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like midco. midco supports c-span along with these other television providers, giving you a front row seat to democracy. >> i.r.s. commissioner danny wuerffel testified the agency's focus is on high income of individuals and businesses making over $400,000 a year, particularly those who have not paid their legally owed taxes. this house appropriation subcommittee hearing on the 2025 budget is about two hours. >> the subcommittee on financial services and federal government will come to order. i would like to welcome

mr. wuerffel, the first time you appeared and look forward to discussing the i.r.s. fiscal year 2025 budget submission. this is also my first hearing as chairman of the subcommittee and looking forward to conducting this oversight with the agencies under the subcommittee's jurisdiction whose mission impacts the everyday life of those in my district and across the country. my duties including the i.r.s. do not unfairly target americans in auditing their taxes and seeing their participation in financial markets and impacting their ability to own or operate a small business. the fiscal year 2025 budget request for i.r.s. is $12.3 billion, equal to this current fiscal year. however, the i.r.s. is requesting $24 billion to build an army of i.r.s. agents and carry out a direct file system congress did not authorize among other enforcement possibilities. the i.r.s. claims the decisions

enacted undermine the nation's financial strength and requesting to revert that cut and the mandatory funds does just that. while the i.r.s. deserves credit for the filing system, they can't do their service without mandatory funds. without sufficient funds, the level of service on the i.r.s. main phone line could drop to 30% levels in 2026. the i.r.s. can't deliver a filing season with the funds the committee provides, considering it's half of the committee's allocation. we need to hear back from the i.r.s. to see how it is deploying its resources and better secure taxpayer data. i'd like to hear from the i.r.s. how the administration is complying with their rules.

you have enough to worry about with higher grocery, rent, and utility bills. it's our job as appropriators to be careful with the american dollars and make sure that those under our agency do not support bad policies with undesired outcomes. i'll go to mr. hoyer for his opening remarks. mr. hoyer: thank you very much, mr. chairman. welcome to the chairmanship of this committee. i look forward to working with you as i look forward to and had a great relationship, as you know, with your predecessor who is now our ranking member on the majority side. and i want to thank him for his leadership and i know you'll bring the same kind of measured work to this committee's very important efforts as he did p. i want to start by saying that --

a comment you made. unfortunately, the allocation historically to this committee is insufficient to meet the months of this committee. because then the objects of this meet are not of most interest either to the public or to the members. however, the work of this committee, and in particular the internal revenue n.f.c. is abeas of the committee. i look forward to hearing more from mr. werfel on what the i.r.s. accomplished this year. i read your testimony. it's very impressive the level of service and increase we've

given to the american public and not sure why they don't appreciate the ease with which you made this an experience that none of us like much better. the agency made important progress to implement the strategic operating plan as laid out a year ago to enhance taxpayer services. we saw those initiatives wild impressive results in the most recent tax filing season with the i.r.s. fielding 1.4 million service calls than they did in the 2023 season. on average, calls only had to wait on hold for three minutes. i wish most of the private sector calls i make were answered as quickly. that's a minute shorter than last year, otherwise known as 25%. and five minutes shorter than the 2022 filing system.

last season before we secured additional i.r.s. money for the inflation reduction act. the 2024 filing season saw the i.r.s. make important technological advances to improve the taxpayer experience from the paperless processing initiative to its new direct pilot program. as a long time supporter of direct file i was proud to see it exceed its target goal with more than 140,000 across 12 states for participating thanks to the reduction act, they collected $520 million in legally owed back taxes from roughly 1,000 millionaires and billionaires. these are just a few of the i.r.s.'s achievements on the year. i'm sure commissioner werfel will highlight many others. i mentioned these accomplishments because they

demonstrate what the i.r.s. is capable of when it receives the resources it needs to carry out its absolutely critical work for the u.s. government, for the american people, and for our success. when congress with holds these resources, it puts all that progress at risk. sadly, that is exactly what many of my friends across the aisle tip to do. the antipathy conducted at the i.r.s. and employees is unfortunate and demonstrates an antipathy towards government. in the appropriations for fiscal year 2024 they rescinded more than $20 billion in inflation reduction act funding for the agency. let's be clear about what underfunding the i.r.s. means for the american taxpayer. it means i.r.s. customer service hold times will climb right back

up. it means initiatives like direct cloud will be delayed or put on hold. it means more people will get out of the taxes they owe under laws already on the books. nobody likes to pay taxes. but all of us ought to pay the taxes that are legally owed under the laws that we pass. and americans are particularly agrieved when they think they're paying more than their fair share where corporate executives are paying less than the people who work for them in terms of percentage. crucially, cutting i.r.s. funding will add to our national debt. we cannot be concerned with the national debt if you're not concerned with collecting legally owed revenues to fund our critical national defense and domestic security.

many of my republican colleagues claim they care about fiscal responsibility. if that's the case, they ought to care about enforcing the law and collecting legally owed revenue. they ought to work with us not only to fulfill the administration's request for i.r.s. funding but secure additional resources to offset what was taken for the agency through the recent recisions. now, i will not be putting forward the graphs i used during the markup but the workload of i.r.s. has escalated geometrically and its resources to meet those needs have been dramatically reduced over the decades. i look forward to hearing from the commissioner about why this funding is so crucial. he can eliminate all the i.r.s. accomplished with its resources in the past year as well as the consequences that underfunding the agency would have on the nation. as chairman, i think i went 1:35

seconds over and apologize for that but i think i needed to say all i said. >> thank you, mr. hoyer. i'll turn to ranking member delauro for her remarks. ms. delauro: i thank you both for holding this hearing today and commissioner werfel, thank you for being here today. welcome the financial services subcommittee. thank you for your public service. we really appreciate your work. and it is vitally important for our nation's governance and national security of every program service provided to the american people that we have a strong, secure, and a well supported internal revenue service. an underfunded i.r.s. means the lower processing of american tax returns and delays to crucial benefits like the child tax credit. and i'll take a second on the child tax credit because there

are folks who told us in 2020 that one, we could not have an approved and expanded tax credit. and secondly, that we couldn't get the i.r.s. to be able to deliver the checks on a monthly basis, that that would never happen and huzzah, they did do that in july with accuracy to getting the payments out to who they were to go to. i thank you for that and the families thank for you that. but underfunding the i.r.s. means that those with the most resources like billionaires and powerful corporations can often escape scrutiny and avoid paying taxes when the i.r.s. cannot afford to assure they're meeting their obligations. in 2021, at least 55 of the largest corporations in america in a year where they took in over $40 billion in pretax

income take no federal corporate income taxes, zero, nada, nothing. corporations like nike, hewlett-packard, dish network paid zero federal income taxes, profiting on the backs of honest american families. every dollar the i.r.s. spent on auditing the average cap is just over $2, a notable return on investment. but for the wealthiest 10th of 1%, audits produced nearly triple the return with each dollar yielding over $6 in revenue. through last year's debate and i.r.s. funding we would hear some members of the majority improperly call this activity the i.r.s. collecting tax status legally owed, a tax increase. complete nonsense. we protect honest, hard-working tax-paying americans by ensuring that the wealthiest individuals and corporations are paying the taxes that they owe. this committee has made several

investments annually and in the inflation reduction act in the i.r.s. to ensure it has the resources to collect taxes owed, to improve services, and indeed there's been great progress in modernizing the i.r.s. for the american people. with our investments, the i.r.s. has significantly improved customer service with call wait times of just over three minutes and a 37% increase of taxpayers served in person. the i.r.s. is also piloting a direct file program allowing taxpayers in 12 states with simple returns to file for free directly with the i.r.s. there's simply no good reason american taxpayers are almost forced to use costly private services to be sure they are paying their taxes correctly. the government, at a minimum, should be able to tell taxpayers if they are paying the amounts they owe. it's an important step forward in making the government work better for people

now it has the resources to audit and collect, the i.r.s. has collected $520 million in back taxes from roughly 1,000 delinquent millionaires and billionaires. rolling these investments back would only serve to seek those who escape paying the taxes they owe getting a free ride on the backs of hard-working and honest american families. this committee must continue to ensure the i.r.s. has the resources to complete its mission. it would be foolish for a business to slash its accounts receivable in an effort to save money. the u.s. government should not do so either. thank you for being here and for your public service to our country. i yield back the balance of my time. >> thank you very much. ms. delauro. mr. werfel, without objection,

your full written testimony will be entered in the record. with that in mind, i ask you to give us a sum arization of your opening statement in five minutes. mr. werfel: r.b.i.'s and members of the -- ranking members and members of the subcommittee. thank you for letting me give testimony on the budget. we saw a strong tax season for the nation, one of our best in history. through the april filing deadline, the i.r.s. received more than $139 million -- 139 million individual income tax returns and issued $245 billion in refund. inflation funding has allowed the i.r.s. to have one of its best filing seasons ever in terms of customer service. taxpayers are seeing a difference. we've answered over one million more taxpayer calls than we did a year ago and three million

more calls than we did in 2022. wait times and level of service on our main phone lines has improved and we dramatically expanded service in our wake-in sites, increasing hours and serving more taxpayers. and new and expanded tools on irs.gov are seeing heavy use. at the same time, inflation reduction act funding has enabled us to make critical inroads in addressing tax evasion among the most complex and largest filers. this is a sharp turn around from the past decade when we were hindered by a lack of resources. our compliance work includes focusing on tax drink winsy and nonfiling among high income -- tax drink enzi and nonfiling among the high income filers. we remain committed to following the treasury's directive not to increase audit rates relative to historic levels for small

businesses and households earning less than $400,000 per year. historic levels will be defined by tax year 2018 where rates for all cohorts were at historic lows. notably, audit rates for various groups are made public each year in our data book. therefore, when the final audit rate for tax year 2023, the first full tax year following the enactment of the i.r.a. is available, the public will be able to compare the rates to historical levels and confirm that the i.r.s. successfully met secretary yellen's directive. in the meantime, we are working to develop a methodology to determine which taxpayers fall above or below the $400,000 income threshold. we will of course keep lawmakers and members of the public updated on this work as appropriate. the i.r.s. anticipate increasing audits on the wealthiest

taxpayers, largest corporations, large and complex partnerships by sizable percentages for tax year 2026. for example, the i.r.s. will nearly triple audit rates on large corporations with assets over $250 million in tax year 2026, increase audit rates by nearly tenfold on large complex partnerships with assets over $10 million and increase audit rates by more than 50% on wealthy individual taxpayers with totals positive income over $10 million. that's where our focus will be. again, i want to be clear, middle and low income taxpayers should know there's no new wave of audits coming. we're laser focused on using new i.r.a. dollars to increase scrutiny on those large and complex tax filers showing red flags potential tax evasion. in all our transformation work, the i.r.s. has more work to do

on many fronts, and this includes closing remaining gaps on phone service, expanding digital options, further strengthening data security, and supporting vulnerable populations by protecting them from scams and increasing access to refundable credit. we have be a opportunity to build a 21st century tax agency at the level the american taxpayers deserve. it hinges on sustained investments to make sure we have the right size task force with training and tools. we need a modern technology infrastructure with web-enabled tools for taxpayers. these are needed to serve the nation today and in the future. a critical part of the effort is the administration's fiscal 2025 budget proposal and gives us flexibility and increases i.r.s.

transfer authority, helping us use available resources efficiently and effectively. it will also help sustain a new i.r.s. baseline of resources and avoid immediate funding delivers that would dramatically degrade our ability in many different areas, including the service improvements taxpayers saw this filing season. chairman joyce, ranking members hoyer and delauro, members of the subcommittee, that concludes my statement and i would be happy to take your question. >> thank you very much. quite timely. 5:29. we have starting questions and take five minutes. when you see the yellow light come on, you have one minute left. the questions and answers need to be done within that. i'll recognize myself first. commissioner werfel, the inflation act allows them to study to create a free e filing

tool for taxpayers to pay their tax return. they completed the study in may of 2023 and shortly thereof created a pilot of direct file rolling it out in 12 states for those making less than $70,000 a year. the i.r.s. mandated the study to create a free e filing system. under what authority did the i.r.s. create the direct file system? mr. werfel: first, the small scale pilot we believe is part of a study of whether a solution like that could be deployed nationally so we wanted not just to study in the abstract but engage in the taxpayers to see if the prototype could be built and work. part of the authority was the i.r.a. requirements for a study. but the second authority is under the section 7803 of the code which requires the commissioner and the i.r.s. to

administer the tax code in a way that serves taxpayers needs the taxpayer bill of rights and we believe provides options for how they file, just as when we went from paper filing to put, for example, p.d.f. forms online with fillable entries. we didn't believe we needed authority then because we think there's a general authority for the i.r.s. to move and evolve along with technology in the digital age to meet taxpayers and not to ask congress for specific authority for all these adjustments. mr. joyce: what distinguishes direct file from the e file system? mr. werfel: when taxpayers want to file we want to reduce the stress and make the processessier. one thing we heard from taxpayers and various members of

congress, an option where the taxpayer could file online for free direct with the i.r.s. versus working with a software providers is an option that should be available. we encourage taxpayers to work to figure out what is the best option for them and we know many taxpayers have enjoyed and and are satisfied with the commercial software they use and are free to continue to use that software but there are taxpayers, and i heard directly from them, but we're looking for another option and what we're doing is testing whether we could provide such an option and if there was a demand for it. mr. joyce: the i.r.s. spent $26 million in creating the direct file pilot and only 140,000 direct file tax returns were successfully submitted. of the taxpayers eligible submitted a successful return. the i.r.s. spent $174 for each

file return. i look at wasteful spending. why didn't the i.r.s. encourage taxpayers to use the existing prefile system instead of spending $26 million when you already had a system? mr. werfel: we ran a pilot and reported our results. there is a way to look at the demand of the taxpayers. we opened it to the public in early march and didn't have the full filing season. i believe if we were open for the full filing season, numbers likely would have been higher because many of the eligible taxpayers filed before we opened it to them. also, we saw significant ramp in demand over the course of filing season, so by the time we got to april 13, april 14, we were seeing exponential growth because more people, as they started to focus on their taxes looked at this option favorably. in terms of the cost of return filed, a lot of what was built

this year if we were to go forward has already been built. we would expect the cost per return will drop significantly in the future if direct file goes forward. but we're glad people are having this debate. we're glad there can be an analysis and cost information out there to analyze and go forward. mr. joyce: the i.r.s. included $27 million in the budget request for direct file and heard it may not go forward. who at the i.r.s. will determine if direct file continues? mr. werfel: we hope to make a decision fairly soon. we released a 40-50 page report detailing all of the findings from the pilot last week. we're now doing a variety of stakeholder engagements with all kinds of taxpayers and taxpayer intermediaries. i hope over the next several weeks we'll complete that and be able to make an announced decision. mr. joyce: thank you.

and i recognize mr. hoyer for the questions he has. [inaudible] mr. hoyer: i'll start with a basic question. i've been on this subcommittee for a long time. and that is how much revenue that is owed to the federal government under the laws that we have passed are not being paid because of a lack of enforcement, which is both a direct loss and indirect loss. a direct loss by the money we dealt and an indirect cost by people who believe they're not going to be checked anyway, so they will either go very close to the line or over the line. mr. werfel: we refer to that as the tax gap and we estimate it to be $680 billion a year.

mr. hoyer: $687 billion per year? mr. werfel: per year. mr. hoyer: does the current request of the administration anticipate with the enforcement money you have from i.r.a. and that are requested, will that make a significant dent in that gap? mr. werfel: we believe it will. at the point of the inflation reduction act, the day before it was enacted, the most anemic audit rates we've had sense isly in i.r.s. history. now what we're doing with these funds is increasing our ability to enforce in particular on high wealth and complex filers. one reflection i've shared before is on the day the

inflation reduction act was passed, we had one auditor for every 150 of the top tier most wealthy taxpayers in the country. i'm not talking about 10 million in more in income or asset but 250 million, the topmost tier. one auditor for each 250. many of these tax returns are tens of thousands, hundreds of thousands of pages long. i told people to picture that one auditor backing in trucks full of tax returns and it's them against all of that. and what we need to do is not only hire more people but provide them technology, data analytics and subject matter expertise to unpack all that complexity. we're leaving a lot of money on the table. mr. hoyer: the statistic i had and showed last year was from 2010-2019, those fiscal years, the i.r.s. audits of

millionaires plummeted from approximate 9% plus to less than half a percent. is that accurate? mr. werfel: yes. mr. hoyer: to make it clear, nobody wants anyone to pay more taxes than they owe. but to the extent that they do not pay, somebody has to take up the slack or we create a debt. and there's great concern about that debt. but when you tell me there's $687 billion per year estimated to be uncollectible, that's a significant problem. here's a particular peeve i have i want you to answer very quickly. i hear a lot of advertisements on the radio, some on tv but mostly radio, if you come to us and haven't paid your taxes, guess what, we'll save you

$1,000, $10,000, 50% of what you owe, etc., etc. it seems to me a great disincentive for people to pay their taxes, are you concerned about those advertisements? mr. werfel: i am concerned about those advertisements. many of them are exploiting the tax system and stress over taxes to victimize these individuals. and here's why. we have a variety of tools that are very accessible for you to either create an installment agreement or do an offer in compromise. we've designed them so you shouldn't need help and they're very fluid. you shouldn't have to pay or give any risk to anyone claiming they can get the i.r.s. debt to go away. the reality is we have programs in place. they're very accessible. we're working on making them more accessible. and those that believe they have to work with someone in order to

take advantage of these programs are giving something away. that's why these businesses have the money to avoid to advertise and exist. and what we've learned from testimonials and talking to taxpayers, is that at the end of this process, they're left with a mess on their hands. we urge people to get educated. if you work with someone, work with somebody reputable and search free help at irs.gov. there's a lot there that's navigable and there's probably something there that they tell you that you don't need. mr. joyce: now recognize the current chairman of transportation, housing, and urban development. >> commissioner. thank you for being here today. and in my previous role as chairman of the subcommittee, i always enjoy the fact that

you're very responsive to the questions that we have, though this is your first hearing before this subcommittee. i ask a quick question. mr. womack: i want to pick up on what mr. hoyer said a moment ago. the taxpayer advocacy service is an important organization but then the i.r.s.ists the american taxpayers who are experiencing financial difficulty and need help solving tax problems or believe the i.r.s. may not be performing as it should. the taxpayer advocate service which my constituents rely on is struggling to keep up with demand. the fiscal request for task is $268 million but what was enacted was $271 million. does the budget request address the need? help me understand the difference between the enacted

24 versus the request in 25. mr. werfel: there are choices we need to make in terms of how we maximize the effect of the discretionary requests we have of $12.3 billion. we can also provide supplemental resources to the taxpayer advocate using inflation act dollars to help close gaps. anything that you see in the 2025 budget, we are using inflation reduction act to try to meet the demand. we don't always get all the way there. so we will work with the taxpayer advocate to help them manage demand. typically the better job we do with service, the less their phone rings. so we can try to reduce some of the demand by improving our customer service, our ability to resolve taxpayer issues, and we'll also work with the

taxpayer advocate to make sure they're accessing other nondiscretionary resources to make sure especially hardship cases get addressed. mr. womack: those i.r.a. funds run out in 2026, correct? mr. werfel: they do. so where we stand today, we've requested $2.8 billion for taxpayer service dollars coming up in 2025. that would get you 25,000 s.t.e. we actually need 38,000 s.t.e. to match the tax system and the number of phone calls, tens of millions of phone calls, hundreds of thousands of people that come into our walk-in centers, all the paper that comes in that needs to be managed. so we are using i.r.a. resources to close that cap and get to the 38,000 s.t.e. so we can meet the taxpayer demands. but that i.r.a. money runs out. it runs out in 2026 and then

we'll have to shrink our customer service and you'll see those lines start to emerge against at our walk-in centers and on the phones. mr. womack: the $687 billion tax gap, i'm not sure how you calculate that. i'm sure you have high-speed computers and experts that can -- that's not a round number, that's $687 billion. how much of that is owed by people, say, making less than $400,000 a year, which would account for the majority of the tax filers would be my guess. mr. werfel: i don't have that number at my fingertips. but as you can imagine, across that $687 billion portfolio, you have distribution of income. we have people not paying at the low income of register and at the high income. what we have set out as a plan

is to increase our capacity and our scrutiny on high-wealth filers because that's where we fell the most behind in the leap years prior to the inflation reduction act. we didn't lose as much capacity to assess balance due for simple filers. but we lost a ton of capacity because large corporations are operating in more tax jurisdictions, they're using alternative currencies, they're using more sophisticated methods. in some cases we have c.e.o.'s and c.f.o.'s who are doing the right thing, but too often c.e.o.'s and c.f.o.'s are not and they're using those methods to shield their income. so the idea is to invest where we need it the most and where we need it the most is where we fell behind the most. where we fell behind the most is the complex filers. mr. womack: i know i'm out of time. i want to pick up on something

mr. hoyer said a minute ago. i'm not going to pick on optima, but that's the one i remember. i've voiced this concern in the subcommittee before. when you are driving down the road, listening to a sports broadcast and hear somebody come on that says hey if you owe the i.r.s. you're -- call us we're going to give you all this relief. and i just scratch my head thinking wait a minute. i don't owe the i.r.s. because i paid my tacks. so why should somebody else get off the hook? so i've had a little concern about that. and then last thing. this would just be for a quick response. in recent years we have seen a lot of indications of identity theft, stolen number, those kinds of things. people stealing and filing false claims and what have you. in your modernization effort, has that begun down somewhat?

mr. werfel: yes, it has. we are doing a more effective job year over year in iavoiding identity theft situations. where we have work to do is once you've been victimized the line is too long to get help from the i.r.s. and that's something we're focused on fixing. mr. womack: i thank the gentleman. i yield back. mr. joyce: thank you. ranking member delauro. ms. delauro: a couple -- a couple of point about the recent conversation here. throughout this process, house republicans have tried to destroy funding for the i.r.s. there's been more than $126 million in cuts to i.r.s. funding over the past year. we have heard about the tax gap, $87 billion, you've been able to collect $528 million in back taxes, estimated 1,000 billion

nairks millionaires. collecting revenue legally owed. now, and again with my colleagues on the other side of the aisle, they frame our debt as a problem of investment in the american people. we have a revenue problem. which i think that we have demonstrated here this morning. and there is a refusal to let the i.r.s. collect legally owed taxes from billionaires, corporate folks, in order to address the problem. so -- just very, very quickly. we're going into a new budget year. if more funding is cut from your budget, what would that mean? mr. werfel: what it will mean -- the consequences is, we will not be able to meet the demand that taxpayers present. we won't -- people will call the i.r.s. and not get through.

that'll happen to more people. people will show up at our walk-in centers, they'll find long lines and not be able to get in. and we will be limited in our ability to hold people accountable that aren't playing by the rules. this is why this is so important. if you're a c.f.o. of a large company and you're playing by the rules you want an i.r.s. that first of all leaves you alone, doesn't select you for audit because we invested and have the precision to see where evasion is more likely. and once we pull the return of where we think the evasion is more likely, the c.f.o. doing the right thing wants to make sure we're holding the c.f.o. that's not playing by the rules accountable. all of that degaidz if we don't get the resources we need. ms. delauro: those consequences need to be telegraphed loud and clear. and about, from whom are we trying to get the owed taxes from? 65 corporations, zero in federal

taxes. another 39 who pay only a portion of their taxes. let me move to the child tax credit. what an amazing success. i put you at -- the i.r.s. at the center of making this program an enormous success. you distributed nearly $93 billion in monthly child tax credit payments to families and as i mentioned earlier, treasury inspector general for tax administration found the i.r.s. accurately sent 9% of monthly child tax credit payments. no fraud, waste, abuse, people not going to work, people buying drugs with the child tax credit. all of that nay saying dissipated with the success that you and the staff have had in making that possible. i also might add, distributed

nearly $93 million. i had folks tell me, we can't afford a child tax credit that lift, you know, almost half the kids in this country out of poverty. lowers the hunger rates. we can't afford it. but by god we certainly can afford a $687 billion tax gap. we could deal with the child tax credit over and over again. should the monthly tax credit be reinstated how quickly would the i.r.s. be able to restart the program and how can the congress assist in this? and can you discuss the lessons learned if the child tax credit implementation, how has it impacted the i.r.s.? mr. werfel: i appreciate you expressing your appreciation. the i.r.s. work force often does rise to the challenge and in particular during covid really did a lot of heroic efforts to send out lifeline economic

payments to so many hundreds of millions of americans. and credit to my predecessor and others who led the inch r.s. through that period. what's also important what a huge lesson learned is, is that we are starting to make advances in updating our core technology. i've heard for a long time that a lot of money has been spent, but has the inch r.s. technology improved? i can report it is starting to show meaningful improvement. it is for that reason that if a child tax credit new program was enacted, we could re-engineer and begin within weeks. not months. and that is because a, we've done it before. so now we have the playbook. but b, we've made not all advances, we have a long way to tbe on technology. but changes have started to happen. and we are starting to see those technological changes generate

efficient like -- efficiency like week, not months to move forward on a child tax credit program. ms. delauro: well, get ready, because we are going to do that. i yield back. mr. joyce: thank you, ms. delauro, i now recognize chairman amodei. mr. amodei: thank you, mr. chairman. we've been told that tax collections over the last year, couple of year, are at record levels. am i being -- do i have accurate information? what can you tell me about collections in general over the last couple of tax seasons? mr. werfel: i would say that the size of the tax base has grown. so we're seeing the population grow and there's more taxpayers. so just in the general rhythm of collecting taxes, the receipts an eastbound and flow. buts -- can ebb and flow. but a as the population grows, it's grandson. but the audits haven't grown in

the way they should. that's why in my testimony i outlined plans to increase the audit rates. mr. amodei: i get that but are dollars up in the last couple of cycles? mr. werfel: i would have to double check but i do believe receipts are increasing as the population grows. mr. amodei: and if i heard you right, part of the function of that is birth rates in more people are attaining adult status and filing? mr. werfel: over the 2010's we saw 7% increase in the number of tax filers. just to give you a rough benchmark. in the 10 years between 2010 and roughly 2020, about a 7% growth in filing. mr. amodei: what do we attribute that to? mr. werfel: onlation growth. mr. amodei: we've heard talk about technology, funding for

technology, stuff like that. can you kind of briefly tell us what those technology advances have done, if anything, to affect the work force that you need to prosecute your core mission? mr. werfel: absolutely. one -- when i was answering congresswoman delauro, i left out the importance of not just our phone lines and walk-in centers but our digital solutions. we have a future emerging generation of taxpayers who are used to do everything from their smart phones and tablets and we need to get there. one thing that has happened is we made dramatic increases to our digital solutions. you can get an individual online account, business online account. functionality in those accounts are increasing so that more and more you don't have to walk in, you don't have to call us. but if you have business with the i.r.s. you can do it from your smart phone or your tablet or your laptop. we made more changes to i.r.s..gov in the -- to irs.gov

in the last two years than in the previous 20 years imhiened. but we have a lot more to do. because the gap between, for example, your favorite online bank and what they can do and what we can do is significant. we plan to use the inflation reduction act funds to close the gap so your children and grandchildren are operating in a world where they never have to call or walk into an i.r.s. center. mr. amodei: so connect the dots for me if you will, in whatever context is appropriate, technology advances have affected what it costs us to operate the company. how? have we gotten efficiency and cost reductions in operating the company if the technology? or mr. werfel: absolutely have. we absolutely have seen efficiencies. every time we move a form from painer to digital, we've seen a lot more digital upload offing to be u.s.-mexicos. we're to the point where 94% of americans can send stuff to us electronically rather than have

to use paper and reduction of paper reduces costs. the issue is that the tax system grows at a faster rate than we can drive efficiency. i'll give you a good example of that. the congress passed a law requiring the i.r.s. to build a new technology to do information reporting for digital currency. so there's a whole new program out there because of digital currency that we now have to create new infrom -- infrastructure. so we have a new cost. because we have to build a new system. because there's new currency. that system has to be both built and maintained. so even though we may be driving efficiencies in legacy systems that are in place, making them more efficient, when congress changes the code and adds new requirements, it require more. mr. amodei: members have referred to corporations, x number of corporations pay whatever.

x number -- can you tell me what, if anything you're doing, if it's finite, what are you doing to prioritize getting those 55 or whatever with your existing assets. i would assume if the information is out there and they're not paying their fair share that you've got a top 10 list or something where it's like we're going to after a, b, c and d because they're at the top of the list. mr. werfel: we do. we have a top 1,600 list, 1,600 millionaires and billionaires that owe back taxes. we have 125 -- mr. amodei: tell me -- mr. werfel: we're collecting from them. we've collected $500 million so far. we sent letters to 125,000 wealthy individuals who haven't filed since 2017. and they're hearing from us. we've launched -- mr. amodei: is that public information? mr. werfel: public information. mr. amodei: thank you. my time has expired. i yield back.

mr. joyce: mr. pocan? mr. pocan: how much was it again to create the direct file system? mr. werfel: $26.4 million of i.r.s. funds. i'm sorry, $24.6 million. mr. pocan: do you know how much is made by the traks preparation industry annually? mr. werfel: i know it's in the billions. mr. pocan: with one company had $13.3 billion. h&r, $33 billion. their lobbying along was $23 billion, almost four times what it costs to create the direct file system. that would save taxpayers an enormous amount of money if more people have access to direct file, is that correct? mr. werfel: it could we want free file to expand. we think one of the thing about the free file program is not enough people are taking advantage of it. and this past filing season we saw an 11% increase in free

file. some of it direct file. some of it free file with the software providers. we're happy about that. mr. pocan: what can we do about that? i know one stat, i'm not sure this is correct, but 70% of people that qualify for direct file but 3% use. what can we do to get more people to be able to have that information? mr. werfel: it's like we were talking about people getting scammed with too good to be true advertising. we have to do more outreach we plan on ding a lot more outreach. one of the questions earlier -- earlier was are you getting more efficient? we are. what do we want to do with new capacity? there's more help that's needed in underserved populations. we have seven million taxpayers last year eligible for eitc that didn't claim it. we need to close that gap. in working in underserved and distressed communities we can share more information about tax scams, what to be on the lookout for, and what are free options for you to file. we want them to have choice.

i can file for free with the i.r.s. or use a commercial software. let me try both and see what works for me. the idea around direct file is another option with the overall objective of serving people that can't afford an accountant and need more help. mr. pocan: we require people to pay taxes, so the fact that we'd preside something for them to do that makes complete sense to me. to that, you talked about the money that doesn't get to low income families, i think $12 billion in tax credits are left on the table is there a way to autofile some of that information? with this system? so that when people if they do direct file, some of that can be included? mr. werfel: there's a lot of study we need to do to understand the future of tax filing. right now, where we stand today, it is up to you to enter your information and you are the final arbiter of what your tax return is.

there are other country, other nations that do it very differently they present -- you're still the final arbiter but they present to you a completed tax return and you thumbs up and thumbs down. whether the u.s. goes in that direction, i think it's a valuable conversation to have. my commitment is to be transparent. so that if we're going to move in a direction where we're providing more information to the taxpayer to react to versus them putting it in themselves, i'm going to share that information publicly before we go forward. mr. pocan: are you looking at maybe doing that? mr. werfel: i think we should have conversations with stake holdsers if we move forward with direct file next filing system, what should we adjust to further reduce taxpayer stress? what should -- and what can we learn from that? mr. pocan: also on the private companies there's all the information about data, shared with meta, here we are multiple bills to fight tiktok and other companies who are doing things with privacy and data as we see

this industry sharing data in a very disturbing way we don't share data with anyone, do we? mr. werfel: we don't. this is what's interesting about taxpayers. they have different preferences and different experiences. one they have -- one of the notable things we learned in the direct file pilot was more than 85% of taxpayers that e file increased their trust of the i.r.s. there are taxpayers out there who won't want to use direct file who have a different trust relationship with us. they can use commercial software. the issue is, taxpayer choice. mr. pocan: i guess i would just add, we would love to have that taxpayer choice in wisconsin. so if you are looking at expanding, i notice the only mid western state you have is south dakota which is a relatively small sample. upper midwest would love to be included or at least wisconsin, i'll speak for wisconsin. and if you could do that, we would really appreciate it. i'd love to save my constituents money. thank you.

mr. werfel: thank you. mr. pocan: yield back. mr. joyce: thank you, mr. pocan. recognize mr. moolenaar. mr. moolenaar: there was a bill about sourcing graphite from china the people's republic of china passed new controls last october to allow p.r.c. to restrict graphite exports to any country for supposed national security reasons. there's clear evidence that these restrictions are already happening. last june, european battery manufacturers were unable to sort graphite from the p.r.c. causing negative repercussions for battery production in europe. that's according to the european commission. commissioner, do you believe that tax dollars of hardworking americans should be given to foreign entities of concern or

their u.s. subsidies? mr. werfel: we have a responsibility at the i.r.s. to work to find the right outcome. treasury ultimately has the final discretion on what notice or final rule will indicate. i know just based on the fact that we get a lot of public comments and a lot of differing opinions on whether -- how we construct a reg, what kind of outcomes it will have. i think it's a healthy dialogue to have. i think ultimately what our responsibility is at the i.r.s. is to make sure we're carrying out the laws dispassionately and on evidence base and that's what we tray to do. mr. moolenaar: you feel that that's treasury's responsibility to determine whether hardworking taxpayer dollars should be given to foreign entities of concern or their u.s. subsidiaries? mr. werfel: what i know is with respect to the clean vehicle credit and other provisions in

the inflation reduction act related to energy, the reg writing process has generated a multitude of different perspectives and opinions. a very healthy dialogue on the policy and operational tensions involved in the final reg. ultimately it's up to treasury to calibrate all those tensions and come up with an outcome that best serves the intent of the law. mr. moolenaar: to you don't want to share an opinion on whether, you know, we should be giving american taxpayer dollars to entities from china, iran, north korea mr. werfel: i think the intent of the law is to curb any financial benefit of entities of concern. i'm all about supporting the intent of that law. ultimately there's a variety of different paths you can take to meet that objective and treasury has the final say on what path we take. mr. moolenaar: can you tell me

what statutory authority gives you the ability to create an impractical to price safe harbor category of constituent material or a category of battery material, absolutely none of which are remotely contemplated in the 30-d statute as amended by the i.r.a.? mr. werfel: that's a question i have to get back to you to understand from treasury general counsel and office of tax policy what legislative authorities they relied on reaching any conclusion under that regulation. mr. moolenaar: i would welcome any -- a letter or some communication from your general counsel to just establish the likelihood that these provisions would withstand legal challenge by a taxpayer. mr. werfel: i can commit to that. mr. moolenaar: are there restrictions that would prevent a subsidiary of foreign concern that receives tax credits from sending those payments back to

its parent company in a hostile foreign nation? mr. werfel: again i have to get back to you on the steps thatteg taken to -- that are being taken to mitigate the steps you describe. i have to get back to you. mr. moolenaar: thank you. are there any measures you intend to implement to ensure that taxpayer funds are not directed to such entities, considering the broader implications for national security and economic independence? mr. werfel: now you've hit on the responsibility the i.r.s. has. once the digs are made in terms of program terse, guardrails, what's legal and what is not from a regulatory standpoint, the i.r.s. has to stand up, the infrastructure, including the fraud detection, the program integrity issues, and therefore we will build what i call a rich register to understand what are the top issues that will degrade

the integrity of the program, the intent of the law and regulation. and we'll use data science and other elements to try to make sure that we have leading indicators to see where behavior is going in a direction we need to step in and prevent it so in the future as we move forward to implement final regs, i'd be happy to brief you on some of the program integrity things. mr. moolenaar: do you have any idea on timing on that? mr. werfel: not at my fingertips, i can get back to you on that. mr. moolenaar: thank you. i yield back mr. joyce: now recognize mr. bishop. mr. bishop: thank you for your testimony, for being here, and let me thank you and your team for your hard work in doing so much with limited resources. there's been a lot of discussion this morning about the tax gap and it's my understanding that

between 2010 and 2022, the number of examining revenue agents who handle complex enforcement cases grew about 40%. that the field collection revenue officers who manage the difficult collection cases dropped by 54%. tell me, how the lots of so many highly trained enforcement staff are vital to -- that are vital to ensuring the integrity of the tax code, how has that prevented the i.r.s. from addressing the tax gap and generating much-needed revenue to reduce the deficit? that's my first. i have two other questions that are relatively short, will take short answers. one is, what's -- what the i.r.s. is doing and what the efforts you're deploying with regard to artificial intelligence to crack down on tax evasion and whether or not you're developing artificial

intelligence tools in house, are you collaborating with outside extras, contractors. and the final question is, relative to rural taxpayers, many of my constituents live in rural areas and they don't have access to high speed internet, so when they file their returns they do so by paper rather than online. and what is i.r.s. doing to speed up the processing of the paper returns? mr. werfel: thank youing congressman. let me start with your first question, which is underfunding means two things. it means we don't have the right number of people, we're not right-size. so therefore we don't have the scope and the reach that are necessary to address tax evasion where it's happening. and the second thing is we're not making the right investments in subject matter expertise and in analytics, including a.i., to

make sure that we are unpacking the complexity. we are finding the right taxpayers to audit. and leaving the taxpayers that are playing by the rules alone. it just -- it degrades both our scale, and our depth of knowledge, and it means that more evasion will occur and that will create uncertainty in markets and be very challenging for those companies and partnerships that are playing by the rules and expect the i.r.s. to hold people account to believe play by the rules. your second question just bridging on the a.i., how are we using a.i. in enforcement? the analogy i'll use is a chess game. when we are looking to select audit amongst some of the largest corporations in the world, those that aren't playing by the rules are shielding their income in very sophisticated ways.

an example might be, they're operating in multiple tax jurisdictions. they're doing a significant amount in the u.s. but they're moving all of that economic activity, they're presenting it to a better tax rate jurisdiction. when the reality is that activity is happening in the u.s. how do we detect that? this is a chess move by them. what we're deciding to do is rather than just having the human there playing that ches game, we're getting the computer to advice us. still the human's decision, the i.r.s. employee's decision on what the next move should be, but we're having the computer help us calculate all the permutations of the moves so that we're better at the chess board and can catch the evasion. we have important partnerships with the private sector but ultimately decisions on audit selection is inherently governmental and only i.r.s. employees make those decisions.

mr. bishop: and the rule? mr. werfel: we have to -- we have done significant improvements in managing our paper backlog. they were significantly outsized during covid and now they're back all within what i call tolerance. with the exception of the employee retention credit which is a different thing. and a different challenge. but more work is needed and what we really want to see is increased access to high speed internet all over the country so that those taxpayers than avail themselves but we will meet them where they are. and if they have to fail on paper we will do better on paper and also we will set up and we've been doing this more and more, walk-in centers, we call them pop-up walk in centers where we're going to rural communities that are more than 100 miles from a city center and setting up shop with a walk-in center so they can get help if they need it. mr. bishop: thank you, sir.

mr. joyce: thank you, mr. bishop. recognize mrs. hinson for any questions she has. mrs. hinson: thank you for being here to discuss your budget request. i'm sure you agree federal agencies including the i.r.s. are in the business of customer service, so it's important that our taxpayer get that high level of support. millions of americans are interacting with you through the annual filing season. it is critical that they're able to receive timely responses and get the feedback and returns that are rightfully owed to them. it's their money, note government's money. my team has been hearing from constituents who are concerned they cannot go to their local i.r.s. office in person to pick up forms and filing instructions. i think a lot of that is due to in-person work challenges. you mentioned roughly 50% of

i.r.s. employees are in the office at any time. is this still the case, it's about half? and how are you tracking how many are in the office to do those services? mr. werfel: there's tens ofs how to of i.r.s. employees that are always on site. and these are people that are, for example, managing the paper that's coming in and doing submission processing. but tls our employees in our walk-in centers. there is no remote work in any of our walk-in centers around the country. we have since the start of the inflation reduction act reopened or opened more than 50 walk-in centers around the country. mr. hinson: are those being staffed every day? mr. werfel: fully stafd, every day. here's the challenge that we see. we moved to an appointment schedule during the week. and we have taxpayers, more taxpayers coming than we can handle in a lot of cases because everyone else has an

appointment. so we started opening saturday hours. and that is not by appointment. sometimes -- a given walk-in center can serve about 300 people a day on a saturday without appointments. but sometimes 400 or 500 people show up. this is why it's so important that we continue to make sure that we're right-sizing our footprint to meet the demand so if we can serve 300 people in, you know, in a city center in iowa. and 500 people are showing up. that tells me there's more people that are needed and we need to improve our digital sheutions as well. but in the walk-in centers, those are -- no one works from home and they are fully staffed right now. mrs. hinson: i urge you to continue to keep and eye on that. if there's that dhand we need to meet that. i get a district report every single week from my case work team, it's never less than 2-1 in terms of agency interactions. inch r.s. is number one that our

casework team has to deal with when i look at reports out from j.o., 51% of responses were considered late. so i guess what are you doing on the staff front when you mention tens of thousands of employees in the office, what are you doing to speed up correspondence to make sure it's timely? mr. werfel: if you look at the filing season, there were places where we exceeded our goals and did terrific, for example our 1-800-1040 line. we exceeded almost all our goals. but there are other part os they have inch r.s. operations where we were below goal and we have more work to do. one of them i mentioned earlier sour response to those that have been victimized by identity theft. the line is too long. people are waiting too long to get issues resolved. there are certain correspondences or activities that are not going in the right direction in terms of timeliness. so what we'll do, what we are

doing now that failing system is we're looking at that balance scorecard. i'm requiring the team to incrementally improve all the metrics where we fell behind. i'm always going to be transparent. we had a great filing season but it wasn't perfect. when it's not perfect that's impacting a taxpayer. that means a taxpayer couldn't get through, got something late and that matters to us. i don't know that we can ever be perfect that would be unrealistic but we're going to continue to perfect our process and not rest. i'd like to say there's no victory laps here. we had a good filing season, a strong filing season, we can build on it. we have to close gaps. mrs. hinson: i understand that. closing gap you mentioned your phone wait times are down significantly but we're still hearing reports of people waiting for 45 minutes if you're calculating that average by including people who hang up of course that number will be lower. 45 minutes is way too long. mr. werfel: i agree and i can explain that. our main line, almost 90% of

every call the i.r.s. gets comes through that. we focus on that. that is the line that has a three-minute wait. that's the line that we had the best level of service we've ever had this year in terms of us successfully answering those calls and though questions. the remain 10g% is are the other call lines that we have. we have to do better. if you hear someone that had a 45-minute wait, guaranteed that is in one of those other call lines in the remaining 10%. we got to close those gaps. mrs. hinson: i look forward to following up with you on that. i yield back. mr. joyce: thank you. >> former president trump, 2017 tax scam was the biggest tax increase to middle class property owners through the use of salt. mrs. torres: how salt works for

folks that may not know how it works, property owners agree to taxes to pay for public bonds, to build libraries, plailingses, bridge, local infrastructure. in an exchange they would be able to use that money and to take a reduction on their taxes based on that. it has had a significant impact on california property owners. it's had a significant impact on property owners where this was practiced. it was not a free difficult to gsh fre gieft to the property owners. it was an investment they made in the communities. most of those community, the federal government has failed to provide, you know, proper funding for housing and for all of those things that they chose to tax themselves on. i'm interested in hearing what you are hearing from our

taxpayers, how they have been impacted by this. and is there anything that you can help with to remediate salt. mr. werfel: the role i have as i.r.s. commissioner is to make sure that i understand what the experience tax payers are having with the law on the books. in terms of getting the questions answered from the i.r.s., getting the forms they need. mrs. torres: part of that experience includes how they're experiencing changes in laws. that's what i'm interested in. mr. werfel: that's more in secretary yellen and her team's wheelhouse. any concern, the concern that congressman moolenaar raised on the clean vehicle credit and these concerns, i will bring back to the treasury department and make sure that we provide fulsome answers. mrs. torres: let me go to the i.r.s. audit of the working poor

which has been covered by so many of my colleagues already. it is really unsettling to see the audit numbers. and i know that you have stated here that you are working to improve those numbers. how is that going to be a realistic approach that my community who is often first on the block priority, i want to make sure you're focusing on tax cheats and that you're not focusing on the people that, you know, are doing everything that they can to pay their taxes. mr. werfel: when i arrived in the i.r.s. in march of 2023, we began as a team to look at the audit rates in particular in low-income communities. there is a lot of inequity that has existed in terms of how audits are decided upon and we are working to both acknowledge that inequity and change it. mrs. torres: part of that

involves ensuring you have a diverse work force. so that they are, you know, have some cultural competency and income competency and they're not simply going after the lowest, the easy pickings. mr. werfel: absolutely. in fact we have the -- we have in response to these concerns, on these equity concerns, have worked with groups that are involved in these equity issues, external stake holders, treasury has committee, we have committees, we have created separate working groups just to look at equity issues in tax administration and we've already taken steps, for example, i announced a dramatic reduction in the number of audits related to the earned income tax credit because we believe that that will do two things, address inequity by reducing the volume of audits but put that audit resource to better use and move it to arias of the tax gap that

are more concerning.

mr. werfel: we have the ability to continue to understand from congresspeople like you and others where are there activities going on in our e.o. review process that are leading to bad results.

either someone is not found to be exempt that should have been or someone is found to be exempt that should not be exempt. and ongoing activities. we're open to that. mrs. torres: my time has expired. i would love to continue this conversation at a another time. i apoll use. mr. joyce: now recognize mr. cloud. mr. cloud: thank you, mr. chairman. one of the many grievances in the declaration of independence against the king of great britain is he has created new offices and sent swarms of new officers. a lot of american people feel that way about our government and a lot of that is on congress because no matter how much money we bring in, we spend more. and not necessarily in the most efficient, effective way. some of that is on the i.r.s. and its long history of weaponization, whether targeting conservative groups, bringing extra scrutiny against them, silencing whistleblower who

spoke up about corrupt efforts to shield hunter biden from prosecution, many other activities along those lines. and i'm wondering what the i.r.s. is doing to clean up the culture that has long existed that kneads to be directed. i'll just give you an example. last letter to christians engaged a couple of years ago which said, this is part of the letter the i.r.s. wrote to them denying their 501-c-3, that says you educate believers on national issues on the word of god you educate christians on what the bible says in areas where they can be instrumental such as the sanctity of life, definition of marriage, defense, oborders, immigration, u.s. and israel relations. bible teachings are typically affiliated with republican party and candidates. this disqualifies you from exemption under the i.r.s. exemption 501-c-3. part of me as a republican wants

to give them a medal for their candor and honesty but it's concerning that this kind of culture exists. they did end up getting their 501-c-3. the signature is steven martin, does he still work at the i.r.s.? mr. werfel: i'm going comment on any specific matter or on the status of any employee in a public setting. mr. cloud: was there disciplinary action taken? mr. werfel: i would have to look at that. mr. cloud: 501-c-3's and 501-drrvetion-4's are prohibited from doing anything that violates a rule. they say the rules state explicitly even anti-war protest organizations committed to world

peace as a primary activity, demonstrations in which demonstrations -- demonstrators are urged to commit violations of local ordinances that they would not qualify for tax exempt status. we have a number of protests on our college campuses being spon intoird a number of organizations, have any letters been sent to these organizations to let them know they're 501-c-3 status could be in jeopardy? mr. werfel: let rerespond a couple of different base. first of all, as a as a person versus a commissioner, i see activities going on any time there's violence, there's hate, it's heartbreaking. i have to divorce from that as the commissioner. i have to do the job as commissioner in a way that i'm following all ired procedures. and while i can't comment on specific cases, i will tell you -- mr. cloud: has the i.r.s. been

sending letters to let them know their 501-c-3 status may be in jeopardy. mr. werfel: that would be a specific action. mr. cloud: any organization in general. i have not named any organizations. i'd be happy to, because we can, but -- in a letter. but have any letters been sent? mr. werfel: i will go back and out of an abundance of caution determine whether i can answer that on the record without violating a 6103 concern. mr. cloud: ok. along the lines of what mrs. hinson asked, you are telling us if we don't up the e.r.s. budget we'll see degradation of services. but yet recently, you made the goal of sending 50% work force back to work basically, to stop teleworking. to me and to most americans who are footing the bill for this, it seems pretty unacceptable.

i would urge you to get people back to work. my time is almost expired. we'll have to get to that if questions for the record. please work on the culture. can you tell us what you're doing to work on the culture of the i.r.s.? mr. werfel: we want the i.r.s. to be an amazing place for people come and victim pact and the impact is to help people, to reduce the stress they have in filing their -- mr. cloud: talking about the partisanship. mr. werfel: it's essential that there's no place for politics in the i.r.s. we take numerous steps in our controls and training and work with oversight entities like the inspector general to constantly evaluate moments where there's even the per soachtion politics in the i.r.s. if there is we work to correct it and make sure it never happens again. but i believe fundamentally across the i.r.s. there is a common understanding that if politics enters what we do, then we are not meeting our mission effectively. mr. cloud: i would agree with

that assessment but i think we have a number of high profile instances where that has not been the case. so i would love to see specific examples, perhaps in writing, where you have made some efforts to bring accountability. thank you. mr. joyce: now recognize mr. carl for questions he may have. mr. carl: thank you, mr. chairman. thank you, commissioner, for joining -- joining us today. i know you look forward to this every year. mr. werfel: i do. mr. carl: you know the tax cuts and jobs act is set to expire at the end of 2025. with small businesses making up 45% of alabama's birses and as a former small business owner myself what impact will this have on my constituent, small businesses. mr. werfel: the expiration of the tcj snarvetion is that your

question? mr. carl: correct. mr. werfel: i have not done kind of an economic assessment of the tcja, that falls more with the treasury department. in terms of whether expiration of the tcja leads to administrative implications for small businesses, i'll have to assess that and get back to you. mr. carl: so you don't know if it will raise small businesses' taxes or not? mr. werfel: i'm not prepared to provide an analysis of that. fifs to provide an analysis of it i would have to do it in consultation with the treasury department and i have not run that analysis. mr. carl: keep in mind, this administration's quote-unquote, focused on not raising taxes on anyone making less than $400,000. mr. werfel: that's my understanding. mr. carl: i promise you out of this 99.4%, probably 90% of that is under the 400,000 range. it's going to raise taxes. i think we both reviewed that as

a tax increase. does the i.r.s. have any plans on providing this 2025 date expired and we have done nothing, does the i.r.s. have a plan to educate, give guidance to these small businesses across the country? is that already got put into place? mr. werfel: as i said, based on this question, i'll go back and make sure that we understand what implications, not from a tax rate standpoint, that's more for treasury and i'm happy to work with treasury and get an answer to your question there. but in terms of day-to-day interactions a small business might have with the i.r.s. in filing their taxes, paying an estimated payment, getting a refound. to the extent the expiration of tcja has an inspiration on that, i'm asking for your indulgence to go back and review that and report back. if there's an impact on small

businesses from an administrative standpoint, i want to be on top o. that mr. carl: i've sat through many of these meetings and told i well get a response back, and never get a response. mr. werfel: i'll get you a response. i'll be different. mr. carl: excuse me? ok. i do like being a little different. it's ok. i.r.s. hired up for tax services to help americans with smoother filing, even walk-in centers. i know you spoke on that briefly. how do you plan to sustain your level of service with the i.r.s. funding expiring for tax services at the end of the year? mr. werfel: we are confronting what we're calling a funding cliff. we can make it right now with the 2025 budget as proposed, through 2026 and maintain a strong level of service that

we've had and work to close some of the gaps where we have some gaps to close. after 2026, we no longer have the funding to maintain the customer service work force that we have grown to meet this ex-trynary demand that we see. so i will be up here making the case like i am now that there are some, what i believe to be relatively modest adjustments on a year-over-year basis in terms of funding and transfer authority to help make sure that we can continue to serve taxpayers. mr. carl: one last thing. on the way out the door, one of my staff members told me to ask if he can get his tax return back, he's been waiting on it. i know he's one of, many we get a lot of those phone calls. mr. werfel: he's waiting on his refound? mr. carl: yes, he is i appreciate that. mr. chairman, i yield back. mr. joyce: now recognize

mr. edwards for any questions he may have. mr. edwards: thank you, mr. chairman. we probably look as much forward to this as you do. the initial -- of the initial $80 billion pay raise to the i.r.s., your agency allocated $45.6 billion toward enforcement and you claim that taxpayers under $400,000 would not experience the effects of that increased enforcement. nonetheless, according to the i.r.s. data book for 2023, it was reported that i.r.s. proceeded with 495,700 manufacture something-odd examineses of individuals making less than $500,000. and i'd love to get more granular and share the exact amount for the $400,000 mark and

less, but the databook doesn't include that level of specific data. it's using $500,000 as the maximum in the range that i'm referring to. that's compared to just 21,455 examinations of taxpayers making more than $500,000. resulting in just over $3.6 billion in additional tax. clearly, american families and individuals earning $400,000 or less are experiencing the brunt of i.r.s. enforcement actions. would you agree with that? mr. werfel: i would not. mr. edwards: and your basis in disagreeing would be? mr. we are pell: because what i said, what i'm committed to, is that taxpayers who earn less than $400,000, there's no change in their likelihood of being

audited the day before the inflation reduction act was passed versus the day after. however if you're high income, if you earn more than $400,000, and we're really laser focused on much higher levels of income, for those individuals the audit rate will increase. i've announced in my testimony today, the various cohorts, millionaires, billionaires, large corporations, complex partnerships. we intend to significantly ramp the audit rates between now and 2026. but if you earn less than $400,000, we peg your audit rate back to 2018 which was a historic low point, 3%. year over year, my goal and my intention is that those taxpayers will not see an increase in that 2018 rate. mr. edwards: maybe you can help me understand the difference in the chart that i've got here that was taken straight from the data book that i referenced a

while ago. and i pulled this data directly from your agency's own book. the inflation reduction act seems to have a concentration of audits against the lower and middle class american people. in fact it looks like it's about 95.5% of the audits have been conducted on folks making less than $500,000. so can you tell us what is the difference between your claim that folks making less than $400,000 are not being targeted, and my calculation that the table that i've referenced here. mr. werfel: yes, i can explain that. what your table is reflecting is audits that were closed, that were started 2017, 2018, 2019. it takes sometimes months but often years for an audit to close. and so what you have, for

example, is for large corporations, the audit rate, $250 million or more in asset, the audit rate was 8.8% in 2019 and we plan to get it to 22.6%. that won't be reflected in our data book for a few years. the bars that you are demonstrating are reflecting a pre-inflation reduction act set of audit activity that's closing up now. what's been started since the inflation reduction act, and what will play out in future day ba -- databooks is the bar charts will shift dramatically to the right as we ramp up as i mentioned from 8.%, to 22.6% for our largest corporations, and from 11% to 16.5% on wealthy individuals, and on. mr. edwards: so you're claiming that the audits prior to 2018 were targeting 95.5% of the

returns for folks less than $500,000. but we expect to see it lower mr. werfel: i think also your data raw data versus percent audited. so that would be another clarification to make. what i'm suggesting and i'm happy to brief you separately and get into details and by the way, the databook in the future will be listed at $400,000 rather than $500,000 to help with the transparency. what i'm suggesting is that on a probability, you're a small business, you're a middle or low income individual, your probability of audits has not changed. it'll be the same probability it was in 2018. and it'll be that way for years. and by the way, 2018 is a historically low audit rate. there should be some degree of comfort in the fact that i am publicly committing to and there'll be transparency in

future databooks that we are not intending to, and i've ordered the team not to, raise that audit rate above that 2018 level. the opposite is true for our higher wealth filers where as i've stated publicly, the intention, the marching order, is to raise that rate. this will all be tested in public data that will be available in the future they feel issue is, is that it takes time for the audits to unfold. an audit of a large, complex corporation can take a long time before it's closed out. we'll announce, consistent with what we can do under the law when we -- for example, we announced recently that we sent audit letters to 76 of the largest partnerships in the world. but in terms of whoap those -- when those close out, it'll mr. edwards: i think i hear you saying, don't trust the data that's there now. mr. werfel: you can trust it. it's just calibrated back to the sweet spot of when these audits

were issued is pre-inflation reduction act. it's trustworthy data. i'm saying, the timing to assess whether we met the commitment not to increase audit rates on people over $400,000 is happening in real-time. it's actually, as i said in my testimony, tax year 2023 which we just completed, is the first full tax year post-inflation reduction act. the audits on tax year 2023 taxpayers, that's kind of more in the future than in the past. in terms of the schedule for those audits. mr. edwards: i've gone well beyond my time, mr. chair. i apologize. but i would appreciate the opportunity to engage with your office further to get a better understanding. the data that's available to us now saying is materially different than what we're hearing. mr. werfel: i will be responsive to congressman carl and you in

getting you what you need. >> it's been recognized that we have time for round two. i know you're having so much fun here, you want to continue this. wife i'm ready. mr. joyce: i'll start with myself again. the i.r.s. advisory council public report that was published in november, 2023, recommended that the reporting threshold for form w-2-g be increased to $5,000. did you know the threshold of $1200 has been a static amount since 1977. in february, 2024, i co-signed a letter with several of my appropriations colleagues on this issue. what consideration, commissioner, you have been given the update that w-2-g threshold in accordance with the recommendation of the i.r.s. advisory committee? mr. werfel: i'm aware of this issue. i think it's very valuable when we get input from the tax paying community and from our advisory council on when thresholds may be out of date.

as i mentioned throughout this hearing, the determination of something like that is of a regulatory nature and therefore while they would consult with me, the decision rests with the treasury, the office of tax policy in consultation with the secretary. i know that this particular recommendation is under serious consideration and i can certainly provide you a more detailed update following this hearing. mr. joyce: that would be great, sir. another interest i have is cannabis. mr. werfel: yes. mr. joyce: trying to set regulatory guidelines, fairness there. when treasure secretariy yellen and o.m.b. director young testified before the subcommittee in march we discussed access for cannabis banking and just last week this administration announced its plan to recommend reclassifying cannabis from a schedule i to a schedule ii substance. today -- schedule iii substance. today they're barred from certain tax exemptions, forcing

businesses to hire armored vehicles to make tax payments, creating both logistical and security issues for all involved. you have seen or you have thought about any improvements to the process, how these legal cannabis businesses pay their taxes and what are your recommendations to create a safer and less burdensome payment process for today's businesses? mr. werfel: congressman, the announcement on the change in status for cannabis is recent and what we need to do in a moment like this is understand implications that this change will have on a whole variety of different elements of this part of the economy. as you mentioned, what will their status be with respect to financial institutions? will they remain mostly a cash-based industry or will they move into something other than cash? all of these things are

important moving pieces for the i.r.s. to determine how this emerging and changing industry is assessed at the right level and paying what they owe. so there's more work to do. i think based on my reading of some of your comments, you're asking all the right questions. in terms of what do we need to anticipate given this change, we shouldn't just sit on our hands. we should be active and looking at what steps we need to take, and we need to interact with this community and make sure we understand and talk to them. typically when we engage with industries, we find that they're very amenable to discussing and getting a better understanding of clarity, what they're going to be expected to do. certainty, tax certainty is one of the taxpayer bill of rights. it's not a good thing if you're operating in ambiguity, it's a stressful enough situation to pay your taxes.

my commitment is to work with you and this community to understand how this change involves the industry and make sure we set up the right tax structure for them to operate in. mr. joyce: would it be fair to say thatific begun the opportunity to have a banking system involved in this process would make life a little bit easier for you? because you'd be able to have a third party of which you can judge the financial -- mr. werfel: i think history has demonstrated that when we get third party information, 10 the 9 report -- 1099 reporting, it drives a lot of integrity and quality control into the system. it reduces the number of uncertainties and variables. it often is helpful for the taxpayer because they're aware of what the i.r.s. has been informed of in terms of income. so in general, yes. with anything i'm sure there are tensions, paperwork burden, privacy, all these other issues that will surface. my job will be to be at the table and explain what the various tradeoffs are from a tax

administration standpoint. mr. joyce: i've heard you discuss this with others about trying to make the office as user-friendly as possible. do you know what if any resources are available to legal cannabis business to navigate the payment and reporting compliance? mr. werfel: typically what happens when we have an issue like this or an emerging change in an industry, for example, you know, new currencies, new tax credits where people that previously didn't have eligibility now have, like car dealerships, in the reduction act, we build a collaboration and engagement. sometimes we can do f.a.q.'s, sometimes we can do webinars or round tables. it seems like this is a material change that's going to impact this industry and likely will warrant that we start building that type of stakeholder engagement. joyce thank you. i've seed -- mr. joyce: thank you. i've exceeded my time. now i remember to ranking member

hoyer. -- refer to ranking member hoyer. mr. hoyer: first of all, mr. commissioner, you were appointed by donald trump, is that accurate? mr. werfel: no, i was not appointed by donald trump. i was appointed by president biden. mr. hoyer: ok. excuse me. got some misinformation. in any event, i'm going to make my point anyway. one of your predecessors and you essentially have represented a nonpartisan, bipartisan view of the revenue flow of the i.r.s. and the impact on its ability to do the job that has been given to it by the congress of the united states. would that be an accurate statement? mr. werfel: yeah. my predecessor, commissioner redick, was a significant champion for the i.r.s. workforce and for the dollars to get -- that we needed to get the

job done. mr. hoyer: now, let me, unfortunately mr. edwards left because i wanted to refer to his chart. did you -- you went up -- mr. werfel: i couldn't see it. mr. hoyer: what was the time period for that chart? did anybody recognize it? did you see, anybody? mr. werfel: it talked about the start -- the close of audits in 2023, if i recall. and the reality is that because of the -- some audits take months, but many audit, especially conflicts, take years. so the closeout date is very different than the inception date. mr. hoyer: yeah. my point is, i like that chart. that chart reflects the reality. that under $400,000, if you have an you haddity, -- an you haddity, essentially -- an audit, essentially on average it's a one to one. you spend $5 to do -- and you save $5.

find $5 in fraud or underpayment. if you audit millionaire, you get 12 times the expense. so you have a 12 to one. now, it's interesting that in the years, in the last 10 years, we have audited many, many, many more people under $400,000. why? it's easy. so you can conduct audits, you don't get much money, because the payments are relatively small, and because probably 90% of those, i'm just taking that off the top of my head, have every week, every biweek, every month, we collect their taxes. it's the corporations, it's the pass-throughs, it's the partnership, etc., that you don't do that with, which are

much larger, which is why you have four, five, six, 12 to one return on the audit. so i want to see, because he makes our point. to the extent you underfund enforcement and enforcement has been reduced 22%, from 2010 to 2019, hopefully we have more relevant, more recent statistics than that. but has been reduced 22%. returns are up 7%. that's a 29% difference there. so it is not surprising that we have that $687 billion underpayment. why? not just because, just the cheats. or strike that, people who don't pay what they're supposed to pay. but it is also because those who

know that there's $678 billion owed, they may not ever be caught. so not only -- our tax system, one of the great things about it is, it is a largely voluntary system. one of the most voluntary in the world. i think we're now at 87% or something like that. mr. werfel: yeah. just north of 85%. mr. hoyer: 85%. in that ballpark. but frankly, to the extent we reduce enforcement, with all due respect, to all of us, if we think, well, maybe it's doing and maybe -- due and maybe it's not, if they catch me, they catch me and i pay it. that's why this enforcement system is so critically important. it's also not unusual that those who make the most are audited the least. my, my, my, isn't it nice that

we don't -- all those people who give us all these big contributions and all that sort of stuff, we won't look at you so much. we're going to look at the little guy. a lot. which is what that chart showed. i hadn't seen that chart before and i don't know the basis so i have to analyze it. but they don't make anything hardly. they're scraping by. they have it tough. and we want to look at them. is there fraud in the eitc? there absolutely is. why is there fraud there? because human beings are participated in it -- participating in it. and human beings want to try to pay as little as they can. me included. but some people cheat. and they claim -- you don't collect much from them because they don't have much. but that's why so much time was

spent on it. because we want to see that little old lady who is driving the cadillac coming and doing the food stamps at the grocery store. so, mr. chairman, it concerns me that when people who are making a lot of money, and very frankly, i don't know the statistics on ms. delauro's corporations, but if 41 corporations are paying no taxes, my presumption is they're probably doing that illegally. and we make the rules. but we complain about it. but if we make the rules and they're following the ruse, they don't pay taxes, god bless them. they got smart accountants, smart lawyers, i hear that, my colleagues say that all the time. say, ok. did they go to jail? no. well, then they're obeying the law. our law. and if you don't like the fact they're not paying any, don't let them have the deductions or the lookbacks or whatever they're that they're take -- or whatever that they're taking.

this is a critical issue for defense. for national security. because that's how we pay for national security. for domestic security. because that's how we pay for it. that's how we pay for the administration of all the government. through mr. werfel's and his colleagues' efforts. and we need to come to grips with establishing a system where we don't have -- forget about what the figure is. let's say it's only $400 billion. let's say we're over strap lating it by $250 billion. we have a deficit. we need to be collecting everything that is owing. not a nickel more. and on the $400,000, on the property tax, very frankly, and i come from a high property tax state. maryland's a rich state.

but frankly, on property tax, you buy a $2 million home and somebody down the road can't afford a $50,000 home, you want them to subsidize your real estate. that wouldn't be popular in my district, mr. chairman. i know that. it's not popular. but i take that position. because they want the federal government to subsidize what they say they voted for, their schools or whatever. god bless them. but don't then look around at the maryland taxpayer or the kansas or iowa taxpayer or even the ohio taxpayer to subsidize what they decided to spend money on through their property taxes. that won't be popular in my district but that's the way it is. mr. werfel, thank you very much. mr. werfel: thank you. mr. hoyer: you have a tough job. we're going to have a markup and i'm going to work very hard to get the money that we need as americans. not you, not the i.r.s.

employee, we need as americans to fund a tax system that is fair, which means that everybody pays their fair share. thank you very much, mr. chairman. mr. joyce: you're welcome, ranking member hoyer. and now we recognize ms. henson. mrs. hinson: thank you. just a brief question. in your testimony you say there is still a moratorium on processing those claims because of the fraud, the high amount of fraud with that. i certainly appreciate the efforts there to combat that fraud. but i am working with a lot of concerned business owners who have those claims pending and those are refunds that they are rightfully owed. some of them -- some of these pending cases are worth hundreds of thousands of dollars so you can imagine when things are tight, it's the difference between what they were planning to do and grow their business and maybe add some jobs, or wait on those dollars. so what is the agency's expected timeline to continue processing those e.r.c. claims?

mr. werfel: we're still processing claims received before september 14, 2023, when the moratorium started. since the moratorium, we've processed more than $2 billion in claims. it's those that received after september 14 that we are not currently processing. mrs. hinson: do you have a timeline? mr. werfel: i don't. what i stated earlier was after filing season, we were going to conduct -- or during filing season and leading to after filing season, conducting an assessment of our inventory to figure out the best way to proceed. unfortunately, congresswoman, there is a lot of ineligible claims in our inventory and who is suffering for that? the eligible claims. they are small numbers but hard to find. one of the things we are doing and i urge your constituents that may be waiting, we are

working with our taxpayer advocate to move to the front of the line hardship cases, anything that has become more urgent. if you believe you're truly eligible. but we've been also urging a lot of taxpayers who may know they're ineligible to withdraw and we've had almost $400 million in withdrawals since we announced the moratorium. and then we've had voluntary disclosures for those that receive the payments and that they knew they were received in error and that we have $777 million in people who have voluntarily come to us and returned ineligible credit. mrs. hinson: some of those issues were with outside companies. mr. werfel: to get to your question, i want to work to make sure that those that have the most urgent need, while we're continuing to sort through what is a very challenging situation, that we address those quickly. mrs. hinson: are you paying

interest out on those claims? mr. werfel: we're required to, yes. mrs. hinson: do you know what the expected cost is? because obviously when we look about giving you more money, we want to make sure that you're as efficient as possible and driving those costs -- mr. werfel: the cost of the interest? it is largely offset by the cost that we saved by holding on to the claim longer. so it ends up being budget-neutral. the interest costs. i can give you more data on that. mrs. hinson: certainly would encourage you not to hold back as many of these claims as possible. mr. werfel: that's not the intention. the intention is to find the eligible ones and process them as quickly as possible. mrs. hinson: thank you. i yield back, mr. chair. mr. joyce: thank you. mr. cloud. mr. cloud: thank you once again and i have i think what is a little more technical, some questions. in january the i.r.s. announced that the total amount of recoveries from wealthy individuals as a result of the funding was $520 million and that's about 5% of the $10

billion increase of revenue that c.b.o. projected for those if f.y. 2023 and 2004. those if favor will vote aye. going back to the issue on the teleworking that we touched on briefly, i wanted to ask you very specifically, earlier this year you set a goal for employees to be in the office back to just 50% of the time in may. how many days per pay period do you require your d.c.-based managers, employers covered by collective bargaining agreements to be physically in the office? mr. werfel: it's half. so if there's 10 days in a pay period, it would be five days. and so -- and let me also offer

that what we are requiring is consistency with the governmentwide standard issued by the office of management and budget. part of what we have to evaluate with telework are a couple of things. did we achieve productivity goals? in a lot of ways our goals were achieved. we have to stay competitive in the labor market and we want to make sure that we're providing good flexibility versus what other employers might provide. and we want to meet the governmentwide standard. so there's a lot to balance here. mr. cloud: these practices were put in during covid, meant to be temporary. they've been made permanent. from a business perspective when you're making this decision you're thinking, ok, i'm going take probably a short hit, somewhat of a hit in productivity from working at home, but, hey, we don't have the facility usage so there's saves there. can you submit to us what

savings we've been able to gather? are there offices you've been able to close down, maintenance -- mr. werfel: believe it or not, it's mixed. in some locations we have space issues. because people are shifting to smaller telework footprints over time. and working onsite. in some cases we have excess real estate and we're working to offload that real estate. it's not always the case that you lose productivity when people are working offsite. it just depends on the situation. mr. cloud: a lot of it depends on the individual. mr. werfel: and the situation. mr. cloud: the i.r.s. is committed -- has committed significant resources to ensure taxpayers who navigate the 7,000 page tax code pay the proper amount which they should. we were talking about the --

f.y. 2023 treasury reported a staggering 33% of improper payments for the earned income tax credit. so we were just talking about that. what are you doing to reduce those improper payments? mr. werfel: this is a really important point because it is that high improper payment rate that i believe led to the large number of audits in this program. we have to balance. there is a part of that error rate that is more concerning than another part of that error rate. so part of that error rate is direct fraud or a nefarious preparer who steals from the eligible applicant. and part of that error rate is the dependent child lived with the parent for four months out of the year rather than six months out of the year and that's the eligibility issue. in a constrained resource environment, we have to make choices.

mr. cloud: can you break that down for news is 33% -- mr. werfel: yes. we can get you more information on that. i would say a large part of the error is kind of more of this technical error where it's the number of months you've lived with your dependent child. what my commitment is to go after and correct the errors that are more nefarious. that are more likely to compromise trust in the tax system. i wish we could get all the error but we have to prioritize. mr. cloud: i don't have any reason to think anything about these questions except you mentioned that the i.r.s. does not sell data. was happy to hear that. but that sparked a couple of questions from me. you purchase data. mr. werfel: do we purchase data? i don't believe we purchase data. maybe we purchase benchmark information on real estate costs. mr. cloud: on individuals, on people, on citizens. mr. werfel: we do not. mr. cloud: do you share data

with other agencies or do other agencies have access to your data without a warrant or subpoena? mr. werfel: yes. under section 6103 of the code, there are statutorily established data sharing environments where, like, for example, we share data with h.h.s. to help with their child support enforcement. we share data with the education department, aligning with student aid eligibility. so there are these buckets of areas but otherwise, beyond if it's not prescribed in statute in section 6103, we do not share it. mr. cloud: thank you very much. i yield back. mr. joyce: thank you, mr. cloud. all good things must come to an end. [laughter] please submit any questions for the record within the next seven days and i'd ask you, as i have other people in the past, to try to respond to those, you said

you would, within 15 business days after the receipt of them. again, i'd like to thank you for being here today and the opportunity to have this discourse with you. and this meeting is now concluded. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] [captions copyright national cable satellite corp. 2024]

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