words" former u.s. ambassador to ukraine marie yovanovitch and author of lessons from the edge a a memoir reflects on her career, u.s.-russian relations and her congressional testimony during the first impeachment hearings of former president trump she's interviewed by new yorker staff writer susan glasser. watch booktv every sunday on c-span2 and find full schedule on your program guide or watch online any time at booktv.org. >> irs commissioner charles rettig says the agency should be done addressing its tax filing backlog before the end of the year. he made that commitment while testifying in front of the house ways and means subcommittee and oversight. he spoke about funding and staffing shortages and tax assistance for small businesses hurt by the pandemic. [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> good morning, and welcome. iwe called to order the subcommittee on oversight. thank you, everyone for joining today. weig are holding this hearing ia hybrid format in compliance with regulations for remote committee proceedings pursuant to house resolution eight. before we turn to today's important topic, i want to

remind members of a few procedures to help you navigate this hybrid format. first, consistent with regulations the committee will keep microphones muted to limit background noise. members joined virtually are responsible for unmuting themselves when they seek recognition orlv when recognized for their five minutes. committee staff will mute members only an event of inadvertent background noise. second, when members are present in the proceeding via webex they must have the cameras on. if need to shift the way and attend another proceeding please turn your cameras and audio off rather than logging outud of the platform. finally, we will dispense with our practice of observing the givens rule and instead go in order of seniority for questioning, alternating between majority and minority beginning with members of the oversight committee. i thank you all for your

continued patience as we navigate these procedures to continue serving our country together in this great time of need. and with that i will now turn to the important topic of today's hearing with irs commissioner rettig on the 2022 filing season. and now i should deliver my opening statement. opening state. welcome everybody. the subcommittee on oversight meets today to review the 2022 tax return filing season and the overall operations of the internal revenue service. i would now like to welcome our witness irs commissioner charles reddick. chairman, regrets he could not attend today and asked me too serve as chair this morning. he wanted the subcommittee to hold the hearing today because it is essential that we make sure this makes it a successful

tax season without objections. it's introduced into that record. so thank you so much for appearing today. we know this is a very busy time for you and the irs employees. we are especially appreciative you are able to join us this morning. and we are very grateful for the dedicated service of the irs employees. we are particularly interested in receiving an update on the ongoing tax season including any recommendations you have for taxpayers or practitioners as we near the filing deadline. the irs has warned there would be enormous challenges this filing season due to an unprecedented backlog of millions of unprocessed tax returns. each return represents an individual, a family, a

business, desperately awaiting needed refunds from last year. we look forward to hearing from the commissioner i what the irs has done so far this year to address the backlog and what additional tools the irs needs from congress. importantly, repost assist our constituents have been waiting for months for much needed refunds including individuals claiming the rebate recovery credit and small businesses claiming the employee retention credit. i recently held an event with local taxpayer advocate. that's when the highest reviewed events of the pandemic which just goes to show how many people are looking for information and belief during this filing season. and it is not just credits and refunds. my constituents like kennedy economic injury disaster loan

because irs has not corrected his business return from 2019. it also took months to post his returns from 2020. in the irs is not corrected his business return. and this may not have happened at all had my office not intervened. now, his business which inspired home construction is in danger of closing because of a backlog in it irs issue which keeps returns are being posted so they can see you then. the elected state tax board. i know the importance of timely assessable service and ensuring their tax administration.

it cannot be complacent with the level of service and which one and ten taxpayers calling the irs is able to reach an irs customer service representative unprecedented number of phone calls last year. nearly 300 million. and i would like to hear from the commissioner, what lessons the irs learned in applying this filing sees it. that includes an expanding the use of callback technology and i look forward to hearing what is being done to expand the availability of that feature. further, the tax laws provide the irs with administrative authority to address certain situations that developed during the filing season, which may be unfair to taxpayers. i have consistently advocated

for various tax penalty relief as a matter of fairness particulate taxpayers continue to face covid related challenges in filing their taxes. i look forward to hearing what administrative relief actions are currently under with taxpayer difficulties in the backlog. today's hearing is also an opportunity to learn how current funding levels are impacting irs staffing, programs and most importantly tax payers and tax administration. a decade of underfunding by those who do not value fair and full tax administration harm the irs and countless taxpayers. these impacts include eight tax gap of up to $1 trillion a year. a reliance on correspondence, audits of low income taxpayers,

the worst telephone services in the history of the agency and antiquated technology that does not allow the scanning of returns secure e-mail and agency preparedness thanks to the bipartisan omnibus president biden signed into law this week the irs has received an increase in funding of nearly 6%. that is in addition to funding from pandemic related legislation for information technology. however, we all know this is not enough which is why the house passed reconciliation bill included long-term sustained funding of $80 billion. i look forward to discussing how we can make this tax season successful.

i now yield five minutes to the ranking member for his opening statement. >> thank you madam chair. i also want to thank chairman for holding this hearing today. thank you to commissioner reddick for being here and being available to us. and before i begin i want to say thank you to the tens of thousands of irs employees have worked very hard in overtime during this pandemic. we have had many policy debates here and many concerns about management decisions at the irs. that is our job, oversight. but your work is important and it is not easy. so we say thank you for it. this tax return back on prices began with pandemic closures in march 2020 that impacted all of society. the irs was closed for months due to the virus.

some slowdown would be expected. while the electronic file tax returns can be processed remotely, paper returns filed up at the facilities with no one there to open them. i recognize directly pandemic pandemic congress assign the irs significant new responsibilities such as sending economic and advanced child tax payment credits to millions of americans. there is no doubt the pandemic create a significant challenge just as it did for american families and businesses. the irs certainly has had successes along the way. sending out economic impact payments over millions of americans with almost no notice, executing those payments so promptly was clearly one such success. not all actions have been

successful during the pandemic printer public and members of this committee have been sounding an alarm about the backlog crisis for well over a year now. and it truly is a crisis. tens of millions of unprocessed tax returns from last year await processing. that represents refunds due to individuals and to businesses. and it significantly affects households and the operation of those businesses. when president biden took office the return backlog in customer service at the irs were already at crisis levels. customer service levels have been low at the irs for decades. things got much worse as the pandemic dragged on. the agency was receiving and millions more calls than in previous years and phone call answer rates failed to even

lower levels. this information was known when president biden took office. president biden did not propose a plan to resolve the backlog and fix the customer service process at the agency. going to the irs by hiring 87000 new agents to conduct tax enforcement. not process the backlog or provide customer service to taxpayers. as part of that plan the biden administration also wanted local banks to report details of nearly every americans bank account to the irs in a massive surveillance efforts. so far, these bad ideas have been blocked from becoming law, thank goodness. but unfortunately we know the administration is still pursuing them. the biden administration has its priorities misguided. the idea that we would double the size of the irs by focusing on enforcement without first

fixing the agency's ability to provide basic services to everyday americans is laughable. it was not long ago that republicans and democrats on this committee came together to draft and pass the first act. part of the purpose of that boat was to reform the irs and to make it work better for taxpayers. to put tax payer service at the heart of the agency's mission. the biden administration plan would undo that work and turn the agency into an aggressive enforcement agency that is adverse to taxpayers rather than one that serves taxpayers. when it comes to long-term vision of the irs we need to come together in a bipartisan way to fix the customer service problems and modernize irs technology. since i've been on this committee for six years now, i have consistently heard about the fact that we are using

computers that were built in the 1980s. some running cobol programs that only one person in the irs knows how to operate and to program but when that person retires or passes on, the irs is stuck. it is absurd and we cannot seem to get it modernize. we had solved this problem and modernizing technology i don't believe we would be facing the issues with the backlog we have today. we can do it, their members on both side of the aisle that are dedicated to working on it. but first we need the irs help. they need to tell us what needs to be done. they need to convince us they can actually do it because we funded it before and it did not get done.

and so people have great doubts as to whether it will be done if we throw money at it again. so we need a cost estimate. we need to know what needs to be done and we need to know how it's going to be done. let's transition back to the short term more technology is a long term solution. let's go back to the short term problems we are facing for just last week the irs and treasury put out what they call an aggressive plan to end pandemic inventory backlog this year. that would be an aggressive plan. i am not sure it is possible we can completely do away with the backlog this year. that plan highlights several initiatives we have heard about previously combined with a few new initiatives. commissioner while i wish this aggressive approach have been implemented a year ago, i'm very happy to see the agency has put together a serious plan that matches the seriousness of the

problem. i want to highlight a couple key points of the plan and how we got here. in january of this year with on the irs was sitting on over a billion dollars it received early 2021. while at the same time arguing it needed additional funding to deal with the backlog. i urge the irs multiple times in january and february to use those funds to address the backlog. it appears the agency may now be choosing to use those dollars to hire 5000 workers dedicated to work into the backlog this year. after all, calls for drastic action creates a surge team to address the backlog. i understand this involves temporarily moving irs employees from other parts of the agency over to submissions, processing to help get through the backlog. that strikes me as a good idea given the scope of the problem i would like to hear more from you about how that process will

work. i also noticed in your plan you are evaluating options for pursuing additional contractor assistance. i like to hear more from you on that as well. finally, you have a number of items in the plan guarding communication with taxpayers. i'm almost through. i want to know from you what you are going to do in the short term to help taxpayers who are contacting the irs actually get the answers they need. fifty ongoing problem. and i look forward to your testimony. >> thank you. without objection, all members opening statements will be made part of the record. without objection i would like to enter a statement for mr. bradley schneider who is unable to attend this hearing.

now, we will turn to our witness commissioner or reddick who is joined us here in person to discuss this very important issue. your statement will be made a part of the record in its entirety. i would ask that you summarize your testimony in five minutes or less. to help with that time please keep your eye on the clock if you go over your time i will notify you with the top of my gavel. commissioner reddick you may begin. looks of german, ranking member rice and others of the subcommittee paid thank you for the opportunity to discuss the filing season and irs operation. before i continue with my opening statement, i need to address something personal which this may be my last time testifying in front of this committee my statutory term expires november 12 of this year. but every single time i have

testified up on the hill i have had the extreme privilege of being accompanied by the same person who is sitting behind me, diane grant has been with the irs more than 50 years. i am with diane every single day and if folks think a commissioner comes in and makes decisions, i want you to know how much i value as a person, as a colleague, as a friend, as a tax expert, and it irs experience expert. i think in many ways, diane epitomizes the irs employee. she is all about. [applause] she is also extremely humble and i'm going to hear about this on the way back. thank you for affording me the opportunity because we have some truly spectacular employees. as you know the fiscal 21 gross receipts for the internal revenue service were approximately $4.1 trillion

which represents about 96% of the gross revenue of the united states of america. a successful fully functioning irs to the continued success of the country. they get education and things in the military 96% flow through the internal revenue service. funding the internal revenue service appropriately is critical to the success of the country, the questions you're going to ask me today i am fully aware in large part you're going to hear me talk about funding shortfalls in many, many different parts of the agency. i came on board almost four years ago as october 1, 2018. knew a lot about the internal revenue service have obviously learned a lot about the internal revenue service but it might encourage you to invite me back when i no longer wearing a collar of a commissioner for an additional discussion in a

committee hearing. not the shyest person on the world but i am representing an agency i care deeply about that is why i came to this agency which is really for the people of the internal revenue service. the people of this country, members of congress to try to make it better and is similar to some of you i have years practicing on the outside could not be more proud of my term as commissioner. the irs and when i say irs saying the irs employees are at the forefront of every issue during the pandemic of the last two plus years. three rounds of economic impact payments additional six and seven child tax credits and last year totaling an additional

$93 billion this is people i sent home in march of 2020 concerned about their health and safety. i think i am correct in saying we shut down the internal revenue service at the front end, it may be before any other federal agency, fully aware in march and april of 2021 of our primary responsibilities is the people in this country to issue refundable credits which is a difference between a food bank and food on the table. the difference between rent and no rents. so we took that responsibility seriously. we had to get back into operation as quickly as possible. our processing centers came back in in june 6, 8, 11 or 3 processing centers to process those returns it. but chairwoman as you indicated, the electronically filed returns throughout this period of time were continuing for eligible taxpayers filing an accurate return requesting a direct

deposit continued to receive their refunds by deposit in about 21 days. the issue has always been for the internal revenue paper pre-pandemic and pandemic in fiscal 20 when we received over 17 million tax returns in paper. congress led us into changing and encouraging electronic filing scenario that we are currently for fiscal 22, about 97% electronically filed returns. as to how people continue to file returns electronically. accurate returns when i say accurate i am talk about the advanced child tax credit because the returns that are not accurate fall out and need a manual processing. last filing season give 10 million returns and the recovery rebate context.

thirteen-point to million legislation change already processing returns we have 13 million on unemployment compensation and we got millions with respect to the earned income tax credit. as you know congress change the law so individuals could user 2019 instead of 2020 per. >> thank you so much mr. reddick. i know there will be much more content to be discussed with all of our >> so, at this time i will open the hearing for questions without objection, each member will be recognized for five minutes to question our witness. as mentioned earlier, we will not observe the gibbons rule in this hybrid setting and will instead go from majority,

alternating with majority and minority through seniority. virtual members are reminded to unmute yourself when you begin your five minutes. i will begin by recognizing myself for questions. mr. rettig, the irs announced surge teams to address the tens of millions of returns in the backlog. in a sentence or two, can you tell me when will the back logs will be eliminated? before december? >> my term ends in november, absolutely before december and with all due respect i would ask that my clock shows i had a minute four, i didn't mean for you to gavel, but i was watching my clock. we had 800 members of the surge team and employees who have come onto accounts management and submission processing.

as of today, barring any unforeseen circumstances, covid, et cetera, et cetera, if the world stays as it is today. we will be what we call healthy by the calendar year '22 and healthiest through the eyes of the taxpayer. thank you, that's very, very encouraging news to hear that definitive statement that the backlog will be cleared this year. commissioner rettig, i'm pleased that opm and congress have recognized the hiring needs to address this historic backlog and to ensure that taxpayers returns are processed in a timely manner. and, in fact, provided the agency with direct hiring authority. but i'm concerned that we're not making the most of this opportunity due to employee retention challenges, particularly in key roles processing, a gao report last month. found in the last fiscal year,

not only did the irs struggle to meet the hiring goals tore return processing, but these employees had attrition rate of 17%, more than double the agency average. can you talk about what the agency is doing to improve retention and attrition rates to maximize the effectiveness of the direct hiring surge? >> more than two years we've been requesting direct hiring authority. and we compete with those bringing on board and for us, a six to eight month process and when you get into the process and accounts management. they have options, amazon, walmart and the rest and walmart announced they're hiring 50,000 people, target announced it's on-boarding at $20 an hour. up until the president's recent order, 14.57. i can only encourage people so much to come on board for the good of the country. at those levels, the difference between $15 and $20, is whether

or not they're going to have a lunch or a dinner and what it's going to be. so we need assistance, we need to provide whatever. what we're doing is we have tuition reimbursement, we have child care credits, we have a host of things that we worked with our union, national treasury employee union and i would not even go out on a limb and say that we are close. i had regular conversations with the president of the union. we have done that since i've been on board. we have a great working relationship, and as i've said to tony reardon, your members are our employees, and in 2022 and i want them here in 2023. the strength of the agency, everything else is important, but the employees and their pride and privilege are very important. >> thank you, thank you for that. i'd also like to discuss the issue of audit fairness especially in the context of a tax gap as high as $1 trillion

a year. a recent report from syracuse university found in the last fiscal year, the irs audited low wage earners with less than $25,000 in gross receipts at a rate five times higher than for everyone else. these taxpayers are less likely to have professional tax advice and more likely to face barriers like limited official sufficiency and even a correspondent's audit presents a burden, not only unfair, but yielding little revenue. how is the irs using this hiring surge to address its capacity to audit complex returns of high earners and what steps are you taking. this tax year to ensure that the most vulnerable taxpayers are not bearing the brunt of tax enforcement just to keep overall audit numbers steady? >> let me first address that report and draw your attention to our data book.

table 17 and i would also draw your attention to our 2019 data book, page 34. for 2020, it's page 33. for 2019, it's page 34. for 2020, it's table 17. for 2019 it's table 17-a. that report by syracuse university is absolutely, 100% false, and i don't-- i'm tired of having to deal with this issue. we audit high income taxpayers more than any other category in the internal revenue service collecting over $10 million of income audited at 7% and primarily the earned income taxpayer the only people audited 1.1% correspondent's audit and so we don't have to file improper payment rates because we are forced to look at low income taxpayers. what's the improper payment rate and the inkm tax credit

world. we must audit a percentage of those so our research folks can come up with the improper payment rate is, there's a 25% error rate in earned income tax credit. it's over $17 billion each year. the secretary signs off on that, but in the high income, if you drop between 5 and 10 million you're going to see a 4.2% rate. if you drop between a million and 5 million 2.2%. between a million and 200,000, drops off considerably because in that range, we have information reporting. under a million or around a million are the executives who have w-2's, who have 1099's. when you get over a million you run into entrepreneurs who passed through entities and such. we are putting everyone experienced agency on the most complex tax returns, but to give you one example and chairman, you've heard me say before and ranking member, last year we received 4.2 million partnership returns, which are

flow-through returns, they're multi-blockers and chains of entities to block certain tax effects. 4.2 million. i have 6,500 experienced frontline revenue agents. these are our most capable technical people. they're entirely devoted to higher income taxpayer to abusive transactions and putting every effort on that. i do not believe that people ought to be able to game the system. you've heard me say before, we're outgunned and higher authorities are needed and you heard the chief counsel announced looking for 200 experienced tax attorneys. i'm pleased to say that we put out that announcement and we received multiples of that from folks who are coming on board. we are not only going to bring them in counsel, but in other areas. internal revenue service. >> thank you for that. >> i could go on, but--

>> yeah. >> well, as you can imagine, it is fairness that is the issue and i heard the statistic, but-- >> we need to change the earned income tax credit to a family law credit. we don't have the ability for what a qualifying child is, but we need to issue those refunds immediately. we do so 95% of those, refundable credit go out by april 15th and that's important. that's important money for important people who tend to get lost in society. >> thank you for that. >> now i would like to recognize mr. rice for five minutes to ask his questions. >> mr. commissioner, i hadn't planned on asking this question, but you've piqued my interest. what single factor, i don't have but five minutes and i have to keep it short on your answers. what single factor would help the most in solving this 25%

fraud rate on the earned income tax credit? >> the hurdle is the definition of a qualified child in the earned income tax credit and chuck rettig, not commissioner, but since i game aboard and diane grant has been working on that 1975. and a family credit, merge all of these credits into something that an agency can administer without getting into somebody's life. >> what about income verification? some-- >> the earned income tax credit we don't try to verify the income we try to look at the qualifying child. >> i'm going back to my question. and i'm glad that the biden administration and irs have a plan for the backlog and pleasantry surprised you say it could be done this year and

thought it might have taken longer on that. why did it take so long to come up with a plan? >> we didn't. we came up with this since the pandemic. there was no pandemic play book. in july 2020, 23 pieces of unopened mail and capable and safing to open between one and one and a half million pieces of mail a year-- a month -- a week, excuse me. one and a half million a week, 23 million backlog we needed to fight through the backlog. we didn't have direct hiring authority. people making 13, $14 an hour six to eight months, paper return. >> if you didn't have direct hiring authority, you didn't do the hiring. who did it? >> quite frankly, i haven't done a presentation without telling people we're hiring and meet them in the hallway and bring them to irs. every irs employee, an

ambassador and every irs employ hee is a recruiter and we have a referral payment system where employees-- >> before you had direct payment authority, who did your hiring or direct hiring authority, excuse me, who did your hiring for you? >> we only got direct hiring authority two days ago and we have a human capital-- >> before that who did your hire for you? >> human capital office. >> they're a federal agency, rights? >> it's an irs-- >> how long before you had direct hiring authority. >> eight months best example. spent three months looking for 5,000 people submission processing. >> and eight months before. how long will it take for direct. >> 30 to 45 days we should be able to on board. >> thank you, thank you. now, as you-- as we've discussed here in this hearing and hearing before and for five years now, and in privately yesterday, i think

the real long-term solution to most of these problems is to modernize the information technology of the irs. and i believe that everybody, republicans and democrats, want to see that done. i think that there's a hurdle though that the irs has got to overcome because we feel like we have funded this before and hadn't seen the results. so i think that the hurdle the irs has to jump is convincing us and maybe it's mostly or maybe even all republicans, i don't know, that if we throw money at the problem that, a, it will increase efficiency and b, that it can be pulled off. we feel like we've done it before and it wasn't pulled off. mr. commissioner, can we work on establishing, maybe with outside experts, and give us some confidence that it will

actually occur. >> we distributed 1.5 trillion dollars, three different eip payments, three weeks, 24 hours and 48 hours, and business modernization plan that we provided april 16, 2019. that plan was reviewed by mckenzie before we provided it and we adjusted based on some comments on consultation with mckenzie and indicated every time i've been up here, myself and the agency, we welcome oversight, oversight is an important part of tax administration and important part of the irs operations, and i think that not only myself, but anybody who follows in my place, would welcome the opportunities to work with you. we take all ideas from all sources, at the end of the day, you know, i said in a different hearing recently, you know, i'm not republican, i'm not democrat, california has an undeclared, but i am an

american, i'm a very proud america, you're all proud americans, we help us help others, that's my entire time. >> thank you, i yield back. >> the gentleman's time has expired. the chair now recognizes miss for five minutes. >> thank you, madam chair for the opportunity and thank you, mr. rettig for your service and for your willingness to come and-- in this very busy time that the irs has to speak with us. i wanted to ask a couple of questions and i'm grateful to my colleagues who have discussed the backlog and some of the other issues, one issue that's a little more closer to home for me, just want to share with you, in 2004, i decided to move to the virgin islands, which is where my ancestral family was from. i was born and raised in new york city and living in washington when i moved there and part of the reason i was able to move is that the virgin

islands has a specific tax incentive program that brings businesses and industries to the territory that's helped us to reverse our brain drain. when i moved back home, so many people in my same age bracket and professional experiences were moving to the territory, bringing with them their expertise in law, accounting, engineers, architects, et cetera. we're all coming back home and doing great work. unfortunately, there were several individuals who treasury and congress felt were abusing that tax incentive program and so, rightly, congress looked at it and some changes were mailed. i believe that there was overcorrection that was done and one of those has been in the area of residency. now, i know individuals at the irs have said they're willing to meet with us and have discussions with us about that, but this is a long time since

the american jobs act was made and nothing has been done. i want to understand how we are going to correct this residency issue. if i live in the virgin islands i can only be considered a virgin islands resident for tax purposes if i live there 183 days. everywhere else in the united states is 122. if i move to connecticut, i'm considered a resident there for tax purposes after 122 days that i have to remain there, but being in the virgin islands, it raises a higher bar which bars individual who can really support our economy, to be able to reside there. no one in this global economy lives anywhere if they're doing real business, for 183 days, except during the pandemic, when we're all forced to be at home with our husbands and wives and children and dogs. so i want to know what support you may be able to provide and is the irs looking at this.

>> i would suggest that we meet. i'm very familiar with the virgin islands residency issues and familiar with california and u.s. residency issues. california 183 days, presumption if you've been in california more than nine months, and, but also on the federal side you ever the three year rolling average. you know, maybe working out some kind of thing with that, but ultimately i have to say we're-- i'm a tax administrator, treasury does policy. >> well, you do have the ability through treasury because you're the implementers to influence how treasury is going to enact this. >> have you talked to the people at treasury? >> i have had discussions and do you have the-- i don't have the ability to influence treasury. >> i think you do. you're the ones who trigger whether there will be audits with people. this is not a laughing matter. we have lost a lot of economic development, a lot of tax base because of this rule.

>> i am very familiar and i have offered to sit with you at any time after this hearing, i have-- i'll make the afternoon available, i'll cancel meetings and bring in our people, but we don't influence treasury on tax policy. that's the exclusive arena of treasury. we are a tax administration agency that follows the law. you will get my-- as i think i said here, noncommissioner help because i can make comments as a non-commissioner. i cannot make those comments as a commissioner. i think you do understand. i think everybody should be treated fairly and at the core of any residency issue is the bona fides of the residency and i'm familiar with people who abuse that relationship, and we have similar with respect to puerto rico and similar between states. from california like chairwoman chu, she's familiar with people who argue they live in las

vegas, non-tax state and so i'm familiar with the residency issues, i'll be more than wing giving you 36 year private practice experience, but ultimately the approach has to be treasury, i don't have that-- >> i understand who has authority over it and i would pose to you that you do have more influence than you think, but thank you very much and i'll take you up on the offer to sit down. >> anytime. >> thank you. >> i'll yield back. >> i think you have my cell phone, so great. >> the gentle lady's time expired and the chair now recognizes mr. murphy for five minutes. >> thank you, madam chairman. >> thank you, madam chairman and thank you, commissioner rettig for coming out today. it's obvious that this is a herculean effort to get a handle over during the pandemic, but obviously some factors that occurred long before the pandemic, and inefficiencies and bureaucracies that handcuffed not only you, but the american people in dealing with this so much. the irs, obviously, is a point of great stress for the

american people. no one likes to deal with the irs. i'll just ask a few questions just because of the difficulty that we have now in getting a hold of this. do you guys ever use an outside agency to ever come in and, you know, everybody's asking for money, money, money, to do these things. does anybody ever try to come in and give the irs a lesson in efficiency, try to create, do more with what you have? >> treasury and the irs have contracts with quite a few consultants on the outside who do exactly that. i have made visits at various parts around the country trying to encourage others to participate with us, as i did on behalf of the country. i think that the high end tech companies, for example, in kale california could do better contributing. we have a lot of abilities. these tech companies got their

powerful posture because they're raised in a country that has a rule of law they can rely upon. i think it's every american's duty, quite frankly, to help the agency that's accountable for 96% of the gross revenue and touches more americans than anyone on the planet. >> it does, without a doubt it doesment, but as most americans believe that less government is better. this is just a perfect example that we don't need more and more government because of the bureaucracy and inefficiency that we have. let me ask you a question, for all of the outstanding taxpayer filings that have been made, these are monies that have been paid to the government, but not been either refunded or filed. do you have an estimate how much the united states government owes the american people because of filings that have not been dealt with? >> i do not. we'd have to try to figure how to get that. i can tell you that the inventories are down significantly. i know that most of you have staff who participate in every friday 2 p.m.--

>> so if we have 10 million filings that have not been done, the average filing is how much? >> the average refund, rather, is how much? >> currently, it's running around 3400. >> so that when-- >> those would not all be refund returns that would be-- >> but the average ones. so, we have hundreds of millions of dollars that are owed to the american taxpayers that are sitting in government coffers that are owed to those people. so-- >> know that the majority of those are ones that fall out in the system. the inability of folks to reconcile two economic income payments. change in the law for. >> guest: -- for eitc. we had to manually look at 34 million returns and under 5,000 people to do that, but in terms of technology, and what we've been doing during the pandemic, there are many, but i'll give you one. we did what's known as fixers and your staff are aware of

this. and they took position and automated the processing of the return recovery rebate and through february 28th processed 4.2 million of 10.3 million that fell out and that's operating at a very fast pace. so we have-- we have to balance in person phones and other types of services with technology. but we are trending to the point of the chairwoman and the ranking member. we are trending in a really good direction. >> and let me ask you this then. what percentage of your workers are back in place in person working? >> we were never in-- like the rest of the world, we have a blend between telework and-- >> what percentage are back in place. >> percentage of people who are required to be back in the office are all back in the office. and the processing folks were back in the office in june of 2020. socially distanced. multiple shifts, mandatory

overtime, as well as voluntary overtime throughout the work force in accounts management and submission processing. >> okay, thank you, i do know that this is a difficult job. i'm not saying it's not at all. >> i appreciate. >> i truly do, just as with anything, we can do a lot better. the irs had to pay out tremendous amount of money in interest because of the delays in processing, without a doubt that's money that should never have had to be spent by the american taxpayer. i appreciate the work that you do and i hope that your retirement is a good one and hopefully your replacement will come in and be even more efficient and a better steward of our taxpayer dollars. thank you, i'll yield back. >> the gentleman's time expired. the chair now recognizes mr. dogget for five minutes. >> thank you so much and thank you, commissioner for your testimony this morning. i am very pleased that you responded favorably to the request made by chair pasquel,

the chair and myself and senators and keeping up the submission process at the center, one of three of our facilities across the country that process the paper returns. we're all familiar with the comment of the national taxpayer advocate that paper is the irs' kryptonite and i know that our austin irs employees are working hard to handle it. [inaudible] replacing new staff because-- [inaudible] >> lloyd, your audio is cutting out. >> i'm sorry, thank you. concern that there wouldn't be a facility there. i hope you'll continue to affirm your commitment to the austin facility and dedicated team so that we have done. so many that i believe we face

today with the internal revenue service are the result of previous budget decisions designed deliberately to ensure that the irs fails, that the public would grow dissatisfied, frustrated, angry with the irs and eventually replace it with a less progressive system. over the last decade, as you know, funding went down 20% and staffing went down, and others went up by 19%. the result of the unprocessed returns that my colleague was just talking about, unanswered calls, and general unhappiness with the irs. now, some other colleagues have come up with a 11 point plan to rescue america by slashing funding in half and further reducing--

[inaudible] >> mr. dogget, your sound is off. >> sorry. let me just repeat the question. can you hear me now? >> yes. >> okay. the question is, if your budget were cut by 50% as has been proposed by some of my fellow republican colleagues, what impact would it have on your ability to answer calls, get refunds back and generally conduct and fulfill your lawful responsibilities? >> if the irs budget was cut by 50% you might be better off and save more money by just shutting it down completely. you know. it's -- we account for 96% of the gross revenue of the united states of america, how are you going to fund what we need to fund and what every american deserves? efficiency, yes, but cutting the budget is not the right answer.

>> perhaps shutting it down so exactly what those who make this outrageous proposal have in mind. let me ask you, also-- >> by the way, sir, i'm not proposing to shut it down. i because just was responding to the question. >> and some people would like to and some over the last decades designed to shut it down slowly and now abruptly. let me ask you about your comments earlier about the tax gap. you've estimated that the difference between taxes owed and taxes actually paid, i believe, were an astounding trillion dollars per year. another estimate is that 70% of that gap is with the top 1%. what resources do you need in order to close that tax gap? >> we need a visible, robust enforcement mechanism. we're down 17,000 enforcement personnel and that doesn't mean everybody on this street.

it means strategic and people-- you cannot complain if you conduct audits, you complain if audits go on too long or certain arenas, and we don't have the ability to do what we do. and i stand by the trillion dollars that we are about to issue our tax gap estimates for the period that was 2011 to 13. we're going to do 14 to 16 and you're going to see them tracked, but i would like to draw your attention because i assume there will be a lot of press that you're going to see us project what we think the tax gap is for 2019. but know that last year, there was over $14 trillion in transactions in virtual currency with the market cap over $2 trillion. somewhere between 30 and 43% of that market is u.s. people. some indicia of u.s. reporting

and they need to report. >> okay. >> the gentleman's time has expired. chair now recognizes mr. evans for five minutes. >> thank you, madam chair. congress enacted legislation that would increase our irs funding by nearly 6%. i understand this is nearly not enough to reverse more than a decade of severe underfunding and i recognize that the irs needs more resources to update these antiquated technologies. so, commissioner, how does the agency plan to use the increase in fy22 funding to improve service delivery, provide timely response to our constituents, particularly those who do not typically file a tax return, but who have earned despite the child tax credits and the eitc. >> note that it's 675 million

increase over enacted 21, but more than 500 million less than what treasury and omb requested. and of that, over 300 million is cost of living adjustments. if you net-net, 375 million dollars adjustment for an agency that gets called upon time after time after time for new responsibilities and performs. our people perform. our people are spectacular, in terms of earned income tax credits, all refundable credits. filed tax credits and numerous others, we need to help people get it right. i'm incredibly proud that during my term. i don't take credit for it, but being a public school kid from l.a., i opened some eyes and doors about certain parts of the community, and for the first time in the history of the irs, i'm number 49 as commissioner, the form 1040 is in language other than english, it's spanish.

and accelerate through the language, spanish, braille for our returns and i will call out also, that last year we had over two billion hits on irs.gov. mo are than 90 million were on our non-english speaking pages. and we're providing services, a whole array of services, it's not just the phones, it's our taxpayer assistance centers. one of the things i would encourage funding for for congress let us staff up our 358 taxpayer systems centers, that's our frontline retail, if you will, operations system and we have some with the circuit and pulled people in. they've got a bump. that's the safety net for taxpayers on the outside and for them to have a caseload that's three or four times normal and almost impossible for any individual to do, but they give their best and you also know that we launched this year the taxpayer experience

office, which is to operate and look and get comments and questions through the eyes of the taxpayer and if i can add one thing, we routinely hold, hear me interaction was our front line employees, whether it's on the phone or taich taxpayer system and that's when you see us issue alerts, announcements, letters, reach out to congress, and so that we can work with your local offices and whatnot to relay and we act with the transmitters because we have a mirrored options to filing season and that's the person we tend to call so we share information with them as well. >> commissioner, when constituents with not reach of the irs and cannot get help from the taxpayers advocate service, they contact their member of congress. your response to that aspect of, that aspect of--

>> absolutely. you know, the pandemic has been very difficult for all of you, for your folks on the front lines and you know, it has been difficult for us as well. i have almost never interacted with somebody of congress, with 535 plus, who does not have my personal cell phone, who does not have the personal cell phone of our deputy commissioner for operator support. we are available and taxpayer advocate is available. and our legislative affairs folks are available. i will hold a one-on-one conversation with you, or without you, with your staff, bringing ken corbin, who is our taxpayer experience officer and for constituents who were having difficulty, wanting to know where their matter is, get us an a waiver so we can talk to you. get us the taxpayers information. i have been on calls where, you know, it opens up there 70 and kim corbin will go, 14 are here and 13 are waiting. so the idea when we talk about how many returns we have, it's

not like they're sitting in a closet somewhere. we have 4 million returns that-- paper returns to process. the rest of the inventory, if you will, are they've been kicked out for an error in the return. they've been kicked out for matching identity theft, there's a whole host of reasons, keeping in mind we are the gate keeper for fraud. we're the gate keeper for cyber, 1.6 billion cyber attacks per year with recent world events and you want us to be that gate keeper and you want us to be ever vigilant and you absolutely must fund us to keep those gates closed for the benefit of every american. we get hit, it's emotional. >> thank you, madam chair, yield back. >> thank you, the gentleman's time has expired. the chair now recognizes ms. miller for five minutes. >> thank you, madam chair and ranking member rice. and thank you, mr. rettig for

being here today. the irs has struggled over the recent years and the challenges from covid-19 have only exacerbated the challenges your agency is facing. and i appreciate the genuine efforts that you have made to try to rectify these issues, but many questions still remain on how the irs continues to function and i want to focus my questions today on the employee retention tax credit. which was an overwhelmingly popular emergency program to help small businesses and nonprofit organizations weather the storm of the pandemic and the government's mandated lockdowns. . the ertc was up fairly court short for the fourth quarter of 2021 and many of the small businesses and nonprofits are still waiting on relief from the third, the second, and even the first quarter of last year while processing delayed eight to 10 months. when congress authorized this

program it was designated to be emergency relief, receiving the advanced payment of this credit could mean life or death for small businesses and the nonprofits in every single congressional district. so mr. rettig. what the irs created successful processes to ensure individuals could receive direct payments during the pandemic. explain why the irs handles ertc processing like a normal piece of correspondence, and that you do not have the procedure to prioritize these credits. >> we do have procedures in place, but we did not have the ability to automate our systems and that's one of the differences in order to process it, but i say would we arrange a meeting with your folks and staff. >> i do not have your personal phone number, by the way. >> make sure i get it. >> yes. >> i was going to say it, but then i was thinking-- >> i don't think you better.

>> probably not my best move although it's my irs phone only there until november. >> can you commit that priorities with dedicated mailbox, phone line and timeline when to expect the refunds, specifically for the small businesses and nonprofits who are attempting to claim the credit? >> i come from a small business environment, both personally and my dad had a truck, and very committed to helping small business, all taxpayers, but small businesses taxpayers in many sense are the backbone of the country. the ones that we interact with and during the pandemic, most of those were not previous. they didn't have the challenges that the pandemic presented previously and nowhere to turn to. but you know anytime any business opens its door, whether it's a truck, a glass door or any, they are putting themselves at risk, taking a gamble by being in business.

and the speculation that the ertc was eliminated in q-4, 2021, within the infrastructure bill because members of congress did not think employers were taking advantage of the relief. congress should not have accurate-- shouldn't, couldn't have the accurate information due to the processing delays, again, at your agency. can you tell us how many claims the irs processed from the previous quarter amendments before q-4, 2021 and how many have been processed since? >> i don't have that with me, but i can get that for you this afternoon. >> great. >> and i just want to be clear, the irs is not the one that got rid of the employee retention tax credit. we follow the law. >> i know that and i thank you and i look forward to continuing to work with you and i also urge all of my colleagues on the committee to co-sponsor by bipartisan bill to reinstate the ertc for the fourth quarter of 2021.

it's hr6161 and it will deliver our promise to relief to the small businesses and nonprofits in your communities. thank you, i'll yield back. >> the gentle lady's time has expired. and the chair how recognizes mr. horseford for five minutes. >> thank you, madam chair and i appreciate this timely hearing. and commissioner rettig, to all of your team members, congratulations on 50 years of service to you as well. i'm going to get right into it because we have a number of priorities facing the american people and one of them is the issue of it was prices. they're simply too high and it's imperative that we identify solutions to bring them down. since president putin started

his devastating war in ukraine, the price of gas has gone up 75 cents, but the price of oil is rising disproportionately compared to the cost of a barrel of oil. as gas prices soared in 2021, the largest oil and gas companies made a combined $205 billion in record profits according to a new report by accountable.us. exxonmobil, the largest oil and gas company in the u.s. reported over $23 billion in profits in 2020 alone, which was a 60% increase compared to 2019 profit of 14 billion. this on top of the tax cut that they got under the trump tax proposals and three oil companies actually pay an effective federal tax rate of zero. at the same time, many of these

big oil companies are not paying their fair share of taxes, as i've said, and there are many not paying any at all and they're not doing anything to pass those profits on to consumers at a time when the american people need it the most. this is simply not fair and it's time that it be addressed. so, mr. rettig, what steps is and can the irs take to provide relief to the american people as it pertains to accountability for these big oil companies and the price of gas at the pumps. >> we will do all that we can for every american throughout that pre-dates me, that will continue for the employees, the irs. we're not a brick and mortar organization. we will follow the law. i would encourage congress to take a hard look at the law, and in conjunction with that, so i'd heard something recently about there was discussion about an excess profits tax and whatever, there are a lot of things that the media is talking about in this space,

but no, come back to, the irs has 6,500 experienced revenue agents and i only gave you one which is the tax partnership. we do not have the resources to go after the bigs or the super biggs as you refer to them and we get outgunned routinely in that space. >> let me reclaim my time then on that point because i also know, dealing with the earned income tax credit, the very low income people get identified for auditing at a higher and disproportionate rate and yet we don't have the adequate staffing we need to go after the big companies and in this case, big oil, some of whom who are not paying any federal tax, effective tax rate and those who have record profits and are not passing those benefits to consumer. does the irs providing income-based tax relief to provide consumers with the monthly rebate paid for by the

excess profits of big oil companies? >> that would be a policy call for treasury. treasury handles tax policy and we follow the law and-- >> i look forward to contacting treasury to follow up on that. i want solutions now. we cannot wait. my constituents are struggling to get by as it is, and yes, we have a lot of priorities, but this is one that must be addressed. >> i'm confident that the deputy secretary will meet with you. >> i hope he will. and i appreciate his leadership as well. now, turning back to the tax filing season as my colleagues have talked about, i have two just questions i want to get on the record. one, is there someone at irs my staff can call with respect to the delays in the direct deposit issue that we're hearing about and how is the department dividing up its resources to address the 2020 tax return backlog while also processing the incoming 2021 claims?

>> i think your staff has my cell phone and our affairs folks, they can reach out direct to them and then also, we have friday briefings, every friday, 2 p.m. with ken corbin, who can get the direct questions-- direct responses for you on that in terms of processing. we process on a first in, first out basis, we have a few million, about two and a half million returns filed in calendar year 20, paper returns in calendar year 20, excuse me, 21 and we have about a million-- 4.2 million total paper returns in inventory to be processed. everything else is in process, is looked at and has fallen out for some particular reason, but we can certainly go through it. i am confident, if i may, madam chair, if any of you are in my seat you would have the same passion and pride that i lit here with of the effort of our folks to get this right.

we are working really hard on behalf of each of you and every american. >> we appreciate that and you can follow up in writing with all of those details about how you're going to be processing these returns this year. the gentleman's time expired and the chair now recognizes mr. hearn for five minutes. >> thank you, mr. rettig for being here today. it's great to see you again. i'd like to have some additional conversation around the ertc issue that's going on across the country. a lot of companies, i was in small business 35 years and understand the importance of, you know, the relief that congress gave and unfortunately, much of that relief didn't get to the businesses, but they have the exposure to the tax and they were struggling and we've talked to accountants and companies facing ertc issue. and the main issue that companies are faced with now though are the amended quarterly and federal tax return, the 941. the companies are filing their

941 on time, and then filing the amend 941 because pay roll companies don't have the band width to get the information needed in time for the 941 filings. in these cases they'll be filing april '22 reduced wages and have not receive the complex for ertc credits. and they're paying tax on income they've never received. not only are small businesses liable for the tax on reduced wages, but reliable for the safe harbor on estimated taxes inflated due to reduced wages. and we've heard shocking companies having to take out short-term loans to pay their quarterly estimates or liability that's due until they receive the credits from the previous year from 2021. like my colleague, miss miller pointed out. this program was meant to provide emergency assistance to small businesses, it might seem like an innocent timing difference to the irs and i certainly understand your passion, but i can assure that the small businesses are hurting and should not be

penalized for doing the right thing. i understand there are massive back logs at the irs. and there are procedures in place to address these issues. but the small businesses who kept their doors open need certainty that they will receive credits in a timely manner and assurances that they will not be penalized and automatically to taxpayers filed on time and stuck in the backlog. and they've asked the irs to receive penalty relief. and i'll give you time to elab rate. are you looking at these for taxpayers that didn't do anything wrong. >> we consider penalty relief-- i've said everybody here, every time to go outside. and 36 years outside tax lawyers and tax agencies. and what i tell the accountants

and lawyers in the world any contact prior to february of 2020 would start out with covid and covid in the middle. our employees have gone through the same thing. our employees understand the point on the automated notices those were stopped so somebody's received one recently, i would like to have that notice and find out, because all eight -- automated notices stopped. left to consider, we have regular meetings all over. i know thousands of people on the outside who fortunately, unfortunately, have my not irs personal cell phone. >> would you want to share that? just kidding. [laughter] >> really, by the way, thank you for protecting me from myself, right? but the point being, our ear is to the ground on the front lines in either direction. internally, you heard me

touching on people getting to the calls and that's getting to me. externally, my friends are the people that you're talking about who are on the outside, whether it's small business owners, accountants enrolled agents, people without designation or people with a designation, so the understanding is there, the need for the priority and the understanding, the need for the priority. i do not anticipate people ending up with a penalty, when we had automated-- mr. rettig, if i could, we have about a minute left. just to the specifics because there are a lot of preparers that are watching this video and we're going to make sure that they see this and i'm not trying to-- well, i guess i'm trying to put this on the spot and you've been on the other side representing businesses and all they're asking for is not to be penalized in the liability and the estimates on money they haven't received yet. now, they understand if they receive the money, it's not that they're asking for anything special other than not to be penalized for money they haven't received yet. >> the people who provide the letters and know the answers to

the questions they have you ask me and the answer to that is-- >> there's no letters come to my office and i've been in business 35 years and i have multiple businesses and this is a personal thing and this should be for everybody. >> when you mention aicps, i'm talking to the people you're talking to, these are my friends, and irs is an agency of people who understand who have gone through the same thing people on the outside have gone through. >> mr. rettig, with all due consideration, it's going to get out quickly, not answering the question. the end of the quarter now. >> i yield back. >> the chair new recognizes mr. davis for five minutes. >> [inaudible]

>> yes, thank you very much, and commissioner, let me thank you for being here and answering all of the plethora of questions that are coming. but, first of all, let me thank you for your letter yesterday clarifying that payments to foster youth are non-taxable. that's not showing mute. >> yes, i apologize, i've thought that went out to you previously and you and i have had discussions in that space before and that letter was to confirm those discussions. >> well, thank you very much and i also want to thank you and your team for creating materials to help foster and homeless youth understand earned income tax credit provisions are relevant to them and further, i want to thank the chicago taxpayer advocate,

and congressional district liaison for their help educating my constituents about the refundable tax credit. commissioner, i know how life changing the tax year 2-1 enhancements to the refundable credit would be to my constituents this year. and so for each of the refundable credits, can your team provide myself and this committee income reports on the number of claimants and the amounts for tax year 2021 while the refundable tax credits soon after the filing seasons close? this information will be of great help to understand how these credits impacted families

and workers. could that information be provided to us? >> yes, sir. i actually have that information for you today. that we don't keep the information directly, but we do under the path act. we're required to hold those until february 15th. the information i have today is on the refundable credits that we had held as of february 15th, but have since released. there's three basic categories they're held only for economic impact-- excuse me earned income tax credit. it's held only for the child tax credit, and it's held for both child tax credit and earned income tax credit. so, in total, 34 billion dollars was held through february 15th in accordance with the path act. we're not able to distribute until after february 15th. eic only held 3.6 billion dollars.

and eitc and actc hold combined people both credits 26.7 billion dollars. there's $5 billion of other credits, noneitc, non-ctc. so numbers 34 billion, 2.3 billion eitc, 110 million actc only. and a combined 26.7 billion for the combination of eitc and the rest. we have the specifics kind of rounded off. >> well, thank you. thank you very much and again, i just want to shout out and say thanks to the taxpayers advocate's office in chicago for all of the assistance that they have given, trying to make sure that individuals understand the earned income tax credit, that they understand the child tax credit and understand all of those things which would help to

spread the word. so, thank you very much and i yield back. >> the gentleman yields back. i would like to thank our witness, commissioner rettig for joining us today. please be advised that members have two weeks to submit written questions to be answered later in writing. those questions and your answers will be made part of the formal hearing record. with that, this subcommittee stands adjourned. [inaudible conversations]

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on cloture of that bill this morning. live to the floor of the senate here on c-span2. the presiding officer: the senate will come to order. the chaplain, dr. barry black, will lead the senate in prayer. the chaplain: let us pray. hear our prayers, mighty god. be merciful and answer. today, look down from heaven upon us as we pray for the ukrainian people. lord, we are not worthy to stand in your presence,