THE IRS IN THE PANDEMIC HEARING BEFORE THE SUBCOMMITTEE ON GOVERNMENT OPERATIONS OF THE COMMITTEE ON OVERSIGHT AND REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS SECOND SESSION OCTOBER 7 2020 Serial No 116–125 Printed for the use of the Committee on Oversight and Reform Available on govinfo gov oversight house gov or docs house gov U S GOVERNMENT PUBLISHING OFFICE 41–987 PDF WASHINGTON 2020 COMMITTEE ON OVERSIGHT AND REFORM CAROLYN B MALONEY New York Chairwoman JAMES COMER Kentucky Ranking Minority Member JIM JORDAN Ohio PAUL A GOSAR Arizona VIRGINIA FOXX North Carolina THOMAS MASSIE Kentucky JODY B HICE Georgia GLENN GROTHMAN Wisconsin GARY PALMER Alabama MICHAEL CLOUD Texas BOB GIBBS Ohio CLAY HIGGINS Louisiana RALPH NORMAN South Carolina CHIP ROY Texas CAROL D MILLER West Virginia MARK E GREEN Tennessee KELLY ARMSTRONG North Dakota W GREGORY STEUBE Florida FRED KELLER Pennsylvania ELEANOR HOLMES NORTON District of Columbia WM LACY CLAY Missouri STEPHEN F LYNCH Massachusetts JIM COOPER Tennessee GERALD E CONNOLLY Virginia RAJA KRISHNAMOORTHI Illinois JAMIE RASKIN Maryland HARLEY ROUDA California RO KHANNA California KWEISI MFUME Maryland DEBBIE WASSERMAN SCHULTZ Florida JOHN P SARBANES Maryland PETER WELCH Vermont JACKIE SPEIER California ROBIN L KELLY Illinois MARK DESAULNIER California BRENDA L LAWRENCE Michigan STACEY E PLASKETT Virgin Islands JIMMY GOMEZ California ALEXANDRIA OCASIO-CORTEZ New York AYANNA PRESSLEY Massachusetts RASHIDA TLAIB Michigan KATIE PORTER California DAVID RAPALLO Staff Director WENDY GINSBERG Chief Counsel AMY STRATTON Clerk CONTACT NUMBER 202-225-5051 CHRISTOPHER HIXON Minority Staff Director SUBCOMMITTEE ON GOVERNMENT OPERATIONS GERALD E CONNOLLY Virginia Chairman JODY B HICE Georgia Ranking Minority ELEANOR HOLMES NORTON District of Columbia Member JOHN P SARBANES Maryland THOMAS MASSIE Kentucky JACKIE SPEIER California GLENN GROTHMAN Wisconsin BRENDA L LAWRENCE Michigan GARY PALMER Alabama STACEY E PLASKETT Virgin Islands RALPH NORMAN South Carolina RO KHANNA California W GREGORY STEUBE Florida STEPHEN F LYNCH Massachsetts FRED KELLER Pennsylvania JAMIE RASKIN Maryland II C O N T E N T S Page Hearing held on October 7 2020 1 WITNESSES Charles P Rettig Commissioner Internal Revenue Service Oral Statement Erin M Collins National Taxpayer Advocate Taxpayer Advocate Service Oral Statement Vijay A D’Souza Director Information Technology and Cybersecurity Government Accountability Office Oral Statement Written opening statements and statements for the witnesses are available on the U S House of Representatives Document Repository at docs house gov INDEX OF DOCUMENTS Documents entered into the record during this hearing are listed below and available at docs house gov Center for Taypayer Rights Written Statement submitted by Chairman Connolly Statement by Joseph Hickey submitted by Chairman Connolly The New York Times ‘‘Trump’s Taxes Show Chronic Losses and Years of Income Tax Avoidance’’ article submitted by Chairman Connolly III 8 10 12 IRS IN THE PANDEMIC Wednesday October 7 2020 HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON GOVERNMENT OPERATIONS COMMITTEE ON OVERSIGHT AND REFORM Washington D C The subcommittee met pursuant to notice at 10 06 a m via Webex Hon Gerald E Connolly chairman of the subcommittee presiding Present Representatives Connolly Norton Sarbanes Plaskett Khanna Lynch Raskin Maloney ex officio Hice Grothman Palmer Steube and Keller Also present Representatives Porter and Pascrell Mr CONNOLLY OK The committee will come to order Without objection the chair is authorized to declare a recess of the committee at any time Without objection full committee member Katie Porter the gentlewoman from California and Representative Bill Pascrell the gentleman from New Jersey on the Ways and Means Committee shall be permitted to join this subcommittee and be recognized for questioning during the course of this hearing Without objection it is so ordered I now recognize myself for an opening statement The Internal Revenue Service collects more than $3 5 trillion in taxes roughly 95 percent of the Federal revenue And it manages the distribution of more than $370 billion every year in refunds The revenue the IRS collects for the Federal Government funds critical programs and benefits like Social Security Medicare and veterans health services The billions of dollars in refunds distributed to taxpayers each year is a lifeline for many Americans especially those at or living below the poverty line The IRS is a critical agency that we turn to in the Nation’s hour of dire need Today’s hearing will examine how that agency was illprepared to meet those needs We’ll look at how decades of deliberate starvation of the IRS prompted a dire financial situation and left an agency with what a former taxpayer advocate referred to as a prehistoric IT infrastructure We’ll show how a decade of attrition hindered the IRS’ ability to meet the complex needs of our Nation during the unprecedented pandemic and attendant economic collapse According to the Congressional Budget Office from 2010 through 2018 when Republicans were in control of the Congress lawmakers cut the IRS budget 20 percent in inflation-adjusted dollars resulting in a 22percent staff reduction 1 2 Thirty percent of these staff were in the IRS enforcement positions After years of disinvestment in IRS enforcement capacity unpaid annual taxes owed but not collected are estimated at $450 billion a year The starvation and chronic underfunding also prevented the IRS from investing in IT systems I ask unanimous consent to enter into the record the Treasury Inspector General for Tax Administration’s report entitled ‘‘Legacy Systems Management Needs Improvement ’’ which finds that nearly three-quarters of the 400 active IRS systems reviewed by the TIGTA are legacy systems meaning very old Another disturbing finding is that was in that report was that the IRS does not have a handle on how many legacy systems it actually has or the cost associated with those systems This does not sound like an agency ready to fully serve the American people during a pandemic This past year has highlighted just how many individuals rely on the IRS In addition to administering the two—2020 tax filing system the IRS was also tasked with distributing emergency economic impact payments or stimulus checks to Americans The IRS had to manage the effects of the pandemic while it was simultaneously expected to mail 170 million additional stimulus checks to Americans in need Years of IT system neglect and the failure to modernize legacy systems that date back to the Kennedy administration in some cases prevented the IRS from effectively transitioning to virtual operations Like many agencies the IRS sought to find ways to keep its work force safe while trying to meet its expanded mission but it didn’t stand a chance Its gutted work force and anachronistic IT systems were simply not enough to keep up The pandemic forced the IRS to shut down many of its core operations across the country including taxpayer phone lines and walk-in centers The agency largely abandoned taxpayers many of whom—or all of whom are our constituents at a moment of great confusion and concern As I’ve noticed the IRS’ operational challenges did not happen overnight As shown in the tables on the screen since 2010 the previously controlled majority Congress ransacked the IRS’ budget and the agency was forced to reduce its work force by 22 percent That’s 20 000 full-time employees These significant repeated budget cuts forced the IRS to make difficult resource allocation tradeoffs Leaders had to choose among providing quality customer service to taxpayers enforcing tax laws and updating IT systems The severe financial technical and staffing problems are a direct result of years of partisan hostility reckless so-called investigations and unwarranted budget cuts from the majorities then in control of Congress And today when the American people are relying on the IRS the most the agency is gasping for air While our witnesses will testify that the IRS did what it could with the available resources it’s what didn’t get done that’s troubling It’s the millions of taxpayers who are unable and still are unable to get their refunds because they filed a paper return It’s the millions of tax returns that hit a snag and the corresponding taxpayers couldn’t get assistance because call centers were closed 3 It’s the 9 million Americans who have yet to receive that stimulus check from April primarily because the IRS does not have their information or because their income is so low they don’t qualify to file a return These are our Nation’s most vulnerable people We have a duty to help them in the midst of this crisis Millions of people who desperately rely on the IRS to receive much-needed financial assistance to pay for medical care groceries housing are still waiting for those refunds and stimulus checks These people are like my constituent Joseph who did not receive his 2018 tax refund until February of this year because his wife passed away and the IRS held up his return to get more information The same issue which the IRS promised Joseph would not be a problem again plagued his 2020 tax return which still has not been processed I ask we insert into the hearing record a statement from Joseph about his continued concerns with the IRS Other constituents have followed the rules and filed and are being told to just wait People can’t afford to just wait They need this financial assistance now On September 16 I wrote the IRS asking about these types of delays and the inconsistent responses staff have provided our constituents IRS staff That was three weeks ago I’ve yet to receive a response It’s also important to point out that budget cuts to the IRS have burdened our Nation’s poor in another important way When the IRS collects taxes each year it relies heavily on taxpayers to report their income and calculate the amount of tax they owe Most people in fact 99 percent of them do Some taxpayers however often the most wealthy among us including potentially the current President of the United States fail to properly pay their taxes They hide earnings claim dubious deductions such as $70 000 for hairstyling Not a deduction available to most of us and they fail to properly pay their taxes as a result Since 2010 as a direct result of these budget cuts from the past the IRS has done less to enforce tax laws because it can’t If you take a look at the chart on the screen you’ll see that between 2011 and 2019 the percentage of individual income taxes it examined dropped by half Half That’s catastrophic and it directly impacts revenue for the Federal Government The weakening of these vital oversight efforts harms both taxpayers and public confidence in the tax system It does however help the wealthy and encourages even more of them to skirt and cheat the tax system I was pleased with reports on Monday indicating that the IRS is finally investigating allegations of criminal tax fraud at the National Rifle Association I’ve long led congressional efforts asking the IRS and the Department of Justice to investigate the NRA and its CEO Wayne LaPierre According to studies out of the University of Pennsylvania by simply beefing up the auditing capacity of the IRS to allow for more oversight of the super wealthy those claiming more than $10 million in adjusted gross income our government would collect more than $7 5 trillion over the next decade More than paying all of the pandemic-related expenses by this Federal Government combined 4 That’s the size of the tax gap with the wealthy who fear little consequence right now from a beleaguered IRS and have left in our Nation’s coffers I look forward to hearing from our witnesses today on ways Congress can help support the IRS instead of politically targeting the agency and stripping it bear of the resources it desperately needs as we’ve done all too often in the past We also hope to ensure that the IRS’ Chief Information Officer and CIOs throughout the Federal Government play a pivotal role in developing and meeting agency performance goals I look forward to working with my colleagues on both sides of the aisle toward legislation that does just that I hope this hearing will garner the evidence and justification needed for Congress to build back the agency that it has so unjustly ravished over the last decade and so it’s prepared to help struggling Americans in dire need of assistance during the worse pandemic in a hundred years And with that I call upon the distinguished Ranking Member Mr Hice for his opening statement Mr HICE Thank you Chairman Connolly I appreciate the opportunity to have an opening statement and like you I also have constituents who are awaiting refunds and they’ve been seeking—many of them as far back as February and I certainly share that I would also just say Mr Chairman that I believe it’s improper for you to accuse the President or seemingly accuse him of not paying his taxes In the first place you don’t know that And I hope this hearing today will stay focused on issues that are germane to the topic at hand specifically IT modernization That is what this should be focused on and I hope we do that And with that let me just say that this subcommittee has been tracking as you all know the legacy IT systems and the reality that those legacy systems pose a risk to Federal agent missions and the purpose that many of our agencies have You know with many of these agencies especially the IRS some of these older IT systems they are very complicated and they are going to require modernization It is inexcusable for us to be facing some of the issues that we’re facing and for our constituents and the American taxpayers to be the ones who are taking it in the gut over this And without modern technology systems that can meet modern day challenges our agency missions are at risk and taxpayer resources will continue to be spent on archaic and inefficient technology systems of ages past This committee understands how the Federal Government continues to spend a majority of the IT budget merely maintaining these legacy systems instead of investing in IT modernization reforms which needs to occur With the majority of agency IT spending going to the operations and maintenance of these old systems new investments are crowded out I think that’s where we need to get some answers today We have talked a lot about different approaches that can be utilized and bring multi-year IT funding mechanism to be established I think we need to go beyond talk and start actually getting some answers and hearing what some of these agencies are doing to im- 5 plement modernization efforts And it is up to each of these agencies to utilize some of the resources that have been made available With the IRS specifically some modernization efforts despite repeated large investments by Congress which let’s keep in mind is really investments from the American taxpayer In spite of these large investments the IRS continues to drag on and seemingly never reach completion of modernization We need answers for those type of problems How in the world can Congress have faith that another $1 or $2 billion or whatever it may be at the end of the day that it will be proposed by the House and the Senate will actually get anything in return Again I say we need answers to these questions This committee wants to understand how these pervasive and continual challenges can be addressed This is a bipartisan issue with potential bipartisan legislative solutions but we have to understand the actual problems preventing agencies like the IRS from moving into modern agile and robust technology operation environments in the future To be fair we all know that in a rapid response to the global pandemic there have been a number of emergency assistance programs that have been passed into law this year and it has been unprecedented We all understand that There have been a lot of mandates that have been involved and as a result we have seen nearly every American taxpayer received checks and that occurred in an extraordinarily swift manner by the IRS and for that we’re grateful And you look back at the Economic Stimulus Act of 2008 it took weeks and weeks for that to be doled out but like every other large enterprise in the world the IRS has had its operational challenges related to the pandemic We get that There have been issues with the CARES Act stimulus payments reaching their intended destinations There have been a number of issues but not all the issues—and I get this as well—not all the issues and problems have been technologically related There have been legal issues procedural issues work force issues data access challenges but we need to understand the actual calls of problems before we can recommend any policy solutions I hope that the hearing today will provide some information in that regard And to that point Commissioner Rettig I hope that you and the other witnesses today can help me and my colleagues understand how we can address the underlying barriers preventing successful technology modernization so that we can ensure the success of the IRS’ critical mission Congress cannot afford to blindly continue throwing money at IT problems We have got to find a new approach We’ve got to have answers We’ve got to have modernization So with that Mr Chairman I want to thank you and I want to thank our witnesses for bearing with Congress and these proceedings I thank them for participating in today’s hybrid hearing and I appreciate the opportunity to be able to have each of them here today With that Mr Chairman I yield back Mr CONNOLLY I thank the gentleman and I look forward to working with him and I thank him for the spirit—the bipartisan 6 spirit he has laid out for us moving forward in terms of trying to address especially the technology challenges the IRS is facing I would also ask unanimous consent that a series of articles talking about the President’s tax situation including the assertion that in the last two years he paid $750 per year and no taxes for 10 of the previous 15 years That’s not just the chairman’s opinion that is a series of analyses based on documents not denied by the White House Called fake news but not a single item including the deductions and the payments I cited has been denied by the White House So I enter that into the record so that it’s clear it’s not just one Member’s opinion including this Member’s With that I see the chairwoman of our full committee is on and I want to defer to her for any opening remarks she may have with respect to this hearing Welcome Chairwoman Maloney Mrs MALONEY Thank you so much to my good friend and colleague Chairman Connolly for holding this important and timely hearing on the IRS in the pandemic First I want to congratulate you on already convincing the IRS to move back the deadline for low-income individuals to register for an economic impact payment Until Monday the deadline to register for the EIP was next Wednesday October 15 And now these individuals who earn so little they don’t even qualify to pay taxes have until November 21 to claim this vital resource And without this hearing and the chairman’s work that extension was unlikely So congratulations on improving the lives of those who need this money the most This is a huge victory for the subcommittee and for those struggling on the brink of poverty across this Nation For the past decade there’s been a concerted effort to gut the IRS and to starve it of the funding it needs to do its job on behalf of every taxpayer in this Nation Sadly after years of partisan attacks and neglect it was no surprise that the IRS was not prepared to handle the unique circumstances that the corona crisis presents After all this agency is operating on information technology systems that date all the way back to the Kennedy administration We can now see the very real consequences of the past decade We cannot simply decimate essential Federal agencies and then expect them to miraculously meet their missions in times of crisis For example in June just a few months into the pandemic we discovered that the IRS sent roughly 1 4 billion in EIPs to dead people Some of my constituents told me that they received EIPs for their dead relatives and were still waiting for their own checks While the IRS had access to the Social Security Administration’s death file the Treasury Department’s Bureau of Fiscal Service which distributes the payments did not This fix seems simple Let’s share the file and reduce improper payments in the next round of stimulus checks If it needs to be a legislative fix let’s make it happen Today we’re going to hear from witnesses who claim that the IRS did the best it could with what it had But that’s not the real question 7 We need to be asking what the IRS could have done to help our country if it had been properly funded and adequately staffed instead of being subjected to years of bitter Republican abuses In another example my constituents told me they threw away IRS-issued debit cards because they looked like a scam and the IRS failed to inform them that the cards were coming Others said that the online quote ‘‘Get My Payment’’ end quote tool was confusing and made them think they were ineligible for an EIP when they were in fact eligible Today we will hear that individuals across our Nation including my constituents are still waiting to receive money that their government owes them—money they need to buy medicines pay rent put food on their tables Past Republican Congress’ prevented the IRS from investing in staff and technologies that would have allowed for a smooth transition and a continuity of service to all taxpayers throughout the pandemic Because of decades of partisan attacks many individuals and small businesses might not see their tax returns any time soon They may not see their economic impact payments or EIPs until September 2021 They need this money now not in 11 months but now That’s how Congress designed these stimulus payments and it seems clear that the IRS is not equipped to meet this moment The systemic decade-old gutting of the IRS forced the agency to shut down taxpayer services and assistance just when the rules were most confusing and taxpayer needs were greatest The longterm starvation of the IRS means that victims of domestic abuse can have their stimulus payments seized by their abusers because the IRS doesn’t have the resources and staff it needs to help address this problem For many women who are domestic abuse victims this lack of IRS resources means they can’t achieve economic independence and escape abusive relationships This is a complicated problem but the IRS shouldn’t simply shrug its shoulders and point them to the court system which they can’t afford to participate in Let’s find a solution here today and help these women The lack of resources at the IRS means that the wealthiest residents of our Nation those reporting more than $10 million a year can avoid paying proper taxes because there are so few capable enforcement staff available to audit them There’s little chance they’ll be audited caught and prosecuted Instead the IRS has been auditing the poor and the vulnerable because it’s easier Our government is leaving on the table trillions of dollars owed by the wealthy Finally I want to express my support of the legislation I know the chairman is working on Legislation that would require agencies to think about how technology will improve service delivery and agency performance across the enterprise of the Federal Government I support these types of critical measures that often take place under the legislative radar Thank you so much Chairman Connolly for all of your hard work that you have done in this area I am here to support your work in every way It is important that we’ve reached this point of reckoning and we need to move forward Mr Chairman again congratulations on your achievements in holding the IRS responsible and moving forward with ideas to 8 make them more up-to-date and IT savvy for the future I thank you so much And I yield back Mr CONNOLLY I thank the distinguished chairwoman of the full committee Mrs Maloney and I thank you for your leadership and for your support I very much appreciate it Now I’d like to introduce our witnesses Our first witness today is Charles Rettig who’s the Commissioner of the Internal Revenue Service And we will hear from Erin Collins the National Taxpayer Advocate at the Taxpayer Advocate Service And finally we’ll hear from Vijay D’Souza who is the Director of Information Technology and Cybersecurity at the Government Accountability Office The witnesses will be—if you would all rise and raise your right hand we swear in our witnesses as a matter of course here on the committee Do you swear or affirm that the testimony you’re about to give is the truth the whole truth and nothing but the truth so help you God Let the record show that all three of our witnesses answered in the affirmative Thank you Without objection your full written testimony will be entered into the record in full With that Commissioner Rettig you’re now recognized for a fiveminute summation of your testimony Welcome STATEMENT OF CHARLES P RETTIG COMMISSIONER INTERNAL REVENUE SERVICE GOVERNMENT ACCOUNTABILITY OFFICE Mr RETTIG Thank you Chairman Connolly Ranking Member Hice and members of the subcommittee thank you for the opportunity to discuss IRS operations and our efforts to help taxpayers during the COVID–19 pandemic Nearly two years into my term as Commissioner I remain extremely proud to be working with the IRS knowing that 96 percent of the gross receipts of our country flow through the IRS has strengthened my belief that a healthy functional IRS is critical to the overall success and well-being of our country The importance of the IRS to every American has become especially apparent since the spring as our Nation has faced unprecedented challenges The IRS has been at the forefront of successfully providing rapid economic relief to taxpayers during COVID–19 The IRS response serves to illustrate how critical it is for the agency to receive consistent timely and adequate multi-year funding such that we can succeed in providing the services that our country so rightly deserves This funding is critical as the Nation continues to weather COVID–19 and will also help the agency prepare for future emergencies IRS employees have worked around the clock since midMarch to implement major provisions of the CARES Act especially the economic impact payments to help millions of Americans during this challenging time So far more than 160 million economic impact payments have been issued totaling more than $270 billion with many of the payments recognizing more than two people their payments for a 9 household as opposed to an individual In delivering economic impact payments we balanced the statutory requirement to deliver these payments as rapidly as possible with the need for accuracy and the concern about potential fraud I also want to call to your attention an important number The Treasury Inspector General for Tax Administration confirmed that the IRS correctly computed the payment amount for approximately 98 percent of the payments as of May 21 The 98 percent figure is great however there is more to do The strength of our agency is our employees Our employees want to do more and we will do more with the assistance of Congress We have remained concerned about getting payments out to people who don’t normally file a return including historically underserved communities of our Nation such as the lower income taxpayers homeless communities and various others who do not normally interact with the government or certainly with the Internal Revenue Service We’ve worked with our partners to translate economic impact payment outreach materials into more than 35 languages and have distributed these materials throughout the country From the beginning we have been aggressively seeking the assistance of community-based organizations and many others in identifying eligible Americans We ask for your help and the help of every Member of Congress in sharing and disbursing this information widely and broadly We realize how difficult this period has been for so many Americans For that reason the IRS also provided important administrative relief We postponed the filing deadline from April 15 to July 15 the latest Tax Day ever in the history of our country We implemented the People First Initiative under which we temporarily adjusted our processes to help people and businesses during these uncertain times While pursuing our responsibilities with respect to the CARES Act and COVID relief we had to adjust and redeploy resources and our employees have remained dedicated to delivering the 2020 filing season as they continued to process electronic returns issue direct deposit refunds and accept electronic payments As of September 25 we have processed more than 153 million individual returns and issued nearly 122 million refunds for a total exceeding $289 billion while we were also processing economic impact payments and preventing cyber-attacks in a host of other areas During this time we’ve also focused on enhancing the experience of taxpayers who have limited English proficiency For the first time ever the Form 1040 filed next year will be available in Spanish Basic tax information is available in more than 20 languages People who call in can get interpreter services for more than 350 languages and for these actions I am extremely proud of our employees On the enforcement side we have redeployed resources to the best of our abilities to highlight and focus on certainly high-income individuals and certain types of transactions that such individuals participate in Our phased-in reopening has been difficult we understand for Members of Congress for taxpayers and others How- 10 ever the health and safety of our employees had to remain paramount throughout Our employees shared the same health and safety concerns as shared by every other American for themselves for their family and for their neighbors and their community And we had to focus on that while also trying our best to respect our responsibilities to this country both with respect to filing season as well as with respect to the issuance of these payments maintaining a vigilant robust enforcement atmosphere protecting cybersecurity issues And we receive more than 2 5 million attacks per day on our systems 1 6 billion per year And we understood that in this situation where we scaled back our activities where we closed the majority of our physical facilities where we moved almost 57 000 people to teleworking we undertook all of that while also doing our best to maintain our responsibilities to this country from every perspective With that I want to just reemphasize that we depend on consistent multi-year funding to deliver top quality services to our taxpayers to protect the health and safety of our employees to conduct enforcement initiatives to provide guidance and to support badly needed long-term modernization efforts Chairman Connolly Ranking Member Hice and members of the subcommittee this concludes my statement and I would be happy to take questions Mr CONNOLLY Thank you Commissioner Rettig Ms Collins you are recognized for your five-minute statement STATEMENT OF ERIN M COLLINS NATIONAL TAXPAYER ADVOCATE TAXPAYER ADVOCATE SERVICE Ms COLLINS Chairman Connolly Ranking Member Hice and distinguished members of the subcommittee thank you for inviting me to testify at today’s hearing ‘‘The IRS in the Pandemic ’’ I started my job as a National Taxpayer Advocate on March 30 just after the IRS and much of the country—— Mr CONNOLLY Let me interrupt without penalizing you That’s my birthday so congratulations Ms COLLINS Oh Well thank you It was a very important day for a lot of reasons So at that point most of the country was shutting down due to the pandemic and little did I know then how much the pandemic would impact both tax administration for the IRS but also with respect to taxpayers As we continue to grapple with the pandemic my best wishes go out to all those impacted by the virus In my statement today I will share three predominant points about the past six months First despite its constraints the IRS has done its best job to handle more work with reduced funding but taxpayer service and revenue collection has both suffered over the years as you have noted In the height of this year’s filing season it was given the task of disbursing the economic impact payments to some 160 million eligible individuals and their families Millions of homes ordinarily don’t file a tax return with the IRS and the IRS had to find them 11 This filing season the overwhelming majority of taxpayers did not experience problems in filing their return or the receipt of their refunds Over 90 percent of individual taxpayers file their returns electronically and efile capabilities were operational throughout the pandemic About 70 percent of the taxpayers claimed refunds most of those refunds were paid without delay particularly 83 percent that were disbursed by a direct deposit But as has been noted it’s the people who did not receive the refunds that we’re most concerned with Second despite the IRS’ strong performance many taxpayers experienced significant delays resulting in financial hardship Many taxpayers still file their returns on paper either by choice or by necessity In 2019 the IRS received about 18 million individual paper income tax returns This year for the protection of the health and safety of its employees the IRS shut down its mail processing operations from March to early June During that time millions of tax returns checks and other correspondence piled up As of September 19 the IRS estimated that it had a backlog of about 5 8 million pieces including an estimated 2 8 million unopened returns For taxpayers counting on those refunds to meet their basic living needs the delays have been particularly painful In a typical year the IRS receives about 100 million telephone calls and several million visits to its walk-in taxpayer assistance center Due to the pandemic the IRS shut down its toll-free lines for about a month and slowly began resuming service It also shut down its taxpayer assistance center for about three months Some taxpayers also experienced delays in their receipt of their economic impact payment And as the Commissioner noted the inspector general found that the IRS correctly computed about 98 percent of the amount of the EIPs correctly But based on 160 million payments that leaves about 3 million payments of eligible individuals who are claiming additional amounts that they are now requesting from the IRS and plus I believe we’ve identified several million cases where payments were not made at all At first the IRS took the position that most taxpayers who wanted their increased payment amounts would have to wait until they filed their 2020 return but my office and others urged the IRS to find ways to correct some of these underpayments immediately The IRS has since developed processes and programs in its systems to fix many of these problems However the IRS simply does not have the resources necessary to make a manual case-by-case adjustment in potentially several million cases However the individuals still have a right to file it on their upcoming tax return but that brings me to my final point The IRS desperately needs more resources to do its job of helping taxpayers and collecting revenue There’s an old expression you can’t get blood from a turnip If the IRS continues to be starved its resources it will continue to struggle It needs more customer taxpayer representatives agents and to assist those taxpayers and it needs more modernization of its IT systems The IRS’ IT struggles are known and as the chairman noted to compound its challenges the IRS budget has been reduced by about 20 percent since 2010 while the number of tax returns has 12 increased 13 percent As a result the IRS lacks the staffing it needs to serve taxpayers Although I’m new at this job it is clear that the IRS is well behind private sector financial institutions in providing the much-needed services Americans are entitled to top quality service and a tax administration they can trust and work with Thank you for inviting me here today and I welcome working with you and your staff in the future and happy to answer questions Mr CONNOLLY Thank you Ms Collins Mr D’Souza welcome You’re recognized for your five-minute summation STATEMENT OF VIJAY A D’SOUZA DIRECTOR INFORMATION TECHNOLOGY AND CYBERSECURITY GOVERNMENT ACCOUNTABILITY OFFICE Mr D’Souza Thank you Chairman Connolly Ranking Member Hice and members of the subcommittee thank you for the opportunity to testify today on GAO’s prior work relating to IRS’ IT operations and modernization efforts My name is Vijay D’Souza I’m a director in GAO’s Information Technology and Cybersecurity team but this statement draws on work conducted by our team as well as our strategic issues and financial management teams Effective IT is essential to IRS’ operations and was as everyone’s noted important to the distribution of millions of economic impact payments disbursed as part of the CARES Act GAO currently has work under way looking at IRS’ efforts in this area For this most recent fiscal year IRS spent over $3 billion on IT of which a little more than 80 percent was for ongoing operations and less than 20 percent was for modernization activities IRS’ IT budget has been fairly flat over the last 10 years One of IRS’ goals specifically and the Federal Government’s in general is to reduce the proportion of spending for ongoing IT operations Although IRS does make effective use of IT in billions of transactions a year our prior work has found numerous issues related to IT operations and modernization I’ll mention a few of these issues now First GAO’s responsible for auditing IRS’ financial statements As part of this process we assess that IT controls related to IRS’ financial systems we identify cybersecurity issues and we make recommendations We also track IRS’ progress in addressing prior year recommendations Most recently in May we identified 18 use cybersecurity recommendations including these new recommendations that a total 132 cybersecurity recommendations remain outstanding Second as part of our ongoing assessments of IRS operations we identify IT issues that limit IRS’ ability to conduct its mission I’ll highlight a couple of them for you here In January 2020 we reported on computer problems IRS customer service representatives experienced that caused some taxpayer phone calls to disconnect mid-call We recommended and IRS agreed that it should both identify the causes of this problem and track the resulting down time 13 In February we reported that IRS could only capture certain business tax information in PDF format which is harder for it to use than other electronic open data formats These other formats would better allow the agency to analyze information in these returns for enforcement and other analytic activities We recommended that IRS consider the cost and benefits of converting this information Although IRS disagreed with our recommendation for one of its business units we still think this is worth doing and would help IRS with compliance efforts Finally we have conducted numerous examinations of IRS’ IT management activities including those related to its efforts to modernize its computer systems which as others have noted some of which are based on programming languages more than 50 years old In May 2016 we reported on IRS’ use of older programming languages for key computer systems most notably its individual master file which is the core individual tax processing system We recommended IRS develop a plan with timelines to replace IMF IRS does have an effort called CADE 2 under way which will replace core parts of the IMF but does not yet have a plan for replacing the overall system Recently IRS’ acting CIO told us that IRS is beginning to develop such a plan In June 2016 we reported on IRS’ process for prioritizing its IT investments both for ongoing operations and modernization activities For modernization activities specifically we found that IRS had not fully developed and documented a prioritization process IRS’ acting CIO has told us the agency hopes to have this process fully implemented for Fiscal Year 2022 In June 2018 we looked at IRS management of several operations and modernization investments We found that IRS did not fully address a number of assessments and risk-management activities that were needed around those investments We also identified several weaknesses in IRS work force planning activities From this report we made 21 recommendations As of today IRS has addressed three of these recommendations and taken steps to address others And we’ve recently started work where we’re going to update this assessment Every aspect of IT including cybersecurity operations and modernization efforts is critical to IRS’ mission and service to the American taxpayer Going forward continued attention to the issues we have identified is important to IRS’ ability to meet the challenges it faces Also important as others have noted is stable and consistent funding for IRS’ efforts Mr Chairman and Mr Ranking Member this concludes my statement I’m happy to answer any questions you have Mr CONNOLLY Thank you very much Mr D’Souza Just a clarification In your testimony you referred to the fact that the IRS budget has been relatively flat Do you consider a 20percent cut in its budget relatively flat that resulted in a 22-percent reduction in its work force Mr D’Souza So I was specifically talking about the IT budget not the overall budget There’s definitely a difference Mr CONNOLLY Oh Oh Right I just want to clarify Thank you 14 The chair now calls on the distinguished Congresswoman from the District of Columbia Ms Norton for her five minutes of questions Ms NORTON I thank my good friend from Maryland particularly for this hearing I think the average taxpayer—— Mr CONNOLLY Excuse me I am from the great Commonwealth of Virginia not from Maryland Ms NORTON What a terrible mistake And I see my friend from Maryland is on the committee Mr CONNOLLY We love Maryland but we love Virginia more Ms NORTON But I want you to know that the District was formed out of both Maryland and Virginia so I thank you for that too Mr Chairman I think if people have been listening to this testimony that the average taxpayer and the statistics are that the American people are extraordinary compliant but they are astonished by what they have learned about the state of the IRS I’m particularly interested in economic impact payments They go to people who don’t pay their income taxes because their earnings are not enough Now according to the statistics I have on September the 18 the IRS said it was going to start mailing letters to these 9 million Americans who don’t pay income taxes but are due to get this economic impact payment These are people who have very low incomes but I do want to say how happy I am that the IRS has just extended the registration deadline for these nonfilers these low-income people to claim this economic impact payment to November the 21 2020 I’m asking all members to email—consistently email your constituents to let them know these people you know that they are Democrats and Republicans that they can still get an economic impact payment up to November 21 I think that’s our obligation Mr Rettig this is my question for you How many of these roughly 9 million people were eligible to get these funds this economic impact payment have yet to register a claim for an economic impact payment these low-income filers people That’s for Mr Rettig Mr RETTIG Yes How many people have not received EIP is that the question Ms NORTON Of the roughly 9 million have not yet registered to claim an economic impact payment how many of these low-income people have not tried to claim Mr RETTIG That—our pool is not necessarily low income That pool was put together through a variety of indirect methods by a variety of Federal agencies and then tried to match it to our system So I would not wrap that with—it’s about 8 4 million The letters have not gone out—— Ms NORTON continuing But how many—OK Thank you It’s 9 million people I just want to know how many have yet to claim their economic impact payment Mr RETTIG I’m having difficulty hearing you Is the question how many people have not claimed the payment We are not able to quantify the number of individuals who have not been identified 15 Ms NORTON Mr Chairman Mr Chairman I ask that that number be required to be later given to the committee Mr Rettig is it possible that an eligible income individual not receive a payment Is everybody going to receive it Mr RETTIG We intend for everyone to receive it We’re holding over seven outreach events this week pretty much every week We have provided tool kits to 535 Members of Congress to be distributed to all of their local offices We have interacted with 137 different ethnic media outlets around the country hundreds and hundreds of homeless shelters I have participated in person at homeless shelters around the country and other similar events—— Ms NORTON Well thank you very much I’m sorry My time is so limited My time is so limited I’ve got to go on to the next question but that’s very good to hear Mr Rettig the CARES Act says that provisions regarding the stimulus should be directed—that’s $1 200 to every eligible individual There’s no language in the statute that directly or even indirectly suggests that incarcerated people are not eligible Why were incarcerated people not receiving their $1 200 Mr RETTIG That’s an issue to present to Treasury and it’s an issue that is actually in litigation and it would be inappropriate for me to comment upon litigation Ms NORTON Mr Chairman I just want to say that many of these are joint filers They have families They have child support payments and I ask the committee to followup on why incarcerated people do not receive these payments which says according to the statute every eligible—the CARES Act says every eligible person may receive And I thank you very much for the time given to me Mr RETTIG Thank you Mr CONNOLLY I thank the Congresswoman and I assure her we will followup on that because there is no language prohibiting such payments The chair now calls on the distinguished ranking member Mr Hice who looks very relaxed and very comfortable for his five minutes of questioning Mr HICE Mr HICE Thank you Mr Chairman And I am very relaxed but it’s good to be part of this hearing I do want to respond—Ms Collins brought up some interesting issues during her opening statement and one of which has been said by some others here today about the IRS starving in terms of fund I would just for the record bring back to reality that in 2010 that was kind of a watermark year for IRS funding and what did they do when they had that kind of funding There were lavish conventions There were ridiculous videos There were targeting of conservative groups And I think it’s important for these types of things to not be repeated Commissioner Rettig we’re hopeful and trustful that you will be able to make sure that this type of wasteful spending does not happen again but also as mentioned I believe it was—and I think I’ve got these numbers correct I was trying to write them down 18 million paper filings of tax returns for this past year 5 5 million in backlog and I believe it was 2 8 million that were unopened 16 As it relates to the paper filings those that were mailed in that is certainly nowhere near 90 plus percent of completions 18 million filed and 5 5 million backlogged and nearly 3 million unopened is frankly an unacceptable amount We are hearing from our constituents right and left why their tax returns have not come back So really I just on behalf of those constituents not only in my district but across the country when can they expect those mailed in returns to be opened dealt with and then to receive their refunds Mr RETTIG Sir as of September 25 we’ve received 12 9 million paper returns We had a current paper backlog of approximately 5 3 million of which we estimate that approximately 2 5 million is returns We are processing our backlog at the rate of about 1 3 million per week which I think is exceptional In March April timeframe we were at about a 23 million backlog So we have about 1 3 million we’re going through per week keeping in mind that we average somewhere between 3 to 500 000 pieces of mail each week and so we need to open the mail to determine is it a return or is it some other type of correspondence So we do prioritize the returns in terms of the processing of the paper mail including correspondence that is received We process the returns on a priority basis and of that we process refunds on a priority basis And so I can certainly tell you sir that our people are—— Mr HICE With those kinds of numbers it sounds like—— Mr RETTIG working really hard We’re doing—— Mr HICE continuing Sounds like—— Mr RETTIG Two shifts and have offered overtime to all of our people to get through this Mr HICE OK So it sounds like to me from what you’re saying is that most of those the backlog should be pretty much dealt with by the end of this month Is that correct Ballpark Mr RETTIG I can’t say that because it depends upon what they open Sometimes they open something that’s complex and it takes a particular period of time If the straight averages work we are going through 1 3 million per week We have 5 2- 5 3 million pieces total but keeping in mind 3-to 500 000 come in on top of that So it’s a process I can vouch for the effort and I can certainly vouch for the desire and the sensitivity and remember that our work force is reflective of the communities that they live in and the communities that they’re processing these returns for—— Mr HICE I get that Mr RETTIG continuing So we get it Mr HICE I thank you for your effort but effort does not resolve the issue for those who are waiting I do appreciate the effort but we have a lot of people who are struggling Let me hit on the IT question here Congress has provided billions as you well know of funding for IT modernization and there’s mixed results We still are a long ways behind If more funding is given for IT modernization how can you ensure the fact that those funds are going to be effectively used and managed so that we actually have 17 the end result of IT modernization rather than continually trying to maintain and support legacy systems Mr RETTIG Well the appropriation earmarks what the funding would be for And within the separate appropriations and allocations I think that we could cover that Also in terms of efficiency and IT efficiency it should be noted that filing season 2019 we set records for processing per second per hour and per minute And we broke those records in filing season 20 during the COVID pandemic with most of our facilities shut down and we came to 2 275 million returns processed per hour 632 per second without any technological errors And the same group of IT folks who handle our filing season were also responsible for implementing the EIP payments which was not only for individuals that we had information but individuals we did not have information And then we inherited the programming for the Veterans Administration as well as for Social Security Administration And we created portals that more than 14 million people came in through a nonfilers portal Our same IT folks took care of all of that at the same time We did not have the luxury of onboarding hundreds or thousands of folks to help us in that situation We had people who had to multitask And these particular folks worked 15-to 17-hour days seven days a week from March through July And I would say that our folks performed I would suggest and request on an IT appropriation oversight—specific appropriations for where we are The Taxpayer First Act was passed—strong bipartisan support— has tremendous provisions in it for modernizing the systems of the Internal Revenue Service but it does not yet have any funding associated with it So you know in my mind set these things come together We take our responsibilities to Congress to the American people and to our employees and the neighborhoods that our employees live very seriously We want to perform and we want people to be proud of the Internal Revenue Service Mr CONNOLLY The gentleman’s time has expired Mr HICE Mr Chair that’s a great answer but I don’t believe it fully answered my question But I know my time has expired so I yield back Mr RETTIG I’m available for all of you on a one on one Mr CONNOLLY Let me just say Mr Hice I—I think it may be implicit in your line of questioning is despite the accomplishments of the IRS under very adverse circumstances remember that we also represent the community Mr HICE Uh-huh Mr CONNOLLY And I think Mr Hice is pointing out—and I’m certainly joining him I gave some examples in my opening remarks We’re hearing from constituents who aren’t being well served who are panicking in some cases about their refunds or their direct payments still And we need a better response frankly in terms of a liaison with Members of Congress to be able to serve those taxpayers our constituents And I hope you’re hearing that because generally we hear from people when things aren’t working So that may be a small percentage but it’s you know real human beings and real needs 18 So I echo what my friend Mr Hice has said We need to really work on that and I think frankly having a stepped-up liaison for us to be able to go to some kind of ombudsman who can help solve problems for taxpayers would be very welcome under these—— Mr RETTIG May I provide a brief comment Mr CONNOLLY Yes of course Mr RETTIG In conjunction with that you know we had a phone line for Congress that got essentially overrun with the volume So we’re sensitive and understanding And then it was my bright idea to create an email box such that our folks could work it around the clock on emails received We received I think over 100 000 emails from house gov or senate gov and so my bright idea really overran us as well but it was an effort to try to get there I very—sir I spent 36 years on the outside representing individuals with respect to the Internal Revenue Service and tax-related matters I very much understand the concepts that each of you are there I take these concepts to heart And there have been some comments with respect to lower income individuals as well as different ethnic communities and I have not been in front of many of you before but I want to add into this two points that I’m very proud—and I’m closing here but two points that I’m very proud I am the first Commissioner in the history of the Internal Revenue Service whose spouse came into the United States as a refugee from a refugee camp and whose parents do not speak English but happen to now live in the United States I’m also the first Commissioner to come to the Internal Revenue Service who has a son or daughter who is Active Duty United States military who has deployed twice who has the privilege of wearing the flag on his shoulder and I take that to heart Those are the issues as to why I came on board Mr CONNOLLY Thank you Mr Rettig and we certainly honor your personal history and commitment Remember Members of Congress are also patriots and committed to their constituents and trying to make—— Mr RETTIG I believe we are all serving Mr CONNOLLY Trying to make things work under very adverse circumstances And thank you Mr Hice for allowing me to piggyback on that The chair now calls on the gentleman from Maryland Mr Sarbanes for his five minutes Mr SARBANES Thank you Mr Chairman Can you hear me Mr CONNOLLY Yes We can hear you loud and clear Mr SARBANES OK Terrific Thanks for the hearing Mr Rettig—Commissioner Rettig I want to give you credit because you’re certainly putting a brave face on in view of these dramatic cuts that the IRS has experienced over a period of years now I mean the numbers are breathtaking The work force having been reduced by 22 percent since 2010 has obviously undercut the IRS’ daily operations in a significant way And I want to salute the frontline workers at the IRS the rank and file who are really engaged in acts of heroism every day trying to lift up a caseload that I think is drowning them 19 So we have to get more resources to the IRS and that has to be a number-one priority for Congress and I think it ought to be a priority of any administration Unfortunately we have not seen that from the Trump administration When the IRS doesn’t have enough resources the fact of the matter is that the rich get richer high-end tax cheats get away with not paying their taxes frauders are able to get away with their schemes and those who ought to be on the receiving end of severe and significant enforcement by the IRS are not Meanwhile those average Americans out there who play by the rules and look to the IRS to engage with them in a straightforward way and get them their refunds make sure the earned income tax credit is processed make sure that these economic payments that come from these stimulus measures we’ve put in place are getting to them they’re the ones that are getting short shrift here So I think that’s what’s so offensive to many of us is when the IRS doesn’t have the resources that it should it can’t do what’s necessary to enforce against those who are trying to evade their tax obligations on the one hand and it can’t provide the kind of service to everyday Americans who are playing by the rules on the other hand Ms Collins can you talk a little bit more with us about how adequate funding around enforcement can actually pay huge dividends for the IRS and clamp down on the kinds of schemes and efforts to avoid a tax payment that we know are going on out there every single day Put some numbers behind that for us Ms COLLINS Well sure As we all know that our U S tax system is a voluntary tax system and we depend on people willing every year to sit down fill out that form and pay their appropriate amount of taxes So I really think enforcement is a reward to those who voluntarily comply And I think if the public does not see that the IRS is enforcing the laws we’re going to be at risk of losing people continuing to voluntarily comply Mr SARBANES Well I appreciate that because you know sometimes those who want to attack the IRS on ideological grounds they sort of say you know ‘‘Be afraid the tax man cometh ’’ But when the IRS is coming for those who aren’t paying their taxes aren’t playing by the rules that’s the appropriate kind of enforcement And the resources that you can garner if you do that enforcement well can then be redeployed again to help serve those taxpayers out there that are playing by the rules are looking for that refund are looking for the benefits that can come when we use the IRS to distribute important stimulus payments in the midst of a pandemic like we’re doing right now So that’s the tradeoff we see And we have an obligation to make sure that the IRS is funded in a way that it can do its job and do its job on behalf of that broad set of Americans that rely on this agency to make sure resources get distributed in a fair fashion So Mr Chairman thank you for this hearing It I think emphasizes once again why we as a committee why Congress needs to work hard to get the resources to this agency but also why we need leadership from the top—and I’m not talking about Commissioner Rettig right now I’m talking about the President of the 20 United States—who understands the valuable service that the IRS can provide And with that I yield back Mr CONNOLLY I thank the gentleman Mr Grothman the gentleman from Wisconsin is now recognized for his five minutes Mr Grothman I see you Mr GROTHMAN Yep There we are Mr CONNOLLY I hear you now Mr GROTHMAN Can you hear me OK Good Mr CONNOLLY We can hear you Mr GROTHMAN OK First of all I thank—I’d like to thank Mr Rettig for being here I think his agency is professional and I think any implication that they are intentionally avoiding segments of the population as it so frequently is is misplaced and is insulting That being as it’s said it’s not a perfect agency So we have some questions for you In Wisconsin we had a lot of people who couldn’t get their tax refunds and at least we were informed part of the problem was that they had shut down the Fresno office Now that’s unrelated as far as I can see to the quality of IT It’s you know just as deficient to apparently have a lot of tax returns sitting there unopened and as the result people waiting you know months for their tax refunds Maybe some still don’t have it I’m wondering if you could comment on the decision to shut down the Fresno center and what was or is being done to make sure that people were getting their tax refunds After all here we have money that people here have already worked for and are waiting to have it come And is it your belief that right now all or almost all of the refunds that will end up in the Fresno center are paid off Mr RETTIG Well the Fresno service center is scheduled for a closing We’ve closed two other centers and I think there is two others beyond that That’s actually part of a consolidation that’s going on for the Internal Revenue Service for years as paper filings were reduced and electronic filings increased And our current statistic on electronic filings is almost 92 percent So it used to be 92 percent let’s say in paper filings and so we had campuses around the country some dedicated to individual returns some dedicated to business returns So the concept that Fresno would be in the process of closing— and it’s about a year project from now—and we are working you should know very hard to get placement of our employees elsewhere within the Internal Revenue Service and we are also working with the—— Mr GROTHMAN I don’t mean to cut you off Mr RETTIG continuing Private sector doing career days to—— Mr GROTHMAN Yes Mr RETTIG continuing Place our folks on the outside We are one family —— Mr GROTHMAN I don’t mean to—I don’t mean to cut you off I don’t—— Mr RETTIG In terms of the—— Mr GROTHMAN Can you hear me 21 Mr RETTIG I’m sorry Yes Mr GROTHMAN Yes I don’t think you get the gist of the question The problem is we are told that returns were sent to the Fresno office And whether it was your decision or the Governor of California I don’t know but after returns were sent to the Fresno office they were never opened and sat there It’s not a matter of the long-term decision to shut down the Fresno office I was told that the Fresno office was as a practical matter not working at all due to the coronavirus and therefore people who sent tax returns there were not getting their refunds and they just remained there unopened Is that accurate And if so is the office now up and running or what has become of the refunds for people whose paper returns were sent to Fresno Mr RETTIG So it was my decision to close almost 90 percent of our 511 facilities around the country based on health and safety concerns for our employees We did it procedurally with respect to local guidance although we were exempt from guidance But during March April May our physical facilities were shut down So mail did create a backlog during that period of time We have been working on that backlog and I indicated earlier a belief that we’re within a couple of million paper returns inside of a backlog which is also why we would stress for people who have yet to file a return to file that return electronically because we are able to process it We did—as we opened versus campuses around the country we did shift physical mail from one campus to another when the—it was more of an ability to open based on health and safety in certain environments compared to others So we were moving physical mail around the country to where we had the customer service representatives and others to process the mail Similarly we did the same thing electronically but electronically we could actually do it within 30 minutes shift entirely from one campus to another Physical mail—— Mr GROTHMAN Yes I just want to—— Mr RETTIG continuing Requires trucks —— Mr GROTHMAN Yes I don’t mean to cut you off Mr RETTIG Right Mr GROTHMAN Have all of the returns say filed by April 15 that went to Fresno because if you’re in Wisconsin I think you know you are supposed to mail to Fresno Have they been processed all as far as you know Mr RETTIG I will get back to you with specifics but my understanding is we’re already into July So if somebody filed a—— Mr GROTHMAN OK Mr RETTIG continuing Paper return in March or April—— Mr GROTHMAN I’ll give you one more question because I’m running out of time A lot has been said about people not being able to get these $1 200 checks As I understand it they were not supposed to go to people who were here illegally Are you doing anything to make sure that those refunds are not going to people who are here illegally 22 Mr RETTIG We have a series of filters and checks and markers that go into our system which are based on the information that we have We don’t have complete information as you can imagine to every person whether they’re domestic or foreign But based on the information we have our systems are in line with the information that we have as to who should or shouldn’t get payments Mr CONNOLLY The gentleman’s time has expired I thank the gentleman Mr GROTHMAN Thank you Mr CONNOLLY The Congresswoman from the United States Virgin Islands Ms Plaskett is recognized for her five minutes Ms PLASKETT Thank you very much for the time Mr Chair and thank you to the witnesses for being here Mr Rettig just before I go into my line of questioning I don’t want to leave that hanging out there as if there is a perception on the part of IRS that you have given checks to illegal aliens as they are being called There is no reason to believe that the IRS are giving checks to individuals who have not filed income taxes and are therefore permanent residents and should be here lawfully Is that correct Mr RETTIG To my knowledge we’ve followed the law as the law is written Ms PLASKETT OK Mr RETTIG That’s correct Ms PLASKETT Thank you Thank you Thank you for that Let’s not begin thinking that these stimulus checks are being given out willy nilly and are not serving the purpose for which Congress intended them that being to assist Americans and those who are qualified to receive them from receiving them I wanted to ask you some questions with regard to how this funding is being—the COVID pandemic is panning out and your tremendous support to the people of the territories and to the Virgin Islands In September I wrote a letter to you Mr Rettig Commissioner and to Secretary Mnuchin requesting temporary waiver of requirement that bona fide residents of the Virgin Islands be hospitalized in order to maintain physical presence in the territory for tax purposes on days that are spent on the mainland for medical reasons As you know due to our tax structure and for some individuals who utilize our economic development program and receive tax benefits for being in the Virgin Islands they have a certain number of days that they have to reside in the territory However due to COVID pandemic many of those are still on the mainland or have medical purposes Do you have a response or do you have any status request—status to give me on the update of my request to you Mr RETTIG It’s my understanding that Treasury is responding and that that response will be coming You know I’d hate to use the term ‘‘soon ’’ but my understanding is soon and let me say that if it is—we have followed up we will followup and if soon is not in the space of less than 10 days you’ll hear from me or somebody on my behalf giving you a better timeline but it’s— Treasury is handling the response to you 23 Ms PLASKETT OK Thank you And you know in Washington you hate to hear the word ‘‘soon ’’ Mr RETTIG Yes I know Ms PLASKETT But you know that’s the kind of word that—— Mr RETTIG Right I know Ms PLASKETT continuing I give my kids when I say maybe you can go somewhere It usually means no Mr RETTIG You’ll note my apprehension to it I’m sure Ms PLASKETT Thank you I also wanted to find out you know we had a terrible situation IRS—you and Treasury were so good to support us in terms of when our Governors gave you the number of individuals that were going to be receiving stimulus checks Rather than seeking reimbursement for the money under the Mirror Code you gave money upfront and that has been really helpful to us based on those numbers However you may be aware that there was a snafu that occurred in that primarily those individuals who received Social Security checks were given two checks one from Puerto Rico in form of a direct deposit and the Virgin Islands Many of these are elderly people Some of them rely solely on Social Security And they’re really concerned because they have been told to write a check to the government of the Virgin Islands for the money that may have come from Puerto Rico and the government of the Virgin Islands will then send that money to Puerto Rico for the double payments The people are concerned that Puerto Rico will still in turn come after them that that money hasn’t been sent Are you aware of this issue and is there any clarification on what the correct procedure is for those individuals who receive those checks to take care of that Mr RETTIG Specific as to the Virgin Islands that came to my attention this week and I also am understanding of a situation where essentially there is a concern that a person might issue a check but also have the same amount removed from their account—— Ms PLASKETT Yes Mr RETTIG continuing In which case they essentially received zero Our intention is that every eligible American receive their payment and receive their payment in the correct amount So I will actually personally look into that deeper and as far as the advice we do have advice for people who have received duplicate checks And some of those issues are because we received information from multiple sources Ms PLASKETT Multiple sources uh-huh Mr RETTIG We are trying to do it as rapidly as possible We did it to the best of our ability but obviously there were situations where things happened you know because of certain programs who couldn’t work together maybe and things like that But as far as that there is a payment provision on our site where people can send checks As far as sending them to the Puerto Rico—the Virgin Islands folks sending it to Puerto Rico I need 24 to look into that because I’m not sure if—personally of that connection We do have people there But our intention desire and support is as strong for the people in the territories around the world as it is for people in downtown Washington DC New York or wherever We understand the need and purpose of these payments and we are trying our best You will hear back from me and—— Ms PLASKETT Thank you Mr RETTIG continuing If not I encourage you to again reach out to me Something you sent or forwarded yesterday did get on my desk so—— Mr CONNOLLY OK Mr RETTIG continuing You have the right channel Mr CONNOLLY The gentlelady’s time has expired Ms PLASKETT OK Thank you very much Mr Chair Mr CONNOLLY We’ll take you at your word that you will get back to the gentlelady in terms of that inquiry I thank the gentlelady The gentleman from Alabama Mr Palmer is recognized for five minutes Mr PALMER Mr Rettig we had a hearing before the Oversight Committee—I don’t know—a few years ago and I asked then Commissioner Koskinen about a problem that Chairman Connolly brought up and that is the tax gap And his—I asked him why it is that we’re failing to collect about $450 billion a year and his response was the complexity of the Tax Code I know our whole focus has been on the IT issue and certainly that’s a major issue but isn’t that part of the problem Mr RETTIG Complexity is always a problem The tax gap is sort of multifaceted It runs from guidance to a strong visible enforcement presence It runs to information reporting information reporting with withholding It runs to the ability to—for the IRS to require electronic filing of returns which are obviously quicker for us to process and paper returns a lot of issues with respect to tiered partnerships We have ramped up over the course of the last year our Office of Fraud Enforcement which is extremely visible We ramped—— Mr PALMER continuing Just to—— Mr RETTIG continuing Up an office of promoter investigations with respect to individuals who participate in certain abusive transactions Mr PALMER Mr Rettig Mr RETTIG continuing So trying to maintain a visible presence on that side—— Mr PALMER Mr Rettig Mr RETTIG Our criminal investigation force has been—— Mr PALMER Mr Rettig I’m—— Mr RETTIG continuing Extremely visible Mr PALMER Mr Chairman I need to move on Mr RETTIG Sorry Mr PALMER I would like for you to respond to that in writing if you don’t mind because I do think that’s an issue There is another issue that I would like to discuss and it’s something that I think the chairman has been supportive of and that’s 25 our work on dealing with improper payments and a lot of that has to do with technology issues in other agencies including the IRS One of the suggestions that I’ve made and we’re trying to get into a legislative format to introduce is to allow agencies as they reduce their improper payments to take part of the funds that they save for use to modernize their IT systems Is that something Mr Rettig that you think would be helpful to the IRS Mr RETTIG The IRS is all in on issues that lead to funding for the Internal Revenue Service assuming they’re approved by Congress and appropriately appropriated Mr PALMER Well then my next question would be With the realization that you’ve got these major IT issues does the IRS have a modernization plan that has clearly defined objectives an achievable schedule because there are issues that have been raised about the achievability of a schedule and a realistic budget for replacing the IT systems Because I’ve heard that some of these legacy systems still operate on the old COBOL system Is that true And do you have clearly defined objectives for modernizing your IT systems Mr RETTIG We do We don’t have hardware that goes back to the 1960’s but we do have language that goes back to the 1960’s And we have a modernization plan that was launched April 2019 We also have modernization coming forth under the Taxpayer First Act Both of those are running together but independent so that there is not overlap between those And we’d be pleased to have our folks come up and do a briefing for you or for your staff however it is appropriate to show you exactly where we are and where we’re headed Mr PALMER Well I want to get back to the funding for this So I would propose that Congress amend the Payment Integrity Information Act to allow agencies to direct a portion of recovered improper payments into a fund for modernizing their IT systems And this is not just an IRS problem as I said earlier It is throughout the Federal Government And it includes some of the states as well So I would like to Mr Chairman work with the committee if we can in the time that’s left in this Congress on an initiative like that In the last few seconds that I have left I’m going to go off topic here but I do want to congratulate the Department of Justice the FBI and our intelligence services in the arrest today of Alexander Kotey and Elsheikh These are the alleged kidnappers of James Foley Peter Kassig Steven Sotloff and Kayla Mueller They are alleged to have kidnapped tortured and murdered these people And while we have been in this hearing it was announced that they’ve been arrested I hope this brings some peace and closure for those families who have been involved in that And with that Mr Chairman I yield back Mr CONNOLLY I thank my friend from Alabama and I welcome his comments on the need to systematically develop a plan for modernizing the IRS and bringing it into 21st century technology and 26 I pledge to work with my good friend on developing such plans here on the subcommittee Mr PALMER I know you mean that and I thank the chairman Mr CONNOLLY I thank my friend The gentleman from Maryland Mr Raskin is recognized for his five minutes Mr RASKIN Thank you Mr Chairman Mr Rettig greetings Last week I sent you a bipartisan letter from more than a hundred different Members asking you to ensure that victims of domestic violence rather than their abusers get their stimulus checks As you know domestic violence has soared during the pandemic But the IRS response has often been to tell abused spouses to get their money through a divorce settlement which is callous and irresponsible Will you establish a process for domestic abuse survivors to notify the IRS that their payment has been stolen away by their abuser and will you issue catchup payments to those who have had their payments stolen Mr RETTIG As tax administrator we do not have the discretion to issue payments other than as provided in the CARES Act The CARES Act requires the IRS to use tax return information to the extent we have it So in a situation involving a domestic violence if a joint return was filed the IRS is required to issue in that context $2 400 plus $500 for if there’re dependents to the joint filers And if there is banking information it’s required to be deposited into that account The CARES Act does not provide the Internal Revenue Service with discretion to add an additional say in this context $1 200 to the victim of domestic violence Mr RASKIN Excuse me Mr Rettig Didn’t the IRS chief counsel conclude—— Mr RETTIG We as people are very sympathetic Mr RASKIN Excuse me Didn’t the IRS chief counsel conclude in 2009 that if a stimulus payment is stolen or not received the IRS can issue a replacement payment Why wouldn’t that apply in this circumstance Mr RETTIG That’s completely unrelated If you’d like to get into specifics we can do it but there were a lot—some people are relying on the wrong issue there When we make a payment into a joint account the way that the statute requires us to make that payment it goes into that joint account Mr RASKIN OK Mr RETTIG What happens to it once that payment gets there—— Mr RASKIN I’ll followup with you later Thank you I’m just running out of time Mr RETTIG We can work with you specifically Mr RASKIN But I wrote to Senator—I wrote to Secretary Mnuchin on September 9 expressing concern about the President’s plan to require Federal employees to accept a payroll tax deferral This move is a political ploy to make it seem as if Federal employees are earning more money than they’re actually earning only to 27 reach the end of the deferral period next year when suddenly they’ll have a significant back tax payment During a recent Senate hearing I was encouraged to hear Secretary Mnuchin agree with my Senator Chris Van Hollen that it would be reasonable to give Federal employees a choice in this matter Mr Rettig do you agree with Secretary Mnuchin and will the Federal Government indeed allow employees to opt out of this tax deferral If not why not Mr RETTIG The Internal Revenue Service is a bureau of the Department of Treasury and Secretary—I report to Secretary Mnuchin so the way that he indicates for us to go on policy and other issues is the way that the Internal Revenue Service will go Mr RASKIN All right My constituents have been calling to voice opposition to this plan Federal employee groups are up in arms about it and we should not be using Federal workers as pawns Ms Collins I’d like to turn to you In April you told me that your office could not help the public with certain EIP payment issues You updated that guidance in August and announced you could help with some but identified four categories where the office couldn’t help This includes if the EIP was determined based on the wrong tax year Your response has been that those taxpayers will have to wait till sometime in 2021 to receive the money they’re owed That is baffling to me for funds that were intended to provide immediate relief in an emergency Ms Collins why isn’t your office advocating for people in that position Ms COLLINS We are advocating for those people but the challenge we have is at the time the payments were issued the IRS relied on the CARES Act which said that they had an option to rely on the 2018 return if the 1919 return wasn’t filed So the challenge these taxpayers have is the amount when it was issued was correct based on 1918 but the 1919 return—for example someone had a child so now they have a qualifying child They’re entitled to another $500 That would have to be manually processed by someone within the IRS That’s our challenge is that the IRS does not have enough staff to potentially do 3 million individual entries for those individuals So we are continuing to advocate for those people but I do understand the problems that the IRS has in working these cases It’s not something that they can automate Mr RASKIN OK Ms COLLINS They would have to go through—— Mr RASKIN Well—— Ms COLLINS continuing Potentially 160 million returns to see what changed between the two years Mr RASKIN Mr Rettig let me ask you then When will the IRS set up necessary procedures and processes to allow Ms Collins to assist all taxpayers who have not yet received their EIP funds Mr CONNOLLY The gentleman’s time has expired but the—Mr Rettig may respond Mr RETTIG We currently have 11 300 customer service representatives available on phone Obviously we get more calls than 28 that so we don’t—we aren’t—we don’t have the ability and the staffing to answer all the calls but we are doing our best And I can vouch for the fact that the taxpayer advocate has advocated for the issues presented The Internal Revenue Service is in the scenario of needing to prioritize quite a few issues that when looked at individually clearly come across as an extreme high priority and then when you look at it and you look at the volume of individuals in this country and provisions in the CARES Act we have to prioritize those based on our resource availability We are doing our best but we—certainly the CARES Act itself provided for a true-up of amounts based on a 2020 filing and that’s where the language comes to to filing the return in 2020 And on the comments about extending the portal date to November 21 from October 15 I would hope that folks would take to heart the fact of our announcement on that called into the fact that any further extension of that would jeopardize our ability to handle the 2021 filing season We are really trying to be cognizant of many many issues So I thank you for the additional time sir Mr CONNOLLY Thank you The gentleman from Florida Mr Steube is recognized for five minutes Mr STEUBE Thank you Mr Chairman My questions are for Mr Rettig First I want to thank you for your service to our country and for being here today and also for your son’s service to our Nation in the armed services It’s been reported in the media and GAO has provided information that the IRS sent more than 1 4 billion in payments to deceased or incarcerated individuals I got a lot of people in my district who received checks whose family members were deceased and a lot of people want to know how this could possibly happen So that would be my first question is how did that amount of money go to people who are deceased Mr RETTIG If you look at the stimulus payments that went out in 2008 you’ll see that the process for payments to deceased individuals and then Treasury looked at the specific issues on decedents about the third week in May and determined that deceased individuals were not eligible to receive payments and so from the third week of May forward those payments did not occur But those were calls made outside of the Internal Revenue Service Mr STEUBE Well is there efforts being—— Mr RETTIG The vast majority of those funds have been sent back or payments not sent out actually Mr STEUBE OK So that was my followup question was how much of that and what are you guys doing to recoup those funds Mr RETTIG I have the statistics It would take me a moment to get to it but I believe something on the order of one—and I’ll get specifics This is off the top of my head but I think that something on the order of the 1 1 billion of the 1 4 billion or 800 million of the 1 1 billion something along those orders have been either returned or not sent out And so the net figure I believe is approximately 300 million 29 Mr STEUBE OK Yes If you can get me those exact numbers I’d appreciate it at your convenience What other changes has the IRS made to prevent improper payments of existing funds or if there is future stimulus payments Is there parameters in place to prevent that from going out Mr RETTIG Well certainly there’s lessons learned anytime an agency undertakes a massive responsibility like we did through the CARES Act and the issuance of these payments And keep in mind there were business provisions incorporated within the CARES Act as well that—and our folks were there So we constantly monitor for lessons learned in terms of our ability And if there was to be another round—I know there has been discussions but if there was to be another round we are confident that we are able to do so and it shouldn’t go unnoticed that we issued about 81 million payments for $147 billion within less than two weeks when the CARES Act was enacted and that required substantial programming by us so we are as prepared as we can be but we are better prepared than we were the last time and I think we did admirably the last time Mr STEUBE What—in your expertise and in your position what specific legislative reforms do you think that Congress and this committee should be looking at Mr RETTIG Well since 2011 every administration has proposed the program integrity cap which is funds directed to enforcement There is a pending—this year it’s about $400 million for enforcement And the last program integrity cap actually approved by Congress was in 2010 I think that’s significant In a lot of the areas—you know in terms of like EITC payments giving the Internal Revenue Service—and this is congressional— correctable error authority would be substantial would lessen the burdens on individuals Giving the Internal Revenue Service the ability to regulate return preparers would be substantial Enhancing the requirements for electronic filing of forms would be substantial Accelerating the electronic filing of W–2 forms to the Internal Revenue Service would be substantial There is a lot of issues that would come together to assist us both from a guidance perspective as well as an enforcement perspective and in my mind those two go hand-in-hand The person who is up late at night trying their best needs to understand what it is their requirements are which is why we’ve gone wholesale into assisting people who either are not comfortable in the English language or do not speak English We’ve also tried to simplify the languages We’ve got Q codes on things that lead them directly to points on our website and such But similarly we’ve got to go out on the enforcement side and maintain a visible presence Mr STEUBE Yes and I agree with that And if there is—if you can send those specifics that you just referenced if you have more specifics and information on that to my office I would love to look at those issues Thank you for your time today and my time has expired Thanks for being here Mr CONNOLLY Thank the gentleman 30 The gentleman from California Mr Khanna is recognized for his five minutes Mr KHANNA Thank you Mr Chairman The IRS is responsible for collecting about $3 5 trillion in revenue One of the things that I kept hearing from my constituents is why are people not getting the checks in time Why is it taking so much time for the IRS to deliver stimulus checks or to process the payments or collections It turns out that the IRS is still reliant on legacy systems some dating back all the way from the Kennedy administration And you know in Silicon Valley they just don’t understand this How is it that we haven’t had software updates since then So as you know in 2019 the IRS paid almost $3 billion to operate its current information technology and yet 2 3 billion of that was on legacy IT systems Mr D’Souza could you describe the impact that the legacy IT systems have on the IRS’ ability to deliver services to its taxpayers and fulfill its overall mission Mr D’Souza Sure Thank you I’d be glad to So I do want to make sure folks know that although the systems rely on older technology the underlying hardware much of it has been updated But what the limitations are of using these older technologies is—one most notably it’s hard to find staff that know these skills Programmers today aren’t coming out of school learning how to program in languages that are 50 years old Second it makes it harder for IRS to implement more online services because to the extent it can use contemporary technologies it’s easier for it to implement those Relating to your point about the time it takes to do things you know one of the biggest things that makes it easier for the IRS to do things more quickly is for people to do things electronically versus on paper So we have issued—where—for example where we’ve identified recommendations for IRS to look at implementing more online services and those kinds of things will help speed things along Mr KHANNA And why did it take so long for the economic impact payments the stimulus payments to go out and how is that connected to the IT systems Mr D’Souza So the vast majority of the payments did go out I think fairly quickly I think—you know I think any of the issues that we’ve talked about related to the payments had more to do with sort of policy and procedural issues versus the underlying technology actually I think the one outstanding issue is sort of identifying the remaining people who haven’t been able to claim their payments and getting them access to the online portal that we talked about Mr KHANNA How have the technology systems limited the ability to operate during the pandemic and what are one or two main things you would recommend needs to be changed Mr D’Souza Well a lot of IRS’ operations—sorry Let me back up a second Many of IRS’ employees do have the ability to work remotely already but some of them didn’t So for example those in customer service positions those obviously opening mail you can’t do that 31 work remotely To the extent that we can change work processes to allow more of those IRS folks to do work remotely I think that would have longer term benefits beyond the pandemic So that’s a primary area for them to focus on Mr KHANNA Mr Rettig two questions for you First the CIO of the IRS does not report to you directly Is that correct Mr RETTIG Not—the CIO does not report directly but I talk to the CIO at least once a week and many times seven days a week Mr KHANNA That—— Mr RETTIG But that’s a provision that is in the Taxpayer First Act and the IRS is being reorganized going forward So I think you’ll see that addressed Mr KHANNA That’s good And what do you think we need to do to modernize the IRS and to help deal with these legacy IT systems and what is the plan to do that Mr RETTIG We actually have a plan independent of the Taxpayer First Act and I think given the interest—I’m very familiar—you know I’m from California—very familiar with the valley and I have three brothers-in-law who are in IT in the valley So I’m understanding of you know where IT is let’s say in the valley compared to where IT might be in terms of the Internal Revenue Service and I have—had visits up there The Internal Revenue Service needs to come of age and it needs to come of age to be able to serve the people of this country in a manner that the people of this country deserve to be served I think that you know universally we all support that And you know we want the best for our people We don’t want a tax administrator that is behind the times and so we have to earn that trust and respect through providing that information to them I would welcome the opportunity for myself and others to meet with you or your staff to give you the details of two separate plans They’re independent There is no overlap but because tax—one came on the scene first but we are looking at them somewhat jointly But we have a modernization business plan that was launched April 2019 We have yet to receive the funding requested on an annual basis but it’s a six-year plan for that And then the Taxpayer First Act has modernization in it as well but I think as you’re all familiar with there are no funding appropriations associated with the Taxpayer First Act We need both of those Mr CONNOLLY I thank the gentleman I thank the gentleman Mr Pascrell the gentleman from New Jersey is recognized for five minutes Welcome Mr Pascrell you need to unmute yourself Mr PASCRELL Are we OK now Mr CONNOLLY There you go Mr PASCRELL Thank you I want to thank you for this opportunity As chair of the Oversight Subcommittee of Ways and Means Committee I am very interested in the IRS’ operations 32 This pandemic and economic crisis has been brutally hard on a lot of our communities and constituents We’ve heard some very very good questions from both sides of the aisle today There’s still neighbors in our cities and towns without economic impact payments or the IRS refunds that could help make ends meet So I’m pleased the Commissioner is here to answer questions It must be said that he’s utterly ignored the Ways and Means Committee in the 116th Congress Mr Commissioner how can a Congress and the American people be assured that the audits of the President’s tax returns are being conducted in a fair and scrupulous way and without political interference How can we be assured of that Mr RETTIG Sir as you know I cannot speak to specific matters as to any taxpayer as to whether or not issues prospective to a return to an examination of a return to what might be in the return to what might be in the examination—earlier there was a reference with respect to a criminal investigation of an organization That reference did not come from the Internal Revenue Service and the information in any way associated with that did not come from the Internal Revenue Service I cannot confirm or deny that information Every taxpayer in this country is assured a confidentiality and privacy with respect to their tax matters Mr PASCRELL I don’t want you to—I don’t want to—— Mr RETTIG So as you know sir I cannot—6103 and otherwise— I cannot speak to that Mr PASCRELL I don’t want to get into a debate about privacy That was part of 6103 in the Code I understand that Privacy is very critical to me My record is my record But the point of the matter is it would seem that we’ve put that aside when under the investigation of Commissioner Lerner—I believe it was 10 taxpayers who belonged to certain organizations were made public without any apology because they found nothing wrong So that answer is unacceptable The recent revelations of the President’s lifetime of tax abuse and malfeasance threatens public confidence in the IRS I’m talking about the very legitimacy of our Federal tax system I’m not sure you understand or appreciate that sir To begin to restore this trust you must fulfill the Ways and Means Committee’s legally binding request for the President’s tax returns—his business and personal tax returns under 6103 f You have been illegally withholding them for the last 500—and today 407 days—547 days Will you lawfully fulfill Chairman Neal’s request Mr RETTIG Sir as you know that issue is pending litigation and it’s not appropriate for me to discuss pending litigation and we have made—the committee is aware of that Mr PASCRELL Mr Rettig you admitted in a recent report that the IRS audits low-income taxpayers disproportionately over wealthy tax cheats because it’s easy to pick on regular Americans This is in part a funding issue But this is also a leadership issue Do you have an immediate plan to end this shameful disparity I call it shameful How on Earth can any American—— 33 Mr RETTIG continuing That report is absolutely false Let me repeat it for people who didn’t hear it the first time—absolutely false For taxpayers who have more than $10 million in total positive income per year we audit at the rate of 8 16 percent For the EITC community we audit at the rate of 1 129 percent Those facts are in our data book that was issued for Fiscal Year 2019 Mr PASCRELL Well this is—— Mr RETTIG So the earned income rate is 1 1 percent Taxpayers over $10 million it is—— Mr PASCRELL Mr Chairman—— Mr RETTIG continuing Eight-point-sixteen percent and taxpayers over $5 million—— Mr PASCRELL continuing This is exactly why we wanted you to come before the Ways and Means Committee Mr RETTIG continuing About four-point-something percent and taxpayers between $1 and $5 million it’s something on the order of about three percent So those numbers are disparate The issue with respect to the earned income tax is there is a $17 billion improper payment associated with that per year that the IRS does all it can do to get those payments out to the individuals as rapidly as possible 98 percent of the EITC payments are issued within 21 days Two percent get pulled for issues with respect to the fraud filters and ID theft and other issues that require a manual look by a person and we process those in a priority fashion So anybody who is going to be assert that the Internal Revenue Service is in any way insensitive to any lower income ethnic community geographically diverse community rural community is absolutely wrong and that should never come up Those comments taint the hardworking dedicated career employees of the Internal Revenue Service who create our audit plans and that is not what the Internal Revenue Service is about And I take obviously extreme discomfort in anybody asserting the contrary—— Mr PASCRELL Well—— Mr RETTIG continuing And we would meet with any and every of you to go through that in detail to back it up Mr CONNOLLY The gentleman’s time has expired Mr PASCRELL Mr Chairman thank you for allowing me—— Mr CONNOLLY Let me say on behalf of Mr Pascrell I think the question was not to disparage the IRS it was to ascertain whether reports about a discrepancy between the percentage of audits of people receiving the EITC was on par with the percentage of audits of people making more than or reporting more than $10 million of disposable income You have vigorously denied that report Mr RETTIG I respect Congressman Pascrell There is chatter outside of our buildings that implicate what I’m there for or implicate where I went with respect to that and it’s unacceptable to the IRS—— Mr CONNOLLY I understand that but it’s not unacceptable for a distinguished Member of Congress on the Ways and Means Committee waived onto this subcommittee to ask that question Mr PASCRELL Thank you 34 Mr RETTIG No sir and I agree And I said I respect Congressman Pascrell considerably and I appreciate his question Mr CONNOLLY Well good Then we are in agreement on that We both respect Mr Pascrell Thank you Mr Pascrell for joining us The chair now recognizes the gentlewoman from California Ms Porter for her five minutes Ms PORTER Commissioner Rettig we are going to start with a couple yes-or-no questions just inaudible this go smoothly You have a responsibility to remain impartial and unbiased in your role as IRS Commissioner correct Mr RETTIG Correct Ms PORTER And as IRS Commissioner do you believe that it’s important to hold criminals accountable for tax fraud evasion or other violations of the Tax Code Mr RETTIG If this is—the Internal Revenue Service has a very aggressive—— Ms PORTER Reclaiming my time Mr Rettig let me make sure you can hear me because I don’t think you want to waffle on this part Mr RETTIG I am having difficulty hearing you ma’am Ms PORTER OK As IRS Commissioner do you believe it is important to hold criminals accountable for tax fraud evasion and other violations of the Tax Code Mr RETTIG The enforcement efforts—— Ms PORTER Yes or no Mr RETTIG The enforcement efforts of the Internal Revenue Service are there to pursue those who do not comply with the tax laws Ms PORTER Reclaiming my time Commissioner Rettig I’m not trying to be difficult here Do you believe in holding criminals accountable Yes or no Mr RETTIG That’s what criminal investigation in the Internal Revenue Service does Ms Porter All right And holding those criminals accountable—— Mr RETTIG Actually we investigate—they investigate We do not prosecute Ms PORTER And holding those criminals accountable through investigation stems from your sworn commitment to upholding the Constitution correct Mr RETTIG That’s correct Ms PORTER I ask that because in addition to the salary you receive as an IRS Commissioner you also earn between $100 000 and $200 000 per year from your ownership of two units at Trump International-Waikiki You have continued to earn this additional income while in office correct Yes or no Mr RETTIG Correct And all of that was approved before I came on board and each year—— Ms Porter Great Reclaiming my time Mr Rettig—and that was approved Mr RETTIG continuing By the ethics officials in the Internal Revenue Service and other agencies ma’am 35 Ms PORTER Mr Rettig did you disclose that information to the Senate Finance Committee when you were nominated for the position Mr RETTIG Absolutely And anybody who asserts in any way shape or form that there was a concealment is absolutely wrong During my confirmation process the Senate committee received over 80 pages of invoices that specifically identified that property The instructions for that property specifically say to put the city and state where all properties are located That is exactly what transpired with respect to those properties and other properties that I own and anybody who asserts to the contrary—— Ms PORTER Reclaiming my time Mr RETTIG continuing Really does not know what they’re talking about or the process Ms PORTER OK Commissioner Rettig there is no need to get upset or to disparage me—— Mr RETTIG Ma’am I’ve been dealing with that since I came on board and I do not take lightly anybody—— Ms PORTER Reclaiming my time Mr RETTIG continuing Trying to disparage my reputation or my family’s reputation Ms PORTER Reclaiming my time Commissioner Rettig I do not take lightly people attacking the members of this committee who are simply trying to get—— Mr RETTIG I do not intend to attack you And if so—if it seemed that way—— Ms PORTER Reclaiming my time Mr RETTIG continuing I apologize to you and others Ms PORTER Mr Chair would you please remind the witness the time belongs to the gentlelady Mr CONNOLLY The gentlelady commands and controls the time Ms PORTER Mr Chairman—— Mr CONNOLLY Ms Porter Ms PORTER continuing The time belongs to me Mr Rettig since you’re getting upset about that line of questioning I’d like to try another one How many economic impact payments—how many people are still waiting on their economic impact payments Mr RETTIG First let me apologize to you If you took that as an attack ma’am I have to indicate that that issue has been out there and if it came across as hostile or aggressive toward you I do apologize That is not who I am and I certainly would not imply that to you or other members of the committee So I would hope that you would accept my apology with respect to that With respect to individuals and payments that we are struggling to issue it’s very difficult for us to identify people who do not interact with the government with the Internal Revenue Service with the homeless shelters and whatnot We don’t have a figure for you I have been asked earlier today to provide a figure Ms PORTER OK Mr Rettig—— Mr RETTIG I can tell you we’re currently—— Ms PORTER continuing Let me—let me reclaim my time here It’s about 9 million and since you said that some of these people haven’t reached out to the government I just want to share our ex- 36 perience in our office where we have had 114 people reach out— 114 constituents in my district alone and we have worked tirelessly our casework team to get answers for those people for months and months and months At this point we have answers for 13 of them That is as you know 11 percent So these other people we have no information Fifty cases of these 114 we have not been able to get any response at all from the IRS So I would respectfully ask you to please communicate with your team about responding in a timely way to congressional inquiries because for every American who is reaching out to our office and is asking for help one we’re not able to get them help because the IRS doesn’t respond to us in almost half the cases and two for every American who does reach out to us there are literally hundreds of thousands of more who are just waiting and don’t have that information So I would really appreciate your going back to your team and getting the committee a clear answer of the estimated number of people who have not received economic impact payments who are waiting and how many outstanding and unresponded-to congressional inquiries you have on both sides of the aisle Thank you very much With that I yield back Mr CONNOLLY Thank you And let me just say to Ms Porter before she joined the hearing I made the same point that there are a number of constituents in all of our respective offices who have not heard who have confused instructions have not received payments and we represent those constituents And the numbers you’ve shown are probably reflective of so many of us And I might add it’s a bipartisan issue Mr Hice the ranking member made the same point about his constituents in Georgia and what the chair asked Mr Rettig to do was to go back and look at the liaison functions with Members of Congress because when somebody contacts our office it means everything else has failed and so we’ve got to have more responsive reactions from the IRS and Mr Rettig I would say Ms Porter I believe committed to doing just that And we will followup on that but Ms Porter raises a very good issue and it is I think universally shared by Members of Congress Thank you Ms Porter for bringing that up and using that handy dandy white board you’re so adept at Thank you Mr RETTIG And once again Congresswoman I do apologize if it was received as hostile but it’s obviously a personal issue so thank you Mr CONNOLLY Thank you The chair now recognizes himself for five minutes Ms COLLINS Chairman can I interrupt for one sec Mr CONNOLLY Yes of course Ms Collins Ms COLLINS I just wanted to point out you had talked about a liaison and an ombudsman That is what we do That is what our function is that Congress created the National Taxpayer Advocate solely for that purpose So if our local offices do have contacts with various staff members and we’re happy to help in all these cases that we can help—— 37 Mr CONNOLLY And we appreciate that but when a Member of Congress calls a Federal agency that falls under our purview I expect an answer—not through a third party Directly When I write a letter I expect that letter to be answered I think for the record I presented a letter I sent three weeks ago that has not yet been responded to And again there’s a certain urgency here These aren’t just idle thoughts coming from Members of Congress we’re trying in real time to help constituents for whom for whatever reason the system has not worked So you’re quite right to remind us you’re a resource and you’re an asset that we should not overlook but I think we were talking directly about communication with the agency and trying to get a better line of communication that works for everybody Mr RETTIG Mr RETTIG Sir we accept that the taxpayer advocate is housed within the Internal Revenue Service and we have a shared responsibility that when things come in through legislative affairs certain items are automatically routed certain items obviously are not We accept and appreciate that we could do a better job We will not give you excuses for staffing and funding and whatnot I will only vouch for the dedication and desire of I think one of the most hardworking dedicated work forces in the entire Federal Government Mr CONNOLLY We will stipulate that but again remember—— Mr RETTIG Appreciate it I’ll take that back sir Mr CONNOLLY Yes We operate in real time too and—— Mr RETTIG Sir if you’re not happy we’re not doing our job Mr CONNOLLY All right Mr RASKIN Mr Chairman point of order Mr CONNOLLY Now my line of questioning Mr D’Souza I’m going to give Mr Rettig a little bit of a break What do we know about the scope of the IT challenge at IRS I mean we talk in generalization about legacy systems do we know how many legacy systems there are Mr D’Souza I think we actually had a finding that IRS didn’t have a complete inventory of its legacy systems but I think you know generally we do I think that as—— Mr CONNOLLY Can you give a number to that generally Mr D’Souza I would have to get back to you Mr CONNOLLY Are we talking about hundreds of systems dozens of systems what Mr D’Souza I think on the order of hundreds Mr CONNOLLY Hundreds Mr D’Souza But part of the thing I guess to keep in mind is it depends a little bit on how the agency defines a system So that’s why I have to—I’ll get back to you with a more exact number Mr CONNOLLY I would appreciate that In fact this subcommittee is going to formerly request GAO for a comprehensive inventory of the scope of the problem and challenge And by the way what’s wrong with a legacy system Mr D’Souza Well as we discussed they rely on older technology—— Mr CONNOLLY Yes 38 Mr D’Souza —and it would be harder to find people to employ to keep it up to date You have a limited range of vendors that support that technology Over time—— Mr CONNOLLY But I’m more interested—that’s all interesting Mr D’Souza OK Mr CONNOLLY But I’m interested in how it affects capability So a system that’s 40 years old does not have the same capability of handling the mass volume Mr Rettig has to handle than a contemporary system Is that correct Mr D’Souza So I would say that actually the IRS’ systems do handle a very large volume—— Mr CONNOLLY That wasn’t my question My question was when you compare a legacy systems capability to a system we would deploy today the former is inadequate compared to the latter Mr D’Souza It is but it’s not in terms of volume It’s probably in terms of capabilities it provides We talked about the ability to provide services online provide information more quickly to taxpayers Mr CONNOLLY Well is it more costly to maintain Mr D’Souza Yes Mr CONNOLLY Yes Any idea what percentage of the IT budget Mr Rettig oversees is devoted simply to maintaining legacy systems Mr D’Souza So 80 percent of the budget goes for ongoing operations The exact percentage of that that’s for legacy systems Again I would need to get back to you on that Mr CONNOLLY So what is your estimate of what it would cost to update completely the IT systems both hardware and software and retire these legacy systems at the IRS Mr D’Souza I don’t have an exact number but what I can say is that the modernization plans that we’ve talked about are good first steps but they actually don’t fully address what it would take to retire these legacy systems One of the things we ask the acting CIO is whether or not they had a full plan to retire IMF which is one of the biggest legacy systems And they said they were working on that I think over time they’ve taken various attempts at it and they haven’t been successful so you know we’ll have to see—— Mr CONNOLLY Wait Wait Mr D’Souza that’s not an adequate answer They haven’t been successful Why have they not been successful To what extent—this hearing’s about resources to the IRS to make sure it as responsive as it can be to the American people and we’ve documented how they were starved of resources and in fact vilified by this very committee I might add for 10 years at the cost of reinvestment So how has this affected capability Mr D’Souza Sure So as the budget for these modernization activities has been cut or as we’ve had situations like a lapse in appropriations or continuing resolutions IRS has continually had to replan and reprioritize its efforts That takes time It slows things down They have to move staff around If they don’t have enough staff then they have to triage and focus on high priority activities They’re not able to do certain things 39 One of the things we reported on indirectly answers your question though is with this most recent—the Tax Cut and Jobs Act IRS had to shift its IT resources to implement those changes versus some ongoing activities that it planned to do to enhance its systems So those are all some examples of tradeoffs the IRS has to make when it doesn’t have resources Mr CONNOLLY You say tradeoffs Somebody might use a different image cannibalization By the way it’s not just legacy systems is it I remember a few years ago when this committee was vilifying your predecessor Mr Koskinen whom I considered an exemplary public servant but nonetheless members of this committee vilified Mr Koskinen because of crashes with hard drives throughout the agency And one of the things not discussed of course because that would have been inconvenient was the age of the hardware we’re talking about I mean PCs So in the private sector when I was in the private sector for 20 years we kind of replaced our PCs about every three years What is the replacement rate what is the age and replacement rate of PCs for IRS employees currently Mr D’Souza So I don’t have a current rate What I can say is when we did look at this issue a few years ago we found that the majority of IRS IT equipment was outdated Since that time we do know—— Mr CONNOLLY Mr D’Souza outdated How many years How old Mr D’Souza Again I’d have to get back to you with the specifics on that Mr CONNOLLY Mr Rettig do you know Mr RETTIG We’re making—to the extent we get funding we’re making real inroads into updating our systems Most of our systems are far beyond their useful life and we have—for most of those systems we have extended the useful life on things—like laptops and such So we extend the useful life with warranties and whatnot And then we end up having to go beyond that because we don’t have the ability to replace One comment just quickly in terms of efficiency as we were to update our systems something that has always stayed in my head and it’s pretty simple is as we modernize and bring in chat bots for people who call in one employee can handle one telephone call but one employee can handle four chat box at the same time So that’s a 4-to-1 leverage We have 11 500 customer service representatives In theory if it was direct math it would put us up to 40 000 by getting us there Our ability to leverage resources through a modernized system which includes both language—it includes software it includes hardware—would be greatly received by every employee at the Internal Revenue Service as well as I think by every American Mr CONNOLLY Let me just say Mr D’Souza we need more from GAO than what we got here We need a comprehensive inventory of the nature of the IT systems legacy systems hardware software Zoom capabilities whatever so that we understand the scope of the problem and we need dollar figures assigned to that so we understand the investments that are going to be required 40 The other thing we need is an assessment from you and with cooperation with the IRS what’s the return on investment I mean we talk about GAO the agency for which you work that roughly every dollar we invest in GAO we get at least an $8 or $11 return Well what’s the comparable figure for the IRS If the IRS can do double the audits it does currently presumably the return on that is quite considerable especially when we know at least $450 billion is left on the table taxes owed but not paid because of capability capability of auditing tracing collecting enforcing And so those are important considerations in addition to we’re in a pandemic and while I think Mr Rettig and Ms Collins have both indicated that they’ve done a very credible job in trying to respond under the most adverse circumstances with a history of disinvestment for 10 years Nonetheless we know things are on the table With all of that we know that millions of Americans still haven’t gotten their direct payment Millions of Americans are still complaining about a responsiveness from IRS in terms of refunds or filing or processing a claim or making an appeal or dealing with an audit So these—the relationship between the investment in IT and the capability of the IRS to do its job on behalf of the American people—and by the way part of its job because of voluntary compliance which is so high in America compared to other places is based on the fact that I perceive the system to be fair that it’s going to treat me the same way it treats anybody else rich or poor They’re going to hold that person and me accountable And if that trust is damaged compliance will fall and that will hurt the ability of the U S Government to fund itself and the services it provides people especially during this period of time which is so challenging So we need the GAO to really look more closely and provide us with more comprehensive data in terms of the scope of the problem and what it will take to address that problem Mr D’Souza We do have work under way that’s looking at some of these issues and we’ll be glad to update your staff Mr CONNOLLY Well we want you to expand that so that it’s not some of these issues it’s everything we’ve just described That’s why we’re having this hearing And we need GAO as a resource to help us understand the analytics and the boundaries of those analytics Yes Mr Rettig Mr RETTIG We obviously will cooperate with GAO in that regard I just wanted to add on one thing about the compliance side of the house We look at service and compliance together We look at the desire of the IRS to earn the trust and respect of every American I made the comments about getting into different languages lower income communities expanding vital resources expanding resources to low-income taxpayer clinics When you consider that fiscal 1919 our gross receipts were $3 56 trillion which is 96 percent of the gross receipts of the United States of America and that part of a tax gap the voluntary compliance rate hovers around 83 percent and that’s for Americans who timely file and pay essentially and maintain compliance if we can help the folks who 41 are trying to get it on their own by in language simple language understandable things open up those avenues answer the phones when they place those calls and we’re only to bump the voluntary compliance rate one percent sir that’s $35 billion a year from Americans who want to get it right who are proud to be Americans who are proud to file tax returns And there’s a lot of people there This is the first time to my knowledge in the history of the Internal Revenue Service that we’ve done such an expansion into languages I’m very proud to be the son of an immigrant and the husband of an immigrant Very respectful for the challenges people have who come here and its incumbent upon us collectively sir to make sure they have the ability to get it right Modernization helps us significantly in that regard It also helps our enforcement component So we welcome the assistance of Congress Mr CONNOLLY Well thank you and the fact that you are the son of immigrants I’m a grandson of an immigrant and you married a refugee I think just gives living proof to the fact that immigration rewards and enriches America it doesn’t detract from it And by the way with respect to refugees I will just say editorially curbing the number of refugees people fleeing violence is a very un-American thing from this Member’s point of view and we ought to be doing exactly the opposite opening our welcoming arms to people who are suffering violence and persecution abroad That’s what refugee means and that’s what the refugee program is designed to provide Mr RETTIG Sir to help you with perspective my wife was born and raised in Vietnam After the fall of Vietnam April 30 1975 her father was taken away to a reeducation camp for three years nine months She in 1982 fled by boat She’s a boat person for the term—I don’t mean it in a derogatory sense I’m hugely proud of her Mr CONNOLLY Sure As you should be And that’s the story of America I know we’re digressing but the idea that we would cap the number of refugees who are—who perhaps worldwide are now at a record number at 15 000 is disgraceful and from my point of view un-American At any rate on to IRS We need more progress We need more help from GAO in broadening the scope Mr D’Souza We’ll be glad to work with you and Mr Dodero on that And Mr Rettig hopefully you and Ms Collins who’s new on the job will be creating mechanisms to be more responsive to congressional inquiries because remember we’re also representing taxpayers but taxpayers who have found for whatever reason the system doesn’t work With that we have five days for additional questions that may be submitted to our witnesses and we would ask for a speedy and expeditious response in writing should you get those questions through the chair And with that this hearing is concluded Thank you Whereupon at 12 24 p m the subcommittee was adjourned Æ