[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                     HEARING ON ACCOUNTABILITY AND
                  TRANSPARENCY AT THE INTERNAL REVENUE
                  SERVICE WITH IRS COMMISSIONER WERFEL

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION
                               __________

                             APRIL 27, 2023
                               __________

                           Serial No. 118-14
                               __________

         Printed for the use of the Committee on Ways and Means
         

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                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
54-350                    WASHINGTON : 2024                     
                  


                      COMMITTEE ON WAYS AND MEANS

                    JASON SMITH, Missouri, Chairman
VERN BUCHANAN, Florida               RICHARD E. NEAL, Massachusetts
ADRIAN SMITH, Nebraska               LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania             MIKE THOMPSON, California
DAVID SCHWEIKERT, Arizona            JOHN B. LARSON, Connecticut
DARIN LaHOOD, Illinois               EARL BLUMENAUER, Oregon
BRAD WENSTRUP, Ohio                  BILL PASCRELL, JR., New Jersey
JODEY ARRINGTON, Texas               DANNY DAVIS, Illinois
DREW FERGUSON, Georgia               LINDA SANCHEZ, California
RON ESTES, Kansas                    BRIAN HIGGINS, New York
LLOYD SMUCKER, Pennsylvania          TERRI SEWELL, Alabama
KEVIN HERN, Oklahoma                 SUZAN DelBENE, Washington
CAROL MILLER, West Virginia          JUDY CHU, California
GREG MURPHY, North Carolina          GWEN MOORE, Wisconsin
DAVID KUSTOFF, Tennessee             DAN KILDEE, Michigan
BRIAN FITZPATRICK, Pennsylvania      DON BEYER, Virginia
GREG STEUBE, Florida                 DWIGHT EVANS, Pennsylvania
CLAUDIA TENNEY, New York             BRAD SCHNEIDER, Illinois
MICHELLE FISCHBACH, Minnesota        JIMMY PANETTA, California
BLAKE MOORE, Utah
MICHELLE STEEL, California
BETH VAN DUYNE, Texas
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York
MIKE CAREY, Ohio
                       Mark Roman, Staff Director
                 Brandon Casey, Minority Chief Counsel
                                 ------                                

                         C  O  N  T  E  N  T  S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hon. Jason Smith, Missouri, Chairman.............................     1
Hon. Richard Neal, Massachusetts, Ranking Member.................     2
Advisory of April 27, 2023 announcing the hearing................     V

                                WITNESS

Danny Werfel, Commissioner, Internal Revenue Service.............     4

                   MEMBER SUBMISSIONS FOR THE RECORD

Member Questions for the Record and Responses from Danny Werfel, 
  Commissioner, Internal Revenue Service.........................   153

                   PUBLIC SUBMISSIONS FOR THE RECORD

Public Submissions...............................................   268

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                  ACCOUNTABILITY AND TRANSPARENCY AT 
                   THE INTERNAL REVENUE SERVICE WITH 
                        IRS COMMISSIONER WERFEL

                              ----------                              


                        THURSDAY, APRIL 27, 2023

                          House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.
    The committee met, pursuant to call, at 1:04 p.m. in Room 
1100, Longworth House Office Building, Hon. Jason T. Smith 
[chairman of the committee] presiding.
    Chairman SMITH. The committee will come to order.
    Commissioner Werfel, thank you for being here today.
    I first want to address an issue that has been widely 
reported last week. A whistleblower came forward with troubling 
claims about abuses of power, and we are conducting a review of 
this matter and will go wherever the facts lead us. And I 
expect full cooperation from the IRS, particularly with regard 
to ensuring this whistleblower is protected from any 
retaliation.
    We value the importance and the role of whistleblowers in 
ensuring the integrity of our governing institutions, which is 
why we established an online portal providing IRS employees a 
direct avenue to provide information regarding any wrongdoing 
that they may witness or believe to be occurring.
    Commissioner, while I know you are fairly new on the job, 
it would be irresponsible not to put you on notice about the 
various concerns the American people have about your agency.
    Over the past two years the IRS has leaked private tax 
information of Americans at the same time the Biden 
Administration was pushing tax increases on those very 
individuals.
    Accidentally posted online the private taxpayer information 
of thousands of retirees. They apologized, they took it down, 
said it wouldn't happen again, and did the very same thing four 
months later.
    They destroyed over 30 million tax returns due to the 
backlog. They tried and then delayed for a year a new paperwork 
nightmare of gig economy workers under the new 1099K reporting 
requirements.
    And promised to release a spin plan for the $80 billion pay 
raise Democrats gave the agency, only to fail to explain 
whether low-income taxpayers will be protected from increased 
audits, and failed to show exactly how many bureaucrats in 
total you plan to put on the payroll.
    Repurposed $3.9 billion of the $80 billion to support 
costly green corporate handouts, and requested an additional 
$43 billion for your agency last month on top of the $80 
billion it received last August.
    Concocted plans to become the tax preparer, the tax filer, 
and government auditor of the American people.
    I was surprised that, after receiving the greatest windfall 
in agency history, the President's fiscal year 2024 budget 
requested an additional--an additional--$43 billion. That is 91 
percent of which is targeted toward enforcement and operations 
like further increasing audits on middle-class families. 
Meanwhile, the IRS cannot tell us in total beyond the next two 
years how many people it plans to hire with its new funding.
    Statements from you and Secretary Yellen make clear that 
audit rates will rise for Americans earning less than $400,000. 
The only question left is how fast those rates will rise. When 
I asked for a plan, I was not looking for assurances. I was 
looking for concrete proposals of how the Treasury Department 
and your agency will protect lower and middle-income Americans.
    I look forward to you making good on your commitment from 
last week to follow up with far more detail about how your 
agency plans to spin these funds over the next 10 years.
    Democrats super-charged the IRS with the hopes of raising 
billions to pay for special interest tax breaks for the wealthy 
that are now projected to cost three times that amount. Now the 
IRS is dedicating billions to support these green corporate 
handouts, and it is clear Democrats are all about subsidizing 
the low-emission lifestyles of the wealthy.
    It is not only new audits Americans have to worry about. 
The Inflation Reduction Act includes new reporting requirements 
for any Venmo or PayPal transaction over $600. Is it really a 
top priority for tax collectors to know whether someone is 
selling a used couch, or unused concert tickets, or paying for 
their neighbor's kid to mow the lawn?
    This gives your agency too much power and, in effect, 
creates a surveillance network that will invade Americans' 
privacy and squeeze them out of more of their hard-earned 
dollars.
    The IRS has a lot of work to do to repair the trust it has 
broken with the public over the last decade. I hope we can 
begin the conversation to do that in today's hearing.
    Chairman SMITH. And I am pleased to recognize the gentleman 
from Massachusetts, Ranking Member Neal, for his opening 
statement.
    Mr. NEAL. Thank you, Mr. Chairman, and I want to welcome to 
the Committee on Ways and Means Commissioner Werfel.
    It certainly is an honor to have you here today, and we 
look forward to working with you as you start your time as the 
commissioner. So let's start by saluting the dedicated workers 
of the Internal Revenue Service. It is their commitment to 
taxpayers that has allowed for the Inflation Reduction Act to 
make such quick headway.
    Many members on the other side of the aisle and their 
constituencies are already taking advantage of the Inflation 
Reduction Act in terms of investments as they relate to the tax 
credits. Your testimony this afternoon comes at an important 
time for the IRS. The Democratic multi-year investment in the 
Internal Revenue Service has already unlocked a new era of 
service for America's taxpayers.
    This filing season alone, Americans experienced a historic 
level of customer assistance and support. Two million more 
calls were answered through live assistance, wait times were 
drastically decreased, new digital tools were introduced, and 
in-person services at taxpayer assistance centers were 
expanded. Modernizing the IRS should have been a bipartisan 
undertaking. Its systems needed to be remodeled, and we are 
appreciative of the fact that it appears as though the much-
needed headway is now underway. Updates to technology 
infrastructure will pay dividends for the American taxpayers 
for decades to come.
    It still is the old adage: people at the bottom shouldn't 
be paying for more than they ordinarily would because people at 
the top are able to escape their fair share. The Inflation 
Reduction Act also reverses decades of Republican-targeted cuts 
to the IRS, taking action to close the tax gap and eliminate 
our two-tiered tax system. Far too long, the wealthy and the 
well-connected have been able to get away with not paying their 
share at the expense of everyday Americans. It is interesting 
to note that the compliance rate for those who pay taxes 
through withholding is in the high 90 percentiles.
    The IRS recently released Strategic Operating Plans. It is 
a strong blueprint for bringing our historic legislation to 
reality. Soon the IRS will be better equipped to ensure that 
top one percent of those who avoid the tax system will be held 
accountable.
    Once again, the contrast between our achievements and the 
extremism of the other side could not be more clear. We have 
pushed for decisive action to regain taxpayers' trust and build 
a fairer tax code. And just yesterday our colleagues on the 
other side doubled down on undoing this progress, and thereby 
adding to the deficit. While we are looking out for workers and 
their families, they, apparently, were looking out for their 
own, costing taxpayers $100 billion.
    That is, sadly, not the limit of that extremism. They have 
advocated for legislation that would abolish the IRS in favor 
of a 30 percent national sales tax. I served on this committee 
when members on the other side did precisely that. Republicans 
would raise the cost of groceries, gas, medicine, child care, 
and just about all aspects of life for the middle class, while 
extending the unfunded tax cuts for the wealthy and well-
connected. That would create more harm than good.
    So I look forward to working with you as we continue to 
implement the Inflation Reduction Act and deliver on our shared 
commitment to a tax system that works for all members of the 
American family.
    Mr. NEAL. Thank you, Commissioner.
    Thank you, Mr. Chairman.
    Chairman SMITH. Thank you, Ranking Member Neal.
    Today's sole witness is the very new commissioner of the 
Internal Revenue Service, Mr. Daniel Werfel.
    The committee has received your written statement, and it 
will be made part of the formal hearing record today. 
Commissioner Werfel, you can begin when you are ready.
    Mr. WERFEL. Thank you.

 STATEMENT OF DANIEL I. WERFEL, COMMISSIONER, INTERNAL REVENUE 
                            SERVICE

    Mr. WERFEL. Chairman Smith, Ranking Member Neal, and 
members of the committee, thank you for the opportunity to 
testify on the filing season and the IRS budget.
    I am pleased to report the IRS provided substantially 
better service to taxpayers during the 2023 filing season. We 
delivered a strong tax season for the nation, the best in 
several years. IRS employees were able to make substantial 
improvements this tax season because of funding Congress 
provided through the Inflation Reduction Act. This funding made 
a difference. It allowed us to hire more than 5,000 phone 
assisters, which led to a phone level of service averaging 85 
percent during the filing season. The average wait time on the 
phone was three minutes. This is a major improvement from last 
year, when service levels were under 16 percent and wait times 
averaged 28 minutes. Perhaps most telling was this: IRS 
employees answered seven million calls to help taxpayers. That 
is 2.7 million more than last year.
    Improvements were seen in other areas. We increased face-
to-face visits at our taxpayer assistance centers to 523,000, 
up about 30 percent from the year before. And we expanded 
digital scanning efforts to speed up the processing of paper 
returns.
    Providing a better filing season experience this year was 
an important step, but more work remains. The long-term funding 
gives us a unique opportunity to transform our agency over the 
next decade.
    Historically, the IRS received funding that allowed our 
staffing and operations to keep pace with the size of the U.S. 
population. In 2010 that changed. Cuts in annual funding caused 
IRS staffing levels to decline by nearly 17 percent to less 
than 80,000 full-time employees by 2022. While the IRS shrank, 
the U.S. population grew by more than 7 percent, reaching 334 
million. These reductions caught up with us. You could see that 
in the poor taxpayer service levels in previous years, 
including last year.
    We were able to improve this filing season by shifting 
Inflation Reduction Act funds over to our day-to-day 
operations. If we continue using IRA funds this way, focused on 
short-term operations rather than long-term systemic 
improvements, we will not be able to transform the taxpayer 
experience, modernize outdated IRS technology, and deliver more 
effective enforcement of the tax laws, as the IRA envisioned.
    The IRA funding was designed to restore IRS core operations 
and prepare the agency to serve the nation in its future. But 
that work is outside of our base funding levels. That level of 
funding, which is $12.3 billion for fiscal year 2023, has not 
materially increased since fiscal year 2010. In fact, in real 
terms, we are 33 percent below our funding level in fiscal year 
2010 if we had just received inflationary adjustments. It is 
not enough resources to fund a tax system in an economy that 
grows in size and complexity every year.
    So I ask for your help to build on the remarkable progress 
we saw this filing season by supporting the $1.8 billion in 
incremental discretionary funding requested for fiscal year 
2024. This funding will enable us to maintain our current 
performance in the next filing season, while allowing us to use 
IRA resources, as Congress intended, to modernize our 
operations so we can sustain and improve our service to 
taxpayers into the future.
    Our Strategic Operating Plan lays out in detail our path 
forward, describing how we will improve all aspects of our 
operations. The plan, which I call our public to-do list, lays 
out more than 200 projects for improvements for taxpayers, tax 
professionals, and IRS employees that will transform our work 
on the phones, in person, and online.
    IRA funding also gives us an important opportunity to 
improve enforcement efforts, to promote fairness while 
respecting taxpayer rights. The agency will follow Secretary 
Yellen's directive not to raise audit rates above historic 
levels for small businesses and households making less than 
$400,000.
    I want to be crystal clear: we are not increasing audit 
rates for hardworking taxpayers making under $400,000. That is 
my pledge. There is no new surge of audits coming for workers, 
retirees, and others. We have plenty of other areas we need to 
focus on.
    I am optimistic we can build on the accomplishments of this 
filing season. The question is not whether the IRS can improve 
taxpayer services. This year we proved that dramatic 
improvement is possible. The question is whether we continue to 
improve.
    Chairman Smith, Ranking Member Neal, and members of the 
committee, that concludes my statement. I would be happy to 
take your questions.
    [The statement of Mr. Werfel follows:]

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    Chairman SMITH. Thank you, Commissioner. We will now 
proceed to the question-and-answer session, and I will begin.
    Nearly two years since a massive leak of confidential 
taxpayer information was published by ProPublica, the American 
people are still without answers from the Biden Administration 
on who is responsible and how this could have occurred. This 
leak happened at the same time the Administration was pushing 
for higher taxes on the same taxpayers who had their 
information disclosed.
    Given this terrible breach of trust at the IRS, what has 
the agency done in the last two years to secure its systems to 
prevent something like this from happening again?
    Mr. WERFEL. Mr. Chairman, data security is essential to 
everything we do. For the whole system to work, taxpayers have 
to have trust in our abilities here. And as I roll up my 
sleeves on the job, I am taking numerous steps to assess our 
current capacities and our current gaps. And I have to tell 
you, there are areas that I have been impressed with. We 
successfully defend more than a billion cyber attacks a year. 
And I have looked into our employee training. It is very 
robust, including what are the consequences of failure to 
secure our data.
    But as you mentioned, there are areas we need to improve. 
And I would point to TIGTA and GAO have a series of 
recommendations for how to strengthen our overall data security 
process, in particular with respect to our IT. And underfunding 
is one major reason why we don't have the score--an A on that 
report card. But with funding under the IRA, and with renewed 
purpose around data security and IT modernization, my objective 
is to get that A on the report card for those TIGTA 
recommendations and those GAO recommendations.
    Chairman SMITH. Let's get the A, Commissioner.
    Mr. WERFEL. Absolutely.
    Chairman SMITH. As we discussed previously, we set up an 
online whistleblower portal for IRS personnel wishing to share 
information with the committee. I continue to urge you to let 
your employees know about the portal. I believe it will 
encourage agency personnel who witness wrongdoing to come 
forward.
    And just this last week we received outreach from an IRS 
whistleblower requesting the committee look into concerns the 
individual has about allegations of misconduct. So can you 
commit that there will be no retaliation against that 
whistleblower?
    Mr. WERFEL. Mr. Chairman, while I can't comment on a 
specific case, I can say without any hesitation there will be 
no retaliation for anyone making an allegation or a call to a 
whistleblower hotline.
    Chairman SMITH. Thank you, Commissioner.
    The Biden Administration first asked for $80 billion to 
hire 87,000 new employees. The Administration later claimed it 
would be hiring to replace retirements, and it would not be 
adding 87,000 additional employees. However, the information 
you released related to how the agency will spend the funding 
shows 30,000 new employees in just the next 2 years. At that 
rate, you will surpass 87,000 over 10 years. Can you clear up 
the discrepancies here?
    And right now you have 85,000 employees at the IRS. How 
many total employees do you intend to have working at the IRS 
in 10 years?
    Mr. WERFEL. Mr. Chairman, as I told the Senate Finance 
Committee last week, we are working on a final set of estimates 
for that, and I will have that information, the full 10-year 
view of the hiring plan, within the next few weeks.
    I can clarify a couple of things, though, about your 
question, which is--one important point is also to recognize 
the attrition that we have. Through 2024, 16,000 IRS employees 
are expected to retire. So this is not all about plussing-up 
IRS staff. We are also making up for the staff that we are 
losing to retirements and other attrition.
    The other point I want to make about staffing increases is 
that staffing increases are necessary to keep pace with the tax 
system that we have today. Now, in my opening statement I 
talked about the rise in the population, the rise in the number 
of filers, the rise in the complexity of the tax law. That 
means we get more phone calls to our call center. That means we 
get more people walking into our walk-in centers. And if we 
don't have the staff to meet them, answer their questions, then 
we are failing the American people in doing our job to serve 
them.
    And on the enforcement side, just one more point. Today we 
have 2,600 IRS employees that are responsible for assessing the 
most wealthy taxpayers, the most wealthy filers. That is 
individuals, large corporations, and complex partnerships. 
There are roughly 390,000 of these wealthy taxpayers. I am not 
talking about $400,000 a year; I am talking about $10 million a 
year, I am talking about $10 million in assets. I am talking 
about, for these large corporations, $250 million in assets.
    For the very top of our income strata, 390,000 filers, 
2,600 staff. And as a result, we have seen a dramatic decline 
in the audit coverage of our wealthiest filers. And when you 
see our staffing numbers over the next 10 years--and you have 
them through the 3-year window--I ask you to think about what 
we are doing is closing the gap when we talk about enforcement 
between those 2,600 employees and the 390,000 of our wealthiest 
filers in America.
    Chairman SMITH. In regards to your comments earlier about 
not increasing audit rates on people making less than $400,000 
a year, there has been a lot of statements from Secretary 
Yellen that says that the audit rates will not be above that of 
the historical audit rates, which was--2010 was the peak. When 
you say that there is not going to be an increase in audit 
rates, are you referring to the audit rates last year or the 
historical, like what Secretary Yellen has said?
    Mr. WERFEL. Let me provide some clarity on that, Mr. 
Chairman. Here is where I am at on this, in consulting with 
Secretary Yellen and her team.
    We have a lot of work to do over the next few years. We are 
going to be focused completely on doing what I said earlier, 
closing the gap between our staff and the enforcement we need 
to do with our wealthiest.
    What that means is the audit rate, the most recent audit 
rate we have that is complete and final is 2018. That is the 
rate that I want to share with the American people. The audit 
rate will not go above that rate for years to come because, for 
the next several years at least, we are going to be focused on 
the work that we are doing with the highest-income filers.
    Now, once we start and reconsider that, because the 2008 
rate is so low, it is not anywhere near the historical rate, 
if--you have probably looked at the years and said, well, the 
historical rate is a lot higher than the rate in the most 
recent years. So even if we did start increasing our audit 
footprint a few years from now, then you are still not going to 
get anywhere near the historical average for quite some time.
    So I think there can be assurances to the American people 
that, if you earn under $400,000, there is no new wave of 
audits coming. The probability of you being audited before the 
Inflation Reduction Act and after the Inflation Reduction Act 
are not changed at all.
    Chairman SMITH. The Inflation Reduction Act spends $15 
million to pay for a supposedly independent analysis about the 
feasibility of setting up an e-file system through the IRS, 
which would essentially make the agency America's--it would 
make the agency the American people's tax filer, their tax 
collector, but also their auditor. Asking the IRS to do your 
taxes is like asking your kid to guard the cookie jar. The 
temptation to take more than their so-called fair share is too 
much.
    Nevertheless, you all choose to hire an organization, New 
America, and a tax attorney, both of which have stated their 
support for establishing such an e-file system. How are we to 
expect this will be an impartial review, if those in charge of 
it are already committed to seeing it happen?
    Mr. WERFEL. Thank you for the question, Mr. Chairman. When 
I arrived at the IRS, I learned that we have this study that is 
mandated under the Inflation Reduction Act to study a direct 
file option. I want to stress the word ``option'' there, 
because I think the important thing is whether we go forward 
with the direct file solution or not, and if we were to, it is 
an option for taxpayers.
    If they feel concerned about engaging with the IRS in a 
direct file solution, they don't have to do it. There are other 
ways to engage with the IRS. And that is, by the way, part of 
our hope and our vision, that we will meet taxpayers where they 
are. If they want to file on paper, we are not thrilled with 
it, but we will be ready for it. If they want a fully digital 
experience, if they want to work with a third-party servicer, 
we want to accommodate that. They currently don't have a direct 
file option. So my understanding from the Inflation Reduction 
Act is to study it, and see if it is viable.
    The report is not done yet. It will be done by mid-May. And 
I understand, Mr. Chairman, that there are--that you have a 
keen interest in seeing what this report says. I will make 
myself available once the report is out to answer any questions 
that you have. I am happy to come back to this committee and 
testify on it. I just think it would be premature to get into 
the details of the study before it is finalized.
    Chairman SMITH. You know, our committee has learned that a 
different organization, MITRE, that occasionally does work for 
the IRS, conducted a study around taxpayer opinions about an 
IRS e-file system. Among their findings, most working-class 
Americans who file simple tax returns do not want an IRS 
system. And the plan is only popular in cases where the IRS 
could pull off handling complex tax returns and providing state 
returns, basically adding a tax preparation software company 
inside the IRS. A lack of trust in government was one of the 
main reasons taxpayers would oppose an IRS system.
    And without objection, I will be submitting the MITRE study 
for the record.
    So ordered.
    [The information follows:]

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    Chairman SMITH. Commissioner Werfel, why wasn't the IRS 
transparent with the American people about this study?
    Mr. WERFEL. Well, I want to make clear, Mr. Chairman, the 
IRS didn't ask for this study. We didn't commission the study. 
Often you have companies, non-profits, academics on their own 
writing white papers, writing studies that the IRS didn't ask 
for. But if they send it to us, then we absolutely will look at 
it, and particularly if it is credible, and MITRE is a very 
credible organization.
    And we have received the study from MITRE, and we were 
under the impression that it was going to be made public so 
that there wasn't a need to immediately report it out. But 
there was no intention of holding anything back here. People 
send us studies, we review them, and we will incorporate the 
findings from the MITRE study into our final study.
    Chairman SMITH. I now recognize the ranking member for 
questions.
    Mr. NEAL. Thank you.
    Commissioner Werfel, there have been a lot of false claims 
made about who the IRS will audit. I know you attempted a few 
moments ago to address some of that. But with the additional 
money from the IRA, how many armed revenue agents will be hired 
to accomplish these audits?
    Mr. WERFEL. None, sir.
    Mr. NEAL. That is what I thought. So let me go over some 
other facts here.
    Last year Secretary Yellen sent a letter to then-
Commissioner Rettig, a Republican, directing that none of the 
additional money provided by the IRA would be used to raise the 
historical audit rates on families and small businesses making 
under $400,000 a year. The former commissioner also sent a 
letter to Congress reiterating this fact.
    Without objection, I would like to enter both letters into 
the record.
    Chairman SMITH. So ordered.
    [The information follows:]

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    Mr. NEAL. Thank you.
    Commissioner, do you stand by the letter sent to Congress 
from Commissioner Rettig stating that audit rates will not rise 
relative to recent years for households making under $400,000 a 
year?
    Mr. WERFEL. I do.
    Mr. NEAL. Thank you. Commissioner, with the additional 
money provided by the IRA, does the IRS plan to hire 87,000 
revenue agents to carry guns to audit families and small 
businesses?
    Mr. WERFEL. We do not.
    Mr. NEAL. Thank you. Commissioner, Americans are very tired 
of the two-tiered tax system that allows the wealthy and well-
connected to play by one set of rules, while those who use 
withholding, they play by another set of rules.
    I have consistently stated that repealing the IRA 
additional enforcement funds will let the wealthy, large 
corporations and tax dodgers off the hook.
    Last year the committee reviewed the IRS mandatory audit 
program for presidents and found that it was not working as 
intended for a former president who operated a complex web of 
more than 500 businesses. Given this program, the fact that it 
was not working, how can we be certain that audits for other 
wealthy individuals are taking place?
    And how would the additional enforcement monies be used to 
assist the IRS with auditing complex returns?
    Mr. WERFEL. Congressman, as I said earlier, the first thing 
that concerns me is the chasm between the number of IRS 
employees we have today to assess the number of high-wealth 
filers that are out there. And as a result, over the period of 
time from 2010 to today, there is a steep decline in the audit 
coverage of our wealthiest filers.
    And, you know, from my vantage point, one of the reasons 
why I came to the IRS and am excited about the job is thinking 
about honest taxpayers, you know, those that own a small 
business, middle income, lower income. And right now the IRS 
does have the capability to evaluate--we have that capability 
because those are simple returns. The returns that come in from 
our wealthiest filers are sometimes thousands, tens of 
thousands, and sometimes hundreds of thousands of pages long.
    And so, when you have a team outsized--2,600 personnel to 
390,000 filers--and those files are not only voluminous, they 
are complicated--and multi-national corporations, the way it is 
structured today is more complicated than it was structured 10 
years ago. Partnerships are becoming more layered and more 
complex, harder to find where the actual taxpayer is. We have 
to up our game if we are going to effectively assess whether 
these organizations are paying what they owe. So it is about 
hiring. It is about training. And it is not just hiring 
auditors. It is hiring economists, scientists, engineers--and 
when I mean science, I mean data scientists--to truly help us 
strategically figure out where the gaps are so we can close 
those gaps.
    Mr. NEAL. Commissioner, if the proposals that have come 
from the other side were to take place, including repealing the 
funding that came from the IRS, what would that prohibit you 
from doing in terms of modernization?
    Mr. WERFEL. Yes, this is very concerning because, as I said 
earlier, our base budget is about running the train schedules 
that we have today. You know, and if we don't fund our base 
budget, basically what I want you to picture is the platforms 
getting more and more crowded as the trains aren't coming, and 
people getting frustrated. And that is not the way to serve 
taxpayers. That is our base budget.
    Our modernization budget, which is what the IRA provides, 
is how we modernize the whole system, how we improve everything 
about the system. So it is the difference, for example, between 
just having the person to answer the phone when it comes in for 
the IRS, versus having the option to do a call back, versus 
having a bot set up so, rather than wait, I can get my 
transcript by just hitting 1 or 2. It is the difference between 
just basic services and advanced services.
    And one of the concerns that we should all have, if you are 
a taxpayer, you should come to the IRS, which you are required 
to do to pay your taxes, and get the same level of 
functionality that you would from a bank, from an airline. And 
right now, because of steep cuts in our funding, we are not up 
to snuff with what taxpayers can see around the corner at their 
local bank. So we want to be able to do that.
    There is other--and I know I don't have enough time, but 
there is other ways we can spend the modernization money that 
is in the benefit of taxpayers, including securing data and 
including, as I said, you can go to sleep at night knowing that 
the IRS has the capability to assess the wealthy in the same 
way we can assess middle and low-income because we have built 
that capacity.
    Mr. NEAL. Thank you, Commissioner.
    Thank you, Mr. Chairman.
    Chairman SMITH. Mr. Buchanan is recognized.
    Mr. BUCHANAN. Thank you, Mr. Chairman.
    And, Commissioner, I know you are new on the job, and I 
guess the acting commissioner for about six months----
    Mr. WERFEL. Eight months in two thousand thirteen, sir.
    Mr. BUCHANAN. But let me just mention there is just a lot 
of misinformation out there and disinformation, whatever you 
want to call it.
    You know, they have got a budget they originally set up, an 
additional $80 billion, and now they are talking about another 
$43 billion. How do you distill that down? Where is the money 
going?
    And I have just got to tell you, we have got to do a much--
or you have got to do a much better job in terms of 
communicating that because the taxpayers want to know. I am 
telling you in my district but across the country, they want to 
know where the $80 billion plus another $43 billion would go, 
and you will be the one to decide that.
    Mr. WERFEL. Yes, I would love the opportunity, and I 
appreciate the feedback of how we can be more effectively 
communicating the budget.
    So let me take a moment. What we are asking for in 2024 is 
$1.8 billion. That is what we are asking for on top of the base 
budget that we already have. And again, that is just to keep 
the current train schedules on target. What does that 
additional $1.8 billion do? About one billion of it is more 
people, more people to man the phones, more people to process 
transactions. And then about $800 million is mostly 
inflationary adjustments, pay increases. It is a large 
organization, so----
    Mr. BUCHANAN. Excuse me, how much of that, the recruitment 
and stuff, is going to go into auditing? What is the percentage 
there?
    Mr. WERFEL. For that it is mostly taxpayer services, the--
what we need in terms of more people. It is--I can get you 
specifics on the percentage breakdown.
    The 43 billion metric I just want to make sure is 
understood. What we are asking for in 2024 is $1.8 billion, and 
that is really all I want to stand here and defend. Most of the 
money that is in that $43 billion is either already in our base 
or is way out in 2030, 2031, because as we move forward there 
is a cliff that occurs----
    Mr. BUCHANAN. Commissioner, let me mention----
    Mr. WERFEL. Yes.
    Mr. BUCHANAN [continuing]. The reason I say that, because 
one of the commissioners in the past--I chaired Oversight, and 
we had a frank discussion--is he brought up the idea for every 
dollar that you invest, we can get you back $5 or $6. It sat 
with me the wrong way. So I just want to make sure we are kind 
of--get a better understanding of where the dollars are going 
so we got a better sense of that.
    The other thing is some groups outside--conservative 
groups, I would say--are estimating that, you know, people 
under $400,000, there could be as many as 650,000 audits. Do 
you have any sense of that, or can I--is that something I can 
get to you?
    Mr. WERFEL. I would love to better dig into the math. As I 
mentioned earlier, at least for the last--for the next several 
years, there will be no increase in the audit rate from the 
most recent rate that we have, which is 2018, which is a 
historically low rate.
    Mr. BUCHANAN The other thought is just on--before I got 
here I was in business 30 years and dealt with, obviously, a 
lot of entities that were called pass-through. You are familiar 
with those, partnerships and----
    Mr. WERFEL. Yes.
    Mr. BUCHANAN [continuing]. Limited partnership.
    Well, the idea that, in terms of auditing, a lot of these 
are over that size. They are claiming that it could be millions 
or hundreds of thousands of organizations. And I just want to 
tell you, when you get--if it is a company that has got 100 or 
50 employees and it happens to make $400,000, it doesn't all go 
to the owner.
    But the bottom line is, you know, what I am concerned about 
on these pass-throughs when they do get a dispute or something 
with the IRS, is that you do everything you can to move that 
along and try to resolve it as quickly as you can because it is 
very expensive in terms of CPAs and tax attorneys and the time 
taken away from their business.
    So I don't know what more you could do in that area. I 
would like to see more resources put in that, so when you have 
disputes at any level, but especially small business and 
individuals, you do everything, you try to resolve it. I would 
make the best deal and go and get on to something else, but 
that is just my opinion.
    Mr. WERFEL. Yes, and I appreciate that and I agree with it. 
When I made that analogy earlier of the train schedules, and 
that we have to improve them, that is one of the improvements. 
We have to improve the ability to resolve issues quicker.
    First of all, it is one of the central bill of rights--we 
have a taxpayer bill of rights, and one of the rights is the 
right to a quick resolution, and I want to meet that right. So, 
for example, we are putting into place, because of the 
Inflation Reduction Act, online accounts for both small 
businesses and individuals that will allow them to go in real 
time and see if they have an issue, and have real-time ways of 
solving it. So if we are successful, this--it will end the era 
of weeks and weeks of letters and correspondence back and 
forth----
    Mr. BUCHANAN. Let me just ask one quick----
    Mr. WERFEL [continuing]. With the IRS.
    Mr. BUCHANAN. You made a comment about answering the phone.
    Mr. WERFEL. Yes.
    Mr. BUCHANAN. I think it has got a little better, but it is 
still unbelievable. I mean, people can't get through, it takes 
hours. And I just hear that in our office constantly. Now, 
maybe in different parts of the country it is different, but I 
would like to have you make sure that whatever numbers you have 
got is an area you are working on, because people--their time 
is important. They want information. They want to resolve 
things with the IRS. They don't want sleepless nights.
    Thank you, and I yield back.
    Chairman SMITH. Mr. Doggett is recognized.
    Mr. DOGGETT. Thank you, Mr. Chairman, and thank you, 
Commissioner, for your service.
    You know, in December this committee got a good, in-depth 
look at the sorry state of high-end tax enforcement. After 
years of Republican obstruction from members of this committee, 
outside the committee we finally secured some of the tax 
returns of ex-President Trump. As the public record reflects--
and I refer only to the public record--there were years of 
paying little or no taxes, tens of millions of dollars in 
questionable losses carried forward from prior years, 
questionable foreign tax credits.
    We learned that the IRS had assigned a single auditor, one 
person, to review the returns of the Trump organization's 500 
entities. Even after that auditor indicated that he could not 
by himself do a really thorough audit, no one was assigned from 
the specialist referral system, and he appears to have been 
provided no reinforcements.
    Beyond the question of whether Trump himself got special 
treatment from his Republican appointees, and without asking 
you to comment on the returns of any particular non-taxpayer, 
the entire episode gives reason for concern that similar ultra-
wealthy individuals who may well have committed tax fraud 
recognize that they, if they have enough high-paid accountants 
and tax lawyers, can get away with it.
    In reviewing the few available auditor's notes on Trump's 
returns, the Joint Committee on Taxation, as you are probably 
aware, faulted the IRS auditor for assuming that using high-
priced accountants and lawyers ensures the accuracy of claimed 
credits and deductions on returns. My first question to you: Is 
it standard practice at the IRS to assume that the ultra-
wealthy can employ a tax consultant and just assume that if the 
tax consultant said that the income and credits and deductions 
were accurate, that they are?
    Mr. WERFEL. Again, Congressman, I appreciate the ability or 
the opportunity to clarify that I am--would never and cannot 
comment on any specific taxpayer. And my responses will relate 
only to generalities.
    Mr. DOGGETT. Sure.
    Mr. WERFEL. The issue is, as I have been describing, it is 
the depletion of IRS resources has taken a toll, and it has 
taken a toll on our ability to do certain things, and one of 
them is to assess or unpack complicated, voluminous returns 
from our highest-income filers, individuals, partnerships, and 
organizations.
    And, you know, whether you have the visual of a truck 
backing up with tens of thousands of pages for a given return, 
or the individual--or the visualization of a team of attorneys 
and accountants that a taxpayer might bring to the table, the 
reality is--and that is their right to do that, but we want to 
have an IRS that is resourced to ask the right questions, to 
challenge in the right issues, to make sure that there is 
fairness across the tax system.
    Mr. DOGGETT. So is it fair to say you would agree with the 
Joint Committee on Taxation in their analysis that they were 
not comfortable with any reliance on professional tax 
preparation as an indication of accuracy?
    Mr. WERFEL. It is absolutely a trust-but-verify situation, 
and we need the ability to verify, and we don't have that right 
now.
    Mr. DOGGETT. And is it standard practice to assign 1 
auditor to cover 500 organizations a taxpayer might submit?
    Mr. WERFEL. Right now, Representative, as I said, we have 
2,600 personnel for 390,000 of our wealthiest filers. So we 
have to make the smartest decisions we can, given that chasm. 
Hopefully, with----
    Mr. DOGGETT. What are the factors----
    Mr. WERFEL [continuing]. The increase in resources, we can 
change that.
    Mr. DOGGETT. What are the factors that would cause an audit 
to remain unresolved for seven, eight, nine years?
    Mr. WERFEL. Complexity.
    Mr. DOGGETT. And again, a lack of resources.
    Mr. WERFEL. Yes, a lack of resources, complexity----
    Mr. DOGGETT. If we eliminate all of the funding that you 
received as an addition last year as the very first bill that 
these Republicans passed in the House, will that facilitate 
this same kind of minimal enforcement with 1 auditor for 500 
organizations?
    Mr. WERFEL. It would. I would point this stat to you, 
Congressman: audit rates in 2010 for entities, corporations 
between $100 million and $1 billion in assets ranged between 20 
and 30 percent. Today they hover near five percent. And if we 
don't have the resources, they will continue to hover near five 
percent, and that means we are leaving money on the table.
    Mr. DOGGETT. Thank you so much.
    Chairman SMITH. The gentleman from Nebraska is recognized.
    Mr. SMITH of Nebraska. Thank you, Mr. Chairman.
    Thank you, Commissioner, for being here today. I want to 
clarify perhaps. There was mention earlier about special 
agents, especially within criminal investigation.
    Now, it is my understanding from a communication I received 
from your agency last fall that criminal investigation plans to 
hire 360 special agents per year, per year, over the next 5 
years for an approximate net gain of 1,200 special agents 
considering attrition. Is that accurate?
    Mr. WERFEL. That sounds about right. Again, Criminal 
Investigation Division, which deals with fraud and significant 
cases of tax evasion----
    Mr. SMITH of Nebraska. Correct, and those----
    Mr. WERFEL [continuing]. They are often----
    Mr. SMITH of Nebraska [continuing]. Agents are armed.
    Mr. WERFEL [continuing]. Put their own--okay.
    Mr. SMITH of Nebraska. Those special agents are armed, is 
that correct?
    Mr. WERFEL. They are armed. It is less than three percent--
--
    Mr. SMITH of Nebraska. And they----
    Mr. WERFEL [continuing]. Of the IRS workforce.
    Mr. SMITH of Nebraska. And they avoid magnetometers at 
airports, and things like that. So----
    Mr. WERFEL. They are law enforcement personnel.
    Mr. SMITH of Nebraska. Now, you said earlier that you are 
not hiring any new special agents that will be armed, but it 
sounds to me like you are.
    Mr. WERFEL. Well, that--my understanding--I am glad you are 
clarifying. My understanding of the question was around audits.
    Our CI division, our criminal investigation division, they 
do not conduct audits. What they do is they are investigating 
acute issues of fraud and tax evasion. And typically, they are 
armed when they are putting theirselves in danger.
    Mr. SMITH of Nebraska. Understood, I understand. But I 
think it is important to note that there is a difference. There 
will be new hires that will be armed, for the record.
    Now, last September Secretary Yellen sent a letter to then-
Chairman Neal supporting Ways and Means Committee Democrats' 
efforts to provide additional funding for the IRS. I would like 
to ask for unanimous consent to include that letter in the 
record.
    Chairman SMITH. Without objection.
    [The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. SMITH of Nebraska. Thank you. In that letter Secretary 
Yellen addressed the long-term decline in the number of 
auditors at IRS, and provided data showing the decrease in the 
percentage of taxpayers audited across a number of filer 
categories between 2010 and 2018.
    Can you clarify whether 2010, the date put forward by 
Secretary Yellen in 2021, is the historical average you were 
referring to as a long-term goal--emphasis, long-term goal--
once IRS ramps up to high--ramps up to audit high-net-worth 
individuals?
    Mr. WERFEL. No, I would not clarify that--I would not 
characterize that as a goal. It is a benchmark. And we look at 
2010 because that is the first year that started the steep 
decline in IRS resources.
    Mr. SMITH of Nebraska. Okay.
    Mr. WERFEL. So we want to provide transparency to the 
American people that, at the start of our decline in 
discretionary resources, this is what the world looked like in 
terms of audit rates.
    Mr. SMITH of Nebraska. Okay. And there is a lot of 
confusion here, in terms of what a lot of these numbers are. 
But, you know, we--there is consideration of income brackets, 
what those targets will be, and the percentage of taxpayers 
within each bracket who are being audited.
    But when you are attempting to adhere to the instruction, 
what metric will you actually be using? Will it be that 
distribution across brackets, or there--are there other numbers 
to consider?
    Mr. WERFEL. I think what we would do, Congressman, is look 
historically at the type of coverage we had when we were at our 
healthiest. So, for example, if you look back at our audit 
rates when we were at our healthiest, we had fairly high audit 
rates for individuals with more than $20 billion--or companies 
with more than----
    Mr. SMITH of Nebraska. Okay.
    Mr. WERFEL [continuing]. $20 billion in assets. We are more 
than half of that right now.
    Mr. SMITH of Nebraska. Okay, I----
    Mr. WERFEL. And so I wouldn't call it a target, but it is a 
trend to make sure we are getting back to healthy levels.
    Mr. SMITH of Nebraska. Now, the Joint Committee on Taxation 
found that more than 90 percent of under-reported income 
actually came from taxpayers earning less than $400,000. So how 
can we expect to generate $191 billion in new revenue over the 
next decade without drastically actually increasing the number 
of audits on families making less than $400,000, not even 
considering for the impact of inflation since the President set 
the $400,000 threshold not long ago?
    I mean, the math seems to be difficult to reach.
    Mr. WERFEL. Yes, and this is a very important question, and 
I am glad you asked it.
    Look, there is a lot of mounting evidence that there is 
significant under-reporting or tax gap in the highest-income 
filers. For example, there is a study that was done by the U.S. 
Treasury Department that looked at the top 1 percent of 
Americans and found as much as $163 billion of tax dodging----
    Mr. SMITH of Nebraska. But roughly 90 percent of the new 
audits will be of those making less than $400,000. Is that 
correct?
    Mr. WERFEL. No, none of the new audits will be of people 
earning under $400,000. So maybe I am not understanding your 
question.
    There will be new audits under the Inflation Reduction Act, 
but those will all be focused on our highest-wealth filers, 
individuals----
    Mr. SMITH of Nebraska. So the historic average is not 
relevant, then, as referenced earlier.
    Mr. WERFEL. Not for a number of years, no, it won't be.
    Mr. SMITH of Nebraska. Okay. I wish I had more time. Thank 
you.
    Chairman SMITH. Mr. Thompson is recognized.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Commissioner, thank you for being here. Commissioner, 
yesterday our Republican colleagues passed off the floor of the 
House a bill that slashed $80 billion in IRS funding that we 
had put in last year to help you solve some of these issues 
that have been discussed today. They made that cut saying that 
this was going to save money. It sounds like crazy math to me.
    Can you help us understand? When we fund you with proper 
funding levels, does that cost money or does it allow you to 
recoup the money that is owed?
    Mr. WERFEL. It allows us to recoup the money that is owed. 
There is longstanding historical and robust analytics that 
points to a return of $6 of return to the taxpayer for every $1 
invested in the IRS budget.
    Mr. THOMPSON. Thank you very much. I appreciate that. I 
appreciate the fact that you cleared up this nonsensical 
argument that we heard continuously over the course of the last 
year that this $80 billion was going to pay for heavily armed 
agents running around kicking in doors. So thank you for that.
    I also appreciate the fact that we have made improvements 
in regard to customer service at the IRS. And I know all I have 
to do is talk to my district staff about how bad things were, 
and things do seem to get better. But I just want to say you 
got some work to do. Last week my wife spent three hours on the 
phone with the IRS, and she still hasn't gotten through. And 
most people, at least working people such as my wife, don't 
have time to spend. It was three different calls trying to get 
through. So she just didn't have time. People don't have time 
to spend an hour on the phone. So that----
    Mr. WERFEL. Yes, Congressman. It is stories like that that 
is motivating. I know we have more work to do. But what worries 
me, Congressman, is if we reduce our funding we will hear more 
stories like that.
    Mr. THOMPSON. Oh, I get it. I get it completely.
    Mr. WERFEL. Yes.
    Mr. THOMPSON. I just need to let you know that we----
    Mr. WERFEL. Understood. I like when people tell me these 
stories, because it is motivating.
    Mr. THOMPSON. Commissioner, we have some devastating 
wildfires in California 2015, 2017, and 2018. Fire survivors 
throughout California received payments from an established 
trust after the Pacific Gas and Electric bankruptcy. My 
constituents and other Californians began receiving partial 
compensation from that trust in 2021, and they continue to 
receive payments today. None of the people that we are talking 
about will ever be made whole. They are going to get less money 
than it is going to take to rebuild their homes and their 
businesses, and heaven knows what all they lost that are just 
irreplaceable.
    Now, in many cases, these folks are being told that they 
owe taxes on the payment they received from the trust, 
including taxes on the lawyers' fees, the lawyers that were 
associated with that trust.
    I have legislation with Representative LaMalfa that will 
make these payments non-taxable, and I appreciate that your 
staff has been working with mine on this issue, and I would ask 
that you will continue to work with Congress. This is wrong. 
This should not be like this. And I know the 2017 tax bill teed 
up some of this inappropriate taxation to take place, but we 
need to fix this. It is not a good situation for American 
taxpayers.
    Mr. WERFEL. Understood.
    Mr. THOMPSON. Is that a yes, you will work to continue----
    Mr. WERFEL. Well, I am--absolutely will work with you.
    One of the limits that I have as the IRS commissioner is 
not being able to comment on--pro or con--on legislative 
proposals, only to talk about whether it is administrable.
    I will say this, though. It is Treasury who----
    Mr. THOMPSON. I will be satisfied with a yes, I will 
continue to work with you----
    Mr. WERFEL. Yes.
    Mr. THOMPSON [continuing]. On helping the taxpayers who are 
being----
    Mr. WERFEL. Absolutely.
    Mr. THOMPSON [continuing]. Being harmed.
    Mr. WERFEL. And we appreciate when we are provided tools to 
help taxpayers in need, especially those that are impacted by 
natural disasters.
    Mr. THOMPSON. Thank you. I also just want to say that Mr. 
Kelly, who is not here today, and I have legislation, along 
with Chairman Wyden and Ranking Member Grassley over in the 
Senate, to strengthen the IRS whistleblower program. We have 
got some common-sense fixes that will strengthen that, help you 
guys out. And I guess it is not your policy to comment on 
legislation.
    Mr. WERFEL. It is not my----
    Mr. THOMPSON. But you can tell us if this will be helpful.
    Mr. WERFEL. Yes, I can. We can work with you on that. You 
know, I will say we at the IRS will fiercely defend the 
integrity of the whistleblower process. We welcome suggestions 
on how to strengthen and improve it. So I would love to work 
with you on that.
    Mr. THOMPSON. Thank you very much.
    I yield back.
    Chairman SMITH. Mr. Schweikert is recognized.
    Mr. SCHWEIKERT. Thank you, Mr. Chairman.
    Mr. Commissioner, I have a fascination with the adoption of 
technology as a way to deal with so many of your issues. I have 
a--actually, an IRS press release from just a couple of weeks 
ago talking about your adoption of a chat bot for simple 
collection questions. Do you know anything about that?
    Mr. WERFEL. I do.
    Mr. SCHWEIKERT. How is it working?
    Mr. WERFEL. Well, we have had a very successful filing 
season, as I understand it, with the introduction of new chat 
bots for things like getting a transcript, for things like 
setting up an installment agreement if you have less than 
25,000. These are relatively--25,000----
    Mr. SCHWEIKERT. And the article makes it clear, your press 
release also makes clear it is relatively simple. But you have 
just engaged in an experiment of adopting the technology that 
we see much of corporate America moving to----
    Mr. WERFEL. Correct.
    Mr. SCHWEIKERT [continuing]. Very quickly. I desperately--
what can I do, as a Member of Congress on this August 
committee, to help you do a hell of a lot more of this?
    Mr. WERFEL. Yes.
    Mr. SCHWEIKERT. The fact of the matter is, being someone 
who has been screwing around with chat GPT since the end of 
last year, it is remarkable. I have had it write code for me.
    The fact of the matter is you could build a stack, the IRS, 
and my--ability to even ask complex questions, the ability to 
actually say, here is the discussion I can have, and over here 
is functionally the video on filling out the form.
    I guess I am just desperate of what can I do to drag you in 
to the adoption of the technology that is truly customer-
centric?
    Mr. WERFEL. Congressman, I am a convert. There is not a lot 
you have to do to convince me. And if my team behind me and 
those back at the IRS are watching, they are probably laughing 
because of how often in my first five or six weeks I have 
raised this exact issue.
    Mr. SCHWEIKERT. So if I went online right now, though, and 
actually called in and talked to the chat and you would direct 
me to here is the video that would walk me through how to fill 
out the form in multiple languages, that exists? I look for it 
last night----
    Mr. WERFEL. Here is----
    Mr. SCHWEIKERT [continuing]. And I couldn't find it.
    Mr. WERFEL. Here is--when I think about a bot, I just want 
to make sure--like, if you called in the IRS three years ago 
and you needed a transcript, you got in line with everyone 
else.
    Mr. SCHWEIKERT. Oh, no, no, it is----
    Mr. WERFEL. But not anymore.
    Mr. SCHWEIKERT. I want to help you with this.
    Mr. WERFEL. Yes.
    Mr. SCHWEIKERT. Because I also must tell you I think it is 
insane you maintain your own servers when you have substantial 
portions of the Department of Defense on highly-encrypted cloud 
servers.
    Mr. WERFEL. Yes.
    Mr. SCHWEIKERT. And you want to keep your own server farm?
    Mr. WERFEL. Not necessarily, no. We are----
    Mr. SCHWEIKERT. No, no, not--well, not necessarily yes or 
no. What can I do to help you to join this century of 
technology----
    Mr. WERFEL. Yes.
    Mr. SCHWEIKERT [continuing]. Both the storage and your 
computing capacity? It is absurd that you still have that 
server farm in West Virginia. It really is.
    Mr. WERFEL. The first thing that you can do to help is make 
sure that we are not underfunded to modernize.
    Second----
    Mr. SCHWEIKERT. But--stop. The migration--because I--we 
spent some time looking at your plan. I didn't see the 
migration away from all your own storage and all your own 
processing, because this is really expensive. I mean, you still 
are maintaining, what, some AS400s and some of these things? 
That is insane, what you have to pay someone to do that.
    Mr. WERFEL. Yes. It----
    Mr. SCHWEIKERT. You know----
    Mr. WERFEL. It is in there, Congressman. I will explain it, 
if you give me one second.
    Mr. SCHWEIKERT. Oh, please.
    Mr. WERFEL. Which is in the plan we are committed to 
replacing our core--main core systems.
    Mr. SCHWEIKERT. Okay, so now stop. That is actually what I 
was going at. I don't want you to replace it. I want you to 
migrate it out.
    Mr. WERFEL. Yes, that is one of the alternatives. I can't--
you know, and we should talk offline about large capital 
technology transformation, because I want to make sure that I 
am following best practice. And one of the things we need to do 
is an alternatives analysis. And I am very interested, maybe as 
interested as you, in what the cloud-based, service-oriented 
architecture looks like as an alternative.
    Mr. SCHWEIKERT. You do realize we are having a conversation 
that is a decade out of date.
    Mr. WERFEL. I agree.
    Mr. SCHWEIKERT. I mean, when the Department of Defense did 
this a decade ago, and you guys are still putzing around with 
it, and it is a conversation I had for the first week I was on 
this committee. And this isn't Republican or Democrat. It is 
just modern practices. It is just, you know, we complain about 
resources and funding, people are really expensive, and the 
rest of the world, the rest of the corporate and the rest of 
other parts of the government have made these migrations.
    I want to--and this is one--I want to help you. If it is 
resources, if it is talent, I want to help you do these 
migrations. But the fact of the matter is this made me very 
happy that you guys put this out because it is a demonstration 
you are at least experimenting with technology.
    But my pitch at the end here is a very simple one. So far, 
every witness here, and part of the response is resources, 
resources, resources. Okay. Some of them are saying the modern 
use of the resources you have, you could dramatically cut your 
operational costs by moving into this century of technology. 
That is all. And I want to help.
    Mr. WERFEL. I would appreciate that help. I would love to 
meet with you offline.
    One of the things I will walk you through is some successes 
that we have had on technology that we can build on. You have 
pointed to one, but there are others. But I am not disagreeing 
with you.
    Mr. SCHWEIKERT. Okay. I just--the last sentence is I was 
underwhelmed with the vision on your migration plan. It just--
go. Okay. You had a sentence or two that were throwaway lines. 
With that, I yield back.
    Chairman SMITH. The gentleman from Connecticut is 
recognized.
    Mr. LARSON. Thank you, Mr. Chairman, and thank you, Mr. 
Chairman, for having this hearing. I think it is enlightening 
to have a hearing and to re-engage with ``We are from the IRS, 
and we are here to help.''
    And I want to say at the start I want to associate myself 
with the remarks of the Democratic leader, Neal, that he so 
artfully put out, but also talk about that service, and 
especially for the service, putting aside for a moment people 
earning above $400,000, but people who actually need the help.
    And the VITA program, which has----
    Mr. WERFEL. Yes.
    Mr. LARSON [continuing]. Been in place for a number of 
years, I can't tell you how successful that is, and how we need 
to expand upon that. Is there something in the works to do 
that, as well?
    Mr. WERFEL. Yes, I think about improved service as meeting 
taxpayers where they are, and working with community groups, 
intermediaries to help us do that.
    VITA is an essential partner. They do incredible work. The 
number of times that VITAs are helping people file their taxes 
is increasing. The trend is going in the right direction. We 
are ready to partner and continue that trend.
    Mr. LARSON. I think that is an important thing, and 
something we can learn in government. I hope, along with Dr. 
Ferguson, to talk about using a similar program. With more than 
10,000 Baby Boomers a day becoming eligible for Social 
Security, there is also a tremendous need for volunteer help at 
no cost to make sure that people are getting the benefits that 
they richly deserve and need.
    It also brings to mind, et cetera, something like the 
passage of the Child Tax Credit that is on the books and then 
off the books, and for so many families out there that were 
eligible that probably never even took advantage of this.
    And so, again, giving new meaning to ``We are from the IRS, 
and we are here to help,'' and to augment your team also with 
volunteers, but making sure that you have the resources to 
carry out what the regular taxpayer needs to understand.
    [Chart]
    Mr. LARSON. And we have a chart behind us, and I want to 
commend you because we keep a record of this--I am sure most 
Members do the same thing--of the number of cases that we take 
up. And here, just in the area of tax filing for the year, we 
have what went on in 2022 and what transpired in 2023.
    And as you can see with the new resources, the tremendous 
effort that was put forward--as Mr. Thompson said, yes, we can 
do better, and I hope that that is the plan, as well. But 
between modernization and also having that human being there--
--
    Mr. WERFEL. Yes.
    Mr. LARSON. The most frustrating thing I talk to to our 
constituents is not having a person on the other end of that 
phone, or being able to talk to.
    The fact that you are open on Saturdays now, as well, and 
provide that opportunity, if you could comment on that, as 
well, Mr.----
    Mr. WERFEL. Yes, I really appreciate the opportunity to 
comment.
    I mean, when we had lower resources, it was so frustrating 
for IRS employees, not just because we couldn't have the right 
amount of people on the phone, but also we couldn't do what we 
need to do as part of meeting taxpayers where they are and 
serving them effectively in underserved populations.
    So what funding allows us to do is to do what--the base of 
what we are supposed to do, which is to be there to answer the 
phone, but it allows us to lean in and provide a more fulsome 
service experience. That means meeting taxpayers where they 
are, allowing them, if they want to walk into a walk-in center, 
that that walk-in center is open, staffed, and there is no line 
outside.
    One of the things we did, Congressman, is we have opened 16 
additional walk-in centers this filing season. That would have 
not been--those are in local communities around the country. 
Some of the districts of the members of this committee. We 
could not do that without the Inflation Reduction Act.
    So there is really no agenda here, other than to meet the 
demand of a very complicated tax system so that we can serve 
Americans effectively.
    Mr. LARSON. And it is a great thing for the American 
taxpayer to understand that you are from the IRS, and you are 
here to help, and we need to take advantage of that. Thank you 
for your testimony.
    I yield back.
    Mr. WERFEL. Thank you.
    Chairman SMITH. Mr. LaHood is recognized.
    Mr. LaHOOD. Thank you, Mr. Chairman.
    Commissioner Werfel, welcome. Thanks for being here today. 
Let me start by echoing the concerns of many of my colleagues 
on the supplemental funding for the IRS received last year in 
the Democrats' IRA that disproportionately focuses on audits 
and enforcement over customer service and technological 
modernization.
    Like anything in the Federal Government, things need to be 
made more efficient, more effective, and more accountable, and 
that concerns me. Law-abiding families and small businesses in 
Illinois need their tax returns processed and phone calls 
answered. And we have heard immense frustration here today 
regarding the lack of that being done. We don't need more IRS 
agents knocking on their doors with burdensome audits.
    I want to focus my time today, though, on a specific 
provision included in the IRA: the $15 million in funding to 
study the feasibility of implementing the free direct e-file 
tax return system at the IRS. We have heard that the study is 
on track to be shared with us next month, and that it is likely 
that the group Code for America would be involved in this 
endeavor.
    At this time, Mr. Chairman, I would like to ask unanimous 
consent to enter into the record an article from the Wall 
Street Journal dated April 26th, yesterday, titled, ``Cooking 
the IRS Study Books: The Tax Agency Wants to Decide What You 
Owe Before You Do.''
    [Pause.]
    Chairman SMITH. So approved.
    [The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. LaHOOD. So approved? Thank you. [Laughter.]
    Thank you. With that, in that article, as I am sure you are 
well aware, Commissioner, it outlines that the IRS direct e-
file system in the pending feasibility study are of grave 
concern. And I guess I am trying to figure out the general 
premise behind the direct e-file study.
    As I look at the extensive list of already existing 
problems at the IRS, and your plans that you have to focus on 
in the coming years, and the fact that free e-filing services 
already exist in the market today--as you know, the tax 
preparation industry already provides free filing services for 
roughly 30 million returns each year. So I am not quite sure 
why trying to tackle this concept in the near term would be 
beneficial to the IRS or, more importantly, to the American 
taxpayers.
    Now, I know you are new coming into this, and I heard your 
comments earlier before. But don't you think the e-file effort 
could lead to the IRS biting off more than it can chew, with 
all those things that I mentioned that you talked about, 
further complicating the tax filing experience?
    Mr. WERFEL. Well, I would start by saying we have a 
responsibility to provide tax--to meet different taxpayer 
preferences. Not everyone wants to engage in the IRS in the 
same way, and not everyone has the means or the position to do 
so. So we have to create this menu. The menu includes walk-in 
centers, the menu includes our IRS.gov platform, and working 
with our--the Free File Alliance, and the third-party 
preparers, it involves advancements on the smartphone, as 
Congressman Schweikert was holding up his.
    The question I think being posed here is, is this an 
additional menu item for certain taxpayers to avail themselves 
of if that is the way they prefer to engage the IRS, this 
direct file?
    So the Congress said, ``Study it.'' And they--and my 
understanding of the congressional provision is what would it 
cost, what are the taxpayers' opinions on it, and then an 
independent assessment of its feasibility. And that is what we 
will produce in mid-May, and we will come and we will talk 
about it, and you will have more grounding to ask me the tough 
questions.
    Mr. LaHOOD. Well, I understand that, and I understand the 
study. But obviously, you are the new commissioner. You have 
had opportunity to digest this and look at this. What is your 
opinion?
    Mr. WERFEL. Well, I don't want to get in front of the 
report itself, because the report is not done, and I don't want 
to get out in front of a report that isn't complete.
    My take on it is I want to make sure that we are meeting 
customers--taxpayers, in this case--where they are. I think it 
is a best practice for an organization to not have a one-size-
fits-all. I don't know yet whether the direct file solution is 
the right additional menu item to put in place so that 
taxpayers that prefer to engage that way can do it. What I 
would like to do is have the report issue and then engage in a 
conversation with the right set of stakeholders, and figure out 
what the go-forward is.
    Mr. LaHOOD. Well, I would just say--and we look forward to 
that conversation, but it appears to me that it seems very 
problematic, and the focus on the IRS should be those things we 
talked about: prioritizing customer service, modernizing 
technology. You have enough to do there.
    And so, again, we look forward to getting that study back, 
and look forward to trying to do all we can to help make the 
IRS more efficient, effective, and accountable to the American 
people.
    I yield back.
    Mr. WERFEL. Thank you.
    Mrs. MILLER [presiding]. The gentleman from Oregon.
    Mr. BLUMENAUER. Thank you very much, Madam Chair.
    Mr. Commissioner, thank you very much for being here. Thank 
you for taking what is arguably the most thankless job in 
America. I have had this conversation with a number of your 
predecessors, and I feel the same way. Anybody who is qualified 
to be appointed has lots of other career opportunities with 
less grief, less pressure, and probably more remunerative. So I 
really appreciate your willingness to take this assignment on, 
particularly considering some of the combative attitudes that 
you have to put up with.
    My experience with your employees, on balance, is one that 
is very positive. I routinely meet with Treasury employees in 
Oregon, and I found in the midst of the pressures that 
literally reduced them to tears because they couldn't answer 
the phone and get the job done. And Congress is complicit in 
this. Congress has routinely underfunded the agency, while all 
the time we make the tax code more complex, and you have more 
returns to deal with.
    I have just one question. Do you have 73,000 or 85,000 
employees?
    Mr. WERFEL. Today we have roughly 85,000, which is still 
kind of at a level of staffing that is----
    Mr. BLUMENAUER. No, no----
    Mr. WERFEL. Yes.
    Mr. BLUMENAUER. I hear you. Your reference here in terms of 
trying to meet the taxpayers where they are, I think, is 
commendable. Are there other countries in the world that have 
an automatic system that provides taxpayers with their returns, 
that computes it for them?
    Mr. WERFEL. There are other countries that have adopted 
that type of system.
    Mr. BLUMENAUER. Thank you. I don't find that particularly 
threatening.
    I will say that I wish people had the same ire against some 
of the private tax preparers who have been involved with tax 
scams that take advantage of taxpayers who aren't particularly 
sophisticated. You don't have to look very far to find 
taxpayers who are cheated by this industry. Not all, not many, 
but it is a not-insignificant number.
    I appreciate what you are talking about, being able to 
equip the IRS to meet the challenge. I remember an article a 
few years ago that GE had 1,200, it was one of the largest law 
firms in the country was their tax department, 1,200 tax 
attorneys for one corporation filing, I imagine, 
extraordinarily complex returns.
    And to the point one of my colleagues made earlier, these 
are very difficult to move through. I meet routinely with CPAs 
and tax advisers and attorneys in my district, talking to them 
about the challenges. Most of them lament the understaffing and 
the inability of the IRS to be able to respond, and they 
acknowledge that audits largely are a thing of the past. Very 
few of them have clients that go through this, and they are 
talking about the most wealthy and privileged.
    So I appreciate the course you are trying to navigate here 
to try and equip the agency to meet the challenges. I think you 
said almost 400,000 very high-wealth and expensive programs 
that are complex, and you have maybe 2,600 people, you know, 
not much larger than General Electric's former law firm, 
dealing with these. I think it is an admirable challenge.
    I appreciate your being forthcoming with us, willing to 
work and explore these items. The things that my colleagues 
have raised, I think, are worthy to be looked at. But I do 
think we need to be mindful of the fact that this committee in 
the past did not cover itself with glory in terms of some 
pretty outrageous activities in terms of some of the hearings 
that we convened and sensationalized them. I think we can do 
better than that. And I appreciate what you are trying to do, 
your attitude, and cooperation, and look forward to working 
with you.
    Mr. WERFEL. Thank you, sir.
    Mrs. MILLER. The gentleman from Ohio, Dr. Wenstrup.
    Mr. WENSTRUP. Thank you, Madam Chair, and I am grateful 
that we are having this hearing today.
    Commissioner Werfel, I want to thank you for being here. I 
look forward to working with you throughout, and appreciate 
your candor today.
    And I do want to make a plug for my IRS Advocate at home. I 
will tell you that we have had great success, a good 
relationship working there. Sometimes it is unfortunate we have 
to go to the Advocate as much as we do, but that cooperation 
has been good, and I just think it is good to give some good 
feedback here and there.
    Mr. WERFEL. It is great to hear.
    Mr. WENSTRUP. The couple topics I would like to ask you 
about today--so I am just going to jump right into it--my staff 
back home has been working for several months now with 
constituents who are having trouble getting their Employee 
Retention Tax Credits released because they have contracted 
with a professional employer, organization, or PEO for payroll 
and related tax duties. And from what I understand, the PEO and 
IRS are following the law, trying to resolve the issue, but it 
has been more than six months of ongoing casework now, and it 
seems that the use of the PEO is what is delaying them from 
getting their tax credit released.
    And you know, I know you mentioned before the phones being 
answered more quickly. Well, that is good. That is a good first 
step. But resolving the issues, too, is really the ultimate 
step.
    Mr. WERFEL. Yes.
    Mr. WENSTRUP. So, if you don't mind, how is the IRS 
handling this PEO-related ERTC claims and the delays that are 
taking place?
    Mr. WERFEL. Yes, it is--I am concerned about any time we 
have a backlog, and we need to focus on it. And what happened 
during the filing season is we moved and concentrated our 
personnel resources on the phone to make sure we were answering 
the phone.
    We have made progress on the backlog. During filing season 
we were resolving and processing about 20,000 Employee 
Retention Credits a week, but that was not enough to keep up 
with the demand, because more come in. There is still 
eligibility through 2025. So this is a growing target, not a 
stable one.
    Now that the filing season is over, we can reset our 
staffing. I am hoping that we can more than double the rate, 
closer to 40 to 50,000 resolved a week. Plus we have teams 
looking at ways we can improve the process and be more 
aggressive in our efforts to manage that backlog.
    So it is an absolute priority. It has got my attention, and 
we are--you know, and I am holding people to more aggressive 
targets inside the IRS.
    Mr. WENSTRUP. I appreciate that, and I am glad to have this 
opportunity to discuss the awareness of the issue that you seem 
to have.
    Shifting gears to the IRS Strategic Operation--Operating 
Plan, I want to ask you specifically about the energy security 
lines and the IRA allocations summary table on page 109 and the 
FTE table on page 131. For context, the SOP allocates just $3.2 
billion to taxpayer services. Even the National Taxpayer 
Advocate noted in a recent blog post that the funding in this 
plan was ``disproportionately allocated for enforcement 
activities,'' and that the IRS needed to ``not lose sight of 
its core mission.''
    So I look at the $3.2 billion allocated for taxpayer 
services, which is seemingly woefully inadequate as a share of 
the total funding here. And I am wondering why more than one-
third of that is earmarked for energy security, because the SOP 
lays out five transformation objectives: dramatically improve 
services, quickly resolve issues, focus expanded enforcement, 
deliver tech improvements, recruit and retain a workforce. 
Those are all challenges, I get it.
    And then there is this energy security line item tacked on 
after those five objectives. And under the taxpayer services 
is--energy security is siphoning off $1.2 billion.
    Quickly resolving taxpayer issues when they arise for 
objective number two is another quote.
    Let me just cut to the chase. What specifically about the--
those 1,800 new IRS employees--what will they be doing to 
support energy security that warrants a specific line item, 
rather than funding improved tax administration through the 
five transformational objectives?
    Mr. WERFEL. Yes, it is a great question, and just lifting 
up for one moment, you know, just--the tax code is constantly 
changing, and the Inflation Reduction Act changed it.
    But even before that, between July 2019 and December 2022, 
there were 950 amendments enacted under the Internal Revenue 
Code. And what that means is--and that is in Congress's wisdom 
and the President's wisdom to sign out those. What that means 
is it changes the forms. It changes the types of questions that 
we get. It changes the type of processing that we need to do, 
and we need to make those adjustments.
    The energy-related credits in the IRA are new, and there is 
some novel elements to them. And so we have to do what we are 
doing now, which is we have issued rounds of public comment, 
asked for information, we are doing advance and notice of 
proposed rulemaking. We also have to hire more people to be in 
the phone center, because calls will come in with questions on 
am I eligible or not, how is this working? New forms will come 
in that we will have to assess.
    We will have to have strong program integrity. So that--
those funds are really dedicated to administration of these new 
tax provisions.
    Mr. WENSTRUP. Well----
    Mrs. MILLER. The gentleman's time has expired. The 
gentleman from New Jersey, Mr. Pascrell.
    Mr. PASCRELL. Thank you, Madam Chair.
    Commissioner Werfel, congratulations on your confirmation 
and, hopefully, a successful IRS filing season. I can't imagine 
the enormity of the job. We have had some hearings over the 
past session about the IRS, and I think it comes down to 
leadership. That is my opinion and my perception. I think you 
got great workers. They have to face a tremendous amount of 
filing and questions throughout the year, not just until April 
15th, every year.
    The historic funding enacted in the last session empowers 
the IRS to answer phones and get refund checks out. And looking 
at the numbers--I think you put it in your testimony--I think 
we are going in the right direction. We have a long way to go, 
and you said that. We are going to make writing out your taxes 
as easy as possible. We have promised that a number of times. 
We even had the postcard theory.
    Now we hear lip service about protecting working Americans 
from audits. Let's get one thing straight. I believe there has 
been a sabotage of the IRS over the last years. And when 
Democrats were in charge we didn't do much about it, because 
you have to have a budget. You can sweet talk all you want. If 
you don't have the money, you can't get the resources.
    You marked seven different places where you have improved 
in this year's filing season. Tremendous. And you have already 
got 117 million people who have filed. So we are halfway there 
because 50 percent of those folks got a check, a refund, 
already.
    So we are ensuring working families face big audits while 
the rich get scot free. Our hearing last year laid that out. 
And when you see the numbers, it is startling. Smearing fear 
enforcement is just code for protecting somebody.
    Commissioner, your predecessor shielded Donald Trump's tax 
returns for years. Whether he never read 6103 or not is still 
dubious. IRS began a ham-fisted audit the same day Chairman 
Neal made his appeal. It was clear, it was moderate, it was 
fair. Republicans did nothing while Trump's commissioner broke 
the law. Because you don't know the law exists or you don't 
know what the law says is not an excuse; 6103 is very clear, as 
the courts pointed out.
    And I don't want to hear that we went after Mr. Trump 
unfairly. Where the heck were these people 10 years ago, when 
they investigated Ms. Lerner, who had your job, threw her out, 
and then exposed the names of 12 taxpayers who lean to the 
left--whatever the heck that means--lean to the left in the 
charities that they represented?
    I want you to commit to following our recommendations to 
clearly detail the mandatory presidential audit program in the 
Internal Revenue Manual. I have read it. Have you?
    Mr. WERFEL. Yes, I am familiar with the IRM on this.
    Mr. PASCRELL. Where are we?
    Mr. WERFEL. Well, first, I am required to clarify, of 
course, that any remarks that I make are prohibited to be 
attributed to any individual taxpayer.
    Mr. PASCRELL. Right.
    Mr. WERFEL. We have a requirement amongst many in the 
presidential tax review program to review the taxes of a 
president. And I am in the process of understanding the 
different ways that the reduction in IRS resources have 
impacted our abilities to carry out a variety of different 
functions, including potentially this one.
    So, Congressman Pascrell, I think my answer for you right 
now is that I want to work with you and provide you more 
detailed updates on what we are doing on this program. But 
right now there are a lot of different activities underway as 
we reset the priorities.
    And in particular, as I have mentioned several times in 
this hearing, we have a significant opportunity to change the 
way we assess the complex filings of the wealthy. We have 
capacities that we need to build, skill sets that we need to 
hire, resources that we need to put in place that--right now we 
are not able to do the types of the review that I think middle 
and lower-income Americans want us to be able to do to 
demonstrate that the tax system is fair.
    And so, holistically, we are going to improve our overall 
efforts in this area. And then separately, I would like the 
opportunity to come back to you with an additional briefing on 
how that impacts anything related to the presidential tax 
review program.
    Mr. PASCRELL. Fair enough, thank you.
    Chairman SMITH [presiding]. Mr. Ferguson is recognized.
    Mr. FERGUSON. Thank you, Mr. Chairman.
    Commissioner, thank you for being here today. I have got a 
lot to cover, and would like to jump right into it. I am going 
to make a plea to you to--for--to help my constituents, all of 
our constituents, get their money back from the IRS, and to get 
what is owed to them.
    I am going to make a plea to you to help with the mental 
health of my district staff that works with your agency all of 
the time, and all of the district staffs, because they are 
losing their minds over the frustrations of dealing with things 
like a taxpayer advocate service that simply is not responsive 
and not working. They are losing their minds over 4.5-hour 
courtesy hang-up calls. They are losing their minds trying to 
help my constituents day in and day out.
    And we have heard about all of these vast improvements, and 
I am glad that somewhere in the rest of the country that is 
happening. So I am going to beg you, if I get you certain cases 
or get you--will you work with my staff to help get the folks 
the relief?
    Let me give you a couple of examples of why this is 
important. We had one small business that was looking for $1.4 
million in Earned Income Tax Credits. Because of the delays, it 
cost $150,000 in interest. In 2021, interest payments grew to 
$3.3 billion, up 33 percent.
    I have got list after list after list here of the number of 
quarterly interest payments that--in just a very few cases that 
my staff works. Think about this. One of these interest 
payments could provide benefits for a Social Security 
beneficiary for maybe up to six years. Think about that. We are 
struggling to figure out how to pay--to solve insolvency--to 
fix the insolvency problem with Social Security, and one, if 
you just fix one of these cases, we could cover somebody for up 
to six years. So will you work with my office to handle this?
    Because another case that is very interesting is that we 
have a letter--one of my constituents has a letter that says 
you are due a seven-figure refund, says it from the IRS, and 
for three years they can't get an answer on it. Three years.
    So I am proud that somebody is getting a little relief, but 
we ain't getting it down to the Peach State. So will you help 
us? Will you please help my constituents and my staff?
    Mr. WERFEL. Yes, you have my commitment.
    Mr. FERGUSON. Okay, good. Look, now, here is the other 
challenge that we have got. This is the data that you provided 
regarding where the new hires in the IRS are going to be 
through fiscal year 2031. This is the data that you provided, 
and we have just put it into a nice little graph form here.
    [Chart]
    Mr. FERGUSON. And so, with this wonderful customer service 
that you have right now--and I say that very facetiously--what 
we see, taxpayer services in the out-years begins to drop 
significantly. So a bad problem is getting worse, yet the 
enforcement number is going straight through the roof, and 
operational support is coming down.
    Based off of where we are right now, this whole thing is 
backwards. You need to be funding taxpayer services a heck of a 
lot more, getting folks their money back, and you don't need to 
be going after the enforcement side the way that you are. So, I 
mean, this simply does not make sense.
    Every single person here is talking about the problems that 
they have, that their constituents have with the IRS in getting 
their money back, and yet what we see from your own data is 
that this line is coming down. So this doesn't make any sense. 
So taxpayer services are going down, enforcement is going up. 
It just doesn't make sense.
    So one other issue that is out there I want to bring your 
attention to, just get your thoughts on it--I guess maybe just 
get a commitment. You are not planning to implement a bank 
surveillance scheme with IRS that was proposed before that was 
not--but you are making no effort to implement----
    Mr. WERFEL. That is correct.
    Mr. FERGUSON. Right, okay, good. So if you were a 
representative--and I know that you are the commissioner, but 
if you were a representative you would have absolutely no 
problem with H.R. 1010, our bill that would prohibit the IRS 
from implementing that bank surveillance scheme.
    Mr. WERFEL. Yes, I defer to the Treasury Secretary on those 
types of questions.
    Mr. FERGUSON. Okay. Well, she was----
    Mr. WERFEL. I am just required to----
    Mr. FERGUSON. She was fairly non-committal, as well. But it 
sounds like it is not something that you----
    Mr. WERFEL. We have no intent of----
    Mr. FERGUSON [continuing]. Are going to pursue. So good. 
You wouldn't have a problem with this.
    So I looked at this, and I looked at these numbers, and I 
go back, I look at the enforcement side of it in the out-years. 
So you say, oh, don't worry about it here, nothing here. So we 
are going to have all of this enforcement. So the final 
question that I have got for you is how many rounds of 
ammunition does IRS plan to purchase this year?
    Mr. WERFEL. I can get back to you on that, but it is not--
--
    Mr. FERGUSON. Thank you.
    Mr. WERFEL. It is not a lot.
    Mr. FERGUSON. I look forward to it. Because if you are not 
going to hire armed agents, it doesn't make sense for you to be 
hiring--to be hiring agents.
    But by the way, on your job posting board today there is an 
application for armed agents.
    With that, Mr. Chairman, I yield back.
    Chairman SMITH. Mr. Davis is recognized.
    Mr. DAVIS. Thank you, Mr. Chairman.
    And first of all, Mr. Werfel, let me congratulate you on 
your new assignment, and say that I look forward to working 
with you.
    Secondly, let me thank Tracy Walker Carter and your SPEC 
team for their efforts to help foster and homeless youth better 
understand tax resources. I know how much the Earned Income Tax 
Credit expansion helped homeless and foster youth in 2021. 
Given its expiration, I am very grateful that the Internal 
Revenue Service has continued its outreach to help these 
vulnerable youth.
    Third, I have got to tip my hat to our new Chicago taxpayer 
advocate and her team; they were very helpful to my office and 
to my constituents.
    Mr. Commissioner, I would appreciate your updating me with 
some information when it is available. In particular, when the 
IRS has data on tax year 2021, I would appreciate reports about 
the benefits of the expanded Earned Income Tax Credit, the CTC, 
and the CDCTC in 2021. This information will greatly help us 
better understand how these credits impacted families and 
workers.
    And finally, like other systems in our country, the 
seemingly race-neutral tax policies and audit practices can 
have a substantial disproportionate impact on taxpayers of 
color. I am glad that the Internal Revenue Service is beginning 
to examine these disparities, and I hope that you will keep me 
updated about this work and any legislation that may be needed 
to build on these efforts to ensure that our tax code applies 
fairly to all taxpayers.
    And I thank you, and look forward to your response.
    Mr. WERFEL. Thank you, Congressman. And I will provide you 
with those updates.
    And we are working in response to a request from Senator 
Wyden, chair of the Senate Finance Committee, on an assessment 
of the report that I think you were alluding to with respect to 
potential disparate impact of IRS audits on racial minorities. 
Once that report is complete and we have submitted it to 
Chairman Wyden, and I would be happy to come and brief you on 
its findings and what we are doing to move forward from here.
    Mr. DAVIS. Thank you very much. And while all of your 
offices throughout the country do outstanding work, there are 
none that does what the office in Chicago does. They are the 
best. Thank you very much.
    Mr. WERFEL. Noted.
    Mr. DAVIS. And I yield back.
    Chairman SMITH. The gentleman from Kansas is recognized.
    Mr. ESTES. Well, thank you, Mr. Chairman, and thank you, 
Commissioner Werfel, for joining us today.
    You know, as a new commissioner, I know you have your work 
cut out for you as far as things going on. And, you know, I 
look forward to working together to help clarify the agency's 
priorities and deliver a better experience for the taxpayers 
and, at the end of the day, helping them retain as much of 
their income as possible. After all, they worked for it. And 
paying the taxes is a task that we want to do as part of our 
country and the process we have here.
    We are all aware Tax Day was last week, and I know that it 
is fresh on Kansans' minds about how much money is going into 
the Federal Government in Washington, D.C. via their taxes. And 
they want to know, and have a right to know, that their hard-
earned dollars are going--and what--where they are going and 
what it is being used for. And that is true across the Federal 
agencies, any agency that exists in the Federal Government.
    I want to talk a little bit about, you know, instead of 
increasing the audits on ordinary Americans, where--what is the 
IRS doing about dedicating their efforts to help focus on 
security and protocol, given the--some of the major leaks of 
confidential information that has happened in recent years?
    You know, it has been nearly two years now since ProPublica 
published confidential information obtained through a massive 
leak, and still no one is held accountable. And just last week 
the IRS disclosed confidential information contained in a Form 
990T when it was not once, but twice posted online. And, you 
know, mistakes like this don't inspire confidence that the IRS 
can be trusted with the secure, confidential taxpayer 
information. So why is it that nobody has been held accountable 
for the ProPublica leaks?
    And, you know, as the new commissioner, will you commit 
that--you know, to--that you are going to focus on finding why 
these leaks occurred, and will work to make sure that they 
don't happen again?
    Mr. WERFEL. Well, let me start, Congressman, by saying--and 
I mentioned earlier--how important data security is. And when I 
first was approached about doing the IRS job, and I sat down to 
get ready for my Senate confirmation hearing, I wrote down, 
``What are the most important implementation factors?'' And the 
first thing I wrote in tax administration is data security. It 
is the top-most priority.
    And as I mentioned earlier, in my early weeks here I am 
trying to figure out and determine what is our state of the 
union in terms of data security. Where do we have strength? For 
example, right now I am comfortable with our cyber profile in 
terms of what we are doing, but we need to stay ahead and keep 
investing in the right solutions.
    And there are areas as--for example, there are several 
TIGTA recommendations that we have not done yet that we need to 
do, and I want to close those gaps, and the Inflation Reduction 
Act provides us the resources.
    With respect to the specific issue that you raised, it is 
my understanding that the issue has been referred to the 
inspector general, and the appropriate protocol for me at that 
point, once an issue has been referred to the inspector 
general, is to stand back, let the inspector general do any 
review that they deem necessary, and to offer to the inspector 
general any support that is needed from me.
    And I had a general conversation with Russell George early 
in my term that confirmed my understanding that my role is to 
refer issues, let him do his work, and when he needs my help in 
an investigation, I will be there to help him.
    Mr. ESTES. Which is great, and we want to make sure that 
inspector generals are able to do their job, wherever the work 
that they are doing.
    I guess the frustration that we feel is now, two years in, 
we are hearing this constant story. There is an investigation 
underway, and we are not hearing anything. And is--do you 
have--are you getting updates from the inspector general? Are 
you having meetings, or do you have a schedule that you will 
get together every three months, every quarter to get an 
update? Or what is the process there?
    Mr. WERFEL. Typically, in any investigation, what the 
inspector general will provide is immediate input to us if 
there is an action that we can take to close a critical gap.
    Let's say they are doing a review of a system for security. 
They won't wait five months and say, ``We see a gap.'' They 
will come to us early and say, ``We see a gap,'' even though 
the study is not done yet, or the audit, or the investigation. 
So anything that the inspector general tells us mid-audit or 
mid-investigation is for us to take an immediate action.
    And I think, in general, broader than their ongoing 
inspector general reports on data security and ongoing 
recommendations that were in place for years that haven't been 
closed, and my focus is on closing those.
    Mr. ESTES. Well, and that is good. I guess there is just a 
frustration that sounds like this is being swept under the rug. 
Two years now, and nothing happening.
    So I know I am about out of time. I have got so many other 
questions.
    You know, one of the things that concerns me--and I know 
several members have already talked about it--is the Inflation 
Act, when it came out, only dedicated $3.2 billion out of the 
$80 billion for support and customer service. And that is a 
concern, I think, that a lot of us have.
    So my time is expired, but I will yield back, Mr. Chairman.
    Chairman SMITH. The gentleman from Oklahoma is recognized.
    Mr. HERN. Thank you, Mr. Chairman.
    Mr. Werfel, thank you for drinking from a fire hose for the 
first six weeks of the new job, and sitting here for almost two 
hours now--and probably have another couple of hours to go 
here. But you know, this--the IRS is something that is--you 
know, most people out in America--I am sure you have heard 
this--kind of considers the boogeyman, and sort of a place to 
be.
    The last two-and-a-half years, you know, every 
congressional office has acted as the customer service reps for 
the IRS, trying to reach out and find people. And when I say 
find--I mean, let me get my Oklahoma accent--find, with a D on 
the end; not fine, with an E on the end.
    And, you know, a lot of the--when you talk to preparers, a 
lot of that is due to the fact that, you know, you couldn't get 
answers to, you know, certain things on the returns, and then 
people would make adjustments and they would find out after a 
period of time that there were penalties, and so we were trying 
to get penalties abated, and things of that nature. So, you 
know, I would hope, as you work through this, there is some 
consideration of that, as well.
    I want to ask you a couple of questions here in the time I 
have remaining. You know, in--we talk about the IRA and their 
allocation. When you look at the tax credits in the so-called 
Inflation Reduction Act, it has been widely reported that the 
green energy incentives in the IRA will cost us astronomically 
more than originally scored last year.
    The JCT and Congressional Budget Office scored the tax 
credits last year to be $271 billion. Yesterday JCT amended 
that score, and now the IRA tax credits will be $570 billion, 
more than double the original cost. And this score does not 
include an update for the EV credits. But Goldman Sachs has 
said the provision cost $392 billion, which is 28 times more 
than the original score of $14 billion.
    Now, we know implementing these tax credits or tax 
incentives will also be far more expensive than we have ever 
imagined. In fact, when you look at the omni last year, the 
omnibus bill, it allocated $500 million for the IRS to 
implement these provisions. However, when we look at this in 
the Bloomberg tax article, it says it is going to cost $3.9 
billion. So there is a little bit of a discrepancy there 
between what was originally appropriated and what you are 
saying you need.
    First of all, I guess part of my question is can you 
explain why it is eight times more than expected?
    And are you seeing potential for abuse in these hundreds of 
billions of dollars in credits?
    And with the cost of the bill going up almost 80--in fact, 
your current estimate of $3.9 billion, is that even accurate 
now?
    And if you could answer that, I have got one more question 
as it relates to that.
    Mr. WERFEL. Yes, so I will try to provide some clarity on 
that. There are funds that are in the Inflation Reduction Act 
that are necessary to administer the energy credits. We also 
felt that we needed additional funds in our base funding.
    So again, this is a point that the Inflation Reduction Act 
funding sits on top of our base funding. Our base funding is 
roughly at this point $12 billion a year. And we have asked for 
a $1.8 billion increment for 2024. Within that $1.8 billion 
increment is $100 million to pay for additional people to be on 
the phones for energy credit-related questions. So what you are 
seeing over the 10-year period is the full cost of what the IRS 
feels is necessary to administer the energy credits that were 
in the Inflation Reduction Act.
    Mr. HERN. So with the ever-escalating anticipation of the 
take rate of those EV credits--we have heard this widely 
reported outside of any governmental agency--does that mean 
that you are going to have to come back for a second bite at 
the apple as this continues to rise, and more and more people 
are taking, which is going to generate more and more questions 
and more and more oversight?
    Mr. WERFEL. I am not sure. I mean, you are--this is why we 
have this annual budget process, is to figure out if the world 
changes, exigent factors, assumptions that we may have made 
that were incorrect. But based on our best assessment right 
now, we have provided you the best understanding we have of 
what the cost to the IRS will be over the next--over the life 
of the Inflation Reduction Act to administer the energy-related 
provisions.
    Mr. HERN. So currently there are already tax credits out 
there that are energy----
    Mr. WERFEL. Yes.
    Mr. HERN [continuing]. Tax credits. And so you are only--is 
this 500 incremental just to----
    Mr. WERFEL. Yes.
    Mr. HERN [continuing]. Handle the new EV credits?
    Mr. WERFEL. That is correct.
    Mr. HERN. And so do you feel like adequately--you are 
adequately doing oversight and answering questions on the 
existing, with what your current budget is?
    Mr. WERFEL. We currently have budget to administer the 
credits. As you have heard earlier, we haven't had sufficient 
resources, and therefore we have a backlog for some of those 
credits. So the idea with our funding plan is to make sure that 
we are in a state of readiness for the changes that have been 
made to the Internal Revenue Code, so that we can administer 
it.
    But yes, we already do manage energy-related credits. The--
this is--the Inflation Reduction Act expands the number of 
credits or the types of credits that are available, and thus we 
have to adjust our operations to accommodate that.
    Mr. HERN. So this $3.9 billion that you have set aside 
right now in the $80 billion, that is what you anticipate based 
on the original projections of the EV credits. This take rate 
increase, which, again, will be more individuals taking it, 
more businesses, when you come back for your next budget----
    Mr. WERFEL. We--if we felt that we didn't have enough 
operational resources, we would come back and ask for a plus-
up, yes.
    I mean, and it is not--and again, I go back to it. There is 
no agenda here. We just want to make sure that we can meet the 
demand of American citizens who come to the IRS for help.
    Mr. HERN. Well, I guess--Mr. Chair, if I may--just the 
point being that this is--as these costs rise outside of your 
control, your responsibility is to do oversight, answer 
questions.
    Mr. WERFEL. Yes.
    Mr. HERN. So the point being here is that, as these costs 
rise, there are other ancillary, add-on expenses to the 
American taxpayer, not just what the allocation of the EV 
credit is, but the oversight of those credits, the 
administration of those credits----
    Mr. WERFEL. Administration, yes.
    Mr. HERN [continuing]. That are going to impact the 
American taxpayer.
    I yield back. Thank you.
    Mr. ESTES [presiding]. Thank you, and I now yield five 
minutes to Ms. Sanchez from California.
    Ms. SANCHEZ. Thank you, Mr. Chairman, and I want to thank 
you, Commissioner Werfel, for being with us today.
    It really can't be overstated how challenging last tax 
filing season was for our constituents. And that is why I, 
along with others, led a bipartisan effort last year to try to 
urge Treasury and the IRS to give taxpayers some breathing room 
while the agency tried to dig out from that enormous backlog.
    And it wasn't the IRS's fault that there was a global 
pandemic, and it wasn't the IRS's fault that, after years of 
being demonized and attacked and under-funded, the agency just 
didn't have the capacity to keep up with all of the extra 
strain and complexity. So I do want to take a moment here to 
appreciate how far we have come since then.
    We still have work to do, but it has improved, from 
dramatically improved individual and business backlogs to just 
being able to talk with a live IRS employee, we are in a much, 
much better place. And I want to thank you and the employees of 
the IRS who have been working non-stop to get us to this point. 
I feel like we don't thank IRS employees enough for the work 
that they do that is often thankless.
    Commissioner Werfel, my colleagues on the other side of the 
aisle are sort of constantly repeating the false claim that the 
IRS is planning to send hordes of agents after working families 
using the funding that we passed under the Inflation Reduction 
Act.
    And in reality, the fact is that the lowest earners, who 
are disproportionately people of color, are already audited at 
far higher rates than wealthy taxpayers. And that is because it 
takes, as you said, a lot more resources to audit a single 
wealthy taxpayer who can afford a skilled accountant and who 
has, you know, many complexities going on in their returns. So 
it is kind of interesting that the first bill this Republican 
majority passed was to gut IRS enforcement funding. And what 
that would have is the practical effect of protecting very 
wealthy tax cheats who can use the complexities to their 
advantage.
    I wonder if you could expand on the differences in time and 
resources that it takes to audit a millionaire compared with 
filers who are at the lowest income levels?
    Mr. WERFEL. Yes, thank you for the question. You know, as 
you know, most of Americans file--they are single source income 
filers. Most of their taxes are administered through their 
payroll. It is a very straightforward operation. When we have 
multi-source income, like large partnerships, corporations, 
billionaires, and multi-millionaires, it takes up to 50 times 
longer for the IRS to assess, examine, or audit those returns. 
And that is due to their volume, their complexity.
    And, you know, I--you know, to even put more of a fine 
point on it, it takes about five hours, on average, to audit a 
middle and low-income taxpayer when those audits do occur. It 
takes--can take 250 hours or more to audit a wealthy or more 
complex filing. So it is a much harder job, and it requires a 
specialized skill that has deteriorated at the IRS, while the 
complexity of these organizations have increased. So we have a 
lot of work to do.
    And that is--if you are a mom-and-pop shop, if you are a 
middle-income individual, the message that the IRS has for you 
is the Inflation Reduction Act is going to be focused for you 
on improving your service. That is where our focus is.
    Ms. SANCHEZ. Great. And the auditing----
    Mr. WERFEL. The efforts in enforcement will be on these 
very complex returns for the wealthiest taxpayers, individuals, 
corporations, and partnerships.
    Ms. SANCHEZ. Perfect. Thank you. Commissioner Werfel, if my 
colleagues were to succeed in cutting the Inflation Reduction 
Act's funding, what would that mean for the IRS's ability to 
improve audit rate disparities and make it harder for wealthy 
filers to game the system if your funding is cut?
    Mr. WERFEL. Yes, I mean, I mentioned earlier, you know, our 
audit rates in 2010 for corporations between $100 million and 
$1 billion in assets ranged between 20 and 30 percent, and now 
they are hovering near 5 percent. So we are not doing enough to 
assess. And when you don't do enough to assess, you know, you 
create risk. You create risk that the laws are not being 
followed, especially if there is a sense that no one is ever 
going to look at what we are doing, and so then you can be more 
risk-preferred in how you file.
    This is--you know, this is something that we can never 
perfect. But if we have the right amount of resources, and if 
we are effective at looking at these complex returns, then we 
can rebalance that, and they will take less risks, and that 
will be beneficial to the U.S. Government's bottom line.
    Ms. SANCHEZ. Great. I want to just briefly touch on another 
issue, which is the reporting threshold for folks who report 
business income on the 1099Ks.
    Mr. WERFEL. Yes.
    Ms. SANCHEZ. If we raise the reporting threshold to a more 
reasonable dollar value without reinstating the 200 transaction 
requirement, will we still see greater reporting of true 
business income while avoiding some needless confusion?
    Mr. WERFEL. Yes, I mean, the way I would answer that 
question is the way in which the law was enacted is extremely 
complicated. And we are learning in real time it is 
complicated--it was complicated for the IRS to administer and 
it was complicated for employers to determine how to work with 
third-party pay providers to make it all work.
    So, as you know, we took a pause. And, you know, in 
retrospect, we want to get better and better at not having to 
take pauses and planning better. But this provision turned out 
to be way more complicated than was anticipated. So anything 
that can be done to change the dimensions of how complicated it 
is would be helpful for the way we administer it.
    The question is a broader tax policy one that is best 
answered by the Secretary of Treasury. But in terms of the 
question of would it help with the simplicity of 
administration, yes.
    Ms. SANCHEZ. Great. I appreciate that, and I yield back.
    Mr. ESTES. Thank you. And now I yield five minutes to Mrs. 
Miller from West Virginia.
    Mrs. MILLER. Thank you, Chairman Estes, and thank you for 
being here today.
    The IRS is facing many, many hurdles, and I don't think 
your job has gotten any easier in the last year or two. I wish 
you the best of luck in taking on this huge challenge and 
facing what you have to face, and I encourage you to do it 
transparently and as productively as you possibly can.
    I have been working to solve an issue for over two years 
that was caused by the incessant greed of the current 
Administration for our tax dollars. It involves the lowering of 
the threshold for taxpayers to receive a 1099K form and moving 
it back to its original intent. The lowering has created 
significant challenges for taxpayers, small businesses, and 
payment processors, along with the IRS, because President Biden 
needed to pay more for his agenda.
    Luckily, though, we avoided an imminent disaster because of 
the delay in implementation last year. It saved an estimated 40 
million taxpayers from a tsunami of impossible paperwork. And I 
would like to remind you that it is the role of Congress to 
make policy, and it is the role of the IRS to implement it, not 
upside down.
    Last year the IRS cited the difficulty in administering the 
program as one reason for this delay. And the IRS did have a 
full year to send taxpayers a bill that they likely really 
didn't owe, and the agency wasn't really prepared to handle 
that type of a burden.
    If this policy was too difficult for the IRS to get right 
in that year, with all your new employees--some of whom still 
are not back in the office, I believe--how do you expect an 
individual who is selling a bicycle or paying their rent as a 
group to handle the cost and the compliance burden?
    Mr. WERFEL. You know, I think one of the most important 
principles of tax administration is that taxpayers have clarity 
on what is expected of them. And sometimes a law change in the 
Internal Revenue Code--sometimes we can administer it fluidly 
without any impact on the clarity. And sometimes the change is 
complex to administer.
    In this case, we were not ready to administer in a way that 
provided taxpayers the clarity they need. So we paused it. This 
was before I got there. I think it was the right decision, 
though----
    Mrs. MILLER. It was.
    Mr. WERFEL [continuing]. To pause it. Now we have work to 
do, and we are working very closely and engaging all the 
stakeholders to figure out--because the law hasn't changed yet, 
it is still the same law--how do we, when we resume next year, 
do a much better job in providing the type of clarity? What are 
the questions we need to answer? What are the flexibilities we 
need to explore?
    We are asking all those questions of your constituents and 
other stakeholders around the country, and I am hopeful that we 
are going to get it right this time. But I will say again it is 
complicated to administer.
    Mrs. MILLER. Absolutely. Would the IRS welcome Congress 
raising that threshold back to the time-tested standard of 
20,200 separate transactions?
    Mr. WERFEL. Again, as I said earlier, I cannot opine on the 
wisdom or the preference of a particular policy outcome, but I 
will share that a change in the threshold would be easier to 
administer. And so, at my seat at the table, I would say the 
IRS would have an easier time administering it.
    Mrs. MILLER. Thank you, because then my next question would 
be, do you have a plan to delay it again if indeed nothing had 
happened? But I am hoping it will happen with this bill.
    And I also want to thank all my Republican colleagues who 
had signed onto the bill, and I certainly hope that my Democrat 
colleagues will do so, as well, in order to protect our 
constituents and make life a little bit easier while we support 
what we can support.
    Thank you so much. I yield back.
    Mr. ESTES. Thank you, and now I yield five minutes to the 
gentleman from North Carolina, Dr. Murphy.
    Mr. MURPHY. Thank you, Mr. Chairman.
    And thank you, Commissioner, for coming. I heard good 
things about you, and I know you have just been two months on 
the job. I congratulate you for going and, being a Tar Heel 
undergrad, I am sorry you couldn't get into a real graduate 
school, as you had to go to Duke. [Laughter.]
    So anyway, I look forward to positive things, and I 
actually believe the IRS needs more people, 100 percent.
    [Chart]
    Mr. MURPHY. But I just want to follow up, because this 
chart is concerning to me. Can you just comment on that?
    Because, you know, it shows an absolute meteoric rise in 
enforcement, and we are not pushing people to take care of 
the--our taxpayers.
    Mr. WERFEL. Yes.
    Mr. MURPHY. Can you briefly comment on this?
    Mr. WERFEL. Yes. Well, yes, thank you for the question.
    My job is to do both--actually, to do all three. The job of 
the IRS is to serve Americans and help them with their tax 
obligations; it is to enforce the code, and make sure people 
pay what they owe; and then, obviously, we need a foundation at 
the IRS that is stable and operates----
    Mr. MURPHY. But right now--I mean, I will just ask you 
this. Do we need this many more enforcers, rather than that 
many more people to take care of taxpayers?
    Mr. WERFEL. I will say, Congressman, I am concerned with 
the chasm that exists today between the number of people we 
have to assess and unpack complex filings of very wealthy 
Americans. And therefore, I believe we are going to put those 
enforcement dollars to very good work and make a lot of 
Americans proud in terms of how we equitably----
    Mr. MURPHY. Well, I would say this, and we can get off 
this, but, you know, you have heard from both sides of the dais 
here, both sides talk about absolute unbelievable taxpayer 
frustration. And I think that needs to be the number-one 
priority that you have. We are in the business of customer 
service, and everybody in government should be. And that is 
customer service. All right. Thank you.
    Let me just ask this. You have been saying a couple of 
times, you know, about the $400,000 limit, that you wouldn't 
get working on those individuals to tax them--to audit for a 
while. You know, when I had patients come in and I would say, 
``How long has it been hurting,'' or, ``How long you been doing 
this,'' they say a while, and I say, ``Is that two weeks, three 
months, five years? How long is a while?'' Can you give me, 
like, two years, two-and-a-half years? Can you give me a 
number?
    Mr. WERFEL. Yes, I would say that if I am fortunate enough 
to still be in this seat in 2026, we should sit down and talk 
through where we go from there. Because I think that----
    Mr. MURPHY. So you are going to say four years you are--
those people are going to----
    Mr. WERFEL. Three to four--I would say in the three to 
four-year timeframe, we will--I will have enough information in 
the capacity building that----
    Mr. MURPHY. Okay.
    Mr. WERFEL [continuing]. We are doing for high-income 
filers that I will be able to turn to you and say, ``Okay, what 
is next?''
    Mr. MURPHY. All right. Do you have a percentage that you 
have a--close--that you say Americans are not honest on their 
taxes? Let's just be----
    Mr. WERFEL. Yes, I think----
    Mr. MURPHY. Let's see what it is.
    Mr. WERFEL. I--my understanding, it is roughly 85 percent 
of taxpayers come in----
    Mr. MURPHY. So you would say 85 percent of the people on 
this dais--no, I am just kidding. [Laughter.]
    All right. Okay. So that is an alarming number in some 
ways. It is not alarming in other ways. It is sad, it is 
whatever.
    So let me just ask this, because we always hear about this 
fair share thing. What percentage of tax receipts come from 
those who make the top one percent?
    Mr. WERFEL. That I would have to get back to you on.
    Mr. MURPHY. It is, like, 45 percent. I mean, the top 1 
percent and the top--and the bottom 50 percent, we all know, 
hardly pay any taxes at all. I just want to put this in 
relative terms.
    Mr. WERFEL. Yes.
    Mr. MURPHY. I am not saying we should not go after people--
the multi-billionaires who, you know, make all this money and 
pay relatively small amounts. But when they say the fair share, 
come on, let's get real. I mean, it is just--you know, when you 
are paying almost half the tax burden, the top one percent, 
let's just be real. And I just want to be fair about those 
things.
    Let me get back to just one other thing. Let's see how much 
time I have.
    You talked about--that you need about 2,900 employees to 
audit the 390,000 wealthiest, and that is about a roughly----
    Mr. WERFEL. We have 2,600 today.
    Mr. MURPHY [continuing]. 2,600, I am sorry.
    Mr. WERFEL. Yes.
    Mr. MURPHY. And that is roughly about a 1-in-150 ratio.
    Mr. WERFEL. Correct.
    Mr. MURPHY. Let's flip that. Let's look at the--say, the 
people that make under $100,000. What is the ratio there?
    Mr. WERFEL. Oh, it is much, much, much higher in terms of--
because there is so many more Americans that make under 
$150,000. And so--but it is a different challenge.
    In other words, you have a return that comes in that is 
just a couple of pages versus a return that comes in 100,000 
pages. It is just kind of optimizing the staffing that we have 
for the challenge of the materials that are coming in. And most 
middle and low-income files process very quickly, very easily, 
especially if they file electronically. You know, we run our 
math checks and we run, you know, an automated review, and many 
of those filings just go through. And, hopefully, if they file 
electronically and direct deposit, they are getting their 
refund within 21 days at this point.
    Mr. MURPHY. All right.
    Mr. WERFEL. The reason we need a lot of people is because 
for billionaires and large, multi-national corporations, it is 
just a complicated return.
    Mr. MURPHY. I understand, I understand. I absolutely 
understand. But you also need--I am not going to say need to 
understand--surely understand that, especially in the last two 
years, the American people are tired of government over-reach. 
Now you can't have a puddle on a farm with [sic] it being 
regulated by the Biden Administration. You can't have a boat 
that speed is not regulated. You can't do so many things. They 
feel the Federal Government needs to be in every single pocket 
of Americans, and every single thing that you do.
    So when you hear the IRS knocking on the door, when you see 
the differential on that slide or that graph that shows so many 
more people knocking on your door, it scares the hell out of 
the American taxpayer. So please give us some reassurance that 
we are going to come back to the fact that we want to be 
customer service first, rather than enforcement--law 
enforcement agency.
    Mr. WERFEL. We have a lot of work to do on customer 
service. In the Strategic Operating Plan that we issued on 
April 6th, there is roughly 200 projects. I referred to it 
earlier as my public to-do list. A lot of that is about 
changing the way we serve Americans by opening up our taxpayer 
assistance centers, answering phones better, putting on--tools 
on their smartphones and on our website. There is a lot of 
focus on that.
    And yes, there is $3 billion to do that, and we have--the 
challenge that we have, Congressman----
    Mr. MURPHY. But you have $46 billion for enforcement.
    Mr. WERFEL. Yes.
    Mr. MURPHY. Okay. So--I am sorry, I have probably gone on 
my time here, but, boy, that just--it doesn't pass the smell 
test. Thank you. You got a hard job, but I would say if 
businesses ran their business like the Federal Government runs 
its business, we would be bankrupt. Oh, by the way, we are 
bankrupt.
    So thank you.
    Mr. ESTES. The gentleman's time has expired. Thank you.
    Now I will yield five minutes to the gentleman from New 
York, Mr. Higgins.
    Mr. HIGGINS. Thank you, Mr. Chairman.
    The Brookings Institute came out with a report that said, 
over the past 10 years, $7 trillion of taxes that were owed 
were not paid. Is that an accurate figure?
    Mr. WERFEL. If I am doing the math right, our tax gap 
assessment is roughly $500 billion a year. So if you multiply 
it by--you know, you get into the trillions once you start 
multiplying that over a 5, 10, 15-year timeframe.
    Mr. HIGGINS. So if nothing changes over the next 10 years, 
how much money will be lost in revenue of taxes that are owed, 
but not paid?
    Mr. WERFEL. If nothing changes, about $5 trillion.
    Mr. HIGGINS. So that is $12 trillion over the past 20 
years.
    You know, there is a lot of talk here about concerns about 
a debt, the national debt, which is $31.6 trillion. Well, there 
is 12 of it, right?
    And, you know, you talk about one of your main objectives 
is to enforce the tax code. But obviously, it isn't being 
enforced fairly to include everybody. You know, a teacher will 
pay about 22 percent in Federal taxes; 50 American corporations 
that are recording record profits pay nothing, and many of them 
get a return.
    A 1960s Harvard economist, Peter Drucker, said the whole 
point of creating an economy is to create a middle class 
because they fight our wars, they teach our kids, they build 
our roads and bridges, and they pay our taxes.
    Your predecessor, one of your predecessors--it may have 
been once removed--came to a Senate hearing 2 years ago and put 
the number of taxes that are owed but not paid at $1 trillion. 
That is a lot of money. And you can't at the same time talk 
about debt and deficit, and with any credibility not be bullish 
about collecting this money that is fairly taxed against 
corporations for income taxes that are reporting billions of 
dollars of profits.
    So I just want to make very clear this is not about 
enforcement. This is not about meeting taxpayers where they 
are, because I will tell you where they are not. They are not 
in corporate America. And if you look at the list of these 
corporations--Amazon, you know, we--first of all, in 2017 we 
lowered the corporate tax rate from 35 percent to 21 percent, 
right? Well, Amazon the next year paid 6 percent in corporate 
income taxes; Exxonmobil paid a little less than 3 percent; 
AT&T got a rebate of $1.2 billion; Ford paid 1 percent; Charter 
Communications got a rebate of $1.2 million; an American 
teacher pays 22 percent, 22 percent in Federal income taxes.
    So the problem here, it is not really customer service. It 
is about the fair--not aggressive, but the fair--enforcement of 
the U.S. tax code, which this committee is primarily 
responsible for.
    So I know I threw a lot out there, but, you know, the 
Institution on Taxation and Economic Policy says that at least 
55 of the largest corporations in America--in America, the 
largest 55 corporations in America--paid 0 Federal income 
taxes. Teachers pay 22 percent. Sir, this is not a customer 
service problem. This is a fairness problem, and the middle 
class is getting screwed again, and there is no denying it.
    If it is not $7 trillion in 10 years, there are many other 
reports that you could point to, as you know, that put the 
number at $10 trillion a year. Some put it at $6 trillion a 
year. But these are trillions of dollars that contribute to the 
Federal debt that this body has been preoccupied, obsessed with 
over the past 48 hours.
    So I yield back.
    Chairman SMITH [presiding]. The gentleman from Tennessee is 
recognized.
    Mr. KUSTOFF. Thank you, Mr. Chairman.
    Thank you, Commissioner, for appearing today. I ask this, 
and I realize you are less than two months into the job, but I 
want to follow up, if I can, about the ProPublica leaks. Based 
on what you know now, do you think that the controls and the 
protocol are in place today to prevent another type of 
ProPublica leak?
    Mr. WERFEL. That is a very good question. I said earlier a 
couple of things. I said data security is a top priority, and 
it is. I said I am in the process of assessing where our 
strengths and gaps are, and I am. There are gaps, and I want 
those gaps to be closed. And I have asked the team to put 
together an action plan. And I am really leaning on TIGTA, 
because the taxpayer inspector general basically gives us the 
roadmap. They have recommendations. As long as those 
recommendations are open, I think we have a higher risk than we 
should have.
    And so the way I would answer that question is we have 
risks to mitigate, and I am prioritizing mitigating them.
    Mr. KUSTOFF. You can appreciate why those types of leaks 
are concerning not only to wealthy Americans, but to all 
Americans.
    Mr. WERFEL. Yes.
    Mr. KUSTOFF. Fair enough. We sent a letter--Congressman 
Ferguson, who questioned you earlier, and myself--to your 
predecessor and to Secretary Yellen on October the 6th 
regarding the Employee Retention Tax Credit.
    Mr. WERFEL. Yes.
    Mr. KUSTOFF. So I appreciate the letter was not sent to 
you, it was sent to your predecessor. It regards the number of 
backlogged Form 941 claims. I think at that time, when we sent 
the letter, there were a little over 200,000 unprocessed forms. 
The number today is substantially higher. Again, I understand--
I sent the letter--we sent the letter to your predecessor, and 
not to you.
    My question is, first of all, can--based on what you know, 
can you address the backlogs and the status of the backlogs?
    Mr. WERFEL. Yes, I can. Look, without--it is absolutely 
important that speed and processing is done. I think taxpayers 
expect and demand that, when they file for a credit, it is 
going to take a reasonable time, not an unreasonable time, for 
the IRS to process it.
    The Employee Retention Credit has two particular 
challenges--probably more, but I will highlight two of them.
    One is that it turns out to be an extremely difficult 
credit to process because it impacts multiple tax years. So the 
individual at the IRS that has to process it has to make sure 
they get the information right in each of the right tax years. 
That takes time. It takes expertise. And in order for the 
credit to register, we have to get it right.
    The second is--it is a problem with the number of 
fraudulent credits we are getting in. So we are having to set 
aside credits that just don't seem to add up, and it is 
clogging the system a bit.
    These are not excuses. These are just realities. I have 
still made it an absolute commitment to drive that backlog 
down. Earlier in the hearing I mentioned during the filing 
season we were processing about 20,000 a week. Now that filing 
season is over and we can reset staff a bit, I have asked the 
team to up that to double that rate.
    And I am happy to come back and report to you periodically 
on whether that direction that I have given and whether the 
impact is bearing fruit. I expect it will.
    Mr. KUSTOFF. I appreciate that. If I could ask you--again, 
it was sent to your predecessor--the letter is dated October 6, 
2022. If you could respond to the letter----
    Mr. WERFEL. Oh, yes.
    Mr. KUSTOFF [continuing]. Laid out in the letter.
    Mr. WERFEL. I will.
    Mr. KUSTOFF. Lastly, a lot has been asked about the new 
employees and the enforcement agents--enforcement staff, 
however you want to characterize it. Let me just ask you, 
whether they are armed, or unarmed, or whatever, who are you 
looking for? What are their--on the enforcement staff, the 
enforcement agents, what are their qualifications? What is 
their background? Who are they?
    Mr. WERFEL. Good question. So to--under the Inflation 
Reduction Act our focus is to rebuild our capacity to unpack 
complex filings. To do that we need people that understand how 
these filings are put together. So we need expert accountants, 
we need expert economists, we need data scientists that can 
help us analyze trends and economic behavior so that we can 
understand where there might be risks of balances owed that 
haven't been paid.
    So we are looking for a pretty sophisticated group of 
employees that can help us unpack sophisticated returns. And 
that is the focal point. And look, there are labor market 
realities that are challenging. We have to improve our overall 
human capital operations. People have said this is a hard job, 
and it is, but I have confidence that we are going to get this 
done.
    Mr. KUSTOFF. There is a shortage of accountants. So I 
think----
    Mr. WERFEL. We have a shortage of a lot. But that doesn't 
mean we are not putting a full court press in play to make sure 
that we get the right staff at the IRS.
    Mr. KUSTOFF. Recent reports said that more than 300,000 
accountants and auditors quit their jobs in the last 2 years.
    Mr. WERFEL. Yes.
    Mr. KUSTOFF. Thank you, I yield back my time.
    Thank you, Commissioner.
    Chairman SMITH. Mr. Arrington is recognized.
    Mr. ARRINGTON. Commissioner, good afternoon. Thank you for 
your time.
    So I serve with some of my colleagues here on the Budget 
Committee, and I am trying to do the math here on the numbers, 
and then connect the sources to uses--$12 billion, I think, 
before IRA annual budget. Then you have got the $80 billion 
from IRA.
    Mr. WERFEL. Yes.
    Mr. ARRINGTON. That is eight billion a year. So you have a 
75, 80 percent increase.
    And then, in the President's budget this year, there is 
another 15 percent increase. So----
    Mr. WERFEL. Correct.
    Mr. ARRINGTON. And then the--so the first eight billion a 
year coming out of the IRA was for compliance and enforcement. 
The analysis on 2010 audit rates and the historic data from the 
IRS suggests that the audits would result--or the additional 
audits with the additional monies--would result with a million 
more audits per year, and that of those million additional 
audits, 600,000 would be people, individuals, families making 
$75,000 or less a year. So that would be certainly over half, 
maybe as high as two-thirds of your audits, a million more on 
people making $75,000 or less. That is using IRS historical 
data. Is that consistent with your analysis----
    Mr. WERFEL. That is not----
    Mr. ARRINGTON [continuing]. Of your own information?
    Mr. WERFEL [continuing]. Consistent with our plans. I want 
to unpack your math a little bit, or the math that has been 
presented. And I appreciate the question, because I think it is 
important to clarify for middle, low-income, and small 
business, what the plan is.
    But the plan, as I have mentioned, is to focus our 
enforcement efforts on complex returns of high-wealth filers.
    And with respect to those making less than $400,000, you 
can go to the 2018 audit rate, and that is all we are going to 
audit to, at least for the next couple of--several years.
    Mr. ARRINGTON. And Commissioner, you can imagine how 
concerned people are that, with your past practice, if that is 
any prediction of future behavior, they see a deluge of new 
audits on working people, on small businesses, and they are 
having to hear the line, ``We are from the government, we are 
here to help, and you can trust us.''
    I mean--and listen, I am not questioning your commitment or 
integrity, but I think too often we take the American people 
for fools, and they are just going on their past experience and 
the data. So I, you know, certainly hope that the commitment is 
genuine, and that the fulfillment of that commitment is 
consistent with what you are saying, because I find that 
unacceptable.
    And if you are going to focus on the more complicated and 
the high-net-worth individuals, I don't see any justification 
for the $8 billion a year, and then the President's budget 
asking for a 15 more percent increase. Now, I am not asking for 
you to respond to that.
    Mr. WERFEL. Okay.
    Mr. ARRINGTON. If I may, let me jump to another question. 
It seems a little unrelated to that one, but----
    Mr. WERFEL. Please.
    Mr. ARRINGTON [continuing]. Another concern. I was at the 
Rules Committee talking matters of budget and debt ceiling, but 
the issue of the IRS, your agency, came up, and firearms, and 
the idea that in some of your job listings--I don't know if it 
is all of them, but it says that people who are looking to be 
employed are--should be willing to use deadly force.
    There was an article in The New York Post that was cited in 
this hearing that stated that the IRS had almost 5,000 guns, 
3,282 handguns, 600-plus shotguns, 539 rifles, 15 fully 
automatic weapons. Anyway, a big cache of weapons. Is that true 
or not true? I mean, with no sort of commentary on--or a value 
judgment, is it true?
    Mr. WERFEL. I am not going to make a value judgment, I am 
just going to make sure that I point out that our criminal 
investigation division is where we work to reduce and engage in 
tax fraud and acute areas of tax evasion where, in order to 
enforce, we are putting a Federal employee's life in danger, 
and therefore there is a need to arm.
    This is less than three percent of the IRS. It is a small 
part of the overall operation.
    Mr. ARRINGTON. But just--can you confirm that some number--
--
    Mr. WERFEL. I can get back to you. I don't know the 
specifics on the data that you provided, but I certainly can 
get back. But I think context is important.
    Mr. ARRINGTON. Well, I know my time has expired, and I 
regret that I didn't get to talk about the customer service 
challenges that you face. We can talk about that offline. But--
--
    Mr. WERFEL. I would like that.
    Mr. ARRINGTON [continuing]. I have got real concerns, like 
my colleagues do, on that front.
    Mr. WERFEL. Okay.
    Mr. ARRINGTON. Thank you, and I yield back.
    Chairman SMITH. Thank you.
    Mr. Commissioner, could you make sure that at some point 
you get us the total number of employees that are armed at the 
IRS? You said less than three percent, but----
    Mr. WERFEL. Less than three percent. I can do that.
    Chairman SMITH. I would love to get the total number----
    Mr. WERFEL. Mr. Chairman, I will do that.
    Chairman SMITH [continuing]. Of employees. Thank you.
    Ms. DelBene, you are recognized.
    Ms. DelBENE. Thank you, Mr. Chairman.
    And thank you, Commissioner, for taking the time to be with 
us today. I appreciate it.
    Along with my colleagues, Mr. Pascrell and Ms. Chu, I have 
led an appropriations letter requesting increased funding for 
the IRS. After years of neglect through decreased 
appropriations, the IRS has reduced workforce and staff to 
levels not seen since the 1970s. So the reduction in workforce 
has had a direct impact on taxpayer services, as folks have 
talked about. And with the funding provided by the Inflation 
Reduction Act, the IRS can be brought into the 21st century and 
provide taxpayers with the customer service and transparency 
they deserve.
    I am disheartened that funding for the very agency that is 
responsible for generating 96 percent of the funds that support 
the Federal Government's operations, including infrastructure 
and education, has become such a partisan issue. So, 
Commissioner, I wondered if you could speak to why annual 
discretionary funding for the IRS is still necessary, and how 
the Inflation Reduction Act funding will supplement it?
    Mr. WERFEL. I really appreciate the question. I have a--we 
have been saying I have a hard job to do, and one of the 
hardest jobs is to explain the funding that we need and why it 
is so important.
    And, you know, the--our base budget, which is currently at 
12--roughly $12 billion, that pays for ongoing operations, you 
know, answering the phones, processing the returns that are 
coming in. And as you mentioned, what happened over the last 10 
or 15 years is our population grew, filing went up, the economy 
grew, filings got more complicated, and our staff went down to 
about 1970s level. And so we really couldn't keep pace. So we 
have to build back to where we can meet that demand.
    I gave the analogy earlier of people waiting on the train 
platform. And if you don't fund our base budget, they either--
they wait longer, and the platform gets more and more crowded. 
And what we are trying to put in our budget is here is what it 
takes to make sure that people aren't waiting too long on the 
platform, and that it doesn't get too crowded. That is what it 
takes just to run the train schedules.
    But we need to modernize, because right now the system that 
we have is outdated. And when taxpayers go to their favorite 
airline or their favorite local bank, they engage and see a 
suite of tools on the call center, on the website, on their 
smartphones that they don't get from the IRS. And why? Because 
in the funding cuts that we have had over the past 10 or 15 
years, we haven't had the ability to modernize. We have just 
kind of kept everything together. And we know that during COVID 
we were no longer to keep it together as well as we could, and 
the bottom dropped out, and we went to historic low levels of 
service and historic long wait times.
    One concern I want to make sure is clear, and especially 
since it has been raised how important our taxpayer service 
investments are, because our base budget has not been 
increased, in order to keep those trains going this year we had 
to use Inflation Act reduction--Inflation Reduction Act service 
money to pay just for base operations. So essentially, we have 
raided modernization dollars so that we could answer the 
phones. And by doing that, we now have less resources to 
modernize the phone system.
    It is the difference of can the IRS answer the phone? Yes. 
Can the IRS modernize the phone system to improve the call-back 
option, to produce--increase automated options? No, not if we 
raid to pay for base. And that is why it is important that 
Congress fund both our base and our modernization, because it 
is the American people that end up suffering. They are the ones 
waiting on that train platform for the next train to come that 
is taking too long, and it is getting really crowded.
    And what we are doing in our budget is explaining what we 
need to do to keep those trains running, and what we need to do 
to give them an experience commensurate with what they get 
around the block when they go to their local bank.
    Ms. DelBENE. And it will just get harder, the longer we 
wait to----
    Mr. WERFEL. Yes, because it is getting more complicated. 
When I say 390,000 wealthy filers, that number is from 2019. It 
is probably a lot higher than that now, we are just catching up 
with the data.
    Ms. DelBENE. I also wonder if you could speak to how the 
enforcement funding in the Inflation Reduction Act would 
improve taxpayer compliance and would close the tax gap, and 
what the revenue impacts of that might be.
    Mr. WERFEL. Yes. I mean, I mentioned earlier, when you 
think about the train platform, you think about service, but 
there is also an enforcement component there, as well. And our 
audit rates of our most wealthy filers--and I know there has 
been a lot of discussion about the $400,000 level--I thought it 
might be helpful to explain to the American people, let's lift 
that up. Let's lift it up to individuals that make $10 million 
or more, partnerships, and S Corps that have $10 million or 
more assets, corporations that have $250 million or more 
assets. So this is the wealthiest of the U.S. filers, right? 
That is where we have 2,600 staff today with the right skill 
set and the right responsibilities to assess those 390,000 
filers.
    And I know it sounds weird for the IRS to say it, but we 
are overmatched in that moment because we don't have enough 
people with the right skill sets to assess these filers. And if 
you are middle-income, low-income, own a mom-and-pop, we want 
to build your trust, we want to improve your service, but I 
don't know that we can effectively build your trust if we have 
the capacity to audit you, but don't have the capacity to audit 
the most wealthy filers because those filings are most complex.
    I would also share and reiterate my message to those mom-
and-pops there is no new wave of new audits coming. We are 
focused on building that capacity for the most wealthy filers. 
That is the directive from Secretary Yellen, and I am going to 
meet it.
    Ms. DelBENE. Thank you. Thank you, Mr. Commissioner.
    I yield back, Mr. Chairman.
    Chairman SMITH. The gentleman from Pennsylvania is 
recognized.
    Mr. FITZPATRICK. Thank you, Mr. Chairman.
    Commissioner Werfel, thank you for being here. You have got 
a tough job, so we appreciate your service. The IRS gets a lot 
of scrutiny, but it should, because it is the one agency that 
touches literally every single American.
    It is really a question of--you know, and we all understand 
it is important to collect revenue. The question is how to best 
do it in the fairest, most efficient way and the most just way 
possible. And it really comes down to an allocation of 
resources. You are hearing a lot about this 87,000 IRS 
personnel. It is not agents, as you pointed out.
    Mr. WERFEL. Yes.
    Mr. FITZPATRICK. It is personnel. But with the addition of 
87,000 additional personnel, the IRS will now be larger than 
the entire State Department, entire Border Patrol, entire 
Pentagon, and the entire FBI, not individually, but combined.
    First of all, my first question is, do you accept that 
metric as a fact?
    Mr. WERFEL. I am going to be providing an update with the 
staffing numbers over the 10-year period. But I am willing to 
accept the premise that the IRS will grow and be larger than 
those agencies.
    My response to that is that that is the size of the 
organization needed to address the complexity of our tax system 
today.
    Mr. FITZPATRICK. So you do accept it. And it is just a 
question of math, there is----
    Mr. WERFEL. Well, I don't--we will have the--the next time 
I am sitting here, we will have all the numbers that we can 
look at.
    Mr. FITZPATRICK. You don't dispute it.
    Mr. WERFEL. But I don't dispute the fact that, under the 
Inflation Reduction Act, the IRS will grow.
    Mr. FITZPATRICK. Do you believe that simplification of the 
tax code would reduce the number of needed IRS personnel?
    Mr. WERFEL. Yes, I agree with that.
    Mr. FITZPATRICK. Do you think the tax code should be 
simpler?
    Mr. WERFEL. As I said earlier, it is not my jurisdiction to 
weigh in on that. That is the domain of the Treasury Secretary 
on behalf of the Administration. But I will say the simpler the 
code, the more effective the IRS can be in administering.
    Mr. FITZPATRICK. And how is the decision made between CID 
agents, Criminal Investigation Division, which is the law 
enforcement arm of the IRS, and non-law enforcement personnel, 
how is that allocation decision made, and how would you 
describe to the American people and to this committee, who 
don't understand the difference, how would you describe that 
difference?
    Mr. WERFEL. I mean, in virtually every interaction you are 
going to have with the IRS, it is not going to involve the 
Criminal Investigation Division. If you are calling to get 
help, if you are--get a letter that is saying you missed 
filing, if you owe an amount, you know, in most--in virtually 
all cases, you are going to be dealing with an IRS employee 
that is not part of our Criminal Investigation Division.
    Mr. FITZPATRICK. So----
    Mr. WERFEL. What happens, though, is that certain tax 
issues become acute. They become more challenging. You know, we 
have reached out, there is a nefarious behavior, there is an 
unscrupulous actor. This unscrupulous actor is known to be 
dangerous. We work with local law enforcement.
    Mr. FITZPATRICK. Right.
    Mr. WERFEL. We work with the Justice Department. This is 
all--and I would be happy to unpack this with you in a separate 
briefing.
    Mr. FITZPATRICK. You have answered, you have answered 
sufficiently.
    But can you understand the concern? Because people--you 
know, there have been abuses in the past, as there have been 
with other agencies, and I hope you are working to correct 
that. But just the allocation of resources.
    The State Department is required for diplomacy efforts 
across the globe.
    Border Patrol is required--you know, responsible for 
protecting the entire southern border, 1,300 miles, and the 
entire northern border with Canada from gun runners, and drug 
runners, drug dealers, terrorists, CI concerns.
    The Pentagon is the nerve center of our entire United 
States military.
    And the FBI is responsible for counterintelligence, 
counterterrorism, criminal, and cybersecurity. Those are very 
broad, and it is encapsulating the size of all four of those 
agencies. So what would your response be?
    I mean, it is--clearly, you want the--as many people as you 
can to execute your mission.
    Mr. WERFEL. No, I don't want that.
    Mr. FITZPATRICK. But for Americans who are concerned about 
the----
    Mr. WERFEL. I want the right amount of people to execute 
our mission, I want to right-size the IRS.
    I mean, I have heard the phrase super-size the IRS. That is 
not the intent. We have to meet the demand. If there is a 
certain amount of calls coming in, we have to have the right 
amount of people on the phones. If there are people coming into 
our walk-in centers, they can't be closed. It is not fair to 
the taxpayers.
    The taxpayers don't have a choice. They have to pay their 
taxes, they have to work with the IRS. If we are ill-equipped 
to work with them, then we are not serving the American people 
effectively.
    Mr. FITZPATRICK. But do you believe that that demand is the 
case because of how complex the tax code is?
    Mr. WERFEL. I think that is a big driver of it.
    Mr. FITZPATRICK. Okay.
    Mr. WERFEL. It also is the number of filers that we have. 
We are a growing economy, a growing population, something we 
should be proud of. But with that comes a larger tax system.
    Mr. FITZPATRICK. I am glad we can agree on one thing: the 
tax code needs to be simplified, because it is tens of 
thousands of pages of a monstrosity that, you know, you need a 
sophisticated tax attorney to navigate. So with that, sir, I 
appreciate your service.
    Mr. WERFEL. Thank you.
    Mr. FITZPATRICK. Mr. Chairman, I yield back.
    Chairman SMITH. Mr. Steube is recognized.
    Mr. STEUBE. Thank you, Mr. Chairman.
    On March 9th, 2023 the IRS sent agents to the home of 
Twitter Files journalist Matt Taibbi during his testimony in 
front of the House Select Committee on Weaponization of the 
Federal Government. IRS agents don't generally just show up at 
taxpayer homes. Making the situation even more bizarre, the 
agents left a note telling Mr. Taibbi to call them. If this was 
an issue that could be handled with a phone call, there would 
seem to be no reason to send the agents in person. The 
presumption has to be that this was an attempt to intimidate a 
witness, unless it can be proven otherwise. I mean, this is the 
type of tactics you see in Soviet or communist China.
    Are you willing to state that there is an appearance of 
impropriety when an executive branch agent shows up at the home 
of a witness testifying before Congress literally at the time 
while he is testifying before a committee?
    Mr. WERFEL. Congressman, section 6103 prohibits me from 
responding to specific questions to an incident involving a 
taxpayer.
    Mr. STEUBE. Okay. Well, do you--did you approve of the 
visit to Mr. Taibbi's home?
    Mr. WERFEL. Again, same answer.
    Mr. STEUBE. Who would approve that? What would be the 
approval process?
    Mr. WERFEL. Again, I would be breaking the law if I asked 
questions specific to a specific incident of a taxpayer.
    Mr. STEUBE. Okay. Well, let me ask it this way. Is there 
any incidences with any taxpayer that you would have to approve 
the involvement of, either an agent going to their house or 
approval of an investigation?
    Mr. WERFEL. As a general rule, the IRS commissioner is not 
involved.
    Mr. STEUBE. So who would be, as a general rule?
    Mr. WERFEL. As a general rule, we have IRS personnel that 
work to ensure that individuals are complying with the tax 
code. So, for example, if they don't file, we will send a 
letter. If they owe a debt, we will reach out with a letter.
    There are--I think it is important to understand, at a very 
broad sense, without commenting on any specific taxpayer, the 
IRS reaches out in multiple ways to educate taxpayers while 
ensuring it fairly enforces our taxes.
    Mr. STEUBE. Well, obviously, there has got to be some type 
of approval process for investigations, right?
    So, like, whether it is Mr. Taibbi or whoever, what is that 
process within the IRS?
    And are there instances, depending on the profile of the 
taxpayer, that you would be involved? And if you would not be 
involved, who is the approval process for opening an 
investigation, going to an individual's home? How does that 
work?
    Mr. WERFEL. Okay. Again, making sure that I am careful----
    Mr. STEUBE. I am----
    Mr. WERFEL [continuing]. Not to comment----
    Mr. STEUBE. I am speaking completely generally here.
    Mr. WERFEL. Yes. Well, I think I would like the opportunity 
to get back to you on the specifics----
    Mr. STEUBE. So you can't, as you sit here right now, tell 
me how the approval process works for opening an investigation 
on a taxpayer, going to their home, an agent showing up at 
their home, any of that. You can't give me any specifics on 
that.
    Mr. WERFEL. I will offer, as a general matter, one 
important clarifying point to your questions, which is any home 
visit that occurs is typically after the taxpayer has been 
contacted through a letter or some less invasive method, and we 
were not able to contact the taxpayer in that way. As a very 
general matter, I can share that with you.
    But in terms of your question of the complete process of an 
investigation being opened at the IRS to closure, I am not 
prepared to provide you an answer with full fidelity, because I 
am still learning the process. And I will get back to you.
    Mr. STEUBE. Okay. So you said, generally, that if somebody 
is showing up to somebody's house, it has obviously been 
elevated. So would that be a criminal investigation?
    Mr. WERFEL. I did not say that. I did not say it was 
elevated. I said that we would----
    Mr. STEUBE. You said you would have opened an 
investigation, right?
    Mr. WERFEL. No, I did not say that. I said that we would 
typically try to reach a taxpayer through a letter before we 
would do any kind of additional outreach. And if we fail to 
hear back from that taxpayer, then going to someone's home is a 
possibility.
    Mr. STEUBE. So would that be a criminal investigator within 
the department that would go there, or a non-criminal 
investigator?
    Mr. WERFEL. As a general matter?
    Mr. STEUBE. Yes.
    Mr. WERFEL. It would often be a non-criminal investigator.
    Mr. STEUBE. The oversight--the House Oversight Committee 
has discovered numerous LLCs affiliated with Hunter Biden, 
where it appears he was laundering money through the LLCs and 
paying for basic living expenses out of the LLCs.
    Now, I know you can't speak to specific taxpayers, so I am 
not going to ask you that question. But if the House Oversight 
Committee has evidence of a crime that was committed, or what 
appears to be tax fraud or tax evasion, who would they get 
those documents to within your department? Is that something 
that we should get directly to you?
    Mr. WERFEL. No, again, the IRS commissioner would not be 
involved.
    When there is an--and again, not specific to any specific 
taxpayer, but when there is an allegation of any kind, 
particularly from a whistleblower or anything like that----
    Mr. STEUBE. Or evidence deduced from an oversight committee 
in Congress?
    Mr. WERFEL. Exactly, exactly----
    Mr. STEUBE. So who----
    Mr. WERFEL. My role is----
    Mr. STEUBE. Who would it be within----
    Mr. WERFEL. The inspector general.
    Mr. STEUBE [continuing]. Your department that would handle 
that investigation?
    Mr. WERFEL. The inspector general.
    Mr. STEUBE. Within IRS?
    Mr. WERFEL. Yes.
    Mr. STEUBE. What is----
    Mr. WERFEL. Well, he doesn't--it is the tax inspector 
general for--it is the inspector general for tax 
administration, Russell George. And any time I learn of an 
allegation, a credible allegation that something isn't right, I 
immediately refer it to the inspector general to do the 
investigation. And, as I said, then I stand back, let the 
inspector general do their work. And my one ask of the 
inspector general is, ``Let me know how I can help,'' and I 
wait to hear back from him.
    Mr. STEUBE. So just to--I am just trying to wrap this 
around so I fully understand.
    Mr. WERFEL. Yes.
    Mr. STEUBE. So you, as the commissioner, are not involved 
in making any of those decisions. So it--regardless of who it 
is--again, I am not asking a taxpayer--at no point in time do 
you get involved in making investigative decisions----
    Mr. WERFEL. Correct.
    Mr. STEUBE [continuing]. Enforcement decisions.
    Mr. WERFEL. Correct.
    Mr. STEUBE. And that--and your testimony here today is that 
is the IG, and only the IG.
    Mr. WERFEL. For--when there is an allegation of wrongdoing 
amongst an IRS employee, or an allegation that requires 
additional investigation. But, you know, I think we might be 
talking past each other.
    If there is----
    Mr. STEUBE. I am not talking about internally.
    Mr. WERFEL. Yes.
    Mr. STEUBE. I am talking about a taxpayer.
    Chairman SMITH. We need to wrap it up.
    Mr. WERFEL. Okay. I think we should take this offline. But 
again, I will go back to the important point. The IRS 
commissioner does not generally engage in decisions about 
individual taxpayers. If there is an allegation that something 
is not right with respect to IRS operations, the inspector 
general investigates it. If it just involves a taxpayer, and 
they are being investigated for tax evasion, that decision is 
made not at the commissioner level, but at the bureau level 
within the IRS.
    Mr. STEUBE. I yield back. My time has expired.
    Chairman SMITH. Ms. Chu is recognized.
    Ms. CHU. Commissioner Werfel, I want to congratulate you 
and every IRS employee on what was, by all accounts, a 
tremendously successful filing season. The IRS had an 87 
percent level of service, which is 5 times higher than last 
year; hired 5,000 new customer service representatives; 
assisted 100,000 more taxpayers in person; and cut the phone 
call wait time from 28 minutes to just 3 minutes.
    The reason for this incredible turnaround is clear. 
Democrats, led by this committee, finally gave the IRS the 
resources it needed to operate properly. The Inflation 
Reduction Act reversed over a decade of intentional 
disinvestment in the agency, and I was proud to play a part in 
its passage.
    Contrary to the misinformation we have heard from the other 
side of the aisle, the IRA is improving taxpayer service and 
improving tax compliance by the wealthy. It is not targeting 
low-income taxpayers. And in fact, actually, I have been long 
concerned about the unfair burden of enforcement that low-
income taxpayers shouldered in recent years. It was back in 
2022 that I asked numerous times and in hearings with our IRS 
commissioner about the data that showed that low-income filers 
earning less than $25,000 had been audited as much as 5 times 
higher than the other filers, and these were the EITC filers.
    And so, Commissioner, could you describe how the IRA 
funding has impacted IRS's ability to ensure that both the 
wealthy taxpayers are obeying the law and that low-income 
filers are not unfairly targeted?
    Mr. WERFEL. Thank you for the question, Congresswoman. And 
the critical thing that the Inflation Reduction Act provides 
the IRS that we haven't had previously is the resources to 
build capacity to assess complicated returns of high-income 
filers.
    You know, I have talked earlier in the hearing about our 
coverage or our audit rate for organizations that make more--or 
have more than $100 million in assets. And it is historically 
low today. And that is because, as you described, there has 
been an era of divestment in IRS resources. The Inflation 
Reduction Act allows us to essentially stop that reduction and 
start to build a capacity that existed previously.
    And we have a lot of catching up to do because the world is 
very different right now in terms of the complexity of these 
organizations. Partnerships are more complex than they were 10 
years ago. Multi-national corporations are more complex. And I 
believe even the way that billionaires operate, their finances 
change. As an example, crypto currency didn't exist 10 or 15 
years ago.
    So we have an ever-complicating environment by which to 
enforce the code. And a lot of these complications don't impact 
middle and low-income. Most middle and low-income are single 
source income, paying their taxes essentially through their 
payroll. A lot of these changes really only impact the 
wealthiest Americans. And if the IRS is unable to develop a 
capacity to keep up with that, well, that means that we are not 
doing our job to fairly enforce the tax code so that you are 
just as likely to be assessed of meeting your commitment if you 
are low or middle-income as you are higher income. And that 
doesn't exist today.
    And I think what you are describing is there is an 
opportunity because of the Inflation Reduction Act to create 
more fairness in the system that will build trust. And 
ultimately, I do think that is my bottom line as commissioner, 
is to build trust with the American people that we are meeting 
our mission effectively.
    Ms. Chu. Thank you so much. Commissioner, as a member 
representing a district with a high percentage of people that 
speak other languages, I am very thankful of the efforts the 
IRS is making to meet the needs of taxpayers with limited 
English proficiency. I see that these efforts are mentioned as 
a goal in the Inflation Reduction Act, but what specifically 
are you going to be doing to help these taxpayers with that 
limited English proficiency?
    Mr. WERFEL. There is a section in our Strategic Operating 
Plan that points to efforts under the Inflation Reduction Act 
to improve the way we serve underserved populations, service 
improvements across diverse taxpayers segments, including those 
with limited English proficiency. That means digital tools, 
accessible, in taxpayers' preferred languages.
    Again, we have now the investment to do that. We have funds 
and resources now to expand community partnerships, to engage 
with taxpayers, to understand how to educate and meet people 
where they are. Again, this is the type of unlock that the 
Inflation Reduction Act provides. I said earlier it is the 
difference between just being able to answer the phone versus 
being able to provide a call-back option.
    Well, it is more than just a call-back option. It is the 
difference between just standing back and waiting for the 
taxpayer to come, and being only able to serve them in one 
language versus meeting the taxpayers where they are, 
understanding what their needs are to comply with the tax code, 
and meeting them where they are.
    Ms. CHU. Thank you.
    I yield back.
    Chairman SMITH. Ms. Tenney is recognized.
    Ms. TENNEY. Thank you, Mr. Chairman, and thank you, Ranking 
Member, and thank you to our witness.
    And I know you have a tough job. I used to do tax law. I 
know how difficult it can be, and how scary it is, actually, 
for consumers, small businesses----
    Mr. WERFEL. Yes.
    Ms. TENNEY [continuing]. And those, and I appreciate your 
comments today, understanding that, as well.
    I think a lot of what the concern is--and a lot of 
consumers and taxpayers see the IRS as all powerful, trying to 
be too intrusive, trying to be too controlling, interfering in 
our lives, now going online to not only be, you know, the tax 
collector, but the tax preparer. And, you know, the $600 
transactions that I might, you know, buy something from my 
sister, and I have got to report that for $600, you know, or 
whatever, I think people are concerned about that, and they are 
concerned about our system of justice. And that is why I think 
you see so many questions surrounding power in this case.
    And I have always looked at the IRS as very all powerful. 
It is--you know, the core principles of our system is you are 
innocent until proven guilty. It seems the IRS operates on the 
opposite principle. You are guilty until proven innocent. And I 
think that is a lot of the presumption that people feel 
sensitive about it.
    And I know that you had an extensive dialogue with my 
colleague, Mr. Steube, on the situation with Matt Taibbi and a 
lot of the eyebrows that raised, that all of a sudden, here he 
is, testifying on a sensitive issue dealing with the 
Administration, and suddenly he has an IRS agent at his door.
    And I understand you can't talk about that, but I know 
there were a couple of issues surrounding that, and one of 
those is that Chairman Jim Jordan actually asked you about 
providing some of the requested documents to Chairman Jordan. 
Did you, in fact, provide those documents that were requested 
by Jim Jordan?
    Mr. WERFEL. I need to check, and I am not sure I can answer 
that question in this setting.
    Ms. TENNEY. Well, let me ask you----
    Mr. WERFEL. I am happy to answer the----
    Ms. TENNEY. This is not a--this is a document request 
response and answer. So you should be able to answer that 
question.
    [Pause.]
    Mr. WERFEL. I apologize, Congresswoman. It is my 
understanding that, if I answered that question, it is a 
violation of 6103. If I am wrong about that, I will make a 
correction.
    Ms. TENNEY. Let me ask this. In the--is that document 
request going to be granted, whether it has been done or not?
    Mr. WERFEL. Well, let me lift up and say it is my absolute 
commitment to comply with all document requests from this 
committee, from Congressman Jordan's committee.
    Like, I welcome the oversight. I really do. I think it is 
important to be able to answer the tough questions. That is how 
we build trust. And Congressman Tenney, you said it. There is 
this power dynamic. And one of the ways we can reduce that 
power dynamic is making sure that we are complying with 
oversight entity requests. And that is my commitment.
    Ms. TENNEY. Right, and I appreciate you are sensitive to 
that issue, as well. But let me ask you this. And--was the IRS 
agent that showed up at Mr. Taibbi's door armed with a weapon?
    Mr. WERFEL. Again, another question that I can't answer 
because it involves an individual taxpayer.
    Ms. TENNEY. Well, let me ask you on the technical side of 
that, since--we will get into procedure. Let's take Mr. Taibbi 
out of that.
    Assuming--what is the standard for somebody that has an IRS 
agent show up at their door? What is the standard for being--
showing up armed?
    I mean, obviously, we know that we have a drug dealer that 
is not, for example, paying their taxes. But if we have a 
journalist, who probably isn't making a whole lot of money, I 
mean, it just concerns me that that standard is something that 
really we should look into as the IRS. I mean, it is not every 
day that an IRS agent shows up at your door with, you know, 
with weapons. So I think that should be more, you know, rare 
than the rule.
    So let me just go back, and I want to get to another 
substantive question.
    Mr. WERFEL. Please.
    Ms. TENNEY. I just wanted to talk to you, if we could, a 
little bit about applying the R&D credit or the R&E credit, as 
it is known, under 22--or 26 U.S. Code, Section 41. There have 
been a lot of inconsistencies expressed to me in my district 
through my tours through businesses. And really having a legacy 
of a lot of small business, a lot of innovation, a lot of 
technology, there has been a lot of confusion about, you know, 
inconsistency in enforcing that R&D rule and, you know, and a 
lack of clarity. And there was a question raised in last term 
about getting some guidance on that, and I just want to say it 
was not provided.
    And I just want to, for the record, Mr. Chairman, I want to 
actually put into the record two general guidance documents, 
one on architects, and whether they qualify, and one on 
engineers, and whether they qualify that we obtained on the 
IRS's view of that. So I want to, for the record, if the 
chairman would accept these----
    Chairman SMITH. So ordered.
    [The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. TENNEY. Thank you.
    Also, I just want also--so where are we going with this R&D 
credit?
    I mean, we are in a situation--we had the IRA pass, we have 
all these tax credits we want to see, we want to see 
innovation, we want to see our supply chains come back, we want 
to get our ourselves in a better situation against some of our 
competitors and adversaries like China on innovation. 
Wouldn't--shouldn't we really look into this R&D credit, and 
make it consistent and fair for taxpayers?
    Because that is really all many taxpayers ask. You know, 
there are many--many people are willing to pay their taxes. 
They just want consistency, fairness, neutrality in their IRS 
regulations so that we can have a fair playing field, 
especially for our innovators in our communities. Would you 
agree with that assessment?
    Mr. WERFEL. I agree. And you know, as you were talking 
earlier, Congresswoman, about the power dynamic I reached for--
you know, some people carry around the Constitution of the 
United States, and I certainly respect them doing that. I carry 
around the taxpayer bill of rights, and I make sure that I am 
reminded of what my responsibility is, as the IRS commissioner, 
to make sure that we are protecting those rights. And a lot of 
those rights deal with things like the right to know what you 
owe, and what you are entitled to.
    And so your point----
    Ms. TENNEY. Well, no, and if I could just--I know I don't 
have any time left, but I just--I worked a lot with a lot of 
tax preparers. And we have to come up with the laws to make it 
easier for you and for us to collect the taxes that are 
properly due, and also to give rights to our citizens.
    And I have a longtime tax preparer who was one of my 
mentors who said, ``Here is how we should look at our tax 
preparation: simplicity, transparency, stability, and 
neutrality.'' That is how we make tax law.
    Mr. WERFEL. Agreed.
    Ms. TENNEY. And I think that is something that the IRS and 
you, as the new commissioner, would be grateful if you could 
look up, and make that kind of policy----
    Mr. WERFEL. That is a good----
    Ms. TENNEY [continuing]. Based on those rules of the road, 
which are so simple and, really, what we are all looking for 
for fairness.
    Chairman SMITH. We got to wrap it up.
    Ms. TENNEY. I know. My time is up, and I thank you so much 
for your service. I appreciate it.
    Chairman SMITH. Okay. We are going to be very specific on 
the timeframes, because it has been two members that has went 
over a minute and 30 seconds just in the last 3 times. So I 
will cut you off much quicker.
    Mrs. FISCHBACH, please.
    Mrs. FISCHBACH. And Mr. Chair, thank you very much, and I 
take that very seriously. And I will say a lot of the questions 
that I had were--you know, we have been discussing already, 
but--so I have just a couple of follow-up things.
    Mr. WERFEL. Please.
    Mrs. FISCHBACH. Dr. Murphy had asked about how many people 
you think--I don't know if he used the word ``cheated,'' or--on 
their taxes. You came up with about 85 percent. You said 85 
percent, if you are recalling that.
    Mr. WERFEL. Yes, I would like to confirm that number. I am 
not sure I understand the question in terms of cheated. That is 
not a technical definition. I can certainly come back to this 
committee with a very precise detail in terms of where the 
different categories of non-compliance sit.
    Mrs. FISCHBACH. Okay, and I appreciate that, because that 
was going to be kind of my question. When you came up with that 
number--and maybe this will help with your follow-up--I am 
looking--I am wondering what percentage of that would you 
consider, or what part of that would you consider actual 
cheaters----
    Mr. WERFEL. Yes.
    Mrs. FISCHBACH [continuing]. I mean, who intentionally 
write something wrong or, you know, deceptive on their taxes, 
and how many of those people don't understand the complicated 
tax code that we have in place.
    And that leads--so for your follow-up, please, because I 
would like to----
    Mr. WERFEL. Yes, I am glad you----
    Mrs. FISCHBACH.--I would like to understand that.
    Mr. WERFEL. I am glad you provided me the opportunity to 
clarify.
    Mrs. FISCHBACH. And in particular, maybe even the breakdown 
with those poor middle-class folks that are, you know, doing 
their own taxes, and trying to figure out what is going on, and 
it leads into kind of a follow-up that I had.
    You know, you said you are doing more audits on the middle 
class because the wealthier have more complicated and--correct 
me if I am wrong, but this is what I have been hearing--the 
wealthier have more complicated returns, and it is more 
difficult, more time-consuming to do those. And I am wondering, 
if that is the case, why are we looking at quantity versus 
quality instead of, you know, moving resources and focusing on 
potentially some of those folks?
    But it seems like you are just saying, oh, well, there is 
more of them. So we do it instead of actually moving resources 
and focusing on some of those that potentially have more 
complicated returns.
    Mr. WERFEL. Well, I--well, first of all, I want to make a 
clarification. The audit rates are going down for all--for 
middle income, as well. And I mean, that is one of the issues 
that I raised earlier, that the--as an example, the latest rate 
we have, 2018, is a historically low rate. And that is----
    Mrs. FISCHBACH. Okay, but--and I am reclaiming my time----
    Mr. WERFEL. Yes, sorry.
    Mrs. FISCHBACH [continuing]. Since the chair just gave me 
the warning. [Laughter.]
    Mr. WERFEL. Yes.
    Mrs. FISCHBACH. But, you know, kind of----
    Mr. WERFEL. But the answer to your question is yes, we are 
moving resources in a----
    Mrs. FISCHBACH. Okay.
    Mr. WERFEL [continuing]. Way to go after the more 
complicated returns that are going to have the highest return 
on investment. That is the goal.
    Mrs. FISCHBACH. Okay, because I--because it really felt 
like, you know, is there kind of a quantity kind of focus?
    Because obviously, with one guy you can do more for the 
middle--do more on the middle class than the more complicated 
returns.
    But I guess--and you know what I am going to do is, given 
that, since you are going to follow up on the 85 percent, I got 
1 minute and 51 seconds left, and I am going to yield back.
    Chairman SMITH. Wow. [Laughter.]
    Mrs. FISCHBACH. I just made points with the chair.
    Chairman SMITH. You definitely have some gold stars. 
[Laughter.]
    Chairman SMITH. Ms. Sewell, you are recognized.
    Ms. SEWELL. I will try to do the same.
    Mr. Commissioner, you did in your opening testimony talk 
about how the added resources that were given in the Inflation 
Reduction Act did bring up the number of calls that were 
answered, the number of, you know, audits that were resolved. 
But I also heard you say that more complicated tax returns are 
challenging for the IRS.
    And I can tell you that my district in Alabama in the Black 
Belt is one of the largest districts that has--that gets the 
Earned Income Tax Credit audit. And these are working Americans 
who make less than minimum wage sometimes. And the fact that 20 
to 30 percent of those audits are in poor, vulnerable 
communities--seems to me you should be using those resources to 
go after--I mean, what you are getting, what the Federal 
Government gets by auditing them, while it makes a big 
difference to those families, is peanuts in the grand scheme of 
things.
    So can you talk to us about why that is, and what you are 
doing about it?
    Mr. WERFEL. It is a really important question, 
Congressman--Congresswoman, because, you know, I think what 
happened, for example, with the Earned Income Tax Credit, just 
to go back in history a little bit, is that that program, 
because of the improper payments law that is on the books, that 
program has a historically high improper payment. And so, as 
part of IRS historical remediation of those improper payments, 
audits increased.
    Ms. SEWELL. I hear you.
    Mr. WERFEL. I am not defending it or not.
    Ms. SEWELL. I know, I hear you.
    Mr. WERFEL. I am just giving you the history----
    Ms. SEWELL. But, you know----
    Mr. WERFEL. Yes.
    Ms. SEWELL [continuing]. ProPublica did a survey. I mean, 
this is documented.
    Mr. WERFEL. Yes.
    Ms. SEWELL. And that the report shows--the study found that 
EITC audits are mostly heavily concentrated in the south, and 
in southern Black Belt. And I represent them.
    Greene County, where the median income for a family there 
is right around $20,000 for 4----
    Mr. WERFEL. Yes.
    Ms. SEWELL [continuing]. Was among the 10 most audited 
counties in the country for EITC recipients. In fact, audit 
rates in many of these areas are more than 40 percent higher 
than the national average, hitting rural communities of color 
the hardest.
    Mr. WERFEL. Yes.
    Ms. SEWELL. We gave you some money. We gave you a lot of 
money, actually. I don't expect you to target poor people.
    So I understand that there is a problem that needs to be--
and the policy of EITC--then we should do something about that. 
But if you think that there is a reason--I don't know what to 
ask you, other than to say please do something about that.
    Mr. WERFEL. Yes. My response to you, Congresswoman, would 
be, first, I absolutely am in the firm belief that fairness and 
equity in our tax system is essential.
    You are asking important questions. We are looking, and 
studying, and assessing the potential for--that our EITC audit 
program is not consistent with these values of fairness. And I 
am going to have to report back to you on what we find, and 
work together to make sure that it is fair.
    I mean, we are on a journey to get to more fairness. And I 
think identification of the issue is maybe even not half the 
battle, but an important part of the battle. Now the battle 
begins, and I will work with you on this. That is my 
commitment.
    Ms. SEWELL. I look forward to that. I yield back the 
balance of my time, 55 seconds.
    Chairman SMITH. Thank you, Representative. The gentleman 
from Pennsylvania is recognized.
    Mr. SMUCKER. Thank you, Mr. Chairman.
    Good afternoon, Commissioner. Thank you for being here, and 
thank you for your willingness to take on this role. I want to 
raise a few concerns I have heard from constituents regarding 
the processing--IRS processing of the Employee Retention Tax 
Credit----
    Mr. WERFEL. Yes.
    Mr. SMUCKER [continuing]. The ERTC. And I do understand the 
program was implemented quickly.
    Mr. WERFEL. Yes.
    Mr. SMUCKER. And, you know, the IRS had to learn to run it 
as it was being developed, almost. But, you know, so I know 
there were kinks that needed to be ironed out. But we are now 
three years out from enactment, and I am still hearing from 
employers who have had challenges receiving the funds. Some may 
still be waiting, and in some cases even had to shut down the 
business completely because they did not receive the funds that 
were promised, the relief. The program appears to be rife with 
inconsistencies. And I am--I just want to raise this, hoping 
for maybe your feedback, and hopefully you are planning to make 
some program improvements.
    So for one example, an employee shared with me that they 
had received their quarter 2 and quarter 4 refunds 20 weeks 
after applying, but never got the quarter 3. The IRS somehow 
determined they were ineligible for the payment for quarter 
three, although they got two and four, because they considered 
the employer a government entity. After successfully appealing, 
that employer finally received the quarter three check a year 
later.
    And I asked a tax preparer how that could happen, and they 
revealed that they must send in the 941-X form separately for 
each quarter, or else they do not get scanned into the system. 
So it seems like there is a problem there. They were also told 
that initially--they were not told that initially, so many sent 
in their claims forms for the year, which delayed refund 
checks.
    Another employer received a refund check, but then shortly 
after was contacted by the IRS being told to return the funds. 
And in the weeks this employer spent trying to get 
clarification, he received another check.
    So it is actually sort of frightening for employers when 
they are trying to do the right thing, and they are getting a 
lot of mixed messages and a lot of different results.
    In another conversation with tax preparers, they shared 
that they were not even informed when the IRS removed the 
Kansas City processing center from ERTC processing.
    So I understand that you may be redeploying agents to help 
process the backlog of these claims, but I would like to 
understand what is being done to expedite the unprocessed 
backlog at the Kansas City facility or anywhere else.
    Mr. WERFEL. Yes, thank you for the question, Congressman.
    And, you know, lifting up--before I get into the ERC [sic], 
like, we are getting healthier. We are in the process of 
getting healthier. And I think the--our low point was during 
COVID, after years of funding decrease. And then, having to 
shut down our operations and then retool our operations into a 
virtual environment, we lost a lot of ground. The paper piled 
up, including new requirements such as the Employee Retention 
Credit, such as economic impact payments. So it was a bit of a 
perfect storm----
    Mr. SMUCKER. So are all these cases being processed now? 
And I am sorry to cut you----
    Mr. WERFEL. Yes, they are. They are being processed now. As 
I mentioned earlier----
    Mr. SMUCKER. So none being held back.
    Mr. WERFEL. No.
    Mr. SMUCKER. Like, at this point we can----
    Mr. WERFEL. If--the only reason why it would be on hold is 
if we thought there was an issue of fraud or error. Otherwise, 
it is being processed. We were up to 20K a week at the end of 
filing season in terms of the number we are processing----
    Mr. SMUCKER. Thank you. And the issue of all of the 941s 
being in one envelope, can you commit that the individuals 
processing these will process multiple forms in the same----
    Mr. WERFEL. Let me look into that----
    Mr. SMUCKER [continuing]. Envelope? Yes.
    Mr. WERFEL [continuing]. And commit to get back to you on 
that question.
    Mr. SMUCKER. All right, thank you. And just--I have a 
minute left.
    You have talked a lot about the $80 billion. You continue 
to--describing the hiring at the IRS, and the new funding as 
merely right-sizing the agency.
    Mr. WERFEL. Yes.
    Mr. SMUCKER. And you even pushed back today on the argument 
that the funding is super-sizing the agency.
    Mr. WERFEL. Yes.
    Mr. SMUCKER. I do want to point out--and I would like to 
submit for the record, Mr. Chairman, if I may--an article from 
The New York Times from April 27th, 2021. And in this article 
former IRS Commissioner Koskinen--I hope I am pronouncing that 
right--said that he thought--and this is a quote, ``the $80 
billion being proposed by the Biden Administration might be too 
much.'' And his quote in the interview was, ``I am not sure you 
would be able to efficiently use that much money. That is a lot 
of money.''
    So, again, Mr. Chairman, I know I am almost out of time, 
but----
    Chairman SMITH. Without objection.
    Mr. SMUCKER [continuing]. Submit that for the record, if I 
could. Thank you.
    [The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman SMITH. The gentleman from Utah is recognized.
    Mr. MOORE of Utah. Thank you, Chairman. We are getting down 
to the point where it gets serious business. Everybody has left 
for votes.
    Mr. WERFEL. Let's get down to business.
    Mr. MOORE of Utah. There is just a few people left on the 
dais. This is where we get the real work done.
    Mr. WERFEL. That is----
    Mr. MOORE of Utah. I am going to ask us to actually suspend 
reality for a minute, and talk as if we weren't in a 
congressional hearing, say, in a client-consultant type of 
relationship.
    And as I look at this whole--and I represent Ogden, Utah, 
which is an amazing processing center, thousands of employees.
    Mr. WERFEL. Amazing.
    Mr. MOORE of Utah. My constituents. And so I have taken 
this issue to heart to really dig into and truly understand, 
you know, what we need to be doing here. And I want to--what I 
want to highlight is there is an area of consensus here.
    My frustration comes with how this all came out. This was, 
you know, for better or worse--usually for worse when one-party 
rule in Washington, they always--you know, you have to do big 
things and, you know, you try to get as much through 
legislation as you can. And there was a big bill that cost a 
lot of money last year in the Inflation Reduction Act. And in 
order to get that accomplished, we needed to find--Democrat 
Party needed to find revenue. So they did a huge IRS bill 
because the CBO would score it so they could gain revenue over 
time. Like, of course we are going to be frustrated at that. We 
don't want to manipulate a government agency in that way to be 
able to just satisfy a CBO score.
    So all that aside, setting that context, like, we have got 
real areas of consensus here. And as I go meet with my 
constituents in Ogden, and as I hear and address this issue, 
there is a lot of opportunity for technical modernization, 
customer service capabilities to enhance that. And my point is, 
if I was, like, consulting the IRS to say, ``Let's take this as 
a huge win, and there is areas of consensus, let's dig in and 
really go out and find that opportunity,'' the workforce that 
you have is strapped. They don't have the tools they need to do 
their job.
    So before we go and add on an enormous amount of 
individuals and workforce to an already sort of system that 
doesn't work for them currently, let's shore that up. And then, 
after we evaluate the improvements that we have made in this 
tech modernization, in customer service capabilities, in a 
toll-free number, automation opportunity for them to not have 
to be so bogged down with phone calls that they can't answer, 
like, why don't we try that? And then, ultimately, take another 
look and say this is where the workforce needs to go.
    I would love your just sincere response to that. Is that 
something that, if we were to be serious adults back here 
instead of, you know, any of the partisan back-and-forth, could 
we actually get something done if we did that?
    Mr. WERFEL. If I understand correctly, I think your 
question resonates completely with me.
    You know, thinking about the folks in Ogden--and I really 
appreciate you calling them out for the amazing civil servants 
that they are--and going back to this question of what kind of 
IRS are we going to be, are we going to be an IRS that just can 
answer the phones, or are we going to be an IRS that actually 
enhances and modernizes?
    And let me give you a good example. With respect to the 
Employee Retention Credits that those folks in Ogden are 
working really hard to process right now, currently the IRS 
does not have the capability to ingest an amended return 
electronically. We need to be able to advance our technology to 
be able to do that.
    Now, you can say, well, that is outrageous. Why don't they 
have that capability? And we can relitigate it from the past, 
and I can make the case that resources have been dwindling for 
years and years, and that is why we haven't done it. And 
someone might make another case, I don't know.
    But to your point, can we roll up our sleeves and figure 
out what do we need in Ogden, Utah to improve that operation? 
Because, ultimately, it is going to help the employees. But 
more importantly----
    Mr. MOORE of Utah. It helps the taxpayer.
    Mr. WERFEL [continuing]. And I think the employees would 
agree--it helps the taxpayers. People are waiting for their 
retention credits. I don't want them waiting for their 
retention credits. I want them to get their retention credits 
as quickly as possible.
    Mr. MOORE of Utah. And this is----
    Mr. WERFEL. But these types of gaps are what we are dealing 
with.
    Mr. MOORE of Utah. And these types of gaps. This is the 
part that--and if I haven't seen, and if I haven't done enough 
research, I apologize in advance. But from the IRS plan and 
from GAO reports, or the plan that was released in early April, 
you know, technology, the word ``technology,'' was referred to 
many times. But I haven't seen the specificity on what is 
needed.
    Because I know there is a motivation on our side, because 
our offices are getting bogged down with requests, and we can't 
even help our constituents to the extent that we need. Like, we 
would love to see the specificity laid out, knowing that I am 
sick and tired of saying there needs tech modernization. If I 
say that one more time without real--seven layers of additional 
things, specifics that we need to do for these folks, like, 
that is the area that I want to get to.
    And so I will add my comments from the gentleman from--my 
colleague from Arizona. Like, I am ready to roll up my sleeves, 
too, and dig in and actually get this part done before we add 
on thousands and thousands and tens of thousands of more 
employees to a system that doesn't work currently. Let's fix 
that, and then figure out where we need to go in future.
    And I definitely am going to stop. Thank you.
    Mr. WERFEL. Thank you.
    Ms. MALLIOTAKIS [presiding]. Thank you for staying on 
schedule. The chair now recognizes Mr. Beyer for five minutes.
    Mr. BEYER. Thank you, Madam Chair, very much.
    Commissioner Werfel, I just want to thank you for being 
here and taking on this task of leading the IRS through a very 
pivotal time. And I represent many, many IRS employees, and I 
know they are thrilled to see that, with your leadership, 
through the Inflation Reduction Act, we are finally providing 
the employees with the resources they need to serve the 
American people better.
    I just want to say, too, that I don't know, maybe we are 
lucky, but our taxpayer advocates have been terrific, and have 
done a really, really good job.
    Mr. WERFEL. Thank you for that feedback.
    Mr. BEYER. However, we do still get a lot of incoming 
requests, which we are able to fix. Can you tell us about how 
the backlog is? We are not that many months away from these 
huge Washington Post, New York Times stories of cafeterias 
filled with unprocessed IRS returns.
    Mr. WERFEL. Yes. So, look, I said earlier to an earlier 
question we are in the process of getting healthy, right? 
Coming into this from last filing season, 2022 into this filing 
season, we cut our backlog in half. We did that by people 
working hard, some of the people that you represent. Over time, 
you know, any time they are not doing something, they are 
working the paper backlog.
    But we also scanned more, and this is part of a modern IRS. 
And, you know, we were not doing enough before we had the funds 
in the Inflation Reduction Act to avail ourselves of the 
sophisticated technology that is out there to take a tax return 
and convert it to machine-readable format, a paper return.
    A lot of the backlog--most of the backlog, if not all--is 
caused by paper, and the fact that we don't have an automated 
way of processing it. So you have individuals keying it in, 
which seems like decades-old technology, and that is what it 
is. But because we are now adding a scanning technology that we 
previously didn't have the resources to avail ourselves of, we 
now have a more sophisticated technology on the ground, turning 
forms into machine-readable so they can be ingested into IRS 
systems. That is an example of what we are doing.
    Between this filing season and next filing season, it is an 
absolute priority to further make an enormous dent in our in 
our paper backlog. And I am hoping that citizens start to see 
the results of that.
    Mr. BEYER. Great, great. Thank you. I also want to thank 
you on the tax gap. The unfairness of having the rich pay by 
one set of rules and working families pay by another is 
pernicious and dangerous. And it really undermines the basic 
social contract that has kept our country so strong. So thank 
you for that.
    I want to touch on something I don't think anyone has 
mentioned yet. I was ambassador to Switzerland for four years, 
an incredible privilege. And one of the biggest problems we had 
was Americans paying their taxes, the American expats. And the 
challenge was that so many of them didn't owe any taxes to the 
United States, but still had to pay 3, 4, 5, $6,000 in CPA fees 
to get the tax returns processed over here.
    I know you have a new initiative right now on allowing them 
to pay with their foreign bank accounts. Can you update us on 
what you are trying to do to make Americans' tax compliance--
the three to six million Americans who live overseas--a lot 
easier than what it is right now?
    Mr. WERFEL. Yes, and I am glad you asked this, Congressman, 
because it goes back to this broader theme of taxpayer--we have 
to meet taxpayers where they are. Some of them are overseas. 
Some of them are in rural communities. Some of them don't have 
the means to hire an accountant or pay for a third-party 
provider. And some of them are hiring an army of accountants.
    And for those taxpayers that are international, that want 
to meet their obligations, even though they are expatriates, 
which is great, and that is what we would expect, we need to 
work with them to figure out how to make their filing easier, 
as well. And to the extent that they are paying CPAs for filing 
with no balance due, we want to work to fix that.
    Mr. BEYER. Great. We have legislation which you can't 
comment on, but bipartisan, which we will bring before you.
    And one last thing in my last minute. The--by a 217 to 215 
vote the Republicans passed their bill yesterday. What would 
happen if we actually took away that $80 billion?
    Mr. WERFEL. Yes, I have tried--I am trying, Congressman, to 
explain in the plainest possible language how devastating that 
would be for the American people, not just for the IRS, 
because, again, we are not resourced to meet the demand that is 
created by the complexity of our tax system today. That 
complexity is in part the code, but it is in part just the 
number of filers, the population.
    And I keep on going back to this analogy of the train 
platform. Right now, because of the IRA, we can get those 
trains moving, we can move people off the platform, get them 
where they want to go. If you repeal the Inflation Reduction 
Act, you eviscerate our ability to fix the problems that we 
have had historically. Those train platforms will get more and 
more crowded, the trains won't come, Americans will be 
frustrated. They will be calling your offices, they will be 
saying I am a terrible person. That is okay, but the important 
point is that eliminating the Inflation Reduction Act actually 
harms taxpayers.
    Ms. MALLIOTAKIS. I now recognize myself for five minutes, 
and I would first like to--first, let me start by saying that 
the taxpayer advocates in New York City--we will start on a 
positive note. They have done a great job.
    Mr. WERFEL. Great.
    Ms. MALLIOTAKIS. With my office. We have spoken with them, 
they have been very helpful, 528 constituent cases that have--
my office has had to intervene in, which is the negative part, 
the fact that these American taxpaying citizens need to contact 
their Member of Congress to get a solution or a resolution.
    So I would ask one question. Are your staff members still 
working from home? You still have that COVID telework, or are 
they all back in the office today?
    Mr. WERFEL. It is a mix, like all other Federal agencies. I 
would emphasize that everyone is working.
    I will say that in my first few weeks at the IRS the 
question that I focused on with the IRS right now is, are we 
getting the job done? Are we answering the phones? Are we 
fighting off cyber attacks? Are we processing the backlog? As 
long as the answer to that question is yes, then that is going 
to be my priority.
    Now, if the answer is no, then I want to go deeper into the 
issue and figure out what the issue is. And if the issue 
happens to be the telework policy is negatively impacting our 
ability to get the job done for the American people, then we 
will make a change.
    Ms. MALLIOTAKIS. Well, I would just--I would love to 
suggest that it is time to bring everyone back to the 
workplace. As you know, Republicans passed a bill to get all 
Federal employees--half the workforce still working from home, 
and I think that does have an issue to do with constituent 
services, and making sure that these calls are answered.
    The fact that one congressional office in just 2 years had 
to intervene in over 500 cases is a problem. When we were in 
our hearing in Peachtree, Georgia, one of the accountants who 
testified said that she had been transferred four times, and 
was placed on hold for three hours until she received 
assistance.
    I want to also move on to another major issue that I am 
seeing with my constituents, sadly. We have had over a dozen 
issues of check thefts, check fraud, either stimulus checks or 
tax refunds that have been stolen. Someone had signed the 
checks and deposited the money. And--are you aware of this 
happening, and are you working--what are you doing to try to 
resolve that issue? Are you working closely with the U.S. 
Postal Service and the Department of Justice to address that?
    Mr. WERFEL. Yes, and another early priority of mine, 
Congresswoman, is to, in particular, address issues where there 
is a victim.
    Look, it is upsetting when someone doesn't pay their taxes 
because that victimizes the U.S. Government's financial bottom 
line, and we are, of course, concerned about that. But when 
there is an individual victim, whether it is identity theft, 
their money is stolen, they are taken advantage of, that is 
something that we absolutely have to prioritize.
    So I absolutely commit to working with the Postal Service, 
the Justice Department on cracking down on that type of 
nefarious behavior.
    Ms. MALLIOTAKIS. I appreciate that, and I would also make 
the argument that that should really be a priority.
    Mr. WERFEL. It is.
    Ms. MALLIOTAKIS. I see some of the other initiatives that 
you are focusing on, whether it is the 1099s for, you know, 
selling something on eBay or whatnot, going after these small, 
you know, just middle-class people. I think what we should do 
is focus on these types of things to prevent those fraudsters.
    But in addition to that, you said earlier that you cannot 
meet the demands of today. And now we are----
    Mr. WERFEL. Yes.
    Ms. MALLIOTAKIS [continuing]. Also seeing that the IRS is 
interjecting itself in government-populated returns, trying 
to--you know, we have a whole industry of tax preparers that 
are hundreds of thousands of jobs, good-paying jobs, that--they 
do this in the private sector, and they do it right.
    I think this is a case of government coming in, saying that 
they feel they could do something better than the people who 
actually do it every day. And I would say if you can't meet the 
demands of today--and we have a lot of backlog here--why 
interject yourself in doing something more? Why fix something 
that is not broken?
    Mr. WERFEL. Well, two responses to that. First, Congress 
asked us to study it, so we are going to study it. And the 
second is any product that would go forward would be an option 
for taxpayers. They would not have to use it if they didn't 
want.
    And for me, the question is are we offering the right set 
of services based on taxpayer preference? You know, whether 
the--whether they are overseas, whether they still need to file 
paper, whether they want to walk into our walk-in center, I 
think we have an obligation to be able to provide diverse 
enough services to meet taxpayer preferences.
    So once this study is done, we will take a look at it, we 
will talk with you about it, and see if this makes sense to 
meet a taxpayer preference that is out there, if it is 
feasible, and if the costs are right.
    Ms. MALLIOTAKIS. As you can imagine, for some of us it is 
just looking like IRS looking to do more Big Government, more 
bureaucracy, interjecting itself in an area where you really 
should just leave it to the private sector.
    But I would love to work with you to see how we can fix 
some of the issues that I brought up earlier today, because it 
truly is my constituents and other American citizens who are 
being victimized. Thank you very much for your time.
    Mr. WERFEL. Thank you, Congresswoman.
    Ms. MALLIOTAKIS. I now recognize Mrs. Steel of California 
for five minutes.
    Mrs. STEEL. Thank you, Commissioner----
    Mr. WERFEL. Thank you.
    Mrs. STEEL [continuing]. For participating today. This is 
such long hours that you have been sitting and enduring, so 
thank you. And thank you for your service, too.
    Having said that, American families and small businesses 
are having a hard time trusting in the IRS. Our constituents 
should not have to fear that the IRS might come after them. Per 
previous data, TIGTA, Treasury Inspector General for Tax 
Administration, half of large corporate audits result no 
change.
    The article from this morning titled, ``The Surprising Risk 
in Ramping Up IRS Audits,'' according to that article states 
that nearly half of those making $10 million or more who are 
audited saw no changes in their tax bills in 2018. Thirteen 
percent of audits of people making between $100,000 to $200,000 
were no change audits in 2018 IRS data show. More than 1 in 4 
people with income between $1 million and $5 million were given 
clear bills of health, and almost half of audits of a 
corporation with at least $1 billion in assets found they owed 
nothing more. Why are so many Americans being audited for no 
reason?
    This article, ``The Surprising Risk in Ramping Up IRS 
Audits'' saying that could be because of the IRS is picking the 
wrong people to audit, or it doesn't have the right specialists 
to go toe to toe with big law and accounting firms. Though we 
are not really sure. So we are all kind of like questioning 
that. It sounds like the problem is not needing more money or 
doing more audits, but one of wasted resources.
    Commissioner, how will you ensure that the correct people 
are getting audited in the first place?
    Mr. WERFEL. Yes. So the objective, Congresswoman, is 
equitable tax enforcement, right? We should be able to 
demonstrate to the American people that, no matter what your 
means are and no matter how complicated your return is, the IRS 
is treating you the same. So just because your return is 
simpler to review doesn't mean you should be more likely to get 
an audit. If your return is more complicated to review, we 
should be equally equipped. And currently we are not equally 
equipped.
    The reason I believe--my hypothesis is the reason why you 
see zero-balance-due audits is because we don't have the right 
capacities today to unlock these complex returns in an 
effective way.
    And there isn't a lot of audit coverage. In fact, a lot 
of--we are at historic low audits across the board, including 
for these--the wealthiest-most taxpayers.
    Mrs. STEEL. So what you are saying is----
    Mr. WERFEL. Historically low.
    Mrs. STEEL [continuing]. Zero balances because of--they 
didn't have enough--sufficient enough----
    Mr. WERFEL. We need----
    Mrs. STEEL [continuing]. Informations, is that the----
    Mr. WERFEL [continuing]. The right economists, data 
scientists, attorneys. We need to tap into the people that know 
how these returns were constructed. The world is moving very 
quickly in terms of the complexity of these corporations.
    Mrs. STEEL. But isn't your--the staff supposed to be 
trained for that?
    Mr. WERFEL. We haven't had the resources to train.
    Mrs. STEEL. So you are not training your people for----
    Mr. WERFEL. Not as effectively as we could, not--we haven't 
had the funds to train. We have--again, we have a staffing 
level pre-Inflation Reduction Act that is equivalent to where 
we were in the 1970s. We have not had enough resources to meet 
the requirements of today's tax system.
    And with these resources, and being able to train and hire 
the right mix of people, I anticipate that we will not have as 
many zero-balance-due audits in the future. And when we don't, 
it is going to be a tremendous return for the taxpayer. And 
that is why I think repealing the IRA costs so much in the eyes 
of the Congressional Budget Office, because the--if the plan is 
to engage at that level, a two percent, a three percent, a four 
percent improvement in some of these metrics will easily pay 
for what the Inflation Reduction Act investment is.
    Mrs. STEEL. Then why don't you just reduce the audits and 
just go really dig in those people that you are auditing 
instead of those two percent, three percent, and you don't have 
to increase those numbers on that.
    Mr. WERFEL. It is a great question. I think--and it was--
another congresswoman asked the question, as well.
    I think we do have to optimize. It isn't about quantity. It 
isn't about doing more audits of wealthy taxpayers, it is doing 
the right audits, and making sure that we have the right 
balance and the right optimized approach to how we exam the 
wealthiest taxpayers. We are not optimized right now. We are 
leaving money on the table.
    Mrs. STEEL. Mr. Chairman, actually, I prepared five 
different questions, but it seems like my time is already up. 
So what I am going to do is I am going to do in writing, and 
ask for these questions.
    Chairman SMITH [presiding]. Perfect. Please submit your 
questions into writing.
    Mrs. STEEL. Thank you so much.
    Mr. WERFEL. I would like that, thank you.
    Chairman SMITH. We will have that.
    Chairman SMITH. Thank you, Representative.
    Ms. Moore is recognized.
    Ms. MOORE of Wisconsin. Thank you, Mr. Chairman, and I want 
to thank our brand-new IRS commissioner, join my colleagues in 
thanking you for your patience.
    You are new, so I just am curious about your background. 
Were you hired from within IRS, or you came from outside?
    Mr. WERFEL. No, I started my career in government. I worked 
for many years at the Office of Management and Budget. I worked 
at the Justice Department, and I----
    Ms. MOORE of Wisconsin. Okay, thank----
    Mr. WERFEL [continuing]. Also worked at the IRS.
    Ms. MOORE of Wisconsin. All right.
    Mr. WERFEL. So I am returning.
    Ms. MOORE of Wisconsin. You are returning.
    Mr. WERFEL. Yes.
    Ms. MOORE of Wisconsin. Okay. And I only ask that question 
so I can just get a baseline of what you know about the laws 
that we have passed recently.
    So in 2013 we reauthorized the Violence Against Women Act. 
And during that particular reauthorization, we required housing 
providers who had received the Low-Income Housing Tax Credit 
funding to no longer evict victims, as they had been doing, 
along with their abusers.
    And so Treasury really has informally indicated that the 
agency needs to act, because non-compliance with the Violence 
Against Women Act 2013 is not considered to be non-compliance 
under the statute that created the Low-Income Housing Tax 
Credit. But the IRS is required to administer this.
    So are there any plans? Are there any priorities for it? 
Because, you know, women who are leaving abusive situations, 
they are more in danger of losing their life at a time that 
they decide to leave a relationship, and so housing can be 
really critical----
    Mr. WERFEL. Yes.
    Ms. MOORE of Wisconsin [continuing]. In terms of their 
safety. Is this something that you are aware of, or is this a 
priority for you to----
    Mr. WERFEL. I was----
    Ms. MOORE of Wisconsin [continuing]. Implement?
    Mr. WERFEL [continuing]. Recently made aware of it. I am 
really glad you are asking the question. I understand that we 
are looking into the regulations, and seeing whether they could 
be revised to expressly reference housing protections under the 
Violence Against Women Act, and I think that would potentially 
resolve the issue.
    I--it is really important that this committee raise these 
types of issues to our attention, because that will allow me to 
prioritize and make sure that we close these types of issues 
that are problematic.
    Ms. MOORE of Wisconsin. Well, I have got some more for 
you----
    Mr. WERFEL. Please.
    Ms. MOORE of Wisconsin [continuing]. Mr. Commissioner. The 
Earned Income Tax Credit. I just want to congratulate the IRS. 
They did a fantastic job during the pandemic, getting money out 
to people who otherwise would not have gotten it. The uptake in 
the Earned Income Tax Credit and the Child Tax Credit is low. 
But through the non-filer portal you were able to contact 
people who otherwise would not have received the benefit.
    We have been talking to Treasury about using that non-filer 
portal to identify people who could benefit from the Earned 
Income Tax Credit and the Child Tax Credit. Is that something 
that the IRS would be supportive of? These are really low-
income people, and they could benefit from this resource that 
is available and for which they are eligible.
    Mr. WERFEL. Yes, 100 percent. Look, when we implement 
something new, we learn a lot. When we, as the IRS--and this 
predates me, and I also congratulate the IRS workforce for the 
amazing work they did during the pandemic--you know, we had to 
turn on a dime and implement these economic impact payments. In 
many cases, you know, essentially, lifesaving payments for 
people in need----
    Ms. MOORE of Wisconsin. Right. Well, I just want to work 
with you to make sure that you actually implement--that you 
actually use that portal.
    Mr. WERFEL. Yes.
    Ms. MOORE of Wisconsin. It is so valuable----
    Mr. WERFEL. I think it is a good suggestion.
    Ms. MOORE of Wisconsin [continuing]. To do it.
    Mr. WERFEL. Yes.
    Ms. MOORE of Wisconsin. Implementation of the SAFER Act. 
Last Congress, as a part of Secure 2.0 there was a bill that 
Congresswoman McBath and our Congressman Smucker from this 
committee and I all led, Saving Access for Escaping and 
Rebuilding Act, the SAFER Act. Again, domestic violence----
    Mr. WERFEL. Yes.
    Ms. MOORE of Wisconsin [continuing]. Often means that, you 
know, women will not appropriately receive the tax refunds to 
which they may be entitled. And if the non-custodial parent 
files first and then the custodial parent files second, there 
is a big hassle with straightening it out. They may have to 
file a lot of paperwork.
    Is there any interest in helping victims of domestic 
violence? We saw this a lot during COVID, where the non-
custodial parent found themselves getting the check for the 
children and not sharing it with with the actual custodial 
parent, and IRS----
    Mr. WERFEL. It is a very unfortunate outcome.
    Ms. MOORE of Wisconsin [continuing]. Felt that they could 
do nothing.
    Mr. WERFEL. Yes, it is a very unfortunate outcome, and I 
would absolutely be interested in making sure that the right 
parent gets the credit. And, in particular, if a victim of 
domestic violence is--you know, is not getting that credit when 
it is rightfully theirs, that is alarming and concerning, and I 
would like to work with you on that.
    Ms. MOORE of Wisconsin. Well, I appreciate that. Thank you 
so much.
    And I would yield back my time.
    Chairman SMITH. Ms. Van Duyne is recognized.
    Ms. VAN DUYNE. Thank you very much, Mr. Chairman, finally.
    Mr. WERFEL, you have been doing this for a really long 
time. You came in nearly almost exactly 10 years ago as acting 
director of IRS, correct?
    Mr. WERFEL. Correct.
    Ms. VAN DUYNE. Under the Obama Administration.
    Mr. WERFEL. Yes.
    Ms. VAN DUYNE. When you came in at that time, you--the IRS 
was facing a tremendous amount of criticism because it felt--a 
number of people criticized that the IRS was targeting specific 
political groups for a tax exempt status, correct?
    Mr. WERFEL. That was the allegation, yes.
    Ms. VAN DUYNE. What did you find?
    Mr. WERFEL. So through the process--and I was there for 
eight months--we provided a tremendous amount of information to 
the authoritative committees and the inspector general. And I 
would really rely on the final reports of TIGTA and the 
Permanent Subcommittee on Investigation that thoroughly, over 
many years, evaluated those issues. And we can----
    Ms. VAN DUYNE. So the IRS----
    Mr. WERFEL [continuing]. Go over those results, but----
    Ms. VAN DUYNE. Yes. So the IRS----
    Mr. WERFEL. It is your time.
    Ms. VAN DUYNE [continuing]. Knew 10 years ago that it was 
already being criticized for going after Tea Party groups and 
their tax exempt status.
    Mr. WERFEL. That was the allegation.
    Ms. VAN DUYNE. So fast forward 10 years later, and I don't 
need to repeat the questions that we heard from Chairman Smith 
or from Congresswoman Tenney, Congressman Steube, but it seems 
like the exact same thing is still happening in the IRS.
    I mean, nobody wants to pay their taxes. The IRS has a 
reputation as an agency that most people, most Americans, feel, 
and it doesn't help that we have seen in this history that the 
IRS seems to be treating Americans different based on their--
either their political affiliations or their family 
affiliations.
    So, Mr. Werfel, without getting into details of those past 
cases, how can you assure the U.S. public, moving forward, that 
they can actually trust the IRS to treat everyone the same, 
regardless of political views?
    Mr. WERFEL. Here are my assurances. It is my firm 
commitment that there is absolutely no place for political bias 
at the IRS. I will take very seriously any evidence of 
political bias, and will immediately refer it to the inspector 
general.
    We have----
    Ms. VAN DUYNE. So including the examples that----
    Mr. WERFEL. Any example----
    Ms. VAN DUYNE [continuing]. That Congressman--okay.
    Mr. WERFEL. Any time----
    Ms. VAN DUYNE. Okay, I appreciate that.
    Mr. WERFEL. I will always refer to the inspector general.
    Ms. VAN DUYNE. All right.
    Mr. WERFEL. And also, I will work tirelessly----
    Ms. VAN DUYNE. I am going to reclaim my time, because I 
only got----
    Mr. WERFEL. Yes.
    Ms. VAN DUYNE. I want to make sure that I am staying on 
time.
    Mr. WERFEL. Please.
    Ms. VAN DUYNE. I would like to discuss the IRS plan of how 
your agency intends to spend the $80 billion passed as part of 
the Inflation Reduction Act. I have voted to repeal this now 
twice, but as of now this money will still be available to the 
IRS.
    I am concerned with a number of provisions in this plan, 
including the $45.6 billion for auditing and enforcement, 
compared to only $3.2 billion for taxpayer services, which 
results in $14 spent on enforcement for every $1 spent on 
taxpayer services. Now, you have said that, you know, we are 
hiring more people to answer the phones.
    Mr. WERFEL. We are.
    Ms. VAN DUYNE. And yet you are spending 14 times the amount 
on enforcement, and a very small, small amount on customer 
service. And the dollars that you are spending on customer 
service, over 30 percent of that is being used to implement IRA 
green energy provisions.
    Mr. WERFEL. Yes. So I am not really sure I know your 
question, but I can comment on it.
    Ms. VAN DUYNE. Are you spending 14 times as much on 
enforcement as you are on customer service?
    Mr. WERFEL. We are spending consistent with the 
appropriation amounts that----
    Ms. VAN DUYNE. That happens to be 14 times as much on 
enforcement as on customer service, even though the complaints 
that we have had have to do with our constituents not even 
getting their refunds on time.
    Mr. WERFEL. My commitment, Congresswoman, is to spend that, 
those funds, as effectively as we can, with good program 
integrity, and in the best interests of the taxpayer.
    Ms. VAN DUYNE. But we are still spending 14 times as much 
on enforcement with the promise that we are not increasing the 
percentages at all of audits.
    Mr. WERFEL. We are not increasing the percentage of 
audits----
    Ms. VAN DUYNE. But we are going to be spending 14 times as 
much.
    Mr. WERFEL [continuing]. For people earning $400,000 or 
less. We are increasing the percentage of audits for those 
wealthy taxpayers, where we also have historically low audit 
rates.
    So the enforcement funds that you are describing are 
critically important in terms of ensuring that Americans at 
every income level know that the IRS is treating every income 
level equally.
    Ms. VAN DUYNE. I just think it is disingenuous for you to 
say that you are spending much more money for people answering 
phones, when you are spending 14 times as much on enforcement.
    Mr. WERFEL. Well, we did--we hired 5,000 people this filing 
season to answer phones.
    Ms. VAN DUYNE. Yes.
    Mr. WERFEL. And we are making improvements. It is in our 
plan issued April 6th on all the steps we are working to with 
the money that we have. But there is a challenge.
    Ms. VAN DUYNE. It is good to know that you can do that in 2 
billion, you can hire 5,000 people on that. If that is the 
case, then I am thrilled to hear that.
    Mr. WERFEL. Well, we need more than just people.
    Ms. VAN DUYNE. Because the number that I am hearing is not 
what you are----
    Mr. WERFEL. We need more than just people. I mean, one of 
the challenges--and I don't want to take up too much of----
    Ms. VAN DUYNE. Well, I appreciate that. And I have got 
seven more minutes, and I have got one quick question.
    Mr. WERFEL. Please.
    Ms. VAN DUYNE. The IRS agents that you--the IRS people that 
are helping on customer service, do you have 100 percent of 
your workforce back to work 5 days a week?
    Mr. WERFEL. Everyone is working.
    Ms. VAN DUYNE. Do you have your workforce back to work in 
the office five days a week?
    Mr. WERFEL. Well, not everyone is in the office, but 
everyone is working. And I will--one thing about----
    Ms. VAN DUYNE. What percentage of your workforce is back in 
the office?
    Mr. WERFEL. I don't have the exact figure on that. I can 
get it for you.
    Ms. VAN DUYNE. Okay. I yield back. Thank you.
    Chairman SMITH. The gentleman from Iowa is recognized.
    Mr. FEENSTRA. Thank you, Chairman Smith and Ranking Member 
Neal.
    Thank you, Commissioner Werfel, for being here. You have 
got a very tough job.
    Mr. WERFEL. Yes.
    Mr. FEENSTRA. Very challenging. Obviously, we talked a lot 
about the $80 billion of funding in the IRS--I want to just 
note that, but that is not where I am going--$4.8 billion was 
for business modernization systems, about 6 percent of the 
funding.
    The key here is that in February the GAO has published a 
report outlining the status of IRS, its IT modernization, which 
is concerning to me. A third of the applications and nearly a 
fourth of the software is considered legacy that is way behind. 
The assets range from 25 to 64 years of age, including software 
that needs up to 15 versions, or--15 versions of new versions.
    It also noted that the individual master file has been in 
place since 1970, and barely has anybody that understands the 
code or, you know, I mean, it is stressed.
    So the--my question is, you know, it seems like we are 
cutting down a tree with a dull axe. And could we be more 
efficient? Well, let me back up. Is the $4.8 billion--will that 
satisfy creating a whole new system that is required or needed?
    Mr. WERFEL. I would need to line up those funds. But to 
make sure that I am answering your question, we have a larger 
fund of money available in the Inflation Reduction Act to 
improve our overall operations support, which includes 
technology. But the bottom line----
    Mr. FEENSTRA. Yes, but----
    Mr. WERFEL [continuing]. Is we do need to update our core 
systems.
    Mr. FEENSTRA. That is what I am asking you. So is the $4.8 
billion enough to update your core systems? That is simply what 
I am asking.
    Mr. WERFEL. I would have to get back to you in terms of 
making sure that I am lining up that $4.8 billion. But there is 
multiple core systems. There is the individual master file----
    Mr. FEENSTRA. Yes.
    Mr. WERFEL [continuing]. There is the business master file, 
there is our enterprise----
    Mr. FEENSTRA. So----
    Mr. WERFEL [continuing]. Case management system.
    Mr. FEENSTRA. So, Commissioner Werfel, do you see this as a 
concern, when you have such an archaic system?
    I mean, I can't even imagine a banking industry or any 
business running on such a system. I mean, some of this is DOS, 
I think.
    Mr. WERFEL. Yes.
    Mr. FEENSTRA. I mean, this is crazy. I mean, think about 
that, running on DOS.
    Mr. WERFEL. Yes.
    Mr. FEENSTRA. I don't mean to stump you, but----
    Mr. WERFEL. No, no, no. I mean, you are preaching to the 
choir here in terms of the need to update these systems. They 
are on old COBOL-based language. Those need to be updated.
    Mr. FEENSTRA. Right, right. I would love to see the 
colleges and universities that still teach COBOL. [Laughter.]
    But--so this is my concern, right? So what has happened in 
the last year under the Administration, right, is we are going 
down the path of OECD with pillar 2, we have GILTI right now 
that has 16 data points that is being collected. If you go down 
pillar 2, you are going to probably have 200 data points that 
needs to be collected. We are also going with a 15 percent 
minimum tax, book tax. I mean, these are very complex things. 
And yet would it be fair to say that we don't have a system to 
handle all this?
    Mr. WERFEL. Like, right now, the systems are functioning. 
They need to function into the future better. And so what I 
mean by that is not enough processes are automated, we have 
updates we need to do to our data security requirements for 
these systems, and we can't hire as agilely as we could because 
people don't know COBOL.
    Mr. FEENSTRA. Thank you. You just answered my question. 
That is exactly right.
    Here is my thing. Wouldn't you want to dramatically update 
your system first before you are updating all your workforce?
    I mean, right now, like I said, you have to hire somebody 
that knows COBOL or DOS, heaven forbid. You know, you hear what 
I am saying? I mean----
    Mr. WERFEL. I do.
    Mr. FEENSTRA [continuing]. How does--can you square this 
up?
    Mr. WERFEL. Yes, I mean, I think we have to do multiple 
things to serve taxpayers in different ways.
    Like, I--if I stop and just focus on the technology, then I 
am not putting the people in the taxpayer assistance centers, 
and people come to shuttered taxpayer assistance centers.
    Mr. FEENSTRA. Right.
    Mr. WERFEL. If I don't hire people to process the Employee 
Retention Credit, then people are waiting longer. So we have to 
have the ability to manage multiple priorities simultaneously.
    Mr. FEENSTRA. Yes, you got--sure. There is a lot of things, 
but this is what happens with such a complex tax code.
    And, I mean, I want everybody to know out there that, I 
mean, DOS, COBOL, this is--when a system is probably 25 years 
or 60--up to 25 to 45 years of age, the security concerns alone 
scare me, just a great fear of what--you know, what data is--
you are collecting, and what could be out in the public if we 
don't get this right.
    So I humbly ask, we got to make sure that we get a system 
that is updated, that can handle these complex income returns, 
because it is critical to our service.
    Mr. WERFEL. It is actually a mission critical system, and 
it needs to be updated.
    Mr. FEENSTRA. Thank you.
    Thanks, and I yield back.
    Chairman SMITH. Mr. Evans is recognized.
    Mr. EVANS. Thank you, Mr. Chairman.
    I would like to congratulate you first for the job and all 
the things that you are trying to do. I have two questions.
    First question is Congresswoman Moore and I recently 
introduced legislation to expand poverty-busting earned income 
tax. I am going to follow with this question: What is the IRS 
doing to help low-income families who might not file the tax 
returns navigate through the tax system and access to benefits 
they have earned? That is one question.
    Second question, how does the agency plan to deploy 
Inflation Reduction Act funds to improve customer service and 
provide timely response to our constituents?
    Mr. WERFEL. Yes. So I appreciate both questions.
    On the first one, we absolutely have an opportunity to up 
our game in terms of how we engage the public around what 
benefits and what credits they are eligible for. We try to go 
out using press releases, social media to remind people of what 
they might be eligible for. We say--we tell them they may be 
eligible for a credit they should file.
    We have started to take other steps. We started to--we have 
EITC Awareness Day that we participate in. We have taxpayer 
experience days at our walk-in centers on Saturdays, where we 
try to work with local organizers to make sure people 
understand what might be available to them, and then how they 
should go about working with volunteers like VITA, which is one 
of our big partners, and helping them apply and fill out their 
taxes with the credit in mind.
    That is a healthy amount of activity, but it is not nearly 
enough, because I think there is not enough people eligible for 
these credits that are actually applying for these credits, and 
I think there is an opportunity to up that.
    In terms of the operating plan and--you know, there is a 
bunch of different things that we are trying to do to improve 
service: speed, accessibility. So it is one thing--we have to 
staff the--all of these centers correctly. The calls--if you 
want to walk in, we should be staffed. If you want to call us, 
there should be someone waiting for that call.
    If you want to go on irs.gov, we should be able to be 
modern and, for example, have an individual account for you, so 
that you can immediately go on, not get on the phone with 
someone to see the status of your account, but actually log in 
with your username and password and see, here is the status of 
my account. Oh, look, there is a flag. Let me go see if I can 
resolve it, and resolving it in real time and, essentially, end 
the era of letters back and forth and correspondence with the 
IRS in paper.
    All of that will be made possible by the Inflation 
Reduction Act. If we don't have those funds, then we are just 
reverting back to just answering phones. And so that is why I 
keep emphasizing it is important to fund our modernization 
because, at the end of the day, who benefits? Taxpayers.
    Chairman SMITH. Thank you, Mr. Evans. We greatly appreciate 
it.
    Mr. Carey.
    Mr. CAREY. Commissioner, thank you for being with us. I 
know it has been a long day. I am going to go through a few 
things I have.
    I am a huge believer in affordable housing----
    Mr. WERFEL. Yes.
    Mr. CAREY [continuing]. But as well as conversion, as it 
relates to many of the office buildings that we have in our 
inner cities, which I represent. But what I am going to focus 
on is historical tax credits. So--I don't think anybody else 
has done that yet, so I just want to get your mind set as I 
read through some of the examples that I have back in Ohio.
    In January of 2021, 9 of my colleagues in Congress, 
including Ohio Senators Brown and Portman, sent a letter to the 
former commissioner about the IRS denying historic preservation 
easement tax deductions because an Ohio building owner 
installed an ADA-compliant wheelchair ramp on a historic 
structure. This building owner, who is a taxpayer, had worked 
with the National Park Service to design the ramp in a way that 
would protect the historic character of the building. But the 
IRS said the law does not provide exemptions for local fire and 
safety laws for Americans with Disabilities Act when 
considering whether an easement compliance with this structure 
is--the statutory requirement. The IRS subsequently reversed 
course, and the IRS Office of Chief Counsel released a 
memorandum in March of 2021 that clarified that the 
installation of an ADA accessibility ramp was permitted. So 
they did that.
    However, I was recently made aware that the IRS has again 
begun to deny easement deductions on historic buildings, this 
time over the hypothetical scenario that a building owner might 
some time in the future install a wheelchair ramp. The IRS 
enforcement officer recently denied a historic preservation 
easement, saying--and I quote--``In the event the use changed 
to a retirement home for the elderly, it would be likely 
required many modifications such as wheelchair ramps, 
additional elevators, removal or expansion of current street-
level doors and windows in order to comply with the codes of a 
retirement community. A change in use would likely require 
changes on all sides of the building, and would be inconsistent 
with the use of the building.''
    Now, we all believe in historic preservation. I don't think 
there is any one of us--so my question is, do you agree with 
the IRS Office of Chief Counsel memo stating that the ADA 
accessibility ramp should be permitted?
    Mr. WERFEL. I haven't read that. But yes, if there is an 
IRS counsel legitimate opinion out there, then I would support 
it.
    Mr. CAREY. So should taxpayers, historic building owners, 
something that is very important in the State of Ohio but 
across the country, and historic preservation community be 
forced to choose between complying with the ADA or using 
congressionally authorized preservation programs like the 
historic preservation easement?
    Mr. WERFEL. As you have presented it, Congressman, it seems 
like there is an--it is very incongruent and not clear what the 
IRS and--is asking of. And in relation to the Americans with 
Disabilities Act enhancements, without commenting on any 
specific taxpayer, I want to get back to you with some clarity 
on the overarching policy.
    Mr. CAREY. And this is an issue that I feel very strongly 
about, because, as we have seen in many of our cities, the 
ability to go in and take over some of these structures--many 
of them were eyesores for many, many years.
    So I would appreciate if your team would get back to me, 
because it is something that I feel very strongly about. And 
and I appreciate your time.
    And Mr. Chairman, I yield back.
    Mr. WERFEL. Thank you.
    Chairman SMITH. I thank the gentleman. Mr. Schneider is 
recognized.
    Mr. SCHNEIDER. Thank you, Mr. Chairman.
    And Commissioner Werfel, thank you for your patience today. 
It has been a long day. Save the best for the last. But also, 
congratulations on your recent appointment. Right, and you are 
the last, that is the best. But I am excited about working 
together.
    I want to echo what my colleague from Illinois, Mr. Davis, 
said, and praise the great people in the Chicago office for 
their efforts. And I commend the incredible progress the IRS 
has made in general, improving customer service over the past 
year, largely thanks to the funding we secured through the 
Inflation Reduction Act.
    A couple of things. I know COBOL, one.
    Mr. WERFEL. You do?
    Mr. SCHNEIDER. I have done programing on tax software, but 
in 1984. But I also worked at Sears catalog, overseeing their 
call center. I know how hard it is.
    Mr. WERFEL. We are hiring at the IRS, so----
    Mr. SCHNEIDER. Yes. So we will talk afterwards.
    But my team can attest to the quicker turnaround times and 
the better service at the IRS now available because of these 
funds. And I have heard the same from our constituents, as well 
as my friends in the accounting profession.
    I do want to mention some outstanding constituent cases. My 
office has been working with people who have not yet received 
their 2021 or 2022 tax refunds, either due to identity theft, 
or delays in the processing and verification of their identity, 
or a backlog of paper tax returns. We have been in touch with 
companies waiting for their Employee Retention Tax Credit.
    Mr. WERFEL. Yes.
    Mr. SCHNEIDER. It is compounded by the financial strain 
experienced due to the pandemic. It has been a burden on these 
companies. So I will forward everything to your office, but can 
I ask for your help and commitment----
    Mr. WERFEL. Yes.
    Mr. SCHNEIDER [continuing]. To work together?
    Mr. WERFEL. Absolutely.
    Mr. SCHNEIDER. Thank you very, very much. I appreciate 
that.
    Let me go back to the tax gap----
    Mr. WERFEL. Okay.
    Mr. SCHNEIDER [continuing]. For a second. Earlier you said 
it is about $500 billion a year.
    Mr. WERFEL. That is correct.
    Mr. SCHNEIDER. Is that correct, $5 trillion over the next 
decade?
    Mr. WERFEL. That is correct.
    Mr. SCHNEIDER. What are the, roughly, the projected 
receipts coming in for fiscal year 2023?
    Mr. WERFEL. I think it is around $4.6 trillion.
    Mr. SCHNEIDER. So we are talking about a year's worth of 
receipts over the course of the year that then puts the burden 
on the law-abiding.
    Very roughly--I won't hold you to this, but what percent of 
that tax cap do you think is in those 300-and-some-odd-thousand 
tax returns? Well, those people are filing returns, but that 
top one percent who----
    Mr. WERFEL. Here is the challenge, Congressman, is that we 
have to evolve the way we measure the tax gap because of how 
quickly that landscape is changing for high-income filers. We 
can't measure effectively what we can't see. And the reality 
is, because we have been under-resourced and haven't had the 
capacity to assess these complicated returns, that is why you 
have previous commissioners, you know, kind of opining on what 
that number might be.
    Mr. SCHNEIDER. But it is a big number.
    Mr. WERFEL. It is--I believe it is going to be a very big 
number, and I think CBO agrees with that, and that is why they 
see the--a lot of deficit savings in our plan to go and better 
assess----
    Mr. SCHNEIDER. Okay, and I just want to be sensitive to 
time.
    Mr. WERFEL [continuing].--Dollars.
    Mr. SCHNEIDER. You said you have roughly 2,600 people to 
review the returns of this high----
    Mr. WERFEL. Three hundred and ninety thousand of our 
highest-wealth filers.
    Mr. SCHNEIDER. Yes. How big do you think the army of tax 
experts, the tax accountants, tax lawyers helping that 390,000 
filers might be? Bigger than 2,600?
    Mr. WERFEL. I don't know. It is big, and it is their right 
to do it, but I also feel like, for middle and low-income 
Americans to feel confident that the tax system is fair, we 
have to be ready for those types of reviews and to be able to 
assess them effectively.
    Mr. SCHNEIDER. And let me be clear. They should have that 
advice.
    Mr. WERFEL. Absolutely.
    Mr. SCHNEIDER. They should be doing everything they can to 
not pay one penny more of the taxes they owe, but----
    Mr. WERFEL. It is their fiduciary responsibility to do so.
    Mr. SCHNEIDER. Right.
    Mr. WERFEL. I understand that.
    Mr. SCHNEIDER. There is a symmetry that--we should be able 
to make sure that they are paying every penny they owe.
    Mr. WERFEL. Exactly.
    Mr. SCHNEIDER. Thank you. Let me go back now to the service 
levels beyond the anecdotes we are hearing from our case 
workers and my constituents.
    The IRS filing season 2023 report card notes that the IRS 
has exceeded even its own metrics for new hiring of personnel 
in customer service roles. This includes nearly 6,000 customer 
service reps, onboarding nearly 3,000 employees in submission 
process being hired.
    I ask unanimous consent that the IRS filing season 2023 
report card be submitted for the record.
    Chairman SMITH. Without objection.
    [The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. SCHNEIDER. Thank you.
    Commissioner, my colleague earlier showed some charts 
asserting that the IRS priorities when it came to customer 
service were upside down. It made it look like the agency 
didn't care about taxpayer service. But that is not really 
true. Even amid the anemic funding over the past years, working 
with systems on COBOL, and DOS, and maybe even Fortran, didn't 
the IRS always do its best to shift resources to try to handle 
all customer service needs?
    Mr. WERFEL. I mean, it is absolutely a priority, customer 
service. I mean, if we are not answering the phones, if we are 
not helping taxpayers meet their obligations, then the system 
isn't working effectively. And the reality is we have to be 
able to do both effectively, and I think we can. And we have, 
historically.
    I think the reality is because of 15 years of underfunding, 
and then the impacts of the pandemic, we found ourselves in a 
really unhealthy state. And Americans suffered for it by not 
being able to get help from the IRS in meeting their tax 
obligation.
    Both are a priority, enforcement and service. But if you 
are a small business, middle or low-income, what the Inflation 
Reduction Act means for you is better service. It doesn't mean 
a new increase in our enforcement capacity. That is only for 
our highest-wealth taxpayers.
    Mr. SCHNEIDER. Thank you.
    I yield back.
    Chairman SMITH. Mr. Panetta is recognized.
    Mr. PANETTA. Thank you, Mr. Chairman.
    Commissioner Werfel, thanks for being here today, and thank 
you for your testimony. You have done a really good job. First 
of all, it gives me confidence in your ability to lead the IRS, 
but I hope it gives your employees confidence, as well.
    So I appreciate that, especially at this time when you are 
taking on this role following these historic investments that 
we have made in the IRS. And with that investment, as you 
mentioned previously, you are able to hire 5,000 more 
employees, allowing the IRS to answer 2.4 million more calls 
than last year. That is great.
    But I think, as you know, it is just not good enough. But I 
have confidence that you are going to get to good. I really 
do----
    Mr. WERFEL. I am not satisfied.
    Mr. PANETTA. I get it, good, and I appreciate that. Thank 
you for saying that.
    I think you are going to because, what, you got some new 
call-back options, and you got new scanning technology, as 
well, which I think will help. In addition to these customer 
improvements, you have added funding for the staff to reduce 
our tax gap and our deficits in the long run, as well.
    Now, despite the majority's bill yesterday, I firmly 
believe that we have to protect this investment and ensure that 
we continue funding the IRS to serve customers and administer 
the tax code fairly, and also so that we can go after those tax 
cheats, those people who are intentionally evading the taxes 
that they owe. So once again, thank you for your service.
    Now, this is great. I got a question here that, being the 
last in line on this dais, it is kind of nice that no one has 
talked about this. But I am also proud of this question because 
this is a question from a constituent that was brought to my 
attention based on the good work of my staffer, Mark Dennin, 
who basically talked about these ERTC mills.
    You know, in my area, in the central coast of California, 
you listen to the radio and you are just bombarded by these 
advertisements for small businesses to apply for Employer 
Retention Tax Credits.
    Mr. WERFEL. Yes.
    Mr. PANETTA. Yet these advertisements, they are directly 
targeting businesses who did not experience any pandemic 
losses, and are most likely ineligible for the ERTC. Now, I am 
concerned that some of these companies may be taking an overly 
generous view of the ERTC, taking fees or cuts of refunds, but 
disappearing if small businesses get audited if they are not in 
fact eligible.
    So obviously, you put out a warning--and I am grateful for 
that--to small businesses in October about these ERTC mills, 
but it is clear more needs to be done. So I got two questions.
    What else is the IRS planning to do to protect small 
businesses from these ERTC mills?
    And are there actions that we in Congress can do to shut 
these things down?
    Mr. WERFEL. Yes. So thank you for the question. And I 
mentioned earlier one of the challenges we have with ERTC 
processing, and one of the--there is a couple of different 
reasons why there is a backlog. One of them is that we do get a 
lot of fraudulent or ineligible applications in that clog the 
system. And so we are working to try to figure out how to 
ferret those out as effectively as we can.
    I think the first thing is, as you said, we have to be 
communicative. Like, we have our--we have what we call our 
dirty dozen scams. We go out, we try to explain to as many 
people that will hear us and engage with us, ``These are the 
things to be on the lookout for that this might not end well 
for you, because the person doesn't have your best interest, or 
this is not an advisable way of getting tax advice. So we can 
do more of that.
    There are steps often that Congress can do to give us 
authorities to regulate. I would love to work with you on what 
those steps may be. Ultimately, it would be up to the Secretary 
of the Treasury in terms of whether we would support them. But 
I can certainly answer questions around the types of tools that 
would help us.
    Mr. PANETTA. Good. I look forward to working with you.
    Mr. WERFEL. Thank you.
    Mr. PANETTA. It has been a long day for you, for us, and 
that is why I am going to yield back my minute. Thank you.
    Mr. WERFEL. Great.
    Mr. PANETTA. Mr. Chairman.
    Chairman SMITH. I thank the gentleman.
    Thank you, Mr. Werfel. We appreciate you appearing before 
our committee today. We appreciate that you were here for over 
four hours. We definitely appreciate your time and your 
comments.
    Please be advised that members have two weeks to submit 
written questions to be answered later in writing. Those 
questions and your answers will be made part of the formal 
hearing record.
    With that, the committee stands adjourned.
    [Whereupon, at 5:03 p.m., the committee was adjourned.]
      

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