committee. live coverage on c-span2. ... [inaudible conversations] [inaudible conversations] [inaudible conversations] >> the committee will come to order. before we began i now, i know speak for anyone here when i wish our ranking member a belated happy birthday yesterday. and let's have some cake later so let's celebrate.

but late happy birthday. we appreciate serving with you. thank you, commissioner werfel, for appearing before the ways and means committee a little earlier than usual this year. we have a lot to go over with use appreciate you answering the request of our members to come before the committee early this year. first, as it pertains to the current 2023 tax filing season i want to thank you and your team for the technical work to ensure the quick and without delay implementation of provisions of the tax relief for american families and workers act. we particularly appreciate the steps the agency is taken right now to be ready to immediately implement the legislation once the senate passes the bill and it is signed into law, especially with regard to adjustments to the child tax credit. i think we're also largely

aligned on the board's of rooting out fraud in the employee retention tax credit program. we look for different about your efforts not just in a limiting the fraud but also making sure that small businesses across america who filed legitimate claims receive their credit as soon as possible. while i'm grateful for your partnership in these efforts, it won't surprise you that also have a number of concerns about the biden administration's approach to the irs and about the irs handling of several important issues. last time you were before this committee the irs had chosen to lay a provision of a law crafted of the biden administration and congressional democrats that would syntax forms the 44 million americans, just for engaging in transactions over

$600 in a year. this includes this includes transactions like simply selling a used couch or a concert ticket through a third-party payment platform. once again, the irs unilaterally chose to delay implementing the law for sending these forms. this time in an election year. to be clear, republicans are united behind repealing this terrible policy, and i want to thank representative carol miller for her leadership on the repeal effort. but the way to fix this terrible law is to repeal it, not to use the irs to shield the biden administration from the consequences of its own policies. also, last time you were before this committee you said the irs would not retaliate against whistleblowers. one of the irs whistleblowers who has appeared before this committee has since alleged the irs retaliated against him for

exposing the truth about the doj's preferential treatment of hunter biden. i hope you will share what steps have been taken to protect whistleblowers. just a couple weeks ago a a je sends an irs contractor to five years in prison for the greatest theft of taxpayer information in american history. i think the department of justice woefully, woefully under charged this individual. but i'm pleased the judge applied the maximum sentence available to her. but this story doesn't end with that case. the irs must be accountable for allowing this that to have ever happened. and must ensure that it takes is security vulnerabilities at the agency. a recent report from the inspector general described along with details about how

current irs security flaws that demonstrate the problem has not and has not been resolved here i hope that you will commit today to address their findings quickly for the sake of millions of taxpayers. we have serious questions about numerous other issues such as the implementation of an irs direct file scheme that the american people didn't ask for, how the irs is spending its windfall of $80 billion in fantasy land claims about how much revenue the agency thinks it will generate from increased audits. frankly, more of the irs is time and resources should be directed toward improving its customer service for its existing duties, not spending money and resources on new systems no one has asked for. part of that focus should be on deploying new technology to make the irs more efficient.

proper use of technology can help avoid the need to hire thousands and thousands of new employees. i want to thank mr. schweikert from leading the charge to ensure that the irs is taking advantage of new technology to help taxpayers. clearly, there is a lot the irs needs to answer for, and i look forward to hearing how your agency plans to follow the law and protect taxpayers moving forward. i am pleased to recognize ranking member neal for his opening statements for thank you, chairman. we want to welcome the commissioner back to the committee on ways and means. as always, it's delightful to have you with us in the middle of what promises to be another record-breaking filing season if the dedication of employees of the internal revenue service is remarkable. we want to thank them for their commitment to our taxpayers and their tax administration, emphasis on the word fare. and for this recommendation of

the inflation reduction act. last unless he was a first impact by the democrats will to your investment from this historic legislation. while taxpayers service was dramatically improve it was really the consequence of a well laid well-funded plan results can be quite remarkable. in this era of service to america's taxpayers the irs delivered its goal 87% quality level of service. 3 million more phone calls were answered while wait times were cut from 2:40 minutes to three minutes, over 140,000 additional taxpayers were served in person. the backlog was a limited and many digital tools were introduced to make taxpayer experiences even easier. a reminder to our republican colleagues, many of the recommendations that we entertain and discussed this morning came from commissioner rettig, republic of the work with all of us to ensure quality service. we know that expectations have

an increased based on the success of the irs has had so far. it was just less you that we discussed the future of the irs the ability to hold top 1% of tax cheats accountable and in a matter of months over $500 million were recovered from 1600 wealthy tax avoiders. another major victory is taxpayer fairness and a victory for the irs. a reminder, if the revenue is not collected in a fair manner that meets the rest of us pay more. the biggest threat to the irs right now is extremism of some of our colleagues. from the government shut down the looms in just five legislative days tour colleagues to cut her investments every chance they have gone, that only with this end up costing taxpayers money and adding to the deficit, but how can you argue with the success? i find this a wondering out loud about who wins with the irs is stored for its resources. perhaps our colleagues love a chance to answer that this

morning. under republican funding cuts the audit rate on millionaires fell by more than 70% from 2010-2019. those are numbers of commissioner rettig and automated large corporations felt by more than 50%, i request an commissioner rettig. workers and families pay their fair share in the american people can count on us to ensure that wealthy and well-connected people are paying their fair share, too. while the promise of direct file here, i'm optimistic that some prospects, i'm disappointed it wasn't already time for the public to take advantage of it. i want to thank you, commissioner, for your diligence being here today we look for to continue work on the behalf of the american people. with that i give back the balance of my time, mr. chairman,. >> thank you, ranking member neal. today's so what is his commission of the internal revenue service danny werfel. the committee has received your written statement it will be made part of the formal hearing record. commissioner werfel, you may begin when you're ready.

>> chairman smith, ranking member neal, and members of the committee, thank you for the opportunity to testify on the filing season and irs operations. i am pleased to report that the 2024 filing season opener on schedule on january 29, and is gone smoothly so far. along with filing season and other day-to-day operations, we continue to make important progress in our efforts to transform our agency through implementation of the inflation reduction act. using ira funding is centered on three fundamental themes. first, ensuring taxpayers can easily contact the irs, whether in person, on the phone, or online. we want them to get help navigating complex tax laws and accessing the credits they deserve. second, identifying the growing number of taxpayers with complex

returns, including certain wealthy individuals, large corporations, and complex partnerships your shielding income to evade their tax responsibility. we want to collect from them what is owed. and third, addressing the growing risk of tax scams and schemes like protecting honest taxpayers from them. we want to root out the nefarious actors that perpetrate them. these investments allow us to strengthen the overall effectiveness of irs operations. as commissioner i want people to know that the irs is on the side of taxpayers, and we're working to reflect that in every aspect of our operations while administering the nation's tax laws. the irs has been working hard to build on the accomplishments of last year. our transformation goals for this filing season include providing an 85% level of service on our main toll te phone line during the filing

season. on the compliance side we continue to increase scrutiny on those who evade taxes. we are working to reverse the historically low audit rates for large corporations, complex partnerships, and high wealth individuals. during the past year the irs has taken dramatic steps to strengthen our internal systems, protocols and procedures by putting in place numerous improvements to bolster how we protect the systems and information. our recent steps enabled with new funding have sharply reduced risks for taxpayers and tax system. while taxpayers should rightfully be concerned about recent reports of the unauthorized access and disclosure that occurred in the 2017-2021 timeframe, the data security environment at the irs is dramatically improved today. we have worked tirelessly this past year to close gaps that

allow this unfortunate event to transpire. however, there is always more to do in this area, and we'll continue our laser focus on strengthening data security. another important aspect of our mission is simple but in the tax fairly and justly. a key part of this involves making sure everyone pays the taxes they owe. but we also have a responsibility to protect taxpayers from being overly burdened in fulfilling their tax obligations. we work continuously to balance these two backsides of the nation. this is an issue we face in implementing $600 threshold for 1090 9k reporting that congress passed from 2021. while its import first of information provided under the lower threshold, we must also consider the burden placed on taxpayers in meeting this requirement. our administration of tax laws should be guided by what is best

for taxpayers. in this situation we delayed imposing the lower threshold because we realize that he needed implementation pose a high risk of taxpayers being confused, and given the complexity of the 1099 reporting, some potentially paying taxes they didn't actually out. that's something we take very seriously and will do everything in our power to avoid pics of the irs is continuing to work to reduce that risk before imposing the $600 standard for business transactions. we will continue working this and getting feedback from key groups are also want to assure the committee that the irs is paying close attention to the potential passage of the child tax credit legislation. if congress acts, the irs is poised to quickly implement it, building off parts. with economic impact payments during the pandemic we may be able to start implementation as early as six to 12 weeks after

passage dependent on the bills final language. but taxpayers should not wait for this legislation to file their returns. we will take care of getting any additional refunds to taxpayers who have already filed. it won't need to take additional steps. chairman smith, ranking member neal and members of the committee, that concludes my statement. i'm happy to take your questions. >> thank you, commissioner. we will now proceed to the question and answer session. commissioner werfel, as you know the house passed the tax relief for american families and workers act, including adjustments of child tax credit which is recently touched on that. i want to ask some additional questions to make the record reflect appropriately. but the bill passed business committee by vote of 40-three and received 357 votes on the house floor. as i mentioned in my opening statement, i appreciate the work you and your team have done to help ensure that the bill can be

implemented as quickly as possible. i just want to confirm a few details with you. the overwhelming majority of american taxpayers are guaranteed to have no adjustment to the tax liability due to the child tax credit changes in this bill. in fact, can you confirm that only roughly 10% of households will be affected and will be received modest adjustments to the tax refund pgh yes. in fact, a look at the numbers come look at the same eligible population in fiscal year 22 and was about 22.5 2.5 million people. so that that you offered is in line with her understand is how it's going to impact taxpayers going forward. >> thank you. we work with your team to make sure the bill that the place a new burden on taxpayers and can be implemented without delay. can you confirm that taxpayers do not need to file amended

returns to obtain the adjustments the bill makes further speeding things up? >> yes. >> thank you. there is language in the legislation requiring the irs to process in a additional returns without delay. as a matter of fact, that was language we added during the market in this room. if the bill is passed by the senate and signed into law, how quickly will you be able to make the child tax credit adjustment for this filing season? in other words, how long will it take after bill signed up for the irs to send that y additional refund? >> we gave you a range of six to 12 weeks required for implementation from the point of enactment. the reason we give a range is because we need to see the final language, but uncommitted to work diligently to make sure we're closer to the six week end of that range than the 12 weeks. >> i appreciate hearing that, commissioner. so just to be clear, we have your commitment that the irs

will move as quickly as possible? >> it will be a top priority to make sure that this gets done. >> thank you, sir. in the past, congress has asked the irs to make changes during tax filing season. in fact, congress has asked the irs to make much larger changes than this bill does like sending stimulus checks to hundreds of millions of taxpayers, are creating a monthly checks and excessive for the child tax credit on the fly. the number of taxpayers affected here is a fraction of those affected in those other programs. given that, can you confirm the administrative adjustments needed to implement the tax will be for american and workers act are in much lighter lift for the irs than for those other programs? >> yes, and mr. chairman, the work that we did to implement the payments that you referred allowed us to build additional

capacity to make a stephen moore ready for this change. >> thank you, sir. commissioner werfel, the individuals who stole and disclose the tax information of thousands of americans has now been punished with a sentence of five years in prison. while i'm glad the judge in the case sentenced him to the maximum available to her, i was surprised that the department of justice only charged the individual with one count, one count of unauthorized disclosure and no other crimes. did you make the recommendation to the department of justice on how to charge in this case? >> no. that's not the role of the irs commissioner. we allow and defer to the justice, department of justice on prosecutorial decisions. >> do you think one count of disclosure matches of the crime committed? >> i think that protecting taxpayer information from unauthorized access is an absolute solemn responsibility of the irs.

and also believe this individual betrayed the trust, he betrayed his own commitments. he betrayed irs employs in place and he betrayed the american tax people. and based, and the type of the troops should not be tolerated, and based on what's playing out in court it's not being tolerated isis persons being brought to justice. and as i understand it is going to spend years in prison. >> five years. do you think the penalty should have been hired for this individual? >> i don't, i don't have a on that, mr. chairman. i rely on the court and the judicial process to play out, and i trust that the judicial process will get the right answer. >> i i was looking more of the legislative process of whether congress should change and increase the penalty for someone who abuses taxpayer information like this situation. i now recognize the ranking

member for any questions you might have. >> thank you, chairman. commissioner, , what's the irs done to restore element of fairness to the tax system? is a into compliance you are aware of two on high income earners or the corporation. >> thank you for the question. what happened in the time before the inflation reduction act when i was funding was low and we were not making the appropriate investments, there's a friday different different areas we fell behind and one of the key areas we fell behind is the ability to assess complex returns. so in situations where taxpayers had the means to hire an army of lawyers or accounts to create a lot of complexity in the return and potentially shield income, we weren't making the appropriate investments to track that, assess it, collective. and now we are doing just that with the inflation reduction act resources, we are focused building our capacity around how

to deal with complex returns and how to make sure there's fairness. because if you're a taxpayer who can't afford to hire a lawyer and an accountant to help you create complexity and shield your income, then you would likely be very frustrated if those that did have the resources to do that and it ain't what they owe. and we have to close that gap and we're making really important progress already in closing that gap. >> commission, let's talk about data security. i thought your answer in your introductory comments was on target. you want to talk about data security and prevents that have been made in your time estimate your? >> yeah. i mentioned how important in the answer to mr. chairman question data security is to the irs. it is fundamental to what we do in ensuring the public trust. when i got to the irs one of the first things i did in march of 2023 was told the team in together and ask what is the state of our data security environment? and what is learned is the were a lot of gaps. one of the primary causes of

this gaps was lack of investment. the underfunding had occurred for many years at the irs i said decrease our capacity and of right of different ways and one of those ways is to keep pace with investing in the type of technology, process change, controls to make sure our environment was secure. and we've spent the last year working diligently to close those gaps, and there is a long laundry list of steps we have taken to completely dramatically change our environment. and i'll point out one important one. the inspector general in evaluating our security environment pointed specifically to a lack of audit trails in our system so that we can see how data is moving throughout the organization, and we can track and see if it's moving in an inappropriate way. i required and it is now been implemented that every sensitive system in the irs has a very

robust audit trails that the inspector general required. again, before the inflation reduction act we didn't have the resources to put in the work to close these gaps, and that's why it is so important that the irs be funded adequately for its operations. not just so we can answer the phone when people call us, , not so we can keep pace with complex returns, but we need to invest in our infrastructure and invest in our data security so events like what happened in 2017-2020, that that doesn't happen again. >> i don't understand the logic sometimes it's offered that if we cut the irs, , so we're going to prove compliance. the logic escapes me so let me give you some time here, i got one minute and 50 seconds to talk about some of the other additions to your testimony you might like to offer. >> absolutely. so i really want to amplify this point about what a funded irs

means versus what it doesn't. and we have all the evidence we need in looking at the state of the irs before the inflation reduction act was passed versus where it is today. and before the inflation reduction act was passed, our walk-in centers around the country were close were understaffed with lines around the block. and now just a few years later we've opened 60 new walk-in centers that are fully staffed and we are extending hours to saturday for people can't get to us during the week and will implement what we call pop-up walk-in centers going toward vote populations, so people want to see us in person they now can. a second example is with the folks. we were understaffed by thousands of phone the sisters because of underfunding. what did we do with offending? we hired 5000 phone as sisters. put them in the call center and between before the inflation reduction act and after, the was a dramatic change in our ability to answer the phone and help taxpayers with their questions.

and the same is true for digital. we have a whole generation of taxpayers that's going to expect as they should to be able do everything ever wanted to do with the irs without calling us can without going into a walk-in center. and before we were funded, our technology tools were stagnant. they were not being updated in the way you would see either other jurisdictions around the world or in the financial services sector in the retail sector. that's all changing now. we have work to do but now every time taxpayers come to be with the irs infilling of the taxes or answering questions when they go to our website each filing season, they are going to see a new set of tools, new functionality, new things that they can do without ever calling us to walk into a walk-in center because we are investing and focusing our investments and how do we best serve taxpayers. >> thank you. mr. began his regular. >> thank you, mr. chairman. i want to thank the commission for being here today.

i chose the florida chamber. we at 130 business, 30,000 this is in the federation across florida. one of the biggest issues that are making to you a little earlier is dispute resolution and him talking about companies with 50 employees or less. the cost of hiring accounts and maybe get an attorney and go through the whole process is very time-consuming. many times it will put them out of business some of them. but it think it's got a little bit better but what's your mindset of where we're at in terms of, seemed like we want to get at their deal for the irs, for the country, but then resolve as many of these disputes as we can, some of them claim there out there a year, six months, eight months, ties of their energy, their time and their enterprise. you mentioned that, the big corporations one thing. small business and individuals as well. i'm just focus right now on small business. >> yeah, i really appreciate the question, congressman. i haven't mentioned it yet one of the things that guides me in

the job is the taxpayer bill of rights. i have it framed above my desk. i have with me today to get sky like some people carry around their pocket constitution. i carry around the taxpayer bill of rights because it so important in everything we do we are guided by it. and one of those rights is the right to speedily resolve your issues. and i want to make the right investments so that we are doing that. and that's a multipronged set of solutions. if, for example, having clear notices, clear guidance so the law is complicated the irs is translating it clearly so we never get to a dispute. it's doing outreach to small businesses with training and webinars. we are investing. so what are your questions and how can we help you? and then it's hiring more people working to make sure there is no dispute resolution that's taking to look. >> i've only got a few minutes. i've got a couple more want to get through. identity theft, a huge issue again it seems like it's

organized groups and stuff are still out there. where are we at with identity theft now? i had a lot of people in our region in florida where their identity was stolen, tax returns were filed on behalf of of fake he or some organize group. what's your sense of where that's at? >> it's critical and its a top priority. i mentioned top three things we want to do. one is prevent people from being victimized. this is a mixed story. i wish it was all good. we've made significant progress in preventing identity theft, working with private sector partners and will call our security summit. we now prevent 98% of identity theft attacks, if you will. but in the case with is a victim, as recently pointed out by a taxpayer advocate report, we are not resolving those issues quick enough, and so it's a priority going forward. that battling to continue our

strong performance in preventing identity theft, it also when it happens and is a victim, to raise our game and make sure we're providing that victim assistance any much more robust what. >> let me ask you what of the think in terms of customer service. i know you touched on that. just talk to accounts and things locally and do seem like one tequila credit seems a is a got a little better but still you're on the phone for over an hour, or aggravated. you want to take care of the social as quick as you can come leaks in terms of answering the phone, get their questions answered. you touched on it in your early testimony but what is your sense of where that, we get to a point where we can answer the phone quicker and try to get a little more help from a quicker stance? >> so on our main foreign language were most of the volume comes come we're at 85% level of service. but there's more to do. there are other phones lines that we need to continue to work on and approved by the gig and a

poor example of what we're doing that i don't ever want to hear about some waiting on the phone for an hour. that is heartbreaking, frustrating but also a a rallg cry for us. one of the things we've done this year is we've instituted a callback option. what that means is that the way reengineering our call center doubt is if you wait time is going to be longer than 15 minutes, we will introduce into the phone, pay, we can schedule a callback option so you can hang up, the longer listen to elevator music, and we'll call you back. these are the types of improvements. i know this happens in your everyday life when you're on any of the call center in the retail industry and otherwise, banking industry, we have some catching up to do. but because we have funding we can make these investment, and these are really helpful to taxes because now if they have a baby crying for something they can hang up and get a callback option. >> thank you, and i yield back. >> mr. doggett is ruggedized. >> thank you very much, and

thank you, commissioner for the efforts that you and your team have made to address many problems have been created over the last decade prior to the last congress by those who seem intent on insuring that irs would fail by cutting the budget again and again and continually attacking and stirring public dissatisfaction with irs. as understand your testimony, we have gone from a of 15% satisfaction to 85% satisfaction. is that right? >> that's correct. >> i 15% satisfaction to 85% satisfaction. is that right? >> that is correct. >> our member having complaints from constituents that we provided these funds. even from tax preparers who were kept holding in the very way you said they are not today and you cannot have had these successes and your team could

not have had these successes without the additional funding you provided by the last congress, correct? >> correct. >> the other area that is important to me is enforcing the tax loss of the people out there paying their fair share are not abused i those who refused to do so and the data i have seen suggests audit rates for large corporations in the decade prior to the last congress were cut in half and the audit rates for those who earned over $1 million per year were cut by about 70%. the top 1% was getting away with not paying an estimated $160 billion in taxes each year. i know that you reported progress being made on tax enforcement earlier this year and a significant increase in revenue as a result. were the people you were after, where they the kind we hear about in some of the campaign

speeches that just had honest mistakes and left a little off their return? or were they true tax cheats? could you give us some examples? >> i cannot emphasize this enough, congressman. our agenda under the inflation reduction act is to increase scrutiny for complex filers, wealthy individuals, large corporations and complex partnerships evading their tax responsibility. it is not our intent to increase scrutiny and invest this money on a new wave of audits for middle and low income. that will not happen under my watch and we will be able to publicly report that so you can hold me accountable for that. with respect to high wealth, there are a lot of things we are doing to start to catch up and close the gap that has been there for too many years and one of the things we can report immediate results on because often these enforcement actions take time but there are some things we are doing that should

give the american people confidence we are using this money smartly and then away creating fairness and that is going after millionaires and billionaires who are delinquent on owed taxes. this should frustrate people. these are millionaires and billionaires who have been assessed a tax due and are delinquent in paying it. we have so many honest americans who pay their taxes on time and is millionaires and billionaires are not so we have created this high risk list, 1600 individuals. we have started to go get the money back and so far in the early stages of this effort we have already collected half a billion dollars and that is just scratching the surface. that should give you a sense how much inequity there is and how much if we stay on this path we are going to be able to close that equity gap. >> to stay on this path you have indicated you need $800 million this year. >> yes, and that is an important

point about our budget and if i could just say briefly, we have a base budget to fund our ongoing operations, to keep the lights on, and we have the inflation reduction act modernizing and helping us build capacities. our base budget is insufficient to run the daily train schedules . we have to borrow from the monetization fund just to keep the lights on and if we do that we won't modernize. we will keep the lights on but we won't build capacities that are so important to taxpayers. >> the treasury in the last two weeks has estimated $561 billion could be collected over the next decade from wealthy and corporate tax cheats they were focused on, yet unfortunately our republican colleagues on this committee and elsewhere seem to have no higher priority as indicated by the first bill they passed in this congress and their efforts every time we get up to the brink of disaster

here they want to cut the very funding you are relying on to see that these corporate and high wealth tax cheats are treated the same way and pay their taxes the way most americans do. i want to thank you for your efforts and we will do all we can to undermine the progress that you are making. >> mr. smith is recognized. >> thank you, chairman and thank you, commissioner, for being here today. my office continues to receive input from constituents they are not getting their questions answered from the irs. you are touting an 85% efficiency level and everything is just amazing at the irs. i continue to have concerns that the $80 billion in ira funding is not giving us the results perhaps that were promised. also there is certainly a lack of candor i believe from the

administration on how the funds are utilized. the administration continues to implement policies across numerous agencies regardless of whether it is a legislative authority or not. student loan forgiveness and the recent changes to the 1090 9k requirement from arpa are examples of this executive overreach. the e-file system appears to fit that description. while ira, the bill, so-called inflation reduction act provided $50 million to conduct a study of direct e-file and enumerated the parameters it provided funding for only nine months and said nothing about implementing that system. the nine months have now lapsed, which i'm sure you are aware. can you tell me explicitly what authority the irs relied on to create an entirely new government run system of creating -- filing taxes? i'm not looking for other examples

of the irs helping people file their taxes. i get that. i want a specific language from the code authorizing this particular pilot. >> i appreciate the question. we do have a responsibility and an authority to offer taxpayers different approaches for how to meet their tax obligation. i can give you the exact statutory site for that. what's critical about the direct file solution is that it is an option. there is no mandate to use the solution, should they choose it. >> you are saying there is direct authority to do so? >> there is direct authority to implement the tax system in a way that provides tools and solutions to meet their tax responsibility. >> generically speaking? >> calling us on the telephone. not everything is delineated decisively. for example if we

create an adobe version of the tax firm you can fill in online, we have done that. there is not specific legal authority to do that but there is a legal description of the commissioner's responsibilities and one of those responsibilities is to provide taxpayers with avenues for how they can meet their tax obligation and this is one avenue. it is not a mandate. >> that does not always mean there is the authority to do so and i would argue that is the case right now. i am specifically troubled by the claim there is that authority there when i don't believe there is, but let's go back to the topic i have discussed with you and secretary ellen previously on separate occasions and that's targeting families earning less than $400,000. i have concerns that despite the claims from secretary yellin and others the administration cannot fulfill

its target about audits and increased revenue. you said for the record the irs is committed to ensuring none of the funds provided will be used to increase audit rates for businesses and households making less than $400,000 annually relative to historical levels and that is a quote. the phrase "historical levels" mean something higher than the current audit rates. is that accurate? >> no, that is not accurate. i don't think. let me tell you what the current situation is. tax year 2018 will be the base year that we will utilize to make sure the audit rate for those earning less than $400,000 does not exceed -- >> i am claiming my time. i would like to learn more about that but i would also like to know if the irs could provide us with a distributional table for the $561 billion and $850 billion

estimates of revenue generation and do you know when we could plan to see that? >> we have a public report on that so i would be happy to engage with your staff to understand what are the specific questions or additional layers of information besides the public -- >> why did you choose 2018 as the year to establish the historical rate for levels and audits? >> in large measure because it is a historically low rate and we wanted to ensure the tax paying community that the inflation reduction act would not be used to increase the audit rate among middle and low income so we chose 2018 as a historic low rate to provide additional assurances and we wanted to be specific so we can be transparent and hold me to account and the irs to account

because each year we publish the audit rate in the data book so you can go to the data book right now and see exactly what the audit rate is for 2018 and when we finish the tax year 2023 and the rates are complete you will say oh, did they meet their mandate? it is all public. >> you mentioned earlier you've generated $500 million -- half a billion in your own words -- from 1600 targeted tax payers, an average of $300,000 per taxpayer. how many resources in a dollar figure of irs taxpayer dollars on average would it take to reach that level? >> i would have to get back to you on the specifics, but it certainly has a very positive roi in general and this is something the congressional budget office has published. in general we return $6.00 for

every $1.00 invested so on average you can expect a 1-6 ratio. we spend about a sixth of the resources to get the job done. >> commissioner, thank you for being here. first, congratulations for the work the irs has done over the past several months. as a ranking member, the chairman mentioned democrats on this committee made a historic investment in the irs last year when we passed the inflation reduction act. since then i can tell you i've heard from my staff in all three of my office is how well they are working with the irs. they have contact with your office hundreds of not thousands of times each year and they tell me the irs is significantly smoother than they have ever been before. you are responding faster,

responding better, people answer the phones. my staff find the taxpayer advocates are helpful partners as we try to work with our constituents. i personally have worked with you and your team on specific issues and i want to thank you. i've always found you to be helpful and your team to be professional and very well prepared. unfortunately the majority seems to think the irs budget was a fund to pay for every program that they want to pass and put into law and i've lost track how many times they have tried to use the irs budget to offset spending despite reams of evidence proving that irs cuts actually increase the deficit. i believe the only reason to work to cut the irs budget is to either make consumer services worse or to make

cheating on your taxes easier. i understand people don't like paying taxes, but this is how we fund our civilized society and the many programs our constituents care about. so while we can disagree about tax policy, on the specifics, we ought to all agree that on a bipartisan basis that people should follow the law and pay the taxes that they owe. commissioner, when irs funding is cut, what happens to our deficit? >> it goes up. in fact, for every $100 million taken from the irs, the deficit grows by $600 million over 10 years and that is because -- >> $600 million? >> for every $100 million cut them it is a $600 million

increase in the deficit. >> when the funds are cut, is it harder or easier for people to cheat on their taxes? >> it is easier and if i could go through $100 million -- what that buys you at the irs, 700 audits of high income taxpayers , millionaires and billionaires, 200 audits of complex partnerships, 100 audits of large corporations, 32,000 collection cases of wealthy individuals, and on, and on. that is just from the $100 million so clearly, it has an impact. >> thank you. one thing hopefully we can both agree on is modernization. talk more on how you have used inflation reduction act investments to modernize . >> yes, absolutely. one of the things that inspires me, congressman, before the inflation reduction act, there was a famous picture in the

washington post of our cafeteria in austin, texas filled with unreviewed returns in paper. that cafeteria is now clean. people are eating and it, rather than us storing tax returns. we are aggressively digitizing and scanning all of our paper as part of our initiative to go paperless. this is important not because it is more efficient and secure, but we will process more quickly and one of the things going on due to our modernization, we have significantly reduced the ongoing backlog of returns and correspondences. >> thank you. i would like to take a moment to talk about the investment in climate change, in the ira. this was a huge -- the biggest investment in climate work in history and our country. how would you describe the rollout so far, and how would

you characterize the uptick in ev and solar credits? >> we had a successful launch. in january we launched our portal, our i.t. solution, that allows those eligible for credits related to the manufacturing and the transactions associated with electronic vehicles and like any new solution, there are certain things we can do to make it better and improve the customer experience but overall it is in robust participation and the system has performed as expected. >> thank you. i yield back. >> mr. kelly? >> thank you, mr. chairman. it is good to see you again. we do telephone town halls and we did one a little over a week ago and when we do irs town halls, it seems like we can't

be on the phone long enough and the irs provides people and the taxpayer is there on the phone with us but i don't think there is anything more complicated when it comes to the irs and the rules and how it works and who is paying fairly, who is taking advantage. it goes back and forth. i wish we could get to a situation where we could look at is this an agency running in the best interest of the people who funded? and the same people who fund everything else as hard-working american taxpayers. from a standpoint of formerly being in the private sector and while i was present i was not in the operation at the time going through the early days of the pandemic. one of the things that came out that was a really good idea was the retention tax credit program. however, we continue to look at programs. my son runs our business and i

talked to him on the phone quite a bit. he said the biggest thing, had employers been able to get some help or counsel on how it was working were supposed to work, how they could do that. but we look back now and we are trying to figure out what is going on with that program? while there are all kinds of figures floating around about what it has caused, i would caution people to say you know, anytime we say it costs the government, keep in mind it gave taxpayers a break on what comes out of their wallet. they provide every single penny either with the wages or by cosigning a loan to cosign this operation. when it comes to the irs right now and ensuring small businesses receive their ert sees, how -- what is the oversight? how can you help us with that? i have a number of friends and i met with billy long the other day who was concerned about the

fact there is confusion on what is being funded and what is the timeline and what is ending and what is in operation and where we should go from here. >> first of all, i appreciate the question and how you worded it. one of the things i've learned in my tenure at the irs is we cannot do this alone. implementing the tax system is a partnership with the irs and tax professionals, taxpayers, congress. the erc is an incredibly complicated program. it was critical and played a critical role. 3.6 million ercs to date and it was an economic lifeline for those who needed it . what happened, the further we got away from the period of eligibility because the demonstrated loss that you have in order to claim eligibility ended on december 31st, 2021. the further we got away from it

, the more aggressive promoters and marketers started in my opinion taking advantage of honest small businesses and getting them to believe they were eligible for a credit they truly were not eligible for, so 18 months, 19 months, 20 months after that period of eligibility the number of erc credits coming into the irs was increasing. 50,000 a week, 60,000 a week, 70,000 a week. we started to realize there were so many ineligible claims coming in, it was getting harder and harder to separate ineligible from eligible and that is why we issued the moratorium in september of 2023 because we wanted to slow the flow of these credits coming in and make sure we were not paying out fraudulent claims. and so we announced we will have to slow the process down to protect taxpayers. not just

taxpayers' official bottom- line, but also protect small businesses who may be taken advantage by these aggressive promoters. >> i appreciate that. the guidance is key and these aren't complicated issues but they are people who believed this would be taken care of. you are on hold, on hold, on hold and you don't know and it makes it difficult for people to file their claims. one more thing quickly. the direct file program -- we've had people in the private sector running this and i think we have had great success with it. why did the irs get involved? what is it that they are trying to achieve? you are down to one second and i don't expect an answer that quickly but if you could get back to me because this is a legitimate question. we have all of these available through the private sector and we talk about money being well spent, well, i think it is

already there. i don't understand what role the irs would have and i don't question the fact that you think you can help. it's already there. thank you. i yield back, sir. >> thank you. >> good morning, mr. chairman. it's a lovely day in the neighborhood. commissioner werfel , you have been a breath of fresh air to me. i had a little problem with the last guy who sat in your seat. welcome back. after years of chaos, a very new day at the irs. last month, you already talked about it. the irs announced and recovered $485 million from only 1600 millionaires. the question of fairness in the

tax system is at hand. we all have different opinions about it, but i believe -- or else i wouldn't say -- i believe you are there to oversee a fantasy. the guy next door to me where i live in my house in new jersey, if he doesn't pay his property taxes and the guy on the next block from us doesn't pay his property taxes, people understand now that we are going to have to pay higher property taxes unless some other kind of revenue is found. this tax fairness -- pay what you are supposed to pay and people will complain less. people believe many times, mr.

werfel, commissioner , that they are being shafted when it comes to figuring out tax policy. i think you and i have an obligation to address that. day in, day out. the tip of the iceberg. last week, we learned that we will recover at least $560 billion from rich tax cheats over the next decade. the agency you work for has been betrayed. you see, create fear and you are the bad guys. lincoln dealt with at during the civil war very honestly. if money was going to be used for the war, how would the towns throughout america, you

know, build their roads, hospitals, schools, et cetera, et cetera? that is what we have a big argument over. i hear from my own neighbors. you are now answering our calls. refund checks are going out faster. these successes are because of, i think, your leadership and because of stark funding passed by democrats mostly to make the irs work for regular americans. wow. i remind everyone, every single republican in congress voted against the inflation reduction act and against funding for the irs to do its job. i mean, the facts are the facts. the fact are the facts. members on the other side have

made irs funding their white whale. to be harpoon at any cost. they have clawed back one quarter of the funding, like the shark in jaws. they want another bite. the congressional budget office has estimated that the funding i believe republicans thought it would cost the american people double, nearly $400 billion. nor -- nearly $40 billion, excuse me. i have a question for you. millionaires and billionaires need to pay their fair share. i think everyone will agree. i think. i'm not sure. what is the irs doing to audit high net wealth individuals and tax cheats? >> congressmen, it is where we

are focused and we are taking multiple different steps. first of all, we are hiring additional accountants, auditors , and where they are being deployed and where we are shifting our audit workforce is to make sure we are focusing efforts on high wealth individuals because that is where we think we have a growing problem of tax evasion and we need to address it. we are deploying technology differently. we are using analytics and a.i. to better understand how money moves in these very complicated arrangements. you know, companies with subsidiaries and subsidiaries to those subsidiaries, money moving across international jurisdictions, understating their profits in the u.s., doing all of these things difficult to track and investing and subject matter expertise, people, technology, analytics that we can catch up and make this fair because we

should be able to have equal ability to assess the guy down the streets' taxes as your taxes and if you are little -- middle and low income, taxes are fairly simple and we have the means and capacity to assess it. where we have lost the capacity for the complicated situations and when we are underfunded, that gap grows. as long as i am commissioner and the funding is available we will focus on the gap where the tax returns are complicated and where the invasion -- evasion is expected to. >> mr. commissioner, forgive me because i am assembling the numbers right in front of me. because as the chairman spoke, i have a fixation that the adoption of technology is the ultimate solution. it is the solution for the left that wants more tax receipts and those of us who want a friendlier, more efficient,

effective irs. you made a comment that hey, it is 61 but this is from the preliminary data from representative pascrell who asked for the report and your press release for 520 million but looking at your cost, i actually see you for every dollar it cost you $10.96. i accept there are capital expenditures and over time they will be advertised out but most of the funding looks like it has gone toward operations for consultants. in the conversations you and i have had , my fixation is the only way you get that -- because that is completely opposite from our discussion before. right now costs are fairly high for those additional dollars. the adoption of technology, the use of commercial databases showed a dramatically lower your cost of collections and

make your collections much more efficient, fair, open. tell me the story. am i off-base? is technology my nirvana? >> first of all i can assure you investment in audit has a positive return. >> mr. commissioner, i am looking at the cbo's numbers in your own press release. i am getting the basic division. i'm pretty good at that. >> to answer your question on the technology, it is essential. the whole effort underway is really about modernization and that -- it is at every level. technology will help us process quicker, more efficiently, more accurately. technology will help tax payers have an easier time. it will take them less time to do their

taxes, it will hopefully be less expensive -- >> so what can i do as a person on the panel absolutely fixated? what can i do to help you get there? >> first of all, we appreciate your review on our technology lens and i know my team has already briefed your team, but we should regularly -- speed that your team has actually been great in communicating with me. >> that doesn't surprise me. we have a lot of different opportunities to advance technology at every level. our website, the tools the taxpayers have -- >> the chat function. at some point i would love for you to talk about your experiment in the last cycle and the expansion of this tax season. >> we are adding functionality whether it is an automated chat and you're talking to a computer and it advances if the computer cannot answer it will go to live chat. these are

standard activities in the private sector and many other public-sector call centers. we are just catching up. we are now catching up because we have the funding to modernize, versus just keep the lights on. >> if i'm wrong, don't tell me. everyone else tells me i'm wrong, but that adoption of technology should dramatically change your structural costs of collections. >> correct. >> that is my hope because on my side we fight over the $80 billion and hiring people or hiring efficiencies and you know, from my democrat colleagues, it is going after wealthy people but -- and i do look forward to your staff providing that for me because in your own press release, you have taken $520 million and i see a cost from the press release and the pascrell a preliminary audit of 5.7. last

thing i will ask you, just because we get a lot of inbound on this, on the employer retention, i accept it has been just what it is. please, guidance. as fast as you can so whether it be the small business, whether it be the promoters, everyone sort of knows what the rules are, knows what the timing is, knows how to close this out. i know you have to run things by armies of lawyers and those things. by them caffeine and get it done . >> if i could, we have a special section on irs.gov on the erc, what to look out for, do's and don'ts, why you may be ineligible. we had a webinar with 1000 registered participants and we are running educational series all over the country. we are doing a lot. we

obviously could be doing more so we are willing to listen to ideas about how to get out there to talk to people about this program. >> the question is also the processing time with eligible, not eligible and when it gets there. with that, mr. chairman, thank you. >> thank you. mr. davis? >> thank you, mr. chairman. first of all, commissioner, let me welcome and thank you and the interim revenue service for its outstanding success in ensuring a fair tax system where the wealthy and well- connected pay their fair share. i want to make you aware of the outstanding work of the chicago taxpayer advocate service. i am grateful for katrina britt , arlene merritt, fred, and the

rest of the chicago team who have used their expertise to help my constituents. i also thank chapman with the d.c. legislative affairs team for his assistance. as you may know, i have championed many of the key 2021 enhancements, like lowering the age to 19 for all workers. 18 for foster and homeless youth, and giving working parents up to $8000 for child care expenses. i would like to work with you to better understand the patterns and the use of those credits to inform efforts to restore them. for example, how many young workers got the e itc

in 2021 who are excluded under current law, or how many foster homeless youth use their provisions, or how many more working parents benefited from the refundable who would not under current law? do you have any updates you can share with us about who benefited and how from the 2021 earned income tax credit? and the cdctc enhancements from other years? i helped lead the effort to make the program permanent. i know the internal revenue service has a strategic plan initiative. 1.9 includes expanding the coverage and scope

of the tax preparation programs. are there any specific strategies identified for accomplishing that goal? and how has the irs and organizations in developing those strategies? >> thank you for those questions, congressman. on the data question, we have an awareness of that question and our research and analytics team is working to get you an answer as quickly as possible. i will connect your first question to your second question. we know there are people eligible for the earned income tax credit that are not claiming eligibility because they may not know about it. they may not be claiming eligibility because they are intimidated by the complexity of the formula. they just need help. and so we can do more outreach

and working with community partners to make sure people are aware of this benefit and are getting the help they need. you mentioned our volunteers for both underserved populations and the elderly. i would love to grow those programs. working with local communities on what we call taxpayer experience days, having more and more of those around the country with an educational campaign around what you may be eligible for and with free help available to sit with you and walk you through. i have been to one of these volunteer sites in baltimore and it is an amazing experience to witness these volunteers there with taxpayers who would have not otherwise gotten the help they needed and they are very appreciative and that the volunteers are passionate about helping people get the benefits they are eligible for.

>> thank you so much. i look forward to working with you. i yield back, mr. chairman. >> i want to thank you, commissioner werfel, for being here today and for your service . i am the chair of our subcommittee on work and welfare that oversees a number of federal programs, one of which is child-support. i will focus my questions on child- support enforcement. as you know, the program works with the irs on collecting child support for noncustodial parents to help children and families get the money they deserve through your program, the federal tax refund offset program. this is a vital source of income for millions of families across the country. in my home state of illinois 44,000 families and children depend and receive $65 million through the federal tax refund

offset program. many states, 42 states in particular, rely on the federal tax information through third- party contractors and that is the way it has been done since 2004. a year ago without consultation to congress and without us and an opportunity to work on that, the irs made the decision abruptly to change this policy and this has caused a shift. all states and cse programs that use contractors will be in noncompliance as of october so we did a bipartisan hearing in november and across-the-board people were frustrated, they were extremely -- you know, there were questions on why the irs did this and why they're putting states in jeopardy. the illinois administrator of child care services testified

where you are at that the policy change will cost illinois hundreds of millions of dollars to implement new systems and hire employees. furthermore if states are unable to come into compliance in time by october their entire cse program could be in jeopardy of losing funds resulting in millions of families and children losing child-support payments. what i am trying to figure out, commissioner, i would love your explanation on why this was done without congress and possibly legislation to remedy this, and why was the sudden change done? by the way, the stress and anxiety this is putting 40 states -- 42 states through is immense. >> yeah, i appreciate the question. this was an issue brought to my attention early in my tenure in march of 23 -- '23. i had questions about the

policy itself and why we had issued it. i immediately engaged with the department of health and human services who runs the child-support program to understand what the irs can do to reset the expectation across states, contractors, and others. at this moment, that policy announcement is paused. we are not moving forward and now we have the opportunity to do the very engaging thing you are suggesting so we have told hhs that we are going to take more time to make sure that we have heard from stakeholders appropriately before we finalize any such policy. >> just to clarify, the pause that you just referenced, does that affect the october, 2024 deadline? >> i believe it does but i want

to get back to you with more specifics. >> that is very important coming into compliance. do you have any idea how much this will cost states the cost -- come into compliance? >> i don't have the numbers at my fingertips but we need to get this right. >> there are 60 federally recognized native american tribes that fall into this category too and they are in a much tougher position because of the financial and economic issues there because of this irs policy and they are in jeopardy of losing access to critical child-support enforcement so i wanted to mention that to you and this needs to be a priority for you and your department. >> i want to make this commitment to the extent -- and i need to go back to the office to make sure we have the details. we did pause the extent. it is expecting to go back to october of 2024 as you

mentioned. i want to talk about the implications of that and i am happy to revisit that with you to make sure we are getting all of the data and feedback before we move forward. >> i appreciate that. thank you. >> miss sanchez? >> thank you, mr. chairman and thank you, mr. werfel for testifying today. i wanted to recognize the hard work the irs employees, the taxpayer advocate service, and other federal workers put in every day to help american workers, seniors, and families file their tax returns and claim the federal benefits they have all learned. i appreciate many members of congress share the tax writer's commitment to specifically improve the child tax credit. most of us recognize that the ctc is one of the most powerful tools for fighting poverty in this country but we can all agree the devil is in the details where that is concerned. unfortunately my colleagues on the other side disagree with congressional democrats on how

generous relief for working families should be but as a mom and a legislator i will continue to fight to ensure our nation's tax code benefits all households with children and that means parents or caregivers who don't earn enough to owe and pay federal income taxes. i believe they deserve financial relief. i was disappointed when my republican tax-writing colleagues killed the good faith amendment mr. davis and i offered on the white and smith tax bill a few weeks ago. our amendment would have strengthened the bill by restoring ability for the child tax credit. we have seen data showing millions of children across the u.s. would benefit from a modest expansion of the child tax credit and i am specifically looking out for those families who earn so little that they cannot claim this tax release at all even though they are raising children

. commissioner, i wanted to thank you again for answering our questions today and i wanted to talk about something raised earlier about the deadbeat millionaire's hand billionaires cheating on their taxes and evading their responsibility to pay their fair share. i don't think anyone loves paying their taxes but i think they do it if they feel this is paying their fair share. what would happen if middle income and low income americans didn't pay their taxes or cheated on their taxes at the same rate these millionaires and billionaires did? what would happen? >> well, the deficit would grow. i mean, the irs -- you are right. paying your taxes isn't your favorite activity of the year, for sure, but we fund virtually the entire government through those tax collections. in order to have a functioning government, if you want the

government big or small, the irs needs to function effectively and there needs to be equity in our tax system. otherwise people will lose trust and trust is what our tax system is built on. >> and when you say revenues, that means our national defense . correct? >> it is everything the government does keeping the skies safe, like air traffic controllers, keeping your food safe when you go to the restaurant and you have confidence your children are eating food that won't make them sick, that is all government funding and that is all made possible if we have a functioning tax system. >> if the irs could collect what these deadbeat millionaire's hand billionaires actually oh, might we be able to pay for the child tax credit to be expanded or perhaps even fully refundable? >> there is absolutely money being left on the table in terms of what is owed, versus

what is paid. this is particularly an area of focus for high wealth taxpayers in complicated situations. as i mentioned, when i arrived at the irs, my question was what are the gaps we need to close? where are the gaps most problematic? one of them was during our period of underfunding we had lost pace keeping up with these complex returns and the risk of evasion had grown. >> so if we could get these complex tax filers to pay their fair share, which i'm assuming are a lot of these big corporations that have different subsidiaries and different companies and they move the money around and these millionaires and billionaires that can use attorneys to help them evade taxes, if we could collect what they owe, we could potentially expand or make the child tax credit fully refundable so that kids and babies who go to bed hungry

every night in this country would be lifted out of that hunger and lifted out of that poverty? >> i leave it to the wisdom of congress to decide how to use the money. i just want to make sure that tax returns are complete, accurate, and what is owed is what is paid. >> i thank you for your testimony. i appreciate your answers and i yield back. >> thank you, mr. chairman, for holding this hearing today. mr. werfel, democratic senators and press releases bragged about the pressure they put on you and the irs to delay implementation of the threshold that passed in the american rescue plan. both of the senators previously voted in favor of the change. the democrat senators bragged about the irs decision to change the threshold to $5000 which you would seem to not have the authority to do so. with all due respect, mr.

werfel, and i know you are in a tough job but it looks like you're blatantly not enforcing the law and unilaterally changing the law because democrats in the current administration are having second thoughts about how terrible this policy is that has been enacted. it is my job to provide oversight on this and the american people do not trust this administration. why would they when this administration does not enforce a law that passed through democrat-controlled congress and signed by the democratic president? now that we are in an election year and president biden's administration refuses to change the law because the law in the books is politically unfavorable to the average american. my colleagues will touch on this view, but i want to ask you a question regarding the direct e- file program that has been recently implemented. isn't it true that private sectors provide free return preparation services outside of the government free file program? >> yes.

>> what is the estimate of how many they have done, based on your data? >> i don't know the exact number, but the free file program has been one of the central staples of how we provide free help to taxpayers. >> so, when you say it's free, we are actually having to fund that from your side, right? you don't have this technology a.i. driven. it is driven by people in your office, the office is administering this -- >> are you talking about the free file or the direct file program? >> free file. >> we work with the free file alliance, commercial software providers that have signed on to help provide a path for eligible taxpayers to use their product for free to file their taxes. you know, there are resources the irs does to ensure the partnership is successful as possible.

>> on the direct e-file program , what you are doing is you are competing directly with those corporations. >> i don't see it as competition. i see it as another option for taxpayers. >> your thing there provided for free? we have it there. when you say it's free to the american people, you are saying you are providing services internally, it doesn't cost you anything, and no taxpayer dollars are being used by your administration to do this? >> no, there is a cost and we have been public about what the cost would be. the goal is to provide taxpayers with options and to help the taxpayers pick the solution for filing taxes that is best for them. some will file on paper. we encourage them to file electronically. some will hire an accountant. some will go to the commercial software and pay. some will go to the commercial software and try to file for free.

what we heard from taxpayers pretty loudly, there is an interest in having an option to file directly with the irs for free and we want to do tests whether that option was liable. >> with all due respect, isn't that sort of the old phrase that ronald reagan used? we are from the government. we are here to help. i mean, it is not free. listen, we have given you billions of dollars. it is not free for you to provide this service to the american people. i know it's shocking but from the data we have gotten from the commercial companies that you have described, 29 million tax returns have been filed through the free file program out there. or the direct e-file program, rather. i want to make sure everyone thinks the government does this for free but it's not for free if the government provides these services. it is costing taxpayer dollars to provide that. >> here is how i would answer that. i would change that ronald

reagan statement a bit. this is an option and if you don't want to use the option, you don't need to. this is a small-scale pilot. we will evaluate the cost, the experience, is there a demand for taxpayers? do taxpayers want the irs to provide this option? >> mr. werfel, with all due respect , this is the age-old thought long before you got into government and i got into government. everyone wants to talk about the federal government having money and it really doesn't. it has taxpayer dollars to fund the government and i think we would agree with that. it's not free, it is funded by tax payers. if they are using the service and if they qualify, my guess is i don't know the criteria but my guess is to qualify for the program is that they are probably not paying taxes and it is a refundable credit they are getting in many cases. it's not free. you should say it's paid for by taxpayer dollars. you know, it is a misnomer that we get government services for free. it is not

true and it's disingenuous. i yield back. >> thank you, mr. chairman and thank you, commissioner, for being here today to talk about the important relationship between the taxpayers and irs. tax season's can be stressful for millions of american families and small businesses and i am happy that we are taking important steps to highlight the tax filing experiences that have a more sensible, fair, and efficient process. the road to this point has been a long one. the irs has had their work cut out for them with a very long list of major implementation issues over the last decade. today i am glad to hear the irs through the passage of the inflation reduction act is improving its interactions with the public. last year in this very same setting you and i were able to discuss the well-documented reports over the last few filing seasons the recipients of the earned income tax credit

paid a significantly higher audit rates than other taxpayers . these findings were discussed in detail and i appreciate our colloquy. audits are heavily concentrated in the southeast of the united states including many counties i represent in alabama's rule and underserved black belt. in fact, greene county, alabama in my district was among the 10 most audited counties in the country for eitc recipients. i venture to guess the median income for a family of four in greene county is less than $30,000 a year. since our conversation last year, you have penned a letter to congress in september of 2023 mentioning the administration of additional steps and an initial round of changes that have been made regarding the audit process for eitc. i believe accountability is a

direct result of transparency and with that, the opportunity to ask you whether or not this initial round of changes that you highlighted in the letter to congress has resulted in less audits on underserved communities. >> it will and i want to start by saying, you know, there are certain responsibilities the irs has and we have to meet our mission. we have to meet our mission in a way that avoids impact. in this case, there was evidence that our audits in our earned income tax credits had a negative impact on our black taxpayers and we have to first acknowledge it and now we have to fix it. one of the significant things that independent study reported was driving the disparity was the volume of eitc. one of the key things we have announced is a significant,

dramatic reduction in the number of eitc audits plan for this coming tax year as a way to address it. we are testing changes in the audit selection algorithm and we have a hypothesis it will remediate the disparate impact that has been occurring. we will take a little time to validate that and we hope to update that maybe in the fall where we have more data to make sure we are reporting publicly that the steps we took had the impact that we wanted it to have. >> i will definitely be awaiting such a report. i think it is really important we don't target certain populations, especially underserved populations. for something as important but not often claimed like the earned income tax credit so i look forward to working with you in any way i can to address this issue. as you rightfully said, it is

disproportionately affecting african american taxpayers. it really is unacceptable in this day and age so i look forward to working with you to see if we can reduce those numbers. >> thank you, congresswoman. >> mr. smucker? >> good morning, mr. chairman. i am actually okay with audits. there should be a random way to ensure there is an incentive for people to comply. i do want to, however, get your thinking about some statements you made this morning. some sta you have made this morning. multiple times you have talked about high income earners. you've talked about millionaires and billionaires. you've talked about complex tax returns in the same sentence as tax avoidance and tax evasion. do you believe