[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2020
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
_____________
SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT
MIKE QUIGLEY, Illinois, Chairman
JOSE E. SERRANO, New York TOM GRAVES, Georgia
MATT CARTWRIGHT, Pennsylvania MARK E. AMODEI, Nevada
SANFORD D. BISHOP, Jr., Georgia CHRIS STEWART, Utah
NORMA J. TORRES, California DAVID P. JOYCE, Ohio
CHARLIE CRIST, Florida
ANN KIRKPATRICK, Arizona
NOTE: Under committee rules, Mrs. Lowey, as chairwoman of the full
committee, and Ms. Granger, as ranking minority member of the full
committee, are authorized to sit as members of all subcommittees.
Lisa Molyneaux, Laura Cylke, Elliot Doomes,
Aalok Mehta, Marybeth Nassif, and Parker Van de Water
Subcommittee Staff
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PART 6
Page
Internal Revenue Service........................................ 1
Federal Trade Commission......................................... 47
IRS Oversight: Treasury Inspector
General, Tax Administration........................................ 73
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Printed for the use of the Committee on Appropriations
U.S. GOVERNMENT PUBLISHING OFFICE
38-421 WASHINGTON : 2019
COMMITTEE ON APPROPRIATIONS
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NITA M. LOWEY, New York, Chairwoman
MARCY KAPTUR, Ohio KAY GRANGER, Texas
PETER J. VISCLOSKY, Indiana HAROLD ROGERS, Kentucky
JOSE E. SERRANO, New York ROBERT B. ADERHOLT, Alabama
ROSA L. DeLAURO, Connecticut MICHAEL K. SIMPSON, Idaho
DAVID E. PRICE, North Carolina JOHN R. CARTER, Texas
LUCILLE ROYBAL-ALLARD, California KEN CALVERT, California
SANFORD D. BISHOP, Jr., Georgia TOM COLE, Oklahoma
BARBARA LEE, California MARIO DIAZ-BALART, Florida
BETTY McCOLLUM, Minnesota TOM GRAVES, Georgia
TIM RYAN, Ohio STEVE WOMACK, Arkansas
C. A. DUTCH RUPPERSBERGER, Maryland JEFF FORTENBERRY, Nebraska
DEBBIE WASSERMAN SCHULTZ, Florida CHUCK FLEISCHMANN, Tennessee
HENRY CUELLAR, Texas JAIME HERRERA BEUTLER, Washington
CHELLIE PINGREE, Maine DAVID P. JOYCE, Ohio
MIKE QUIGLEY, Illinois ANDY HARRIS, Maryland
DEREK KILMER, Washington MARTHA ROBY, Alabama
MATT CARTWRIGHT, Pennsylvania MARK E. AMODEI, Nevada
GRACE MENG, New York CHRIS STEWART, Utah
MARK POCAN, Wisconsin STEVEN M. PALAZZO, Mississippi
KATHERINE M. CLARK, Massachusetts DAN NEWHOUSE, Washington
PETE AGUILAR, California JOHN R. MOOLENAAR, Michigan
LOIS FRANKEL, Florida JOHN H. RUTHERFORD, Florida
CHERI BUSTOS, Illinois WILL HURD, Texas
BONNIE WATSON COLEMAN, New Jersey
BRENDA L. LAWRENCE, Michigan
NORMA J. TORRES, California
CHARLIE CRIST, Florida
ANN KIRKPATRICK, Arizona
ED CASE, Hawaii
Shalanda Young, Clerk and Staff Director
(ii)
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2020
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Tuesday, April 9, 2019.
INTERNAL REVENUE SERVICE BUDGET REQUEST FOR FISCAL YEAR 2020
WITNESS
HON. CHARLES P. RETTIG, COMMISSIONER, INTERNAL REVENUE SERVICE
Mr. Quigley. I want to apologize. We outfoxed ourselves
trying to figure out when to start this. We thought votes would
start sooner, but I appreciate the ranking member accommodating
the schedule. We at least wanted to get started and give the
Commissioner an opportunity to discuss things. So this
committee meeting will come to order.
Good afternoon. I know it is a very busy time at the IRS
with less than a week left in the filing season. So I want to
welcome the Commissioner and thank him for taking the time to
be with us this afternoon.
I know this is your first filing season at the IRS, and we
are interested in hearing your observations and visions for the
IRS.
Speaking of the filing season, Congress provided an
additional $397 million in the past years to address system
updates and needed new staff to help implement the 2017 tax
law.
However, in the weeks leading up to tax filing, we
experienced the longest Federal Government shutdown, which
delayed hiring, training, and updating. I want to thank your
staff and their dedication for their perseverance, and I am
curious to how the shutdown has impacted the filing season.
The IRS makes up half our subcommittee bill, and under the
previous majority, it has been underfunded for the last decade,
underfunded despite issues like tax evasion, elder fraud, and
identity theft. So, we want to reverse those trends and provide
resources tied to results.
Speaking of funding, the President's fiscal year 2020
budget requests $11.8 billion in discretionary appropriations,
constituting an increase over current spending levels.
The majority of the increases are to support the Operations
Support and Business Systems Modernization account.
Based on the IRS's 6-year Integrated Modernization Plan,
the IRS will dedicate $290 million of appropriated funds to
update the legacy computing infrastructure.
I hope you can share more details about IRS's modernization
plan. I have a hunch you are anxious to do that.
Your fiscal year 2020 budget request includes an additional
$362 million for a program integrity cap adjustment that would
provide $200 million to Enforcement and $162 million to
Operations Support.
Since 2011, the IRS' Enforcement budget staff has been cut
by 27 percent. As a result, the number of audits and
investigations have been reduced, and the most recent voluntary
compliance rate is only 81.7 percent.
These funds are needed to correct the downward staffing
trend in Enforcement.
I know we have to prioritize and make tough choices within
the funds provided, but by cutting IRS Enforcement, what
message does this send to the American people?
Lastly, I would like to remind us all of IRS's mission to
provide America's taxpayers with top quality service. We need
to improve the taxpayers' experience by reducing wait times for
callers trying to resolve a tax issue, increasing support to
programs that assist the elderly and low-income populations,
and providing quality and timely resolutions to victims of tax
identity theft.
In closing, I would like to thank Nina Olson, the National
Taxpayer Advocate, for 18 years of service. She has been a
champion for the U.S. taxpayer and provided insightful
recommendations on how to improve the IRS and the taxpayers'
experience. We thank her for her service.
That said, thank you again for taking the time to meet with
us today. We look forward to your testimony.
Let me turn now to Ranking Member Graves for his comments.
Mr. Graves. Thank you, Mr. Chairman.
Commissioner, it is good to have you with us today. I want
to first just congratulate you and all the employees that work
with you at the IRS for the implementation of the Tax Cuts and
Jobs Act. That has been lowering the tax burden on Americans
this past year.
But I know things are going well. According to Secretary
Mnuchin earlier this morning, he says things are on track and
are, in fact, going well. So I commend you and your team for
that effort.
I know one of your highest priorities going forward is the
implementation of the Integrated Modernization Business Plan
that provides a 6-year roadmap for achieving the necessary
modernization of IRS systems and taxpayer services.
I believe the operations of the IRS and the services
provided to taxpayers can be improved. I know you feel the same
way, and that is one of your great missions, and I look forward
to working with Chairman Quigley to ensure that you have the
resources necessary to implement.
Now, during the previous administration, the IRS faced many
management issues regarding wasteful spending on conferences,
creating inappropriate videos and targeting certain groups
based on ideological beliefs. I would certainly love to hear
today how you have addressed some of these issues to ensure
that they are not repeated in the future.
And then finally, this morning Secretary Mnuchin said that
the technology used at the IRS, and this is his quote, is
embarrassing, and I think we all understand the challenges you
have there. So your team maintains an enormous amount of
sensitive business and personal information. Cybersecurity and
identity theft have been a continuing challenge for the IRS.
So maybe today you could share a little bit about what you
and your team are doing to protect your systems and all of our
taxpayer information from the cyber threats that exist.
But I am glad to have you with us today. I appreciate your
efforts.
And, Mr. Chairman, I am happy to yield back.
Mr. Quigley. Thank you, Mr. Graves.
I would like to recognize Mrs. Lowey, the chairwoman of the
full committee, for any opening statements she would like to
make.
The Chairwoman. Thank you.
And I would like to thank Chairman Quigley and Ranking
Member Graves for holding this hearing.
Commissioner Rettig, welcome and thank you for being here.
Commissioner, you and I had a really good discussion in my
office last week, and I admire your dedication to the IRS
workforce and your clear desire to boost morale. Your personal
history, including your family's commitment to our country,
speaks volumes about your character.
And so, it disappoints me that your budget request is so
unacceptable. It includes decreases that would impact my
constituents who have already been targeted by the Republican
tax bill.
You include a $90 million cut to taxpayer services, which
helped taxpayers navigate their personal finances and the new
tax law accurately. I frequently hear from taxpayers and tax
professionals in my district that they cannot even get in touch
with an IRS representative for assistance, and these cuts would
only make this worse.
You also include a $155 million cut for base funding of
Enforcement resources that bring tax cheats to justice and
ensures the system remains fair for all.
However, I was very pleased to see that you requested a
$140 million increase for business systems modernization,
including $80 million for cybersecurity and data protection.
As you know well, the IRS houses our most sensitive
personal data and is, therefore, consistently targeted by
nefarious actors. This is an issue of national security, and we
must make sound investments that protect Americans and their
personal information.
I know that you implement the laws that Congress enacts,
but I would be remiss not to raise the biggest threat New York
faces when it comes to taxes: the cap on the State and local
tax deduction.
This is particularly harmful in my district where
Westchester and Rockland are already some of the most heavily
taxed counties in the country, if not the most. There was
recently an article just this week.
The cap is quite frankly insulting. New York's residents
and businesses send more revenue to the Federal Government than
it receives back in Federal spending. In fact, a recently
released report by the Rockefeller Institute of Government
found that for 2017 alone, New York gave $35.6 billion more to
the Federal Government than it received.
It is unacceptable to further burden New York families, and
I encourage you to work with us to find ways to ease the pain.
I hope that you take these concerns seriously. I look
forward to a productive discussion today, and I thank you very
much.
Mr. Quigley. Thank you.
Commissioner, you are on.
For the record, and without objection, your statement will
be entered into the record. So if you could please keep your
statement to 5 minutes. As you know, we are pressed up against
votes again.
But we are glad to have you. Thank you.
Mr. Rettig. I understand, and I appreciate your comments,
and I appreciate the opportunity to be here.
Chairman Quigley, Chairwoman Lowey, thank you Member Graves
and members of the subcommittee. Thank you for the opportunity
to discuss the IRS budget and current operations.
I am truly honored to serve as the 49th Commissioner of the
Internal Revenue Service. Having spent 36 years in the private
sector representing taxpayers before the Internal Revenue
Service, I understand how important a fully functioning IRS is
to the overall success of our country.
Our people interact with more Americans than any other
institution, public or private. Our people make a difference.
They care, and they take pride in serving taxpayers and our
country.
The IRS is important to every American, and every American
is important to the IRS.
I am passionate about modernizing our information
technology infrastructure and continuing to improve cyber
security. I am passionate about making sure our workforce
receives the resources and training they need to appropriately
serve the taxpayer community.
We want to do more, and with your assistance, we will be
better able to enhance the overall taxpayer experience. I am
passionate about helping all taxpayers with their filing and
reporting obligations, but especially those in the underserved
and ESL communities.
Taxpayers who are willing to comply must receive
appropriate levels of support and timely guidance while we
respect their rights and forever safeguard their information.
And I am passionate about making sure we enforce the tax
law. The IRS must continue to balance service to the taxpayer
community with an appropriate degree of enforcement of our
Nation's tax laws. A robust enforcement effort assures
compliant taxpayers that those who fail to comply risk the
consequences of such noncompliance.
I am pleased to report that the 2019 filing season opened
on time on January 28th and continues to go well. As of March
29, the IRS has received more than 92 million individual
returns, and we have issued more than 71 million refunds for a
total of more than $206 billion.
Turning to the President's budget request, we are asking
for an appropriation of $11.472 billion for the IRS in fiscal
year 2020. This is $170 million, or 1.5 percent, above the 2019
enacted level.
This request proposes increasing funding in several
critical areas. At the top of that list is technology
modernization. We are finalizing our modernization business
plan, which will cost about $2.3 billion to $2.7 billion over 6
years, to help bring our critical IT systems up to date.
The President's budget request includes $290 million in
initial funding for our plan. Modernized systems are the key
component to delivering quality service to taxpayers, providing
efficient and robust enforcement activities, and keeping
taxpayer data secure.
The integrity of the Nation's voluntary tax compliance
system depends on modernized IRS IT, and we look forward to
working with Congress to implement this plan.
Another critical area where we propose to increase funding
involves the IRS' ongoing efforts to secure our systems and
protect taxpayer data. Technology has greatly helped the IRS
protect our computer systems from cyberattacks.
It has also helped us in our ongoing battle to protect
taxpayers and their information against tax-related identity
theft.
The funding called for in the President's budget is also
important to our efforts to maintain a well-trained workforce.
This is a critical time for us, given that a large percentage
of our workforce is either eligible to retire or will become
eligible in the next 2 years.
To help us further in this area, we are asking Congress to
restore streamlined critical pay authority, which expired in
2013. Without this authority, we have found we lose highly
qualified candidates to other organizations that can hire them
more quickly.
Chairwoman Lowey, Chairman Quigley, Ranking Member Graves,
and members of the subcommittee, I appreciate the dedication
and support that Congress has shown to the IRS mission. I am
committed to working with you to ensure the IRS can continue to
fulfill its mission now and in the years to come.
That concludes my statement, and I would be happy to take
your questions.
[The prepared statement of Mr. Rettig follows:]
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Mr. Quigley. Thank you.
In consultation with the ranking member, Mr. Graves, we
decided we were going to try to do Mrs. Lowey and Mr. Graves'
questions before we run off to vote, and if folks could get
back as soon as possible, we will commence again.
Chairman Lowey.
The Chairwoman. Thank you.
Commissioner Rettig, your fiscal year 2020 budget request
proposes a $155 million decrease for Enforcement without
including the integrity cap adjustment, which means less money
to combat tax cheats. I am struggling to understand this cut
when Enforcement staffing has been reduced by 27 percent since
fiscal year 2011.
As I noted in my opening statement, cuts like this make it
clear that this administration does not prioritize enforcement
of the tax laws.
Can you explain why your request cuts Enforcement?
And why is it that year after year the IRS' request to
transfer tens of millions of dollars out of Enforcement into
other parts of the IRS?
Do you not value Enforcement?
Mr. Rettig. Chairwoman Lowey, as we discussed when I was in
your office last week, I believe you understand I am an
enforcement person. I am an enforcement minded person. I
believe that a strong, robust, visible Enforcement presence by
the Internal Revenue Service supports our voluntary compliance
system. I think it supports the taxpayers who voluntarily
comply. They need to know that those who do not run a
substantial risk of being there.
We are working hard on our systems with respect to data and
analytics and the modernization plan to be able, to be better
able to take Enforcement actions where appropriate.
And I want to confirm to you as well as to the other
members of the committee that personally I have both eyes
focused on Enforcement and would be glad to come back and
hopefully be able to tell you where we have made great strides
in that.
The Chairwoman. First of all, in addition to the eyes, I am
sure you would like some money to help you with Enforcement. So
I wish you would think about it, and maybe we can change that.
And also briefly, because I know we are running out of
time, the tax law, $10,000 cap on State and local tax
deduction, you are a California native, previously no limit to
deductions of State and local property and income taxes for
those who itemize.
A major sort of tax fairness for high taxed Federal donor
States like New York with 35 percent of taxpayers deducted more
than $22,000. In my district that number was even higher at 45
percent of my constituents conducting an average of $26,000.
Simply put, the new tax law places an unfair burden on New
York taxpayers who already send more to the Federal Government
than New York gets back in Federal investments. It is unfair to
place the burden of Republican tax cuts on hard-working New
Yorkers who already face high taxes and a high cost of living.
What is the IRS doing to resolve this issue and provide
relief to high tax States?
Mr. Rettig. As an administrator of the tax laws enacted by
Congress, the IRS is required to follow the law. The proposed
regs. came out I think it was in August of last year, and the
regs. are in the process of being finalized. I would anticipate
and I would hope within the next month or less the regs. will
be finalized.
You know, the IRS cannot change the tax law. The IRS has to
administer the law, and being from California, I well
understand your comments.
The Chairwoman. Well, I thank you very much, and maybe you
can become an advocate for a change to where it was.
Thank you.
Thank you, Mr. Chair.
Mr. Quigley. Thank you, Madam Chairman.
Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman.
Thank you for being here today.
Are you familiar with the Voluntary Income Tax Assistance
Program?
Mr. Rettig. Yes, absolutely.
Mr. Joyce. Having employed that when I was in law school
myself, it used to be the fact that it was helping low income
people who really need that refund to understand their taxes,
prepare them properly, and get the money back in their hands.
We have nine such sites throughout my district at the
moment. Do you think Congress is doing enough to give you the
wherewithal to continue this program and to provide these
services in low income areas around the country?
Mr. Rettig. As I indicated in my opening statement, I am a
very strong proponent of taxpayer assistance to the lower
income communities, the English as a second language
communities, the communities of unrepresented taxpayers. I
myself participated in VITA programs at earlier stages in my
life.
Since I have been in Washington, DC, I have participated in
two separate lower income taxpayer-related activities here. One
was on a weekend. One was in the evening. So I am very
conscious of impacts in communities that are either
unrepresented or lower income or people who English might not
be their first language.
And I think that VITA is a critical program for those, and
I am hugely supportive of the VITA program, as is the IRS.
Mr. Joyce. Are we providing enough funding for you to
continue the program?
Mr. Rettig. You know, every function of the IRS could use
additional funding, and VITA could use additional funding, and
there is legislation pending.
With that, I yield back to my ranking member, Mr. Graves.
Mr. Graves. Thank you, Mr. Joyce.
Commissioner, a couple of quick questions on behalf of the
bipartisan delegation of individuals impacted by some natural
disasters. I know that they have requested some assistance in a
letter that was directed to your office.
It was led by Mr. Dunn from Florida, and as you know,
victims of natural disasters need assistance oftentimes during
the filing season in calculating their taxes.
Can you just tell us a little bit about what the IRS is
doing to help victims of 2018 and 2019 natural disasters?
Mr. Rettig. I like to say the IRS is a large institution
run by people, and it is run by people who care. And the IRS
has a strong focus on natural disasters, and I was not aware
before I came on that a lot of people are not aware that over
9,000 IRS employees have participated in calls, over 1.6
million calls related to various disasters.
In the last hurricane down in Florida, 25 IRS Special
Agents, Criminal Investigation, went down and worked 7-day
weeks, 12 hours a day, providing security.
So we are very aware of that and aware of your issue. We
recently responded to another member of Congress on the same
issue, and so we will take a deeper look at it.
Mr. Graves. Are you considering using the cost index's Safe
Harbor method? I know that is something that they requested.
Mr. Rettig. I have seen the request. I am not personally
familiar with that particular method, but we will take a look
at it and work with staff.
Mr. Graves. OK. Thank you.
From what I know, just the little I know, it appears to be
one of the quickest and easiest methods. Since there are not
enough contractors to provide a lot of the estimates, many of
the residents still have to be able to settle some of this.
And so, yes, if you would take a look at it, that would be
great, and I know on behalf of everybody impacted in those
areas, any assistance available would be greatly appreciated.
Thank you.
Mr. Rettig. I come from earthquake country.
Mr. Graves. Yes, I understand.
Mr. Rettig. And natural disasters.
Mr. Graves. Thank you, Mr. Chairman. I yield back.
Mr. Quigley. Mr. Commissioner, we appreciate your
indulgence of the pesky little constitutional requirement of
voting.
So if you will, the committee stands in recess until such
time as required for members to cast votes on the floor.
Thank you, sir.
[Recess.]
Mr. Quigley. We will reconvene. Thank you, Mr.
Commissioner, for your indulgence.
Sir, to begin, let me ask you about private debt
collection. It has been 2 years now this program has been in
operations. The obvious concerns are we spent most of our lives
telling people that the IRS would not be the one calling you.
So there is potential for some confusion in this regard,
particularly when it relates to scams and those that would prey
on lower income or senior citizens, or both.
According to the National Taxpayer Advocate, 46 percent of
taxpayers who have entered into an installment agreement to pay
taxes owed had incomes below 250 percent of the Federal poverty
level. Can help explain how this is happening and what the IRS
is doing to remedy at the situation.
Mr. Rettig. Thank you, sir. The private debt collection
issue is the law, and as the law, the Internal Revenue Service
is required to follow it. There is a proposal to reduce the
figure from 250 percent to 200 percent of the Federal poverty
rate, and a significant issue that flows there is: Are
individuals entering into installment agreements that result in
a default because they are answering the phone and working out
a payment arrangement with somebody based on the fact that that
person is on the phone now?
So again, as I mentioned earlier in my testimony, issues
with respect to lower income and English as a second language
communities are issues that are very near to me personally with
respect to family-related issues, and issues that we are
focused on to try to make it work to the best of its abilities.
And at the end of the day, we will follow the law. But we
want to make sure that the program works effectively and does
not unduly burden the communities that are being impacted.
Mr. Quigley. So specifically, what do you do? There are
folks out there that know that calls can come from the IRS. And
there are extraordinarily unscrupulous actors who are going to
say whatever it takes.
How do you prevent that kind of fraud? What are you putting
in place to make sure those folks are not used by such
unscrupulous users of the system?
Mr. Rettig. There are two issues in that. When matters are
sent out to private debt collection, the taxpayer actually
receives a notice, a written notice, from the Internal Revenue
Service indicating that it is being sent out to private debt
collectors.
And then the other side, in terms of people who call and
the scams, and we are inundated with those situations in this
country, and certainly during filing season we are inundated
with those situations, the IRS has done--puts out the Dirty
Dozen, the 12 issues primarily that come up. And phone scams
are always among the top on that.
IRS Criminal Investigation is involved in numerous
investigations of phone scam artists, not all of which are
based inside the United States. Many of them are based outside
of the United States. I think universally they prey on
individuals who either have other issues--elderly, healthcare,
and whatnot--and just have basically a fear of the government.
So the IRS tries hard in terms of outreach. I thought they
tried hard when I was on the outside in private practice, and I
would see a lot of information come out. I probably did not
read as much of it as I do now, and I probably was not as
sensitive to trying to make it as easily understood as I am
now; I have a higher focus because I am inside and paying
attention to the things that are out there.
But outreach, education, constant notifications, and there
are peaks for when the scam artists tend to come up, which
filing season tends to be one of those peaks.
Mr. Quigley. Have you quantified in this 2-year period if
there has been indeed an uptick in the scams dealing with
phones?
Mr. Rettig. I have not. I have only been on board since
October 1 of last year.
Mr. Quigley. Well, I meant the agency.
Mr. Rettig. No. I understand. Two years for the program.
Sorry about that. But I have not, but it is an issue I can look
into and report back to you.
Mr. Quigley. Yes. We would appreciate that.
I guess I will go to Mr. Stewart. Is that correct, Mr.
Graves?
Mr. Graves. Yes.
Mr. Quigley. OK.
Mr. Stewart. Again, thank you, Mr. Chairman.
And sir, it is good to have you with us. Again, I say this
in most of these hearings, and that is the oversight role of
Congress is important. And we have a specific role here. I know
that makes your job harder sometimes; as you prepare for these
hearings, you are wondering, what will I be asked, and do I
have all of the information?
And it impresses me, the witnesses and the officials we
have before us their broad range of expertise and ability to
deep dive into their own agencies. And there is hardly anything
we could ask them that they do not seem to have the answer for.
I am going to speak broadly, if I could, and I do not think
this will take much time, but we will see. The IRS is an agency
that has been bruised over the last 3 to 4 years. We go back--
previous to your time, obviously, there was a time when they
were criticized for some inappropriate videos, as you may
recall, some conferences that were very expensive. They seemed
to be more luxurious, perhaps, than the American people
expected.
Of course, you look at them targeting certain ideological
groups, the perception being that they had a different view
than some officials in the administration and they were
targeted because of that. And now you are in the middle of this
firestorm over tax returns, which we have already discussed
here, and I do not necessarily want to dive into it.
Can you answer two things for me? First is, do you feel
like we have got a handle on some of the spending that was
perceived as being wasteful, and probably was. And the second
thing is, how is the morale of your agency, and how do you
think we could help with what is a real important function, and
that is the American people voluntarily comply with most tax
law.
I mean, the foundation is built on voluntary compliance.
How can we preserve that, the ethos? The IRS is an agency that
many people are--it is not everyone's favorite agency, for
obvious reasons. But we still want to maintain that integrity
of the agency. Give us your sense on where we are with that, if
you would, please.
Mr. Rettig. Congressman, in significant part, I came on
because of my respect for the IRS workforce, having been on the
outside for 36 years, interacting with representatives of the
Internal Revenue Service for my entire professional career.
Respect the quality of the people who work there, and their
dedication and their care for the mission that they are trying
to accomplish.
And I came in to really trend you to handle the issues that
impact what people think of the Internal Revenue Service and
this country on the outside, and to open up and make sure that
people understand that we have an agency that 95 percent of the
gross revenue of this country goes through the agency, that
everything that is good in this country is in one way or
another attributable to this agency; that the agency touches
more Americans than any other entity, public or private.
And I have done a lot of internal presentations. I have
been down to Atlanta. I have been down to our service center in
Austin, Texas. Next week I am going to Kansas City. It is my
intention to actually touch, myself, as many of the 80,000
employees as I can to remind them that I am here for them, that
I respect----
Mr. Stewart. I would invite you--do you tell where we have
processing, although I imagine a smaller one, but there is one
in Ogden.
Mr. Rettig. I am headed there.
Mr. Stewart. Good.
Mr. Rettig. I am headed to Ogden. I do not anticipate to--
my goal would be to touch every person at the IRS, shake their
hand, and thank them for the service that they have done on
behalf of the country, and let them know that I am here for
them. Because I am here for people of the Internal Revenue
Service as well as the taxpaying public and as well as
Congress, to make people aware.
So from a morale perspective, I have been interacting
directly with people of the Internal Revenue Service. We have a
lot of communications that come out of the Office of the
Commissioner, and those communications are written by me
personally. We have a Communications and Liaison Department,
but I write them myself, and I tell the employees I write them
myself.
I want them to know who I am. I want them to know the feel
of why I am here, and the vision--my vision, at least--for the
Internal Revenue Service, and have an understanding of that
throughout. That is very important to me.
On the spending side of the house, we are very conscious of
spending-related issues. The IRS, I think, has to be efficient,
it has to be responsible, and it has to make do with the
ultimate amount of money that is made available to the Internal
Revenue Service; that it is very important for the integrity of
the Internal Revenue Service. The voluntary compliance rate in
this country is right around 83 percent; that is people who
voluntarily file and pay their returns, pay their tax.
If that percentage, because people believe less in the
integrity of the Internal Revenue Service, drops one point,
that is $30 billion a year. If we can raise the integrity of
the Internal Revenue Service one point, that is another $30
billion a year. That is a $60 billion swing based on what the
taxpaying public believes in the credibility and integrity of
the Internal Revenue Service.
That is what brought me on board. I came on board for that.
At this point in my life, in my professional career, my
personal life, I had the opportunity to do this and I did it.
And that is why I am here.
Mr. Stewart. Well, I would maybe just close with this
point. If a 1 percentage drop is $30 billion, we have had some
probably $60- or $90 billion issues in the last couple years.
And again, I am not pointing the finger at you or any one
individual. But there is no question that the agency has lost
some of the credibility and some of the goodwill that was
stored up there before.
There are people like me who think they actually did target
some of these groups and they did it for ideological purposes.
And those are the kinds of people who would, because of that
feeling, be resentful. And look. Because of who you are, you do
not have the latitude that other agencies might have when it
comes to not just that but some spending issues.
So we encourage you to thank their employees for the good
work that they do. We recognize it is essential, and we
appreciate that. And continue to encourage them to value that
integrity, which is absolutely irreplaceable and takes months
or years to redeem once it is lost. So thank you, sir.
Mr. Rettig. And we are looking forward.
Mr. Stewart. Yes. Thank you.
Mr. Rettig. We want things to be better for everyone.
Mr. Stewart. Yes. That would be better for all of us.
Mr. Quigley. Thank you.
Mr. Bishop.
Mr. Bishop. Thank you very much, Mr. Chairman.
Mr. Commissioner, the IRS estimates that taxpayers pay
collectively, as you just indicated, a bit more than 80 percent
of owed taxes. And this difference accounts to roughly $450
billion a year.
The Government Accountability Office has recommended that
the IRS reestablish goals for improving voluntary compliance
and develop and document a stage that outlines how it will use
its data to update compliance stages to address the tax gap.
This is highlighted in both the House's and the Senate's fiscal
year 2019 Financial Services appropriations bills.
What is the IRS specifically doing to reduce the tax gap?
Mr. Rettig. Congressman, I believe the net tax gap is about
$406 billion. The 458 is before the IRS enforced collection
activity occurs, and the net is about 406. But as in any
estimate, it is an estimate, and it is an estimate that is
based on old data, not necessarily current data.
Mr. Bishop. What are you doing to address it?
Mr. Rettig. We are a best-in-class data warehouse, and we
are using the data that we have and data analytics and other
avenues to come from an enforcement perspective. We are
streamlining where we are looking. We are looking at some
areas. There have been some issues in the past----
Mr. Bishop. Well, let me ask you, the workforce has already
dropped nearly 20 percent since 2011, with Taxpayer Services
and Enforcement hit particularly hard. Unfortunately, the
fiscal year 2020 budget request, even though it is better than
fiscal year 2019, continues to deprioritize Enforcement and
Taxpayer Services. These two functions not only assist
taxpayers in fulfilling their obligations, which can be both
stressful and confusing for many taxpayers, but it also helps
to ensure compliance, accuracy, and lower levels of evasion,
which ultimately helps lower the deficit, and it supports lower
tax rates for all taxpayers.
How is this sustainable? The Tax Code continues to grow
more convoluted, and it seems that IRS has neither the
resources to assist confused taxpayers nor the resources to go
after those that are purposefully playing games with the Tax
Code and defrauding hardworking taxpayers.
Why is IRS not prioritizing Taxpayer Services and
enforcement?
Mr. Rettig. The IRS is prioritizing Taxpayer Services and
Enforcement. The number----
Mr. Bishop. You are not asking for the sufficient
resources.
Mr. Rettig. Well, at some point internally, and this has
been coming from the outside in the IRS, it comes down to a
guns-and-butter analysis. We are looking to modernize the
agency itself, and that is our number one priority. We are in
the process----
Mr. Bishop. What is coming from the outside?
Mr. Rettig. Pardon? My practice. I just got on board.
Excuse me, sir.
Mr. Bishop. Oh, I am sorry.
Mr. Rettig. I just got on board October 1. I was 36 years
in private practice on the outside, interacting with the
Internal Revenue Service.
We are in the process of hiring about 4,300 compliance
personnel. We have 14,000 customer service representatives,
which essentially are the phone assisters.
Mr. Bishop. You think those people would be sufficient to
address the, as you say, $406 billion in the tax gap?
Mr. Rettig. I believe that we need not only personnel. We
need to better use the data available to us and the internal
data that the Internal Revenue Service has. And we are taking a
strong look at that.
Mr. Bishop. Well, how can you better address that data
without having personnel to do it?
Mr. Rettig. Beginning with personnel is to--we also need
training for our personnel, and reference to the Taxpayer
Advocate. Her reports have continually addressed training-
related issues, which has been cut significantly since 2010.
So we need a trained workforce; when we have a trained
workforce in place, we will be better able to quantify the
actual number of people we need to bring on board, which you
will hear from me when we get to that point.
Mr. Bishop. Is the administration not proposing to reduce
the personnel, the FTEs, in the Taxpayer Advocate section?
Mr. Rettig. I believe it is the attorneys in the Taxpayer
Advocate that will be moving into Chief Counsel's office, but
not the personnel itself. But I can look into that and get back
to you.
Mr. Bishop. OK.
Mr. Rettig. I interact a lot with the Taxpayer Advocate. I
knew her before she became Taxpayer Advocate 18 years ago.
Mr. Bishop. That was one of the most exciting innovations
in dealing within the IRS over the last decade. The real
involvement of the Taxpayer Advocate in helping taxpayers, and
of course the last two tax cycles it has been diminished
tremendously. Calls cannot even be answered, and it has just
been terrible. It seems like you would prioritize that.
My time is about expired.
Mr. Rettig. Thank you, sir.
Mr. Quigley. Mr. Graves.
Mr. Graves. Commissioner, recent news reports indicate that
the IRS is issuing less tax refunds than in the previous year.
In fact, I think it is like $6 billion less refunds to the
taxpayer. Some are very critical of that figure, and some from
the other party actually point blame at the administration. Why
is that? Why are there less tax refunds this year, a lower
dollar amount than previous years?
Mr. Rettig. Well, the Internal Revenue Service is a tax
administrator, and we do not tend to message why and how behind
the statistics and the information that we publish. I have read
articles on the outside that have addressed issues with respect
to withhold and whether people adjusted or did not adjust
withhold during 2018, with respect to the filing of those 2018
returns coming into this year.
But as of March 29, we have issued $206 billion in refunds
associated with 71 million separate refunds. And we are more or
less on par with where we were last year. And so----
Mr. Graves. Right. I think it is safe to say that when
individuals are paying less in taxes, then they are probably
going to get less tax refunds. Or when you have doubled the
child tax credit or you have doubled the standard deduction,
you may not even have a tax liability at all. Therefore, you
are probably not going to get a refund, or it is going to be
less than in previous years.
In fact, one of these reports that was somewhat critical
with the headline later says, ``Lower refunds do not mean
Americans paid more in taxes. Quite the opposite. Most workers
paid less in taxes last year and saw higher take-home pay week
in and week out. But for many Americans, a slightly higher
paycheck does not quite have the same visibility as a single
$3,000 check in March or April.''
So I would caution folks, from looking at that headline as
a negative, in fact it is a positive. If $6 billion of less
money is being sent to taxpayers, it means that $6 billion of
more money that was in their pocket and was not held for almost
12 months outside of their own pocket. So I do appreciate how
you have been administering the Tax Code. I understand the
answer to your question there.
On a different note that I know you can address because I
have talked to you personally about this, and it is really
about the culture of the IRS and the employees. And I think you
brought in a new approach, a new perspective, a breath of fresh
air, openness.
Maybe share with the committee your approach to how you
engage the staff at the IRS, and how you have invested your
time into them; and then also about some of the challenges you
have from your open positions and hiring practices and
opportunities that exist for the IRS.
Mr. Rettig. Yes. I, from day one at the Internal Revenue
Service, literally day one, October 1, sent a email throughout
the entire service to 80,000 employees that was, as I said,
written by me, and walked through the fact that--and in brief I
will say I believe I am the only Commissioner to have son or
daughter who is active duty United States military, who at the
time that I was going through the process was serving in a
combat zone overseas on behalf of our country.
I believe I am also the only Commissioner who has a spouse
who was not only a boat person escaped from Vietnam at the age
of 18, but lived in a refugee camp for 6 months, whose father
was in a reeducation camp for 3 years, 9 months in a Communist
country, and have used that for an explanation to the people
inside the Internal Revenue Service as who I am, and have
opened up far beyond that, that I care about people. I care
about the people inside the Internal Revenue Service. I care
about the people outside of the Internal Revenue Service. And I
care about the reputation of the Internal Revenue Service, and
I care deeply.
In terms of employment and on-boarding, being in the
private sector up until October 1, if I was out somewhere and I
met somebody that I thought would be a good addition to the
firm I was practicing in, I could talk to them on Friday and
they could start on Monday.
I have since come to learn that the Federal process is
about an 8- or a 9-month process. We lose people who we try to
bring on board who would be significant for us going forward,
which is one of the reasons why, in the current pending bill,
is streamlined critical pay. It would allow the Internal
Revenue Service in the IT and the cyber world to bring on up to
40 people within a 4- to 6-week time frame, and by way of
explanation in this country.
Cyber is probably the number one concern for most public or
private entities. And there are 300,000 available cyber
positions in this country with a zero percent unemployment
rate. So we need things like streamlined critical pay to get
our people on board. It is critical for the operation of the
agency.
Mr. Graves. Mr. Chairman, if I could close by saying this:
The Commissioner personally invests in the employees there, and
in fact enjoys lunch with them each day. He is in the building,
in the cafeteria with the employees. And I come to find out
that the folks there that prepare the meals know that his
favorite meal is in fact a salad every day.
Mr. Rettig. I eat in the community table in our cafeteria
every single day, and anybody who wants to join me, including
each of the members here, you are all invited to come over.
Thursday is turkey day. Wednesday is wings. Shrimp and grits on
Tuesday. But that is one of the highlights of my position here,
is to be able to sit with our employees from across the
country, whoever is in the building. And I do that when I visit
other IRS campuses as well. I am very proud of interaction and
of our employees. Thank you.
Mr. Quigley. Thank you.
Mr. Crist.
Mr. Crist. Thank you, Mr. Chairman. And Commissioner, thank
you for being with us today.
Mr. Commissioner, in response to declining enforcement
funds over the last decade, IRS audits are down about 42
percent from 2010 until 2017, according to a tax industry
publication.
This is troublesome because tax cheats obviously harm all
of us. However, I am even more disturbed that the decline in
audits is not evenly distributed, with taxpayers making more
than half a million dollars per year seeing a decline in audits
of 69 percent, yet working families' audits only dropped 36
percent. This clearly indicates a policy shift of some sort.
Cracking down on people who have little, and going easier on
people who are doing very, very well.
Now, I know you have only been on the job for a few months,
so surely I am not blaming you for this, sir. But I am
concerned that the 0.7 percent increase requested for
enforcement activities will not provide adequate resources to
rebalance the enforcement so IRS is treating the poor as fairly
as the IRS is treating the rich.
But this issue is broader than unfairly skewing audits away
from the rich and toward the poor. I recently came across this
map behind me on a website, ProPublica. It shows where audits
are concentrated in America. And you are a tax lawyer, and I
hear a very good one.
Mr. Rettig. You should talk to my children.
Mr. Crist. Sir.
Mr. Rettig. Sorry.
Mr. Crist. That is all right. So when you look at the map,
you probably see a heat map of lower income filers. The data is
clear on that, going after the poor and letting the rich off
the hook. A terrible policy, I would argue. But there is more
here that is disturbing.
I want you to look closer at the map, if you would. And
what else do you see, Mr. Commissioner? Does anything jump out
at you?
Mr. Rettig. I did not bring my glasses, and so I see a lot
of--I understand what it is. I am not sure I can read the
caption.
Mr. Crist. Well, that is all right.
Mr. Rettig. But you are going to say, I am assuming, that
it is California and the bottom half of the country is where it
is more shaded?
Mr. Crist. Yes. What I see is the black belt in the Deep
South and Mississippi Delta. I see the border region of Texas,
the desert Southwest, and California Central Valley, and Tribal
areas of the Upper Plains and the Midwest. The map looks like
the IRS is targeting black, Hispanic, and Native American
populations for audit. Is that the case?
Mr. Rettig. No.
Mr. Crist. Disparate impact is an important way to identify
racism in policies and procedures that may not deliberately and
intentionally want to do so. That is why it is not good enough
to say that the IRS does not consider race when making audit
determinations. Sometimes, in order to find racial
discrimination occurring, you have got to look back after the
fact and analyze if the systems or the algorithms that may be
in use would violate or could violate individuals' civil
rights, even if you did not mean to.
If a fair lending compliance officer at a national bank,
for example, would see an internal map that looked like this,
they probably would be horrified. Even accidental racial bias
this pronounced would mean big trouble for a bank. How will the
IRS improve or avoid explicit or implicit racial, ethnic, and
Tribal bias in audits going forward?
Mr. Rettig. The IRS has no filters whatsoever that identify
individuals by race, religion, or any other capacity. The IRS
filters are based upon a scoring system for issues. And if I
could explain, there are two parts I believe to your question.
One is in terms of the map. In the world of the earned income
tax credit and the additional child care credit.
The IRS sends out correspondence, letters, and that
particular world has about a 24, 25 percent what would be
called an audit rate because a letter goes out; therefore, it
constitutes an audit.
And the issue with respect to EITC, not to turn it around,
but is one that we are working very hard on. It is a very
complex part of the Internal Revenue Code.
Mr. Crist. Right.
Mr. Rettig. And it is nearly impossible to, through third
party or otherwise, identify what a qualifying child is under
the EITC. And so we audit through a correspondence audit, but
it is still an audit, but it less intrusive than a sit-down
audit. But it is still an audit.
Mr. Crist. Yes, sir.
Mr. Rettig. We audit about 25 percent of that. And even
with our audit activity in that arena, the net post-audit is
about, for 2018, about a $18.4 billion overpayment. And so that
is an area that I would personally like to work with Congress a
lot.
We are going back to 1976 to see every issue that has been
put forward with respect to EITC, and maybe revisit, is there
another look we can do of this? It is a very important social
program.
Mr. Crist. Yes, sir.
Mr. Rettig. A little over $6,000 of a refundable credit,
even if somebody does not have it. So it is an incredibly
important program for our country. We just need to figure out a
way maybe to get it better, better for the people who are
entitled to it. It has about an 80 percent participation rate.
But it needs to be better for the people who are entitled to it
because I think it is $6,431 for a married couple even if they
owe no tax. I think that is really significant, and something
that we should all support.
The other side of the same question is a lack of or a
reduced audit rate in the world of the higher wealth
individuals, extremely wealthy, mid-wealthy, or people, you
know, 100-, $150,000 on up who may not consider themselves
extremely wealthy but they fall into that.
In significant part when I was talking earlier about
restoring credibility and integrity to the Internal Revenue
Service, one of my focal points is to get the audit rates up
for the more wealthy taxpayers, not necessarily by targeting
the taxpayers but by taking a strong look at the issues that
I'm aware of that wealthy individuals might engage in.
The Internal Revenue Service has not done a great job
recently in terms of pass-through examinations, partnerships
and related entities, and a lot of wealthy individuals have one
or more pass-through entities. And so it gets a little complex
to audit. We are looking at ways to streamline those audits.
We are looking at ways to ask particular questions. I made,
probably the first or second week on board----
Mr. Quigley. Sorry, Mr. Commissioner. We need to move on.
Mr. Rettig. I am done. Sorry. My fault.
Mr. Quigley. And I appreciate your response to that, sir.
Mr. Crist. Yes. Thank you.
Mr. Rettig. Sorry about that. You are welcome.
Mr. Crist. And for the record----
Mr. Rettig. I am available to meet----
Mr. Crist. Let's continue to work together on that. And I
appreciate it.
Mr. Quigley. I appreciate that. I just want to make sure
others get their opportunities.
Mr. Rettig. Yes. I apologize.
Mr. Quigley. No. You did fine, sir.
Mr. Crist has asked that the ProPublica article he
referenced, ``Where in the USA Are You Most Likely to Be
Audited by the IRS?,'' and ``Tax Notes: Regional Bias and IRS
Audit Selection'' without objection, they will be entered into
the record.
[The articles referred to follow:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Quigley. Ms. Torres.
Ms. Torres. Thank you, Mr. Chairman.
In response to the Tax Cuts--I want to follow up on that--
and Jobs Act, the IRS and Department of Treasury produced new
income brackets. Those tax withholding tables, due to
inaccuracies in these tables, many taxpayers did not withhold
enough during the year and they are having now to pay, as they
are filing, more in taxes because of the government's error in
producing these new income tax brackets.
I do not think that that seems fair. I want clarification
on a recent opinion that the IRS now claims that if the
taxpayer paid 80 percent of their tax liability, that they will
be forgiven for any underpayment. In January, the tax liability
threshold was 85 percent.
So when did you decide to change the number to 80 percent,
and how did you choose 80 percent (sic) as the new threshold?
Mr. Rettig. The withholding tables associated with the Tax
Act were revised in February 2018, and the revisions to those
tables were made by career IRS employees. And then those
revisions were--there is a Treasury Inspector General report
and a GAO report that came out that approved the revisions.
I am not sure that it was the tables, but the IRS would say
that it worked very hard to get the message out--they had
Paycheck Checkup, a lot of news releases, a lot of outreach.
Point in fact, it probably does not reach most of the people;
working people are not going to necessarily look up an IRS news
release. This is my impression from the outside.
Ms. Torres. I would not--if I was not in this business, I
would not be reading your press release.
Mr. Rettig. The average person does not search for the IRS.
They wait for the IRS to--you know. So the IRS view would be
that it did a lot in terms of outreach and education. The
individual, hardworking individual on the streets, who ends up
preparing a tax return and owing tax would probably say, ``I
did not know realize that there was a change.'' Might not even
have realized that there was a change in the Tax Act, quite
frankly.
In terms of the 85 to 80 percent, the practice on the
outside people would let you know that there are contingents of
taxpayers who intentionally under-withhold and who
intentionally fail to pay their estimated tax payments. The
penalty on that is the--it is actually called a penalty, but it
is the interest equivalent.
Ms. Torres. But you know who those folks are.
Mr. Rettig. They are not just limited to those folks. But
if I could come back to the other piece, there are people who
intentionally underpay because it is an interest component and
they can make more on the money in their pocket----
Ms. Torres. Rich people. The people that I represent do not
overpay.
Mr. Rettig. Correct.
Ms. Torres. I mean do not underpay.
Mr. Rettig. Correct.
Ms. Torres. They want to pay their taxes.
Mr. Rettig. So the law was if you pay 100 percent of the
last year or the 90 percent category of the current year, you
had a safe harbor. And so given comments made by the
withholding tables, notwithstanding GAO and TIGTA, the IRS
reduced the safe harbor for people who ultimately paid to 85
percent, and then various practitioner organizations, including
the AICPA, came out and said, ``The 85 should be 80.'' And the
IRS then reduced it again to 80 based on----
Ms. Torres. So where is it at?
Mr. Rettig. Eighty.
Ms. Torres. Okay. And who benefits from that? What tax
bracket?
Mr. Rettig. It is not necessarily----
Ms. Torres. People making minimum wage? People making just
above minimum wage?
Mr. Rettig. It would be across the board. If somebody--I
believe that if somebody did not adjust their withholding
according to the Tax Act, the 80 percent, they should be safe
within that. I believe there would be few and far between. I
have not done the math on that.
But the intent was that people who have under-withheld 20
percent or less would not have the penalty issue associated
with it. And again, the penalty is an interest equivalent
issue. But it is an area that we are sensitive to.
Ms. Torres. Well, absolutely, because from my perspective,
the intent was to try to fool people that they were actually
seeing a reduction when the Tax Act was passed, when in reality
they were not getting a reduction in their taxes because they
would have that liability at the end of the year.
As it relates to SALT for Californians, the average
Californian pays $18,438 in local and State taxes. And the new
tax bill, the deduction is capped at $10,000. In 2015 my
constituents in my district dedicated over $682 million in
State and local taxes.
What are you seeing? What is the impact that you are
seeing?
Mr. Rettig. Yes, I do not have statistics. But I am born
and raised 62 years in Los Angeles, and I am understanding of
the impact of SALT limitations. And I do not have California
specifics or any other particular State specifics.
Ms. Torres. Well, I would like you to follow up on that
with me, if you can.
Mr. Rettig. We will. I will work with you.
Ms. Torres. Thank you.
Mr. Rettig. And I understand the issue.
Ms. Torres. And I yield back.
Mr. Quigley. Thank you.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman. And Commissioner,
nice to have you back.
Mr. Rettig. Thank you.
Mr. Cartwright. A couple areas I want to ask you about.
First, the program integrity cap adjustment: Included in
the White House's fiscal year 2020 budget is a $362 million
program integrity cap adjustment that, if we approve it, would
provide an additional $200 million to Enforcement and $162
million to Operations Support. And you are familiar with those.
Can you explain to me what those are and why Congress ought
to consider that proposal?
Mr. Rettig. The Enforcement is as it sounds, enforcement,
which we like to wrap the term ``enforcement'' also within
compliance because we have to have a strong, visible
enforcement presence which couples with telling the people who
get it right that they are doing the right thing, so the people
who are not doing it right need to understand the risk of not
doing it right.
The Operations Support is essentially the IT and related
support for the Enforcement side of the house. I think that if
we were on the outside, the reports might actually match
specific IT with a specific enforcement function. But the way
the accounting happens at the Internal Revenue Service, they
separate those two out. So it is not--the Operations Support is
not an overhead component; it is part of the Enforcement
component, but it gets separated in that manner.
Mr. Cartwright. So these are both to help increase
collections and reduce tax cheats?
Mr. Rettig. Correct, across the board.
Mr. Cartwright. Has the IRS implemented a program integrity
cap adjustment before? And if so, can you explain how it has
benefitted the IRS and U.S. taxpayers?
Mr. Rettig. I do not have the information on whether they
have, but would certainly be willing to get back to your staff
and work with your staff on that. I am a believer that the
program integrity cap will help us, and there is going to be a
lot of oversight on the use of the funds. And I am also a
believer in oversight for the IRS. I think that people
understand and see where the funds are being spent,
particularly Congress. It will help us going forward.
I also believe that the Internal Revenue Service and
Congress are in this together. I do not believe it is our issue
or Congress's issue. I think it is an issue we need to work on
together.
Mr. Cartwright. I appreciate your attitude, I really do. So
is that enough money? The additional $200 million to
Enforcement and $162 million to Operations Support, is that
enough?
Mr. Rettig. I think in the aggregate over a 10-year period,
it is about $15 billion going forward. And I think that the
figures that I saw is that that should return somewhere around
$47 billion. My hope would be to come back at some point--
although it goes well beyond my specific term--my hope would be
to come back and show that $47 billion was a significant
understatement.
To Congressman Bishop's comment, if there is a $406 billion
net tax gap, why are we not getting it?
Mr. Cartwright. Right. Okay.
Mr. Rettig. I think that is a fair question for us.
Mr. Cartwright. All right. Now, you did say part of it goes
to IT, and I wanted to follow up about that, IT modernization.
You have got some outdated hardware and software at the agency,
do you not? I read that more than 45 percent of the IRS's
hardware was past its useful life, and that a large percent of
the software was two or more releases behind the most current
commercially available version.
That is not a way to manage an agency. What is the plan to
ensure that the hardware and software are updated, and can you
explain why this has not happened up to now?
Mr. Rettig. Up to now--and again, I was on the outside but
my impression of what is in it, but I have learned a lot in
6\1/2\ months--but up to now, essentially, because of funding
and other issues, they have been patching and adding on certain
applications to what they have, so they have 60 different
applications.
And at some point you need to--even if it is a relatively
used car, you need to trade in the old car and bring out the
new car. The modernization system that is there, there is an
executive summary that has been put out. The full plan, I
think, will be put out in the near future. We would look
forward to the opportunity to come in and sit with you and with
your staff and walk through the entire plan.
But it will do, it is a service-wide system so that a
taxpayer actually can call in and handle all their matters at
once. A taxpayer can actually go online and handle all their
matters at once. It will radically increase the web apps,
applications, that we have. It will also radically enhance our
enforcement abilities and make us a much more effective agency.
Mr. Cartwright. How about security? Are taxpayers' personal
data at risk, given the antiquity of some of the equipment you
are using?
Mr. Rettig. The information that I receive is that we are
not at risk today, but old systems are a higher risk than new
systems; and that at some point we are driving that car further
than we should.
Mr. Cartwright. Okay. Thank you, sir. And I yield back, Mr.
Chairman.
Mr. Quigley. Thank you.
Commissioner, I guess the big deadline is April 15. But
there is another one tomorrow, and I need to ask you: As you
know, the chairman of Ways and Means requested the last 6 years
of the President's tax returns, asking that they be returned
tomorrow, April 10th.
So I am not going to ask you first what you are going to do
or how you feel that you should respond to this. The first
question is: Is this your decision under the law and under the
regulations, or is it somebody else's? And again I am
referencing what we know about 6103 and Treasury Order 150-10,
which predates a 1955 Treasury Order, which is very similar,
that suggests this is on you, and any decision to take away
that delegation would require, at the very least, written
notice to the relevant committee chairman.
Sir, is it your understanding this is your decision to
make?
Mr. Rettig. From what I have been seeing, that is the
information that I am receiving. And I saw the Secretary's
testimony this morning. We are a bureau of the United States
Treasury, and we are supervised by Treasury.
And so we did receive the letter. We are looking into it,
and expect to respond.
Mr. Quigley. And so I will ask you: How will you respond?
Mr. Rettig. We are working on it.
Mr. Quigley. Sometime in the next 24 hours, we will have a
decision. And again respectfully, is the decision yours? Yes or
no, sir?
Mr. Rettig. I think that the decision--subject to the
delegation order, the decision is mine, with the supervision of
Treasury.
Mr. Quigley. What is your understanding what that means,
the supervision? Respectfully, it is either your decision or it
is not.
Mr. Rettig. I think that Treasury can deal with the
authority on that issue. But I do not have specifics for you on
that.
Mr. Quigley. Has Treasury talked to you about this
decision?
Mr. Rettig. They have talked to me about the----
Mr. Quigley. ``Communicated with you'' is perhaps the
better way to ask.
Mr. Rettig. In fact, they are aware of the fact that we
have received the letter. That is correct.
Mr. Quigley. Has anyone at Treasury communicated with
anyone at the IRS about that decision?
Mr. Rettig. Counsel for the IRS has been interactive, and I
had a brief discussion with the Secretary that we received the
letter.
Mr. Quigley. And that conversation was just that you
received the letter?
Mr. Rettig. That's correct.
Mr. Quigley. Was there something beyond the fact that the
letter was received?
Mr. Rettig. No.
Mr. Cartwright. He did not request you to act in a certain
way?
Mr. Rettig. No.
Mr. Quigley. Did not suggest that he was going to make the
decision to you?
Mr. Rettig. That was a discussion about--and that is what I
am saying about we are working on it. There was a discussion
about who is going to handle the response.
Mr. Quigley. And what did the Treasury Secretary say?
Mr. Rettig. There is no conclusion on that.
Mr. Quigley. But it is your understanding that the call is
yours under the Treasury Order?
Mr. Rettig. I read the same delegation order that you did,
sir.
Mr. Quigley. Right. And the fact is that to rescind thought
would take written notification and at least 30 days?
Mr. Rettig. We are under their supervision.
Mr. Quigley. Sure. And I will ask you the same question.
To your knowledge, has anyone at the IRS had any
communication with anyone at the White House, information going
back and forth in anyway, about this decision?
Mr. Rettig. To my knowledge, absolutely not.
Mr. Quigley. Okay. Is it your understanding that you have
discretion under this sort of a request under the law, that you
can decide whether or not to comply with a request under 6103
of the Tax Code?
Mr. Rettig. I think it would be inappropriate for me to
identify what the understanding is with respect to that.
Mr. Quigley. What have your legal experts told you? It is
hard to imagine, sir, that they are going to say, at 5 minutes
till midnight, ``Okay, what are we going to do?'' I would
assume that you all have started to have these discussions.
They would have given you some amount of legal understanding as
to what your choices were and what the law says.
Did they talk to you at all or did you ask about whether
you have discretion to respond or to comply?
Mr. Rettig. I have not asked, and I think it would be
premature of me to speculate with you now.
Mr. Quigley. Would it have been premature to ask them if
you had discretion?
Mr. Rettig. I have not asked.
Mr. Quigley. But you have not made up your mind as to
whether or not you have discretion at all. Correct?
Mr. Rettig. Sir, I think at this point it would be
inappropriate for me to go beyond the statements that I have
made.
Mr. Quigley. Ok.
Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
Commissioner, are you aware of any other time that the
chairman of Ways and Means Committee in the House of
Representatives has requested the personal tax return of an
individual?
Mr. Rettig. Personally, I am not.
Mr. Graves. And for what reason would a chairman of Ways
and Means request an individual's tax return or entities
related to an individual?
Mr. Rettig. I do not speculate on why people ask for
things.
Mr. Graves. In the letter from Chairman Neal, he says the
committee is considering legislative proposals and conducting
oversight. And that is their reason for requesting the
individual tax return of an individual and corporations related
to that person.
Can you think of a legislative proposal that could be
derived from looking at once individual's tax return or the
entities that are associated with him?
Mr. Rettig. I think it would be inappropriate for me to
speculate.
Mr. Graves. I mean, have you--I am not on the Ways and
Means Committee, and I do not keep up with what they are
working on. I am sure your staff does. Have you been informed
of any legislative proposals they are working on that would
require the evaluation of an individual's tax return in order
for them to reach a conclusion of what is proposed
legislatively?
Mr. Rettig. I am not.
Mr. Graves. Yes. I am not, either. I know it is not for you
to speak on. But it just seems like we have a chairman, and
potentially a party, that is attempting to weaponize the IRS
for political gain. And that is unfortunate because, as you
stated, there is no other time that I can recall, and maybe you
cannot, either.
Even in your time outside of the IRS and more in the public
practice, if you were--as a tax attorney, if you knew that the
Federal Government was using the power of Congress to request
an individual's tax return for public disclosure, how would you
feel about that in the private sector?
Mr. Rettig. It is probably inappropriate for me to--
personal opinion.
Mr. Graves. Let's say this tax return is not produced by
the deadline. What are the consequences?
Mr. Rettig. Again, privacy and confidentiality provisions
probably preclude me from having any discussions with respect
to the issues there.
Mr. Graves. Well, I actually have great admiration for your
willingness to protect, no matter whom they are, whether I
agree with them, disagree with them, like them, dislike them,
but your willingness to protect an individual's privacy, and
particularly their tax returns.
But I am curious as to what arresting authority the
chairman of Ways and Means has if this product is not produced.
Are you aware of any? Have they threatened to use any force
against you as Commissioner?
Mr. Rettig. Nobody has made any threats against me.
Mr. Graves. Have they indicated any actions they might take
against you or the Secretary of the Treasury?
Mr. Rettig. I have not received any information beyond the
letter.
Mr. Graves. Well, thank you for looking at this very
seriously because I think this is an important time in the
history of our country, that we do not allow any political
party to weaponize any form of our government against their
adversary. That is a dangerous and dark time if that were to
occur.
And Mr. Commissioner, I appreciate your conversation today,
all you are doing in the agency, how you are leading the people
of the Internal Revenue Service, how you are creating a culture
of service. That is something we certainly seek for our
constituents, and it has been good to spend time with you
today.
Thank you again, Mr. Chairman.
Mr. Rettig. Our people work hard.
Mr. Graves. They do. They do.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you.
Just a follow-up to that and then I will go on to Mr.
Bishop. Can you recall a time when the Treasury Secretary has
ever been involved in a Section 6103 request?
Mr. Rettig. Personally, not--but I just came on October
1st. But----
Mr. Quigley. I was just curious if your legal staff had
talked to you about that.
Mr. Rettig. Since October 1st, no. And I have not had that
discussion with anybody.
Mr. Quigley. Very good.
Mr. Bishop.
Mr. Rettig. I have been focused on the employees.
Mr. Quigley. I got that.
Mr. Bishop. Is there any reason for you to believe that the
Ways and Means Committee would not have a legitimate interest
in monitoring the auditing and the enforcement of the law with
respect to a sitting president?
Mr. Rettig. Sir, I am a tax administrator. We process,
file, and things, and I do not put my thought processes into
those who look at us and have oversight ability with respect to
us.
Mr. Bishop. Is it not true that the Ways and Means
Committee does have oversight of the administration of your
agency, and that it would be legitimate grounds to request the
tax return of a president or an individual, particularly with
respect to oversight of potential conflicts of interest that
the president might have?
Mr. Rettig. Sir, the committee has oversight, and I do not
put my thought process into the balance of the question that
you asked.
Mr. Bishop. Are you aware of any IRS rule, and you are
charged with administering the Internal Revenue Code with your
agency, that says that a tax return cannot be released if the
taxpayer is under audit? Whether a taxpayer is being audited or
not, is there any----
Mr. Rettig. Released by?
Mr. Quigley. By the service when requested?
Mr. Rettig. No.
Mr. Quigley. Is there any reason--is there any prohibition
in your regulation or in the law that would prohibit a
taxpayer's return from being released simply because it is in
the process audit?
Mr. Rettig. Sir, I believe it is inappropriate for me at
this time to engage in a discussion as to what might be
appropriate or inappropriate with respect to issues coming out
of that letter. And as I said, the Internal Revenue Service----
Mr. Bishop. I am talking in general, not just specifically
to that letter.
Mr. Rettig. I understand that. But I think the reason----
Mr. Bishop. If anybody's tax return is under audit, is
there a rule that would prohibit that taxpayer from releasing
it?
Mr. Rettig. I think I have answered that question no.
Mr. Bishop. So if any individual, including but not limited
to the president, uses as a justification for not turning over
a tax return to the public or releasing it, using the fact that
that taxpayer may be under audit, there is no IRS rule or
regulation to justify that, is there?
Mr. Rettig. Sir, I cannot speak to any particular
taxpayer's issue with respect to privacy and confidentiality
issues. And the reason that we are probably having this
discussion is based on the fact of the letter that was
received. So it is an area that is inappropriate for me to----
Mr. Bishop. That is speculation as to whether or not that
is the nature of my question. But the reason for my question--
my question----
Mr. Rettig. I believe if I did not receive the letter, we
might not be having this discussion.
Mr. Bishop. But there is no rule that would prohibit the
release of a tax return because it is under audit?
Mr. Rettig. I am not aware of such a rule. And I believe I
have answered that.
Mr. Bishop. Thank you.
Mr. Quigley. Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
Commissioner Rettig, in response to concerns about the
inability of the IRS to answer taxpayer calls during tax season
in a timely manner in recent years, Congress provided the IRS
with $290 million in dedicated funding to improve the level of
phone service for fiscal years 2016, 2017, and 2018.
This additional funding allowed the IRS to hire additional
temporary telephone assisters, which helped those raise the
phone level of service from 38 percent during the 2015 filing
season to almost 80 percent during the most recent 2018 filing
season. Is that correct?
Mr. Rettig. That is correct.
Mr. Cartwright. But despite the fact the IRS has
demonstrated that with additional funding, it can provide
taxpayers with the assistance they need during tax season, this
administration's fiscal year 2020 request calls for reducing
funding for taxpayer services by almost $90 million below the
current level, and overall Taxpayer Services staffing by almost
2,200 full-time equivalents from fiscal year 2019 CR level,
which the administration acknowledges would lower the phone
level of service from 76 percent in fiscal year 2018 to just 68
percent in fiscal year 2020.
Here is the question: Will not these dramatic reductions in
funding and staffing for Taxpayer Services simply reverse the
gains that we have made in recent years and leave the IRS
unable to provide taxpayers with the assistance they need,
particularly for next year's filing season, when taxpayers and
businesses will be coping with Tax Code changes?
Mr. Rettig. Congressman, I can assure you that every person
at the Internal Revenue Service, including myself, wants to do
more. We want to do our best, and we want to have adequate
tools to be able to do our best. We want to make you proud. We
want to make the people of this country proud. That is our
focus.
Mr. Cartwright. Me, too. And thank you for saying that. But
you know, we are in the habit of disregarding budgets that come
at us that we do not like, and we decide how much money gets
spent. Would it not make sense not to make those reductions?
Mr. Rettig. Again, we will make do with what we are
provided. But we want to do more, sir.
Mr. Cartwright. Well, I am not going to torture you on that
any more. And Commissioner, I thank you for coming here and
providing us with your testimony.
Mr. Rettig. Thank you. I appreciate it.
Mr. Cartwright. I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Mr. Graves.
Mr. Graves. No questions.
Mr. Quigley. I know we all have tough choices, and I
appreciate, Mr. Commissioner, the fact that you have been
willing to meet with just about anyone who is out there. And I
appreciate the spirit in which you are doing this. As I said, I
know we all have tough choices to make, and we can disagree.
I am often asked by high school and college students,
``What should I read to prepare for a life in public service?''
When I think about the choices you are going to have to make in
the next 24 hours, I would remind you of what I tell them. And
who am I to tell you, but a ``Man for All Seasons'' comes to
mind, and Sir Thomas More. But God go with in those choices,
sir.
We appreciate your being here, and all of those who were
responsible for this. Thank you.
Mr. Rettig. Thank you.
Mr. Quigley. We are adjourned.
Wednesday, September 25, 2019
FEDERAL TRADE COMMISSION
WITNESSES
ROHIT CHOPRA, COMMISSIONER, FEDERAL TRADE COMMISSION
JOSEPH J. SIMONS, CHAIRMAN, FEDERAL TRADE COMMISSION
Mr. Quigley. Good morning. The committee will come to
order. Thank you for joining us today. I am pleased to welcome
Federal Trade Commission Chairman Joseph Simons and
Commissioner Rohit Chopra. Am I batting .100 so far? Okay. It
is the Cubs I am thinking of.
It has been more than 7 years since the FTC has appeared
before the subcommittee, so gentlemen, you are late. No, it is
long overdue. And the FTC is obviously one of the most
important agencies the subcommittee funds and it has only
gotten more important over the last few years.
You have enormous jurisdiction, policing most sectors of
our economy for bad behavior. You crack down on abusive
robocallers. They investigate data breaches that expose
sensitive personal information. They analyze consolidation in
the healthcare market, helping to limit abusive pricing for
essential drugs and health services, perhaps at the front of
mind. They are the top cop on the beat for consumer privacy
violations and other issues in the technology sector. This is
something everyone worries about these days, Democrat and
Republican.
Whether tech companies are respecting the privacy choices
of their customers, whether they are choking off competition by
favoring their own products or buying up competing products, we
have seen some promising actions recently.
The FTC certainly did not take a summer break. In the past
few months, they have finalized high-profile settlements with
Facebook, YouTube, and Equifax. They launched an anti-trust
investigation of Facebook and possibly other companies.
We recognize the challenges the FTC faces in policing such
a large swath of the economy. That is why this year's House
appropriation bill proposed a $40 million increase in FTC
funding. That is a bump of more than 10 percent.
Part of the reason we are here is to understand how the FTC
can invest these resources wisely, how they can get the best
bang for the buck for consumers. It is also our duty as
appropriators to determine if the FTC is using its existing
resources as efficiently as possible.
Consider this summer's Facebook settlement. Yes, $5 billion
is by far the largest privacy settlement. But it does not seem
to match the magnitude of the privacy violations. That fine
does not represent even a full month of revenue for the
company, and it is not clear that the corporate changes the FTC
secured will head off future privacy violations.
We could raise similar points about YouTube or questions
why the Equifax settlement over one of the largest data
breaches in history included only $31 million for alternative
compensation.
The economy has transferred dramatically in the past
decade. The companies we worry about today are structured much
differently than the companies of concern in the past.
What we want to know is this: Can the FTC do better? Can it
win bigger monetary settlements to provide greater redress to
consumers, or send clearer signals to the market that the U.S.
will not tolerate anticompetitive or deceptive behavior, and
that there will be severe consequences if that does happen? We
look forward to hearing from the chairman and the commissioner.
Before I turn to the witnesses, I would like to recognize
Mr. Graves for his opening remarks.
Mr. Graves. Thank you, Mr. Chairman, and I appreciate you
holding this hearing today.
Mr. Chairman, thank you for being here, and Commissioner as
well. I look forward to hearing your testimony. And I think we
all know that the Federal Trade Commission basically has two
primary missions, and the first is to protect consumers from
unfair and deceptive and fraudulent practices, as the chairman
has discussed.
And this includes protecting Americans from identity theft,
false advertising, those dreaded telemarketing calls--the
unwanted telemarketing calls--and certainly scams against the
most vulnerable or elderly that are in our communities, and our
great servicemembers.
The FTC also makes sure our markets are open and free. Mr.
Chairman, I was thinking about your comments about how it has
been nearly 7 years since they have been before us. And there
may be a reason for that, and that is since 2018, nearly 95
percent of all their decisions and their work on the Commission
has been unanimous--and we do not near a lot about that around
here--in a bipartisan way, knowing that this is a bipartisan
commission.
So congratulations to both of you all on how you have
worked together. And I know there is still 5 percent out there
where there is tremendous debate, and we expect that.
But as we have become more dependent on technologies in our
everyday lives, these tasks are certainly more challenging that
you face, in some of the thoughts that the chairman has brought
up. It is critically important, though, that technology
companies that serve Americans act in an open and transparent
manner, that the technology sector protects consumer privacy,
and that they do not conduct anticompetitive business practices
whatsoever.
However, as a regulator, the FTC must be careful not to
stifle innovation while conducting its important work. And I
know that is a difficult balance that you grapple with every
day. Because we have all seen in the past that over-regulation
of industries can hurt the economic growth and ultimately can
hurt consumers as well.
So Mr. Chairman, I want to thank you for having this
hearing today. I think this will be very informative. And I
appreciate, Chairman, for you joining us, and Commissioner as
well, and I look forward to hearing your testimonies.
Mr. Quigley. Thank you, sir.
I would now like to recognize the chairman for his
testimony.
Mr. Simons. Thank you. Chairman Quigley, Ranking Member
Graves, and members of the subcommittee, I am extremely pleased
to be before you today to testify about the commission's work
and funding request, and particularly alongside my dear
colleague, Commissioner Chopra.
The FTC is a highly effective independent agency with a
broad mission: As you said, to protect consumers and maintain
competition in most sectors of the economy. On the consumer
protection side, we are aggressively pursuing law enforcement
on privacy and data security matters, including record-breaking
settlements with Facebook, Google and YouTube, and Equifax.
We have mainly used a 100-year-old statute, Section 5 of
the FTC Act, to bring our privacy and data security actions,
but our authority under Section 5 is limited. These limitations
have a critical effect on our ability to protect consumers,
which is why we urge Congress to enact privacy and data
security legislation enforceable by the FTC which grants us
civil penalty authority, targeted APA rulemaking authority, and
jurisdiction over nonprofits and common carriers.
In addition to privacy and data security cases, we continue
to bring a broad range of enforcement actions addressing, among
other issues, fraud against older adults, servicemembers, and
other diverse and underserved communities.
On the competition side, enforcement actions in the
pharmaceutical sector continue to be a big priority for us.
Cases like our ``pay for delay'' matters protect generic
competition, which helps keep down drug prices.
To address concerns about the power of big tech, we have
created a Technology Task Force within the Bureau of
Competition to concentrate our expertise and better investigate
conduct by technology companies.
I want to thank this committee for the additional $40
million for the FTC that is in the House fiscal year 2020
Financial Services and General Government appropriations bill.
I assure you we will make good use of that additional funding.
Although $40 million is a very large number, more than half
of it might be needed to cover mandatory compensation
increases, step increases, and non-compensation costs related
to our agency operations such as our Consumer Sentinel services
contract, our litigation support service, and additional expert
witness fees.
The remaining portion of the $40 million would likely be
used for adding additional personnel, in the neighborhood of 90
FTE. We would focus new staff additions to priority areas such
as our privacy and enforcement divisions in the Bureau of
Consumer Protection, hiring more technologists, doubling the
size of our Technology Task Force, and hiring more economists.
Finally, but significantly, while principled differences
among commissioners occasionally lead to split decisions, some
of them high profile ones at that, the FTC predominately works
in a bipartisan fashion, and we will continue to do so. We are
committed to using every resource to effectively protect
consumers and to promote competition, and we look forward to
continuing to work with the subcommittee and the Congress. And
I look forward to your questions. Thank you.
[The prepared statement of Mr. Simons follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Quigley. Thank you.
Commissioner Chopra.
Mr. Chopra. All right. Thank you, Chairman Quigley, Ranking
Member Graves, and members of the subcommittee. I appreciate
you holding this hearing today. My name is Rohit Chopra, and I
am honored to sit alongside Chairman Simons to represent the
Federal Trade Commission.
Congressional oversight ensures that regulatory and
enforcement agencies are accountable to the public, and I
welcome this oversight. I know it makes agencies stronger.
And as Congress tackles some of the biggest challenges
facing our economy, our society, and even our national
security, the Federal Trade Commission should be a critical
piece of that puzzle. The stakes simply could not be higher.
For example, how are we going to combat pharmaceutical industry
abuses that contribute to out-of-control drug prices that mean
the difference between life and death for patients? What can we
do to make sure that Americans can get a fair pay raise in a
competitive job market rather than being squeezed by employer
consolidation and noncompete agreements? How are we going to
reverse the worrisome decline in new business formation and
make sure that American entrepreneurs are not blocked by
incumbents protecting their turf?
How will we safeguard sensitive data from abuse and misuse
by those here at home seeking profit and by those abroad
seeking to do us harm? How will we deal with the rising
dominance of Big Tech when it comes to fake reviews, facial
recognition, fair competition, and so much more? Congress is
currently considering an increase in funding for the FTC, and I
share the chairman's commitment to use every resource
effectively so that we deliver real value for the public.
The FTC hearings that convened over the last year were a
reminder of the importance of self-critical analysis. We must
always be searching for ways to be more effective. For example,
what can we do to leverage the resources and authorities of our
Federal and State law enforcement partners to win full redress
for victims and accountability for corporations and their
executives that broke the law?
How can we codify existing policy guidance and case law
into clear rules so we can seek stiff penalties to be returned
to taxpayers? What more can we do to protect honest businesses
who play by the rules but are harmed by those who cheat? We are
actively thinking about new ways to use the authorities and
resources that Congress has entrusted to the agency that solve
real problems in our markets.
We appreciate the opportunity to work with you to tackle
these challenges and opportunities, and I look forward to your
questions.
[The prepared statement of Mr. Chopra follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Quigley. Thank you both. And again, thank you both for
being here.
Commissioner, you and your fellow Democratic commissioner
dissented in the YouTube and Facebook settlements. Could you
give us a deeper dive as to the reasoning for your dissent, and
what you think the FTC can do differently or better to address
these issues?
Mr. Chopra. Sure. The Facebook Corporation is a major
governance and managerial challenge facing every regulator in
the globe. They have serious dysfunction, and they repeatedly
violated the 2012 FTC order almost immediately. I was not happy
with the outcome of the settlement. I think that it provided
blanket releases of claims that were unspecified. There is not
a deep----
Mr. Quigley. It is not just the money? Or is money part of
it?
Mr. Chopra. Well, will $5 billion--while it is a record, is
it going to change a firm that makes that amount of money very,
very quickly? This is one of the largest corporations in the
world, and Wall Street reacted. They did not actually find it
that big of a deal. Most in Silicon Valley who analyze that
business did not see it so significant.
So for me I outlined all of these concerns. And look. Since
the time we finalized that settlement, we have now heard of
more and more problems. Just recently, just a few days ago,
64,000 apps suspended, we learn from the Massachusetts Attorney
General court filings. We learn about phone numbers. It just
keeps going and going. And I am concerned that the core
problems in that firm are not fixed.
Mr. Quigley. Mr. Chairman, I want to ask your thoughts on
that settlement, and more importantly, the ongoing issue that
that settlement was discussing. If you could add into this
discussion if these decisions and settling are because of a
risk of losing in court. And is there something we can do to
mitigate against that concern?
Mr. Simons. In this case I do not think it had anything to
do, really, with the risk of losing in court. Just to give you
some context, we do not have the authority ourselves to fine
people. We would have to go to court and get a court to agree
to the fine and to any other additional injunctive relief.
So in this case I think there is a widespread view that if
we had gone to court, if we had spent years in litigation and
if we had won, the relief that we achieved in the settlement
was far greater than any court would have likely granted us.
So in terms of whether the settlement or going to
litigation was the right choice, I think it is really clear.
The settlement was far greater than we could have gotten in
litigation, and they are now under--well, actually, hopefully
soon they will be under order when the court signs the papers
and finalizes it. And once that happens, then they are under a
much stiffer regime than they were previously.
The other thing I would say, too, is in terms of the $5
billion, that is about 22 or 23 percent of their profits from
last year. I mean, taking that much of someone's profit should
be making them think about how they run their business.
Mr. Quigley. Is there something besides the fines, though,
that can change behavior? I just want you to elaborate on that.
Mr. Simons. Yes, yes, yes. Absolutely. So part of this,
another big part of this settlement, is the injunctive relief.
So we have done a whole bunch of things there. We have got a
new committee of the board that is formed that deals solely
with privacy and is only composed of independent directors.
We have got a requirement on Mr. Zuckerberg that he certify
quarterly that they are in compliance with the privacy program
that is mandated in the order. He cannot just stick his head in
the sand. He gets mandatory information flows which he has to
review.
There is a very beefed-up third party assessor that is in
here. We have the ability to hire and fire. That assessor has
access to these mandatory information flows that the order
requires. And then the FTC itself has the ability to monitor,
too, more stringently than we have had in the past.
Mr. Quigley. Thank you.
Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman. I know we will talk a
little bit more about antitrust and Facebook and others.
But something that is a little bit more pressing for me--
because we have been hearing a lot about it in the news
lately--is SIM swapping. And this is when a bad actor pretends
to be somebody, calls a telecommunications company, and
convinces them to activate a SIM card on a different device.
And then that allows them to basically have mobile identity
theft and have access to a person's phone, oftentimes bank
accounts, their applications, passwords, all those, change
things out.
And what is interesting is that the FTC actually responded
to this over 3 years ago, and there is a blog that was posed
about this very thing. But it seems to be intensifying and more
active. In fact, Jack Dorsey suffered this just a few weeks ago
himself, and his phone was taken over.
Can you give us an update? What role do you have in this,
and what can consumers do to protect themselves from this? And
Mr. Chairman, I will start with you on that, if you do not
mind.
Mr. Simons. Yes. So we share your concerns. This is a big
problem. It enables fraudsters to access consumers' text
messages and phone calls, as you said, get information,
personal information, potentially get into their bank accounts,
and other important aspects of their personal lives.
So this is a serious problem. We did provide and do provide
on our website guidance to consumers on this issue, and we
continue to monitor this issue very carefully. So this is
something we are focused on.
Mr. Graves. Commissioner, anything to add?
Mr. Chopra. The only thing I will add is that as two-factor
authentication spreads, which is generally a good thing. Most
people are using that through their personal cell phone, and so
obviously that is now a big vulnerability, the more someone can
dig into that phone.
So for me, I think of this broader issue of identity theft
as, really, problems in our data security infrastructure. And
that has huge impacts on commerce, national security,
everything. So if we do not take this serious--we cannot
quantify the harm that can come from this.
Mr. Graves. But the two-step verification does not really
stop a SIM swap. Right?
Mr. Chopra. No. No, but it makes it----
Mr. Graves. Right. Help with an application or such.
Mr. Simons. It makes it more damaging. Right?
Mr. Graves. But it does not stop from reading somebody's
text messages, changing passwords out on a cell phone, and
other things.
What can the Federal Government do to protect consumers
from this? And I guess that is my basic question. I think
consumers are doing everything they can. Technology is moving
very rapidly. They are trying to protect their own identity.
But now some of our telecommunications companies are
inadvertently giving out personal information.
Mr. Simons. Yes. Maybe there is something we could do in
terms of encouraging the carriers because a lot of what enables
this, right, is that the carrier--the scammer, the fraudster,
is able to get enough information that when you go to the
security questions, they are able to answer them. And so maybe
we need to think about how to make that more secure.
Mr. Graves. Yes. Thank you. And Mr. Chairman, if I could, I
have one other question, related, because another issue that
has been on my mind a little bit as it relates to--the chairman
and I both have this similar position about cybersecurity and
some of the threats we face as it relates to protection of
privacy. That is why I am bringing up SIM swaps.
But we had an FCC meeting recently that discussed
geolocation data being shared by--being sold from these same
companies without a consumer's knowledge as well. The FTC has
some jurisdiction here as well to take action against those
that are engaged in these unfair, deceptive practices.
Can you give us an update as to what involvement you have
in that area, too, Mr. Chairman?
Mr. Simons. Sure. Be happy to. So we are extremely
concerned about this area as well. Location information is
particularly sensitive because its unauthorized sharing can
create safety concerns--stalking, for example.
We do not have the jurisdiction to bring cases against
common carriers. We have asked for that immunity to be reversed
and for us to have jurisdiction. But we have brought several
cases alleging unfair and deceptive practices in connection
with this problem.
For example, we alleged that a popular flashlight app
shared information with ad networks without disclosing the fact
first. This was the GoldenShores case. And we have several
nonpublic investigations going on right now regarding this
issue.
Mr. Graves. Okay. Thank you, Mr. Chairman.
Mr. Quigley. Ms. Torres.
Ms. Torres. Thank you, Mr. Chairman and Ranking Member,
Commissioner Chopra. Thank you for being here.
In your dissenting statement in the YouTube settlement, you
noted, ``The Commission already has strong authority over
children's privacy under the Children's Online Privacy
Protection Act but has failed to use the enforcement tools at
its disposal to effectively deter actions that infringe on
children's right to privacy.''
So I was very surprised to learn that on Monday, FTC
officials actually suggested weakening restrictions on how data
can be collected from users who watch videos aimed at children.
How would this move impact children's privacy and legal
protections under the law, current law?
Mr. Chopra. Well, I have not reviewed the statement that
was made by him. But he does not speak for me or any other
individual commissioner. I do not agree that we should be
moving toward any sort of weakness. We are doing a review, and
if we do weaken the rule in a harmful way, that is not
something I would want to support.
And obviously Congress will have to review that, and has
the right under the Congressional Review Act to overturn it. So
I think we should go into it looking for ways to actually make
sure protections are stronger, and that we can have the tools
to deter the worst type of behavior because we are already
seeing how mass accumulation of data on children is so
lucrative. But it also can be extremely harmful and misused,
and we should take that very seriously.
Ms. Torres. Having seen so many abuses at every level,
specifically as it relates to foster children, and being a
grandma of a 4-year-old, I want to make sure that this issue
does not go by the wayside. We have to do everything that we
can to protect the future of children and their identities.
The California Consumer Primary Act, CCPA, is considered
the most expansive privacy law in the country. It will take
effect on January 1, 2020. Congress and State legislators are
working on legislation that would provide baseline consumer
privacy protections in the U.S.
Have you reviewed the California law?
Mr. Chopra. Yes, I have.
Ms. Torres. And are there any elements of that law that you
think should be adopted at the Federal level?
Mr. Chopra. Well, there are a lot of details to the law.
But just some things that come to mind: There is a very clear
way of deterring and penalizing firms that engage in
violations, and there is a different level of penalty for
willful or intentional violations compared to unintentional
ones. I think making sure that there is clear liability of
those who violate the law will create the incentives in the
market to actually protect data and not abuse it.
There are also some new consumer rights that are part of
it. I think all of that is good, but we also need to make sure
we are looking at how to attack the underlying incentive that
relates to collecting geolocation data. All of this data is
monetized, and that is the business model that is impacting so
many of our problems online.
Ms. Torres. This is an issue that is zero tolerance. If you
accidentally swipe your card and know that there is zero
balance on your checking account, the bank is not forgiving and
says, it is your first mistake. We are going to waive all fees.
The credit companies do not give you a break. You are punished
by it. And it should be in the same line, zero tolerance for
that.
The FTC often works with State Attorney Generals on cases.
Will the California law or other State privacy laws impact the
Commission's work in any way?
Mr. Chopra. I am happy to--I always think it is good when
State AGs are with us. They often have authorities and ability
to get penalties. So for me, I am really encouraging more State
action when it comes to going after some of the abuses in the
tech area. And we are seeing more laws being passed, and that
is going to give us more leverage at the table. But obviously,
a Federal law will help us as well.
Ms. Torres. And just really briefly--you probably won't
have time--but I just want to put this on the record for you.
In recent years consumers have reported an increase in
online hotel booking scams when third party vendors falsely
claim to be affiliated with or proprietors of a hotel. So I am
curious to know what actions the FTC has taken to combat these
scams. It is an issue that comes up often in my district. So
same as Facebook, zero tolerance. This is the same type of
issue, where you have like pages.
Mr. Chopra. So it--go ahead. Oh, it is obviously a problem.
And these types of scams, one of my concerns is that they are
heavily facilitated by some of the advertising models of the
larger firms because they do not really police a lot of this
content.
So I saw this firsthand with all of the student debt scams
that started several years ago. And most of the ways they were
reaching people were through Google and Facebook ads. So Google
and Facebook claim that they have no liability for it, but we
have to really look at that because often they are----
Ms. Torres. It is their platform. They should be held
liable.
Mr. Chopra. And they are monetizing some of that. And their
business model is to get people to take action, so they profit
from it, too.
Mr. Quigley. We are going to move on to Mr. Joyce. But I
will let the chairman comment on that as well.
Mr. Simons. Yes. I was just going to say that one of the
things that we do is we go after not only the fraudster but the
people who helped the fraudster. And so that is consistent with
what you are suggesting. So yes.
Mr. Quigley. Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman. Gentlemen, thank you
very much for being here today.
Servicemembers, like all consumers, are potential targets
for fraudsters. Certain schemes are more likely to target the
military community, and in part because military families
frequently relocate. Many servicemembers are young and living
on their own and earning a paycheck for the first time.
How big of an issue is it for fraud against service
managers?
Mr. Simons. This is a big issue, and it is a big priority
for us. We have some recent cases where we have had enforcement
actions against for-profit schools and their lead generators,
where they basically pose as being associated with the
military; tricked people who wanted to enlist in the military,
took their information, used it as leads for the for-profit
schools, implied that those for-profit schools were associated
with the military and it would help a military career. And so
that is just one example of what we do.
Another thing that we do is we run a website called
MilitaryConsumer.gov, which has all kinds of helpful
information--identifies scams, how to avoid them, and also
helpful things about how to set up a budget and things like
that for servicemembers in various points in their careers.
Mr. Joyce. I know it is probably hard to quantify, but do
you feel that we are reaching the servicemembers who need this
information? Or what else could we be doing to help make sure
that these people are not being targeted?
Mr. Simons. I think we are doing a pretty effective job.
Mr. Chopra. I would just add, consumer education is really
going to have its limitations when it comes to reaching
servicemembers and veterans, given PCS orders, all of that.
Just to jump----
Mr. Joyce. The consumer wants to be educated, or has to
take substantive interest in it.
Mr. Chopra. Yes. I think sometimes we need to focus on what
are some of the incentives that are driving the targeting of
military families? Chairman Simons mentioned our actions
against lead generators and schools that target them.
One of the reasons those for-profit colleges target them is
because of a rule, a law by Congress, that says, you need to
get at least 10 percent of your revenue from outside of the
Department of Education's program. So guess what some of these
schools do? They go hard after the GI Bill and they go hard
after the DOD military tuition assistance. So there's a cottage
industry of companies that are just trying to go after the
military.
So some of this is we need to address that incentive. And
we also need to look, I think, at criminal sanctions for some
of this behavior because when we are leading to so much
financial distress for military families, what are the impacts?
They lose security clearances. They are more likely to
separate. The DOD did an extensive report on this. And I think
we need to act especially when it comes to these for-profit
schools that target them.
Mr. Joyce. So we screwed up passing the law. We need to do
something to fix that.
Mr. Chopra. Yes. And we need to--everyone needs to enforce
this. I mean, the Department of Education has just allowed this
to go on for years and years under multiple administrations.
And they had to fix it, too.
Mr. Joyce. That's a very good point. Thank you.
I know the FTC also operates a Do Not Call registry and
collects consumer complaints about telemarketing calls. The Do
Not Call registry is effective when law-abiding actually comply
with it, but I understand you are working with the FCC, who
regulates the telecommunications industry, on reducing
robocalls.
What actions are being taken against telemarketers that
inappropriately target Americans?
Mr. Simons. Yes. This is a multi-faceted approach.
Obviously, this is a very high priority for us. So we do law
enforcement; an example of that is we had a big sweep a couple
of months ago involving a large number of State and local law
enforcement partners. So we do that.
In addition, we are looking at the entry point for the
robocallers to get into the system, whether it is a VOIP
carrier or a common carrier, which allows me to segue into
putting a plug in for getting rid of the common carrier
exemption because I think, to a significant degree, some common
carriers may be facilitating the robocalls. And if we had
jurisdiction, we could get at that.
So those are the--oh, and the other thing we did is we ran
a technology contest which--in order to generate solutions for
robocalls. And that produced several different technologies
that are actually on the market now. One is called No More Robo
and the other is Robo Killer. In fact, the last one is--I'm
very excited about that one because what that one does is it
answers the call with a bot and just keeps the caller on the
line indefinitely, wasting their time and their money, not
yours.
Mr. Joyce. I certainly appreciate that. Do you foresee--and
I know I am just about out here, Mr. Chairman--but foresee when
Americans can expect a reduction in robocalls?
Mr. Simons. That is really hard to say. One of the things
that work with the FTC and encourage them to do is what is now
being implemented, which is the Shake and Stir Program. So that
would require identification of the call, so that would
dramatically reduce spoofing.
Mr. Joyce. Because you could certainly see it with a lot--
all the digits behind it, but then it will be a local number as
it appears on your TV.
Mr. Simons. Right. Oh, yes. Yes. So the FCC is working with
the carriers to try to fix that problem.
Mr. Joyce. Thank you very much, Mr. Chairman. I yield back.
Mr. Quigley. Certainly.
Mr. Crist.
Mr. Crist. Thank you. Thank you, Mr. Chairman.
I want to thank Chairman Simons and Commissioner Chopra for
being with us this morning. I appreciate your critically
important mission to protect America's consumers. Having been
Florida's Attorney General, protecting consumers is very
important to me and I think all members of our committee as
well as you. I want to tell you about one such consumer.
His name is Mike McKinney. Mike runs a minority-owned small
business based out of Saint Petersburg in my district. His
daughter, Taylor, was diagnosed with diabetes 9 years ago.
Since her diagnosis, the family has focused on Taylor's health
and treatments.
Mike told me about the thousands he has had to pull out of
the family's 401(k) and the ``creative things'' they did when
they had nowhere else to turn. Mike left his corporate job to
start his own business, but the insurance ran out at one point.
Mike had to pay $120 for a three-day supply of Taylor's life-
sustaining insulin.
In that vein, I would ask you to look at this chart behind
me. They show the prices of brands of insulin over time. The
insulin manufacturers, Eli Lilly, Novo Nordisk, and Sanofi, are
increasing their prices dramatically, as you can see. And they
are doing it in lockstep.
Market forces are not driving these increases, and yet
insulin, the drug that sustains America's 30 million diabetics,
including Taylor, keeps getting more and more expensive, all
while profits for the drug companies continue to skyrocket.
Drug companies are price-fixing because they know their
market is broken. They know their monopolies are legal for now.
And they know their 30 million consumers cannot influence price
because their demand is not negotiable. They need their insulin
or they will die. This is anti-consumer behavior at its most
egregious, its most harmful, and this is where Americans need
the FTC.
My question for both of you, but for you, Commissioner
Chopra specifically because you mentioned the outrageous costs
of prescription drugs in your testimony: What is the FTC doing
to stop the drug company price-fixing, and what additional
authorities would you need to save consumers' lives from the
greed of these drug companies?
Mr. Chopra. Well, I do not want to comment on any specific
drug or investigation. But if there is price-fixing or other
anti-competitive conduct that is literally leading to
potentially people dying, we have to take that seriously, and
we have to use all the authorities to do that.
One of the things that I think is a concern for years and
years is how pharmaceutical companies abuse their intellectual
property, filing more patents, creating patent thickets,
engaging in pay for delay--all of this nonsense.
We have the ability to get money, but when it comes to
price-fixing, that also can suggest criminal liability, which
is not an authority that we have. But again, I do not want to
comment on a specific drug or--but it is a serious issue in
that as you all think about drug prices, you need to think
about remedies for Pharma misconduct because it is not just
about doing things here and there to get prices down.
It is also about going after violations of law because if
you can violate the law and simply pay out of your profits in
just a fine, you are not going to change.
Mr. Crist. They may look at it as a cost of doing business.
Please, sir.
Mr. Simons. Yes. So this is a big area of emphasis for us.
We have a whole unit that is devoted to looking at anti-
competitive conduct in this space. Just as with Commissioner
Chopra, I am unable to talk about nonpublic investigations
specifically. So we are monitoring this space.
We look at pricing over time. We monitor drug prices. And
if we see something fishy, we look at it. If it looks like
something that is related to price-fixing, we make an
affirmative referral to the Justice Department, and oftentimes
that results in them taking action.
If the referral comes back--in other words, they do not
think it is criminal--then that is something that we will look
at and investigate very closely. So this is a priority area for
us.
Mr. Crist. Great. Are there other tools that you would like
to have at your disposal in order to be able to be more
effective?
Mr. Simons. There is a bunch of legislation that is
circulating now that deals with pay for delay, abuse of
citizens petitions, and things like that. And those, I think,
deserve some real careful attention. I think in general that
type of effort would be helpful.
Mr. Crist. Thank you very much, gentlemen. Thank you, Mr.
Chairman.
Mr. Quigley. Thank you.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman. And I would like
to--that was an interesting discussion about the Facebook July
settlement. Obviously you two were at odds over whether the
settlement should go forward. And I want to get into that a
little bit.
Commissioner Chopra, Chairman Simons said that the $5
billion equated to 23 percent of annual profits. As a factual
matter, are you on the same page with that?
Mr. Chopra. I do not know exactly. That sounds right. It is
roughly, I think, 9 percent of annual revenue, and maybe 22
percent of profits.
Mr. Cartwright. Okay. And you felt that that was not
enough; that was kind of a slap on the wrist because the stock
price went up, right, when you guys announced the settlement?
Mr. Chopra. I think here is the issue, is that Facebook's
business model is still completely intact in terms of--they can
still collect all sorts of data and monetize it. So for me,
there is not a fundamental change to their behavioral
advertising business model----
Mr. Cartwright. Sure.
Mr. Chopra [continuing]. Which motivates them to engage in
this mass data collection and ultimately creates problems.
Mr. Cartwright. No. I understand that. I just want to sort
of flesh out where you guys agree and disagree. In fact,
Commissioner Chopra, in your dissenting statement to that
settlement, you said, ``Breaking the law has to be riskier than
following it.'' I do not think anybody disagrees with that.
I also looked at Commissioner Rebecca Kelly Slaughter's
dissent to that. Was that a 3 to 2 decision?
Mr. Simons. Yes.
Mr. Cartwright. Okay. And it was a good discussion. One
thing that she brought up was that this was not just breaking
the law. It was violating a court order, which in my mind has
an elevated level of seriousness, particularly because it is
intentional conduct. Intentional, illegal conduct, thumbing
their noses at the courts.
And I want to go back to you, Chairman. What do you make of
that? And I also want you to touch on Commissioner Slaughter's
comments that you read in her dissent about the value of
actually going to court, just saying, damn the torpedoes, let's
see what the courts rule on this. Personally, I never met a
judge that sat still for the intentional violation of court
orders. I never did. Go ahead, Commissioner.
Mr. Simons. Yes. So I think it makes sense sometimes to
say, damn the torpedoes, and go for the litigation if you have
some reasonable chance of getting significantly more in the
litigation than you do in the settlement. But that just was not
the case here.
And so going to court may have been cathartic for some
people and maybe made some things more public but it would have
taken a long time, it would have taken a lot of our resources,
and they would not have been under the new, more stringent
order during that time period.
Mr. Cartwright. Was this a bench trial or a jury trial?
Mr. Simons. I think it would have been a jury trial because
civil penalties are involved. Okay.
Mr. Cartwright. Okay. Did you do research? Was this DOJ
prosecuting this case?
Mr. Simons. It would have been, yes.
Mr. Cartwright. Without revealing things that should not be
revealed, what made you think the judge and the jury were not
going to really throw the book at Facebook for this intentional
violation of court orders?
Mr. Simons. So we talked to a lot of people who have
experience litigating these types of things, and the general
consensus was, you would not even get it remotely close to what
you got in the settlement.
Mr. Cartwright. Was a big part of that that there had never
been an award that high?
Mr. Simons. I think that probably was a problem. The other
thing, too, that I thought was really important to get this
settlement effective as soon as possible with that $5 billion
is that that would set a new floor.
So rather than litigate for 3 years and hopefully get them
under an order at that point, they were already being under an
order. And if they do something and the order does not work
this time, then we are in a position to get even more relief
because we say to the judge, look. We got $5 billion last time.
We got all this injunctive relief. It was not good enough.
Mr. Cartwright. Understood.
Mr. Simons. You have got to give us more.
Mr. Cartwright. Understood, Chairman. Thank you.
Back to you, Commissioner Chopra. Comment on those, please.
Mr. Chopra. Yes. I do not agree that it is about catharsis
or anything emotional. A trial or, frankly, further
investigation--we have full ability to compel testimony--I
think not clearly deposing Mr. Zuckerberg and Ms. Sandberg was
a mistake because often, when you are able to directly depose
those executives, you determine a lot more of the factual
background around the management and governance incentives. On
top of this----
Mr. Cartwright. And we are always touching on something
Commissioner Slaughter mentioned, is how about individual
liability? These are human beings that are making these illegal
decisions to go ahead. Is that what you are----
Mr. Chopra. And actually, we name individuals with small
firms that are controls of those firms all the time. And Mr.
Zuckerberg controls this. I mean, I will tell you, there is
State court litigation in multiple jurisdictions now. Through
the discovery PCS, we are learning about more and more
potential wrongdoing.
So it was difficult for me to even size the problem that we
were attacking without having more information. And again, to
me money is one thing, but actually going after the individuals
who made the calls and the fundamental business incentives,
that would be the only way to comprehensively fix this problem,
in my view.
Mr. Cartwright. Thank you, gentlemen.
I yield back, Mr. Chairman.
Mr. Quigley. Thank you. And before we go to a second round
and we will start with Mr. Graves, just for the record, people
have asked--my constituents--the proceeds of settlements like
this go to?
Mr. Simons. Federal Government. Treasury.
Mr. Quigley. Thank you. Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman. A question about
something that has come up in the Energy and Commerce
Committee. I know we were talking about lawsuits and such, and
it appears that the Commission has lost a few lawsuits over
time.
And maybe as a result of that, and some of those decisions
and testimony earlier in Energy and Commerce Committee, I guess
this year, the Commission's requested an expansion in FTC
authority, enforcement authority, through the enactment of
private in data security legislation. I know both of you will
be familiar with that.
Pending this expansion, though, the FTC has also advocated
for increased use of court decrees should a target not agree to
the FTC's demand or not abide by the prescriptive restrictions
on the business practices beyond what the courts say.
Can you help us understand, what is the FTC's justification
for adopting that approach ahead of the congressional debate
over the changes to the FTC Act to grant the authority that you
are seeking?
Mr. Simons. I am sorry. I did not really understand the
question. Do you want to--the reason we're asking for privacy
and data security authority, like civil penalties or----
Mr. Graves. No.
Mr. Simons. Is that what you are looking at?
Mr. Graves. No.
Mr. Simons. I am not sure.
Mr. Graves. Prior to that, you--before--I guess you are
seeking the act--the changes in the act as well through the
authorizing committee. But it also seems you have advocated for
an increased use of court decrees as well prior to the
enactment of congressional debate.
Mr. Simons. Yes, yes. So beginning in the 1980s, the FTC
started to bring actions in Federal court seeking disgorgement
and consumer redress. And that enables us to stop fraudsters in
their track, to go in and get asset freezes before they
dissipate all the money and to recover whatever we can recover
on behalf of consumers.
And for 30 years there have been quite a number of circuit
court decisions that uphold that ability of ours, that
authority. And recently there have been some circuit court
decisions that question that. And so we think it is really
important that the Congress clarify that the prior existing
view is the right view so that we can continue to stop
fraudsters, we can freeze their assets, and we can get consumer
redress.
Mr. Graves. Does the FTC ever impose or ask a business or
an entity to go beyond what the court sees as the appropriate
response?
Mr. Chopra. I will try. With respect to the provision the
chairman is saying, many of the courts for years have
interpreted our statute to allow us to get that money that is
ill-gotten gains or redress. I think we are trying to make sure
that that is clarified so that firms do not exploit some legal
ambiguity and that we can continue doing our work.
Mr. Simons. Yes. The problem we have is that now, companies
are more likely to litigate with us, which will drain our
resources further. SO if we clarify that we have this right,
then that would mean less litigation for us.
Mr. Graves. Currently you do not have that right?
Mr. Simons. Well, we think we do, but there is just some
ambiguity around it. So the ambiguity causes an incentive for
the defendants to not settle with us and to litigate on that
issue in particular.
Mr. Graves. I understand. And one final question on the
antitrust. So just a few weeks ago, we saw that most if not all
the Attorney Generals from the States have engaged in the
antitrust debate as well, kind of nationwide antitrust probe
into Facebook and off of that. So the Judiciary Committee is
also investigating Apple, Amazon, Facebook, and Google as well.
How do these State investigations or the congressional
investigations impact your work and some of the decisions you
are making?
Mr. Simons. Yes. So the State Attorney Generals are very,
very highly valued partners of ours, and we collaborate with
them on all sorts of levels, very heavily in consumer
protection and also in the competition area. So this is a
standard thing where we are working on the same matter and we
cooperate with each other. They find things and tell us about.
We find things and tell them. So it actually--it helps to
leverage our resources, and we view it very favorably.
Mr. Graves. Great.
Mr. Chopra. Yes. I think it is an ``all hands on deck''
kind of moment. And I really value the State AGs being
involved. I have been part of many multi-State arrangements,
and I try to be in constant communication with those who are
eager to make some change.
So I welcome this. And just to--on congressional oversight,
I think we have to keep a lot of our investigation, the
contents of it, confidential. But there is always value of
Congress investigating as well because the public is also
learning about some of these business practices.
Mr. Graves. Great. Well, Commissioner and Chairman, thank
you for your work on the commission.
And Mr. Chairman, I would highlight again the bipartisan
nature in which this Commission operates is of good value to
all our constituents. So thank you for the work to protect our
constituency as you do.
Mr. Quigley. Thank you, Mr. Graves. I agree. And it is--I
am in agreement with that part of it. But it raises concerns
about two other entities that seem to have disagreements.
You won a case against Qualcomm back in May, and the
Department of Justice sided with Qualcomm. What is happening?
How do we address this? And the potential for duplicative
jurisdictions conflicting--obviously, FTC, you share this
jurisdiction over antitrust enforcement with DOJ. That has
generally worked well. Where are we now in that regard?
Mr. Simons. It's still, on average, working well. I am
recused from the Qualcomm matter, but needless to say, watching
from a little bit of outside in this circumstance, I do not
think any at the FTC was happy about their intervention. It was
highly unusual. The only other time I can----
Mr. Quigley. Could you elaborate on ``highly unusual''? How
often besides the blue moons that we see this?
Mr. Simons. Yes. The only other time that I am aware that
anything like this happened was in, I think, one of our initial
pay for delay cases, where there was a cert petition filed. And
the Department of Justice did not want to support our cert
petition, and in fact the government did not support our cert
petition. They took a different stance. So I think that is the
only other instance that I am aware of.
Mr. Chopra. Well, the appeal is still ongoing. I was very
proud of the outcome at the district court level. I also found
it not just unusual but very mysterious as to why the
Department of Justice decided to weigh in. I think it raises
questions about their commitment to fair administration of our
antitrust laws, and so I was very disappointed by it. But we
will continue to try and seek relief for all of the victims of
Qualcomm's anticompetitive behavior.
Mr. Quigley. And generally avoiding the issues of
duplication, how do you manage the----
Mr. Simons. Yes. So generally, we have a clearance
agreement with the Justice Department. It has been in effect in
one form or another for, I don't know, 70 or 80 years; it has
been a long time. And that agreement provides that no agency
should review a matter without--or start an investigation of a
matter without it being cleared from the other agency. And the
general approach is not to clear anything that would be--
involve an overlapping investigation.
Mr. Quigley. Mr. Joyce.
Mr. Joyce. Thank you again, Mr. Chairman.
Overall, what is your approach to investigating the tech
companies? Do you have a----
Mr. Simons. Yes. Well, it is not one single approach, and
it depends on what we are investigating. But we formed this
Technology Task Force on the antitrust side to focus
specifically on the high-tech platforms to look at not only
currently what they are doing but to look historically what
they have been doing; to look at some of the past mergers that
they participated in and see if any of that is worth pursuing
in terms of an enforcement action.
And then on the consumer protection side, we have the
privacy issues. We have potentially data security issues. And
there are two parts of our consumer protection bureau that deal
with that. So there is an enforcement division that handles
order efficient, and so they took the lead on the Facebook case
because that was a violation of an existing order; and then our
privacy division, which looks at de novo matters.
Mr. Chopra. Yes. These firms, I think six or seven of the
10 largest publicly traded--or, I am sorry, ten largest
corporations in the world are Chinese or U.S. tech companies.
So it is involving everything beyond what Chairman Simons said:
fake reviews, facial recognition. There are so many potential
abuses against consumers, small businesses, competitors.
So if the Congress cares about competition and cares about
a new startup being able to challenge one of the big guys, you
all need to support aggressive antitrust enforcement and
aggressive enforcement against consumer abuses as well.
Mr. Joyce. What type of anticompetitive behavior are you
seeing when you look into these big tech companies?
Mr. Simons. Well, we cannot really talk about any specific
investigation. But one of the main things you might look for is
a situation where the platform is engaged in some kind of
exclusionary conduct, particularly against a company that might
not be a direct competitor immediately but might turn into one.
An example of this is what--history kind of repeats itself
in cycles. So an example of this from the past would have been
Microsoft and their anticompetitive behavior relating to
Netscape's browser. So they did all kinds of things to get in
the way of Netscape succeeding because they were worried that
Netscape, as middleware, was going to make the operating system
irrelevant.
Mr. Chopra. I would also add----
Mr. Joyce. I was old enough to remember that one.
Mr. Simons. Yes.
Mr. Chopra. I would also add looking closely at past
mergers, joint ventures. To what extent was the purchase of
many, many firms part of, potentially, a way to eliminate a
potential competitor or maintain a monopoly? That has to be--
that is always part of how effective antitrust should look at
things.
It is not just like at mergers before they are consummated.
It is also looking at them after to determine was it part of a
plan to essentially shut down a potential threat.
Mr. Simons. Yes. You can imagine a situation in which the
plan is to try to buy the companies that are the most
threatening. And then, if that does not work, then you engage
in different types of exclusionary conduct to make them
irrelevant. So there could be like a pattern, as Commissioner
Chopra said, involved in an overall strategic approach to
dealing with the significant competitive threats.
Mr. Joyce. Certainly we want to help small businesses
compete and able to be out there in the marketplace. But it
requires having a competitive playing field.
Mr. Simons. Exactly. We want small businesses to get big.
That is what the free market system encourages. And so we do
not want to get in the way. We do not want to allow companies
to artificially, through anticompetitive means, stop that
process from occurring.
Mr. Chopra. Yes. And I am concerned about the argument that
some in the sector are making that they had to stay big and
dominant in order to compete against China. We should not try
and replicate the Chinese system when it comes to tech. We
should be having lots of entrants constantly innovating,
challenging the leader, because that is actually how we
innovate and get ahead, not by just allowing big incumbents to
protect their turf.
Mr. Simons. Yes. Protecting big incumbents really is not
the right way. National champions, I think, is a proven
failure, that when companies try to promote national champions,
they just end up undermining the competitive strength of the
companies they are supposedly trying to benefit, and that hurts
everybody.
It hurts the company. It hurts the domestic consumers
because the prices are too high. And then eventually it is
probably going to hurt the workers because eventually those
jobs are going to go away because champions--or not champions,
but competitive companies from other parts of the globe are
going to come in.
Mr. Joyce. Thank you, Mr. Chairman, for holding this
hearing today. And I realize I am out of time, but whatever I
had I will yield back.
Mr. Quigley. Thank you.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
Chairman Simons, I want to talk about elder fraud a little
bit. I read that since 2014, the FTC has had nearly 1.3 million
reports about government impostors, people pretending to be
from the HHS, from the IRS.
And what we have seen is the scammers have become so
sophisticated, they can have the caller ID of the person at
home show the actual name of the agency they are pretending to
be part of, including the Social Security Administration. In
2019, we have seen an explosion of reports regarding the Social
Security Administration impostors--64,000 reports in the first
six months of this calendar year.
Now, unfortunately, seniors and elders tend to be the most
vulnerable to these types of schemes, and ideal targets for
Social Security schemes, given that Social Security tends to be
their biggest form of income.
How is the FTC addressing these robocalls targeting
seniors, specifically those pretending to work for the Social
Security Administration?
Mr. Simons. So this is another big priority area for us.
And I will talk specifically about the Social Security
Administration at the first, and then give me a chance and I
will tell you what else we are doing.
So we became aware that this Social Security scam was going
on, and they were duplicating. They were spoofing the Social
Security Administration phone number, but it was a phone number
that they did not use except to take incoming calls. So we
worked with the Social Security Administration to make the
phone line only work for incoming calls, not for outgoing
calls. And so I think that was fairly effective in dealing with
that problem, at least in that form.
More broadly, in March of this year we had a huge Federal,
State, and international crackdown on elder fraud schemes, and
these were primarily focused on tech support cases. We are
about to submit a second annual congressionally mandated report
on elder fraud detailing all our law enforcement actions,
research and data analysis, and strategies to reduce fraud. So
that will be out shortly.
And then we regularly host Common Ground conferences with
state AGs and local enforcement around the country to work
collaboratively. And in particular, we hosted one in Minnesota
with a panel focused specifically on elder fraud. And we have
an ongoing partnership with AARP, which is also very helpful.
And then we have consumer outreach as well.
Mr. Cartwright. Ok. I want to touch on that.
Mr. Simons. We were pretty active on that.
Mr. Cartwright. In past Congresses I have been introducing
a bill called the Elder Protection and Abuse Prevention Act,
which would, among other things, expand the definition of elder
abuse to include financial crimes and incorporate elder abuse
prevention trainings, screenings, and more into Federal
activities.
My question for you on outreach is: How are you making sure
that warnings reach senior citizens who may have more limited
access and use of the latest technology?
Mr. Simons. So we introduced a program, which do not hold
me to the exact name, but I think it is called Pass It On. And
what this program is designed to do is to get elder citizens to
become an advocate in their own community, and take our
material and pass it on.
And so--because sometimes, when you get--I am old enough to
be in this category. You think you know everything and you do
not want to be told what to do. But if it is something for
helping others, then it is more--it is something you might do
out of the box. So that approach seems to be having a fair
degree of success.
Mr. Cartwright. Thank you. And Commissioner Chopra, do you
have anything to add on that?
Mr. Chopra. Yes. The only thing I would add is that we
always need to look not just at the individual scams because
that can be whack-a-mole. We have to look sometimes up the
chain to determine who is facilitating the payments, who is
providing the infrastructure that all these crimes,
essentially, are perpetrated through.
Mr. Simons. Yes. That is a very effective approach for us.
Mr. Cartwright. Very good. Thank you, Mr. Chairman. I yield
back.
Mr. Joyce. Can I ask one----
Mr. Quigley. Mr. Joyce.
Mr. Joyce. Are most of the--as you go up the chain, are
most of these people out of the country when they start these
telefraud crimes or--my days as a prosecutor, they were Canada
or they were in Jamaica.
Mr. Simons. Yes. It could be, yes. It depends on the
situation. Sometimes, like these robocalls are just scams, and
they are coming from foreign countries. But sometimes they are
coming from inside the country.
And one of the reasons we want to go after the carriers who
are taking the calls and putting them into the U.S. telephone
system is just for this reason. The fraudster themselves
actually is out of reach, but we can get to the carrier and
stop them from facilitating the fraud.
Mr. Joyce. For what it is worth, every time I have done one
of these education processes at the senior centers, all of them
have gotten these calls.
Mr. Simons. Yes. Oh, yes. Absolutely.
Mr. Chopra. Yes. And we also need to push the carriers,
writ large, on a lot of these types of problems. I think they
have evaded a lot of scrutiny when it comes to their role in
this.
Mr. Quigley. Thank you, Mr. Joyce. Thank you, Mr. Graves,
and our colleagues for their thoughtful questions.
Mr. Chairman, Mr. Commissioner, thank you so much for being
here. We appreciate that. We appreciate your service. We will
see you soon. Thank you.
Mr. Simons. Thank you.
Mr. Quigley. This meeting is adjourned.
Thursday, September 26, 2019.
IRS OVERSIGHT: TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
WITNESS
J. RUSSELL GEORGE, TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
Mr. Quigley. Good afternoon. This hearing will come to
order.
I want to thank all for being here, and especially thank
our witness, Mr. Russell George, the Treasury Inspector General
for Tax Administration, along with two of his deputies, James
Jackson and Michael McKenney.
We appreciate you taking time to be with us and to share
your insights on the IRS, especially since the IRS is the
largest agency funded within our bill. TIGTA has consistently
provided Congress with top-notch reports and audits.
I want to acknowledge you and your team for your
responsiveness and your efforts to fight fraud, waste and abuse
at the IRS.
I look forward to hearing from you about the status of the
2019 filing season in which the IRS had to implement 119 new
tax provisions that affected 57 systems and more than 500
forms.
Coupled with the changes to the Tax Cuts and Jobs Act, the
Federal Government experienced the longest shutdown in history,
which delayed hiring, training, and system updates needed for a
successful filing season.
With all this change, did taxpayers get their refunds on
time? Was the IRS able to respond to customer service requests
timely and adequately? And what improvements are needed for the
upcoming season?
Closing the Tax Gap is of special importance to this
committee. As a result of declining staff levels at the IRS,
audits have dropped nearly 40 percent since 2011, and the
chance of a taxpayer being audited is less than 1 percent.
However, audits for lower income individuals are on the
rise, and resources previously dedicated to collect unpaid
taxes from wealthy non-filers have been slashed. Increasing
audits for the wealthy and the assessment rate for wealthy non-
filers are common sense approaches to reduce the Tax Gap.
So it baffles me that the IRS has employed a strategy that
does the opposite. I need to get a little more about this
troubling trend and why lower income populations are being
targeted for IRS audits.
Equally important is TIGTA's involvement in discussions
with the IRS, Department of Justice, or Treasury related to
Congress' request for the President's taxes.
I am also interested in the IRS' oversight of the
Presidential Audit Program that reviews a sitting President's
annual return.
Finally, I would like to get your take on how the new
limitation on State and local tax deductions was administered.
With the passing of the Taxpayer First Act, fiscal year 2020
will bring further change to the IRS. I am interested in your
thoughts on how these new provisions, which concentrate heavily
on customer service, will improve the taxpayers' experience and
reshape the organization.
In addition, the fiscal year 2020 budget request did not
include funds for this implementation. I am hoping you can
clarify the resources needed to implement this sweeping
legislation.
Since fiscal year 2011, the IRS workforce has declined by
19 percent, and the enforcement function specifically is down
by 27 percent. Compounding the concerns with this downward
trend, the Commissioner has stated that about 45 percent of the
IRS' total workforce will be eligible to retire within the next
2 years.
The IRS is facing critical skill gaps, and I am eager to
hear if the agency has a strategy to retain valued employees
and recruit skilled personnel.
After years of budget cuts, the agency has struggled to
modernize its legacy IT systems, jeopardizing taxpayer personal
identification and hampering efficient services. All this has
taken a toll on the agency, and we need to reverse the trend of
underfunding critical IRS systems.
I hope you can share more details about IRS' modernization
plan and how it will benefit U.S. taxpayers.
Again, I want to thank you for being with us this afternoon
to share your expertise on how we can improve the taxpayer
experience and IRS operations.
I would now like to recognize Mr. Graves, the ranking
member of this subcommittee, for any opening statements he
would like to make.
Mr. Graves. Thank you, Mr. Chairman. Thanks for inviting
the Inspector General to join us today, and I look forward to
hearing your testimony and giving some updates on the progress
that the Internal Revenue Service is doing to be more taxpayer
friendly and to assist our constituents.
But before we begin the testimony, I just want to commend
you on your many years of good service, Mr. George. You have
been across multiple administrations. I believe you have about
15 years of service in your current capacity potentially, and
you are known as somebody that does your job really, really
well, and you have been fair to each and every member and each
party and each administration which serves our constituents
well.
So I really appreciate your good work over the years and
look forward to hearing your testimony today.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you.
I would now like to recognize Mr. George for his testimony.
And, again, welcome to his colleagues who are not here
testifying, but are here to support the IG.
Mr. George, if you will please keep your statement to 5
minutes, this will allow time for members to ask as many
questions as possible.
Mr. George. Thank you, Mr. Chairman.
Chairman Quigley, Ranking Member Graves, members of the
subcommittee, thank you for the opportunity to discuss a number
of important topics, including challenges currently facing the
IRS.
I would like to focus my opening statement today on the
most recent tax filing season and IRS' efforts to reduce the
Tax Gap.
Our overall conclusion is that the IRS performed well
during the most recent filing season, especially in light of
several significant challenges.
For example, to implement the Tax Cuts and Jobs Act as well
as the redesigned Form 1040, the IRS needed to update a
substantial volume of tax forms, instructions, and
publications. In addition, significant computer programming
changes were necessary.
This filing season was also impacted by the partial
shutdown of the Federal Government for approximately 1 month.
During this time, taxpayers were unable to obtain customer
service. A backlog of paper tax returns and taxpayer
correspondence developed, and hiring of submission processing
employees was delayed.
However, despite the shutdown, the IRS began accepting and
processing individual tax returns on January 28th, 2019, three
days after the government reopened.
One of the IRS' key responsibilities is to ensure that
taxpayers comply with the tax law. The Tax Gap, or the
difference between what taxpayers owe and what they paid
timely, is estimated to be $458 billion annually. The
underreporting of income taxes comprises the largest component
of the tax gap at $387 billion annually.
IRS studies have shown that audits have the largest impact
on tax compliance. However, the number of audits has decreased
by approximately 28 percent from 1.4 million in fiscal year
2014 to less than 1 million in fiscal year 2018.
Proposed assessments have declined over the last 5 years
from $33 billion in fiscal year 2014 to $27 billion in fiscal
year 2018.
Due to diminished resources, the IRS has 627 fewer revenue
agents in fiscal year 2018 than in fiscal year 2017, an almost
8 percent decline. From fiscal year 2014 to 2018, there was a
23 percent decline in revenue agents from 9,870 to 7,649.
Nonpayment of taxes owed is a smaller portion of the Tax
Gap, estimated to be $39 billion annually.
Reduction in resources has also impacted payment
compliance. From fiscal year 2014 to fiscal year 2018, field
revenue officers have decreased by approximately 23 percent,
from 2,809 to 2,168.
The IRS' fiscal year 2020 budget requests additional
funding for compliance positions to address some of the
attrition that has occurred over the last 5 years. Funding to
slow attrition, improved use of existing resources, and
legislative changes in selected areas could have a significant
effect in increasing compliance and tax revenue.
For example, the IRS is not working billions of dollars in
potential tax discrepancies involving taxpayers who earn income
in the gig economy, but do not report the income. Treasury
regulations do not require certain gig economy businesses to
report payments made to workers unless the workers earn at
least $20,000 and engage in at least 200 transactions annually.
When income information is not reported to the IRS,
taxpayers tend to be much less tax compliant.
TIGTA's reviews of compliance with withholding tax
reporting and payments provisions have shown that the IRS' lack
of enforcement leaves substantial amounts of tax uncollected.
In 2016, we reported that due to the lack of enforcement,
taxpayers are avoiding the payment of billions of dollars in
backup withholding.
In 2017, we reported that case selection processes resulted
in billions of dollars in potential employer underreported tax
not being addressed.
More recently, we reported in 2019 that billions of dollars
in nonpayroll tax withholding discrepancies are not being
addressed.
In conclusion, the IRS can more effectively reduce the Tax
Gap by development of compliance strategies for the changing
economy and using its resources and financial reporting more
effectively.
Congress can assist by ensuring the IRS has the compliance
resources necessary and by reducing the information Tax Gap
wherever possible.
Chairman Quigley, Ranking Member Graves, members of the
subcommittee, this ends my statement. Thank you for letting me
share my views.
[The prepared statement of Mr. George follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Quigley. Thank you.
You talked about the tax gap. I would like your perspective
on how I opened, which is the concern that increasing audits
for poor Americans versus decreasing audits for wealthier
Americans.
Can you elaborate on your understanding of this and the
reasons for such a policy?
Mr. George. The short answer is resources. It is the amount
available to the IRS.
Mr. Quigley. So if you have fewer resources, it makes sense
to audit poorer people more?
Mr. George. Well, it is somewhat complicated in that a lot
of the work that relates to poorer people, and let's use the
earned income tax credit, for example, is the type of work that
is relatively simple for the IRS to conduct, especially with
the work of junior IRS employees.
The more sophisticated the income tax, the more involved it
is, the longer it takes, and it really boils down to how they
allocate their resources, sir.
Mr. Quigley. But they must recognize the inequity of the
result of this.
Mr. George. You know, again, most of this should be
directed to the IRS, of course. None of our work has shown any
evidence that a bias is occurring in terms of those with money
versus those with less money, but there is no question that
more low income people are being examined than upper income
people.
Mr. Quigley. Sure.
Mr. George. My colleague may want to add something to this,
but----
Mr. McKenney. Right, and I take his point there, and I
think that is the point the IRS has made, is that it is a
little more difficult for them to replace, you know, the higher
level employees that do the more sophisticated audits.
So I think that the reduction in resources has affected
that a bit more than it has affected the lower income
taxpayers.
Now, in terms of their strategy, and that is one of our
concerns, is the person having a central point to oversee that
to make sure that is allocated equitably because it is
important to balance their examination coverage between the
different categories of income.
Mr. Quigley. Thank you.
Let me ask you. Was TIGTA involved in the deliberation of
the President's tax submission to Congress with the IRS,
Department of the Treasury, and the Department of Justice?
Mr. George. The tax----
Mr. Quigley. I am referencing section 6103(f) of the
Internal Revenue Code, the right for several House committees
to obtain this. The request was made April 3, 2019. We still do
not have the returns.
Somebody is making these decisions. Was TIGTA involved at
all in those decisions?
Mr. George. No, we were not.
Mr. Quigley. You were not consulted in any way?
Mr. George. That is correct.
Mr. Quigley. You did not attempt to become involved in any
way?
Mr. George. Did I attempt to? No, I did not.
Mr. Quigley. IRS guidelines also specify that individual
tax returns by a sitting President and Vice President are
subject to a mandatory audit by the IRS.
First, I want to ask: is TIGTA involved in investigating
any allegations of possible misconduct with this program?
Mr. George. We are not. We have not been asked to do so.
Mr. Quigley. How long----
Mr. George. Well, Mr. Chairman, let me ask him.
Mr. Quigley. Sure.
Mr. Jackson. We have not--I guess can you rephrase the
question again, sir?
Mr. Quigley. The question was to know if you were involved
in investigating any allegations of possible misconduct within
this existing presidential audit program.
Mr. Jackson. I guess there are news reports out there that
there is a whistleblower. Someone came forward and said there
was some impropriety going on. We cannot confirm or deny that
we may or may not be doing anything.
I can tell you though that any time we do get any kind of
allegation in this world, in this realm, we investigate it
aggressively, and then when we are completed, we have----
Mr. Quigley. Well, you can comment that there was a
whistleblower, but the question was more along the lines of are
you involved in the investigation on this.
Are you aware of any misconduct that has occurred on this?
Mr. Jackson. We are not aware of any misconduct, no.
Mr. Quigley. Thank you.
Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
Just on a different note, I know, Mr. George, over the last
several years, we talked a lot about taxpayer fraud and the
significant amount of dollars that were erroneously sent to
criminals, and it appears that there have been a lot of steps
taken to begin correcting that.
And then since then there is an emerging threat, a
cybersecurity threat as well that is impacting all agencies
throughout the Federal Government, State governments, local
governments, and certainly the private sector.
Can you just give us a little bit of a report on how the
IRS and Commissioner Rettig is addressing the cybersecurity
threats that exist and to what extent they do exist?
I mean, my understanding is maybe a million attempts a day
potentially, cyberattacks a day towards the agency. Can you
just give us an update?
Mr. George. Yes. And I am also going to ask Mr. Jackson to
weigh in with much more detail, but the bottom line is thus far
the IRS has not been breached, during my time as the Inspector
General.
As you noted, there are constant threats to the system, but
there has not been a breach to the point that it disrupted
their ability to fulfill their mission.
There have been instances where there have been computer
glitches, but we did not find evidence of maliciousness at that
point.
But I would say for the most part, they are doing a
relatively good job in ensuring the security of the tax
systems, keeping in mind, of course, sir, that it is a
constantly moving target, and they have to be on top of their
game at all times.
But Mr. Jackson has a little bit more detailed information
that he can share.
Mr. Jackson. So, yes, sir. You mentioned that the IRS is
constantly under attack. It is like a bank of the U.S., and
they are the accounts receivable for the United States.
Constantly under attack. We work with them constantly. We
have a cyber team set up that is directly outside of their
computer security center that works with them on a daily basis
to investigate or look at any attacks or any attempts against
the IRS.
There have been lots of attempts to misuse the IRS systems.
That is a common occurrence, and that usually occurs when an
outside entity has stolen personal identifiable information,
and they use that to exploit IRS systems, to file false tax
returns.
We are constantly working with the IRS to investigate those
types of attempts.
Ransomware attempts, as you kind of alluded to, there have
been several attempts. The IRS has successfully thwarted the
attempts. I do not want to get into specific numbers in this
environment because that would kind of violate the security
posture.
We have done a really good job, but the environment is
continuously changing, and we are continuously working to adapt
to that, and our team sits on a tabletop desk exercise to run
through security scenarios to see how we react, lock down
certain parts of the IRS to make sure something would not
spread if it did not spread, and again, also training.
The IRS is constantly and their staff is constantly in
training to identify suspicious emails or suspicious activity
happening on the IRS network to alert security officials to
shut it down.
But it requires money and funds, and a team like our team,
we have teams embedded with the FBI task forces, and when we
see something, it is like an early warning setup. So we can
actually see something happening. We can help the IRS identify
things and put filters in place, and if we see something with
the IRS, we can work with the FBI partners and say, ``Are you
seeing this?'' and maybe find someone who is seeing the same
type of scenario and shut it down.
Mr. Graves. Well, it is encouraging to hear that there has
been successful defense of all this personal data because
clearly it is the private information of the American people
and businesses.
I do not really know the answer to this question, but maybe
you could help me with it. When an attempt occurs, so let's say
there are a million attempts a day. When does that become a
criminal act?
And when is that pursuit of that criminal occurring and
potential prosecution?
Mr. Jackson. Right. So it is----
Mr. Graves. We do not hear about that end of it, just the
attempts. We never hear about the criminal actually being
prosecuted.
Mr. Jackson. Right. It is like one of those things where if
you are not home and someone comes by and rattles your door,
they do not actually get in.
This is when someone would get in, is where we would work
with IRS, their cybersecurity force. And the big thing is we
would use our analysts and work with our analysts, perform the
analysis, and get something to leave the fence line and go
tracking people down.
When it comes to misuse of IRS systems, that has happened.
Back in 2015, I believe, there was a major misuse of the IRS'
EFIN cases system. We worked with the IRS. We actually helped
the IRS identify what they thought was an anonymous service and
started collecting information and putting out subpoenas, doing
search warrants, and trying to collect the data and backtrack.
In that investigation there, I do not have all of my
numbers here.
Mr. Graves. Is that only after a breach or is that prior to
a breach?
Mr. Jackson. It is after a breach. A crime has not
officially been committed until there is some sort of misuse or
data is taken or someone has exceeded their access and they are
actually in the system.
Mr. Graves. So it is not a criminal act until they are
successful.
Mr. Jackson. Basically, sir, yes. It would be hard to find
an Assistant U.S. Attorney to go after that unless it was an--
--
Mr. Graves. So intent does not play a part?
Mr. Jackson. It is kind of hard. I mean, if we have any
evidence to show that they actually did something other than
the attempt or they found a way to stop the American taxpayers
from being able to utilize the IRS systems remotely.
Mr. Graves. Thank you for the explanation.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you.
Mr. Bishop.
Mr. Bishop. Thank you very much.
Welcome to you, Mr. George, and your associates. Thank you
for your work. You obviously have a tremendous task with
limited resources.
And this is the Financial Services and General Government
Appropriations Subcommittee. So I would like to address your
fiscal year 2020 budget request.
With the implementation of the Tax Cuts and Jobs Act and
the Taxpayers First Act, it is imperative that the Inspector
General for Tax Administration be well staffed. However, the
President's fiscal year 2020 request as well as our
counterparts in the Senate's proposed $166 million, this is
$4.2 million below the current budget.
How will a $4.2 million reduction impact your office and
the FTEs and the number of reports that you are able to do?
And did Treasury express to you any concerns about your
work or why your budget was cut lower than your current budget?
And how do you plan to absorb the President's 2.6 percent
pay increase with a lower budget allocation than it had in
fiscal year 2019?
I would like to add that the subcommittee funded you above
fiscal year 2019 and the President' request at $171.3 million,
and I would appreciate your response so that we can share it
with our Senate counterparts when we conference our bill.
Mr. George. Thank you, Mr. Bishop. A very important
question.
The short answer, sir, is with less resources we will be
able to do less work. That is across the board. We will have to
reallocate where we can our resources to prioritize mandatory
requirements.
We have many audits that are required by law that they be
conducted. As it relates to the investigative side of the
house, it is really catch as catch can. You never know when
someone is going to engage in criminal behavior, but you
nonetheless would have to still prioritize.
We have a nationwide, if not a worldwide, responsibility to
protect the system of tax administration. So no one at Treasury
has indicated to us if they were disappointed in any of the
work that we were doing. The numbers were established by OMB,
but with additional resources we would be able to do more.
And of course, absorbing that pay increase, if no
additional resources were provided, would in effect serve as a
cut to us and would require fewer people filling jobs or us
having the ability to hire additional people for whatever
vacancies exist.
Mr. Bishop. I can imagine that it has to be somewhat
frustrating. Of course, in July the President signed into law
the Taxpayer First Act, focusing on expanding taxpayer rights,
and it requires you to develop a strategy for customer service,
including the availability of the online services' improvements
to the customer service phone line and best practices to train
the IRS telephone assisters.
All of this is a step in the right direction, but how can
we foster the successful implementation of the Taxpayer First
Act other than by additional resources?
And since the law impacts almost all facets of what you do,
have you considered a reorganization to better align yourself
with the Taxpayer First Act provisions?
How much will you need to implement the act in 2020? Where
specifically should those funds be directed?
And do you have any insight on whether IRS plans to
transmit a budget or a supplemental request to Congress?
Mr. George. As for the last question, I have no information
about the IRS submitting a supplemental request.
Mr. Bishop. Would you need a supplemental request?
Mr. George. Would we need it?
Mr. Bishop. Yes.
Mr. George. Or would the IRS need it? You know, that is two
different----
Mr. Bishop. I am sorry. Would you need it?
As the Inspector General, you should have some sense of
what the IRS needs. So would the IRS need it?
Mr. George. Well, let me give you this response, sir. As
you know, the Act will ensure significant changes to how the
IRS engages with taxpayers. It is estimated that the IRS will
need $430 million, will encounter $430 million in new costs,
and over 700 full-time equivalents, FTE equivalents over the
next 3 years to implement the legislation.
This would include their ability for expansion of the
Identity Protection Personal Identification Number program.
That is at $129 million.
The development of an Internet platform for a new Form 1099
filings, and they estimate that to be around $83 million.
And there are a number of other items that we could provide
you in detail, with, you know, time permitting or submitting it
for the record.
Mr. Bishop. Can you submit it for the record?
Mr. George. We certainly can.
Mr. Bishop. I appreciate that very much because we really
want to know how we can really help you and help IRS do what it
needs to do.
Mr. George. We appreciate that very much, sir.
Mr. Bishop. To meet the requirements that we as Congress
have placed on you.
Mr. Quigley. Thank you, sir.
Mr. George. Thank you.
Mr. Quigley. Mr. Stewart.
Mr. Stewart. Thank you, Mr. Chairman and to the gentlemen
for joining us today.
I do not think I will take much time. I want to hit a
couple things that we have already talked about and maybe with
a little more detail.
A couple of observations, if I could. I do not know of many
organizations that have a store of private information that is
equal to you. There are some banks and others, but they have a
portion of the population. You have nearly everyone or at least
nearly every adult, and most of that is some of the most
sensitive information available to you, which begs the obvious
question. Your security has to be better than everyone else's,
at least as good and hopefully better because you are certainly
a target and a prime target.
A second observation is the damage that could be done, the
potential damage. For example, you look at the breach at OPM
and you think, ``Well, you know, so they got some personnel
records of people,'' but I can tell you from a national
security perspective alone, it was extraordinarily damaging.
And a breach in your office would, I think, have some of
the same implications, as well as just a breach of privacy.
And I know I am preaching to the choir. You all are looking
at me and you are nodding your heads as if you agree, and I
appreciate that, and I am not telling you something you do not
know. But I do think it is worth making the observation.
You know, we have been told that you have about a million
cyberattacks a day. I would be shocked if it is not much, much
higher than that, and I would ask you to respond to that if you
could, if you actually have a tally on the figure.
And do you know? Have you been able to do some analysis?
How many of them are nation states versus criminal elements?
And do you know or do you have information where they are
targeting specific individuals? Are there some public figures
or are there some others who we think would be at a much
greater risk than others? And do you know if they are targeting
individuals?
Can you respond to those very quickly?
Mr. George. Before asking Mr. Jackson to get into the
details of your question, I just want to make sure it is clear.
It is not that TIGTA controls that information that the IRS has
on all taxpayers.
Mr. Stewart. Yes.
Mr. George. So we do not physically maintain that
information. We have access to it when necessary, but we do not
maintain it.
Mr. Stewart. Okay. And I understand that, and I did not
mean to indicate otherwise.
Mr. George. Okay. I just wanted to make that clear.
Mr. Jackson. Yes. The IRS does. We routinely work with the
IRS where our office is housed. They monitor and they watch and
we can get you those numbers, and I think we used to do a by-
country where the source of attacks were from or the attempts
were from.
A lot of times you just have to be very careful that a lot
of times people will wrap themselves through third countries
and ask about other people.
One of our biggest threats because from the external side,
we are not really seeing they are actually attacking one
person. They are just trying to get in the system unless it is
an email computer system attack going after a name. Like they
are trying to use the Commissioner's name to get a foothold in
the system to expand through the system.
The other thing is the insider threat is what we worry
about, too, that is really big, and we have a program called
Unauthorized Access Detection. Working with the IRS, we have a
really unique and highly advanced set of filters and monitoring
going on.
So any time an IRS employee or internal employee would go
in looking at a taxpayer without a business reason, it would
set off some kind of trip flare and let us know what is going
on, and we get those and we run those.
But the only external attacks that I guess you would say
were actually directed at somebody was the misuse of external
programs the IRS has to access the type of information either
from, again, have stolen PII from another breach, another
agency----
Mr. Stewart. All right. So it is for financial gain, not
for--
Mr. Jackson. Yes, and fraudulent tax returns.
Mr. Stewart. Okay. I will just conclude, and I can actually
give back some of my time.
But would you follow up with some of the analysis? And part
of the reason I am curious about that is I want to know how
capable you are of understanding those numbers and where the
threat is and where they originate from and whether they are
criminal versus nation states.
The second thing I will say when we look at leaks that have
happened in, you know, areas of intelligence and national
security, many times they are because of someone within the
organization was either sloppy or had criminal intent, and I
think that is true for you as well.
And I appreciated it. That was actually going to be, James,
my follow-up question.
What precautions have we made against an internal threat?
Because I think, you know, we like to think that every employee
that is in our organization is honest and has no nefarious
intent, but the truth is that there is one or two out there who
may.
So we appreciate your safeguards in that as well.
And, Mr. Chairman, I yield back.
Mr. Quigley. Thank you.
Mrs. Torres.
Mrs. Torres. Thank you, Mr. Chairman.
And thank you, sir, for being here with all of your staff
and being prepared to answer our questions.
I want to talk to you a little bit about the IRS private
debt collection program. I represent a district that is made up
of the working poor, people that are working two or three jobs
just to make ends meet.
It has been reported that 12,000 recipients of Social
Security disability insurance have a debt outsourced to private
firms within a 6-month span. A third of these folks were on
disability. You know, they pay their debt. They were making
$7,000 annually, annually.
What has the IRS done to reduce the number of hardship
cases sent to private debt collectors?
And why would we refer these?
I know that times are hard for you, but to try to squeeze
something out of someone who has nothing, it does not matter
how many times they get called on or harassed; they do not have
it. Many of these people have fallen into homelessness as a
result of their hardships.
Mr. George. I understand completely what you are----
Mrs. Torres. I know this is not mean-spirited. Please do
not take it that way.
Mr. George. No, no, no.
Mrs. Torres. I am trying to get to the root of that.
Mr. George. No, I appreciate that. Once again, it is not
the program that we run. It is the program that the Internal
Revenue Service runs.
Mrs. Torres. Right.
Mr. George. We oversee its implementations----
Mrs. Torres. Yes.
Mr. George [continuing]. And how it is working.
There have been various iterations of the private debt
collection program, and in the most recent one, and recent
changes have been mandated in the program, including taxpayers
with incomes at or below 200 percent of the poverty level will
now be excluded from the debt collection program.
And then the types of accounts that are being sent to debt
collection agencies have been reduced. The amount of time
between the money being due and the time that the debt
collector receives it, that is going to be shortened to help.
The program overall is earning money. The cost of running
it is less than the amount of money that is raised. At the same
time, it is not as efficient as the private sector in terms of
return on investment in the program.
But as it relates to policies as to who is subject to it,
that is really something for the IRS to address, Congresswoman.
Mrs. Torres. So you would not have some type of feedback
for us. Is this an issue that we maybe need to legislative?
You know, do not be mean-spirited to people who have
nothing and that are homeless. I do not know how to legislate
that. I am look for your advice and expertise.
If common sense does not tell you, not you, but what does?
Mr. McKennel. We have conducted some reviews of that
program, and I am not positive exactly what the breakdown was,
but there were cases that went forward to a private debt
collector that we had concerns about that we thought they
should bring back, and the ones that you are referring to, you
know, I think that that would be a concern.
And exactly what percentage of those, and I am not positive
we have the exact numbers, but I believe we could get some
information for you back on that as to whether there is
anything in addition to what the Taxpayer First Act prescribes
that would be of benefit to that.
Mrs. Torres. Okay. So on the issue of scammers, obviously
that is a growing problem. What are we doing to ensure that the
folks that we are contracting with are protecting that privacy
of the people whose information we are turning over to them?
Mr. George. I'm going to ask Mr. Jackson to address that.
Mrs. Torres. Before you do, I am going to give you this
letter that I wrote November 4th of 2015, asking for you to
review a couple of audits on the L.A. County Fairgrounds.
The county did an audit. The State did an audit. Some, you
know, real abuses here. I have not gotten a real response back
from you. So I am going to give this over and we can talk about
it another time.
Mr. George. Oh, certainly.
And, again, do you want to address that?
Mr. Jackson. So what is your specific question, ma'am, on
this issue?
Mr. George. Scammers.
Mrs. Torres. For scammers when we are providing these
companies that we are contracting with and we are providing
them all of the information, you know, background on specific
individuals whose accounts are already under collection.
How are we ensuring that they are securing that
information?
Mr. Jackson. So we could work with the IRS Business Unit to
get down to the nitty-gritty. We do on the investigation side.
We work with them constantly because there was kind of a
concern that people would think the private debt collectors
were scammers themselves, and we kind of got that thwarted and
that back on track.
That arose under a big, major IRS impersonation scan, and
we do not want those two to kind of meld together and take on a
life of their own, but I will get into that.
Any time that there is any kind of a complaint related to
the private debt collectors, we have a reporting process to get
that information to us, and we would investigate that, but we
have not seen anything other than people thinking that they are
the scammers because they have been told that if someone calls
you and says they are from the IRS, hang up, or they get into
like a telephone assault situation, and we get those reports,
that kind of thing.
But we have had no reports of misuse, yes.
Mr. Quigley. Thank you.
Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman.
And I would second that. I have also received those phone
calls, not only on my home phone, but also my cell phone, as
well as my wife, that say from the IRS and you are going to
levy all of my accounts.
Is there anything that you are doing to head that off
education-wise?
Because I can tell you when you do these things with
seniors, these types, almost every hand goes up that they got
the call from the IRS. So somehow, they are getting not the
technical data necessarily, but they are still using the phone
number and calling and representing as though they are the
agency.
Mr. George. We have a very sophisticated process, and I
will, again, ask Mr. Jackson to describe it.
Mr. Jackson. So, yes, sir. We have been working on this
thing since 2016. It has taken up pretty much all of our
resources. Over 2.5 million Americans have actually been
touched by this scam there.
We have over 15,000 victims that have purportedly paid over
$79.7 million to the scam caller prior to this. We track the
top five states. The major population centers is where we are
tracking it down to.
But we attacked this aggressively. We have worked with
other law enforcement partners because there are similar scams,
again, that kind of overlap.
To date we have basically had 152 individuals charged
related to this. Collectively, 89 of them have actually been
sentenced and collectively received over 387 years of
imprisonment, collectively.
We have 31 people that actually remain fugitives external
to the United States, and we are working with the Department of
Justice to actually put boots on the ground in the country that
we believe is the source of where this activity is coming from
because the scammers think that they are untouchable.
We actually flew a team over with Homeland Security, over
to Singapore to actually extradite someone who had left a
country nearby and they were in Singapore on a vacation, I
guess, using the proceeds, and basically, they arrested them,
and we extradited them back to the United States for
prosecution.
So it is constantly a development, but we beat it so hard.
They have sadly moved to another agency. I do not want to give
the agency away. I can tell you later, but I can tell you----
Mr. Joyce. We will get those next week.
Mr. Jackson. The numbers have dwindled. Two weeks ago, we
had two reported victims. Last week we had zero. This week we
had one, but I can tell you tomorrow we could shoot through the
roof again.
Mr. Joyce. Sure.
Mr. Jackson. And we stay on top of it. We actually call the
numbers back and get the numbers shut down that they are using,
to keep them busy and get them shut down as soon as we can.
Mr. Joyce. It is a whack-a-mole thing though.
Mr. Jackson. Yes, sir.
Mr. Joyce. Your budget request also had proposed
investments to implement Commission Rettig's Integrated
Modernization Business Plan, to modernize IRS' sensitive
taxpayer services in two 3-year phases beginning in fiscal year
2019.
The Federal Government and the IRS have sort of had a poor
history of the implementation of modernization plans, but I
know Commissioner Rettig is committed to improving this, and I
certainly hope all due speed and success to you in doing that.
Would this modernization plan improve the long-term
operations of the IRS and the service that is being provided to
the taxpayers and the businesses?
Mr. George. It has the potential to do that, sir, but as
you pointed out, this has been a nightmarish experience for the
IRS dating back decades and involving billions of dollars.
And so the most recent iteration that they are looking at,
again, applies approximately $2 to $3 billion. If implemented
effectively, it would achieve the goals that you just stated
that they state they want to achieve, more efficient
information to taxpayers and the ability to process tax forms,
again, more efficiently.
However, if past is prologue, it is going to be a challenge
for them.
Mr. Joyce. That is not necessarily good news.
Mr. George. I have been told to tell truth to power. So.
Mr. Joyce. Yes, basically. I certainly appreciate that
perspective.
And I know that in implementing the new tax law changes
that have taken place, how did the IRS do in implementing
those?
Mr. George. We would give them a positive assessment at
this stage, one, given the resource challenges that they
encountered, some of the late tax extenders, again, the
government shutdown. Notwithstanding all of those factors, they
have been able to do a reasonably good job in the
implementation of the most recent changes.
Mr. Joyce. What would you say are the biggest
implementation issues?
Mr. George. Well, of course, getting information out to
taxpayers. The change in the tax forms and what most people do
not realize, changing the form is one aspect of it. You have to
change all of the instructions, which sometimes run 20, 30
pages, and of course, changing the computer systems within the
IRS so that they can effectively interact with the legacy
systems.
I mean, you literally have IRS systems that use COBOL
language, which dates back decades.
Mr. Joyce. Right.
Mr. George. In addition to the most current one, and so
they have to interface, and you have to have the technicians
who still have the skill set to monitor these things, and they
are quickly moving on to other things.
Mr. Joyce. I realize that I am out. Could I ask one more
question along that line?
The idea that, you know, we are going to continue to
implement modernization on top of an old system like COBOL,
that does not make a lot of sense, correct?
Mr. George. That is correct. It does not make sense.
Mr. Joyce. Is there, in fact, some thought into something
that would start in 2020 or 2021 and discard all of that legacy
stuff and start on something that is actually, you know, up to
speed?
Mr. George. You know, again, whether it was the customer
account data engine Version 2, there have been attempts, sir,
to do that, but whether it is because, again, of resource
limitations, expertise, or just change in priorities because of
whether it is implementing a new tax code or whatever the
situation might be, the IRS just has not succeeded there.
So, yes, that would make sense, but it has not happened
yet, and I would certainly suggest that you direct that
question to the Commissioner to see how he would respond.
Mr. Joyce. Thank you very much.
I am out of time. Thank you, Mr. Chairman.
Mr. Quigley. Thank you, sir.
Is it harder to hack a program that is so old, COBOL?
It is just so old you have to have old equipment to hack
it? I always wondered about that.
Mr. Crist.
Mr. Crist. Thank you, Mr. Chairman.
And, Mr. George, thank you for being here today with your
colleagues.
Mr. George, your memo, ``Management and Performance
Challenges Facing the Internal Revenue Service for Fiscal Year
2019,'' to Treasury Secretary Mnuchin states, quote, ``The IRS
must balance tax compliance activities against the rights of
taxpayers to receive fair and equitable treatment,'' end quote.
We know that over the past several years the IRS budgets
have been slashed and audits are down about 42 percent. We also
know that the audit rates have dropped disproportionately more
for wealthy individuals making over half a million dollars a
year, at 69 percent, than for working families, at only 36
percent.
That does not appear to be fair or equitable, going after
the poor while letting the very wealthy off the hook.
Another concerning trend is who is being targeted, what
they look like, the color of their skin, their historic
language, their tribal status.
ProPublica published this disturbing map behind me, a heat
map, if you will, of where IRS is auditing more, but it could
also be a heat map of where black, Hispanic, and Native
Americans are most concentrated.
When I showed this map to IRS Commissioner Rettig, he saw
an earned income tax credit map, and that may be what he
intends it to be, but to most Americans this map looks like the
IRS is targeting black, Hispanic, and Native American
populations for audit.
It is not good enough to testify as the Commissioner did
that the inputs are race blind, especially when the outputs so
starkly and disproportionately hurt minorities. Disparate
impact, where you measure racist impact instead of the
intention is an important way to identify racist policies and
procedures in fair housing and fair lending.
We should not treat fair audits any differently than those.
Are you aware of efforts underway at the IRS to reevaluate
policies or at least look back at who is disproportionately
being audited?
Mr. George. May I answer your question by giving you the
following bit of information?
Suffice it to say that we have not uncovered any
intentional bias in how the IRS audits earned income tax credit
recipients. The IRS' earned income tax audits track to where
the EITC claims are, and most of those EITC claims are from the
States that have large populations, Texas, California, New
York, and Florida.
However, there are certain States with higher concentration
rates of poverty, and that is where a lot of the earned income
tax credits go. And so it would appear that you are focusing on
areas that have a certain demographic.
But our work has not shown that, sir. I mean, this is not
new to us, this issue.
It is also important to point out that in fiscal year 2018,
the IRS audited about 383,000 EITC claims, about 95,000 claims
of high income taxpayers, and which means about 1 percent of
the EITC claims were audited. However, the IRS generally audits
a higher percentage of high income taxpayers.
So I know that that map, which is not unfamiliar to me,
appears to show a bias based on, again, demographics, but we
have not found that to be the case.
Mr. Crist. Thank you.
Am I correct to assume that your office would be charged
with investigating an IRS policy which would violate the civil
rights of black, Hispanic, and Native Americans?
Mr. George. Yes.
Mr. Crist. Will you commit to investigating the policies
and practices of IRS auditing to eliminate unfairly impacting
protected minorities?
Mr. George. I will make certain that--we have an audit
plan, Mr. Crist, that lays out for the entire fiscal year the
areas that we are going to audit, and I am certain we can add
this subject to that plan, and perhaps your staff could work
with my staff to craft the exact issue as you would like us to
look at it.
Mr. Crist. Thank you, Mr. George. I appreciate that very
much.
Mr. George. Certainly, sir.
Mr. Crist. Thank you. I yield back.
Mr. Quigley. Thank you.
Mr. Graves, any final thoughts or questions?
Mr. Graves. Just one final thought. I want to follow up
with Mr. Crist there. Prior to your arrival today, Mr. Crist, I
was recognizing Mr. George for his many years of service, 15
years, in fact, in his position across multiple
administrations, and he has always proven to have been fair and
represent the facts correctly.
So, Mr. George, I would just like to follow up on Mr.
Crist's point because it is a valid point.
Have you noticed any difference today in that audit heat
map under this administration over the previous administration
or over any other administration?
Is there any change in that audit policy that might lead to
the concerns Mr. Crist has?
Mr. George. Well, we, again, have not yet done significant
work as it relates directly to your question. No is the answer.
So we have not done the work yet.
Mr. Graves. Thank you. Thank you, gentlemen.
Thank you, Mr. Chairman.
Mr. Quigley. I want to thank the panel. I want to thank all
of you for your work and your service and your attendance
today. We appreciate that, and we look forward to following up
with you on the work we all care about.
Thank you so much. This meeting is adjourned.
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