[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
2017 TAX FILING SEASON
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
APRIL 26, 2017
__________
Serial No. 115-OS03
__________
Printed for the use of the Committee on Ways and Means
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U.S. GOVERNMENT PUBLISHING OFFICE
33-389 WASHINGTON : 2019
COMMITTEE ON WAYS AND MEANS
KEVIN BRADY, Texas, Chairman
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
DEVIN NUNES, California SANDER M. LEVIN, Michigan
PATRICK J. TIBERI, Ohio JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois MIKE THOMPSON, California
VERN BUCHANAN, Florida JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska EARL BLUMENAUER, Oregon
LYNN JENKINS, Kansas RON KIND, Wisconsin
ERIK PAULSEN, Minnesota BILL PASCRELL, JR., New Jersey
KENNY MARCHANT, Texas JOSEPH CROWLEY, New York
DIANE BLACK, Tennessee DANNY DAVIS, Illinois
TOM REED, New York LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania BRIAN HIGGINS, New York
JIM RENACCI, Ohio TERRI SEWELL, Alabama
PAT MEEHAN, Pennsylvania SUZAN DELBENE, Washington
KRISTI NOEM, South Dakota JUDY CHU, California
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
TOM RICE, South Carolina
DAVID SCHWEIKERT, Arizona
JACKIE WALORSKI, Indiana
CARLOS CURBELO, Florida
MIKE BISHOP, Michigan
David Stewart, Staff Director
Brandon Casey, Minority Chief Counsel
______
SUBCOMMITTEE ON OVERSIGHT
VERN BUCHANAN, Florida, Chairman
DAVID SCHWEIKERT, Arizona JOHN LEWIS, Georgia
JACKIE WALORSKI, Indiana JOSEPH CROWLEY, New York
CARLOS CURBELO, Florida SUZAN DELBENE, Washington
MIKE BISHOP, Michigan EARL BLUMENAUER, Oregon
PAT MEEHAN, Pennsylvania
GEORGE HOLDING, North Carolina
C O N T E N T S
__________
Page
Advisory of April 26, 2017 announcing the hearing................ 2
WITNESSES
Kirsten Wielobob, Deputy Commissioner for Services and
Enforcement, Internal Revenue Service.......................... 6
Michael McKenney, Deputy Inspector General for Audit, Treasury
Inspector General for Tax Administration....................... 16
Jessica Lucas-Judy, Acting Director, Strategic Issues, Government
Accountability Office.......................................... 36
QUESTIONS FOR THE RECORD
Questions from Representative Vern Buchanan of Florida to Kirsten
Wielobob....................................................... 106
Questions from Representative Jackie Walorski of Indiana to
Kirsten Wielobob............................................... 109
Questions from Representative Mike Bishop of Michigan to Kirsten
Wielobob....................................................... 112
Questions from Representative Patrick Meehan of Pennsylvania to
Kirsten Wielobob............................................... 117
Questions from Representative George Holding of North Carolina to
Kirsten Wielobob............................................... 119
SUBMISSIONS FOR THE RECORD
AICPA, statement................................................. 120
Thomas A. Schatz, Citizens Against Government Waste, statement... 132
THE 2017 TAX FILING SEASON
----------
WEDNESDAY, APRIL 26, 2017
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:02 p.m., in
Room 1100, Longworth House Office Building, the Honorable Vern
Buchanan [Chairman of the Subcommittee] presiding.
[The advisory announcing the hearing follows:]
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Chairman BUCHANAN. The Subcommittee will come to order.
Welcome to the Ways and Means Oversight Subcommittee hearing on
examining the 2017 tax filing season.
Every year this Subcommittee holds a hearing on tax filing
season. The annual hearing is an opportunity to hear about the
progress and challenges the IRS has administering the Tax Code,
and to learn what Congress might be able to do to help.
In our country, we have a voluntary tax system. A key
element of voluntary compliance is taxpayers being treated
fairly. If taxpayers perceive that others are cheating the
system and getting away with it, compliance will decrease.
Just last week, in South Florida, it was announced that
three people were indicted for stealing personally-identifying
information. They filed over 2,000 fraudulent tax returns and
claimed more than $6.8 million dollars. Thankfully, these
fraudsters were caught. The good news is that they are facing
serious prison sentences and financial penalties. The bad news
is that their fraudulent activity existed for roughly seven
years before finally being stopped. We have to do better.
One tax credit that has been particularly prone to
fraudulent activities is the Earned Income Tax Credit, often
referred to as the EITC. Unfortunately, the IRS estimates that
approximately 24 percent of all EITC payments are improper. We
are talking about big money here: roughly $16.8 billion dollars
was paid out improperly in the 2016 tax year.
However, it is unclear how much of that 16 billion is
fraud, and how much is miscalculation or paperwork errors.
Income misreporting is a major cause of improper EITC payments.
Although the IRS has implemented some corrective actions to
prevent erroneous payments and has had some success, we would
like to do better. Stopping $3.6 billion dollars is good, but
allowing the idea that four times that amount goes out the door
is not acceptable. Taxpayers deserve better.
False reporting of wages and withholding make up more than
$1.3 billion in potentially undetected fraudulent tax returns.
Providing the IRS with wage information faster should allow the
agency to verify the W-2 information matches the information
filed by the taxpayer. Until this year, the IRS only received a
small amount of the wage data prior to refunds being sent out
to taxpayers.
The majority of the matching was done in the summer, after
the filing season was over. This forced the IRS to pay refunds
and then determine whether they were properly being paid.
In December of 2015, in the PATH Act, Congress changed the
reporting deadline for employers to submit W-2 information to
the Social Security Administration, which is then sent to the
IRS. Congress also requires that refunds claiming certain
refundable tax credits, like the EITC, would be held until
February 15th.
The goal of these two provisions is to allow the wage
verification before the refund is issued, and to reduce the
pay-and-chase method of fraud detection. The 2017 tax filing
season is the first time the IRS will be implementing these
provisions. Although it is still a bit early to make any
judgements, I am eager to receive an update from our witnesses
on the outcome of these changes.
I want to thank the witnesses for being here today, and I
look forward to your testimony.
Chairman BUCHANAN. I now yield to the distinguished Ranking
Member, Mr. Lewis, for the purposes of an opening statement.
Mr. LEWIS. Thank you, Mr. Chairman. Mr. Chairman, I hope
that you had a wonderful break. And it is good to see you at
this hearing. Thank you again, Mr. Chairman, for holding this
hearing on the 2017 tax filing season. I would also like to
thank all of the witnesses for being with us today.
First, let me congratulate the Internal Revenue Service on
a successful filing season. Through mid-April, agents processed
over 115 million tax returns, and delivered more than 85
million tax refunds worth $245 billion. There were no major
delays.
Last Congress we provided additional funding for taxpayer
service, and the results were very encouraging. The level of
service continued to improve, and taxpayers' average waiting
time went down to about 7 minutes. This is a good start. With
bipartisan support it can be better, much better.
Congress must fully fund the IRS. Despite the success of
the filing season, I am concerned that the agency does not have
the resources to serve taxpayers. Since 2010 Congress cut the
IRS budget by almost $1 billion. This is not right. It is not
fair. As I said in the past, and I will say again, you cannot
get blood from a turnip.
For some reason the majority seems to think that
outsourcing a core government function helps an underfunded
agency. For the record, I want to be crystal clear. In today's
world, private debt collection will only make a bad situation
much worse. We have been down this road before. It has been
tried and tried again. Each and every single time private debt
collection fails. It creates confusion and wastes taxpayers'
dollars.
More--most importantly, the program does not help serve the
American people. Let me explain how things have changed since
Congress last repealed this program. In the fall of 2013, the
Treasury Inspector General for Tax Administration began
investigating a new way of scams. Nearly 2 million victims
received telephone calls from people pretending to be IRS or
Department of Treasury employees. Some of us, even Members of
this very Committee, received calls from these criminals.
If these people are calling Members of the Committee,
Members of the Subcommittee of the Ways and Means Committee,
Members of the full Committee of the Ways and Means Committee,
what are they doing to other people? The thieves demand money,
they claim that the victim owes unpaid taxes. To date these
criminals have swindled taxpayers out of more than $55 million.
Before the return of the private debt collectors, our best
defense for taxpayers was a simple and clear message: the
agency will never call you. Now there is confusion. The new
message is that the IRS will not call you, but a private debt
collector might. It makes absolutely no sense.
Mr. Chairman, today I am introducing the Taxpayer
Protection Act. It will repeal this terrible program, and I
hope all of my friends on both sides of the aisle will support
this commonsense bill.
This afternoon the Administration released its principles
for tax reform (sic). I must express my concern about beginning
tax reform when the public has no idea how the proposal will
personally benefit the first family (sic).
On April 15th, thousands of Americans took to the streets
and demanded transparency, truth, and accountability. They know
there is no provision in the Internal Revenue Code that
prevents the President from releasing his tax return. Failure
to meet this standard presents a dangerous and slippery slope
for policy makers. The American people expect and deserve
better.
Again, thank you, Mr. Chairman, for holding today's
hearing. I look forward to hearing from all of the witnesses.
And again I want to thank each and every one of you for
being here. I yield back.
Chairman BUCHANAN. Thank you, Mr. Lewis.
Without objection, other Members' opening statements will
be made part of the record.
Today's witness panel includes three experts: Kirsten
Wielobob, Deputy Commissioner, Office for Services and
Enforcement, Internal Revenue Service; Michael McKenney, Deputy
Inspector General for Audit, Treasury Inspector General for Tax
Administration; and Jessica Lucas-Judy, Acting Director for
Strategic Issues, Government Accountability Office.
The Subcommittee has received your written statements, and
they will all be part of the formal hearing record. You each
have five minutes to deliver your oral remarks. We will begin
with Ms. Wielobob.
You may go when you are ready.
STATEMENT OF KIRSTEN WIELOBOB, DEPUTY COMMISSIONER FOR SERVICES
AND ENFORCEMENT, INTERNAL REVENUE SERVICE
Ms. WIELOBOB. Chairman Buchanan, Ranking Member Lewis, and
Members of the Subcommittee, I am the new deputy commissioner
for services and enforcement at the IRS, having been appointed
to this position just over a month ago. I am here today to
update you on the 2017 tax filing season.
Through April 21st, the IRS received more than 135 million
individual returns. We issued over 97 million refunds for more
than $268 billion in total, with an average amount of $2,763.
While the public's filing season concluded on April 18th, the
IRS's filing season continues until we have processed all
returns, deposited payments, and sent appropriate refunds.
Filing season 2017 had many achievements. Focusing on 3
areas, we implemented changes and acted under the PATH Act of
2015. We improved taxpayer assistance, and we continue to work
to protect taxpayer information against identity theft.
With respect to the PATH Act, IRS was required to hold tax
refunds until February 15th if taxpayers claimed the Earned
Income Credit or the Additional Child Tax Credit. Not
unexpectedly, this change slowed the overall pace of refunds
early in this filing season. The pace accelerated after
February 15th, when we released more than $50 billion in EITC
and ACTC refunds.
The PATH Act also accelerated the filing date of Forms W-2.
These changes, together, helped the IRS improve our ability to
spot incorrect or fraudulent returns, as well as to better
identify valid returns.
With a year between the passage of the PATH Act and the
effective date of the provisions, we had time to work
internally and externally to communicate, work with partners,
and set expectations about W-2 and refund timing. This was
helpful to the taxpaying public, businesses, and the IRS.
With respect to taxpayer assistance, we are improving
across all service channels. We understand we need to be
available to taxpayers, no matter how they prefer to get
information and communicate with us. We improved our level of
service on our toll-free telephone lines again this year, as we
did in 2016, and anticipate that the average level of service
for the full filing season will be about 75 percent.
This improved level of service results from several factors
related to Congress. First, the additional funding we received
to improve taxpayer service. Secondly, there was no late-
breaking legislation in calendar year 2016. And, thirdly, we
had ample lead time to implement PATH Act changes.
The additional funding directly improved phone service and
freed resources to reduce our correspondence inventory. In our
experience, over-aged correspondence correlates to increased
phone demand, as taxpayers call regarding the status of letters
they have sent in.
We continue to experience strong demand for our online
services. Taxpayers visited our website, IRS.gov, more than 500
million times last year, and more than 320 million times so far
this year. The popular electronic tracking tool, ``Where's My
Refund,'' was used about 300 million times last year, and more
than 246 million times this year.
Service at our taxpayer assistance centers also improved.
During recent filing seasons, many TACs saw such heavy demand
that taxpayers were lining up for hours before the centers
opened. In 2015 we tested the idea of letting people make
appointments. This worked so well that we extended the
appointment process to all TACs this filing season. We had no
reports of long lines, we were able to help taxpayers more
effectively, and we still managed to serve many thousands who
visited us without an appointment.
With respect to identity theft refund fraud, we continue to
make steady progress, which has been advanced since 2015, due
to the collaboration with states and industry that we call the
security summit. This year the number of people who reported to
us that they were victims of identity theft dropped 46 percent.
Even with this progress, the fraud filters in our system are
still catching a large number of false returns.
Last year our system stopped more than $6.5 billion in
fraudulent refunds on 969,000 returns filed by identity
thieves. Identity theft is still a major threat to tax
administration, and we will continue fighting to protect
taxpayers and secure taxpayer information.
Looking forward, we recognize that tax reform and other tax
legislation may be on our horizon. The IRS doesn't take a
position on policy questions. Our job is to implement the laws
that Congress passes. We do hope to offer our perspective on
the administrability of any legislation, however, which helps
ensure that your goals are reached effectively and efficiently
for taxpayers and the tax system, as a whole. Building on the
successful implementation of the PATH Act, we also hope that
Congress will once again include lead time so we can prepare
taxpayers, practitioners, and our own systems for the changes.
Chairman Buchanan, Ranking Member Lewis, and Members of the
Subcommittee, that concludes my statement.
[The prepared statement of Ms. Wielobob follows:]
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Chairman BUCHANAN. Thank you. Mr. McKenney, you are up
next.
STATEMENT OF MICHAEL MCKENNEY, DEPUTY INSPECTOR GENERAL FOR
AUDIT, TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
Mr. MCKENNEY. Chairman Buchanan, Ranking Member Lewis, and
Members of the Subcommittee, thank you for the opportunity to
discuss the 2017 filing season and efforts to combat identity
theft.
One of the continuing challenges the IRS faces each year in
processing tax returns is the implementation of tax law
changes. For the 2017 filing season, tax law changes include
those provisions of the PATH Act specifically intended to
reduce fraudulent and improper refundable credit claims.
To date, our work has found that the IRS has held refunds,
as required, for returns with an EITC or Additional Child Tax
Credit claim, and has released those returns, as required, if
they were not identified for additional review. We are
evaluating the IRS's implementation of key provisions of the
PATH Act, and plan to issue our final report later this
calendar year.
The IRS is continuing its trend of increasing dependence on
technology-based services, such as IRS.gov and other online
tools to assist taxpayers. As of April 8th, the IRS reports 276
million visits to the IRS.gov during this filing season.
However, with the availability of online tools comes the risk
of unauthorized access.
For example, in March 2017 the IRS de-activated the online
data retrieval tool, which is used by students and parents to
obtain information needed to complete the free application for
federal student aid, due to a likely breach of sensitive
taxpayer data. Effective authentication of individual
identities is critical to maintaining taxpayer confidence that
their personal information is safe with the IRS.
For its toll-free assistance lines, the IRS reports that,
as of April 8, 2017, 16 million calls have been answered with
automation, and telephone assisters had answered nearly 8.4
million calls and provided a 78.6 percent level of service. The
IRS plans to assist approximately 3.4 million taxpayers in
person at its taxpayer assistance centers this fiscal year:
23.6 percent decrease from the prior year. Although the IRS
reports that it has 376 taxpayer assistance centers for this
filing season, 24 are not open because they have not been
staffed.
The IRS continues to devote significant resources to
stopping tax fraud from identity theft and assisting victims.
Our ongoing work shows that the IRS is making progress in this
area. In February 2017 we reported that the IRS efforts are
resulting in improved detection of fraudulent tax returns from
identity theft before the refunds are released.
For the 2007 (sic) filing season, the IRS is using 197
identity theft filters to identify potentially fraudulent
individual tax returns, and prevent the issuance of fraudulent
tax refunds.
TIGTA has reported previously that the IRS does not always
effectively provide assistance to victims of identity theft. To
better assist victims, the IRS created a centralized unit in
July 2015 to combine the identity theft work and multiple
functions into 1 directorate. Since this action was taken,
there have been improvements in case closure timeframes, and a
reduction in case-closing errors.
To help protect identify theft victims and improve
authentication, the IRS began issuing unique identification
numbers to eligible taxpayers in fiscal year 2011. However,
TIGTA has reported that taxpayer accounts were not always
consistently updated to ensure that these numbers were
generated for taxpayers, as required. This results in the need
to use additional resources to review future tax returns
received using victims' identities.
Tax scams are constantly evolving, which will require the
IRS to continually adapt its detection and prevention
processes. In addition to identity theft, the telephone
impersonation scam remains on the IRS's list of the top dirty
dozen tax scams.
Since the fall of 2013, more than 1.9 million intended
victims have received unsolicited telephone calls from
individuals falsely claiming to be either the IRS or Department
of Treasury employees. The callers demand money under the
pretense that the victim owes unpaid taxes. To date, over
10,300 victims have purportedly paid more than $55 million to
these criminals. TIGTA has made several arrests in connection
with the scam, and has numerous investigations underway.
TIGTA has continuing audit and investigative work in the
areas I have just discussed, and we will keep the Committee
updated on the results.
Chairman Buchanan, Ranking Member Lewis, and Members of the
Subcommittee, thank you for the opportunity to share my views.
[The prepared statement of Mr. McKenney follows:]
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Chairman BUCHANAN. Thank you.
Ms. Lucas-Judy, please proceed with your testimony.
STATEMENT OF JESSICA LUCAS-JUDY, ACTING DIRECTOR, STRATEGIC
ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE
Ms. LUCAS-JUDY. Chairman Buchanan, Ranking Member Lewis,
Members of the Subcommittee, thank you for this opportunity to
discuss GAO's work on the 2017 tax filling season. My statement
today focuses on 2 areas: IRS's implementation of requirements
to help address identity theft, refund fraud, and improper
payments, and its performance in 2017 compared to prior years.
As you have heard, wage information reported on W-2s had
not been available to IRS until after most refunds had been
processed and paid. We had previously reported that earlier
access to that information could allow IRS to verify income
reported on returns before issuing billions of dollars in
fraudulent refunds.
Consistent with our findings, Congress advanced the
deadline for filing W-2s to January 31st. Congress also
required IRS to hold all refunds for taxpayers claiming the
Earned Income Tax Credit, EITC, or the Additional Child Tax
Credit, ACTC, to provide time to use W-2 data to verify
returns. As of February 17th, IRS had over 214 million W-2s
available from the Social Security Administration. That is more
than twice as many as the same time last year.
All returns were subject to a process that IRS calls
systemic verification, where it uses wage and withholding
information on the W-2 to verify what is reported on the tax
return. The difference is IRS had to hold refunds until
February 15th for returns that were claiming EITC or ACTC, even
if it was able to verify the information earlier.
By contrast, IRS released refunds for returns that were not
claiming those credits, even if the W-2s were not yet available
for verification. Because of the earlier reporting deadline,
more W-2s were available for both types of returns, and the
verification results were similar.
There were, however, 3 challenges that caused delays in
having W-2 data available in time for verification. First, IRS
received electronic W-2 information daily from Social Security,
but could only process it on a weekly basis, due to its aging
technology. Secondly, employers requested extensions, or they
missed the reporting deadline. And thirdly, SSA did not begin
transmitting paper W-2s to the IRS until March.
SSA estimated it had approximately 17.4 million paper W-2s
as of February 15th. As of the end of March, it had transmitted
about 3.8 million of those to IRS. Consequently, IRS processed
refunds without W-2 information for taxpayers whose employers
submitted paper W-2s, although their returns were still subject
to other fraud checks.
IRS does not yet know how effective systemic verification
was in preventing identity theft refund fraud or improper
payments. However, IRS's initial review showed it identified
about 162,000 returns worth about $863 million as potentially
fraudulent. These returns had claimed EITC or ACTC and,
therefore, IRS had to hold them until February 15th.
W-2 information had not been available when IRS first
processed the returns, and they had not been flagged by IRS's
other fraud filters. During the hold period, IRS kept cycling
the returns through its verification process, and eventually
the corresponding W-2s arrived and showed that there was a
mismatch. IRS sent those for further investigation.
Switching now to filing season performance, IRS provided
better telephone service to callers during the 2017 filing
season compared to recent years. More people who wanted to
speak to an assister were able to get through. In addition,
wait times continued to decrease, down to less than 7 minutes
compared to almost 10 minutes last year.
Overall, the call volume decreased about 30 percent. And,
as a result, IRS redirected assisters to reduce the backlog of
written correspondence. It also launched a new online account
service that provides taxpayers the ability to view their
account balance and access IRS's online payment system.
Security continues to be an issue, however. In March IRS
and the Department of Education responded to security concerns
and removed an online tool for obtaining tax information that
is used for student financial aid. IRS expects the tool to be
unavailable until at least October.
In summary, legislative changes for W-2 reporting show
promise for detecting potentially fraudulent returns, although
full results are still unknown. And IRS faced some challenges
in implementing them. IRS also continued to improve service
during the filing season. My written statement describes the
status of recommendations that we have previously made for
improving IRS's online services and customer service more
broadly.
Chairman Buchanan, Ranking Member Lewis, Members of the
Subcommittee, this concludes my remarks and I will be happy to
answer any questions you have.
[The prepared statement of Ms. Lucas-Judy follows:]
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Chairman BUCHANAN. Well, thank you. And I want to thank all
of you for your excellent testimony. We will now proceed to the
question-and-answer session. As is my custom, I will hold my
question until the end.
I now recognize the gentleman from Arizona, Mr. Schweikert,
for any question he might have.
Mr. SCHWEIKERT. Thank you, Mr. Chairman. There are so many
things to ask, so we will sort of do this at, like, the speed
round.
First off, there was a number you were saying that--I
believe it was almost a 40 percent reduction in identity fraud
use on filings. Did I get that number correct? And what got you
to that number?
Ms. WIELOBOB. We had a 46 percent reduction in those folks
calling us to report that they were victims of identity theft.
Mr. SCHWEIKERT. Okay, so it was not--so it was from
individuals contacting the IRS, saying, ``My identity was used
fraudulently.''
Ms. WIELOBOB. Reporting themselves as victims of identity
theft, yes.
Mr. SCHWEIKERT. Okay. Ms. Lucas-Judy, can you walk me
through? Because in sort of the data metrics, you were saying,
okay, you have had great success in matching W-2 data to the
requests for refunds and those.
How much outside data--do you ever use proprietary data, or
purchase other data, or bounce requests for refunds off of
private databases?
Ms. LUCAS-JUDY. We were reporting specifically on IRS's use
of the W-2 wage data----
Mr. SCHWEIKERT. Yes. My question was the next level out.
Ms. LUCAS-JUDY. Right.
Mr. SCHWEIKERT. Are there other identifications used in the
adherence of making the decisions of an Earned Income Tax
Credit? Are those things going out the door, or is it just
solely the delay and the match to W-2?
Ms. LUCAS-JUDY. In this case it was about the delay and the
matching of the W-2s, because the W-2s were coming in, in some
cases, after the refunds were being paid.
Now, IRS does have a number of other checks that it does
throughout the process to determine which returns would be
potentially fraudulent.
Mr. SCHWEIKERT. Well, my concern is the difference in the
designs of an algorithmic look and an actual match look.
Ms. LUCAS-JUDY. Right.
Mr. SCHWEIKERT. They are two very different things. One is,
hey, you know, the attributes of this filing look like it meets
our statistical model of potentially being dodgy, where this
one, this person saying they made this income, therefore they
do qualify for child care tax credit, you know, with these
attributes, we can bounce it off and get red light, green light
almost instantly if the attributes match. And if the attributes
don't match, then you know--because if I was hearing the
discussion that there may have been a concern saying, hey, this
waiting until the February date--well, there is an alternative
to the delay, but that is--requires using data matching with
other databases.
Ms. LUCAS-JUDY. Right, and they are still matching against
other things.
And one of the issues is that when IRS identifies a
potential mismatch, it still has to go through and do some form
of additional verification, additional investigation to
determine whether or not it is actually fraudulent.
Mr. SCHWEIKERT. Back to the question. Sorry--and I may not
be communicating very crisply--what are you matching to? Is
that algorithmic, is it W-2? Are you using any outside data
sets to match to?
Ms. LUCAS-JUDY. Well, we are--GAO is not doing the
matching----
Mr. SCHWEIKERT. No, no, I meant----
Ms. LUCAS-JUDY. It is through IRS----
Mr. SCHWEIKERT [continuing]. As the observation at the----
Ms. LUCAS-JUDY. Right. So one of the things that we have
recommended, we have pointed out that the more third-party
information that is available for doing that kind of matching,
the more effective it is going to be. And also that IRS--we
have also recommended that Congress expand IRS's correctable
error authority, its math error authority, to be able to handle
mismatches more quickly without having to go through and do
audits of individual instances.
Mr. SCHWEIKERT. From the IRS standpoint, is that something
that has been--has there ever been a test, a data run, a look
at--on being able to sort of do an A and a B--I know statute
right now is you have to hold and wait so you have the W-2 data
in the system. But there is other ways to get a quick match.
I mean when some of these private databases know what ice
cream I eat, they know my attributes and my income, my
lifestyle, those things, wouldn't that be a faster, cheaper,
better way? And that way also, as all of us have a concern on
the IRS's ability to produce and maintain large IT systems,
this way there is no IT system for the IRS to own and manage.
It is just data matching.
Ms. WIELOBOB. So currently, we do, as my co-panelist was
describing, we do match income against the W-2s. And we also
have a----
Mr. SCHWEIKERT. Okay, but that is still----
Ms. WIELOBOB. We also have----
Mr. SCHWEIKERT. But that is still----
Ms. WIELOBOB. But----
Mr. SCHWEIKERT [continuing]. Internal. I mean do you do any
matching to anything in the outside world?
Ms. WIELOBOB. We have a series of filters that we run the
returns through to detect----
Mr. SCHWEIKERT. Okay, but the filter----
Ms. WIELOBOB [continuing]. Whether there is fraud.
Mr. SCHWEIKERT. But the filters would all be algorithmic,
internally produced.
Ms. WIELOBOB. I would have to get back to you on that. You
are beyond my level of expertise right here.
Mr. SCHWEIKERT. Okay, sorry.
Mr. Chairman, thank you, but it is an interesting idea.
There may be a cheaper, better, more elegant way to get these
benefits out the door and at the same time deal with the amount
of fraud that is still built into the system.
With that I yield back, Mr. Chairman.
Chairman BUCHANAN. I now recognize the distinguished
Ranking Member, Mr. Lewis, for any questions that he might
have.
Mr. LEWIS. Thank you very much, Mr. Chairman. I just want
to make a short statement before asking my question. In 2015
the Republican majority insisted that the Congress pass a law
that requires the agency to hire private companies to collect
unpaid taxes from taxpayers. And IRS, under the law, is
required to turn over Social Security numbers and identifying
information for tens of thousands of taxpayers to private debt
collectors who will soon start collecting from the public.
Do any of you have any concern about what is happening? Do
you have any information, Ms. Lucas-Judy, about what has
happened, is about to happen, that happened in the past?
Ms. LUCAS-JUDY. GAO reported back in--I believe it was
1997--on the pilot project that IRS did at that time using
private debt collectors. And one of the things that we found
was that the cost of the program at that time--the collection
and--didn't necessarily outweigh the costs. Sorry, the costs of
the collection didn't really outweigh the benefits of what they
were bringing in. They were spending more on the private debt
collectors.
It was also additional opportunity costs involved in having
to train the private debt collectors and to oversee their work,
because there were limitations due to privacy concerns about
what information they could have.
Mr. LEWIS. Do you have any information or any history of
citizens calling to the IRS saying they are being harassed by
some private organizations all times of night, all times of
day?
Ms. LUCAS-JUDY. Well, as you have heard----
Mr. LEWIS. Any for the record?
Ms. LUCAS-JUDY. Oh, I am sorry, go ahead.
Mr. LEWIS. Do you have any information to support that
people are being harassed?
Ms. LUCAS-JUDY. Not necessarily of harassment. I mean, as
you heard, the--it has been a very common scheme to have people
impersonate IRS collectors and threaten people with
imprisonment or, you know, losing benefits, or things like
that. So that is something that would be a concern, and that
IRS has expressed a concern about with using private debt
collectors.
They did put out a statement recently trying to explain
what to expect if you are going to be contacted by a private
debt collector who is under IRS's authority to try to deal with
that concern.
Mr. LEWIS. Do you know whether the head of the IRS or any
official at the IRS have made statements to the Congress saying
this is not working, why are we going down this road again? Can
we remember our history, what we have lost, what it is doing to
the average taxpayer?
Ms. LUCAS-JUDY. The program did just start, I believe, a
few weeks ago. I don't' know if either of the other panelists
has any comments on that.
Mr. MCKENNEY. I guess I have a couple of comments. TIGTA
has looked at the--kind of the creation of the program, the
processes that they are putting in place. And I guess the
concerns that we have expressed so far--and they have a lot to
do with the concerns about that telephone impersonation scam,
you know, kind of coinciding with the implementation of this--
and a few of the concerns we have--or I will mention 2
significant ones is--that we have expressed to the IRS.
One is the authentication process. Authenticating who you
are talking to. The process that IRS has for that, we believe,
need to be strengthened, because there is just a potential
that, you know, people will use this new process to, you know,
perpetrate the scams that have already been underway.
And then the other issue that we think is really important
is the lack of a complaint panel, which helps identify problems
early on and, you know, improve the program in case there is,
you know, issues that people need to complain about.
So those are the 2 main issues we brought up early on in
the process, and we are continuing, and we will be reporting
periodically on that program.
Mr. LEWIS. Do you have any idea what effect the high-end
taxpayers, or the low, middle-to-low-income taxpayers--what
type of people are being harassed? What class of people?
Mr. MCKENNEY. Well, ultimately, the--it calls for, really,
inactive inventory, and the definition--anything that has been
removed from inactive inventory will be involved in this
program, and that is inventory which--one-third of the
collection statute has been--has expired or it has been at
least a year since anybody has contacted the person.
Beyond that, what the criteria may be----
Mr. LEWIS. What I am trying to get to--whether the high
rollers, people who make a lot of money, millions and billions
of dollars, whether they are being harassed, or whether it is
the middle-income, the working people that are being harassed
by the private collectors.
Mr. MCKENNEY. It is pretty early on in the program. I don't
really have any information yet. They just started sending
those letters out, you know, in April. So I think, as far as
what----
Ms. WIELOBOB. That is true. We just started sending out the
letters--I think we are in the second week of sending accounts,
actually, to the private collection agencies. So we don't have
many--we don't have much data or results to share at the
moment.
But as far as the range of taxpayers who are--who may hear
from a private collection agency, I think that it can cover the
waterfront.
Mr. MCKENNEY. And one other thing I should mention is, to
date, TIGTA has received no complaints about the programs.
Mr. LEWIS. Well, Mr. Chairman, if I may?
Chairman BUCHANAN. Yes.
Mr. LEWIS. In September 2014, Commissioner Koskinen sent a
letter to the Senate Finance Committee outlining his concern
with the private debt collecting program. Without objection, I
would like to enter this letter into the record.
Chairman BUCHANAN. Yes, not a problem, yes.
Mr. LEWIS. Thank you. I yield back, Mr. Chairman.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman BUCHANAN. I now recognize Mrs. Walorski.
Mrs. WALORSKI. Thank you, Mr. Chairman.
Deputy Commissioner, I share your interest in eliminating
tax fraud and identity theft, and have been following a couple
of different programs. And I know you are new. I just wanted to
at least talk to you about a program specifically to kind of--
to just have a chance to talk about it and kind of see where
the IRS is on it.
It is the focus on the Return Review Program, or RRP. And I
apologize, there are acronyms in all the names of these
programs. But the RRP is the successor to the Electronic Fraud
Detection System, which is EFDS, which, in 2010, the IRS said
was too risky to maintain, upgrade, or operate beyond 2015. But
here we are in 2017, the EFDS is still the principal fraud
detection system because, despite starting development in 2009,
the RRP really still isn't ready for prime time. It has only
run as a pilot, didn't perform particularly well, having a
false positive rate and missing $313 million in actual
fraudulent findings.
So it is troubling to me that the IRS initially selected to
undertake a unique blend--a unique build in the first place.
But even more troubling to me is that, after such dramatic
under-performance, delays, overruns, it seems to have simply
been rubber-stamped on these contract renewals in 2013 and 2016
without looking at alternatives or vetting new technology.
So I know this doesn't necessarily fall under your purview
of services and enforcement, but you are here representing the
IRS, so I wanted to at least throw this to you and say in
Section 12.101 of the Federal Acquisition Regulation, or FAR,
requires federal agencies, including the IRS, to conduct market
research to determine whether commercial items are available,
and to acquire those items when they meet the needs of the
agency.
So, was there any market research completed, as well as 13
and 16, to see if any commercial items could accomplish this
mission of the RRP?
Ms. WIELOBOB. So in addition to acronyms, we also make
words out of acronyms. So we call that one EFDS.
Mrs. WALORSKI. Okay, EFDS.
Ms. WIELOBOB. So, Congresswoman, as you said, I am new. And
I would be glad to get back to you on these questions, but they
are really not only outside of services and enforcement, but
beyond my scope, sitting here today.
Mrs. WALORSKI. Can I ask just a couple more questions for
the record, and have those sent back in writing? I would
really----
Ms. WIELOBOB. Absolutely.
Mrs. WALORSKI [continuing]. Really appreciate it, because
here is my question, is in 2013 the IRS justified a sole-source
contract for the RRP on the grounds that it was the only way to
meet the project's aggressive schedules. Obviously, those goals
have still not been met in 4 years.
So, given that failure to deliver, my other question is
what did the IRS do to hold the awardee and the program
management staff accountable?
And then my final question is the period of performance for
the current RRP contract expires this month. The IRS's original
cost for the RRP was $57.5 million. But, as I pointed out
earlier, the cost overruns alone were 86.5 million, as of a
couple of years ago. I really want to know how much the IRS has
actually spent developing, testing, and implementing this
program. Bottom line.
Ms. WIELOBOB. Okay. We will be glad to get back to you.
Mrs. WALORSKI. And I would very much appreciate it. Thank
you, Mr. Chairman. I yield back.
Chairman BUCHANAN. I now recognize Ms. DelBene.
Ms. DELBENE. Thank you, and thanks to all of you for being
here with us today.
Ms. Wielobob--hopefully I pronounced that right.
Ms. WIELOBOB. That was very well done, thank you.
Ms. DELBENE. Good.
[Laughter].
Ms. DELBENE. I was very pleased to see that the IRS is
making progress combating identity theft and fraud, and
definitely believe we need to keep up the work and bolster
programs that we know are working in this area.
However, I would like to bring your attention to a possible
negative side-effect of the program, and see if we might be
able to work together to address it. In my district there seems
that this past filing season to be an uptick in false
positives. Constituents would receive a confirmation that their
returns were being processed as normal. And then, after about 6
weeks or so, they would receive notification that they had been
flagged for additional review. Then some saw additional wait
times of 9 weeks or more, with very little communication about
the status of their returns, or the reason for the delay.
So I wondered if you could highlight some steps that are
currently being taken to avoid false positives, to ensure that
taxpayers who are flagged for review are receiving regular
communication on their status, and prompt resolution. Are there
additional things the IRS is considering to improve processing
times for returns that are flagged in the taxpayer protection
program?
Ms. WIELOBOB. So I have not heard of--about an uptick in
false positives until your statement. I mean we will check into
our data, for certain.
One of the things this filing season that has benefitted us
is the earlier availability of the W-2 information. That has
been--that has allowed us to detect fraudulent returns, but
then also understand whether we have a valid return. And when
we do have a valid return, release any refund that the taxpayer
is due. So that was a big help to us this year.
We are always looking to--we are always modifying our
filters, we are finding our filters to become better, more
adept at detecting both the fraudulent returns and the good
returns, as we call them.
Ms. DELBENE. Now, would the regular communications--so if
someone was flagged, the other thing we had heard is they
didn't really get very good feedback on what was happening,
going forward.
Ms. WIELOBOB. Did they give you any more specifics, like--
--
Ms. DELBENE. I can give you more specifics on some of the
individual cases that we had, and calls that we got into our
office. But they--you know, we had heard, you know, from folks
up to 9 weeks of just not hearing anything after they found out
that they had been flagged.
Ms. WIELOBOB. Okay. I am sure that we have timeframes laid
out for when we get back to folks, back to taxpayers, and we
can look into those----
Ms. DELBENE. Okay. We will follow up on that.
Ms. WIELOBOB. Okay, thank you.
Ms. DELBENE. The other one was I know there have been
improvements in handling call volumes. But there still seems to
be a serious challenge for many taxpayers who need assistance.
This season some of my constituents reported getting kicked off
of the IRS phone system due to call volumes.
And so, we ended up with many of the calls, where we would
pass individuals on to taxpayer advocates to--due to their
inability to get through. And I wondered if you could speak to
this at all. Beyond what I assume are staffing issues, are
there any technology issues that would cause folks who are on
hold to be kicked off?
Ms. WIELOBOB. You know, as you noted, we do face
significant technology issues. And we did have a couple outages
this year on our phones, but have got them--quickly resolved
them, and hopefully as few taxpayers are disadvantaged as
possible.
We face a large call volume. Some of our systems--as we
have money and we work to upgrade our systems, there are still
systems that we do need to upgrade to prevent problems like
that.
Ms. DELBENE. Okay. If there is any more information on----
Ms. WIELOBOB. Okay.
Ms. DELBENE [continuing]. What might be able to be done to
help resolve that, I would appreciate it.
Ms. WIELOBOB. Sure.
Ms. DELBENE. Thank you. I yield back.
Chairman BUCHANAN. I now recognize Mr. Curbelo.
Mr. CURBELO. Thank you, Mr. Chairman, for this hearing. I
admire your commitment to protecting American taxpayers and
that of the Ranking Member, as well.
Ms. Lucas-Judy, one of GAO's recommendations was that the
IRS should develop a comprehensive customer strategy. Can you
expound a little bit on that recommendation?
Ms. LUCAS-JUDY. We have actually had a number of related
recommendations over the years. The first, I think, was in 2011
or 2012. We were recommending that they establish the levels of
service that they wanted for phones and for correspondence and
other areas, and then really lay out a strategy for how they
were going to achieve those, what kind of resources would be
required to get that particular level of service.
We also recommended that--in 2014, that they do some sort
of benchmarking study to determine, with their telephone
service, how it relates to those that would be considered the
best in the business, you know, other large call centers that
deal with a large volume of people across the country, what
would be an appropriate amount of time to wait, what is
considered to be an appropriate amount of time, you know, to
resolve a call.
And then, because there wasn't a whole lot of action being
taken to address our prior recommendations, we also made a
matter for congressional consideration to require Treasury to
have IRS do comprehensive customer service strategy.
So, IRS is making progress in addressing these. It did go
ahead and do a benchmarking study, and we are evaluating--
looking at the results of the study to see if it addresses our
recommendation. I think they looked at 12 or 13 different
public sector and private sector entities, and benchmarked
themselves against that.
In addition, they have also started to design what they
call a future state initiative, which is a vision for future
IRS services that accounts for in-person services, phone
service, online service, just sort of a comprehensive picture.
And that is the kind of thing that we were recommending.
But some of the specifics are still lacking, in terms of,
again, the sort of numeric targets for the different components
of service, and specifically tying the resources in. What would
it take to get you to these particular levels of service?
Mr. CURBELO. Thank you very much. And, Ms. Wielobob, in
addition to the IRS, outside groups also have the opportunity
to provide taxpayers with assistance, specifically through
VITA--Volunteer Income Tax Assistance--grants, Tax Counseling
for the Elderly, and taxpayer advocate services. These programs
are targeted to ensure taxpayers, especially those with lower
incomes and limited proficiency in English, can confidently
file returns without fear of being scammed by fraudulent
preparers.
I was actually proud to lead a bipartisan letter with 55 of
my colleagues, including eight Members of Ways and Means, to
the House Appropriations Committee calling for increased
funding as Congress crafts our fiscal year 2018 budget. Can you
discuss the IRS's efforts to promote and educate taxpayers on
options available, and how the agency is interacting or
promoting these programs?
Ms. WIELOBOB. The programs that you mention, particularly
VITA and TCE, we provide grants to those organizations. We also
work through partner organizations in what--through what is
called our spec organization in wage and investment, where we
reach out through those organizations to partners to provide
assistance to taxpayers.
We do a fair amount of marketing, we do a lot of
communication through the media. We have space on our website
for VITA, TCE publication, essentially, or publicity--it is
probably a better word to say that.
Mr. CURBELO. Would you say there is room for growth for
these programs, that they can do a lot more? Do you find them
to be effective?
Ms. WIELOBOB. Oh, they are very effective. They have--I
have been around the IRS for 20 years, and they have been
effective the whole time that I have been there, and we are
very proud of the work that they do and our partnership with
them.
Mr. CURBELO. Well, thank you. And I again invite my
colleagues to bolster these programs, because the more we can
do to help the elderly, low-income individuals understand how
the tax system works, and interact with the IRS, the better we
are, as a country.
So thank you very much, Mr. Chairman, I yield back.
Chairman BUCHANAN. I now recognize the gentleman from
Oregon, Mr. Blumenauer.
Mr. BLUMENAUER. Thank you, Mr. Chairman. If I could, I
would like to request unanimous consent to enter into the
record a half-dozen articles about private debt collection in
the IRS.
Chairman BUCHANAN. Yes, that is fine.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. BLUMENAUER. Thank you. I appreciate our getting into
the weeds here a little bit. This is important work, in terms
of being able to provide appropriate service. The notion of the
potential for scammers taking advantage of our constituents,
people who are looting the treasury because they have found
ways to be able to penetrate the system and get fraudulent
returns.
The numbers, however, are kind of staggering, in terms of
what Congress has not invested. And I appreciate people holding
the IRS accountable, but we have--just since my friends in the
majority took over, we have dramatically reduced funding. Every
year costs of households, businesses, and government goes up.
The budget has gone down almost 10 percent, and that is not
inflation-adjusted.
There were over 92,000 employees who are trying to deal
with 230 million returns. And I appreciate the witnesses
pointing out one of the nice things now is that, for once,
Congress finished its job in time so you could actually print
the forms. That hasn't been the case, complicating both
compliance by individual citizens, and opening windows for the
people who are going to cheat.
It strikes me that now we have less than 75,000 employees.
We have 244 million returns, and they are more complex, and
that we, as Congress and this Committee have not done a very
good job of, I think, diving in to understand how we acquit
this agency. What we have heard about their challenges, in
terms of computer systems that you have to sort of get people
out of cold storage to operate them, because nobody is trained
on this stuff any more. They were talking language that I
remember from computer classes from the early seventies.
So we have made their task much more difficult, I think.
And the thing that I guess concerns me the most is that
Congress has been unwilling, for all the talk about private
debt collection, Congress has been unwilling to invest in our
own enforcement procedures.
Now, Mr. Chairman, you were very successful in the private
sector, and I will venture that you--one area that you didn't
under-fund in your successful businesses was your accounts
receivable department. I would venture you followed that pretty
closely.
The IRS, we have lost 6,800 positions, 30 percent of the
enforcement staff. And for every dollar we invest there, we get
$6 back. That would seem to me to be something that we on this
Committee--and I really appreciate working with you, Vern,
and--excuse me, Mr. Chairman, Mr. Ranking Member--to get down
into the details. And I think this is one that really deserves
our attention.
One of the things that I find a little interesting in all
of this discussion is we have got private debt collection now
that has been mandated. You know, that wasn't something we did
on this Committee. The Subcommittee didn't weigh all the
evidence, look at the past failures of private debt collection,
the abuses, and the fact that they ended up losing money for
the Federal Government. This was passed in the highway bill.
The highway bill. You know, it is a head-scratcher.
The record--and we have gone through this, some of us old-
timers on the Committee went through this, where this was
dusted off and offered up. And I remember the last time we were
having this discussion, we were going, well, what is different?
What is different? What is going to make that successful?
Well, the point is we didn't get the answer. But it wasn't
successful the last time. It ended up losing money. And there
was a parade of horribles, in terms of the abuse of individual
taxpayers. Now, we are all sensitive to the way that they are
treated, and we get complaints. They don't--but this is an open
invitation to scam. And the track record has been horrific with
the past 2 experiments like this.
Mr. McKenney, you have a reference to the private debt
collection at the end of your testimony, but you really didn't
elaborate on that. Can we talk for a moment about what you are
going to be able to do to monitor, to make sure that taxpayers
aren't abused, and that it is successful, and if there is
anything that is different now than what happened the 2
previous times that this was attempted and failed?
Mr. MCKENNEY. Yes. You know, it is still very early in the
process, but TIGTA actually is going to be providing oversight
on this from 2 aspects.
One, our office of investigations handles anything that may
be, you know, improper misconduct-related or taxpayers are
being scammed or mistreated. Office of audit looks at the
systemic issues, as far as how that is working. We will be
reporting out on that as it progresses. It is very early. They
just started it.
But in terms of monitoring whether it is, you know, cost
effective, we will be reporting on that and any other problems
we have seen.
The early problems, obviously, I mentioned. But we will
continue with that----
Mr. BLUMENAUER. Have you seen anything that has changed
that will suggest that there is a dramatic improvement of the
climate in which this is going to be conducted, as opposed to
last couple times?
Mr. MCKENNEY. It is really too early to comment on that. I
think so.
Mr. BLUMENAUER. Fair enough. We will look forward to your
progress.
Mr. MCKENNEY. Okay.
Mr. BLUMENAUER. Thank you, Mr. Chairman. I appreciate your
courtesy.
Chairman BUCHANAN. Thank you. They have moved votes up, so
we will recess to vote and reconvene as soon as possible after
votes. The committee stands in recess.
[Recess].
Chairman BUCHANAN. Well, thank you. Welcome back. I would
like to recognize Mr. Bishop from Michigan.
Mr. BISHOP. Thank you, Mr. Chair. Thank you to the panel
for your time today. I am going to have to gather my thoughts
here and get to my question.
I, like the other Members of the Committee, are very
concerned about taxpayer protections and taxpayer rights. But I
want to shift a little bit in my focus here to something more
specific. The taxpayer bill of rights was adopted by the IRS in
2014, and then by Congress in 2017. That is the facts in which
I have started this, and my research on this Committee hearing
today.
I then read the March treasury inspector general of tax
administration's report, specifically with regard to the IRS's
activities in the area of civil asset forfeiture and bank
structuring cases. And, of course, bank structuring is the
practice of making multiple cash deposits in a bank of less
than $10,000 so you don't hit that threshold for purposes of
reporting requirements.
It--in the report the recommendation portion of it number
3, page 21, provides that when the IRS investigates a citizen,
the IRS should ensure they are informing the citizen of their
rights. Now, the taxpayer bill of rights, in that document, the
number-1 of those rights is the right to be informed. And I am
just wondering if you can advise me, because I am--the way I am
looking at it right now, it appears as though it does not apply
to cases--in Title 31 cases with regard to civil asset
forfeiture.
In fact, the report found that in 229 interviews, only 5 of
them were advised of their rights. That concerns me, as a
citizen, it concerns me as a lawyer, a former prosecutor. I
believe in due process and the right of every citizen to be
advised, and especially in something as important as civil
asset forfeiture.
And I am wondering, Mr. McKenney. I guess this question
best goes to you. If you can tell me a little bit more of what
the agency found that prompted that recommendation, and tell
me--give me your opinion as to what you think about how the IRS
should proceed.
Mr. MCKENNEY. Sure, thank you. Yes, you know, the real
concern that we have on that is the taxpayers that were mostly
affected were legal-source income, so there weren't, you know,
illegal activities, and they weren't, you know, aware of the
situation when they were being questioned. They weren't
informed as far as, you know, what the nature--what had
previously happened, that their assets had already been seized,
and that they--you know, didn't--weren't really made aware of,
you know, their right not to talk to an attorney, and all of
that (sic).
And our view is, regardless of the type of case it is,
since it is not always known at the beginning, that those
rights would apply, and the IRS's response, we felt, was
somewhat incomplete, and that they would provide those rights
in certain instances, but in any instances they concluded were
grand jury cases, they wouldn't necessarily apply.
And our concern about that is they don't really have a good
definition in their procedures, as far as what is a grand jury
case. Grand jury--you know, a lot of times they use grand jury
subpoenas, but the case never really makes it in front of a
grand jury. So we didn't think it was an adequate response. We
believe they should be providing the taxpayers--they should be
informing taxpayers, and providing their rights on a much more
consistent basis, with possibly limited exceptions, but not to
the extent that they responded--that was included in the
response.
Mr. BISHOP. Thank you, Mr. McKenney. And I guess I just--I
ask Ms. Wielobob on follow-up, does the taxpayer bill of rights
constitutional provisions regarding due process, does that
apply in Title 31 cases?
Ms. WIELOBOB. In August of 2016 we actually changed our
policy, so that we provide non-custodial rights in Title 31
cases.
The difference with some of our cases is that those that
are under the control of the Department of Justice, we have
to--they have to give us permission to provide non-custodial
rights in the Title 31 cases. And so, we have--we did change
that policy in August of 2016.
Mr. BISHOP. So the taxpayer bill of rights applies in Title
26 cases?
Ms. WIELOBOB. I am sorry----
Mr. BISHOP. Not title--excuse me. Title--the taxpayer bill
of rights provision, the law, applies to Title 31 cases, civil
asset forfeiture, as it would, say, in Title 26 cases?
Ms. WIELOBOB. We have--the--what I can tell you is in--we
changed the policy to provide non-custodial rights in Title 31
cases.
Mr. BISHOP. But----
Ms. WIELOBOB. But you know what? I don't have the exact
provision in my head.
Mr. BISHOP. Got you, okay. I guess that is it for me, and
time is up. I yield back.
Chairman BUCHANAN. I now recognize the gentleman from New
York, Mr. Crowley.
Mr. CROWLEY. I thank my friend and colleague from the great
state of Florida for yielding me this time. Mr. Chairman, thank
you. Thank you all for being here, as well, this afternoon.
This is a really good time and opportunity to discuss taxpayer
filing issues.
I understand that, as of April 14th, the IRS had received
over 115 million tax returns from individuals and families, and
that is really remarkable. And the task before the IRS is
enormous, and we thank the men and women who are engaged in
this process. It is not easy.
And even as individuals across America filed their tax
returns, many of whom have been protesting for the President,
President Trump, to release his tax returns--even though he
promised to do so, he refuses to release those taxes, will not
make good on that promise, as well.
So I would like to clarify with you an issue of IRS
operations, and this is a question for the entire panel. And if
you could please answer yes or no, I would appreciate it.
Does Section 6103 of the Tax Code bar a taxpayer from
releasing his or her tax returns? Ms. Wielobob?
Ms. WIELOBOB. Wielobob. Yes, it does not.
Mr. CROWLEY. Does not. Mr. McKenney?
Mr. MCKENNEY. My understanding is no.
Mr. CROWLEY. Ms. Judy.
Ms. LUCAS-JUDY. No.
Mr. CROWLEY. Thank you. This also is for the entire panel.
And again, a yes-or-no answer I would appreciate. Under the Tax
Code, may a taxpayer consent to the release of his or her tax
return, even if they are under audit?
Ms. WIELOBOB. Yes.
Mr. MCKENNEY. Yes.
Ms. LUCAS-JUDY. To the best of my knowledge, yes.
Mr. CROWLEY. So, as I understand it, there is nothing
stopping a taxpayer who holds the position of, let's say,
President of the United States, from releasing his or her tax
returns, even if they are under audit. Is that correct?
Ms. WIELOBOB. A taxpayer can release returns that are under
audit.
Mr. CROWLEY. Even if they are President?
Ms. WIELOBOB. Regardless of one's line of employment.
Mr. MCKENNEY. The same answer.
Mr. CROWLEY. Ditto, ditto?
Ms. LUCAS-JUDY. Defer to my colleagues on that.
Mr. CROWLEY. We need an answer to the basic question who is
President Trump fighting for, himself or the American people.
Without his tax returns showing whether he is controlled by
foreign banks and other outside influences, we simply can't
know.
But for now, without direct knowledge on the conflicts this
President is under, we don't know why he is saying one thing,
making one promise--that he will release his returns--and yet,
when the rubber meets the road, doing the exact opposite.
Again, not fulfilling his commitment and, quite frankly, lying
to the American people.
It is not easy for me to say that, having grown up with ``I
shall never tell a lie,'' ``who cut down the cherry tree,'' or
``Honest Abe''. But this is not Honest Donald.
And as we hear--as we near the conclusion of the first 100
days of this presidency, all we know is the end result is an
uneven playing field for the working American. This is becoming
of particular importance, as President Trump has now released
his tax reform proposal. We don't know how much President Trump
has paid in taxes, but from his public statements we can guess
that he has done his best to avoid paying them at all.
So, will this tax plan allow more wealthy Americans and
corporate fat cats to dodge paying taxes the same way? On first
blush, it appears to. Being able to use pass-through entities
to, in effect, give a--an ability of the wealthiest in our
country a massive tax break, it is not tax reform, it is just a
tax giveaway.
The question will continue to hang over him and
Republicans, quite frankly, who continue to protect him, until
we get definite answers. And, as we discuss the tax filing
season, I don't want there to be any question over whether
President Trump can release his or--his tax returns, as he has
promised to do so, regardless of being under audit. The answer
is clear. He can and he should.
It is important information the American people deserve
that nearly every president since the 1970s has released,
including Richard Nixon. Let's go to the bottom of these
questions now, so that the American people win, not President
Trump and his business interests.
With that, I yield back the balance of my time.
Chairman BUCHANAN. I now recognize the gentleman from North
Carolina, Mr. Holding.
Mr. HOLDING. Thank you, Mr. Chairman. Deputy Commissioner
Wielobob, in answer to a question before we took a break for
votes you said that the IT folks--IT at the IRS has serious
problems. I believe that is--you characterized it as serious
problems, or as trouble. I don't know if you remember how you
characterized it, but the--are you--how much money was
appropriated for IRS IT in 2016?
Ms. WIELOBOB. I don't know, sir.
Mr. HOLDING. The--I know in 2014 it was $2.4 billion for IT
investments in the IRS. And it has been consistently around
that number for a number of appropriations. I mean the IRS has
literally gotten billions upon billions of dollars to increase
the IT capacity that you have, your IT infrastructure.
We had a meeting with your IT folks--this has been about 2
years ago now--the Oversight Committee, and they said they are
just having a terrible difficulty trying to integrate programs,
and so forth. And they made mention that the IRS still uses
computer programs from the Kennedy Administration. Are you
aware of that?
Ms. WIELOBOB. Yes. We actually wrote--a publication had us
with the oldest--the top 2 oldest----
Mr. HOLDING. Yes, I find it just incredibly troubling that
we appropriate billions of dollars to fix it--if this happened
in the private sector, heads would roll. I mean you couldn't
continue on in this way.
Are you aware in--how many hours in 2016 were devoted to
union activities in the IRS, paid hours of union activities in
the IRS?
Ms. WIELOBOB. I am not aware of the specific number, sit.
Mr. HOLDING. The--again, from a hearing that we had a few
years ago in 2014, the number was almost 500,000 hours of paid
union activity in the IRS.
There is one agency of government that has more paid hours
of union activity. Are you aware what that agency is?
Ms. WIELOBOB. No.
Mr. HOLDING. It is the Veterans Administration.
All right. I want to turn your attention to the IRS
criminal investigation unit. I worked in the Department of
Justice for a long time, and our local U.S. Attorney's office,
and had great success with IRS CI agents. They were great to
have on the team, if you had a complex case. You always wanted
one on your team. The FBI does a good job, but IRS CI does a
better job on complex fraud cases, anywhere where you have got
to track payments and net worth and so forth.
Are you aware how much the IRS has reduced in personnel of
IRS CI between 2010 and 2016?
Ms. WIELOBOB. I believe it is approximately the same level
of decrease that we have experienced across the agency.
Mr. HOLDING. So 23 percent? About----
Ms. WIELOBOB. We are down, yes.
Mr. HOLDING. So is that--you think it is consistent with--
--
Ms. WIELOBOB. That sounds in line----
Mr. HOLDING [continuing]. Across the agency?
Ms. WIELOBOB. Yes.
Mr. HOLDING. The--but I would imagine the IRS special
agents, CI agents, are pretty valuable, as far as combating tax
fraud and other crimes that seem to be on the rise, and fraud
cases, and so forth. They are valuable?
Ms. WIELOBOB. Of course they are, just as all of our
employees are valuable to the tax administration system.
Mr. HOLDING. So if you can get back to me with the decrease
in IRS agents across the--our indication, our preliminary
information, is that CI employees have been reduced at a higher
rate than other IRS employees. Let's make sure we are on the
same page there.
And with that, Mr. Chairman, I yield back.
Chairman BUCHANAN. Thank you. Let me pose a few questions.
First, I want to thank you for the opportunity to visit
today. But we have a lot of CPAs in our area--and this has been
going on for two or three years. I will say up front it seems
like it has gotten better, in terms of identity theft. But I
just met with a group of CPAs from all over the state of
Florida. They have a quarterly meeting or something they do. We
talk so it sounds like it has gotten better, but it is still a
big problem.
I mentioned one case in particular in Florida. It did
finally get resolved, or you caught him after seven years, but
it was 2,000 fraudulent tax returns that were filed. They took
in $6.8 million in the last year. I mean over a period of time.
How does something like that happen? And do you have the
mechanisms or whatever in place to try to prevent that, going
forward?
And let me just open it up to any of you that would like to
respond. So identity theft in general, where are we at--I heard
that you said 46 percent improvement, but are we really making
those kinds of strides, or is there--it seems like there is
still a lot more work that needs to be done.
Ms. WIELOBOB. I think there is always going to be work that
needs to be done in this area. What we have found is we have
increased our ability to detect identify theft. We have made
our system stronger. What we have found is that if criminals
can't get in through the front door, they try the side door.
And so we are understanding that we need to work with partners.
Right now we are heavily involved with what we call the
security summit, which is the public-private partnership with
industry and states, to try to share information across, again,
the private sector and state governments to understand where
the next attacks are coming from.
So, we have made strides, not only in detecting identity
theft and refund fraud, but trying to anticipate where the next
attack is coming from.
Chairman BUCHANAN. Yes. I talked with the Commissioner, and
it was pretty clear that it is a lot of criminal enterprise. It
is not just in the United States, but throughout the world, to
some extent. So it is an ongoing battle.
But do you have anything you would like to add to that, in
terms of identity theft? I would like both of you to take a
minute or so and comment on it.
Mr. MCKENNEY. Yes, our view is some of the integrity
provisions in the PATH Act are certainly going to help, because
it provides IRS some information that can help in the
verification. And I think that will help on 2 fronts. One is to
avoid the false positives, and the other is to catch the
identity thieves. So it helps reduce burden and stop fraud.
And the other, I think, is a lot of the initiatives that
IRS has going on with the security summit and different data
elements it is getting, the more data it can use to try to, you
know, validate who is coming into the system, the more likely
they will catch those returns that aren't supposed to be in----
Chairman BUCHANAN. But is it your sense that we are getting
better at it. I mean, it just seems like you plug one hole,
then you have penetrated----
Mr. MCKENNEY. Well, that is the problem. It is--certainly
recent statistics look like it has significantly improved, but
you have to, you know, constantly be watching, because they
seem to be able to morph and figure out the next way to get
through and to validate themselves. And there is more and more
information, as there is more systems that are hacked, or more
personal information that is out there, more criminals can get
their hands on it, they can use that information to make
themselves appear to be the taxpayer. So that is a big problem
that still needs to be overcome.
Chairman BUCHANAN. Ms. Lucas-Judy?
Ms. LUCAS-JUDY. I would echo what Mr. McKenney just said. I
mean the statistics show that it seems to be getting better,
but we have reported before in looking at IRS's methods for
estimating identity theft refund fraud, it has gotten better at
detecting the things that it knows about. But there is still an
unknown element out there of fraud, and so we are working with
IRS on--as it is improving its estimations, its taxonomy for
figuring out the extent of the problem.
And then we have also been looking at how IRS authenticates
users to determine whether or not taxpayers are who they say
they are.
And then, also, with the pre-refund systemic verification
that they have been doing now, we think that is definitely a
positive step. As I mentioned in my opening statement, the--one
of the issues is that there is still the paper W-2s are not
coming in in time for IRS--or, at least for this filing season,
weren't coming in in time for IRS to be able to use it. And we
had previously identified that as a potential problem, and had
suggested that Congress consider lowering the threshold for
employers to electronically file W-2s.
Currently the threshold is they have to have 250 W-2s to
have to file electronically. And Treasury has suggested that it
would be effective to have that down to 5 to 10 to be the
requirement to have to file electronically----
Chairman BUCHANAN. Well, that is one area I would think
that identity theft--that we could work together on.
But give us your ideas about what we can do to be more
helpful, because this is an area that I think is better, but
there is still a lot of work to be done in this space.
The other thing I just wanted to touch on is the Earned
Income Tax Credit. They claim--this is your number--met with
the Commissioner, I thought--I don't want to put words in his
mouth, but it is about--the abuse is about 24 percent up to $16
billion, or something in that range. It might not be all
fraudulent, it might be some improper documentation, or
whatever. But it is another area that seems ripe with fraud.
I would be interested just in your thoughts about where
that is at, what are we doing about it, and how we deal with
this going forward. And any of you who would like to start off,
go ahead.
Ms. LUCAS-JUDY. Well, for the Earned Income Tax Credit, as
you said, that is one of the highest estimated levels of
improper payments in the Federal Government. Of the $144
billion in improper payments, this is the--got the third
highest error rate. And one of the issues is that the program
is very complex. It is a complex tax credit, and it is
difficult to determine, you know, who is eligible, and who is
supposed to be getting it.
It is not all fraud. Certainly it is--you know, some of it
is overpayment, some of it is under-payments. Some of it
possibly is fraud. We have recommended that regulating paid tax
preparers would be something that Congress could do----
Chairman BUCHANAN. Yes, that was one suggestion that was
told to me that makes some sense.
Ms. LUCAS-JUDY. Right.
Chairman BUCHANAN. Go ahead.
Ms. LUCAS-JUDY. Right, because a large number of returns
claiming the EITC are prepared by paid preparers. And IRS did a
study a number of years ago, and found that more than half of
those had errors. And likewise, we also 2 years ago did some
undercover work, where we sent people in to 19 different paid
preparers, and only 2 of the 19 were able to basically give us
the right answer. A number of them also over-claimed, had our
undercover investigators over-claiming the credit.
So we think that is something, regulating paid preparers,
and then also, as I said, reducing the threshold for W-2
filing.
Chairman BUCHANAN. Mr. McKenney?
Mr. MCKENNEY. The Earned Income Tax Credit is an area where
the IRS actually identifies a lot more returns that they
believe are, you know, invalid claims than they can address,
because it requires an audit.
So, I think one of the things the IRS has requested is
expanded correctable error authority in those cases where it
has reliable information that it can compare to indicate that
that claim is not a valid claim, and they can correct it, and
provide the taxpayer the opportunity, if the corrected amount--
the taxpayer does have the opportunity to let them know, no,
here is why it is actually the correct amount.
But it is a much less expensive process to deal with in an
audit. And that process to resolve that is a much lower cost,
you know, closer to, like, a few dollars, compared to an audit,
which, you know, can be hundreds of dollars to----
Chairman BUCHANAN. I think we made progress, but still a
gigantic number.
Would you like to add anything?
Ms. WIELOBOB. I agree with both of my co-panelists about
the W-2 thresholds, and then also the correctable error
authority.
I would also just suggest that the provisions in the Earned
Income Credit area are quite complex, considering the fluidity
of family situations. They are very difficult for IRS to
verify. And so, any move towards simplification would be
helpful, as well.
Chairman BUCHANAN. Well, let me just say in closing, from
my standpoint, any thoughts or suggestions or ideas that you
could work with us, with this panel, we want to be helpful,
make your job easier. I mean, I have heard some good ideas
today.
I guess, just in closing, I would like to thank all of you
witnesses for appearing before us today. Please be advised
Members have two weeks to submit written questions to be
answered in writing. Those questions and your answers will be
made part of the formal hearing record.
With that, the Subcommittee stands adjourned.
[Whereupon, at 4:07 p.m., the Subcommittee was adjourned.]
[Member Questions for the Record follow:]
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