Used to modernize the agency. The hearing is two hours and 20 minutes. Chair Wyden Finance Committee will come to order. Today the Committee Meets to discuss tax Filing Season, which closed yesterday. I think thank commissioner werfel for being here at a busy time for everybody in the agency. There are lots of issues to discuss, and one that certainly is important to the American People is direct file. Anyone who denies that the direct file was a huge success, my guess is just living in another universe. It is open to a fairly small percentage of taxpayers, but the reviews it got from its initial users were overwhelmingly positive. It seems like a whole lot of people were very stunned that a federal agency, particularly one as frequently vilified as the irs, was able to build a helpful website that works. Tens of thousands of taxpayers who use direct file this year collectively save millions on fees that they wouldve paid to one of the tax software giants. Website is userfriendly. It is quick and easy to use and didnt hassle users for up charges for Addon Services they didnt need. Direct file showed that the irs could build a good tool that people like because it saves americans time and money. No surprise, then from that people who oppose it are absolutely furious and once again are doing everything they can to stop it from growing. The detractors and said it didnt attract enough users. Tens of thousands of new users came in over the last week. The irs hit its goal of 100,000 taxpayers using the system. There is no doubt in my mind that this will be more popular every year. Others have said that the cost estimates were too date, but the fact is there is always challenges with Pilot Programs. Now that the irs has tested this system, the costs are going to be clear Going Forward. Finally, there are some who said the whole project was unnecessary. They said taxpayers got the option of using the free file system of the big tax Prep Companies. They may have had a valid argument years ago, because before the tax prep giants got caught hiding free file options from eligible taxpayers, they were conning people into forking over hundreds of dollars they didnt need to spend. Congress simply cannot go around trusting the big taxPrep Companies to do the right thing. For some, their version of free file is the freedom to get americans to pay them more. The services the federal government are to be providing to americans whenever it can i understand the irs and Treasury Department are evaluating how the Pilot Program went over the last few months. Personally i believe that this program should be expanded. Im looking forward to the day when oregonians come up to me in one of our 51 fred Meyer Grocery stores i have been to every single one of them, having had a chicken in each 1 to tell me how thrilled they were to save time and money with direct file. On the topic of vastly improved federal programs, i will turn to the irss continued success in improving Customer Service during the filing system. The irs entered a million more calls with live assistants than last years filing system, getting call waiting times down to three minutes, saving taxpayers 1. 4 million hours of time than in previous years. They wouldve spent basically listening to all the music and being on hold. It has smashed its goals for in person service. Despite the success, apparently there have been complaints from the other side of the aisle that the administration is asking for money to sustain this progress. Im not sure what is behind that. Maybe they want to go back to the bad old days when taxpayers sat on hold for hours and couldnt get timely refunds. Doesnt make any sense to me. For the second filing system and Filing Season in a row the irs has prepared can provide a topnotch level of Taxpayers Service when Congress Gives it the resources. Just a few words to close on enforcement. The irs has announced major enforcement efforts in the last few months. This includes cracking down on 125 thousand cases where wealthy individuals, many of them bringing in more than a Million Dollars a year, never even filed a tax return. Let me repeat this, this is not people figuring out how to name the system full game the system. They are sufficiently contemptuous of the rules that they never even filed a tax return. There is an effort to root out the abuse of tax base for corporate jets, highflying executive to take tax writeoffs for personal travel, for example. In my view the irs ought to look at similar abuses with corporateowned yachts. The abuses he to me to be even more blatant. Yachts produce big writeups, but i find it hard to believe that anybodys yachting to a board meeting. If Congress Continues to cut the irs funding or the patient or the Inflation Reduction Act expires, wealthy tax cheats will have an easier time getting away happen. Wealthy tax cheats will have an easier time getting away with breaking the law. And that means misery for typical americans who are just trying to do their civic duty when tax Filing Season comes around every spring. That is an outcome that the vast majority of the American People oppose. Lost to discuss lots to discuss this morning, colleagues. I want to thank commissioner werfel for joining us. Senator crapo. Sen. Crapo thank you, mr. Chairman, and will come again, welcome again commissioner , werfel. I agree and appreciate the work you are doing on the progress that you have made. There are going to be issues that i raise today, however. The irs needs to be accountable for the choices it makes, become more efficient, rigorously plan, provide full transparency and real feedback for informed stakeholders Like Congress before acting. Despite claims that the 80 billion in new funding would transform the irs into a 21stcentury agency, the president s budget request indicates otherwise. While modest progress has been made, there are other areas where the agency continues to miss the mark. For example, last year i raised concerns with the irs Strategic Operating plan including its vagueness and missing lineitem cost projections. A year later we are still missing important details. Yet this years budget asks for even more unprecedented irs funding, more than 104 billion. This underscores that the initial windfall was not a cure. The irs has not transformed. And the president believes the only way that vision can be achieved is to spend more. While i support a transformed irs, this approach is not the solution. 480 billion dollars, one would expect the transformationa desk for for 80 billion, one would expect the transformational Customer Service changes. Fully modern frontend and backend i. T. Instead, it seems that taxpayers have paid for mail to be opened and a decline in phone wait times. Meanwhile, several million items of taxpayer correspondence remain unanswered and have a million id theft cases remain unresolved on average years later. I. T. Modernization funding is scheduled to run out, years before the irs finishes updating its systems. I assume that this is due in part to the bulk of the ira funding being directed to enforcement. I dont disagree with the enforcement needs that my colleague the chairman has identified. An emblematic example of the just spend more, no questions asked, approach is the direct file program. Despite their already being multiple freefiling programs i say that again, multiple freefiling programs offered by the irs, the agency embarked on a redundant governmentrun tax preparation project complete with attendant inefficiencies and conflict of interest. Just last week, the Government Accountability office reported a highlight of many ways the supposed Pilot Program has not followed best practices. Including key planning, budgeting, and accountability failure the report noted that while gao could not determine how much the program has and will cost to operate, the irs, having not provided sufficient information to do this, the current cap far exceeds 100 millioncurrent tab far exceeds 100 million just through fiscal year 2024. For an option that might only serve 100,000 taxpayers this year. In contrast, the federal government spends less than 5 million a year to have 2 million to 3 million taxpayers served in one of its free incometaxpreparation programs. Were the irs to use this years direct file spending to pay thirdparty providers to prepare and file returns instead, literally hundreds of times the number of taxpayers could file for free. The irs spending hundreds of millions of its finite funding to simply test the utility of doing something that can already be done more efficiently with Better Outcomes and without the very real conflicts while simultaneously pleading for more funding calls for more oversight. Direct file is not my only concern with the irss current path. Other serious concerns include the continued irs use of biased data and post fecteau metrics to post facto to plan and justify its actions. Indiscriminate campaigns the pressure on his taxpayers and waste government resources. And the irss continued and highly disproportionate focus on increasing enforcement over improving Taxpayer Services. Commissioner werfel, while i appreciate the positive steps the irs has taken during your tenure, so much remains undone at the irs that any victory lap is unwarranted. I look forward to your testimony, commissioner werfel, and i thank you, mr. Chairman. Chair wyden all right. Our witness today is commissioner daniel i werfel, 50th commissioner of the irs, previously the managing director and partner of the boston consulting group. Before joining them, he was nominated to be the comptroller of the office of management and budget, a post he served in for four years before becoming acting commissioner of the irs in 2013. He began his career at the office of management and budget in 1997 as a policy analyst in the office of information and Regulatory Affairs. Commissioner, welcome. Please go ahead. Mr. Werfel chairman wyden, ranking number crapo, members of the committee, thank you for the opportunity to testify in the Filing Season and the irs budget. Im pleased to report the 2024 taxis and open on schedule january 29, and we have seen an historic Filing Season unfold since then. Thru april 6 the irs received more than 101. 8 billion individual income tax returns and issued nearly 66. 8 million refunds from more than 201. 1 billion. The Inflation Reduction Act funding has enabled the irs to have one of its best Filing Seasons ever in terms of Customer Service. Taxpayers are seeing a difference. We have entered over one million more taxpayer calls than we did a year ago, and 3 million more calls than we did in 2022. Wait times and level of service on our main phone lines have improved. We have dramatically expanded service in our walkin sites, increasing hours and serving more taxpayers, and a new and expanded tools on irs. Gov are seeing heavy use. We had several ambitious transformation goals at the start of Filing Season, and irs employees worked hard to deliver. Here are some examples through early april. We committed to an 85 service on the main taxpayer helpline during the filing susan. Filing season. As of early april we exceeded the goal at 88 . That is huge improvement from 2022 2022 when only 15 of callers could connect and receive support from a live assistant. We committed to an average call wait time of five minutes or less on the agencys main taxpayer helpline. We exceeded that goal, within the mainline funds being answered in three minutes. These are some of the examples of how we are seeing historic improvements in a Taxpayers Service, and the agency is rebounding from some very tough and lean years during the past decade. At the same time the Inflation Reduction Act funding has enabled us to begin making critical inroads in addressing tax evasion amongst the most complex and largest filers. This is a sharp turnaround on the past decade when we were hindered by a lack of resources. Our compliance work includes focusing on tax delinquency and nonfiling among high income individuals, areas we are particularly concerned about. We are also responsibly leveraging Artificial Intelligence and hiring subjectmatter experts to find a tax evasion amongst the largest and most complex partnerships in corporations. I want to be clear, despite improvements this tax season, the irs has instilled much more work to do on many fronts. This includes closing remaining caps on phone service, askremaining gaps on phone service, further strengthening Data Security, supporting vulnerable populations by protecting them from scams and increasing access to the earned income tax credit and other refundable credits. Our ongoing success hinges on sustained investments to make sure that we have the right sized workforce with the right training and tools as well as modern Technology Infrastructure with increasingly modern web enabled tools for taxpayers. These are needed to ensure the irs continues our transformation work to serve the nation today and in the future. Helping us in these efforts is the administrations fiscal year 2025 Budget Proposal. It gives us flexibility and increases irs transfer authority so all available resources can be used efficiently and effectively. It will also help sustain a new irs baseline of resources and avoid immediate funding clips that would dramatically degrade our ability in many different areas, including the Service Improvements that taxpayers saw this Filing Season. The 2025 funding is necessary for us to build on our successes this Filing Season and continue our work to, for example, make further phone Service Improvements and provide Digital Tools to help taxpayers. For the irs to be able to do all of these things, adequate annual discretionary funding and complementary longterm mandatory funding are essential. Finally, i want to publicly thank taxpayers for taking the time to file and pay their taxes this Filing Season. This is a critical component that citizens do to support our great nation. Please note that all of us at the irs deeply appreciate and respect the time and care taxpayers take it to do this a vital civic duty, and irs employees remain committed to helping taxpayers in any way that we can get chairman wyden, Ranking Member crapo, that concludes my statement could i would be happy to take your questions. Chair wyden commissioner, thank you, and we very much appreciate you being here. You have experience in both the public and the private sector, and it seems to me that launching Something Like direct file is a little bit like starting a startup company. Telus from a business perspective, how has this project launch gone . Mr. Werfel its gone very well. I think of it as a product launch. We are putting any product on the street, and our customers, in this case taxpayers, are going to let us know if the product is working effect, and if they think they would like to use the product in the future. So we started, like any private Sector Company would we had the idea for the product and then we put it on the street with volunteers. We tested it. From january 29 to march 8, the direct file product was in testing with volunteer taxpayers who agreed to submit. We got very positive reviews, but we were also able to make realtime fixes to the product based on taxpayer experience. On march 8, we were ready to go, and that is when we made publicly available to the millions of taxpayers in 19 states that were eligible this year. The feedback has been great. People are telling us that it is easy to use, simple, and of course they like the price tag, its free. As you mentioned, in the final days of the Filing Season, we saw an extraordinary increase in the pace of taxpayers filing with direct file, and it all went very smoothly. Chair wyden ok, lets talk about the massive fraud that we are seeing now in the Employee Retention tax Credit Program. As we all know, this was a real helpful to lots of people during the pandemic. But it was told me not to long ago but a whistleblower told me not too long ago that there is no one avalanche of fraud, Something Like 95 of the claims Something Like 95 of the games choking the irs systems and delaying valid refunds. The bipartisan tax bill that i introduced with chairman jason smith on the house would cut off the claims after january 31, 2024, and give the agency new enforcement tools. My question to you is if the senate fails to take action on this bipartisan tax agreement, it seems to me that fraudulent ertc claims are going to continue to clog the system. Thats going to cost taxpayers billions of dollars, and its going to divert resources away from lawabiding taxpayers. Your thoughts . Mr. Werfel i absolutel