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



                    HEARING WITH COMMISSIONER OF THE  
                 INTERNAL REVENUE SERVICE, DANIEL WERFEL 

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






                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION
                               __________

                           FEBRUARY 15, 2024
                               __________

                          Serial No. 118-FC20
                               __________

         Printed for the use of the Committee on Ways and Means 
         
         
         
         



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                                 ______

                   U.S. GOVERNMENT PUBLISHING OFFICE 

55-928                     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                    TERRI SEWELL, Alabama
LLOYD SMUCKER, Pennsylvania          SUZAN DelBENE, Washington
KEVIN HERN, Oklahoma                 JUDY CHU, California
CAROL MILLER, West Virginia          GWEN MOORE, Wisconsin
GREG MURPHY, North Carolina          DAN KILDEE, Michigan
DAVID KUSTOFF, Tennessee             DON BEYER, Virginia
BRIAN FITZPATRICK, Pennsylvania      DWIGHT EVANS, Pennsylvania
GREG STEUBE, Florida                 BRAD SCHNEIDER, Illinois
CLAUDIA TENNEY, New York             JIMMY PANETTA, California
MICHELLE FISCHBACH, Minnesota        JIMMY GOMEZ, 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 February 15, 2024 announcing the hearing.............     V

                                WITNESS

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

                    MEMBER QUESTIONS FOR THE RECORD

Member Questions for the Record to and Responses from Daniel 
  Werfel, Commissioner, Internal Revenue Service.................   104

                   PUBLIC SUBMISSIONS FOR THE RECORD

Public Submissions...............................................   186

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                    HEARING WITH COMMISSIONER OF THE 
                       INTERNAL REVENUE SERVICE, 
                             DANIEL WERFEL 

                              ----------                              


                      THURSDAY, FEBRUARY 15, 2024

                          House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:01 a.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.
    Before we begin, I know I speak for everyone here when I 
wish our ranking member a belated happy birthday yesterday. And 
we are supposed to have some cake later, so we have to 
celebrate.
    Mr. NEAL. I want a roll call vote on that. [Laughter.]
    Chairman SMITH. But a late happy birthday.
    Mr. NEAL. Thank you.
    Chairman SMITH. We appreciate serving with you, sir.
    Thank you, Commissioner Werfel, for appearing before the 
Ways and Means Committee a little earlier than usual this year. 
We have a lot to go over with you, so I appreciate you 
answering the request of our members to come before the 
committee early this year.
    First, as it pertains to the current 2023 tax filing 
season, I want to thank you and your team for the technical 
work to ensure the quick and without-delay implementations of 
provisions of the Tax Relief for American Families and Workers 
Act. We particularly appreciate the steps the agency is taking 
right now to be ready to immediately implement the legislation 
once the Senate passes the bill and it is signed into law, 
especially with regard to adjustments to the Child Tax Credit.
    I think we are also largely aligned on the importance of 
rooting out fraud in the Employee Retention Tax Credit program. 
We look forward to hearing about your efforts not just in 
eliminating that fraud, but also making sure that small 
businesses across America who filed legitimate claims receive 
their credits as soon as possible.
    While I am grateful for your partnership in these efforts, 
it won't surprise you that I also have a number of concerns 
about the Biden Administration's approach to the IRS and about 
the IRS's handling of several important issues.
    The last time you were before this committee the IRS had 
chosen to delay a provision of a law crafted by the Biden 
Administration and congressional Democrats that would send tax 
forms to 44 million Americans just for engaging in transactions 
over $600 in a year. This includes transactions like simply 
selling a used couch or a concert ticket through a third-party 
payment platform. Once again, the IRS unilaterally chose to 
delay implementing the law or sending these forms--this time in 
an election year.
    To be clear, Republicans are united behind repealing this 
terrible policy, and I want to thank Representative Carol 
Miller for her leadership on the repeal effort. But the way to 
fix this terrible law is to repeal it, not to use the IRS to 
shield the Biden Administration from the consequences of its 
own policies.
    Also, last time you were before this committee, you said 
the IRS would not retaliate against whistleblowers. One of the 
IRS whistleblowers who has appeared before this committee has 
since alleged the IRS retaliated against him for exposing the 
truth about the DoJ's preferential treatment of Hunter Biden. I 
hope you will share what steps have been taken to protect 
whistleblowers.
    And just a couple of weeks ago a judge sentenced an IRS 
contractor to five years in prison for the greatest theft of 
taxpayer information in American history. I think the 
Department of Justice woefully, woefully undercharged this 
individual, but I am pleased the judge applied the maximum 
sentence available to her.
    But this story doesn't end with that case. The IRS must be 
accountable for allowing this theft to have ever happened and 
must ensure that it fixes security vulnerabilities at the 
agency. A recent report from the inspector general described 
alarming details about how--current IRS security flaws that 
demonstrate the problem has not--and has not been resolved. I 
hope that you will commit today to address their findings 
quickly for the sake of millions of taxpayers.
    We have serious questions about numerous other issues, such 
as the implementation of an IRS direct file scheme that the 
American people didn't ask for, how the IRS is spending its 
windfall of $80 billion, and Fantasyland claims about how much 
revenue the agency thinks it will generate from increased 
audits.
    Frankly, more of the IRS's time and resources should be 
directed toward improving its customer service for its existing 
duties, not spending money and resources on new systems no one 
has asked for. Part of that focus should be on deploying new 
technology to make the IRS more efficient. Proper use of 
technology can help avoid the need to hire thousands and 
thousands of new employees.
    I want to thank Representative Schweikert for leading the 
charge to ensure that the IRS is taking advantage of new 
technology to help taxpayers.
    Clearly, there is a lot the IRS needs to answer for, and I 
look forward to hearing how your agency plans to follow the law 
and protect taxpayers moving forward.
    Chairman SMITH. I am pleased to recognize Ranking Member 
Neal for his opening statement.
    Mr. NEAL. Thank you, Chairman. So, we want to welcome the 
commissioner back to the Committee on Ways and Means.
    As always, it is delightful to have you with us in the 
middle of what promises to be another record-breaking filing 
season. The dedication of the employees of the Internal Revenue 
Service is remarkable. We want to thank them for their 
commitment to our taxpayers and fair tax administration--
emphasis on the word fair--and for the swift implementation of 
the Inflation Reduction Act.
    Last filing season was the first impacted by the Democrats' 
multi-year investment from this historic legislation. While 
taxpayer service was dramatically improved, it was merely the 
consequence of a well-laid, well-funded plan. The results have 
been quite remarkable. In this era of service to America's 
taxpayers, the IRS beat Secretary Yellen's goal and delivered 
an 87 percent quality level of service, 3 million more phone 
calls were answered, while wait times were cut from 28 minutes 
to 3 minutes. Over 140,000 additional taxpayers were served in 
person. The 2022 backlog was eliminated, and many new digital 
tools were introduced to make taxpayer experiences even easier.
    A reminder to our Republican colleagues: many of the 
recommendations that we entertain and discuss this morning came 
from Commissioner Rettig, a Republican who worked with all of 
us to ensure quality service. We know that expectations have 
been increased based on the success that the IRS has had so 
far.
    It was just last year that we discussed the future of the 
IRS's ability to hold the top 1 percent of tax cheats 
accountable, and in a matter of months over $500 million has 
been recovered from 1,600 wealthy tax avoiders.
    Another major victory is taxpayer fairness and a victory 
for the IRS. A reminder: If the revenue is not collected in a 
fair manner, that means the rest of us pay more.
    Yet the biggest threat to the IRS right now is the 
extremism of some of our colleagues. From the government 
shutdown that looms in just five legislative days to our 
colleagues' attempt to gut our investments every chance they 
have gotten, not only would this end up costing taxpayers money 
and adding to the deficit, but how can you argue with the 
success?
    I find myself wondering out loud about who wins when the 
IRS is starved for its resources. Perhaps our colleagues will 
have a chance to answer that this morning.
    Under Republican funding cuts, the audit rate on 
millionaires fell by more than 70 percent from 2010 to 2019. 
Those are numbers from Commissioner Rettig. And the audit rate 
on large corporations fell by more than 50 percent. That was a 
request from Commissioner Rettig. Workers and their families 
pay their fair share, and the American people can count on us 
to ensure that wealthy and well-connected people are paying 
their fair share, too.
    While the promise of direct file draws near and I am 
optimistic about some prospects, I am disappointed it wasn't 
all ready in time for the public to take advantage of it.
    We want to thank the commissioner for his diligence in 
being here today. We look forward to continuing work on behalf 
of the American people.
    Mr. NEAL. And with that I yield back the balance of my 
time, Mr. Chairman.
    Chairman SMITH. Thank you, Ranking Member Neal.
    Today's sole witness is the commissioner of the Internal 
Revenue Service, Daniel Werfel.
    The committee has received your written statement, and it 
will be made part of the formal hearing record.
    Commissioner Werfel, you may begin when you are ready.

           STATEMENT OF THE HON. 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 IRS operations.
    I am pleased to report that the 2024 filing season opened 
on schedule on January 29 and has gone smoothly so far. Along 
with filing season and other day-to-day operations, we continue 
to make important progress in our efforts to transform our 
agency through implementation of the Inflation Reduction Act.
    Using IRA funding, our work is centered on three 
fundamental themes: first, ensuring taxpayers can easily 
contact the IRS whether in person, on the phone, or online; we 
want them to get help navigating complex tax laws and accessing 
the credits they deserve; second, identifying the growing 
number of taxpayers with complex returns, including certain 
wealthy individuals, large corporations, and complex 
partnerships who are shielding income to evade their tax 
responsibility, we want to collect from them what is owed; and 
third, addressing the growing risk of tax scams and schemes by 
protecting honest taxpayers from them, we want to root out the 
nefarious actors that perpetrate them. These investments allow 
us to strengthen the overall effectiveness of IRS operations.
    As commissioner, I want people to know that the IRS is on 
the side of taxpayers, and we are working to reflect that in 
every aspect of our operations while administering the nation's 
tax law. The IRS has been working hard to build on the 
accomplishments of last year. Our transformation goals for this 
filing season include providing an 85 percent level of service 
on our main toll-free phone line during the filing season.
    On the compliance side, we continue to increase scrutiny on 
those who evade taxes. We are working to reverse the 
historically low audit rates for large corporations, complex 
partnerships, and high-wealth individuals. During the past 
year, the IRS has also taken dramatic steps to strengthen our 
internal systems, protocols, and procedures by putting in place 
numerous improvements to bolster how we protect key systems and 
information. Our recent steps, enabled with new funding, have 
sharply reduced risks for taxpayers and the tax system.
    While taxpayers should rightfully be concerned about recent 
reports of the unauthorized access and disclosure that occurred 
in the 2017 to 2021 timeframe, the data security environment at 
the IRS is dramatically improved today. We have worked 
tirelessly this past year to close gaps that allowed this 
unfortunate event to transpire. However, there is always more 
work to do in this area, and we will continue our laser focus 
on strengthening data security.
    Another important aspect of our mission is implementing the 
tax laws fairly and justly. A key part of this involves making 
sure everyone pays the taxes they owe. But we also have a 
responsibility to protect taxpayers from being overly burdened 
in fulfilling their tax obligations. We work continuously to 
balance these two sides of the mission. This is the issue we 
faced in implementing the $600 threshold for 1099-K reporting 
that Congress passed in 2021.
    While it is important for us to have the information 
provided under the lower threshold, we must also consider the 
burden placed on taxpayers in meeting this requirement. Our 
administration of tax laws should be guided by what is best for 
taxpayers. In this situation, we delayed imposing the lower 
threshold because we realized that immediate implementation 
posed a high risk of taxpayers being confused and, given the 
complexities of the 1099 reporting, some potentially paying 
taxes they didn't actually owe. That is something we take very 
seriously, and we will do everything in our power to avoid.
    So the IRS is continuing to work to reduce that risk before 
imposing the $600 standard for business transactions. We will 
continue working this and getting feedback from key groups.
    I also want to assure the committee that the IRS is paying 
close attention to the potential passage of the Child Tax 
Credit legislation. If Congress acts, the IRS is poised to move 
quickly to implement it. Building off our experience with 
economic impact payments during the pandemic, we may be able to 
start implementation as early as 6 to 12 weeks after passage, 
depending on the bill's final language. But taxpayers should 
not wait for this legislation to file their returns. We will 
take care of getting any additional refunds to taxpayers who 
have already filed. They won't need to take additional steps.
    Chairman Smith, Ranking Member Neal, and members of the 
committee, that concludes my statement. I am 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.
    Commissioner Werfel, as you know, the House-passed the Tax 
Relief for American Families and Workers Act included 
adjustments to Child Tax Credit. You just briefly touched on 
that. I want to ask some additional questions to make the 
record reflect appropriately. But the bill passed through this 
committee by a vote of 40 to 3, and it received 357 votes on 
the House floor. As I mentioned in my opening statement, I 
appreciate the work your--you and your team have done to help 
ensure that the bill can be implemented as quickly as possible. 
I just want to confirm a few details with you.
    The overwhelming majority of American taxpayers are 
guaranteed to have no adjustment to their tax liability due to 
the Child Tax Credit changes in this bill. In fact, can you 
confirm that only roughly 10 percent of households will be 
affected and will receive just modest adjustments to their tax 
refunds?
    Mr. WERFEL. Yes. In fact, in looking at the numbers, if you 
look at the same eligible population in fiscal year 2022, it 
was about 22.5 million people. So that metric that you offered 
is in line with our understanding of how it is going to impact 
taxpayers going forward.
    Chairman SMITH. Thank you. We worked with your team to make 
sure the bill did not place a new burden on taxpayers and can 
be implemented without delay. Can you confirm that taxpayers do 
not need to file amended returns to obtain the adjustments the 
bill makes, further speeding things up?
    Mr. WERFEL. Yes.
    Chairman SMITH. Thank you. There is language in the 
legislation requiring the IRS to process any additional returns 
without delay. As a matter of fact, that was language we added 
during the markup in this room. If the bill is passed by the 
Senate and signed into law, how quickly will you be able to 
make the Child Tax Credit adjustments for this filing season?
    In other words, how long will it take after bill signage 
for the IRS to send out any additional refunds?
    Mr. WERFEL. Well, we gave you a range of 6 to 12 weeks 
required for implementation from the point of enactment. The 
reason we give a range is because we need to see the final 
language. But I am committed to work diligently to make sure we 
are closer to the 6-week end of that range than the 12-week.
    Chairman SMITH. I appreciate hearing that, Commissioner. So 
just to be clear, we have your commitment that the IRS will 
move as quickly as possible.
    Mr. WERFEL. It will be a top priority to make sure that 
this gets done.
    Chairman SMITH. Thank you, sir. In the past, Congress has 
asked the IRS to make changes during tax filing season. In 
fact, Congress has asked the IRS to make much larger changes 
than this bill does, like sending stimulus checks to hundreds 
of millions of taxpayers or creating a monthly check-sending 
system for the Child Tax Credit on the fly. The number of 
taxpayers affected here is a fraction of those affected in 
those other programs.
    Given that, can you confirm the administrative adjustments 
needed to implement the Tax Relief for American Families and 
Workers Act are a much lighter lift for the IRS than for those 
other programs?
    Mr. WERFEL. Yes. And Mr. Chairman, the work that we did to 
implement the payments that you referred allowed us to build 
additional capacity to make us even more ready for this change.
    Chairman SMITH. Thank you, sir. Commissioner Werfel, the 
individual who stole and disclosed the tax information of 
thousands of Americans has now been punished with a sentence of 
five years in prison. While I am glad the judge in the case 
sentenced him to the maximum available to her, I was surprised 
that the Department of Justice only charged the individual with 
one count, one count of unauthorized disclosure, and no other 
crimes.
    Did you make a recommendation to the Department of Justice 
on how to charge in this case?
    Mr. WERFEL. No, that is not the role of the IRS 
commissioner. We allow and defer to the Department of Justice 
on prosecutorial decisions.
    Chairman SMITH. Do you think one count of disclosure 
matches the crime committed?
    Mr. WERFEL. I think that protecting taxpayer information 
from unauthorized access is an absolute solemn responsibility 
of the IRS, and I also believe that this individual betrayed 
the trust. He betrayed his own commitments, he betrayed IRS 
employees, and he betrayed the American tax people. And based--
and that type of betrayal should not be tolerated. And based on 
what is playing out in court, it is not being tolerated because 
this person is being brought to justice and, as I understand 
it, is going to spend years in prison.
    Chairman SMITH. Five years. Do you think the penalty should 
have been higher for this individual?
    Mr. WERFEL. I don't have a judgment on that, Mr. Chairman. 
I rely on the court and the judicial process to play out, and I 
trust that the judicial process will get the right answer.
    Chairman SMITH. I was looking at more of the legislative 
process of whether Congress should change and increase the 
penalties for someone who abuses taxpayer information like this 
situation.
    I now recognize the ranking member for any questions he 
might have.
    Mr. NEAL. Thank you, Chairman.
    Commissioner, what has the IRS done to restore an element 
of fairness to the tax system?
    And are there any new compliance pushes that you are aware 
of to audit high-income earners and big corporations?
    Mr. WERFEL. Yes, thank you for the question.
    So what happened in the period before the Inflation 
Reduction Act, when IRS funding was low and we weren't making 
the appropriate investments, is there is a variety of different 
areas we fell behind. And one of the key areas we fell behind 
is the ability to assess complex returns.
    So, in situations where taxpayers had the means to hire an 
army of lawyers or accountants to create a lot of complexity in 
their return and potentially shield income, we weren't making 
the appropriate investments to track that, assess it, and 
collect it. And now we are doing just that. With the Inflation 
Reduction Act resources, we are focused on building our 
capacity around how to deal with complex returns and how to 
make sure there is fairness. Because if you are a taxpayer who 
can't afford to hire a lawyer or an accountant to help you 
create complexity and shield your income, then you would likely 
be very frustrated if those that did have the resources could 
do that and evade what they owe. And we have to close that gap, 
and we are making really important progress already in closing 
that gap.
    Mr. NEAL. Thanks. And, Commissioner, let's talk about data 
security. I thought your answer in your introductory comments 
was on target. You want to talk about data security and the 
improvements that have been made in your time as commissioner?
    Mr. WERFEL. Yes. I mentioned how important, in the answer 
to Mr. Chairman's question, data security is to the IRS. It is 
fundamental to what we do in ensuring the public trust.
    When I got to the IRS, one of the first things I did in 
March of 2023 was pull the team in together and ask, what is 
the state of our data security environment? And what I learned 
was there were a lot of gaps. And one of the primary causes of 
those gaps was lack of investment. The under-funding that had 
occurred for many years at the IRS, I said, decreased our 
capacity in a variety of different ways, and one of those ways 
was to keep pace with investing in the type of technology, 
process change, controls to make sure that our environment was 
secure.
    And we have spent the last year working diligently to close 
those gaps, and there is a long laundry list of steps we have 
taken to completely, dramatically change our environment, and I 
will point out one important one.
    The inspector general, in evaluating our security 
environment, pointed specifically to a lack of audit trails in 
our system so that we can see how data is moving throughout the 
organization, and we can track and see if it is moving in an 
inappropriate way. I required, and it has now been implemented, 
that every sensitive system in the IRS has the very robust 
audit trails that the inspector general required.
    Again, before the Inflation Reduction Act, we didn't have 
the resources to put in the work to close these gaps. And that 
is why it is so important that the IRS be funded adequately for 
its operations, not just so that we can answer the phone when 
people call us, not so that we can keep pace with complex 
returns, but we need to invest in our infrastructure and invest 
in our data security so events like what happened in 2017 to 
2020--that that doesn't happen again.
    Mr. NEAL. Yes, I don't understand the logic that sometimes 
is offered that, if we cut the IRS, then somehow we are going 
to improve compliance. The logic escapes me.
    So let me give you some time here. You have got a minute 
and 15 seconds to talk about some of the other additions to 
your testimony that you might like to offer.
    Mr. WERFEL. Absolutely. So I really want to amplify this 
point about what a funded IRS means versus what it doesn't. And 
we have all the evidence we need in looking at the state of the 
IRS before the Inflation Reduction Act was passed versus where 
it is today.
    And, before the Inflation Reduction Act was passed, our 
walk-in centers around the country were closed or understaffed 
with lines around the block. And now, just a few years later, 
we have opened 50 new walk-in centers. They are fully staffed. 
We are extending hours to Saturday for people who can't get to 
us during the week, and we are implementing what we call pop-up 
walk-in centers going to remote populations. So, if people want 
to see us in person, they now can.
    A second example is with the phones. We were under-staffed 
by thousands of phone assisters because of under-funding. What 
did we do with the funding? We hired 5,000 phone assisters, put 
them in the call center, and, between before the Inflation 
Reduction Act and after, there was a dramatic change in our 
ability to answer the phone and help taxpayers with their 
questions. And the same is true for digital.
    We have a whole generation of taxpayers that is going to 
expect, as they should, to be able to do everything they ever 
wanted to do with the IRS without calling us, without going 
into our walk-in centers. And before we were funded, our 
technology tools were stagnant. They weren't being updated in 
the way you would see either other tax jurisdictions around the 
world or in the financial services sector, in the retail 
sector. That is all changing now.
    We have work to do, but now every time taxpayers come to be 
with the IRS and filling out their taxes or answering a 
question when they go to our website each filing season, they 
are going to see a new set of tools, new functionality, new 
things that they can do without ever calling us or walking into 
a walk-in center because we are investing and focusing our 
investments on how do we best serve taxpayers.
    Mr. NEAL. Thank you.
    Thank you, Mr. Chairman.
    Chairman SMITH. Thank you. Mr. Buchanan is recognized.
    Mr. BUCHANAN. Thank you, Mr. Chairman. I want to thank the 
commissioner for being here today.
    I chaired the Florida Chamber. We had 130,000 businesses in 
the federation across Florida. One of the biggest issues--and I 
mentioned this to you a little bit earlier--is dispute 
resolution. And I am talking about companies with 50 employees 
or less, the cost of hiring accountants, and maybe you have to 
get an attorney and go through that whole process. It is very 
time consuming. Many times it will put them out of business, 
some of them.
    But I think it has got a little bit better, but what is 
your mindset of where we are at in terms of--it seems like we 
want to get a fair deal for the IRS, for the country, but then 
resolve as many of these disputes as we can. Some of them claim 
they are out there a year, six months, eight months. It ties up 
their energy, their time, and their enterprise. And you 
mentioned that, you know, the big corporation is one thing, but 
small business and individuals, as well, but I am just focused 
right now on small business.
    Mr. WERFEL. Yes, I really appreciate the question, 
Congressman.
    I haven't mentioned it yet, but one of the things that 
guides me in the job is the taxpayer bill of rights. I have it 
framed above my desk. I have it with me today. It is kind of 
like--some people carry around their pocket constitution; I 
carry around the taxpayer bill of rights because it is so 
important that in everything we do we are guided by it.
    And one of those rights is the right to speedily resolve 
your issues. And I want to make the right investments so that 
we are doing that. And that is a multi-pronged set of 
solutions. It is, for example, having clearer notices, clearer 
guidance. So, if the law is complicated, the IRS is translating 
it clearly so there--we never get to a dispute. It is doing 
outreach to small businesses with training and webinars. We are 
investing to what are your questions and how can we help you. 
And then it is hiring more people and working to make sure that 
there is no dispute resolution that is taking too long.
    Mr. BUCHANAN. I only got a few minutes.
    Mr. WERFEL. Yes.
    Mr. BUCHANAN. I got a couple of things I want to get 
through.
    Identity theft----
    Mr. WERFEL. Yes.
    Mr. BUCHANAN. It was a huge issue. Again, it seems like it 
is organized groups and stuff is still out there. Where are we 
at with identity theft now? Because I had a lot of people in 
our region in Florida where their identity was stolen, the tax 
returns were filed on behalf of the thief or whatever, or some 
organized group. Where do you--what is your sense of where that 
is at?
    Mr. WERFEL. Well, it is critical, and it is a top priority. 
I mentioned top three things we want to do under the Inflation 
Reduction Act, and one is prevent people from being victimized.
    And this is a mixed story. I wish it was all good. We have 
made significant progress in preventing identity theft, working 
with private sector partners in what we call our security 
summit. We now prevent 98 percent of identity theft attacks, if 
you will. But, in the case where there is a victim, as was 
recently pointed out by a taxpayer advocate report, we are not 
resolving those issues quick enough. And so it is a priority 
going forward that--not only to continue our strong performance 
in preventing identity theft, but also when it happens and 
there is a victim, to raise our game and make sure that we are 
providing that victim assistance in a much more robust way.
    Mr. BUCHANAN. Yes, let me ask you one other thing. In terms 
of customer service, I know you touched on that, just talking 
to accountants and things locally. And it does seem like--I 
want to give you a little credit--it seems like things have 
gotten a little bit better. But still, they are on the phone 
for an over an hour, they are aggravated. You know, being 
someone that is in business, you want to take care of those 
folks as quickly as you can, at least in terms of answering the 
phone, get their questions answered.
    And you touched on it in your early testimony, but where is 
your sense of where that--we are going to get to a point where 
we can answer the phone quicker and try to get them----
    Mr. WERFEL. Yes.
    Mr. BUCHANAN [continuing]. A little bit more help from a 
quicker stance?
    Mr. WERFEL. So on our main phone line, which is where most 
of the volume comes, we are at an 85 percent level of service. 
But there is more to do. There are other phone lines that we 
need to continue to work on and improve. And let me give you an 
important example of what we are doing.
    I don't ever want to hear about someone waiting on the 
phone for an hour. That is heartbreaking, frustrating, but it 
is also a rallying cry for us. One of the things we have done 
this year is we have instituted a call-back option. And what 
that means is that--the way we are engineering our call center 
now, if your wait time is going to be longer than 15 minutes, 
we will introduce into the phone, hey, you can--we can schedule 
a call-back option so you can hang up, no longer listen to 
elevator music, and we will call you back.
    These are the types of improvements--I know this happens in 
your everyday life when you are on any other call center in the 
retail industry and otherwise, banking industry. We have some 
catching up to do. But because we have funding, we can make 
these investments. And these are really helpful to taxpayers 
because now, if they have got a baby crying or something, they 
can hang up and get a call-back option.
    Mr. BUCHANAN. Thank you, and I yield back.
    Chairman SMITH. Mr. Doggett is recognized.
    Mr. DOGGETT. Thank you very much.
    And thank you, Commissioner, for the efforts that you and 
your team have made to address many of the problems that have 
been created over the last decade, prior to the last Congress, 
by those who seemed intent on ensuring that IRS would fail by 
cutting the budget again and again, and continually attacking 
and stirring public dissatisfaction with the IRS.
    As I understand your testimony, we have gone from a low of 
15 percent satisfaction to 85 percent satisfaction, is that 
right?
    Mr. WERFEL. That is correct.
    Mr. DOGGETT. I remember having not only complaints from 
constituents before we provided these funds, but even from CPAs 
and tax preparers that had a special line that--kept holding in 
the very way you said they are not today. And you could not 
have had these successes and your team could not have had these 
successes without the additional funding you were provided by 
the last Congress. Is that correct?
    Mr. WERFEL. That is correct.
    Mr. DOGGETT. Of course, the other area that is very 
important to me is enforcing our tax laws so that the many 
people that are out there that are paying their fair share are 
not abused by those who refuse to do so.
    And the data that I have seen suggests that audit rates for 
large corporations in the decade prior to the last Congress 
were cut in half, and that the audit rates for those who earned 
over $1 million per year were cut by about 70 percent, that the 
top 1 percent was getting away with not paying an estimated 
$160 billion in taxes each year.
    I know that you reported progress being made on tax 
enforcement earlier this year and a significant increase in 
revenue as a result. Were the people that you were after, were 
they the kind we hear about in some of these campaign speeches 
that, you know, just had honest mistakes and left a little off 
their return, or were they true tax cheats?
    And can you give us some examples?
    Mr. WERFEL. Yes. I can't emphasize this enough, 
Congressman: Our focus, our priority, and our agenda under the 
Inflation Reduction Act is to increase scrutiny for complex 
filers, wealthy individuals, large corporations, and complex 
partnerships that are evading their tax responsibility. It is 
not our intent to increase scrutiny and invest this money on a 
new wave of audits for middle and low income. That is not going 
to happen under my watch, and we will be able to publicly 
report that so that you can hold me accountable for that.
    With respect to high wealth, there are a lot of different 
things we are doing to start to catch up and close the gap that 
has been there for too many years. And one of the things that 
we can report immediate results on--because often these 
enforcement actions take time. But there are some things we are 
doing that should give the American people confidence that we 
are using this money smartly and in a way that is creating 
fairness, and that is going after millionaires and billionaires 
who are delinquent on owed taxes. And this is--this should 
frustrate people. These are millionaires and billionaires who 
have been assessed a tax due and are delinquent in paying it. 
And we have so many honest Americans who pay their taxes on 
time, and these millionaires and billionaires are not.
    So we have created this high-risk list of 1,600 of these 
individuals, and we have started to go get the money back. And, 
so far, in the early stages of this effort, we have already 
collected a half-a-billion dollars. And that is just scratching 
the surface. So that should give you a sense of how much 
inequity there is and how much, if we stay on this path, we are 
going to be able to close that inequity gap.
    Mr. DOGGETT. And, if I understand, to stay on this path you 
have indicated that you need about another $800 million this 
year.
    Mr. WERFEL. Yes, and that is an important point about our 
budget. And I will just--if I could just say it briefly, we 
are--we have a base budget to fund our ongoing operations, keep 
the lights on, and then we have the Inflation Reduction Act, 
which is modernizing and helping us build capacities.
    Our base budget is insufficient to run the daily train 
schedules. And what that means is we have to borrow from the 
modernization fund just to keep the lights on. And, if we keep 
doing that, we won't modernize. We will keep the lights on, but 
we won't build these capacities that are so important to help 
taxpayers.
    Mr. DOGGETT. And I believe the Treasury, just within the 
last two weeks, has estimated that as much as $561 billion 
could be collected over the next decade from wealthy and 
corporate tax cheats that you are focused on. And yet, 
unfortunately, our Republican colleagues on this committee and 
elsewhere seem to have no higher priority, as indicated by the 
first bill they passed in this Congress and their efforts at 
every time we get up to the brink of disaster here, that they 
want to cut the very funding you are relying on to see that 
these corporate and high-wealth tax cheats are treated the same 
way and pay their taxes the way most Americans do.
    I just want to thank you for your efforts, and we will do 
all we can to resist the efforts to undermine the progress that 
you are making.
    Chairman SMITH. Mr. Smith is recognized.
    Mr. SMITH of Nebraska. Thank you, Mr. Chairman.
    Thank you, Commissioner, for being here today. I want to 
certainly register the fact that my office continues to receive 
input from constituents that they are not getting their 
questions answered from the IRS. I realize you are touting an 
85 percent efficiency level and that everything is just amazing 
at the IRS.
    I continue to have concerns that the $80 billion in IRA 
funding is not giving us the results, perhaps, that were 
promised.
    Also, certainly there is a lack of candor, I believe, from 
the Administration about how the funds are actually being 
utilized. I am particularly troubled that the Administration 
continues to implement policies across numerous agencies, 
regardless of whether it is legislated authority or not. 
Student loan forgiveness, critical mineral agreements, and the 
recent changes to the 1099-K requirement from ARPA are all 
examples of this kind of executive overreach.
    The development of the IRS's direct e-file system also 
appears to fit that description. While IRA, the BIL, so-called 
Inflation Reduction Act provided $15 million to conduct a study 
of direct e-file and enumerated the study's parameters, it 
provided funding for only nine months and said nothing about 
actually implementing that system. The nine months authorized 
for that study have now lapsed, as I am sure you are aware.
    Can you tell me explicitly what authority the IRS relied on 
to create an entirely new government-run system of filing 
taxes, since the law only provided authority to conduct a study 
on direct e-file--on the direct e-file system?
    And I am not looking for other examples of the IRS helping 
people file their taxes. I get that. I want specific language 
from the Federal code authorizing the particular pilot.
    Mr. WERFEL. Yes, absolutely, Congressman, I appreciate the 
question.
    So we do have a responsibility and an authority to offer 
taxpayers different approaches for how to meet their tax 
obligation. I can give you the exact statutory cite for that. 
What is critical about the direct file solution is that it is 
an option. There is no mandate for anyone to use this solution, 
should they choose.
    Mr. SMITH of Nebraska. But you are saying there is direct 
authority to do so?
    Mr. WERFEL. There is direct authority to implement the tax 
system in a way that provides tools and solutions for taxpayers 
to meet their tax responsibility.
    Mr. SMITH of Nebraska. Generically speaking, but----
    Mr. WERFEL. Yes, well, paper, electronic, calling us on the 
telephone. Not everything is delineated precisely in law.
    So, for example, if we create an Adobe version of the tax 
form that you can fill in online, we have done that. There is 
not a specific legal authority to do that, but there is a legal 
description of the commissioner's responsibilities. And one of 
those responsibilities is to provide taxpayers with avenues for 
how they can meet their tax obligation. And this is just one 
avenue. It is not a mandate, it is an option.
    Mr. SMITH of Nebraska. Well, I understand that, which--may 
not be a mandate, but does not always mean there is the 
authority to do so. And I would argue that that is the case 
right now. I am specifically troubled by the claim that there 
is that authority there when I don't believe that there is.
    But let's go back to the topic I have discussed with you 
and Secretary Yellen previously on multiple occasions, and that 
is audits targeting families earning less than $400,000. I 
continue to have concerns that, despite the claims from 
Secretary Yellen and others, that the Administration cannot and 
will not fulfill its promise about audit targets and also meet 
its claims about increased revenue.
    Last year you said, in response to a question for the 
record, that the IRS is committed to ensuring that none of the 
funds provided by the IRA will be used to increase audit rates 
for small businesses and households making less than $400,000 
annually, ``relative to historical levels,'' and that is a 
quote. The phrase ``historical levels'' means something higher 
than the current audit rates. Is that accurate?
    Mr. WERFEL. No, it is not accurate. We have been public--I 
don't think. Let me tell you what the current situation is.
    Tax year 2018 will be the base year that we will utilize to 
make sure that the audit rate----
    Mr. SMITH of Nebraska. Okay.
    Mr. WERFEL [continuing]. For those that earn less than 
400,000 does----
    Mr. SMITH of Nebraska. Okay----
    Mr. WERFEL [continuing]. Not exceed that----
    Mr. SMITH of Nebraska. Reclaiming my time, because time 
is----
    Mr. WERFEL. Sorry.
    Mr. SMITH of Nebraska [continuing]. Of the essence here, I 
would like to learn more about that.
    But I would also like to know if the IRS can provide us 
with a distributional table for the $561 billion and the $851 
billion estimates of revenue generation, and do you know when 
we could plan to see that?
    Mr. WERFEL. Well, we have a public report on that. So I 
would be happy to engage with your staff to understand what are 
the specific questions or additional layers of information 
beyond the public report.
    Mr. SMITH of Nebraska. How did you decide to choose 2018 as 
the year to establish the historical rate levels of audits?
    Mr. WERFEL. Well, in large measure because it is a 
historically low rate, and we wanted to assure the taxpaying 
community that the Inflation Reduction Act would not be used to 
increase the audit rate among middle and low income. And so we 
chose 2018 as a historic low rate to provide additional 
assurances. And we wanted to be specific so that we can be 
transparent and hold me to account and the IRS to account 
because each year we publish our audit rate in our data book.
    So you can go into our data book right now and see exactly 
what the audit rate is for 2018. And then, when we finish with 
tax year 2023 and the audit rates are complete, you will say, 
oh, let me see, did they meet their mandate? And it should be 
all public.
    Mr. SMITH of Nebraska. Okay. You mentioned earlier that you 
have generated about $500 million--half-a-billion, I think, in 
your words--of revenue from about 1,600 targeted taxpayers. 
That would be, on average, just over $300,000 per taxpayer. How 
many resources, the dollar figure of the IRS, taxpayer dollars 
do you think it would take on average to reach that level?
    Mr. WERFEL. I would have to get back to you on a specific, 
but it certainly has a very positive ROI in general, and this 
is something that the Congressional Budget Office has publicly 
reported, that in general we returned $6 for every $1 invested. 
So, on average, you should expect about a one-to-six ratio. So 
we spent a sixth of those resources to get the job done.
    Mr. SMITH of Nebraska. Thank you.
    Mr. WERFEL. On average.
    Mr. SMITH of Nebraska. Thank you.
    Chairman SMITH. Thank you.
    Mr. Thompson.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Commissioner, thank you for being here. First, 
congratulations for the work the IRS has done over the past 
several months.
    As the ranking member, Chairman [sic] Neal mentioned, 
Democrats on this committee made an historic investment in the 
IRS last year when we passed the Inflation Reduction Act. Since 
then, I can tell you I have heard from my staff in all three of 
my district offices how well they are working with the IRS. 
They have contact with your office hundreds, if not thousands, 
of times a year. And they tell me that the IRS is noticeably, 
significantly smoother than they have ever been before. You are 
responding faster. Your responses are better. People answer the 
phones. My staff find the taxpayer advocates to be reliable and 
helpful partners as we try and work with our constituents.
    I have personally worked with you and with your team on 
specific issues, and I want to thank you. I have always found 
you to be helpful and your team to be professional and very 
well prepared.
    Unfortunately, the majority seems to think that the IRS 
budget is a slush fund to pay for every program that they want 
to pass and put into law, and I have lost track of how many 
times they have tried to use the IRS budget to offset spending, 
despite reams of evidence proving that IRS cuts actually 
increase the deficit. I believe the only reason to work to cut 
the IRS budget is to either make consumer services worse or to 
make cheating on your taxes easier.
    I understand people don't like paying taxes, but this is 
how we fund our civilized society and the many programs that 
our constituents care about. So, while we can disagree about 
tax policy, on the specifics, we ought to all agree that--on a 
bipartisan basis, that people should follow the law and pay the 
taxes that they owe.
    Commissioner, when IRS funding is cut, what happens to our 
deficit?
    Mr. WERFEL. It goes up. In fact, for every $100 million 
taken from the IRS, the deficit grows by 600 million over 10 
years, and that is because----
    Mr. THOMPSON. Six hundred million.
    Mr. WERFEL. Six hundred million.
    Mr. THOMPSON. Increase in our deficit.
    Mr. WERFEL. For every 100 million cut----
    Mr. THOMPSON. Right.
    Mr. WERFEL [continuing]. It is a $600 million increase in 
our deficit.
    Mr. THOMPSON. So, when the IRS funding is cut, is it harder 
or is it easier for people to cheat on their taxes?
    Mr. WERFEL. It is easier. And let me just--if I can go 
through, $100 million, what that buys you at the IRS, 700 
audits of high-income taxpayers, millionaires and billionaires; 
200 audits of complex partnerships; 100 audits of large 
corporations; 32,000 collection cases of wealthy individuals; 
and on and on. And that is just from the 100 million. So 
clearly, it has an impact.
    Mr. THOMPSON. Thank you. One thing that hopefully we can 
agree on on both sides of the dais is modernization. Can you 
talk a little bit more about how you have used Inflation 
Reduction Act investments to modernize?
    Mr. WERFEL. Yes, absolutely. There is--you know, one of the 
things that inspires me, Congressman, is before the Inflation 
Reduction Act there was a famous picture in the Washington Post 
of our cafeteria in Austin, Texas filled with unreviewed 
returns in paper. That cafeteria is now clean, people are 
eating in it rather than us storing tax returns. That is 
because we are aggressively digitizing and scanning all of our 
paper as part of our initiative to go paperless.
    This is important not because it is more efficient and more 
secure, but it means that we are going to process more quickly. 
And one of the things that is going on due to our modernization 
is we have significantly reduced the ongoing backlog of returns 
and correspondences.
    Mr. THOMPSON. Thank you. I would like to just take a moment 
to talk about the investment in climate change in the IRA. This 
was the biggest investment in climate work in the history of 
our country. How would you describe the rollout so far, and how 
would you characterize the uptake on tax credits like EV or 
solar credits?
    Mr. WERFEL. Yes, we have had a successful launch. In 
January, we launched our portal, our IT solution that allows 
those that are eligible for credits related to the 
manufacturing and the transactions associated with electronic 
vehicles. And, like any new solution, there are certain things 
that we could do to make it better and improve the customer 
experience. But overall, it has been robust participation, and 
the system has performed as expected.
    Mr. THOMPSON. Thank you.
    I yield back.
    Chairman SMITH. Mr. Kelly.
    Mr. KELLY. Thank you, Mr. Chairman, and thank you for 
conducting the hearing today.
    Mr. Werfel, it is good to see you again.
    Mr. WERFEL. Good to see you.
    Mr. KELLY. I think some of the questions revolve around 
this. We do telephone town halls, and we did one a little bit 
over a week ago. And, when we do IRS town halls, it just seems 
like we can't be on the phone long enough. And the IRS provides 
people, and the taxpayer advocate is there on the phone with 
us.
    But I don't think there is anything more complicated than 
what we are talking about today when it comes to the IRS, and 
the rules, and how it works, and who is paying fairly, and who 
is taking advantage, and it goes back and forth. I wish we 
could just get to a situation of is this a program, is this an 
agency that runs in the best interest of the people who fund it 
and the same people who fund everything else in our government? 
And that is hard-working American taxpayers.
    I have got to tell you, from a standpoint of formerly being 
in the private sector, and have--while I was present, I was not 
in the operation at the time of going through the early days of 
the pandemic. And one of the things that came out, which was a 
really good idea, was the Employee Retention Tax Credit 
program.
    However, we continue to look at programs and we tend to 
look at hold-ups in it. My son runs our business, and I talk to 
him on the phone about it quite a bit. He said, ``I think the 
biggest thing would have been had employers been able to get 
some help or some counsel on how that was working, or how it 
was supposed to work, how they could do that.'' But we look 
back on it now and we are trying to find out what is going on 
with that program?
    And, while there is all kind of different figures floating 
around about what it has cost, I would just caution people to 
say, you know, any time we say it costs the government, we keep 
in mind that it actually then gave taxpayers a break on what 
comes out of their wallet, knowing that they provide every 
single penny, either with their wages or by cosigning a loan to 
fund this incredible operation.
    So, when it comes to the IRS right now, and ensuring that 
small businesses receive their ERTCs, how--what is the 
oversight in that, and how can you help us with that? Because I 
have a number of friends, and I met with our former 
representative, Billy Long, the other day, who is concerned for 
a lot of the people that he still works with--is the fact that 
there is confusion on what quarter is being funded, and what is 
the timeline, and what is ending, and what is still in 
operation. And where should we go from here?
    Mr. WERFEL. Well, first of all, I appreciate the question 
and the way you worded it, because--how you can help.
    One of the things I have learned early in my tenure here at 
the IRS is that we can't do this alone. Implementing the tax 
system is a partnership. It is a partnership with IRS and tax 
professionals, tax payers, Congress.
    The ERC is an incredibly complicated program. It was 
critical and played a critical role. We issued 3.6 million ERCs 
to date, and it was an economic lifeline for people that that 
needed it.
    What happened is the further we got away from the period of 
eligibility--because the demonstrated loss that you have in 
order to claim eligibility ended on December 31, 2021. The 
further we got away from it, the more aggressive promoters and 
marketers started, in my opinion, taking advantage of honest 
small businesses and getting them to believe that they were 
eligible for a credit they truly weren't eligible for.
    So 18 months, 19 months, 20 months after that period of 
eligibility, the number of ERC credits coming in to the IRS was 
actually increasing 50,000 a week, 60,000 a week, 70,000 a 
week. And we started to realize that there were so many 
ineligible claims in what was coming in, it was getting harder 
and harder to separate what is ineligible from eligible. And 
that is why we issued the moratorium in September of 2023, 
because we wanted to slow the flow of these credits coming in, 
and make sure that we were not paying out fraudulent claims.
    And so what we announced is we are going to have to slow 
the process down to protect taxpayers--not just taxpayers'--the 
financial bottom line, taxpayers don't want us spending out 
fraudulent claims,--but also protect small businesses who may 
have been taken advantage by these aggressive promoters.
    Mr. KELLY. Well, I appreciate that, but the guidance is the 
key to all these things as we go through it, and these are very 
complicated issues. But there are people who filed believing 
that this was going to be taken care of. And it is--you are on 
hold, you are on hold, you are on hold, and you don't know. It 
makes it very difficult for people then to actually file their 
claims at the end of every year.
    Just one thing, cover it real quickly. The direct file 
program. So we have had people in the private sector running 
this, and I think we have had great success with it. Why did 
the IRS get involved in this?
    Mr. WERFEL. Yes.
    Mr. KELLY. And what is it that we are trying to achieve?
    And listen, you are down to one second. I don't expect an 
answer that quickly. But if you could get back to me on that--
--
    Mr. WERFEL. Absolutely.
    Mr. KELLY. because I think it is a legitimate question of 
if we have all these available already through the private 
sector, and we are talking about being--money being well spent, 
well, I think it is already there for people. I don't 
understand what role the IRS would have in that. And I 
question--
    Mr. WERFEL. I am happy to--
    Mr. KELLY. I don't question the fact that you think you 
could help. It is already there.
    Mr. KELLY. Thank you. I yield back, sir.
    Chairman SMITH. Thank you.
    Mr. Pascrell.
    Mr. PASCRELL. Good morning, Mr. Chairman. A lovely day in 
the neighborhood. [Laughter.]
    Mr. PASCRELL. Commissioner Werfel, you have been a breath 
of fresh air to me. We had some problems with the last guy who 
sat in your seat. Welcome back.
    After years of chaos, a very new day at the IRS. Last 
month--you already talked about it--the IRS announced it had 
recovered $485 million from only 1,600 millionaires. The 
question of fairness in the tax system is at hand. We all have 
different opinions about it. But I believe--or else I wouldn't 
say it--I believe that you are there to oversee fairness.
    The guy next door to me, where I live in my house in New 
Jersey, if he doesn't pay his property taxes and the guy on the 
next block from us doesn't pay his property taxes, people 
understand now that we are going to have to pay higher property 
taxes unless some other kind of revenue was found. It is tax 
fairness. Pay what you are supposed to pay, and people will 
complain less.
    People believe many times, Mr. Werfel, Commissioner, that 
they are being shafted when it comes to figuring out tax 
policy. And I think you and I have an obligation to address 
that day in and day out. The tip of the iceberg. Last week, we 
learned that we will recover at least $560 billion from rich 
tax cheats after the next decade.
    So you have been portrayed--the group, the agency you work 
for, has been portrayed as, oh, they are coming after you. See, 
create fear that you are the bad guys. And Lincoln dealt with 
that during the Civil War very honestly. If money was going to 
be used for the war, how would the towns throughout the 
America, you know, build their roads, their hospitals, their 
schools et cetera, et cetera? That is why we have a big 
argument over SALT.
    I hear from my own neighbors you are now answering our 
calls. Refund checks are going out faster. These successes are 
because of, I think, your leadership and because of historic 
funding passed by Democrats, mostly, to make the IRS work for 
regular Americans. Wow.
    I remind everyone every single Republican in Congress voted 
against the Inflation Reduction Act and against funding for the 
IRS to do its job. I mean, the facts are the facts. As Tom 
Suozzi would say, the facts are the facts. Members of the other 
side have made IRS funding their white whale to be harpooned at 
any cost. They have clawed back one quarter of the historic 
funding. Like the shark in Jaws, they want another bite. The 
Congressional Budget Office has estimated that that funding 
that I believe Republicans stole away will cost the American 
people double, nearly 400 billion--nearly $40 billion, excuse 
me.
    So I have a question for you. Millionaires and billionaires 
need to pay their fair share. I think everybody will agree up 
here. I think; I am not sure. What is the IRS doing to audit 
high-net-wealth individuals and tax cheats?
    Mr. WERFEL. Congressman, it is where we are focused, and we 
are taking multiple different steps.
    First of all, we are hiring additional accountants, 
auditors, and where they are being deployed. And where we are 
shifting our audit workforce is to make sure that we are 
focusing efforts on high-wealth individuals, because that is 
where we think we have a growing problem of tax evasion, and we 
need to address it.
    We are deploying technology differently. We are using 
analytics and AI to better understand how money moves in these 
very complicated arrangements. You know, whole--you know, 
companies with subsidiaries and subsidiaries to those 
subsidiaries, money moving across international jurisdictions, 
understating their profits in the U.S., doing all of these 
things that are difficult to track. And we are investing in 
subject matter, expertise, people, technology, analytics, all 
so that we can catch up and make this fair because we should be 
able to have equal ability to assess the guy down the street's 
taxes as your taxes.
    And if you're middle and low income, mostly your taxes are 
fairly simple, and we have the means and the capacity to assess 
it. Where we have lost the capacity is for the complicated 
situations. And, when we are underfunded, that gap grows. And 
so, as long as I am commissioner and the funding is available, 
where I am going to focus is on the gap where the tax returns 
are complicated and where the evasion is expanding.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Chairman SMITH. Mr. Schweikert.
    Mr. SCHWEIKERT. Thank you, Mr. Chairman.
    Mr. Commissioner--and forgive me, because I am assembling 
some of the numbers right in front of me because, as the 
chairman spoke--I have a fixation that the adoption of 
technology is the ultimate solution here. It is the solution 
for the left that wants more tax receipts, and for those of us 
who want a friendlier, more efficient and, you know, effective 
IRS.
    You before made a comment that, hey, it is six to one, but 
I am looking at--and this is even from the preliminary data 
from--Representative Pascrell actually asked for a CBO report, 
and your press release that you took in 520 million, but I am 
looking at your cost. I actually see you--for every dollar it 
costs you $10.96. Now, I accept there is capital expenditures 
in there, and over time they will be amortized out. But most of 
the IRA funding looks like it has gone towards operations and 
consultants.
    In the conversations you and I have had, my fixation is the 
only way you get that--because that is completely opposite than 
our discussion before. Right now, costs are actually fairly 
high for those additional dollars. The adoption and the 
purchase of technology, the use of commercial databases to ping 
off to [inaudible] something--should dramatically lower your 
cost of collections and make your collections much more 
efficient, fair, open.
    Tell me the story. Am I off base? Is it we have to hire 
armies of people, or is technology my nirvana?
    Mr. WERFEL. Well, first of all, I can assure you that 
investment in exam and audit has a positive return on 
investment.
    Mr. SCHWEIKERT. Well, Mr. Commissioner, I am looking at the 
CBO's numbers----
    Mr. WERFEL. We should----
    Mr. SCHWEIKERT [continuing]. And your own press release 
numbers.
    Mr. WERFEL. We should----
    Mr. SCHWEIKERT. And they--I am getting--basic division I am 
pretty good at.
    Mr. WERFEL. I am happy to----
    Mr. SCHWEIKERT. So I would be happy to have----
    Mr. WERFEL [continuing]. To walk through the math with you.
    Mr. SCHWEIKERT. I would be happy to get your report.
    Mr. WERFEL. To answer your question on the technology, it 
is essential. The whole effort underway is really about 
modernization, and that--it is at every level. Technology is 
going to help us process quicker and more efficiently, more 
accurately, and more securely. Technology is going to help 
taxpayers have an easier time with----
    Mr. SCHWEIKERT. So----
    Mr. WERFEL. It is going to take them less time to do their 
taxes. It is--and hopefully be less expensive.
    Mr. SCHWEIKERT. In my--so what can I do, as the person here 
on this panel who is absolutely fixated, what do I do to help 
you get there?
    Mr. WERFEL. Well, first of all, we would appreciate your 
peer review of our technology plans. And I know my team has 
already briefed your team.
    Mr. SCHWEIKERT. Yes.
    Mr. WERFEL. But we should regularly----
    Mr. SCHWEIKERT. And I have to--and I can't believe I am 
saying this--your team has actually been great in communicating 
with me.
    Mr. WERFEL. That doesn't surprise me, but my point is that 
we have a lot of different opportunities to advance technology 
at every level: our website, the tools that taxpayers have----
    Mr. SCHWEIKERT. The chat for call-ins.
    Mr. WERFEL. The chat function, yes.
    Mr. SCHWEIKERT. And I wish--at some point I would love you 
to talk about your experiment last cycle and the expansion of 
that this tax season.
    Mr. WERFEL. Yes, we are adding chat functionality, whether 
it is automated chat so you are talking to a computer and then 
it advances, if the computer can't answer it goes to live chat, 
these are just--these are standard activities in the private 
sector and in many other public sector call centers. We are 
just catching up, and we are catching up because we now have 
the funding to modernize versus just keep the lights on.
    Mr. SCHWEIKERT. Is there--and, if I am wrong, don't tell 
me, everyone else tells me I am wrong--but that adoption of 
technology should dramatically change your structural cost of 
collections.
    Mr. WERFEL. Correct.
    Mr. SCHWEIKERT. And that is my hope because, you know, on 
our side we fret over the 80 billion, and was that going to be 
hiring people or was it going to be hiring efficiencies. And, 
you know, for my Democratic colleagues it is going after 
wealthy people. But--and I do look forward to your staff 
providing me, because you have taken in, in your own press 
release, 520 million. And I see a cost from, actually, that 
press release and the Pascrell preliminary CBO audit, of 5.7.
    The last thing I am going to ask you, just because we get a 
lot of inbound on this, on the employer retention----
    Mr. WERFEL. Yes.
    Mr. SCHWEIKERT. I accept that has been just what it is. 
Please, guidance as fast as you can so--whether it be the small 
business, whether it even be the promoters, everyone sort of 
knows what the rules are, knows what the timing is, and knows 
how to close this out. And I know you have to run things by 
armies of lawyers and those things. Buy them caffeine. Get it 
done.
    Mr. WERFEL. Let me just, if I could, we have a special 
section on Irs.gov just on ERC, what to look out for, do's and 
don'ts, why you might be ineligible. We did a webinar on 
February 8 that had 8,000 registered participants, and we are 
running an educational series all over the country. We are 
doing as--we are doing a lot. We obviously could be doing more, 
and so we are willing to, obviously, listen to ideas about how 
we get out there and talk to people about this program and make 
the entire process clearer.
    Mr. SCHWEIKERT. Yes, I think the question is also the 
processing time of what is eligible----
    Mr. WERFEL. Yes.
    Mr. SCHWEIKERT [continuing]. Not eligible, and just when 
does it sort of get there.
    And with that, Mr. Chairman, thank you.
    Chairman SMITH. Thank you.
    Mr. Davis.
    Mr. DAVIS. Thank you, Mr. Chairman.
    First of all, Commissioner, let me welcome and thank you 
and the Internal Revenue Services for its outstanding success 
in ensuring a fairer tax system in which the wealthy and well-
connected pay their fair share.
    I want to make you aware of the outstanding work of the 
Chicago taxpayer advocate service. I am grateful for 
[inaudible], Katrina Britt, Arlene Merritt, Fred Tavarez, and 
the rest of the Chicago team who have used their expertise to 
help my constituents. I also thank Robert Chapman with the D.C. 
Legislative Affairs team for his assistance.
    As you may know, I helped champion many of the key 2021 
EITC and CDCTC enhancements like lowering the EITC age to 19 
for all workers, or 18 for foster or homeless youth, and giving 
working parents up to $8,000 for child care expenses. I would 
like to work with you to better understand the patterns and the 
use of those credits to inform efforts to restore them.
    For example, how many younger workers got the EITC in 2021 
who are excluded under current law? Or how many foster homeless 
youth used their provisions? Or how many more working parents 
benefitted from the refundable CDCTC who would not under 
current law?
    Do you have any updates you can share with us about who 
benefitted and how from the 2021 Earned Income Tax Credit and 
CDCTC enhancements compared to other years?
    I am proud that I helped to lead the effort to make the 
VITA program permanent. I know that the Internal Revenue 
Service's IRA Strategic Operating Plan Initiative 1.9 includes 
the goal of expanding the coverage and scope of the VITA and 
TCE free tax preparation programs. Have any specific strategies 
been identified for accomplishing that goal?
    And how has the IRS involved VITA and TCE organizations in 
developing those strategies?
    Mr. WERFEL. Well, thank you for those questions, 
Congressman.
    On your data question, we have now awareness of that 
question, and our research and analytics team is working to get 
you an answer as quickly as possible.
    I will say--and I will connect your first question to your 
second question--we know that there are people eligible for 
Earned Income Tax Credit that are not claiming eligibility. 
They are not claiming eligibility because they may not know 
about it, they might not be claiming eligibility because they 
are intimidated by the complexity of the eligibility formula. 
They just need help. And so we can do more outreach and working 
with community partners to make sure that people are aware of 
this benefit and are getting the help they need.
    You mentioned our volunteers for both underserved 
populations and the elderly. I would love to grow those 
programs, working with local communities on what we call 
Taxpayer Experience Days, having more and more of those around 
the country with an educational campaign around what you may be 
eligible for, and then with free help available to sit with you 
and walk you through. I have been to one of these volunteer 
sites in Baltimore, and it is an amazing experience to witness 
these volunteers there with taxpayers who would have not 
otherwise gotten the help they needed. And they are just very 
appreciative, and the volunteers are passionate about helping 
people get the benefits they are eligible for.
    Mr. DAVIS. Thank you very much, and I look forward to 
working with you.
    I yield back, Mr. Chairman.
    Chairman SMITH. Thank you.
    Mr. LaHood.
    Mr. LaHOOD. Thank you, Mr. Chairman.
    I want to thank you, Commissioner Werfel, for being here 
today and for your service.
    I am the chair of our Subcommittee on Work and Welfare that 
oversees a number of different Federal programs. One of those 
is child support. And I want to focus my questions on child 
support enforcement. And, as you know, the CSE program works 
with the IRS on collecting child support for non-custodial 
parents to help children and families to get the money that 
they deserve through your program, which is the Federal Tax 
Refund Offset program. This is a vital source of income for 
millions of families across the country.
    In my home state of Illinois, 44,000 families and children 
depend on and receive $65 million through the Federal Tax 
Refund Offset program. To service these families--participate 
in this program, many states--42 states in particular--rely on 
the Federal tax information through third-party contractors. 
And that is the way it has been done since 2004.
    A year ago, without consultation to Congress and without 
giving us an opportunity to work with you on that, the IRS made 
the decision abruptly to change this policy, and this has 
caused a shift. Now all states and CSE programs that use 
contractors will be in non-compliance as of October.
    So we did a bipartisan hearing in November. And across the 
board, people were frustrated. They were extremely--you know, 
there were lots of questions on why the IRS did this, and why 
they are putting states in jeopardy on this. I will give you an 
example. The Illinois administrator of child support services, 
Bryan Tribble, testified right where you are at to our 
subcommittee that this policy change by the IRS will cost 
Illinois hundreds of millions of dollars to implement new 
systems and hire employees.
    And furthermore, if states are unable to come into 
compliance in time by this October, their entire CSE program 
could be in jeopardy of losing Federal matching funds, 
resulting in millions of families and children losing their 
child support payments.
    So what I am trying to figure out, Commissioner--and I 
would love your explanation on it--why this was done without 
consultation to Congress to put an equitable solution in place 
and possibly legislation to remedy this; and why was this 
sudden change done.
    If you can--and by the way, the stress and anxiety this is 
putting these 42 states through is immense.
    Mr. WERFEL. Yes, I appreciate the question. And this was an 
issue that was brought to my attention very early in my tenure 
back in March of 2023. And I, like you, had a lot of questions 
about the policy itself, and why we had issued it, and I 
immediately engaged with the Department of Health and Human 
Services, who runs the child support program, to understand 
what the IRS could do to reset the expectation across states, 
contractors, and others.
    At this moment, that policy announcement is paused. We are 
not moving forward. And now we have the opportunity to do the 
very engagement that you are suggesting. So we have told HHS 
that we are going to take more time to make sure that the--that 
we have heard from stakeholders appropriately before we 
finalize any such policy.
    Mr. LaHOOD. So just to clarify, the pause that you just 
referenced, does that affect the October 24 deadline?
    Mr. WERFEL. I believe it does, but I want to get back to 
you with more specifics.
    Mr. LaHOOD. Well, that is, obviously, very important----
    Mr. WERFEL. Very important, yes.
    Mr. LaHOOD [continuing]. As people are coming into 
compliance. I mean, do you have an estimate of how much this 
will cost states to come into compliance with this new policy?
    Mr. WERFEL. I don't have it at my fingertips, but this is 
why it is so important to get this right.
    Mr. LaHOOD. I mean, and just another issue that is part of 
the collateral damage is there are 60 federally-recognized 
Native American tribes that also fall into this category, too. 
And they are in a much more tougher position because of some of 
the financial and economic issues there because of this IRS 
policy. And so they are in jeopardy of losing access to 
critical child support enforcement tools, those tribes. So I 
want to mention that to you, and this needs to take--needs to 
be a priority for you and your department.
    Mr. WERFEL. Yes. I want to make this commitment to the 
extent--and I need to go back to the office and make sure that 
I have the details. We did pause. To the extent it is intending 
to go back in October of 2024, as you mentioned, I want to talk 
to you about the implications of that, and I am happy to 
revisit that with you to make sure we are getting all the right 
data and feedback before we move forward.
    Mr. LaHOOD. I look forward to it, thank you.
    Mr. WERFEL. Thank you.
    Chairman SMITH. Ms. Sanchez.
    Ms. SANCHEZ. Thank you, Mr. Chairman.
    And thank you, Mr. Werfel, for testifying today. I want to 
join my colleagues in recognizing the hard work that the IRS 
employees, the taxpayer advocate service, and other Federal 
workers put in every day to help American workers, seniors, and 
families file their tax returns and claim the Federal benefits 
that they have all earned.
    I also appreciate that many Members of Congress share 
Democratic tax-writers' commitment to specifically improving 
the Child Tax Credit. Most of us recognize that the CTC is one 
of the most powerful tools for fighting poverty in this 
country, but we can all agree that the devil is in the details 
where that is concerned.
    Unfortunately, my colleagues on the other side of the dais 
disagree with congressional Democrats on how generous relief 
for working families should be. But as a mom and a legislator, 
I am going to continue to fight to ensure that our nation's tax 
code benefits all households with children, and that means even 
parents or caregivers who don't even earn enough to owe and pay 
Federal income taxes, I believe that they also deserve some 
financial relief.
    I was disappointed when my Republican tax-writing 
colleagues killed the good faith amendment that Mr. Davis and I 
offered on the Wyden-Smith tax bill just a few weeks ago. Our 
amendment would have strengthened the bill by restoring full 
refundability for the Child Tax Credit.
    We have all seen data showing that millions of children 
across the U.S. could benefit from even a modest expansion of 
the Child Tax Credit, and I am specifically looking out for 
those families who earn so little that they can't claim this 
tax relief at all, even though they are raising children.
    Commissioner, I want to thank you again for answering our 
questions today, and I want to talk a little bit about 
something that was raised earlier about the deadbeat 
millionaires and billionaires who are cheating on their taxes 
and evading their responsibility to pay their fair share.
    I would say that I don't think anybody loves paying their 
taxes, but I think people do it if they feel like the system is 
fair and everybody pays their fair share. What would happen if 
middle-income and low-income Americans didn't pay their taxes 
or cheated on their taxes at the same rate that these 
millionaires and billionaires did? What would happen?
    Mr. WERFEL. Well, I mean, the deficit would grow. I mean, 
the IRS--and you are right, paying your taxes isn't the--isn't 
your favorite activity of the year, for sure. But we fund 
virtually the entire government through those tax collections. 
And, in order to have a functioning government, whether you 
want that government big or small, the IRS needs to function 
effectively.
    And there needs to be equity in our tax system. Otherwise, 
people will lose trust, and trust is what our tax system is 
built on.
    Ms. SANCHEZ. Now, when you say the revenues you get fund 
government, that means our defense, our national defense, 
correct?
    Mr. WERFEL. It is everything that the government does: 
keeping our skies safe, so your air traffic controllers; your 
food safe when you go to the restaurant, and you have 
confidence that your children are eating food that is not going 
to make them sick. That is all government funding, and that is 
all made possible if we have a functioning tax system.
    Ms. SANCHEZ. Now, if the IRS could collect what these 
deadbeat millionaires and billionaires and huge corporations 
actually owe, might we be able to pay for the Child Tax Credit 
to be expanded, or perhaps even fully refundable?
    Mr. WERFEL. There is absolutely money being left on the 
table in terms of what is owed versus what is paid. And this is 
particularly an area of focus for high-wealth taxpayers and 
complicated situations.
    And as I mentioned, when I arrived at the IRS my question 
was, what are the gaps we need to close? Where are the gaps 
most problematic? And one of them was during our period of 
under-funding we had lost pace with keeping up with these 
complex returns, and the risk of evasion had grown.
    Ms. SANCHEZ. So, if we could get these complex tax filers 
to pay their fair share, which I am assuming are a lot of these 
big corporations that have different subsidiaries and different 
companies and they move the money around, and these 
millionaires and billionaires that have sophisticated 
accountants and tax attorneys that could help them evade taxes, 
if we could collect what they owe, we could potentially expand 
or even make the Child Tax Credit fully refundable so that kids 
and babies who go to bed hungry every night in this country 
would be lifted out of that hunger and lifted out of that 
poverty?
    Mr. WERFEL. I leave it to the wisdom of Congress to decide 
how to use the money. I just want to make sure that tax returns 

are complete, accurate, and what is owed is what is paid.
    Ms. SANCHEZ. I appreciate your testimony today, and I thank 
you for your answers.
    And I yield back.
    Chairman SMITH. Thank you.
    Mr. Hern.
    Mr. HERN. Thank you, Mr. Chairman, for holding this 
important hearing today.
    Mr. Werfel, last November two Democrat Senators in press 
releases bragged about the pressure they put on you and the IRS 
to delay implementation of the new 1099-K threshold that passed 
in the partisan American Rescue Plan. Both of these Senators 
previously voted in favor of the change. The Democrat Senators 
also bragged about the IRS decision to change the threshold to 
$5,000, which it would seem to not have the authority to do so.
    With all due respect, Mr. Werfel, and I know you are in a 
tough job, but this looks like you are blatantly not enforcing 
the law and are also unilaterally changing the law because 
Senate Democrats in the current Administration are having 
second thoughts about just how terrible this policy is that has 
been enacted. It is my job to provide oversight on this, and 
the American people do not trust this Administration. And why 
would they, when this Administration does not enforce a law 
that passed through a Democrat-controlled Congress and was 
signed by a Democrat President? Now that we are in an election 
year, President Biden's Administration refuses to implement the 
law, and unilaterally changed the law in favor--because the law 
on the books is politically unfavorable and punitive to the 
average American.
    My colleagues will touch on this, have touched on this for 
you, but I want to ask you a question regarding the direct e-
file program that has just been recently implemented. Isn't it 
true that private sectors provide free return preparation 
services outside of the government free file program?
    Mr. WERFEL. Yes.
    Mr. HERN. How many--what is that estimate of how many they 
have done, based on your data?
    Mr. WERFEL. I don't know the exact number, but the free 
file program has been one of the central staples of how we 
provide free help to taxpayers.
    Mr. HERN. But it is--when you say it is free, we are 
actually having to fund that from your side, right? I mean, you 
don't--you are not--you don't have this just technology-driven, 
it is not AI-driven. It is driven with people in your office, 
offices that are actually administering this, that are----
    Mr. WERFEL. You are talking about the free file program or 
the direct file program? So the free file----
    Mr. HERN. The free file. So the----
    Mr. WERFEL. Yes.
    Mr. HERN. Yes.
    Mr. WERFEL. Well, we work with the Free File Alliance. 
These are commercial software providers that have signed on to 
help provide a path for eligible taxpayers to use their product 
for free to file their taxes. That is something--and, you know, 
there is resources that the IRS does to ensure that partnership 
is as successful as possible.
    Mr. HERN. So on the direct e-file program that you are 
doing----
    Mr. WERFEL. Yes.
    Mr. HERN [continuing]. You are competing directly with 
those corporations.
    Mr. WERFEL. I don't see it as a competition. I see it as 
another option for taxpayers.
    Mr. HERN. So you are saying that these services are 
provided by corporations free, and others that are doing 
business. So we have it there. And so when you say it is free 
to the American people, you are saying you are providing these 
services internally. It doesn't cost you anything? There is no 
taxpayer dollars used in your organization for administrative 
costs to do this?
    Mr. WERFEL. No, there is a cost, and we have been public 
about what the potential and--cost would be.
    The goal is to provide taxpayers with options and to help 
the taxpayers pick the solution for filing taxes that is best 
for them. Some will file in paper. We encourage them to file 
electronically. Some will hire an accountant. Some will go to 
the commercial software and pay. Some will go to the commercial 
software and try to work that in--for free.
    And what we heard from taxpayers, and we heard it pretty 
loudly, was that there was an interest in having an option 
where they could file directly with the IRS for free, and we 
wanted to test----
    Mr. HERN. But----
    Mr. WERFEL [continuing]. Whether that option was viable, 
and that is what----
    Mr. HERN. Mr. Werfel, with all due respect, isn't that the 
sort of the old phrase that Ronald Reagan used, ``We are from 
the government, we are just here to help?'' I mean, it is not 
free.
    I mean, listen, we have given you billions of dollars. This 
is not free, for you to provide this service to the American 
people when--I know it might be shocking, but from the data we 
have gotten from these commercial companies that you have 
described, some were 29 million tax returns have been filed 
through the direct--for the free file program that they have 
out there, and so I just--or the direct e-file program, rather.
    I just want to make sure that, you know, again, everybody 
thinks if the government does it, it is free. It is not free if 
the government provides these services. It is costing taxpayer 
dollars to provide that.
    Mr. WERFEL. Yes. So here is how I would answer that. I 
would change the President Reagan statement a little bit. We 
are from the government, and here is an option. And if you 
don't want to use the option, you don't need to.
    And we are just piloting it this year, a small-scale pilot. 
So what is going to happen is we will evaluate. What was the 
cost? What was the experience? Is there a demand for taxpayers? 
Do taxpayers want the IRS to provide this option?
    Mr. HERN. Yes, Mr. Werfel, with all due respect, you know, 
I have only been up here five-and-a-half years, and this is the 
age-old thought--and this is long before you got into 
government and I got into government--everybody wants to talk 
about the Federal Government having money that it really 
doesn't. It has taxpayer dollars that funds our government. I 
think we would agree with that.
    So we are using--I think it ought to be described--it is 
not free, it is funded by other taxpayers. And them, as well, 
if they are using the service, if they qualify, my guess is--I 
don't know what the criteria is, but my guess is to qualify for 
that program is that they are probably not paying taxes, and it 
is a refundable credit that they are getting in many cases. But 
I am just saying it is not free, and we should say it is paid 
for by taxpayer dollars.
    And, you know, this misnomer that we get government 
services for free is just not true. It is disingenuous.
    I yield back.
    Chairman SMITH. Ms. Sewell.
    Ms. SEWELL. Thank you, Mr. Chairman.
    And thank you, Commissioner, for being here today so that 
we can talk about the very important relationship between 
taxpayers and the IRS.
    Tax seasons can be very stressful for millions of American 
families and small businesses, and I am happy that we are 
taking important steps today to highlight tax filing 
experiences that have resulted in a more sensible, fair, and 
more efficient process.
    The road to this point has been a long one. The IRS has had 
their work cut out for them, with a very long list of major 
implementation issues over the last decade. But today I am glad 
to hear that the IRS, through the passage of the Inflation 
Reduction Act, is improving its interactions with the public.
    Last year, in this very same setting, you and I were able 
to discuss the well-documented reports over the last few filing 
seasons that recipients of the Earned Income Tax Credit faced 
significantly higher audit rates than other taxpayers. These 
findings were discussed in detail, and I appreciate our 
colloquy.
    EITC audits are more heavily concentrated in the southeast 
of the United States, including many of the counties that I 
represent in Alabama's rural and underserved black belt. In 
fact, Greene County, Alabama in my district was among the 10 
most audited counties in the country for EITC recipients. And I 
venture to guess that the median income for a family of 4 in 
Greene County is less than $30,000 a year.
    Since our conversation last year, you penned a letter to 
Congress in September of 2023 mentioning the administration of 
additional steps and an initial round of changes that have been 
made regarding the audit process for EITC. I do believe 
accountability is a direct result of transparency. And with 
that, the opportunity to ask you whether or not this initial 
round of changes that you highlighted in the letter to Congress 
has resulted in less audits on underserved communities.
    Mr. WERFEL. It will. I want to start by saying it is--you 
know, there are certain solemn responsibilities that the IRS 
has that we have to meet our mission. We have to meet our 
mission in a way that avoids disparate impact. And, in this 
case, there was evidence that our audits in Earned Income Tax 
Credit was having a disparate impact on Black taxpayers. And we 
have to first acknowledge it, and now we have to fix it.
    And one of the significant things that that independent 
study reported was driving the disparity was the volume of EITC 
audits. So one of the key things we have announced is a 
significant and dramatic reduction in the number of EITC audits 
planned for this coming tax year as a way to address it.
    We also are testing changes in the audit selection 
algorithm that--we have a hypothesis will remediate the 
disparate impact that has been occurring, and it will take a 
little bit of time to validate that. We hope to update that, 
you know, maybe in the fall, where we have more data to make 
sure that we are reporting publicly that the steps we took had 
the impact that we wanted it to have.
    Ms. SEWELL. Well, I will definitely be awaiting such a 
report. I think it is really important that we don't target 
certain populations, especially those that are underserved 
populations, and for something as important but not often 
claimed, like the Earned Income Tax Credit.
    So I look forward to working with you in any way I can to 
help address this issue. As you rightfully said, it is a--it is 
disproportionately affecting African American taxpayers, and it 
really is unacceptable in this day and age. So I thank you for 
your candor, and I look forward to working with you to see if 
we can reduce those numbers.
    Mr. WERFEL. Thank you, Congresswoman.
    Chairman SMITH. Mr. Smucker.
    Mr. SMUCKER. Thank you, Mr. Chairman.
    Good morning, Mr. Werfel, Commissioner.
    I am actually okay with audits. We want people to pay their 
taxes, and there should be a random way of selecting some tax 
returns to ensure that there is an incentive for people to 
comply.
    I do want to, however, get your thinking about some 
statements that you made this morning. You have multiple times 
talked about high-income earners, you have talked about 
millionaires and billionaires, you have talked about complex 
tax returns in the same sentence as tax avoidance and tax 
evasion. Do you believe that millionaires and billionaires are 
all tax cheats?
    Mr. WERFEL. I do not.
    Mr. SMUCKER. Do you believe that there is a reason for 
complex returns, rather--other than to avoid taxes?
    Mr. WERFEL. Absolutely, there is.
    Mr. SMUCKER. What would be some of those reasons?
    Mr. WERFEL. Well, here is my understanding, that CFOs of 
major companies, they have a responsibility to their board and 
to their shareholders to find the most tax advantaged status. 
The concern--and they should.
    Mr. SMUCKER. So it would be a problem for you if they took 
a legitimate tax deduction?
    Mr. WERFEL. Never, no. If their return is accurate and 
complete and legitimate, great. But that is not the concern 
that we have, that is not the issue.
    The issue was that, because the IRS was not auditing at--
our audit rates were anemic because we weren't investing in 
keeping pace, that these efforts in certain cases got to 
aggressive avoidance and then even evasion. And I can give you 
examples of where it is more prolific. And that is really where 
we want to focus, where----
    Mr. SMUCKER. Well, it is just----
    Mr. WERFEL [continuing]. These efforts have been----
    Mr. SMUCKER. It is troubling to me when you keep using 
those terms in the same sentence, as if all high-income 
earners--who, by the way, are paying most of our taxes--are all 
looking to avoid taxes, because that is not my experience with 
business owners, with corporate leaders. They want to do what 
is right. And so, you know, it concerns me.
    Going into an audit, you know, everyone is innocent until 
proven guilty. And, if your entire organization is taking the 
approach that you are taking today, you are actually feeling 
that people are guilty before the audit is even done.
    Mr. WERFEL. It was not my intention. My intention is to 
make sure we are increasing scrutiny on complex returns, where 
there is a high risk of evasion.
    Mr. SMUCKER. Do you have any information on what percentage 
of returns on high-income earners result in no change?
    Mr. WERFEL. I can get that information for you. I don't 
have that at my fingertips.
    Mr. SMUCKER. Do you have any information regarding the 
change rate after audits in all income earners' levels?
    For instance, you know, we know there has been fraud in 
those who received the Child Tax Credit. What percentage of 
individuals who have filed for the Child Tax Credit have done 
so fraudulently, compared to high-income earners? Do you have 
that information?
    Mr. WERFEL. I believe we have that and can get that to you.
    Mr. SMUCKER. Yes, could you share that with all of us?
    And I just--again, I want to caution you. You know, I have 
a lot of people who do very well and are proud to be part of 
America and proud to pay their taxes. And they don't want to 
hear from the IRS commissioner that he thinks that all of them 
are cheats. So I would caution you in the language that you 
use.
    Mr. WERFEL. Well, I would love to go on the record and say 
I do not believe all of them are cheats.
    Mr. SMUCKER. Thank you.
    Mr. WERFEL. But I do get bothered when we see evidence of 
evasion----
    Mr. SMUCKER. In your testimony you have also characterized 
partnerships in the same way. That is deeply disturbing. You 
have said increased audits of partnerships is important because 
it--apparently in your mind, partnerships for some reason are a 
category that is cheating more than others.
    Mr. WERFEL. Congressman, what we are trying to do, 
actually, is bring our audit rate back to historical norms. It 
has been anemic. And I do believe that when we are not doing 
the requisite amount of audits, when we are not showing that we 
are ready to enforce, that that does increase the risk of 
evasion, and that is what we are focused on.
    Mr. SMUCKER. I don't--you know, Congressman Sewell just 
mentioned targeting specific populations. I think that should 
go across the board.
    Mr. WERFEL. I agree.
    Mr. SMUCKER. I don't want IRS to target any population. I 
think in all categories most people want to pay their taxes and 
are doing their best to comply with the law. And so I hope----
    Mr. WERFEL. I agree with that.
    Mr. SMUCKER. I hope what you are doing is a randomized 
targeting, a randomized looking at audits or at returns to 
ensure that everyone is complying to the best of your [sic] 
ability.
    Mr. WERFEL. We are looking for spaces where we think 
evasion is proliferating and trying to hold people accountable 
for what they owe. A lot of--too many of these organizations 
are shielding their income. That doesn't mean they all are. 
That means that there is more work to do for the IRS to make 
sure people are paying what they owe.
    Mr. SMUCKER. Thank you. I am out of time.
    Chairman SMITH. Thank you.
    Mr. Ferguson.
    Mr. FERGUSON. Thank you, Mr. Chairman.
    And Mr. Werfel, thank you for being here today. I want to 
start with doing something that we probably don't do a lot on 
this side, and I want to thank you for your help. When you were 
here last time you gave us--you gave me your word that, if we 
sent some tough cases that had had no movement, that you would 
help with those. And thank you for doing that. I have another 
long list that I may just send your way, because when you 
speak, the rank and file under you seem to move. So I just want 
to say thank you for the help on those other cases.
    Two things I want to touch on. Number one, the problems in 
the Employee Retention Tax Credit have been well documented and 
well discussed here today. This committee, in a bipartisan way, 
along with the House, passed a pretty significant piece of 
legislation the other day. And at the heart of it was dealing 
with the Employee Retention Tax Credit. Can you speak to how 
important that legislation was into preventing the fraud and 
helping the IRS work through the legitimate claims on that? Can 
you speak to that, please?
    Mr. WERFEL. Yes, I mean, it is--the legislation that is 
under consideration, for example, that would prohibit ERC 
claims from coming in after a date certain.
    And one of the things that impacts our ability to make sure 
that we are getting to the eligible claims amongst the 
ineligible is the size of the inventory. And the more our 
inventory is flooded with ineligible claims--and right now we 
are still--like, we--once we issued the moratorium, the influx 
of claims dropped in half. But it is still--I think we got 17 
to 20,000 last week. So we are still--that inventory is 
growing, and it is growing with a lot of ineligibility.
    So we are--putting a--helping us pause the incoming at this 
point so we can find those that have submitted that are 
eligible, we need that help.
    Mr. FERGUSON. And so, again, stating that the legislation 
that we passed could provide a significant savings to the 
American taxpayer----
    Mr. WERFEL. Absolutely, I believe that.
    Mr. FERGUSON. Thank you for that.
    The next item--and my colleague from Pennsylvania, Mr. 
Smucker, touched on this, and, as he was talking about it, I 
said I think he looked over and looked at my notes--you know, 
we talk an awful lot on this committee about--and we debate 
going back and forth with these complex corporate tax returns 
and high-income earners, but we know that there is a tremendous 
amount of fraud in the Earned Income Tax Credit space, Child 
Tax Credit space. If you had to look at what you think the 
corporate fraud is versus the total dollar amount on the Earned 
Income Tax Credit and Child Tax Credit, either through improper 
payments or fraud, how do those two numbers compare?
    Mr. WERFEL. Well, I actually think they are both important. 
I don't have the side-by-side ledger in front of me.
    Mr. FERGUSON. Okay, all right, but they are both important.
    Mr. WERFEL. Both material.
    Mr. FERGUSON. All right. So you have said that you need 
money to beef up audits for partnerships, complex tax cases 
where evasion is more likely. Right?
    Mr. WERFEL. Yes.
    Mr. FERGUSON. Okay. How much effort are you putting into--
and would you recommend that we look at reforming the tax 
preparer space, and going after the folks that actually are 
committing fraud at the lower end of the income spectrum?
    Mr. WERFEL. Yes, I----
    Mr. FERGUSON. If they are both there--I haven't heard my 
colleagues on the other side of the aisle--they have been 
railing against corporate America and high-income earners, but 
they lack the same religion when it comes to going after people 
that cheat the system in the Earned Income Tax Credit space.
    Mr. WERFEL. I will tell you, Congressman, what is very 
motivating--and I mentioned it in my opening remarks--
protecting honest taxpayers who are being victimized and the 
tax system using them to victimize.
    So the example that drives me crazy, and I want to make 
sure that we address it, is a nefarious preparer who coaxes an 
innocent taxpayer in, promises them an Earned Income Tax Credit 
quickly, whereas they could get it just as quickly from us, and 
then rips them off in some way, shape, or form.
    Mr. FERGUSON. Sure, the predatory lending practices that go 
along with this are pretty grotesque. And you know, I would 
love to work with our colleagues on the other side of the aisle 
on a really meaningful piece of bipartisan legislation that 
goes after the folks----
    Mr. WERFEL. Yes.
    Mr. FERGUSON [continuing]. That really are committing the 
fraud at the lower end of the spectrum. It is important.
    Look, I am sort of like my friend from Pennsylvania here. 
We want the IRS to do its job. We believe that audits are 
important, and--but they should be fair, and they should be 
non-discriminatory, and they should be at both ends of the 
spectrum.
    Mr. WERFEL. Yes, understood.
    Mr. FERGUSON. So with that----
    Mr. WERFEL. And that is the first principle we have. We 
want--just like with the high income--where there is nefarious 
activity, for sure, where there is blatant disregard and 
purposeful evasion, for sure. And, at the lower end of the 
income bracket, when we have nefarious actors like the one I 
just described, that is where I would like to focus, rather 
than an audit program that impacts too many honest taxpayers.
    With--and I will go back to this--with the right 
investments, we can be more surgical.
    Mr. FERGUSON. Look, what you just said--excuse me, Mr. 
Chairman, I know my time--I am over my time.
    But when you--you have got to have a program that is fair 
for everybody.
    Mr. WERFEL. Right.
    Mr. FERGUSON. You talk about just going after the 
preparers. You have to also go after the individuals that are 
knowingly defrauding the system.
    And, with that, Mr. Chairman, my time has expired. Thank 
you for the indulgence.
    Chairman SMITH. Thank you.
    Ms. DelBene.
    Ms. DelBENE. Thank you, Mr. Chairman, and thank you, 
Commissioner, for being with us today.
    After years of neglect through decreased appropriations, 
the IRS finally received the influx of resources it needed to 
improve and update its operations. In the year and a half since 
the Inflation Reduction Act was signed into law, we have seen 
the impact of these resources. Some of these successes include 
call time responses decreasing from 28 minutes to 3 minutes, 
the backlog of 2022 individual returns now cleared, and 
launching new digital tools to help taxpayers. Yet, 
unfortunately, Republicans want to continue gutting the 
agency's funding. So we should be ensuring the IRS has multi-
year, sustained funding to continue building on these 
successes.
    Mr. Commissioner, I wanted to know if you could speak to 
the IRS's enhanced enforcement efforts, and specifically how 
the use of AI is helping to identify non-compliant taxpayers.
    Mr. WERFEL. Yes, so this--thank you for the question.
    And we have to make investments to make sure that we are 
precisely finding where the evasion is most problematic, and in 
particular in these complex situations--for example, with money 
moving across international jurisdictions, money moving into 
wholly-owned subsidiaries--it can be tough to find where the 
evasion is. And we can invest in AI-powered analytics to really 
better understand and increase the likelihood that we are 
seeing the evasion and selecting the right cases for audit. And 
so that is where these investments are going, into making more 
sophisticated models to make sure we are selecting the right 
cases and finding the evasion where it is.
    Ms. DelBENE. Thank you.
    One of the issues I have heard about from my constituents 
is about the lack of clarity on IRS notices that are sent to 
taxpayers. Often the notices are very complex. They are from 
the IRS, so people are very concerned about them. They leave 
taxpayers confused about how to resolve the issue.
    So what are some of the changes the IRS is implementing to 
the notices and letters that are sent to taxpayers?
    How can these changes benefit taxpayers----
    Mr. WERFEL. Yes.
    Ms. DelBENE [continuing]. And how has IRA funding 
facilitated these reforms, if it has?
    Mr. WERFEL. Yes, I mean, this is such an important piece of 
the puzzle.
    We have launched what we call the Simple Notice Initiative. 
We send about 170 million letters or notices to taxpayers each 
year. And, if you look at them, they need a lot of improvement 
in terms of their clarity. And we have run a program, we have--
in the last year we took 31 high-volume notices, redesigned 
them, you know, and they are significantly better, and we are 
getting very positive results on these. And now, heading into 
2025, we are now scaling.
    And so by next filing season--so when I am sitting here 
next year, if we are successful--90 percent of the total volume 
of notices will have gone through this effort and be redesigned 
and simplified. And we anticipate that is going to be very 
beneficial for taxpayers.
    In some of the early results that we are seeing, taxpayers 
are going to our online tools and using them more than calling 
in the call center. That means they are getting faster 
responses. So very positive results just from clarifying what 
we are asking taxpayers to do in these notices.
    Ms. DelBENE. No, hugely important, and so thank you for 
that.
    Also, Federal and state laws require professionals like 
doctors and lawyers to not only obtain licenses or 
certifications, but also to pass competency tests. And, while 
some tax return preparers must meet licensing requirements, 
many tax return preparers do not have minimum competency 
requirements, and therefore are not credentialed.
    Commissioner, I was wondering how taxpayers who use non-
credentialed preparers are harmed by doing so, and how would 
establishing minimum competency standards help protect 
taxpayers?
    Mr. WERFEL. Yes, this has come up a few times in the 
hearing. You know, we do have a risk with preparers that are 
not serving their clients well or their customers well. In some 
cases, just not providing appropriate and suitable tax advice; 
in some cases, actually stealing from them; or, in some cases, 
leaving them with a financial mess on their hands. And so more 
can be done.
    And we have--the Administration has put into the 
President's budget previously changes that would allow us to 
require more credentialing of these preparers before they would 
be able to provide tax advice or preparation services. I think 
it is an important thing because people are being victimized.
    And, as I said earlier, one step the IRS can take in 
partnership with Congress to show that we are on the side of 
taxpayers is disrupting those moments of victimization. And 
this is an idea and an initiative that could do just that.
    Ms. DelBENE. Thank you. My time is expired.
    I yield back, Mr. Chairman.
    Chairman SMITH. Thank you.
    Mr. Estes.
    Mr. ESTES. Thank you, Mr. Chairman, and thank you to 
Commissioner Werfel for joining us today.
    We are 60 days out from Tax Day 2024. The Kansans I 
represent are working through their tax season tasks, whether 
it is preparing to file their individual tax returns or filing 
business forms. I mean, the fact is everybody has to interact 
with the IRS. And the agency really should have a customer-
focused prerogative that puts American people first, and not 
their own interests within the agency.
    I am also concerned about, like my colleagues here, about 
some of the inflammatory accusations that certain groups of 
Americans are automatically considered to be tax cheats. My 
career prior to running for office was looking at how do we 
provide good customer service, how do we make business 
operations more efficient. And, unfortunately, it seems like a 
lot of the D.C. bureaucracies focus more on how to make things 
easier to push paper or work from Johnny's desk to Sally's 
desk, instead of focusing on how to be more efficient and meet 
the needs of American taxpayers and any constituents, and 
provide that quality, timely service.
    Mr. Commissioner, I am sure this doesn't surprise you, but 
my office in Wichita receives calls each year from constituents 
who have issues with IRS. I mean, just this month, I received a 
letter from a small car dealership in Cheney, Kansas that faced 
issues e-filing their 1099 NECs by the January 31 deadline 
through the Information Retrieval Intake System, or the IRIS.
    Mr. Chairman, I would like to submit this letter from 
Lubbers Cars for the record.
    Chairman SMITH. Without objection.
    [The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

    
    Mr. ESTES. You know, the comptroller at Lubbers Car told my 
office that, while they started in the middle of the month, the 
e-filing and IRIS portal continued to crash, causing major 
delays and pushing them right up to the deadline.
    But the situation was not unique to Lubbers Cars, who 
assured me that they have the top-of-the-line high-speed 
Internet. They reached out to the Kansas Automobile Dealers 
Association, who informed them it was a widespread issue. 
Lubbers tried the portal at multiple times during the workday 
and evening, with no avail. The CPA indicated that they were 
receiving calls, as well. Finally, around 6:00 a.m. on January 
31, the deadline, they successfully were able to submit the 
required 1099 NECs.
    Commissioner, as you know, the next deadline is March 31. 
Are you aware of these issues with the IRS portal?
    And what are you doing to make sure that this critical tool 
is ready for the upcoming heavy usage as more small businesses 
file, now that you have got this money to----
    Mr. WERFEL. Absolutely.
    Mr. ESTES [continuing]. Have these upgraded systems?
    Mr. WERFEL. It is a great question, and it is definitely on 
my radar screen. It was concerning while it was going on.
    This is--you know, we have a lot of different portals, 
tools, technology out there. And you know, anyone who is 
involved in running these systems will let you know that they 
don't always perform perfectly. The key is what your reaction 
time, your speed, your troubleshooting is. And when it happens, 
do you learn from it so that you prevent that type of mistake 
from happening in the future?
    And that is what I am trying to instill in the IRS. And so 
we were working the problem, are working the problem, made the 
necessary adjustments to allow these information returns to be 
submitted successfully. We are monitoring it very closely 
because of what you said, and I am cautiously optimistic that 
the changes and the updates that we made will allow for a much 
more stable platform as we get to the busy season.
    Mr. ESTES. Well, the Lubbers's comptroller called the IRIS 
help desk multiple times and couldn't get through. You said 
earlier you have hired 5,000 new call agents to help with that. 
And so this letter is just two--less than two weeks ago. And so 
have all IRS agencies--employees returned to the office for 
five-day work weeks since COVID?
    I know the GAO issued a report this fall that high 
percentages of offices across all agencies, not just the IRS--
--
    Mr. WERFEL. Yes.
    Mr. ESTES [continuing]. Had not returned to the office. And 
what are you going to do, or what are you doing to help make 
sure that taxpayers who are trying to do the right thing can 
get through to work with your agents and other employees?
    Mr. WERFEL. Yes. So first, to clarify, all IRS employees 
are working.
    The objective is to make sure that we are getting the 
mission done. And, when you tell me that someone didn't get 
through on the phone line, I want to learn more about that and 
figure out what we need to do.
    There is a government-wide standard out there in terms of 
where we stand today, what should be the percentage of in-
office work versus remote work. The IRS is generally consistent 
with that government-wide standard, but we are constantly 
evaluating any steps that we can take----
    Mr. ESTES. Sorry to interrupt, but what is that--before I 
run out of time, what is that governmental standard for the IRS 
for the number of employees----
    Mr. WERFEL. Well, the governmental standard is----
    Mr. ESTES [continuing]. To be in the office, working?
    Mr. WERFEL [continuing]. 50 percent is the government-wide 
standard. So----
    Mr. ESTES. So 60 percent of employees coming to the 
office----
    Mr. WERFEL. Everyone is working, it is 50 percent on site 
versus 50 percent working in some remote location.
    Mr. ESTES. So how can somebody in a remote location be 
handling these tax returns? That just seems to me that it is 
not doing the job that needs to be done to help service 
American constituents.
    Mr. WERFEL. Well, I am happy to walk you through in greater 
detail, but we have many, many employees on site doing the 
exact work that you described. And, you know, in our campuses, 
where a lot of our processing of taxes goes, that is where we 
have a heavy, heavy presence of IRS employees.
    Mr. ESTES. Thank you, and my time has run out.
    Mr. Chairman, I will yield back.
    Chairman SMITH. Mrs. Miller.
    Mrs. MILLER. Thank you, Chairman Smith and Ranking Member 
Neal.
    And thank you, Commissioner, for agreeing to appear here 
today. I have been looking forward to discussing the IRS's 
actions with you for some time.
    I am extremely concerned that the IRS has been just a 
little too focused on following political directions of the 
Biden Administration, instead of fulfilling its 
congressionally-mandated duties. The continued delay of the 
1099-K threshold and announcement of a new threshold is an 
illegal overreach that is not found anywhere in law.
    Unfortunately, this is just another step in a long string 
of illegal and questionably legal actions taken by the IRS and 
the Department of Treasury to either willfully ignore the 
change or misinterpret the laws that have been passed by 
Congress.
    Why was the IRS unable to implement the $600 1099-K 
threshold passed in the American Rescue Act?
    Mr. WERFEL. I am really glad I have an opportunity to 
respond to this question, Congresswoman.
    I believe the IRS commissioner has the authority to 
implement laws in a manner that ensures taxpayer rights. This 
means that at times implementation is delayed or ramped up over 
time in order to make sure that we are achieving that balance, 
that we are implementing the law that was enacted by Congress, 
but also abiding by another responsibility we have under the 
law, and that is to protect taxpayer rights.
    In this situation, this outcome of delay or ramped 
implementation was strongly recommended by a diverse set of 
stakeholders across the tax industry, commercial industry. From 
every direction we were hearing calls to--that there was risk.
    What was----
    Mrs. MILLER. Well, I can understand why.
    Mr. WERFEL. Yes.
    Mrs. MILLER. I mean, given the three-year extended delay, 
does the IRS believe it will ever be able to comply with this 
law?
    Mr. WERFEL. We are working with stakeholders on a path that 
will get it done. And, in particular, that is why we are 
intending to begin implementation next year.
    Again, the focus that I have and we have at the IRS is how 
do we do this in the best interest of taxpayers. We don't want 
taxpayers over paying their taxes. We don't want them confused. 
We don't want them bombarded with forms and paper they 
shouldn't be receiving. And, if we go forward with 
implementation without being able to adequately protect against 
that risk, then I am not meeting my legal responsibility as 
commissioner to help taxpayers and to help protect their 
rights.
    Mrs. MILLER. Well, in November of 2023 you announced plans 
for a threshold of $5,000 in 2024.
    Mr. WERFEL. Yes.
    Mrs. MILLER. Who specifically made that decision to set 
this new threshold?
    Mr. WERFEL. That was a strong recommendation from the 
stakeholders we reached out to across a variety of 
stakeholders: taxpayers, these companies that are third-party 
payment platforms. The reason why there seemed to be consensus 
on $5,000 was because that--if you had looked at the analysis 
and the model, $5,000 would ensure the most revenue would be 
impacted, while also protecting the most taxpayers from 
unnecessary paperwork and sending them things that they didn't 
actually need.
    And so----
    Mrs. MILLER. Well, I have to reclaim my time because, I 
mean, what authority does the IRS have to set the new 
threshold? The authority.
    Mr. WERFEL. So we have an authority under the code to 
administer laws consistent with taxpayer rights. And so this 
happens from time to time. Our goal and our objective is to 
implement the laws on day one.
    Mrs. MILLER. Yes, because----
    Mr. WERFEL. There are many----
    Mrs. MILLER [continuing]. We write the laws.
    Mr. WERFEL. Yes----
    Mrs. MILLER. Congress writes the laws, you don't.
    Mr. WERFEL. But there are a variety of examples throughout 
history where the IRS, in order to protect taxpayers from undue 
burden or from potentially being overtaxed, where we have 
either delayed implementation or ramped implementation. This is 
not the first time, and I am not the first commissioner that 
has confronted this tension----
    Mrs. MILLER. But they are still illegal. Your actions are 
still illegal.
    Mr. WERFEL. It is not illegal to take a step to protect 
taxpayer rights.
    Mrs. MILLER. Well, anyway, I will move on from this.
    Another concerning action I have that the IRS has taken is 
the implementation of the so-called Free File program. I mean, 
you have got to be kidding me. Nothing is free. Everything the 
U.S. Government does is paid by taxpayer dollars, so nothing is 
ever free. And I don't think you should be wasting your 
millions of dollars when the private industry is doing a good 
job.
    But I do want to give you credit where credit is due. I 
commend the IRS where credit--for the ERTC claims, for 
processing them. I understand that the system was devastated by 
fraud and abuse, which is why the committee and the House 
recently passed the Tax Relief for American Families and 
Workers Act in an overwhelmingly bipartisan manner. And I also 
want to urge my Senate colleagues to similarly follow suit so 
that the IRS can focus on credible ERTC claims so that good 
American small businesses can swiftly access the benefits that 
have been promised by Congress.
    Thank you, sir.
    Mr. WERFEL. Thank you, Congresswoman.
    Mr. STEUBE [presiding]. The gentlelady yields back. I yield 
to Ms. Moore from Wisconsin.
    You are recognized.
    Ms. MOORE of Wisconsin. Thank you so much, Mr. Chairman, 
and thank you, Commissioner, for joining us today.
    We have heard a lot of discussion today about the Earned 
Income Tax Credit and the audits and perhaps fraud that has 
been committed. And you were unable to sort of monetize the 
amount of fraud that that was, as compared to corporate fraud 
and loss of revenue. I guess we have had estimates that there 
is, like, at minimum, close to maybe 600 billion to $1 trillion 
worth of lost income from corporations. even though you can't 
nail it down to the penny, is that anything close to what you 
are experiencing with the Earned Income Tax Credit?
    Just a sort of a back-of-the-envelope sort of assessment.
    Mr. WERFEL. So we have a tax gap analysis, where we can 
evaluate where the differences are between what is paid versus 
what is owed. And the last estimate that we provided estimated 
a roughly $650 billion a year----
    Ms. MOORE of Wisconsin. Yes.
    Mr. WERFEL [continuing]. In this gap.
    Ms. MOORE of Wisconsin. So are you guessing that maybe the 
Earned Income Tax Credit fraud--I am sure you can recover all 
of it, since it is not very complicated to catch it, an earned 
income tax problem. You don't even need a person. Probably the 
machine will find that. Am I right or wrong about----
    Mr. WERFEL. Well, Congresswoman, for me it is about 
priorities.
    Ms. MOORE of Wisconsin. Yes, okay, so----
    Mr. WERFEL. And what are our priorities within earned 
income tax credit program integrity, and what are our 
priorities in terms of tax evasion amongst the wealthy, and 
that is what I am seeking to establish.
    Ms. MOORE of Wisconsin. Okay, so let me go on because I 
hadn't really planned to talk about this, it is just that my 
colleagues have raised it.
    What would you say that the fraud rate for the Earned 
Income Tax Credit is, as compared to the low uptake of it, the 
numbers of people who deserve it and could use it and don't 
apply for it? Yes, what is that number?
    Mr. WERFEL. Yes, and again, I don't have the specific fraud 
rate.
    Ms. MOORE of Wisconsin. Okay.
    Mr. WERFEL. It is not something that we measure----
    Ms. MOORE of Wisconsin. It is not fraud. I am talking about 
the people who don't even----
    Mr. WERFEL. Exactly.
    Ms. MOORE of Wisconsin [continuing]. Claim it.
    Mr. WERFEL. And this is part of the challenge. We believe 
that there is a material gap in the number----
    Ms. MOORE of Wisconsin. I mean, there is millions of 
dollars left on the table----
    Mr. WERFEL. Agreed.
    Ms. MOORE of Wisconsin [continuing]. I think, that families 
and kids need, particularly since we have such a stingy Child 
Tax Credit, we have harsh requirements for TANF, and people are 
leaving money on the table with the Earned Income Tax Credit.
    You know I think--I believe it was my good colleague that 
asked you a question about child support. And I think that, in 
the absence of an adequate Child Tax Credit and Earned Income 
Tax Credit, a low uptake in that, that it is really important 
that we do child support tax collections.
    And I understand that these contractors have to be 6103 
compliant. But we found this problem even with states that 
administer the Child Tax Credit for tribes. And so I am 
wondering, you know, they are subject to these audits, and I am 
wondering how long that is going to go on. It is really hurting 
tribal communities, not getting these monies. Can you quickly 
comment?
    Mr. WERFEL. I want to work with tribal communities 
directly. I know that tribal communities face unique challenges 
in terms of meeting their tax responsibilities or getting 
access to tax benefits. So, if I can learn more about the 
specific issue, I will----
    Ms. MOORE of Wisconsin. That is right, yes, learn about 
sovereignty, and that will help you figure it out.
    Let me ask you some questions before my time expires, very 
quick questions. I am not asking you to opine on policy, okay?
    Mr. WERFEL. Yes.
    Ms. MOORE of Wisconsin. I am just asking you to affirm some 
things that I think I already know.
    This essential government function test, is that an 
impediment to tribal nations' use of government bonds? Yes or 
no.
    Mr. WERFEL. It is something that is more in a policy shop, 
but I do believe----
    Ms. MOORE of Wisconsin. No, I am just saying----
    Mr. WERFEL. This is what we have heard from tribal 
communities, and that is why it is important to engage with 
them on solutions to the issues----
    Ms. MOORE of Wisconsin. So same thing, because they are 
going to cut me off, I guarantee you.
    The New Market Tax Credit set aside for tribes, the Low-
Income Housing Tax Credits, and, you know, setting aside a 
housing tax credit program, would that increase the 
effectiveness and administrability of these programs from the 
perspective of the IRS?
    Mr. WERFEL. It is something that I want to work with and 
coordinate with Treasury and the tribal outreach programs that 
they do and get back to you on that.
    Ms. MOORE of Wisconsin. Well, Commissioner, just let me 
join the chairman, the ranking member, all of my colleagues in 
thanking you for being here and being very patient. As you can 
see, we are all coming back and forth for lunch and bathroom 
breaks and everything. So you have been very good.
    Mr. WERFEL. Yes----
    Ms. MOORE of Wisconsin. And I want to appreciate you for--
--
    Mr. WERFEL [continuing]. And Congresswoman, I do now know 
that 20 percent of eligible taxpayers don't claim the Earned 
Income Tax Credit. So that means one in five. And that is 
something we have to address.
    Ms. MOORE of Wisconsin. That is a lot of money----
    Mr. WERFEL. Yes.
    Ms. MOORE of Wisconsin [continuing]. That is left on the 
table.
    Mr. WERFEL. Absolutely.
    Ms. MOORE of Wisconsin. Versus how many frauds that you 
find. And of course, you could collect every dime of that 
money, because it is not hard to audit an EITC recipient versus 
someone who has 500 corporations and billions of dollars.
    Thank you for your indulgence, Mr. Chairman.
    Mr. STEUBE. I gave you an extra 53 seconds. You just 
remember that. [Laughter.]
    Ms. MOORE of Wisconsin. I am going to remember that.
    Mr. STEUBE. Helping you out. All right, the gentlelady 
yields back.
    Mr. Murphy from North Carolina, you are recognized for five 
minutes.
    Mr. MURPHY. Thank you, Mr. Chairman.
    And thank you, Commissioner, for coming today. I was just 
looking at your CV. I saw you went to Duke and to UNC.
    Mr. WERFEL. I did.
    Mr. MURPHY. So, if you could answer one question today, 
Duke or UNC?
    Mr. WERFEL. Duke.
    Mr. MURPHY. All right. Well, I got no more to say to you. 
[Laughter.]
    Mr. MURPHY. No, all right, all right, let's get down to it 
actually. So, questions.
    California and North Carolina--excuse me, New York have the 
most billionaires. And you are saying that is a high rate of 
cheating. Have you ever correlated any of them with the--are 
they paying the California taxes and the New York taxes?
    Mr. WERFEL. I don't have that analysis at my fingertips. We 
are focusing----
    Mr. MURPHY. No, no, what I am saying is--because we are 
talking--you know, we are talking about a lot of folks not 
paying their taxes. Look, I am 100 percent people need to pay 
their taxes, period. I don't care what income bracket you are 
in. But if we are talking about millionaires and billionaires 
not paying their fair share, which is what we hear the 
President say a lot, those are--the two biggest states are in 
California and New York.
    So it would be nice to know--you don't have to answer this, 
but it would be nice to know, are they doing that for New York 
and California?
    And are their particular revenue departments going after 
them? Fair question.
    Mr. WERFEL. It is a fair question. And I would want to 
coordinate a response to that after talking to those states.
    We are not necessarily focused regionally. We are focused 
on the types of evasions----
    Mr. MURPHY. I get it.
    Mr. WERFEL [continuing]. That corporations are engaged in. 
Many of them are maybe operating in California, incorporated in 
Delaware. The reality is that----
    Mr. MURPHY. Yes.
    Mr. WERFEL. The question is the underlying behavior.
    Mr. MURPHY. Okay, all right, thanks. Were you aware that 
the Biden Administration has said that TikTok is not to be 
allowed on government devices?
    Mr. WERFEL. I am aware of that, yes.
    Mr. MURPHY. All right. So this is just very troubling to 
me.
    So the office of--the OMB issued guidance on February 27, 
2023 that agencies were--how to implement this law. TIGTA found 
that 23 devices used by IRS still had access to TikTok. And 
this is still troubling. It took the IRS--this thing was 
issued--TIGTA issued this to the IRS in May. The IRS did not 
take action until August of 2023. Why?
    Mr. WERFEL. I am not sure of the facts of that, but that 
does seem unacceptable, and I will get to the bottom of it.
    Mr. MURPHY. Do you personally believe--I think there are 
many Members of Congress, especially over in the Senate, 
Democratic Senator--intelligence, Dr.--Senator Warner believes 
that TikTok is a security risk to this country.
    Mr. WERFEL. Yes----
    Mr. MURPHY. I am just saying--this is his words, ``It is 
generally considered a risk.'' And I just, to the life of me, 
don't understand why these are still on devices.
    What really bothers me--we are talking about folks working 
from home--is that the bring-your-own-device policy for the IRS 
is still not enforcing this ban on TikTok. Can you speak to 
that?
    Mr. WERFEL. Well, I want to make sure I understand the 
TIGTA recommendation and where we are in closing it out, but I 
absolutely agree. Whether people are working remotely or 
working on site, we have to abide by these security standards, 
and any lapse is--cannot be tolerated. So we need to be----
    Mr. MURPHY. It took eight months for the IRS to really 
update this policy. That is not acceptable. It wouldn't be 
acceptable in business. It shouldn't be acceptable in any 
government agency.
    Let me ask you about the Criminal Investigation Unit and 
their access to TikTok, because it seems that they are kind of 
trying to get a waiver for this. Are you aware of any of that?
    Mr. WERFEL. I am aware of the fact that in certain cases, 
when our investigative--our law enforcement division is working 
to impede, disrupt, and hold accountable criminal enterprises, 
sometimes they have to use tools that--to understand and solve 
those crimes. So it is not--it is a kind of an apple and an 
orange versus an IRS employee who should not have TikTok on 
their device versus a law enforcement official who is using----
    Mr. MURPHY. Are you aware of that requisite, of that asking 
for this--for the Criminal Investigation Unit to have a waiver?
    Mr. WERFEL. I am--I would want to get--before I get into 
more detail, I would want to go back and get more detail----
    Mr. MURPHY. Would you mind----
    Mr. WERFEL. But I am aware of that, yes.
    Mr. MURPHY. Yes, would you mind getting back to my office 
about that?
    Mr. WERFEL. Yes.
    Mr. MURPHY. It is Murphy from North Carolina, who is a big 
Tar Heel fan. And by the way----
    Mr. WERFEL. Yes, I really am going to regret that answer, 
right? You know, I just was at UNC speaking, and I feel 
affinity there. But it is a long story.
    Mr. MURPHY. I am messing with you. I am messing with you.
    Just one last question. Artificial intelligence. You know, 
this is the gold rush for this country and the world, for that 
matter. Bias, absolute bias will be a thing we are going to 
have to fight. And I hope that, given the, you know, some of 
the biases that have been stated by the Department and some 
individuals, that we are going to--that I have your commitment 
to do your very, very best that the IRS does not have any 
biases when using artificial intelligence and looking at who to 
audit, who not to audit, because we saw that. We saw that going 
after Republicans before, we saw some real problems with who 
were audited. And artificial intelligence is a tool, but it 
should not be used as a political weapon in the IRS.
    Mr. WERFEL. You have my commitment.
    Mr. MURPHY. All right. Thank you, Mr. Chairman, I will 
yield back.
    Mr. STEUBE. The gentleman yields back next.
    Next. Mr. Kustoff, you are recognized for five minutes.
    Mr. KUSTOFF. Thank you, Mr. Chairman, and thank you, 
Commissioner, for appearing today.
    I would like to go back, if I can, please, to the GAO 
report that Congressman Estes was asking about. This is the one 
dated July 13, 2023. The title of it is, ``Preliminary Results 
Show Federal Buildings Remain Underutilized Due to Longstanding 
Challenges in Increased Telework.'' If I can, just let me read 
maybe two sentences.
    ``Seventeen of the twenty-four Federal agencies in GAO's 
review used an estimated average twenty-five percent or less of 
their headquarters building capacity in a three-week sample 
period across January, February, and March of twenty-twenty-
three. On the higher range, agencies used an estimated 39 to 49 
percent of the capacity of their headquarters on average.''
    Do you know, on an average day, Commissioner, how much of 
your headquarters building is being used?
    Mr. WERFEL. In Washington? I don't have that number at my 
fingertips.
    Mr. KUSTOFF. Would you say it is less than 50 percent?
    Mr. WERFEL. It may be, because the--as I mentioned earlier, 
overall, the IRS is roughly in line with the government-wide 
standard of 50 percent. So because it is an average, it may be 
under.
    Mr. KUSTOFF. We have heard different things and questions 
today to you from members. Anecdotally, subjectively, what I 
what I hear from my staff and from CPAs and practitioners that 
have to reach the IRS is that it is a real struggle to get a 
hold of somebody. And you talked about earlier some of the 
challenges with the phone, the call-back, which I appreciate.
    Mr. WERFEL. Yes.
    Mr. KUSTOFF. I would contend, respectfully, that not having 
employees in the office and having them work remotely presents 
challenges not only to your agency, but to the people that have 
to interact with it. Would you agree with that?
    Mr. WERFEL. I would agree that it depends on what the 
function is. There are moments, for example, when, whether it 
is a weather event, streets are shut down, we don't want to 
lose productivity. So we set people up to be able to work 
remotely where they can.
    I would also----
    Mr. KUSTOFF. I get if there is a weather situation. But, if 
we are talking about a day where the weather is fine, wouldn't 
it make more sense from a productivity standpoint to have 
employees physically present at the IRS than working remotely?
    Mr. WERFEL. In some cases, yes. In other cases, it is less 
relevant. I can give you examples of where it is highly 
relevant.
    Mr. KUSTOFF. Well----
    Mr. WERFEL. For example, in our taxpayer assistance 
centers, those are our walk-in centers, and those are fully 
staffed five days a week. Everyone is there at all times.
    Also, if you visited--and you are all invited to come to 
one of our campus locations--and you will see those campuses 
teeming with employees that are opening envelopes and doing 
other things to manage the tax system. And those individuals 
have to be on site, and they are on site.
    Mr. KUSTOFF. Well, Commissioner----
    Mr. WERFEL. For me, what I look at is----
    Mr. KUSTOFF [continuing]. We have got a number of questions 
here about security, and we are all concerned about it.
    Mr. WERFEL. Yes.
    Mr. KUSTOFF. I know you are you are concerned about it, 
whether it is----
    Mr. WERFEL. I am.
    Mr. KUSTOFF [continuing]. Mr. Littlejohn or whatever, as it 
relates to taxpayer information.
    From a security standpoint, wouldn't it be safer and more 
secure to have taxpayer information accessed at an IRS office 
versus an IRS employee's home?
    Mr. WERFEL. There are steps that you can take to ensure 
appropriate security, whether the tax--whether the employee is 
in a SCIF, in a non-SCIF, or remote. And we have to make sure 
that we are securing because there may be situations, whether 
it is a weather event or otherwise or a pandemic, where we have 
to ensure the right level of security, regardless of where the 
employee is.
    Mr. KUSTOFF. Can I--it is a true statement that IRS 
employees, when they are working remotely from home, can access 
taxpayer information, right?
    Mr. WERFEL. Certain employees, depending on the need, yes.
    Mr. KUSTOFF. Nothing to prevent the employee's 19-year-old 
son walking behind the screen from taking a screenshot of 
whatever is on the screen. Correct?
    Mr. WERFEL. That would be a violation of that employee's 
responsibility to protect information. There would be 
significant consequences for that. And therefore, virtually all 
IRS employees are very rigid in how taxpayer information is 
handled, whether it is handled on their computer screen in a 
remote location or on an IRS site.
    Mr. KUSTOFF. But it is true that that situation wouldn't 
occur if that employee were in the office, right?
    Mr. WERFEL. That--I don't want to engage in hypotheticals, 
but that--yes, that doesn't make sense.
    Mr. KUSTOFF. That employee's----
    Mr. WERFEL. Yes.
    Mr. KUSTOFF [continuing]. 19-Year-old son would not be 
physically----
    Mr. WERFEL. Correct.
    Mr. KUSTOFF. Right?
    Mr. WERFEL. But there could be a visitor in the building, 
and that is why it is so important that, whether you are on 
site or you are at home, that you are extraordinarily careful 
about who has visibility to information that you only--you are 
the only person who should have visibility----
    Mr. KUSTOFF. I mean, I can cite other examples, just like I 
did about the 19-year-old son in the home. There is no doubt, 
though, that situation wouldn't occur if that employee were in 
the office, in the IRS office. Correct?
    Mr. WERFEL. What I am suggesting is, hypothetically----
    Mr. KUSTOFF. Can you----
    Mr. WERFEL. I don't want to engage in hypotheticals----
    Mr. KUSTOFF. Could you answer yes or no, and then I will 
allow you to finish the----
    Mr. WERFEL. I feel like it is dangerous to go into 
hypotheticals because then someone is going to----
    Mr. KUSTOFF. It is not a hypothetical.
    Mr. WERFEL [continuing]. Turn around and ask me, what if 
someone has a Take Your Daughter to Work Day, and they are 
walking through the office? So there are all these situations.
    My common denominator, bottom line, is that each employee 
must rigidly and relentlessly protect that information from 
unauthorized access from any 19-year-old, whether they are 
visiting their parent in the office or whether they are at 
home.
    Mr. KUSTOFF. Let the record show that you were non-
responsive. Thank you, Commissioner.
    Mr. WERFEL. Fair enough.
    Mr. KUSTOFF. The gentleman yields back, and Mr. Schneider 
is recognized for five minutes.
    Mr. SCHNEIDER. Thank you, Mr. Chairman.
    And thank you, Commissioner Werfel, for joining us today. I 
want to start by saying I have appreciated working with you and 
your staff, who have been very helpful with us in dealing with 
our constituent questions.
    Before I go to a question, let me touch briefly on 
casework. We have been in touch with your team on a handful of 
IRS cases that we have been unable to make headway as we were 
hoping. Can I just get a commitment that we will continue to 
work on these----
    Mr. WERFEL. Absolutely.
    Mr. SCHNEIDER [continuing]. To try to get them done?
    And I will go back to the previous question--my kids are 
now 29 and 30, but--and I worked in a space--before coming to 
Congress with a lot of confidential client information. Whether 
my kids were visiting me in the office, as they often did, or I 
was working at home, as I often did, it was imperative that I 
kept that information confidential, and I think what I heard 
you saying is that that is the expectation of IRS employees, 
that information is----
    Mr. WERFEL. Yes.
    Mr. SCHNEIDER [continuing]. Kept confidential, irrespective 
of where they are, who might be visiting.
    Mr. WERFEL. One of the reasons why I was struggling with 
the question in the hypothetical is I don't want to signal to 
any IRS employee that they can let their guard down, no matter 
where they are, whether they are at home, whether they are at 
the office. It is absolutely critical that we have rigid 
policies and procedures in place to prevent unauthorized 
access.
    Mr. SCHNEIDER. Right.
    Mr. WERFEL. And that is what I really want to emphasize.
    Mr. SCHNEIDER. Thank you. I just wanted to make that clear.
    I will take another minute. We have talked about the IRA 
and the impact it has had, and you have touched on some of the 
things. But you know, the handful of things--I will let you 
reiterate them, the progress made, there has been discussion up 
here saying it is not quite perfect. But I am going to focus on 
progress, not perfection. Where is the progress we have made 
over the last----
    Mr. WERFEL. Yes, things are trending in the right 
direction. I don't think there is any way that I will rest and 
come up to this table and say we are done. We are not done. And 
I want to hear about the taxpayer concerns.
    But I also want to recognize the before and after of a 
funded tax agency versus a non-funded tax agency. And the 
before and after is stark in terms of what we are able to 
deliver in terms of taxpayer service. And that means, if we are 
funded, our walk-in centers are open, we can have Saturday 
hours, we can have special events where we are training people 
about how to use their--how to get free assistance, webinars 
are in place, all these different resources that we can invest 
in, reaching out to taxpayers and helping them meet their tax 
responsibility.
    Mr. SCHNEIDER. Is the difference of 85 percent of calls 
going unanswered and 85 percent of calls now being answered----
    Mr. WERFEL. Exactly, exactly. And the other thing that I 
haven't had a chance to emphasize as much as I would like to is 
the before and after of being funded in terms of what we can 
do, too, to protect honest payers against scams and the 
perpetrators that are involved in that. And, if we are not 
funded, we are on our heels.
    The tax system remains complicated, it remains a playground 
for scam artists to exploit honest taxpayers, scare them, call 
up someone who is elderly, pretend they are the IRS, convince 
them to take out their credit card and pay a phantom debt. An 
underfunded agency, an underfunded IRS means that that can be 
exploited more and more. A funded IRS means we can work to 
disrupt those types of scams, we can increase our education, we 
can work with local partners, and we can put tools on the web 
so that you can either help your elderly parent or that elderly 
parent can have access to figure out, is this really the IRS?
    These are tools that other tax jurisdictions are putting in 
place and we absolutely have to, in order to protect taxpayers 
from these risks, put these tools in place. And, if we don't 
have the funding, we can't do it. So these are the choices that 
we make.
    Mr. SCHNEIDER. Thank you. So, if we don't fund and we can't 
protect those taxpayers, they are at the short end of the 
stick. They are put at risk.
    Mr. WERFEL. Exactly.
    Mr. SCHNEIDER. At the same time, you have said there is a 
$650 billion--estimated $650 billion per-year tax gap, taxes 
not being paid. Who really suffers when people cheat on their 
taxes, don't pay what they owe?
    Mr. WERFEL. It is the people who pay their taxes, because 
they are shouldering the broader load for funding the 
government and its critical operations.
    Mr. SCHNEIDER. So----
    Mr. WERFEL. So that is why it is so important to have 
equity, and that is why it is important to prioritize our 
enforcement efforts for where we think evasion is most 
problematic.
    And the point that I have been making today is, when I 
arrived at the IRS after years of under-funding, I asked the 
team, ``Where are we most exposed? Where are the risks the 
highest? Where has this under-funding caused the most damage?'' 
And one of the key areas was our ability to keep pace with 
complex tax situations where evasion was a risk.
    There are complex tax situations where evasion is not a 
risk, and that is a place that we will not focus on. But it is 
the place where there is a risk of----
    Mr. SCHNEIDER. Yes, and I am at the end of my time, so I 
will ask the question--and actually, I would appreciate an 
answer in writing--is what is it that makes a complex return?
    And why does that complexity increase the likelihood or the 
ability of people to avoid paying taxes that are owed?
    Mr. WERFEL. Yes.
    Mr. SCHNEIDER. And I would like to be able to share that 
with----
    Mr. WERFEL. Well, just a quick example would be if you are 
operating in multiple countries----
    Mr. SCHNEIDER. Right.
    Mr. WERFEL [continuing]. And they have different tax laws, 
and you are shielding your profits in the U.S. to get a lower 
tax, when the reality is that your economic activity is in the 
U.S., and you actually owe, and you shouldn't be moving and 
making it look like to the IRS that your activity is elsewhere 
in a more tax-advantaged jurisdiction. That means that those 
that are accurately reporting their profits, the companies that 
are, are paying a larger share than those that are cheating the 
system.
    Mr. SCHNEIDER. And it is not just companies, it is wealthy 
individuals who are able to shelter money----
    Mr. WERFEL. Exactly.
    Mr. SCHNEIDER [continuing]. In other jurisdictions.
    Mr. WERFEL. And that is what we are trying to close the gap 
on.
    Mr. SCHNEIDER. All right.
    Thank you, and I yield back.
    Mr. STEUBE. The gentleman yields back. I yield myself five 
minutes.
    Mr. WERFEL. Sorry about that.
    Mr. STEUBE. Commissioner Werfel----
    Mr. WERFEL. Yes, sorry about that, yes.
    Mr. STEUBE. No, I am up here. I am normally down there.
    Mr. WERFEL. Oh, yes, okay. Oh, it was the chairman. Okay, 
got it.
    Mr. STEUBE. An IRS consultant named Charles Littlejohn 
stole a trove of tax return data, including returns from 
President Donald Trump and a host of other prominent American 
taxpayers, and released them to multiple media outlets in 2020 
and 2021. Last month I was pleased to see that Mr. Littlejohn 
received the maximum sentence of five years in Federal prison 
for his crime.
    In addition to criticizing the Biden Administration's DoJ 
for only bringing one criminal count against Mr. Littlejohn, 
Judge Ana Reyes told Mr. Littlejohn at his sentencing that his 
crusade to violate President Trump's rights was an attack on 
our constitutional democracy, and I could not agree more.
    What troubles me even more is that the IRS has taken far 
too long to implement the corrective actions necessary to 
ensure that other American taxpayers do not become victims of a 
rogue IRS employee like Mr. Littlejohn.
    The Treasury inspector general for tax administration 
recently reported that the IRS failed to ensure that all its 
sensitive systems provide accurate audit trail logs to monitor 
and identify unauthorized access. Essentially, TIGTA is saying 
that you did not know when sensitive taxpayer information was 
illegally accessed.
    I understand Mr. Neal asked you about this, and you said 
that you guys have taken corrective actions since that report 
came out--what was it, last week, February 6? What specific 
actions have you taken, and have you taken all three of the 
recommendations that TIGTA made in their report?
    Mr. WERFEL. Yes, we have taken a bunch of actions. I will 
be very quick, just to kind of give you a flavor of them: we 
have reduced the number of users; we have put more robust 
encryption in place; we have strengthened our oversight; we 
have improved our access logs; we have eliminated more 
movable--removable media; we put in place tighter email 
controls, new printer controls; and on and on and on.
    And on this point--this is such a critical point on the 
audit trails in our systems--TIGTA had identified, I think it 
was, somewhere between 300 and 400 systems in the IRS that had 
sensitive data that didn't have the appropriate audit trails.
    I required the team--I think it was almost like my third or 
fourth day at the IRS. I said, ``I want audit trails in every 
one of those systems consistent with TIGTA's requirements.'' 
Those have now been done. We shared that with TIGTA, but TIGTA 
didn't have sufficient time to validate that we did everything 
we said we did----
    Mr. STEUBE. So when was all that completed?
    Mr. WERFEL. That was completed by the end of the fiscal 
year, so around September 30.
    Mr. STEUBE. So all of the three recommendations that----
    Mr. WERFEL. Yes.
    Mr. STEUBE [continuing]. TIGTA, is that how you responded 
to----
    Mr. WERFEL. Yes, they are evaluating. We have said we 
agree, we are making the changes. We have made the changes, 
here they are. And TIGTA is now, ``Thank you, we are going to 
evaluate and see if you have done it exactly the way we want 
you to do it.''
    So they are reexamining whether, for example, our audit 
trails are as robust as we believe they are now.
    Mr. STEUBE. So they are reexamining. So I am just trying to 
understand when--because their report just came out.
    Mr. WERFEL. Yes.
    Mr. STEUBE. So, like, you have been there a year.
    Mr. WERFEL. Yes.
    Mr. STEUBE. When did you--and, I mean, this goes back to--
the returns were leaked in 2019, it was published in 2020. Then 
Mr. Littlejohn leaked a second batch in 2020 to ProPublica----
    Mr. WERFEL. Yes.
    Mr. STEUBE [continuing]. Which was published in 2021. 
Obviously, you weren't there, so I am not asking you to vie 
[sic] for what happened during that period of time. But you 
have been there a year.
    So is it your testimony today that, since you have been 
there, this is obviously happened and you have started taking 
corrective actions on these audit trails?
    Mr. WERFEL. Yes.
    Mr. STEUBE. When has that been complete? Like, is that--you 
are telling--your testimony before the committee today is that 
is done and complete?
    Mr. WERFEL. It is complete. Now, we were getting a peer 
review or an oversight review from TIGTA. We said it is--it is 
like we have handed in our assignment. We have put in all the 
audit trails to the systems that you have identified needed 
audit trails, and they are reviewing that to ensure that we 
didn't miss any.
    Mr. STEUBE. So I want to make it clear to the American 
people today. So the three recommendations that were in the 
report last week that they made, you are stating under oath 
today that those have been made by the IRS, all of the 
recommendations in the report.
    Mr. WERFEL. We have agreed with all the recommendations. I 
am stating for the record that the audit trails recommendation 
has been done. I want to double, triple confirm that we are 
completed with the other recommendations, but they are all 
underway.
    Mr. STEUBE. Can you let the committee know?
    Mr. WERFEL. Absolutely.
    Mr. STEUBE. When can we expect that information?
    Mr. WERFEL. I can probably get back to you by tomorrow or 
Monday--or Monday is holiday--Tuesday.
    Mr. STEUBE. If you could give that to the chair to 
disseminate to the committee----
    Mr. WERFEL. Absolutely.
    Mr. STEUBE. I would appreciate it.
    In the 30 seconds I have left----
    Mr. WERFEL. Please.
    Mr. STEUBE [continuing]. We have--and my district was 
decimated by Hurricane Ian. In the tax package we just sent to 
the Senate, which obviously isn't going to pass by today, the 
extension deadline, all of the people in my district for the 
2022 tax year are now going to be forced to, by today, file 
their extension and then have to do an amended return. It is my 
understanding that it is taking about 20 weeks to process 
amended returns.
    What assurances can you give all of the Americans in 45 
states who have been affected by a natural disaster, who are 
now going to have to file an amended return, that it is not 
going to take 20 weeks to get their money back from the IRS?
    Mr. WERFEL. This is a challenging issue, Mr. Chairman. The 
reason it is challenging--and this is not about making excuses, 
this is about just sharing the facts--is that our systems, 
while we are more modern and effective with original returns, 
we are still on outdated systems on amended returns. And it is 
more manual. And that is why, if you file an original return 
electronically and select direct deposit, we can get your 
refund in under 21 days. But if you file an amended return, 
that is a paper manual process. It takes a lot longer. And it 
is unfortunate.
    Mr. STEUBE. Since I gave Ms. Moore a little bit of extra 
time, I will take a little extra time.
    So what are you guys doing to remediate that? Like, why 
does it require a paper return? Is there efforts in place to--
--
    Mr. WERFEL. Absolutely, yes. We are doing a bunch of 
different things.
    First of all, looking at our--leaning out our process to 
see if we can close the gap on those 20 weeks, and also taking 
the steps to automate our entire infrastructure. This is one of 
the reasons why the modernization effort is so important.
    We are also doing a lot more scanning of all of these paper 
forms, because in a machine-readable format we can move more 
quickly.
    Mr. STEUBE. Thank you for being here today. My time has 
expired. I now would like to recognize Mr. Fitzpatrick for five 
minutes.
    Mr. FITZPATRICK. Thank you, Mr. Chairman.
    Commissioner, thank you for being here today. Sir, as you 
are aware, the IRS placed a moratorium on processing of new 
Employee Retention Credit claims through the year's end to 
allow the IRS to add more safeguards to prevent future abuse 
and to protect businesses from predatory tactics.
    In my district, I have many businesses that are impacted by 
this and are reliant on the ERC. In fact, we have businesses 
that say they could not meet their payroll because their ERC 
had not been processed. Specifically, my office has constituent 
inquiries where businesses are owed in excess of $1 million, 
preventing them from meeting their own payroll for their 
employees.
    It is my understanding that in October of 2023 the IRS 
issued a bulk taxpayer assistance order on hundreds of current 
cases involving ERC claims, but that was months ago. So could 
you just give us an update on where that stands?
    Mr. WERFEL. Yes, we are working hard to make sure that we 
can separate eligible from ineligible claims in the inventory 
that we have.
    As I mentioned earlier, it is challenging because we have a 
lot of inventory and a lot of ineligibility, and we have to 
figure out what is eligible and what is ineligible. We are 
making progress. In fact, since we issued the moratorium in 
September, we are averaging between 1,000 and 2,000 processing 
a week. So we are getting the eligible ones out the door. And I 
think, since the moratorium, we are nearing $1 billion of ERCs 
issued.
    So I think we are meeting our promise to make sure that the 
moratorium didn't stop us from processing claims that were 
received before the moratorium, but it is challenging because 
it is a very complicated program. Eligibility is tough to weed 
out from ineligible. But it is a focus point, for sure.
    Mr. FITZPATRICK. I want to jump to the direct file system 
that the IRS has put in place. This committee has asked many 
times before what the costs of that program would be. At least 
as far as I am aware, it is still unknown at this point.
    First, why did the IRS and Treasury feel it was necessary 
to create a direct file system when industry already provides 
many of these options for free to taxpayers?
    And secondly, could you explain how you concluded and how 
the IRS concluded that they were authorized to do this, to 
create, maintain, and update a direct file tax preparation 
platform?
    Mr. WERFEL. Yes. So we have, we believe, a responsibility 
and an authority under the law to make the tax filing process 
easier and more beneficial for taxpayers.
    As an example, if you will allow, I mentioned earlier we 
provide a call-back option now. If you call in--and that took 
some technology. It wasn't rocket science technology, but we 
had to implement technology. We didn't have to go to the Code 
and determine was there specific language in the tax code that 
says, IRS Commissioner, you have the authority to offer a call-
back option in the call center.
    So there is a whole set of different things that we can do 
for taxpayers to give them more options. It is not a mandate. I 
think it is a much different bar if I were up here saying I, as 
IRS commissioner, and mandating something. What we are saying 
is it is another option on the menu.
    And when we look at all the things we have offered to 
taxpayers over the years as the world has changed, we--at one 
point it was TeleFile, file your returns on the telephone. Now 
it is file electronically. There has always been this desire to 
evolve and understand how to meet taxpayers where they are and 
give them as many options as possible. And that is what this 
is, it is just an option.
    Mr. FITZPATRICK. Do we know what the cost of developing and 
maintaining this platform is?
    Mr. WERFEL. We do. We have--in our public report that we 
were required under the Inflation Reduction Act we included a 
cost chart that explained the cost and with different 
assumptions--if 5 million taxpayers were to use it, if 10 
million taxpayers. But this year, this is really just a pilot. 
We are still studying it, and it is available in 13 states. It 
is going to be a relatively small pilot to assess whether this 
is something that actually should be added to the menu.
    Mr. FITZPATRICK. Thank you.
    I yield back, Mr. Chairman.
    Chairman SMITH [presiding]. Mr. Larson.
    Mr. LARSON. Thank you, Mr. Chairman.
    And thank you, Commissioner. Thank you so much for your 
candor. It is always refreshing, given the enormous 
responsibility that you have, and just how important revenue is 
for the functioning of our government. That is why, of course, 
we were very much alarmed when this committee voted to cut 80 
billion out of funding to the IRS.
    What kind of an impact would a cut like that have, 
especially at this time when we are concerned about the Federal 
deficit?
    What kind of a cut would that have, especially--you have 
articulated very well trying to keep pace with all the 
technological changes that you are going to, while at the same 
time humanizing the IRS through your call centers and the 
ability for people to have direct contact with a human being.
    Mr. WERFEL. Yes. I mean, between--our budget was cut year 
over year between 2010 and 2022. If you add all that up, it is 
a 25 percent cut. Our staffing size shrunk to the same size it 
was in the 1970s.
    But over those same 12 years the tax system grew and got a 
lot more complicated, and we have a lot more to do. The tens of 
millions of more filers, thousands of changes to the tax codes, 
new programs, new activities, and a very different world, you 
know, a gig economy where we used to not have a gig economy, 
and more globalization, movement of money, new currencies. I 
mean, it is just a dramatically different world.
    So, when you take those two together, and you under-invest 
over a period of 12 years, while at the same time the job to 
manage the tax system grows, it is not a good formula. It leads 
to under-performance. And what I am trying to emphasize here is 
the people that suffer are taxpayers. They suffer because the 
tax laws still exist, they still have these responsibilities, 
and it is a stressful experience. And, when a problem emerges, 
if they can't get clarity from the IRS, if they can't get 
through to us, if they can't get their tax issue resolved, it 
weighs on them, it is burdensome for them, and it is stressful 
for them.
    And that is what is so heartbreaking about an underfunded 
tax agency. It means that we are not answering the phone. It 
means that our walk-in centers are shuttered, and it means that 
our digital tools are stagnating. And that is what it means 
when you describe let's pull back the IRS funding. It means 
that the IRS won't be able to function and help you. If you are 
not pulling back the tax laws and the tax responsibilities but 
you are pulling back the ability for the IRS to serve 
taxpayers, then the ultimate harm is to the taxpayers 
themselves.
    And that is my impassioned plea to make sure that we don't 
harm taxpayers by making it harder for the IRS to help them.
    Mr. LARSON. I think you have articulated that very well. 
What I am interested in, as well, is because of the 
sophistication as we go forward, what is the IRS up against 
when you are dealing with major corporations or people with 
great wealth?what does it look like inside the IRS when you are 
dealing with a battery of attorneys, accountants, and----
    Mr. WERFEL. Yes.
    Mr. LARSON [continuing]. Consultants that are going up 
against government employees?
    Mr. WERFEL. It is--well, I start with the volume, right? 
When you look at the number of audit personnel we had the day 
the Inflation Reduction Act was passed versus the number of the 
highest-wealth filers in the United States--and I am not 
talking about just above 400,000, I am talking about the 
millionaires, the corporations with $250 million in assets. We 
break it into cohorts. And the moment the Inflation Reduction 
Act was passed, we had 1 auditor for every 150 of the 
wealthiest taxpayers in the U.S.
    And these tax returns are long and complicated, thousands 
of pages, sometimes hundreds of thousands of pages. So I like 
people to picture--like, picture that one IRS auditor or 
examiner backing in 150 truckloads of paper, saying, ``I will 
review all that. That is my job.'' So it is a real volume 
challenge.
    So we had to hire more personnel, you know, to evaluate 
these returns, but also the complicated financial structures, 
the introduction of new currencies, the--more movement of money 
into international tax jurisdictions, the proliferation of tax 
havens, all of it, we have to keep up with it.
    Mr. LARSON. Exactly.
    Mr. WERFEL. It is an investment that we have to make in our 
subject matter expertise. It is investment that we have to make 
in our analytics and our predictive modeling, because here is 
the other issue. If we don't invest smartly, we just start 
pulling audits, we are going to end up pulling audits from 
people that are following the laws more regularly, and then 
adding burden to them when they are doing what they are 
supposed to do.
    So precision is actually very important here, and you have 
to invest to get that precision.
    Mr. LARSON. Mr. Chairman, I think we should do a hearing at 
some point, too, on what artificial intelligence means, and 
what it will mean to our agencies, especially those that are 
guarding our privacy issues, as well.
    But thank you----
    Mr. WERFEL. Thank you.
    Mr. LARSON [continuing]. Commissioner, thank you for your 
integrity and your candor.
    Chairman SMITH. Mr. Larson, that is a great idea.
    So Mr. Arrington.
    Mr. ARRINGTON. Thank you, Mr. Chairman.
    Commissioner, thanks for being here. A couple things.
    One, I would like to have a conversation--we don't have to 
do it now--with your team responsible for the donor advisory 
fund regulations. I want to understand them better. They may be 
right, they may not be. I have concerns about what you all 
would think are conflicts of interest that I think the market 
would--has already considered and already manages, if you will. 
So it is something I would like----
    Mr. WERFEL. Yes, you have my commitment on that.
    Mr. ARRINGTON. Thank you.
    So I am sure you have been briefed about the question I 
have, which is the question I asked you a year ago. I think you 
have got a lot to keep up with. You did respond in a letter. I 
referenced in our conversation a New York Post article that 
talked about the number of firearms and munitions that you all 
have at the IRS, and the number of armed agents. And it went 
through specific numbers: 3,832 handguns, 600 shotguns, 439 
rifles, 15 fully automatic weapons. So it was very detailed. I 
don't know where they got their information.
    And I think an appropriate oversight role for us is to, as 
a check and balance, and for the purpose of transparency to the 
taxpayers and to the people that we report to in the people's 
house, that they ought to have some confirmation of whether or 
not those numbers are right or if they are different.
    You responded with a letter and said the inventory of guns 
and ammunition is consistent with other law enforcement 
agencies. I find that an inadequate response. I think if the 
American people, who we all work for, ask as a check and as a 
point of accountability on agencies with tremendous power--and 
with tremendous power, comes, I think, great responsibility and 
oversight and accountability--they deserve a specific answer. 
What is in the inventory? How many armed IRS agents?
    I am not suggesting that there might not be some level of 
appropriateness, but just saying we keep up with the same 
standards--the same standards of who, the FBI, the ATF, the 
Border Patrol?
    So I am going to ask you again. Do you have the specifics 
of firearms, the number of armed IRS agents, and the inventory 
of munitions? I think the American people ought to know that. 
And then we can discuss why you have it, and why they exist, 
and for what purpose. And again, there may be an appropriate 
need.
    Mr. WERFEL. Yes, I would love to answer this question. 
First of all, I do recall the letter. I believe the letter that 
we sent you had a link to a public report that has the 
information you requested. If it did not, then we will get you 
that public link.
    I added the point that it was consistent with other law 
enforcement----
    Mr. ARRINGTON. Okay----
    Mr. WERFEL [continuing]. After providing the data.
    If I could, though, I think it is so important, if you 
could allow me to just address some myths about IRS and guns.
    Mr. ARRINGTON. Please, please.
    Mr. WERFEL. First, the vast majority of IRS employees are 
unarmed and will never be armed. Most IRS employees are 
customer service reps. I like to say they are armed only with 
headsets, phone headsets, and are--most of our accountants 
armed--all of our accountants armed only with calculators.
    Mr. ARRINGTON. And 50 percent of them are at home doing it 
instead of in their offices, but that is a different issue.
    Mr. WERFEL. Second, the only people in the IRS that would 
ever be armed are Federal law enforcement officials who 
investigate crimes in the context of very dangerous scenarios: 
organized crimes, criminals operating on the dark web, 
narcotics trafficking, human trafficking, terror financing, 
money laundering. The idea of sending these law enforcement 
officials to go execute a search warrant or an arrest warrant 
without being armed along with our other law enforcement 
colleagues, is not something that would ever be a smart or a 
prudent thing to do.
    Third--and this is about our inventory, I think it is an 
important context--the actual discharge of any weapon by an IRS 
law enforcement official is extremely rare. But under Federal 
regulations we are required to maintain a minimum amount of 
ammunition for training purposes in order for them to be able 
to hold a firearm when they are executing a search warrant on a 
dangerous criminal.
    And so, when you see the ammunition numbers in that public 
site, don't assume that that is ammunition that is used by the 
IRS ever.
    Mr. ARRINGTON. My time----
    Mr. WERFEL. It is really just for training.
    Mr. ARRINGTON. I have got five seconds left.
    Mr. WERFEL. Yes.
    Mr. ARRINGTON. I appreciate all that. I will look at that 
link.
    Mr. WERFEL. Please.
    Mr. ARRINGTON. If it is in there, then I may have missed 
it.
    Mr. WERFEL. Yes.
    Mr. ARRINGTON. If it is not in there----
    Mr. WERFEL. I will get you the data.
    Mr. ARRINGTON. You will get me the specifics----
    Mr. WERFEL. Absolutely.
    Mr. ARRINGTON [continuing]. So we can share with the 
American people----
    Mr. WERFEL. Yes.
    Mr. ARRINGTON [continuing]. So we can, you know--okay, that 
is good. That is all I need. I appreciate it.
    Mr. WERFEL. Thank you.
    Chairman SMITH. Thank you.
    Ms. Tenney.
    Ms. TENNEY. Thank you, Mr. Chairman, and I see the ranking 
member is up there, too. And thank you both for holding this 
hearing.
    And thank you, Commissioner. I know this is a long, long 
morning and afternoon for you. And I just want to jump into a 
couple of quick things.
    So Commissioner Werfel, as Israel continues to fight the 
war that Hamas started with a vicious attack on civilians on 
October 7, 2023, which includes the efforts to recover hostages 
that continue to be held underground in Gaza, disturbing 
demonstrations have swept through our college campuses and 
around our nation and here at home. Many of these 
demonstrations have been explicitly anti-Semitic, and some have 
called for the death of the Jewish people.
    This committee held a hearing in November where we heard 
from witnesses that explained how certain groups behind many of 
the events calling for violence against the Jewish people are 
funded through tax-exempt organizations. Multiple witnesses 
raised concerns that tax-exempt groups in the United States 
have ties to and may be providing material support to Hamas, a 
terrorist organization.
    Do you share my concern about the shocking rise of anti-
Semitism on college campuses particularly, and across our 
society?
    Mr. WERFEL. Well, first, thank you for this question. It is 
a tough question and a tough issue. And I do share concerns. I 
find calls for hate, I find anti-Semitism, I find Islamophobia 
abhorrent, reprehensible, heartbreaking.
    As I put on my commissioner hat and run the process of 
determining whether an organization is exempt or whether an 
organization should be revoked of their exempt status, we have 
a process that we run. And what I want to make sure is that we 
run that process robustly and effectively to make sure the 
right outcome happens.
    Ms. TENNEY. Right, I understand that. And also, our--along 
with my other Ways and Means colleagues, we sent you a letter 
along with Secretary Yellen, as you know----
    Mr. WERFEL. Yes.
    Ms. TENNEY [continuing]. Asking for a briefing on what the 
IRS and the Treasury are doing regarding the funding of anti-
Semitism, and particularly the funding of calls for violence 
against Jewish people and using tax-exempt organizations. And I 
understand that you are in the process of doing that and 
putting a briefing----
    Mr. WERFEL. Yes.
    Ms. TENNEY [continuing]. Together for us.
    Mr. WERFEL. That briefing is happening, yes.
    Ms. TENNEY. Which we greatly appreciate. But do you share 
our concern that there could be money flowing, particularly 
potentially international money that we can't track, flowing 
to--tax free for these horrific purposes?
    Mr. WERFEL. I want to make sure that exempt organizations 
are meeting their responsibility to operate for exempt 
purposes. And there are certain activities that could mean that 
their exempt purpose or their exempt activities are--should be 
revoked. Those typically orient around illegal activity. And 
what I want to make sure is that we have a very robust process 
in place. We get a lot of referrals. I want to make sure that 
we are running those referrals down and having a good 
assessment and a good process to figure out what the right 
outcome is.
    Ms. TENNEY. Well, can you share with us any information 
about what the IRS and Treasury are doing about considering 
penalties, for example, revoking their tax-exempt status for 
these groups that are engaged in this kind of violent conduct?
    Obviously, many of these organizations and many of these 
so-called grassroots efforts look very astroturf. They have 
assets well beyond what they should have or could have possibly 
in a spontaneous way. What can we see in terms of taking that 
status away?
    Mr. WERFEL. I think this is an important moment in time, 
Congresswoman, for the IRS, Treasury, and other Federal 
agencies to come to this committee and others and lay out 
exactly what today's process is, what the current law and 
regulations say, and to determine whether we have both a 
sufficient framework, and is it being implemented effectively. 
And that is a conversation that absolutely needs to happen 
right now.
    Ms. TENNEY. Thank you. We appreciate that.
    And I want to just jump on one other topic that my 
colleague, Mr. Fitzpatrick, touched on, and that is I have 
serious concerns about the direct file program. And my 
constituents fear, and I think rightly so, the IRS being the 
judge, jury, and executioner of their personal finances.
    Additionally, this program presents a clear conflict of 
interest, I believe, for the IRS, who should not be in charge 
of preparing taxes while performing other duties 
simultaneously, such as audits.
    And, as you know, my home state of New York is already 
participating in this program, and another concern of mine is 
New York taxpayers could struggle to navigate between the two 
disparate systems, and ultimately fail to file in the state or 
the Federal.
    And I don't know--I want to know, what are you doing to--I 
know you only have a few seconds left, but what are we doing to 
address this issue and this potential problem, especially as we 
are seeing issues in New York State?
    Mr. WERFEL. So it is--we are certainly not preparing taxes. 
This is--I want--you should let your constituents know they are 
under no obligation to use this solution if they don't want to 
use this solution. We will determine, through this pilot, the 
pros and cons of such a solution, and I will be back before 
this committee to report on that.
    Ms. TENNEY. Thank you. We just want to make sure it doesn't 
become a mandate. Thanks so much.
    I appreciate your time today, and thank you so much for the 
response and also action on this really important issue with 
Israel and Hamas. Thank you.
    Mr. WERFEL. Thank you.
    Chairman SMITH. Mr. Kildee.
    Mr. KILDEE. Thank you, Mr. Chairman, for recognizing me and 
to you and the ranking member for holding this hearing.
    And thank you, Commissioner Werfel, for your testimony. I 
just want to start out by thanking you and, if you wouldn't 
mind, conveying to your staff my gratitude. And, when I mention 
your staff, I don't just mean your senior team that we most 
often interact with, but with every one of those IRS employees 
in all the field offices around the country who do a really 
tough job under difficult circumstances.
    In one of my past careers, I was the county treasurer, the 
tax collector for my county. And I know that, typically, when 
we are interacting with customers who are paying their taxes, 
they are not always having their best day. And I know it is a 
difficult job, and I just want you to convey my gratitude to 
them for the difficult work that they do and the fact that, in 
some cases, they have to face, I think, unfair 
characterizations from some of the people that I work with here 
in this building. And I just want to express to you that I 
appreciate their work.
    I would also like to thank you for the difficult work that 
you did during the pandemic. Your team----
    Mr. WERFEL. Absolutely.
    Mr. KILDEE [continuing]. Because, obviously, you were not 
in that position.
    My constituents in Michigan needed help getting in contact 
with the IRS just to deal with very simple issues. And I know 
we had some struggles there. And I think, thankfully, because 
of the investments that we have been able to make with the 
leadership of President Biden and congressional Democrats, the 
IRS is in a better position, much better prepared to provide 
the level of customer service that the American people deserve. 
And I know you are continuing to work to improve that, and I 
appreciate that very much.
    I would also like to acknowledge the steps that you have 
taken to make this tax filing season easier for the people I 
represent by delaying the lower 1099-K reporting requirement. 
This delay will cut red tape for many taxpayers and allow the 
IRS to focus on ensuring that those wealthiest individuals that 
you have referred to a few times in this hearing and those 
largest corporations can no longer avoid paying the taxes that 
they owe.
    The investments that President Biden and Democrats made 
under the Inflation Reduction Act are also helping expand 
access to filing, and you have addressed this. I know it has 
been raised by a number of members. But as has been mentioned, 
this includes expanding the Volunteer Income Tax Assistance and 
the Tax Counseling for the Elderly programs, which for years 
have helped the working families that I represent get their 
taxes filed without having to pay a fee.
    I understand the point my colleague makes, but I think the 
point that you make is that we don't ask people to pay a fee 
for access to those. They are supported by taxpayer dollars, 
but not an out-of-pocket fee in the moment that that need is 
made. Those programs are operated locally by United Way back 
home for me.
    Mr. WERFEL. Yes.
    Mr. KILDEE. So the VITA and TCE programs are really 
important to me. And I wonder, particularly as--helping people 
access the benefits that they deserve, the EITC and Child Tax 
Credit--and I wonder if you can describe the IRS plan to expand 
VITA and TCE, and what effect you think this will have for the 
people I represent.
    Mr. WERFEL. Yes, I appreciate the question. I think there 
is a concerted effort under our modernization plan--we call it 
our strategic operating plan--to meet taxpayers where they are 
and, in particular, to figure out how we can connect with 
vulnerable populations to provide them assistance, often 
volunteer assistance, so that they have a better understanding 
of their tax obligations, but also what credits they may be 
eligible for that they are not receiving.
    How do we do that? First of all, I think it is absolutely 
important that we are on the ground. And so we are using new 
funding to open more walk-in centers, to extend the hours of 
those walk-in centers, to have Saturday hours, to have special 
events and Taxpayer Experience Days. In those moments, we can 
really promote with other local leaders the presence of this 
opportunity to have a volunteer, and then other tax preparers 
to know that they can volunteer and be a part of our cadre of 
volunteers that are doing such important work.
    I had mentioned earlier in the hearing I participated in 
one such local event in Baltimore, Maryland, where you had 
local leaders, taxpayers, volunteers all talking about the role 
of these VITA and TCE individuals in that organization, and the 
impact that it is having. And we had taxpayers stand up and 
tell their stories and how life-changing it was to get the 
help. And we need to do more of that. Local news was there 
covering it. That means that we are getting more visibility 
into these services.
    Simple things that we can do, like, just for example, we 
have recently created a new page on our website called Free 
Help, where we are trying to highlight and make it as easy as 
possible for taxpayers to learn more about these clinics and 
these volunteers. So there is a big investment and push to 
reach out to communities and make sure that the IRS is there.
    And I also mentioned protecting from scams, because it is 
typically--what is so heartbreaking about these scams and 
schemes is it is very often the vulnerable population that are 
exploited, those that get that phone call from someone 
pretending to be the IRS, and they don't have an accountant to 
call to look into it, and they are scared. And I want an IRS 
that can be there for them to help them understand that this is 
a scam, and you need to be protected from it. And we want to be 
there to do that.
    Mr. KILDEE. Well, thank you, Commissioner. I appreciate 
your testimony. I appreciate the chairman's indulgence. You 
have a tough job. The people at the IRS all have a difficult 
job. We have a difficult job, too. But at the end of the day, 
we all work for the same people, and I think, if we can 
continue to collaborate on ways to improve our service to them, 
I think we are all better off.
    Mr. WERFEL. Yes, and I don't think I have given enough 
credit in this hearing to the amazing workforce the IRS--and 
you mentioned it, the work they did during the pandemic was--
you know, I would say for them--they would say it is all in the 
brochure of being there when taxpayers need them.
    I think there are a lot of myths about the IRS. One that I 
learned as soon as I got there, IRS employees care deeply about 
serving taxpayers. They are passionate about it, and it is 
inspiring me every day.
    Mr. KILDEE. Thank you.
    And with that, Mr.--I really appreciate the indulgence. I 
yield back.
    Chairman SMITH. Mrs. Fischbach.
    Mrs. FISCHBACH. Thank you, Mr. Chair.
    And Commissioner, thank you for being here today. I just 
wanted to talk a little bit about a report. And according to a 
recently released report from the Treasury inspector general 
for tax administration--there are lots of long titles----
    Mr. WERFEL. Yes.
    Mrs. FISCHBACH [continuing]. Entitled, ``Quarterly Snapshot 
with IRS's IRA Spending Through September 30, 2023.'' But 
according to that, the IRS has spent 3.5 billion of the IRA 
funds.
    Of the 3.5 billion of IRA funds expended in fiscal year 
2023, approximately 1.6 billion occurred in the fourth quarter 
of fiscal year 2023. This includes approximately $464,000 
expended in fiscal year 2023 for the direct e-file, and I know 
that that has been mentioned before about the e-file return 
system.
    Now, maybe--so you don't have to look up everything, but 
what I really want to know is how the IRS is deciding what to 
spend the money on, and why has only 4.5 percent of the funds 
been spent, yet the IRS keeps asking for more money?
    Mr. WERFEL. Yes, I am glad--well, first of all, here is an 
update. We are at 4.7 billion spent to date.
    We are spending it, in particular, early on on taxpayer 
service, hiring more phone assisters, hiring more live 
assisters in our walk-in centers. We are updating our 
technology in our call center, adding more voice bots and 
automated solutions to our call center. We are purchasing more 
scanning, modern scanning equipment, so we are moving 
paperless. I mentioned we are simplifying all of our notices, 
and we are doing outreach to taxpayers in underserved 
populations.
    Mrs. FISCHBACH. And so, Commissioner, that is all covered 
in that 4.5 percent, or the 4.7----
    Mr. WERFEL. Four point five billion, yes. I mean, there are 
other things going on, in particular--and I spent a fair amount 
of time in this hearing--investing in our infrastructure.
    Mrs. FISCHBACH. But are you going to----
    Mr. WERFEL. And--yes.
    Mrs. FISCHBACH. Are you planning on expanding those IRA 
funds on that? Because you keep asking for money, but yet----
    Mr. WERFEL. Here is----
    Mrs. FISCHBACH [continuing]. Only 4.7 is what I believe----
    Mr. WERFEL. Here is the issue, and why we are asking for 
money. I mentioned it earlier, but it is really important if 
you would allow.
    Our base budget, there are two parts of the IRS budget. We 
have a base budget to run our day-to-day train schedule, as I 
like to say, and then the IRA money, which is all about 
modernization, closing gaps, improving taxpayer services. That 
base budget is under-funding the cost that it is to run the 
nation's tax system on a day-to-day basis.
    But we have to keep the lights on, so we borrow from the 
modernization fund in order to pay. And, when we borrow from 
the modernization fund to keep our lights on, it means we are 
not modernizing. We are keeping the lights on, but we are not 
modernizing.
    So, when I am asking for more money, what I am asking for 
for the IRS is fund our base budget, help us keep the lights on 
so that we can use those modernization funds to build the tools 
that taxpayers want. They want a call center that has a call-
back option. They want a call center that has more voice bot 
technology so they can get to--things done more quickly. They 
want web functionality that works like their favorite online 
bank account so that they can do all their transactions with us 
without having to call----
    Mrs. FISCHBACH. Commissioner?
    Mr. WERFEL. Yes.
    Mrs. FISCHBACH. I just wanted--in response to Mr. Kildee's 
question----
    Mr. WERFEL. Yes.
    Mrs. FISCHBACH [continuing]. I believe you mentioned the 
strategic operating plan. And maybe, as you go on and on about 
all of those things that you are doing, maybe you could help me 
understand how that fits in there, and how the spending fits 
with the operating plan.
    Mr. WERFEL. I am sorry. With the operating plan?
    Mrs. FISCHBACH. Well, you mentioned a strategic operating 
plan.
    Mr. WERFEL. Yes, strategic operating plan, yes. That lays 
out our--what I call our public to-do list. And there are 
numerous items in there arrayed by various objectives to both 
modernize the taxpayer experience, to improve our equity in 
enforcement, and, in particular, to make sure that we are 
closing the gap on evasion in complex tax situations, and that 
we are investing in modern technology so that we avoid 
unauthorized accesses in the future.
    Mrs. FISCHBACH. All right. Well, and thank you, 
Commissioner, and I may follow up with some other questions in 
writing, but I do have one last question.
    Mr. WERFEL. Please.
    Mrs. FISCHBACH. Last year, you responded to a question that 
I submitted on the record regarding your agency's ability to 
use the funds that Congress has given you to transition to new 
technology. Your response noted that--the progress the IRS was 
making with the paperless processing initiative.
    However, I have recently heard repeatedly from a company 
that has been trying to find a solution that would allow them 
to submit thousands of forms electronically instead of 
submitting these forms in paper copies. Yet, after over a year 
of trying to work with your agency, they have continued to 
struggle to make meaningful progress on this issue.
    And how is the IRS using its funds to proactively 
transition to a more efficient and technologically-advanced 
system for processing taxpayer information? Because that is not 
showing, they----
    Mr. WERFEL. I will give you the 10-second answer. By this 
filing season, we committed to making every correspondence 
response digitally uploadable. We achieved that. By next filing 
season, we are moving to the types of returns and forms that 
your taxpayer is struggling with. We are making the investments 
to make this a reality.
    Mrs. FISCHBACH. Okay, and we may end up following up with 
that because it--you know, given that they have been trying to 
work with the IRS to make things happen, and it has been very 
difficult for them, so we may follow up with another letter.
    But with that, I yield back, Mr. Chair.
    Chairman SMITH. Thank you.
    Mr. Wenstrup.
    Mr. WENSTRUP. Thank you, Mr. Chairman.
    And, Mr. Werfel, thank you for being here today, I 
appreciate it. I would like to focus my time today on an issue 
brought to me by constituents who are encountering issues with 
the Employee Retention Tax Credit.
    I do want to say that over the years my IRS advocate to my 
office, they have been outstanding. So I do want to applaud 
that. Always responsive and helpful. I wish we didn't have to 
call as often as we do, but this is what we are talking about, 
these issues.
    But recently, I was contacted by a constituent who tells me 
that their business is really in imminent jeopardy and will 
close, go out of business if they don't receive the ERTC funds 
that they had applied for. And, while this constituent applied 
for the ERTC before the IRS moratorium, the backlog, I 
understand, of the ERTC returns that has been created results 
in this claim being trapped in limbo. And for him, he sees no 
end in sight as far as--and trying as hard as he can.
    Another constituent of mine has been waiting nearly two 
years. And yet, while the IRS will not process his $14 million 
ERTC claim, they will process an intent to levy taxes on his 
business. And you can understand the conundrum there.
    So it is kind of hard for the IRS to attempt to collect on 
this constituent's taxes when the balance would have been wiped 
out already if their ERTC claims were processed in a timely 
manner.
    Mr. WERFEL. Yes.
    Mr. WENSTRUP. So one thing is holding the other.
    So I understand that this program has become rife with 
fraud and abuse, and I agree that enforcement action must be 
taken against bad actors, and I sympathize with you there. But 
I would like to ask a couple questions about what IRS is doing, 
can do to solve the issue for my constituents, and what steps 
Congress can take to be helpful, as well. So I will kind of 
bundle these three questions, if you will.
    What is the status of the IRS's ERTC moratorium?
    How many claims are in the pipeline?
    And do you have a timeline for those claims filed before 
the moratorium?
    Mr. WERFEL. Yes. So, first of all, I appreciate you raising 
it.
    It is important that we understand where there is a 
constituent or a taxpayer--in particular, where there is a 
potential hardship. They are sitting, they are waiting on an 
eligible claim, and they are facing an emerging hardship. That 
is why we work with our taxpayer advocate to try to bump up to 
the front of the line those that are in more of a crisis 
situation, and we have had some success with that. I think 
there has been some reference to that here.
    Plus, I want to learn more about every--these types of 
situations because other taxpayers may be experiencing them, 
and maybe there is some scaled solutions we can do.
    As I mentioned earlier, we are making slow, steady 
progress. Since the moratorium has been issued, we have 
approved nearly $1 billion in ERCs. The challenge that we have 
is that there is a lot more in the inventory as we are looking 
to piece out which are eligible and which are ineligible.
    I would expect that by this spring we would have finished 
the work necessary to really kind of separate into the right 
buckets, and we will be able to lift the moratorium in that 
timeframe.
    Mr. WENSTRUP. Well, if there is anything that Congress can 
do or, in particular, congressional office can do, we would 
appreciate that.
    And I was wondering if passing the American Families and 
Jobs Act would help alleviate the----
    Mr. WERFEL. It absolutely would for a variety of different 
reasons.
    The situation that we have has a lot of unique challenges 
in terms of the inventory, ineligibility, incentives that are 
being provided to certain promoters that are clogging the 
system and harming honest taxpayers. The bill that has been 
passed by this committee and the House addresses a lot of that, 
and we are appreciative.
    Mr. WENSTRUP. Thank you, I yield back.
    And again, feel free to reach out to Members of Congress if 
there are things we can do on our end or within our district 
offices.
    Mr. WERFEL. I appreciate that.
    Mr. WENSTRUP. I yield back.
    Chairman SMITH. Thank you.
    Mr. Panetta.
    Mr. PANETTA. Thank you, Mr. Chairman.
    Mr. PANETTA. Commissioner Werfel, thanks for being here. It 
almost seems like you are enjoying answering the questions, 
which I think demonstrates that you are pretty good at your 
job. So thank you very much, I appreciate it.
    As you know, we in Congress provided the IRS with historic 
funding to help close that tax gap, the hundreds of billions of 
taxes that are owed but not paid. We also provided billions to 
modernize the IRS and improve customer service, which has 
already reduced call times, as we have talked about today, and 
helped more taxpayers and professionals settle tax issues. Now, 
thanks to this funding, the IRS has already collected over a 
half $1 billion in overdue taxes from delinquent taxpayers.
    I want to remind all of my colleagues that tax collection 
isn't a tax hike. It is about enforcing the law.
    Now, the vast majority of middle-class family constituents 
with W-2s and simple incomes pay what they owe, and so should 
everybody else at all levels. So thank you, and we are 
encouraged by the IRS efforts to recoup unpaid taxes and 
improve taxpayer service. So I appreciate your work and your 
leadership at this point, Mr. Commissioner.
    I want to narrow down my line of questioning to paid 
preparer regulations. Suzan DelBene already hit on this, but 
let me delve a little bit more into it.
    The IRS Taxpayer Advocates Purple Book, which I am sure you 
are aware of, has stated that over half of all returns are done 
by paid preparers who don't have any credentials to do so. I 
have a bipartisan bill, the Taxpayer Protection and Paid 
Preparer Proficiency Act--try saying that fast--that would 
ensure that paid preparers meet minimum competency standards. 
It would exempt credentialed professionals like CPAs and 
enrolled agents or preparers that meet minimum standards from 
state education councils from any new standards. It is sort of 
the--that is the focus of the bill, is on the worst actors, as 
you know.
    While I know that the IRS would ideally be given full legal 
authority to regulate all preparers, would you support a 
compromise that mandated minimum competency standards targeted 
at those with no credentials at all?
    Mr. WERFEL. Yes. Well, I don't have the authority sitting 
up here to support a particular legislative provision. I would 
have to get with my Treasury colleagues to do that.
    As a general principle----
    Mr. PANETTA. Please.
    Mr. WERFEL [continuing]. We lack authorities today to hold 
preparers accountable, whether it is credentialing, whether it 
is when they harm taxpayers. And the President's budget each 
year has included an array of different legislative changes 
that would enhance our ability to crack down on nefarious 
actors that are doing these things or to improve the overall 
quality of taxpayer service that they--that people get from 
private tax professionals.
    So, yes, we would love to work with you on the right set of 
legislation.
    Mr. PANETTA. I appreciate that, thank you.
    One of the--I will call it penalties, I guess, as a former 
prosecutor I can say this--one of the penalties I think that 
the IRS should have is the authority to revoke a preparer tax 
identification number, or PTIN, as it is called----
    Mr. WERFEL. Yes.
    Mr. PANETTA [continuing]. When there has been misconduct. 
However, there have been some due process concerns that have 
been raised. Would the--do you think you--I guess you can 
opine--whether or not the IRS would support a system of due 
process for preparers who are facing PTIN revocation?
    Mr. WERFEL. Yes, there is--the legislative proposals that I 
have mentioned earlier that were in the President's budget last 
year have new penalties for when there is an appropriation of a 
PTIN and tackles the issue. Whether that president's budget 
proposal aligns directly with yours, I am not sure without 
getting into the details, but I think it is a great starting 
point to have that conversation.
    Mr. PANETTA. Thank you. Okay, moving on to tax credits, 
obviously we in this committee passed legislation that would 
reduce our carbon output by 40 percent by 2030. However, some 
of the credits, including those from microgrids, fuel cells, 
and linear generators expire at the end of this year. And, 
unfortunately, we are still waiting for final guidance on those 
credits, and that is leading to some taxpayers and constituents 
of mine being reluctant to make investments.
    Myself and Representative Tenney, have been pushing to 
extend these new energy credits so that they encourage, not 
discourage, more clean energy and resilient energy system 
deployment. So, in a blatant effort to garner evidence and 
support for my bipartisan legislation, does the IRS see greater 
utilization in tax credits when they have had clear guidance 
for a longer period of time?
    Mr. WERFEL. Oh, absolutely, yes.
    Mr. PANETTA. Thank you.
    I yield back.
    Mr. WERFEL. Thank you.
    Chairman SMITH. Mrs. Steel.
    Mrs. STEEL. Thank you, Commissioner, for being here, and I 
really appreciate it that you have been here answering all 
these questions.
    You know, the United States tax system, IRS--and I know 
California, because I came from California tax agency--and plus 
all other states, I know their systems are really different 
than Justice Department because when taxpayers--as soon as 
audit starts, taxpayers are guilty and they have to prove that 
they are not guilty.
    But, you know, the report from 2023 found that no-change 
audits were 13 percent of audits for those making between 100 
to $200,000; 25 percent of those making between 1 million to $5 
million resulted in no changes; and then 50 percent of audits 
making over $10 million result no change.
    And then you just mentioned one of the question that you 
are--one of your first priority is, like, you are going after 
millions and billions, you know, making wealthy individuals--
and your specific mention that about 1,600 people. I just want 
to know that you are targeting those people, or they have been 
assessed but they are not paying taxes?
    Mr. WERFEL. They are--have been assessed a balance due that 
is now delinquent.
    Mrs. STEEL. So those are----
    Mr. WERFEL. Millionaires and billionaires that have a 
delinquent tax debt.
    Mrs. STEEL [continuing]. All the wealthy individuals that 
you are talking about.
    Mr. WERFEL. Yes.
    Mrs. STEEL. So those are including--not including those no 
result. I mean, no changes. You know, when--after they did the 
audit. But these----
    Mr. WERFEL. No, these are individuals that have had----
    Mrs. STEEL [continuing]. Are already audits----
    Mr. WERFEL [continuing]. Do have a balance due. It might 
not have been after an audit, but there is a balance due that 
is now late, and they are not paying unless we go and enforce 
that they must pay.
    Mrs. STEEL. I am glad that you are not targeting certain 
people out there. So thank you.
    Mr. WERFEL. Yes.
    Mrs. STEEL. And we have spoken extensively about your drive 
to increase the number of audits, searching for evasion.
    Mr. WERFEL. Yes.
    Mrs. STEEL. And that is good. People have to pay taxes if 
they owe.
    But what steps are you taking to reduce this fishing 
expedition, no-change audits that burden taxpayers and cost the 
IRS time and money for no result?
    Mr. WERFEL. Yes, that is a concern. We want to--we don't 
want to have a situation in which we are selecting cases for 
audits where we should not have because the tax--we want to 
leave those taxpayers alone. They should continue to do what 
they are doing, which is filing complete and accurate taxes.
    This is about making investments in subject matter 
expertise and analytics to make sure that we are selecting the 
right cases. And then, when we select them, when we have the 
return in front of us, that we can identify where there might 
be pockets or systemic evasion. And we have to get better at 
it. We have to become more precise. And to do that, it is about 
investing, as I said, in subject matter expertise, technology, 
analytics, some AI solutions we have already put in place.
    Mrs. STEEL. So then let's go back to this. The IRS must 
safeguard taxpayer information.
    A recent letter you sent Chairman Smith notes that IRS 
conducts background checks on employees and contractors.
    Mr. WERFEL. Correct.
    Mrs. STEEL. But the February 2024 Treasury Inspector 
General for Tax Administration Report notes that the IRS did 
not always remove contractors' access to sensitive systems when 
background investigations were not favorable, especially 19 
contractors' most recent background investigations were not 
favorable as of July 13, 2023, yet they still retain their 
access to one or more sensitive systems because the IRS did not 
take an action to suspend or disable the contractors from the 
IRS systems, as required.
    So why should the fact that the IRS conduct background 
checks on employees and contractors serve as comfort if IRS 
does not take necessary actions to limit the access of those 
who failed background checks?
    Mr. WERFEL. Yes, I really appreciate the question, and it 
is absolutely critical that only those employees or contractors 
who require or are eligible for access have access.
    And we are--first of all, with respect to those 19 
contractors, we have resolved the issues with those 19 
contractors. Issues came up during their routine background 
investigations. I can state unequivocally that there is no 
evidence that they--that those 19 contractors compromised 
sensitive information of any kind.
    The other key point is that when we eliminate network 
access, there is no more access to sensitive data. And 
systemically we have been able to eliminate network access. The 
issue is sometimes these employees still appear on a registry, 
like a time--like for time keeping. And so it gets confusing. 
That individual can't access sensitive data, but they are on 
some type of list somewhere. And when TIGTA saw that, they 
rightfully called us out: ``These people shouldn't be on this 
list.'' But they don't have network access.
    That doesn't mean I am resting on any of this. We have to 
be as diligent as possible to make sure that only employees 
with applicable and timely access can have that access, and we 
are working that issue right now.
    Mrs. STEEL. Mr. Chairman, I have one more question on IT 
modernization following up that question. But, you know, what? 
My time is up. So I am going to submit in writing.
    Mrs. STEEL. Thank you.
    Mr. WERFEL. Thank you.
    Chairman SMITH. Thank you.
    Ms. Van Duyne.
    Ms. VAN DUYNE. Thank you very much, Mr. Chairman. I want to 
concur with all of the comments that were made earlier about 
the ERTC. And for the sake of argument or for the sake of time, 
I don't want to be repetitive, but I published an op-ed piece 
that I would ask for unanimous consent to enter into the 
record.
    Chairman SMITH. Without objection.
    [The information follows:] 
    
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    Ms. VAN DUYNE. So one of the new taxes that is included in 
the new tax on chemicals is to fund a new superfund, and I have 
introduced legislation to repeal this. The excise taxes were 
last imposed and collected in 1995, and there appears to be a 
lack of historic knowledge within the Treasury and the IRS as 
to the refund and credit process.
    I have heard from constituents that the IRS substantially 
delays processing refund claims and has initiated audits for 
each claim. For tax credit claims we understand the IRS is 
denying the credit, requiring payment for the full superfund 
tax amount with no credit offset, and assessing penalties and 
interest for failure to pay, even though an offset or credit is 
allowed by law.
    The IRS released proposed regulations on March 21 of last 
year, yet to this day the regulations have not been finalized. 
When will the rule be made, and what will the agency do to 
rectify these problems?
    Mr. WERFEL. Congresswoman, I appreciate the question. If 
you will allow, I would like to go back and make sure that----
    Ms. VAN DUYNE. I don't have a lot--I don't need a history, 
I am just wondering when are you going to be able to finalize 
the rule, and what are you going to be able to do to----
    Mr. WERFEL. I will get back to you with a response on that.
    Ms. VAN DUYNE. So we don't----
    Mr. WERFEL. I don't have a date.
    Ms. VAN DUYNE. It has been over a year, right?
    Mr. WERFEL. Yes.
    Ms. VAN DUYNE. Okay. We don't have a----
    Mr. WERFEL. I will--I want to get back to you with a 
specific timeframe.
    Ms. VAN DUYNE. Okay. Chairman Smith and the Oversight 
Subcommittee Chairman Schweikert wrote a letter on July 25, 
2023 requesting a copy of the decision memorandum detailing the 
recommendation to destroy 30 million unprocessed, paper-filled 
informational returns in March of 2021. The destruction of 
these returns raises the question of whether information 
reporting should be scaled back to reduce the burden placed on 
taxpayers in reporting information that the IRS does not even 
use.
    We still haven't received a response from you, and the 
original response was requested by August 8, 2023. That is 
129--I am sorry, 192 days overdue. So, Mr. Werfel, will the IRS 
ever provide this documentation voluntarily, or should we 
consider other means to obtain it?
    Mr. WERFEL. Oh, I apologize. Look, it is very important 
that we are responsive to all congressional requests for 
documents or information from this committee.
    Ms. VAN DUYNE. So it has been 192 days.
    Mr. WERFEL. Yes.
    Ms. VAN DUYNE. Tell me, will we be seeing that forthcoming, 
or do we have to issue a subpoena?
    Mr. WERFEL. I will go back and make sure that it is 
forthcoming.
    Ms. VAN DUYNE. So that is yes.
    Mr. WERFEL. Yes.
    Ms. VAN DUYNE. Do we have a date on which we can respect to 
have--expect to have a response?
    Mr. WERFEL. I will get back to you with a firm date.
    Ms. VAN DUYNE. Okay, so when will--I am sorry, earlier, the 
chairman's questions, it seemed that you dodged some of them on 
sentencing of the IRS employee who stole the tax information of 
thousands of Americans.
    Thankfully, that individual is going to jail, but for a 
much shorter period of time than they should. How many 
individuals and entities had their information stolen?
    Mr. WERFEL. I don't want to quote an exact figure. It is 
way too many, but it is in the tens of thousands.
    Ms. VAN DUYNE. Do we know for each, for entities and for 
individuals?
    Mr. WERFEL. We have all the detail. Yes, TIGTA has shared 
us the information because we have a responsibility to reach 
out to the impacted taxpayers so that they have notice on the 
situation.
    Ms. VAN DUYNE. So can you get us that information?
    Mr. WERFEL. Yes.
    Ms. VAN DUYNE. And then have you ever asked ProPublica to 
return the stolen information?
    Mr. WERFEL. I believe that the Justice Department and TIGTA 
have done that.
    Ms. VAN DUYNE. Do you know what has happened as a result?
    Mr. WERFEL. I don't have up-to-date information on that.
    Ms. VAN DUYNE. So, according to the inspector general, for 
some sensitive systems the IRS does not have adequate controls 
to detect or prevent the unauthorized removal of data by users. 
How is it possible that the IRS did not know the quantity of 
sensitive data systems under its purview?
    Mr. WERFEL. Yes, that was the situation in 2017 when this 
unfortunate incident occurred. That is no longer the case.
    Ms. VAN DUYNE. So what steps have been made to rectify 
that?
    Mr. WERFEL. We have invested significant time, energy, and 
resources in dramatically changing our data security profile. 
We have hardened, basically, our security posture, including 
introducing and implementing all the necessary audit trails so 
that if this type of activity happened today, the risk of it 
succeeding is much, much, much lower, the probability of it 
succeeding is much, much lower.
    Ms. VAN DUYNE. So, at this point, we can expect that 
those--all of those safeguards have been put into--not just 
talked about, but have actually been implemented.
    Mr. WERFEL. There is a long to-do list, and we have made 
our way through most of it, but the to-do list keeps growing 
because the risks evolve. But yes, I would say that----
    Ms. VAN DUYNE. Do you think the risks involved by having 
people work with their own devices and working from home [sic]?
    Mr. WERFEL. As I have mentioned earlier, I think the risk 
is both when they are in the office, when they are at home. 
There is always risk, and that is why we have to constantly 
focus on training----
    Ms. VAN DUYNE. All right. Thank you----
    Mr. WERFEL [continuing]. Controls, et cetera.
    Ms. VAN DUYNE [continuing]. And I yield back.
    Chairman SMITH. Mr. Feenstra is recognized.
    Mr. FEENSTRA. Thank you, Mr. Chairman, and thank you, 
Commissioner Werfel, for being here today.
    In April, you and I had a great discussion about the 
modernization of the computer system at the IRS. We know that 
this is a, you know, significant challenge. I think 33 percent 
of your applications are still on a legacy system and, you 
know, we continue to look at our--create policy--I am thinking 
of book tax and stuff like that--are very complicated. So I 
just want to update a little bit.
    You know, the IRS noted that removing sensitive systems to 
a cloud environment will allow IRS to better monitor and use 
accessed data. I am just wondering, where are we at on moving 
to a cloud system? Can you extrapolate on that?
    Mr. WERFEL. Yes, so there are two fundamental--or two main 
systems that underlie the IRS infrastructure: the individual 
master file and the business master file. So that is where all 
the returns, when they come in, that is our transaction record. 
We are close on the individual master file. We are months 
away--I would say probably April, May, June timeframe--of 
moving it into a fully modern environment, which is the final 
step----
    Mr. FEENSTRA. Yes.
    Mr. WERFEL [continuing]. Before it would go to the cloud. 
So it is kind of like----
    Mr. FEENSTRA. So----
    Mr. WERFEL [continuing]. On the to-do list to get it to the 
cloud. We have one more step. That will make it cloud ready, 
and then it will move to the cloud.
    Mr. FEENSTRA. So you are prognosticating here. When could 
we be cloud based, do you think?
    Mr. WERFEL. I want to get back to you on that. I know that 
the next key milestone is in the April/May timeframe. How long 
from that point to a cloud environment, I have to get back to 
you on that specific----
    Mr. FEENSTRA. Okay. And, you know, I think about digitizing 
our data and going paperless on a lot of these things. Once we 
go to cloud, will we then go paperless?
    Mr. WERFEL. We are going paperless in concert with going to 
cloud. But yes, my--we have to still allow taxpayers the option 
to file on paper if they so choose, but we want to turn--
convert that into machine-readable before it leaves our 
mailroom. And that is the--we are both purchasing the scanning 
equipment for that and updating our processes to make sure that 
we don't have paper anymore throughout the IRS.
    Mr. FEENSTRA. Got you, got you. So can you--do you have 
metrics that we are trying to follow here saying, all right, 
we--and you just sort of mentioned it, right, we are going A, 
B----
    Mr. WERFEL. Yes.
    Mr. FEENSTRA. I mean, that we are trying to meet these 
metrics as we move forward.
    Mr. WERFEL. Yes. We have the kind of what I call a critical 
path with our milestones, absolutely.
    Mr. FEENSTRA. Okay. Would you--can you commit to me and the 
committee that you can get us that information? Maybe quarterly 
statistics on the progression of the various IT projects 
underway in the IRS?
    I mean, this is sort of the first time we are hearing where 
this is going, and I would love to know, all right--you know, 
just--again, it is accountability. Hey, you know, this is where 
we are at. This is----
    Mr. WERFEL. Yes.
    Mr. FEENSTRA [continuing]. Where we are at this quarter, 
next quarter, and so forth. Can you----
    Mr. WERFEL. Yes, I would love to do that. Not only what 
path we are on to get to the cloud, but also, as important if 
not more important, what does that mean for taxpayers?
    Mr. FEENSTRA. Yes.
    Mr. WERFEL. What does it mean that we are on the cloud?
    Mr. FEENSTRA. Correct.
    Mr. WERFEL. I mean, there are a lot of benefits coming when 
we get there.
    Mr. FEENSTRA. And there is going to be a lot of education. 
I mean, I think--and what I think of all these online tax 
companies that are doing taxes as we speak right now, I mean, 
if it is online I think we could be so much more efficient. I 
think it would be--serve the customer so much more. That is why 
I am pressing this issue. I just look at customer service in 
today's world. When you are on the cloud, there are so many 
benefits. And we see that in the private sector. And that is 
why I really push this.
    And, just finally with that, I mean, what goes along with 
this, right, once we get to a cloud-based system, then we can 
also do more with AI. We talked about that many--I was talking 
about it earlier. Can you discuss how you are using more AI for 
assistance in enforcement, and what does that look--how can we 
look forward to using that when we get to a cloud system?
    Mr. WERFEL. I will start by saying we are being very 
careful with our deployment of AI, making sure that we are 
following the right ethics and ensuring that, as was mentioned 
earlier in this hearing, that no bias would be introduced. So 
we are doing it very methodically. Here are a couple of the key 
places where we are introducing AI.
    First, in our call center so that we are kind of using, for 
example, chat bots, so that when you are asking a question----
    Mr. FEENSTRA. Okay.
    Mr. WERFEL [continuing]. Before you get to a live assister, 
they are using language recognition to answer your question, 
and then you resolve the question----
    Mr. FEENSTRA. Yes.
    Mr. WERFEL [continuing]. And then they are done, and they 
are done more quickly. So that is one example.
    Also--and going back to this point of making sure that we 
are selecting the right cases for audit----
    Mr. FEENSTRA. Got you.
    Mr. WERFEL [continuing]. There is very sophisticated 
modeling that uses advanced math, advanced data science that 
means that we are more likely to pull a case where there is 
evasion versus not. That means the honest taxpayer doesn't get 
burdened----
    Mr. FEENSTRA. Right.
    Mr. WERFEL [continuing]. And that means the dishonest 
taxpayer gets accountability.
    Mr. FEENSTRA. That sounds great. And again, I am just 
pressuring as much as possible to modernize.
    I mean, this is--it should be, you know, 20 years in the 
coming that this all happens, and hopefully we can get it done 
in the next 12 months. Thank you.
    And I yield back.
    Mr. WERFEL. Thank you.
    Chairman SMITH. Mr. Moore is recognized.
    Mr. MOORE of Utah. Thank you, Chairman.
    Commissioner, thanks for being here. We are getting down to 
the lower dais, down to the last little bit. This is where the 
real work gets done.
    Mr. WERFEL. It is.
    Mr. MOORE of Utah. And this is where we actually solve 
problems.
    Mr. WERFEL. We are just getting started.
    Mr. MOORE of Utah. Yes, just getting started.
    No, sincerely, I represent Ogden, Utah.
    Mr. WERFEL. I know.
    Mr. MOORE of Utah. Right, a wonderfully strong workforce 
for the IRS. It has been--you know, I have known it my whole 
life, and have many colleagues and friends and everybody that 
have been there. I visited there as a Member of Congress. I 
actually look at my time before Congress, when I was a 
management consultant. And I actually wish that I could be 
working on this project in that sphere, instead of even in a 
congressional role because, to me, it would be very simple.
    You have a bipartisan, strong agreement about 
modernization. And my colleague from Iowa just spoke a lot to 
it, so I won't rehash too much of it, but there is commitment 
there. And we should be doubling down and we should be tripling 
our efforts to make this happen. And at that point, we then 
assess what workforce needs are, right?
    And so I opposed the Democrats' bill, IRA, that would have 
been a huge expansion. But then, when we pulled it back, we 
wanted to keep the focus on the modernization piece. And then 
we reassess and we try to go about figuring out where the 
workforce needs to be. And that is the way I hope we can 
continue forward, realizing--finding the areas of common 
ground, because that is the only time you get anything done in 
this place is if there is common ground, and we make moves in 
the right direction.
    For my constituents, this is a pain point for them.
    Mr. WERFEL. Yes.
    Mr. MOORE of Utah. Your offices, they--we share the same 
Federal building. When we reach out, we do a--we have an 
excellent relationship. So thank you again for that, and I echo 
what my friend from Georgia said.
    But this is an area we can actually improve on, and we need 
to double down on those efforts. So thanks for the comments you 
made on modernization and digitizing and getting us to this 
point. Members of this committee, you know, have raised many 
important points on that. Can you discuss how the agency is 
truly prioritizing these initiatives?
    What is immediately--something you are immediately working 
on, something that you want to get accomplished that might be a 
few months to years down the road, but you could probably--you 
know, we could maybe make it happen quicker if you get more 
collaboration from us?
    I am concerned about the level of attention the IRS has 
placed on programs like the direct e-file program, which was 
not authorized by Congress. Could you give some--share some 
thoughts on that?
    Mr. WERFEL. Yes. In terms of--you know, we want to have big 
impact for taxpayers that benefit them. And so, you know, I 
start with the call center. This is a place where there has 
been historic attention. I think a lot of taxpayers end up 
coming to the call center hoping for a smooth and better 
experience. I think we, that call center, certainly faltered in 
the 2022 tax season.
    And the changes we can make are not just about hiring 
additional phone assistors, it is about modernizing our call 
center. Because you look at call centers in other industries 
and around--and in other public-sector organizations, there are 
both AI and technology solutions that can make the whole 
operation operate more smoothly.
    And then I go to our web tools. We have online accounts 
now, where individuals and businesses can register and have 
their own personal account with the IRS. And so think about it 
in terms of what that account functionality is today versus 
your experience with your online bank account, and we have a 
gap. There are certain things you can do with the IRS online 
account, but not nearly as much as you can do with your 
favorite bank online account. And the goal is to close that 
gap.
    Now, that is not just about fixing the website. There is 
the entire technology infrastructure underneath that also has 
to enable a more modern experience for taxpayers. That is where 
the focus should be.
    I think there should be a bipartisan agreement that we want 
to lean in to give taxpayers the tools to make this entire 
taxpaying process easier.
    Mr. MOORE of Utah. Excellent. I agree, and I believe that 
that motivation is there, and we need to double those efforts.
    Regarding the Employee Retention Tax Credit, you saw the 
tax package that this committee just came together on to pass 
in an overwhelming fashion. Can you give me a sense--I have 
heard from a lot of small businesses that are anxiously 
awaiting for their ERTC claims to be processed. How is the IRS 
working with reputable tax preparers in the greater tax 
community to ensure that these ERTC payments continue to be 
processed, the legitimate ones and everything?
    There is a big backlog here.
    Mr. WERFEL. There is, there is. I get this question a lot. 
Work with your taxpayer, the taxpayer advocate, if you have a 
hardship. We are working with the taxpayer advocate to try to 
prioritize our significant inventory to those that face the 
biggest hardships.
    It is an unfortunate situation. The promoters and the 
marketers that essentially tricked a lot of small businesses 
that weren't eligible into applying have clogged----
    Mr. MOORE of Utah. Have clogged the system.
    Mr. WERFEL [continuing]. The system, and we are working 
through it.
    I mentioned we are coming up on nearly $1 billion in ERC 
issuances that have occurred since we announced the moratorium, 
and most of that is working with the taxpayer advocate and 
Congress and others to prioritize those that are the most 
urgent because they are hardship cases. That doesn't mean they 
are going to get approved, because sometimes we work on it, and 
we realize you are actually not eligible. But we are focused on 
it, and we are making sure they get resolution.
    Mr. MOORE of Utah. I got a request earlier today, so I may 
even be calling you myself. Thank you very much.
    Mr. WERFEL. Yes.
    Chairman SMITH. Thank you, Mr. Moore. I don't believe the 
top dais would agree with your inaccurate statements earlier.
    Mr. Gomez.
    Mr. NEAL. Mr. Chairman.
    Chairman SMITH. Yes.
    Mr. NEAL. That is unanimous. [Laughter.]
    Mr. GOMEZ. Thank you, Mr. Chairman.
    And Commissioner Werfel, thank you for being here today. I 
call the lower part of the dais the part of the dais that is 
closest to the people. So--and I am proud that we are all here 
fighting for our constituents.
    I want to talk about the Child Tax Credit. In 2021, we saw 
child poverty cut by nearly half in a single year, thanks to 
the Child Tax Credit. By increasing the credit, making it fully 
refundable, and authorizing monthly payments we used the tax 
code to deliver relief directly to American families. Three 
million children were lifted out of poverty.
    But despite our policies giving working and middle-class 
Americans more money in their pockets, which all my Republican 
colleagues claim is their goal, every Republican Congress let 
these vital provisions expire. We did see some progress from 
Republicans last month when we passed a bipartisan package to 
strengthen the CTC. But ultimately, Republicans refused to 
support the provisions that have been proven to dramatically 
reduce child poverty, provisions like increasing the maximum 
credit and ensuring full refundability to help kids and 
families who need the credit the most.
    But I want to focus on an equally important but often 
overlooked provision that made the CTC so effective: monthly 
checks. Parents know kids need diapers, formula, food, clothes, 
and they need it not once a year, but they need it every single 
day, every single week, and every single month. You can't pay 
down your child's hunger once at the end of each year. By 
giving families the money they are entitled to in monthly 
payments, we boosted monthly income and put their money back in 
their pockets. Making payments monthly instead of annually has 
the power to change the lives of working people all over the 
country. That sounds like something the Republicans should 
support if you listen to what they want from the tax code.
    Commissioner, given the progress made and lessons learned 
in 2021, does the IRS already have much of the infrastructure 
and knowledge to quickly roll out advance payments of the Child 
Tax Credit if Congress acts?
    Mr. WERFEL. It certainly was a beneficial moment for us to 
reengineer our systems, update our processes, and go through 
the effort and resolve it successfully. I like to say we now 
have the muscle memory and should be able to implement 
something like that easier than if we were trying it for the 
first time.
    Mr. GOMEZ. I appreciate that. And one of the things that I 
was informed about is that it also wouldn't cost that much. So 
it is something that I know would make a difference.
    You know, some people say it is only 250 to 500, or even 
700 bucks a month, but to working people that is a lot of 
money----
    Mr. WERFEL. Absolutely.
    Mr. GOMEZ [continuing]. That can make a difference when it 
comes to making basic ends meet.
    Another aspect of making the Child Tax Credit effective is 
ensuring that taxpayers claiming the credit are treated 
equitably. Last year, I wrote a letter requesting the IRS to 
further analyze and report existing data by race and gender to 
help us better understand how other historically marginalized 
communities may be impacted by racial disparities in the--in 
audit selection. I appreciate your leadership announcing that 
the IRS is taking meaningful steps to address these 
disparities, especially for refundable credits like the EITC 
and the CTC.
    Commissioner, can you please update us on this work, 
including any information about the case selection practices 
driving these disparities and steps being taken to address the 
disparities I just mentioned?
    Mr. WERFEL. Yes. The big takeaways you should have are the 
following: one, we are significantly reducing the number of 
EITC audits because audit volume was identified in the 
independent report as being one of the main drivers of 
disparate impact.
    Second, we have changed the case selection algorithm with 
an intent specifically to reduce the disparities that were 
existing in our case selection. We will be able to report in 
the fall of 2024 timeframe whether the changes that we made are 
having the intended impact of eliminating the disparity.
    Furthermore, we now want to work to make sure that we are 
constantly evaluating disparate impact in IRS operations, and 
we are working on the best way to do that. And, in particular, 
it is often important to work with external stakeholders. This 
whole issue surfaced by an independent report, so partnering 
with various stakeholders who can evaluate the impact of IRS 
operations along with us is critical. So strengthening those 
partnerships is another part of the plan.
    Mr. GOMEZ. Thank you, Commissioner. When Chairman Neal 
established the Racial Economic Equity Working Group when we 
were in the majority, it is an issue that we feel is important. 
Because if Americans feel like the tax system is fair, they are 
more likely to comply.
    So, with that, I yield back, Mr. Chairman.
    Mr. WERFEL. Thank you.
    Chairman SMITH. Ms. Malliotakis.
    Ms. MALLIOTAKIS. Thank you, Mr. Chairman, and Commissioner, 
thank you for your time here today. My colleagues have asked a 
wide range of questions and concerns, but today I really want 
to talk about the casework in my district office we are faced 
with on a regular basis.
    First, I want to commend your team of tax advocates. In 
particular, George Aggete has worked very closely with my 
district office. He is a tremendous asset, does a fantastic 
job.
    And it is my understanding that the New York delegation has 
a total of 1,688 open cases with the IRS, 81 of those being 
from my office. The number-one issue my office deals with, 
unfortunately, is stolen returns. I believe we have 14 current 
cases with the IRS totaling over $1 million in stolen returns, 
where criminals have removed and replaced the name and the 
address on the check. And theft is made easy by the envelopes 
that the Department of Treasury uses, making it blatantly 
obviously--obvious that there is a check inside.
    The issue worsens when the IRS does not allow those 
individuals to then opt for a direct deposit. So a new check 
gets issued. And we are in this kind of endless cycle, with one 
of my constituents having a check needing to be replaced three 
times.
    It is also my understanding that the IRS does not allow 
direct deposits for amounts over $20,000, or $25,000.
    So I understand that these thefts are not solely confined 
to IRS checks, but every check issued by the Department of 
Treasury. So I just had a few questions on how, you know, we 
can possibly work together to rectify this issue.
    And what is theft in check--first of all, do you know the 
cost of what this is costing the United States taxpayers, the 
fact that these checks are being stolen?
    Mr. WERFEL. I don't have a metric on that.
    I do think you have identified the right set of people to 
come together: me--the head of the Bureau of Fiscal Service at 
Treasury that operates our payment platforms either sends the 
checks or executes the direct deposit, and I do have a lot of 
motivation around these open cases.
    I mean, I have referenced it a few times, the taxpayer bill 
of rights affords the taxpayer quick resolution. And, if they 
are waiting and having to receive a check three times, and we 
are not meeting that responsibility----
    Ms. MALLIOTAKIS. On the issue of tackling theft itself, are 
you working with the U.S. Postal Service to try to address this 
issue?
    Mr. WERFEL. I am not aware that we are, but I want to get 
back to you on that.
    Ms. MALLIOTAKIS. Okay. And, since the issue is for all 
Treasury-issued checks, has anyone discussed the--changing the 
envelope to--so it is not so obvious that there is a check 
inside?
    Mr. WERFEL. As you are sitting here saying this, it is very 
intuitive. But I do want to check with the Bureau of Fiscal 
Service leadership on this.
    Ms. MALLIOTAKIS. What options do you think are available to 
constituents that are victims of this tax return theft, other 
than getting a reissued paper check?
    And is revisiting the direct deposit issue--can you do 
this, can you do that, in terms of----
    Mr. WERFEL. Yes, I want to look into why that is not----
    Ms. MALLIOTAKIS. Yes.
    Mr. WERFEL [continuing]. Currently feasible.
    Ms. MALLIOTAKIS. Yes, it should be an option, certainly, if 
they had the first check stolen and they want to move to direct 
deposit.
    Mr. WERFEL. Yes.
    Ms. MALLIOTAKIS. That should be an option.
    And then, if you could, look at the thresholds, if there is 
truly a cut-off at $20,000, $25,000, which I had not heard 
about prior. So look, I really want to work with you on this 
issue.
    Mr. WERFEL. Absolutely.
    Ms. MALLIOTAKIS. I really hope that you will follow up, 
your staff, with my team so we can try to get to the bottom of 
this, and maybe there is a follow-up meeting that we can have 
with somebody from Treasury to really discuss this. Because, if 
it is $1 million that is being stolen from constituents in my 
district--there is 435 Members, right? And so, we--that is a 
lot of money.
    Mr. WERFEL. That is a lot of money.
    Ms. MALLIOTAKIS. That is a lot of money, so we want to try 
to get to the bottom of this. And unfortunately, there are bad 
people in the world that are trying to take advantage of our 
constituents and the American taxpayer, and we have got to, I 
guess, modernize our system to keep up with this type of fraud.
    Mr. WERFEL. It is the smart place to make investments. 
Where people are being victimized is the exact place where the 
government needs to step in and prevent and be helpful.
    Ms. MALLIOTAKIS. Okay. Well, thank you very much for your 
time.
    Mr. WERFEL. Thank you.
    Chairman SMITH. Mr. Carey?
    Mr. CAREY. Thank you, Mr. Chairman and the ranking member. 
I am reminded of that phrase, ``Where you are now, I once was 
then,'' and I do appreciate the comments and the leadership 
that is behind me.
    I just want to say that because I am number 25 on this dais 
here. [Laughter.]
    Mr. CAREY. I do want to talk a couple of issues, and I am 
going to start with--because I think one is important to the 
future of our country, which is digital asset brokers, but then 
I also want to talk about what I think is preserving the 
history of our country. It is the conversation that you and I 
had the last time you were here, Commissioner, which is 
historic tax credits and historic preservation easements.
    Mr. WERFEL. Yes.
    Mr. CAREY. So to give you just a minute to think about 
those things, I would also like to echo the comments from my 
colleague from Illinois as it relates to child support, because 
that October 24 deadline is looming, and I would like--our 
office will work with you on that.
    I also would like to follow up with the--I heard my 
colleague from Georgia say that you were very helpful in some 
constituent cases that that he had. I will probably revisit you 
with that.
    So, with that, Commissioner, I trust you are familiar with 
the recent release proposed rule regarding tax reporting 
requirements for digital asset brokers.
    Mr. WERFEL. Yes, I am.
    Mr. CAREY. So then you know that the rule, as finalized, as 
currently proposed, the IRS, by their own admissions, will 
receive an estimated eight billion information returns from 
just this one rule. So, to put that in perspective, for 2022, 
the IRS received 5.45 billion information returns, total. With 
this new proposed rule, the amount of the reports the IRS will 
receive will increase by about 150 percent.
    We were talking about the amount of employees you have. Is 
the IRS equipped to handle this significant increase in the 
data?
    Mr. WERFEL. There are a lot of moving pieces on these 
issues. We have issued the proposed regulations. We have got 
hundreds of thousands of comments and that we are working 
through. I feel like we are at an inflection point in terms of 
digital currency and how to approach it along a lot of 
different perspectives of government, but in particular tax.
    We have to be prepared to--whatever the outcome of that 
regulatory process is, to have the technology and the process 
to execute those regulations fulsomely. So we will only propose 
in final regulations things that we have confidence we can 
execute on.
    Mr. CAREY. And I thank you for that. Personally, I support 
amending the rule to ensure that there is parity between the 
traditional finance industry. And I understand these rules go 
beyond the traditional--what traditional finance requires. If 
the rule did create a more level playing field between the two, 
the number of reportable transactions would decrease, freeing 
up IRS's time to focus on their current mission and not 
shifting all through the unnecessary data.
    It probably looks like I am not going to get to historic 
preservation, but we will follow up in written testimony on 
that.
    Mr. CAREY. What timeline of implementing the recently 
released proposed rule regarding tax reporting requirements and 
assets for brokers do you think it would--do you think is a 
realistic timeframe?
    Mr. WERFEL. The challenge that I have is that I--it is 
really my counterparts at Treasury that I co-lead this with. 
And so I would want to make sure that we are aligned on the 
timeframe.
    I think we got over 400,000 comments on the regulation. And 
so figuring out--you know, this is a complicated issue, and we 
certainly don't want to get out in front before we have given 
those comments fair vetting. So I don't have a specific date 
for you, but I can work with Treasury to get you one.
    Mr. CAREY. And I would appreciate that. Now, it is my 
understanding that there is a much shorter window for 
compliance than traditional finance brokers, and, to comply 
when they were implementing this rule for--the traditional 
being 5 years, the digital asset exchanges only got 16 months. 
Is there any reason for that?
    Mr. WERFEL. I don't at my fingertips have the full 
explanation and basis for it, but we will give you the 
underlying basis for that.
    Mr. CAREY. Well, and I appreciate that again, Mr. 
Commissioner.
    Given this new industry, it is a new industry with new 
technologies and innovation, I would recommend that you 
reevaluate the timeline to give the stakeholders enough time to 
comply, just as the traditional financial market did.
    We are voting, and I will get back with you on the historic 
tax credits and historic preservation easements because they 
are very important to me, but I do appreciate your time, and it 
is good to see you again.
    Mr. WERFEL. Thank you.
    Mr. CAREY. With that, I yield back.
    Chairman SMITH. Thank you.
    Thank you, Commissioner Werfel, for appearing before us 
today. We look forward to the follow-up answers from the 
requests of our members.
    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 today.
    With that, the committee stands adjourned.
    [Whereupon, at 1:50 p.m., the committee was adjourned.]
      




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