. Will it be a group of years . If you say this is the historic levelland you look 10 years ago versus 5 years ago versus 15 years ago, thats a very different number. Help us understand what the word historic level is. Just to clarify, the pledge is 400,000 that year. What i believe, the message i want to provide you and the American People as we are, for the next number of years going to be so focused on reaching capacity for high wealth individuals, corporations and partnerships that there will be no change to the most recent audit rate we have for years and so even once we feel we have done the necessary Capacity Building in the high wealth area, weve done years to get close to a historical average versus where we are today. I want to make clear audits, we dont have a final audit rate for 20 one2220 because it is possible there could be audits issued. We will take the most recent final audit rate, historically low, addressing the concerns you raised in your question and we will allow that to be the marker for several years and revisit it. Historic levels means 21, 22. The 201819 range, it is closed, a final audit rate, the potential that the audit rate could change. I dont mean to pick on this but this is an issue we debated on the floor during the ira debate and republicans, cant include that 400,000, democrats voted that amendment down and blocked it. Thats why this is a question. Everyone is saying wont be that 400,000 but there is nothing in statue to the does that in defining a historical norm and what that is seems to be a moving target. Its awful to get a clarification. 2018 number is what it is going to be. That is helpful and we will follow up on it but theres a lot of questions about the individual master file and updating the technology we talked about before, the issue of technology, the irs. Ive been in the senate 8 years. Every year i hear the irs has legacy artwork somewhere and that is every single year. I know you are saying with additional funding you will update those software and hardware systems. Thank you for that. The issue on the individual master file, where that stands in the process because a lot of things are built on that. One of the priorities in our plan is the desire to update the individual master file by 2028. I think the reason we need to modernize it is a couple different reasons. We want to make sure the American People deserve to have the most uptodate technology, housing that data so it is as secure as possible and obviously with more technologically sophisticated, we can automate more and do more and meet emerging requirements more quickly. The technology is not all all the. You said theres been investments. The issues havent crossed the finish line. My goal is to make sure we are not just updating this part and that part and not bringing together the full sweep of solutions so the final solution is modernized and it will be less expensive to operate and easier to update in the future. It is an essential priority for us moving forward. Senator johnson next. Quick comment. This committee would spend our time and energy on simplifying the tax code. Stop trying to social we through the tax code a lot of these problems just evaporate or be a lot easier to tackle, just my commentary. Welcome. You are courting statistics of 87 Response Rate versus 15 last year. I have something different. Do you backup those percentages . We do. This is the same methodology we have used for years. Please provide me those numbers, the numbers i have last year, 63 million calls, you responded, you answered 21 million, people got discouraged, 26 million were answered so you answered less according to numbers i got from the irs so i would like to figure out what that is. 45 billion, i am highly concerned about how are you going to keep partisanship out of your enforcement efforts . How do you make sure enforcement is apolitical, the irs being weapon eyes. The lack of force meant, hunter biden, didnt disclose income. The enforcement action, the most recent outrageous example of this, journalist matt taibbi was testifying before the house committee, the weaponization of government, the day he was testifying, and irs agent ends up showing up at his home. How common is that . I find a lot of tax returns, never had an irs agent shall but my home or my place of business. How unusual is it to have an irs agent show up, anybodys taxpayer home. The issue with tax returns. I want to repeat something i said. A general question. And the tax return. For all taxpayers to see what they can expect from the irs in terms of when we might call you, when a home visit might occur. It is something we want to make sure taxpayers have understanding of. Mostly if the irs is reaching out to you it is not the irs. As part of this is pretty welldocumented, irs agent showed up, put a note on mister taibbi app stores, called him and four days which he did, explained what the situation is. I find that unbelievably unusual. Im asking you as irs commissioner, does that happen often . How unusual is that, that an irs agent would show a better taxpayers home, give us a call. On top of that, an irs agent showing a better taxpayers home, the taxpayer happens to be testifying before the House Judiciary Committee on the weaponization of government against us citizens. The chance they have is infinitesimal but it happens. In general, how often does the irs show up, the first notice there may be an issue with a problem with taxpayers return and make a personal appearance, that is part of the procedure, doesnt happen very often . I want to be cautious that im not violating up prohibition. If a taxpayer, if the irs is reaching out directly. More likely theres an issue on the return, weve tried reaching you through less intrusive means, weve been, where they have filed, you might have Outstanding Balance to do. Youve not answered how often that might happen. Chairman jordan has sent you a letter on the information on that. I will send similar letter. I would like it if the chairman would join me in that letter. This is very troubling to have the irs take that action. The chances are so infinitesimally small. And irs agent would show up at a journalist app store, the day the journalist testifies for house committee. Im also requesting the documentation, the information on that case, i believe mr. Taibbi has issued a waiver for the information. I am asking will you comply with those requests and turn that information over to myself . As long as we do it consistently, yes. Senator blackburns next. Thank you, mister chairman and welcome back to us. Tacking on to what senator johnson was saying, it is important to note, with the lowest learner scandal taking place at the irs, we are familiar with that because you were brought in to clean that up. When theres the perception vote people are being targeted and anecdotal evidence and that information makes it to us, it does mean we need to question you about this and you know the debacle that was during lowest learners testimony. I want to return to where i was with you. In the hearing. The 400,000 limit, how you were going to be able to put that in place. How it may affect people who are actually making less than 400,000 a year. As we discussed, i dont think you could give me an example of someone you knew or any profession you knew that would make 400,000 a year that was working for tips. So if the irs enforcement focus, making 400,000, how do you justify this program and how are you going to handle this so it doesnt have a mandate on employers. I want to reaffirm those individuals making less from 400,000 will see no new wave of auditory increase in the audit rate as we described earlier in this hearing. You will be increasing taxes. This is a question we need to do better outreach with associations, tipped workers, to make sure we are Getting Better alignment. To make the program mandatory. Are you trying to make this mandatory . I have no intention. No intention. Talked about the Historical Rate of audit, and you each said we are not going to raise taxes, no one making 400,000 a year is going to see their taxes raised. That is going to change to know more than historical levels. If you give us in writing how you are couching that, is it five year levels, ten year levels, is it going to 2018 and setting it there, was a high mark or low mark . There needs to be a little more clarity on that and i would also like to hear from you. This is causing great confusion. How do you calculate the 400,000 . Is it based on adjusted growth . Is it based on net . How are you arriving at this number . The reason i ask this, commissioner, is tennessee is a very entrepreneurial state. We have a lot of people in the music industry. A lot of people that do tours that work with these tours, they are selfemployed, independent contractors. They may have a higher growth, their net is very low. It is important to have definition around what do you mean . What is 400,000 adjusted gross net, where are you taking that . We will look at total positive income as our metric. A total positive income on the return is under 400,000. We will note that it is in a segment of population. It is increasing their audit rate . It would be no increased likelihood of a not it if they have 400,000 total. Lets go back to the issue we previously discussed about telemarketing. Teleworking. I know senator thune talked about phones not being answered which is something we hear quite a bit. Youve done a heavy lift to go and i would love to know what percentage of your employees are currently in the Office Working and how many are teleworking . Are you pulling vpn data and auditing that . Thats what you ought to be auditing, to make sure they are conducting business logged in, working or asleep on the job. Let me offer you this. I want to clarify, all employees are working. In my first few weeks at the irs i focused my question as follows. Are we entering the calls . We entered 87 . Are we in our Assistance Centers or walk in the centers, keeping line stored in meeting our appointments . We are. We are making progress on processing the logs . We are. Are we defending Cyber Attacks . We defended billion Cyber Attacks. I understand the question, omb just issued guidance last week so im going to turn to that and figure out how to make sure the irs is aligned with the rest of the government. It is important for the metric to start with before i got into the details of where someone is working . The gentle lady expired and i want to say because we are getting ready to make sure everybody gets a chance to ask question, the program senator blackburn is talking about is voluntary and i want to assure collings as long as im chairman of this committee will not be mandatory, period,. It will not be mandatory. Senator bennett. Thank you very much for being here. We appreciate your service. During her confirmation hearing, i raised concerns how the irs considered taxing colorados state tax refund which we call table refunds. As you may remember, in the middle of Filing Season, when people were filing their taxes, could tax their refund, in 30 years the irs has never done that before. In february they issued guidance they with tax refunds for the 2022 tax year which we appreciate but the guidance for these refunds in the future, the fine print, the irs grew tax payments in two categories, the first was state tax refunds which the irs almost never taxes and the second category was general welfare disaster which they are likely to tax down the road for reasons that i still cant understand. The irs put the paper funds in the second category. It should have been placed in the first category. This is how the irs treated them for 30 years. I think you know, coloradans when the state collects more in taxes than we allow in the state law it is a tax refund, not a form of income and it has been treated that way for three decades. You committed to working with my office in colorado ahead of the next Filing Season. Talk about how you are thinking about this now and give some assurance, i hope, to people in colorado how this is going to be treated. I appreciate the question. I had time to roll up my sleeves and look at the issue and theres multiple states that are impacted, questions about the transition out of the pandemic, theres different treatments for covid, i agree there is confusion and we need to remediate that confusion. One thing i will tell you is we will not allow there to be confusion in Filing Season and i want to make sure you and the state of colorado and other states impacted have a heads up in terms of how we are sorting through this issue so there is great clarity going into the next filing system next year. I need to sort out whos decision, a question that came up, who gets to decide . Is that you . The secretary of the treasury . Congress . Im working with my colleagues at treasury to make sure i understand is this a tax policy call or irs administered of call. Bottom line as we head deeper into spring but before the summer i will come meet with you in your office and let you know where this is headed in terms of what the process is and make sure you and the state have a heads up. I appreciate that. Hate to say this but i dont get to make the call. I hope the people that are looking at this understand the irs made this call same way for 30 years. It is aggravating and irritating that this happened during the middle of tax Filing Season. Appreciate your saying that wont be repeated but that is only part of it. Part of it is upsetting the expectation that has existed for decades and i know there are other states involved. Theres no other state that has this. Upsetting an expectation that has existed for decades. I know that there are other states involved in this. There is no other state that has tabor. I hope that you consider that i had another question for you, but i dont have time. I will submit it for the record about the importance you are going to be required to dodo because i think honestly i think part of the problem we ran into the last time we were going through this was the department wasntu staffed up in the way that it needed to be and people were making decisions maybe without having, without being in ait position to feel like they d the latitude, i dont know, i cant explain it. Can you say word about the importance of having a tax speeded it critical. Their only two Senate Confirmed positions in the irs, my position and the chief councils position. Its really important we have a chief lawyer at the irs because as weve been discussing a lot come so many of these issues everyone of every one of these issues actually has complicated legal elements. We have to recruit lawyers in. We have to work with other Senate Confirmed general councils across government, and not having the Senate Confirmed general counsel is an impediment and im hoping that we can, the administration can put a name before this committee. Senator bennet is right. We need aou nomination. Senator daines is next. Mr. Chairman, thank you. Mr. Werfel id like to begin by addressing by putting First Responders first act signed into law as part of the retirement legislation we consider in this Committee Last congress. This law will make compensation received by disabled First Responders taxexempt, even after retirement, and a portly will end the improper audits of disabled First Responders that from ambiguity around their retirement age. However the version that was signed into law moved the Effective Date of the bill to 2026, which was different from the committee passed version that had this provision taking effect immediately. The unfortunate consequence of this is that erroneous irs audits of disabled firstov responders could continue for the next few years. I asked for your commitment to immediately end the improper audits of disabled First Responders in a question for the record following your confirmation hearing. And, frankly, i was very dissatisfied with the response. Now you have been confirmed, congratulations. Im going to give you another opportunity to answer this which i believe is a very straightforward questionwi is this. When youou commit to ending the improper audits of disabled First Responders . First of all senator, and want to thank you for championing this really important issue. Its absolutely critical and i am committed to helping you with your objective. What i can commit to you is as issuing clarifying guidance that will assist disabled First Responders when they are preparing their tax returns. We are going to conduct outreach with them, walk them through the guidance. We are going to try to mitigate the risk of there being an issue of followup if there is an issue of followup. We will work directly with them to address it. I cant commit to exclude all audits on anyone topic. I just cant go that far but it has my attention. Its a priority for me and we will work with this committee to get it right. I tried to be easy. I said improper audits. Let me give you chance to answer it again. What you commit to ending improper audits of disabled First Responders . I think speeders i will. Its a yes or no and him trying to a give you the lanes here to make it clear. And look, as you know a lot of folks watching these responses. Our First Responders when you hear their stories who have been disabled while on duty, theres a lot of terrible stories about whats happened here in terms of the irs coming after them, and they live in fear not knowing that the most frightening letter to get in the mail, the letter from the irs, says audit and theyre already getting with so issues. I heard you say yes. I did. Thank you for that answer. And you have a lot of families whoisabled First Responders be relieved toi that answer. This committee passed it. This is our intent and thank you for taking maybe some anxiety away from family sort of thinking with a lot of pain. Absolutely. Appreciate it. Commissioner werfel, youve been quick to doubt the success of the irs and the taxpayer experience. However, i think it depends on what metric youre looking at. Prior to getting in Public Service i was working for companies, Procter Gamble being one of them. Another was a Cloud Computing company where we focus on a crm suite 44 large both public entities and private entities that had a bead is the kind of monster taking care of customers. You are touting an 84 Customer Satisfaction rate for tollfree assistance. Simultaneously the irs is seemingly the prioritizing suspendedou tax returns, amended tax returns and correspondence. Theres literally tens of millions of items languishing. Us here when we are working withta Constituents Services deal with our constituents who are saying we feel like we are towed trucks, going to get some returns and a ditch somewhere and them out to help the people that we serve. Should treasury and the irs really be taking a victory lap at this point based on cherry picked metrics like the highly misleading and often criticized level of service for some of this tollfree assistance . I have several thoughts in response. First of all, i think the issue with the backlog of paper returns is we actually making dramatic progress. We were at 20 million backlog. That was caused by covid. We never had a backlog like this before. Og they had to shut down operations right in the spring of 2020 as shutting down, so days and days of paper piling up. We are still catching up. We are making progress. We cutut in half last year to ts year. We are still catching up. We are making progress. We cut it in half last year to this year. Now, during Filing Season, we have to redirect resources to the phones we do not have as much staff that we can manage the paper backlog. The end of Filing Season we anticipate making more progress. I also want to address your question about the victory lap. I think it is absolutely critical for the American People understand that when we are funded at the right level we can be there to answer the call. They dont have to wait for a 25, 30 minutes on the phone wondering if they are ever going to get through. If we dont have that funding, if we cant staff the Customer Service centers with the right amount of people, it is just math. A question of volume. Can we meet the demand . I think that is why we want to celebrate this. Im out of time but just one thought on that. As you look at your metrics, perhaps, sometimes its not as much enjoyment in looking at metrics still very discouraging. You can talk about the improvement of 20 million was the number you are down to 10 million, lets track that number and report on a. Keep it public as you are chipping away trying to get that the time of the gentleman and expired. Senator warren. Thank you, mister chairman. For years lobbyists and tax extremists have worked to get the irs to present it from chasing down wealthy tax cheats and to keep it from being able to help americans who are honestly trying to file their taxes. Thanks to the Inflation Reduction Act the irs now has the resources it needs to make tax filing free and easy. This has been on the irs agenda, they are to do list for decades. Back in 2003 the irs set up the Free File Program, a partnership with Companies Like into air and 8chan our block that was supposed to make filing free for 70 of taxpayers. Today, that Free File Program serves just 2 of americans. That is because the Tax Companies sabotage the program so they could keep raking in money. Deliberately hiding free via web pages from google searches. Confusing eligible taxpayers by marketing other fake free programs to them only to scam them by collecting a fee later on. Let me start here, commissioner werfel. Do you agree that the current free file failure is a Program Failed i agree that it is not reaching as many people as it should. The difference between 2 and 70 . It is massive. I think that is a failure. Tactics economy has sabotage the Free File Program. They have tricked american tax muellers into paying for alternative services that should be free, are marketed as free, but in fact are not free. The result is that today the irs reports that americans wait an average of hours and 250 each year fail their taxes. The Treasury Department estimate that about 12 million low income americans miss out on thousands of dollars of refunds likely to because it is too expensive and too difficult to file through these, supposedly, free options. Commissioner werfel, do you agree that the private tax filing options at the companies are pushing instead of free file is also failing american taxpayers . The whole process needs to be improved, i agree. We need better clarity. When i hear the premise of your question i think about the taxpayer bill of rights. Taking off three of them, three of them were violated in the questions in terms of the implications. We have an obligation to make the tax system easier for taxpayers to navigate. Congress hands us a very complicated i understand that. We need to make it simpler. Yes, i want to work with you in this committee and with taxpayers to make that process easier. If they are eligible for free file and they are not taking advantage of that, or are getting tripped up along the way, what can we do to help . Government accountability office, the National Taxpayer advocate, treasury secretary yellen, many of the colleagues on this committee all agree that it is high time for the irs to develop its own truly free and easy way for hardworking americans to file their taxes and to claim their refunds. Thanks to the Inflation Reduction Act the irs now has the resources to do so, including dedicated funding to develop a roadmap for directy filing options with a direct report to congress due next month. I am looking forward to the report. You dont have to say here what it is going to do i know that we have an opportunity than to talk more about the specifics on what the irs can do to help tax fillers. Broadly speaking, commissioner werfel, can you explain why offering why free and easy ways to file directly with the irs would help american taxpayers . Particularly low income and middle income families . Again, as you said, we are issuing a report by congressional mandate in mid may. That will walk through a lot of the issues. One of the goals that we have at the irs is to increase the options that taxpayers have to engage with us. If they want fully digital, they should have a fully digital. If they want to do it with paper, we are not thrilled with that but we will want to meet taxpayers where they are. To meet with taxpayers working through a third party we now the opportunity to study that and Tell Congress what the implication of that is. As a guiding principle, the more workable options, the better. Because Congress Asked and has legitimate questions about the issues associated with the direct file program we are going to answer them and then i will come back in mid or late may and we will talk to the reports sayd. I look forward to that. I think it is clear that the American Public deserves an irs that ensures that folks at the top pay what they owe. Honest, hardworking americans can file their taxes with how spending excessive mounts of time or money to get that done. I think that is where we are aiming. Thank, you thank you mister commissioner. Thank you mister chairman. Im thinking that as i listen to this we have been working for more walkable options for decades now. It is time to figured out. Okay, next lets see, senator cortez masto. Won the lottery here. How are you . Good to see you. Thank you for joining us, commissioner. Rios appreciate your attention and response to questioning calls, as well. Let me talk to you about something that has not been discussed here but it is important for many of us who are dealing with, unfortunately, disasters in our communities and governor declared disasters. This winter nevada has dealt with a series of severe winter storms which has resulted in major damage resulting in widespread flooding, contributed to more than 10 million in damages to our Public Infrastructure the governor and our federal delegation has asked President Biden to issue a major disaster declaration. I wanted to discuss how issues like this can impact tax filing. I have a bipartisan bill that would allow the iris to delay the tax filing deadline upon the written request of a governor when a disaster has been declared. It is very critical that we have what we are seeing wildfires disasters happening, it has an impact. What im hearing from my constituents unfortunately who are dealing from these disasters on their ability to try to file these taxes. Do you agree with the need to provide taxpayer flexibility in meeting that filing deadline when Something Like a Natural Disaster occurs . I do. We have a long history of extending deadlines and creating flexibility for individuals impacted by Natural Disasters. I think it is an important function for the irs. Not just to have a one size fits all approach elicited every taxpayers and in the same situation. We appreciate the tools. We can take over and rest with the guiding principle tools to help taxpayers and needed something that we are very interested in at the irs. That is what im hearing from you today in my colleagues questions on the jump to a separate subject. Immigrants face unique barriers to finally taxes. As a result, we have seen lower immigrant up grade rate, especially in the tina families. Two questions i have for you is what steps is the irs taking to remove barriers to finally taxes and receiving tax credits . Currently, it is my understanding that the irs does not allow i10 applications to be processed electronically. It requires that i10 applicants file a tax return along with their application. My question to you, would you consider eliminating these barriers for i10 applicants . Two questions, if you would, regarding the i10 application. How do we deal with these barriers to finally taxes and receiving tax credit for some members of our immigrant community who want to file their taxes . It has been a theme of this hearing. Taxpayers who are eligible for benefits and refunds, credits,. We recently announced, publicly, and have been trying to make a lot of press about comp file the statute of limitations on your refunds are expiring. We have a lot of on claimed refunds. People who can file who can claim their refunds are not doing so we want to make sure that we are paying people what they are owed. How do you reach out to those immigrant communities . Those immigrant communities who are paying taxes or want to pay their taxes but there are barriers to those . Maybe a language barrier. We have to do more with our stakeholders, intermediaries we have to work more in communities. Senator, earlier i was talking about one of the reasons im excited about the Inflation Reduction Act plan that we issued. It really does allow us to establish three very clear priorities. The First Priority i listed was customer share this. That is not just about answering the phones. It is not just about improving the call center, all of which are important but its also about outreach. It is about better understanding packs payers. There are a diverse group. They are not on the same situation. Some are struggling because of a disaster some are struggling because they are acclimating to the United States in some way some are struggling because they cant, financially, afford to pay what they are. We want to get them on installment agreements and help in that way. We can do better in all of those outreach efforts. Im looking forward to working with the team at the irs to do that. Thank you. I know my time is up but in response to the conversation earlier with senator johnson, as you provide that feedback, that information that he requested to the chair, can you distinguish between the two . You have auditors and you have investigators . We have criminal investigators that investigate for fraud, criminal fraud. And then you have auditors that are looking at the tax returns of individuals and corporations. Can you when you provide that information, distinguish between the two. Would an individual receive outreach from an auditor if there is a technical question that water has about the tax return . That could be separate from a criminal investigators that may be responding to an investigation theyre doing for criminal fraud, correct . Yes, we try to be clear. We could ramp up our communication efforts on this, when you can expect to be contacted by the irs, it can happen. It typically happens because there are questions we have about what you filed it might be a criminal question it might just be an audit question it does happen. One of the things that im worried about is that we need to make clear, more often than not, if someone is telling you they are from the irs, they are not. It is a scam. It is not easy to navigate. We do need, at times to be as transparent as possible, to reach out to taxpayers. Im really committed to creating a culture in the irs when we are doing outreach it is to help. This is the Customer Service time of my colleague has expired. Senator brown . Thank you, commissioner. Thank you for returning to Public Service. Not these job on the planet, especially when you are subject to political attacks, pretty much, all the time. Im glad that youre up to the task. Earlier you told senator warren about how much Virus Services have improved since last Filing Season. My constituents are still frustrated with the irs, no surprise. Particularly Small Business waiting to achieve the Employee Retention tax credit which their entitled. I appreciate your attention. I know you touched on outreach to senator warner earlier. Last fall iowa center to 9 million households and appeared to be eligible for the easy, or ctc. Something thats under weidman have made such a committee a priority but have not claim them. We know that roughly one in five eitc eligible households dont climate. What are some of your findings from last falls outreach, how you improve our nations households . I think the reality is that we have work to do and in particular because what were seeing too often is individuals are seeking to encourage people to apply for the credits they were not actually eligible, and so we are seeing some challenges in improper payments and fraud in a system that we have to weed through. That does not mean that we want to make sure the people again understand what they are eligible for. And so i think that there is more take up rate that can happen, and were seeing Employee Retention credits and other types of credits still coming in the door, but every time we do an outreach effort, we learn something. And we are on a continuous improving journey. And so the challenges, how do we hit the right people with the right set of guidance, make sure that they understand, help them navigate the complexity, that may be disincentivize, they may think its gonna be too hard, how do we answer those questions effectively and how do we also create important firewall to make sure that the people are not duped by nefarious players that they are trying to take advantage of them. Speaking of that, could you improve tax prepares . Yes. Important to know. When you hear last to ask about the ten 99 k reporting threshold, my concern that this was a burden on ohioans, a burden on thirdparty platforms, a burden on the irs, but with a higher threshold to make this simpler for you to administer so that iris can focus its resources mark patiently and therefore, would you support congressional efforts to increase the threshold . So i will answer the first question. Absolutely, yes. The higher the threshold, it would reduce volume, it would reduce complexity, it would make the irss job a lot easier. In terms of whether we can support that initiative, i always have to defer to treasury on that. On any piece of legislation, i do not have the authority to give the administrations position, it is treasury that does that. I, know and the senator, as you know, we talk to senator hassan to talk about threshold at 10, 000, coming down the red tape for taxpayers, and doing the villages to arrest that you mentioned. Last question, i would like to see the new energy tax credits from the artery work in support of american manufacturing, spurring genuine domestic supply chains, particularly in the Solar Industry were so much capacity needs to be built quickly. My state, northwest ohio, as the largest solar manufacturer in the country, and so tell us about irs plans to administer these manufacturing credits to minimize Administrative Burden and delays to issuing the credits. The critical irate funding will truly benefit these reassuring efforts. We have a lot of work to do, senator, weve issued a variety of different notices. We have requested information. Were taking a ton of input from a variety of different stakeholders about how they want to see irs regulation, and irs guidance issued. I expect that will issue it in the coming months, additional notices of a proposed rulemaking, and we are going to get a lot of comments. And i think i was answering the question earlier i think from senator cornyn about, you know, theres a lot of moving pieces to track in terms of different input and different stakeholders, and the right way to do it is to go out with a advance or a notice, lay out the issues, collect the feedback, and then publicly discuss, as much as possible, the various tradeoffs we need to make and making these work. And i look forward to talking to you, once we have a fuller set a feedback from the various stakeholders, as part of our notice and comment rulemaking, where things are landing and getting your feedback. Thank you commissioner. Senator brown, good points, and in particular appreciate your hemingway on solar manufacturing. Youre going to regret it deeply in this country if we look back at this period and we gave short to solar manufacturing. A lot of panels coming from overseas, get all that, we have got to manufacture more home. Thank you for making the point. Our next question will be senator young. Good to see you commissioner, thank you for being here today. I know youve only been on the job for a short period of time, and there are no doubt a whole number of improvements that you would like to see made that have not yet been fully carried out, and so with that in mind, i want to first focus on some trends that we have seen in this 2023 tax Filing Season. In remarks today, you state that the tax Filing Season has gone well. Among other things, you point to the irss own performance, claiming to have answered more calls from taxpayers seeking our help them in 2022. On this particular point, i would have to refer you back to our own reported numbers. 3. 9 million with a number of lower calls as of april 8th that the irs has answered, in 2023, that is compared to that same time last year. So there are 3. 9 million fewer calls. Jan, this i would like to reflect on a few additional irs provided numbers given to us by tequila that are not routinely reported to the public. All as of april 1st of this year. 10. 5 million are the number of calendar year 2022 and 2023 original tax returns that have not been fully processed because they have been suspended. 3 million is the number of these returns that the irs considers to be over aged, which worked out to nearly 30 . 6. 7 million is the number of calendar year in 22 and 23 amended tax returns which have not been processed. And 4. 7 million is the number of these returns that the irs considers to be over aged. Which works out to be more than 70 . Almost done painting the picture here. 10. 2 5 million is the number of calendar year in 22 and 23 items hall of taxpayer correspondence that had not been worked, and 5. 9 million, the last number here, is the number of these items that the irs considers to be over age, which works to be almost 60 . So, you know, its nice to hear that the average call wait times have decreased for those who call and are actually able to connect to the irs, but call volume to the irs is down significantly year to year. Despite this decrease, the backlog of taxpayer inventory continues. So just to clarify, commissioner werfel, after getting all these numbers on the record, and trying to bring some clarity to the picture, do you believe that the tax Filing Season has gone well for the tens of millions of americans whose original returns remain suspended . Amended returns remain and processed, or correspondents language is an a ban somewhere, none of whom are receiving their refunds or having their questions or issues addressed in the meantime . I would say compared to last, year the tax finally season has been a dramatic improvement. And i think it is important to amplify that, senator, because it was only possible with Additional Resources in our ability to add more staff. We did make progress on the backlog, but not enough progress. This started during covid. We never had a backlog like this before, but when we had to shut down operations, we had trucks full of returns sitting in the parking lots that we could not process. Until we can get back to operations, and i will say, this irs employees came back earlier than any other federal employees, had a work social distance, it was really heroic with the irs was able to do in the spring of 2020 as covid was unfolding. And this raises the key point, which is, how do we build a infrastructure in the irs, so that we can do both . So that we can manage the call volume and reduce the call volume. I dont have my numbers right or your numbers right, we will get to the bottom of that, these numbers are right. But if you say that the call volume went down, thats actually a good thing. That means that i website is working effectively. That means that our apps are working on our smartphones more effectively. If we can build that infrastructure in modernize, it is an example. If we just operate at the same budget or less, then maybe we can answer the calls. If we have investments, then maybe we can build and build a call back option. So the people dont have to wait. What the committee wants, what i want, what i think you and certainly my constituents want, commissioner, is to make sure that we are getting and giving the whole picture here, in terms of what the packs players experiencing and what the irss performances. And you want to be transparent. I voted to confirm in this position because i still believe, that and i did it at the time, yet its not transparent when the bad news of Filing Season, there is a mix of good and bad, its provided by inspector general, while the irs only highlights what it believes to be the most positive facts. And so Going Forward, just in short, we do everything that you can to increase full transparency with respect to the irss performance good in that. I love the idea of a balance scorecard, senator, and absolutely. I think the reason what i want to amplify the positives is because i want to make sure that its understood how important fully funding this based operation is. Thanks commissioner. Senator whitehouse. Commissioner. Yes. I wanna talk about the use and abuse of 501 c 3 and 501 c for entities in the political space. That is an area that the irs has responsibility for overseeing, is that correct . That is correct. And so the Citizens United decision of the Supreme Court positive something that i have no disagreement with, which is that if big political spending is not transparent, it is corrupting. That is why transparency was so important to decision. Political spending that is not transform parents corrupting. That is the law of the land. And we have massive non transparent political spending taking place. Corrupting political spending. Its over two billion dollars, and it could be a lot more depending on the importing glitches. And so here are some of the problems that we see emerging. First of all, to play in the political space with 501 c 3 s and 501 c 3 force, the current stateoftheart is to have a twin 501 c 3 and 501 c 3 four. 501 c 3 four is only supposed to do half. The 501 c 3 is in the vibrancy forest and at the same locations, the same staff, the same boards, the same founders. And yet nobody is looking at piercing the corporate bail and seeing whether the 501 c 3 s are being used to improperly support 501 c 3 for political effort. And so i would like to have you take a look at that question. Second, 501 c fours are only supposed to do less than half for politics, but what we see is associated 501 c 3 force that are providing a orchestrate cascade where the donor gives lets say 1 Million Dollars to front group 501 c Forefront Group number one, which spends half of that on politics, gives the other one to front group number two, which means half of that on politics, now are up to some hundred 50, 000, which gives that other 250 to another elated front group, another hundred 25, and now youre up to and then one more and you are over 900,000 out of the million being spent on politics in a coordinated way to secretly around a single table in a single meaning room. And finally we have instances of what seems to be massive self enrichment in this environment, as people seem to be paying each other off. Again, using these 501 c 3 and 501 c 4 mechanism. My child issues that i have seen big blow back from big special interest when the irs has tried to do its job in this space, they think he sought some of that pretty close to hand. And i think that the irs has trickled out and refused to do its job in this space because they fear that political blow back, and theyve created basically a lawless arena here in which the referee has chickened out and left the field, and i ask you to pull up your socks, do your job, look at these 501 c threes and 501 501 c 4 force. And look at these new behaviors with the numbers being so massive, with the coordination between 501 c 3 s and 501 c 3 for us being so suspect, and with a 50 rule being flouted, to the senate made any sense in the beginning being floated by coordinated groups of the operating in conjunction. Will you do that . So senator, its interesting that he is the referee analogy. I shared with the team when i arrived at the irs that it does feel like the irs is the referee in that we get food whether we get the call right we get the call wrong. Theres nothing wrong with that. But we cannot leave the field. We can take the boost but we have to be on the field, and so my answer to you is, if we are following short of our responsibilities, then we have to take a close look at that and figure out what we are doing and we have to meet our responsibilities. You completely falling short, you vacated the field, theres no effort being put into any of this, because of the harassment that the irs receives when elastic look in these areas. I think i would ask if im, wrong please correct me. Youre not wrong in that its an extremely complicated space, and weve learned ten years ago that how complicated a space that it is. It asked the iris to answer questions that are extremely extremely sensitive in places that onus on the irs, and then environment where were trying to build trust with taxpayers, and improve the overall dynamic that we have with taxpayers, and so my time is up and so we will follow up. But let me also just quickly thank you for your or work on the reciprocal bill and i think that is important to both standing offshore tax evasion and dealing with those assets, and i yield back. Thank you senator tom carper. Thank you senator. Welcome, back it seemed like a month ago were sitting here having confirmation hearing, your parents, your spouse, and your children were all sitting behind you, full of joy and pride, and i hope they still feel that way, and again we are so grateful to all of them for sharing you with us. Sometimes two inches shorter now, senator. You dont look at. I have a great team holding up here. Thats good. Today there are no minimum standards, as you know, for our professional requirements or paid tax preparedness. This is not an issue, when we talked about, and frankly not done enough for three years. But the problem with the tax finally, sometimes or outright fraud, as you know. Well most areas provide Excellent Service to their clients, the irs receives tens of thousands of complaints, tens of thousands of complaints each year about bad actors. For these reasons, the general accountability officers recommended again and again and again that the irs, that Congress Give the irs the authority to establish same standards to regulate especially those who may be acting in bad faith or preparing inaccurate tax returns. Again, this is not a new issue. Its one that i think weve actually discussed before. How is the irs managing the risk associated with paid prepares who knowingly or unknowingly prepare inaccurate returns, and what more should the congress do to further protect taxpayers. Sen you start to see that there are moments where problems occur and there isnt a victim. Its just a mistake, the wrong amount might be paid, a victim might be the government finances but there isnt an individual person that is a victim. But in the cases you raise there are victims. Our people who are being taken advantage of, often vulnerable populations,vi unsuspecting, and it can be heartbreaking and its angering. I want the irs to be doing its part to really close this type of stuff down and to be as aggressive as we can be in dealing withh these nefarious individuals whoho are creating victims in order to financially benefit themselves through the tax system. More tools would be helpful. As ims said earlier i cant comment formally on legislation, thats the domain of the Treasury Department we always welcome tools that can help us do more outreach or crackdown on fraud and on the type of behavior where the result is a victim. And so i know we have teams of people at the irs that are looking at these nefarious preparers, trying to determine how we can get to them earlier. Its a lot of education. During Filing Season we do something called the dirtyri don which is where we outline the tax scams that are out there. We try to promote it, get as much publicity as we can out to americans, that these are the types of things to be on the lookout for. And scammingm preparers is one f the things that is always fun and center in our dirty dozen. Helping get the message out is critical. Thanks for that. I think senator warren may raise before i arrived at the hearing today the issue of nocost filing services. But with the 2023 tax Filing Season coming to a close many of my constituents recently went through the complex and often costly process of filing their tax returns. My wife and i did, too. While the program or script to simple by this process at no cost for low income taxpayers, the program is not working as intended. And and a review of the progi request from gao, general account building, not long ago found the rate is drastically dont come disappointingly low. Some 4 of eligible eligible taxpayers using the program in 2024. In response to the gl recommend the irs offer additional options for free Online Filing service. Fortunately thanks to the Inflation Reduction Act as you know the irs now has the resources to expand access to free, simplified filing options which would improve tax compliance, strength and fairness of the tax system. My question. What are the benefits of expanding nocost filing options for low and middle income taxpayers, and what action is i was taking to make it easier and more accessible now for taxpayers to file their tax returns in future years . The main benefit is options. Different taxpayers have different preferences basedx on their preference, based on a position in terms of how theyre going to engage with the irs. We would love all taxpayers to engage with us anymore digital way but not all taxpayers can. Some of them want to walk into our walkin centers andwi weve been able to open more walkin centers with the Inflation Reduction Act. The benefit is options. Taxpayers need options and the otherv benefit is if we can implement these options in a way that simplifies a very complicated journey that can often be very intimidating, then weve created a true benefit to americans, that they have optionality, and weve made their job easier of complying with the code. Thank you. And Inflation Reduction Act does provide us needed resources to be able to build those channels. Now i i know theres this one question that is out there on direct file, and doesnt mentioned earlier we are mandated by the Inflation Reduction Act to study it. Thinkio when we produce that sty we will be able to discuss potential issues, strategies, what to do from here. All right. Thanks much. Thank you, mr. Chairman. Senator cassidy. Thank you. During your confirmation hearing i asked if the irs would consideryo having a thirdparty vendor to do your i. T. Management. At the time i submitted for the record news reports going back to the 1980s where irs has requested lotss more money and then a a lot of news reports tht say they have not accomplished what they attempted towh do. Its like christmas. Every year i was once more money for id and every year theres reports that it is delayed. You suggested and openness to the concept of then. Has that been acted upon, analyzed, in any way, encouraged . Absolutely. Looking at our i. T. Strategy, i am moving up by learning curve on where we are with our technology what ive learned is there have been successes and a interested in the successes and i can talk you about them. Why amon i so interested in the successes . Because what with the preconditions for the successes . Y will be able to deploy and build a successful efile program . How did that happen . Then there areth nonsuccesses. There are areas where we set out to a call to something, for example, to fully modernize the individual masterfile, and weve only made progress but we havent fully modernize it. How many years overdue . You could look at different time frames, but its years overdue in terms of being fully modernize,e . But there are elements of it that our modern. Because i buy the questions. Has contracted with a third party such as the department of defense does, for some of these services, then part of the consideration pgh yes. One of the things ive also learned is about twothirds of our i. T. Spend is on contractors, onethird of irs employees. That doesnt mean thats the right level. Contractors are separate from going to theab cloud with you raised that during the confirmation hearing and im absolutely pushing the team to look at Cloud Service oriented architectures like clouds as an alternative. Great. Dont mean to cut you off. Limited time. Next, in 2020 the irs propose made final regulations regarding guidance on the definition of medical care. Under section 213 d of the irs code, since with the primary services, what primary servics are and are not qualified medical expenses for the purposes of hsas. The final rules say the direct primary care our quote expenses for medical care under section 213 of the code because these payments are for medical care, Health Reimbursement arrangement provided by an employer generally may reimburse and avoid for arrangement payments. Thats great. Works for businesses but it stopped short of saying the same thing forne individuals. The irs still takes the position that dpc arrangements are insurance or some sort of health plan. We have two separate treatments for a piece of you see when going with that . I totally see where youre going with it and its a good question. On my radar screen. It is now under want to get to the bottom of whether these things are insurance or not. I started to have conversations, i understand theres competition, theres benefits to interpretation that would not have been treated as an church want get back to you on. I appreciate that. Secondly my office has pushed part offi the reason for the backlog is they have the services that fill up your phone calls with Automated Services so you have to go to them to get through. You had a Pilot Program as how to address that. How is a pilot Program Going . It worked. Part of it is that were able to get the reporting time down to four minutes or the waiting time down to four minutes. Is a by taking out the automated call . Its part of the reason. So iss a pilot going to be expanded to the entirety of this . Because i was told it was a pilot. Is it now become i dont know i can say were going to, were going to continue to leverage that type of solution to make sure were preventing that practice because fair practice . It seemna like speed we had success which is a bottom want and jones want to replicate the success so were interested and in figure out whyhy it went right d how to skillet. Sounds great. One of the private sectors obviously filing returnste for people, but you perceive a conflict of interest where irs which is going to tax people is also helping them to fill out the forms. The interpretation which an independent filer may take on the behalf might be taken in a different way . Its an important question. I think itsan a policy question actually. What i want to do is answer the questions like what are the operational implications of a direct file program. The idea that the irs would be more involved in tax preparation through a direct filing, i think of the countries do it, its a debate. I dont want i to weigh in on te debate. I want you and the Treasury Department and the president to decide, and then we will figure out how to administrate. Thank you for great answers. I yield. I thank my call it. T. I think he missed some of the earlier discussion because i come senator crapo, senator warren, a number of solution as question to the prefile. The history of this is pretty interesting. Down at the end of the dice on your side dan coats was with me on a bipartisan prefile proposal years ago and, of course, all of the powerful interest came out and said western civilization was going to end, and we tried to simply say it would be voluntary. In other words, all parties agree if we go forward with such a thing for the people in louisiana and oregon and everywhere else it will be an option. It will not be required in any way, shape, or form. So we look forward toif having that discussion. I thank you. Senator menendez. Congratulations commissioner on your confirmation. Over the last year i laid eight letters to the irs about a range of Customer Service issues impacting taxpayers. Just as it irs expects taxpayers to follow upp on time, taxpayers and Tax Professionals should be able to count on the irs to answer the phone, respond to questions and process refunds n a timely manner. And thanks to the resources provided by the Inflation Reduction Act the irs has hired 5000 new Customer Service me taxpayerelp needs. Its not consistentlyre answerig the phones as understanding between 8090 of the time. At an average speed of four minutes compared to last year when the average level of phone service was 17 with the speed answer rate of 27 minutes, so thats good. But theresof still more work to be done. Currently takes approximately 20 weeks to amend paper and electronic returns. Commissioner, can we expect a a more accessible timeline for the irs to process amended return . You should expect it and we should be held accountable for it. I mentioned earlier we have the ability postFiling Season to redirect some of our staff to the paperback log versus being on the phones because the call volume should go down. That will enable us to process more. We are scanning more paper forms. The moreo we scan the easier it is to get them process. It makes a process more fluid. And then there are longerterm solutions whether it is hiring more people to a process these paper and amended returns for Building Technology solutions to more automated. Right now in most cases we cant accept an amended return electronically. This is why the Inflation Reduction Act is not just about managing the daytoday. Wasnt supposed to be about that. Its supposed to be about modernizing and im hoping we can observe those funds with all of that what can we get this down to end to what timeframe do you think a that as in an example i mention the Employee Retention credit i mention do senator warnerio whee were trying, we are at about resolving 20,000 a week right now post Filing Season. Im asking the team to double that output and a focus on the oldest first obviously to make sure those up and waiting the longest. I appreciate the question. It is part of the challenges we have in terms of this paper backlog but were making progress. Directing the small mistake shouldnt lead to apr fivemonth delay in receiving a refund. Im proud of the progress that we need to do better. Let me ask you with reference to a joint report from Stanford University the department of the treasury, down black taxpayers are atee least three times as likely to be audited by the Internal Revenue service. The irs doesnt collect data on raceta or ethnicity in the repot suggested the disparity is attributed to discrimination in the irss computer algorithms that select returns for audit. The report also found the irs disproportional audits people who claim the earned income tax credit. Commissioner, the last time you were before this committee you committed to providing a report on this issue within 60 days of your confirmation. That would be may 9 so were not there yetet i understand that bt with that commitment nearly two weeks away what have you learned about the issue and how is irs playing to address this inequity . Saw want to start with the important premise that it is essential our tax system is fair. Fairness is what anchors our mission statement. When i got the director from this committee to issue a report in 60 days, i engaged with my team on day one to make sure its a priority to fully understand what is going on with the support from stanford and how do we get to the bottom of it and figure out what we need to do going ahead. I dont want to get hit of the final report because itsth not done yet. I will share we are asking the right set of questions we are asking questions like one of major tenet of irs current corrective action plan to address the improper payments to existing eitc case selection process, im fairly raise audit rates for black taxpayers in relation to nonblack taxpayers. Theres about six or seven key questions where answering. Are you still committed to writing a report to the committee by may 9 . Absolutely. While were on the topic of tax equity and tax administration, the irs contractedid with id meet for te Verification Services the stack season despite a, track recordf inequitable outcomes for minority taxpayers. When can we expect the irs to use logan. Gov for Verification Service . And we are very interested in authenticatingal providers and login. Gov is one where interested in. Its my understanding that are working through at gsa some Security Issues they want to make sure they i have wrapped u. Once those Security Issues are wrapped up we will move forward with login. Gov as speed is i like you to give us a report when you see your on your way to get. Absolutely. Thank you. Thank you. Thank you, senator menendez and for coming down strummed on this matter of the racial disparity. It was so striking stre original conversation. If they got that kind of information when they were not looking for it, it just struck us andwa we better get on it because if youre going to look for it, it could be significantly more serious. You. Ank look for to working with you. Senator tillis. Thank you, mr. Chair. Commissioner werfel, pressure in the office. Nt i was one of four other members of this meet the voted for your confirmation along with two others off theis committee as i think you bring private sector experience, deep knowledge of the irs. If i were confronted comee if i were back at my job at Price Waterhouse consulting with Enterprise Transformation and i was assigned a client that was struggling to meet Current Service level agreements, to get Customer Service right, try to get the technical people you need to fulfill the primary mission, of the organization, the first thing that i would tell myrv client is dont think about a big new system that expands your responsibilities before we fix the current plumbing which i believe you are well qualified to do. Why shouldnt i look at all the calls for prefiling as one of those at risk project for Enterprise Transformation when 70 of the taxpayers already eligible for free file . If my data is correct anybody making less than 73,000 a year with a Publicprivate Partnership that the irsli has today with tax filing entities come so even if you felt like you need to get 100 , why wouldnt you figure out how to of thath relationship versus build your own and can beat with the private sector that is already fulfilling the need . Senator, is an excellent question, and as you were talking i was thinking you have to do to keep the lights on. We have to be there to answer the calls. We also have to concurrently build incremental improvements i did it, and you can add to that question inve a way thats going to satisfy me some going to stipulate to go and give it a good answer because i want to move on. D so you are confirmed. Can you tellll me whether or not you believe thatth the irs has e authority with that new authorizing legislation and appropriations to develop and deliver a system for the service to prepare returns for taxpayers or allowth them to directly file directly with the servicece usig the government run software . I speeded i know theyre sticking out there to study at. I got this question earlier and i think i committed to come back because the remit under the Inflation Reduction Act is for us to assess the feasibility. Most often we are doing that because speech i suspect you dont have that by cutting people off i want to stick to my time. I i suspect you dont have the appropriate authorizations and funding,g, and so now we are gog to take our attention away from your core mission which is to transform the irs and say were also want you to focus on this of the big project which really doesnt have a lot to do with a lot of the cases you needed working on now. Last question related to this, recognizing the wellee documentd leaks of taxpayer information and outdated computer technology, whats your assessment of the Services Technical capabilities to develop a complicated program that would actually do that . Or do you do that as an Implementation Risk for all the other big rocks you need to turn over now that youve been confirmed . I think i mentioned during my confirmation hearing, in many ways its got to begin and end with a data security. Its fundamental. People have to know and trust that speedy we have some credibility issues to deal with. There are mixed results. Like i look at it and and id tell us about our technology. We need to successfully defend a billion Cyber Attacks a year and we need to continue on that path because one success so lets harden the base that we are already the data stewards of, prove we can do that on a sustained basis, and then decide whether or not we want to dramatically increase that base. That would be subject to the same vulnerabilities. I know that your training and experience in the private sector puts you in a position to say you are asking me to move things ahead of the implementation timeline that are standing and the Critical Path of the things i need to get done quickly. I think Congress Need to hear that come to understand we dont do all prima when this technology, cybersecurity come everything else. Cybersecurity, everything else. If we dont focus on the primary goals, so the taxpayers can be more satisfied, so that your satisfaction rates can go up, we will look at this. Last thing, and i will submit a question for the record, but also on the tax gap, it is going to say that its all about finding a handful of billionaires and trillionaires, if there will, one it will be one soon, and the right is going to say, oh all youre doing is hurting Small Businesses with the tax gap, but we dont have the information to even know that. Contracted to the tax gap so we have where we need to go after it. I cant get an answer to that question. Why is it thatt i cant get an answer when somebody says that weve got a trillion dollar tax gap that i cant have at least as a 30,000 foot level, what bucket they fit into . Because i think were talking past the fundamental issue. If somebody owes taxes we could have a separate discussion whether or not that tax should exist. To the extent its in the tax code, the taxpayers need to pay it and we can work on repealing it, but i really need more information at a more granular level than at a trillion dollars so i can start applying a rationality test out of the Committee Hearings and mouths of my colleagues because i dont think they have the data upon which they can base assertions. Im going to try to set up a meeting and would you commit to me in your office to go through your Enterprise Transformation plan. I look forward to it, thank you, mr. Chair. I thank my colleague and just to give him a 30 seconds worth ofse history before you were on the committee, the reason that this tax gap issue was so relevant over the last year is because it wasnt some member of this committee, a democrat or a republican, it was Donald Trumps commissioner who held the post that mr. Werfel did, mr. Reddick, a long time auditor, he made the statement, a, up to a trillion dollars and it was his opinion it was overwhelmingly due to those who are extremely wealthy because of the argument and i certainly have made it, that for somebody who is a trucker, for example, in oregon or north carolina, the government actually has the information in the vast majority of cases. Mr. Chair, which is why i find it extraordinary that i cant get an answer to my question. If people have made that assumption, then hopefully, someone who made that statement actually had accurate data upon which to base that statement. Way dont have it. So, whether its the trump administration, the biden administration, obama, bush, clinton, that doesnt matter to me. What matters to me, i havent seen anybody share that with me so all weve got is a trillion dollar number and a great political whipping boy, but im not here to do that, im here to solve the problem even if its applying a tax code that i disagree r with, if you owe it, pay it, but lets get more strategic about the way we go about dealing with the if we want to solve the problem, and keep it at the high level and use it as a talking point in committee thats great, but if we want to solve the problem we have to have data to drive our priorities, thank you, mr. Pchair. I would only say my colleague is absolutely right in saying that its smart to gete more detail, and as you and i talked about, an example of a detail is our Credit Suisse investigation where Credit Suisse got busted a decade ago and our investigators found theyre doing exactly the same thing so we have hard information on it so as you seek to get more detail on it, put me down and happy to work with you. Okay. Senator barrasso. Thank you, mr. Chair and mr. Werfel, thank you for being here. When we visited in my office and you were here for the nominating, and i tax and spending bill 80 billion in additional funding for the irs and specifically talked about the enamount versus for Taxpayer Services, 45 billion for enforcement and only 3 billion for Taxpayer Services, so the ratio of 15 of enforcement for every 1 of services, you know, and the irs Strategic Operating plan for the spending of all of this money, the first objective that you list is to dramatically improve a services to help taxpayers meet their obligations and receive the tax incentives for which theyre eligible yet the money ratio is 151 enforcement over providing for services. And this doesnt even include additional 29 billion request for supplemental funding that youve come up with. So, why would the irs in its discretionary budget request, despite 45 billion in funding for enforcement request again 5. 9 billion than its requesting for Taxpayer Services, 3. 4 billion . , so im really appreciative of the question because i think its really important to break down our budget in a way that makes sense and can be understood. So, our base budget pays for our daytoday operations, the volume of thingshi that come in both from a services and an enforcement standpoint, and as i explain in my testimony, if you look at our base budget over the last 10 or 15 years, it had been on a steep decline while the u. S. Tax law and filers have been much more complicated. When covid hit, everything kind of broke and at that point, it was basically we couldnt do and continue to manage the way we would want and services plummeted and frankly, audit rates plummeted. And so what we need to do now, is not think about the Inflation Reduction Act as lets use that to patch the holes in our base budget because what the Inflation Reduction Act does, it expends for increased capacity, so that we can improve operations, the difference between answering thee calls, to call back options more digital channel and more bots in the phone line so people can get through things quicker to an automated way. To yourr question, there is room for us to increase our capacity in enforcement, the stats on this are pretty eye opening. We only have today, 2600 staff that are responsible for assessing compliance with our highest wealth taxpayers and theres more than 390,000 high wealth taxpayers. To give awe ratio, one irs person for every 150 high wealth taxpayers and these are big and complicated and they can be thousands of pages, tens of thousands of pages long. So, look, if we started to move money out of enforcement into services, we would lose the ability to develop the capacity in that area and that ratio would suffer. So the reality is, we need to do both. Its our job and our role to make sure that the tax system is operating effectively. Answering the calls, improving the calls, but also making sh your that people pay what they owe. As we discuss, what i hear about in wyoming, people call the irs and trying to get information and trying to get somebody toin answer the phone. All of those issues, sticking to Taxpayer Service, when you look at the justification that you printed for the fiscal year budget, it says, quote, unless the irs, realizes discretionar funding, Service Quality is going to continue to suffer. I still dont know why the irs is in its plea for more money in the budget request, threatening to cut back Taxpayer Services instead of wanting more and more for enforcement. Thats where i am on that. The other issue is this longawaited Strategic Plan for the socalled Inflation Reduction Act. Its well m documented, very late, despite the extra time to pull together this highly anticipated plan. Its lacking in measurable targets, basically to summarize the indicators say that we will do better. So, wall street journal reported that your deputy treasury secretary, wally referred to the plan and he says, we dont want to be locked into numbers on a piece of paper. I would just tell you, mr. Werfel, every taxpayer in this country believes that they are locked into numbers on a piece of paper or they can go to jail. Thats the difference, but if your assistant deputy secretary doesnt think you want to be locked into numbers on a piece of paper, i have taxpayers in wyoming who have similar concerns. Thank you, mr. Chairman. Thank you, mr. Casey. Thanks very much. Commissioner good to be with you. Ier wantedd to start with a program that is little known and probably underappreciated, but its enjoying, i think, Great Success, and its not a program that many people have heard about, socalled vita, volunteer income tax assistance program. I was just up in not far from where i live in northeastern pennsylvania up in strausberg, pennsylvania, the poconos mountains and i met with a group of volunteers who work as part of vita and we know that last year, vita helped nearly two million americans do their taxes and claims for free. Vitas tax returns are very, veryt accurate and its volunteers have a 96 accuracy rate in preparing returns, while paid preparers have only a 40 accuracy rate according to a gao study in 2014. So, 90 , 96 accuracy rate versus 40 for paid preparers, and also, its a great you get a great bang for our taxpayer buck. The irs spends about only 21 per return for payer through vita and 10 times that much about 220 for return through a tax preparer. So, its clear that vita is a great deal for taxpayers and were getting good results from it, to save taxpayers time and money and penalty fees and saves the irs time in correcting incorrect returnsment however, the irs is not specific about the plans for the vita program and the Strategic Plan. What does the irs plan to use the infusion of funds from the Inflation Reduction Act to improve the volunteer Taxpayer Services in vita . Thank you for the question, senator. And i was very i agree with you. Its a critically important and Successful Program and i was pleased to see that the number of vita prepared returns increased. It was 1. 8 million last tax season and over two million this year. So, its nice to see the program expanding. Part of what we are doing in irs is working more towards engaging these types of programs and stakeholders to meet taxpayers where they are. Better understanding how we can lend that helping hand to taxpayers. How they need it. Do they need more digital channels, more help from trusted partners like vita . It absolutely has to be an area of investment and i can provide you with more details in terms of how we might scale and continue to invest in that program, but it absolutely is im a personal champion of that program and well continue to work with them. I appreciate that and i want to salute you and your team on the Great Success youve had in providing better Taxpayer Services here. The numbers are a very compellig and irrefutable about Better Service in the investment that we made. Another area i wanted to ask you about was the bonus tax credits in the Inflation Reduction Act. That reward companies that are eitherbu building new Energy Projects in coal communities, thats a provision that i worked on and pushed forward, or companies who use american manufactured products. So, we dont want to just improve supply chains generally, we dont want to simply create the Clean Energy Future which we have to create, but we want to make sure that we can have the elements of those energy products, the content of them made in america. And we know that last year, we gained almost 800,000 manufacturing jobs or i should say over the two years and we want to build on that. So we need strong domestic content rules to reward companies for building their Energy Components in america, not good enough to have a Clean Energy Future if its all going to be built by some other country. Y. For example, like china. However, the irs and treasure have not released guidance how companies with claim the bonus credits for domestic content. So id ask you, can you commit to working with me to release a strong and clear domestic contentit set of rules very soo . Yes, absolutely. And its on you know, we have i talked to the team, they are working on that very guidance document along with others that are coming up in the next few months related to the Energy Provisions in the Inflation Reduction Act. So the answer is yes, senator. Commissioner, thanks so much. Ill send a question or two for the record, but thank you. Commissioner, were waiting for a moment for senator cantwell. I do want to take up just for a minute as we wait this last point with respect to these communities that hes speaking of. In designing the Clean Energy Tax credits and this was something i was involved in for a full decade, since joe manchin asked me to come to west virginia, we said we were going to come up with a tax code that was Technology Neutral so as to be market oriented and be a system that would reward those out there who would reduce carbon emissions. We had a number of senators in this committee and elsewhere saying, i want to be part of the future. I want to be part of something better. To make sure that we havee tangible, concrete tools out there for communities that are serious about being part of the future and want to know how you can actually get it done. Senator casey, with the effort and we i believe, sometimes we call this the incentive program. Sometimes we call it the bonus, you know, tax credit provision, we said very bluntly that these communities had to have an opportunity to be part of the future. Senator casey and senator brown and others envisioned so i want you to know, senator casey, were going to be with you every step of the way until all of this is fully implemented. As we know weve made progress on the other side of the coin, the energy communities, but you just keep raising it. Im going to be pushing for you every step of the way. Okay. Senator cantwell has joined us and please go ahead. U thank you, mr. Chairman. Appreciate it. Appreciate it. This important hearing particularly at this time. Last week irs announced nearly 1. 5 million americans have unclaimed tax refunds from 2019. In Washington State the pandemic and other disruptions prevented as many as 42,000 people from filing their 2019 tax return leaving 44 million in unclaimed refunds. When you were here last february sorry. The irs, you said that the irs should be able to communicate in a much more timely and aggressive fashion for taxpayers and i agreed with that. In april 12th, the unclaimed refunds you stated frequency, students, parttime workers and others with little time to really realize this. So, what i know that to ensure these individuals have the money they owe, that need to be ahead of july 17th deadline. What is the irs doing to create Greater Public awareness for the unclaimed refunds and do you have plans to reach out to individuals to assure that they file before the july deadline . Yeah, i was pleased with the type of publicity that was created when we announced the july deadline. A lot of Media Outlets covered it and basically said, look, the irs is informing you, you are eligible for a refund and you should come because we are wanting people that are eligible, whether for a credit or a refund to claim it. Now, how do we continue to build on that outreach and theres got to be more than we can do other than issuing a press release, we can use social media, engage with intermediaries, and Association Groups and this is part of, you know, the vision that we have from improved Customer Service its not just hey, were here, were going to answer your call. Thats part of it and its critical. Its outreachth for taxpayers where they are. Its twoway, here when you need us, whether its an Assistance Center or twalkin or the call and we want to meet you where we are to help, to help Small Businesses meet their obligations. Sorry, sorry, sir. Thats okay. How many taxpayers do you estimate are missing or arent receiving earned income tax credit failed to file in 2019 overall, besides our state . I dont think we have exact number, but i think we believe its over a Million People that could be claiming refunds that arent. But ill try to get you more precise numbers. Given the numbers in our state, i would think that that would easily make a million. Well, again, i think we communicated also about this notion that, you know, when it comes to owing money to the irs, we have a lot of direct communication with people. So, im for creating a more virtual experience for taxpayers, particularly by segmenttation, when people these are the problems, these are the issues, right . I know you have like frequently asked questions andfo things of that nature, but i just, i think the response from the irs and direct communication with people on these issues would go a long way. I appreciate that. All right, thank you, mr. Chairman. I thank my colleague. Were going to liberate you momentarily, commissioner. I just want to give you my sense of where we are. The reason the tax gap is so important, and i started talking about it, come up, you know, repeatedly, is my take looking at all the data we have and what chuck reddick and others have said is closing the gap cannot really be addressed unless you also beef up enforcement against those very wealthy individuals who arent paying taxes. Second, i think you made the casebe with respect to improvin Customer Service and i think youve done it in an appropriate ltway. You havent stood and shouted were done, were done. Were making progress, high time we did, in terms of the calls and shorter waiting times and reducing the backlog and i like the fact that weve made it clear weve got a lot of heavy lifting to do. Nobody is having a victory parade today. Your comments with respect to auditing of taxpayers, again, with incomes below 400,000, were going to clearly make progress compared to what we saw a few years ago and i think that that is an important objective as well. With the release of the Strategic Operating plan, weve got an opportunity to really do this right in terms of making sure we protect people who shouldnt be subjected to audits and at the same time, going after the high income individuals and corporations and partnerships. One last point that i think ive kind of touched on, is when i look at this question of the highfliers and people mo have repeatedly skirted the law, i am especially focused on the irs going after repeat tax evaders. And people asked me when they heard about Credit Suisse. Ron, youre kidding me, i read thee got busted just a few years ago and the ceo came in and raised their hand, said never going to happen again. Youat cant explain to taxpayer how youre not doing anything in about it if it happens again andd, basically we gave them a discount on th personalities the first time because they made the claims that well be honest. How you deal with these repeat tax evaders is particularly important to me. I want to close with three quick points. Tomorrow the financede members will havet a briefing by the commissioner, commissioner werfel on the Strategic Operating plan and we thank you, giving an opportunity for members to ask additional questions. I and senator menendez asked questions about the racially biased audits and very, very troubling and you know, from the very first day, i asked whether theyd be on time and for a repeat response you said you bet it will be on time which is going to be something that members Pay Attention to because youre falling through. With respect to that, well follow through and say for the information members questions for the record are going to be due by 5 p. M. Next wednesday. Thats april 26th. Mr. Chairman, before you gavel close. Yeah. I just wanted one procedural point which i mentioned to both you and senator crapo that after the plan was issued, weve got questions from congress both authorizers and appropriators, with questions about numbers and weve been providing information. As a result of providing that information, theres now available to you 10year spend numbers over the life of the ira, more detailed fte numbers over a threeyear window, but i realize as weav provide that information, its not simple for you to know where it is, so we put together a compendium of that. Id like to introduce that for the record sore that you have a one stop shop for it and the public can see it as well. Without objection, the welcome news that there will be a onestop shop is introduced in the record. At this point we look forward tomorrow, as well, and again, i want to thank you for saying youre going to be handson and follow through, thats what the jobs all about and youre saying thats your focus. With that, were adjourned. Thank inyou. [inaudible conversations] [inaudible conversations] [inaudible conversations] order your copy of the 118th congressional directory now available at cspan shop. Org with bio and Contact Information for all senators, representatives, state governors and scan to the right or go to cspanshop. Org and er