▶ 0:03:28e let me know when you're ready testing testing one two three test test
▶ 0:04:08testing testing test
▶ 0:16:57e e
▶ 0:17:29starting times and respect everyone's um chaotic schedules for all of you as you know it's a unusual time here so shall we get going um the subcommittee will come to order um as we get going this is our first one and I'd like to actually say I'm elated to have Miss Su sitting next to me one of the people I genuinely like and my little boy is fascinated with jacket um if you hear sudden noise I have a 2-year-old in the little room right behind us
▶ 0:18:00um so shall we actually get going um I was going to let you introduce your do you have a witness I do um I'm going to let you when we get done with Okay so let's do opening statements and then let's get this going um first good morning welcome to the 119th Congress and our first um Ways and Means oversight hearing I have a script here but I'm going to go off of it because I already shared with
▶ 0:18:30you for many of us we've had a couple years here the fussing back and forth between what was put the cash that was put in inflation reduction act hiring lots of people the fact matters we now have data that how hard it has been almost impossible to hire those very staffers we actually have data in here that we'd like to present and walk through on the actual spend versus the actual projected collections now that we're what 30 plus months in and how far
▶ 0:19:00off Target we are we have data in here talking from the irs's own information when 31% of the phone calls during tax season are actually being answered is that is the solution an army of more bodies in the same environment where when they had even the resources they were not able to hire or is it ultimately a technology solution just as so much of the rest of the world has actually stepped into to um
▶ 0:19:31my personal fixation is how do you modernize the IRS so it can meet its Mission and actually reduce the friction with the population taxpayers those who are just trying to survive and trying to um our history here particularly when you get near the IRS it becomes a partisan Whipping Boy but the fact of the matter is you have a country that's borrowing about 70
▶ 0:20:01$80,000 every second and by the end of this decade those numbers go up dramatically maybe actually understanding what we're doing how we're doing it could we do it better could we do it fairer could we do it with more public understanding and maybe less sense of hostility between the agency Congress and the very public we represent and with that uh let me hand it over to the ranking member who I'm elated to be sitting next to
▶ 0:20:31thank you Mr chairman uh as the new ranking member uh of the oversight committee I'd like to first thank you for your warm words of introduction as well as for the opportunity to work with you on behalf of the American people I also want to welcome my Democratic colleagues uh to our first subcommittee hearing I I look forward to working with everyone on this subcommittee on important oversight issues before Congress today I am pleased to have the opportunity to talk about the Internal Revenue Service and the historic inflation
▶ 0:21:01reduction act the IRA made a once in a generation investment in modernizing the IRS the results have been record-breaking the IRS announced that it collected one billion dollars from high wealth taxpayers due to the IRA funding it dramatically improved taxpayer service including answering more calls providing extended in-person out reach to rule and underserve taxpayers and simplifying
▶ 0:21:32notices and letters I can tell you that in my district in the black belt of Alabama we have some of the highest audit communities for the EIT recipients eitc as we know the earn income tax credit is for moderate to low income folks being able to reduce their tax liability uh if they so qualify these are hardworking Americans who make less than the minimum wage with a medium income close to 30,000 in my
▶ 0:22:02district the IRS attempts to even the playing field giving resources that ensure the IRA sorry the inflation reduction act with those monies we attempt to even the playing field by giving resources that ensure wealthy individuals who have evaded taxes are audited proportionally and we still have a lot of ways to go yet my colleagues on the other side of the aisle want to hamstring the IRS at a very important point where the IRA funding is actually making a
▶ 0:22:33difference this is abundantly clear by the fact that they have rescinded over2 billion dollar in enforcement funds and they have Frozen another 20 billion in the previously in the previous continuing resolution we need to fix this issue and slash fund slashing funds is not the solution the IRA funding is not an endless piggy bank for the majority uh Mr chairman I would be remiss if I did not mention the elephant in the room which is
▶ 0:23:03of course this fo Department of efficiency government efficiency or Doge and its unlawful access of the taxpayers sensitive uh payment systems and confidential taxpayer information doa's takeover of the federal payment system is an egregious invasion of the privacy of every American especially every American taxpayer federal tax law specifically ensures that American tax return information is confidential as you know unauthorized disclosure
▶ 0:23:34of this information is a felony Elon Musk and do should not be rumaging around in the confidential information of private uh taxpayers and private citizens no one knows what information Doge has accessed or how it will use such information and Mr chairman we should all be concerned that our uh private confidential taxpayer information has been exposed uh today I want to welcome all of our Witnesses I really look forward to the opportunity to hear from you
▶ 0:24:04and for us to have a substantive um conversation about uh the IRS the IRA funding for the IRS thank you and I yeld back thank you um all right now let's do some quick introductions and I'm going to let you introduce Miss Olsson um is it Hayden duol dublo Duo I was never going to get that right but you has it um is a data analytics director at the foundation for government accountability
▶ 0:24:34Pete stepp is president of the national taxpayers Union um me lwin chairman it's mesh ladwa mesh ladwa mines all right is global solution managers for Tax and Revenue management at sap and Kristen colec colec that one I might have gotten um is managing director for financial management
▶ 0:25:05and Assurance team at the government accountability office and I'd like to introduce probably the easiest pronounced name on the on this on this witness list uh Miss Nia Miss Nina Olen uh Miss Olen is a former National taxpayer Advocate she is now the executive director of the center for taxpayer rights welcome Miss Olsen to uh this subcommittee hearing and we look forward to your testimony each of you will have five minutes and at that point we will begin
▶ 0:25:35um statements and hey well chairman schwier ranking member Su and members of the committee thank you for having me here today and for hosting this very important hearing uh my testimony is going to differ just slightly from some of my counterparts and focus on a related issue of the capacity of the Congressional budget office to accurately estimate the fiscal effect of legislation including the inflation reduction act unfortunately CBO tends to underestimate the costs associated with
▶ 0:26:05measures that would increase the size of government and overestimate the cost of tax relief for Americans and one of the most prominent examples of that of course pertains to the inflation reduction act which is obviously relevant to today's hearing following the enactment of the inflation reduction act CBO predicted the legislation would decrease the federal budget deficit by 58.1 billion over the following decade but a 20 24 update by CBO suggested the law would actually increase the deficit by roughly 300 billion it turns out the cbo's
▶ 0:26:36revision reflected a 224 billion upward adjustment in green energy expenses and additionally CBO projected that the nearly 80 billion dedicated to IRS uh enhanced enforcement measures would actually reduce the deficit by 180 billion but by the end of fiscal year 2024 the IRS announced just 1.3 billion had been collected through those increased enforcement measures compared to the 7.2 billion CBO projected it would have collected in that first year in fact more money
▶ 0:27:06had been spent to hire these new IRS agents than they had collected in revenue for every $1 in new Revenue gained these enforcement efforts had cost A14 according to the economic policy Innovation Center the cbo's faulty estimates are a result of the projected far higher rate of return on IRS enforcement efforts than what actually occurred as as a result cbo's estimated return on investment was off by more than sixfold and this is not the first time that CBO has made these mistakes in 2010
▶ 0:27:37the CBO predicted that approximately 13 million Americans would enroll through Medicaid expansion under the Affordable Care Act in all 50 states by 2019 actual enrollment had reached 19.5 million in just 34 states in the food stamp program CBO estimated that food stamp changes contained in the 2009 stimulus bill would have cost approximately 20 billion a decade later CBO revised its estimate and said food stamp D driven spending from the stimulus Bill had reached 43 billion more than twice as much as their initial estimates
▶ 0:28:07likewise another provision of the 2009 stimulus was the enhanced unemployment benefits which CBO predicted would cost 39.2 billion six years later CBO revised their score to 64 billion and on the revenue side as ways mean's committee chairman Smith has correctly noticed actual 2024 corporate receipt collections reached 500 29 billion well ahead of the 421 billion predicted by CBO following the passage of the historic tax cuts and jobs act in fact cumulative revenues
▶ 0:28:38are half a trillion above where CBO estimated they would be following the passage of tcja now there are a variety of reasons why CBO has made these inaccurate estimates for the inflation reduction act they failed to account for developments in green energy markets and substantially overestimated the irs's return on investment for Medicaid they dramatically understated enrollment for the 2009 stimulus package they were wrong about their assumptions regarding the record slow Obama economic recovery and for tcja
▶ 0:29:08they failed to predict the tremendous impact that lower taxes would have on the middle class unfortunately the cumulative effect of these errors demonstrates cbo's implicit bias for more government spending through Provisions like the IRA and higher taxes now CBO will undoubtedly have a role to play in scoring key pieces of legislation especially as it relates to the ongoing reconciliation conversation but already the Baseline CBO uses misleads Congress because CBO assumes one certain discretionary Appropriations will continue
▶ 0:29:38without statutory budget Authority two all discretionary Appropriations will continue to grow with inflation three certain mandatory spending programs will continue beyond their expiration and four Social Security and Medicare payments will continue at their current levels even after the trust funds are depleted finally by using a current law Baseline rather than a current policy Baseline the likely effect of various programs on outlays is distorted Congress should not only evaluate cbo's fiscal scores with scrutiny
▶ 0:30:08but also consider amending law to have the Baseline more accurately resemble reality thank you for the opportunity to testify today and I'm happy to answer any questions thank you St chairman schwier ranking member Su members of the committee you honor n and taxpayers Everywhere by holding this hearing as you know n has had a long history of involvement in the tax administration space we thank you Mr chairman for kicking off the taxpayers first event that we held last
▶ 0:30:38year that was fantastic our taxpayer defense center continues to be very active in precedential litigation but I'd like to focus on a couple of points here surprise uh the IRS needs more money uh it needed more prior to the inflation reduction act and if the IRA money for IRS is zeroed we will have to scale up from there however point two the IRS must
▶ 0:31:08prioritize any additional funding it receives toward taxpayer services and modernization three Congress the IRS and treasury must develop a genuine detailed strategic plan for that modernization with transparent benchmarks and accountability safeguards if those those benchmarks aren't achieved and four the damaged system of IRS oversight needs to be repaired so that Congress has more Partners
▶ 0:31:38in ensuring the funding is properly spent now there are lots of illustrations over the history of IRS modernization that I can go into hopefully we will when we get more technical in the Q&A period but I'd like to point out two comparison and contrasts here the IRS rest structuring and Reform Act of 1998 that was the product of two years of commission work hundreds of testimonies multiple committee hearings and a 184
▶ 0:32:09page Bill set up that tripartite system of IRS oversight that ensured for a few years at least the service was actually transforming meeting the objectives of its strategic plan that system began to weaken which I'll discuss a bit later but that was generally a success contrast this with the inflation reduction act which took all of nine paragraphs to describe an agency transformation
▶ 0:32:39three paragraphs to describe how 99% of the funds would be spent this was not a real transformation it was an attempt to meet a score in the inflation reduction act that's what the funding was really intended for and the strategic planning the resulting strategic operational plan and now the implementation road map well those came long after the money was let out the
▶ 0:33:09door and it shows it's Folly to think that as we discuss estimates ranging 180.4 billion to 316 billion for the collections the agency could get from the IRA funding when again we were trying to meet a score not modernize we need to move forward with the real modernization here and again it's going to take money there's no apparent project in the implementation
▶ 0:33:40road map for modernizing the individual Master file or the business Master file customer service priorities are starting to lag these are a few reasons why our evaluation of the irs's report card of ir a funds earned an overall degrade and I'd be happy to explain further as to why that grade was given but I'll just recommend here we need to restore the strength of that tripartite
▶ 0:34:11accountability system I mentioned going forward if modernization is going to succeed we have to have more itemized spending plans for the IRS going forward beyond the 100 odd page budget justification that members of Congress Congress see we have to have more detailed realtime data on service levels in the IRS that will help us figure out where we need to shift personnel and how we can better use
▶ 0:34:41Technologies like Ai and we have to measure the fiscal benefits of modernization and customer service on compliance several witnesses here can talk in Greater detail about that as well as myself but let me close this oral presentation with an important and inspiring quote even in the most difficult times we can come together as a nation as a people and as a Congress to accomplish
▶ 0:35:11important things for the American people that was said five and a half years ago by the late great John Lewis who many of you know uh from this panel history can repeat itself it wasn't that long ago when you work together to produce that legislation let's do it again thank you thank you Mr lad so chairman schwier ranking
▶ 0:35:41member s and distinguished members of the subcommittee um my name is mesh ladwa and it is an absolute honor to be here today from London uh to discuss this opportunity about modernizing the IRS um to put technology at the for Forefront of modernization that drives economic growth compliance efficiency and engagement so with the right strategy the IRS can become the world's leading tax Authority setting a global Benchmark for modern
▶ 0:36:12Tax Administration it's not just about compliance and enforcement it's about ensuring that America's tax system remains competitive scalable and cost-efficient in the digital economy so for nearly two decades I have worked with tax agencies worldwide to modernize systems Implement Aid driven Automation and enhance compliance strategies I've seen first what firsthand what works and what doesn't work
▶ 0:36:42so governments across Europe and Asia are not building it systems from scratch they are leveraging commercially available scalable IT solutions to increase efficiency enhance compliance and improve taxpayer engagement so today I want to focus on three critical I was going to call it actions but I would say suggestions number one transforming the IRS into a technology first agency moving beyond fragmented custombuilt IT solutions number two leveraging
▶ 0:37:12AI Automation and Digital Services to reduce administrative burdens whilst improving compliance and number three implementing a modernization in a phase controlled manner ensuring seamless Revenue connection and taxpayer services this is how we do it and I want to share ideas so one of the biggest challenges tax agencies face globally is data fragmentation disconnected systems and inconsistent taxpayer records and inefficiencies that increase compliance
▶ 0:37:43risk and costs so there is a better way so I like to think about a realtime AI enabled tax platform that can provide things like 360 degree views of the tax obligations automate things like case management and call center reducing manual reviews and errors whilst accuracy enable digital self-service tools making compliance easier and faster so how do you do it where do you begin with
▶ 0:38:13the scale that the um that the IRS is so one option for consideration rather than a fullscale transformation is taking a pragmatic approach I would suggest we prototype we leverage good taxpayers big large corporations that are willing to participate in Pilot programs we sometimes focus on hey let's solve you know the big master of our problem well yes it's a big issue but how do we begin in a in a way
▶ 0:38:43that we don't have risk to revenue but we can pilot these new programs with commercially available Solutions so if modernization is implemented effectively here's what I believe the IRS could achieve and what I've seen sort of globally um from around the globe potential anything between 5 to 40% Improvement in tax debt collection using AI driven compliance Solutions so I've been reading some stats over 600 billion net tax Gap you know just a 5% of that would uh would
▶ 0:39:13be about 30 billion you know in tax debt collection 8 to 12% reduction in it costs eliminating things like outd outdated systems and hopefully an automation of over 170 tax administrat processes I am going to say that modernization tax systems must not come at the expense of security or taxpayer trust that's why leading tax agencies you using secure cloud-based solutions that meet things like fed ramp standards ISO standards that
▶ 0:39:43ensures that the is IRS remains in full control of tax data so my final thought chamman schwier ranking members so and distinguish distinguished members of the subcommittee the IRS stands are pivotal Crossroads so modernization isn't a choice it's an economic necessity the opportunity in front of us is to turn the IRS into the intelligent AI driven tax agency that provides unified taxpayer views internally and externally uses Ai and
▶ 0:40:13automation to enhance compliance and delivers seamless digital Services by adopting proven commercially available Solutions the opportunity is now for the IRS to modernize that scale becoming the global Benchmark for technology First Tax Administration and setting a new standard for efficient intelligent governance that serves the American people I appreciate your time and I look forward to your questions later thank you chairman schwier
▶ 0:40:44ranking member Su and members of the subcommittee I am pleased to participate in today's hearing I have been asked here today to discuss the department of treasury's payment process and related systems treasury operates and maintain systems that are critical to the government's Financial infrastructure this includes the dispersements of payments to the American public and businesses the collection of taxes and revenues and the borrowing of funds necessary to run the federal government the general fund of the US government
▶ 0:41:14is the reporting entity responsible for accounting for the cash activity of the federal government the Secretary of the Treasury has delegated management of the general fund to the Bureau of the fiscal service in fiscal year 202 two the general fund reported $23.2 trillion of cash inflows primarily debt issuances and tax colle and cash and tax Collections and $22.8 trillion of cash outflows primarily debt repayments my statement today discusses our
▶ 0:41:44understanding of the payment process as they relate to the general fund and knowledge of the audit activities over the payment systems this statement is based primarily on work we performed as part of our financial statement audit of the fiscal year 2022 schedules of the general fund we are currently auditing the fiscal year 2024 schedules of the general fund and we plan to issue that report in March of this year our fiscal year 2022 report provides more detailed information on the objectives scope and methodology for our audit we conducted
▶ 0:42:14the work in which the statement is based in accordance with generally accepted government auditing standards those standards require that we plan and perform the audit to obtain sufficient appropriate evidence to provide a reasonable basis for our findings and conclusion I based on our audit objectives and we believe that our audit evidence provides a reasonable basis for our findings and conclusions we audited the fiscal year 2022 schedules of the general fund because of their significance to the Consolidated financial statements of the US government the Secretary of the Treasury in
▶ 0:42:45coordination with the director of The Office of Management and budget is required to annually submit audited financial statements for the executive branch of the US government to the president and Congress GAO is required to audit these statements our most recent report on the US government's Consolidated financial statements discusses progress that has been made but also underscores that much work remains to improve federal financial management and that the federal government continues to face an unsustainable long-term fiscal
▶ 0:43:15path we continue to encounter limitations that prevented us from expressing an opinion on the fiscal year 22 schedule of the general fund or on fiscal Services internal control over financial reporting Rel relative to the schedules we have provided recommendations to fiscal service to address these limitations in their financial reporting processes treasury agreed with our recommendations and has plans to address them we will provide an update on their status in our fiscal year 2024 report our audit procedures included
▶ 0:43:45obtaining an understanding of the federal payment process and related internal controls over financial reporting relevant to our audits the US government disperses cash payments for various reasons this includes federal debt redemptions and interest federal income tax refunds benefit payments vendor and salary payments and other miscellaneous payments the majority of federal entities such as individual departments and agencies process their payments through fiscal Services treasury dispersing offices these Federal entities internally review and approve
▶ 0:44:15payments to be made and submit Certified Payment schedules to fiscal service using fiscal service systems Federal entities are responsible for maintaining the detailed information supporting their payment transactions and related internal controls such as controls designed to prevent improper payments including fraud fiscal service then processes the payment schedules via several system applications and submits payment files to the Federal Reserve to make the payments which are primarily electronic fund transfers fiscal Services processes include certain edit
▶ 0:44:46and format checks which can include checking scheduled payments against certain information in the do not pay portal after payments are made various fiscal service systems capture payment information for accounting and reporting purposes since our initial audit of the schedules of the general fund we have conducted limited audit procedures over information system controls these included procedures related to access controls configuration management and Security Management during the course of our audit we also consider the results of relevant information system controls performed as part of treasury's Consolidated
▶ 0:45:16audit in addition to audit procedures performed as performed as part of recurring Financial audits treasury's office of Inspector General annually evaluates the effectiveness of Treasury systems in accordance with the federal Information Security modernization Act chairman schwier ranking member Su and members of the subcommittee this completes my prepared statement I would be pleased to respond to questions that you may have chairman schwier ranking member Su and members of the subcommittee thank you for holding this hearing today and inviting
▶ 0:45:46me to testify on IRS return on investment and modernization I view these topics through the lens of taxpayer rights rich or poor multinational or small business native bornn or immigrant us taxpayers deserve to be treated with dignity and respect because taxpayer dignity is closely correlated with taxpayers trust of the tax agency and willingness to comply with the tax laws taxpayer rights protections will not only increase taxpayer trust but also increase the efficiency and effectiveness
▶ 0:46:17of the tax system the IRS is a large organization that touches nearly every person and business entity in the United States yet its operations have been Meed in mid2 20th century processes and technology that create inefficiencies and frustrate taxpayers and IRS employees alike the IRS has over 60 Case Management Systems so there is no 360 degree picture of the taxpayers data interactions and filings with the IRS this situation creates significant inefficiencies phone assists
▶ 0:46:47cannot assess C access certain databases and therefore cannot help the taxpayer in real time IRS case selection does not reflect all the information available in IRS systems and databases leading to no change Audits and false positives documentation taxpayers have sent in is not available for review by the employee with whom they are speaking the sheer waste of taxpayer and IRS employee time is both infuriating and costly according to the Inspector General however with Ira funding the IRS
▶ 0:47:17it organization quote is making significant technical advances in the areas of AI automation Cloud capabilities data access data quality and data standards the IRS is undergoing multiple new processes and once fully operational they will pave the way for a new technology era across the Enterprise end quote in my 50 years of working in tax I've never seen an IG report praise the IRS like this through
▶ 0:47:472024 using Ira funding there has been significant improvements to taxpayer service on the phones and online account to the fairness of the taxes system by focusing on areas of complex non-compliance and to efficiency and Effectiveness through digitalization digitalization requires both the retention of employees who have institutional knowledge and hands-on experience in Tax Administration and the hiring of new employees who bring new skills and outside the agency experience the balance
▶ 0:48:18between seasoned employees and those with new skill sets will not be achieved if government servic is vilified and current IRS employees are painted as in net or even worse corrupt moreover with the tax code AS complex as ours digitalization cannot replace in-person assistance in many instances human judgment and intervention are required through June 2024 the Irish spent 1.4 billion or 44.3% of IRS funding dedicated to taxpayers
▶ 0:48:48service if the IRS continues to apply Ira funding to make up for the annual appropriation Gap IT projects it will run out of Ira taxpayer service funding at the end of this fiscal year that means that taxpayers will experience a cliff in one filing season they are able to get through on the phone and have their returns processed relatively quickly in the next filing season we will back to pandemic levels of assistance that is almost no assistance at all this path is unsustainable and violates the trust of us
▶ 0:49:18taxpayers I close my testimony with the fundamental right to confidentiality of returns and return information indeed the efficiency and effectiveness of our self assessment tax system is dependent on taxpayers trust that information they voluntarily provide the IRS will be held Confidential Congress has recognized that tax returns and tax return information can be very helpful in administering non- Tax Administration policies but every single exception
▶ 0:49:48to confidentiality in the code contains language restricting such use and disclosure quote for the purpose of and only only to the extent necessary end quote for carrying out that non-t tax administration purpose Congress has only granted exceptions to 6103 where it has carefully balanced the compelling need for disclosure against the fundamental taxpayer guarantee that if they voluntarily provide the iris with personal and private information it
▶ 0:50:18will remain confidential we all need to ensure that protection and right is not violated thank you thank you to our Witnesses now we begin the fun part we try to educate those of us sitting up here um Miss and I'm I'm I apologize for everyone co co um single maybe the single thickest um five minutes I think we've ever had someone sitting there
▶ 0:50:49but I want to walk through just a couple things to get my head around are you familiar with um raas um research apply analytics and Division I am not okay apparently um they're the ones that are supposed to do certain data they also do apparently data sharing agreements for researchers apparently right now there are more than 50 researchers that have that type of access so and part of my reason for this
▶ 0:51:19is um you know I know the pop culture right now is to attack Doge and those things but the fact the matter is the data we have says there's 50 researchers how do you think groups on the left and the right write their you know reports on so and so are being picked on or so and so aren't paying enough um but we also have letters going back a couple years and you touched on this that for those who do have access for research
▶ 0:51:49that we probably need protocols uh for privacy and security because it turns out right now from what we're finding in our own quick research which took us a half an hour that 50 researchers out there actually have looked like they have more access over history than the current Doge process does so that will be fun to dig into and figure out what's true and what is pop culture um what if you am I
▶ 0:52:19track so what I can say about access to sensitive systems um certainly there is an expectation that anybody collecting sensitive information tax information any kind of information well my point was just are are you familiar with the fact that the we're coming up with over 50 different researcher research groups have access already yes and there should be agreements in place so that's what I was getting at anytime there's someone with access to information there are policies
▶ 0:52:49that are expected to be followed yes could I beg of you for for probably all of us out here who have an interest in that um please we just grabbed some of that and send send it our Direction absolutely um and you made a comment that was it in the 22 audit um that you almost weren't able to complete that could you could you put some more information around that yep so on both the general fund audit and on the Consolidated financial statements audit of the US government GAO
▶ 0:53:20is unable to express an opinion on the financial statements given various limitations in data available um at at the general fund level much of the information that's in the systems like I said details are maintained at agencies and summary information is in some of the systems and that prevents us from having the detailed information that would allow us to provide an opinion on the financial statements and the light on there at the Consolidated financial statement level there are several reasons we're not able to
▶ 0:53:50give an opinion on those statements one being challenges at the Department of Defense and them being able to have good financial management systems and processes in place the second being the ability of the government to um eliminate transactions between each other and then the third being in the consolidation process so there are a variety of reasons that we are unable to Give opinions on the statements yes okay and and for years I've been trying to get an AI audit at the Pentagon just to because they failed now eight years now it turns out we should probably do the same with the IRS Mr
▶ 0:54:20ladwa um could your system solve gao's problem I think we would have to look at the intricacies without resounding yes or no I think there are sort of lots of complexities and processes between what I've just heard in order to do that I would say um there are you know as I said um solutions that we provide that that look at things like that to provide those well miss Olsen pointed out something that I'm surprised none of the rest of you did um 60 different sort of
▶ 0:54:50tracking systems for the individual taxpayer um you've done this now in countries um how do you how would you if I we reached out to you and said fix it how do you deal with that so I think um there was a few uh conversations around this master file that I've read a little bit about and know a little bit about the architecture in terms of tracking and audit I think it if I was going to tackle it and and think about you know how you solve this problem
▶ 0:55:20it's about consolidation and understanding where the data is how it's being stored how it's being accessed um and my first thing would be understanding and moving away from sort of old archaic um file systems like this that's the first to ensure that we've got a Consolidated taxpayer record and um for those of us who are not very bright um would you build a mirror run the systems run them parallel and then do a switch over I mean how how
▶ 0:55:51do you do the migration and how quickly could migration actually yeah so I think the first and foremost is that um for example the complexity of the master file system um from what I understand uh has a lot of detail um information about the taxpayer right obligations the previous history and various other sort of artifacts would I mirror it would I do you know what's a migration period I would first start with a fresh level of thinking so first I would understand what's important when we're administering uh
▶ 0:56:21the various taxes at this Federal level that's needed for a uh transparent tax taxpayer journey and um the efficiencies internally of the tax agency because there are solutions which basically consolidate and that you can deploy very very quickly then it becomes a question of historic so do I need to look at the intricacies of what's in the master file now to bring it over um I would essentially mirroring is probably I would say a
▶ 0:56:51um it it's could be a consideration I would say we would look at if we were going to to do this again from scratch how would we do it rather than rely on you know how would how we've built things in the past okay ABS perfect um uh couple others just because these are idiosyncrasies um so even with the stepped up funding and this was a little different the the facts I'm holding here in my data set and actually from a press release from the IRS itself um during the tax
▶ 0:57:21season only 31% of the phone calls were actually being answered um if I came to you today and said I need you to design me a hyper accurate hyper friendly so my mom calls bless her soul but calls and IRS chatbot stays on the phone helps you fill out the form maybe sends you a text message of the YouTube video of how to do the form maybe a
▶ 0:57:51PDF if you don't have the form um instead of a world where only 31% of the phone calls are being answered and then I have the whole statistics here of how many of the responses are actually not accurate on those calls how difficult would be that type of Outreach um technologically chairman I don't think it's that difficult um I don't think it has to be that stop right there that was a
▶ 0:58:22answer no no no please go on cuz this is a fixation cuz first off that's not right or left it's just decency yeah and I like to take Tax Administration right down to its Basics right it's it's understanding what you need to populate and then populating it and then processing it so in order to help um you know there are solutions that exist which do exactly those types of things right so when when you're with depending on the channel you
▶ 0:58:52can absolutely you know guide and do it as long as you know exactly who the taxpayer is and what they're trying to file based upon their you know previous uh previous history or them as an individual it's not that hard um if I came to you and and this is one for anyone that would have comfort um Miss Su and I have had this running conversation for years on let let's first just use um certain quartiles earn income tax credit populations
▶ 0:59:23um past years they delayed it by two months because of the amount of fraud of duplicate you know tax forms were being put in but that also ends up being a population now that will get multiple letters of inquiry it's technically not audits but please explain this to us um we've had a data scientist in our office a couple years ago who basically said if you just did a data match you could Wipe Out the fraud because the quality you could and it could be blinded public databases
▶ 0:59:53databases if I came to you right now and said said I have a population here which qualifies under the law for an Earned Income Tax Credit we want to get rid of the two-month delay but we want to eliminate the the fake the fraudulent um tax forms being turned in trying to steal someone else's credit um you do that through an AI algorithm a data bounce of commercially
▶ 1:00:24available databases how do we you solve both of our problems fixation of fraud the the morality of people getting something they're earned faster how walk me through real quickly how you solve both of our problems it's a great question we got two hours right um okay so first and foremost chairman I um the understanding before we talk about technology yes technology exists to be able to um use things like machine
▶ 1:00:54learning algorithms configurable business rules to be able to detect patterns to understand who are our highest risk uh customers should refunds be made things like receipt submissions in terms of extractions and understanding what someone is claiming is what they are due so I think the first and foremost a technology is there it exists I think the question would be is what are the rules and what are the sort of uh sort of legal and policies that in allow us to configure those rules in order to quickly be able to identify
▶ 1:01:24those my eccentricities have been dominating this too far Miss so my uh questions my initial questions um are to our managing director of uh GAO um and I really do want very simple yes or no because I only have five minutes and I there are a lot of things I want to cover so my first question um is that uh well it's really not really a question it's uh yesterday in the New York Times five former treasury secretaries wrote an
▶ 1:01:54oped in titled our democracy is under siege without objection I would like to submit uh this article uped for the record without objection in the oped the former treasury secretaries noted that the nation's Payment Systems has historically been operated by a very small group of nonpartisan career civil servants until recently when that Norm was upended they also expressed significant
▶ 1:02:25data priv pracy uh cyber security and National Security threats with quote political actors from the so-called Department of government efficiency being involved I too am quite concerned about U the privacy of my constituents and American taxpayers um being accessed so my question yes or no does GAO know what confidential tax or sensitive information was accessed and shared with Doge yes
▶ 1:02:55or no no we do not so uh GAO does not know what was shared please answer yes or no does uh GAO know who accessed the data or what code was uh was Rewritten no we have not done work on that so I understand that there are audit laws that keep track of uh who access the payment systems can you answer yes or no is it possible for management to override controls in place and delete those audit logs
▶ 1:03:27logs are designed to and I want to just mention the concept of segregation of Duties so when access is granted I only have a few minutes the audit logs you can say you don't know yeah we can get back to you generally you'd have someone separate from who creates the audit logs monitoring them so miss Olsen uh please yes uh answer yes or no is there confidential taxpayer information protected by section 6103 in the treasury uh payment system systems yes uh
▶ 1:03:57do you know what confidential taxpayer information is in the treasury Payment Systems yes or no yes at very least so miss miss olssen I'm very concerned that uh this Doge and unelected folks uh have access to these payment informations um as the previous National taxpayer Advocate do you share my concerns and what do you think I should say to my constituents who are really afraid that they their taxpayer information their confidential
▶ 1:04:27private information is being exposed now I do know that that the managing director did say that there were um there may have been like 50 or so researchers that were but they they had contracts that specifically required them to keep that confidential private information confidential and private so can you talk to us a little bit about that concern and then I want to ask you how do we address this uh with no budget with no budget for the IRS uh to actually do what it's
▶ 1:04:57supposed to do I think everybody on this panel has said a couple of things first that the IRS needs to be reformed and secondly uh that the IRS uh has an outdated technological technology system and we have to update it all of those things take um cost and uh I'd like to know your concerns and um how you would address them well I'm very concerned about anyone accessing confidential taxpayer information I'm a confidentiality Hawk
▶ 1:05:28um in that regard uh and I think that if the law is followed then the inappropriate people will not get access to that there is there are criminal sanctions for improper inspection and disclosure the issue is how do you detect that and that's really something that not only is for GAO and the Inspector General to look at but also Congress to make sure Inspector General I think all of them have been sarily dis I think the inspector generals have been summarily dismissed
▶ 1:05:58by this ad but that is their function to look at fraud waste and abuse um I also think that there should be notification procedures you know where someone's um information has been accessed improperly and that would give someone the right an individual or any taxpayer the right to sue in a private cause of action either the federal government employee or an an independent contractor or any person is what the law says um the problem is getting that to disclosure and uh that's what's serious
▶ 1:06:28right now we don't know I'm uh running out of time and I think what you're saying is we need more transparency in government and accountability in government I think all of us agree that we can do that the IRS can do it more efficiently and more effectively but I just want uh this committee to know we cannot do it when funds are frozen and we're not giving access to the IRS to actually complete any of these tools I'd like the chairman do agree that um certain populations I feel are targeted
▶ 1:06:59for uh audits they are loow hanging fruit there are people who literally don't make more than $50,000 a year using uh the Earned Income Tax Credit they are able to decrease their liability and that's fair but why are they four times more likely to be audited than some complicated um tax return having said that I look forward to this committee working on this committee to address the concerns that have been um laid out by all of our Witnesses on the panel thank you for your Indulgence thank you very much and
▶ 1:07:29pursuant to committee practice we will now move to two to one questioning and a recognize chairman Smith thank you um Madame chair fishbach that's a great great thing to say um uh the Congressional budget office has a track record of wildly missing the mark when it comes to projecting economic and fiscal outcomes in 2022 Democrats gave the IRS an 80 billion
▶ 1:07:59windfall that CBO initially projected would bring in $200 billion in Revenue not surprisingly the CBO has been proven wrong again in this point the IRS has missed cbo's initial Revenue projection from enhanced IRS Resources by 56 % which adds up to billions of dollars
▶ 1:08:30Mr deblo I was in the back office watching your testimony and you were speaking my language um because you are dead right dead on um with the failures of joint tax and CBO because they work hand and glove when it comes to tax policy they have proven to be wrong whether it's the tax cut and jobs Act of 2017 or whether it was the inflation reduction act they were off by hundreds of billions and in some cases trillions of dollars
▶ 1:09:00in their scores and if we as lawmakers have to make decisions based on CBO and Joint taxes analysis you bet you it better be right and it hasn't been so Mr deblo as you know part of today's hearing is focusing on the return on investment from the inflation reduction act based on your previous research related to CBO projections and government funding why do you think CBO has been so incorrect on their
▶ 1:09:31projections well thank you for the question chairman Smith I think you're exactly right um specifically regarding their accuracy on the inflation reduction Act and the enhanced enforcement efforts I think it's pretty clear CBO dramatically overstated the efficiency of the IRS it's readily apparent when considering the estimated Roi they had for the enhanced enforcement effort returns compared to the actual Roi which is off by uh a factor of sixfold just for fiscal year 2024 the actual
▶ 1:10:01Roi is less than one meaning for every $1 in Revenue gained through the enhanced enforcement efforts the IRS has already spent more than $1 to gain that uh but consider today and I know you've spoken of this in the past under the cbo's broken model if Congress were to resend this slush fund to the IRS they would assume that the deficit would increase in reality I think it's pretty clear that an80 billion fund of the IRS isn't all that helpful towards deficit reduction and the early results seem to suggest that I would
▶ 1:10:31add more broadly um as I mentioned in my testimony I think CBO does contain an imp implicit bias of underestimating the costs uh of uh increasing the size of government and overstating the costs associated with tax relief this is due to a number of factors from incorrect assumptions about wealthfare enrollment uh the pace of economic recoveries organic Revenue Dr growth that is generated when you give substantial tax cuts to the middle class and I think these errors reflect this implicit bias that requires
▶ 1:11:01on cbo's part some serious self-reflection in order to make sure we don't make the same mistakes again in the future thank you Mr sep um first off welcome back to the best Committee in Congress um I agree thank you we're that this is why you're invited back um now we appreciate you being here um to share your expertise um as it relates to the modernization effort efforts uh at the IRS we have we have read your organization's report which gave the IRS
▶ 1:11:32a degrade for modernization um can you share with the committee more about the irs's history of modernization efforts and what is the biggest factor that led to giving the agency a D in their modernization efforts glad to do so the history of IRS modernization really dates back to the 1950s uh there was an interesting headline in Time magazine in 1962 that the IRS
▶ 1:12:02has developing a computerized system of taxpayer records that will frighten The Living Daylights out of taxpayers uh since then we've had various modernization programs under acronyms like hertis Tas uh TSR all kinds of uh different modernization systems that have ballooned in costs dramatically sometimes doubling in cost and falling behind uh we're witnessing
▶ 1:12:33that now with the replacement of the individual Master file uh back in 2009 uh the IRS had projected that this project would take until 2028 to complete what's the date now it's still 2028 did the infusion of funding from Ira have any impact act on that were they falling behind and it's allowing them just barely to keep up we don't really know that because the metrics
▶ 1:13:03aren't adequate that's one thing that went into the degrade uh in our report and we've brought copies of it along uh by my colleague Debbie Jennings uh who contributed very well to this testimony along with Damen Brady but there are other elements in the overall grade of D the IRS actually did better in simplifying notices letters and forms a bgrade I think that reflects some of what nah had said uh tigta is praising some
▶ 1:13:33of these modernization efforts but in others like I just said progress and scanning uh Technologies uh customer service Technologies they're still not making the grade we've got to help them do better thank you um any American who has spent one minute interacting with the IRS knows the agency desperately needs to be modernized um but the main goal behind modernization ought to be improving the taxpayer experience
▶ 1:14:03not just giving an agency with a horrible track record of betraying the trust of taxpayers billions of more dollars in additional funds to hire more people in increase audits Mr Mr ladwa in your opinion as an expert in Tax Administration with nearly two decades of experience in modernizing tax agencies across the world what can the IRS do to modernize its operations and where does the IRS rank
▶ 1:14:34compared to other tax agencies when it comes to utilizing new technologies such as artif artificial intelligence and and machine learning thank you chairman I also would like to be invited back so um I think I think we touched upon it in terms of of if I first start with experience and I think in order to get um the best taxpayer experience I think we need transparency in realtime
▶ 1:15:05transparency not waiting to see once I've submitted a tax return uh what the amount I owe or am due is um in order to do that we have to start with modernizing the um the databases that hold these types of uh customer records the taxpayer records we call them customers in the UK um I think um how does it how does the IRS rank in terms of AI and modernization in general
▶ 1:15:35I think I've seen from working with different countries that the first real um um sort of Journey that people go on is actually recognizing that they need to modernize some countries don't even recognize that they need to modernize um I'm aware that there are sort of AI prototypes and things going on but I think in parallel to uh deploying tactical Solutions on top of old architectures um I think there needs to be a real review
▶ 1:16:06um and um my colleague next to me said the same thing in terms of really holding how we move away from the old Cobalt based systems into newer Technologies as well as deploying AI capabilities that can help um increase Revenue thank you Mr chair thank you very much and uh Mr Deo chairman Smith
▶ 1:16:36kind of got at it and was mentioning some of the um the cbos overestimating and some of the biases and um you know I was just uh wondering if maybe you could expand on some of those getting at more of those bias and what are some of the other biases that you think CBO has demonstrated how do you think they shape those incorrect uh projections and and recognizing them I guess so just looking maybe drill down a little bit more um on what we were having the discussion with chairman Smith
▶ 1:17:06sure um happy to uh congresswoman so a couple things I think if you look over the last 15 years at some of the most substantial pieces of legislation that have been placed before Congress whether it's 2009 stimulus Bill uh the Affordable Care Act the inflation reduction act we see an error rate uh that is alarming because it means that Congress is not being equipped with the information they need to make accurate decisions at the time they're voting on legislation Because
▶ 1:17:36the actual costs associated with that legislation differs so substantially from the fiscal reality that occurs and as I alluded to in my testimony what's most concerning to me is that those errors frequently tend to be on the side of a uh fiscal mistake that underestimates the cost of new or increased government programs and overestimates the cost associated with tax relief we've seen it time and time again with legislation after legislation
▶ 1:18:07now if I were the CBO I would be thinking how can we adjust some of our assumptions about things like the irs's ROI how can we not make the same mistake that we did uh about uh welfare benefits when we looked at the uh post uh 2009 recession economic recovery and it turned out to be record slow what can we do to make sure we don't make those mistakes again I would hope those conversations are happening at the cbo's level but I'm concerned that they're not and I'm concerned that even the Baseline itself that Congress
▶ 1:18:37uses from uh that CBO uses to inform Congress is itself uh containing flaws that will continue to lead Congress down a road towards making inaccurate decisions because it's based on inaccurate information and and maybe without going into it too much do you think that Congress needs to take action to make some of those things happen that you yeah I think two things first um I would take scores with somewhat of a grain of salt number one number two I think Congress should seriously look at
▶ 1:19:08uh am amending the requirements for how the Baseline is constructed and also think about viewing it differently I mean I I very briefly alluded my testimony to whether we look at a current law or current policy Baseline this shouldn't be controversial it should be bipartisan when the Bush tax cuts were up for expiration in the early 2010 T it was the Obama Administration who was advocating for a current policy Baseline I think considering a current policy Baseline in light of conversations around reconciliation is the right way to go and yet CBO is continuing to use a current
▶ 1:19:38law based line so I think we need to have those conversations in Congress plays should play a very important role in that thank you very much and and Mr sep um chairman Smith did did kind of get at modernization and and a little more broadly and I wanted to ask you um you know a little bit about the direct file return um and you know the inflation reduction Act contained 15 million um for them to study the feasibility and cost of establishing the direct file program
▶ 1:20:08uh yet the Biden Administration overstepped its Authority and created the pilot program which cost the IRS around $129 million um without Congressional approval um you know do you agree that Congress did not authorize the establishment of the direct file program in the ira yeah I would agree with that and the IRS had previously indicated that they are considering expanding the program um given the over $900 per
▶ 1:20:38flyer uh filer excuse me they spent in 2024 do you think this would provide a good return on investment for taxpayers no because there are other imperatives that the IRS could be using these resources for let's pick a number it's between 114 billion which is what the IRS set it set aside first year of direct file I'm sorry million and 250 million to run the system um a year that's the high-end projection
▶ 1:21:09let's take a middle one at 20 million a year for direct file going forward over a 10-year period of time $2 billion now the service has said that it needs an additional $3 billion for modernization a outside of what was given in Ira shift it out of direct file and you're 2third of the way there in meeting that or take a look at lowincome tax clinics and the volunteer income
▶ 1:21:39tax assistance program the uh elderly tax counseling program combined that's about $80 million a year you could more than double the funding for those organizations which serve moderate and lowincome taxpayers rather than direct file I mean those are choices Congress should be considering right now thank you very much and and thank you all for being here and I yield back thank Mr M Miss
▶ 1:22:09Olen thank you for your 18 years of service as our country's National taxpayer Advocate uh you know this system Insight out and one of your accomplishments as taxpayer Advocate was working with the IRS to adopt the tax payer Bill of Rights to more clearly articulate taxpayers rights to the public and the IRS and one of those 10 rights is the right to confidentiality in which it says taxpayers have
▶ 1:22:40the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law taxpayers have the right to expect the IRS to investigate and take appropriate action against its employees return preparers and others who wrongfully use or disclose taxpayer return information well taxpayers entrust the IRS with their most sensitive information and Congress has gone to Great Lengths to ensure
▶ 1:23:10that it be kept safe and treated with respect in fact you asked us to imagine what would happen to that trust and to voluntary compliance if taxpayers confidential information is inspired Ed or disclosed by actors outside of the U IRS and yet we have Elon musk's so-called Department of government efficiency which has gained access to the treasury's Bureau of fiscal service the sensitive
▶ 1:23:40payment system responsible for paying out more than $6 trillion dollars in benefits tax refunds treasury bonds and other payments each year and what that means is that unvetted unaccountable billionaires and their staff could access people's Social Security numbers Bank information and tax returns which are protected under Section 613 of the tax code can you specify the types of confidential
▶ 1:24:11taxpayer information that is in the payment system that is endangered through this action and also can you imagine for us what the consequences are to the voluntary system of taxpayer compliance with this action well the very the very basic information that's available is the taxpayer's name the taxpayer's identity the amount of their their address the their social security number the amount of the refund
▶ 1:24:41the type of tax that the refund relates to the type of the year um if BFS is levying is issuing a levy or doing an Offset you have all of that information what the total debt is ETC this is very personal information and can be very damaging to taxpayers the fact that there is a debt that you have is something that is closely guarded unless the IRS has decided to file a notice of federal taxine and that is a very
▶ 1:25:11considered opinion you know decision and I want you to imagine what would happen to taxpayer compliance well I personally believe that confidentiality is core at why taxpayer payers agree to send in and self assess let me repeat self assess their tax liabilities on the 1040 or whatever income tax return they're using and if they believe that that information is widely disseminated throughout other federal agencies or state agencies or
▶ 1:25:41local agencies um then this will actually be a a bar to people it will chill people reporting information Miss Olsen um the Trump Administration sent an email to almost all federal employees including IRS employees about a so-called deferred resignation uh but in reality uh this is was an attempt to pressure and coer civil servants into quitting what impact will
▶ 1:26:12that have on taxpayers who rely on the IRS and will these coerced job cuts and firings even save the taxpayers money well I am concerned about the IRS Workforce and my former employees and I think what I said in my testimony that in order to do true modernization you have to retain the people who have institutional knowledge while you're bringing on no more people and trying to just willy-nilly disappear people or get them to retire means that you will very likely get the most
▶ 1:26:42talented people leaving because they can find their places in the private sector so what you've done is a brain drain from the IRS which will mean that modernization will not occur with that knowledge outside contractors cannot bring that internal knowledge of Tax Administration and the tax system no matter how talented they are and will it save us money I doubt it in the long run thank you I yield
▶ 1:27:13back uh Miss Olsson do you have any evidence that confidential taxpayer data has actually been illegally accessed or illegally disclosed as GAO has said we have not seen that that's part of the problem that there is no transparency so we have absolutely seen no evidence that that has happened even though we've heard it today EX for the fact that we actually had existing IRS policies that allowed uh security measures to fail that prevented an employee from unauthorized access and leaking the
▶ 1:27:43tax returns of Donald Trump and approximately 76 other individuals way before we ever even saw uh Elon Musk take an interest in this we do know that that happened you know what I know that IRS employees are trained from day one about confidentiality I'm time back Miss olon I thank you very much Miss olon thank you very much uh but in STK contrast uh you know Elon musk's approach to this is is about transparency it's about open
▶ 1:28:13systems and when we say transparency in government it doesn't mean that allowing Rogue employees to weaponize confidential records it actually means creating systems sys where access is properly monitored security logged and Justified with clear oversight the IRS scandal demonstrates what happens when unaccountable bureaucrats control private citizen data with very little transparency or Consequences musk's Vision by contrast and he has been very clear about this
▶ 1:28:43as is President Trump's Vision it represents a future where government efficiency is achieved through technological safeguards open auditing mechanisms and a commitment to individual privacy so as much as we have heard all of these things about an unelected member of our community having access we've seen what's happened when unelected bureaucrats have access and we have seen thousands of of information on on taxpayers and I would argue on
▶ 1:29:13Republican or or highly um um conservative members of our society have been leaked that is a fact that has happened May I respond um I actually have a statement I'd like to make but if you want to respond in writing later on I would appreciate that but I want to I do want to get back to the to the point of this entire um um hearing which I would I would hope both sides would want to do that in conversations with North Texans I have repeatedly heard complaints regarding the IRS persistent delays their poor customer service and
▶ 1:29:44lack of responsiveness and transparency and ironically we continue to hear claims that the IRS just needs more funding to improve but the fact is that when the G government agency was given a significantly larger budget it doubled its employee count customer service actually declined but harassment of law abiding American taxpayers increased and rather than focusing on improving the core functions in the IRS the previous administrations spent their time and our money creating misguided and
▶ 1:30:14expensive pet projects like the new direct file scheme and it's 2024 annual report to Congress the national taxpayer Advocate found that it took the IRS almost two years to resolve identity theft cases and issue refunds to victims The Advocate noted that quote these delays impacted nearly half a million taxpayers and were even worse than the delays seen in FY 2023 the delays were deemed unconscionable by the taxpayer Advocate and I could not agree more in addition to inrees delays in the processing of ertc
▶ 1:30:44claims delays in the processing of regular tax returns have hurt people across our country especially small businesses and their most basic operations of the IRS it must be modernized to better Serve and Protect small businesses and I think that's exactly where you see the focus of this Administration Miss SE would you agree or Mr sep would you agree that the IRS should focus on its congressionally mandated functions before embarking on questionable initiatives like the direct file program absolutely it should there are many
▶ 1:31:15priorities that should be in the front of the line here and touching on the cyber security question which we haven't really explored in detail GAO has warned that the IRS lacks an oversight structure to protect taxpayer data from cyber as well as internal threats since uh 2018 and so how do we approach that comprehensively I think it's a first things first kind of operation we have to look at individual
▶ 1:31:45Master file business Master file cyber security and devote the resources there thank you very much and Mr Deo as has been mentioned CBO failed to accurately project the amount of Revenue that Ira funding would bring into the IRS suggesting that perhaps the funding was not properly used on enhanced enforcement efforts in this instance what can be done to improve the irs's return on investment and is it really enhanced enforcement efforts or is it something else thank you congresswoman for the question I would say doubling down on the enhanced enforcement
▶ 1:32:16efforts would be a mistake uh that's would cause the mess so to speak and I think evaluating the fundamental assumtion that these enforcement efforts are a good idea is something we need to do um it's not just bad fiscal estimates and a poor Roi it's the reality that these collection efforts are going to hit middle class Americans so collectively I think Congress needs to re-evaluate this $80 billion Venture realize it was a mistake that shouldn't be repeated but also relieve the IRS of that funding uh and and engage in better activities in the first place thank you very much I
▶ 1:32:46elbeck miss Melo Tas thank you Mr chairman um I want to use my time to highlight a real critical problem that has been facing my constituents and that is the issue of stolen IRS checks um this has cost my constituents alone millions of dollars and uh in 2022 there was $4.7 billion dollar that was purposed for IRS business system modernization uh the irs's need for information technology
▶ 1:33:16modernization is critical with the potential to reallocate IRA funds from enforcement to it improvements it's a key priority of the newly established Department of government efficiency the IRS plays a critical role in ensuring taxpayers receive their hard earned refunds securely and efficient efficiently however outdated it infrastructure and Delivery Systems have left many vulnerable to fraud and stolen tax reimbursement checks
▶ 1:33:47in my district 377 cases of stolen checks totaling $5 188 to be exact nationally it has been reported that the IRS uh that for IRS checks alone approximately 40,000 checks have been stolen in 2024 up from just 100 in 2022 so obviously we're going backwards despite
▶ 1:34:17the funding that was put in place for it modernization the numbers are getting worse the value stolen has been approximately $1 billion as well as the hardship and stress that the intended recipients have had to endure as they seek to get their checks modernizing the systems is no longer optional it is necessary to protect taxpayers enhance efficiency and reduce fraud and we know the fraud sers are always ahead of the game right they're two steps
▶ 1:34:47ahead by investing in secur digital payment options real-time tracking and enhanced verification measures the IRS can better Safeguard taxpayer funds and restore trust in the system it's time for Meaningful upgrades to ensure the agency meets the demands of the 21st century and prevent Financial harm to American taxpayers I was pleased to learn that the Bureau of fiscal service recently launched a pilot program to leverage existing technology and services offered by the US Postal Service to track the
▶ 1:35:17transmitt of checks and I also recently introduced the recovery of stolen checks act with my colleagues congresswoman Terry Su and Congressman David kustoff it's bipartisan legislation it's common sense and it would allow taxpayers who've had tax refunds stolen in the mail to receive a replacement check via direct deposit which believe it or not has been incredibly difficult to get the IRS to move people to direct deposit so they don't become victims again and my legislation will fix that so
▶ 1:35:47the irs's failure to modernize and adapt has led to a significant rise in stolen checks and B billions and dollars in fraud but despite these ongoing issues the agency still lacks the ability to offer taxpayers that direct deposit option when their checks are stolen and so I'll start I guess with Mr ladwa but I'm happy to hear from anyone who wants to chime in uh based on your experience working with these tax agencies from around the world can you speak to the impact that modernizing will have on preventing Fraud and Abuse and if you have any particular example of an effort
▶ 1:36:18that is led to to secure tax refunds thank you congressman so um I think it's a um it's an interesting um listening to you know the the inherent problem we have with fraud here uh especially when it comes to checks the first thing I'll say with my experiences is that around the world um I've seen that tax agencies are phasing out checks uh more and more often to move to digital based Solutions right uh which uh essentially can um
▶ 1:36:48speed up the refund process in a matter of like sort of minutes or seconds with real time sort of digital payments that happen or re re um requests for refunds um Technologies exist uh which allow us uh using things like machine learning to categorize taxpayers high risk taxpayers based upon previous behaviors for example so we know that if someone's requesting a refund what is the sort of profile based upon prior uh submissions based on prior behavioral patterns have we sent them an enforcement letter before
▶ 1:37:18or some type of debt collection letter uh should we be having a human being audit this uh person before a refund be sent so that's the first thing I'll say um in regards to um specific references um I can get back to your staff in regards to Mr sep I saw you nodding your head do you have anything you'd like to add there yeah if if I might if I might add something I would like for both of you to comment time of allows a minute let me just add there is a parallel experience going on right now in development of farm bill reauthorization
▶ 1:37:49uh food stamp fraud is a real problem also there are electronic Payment Solutions being discussed there so you'd probably have some great Synergy uh with members who are crafting that bill the other thing I'd like to point out Mr L's experience and the that of many other private sector individuals can and should be harnessed through something like the IRS oversight board that was created in the 1998 bill
▶ 1:38:20it was tailor made to bring private SE expertise to problems like these Miss just within second yeah I was just going to say for decades I've recommended that treasury create a debit card similar to what you have in Social Security where people don't have bank accounts they're unbanked but they get their Social Security payments direct deposited on a a debit card that has been negotiated by the US government um and that is another solution to avoid some of these lost checks
▶ 1:38:50that's good thank you m thank you Mr Mr chairman um and I want to thank all our Witnesses for being with us here today um at the direction of President Trump Elon Musk and the Doge um they've gained access to Americans most sensitive personal data president Trump and Elan musk have clearly no respect for the rule of law we've seen the IG fired um employees fired for disagreeing in fact I'd like to insert um this article into the record titled
▶ 1:39:21the US Treasury claim Doge Tech te olist didn't have right access when he actually did Mr chairman thank you Elon Musk has called for the impeachment of the judge who blocked Do's access to treasury's database and has called for the president to defy judicial court orders this is unprecedented it's dangerous and it's illegal five former treasury secretaries wrote about the dangers of providing unfettered access to our nation's Payment
▶ 1:39:51Systems to political actors like musk and his team Miss Olen um thank you for all of your service um I wondered if you could talk about what events during the Nixon administration led to the major reform of what is now section 6103 and what are the parallels between the events of nearly 50 years ago and those being taken by the Trump today your Mike before I do I'd like to correct the record that
▶ 1:40:21Craig Little John was not an IRS employee he was in fact an IRS contractor and he is serving time in jail for his unlawful leaking of individual taxpayer return and return information so it was not the IRS employees who leaked that um regarding 1970s what happened was that um prior to 1976 and the tax reform Act of 1976 the president controlled the decision making as far as who had access to return
▶ 1:40:51and return information so the Department of Agriculture asked for all return information and Returns on All American farmers and that triggered Congress to be very concerned what were you doing with this information why were you getting this information at the same time there was concern about the the White House using return information both to Target enemies but also to inquire and interfere with audits of allies of the white house so that politic
▶ 1:41:21politicization of return information LED Congress to flip so that whereas before 76 the president and the executive branch controlled who had access to that information 6103 says very clearly that return information is confidential returns and return information is confidential and it is not to be shared except by Statute namely where Congress describes where and how it's going to be shared and subject to what limitations thank you um
▶ 1:41:52can you speak to the import import of Treasury maintaining the dispersement of congressionally authorized payments and the risks of breaching a fundamental trust and suspending those funds well I just think this is very personal information and if people are we're asking people to come in and give us their financial information so we don't have to spend billions of dollars seeking it and tracking people down then it's very important that they know that that information is held closely to their to the government's chest and not shared willy-nilly around
▶ 1:42:23agencies only for specific purposes that Congress has authorized um and finally how did the actions of the Doge the department of of government efficiency and Elon Musk threaten the fundamental rights of taxpayers and how does that impact the efficiency of our tax system well see that's very hard to answer because we don't know what they're doing so we don't know if what they're doing is actually pursuant to some a a legally authorized except
▶ 1:42:53or it's not and that's where we have to have greater transparency on this and I think the question marks are creating uncertainty and concern among taxpayers about how their information is being used and who's getting it and that will erode trust in the tax system and in the absence of An Inspector General to provide accountability who's going to provide that that's I I don't know if you find out that your information has been improperly accessed you have access to the courts to be able to sue and if it's
▶ 1:43:23by a third party it's subject to punitive damages and that's after the effect that's after the effect and for the je the The taxpayers Who Craig Little John un unconscionably exposed their information that is small comfort so um if we want transparency one we should have an Congress needs to have a knowledge of what's going on any acts that needs to be approved by Congress um that is the Inspector General task
▶ 1:43:54fraud to detect fraud waste and abuse and in the tax agency they particularly look at violations of 6103 it is their job to investigate that it's unfortunate that there's not bipartisan consensus on that um thank you so much a yel back Mr chairman thank you and the chair recognizes Mr yakum from Indiana thank you madam chair and thank you for our WT to our Witnesses for being here today uh Miss Olen Mr Little John uh was an IRS contractor that stole
▶ 1:44:24the tax returns for thousands of Americans including president Trump he play pled guilty to do you know how many counts of unauthorized disclosure of tax return I don't know that I understand maybe 70 some odd one count one count he pled guilty on there are and we prosecute by the way for for serial killers we don't prosecute them just on one count we go after everything but on this one we went after truly ultimately one count there are are
▶ 1:44:555,000 IRS contractors today that have access to confidential taxpayer data Miss Olson do you know if the IRS has closed all of the vulnerabilities that allowed Mr little John to steal this information I don't know that I do know in preparing for this hearing that I found an inspector general report that reported this Summer that there were that the IRS had not not retrieved laptops Etc from from contra s or lied their access
▶ 1:45:25the answer is and I am very concerned about that in short the answer is no the IRS has not closed the vulnerabilities that allowed I can't answer that question because I don't know what vulnerabilities there were that little John accessed I'm giving you the answer the answer is the answer is no so the largest wholesale theft of confidential taxpayer information we had just one charge how many years is he doing in prison do we know the answer to that the under 724 uh I forget the statute but under the statute
▶ 1:45:55you can only get up to five years of impr prison and it doesn't matter how many returns you've access so that's something congress should look at that I completely agree make that statute per return something that we should look at the Biden Administration Administration prosecutors argued that just the one count covered Mr Little John's multitude of thefts um and he Le confidential tax and returns to two news outlets do you know are those news outlets authorized to view confidential
▶ 1:46:25tax information on those thousands of Americans no they are not so as far as we know um do the outlets still have ongoing access to the thousands of confidential tax returns that were stolen or leaked I don't know that so my colleagues are talking about the the sanctity of tax returns while whistling past the graveyard of the largest theft in of tax returns in history by Mr Little John he stole thousands of confidential tax returns including president Trump's tax returns from our fellow Americans but he's been labeled
▶ 1:46:56as a quote unquote public Hero by left leaning groups because of whose tax returns he actually stole and leaked um misson in your testimony you noted that the irs's uh progress in improving its level of service since the passage of the inflation reduction act the taxpayer Advocate uh found that uh during the 2024 IR filing season the IRS achieved an 88% level of service with an average answer speed of 3 minutes does that mean that 88% of all taxpayer
▶ 1:47:26calls to the IRS were answered in 3 minutes no what it means this is part of the problem with that measure uh what we what that measure does is it measures how many calls that were routed by the phone tree system to a live sister were answered what it doesn't mean is how many calls overall actually were routed to Alive a sister out of all the calls and that's where you get to the Third 32% only 32% of the calls were routed to
▶ 1:47:56aive assister indeed because this this level of service only counts for 10 million calls out of the nearly 40 million it received and it does not include taxpayers calling uh with other questions like law tax law questions compliance issues identity identity theft issues collection matters nor does it count the calls routed as you said to an automated rather than a live assistant so when you tally all all that up we're talking about only 32% so when Jalen when Janet Yellen President Biden's treasury secretary
▶ 1:48:26promised quote the vast majority of callers will be connected to live assisters uh that was not true necessarily was it well not when you count all the calls that's correct yeah so when you to sum things up by quoting the taxpayer Advocate one more time the Biden IRS quote allocated resources to hit ambitious but arbitrary goals that mean less than meets the eye and consequently have required the IRS to neglect calls to other telephone
▶ 1:48:56lines and work streams like paper correspondents you know the the pump and pent TR surrounding the inflation reduction acts improvements to the IRS customer service is I think a bit of a mirage it's like looking at Sunday's Super Bowl result and saying well yeah you know but Patrick momes you know he threw for 257 yards but Jaylen Herz only threw for 221 so sometimes the underlying stats don't always tell the real and actual story of the game and and with that Mr chairman I do yield back I was wondering how long it was going to be before
▶ 1:49:26someone did a Super Bowl um reference um Mr Miller won that thank you Mr chairman and thank you to our Witnesses for their time and testimony today we're here to discuss the importance of ensuring taxpayer dollars yield a real return When invested in IRS modernization efforts the need for a modernized IRS is clear and urgent as we have heard today taxpayers deserve an agency that keeps up with
▶ 1:49:56the times operates efficiently and acts responsible fiduciary of the American people's money which is I believe what the IRS was intended to do modernization isn't just about convenience it's about safeguarding taxpayer information and delivering a better customer service experience to the American people they're entitled to this uh we know that deploying new efficient and secure digital tools could save the federal government billions of dollars unfortunately the IRS has struggled to deliver these intended outcomes
▶ 1:50:27and rather than investing in new and more secure Technologies uh which is somewhat puzzling to me and we'll get into it the agency continues to utilize decades old systems uh which only make sensitive taxpayer information more vulnerable Mr sep uh by now we are all well aware of the Legacy systems at the IRS not only does the IRS continue to utilize hundreds of old and obsolete systems including f tax machines to store and analyze uh and transfer sensitive taxpayer
▶ 1:50:57information but the IRS also fails to even to attempt to improve these systems and look let's be real looks like I just graduated from high school two days ago I haven't even seen a fax machine out in the wild I mean anyone here that is working in technology or innovation in business and technology or even for the public you know government to operate off for the American people I don't even know what a tax machine fax machine looks like excuse me uh it is confounding to me and I
▶ 1:51:27understand that to a certain extent you may say it's more secure because of a phone line but I'm not buying it anymore it's 1960s technology I was born in 1988 we need to do better um going back um Mr sep can you speak to the risk associated with continuing to use and failing to maintain or update these Legacy it systems especially considering the sensitive and private taxpayer information that is stored on them there's a huge risk it's not only a 60103 risk with disclosure being
▶ 1:51:58uh in play but accidental data breaches that could be massive I mean how many other agencies have 1 billion billion individuals on their Master file I mean that would rival Social Security if not exceed it and again GAO has said since 2018 those systems are vulnerable if we don't devote the resources to that kind of security and we continue to worry about
▶ 1:52:28fax machines and keeping them up we are headed for a major disaster and I would just point out we still don't have a clear idea of the Milestones that the IRS intends to make with modernization and whether they're keeping them paperless processing initiative is one of them by this year the service is supposed to have all all paper tax forms digitized I don't know maybe someone on the panel knows
▶ 1:52:58have they met the 100% goal yet I we know the answer to that you do oh well I would I speculate uh so I shouldn't say I know the answer but I would speculate that we know the answer to that um and throughout all these conversations I I would think to to truly believe that the IRS would do something to to meet somewhere in the middle amicably between a fax machine and where we are today in 2025 which I think is pretty reasonable that there's some other system that could be uh put in place that would be a lot more safe secure and protective of the American people's
▶ 1:53:29sensitive information as we are talking about here today and you know what this is where I see maybe a need uh for an outside individual to look at something like the IRS to make sure it is running uh more efficient and responsible for the American people as we still have fax machines that are still in an agency which is 1960s technology which confounds me up and down so you know what I'm glad for Mr musk and I'm glad that he is uh doing what he is doing with the federal government to clean this nonsense up and to make it more secure and more
▶ 1:53:59safe for the American people uh Mr ladwa I'm going to do my best to squeeze this one in uh if not we'll we'll try I'll just go right to the question uh can you provide us a real world example of tax agency utilizing Ai and how this technology can help improve operations and efficiency sure Congressman so um I'm Bound by um some privacy agreements from our customers but I can certainly get back to you and your staff in terms of references and maybe even contacts uh to said tax agency but let me answer your question on how they're
▶ 1:54:29doing it so um we talked a lot about AI um AI is lots of different things not just chatbots um so one of the use cases we have is embedded machine learning so embedded AI which doesn't essentially leave to go outside of a sort of Consolidated system which is owned by the government for example um and we're using things like um predictions of tax pay Behavior so we can be more empathetic to the taxpayers who can't pay and a lot stricter and uh with higher
▶ 1:55:00enforcement for The taxpayers Who basically are not willing to pay or are trying to do some frud activity we've got examples of that um and I said in my statement five to 5% return on thank you Mr L thank you Mr chairman CL from New York Mr chairman I first want to register my objection to the idea of two Republicans to every one Democrat considering we had the same number number of people when we started this hearing I know it's in your power and perview to do that but I I find it offensive uh let me just first start by saying
▶ 1:55:30you know we really got to work together to try and solve the problems that we have here instead of fighting with each other so I want to just try and get some basic questions answered there's a thing called the tax Gap how much money is owed to the IRS and how much is collected by the IRS and the IRS in 20122 projected that there's $696 billion that was owed that was not paid I wanted to ask each of the witnesses do you agree that there's a tax Gap and do you agree it's as big as $696 billion Mr
▶ 1:56:01deblas I think there's a tax Gap I'm not sure it is that large and I don't think that the methods employed during the inflation reduction act where the appropriate measures okay but I'm just asking do you think there's a tax gap of do you have any idea of the magnitude of it I don't I don't have an idea is it hundreds of billions of dollars I don't have an idea of the magn okay Mr sep yes and no yes yes you think there's a tax Gap you don't think it's $696 billion correct how much do you think it is do you have any sense of that less than half that when when you account for currently non-collectible
▶ 1:56:32tax debts and estimates that cannot possibly account for things when the ir50 billion or less okay Mr lwad do you have any sense of this I would say yes there's a tax Gap um I it's probably inappropriate inappropriate of me from being from the United Kingdom to comment on um the the US tax cap okay Miss cich yes I GAO I think has reported on the tax cap and we can get back to you with the details on the specifics Miss Olsen yes
▶ 1:57:02there's a tax Gap um I think there are whole portions of it that can be accurately estimated I think the hardest part is the unreported income you don't know what you don't know you think it's as high as $696 billion it could be it could be 400 billion okay so hundreds of billions of dollars okay so what's the best way for us to get that money and I need quick answers from people what's the best way for us to collect that money so it's a combination of doing Audits and collection but also taxpayer service
▶ 1:57:32and if I may just talk about return on investment for a minute no one's calculating M which what's the best way for us to collect that money I can get back to you on that I think we do have some Mr lad what's the best way for us to collect that money understand who's filing late who's paying late and why then paying late Mr sep taxpayer service and modernization comes first and that includes the technology that Mr Miller was referring to we got this crazy outdated system yes Mr deah I would wholeheartedly agree with Mr sep's answer on that modernization and taxpayer
▶ 1:58:02Services okay people who come to work for the federal government if you're a cabinet official you have to go these big through these big hearings a lot of people have to go through background checks a lot of people have to go through security checks uh they get security clearance what kind of background checks or uh transparency into the background of Mr musk or the people that are working for him has been done do you know Mr Delah I don't know the background checks I know they uh president Trump had an electoral mandate to create those no I understand that but he has this electoral manag to
▶ 1:58:32hire cabinet officials but they have to go through hearings and things like Mr SE do you know how how these people were vetted no Mr lwood do you know how they were vetted no Miss coach do you know how they were vetted we have not looked at these specific individuals Miss Olsson do you know how they were vetted no what kind of access does Mr musk and his team have what kind of changes have they been making to the computer programs how many of those changes to computer programs are permanent and how will that affect people going forward
▶ 1:59:02Mr D what's he doing uh I don't know what he's doing I do you know what he's doing no Mr lad you know what he's doing it would be inappropriate me for coming to Miss K do you know what he's doing we have not looked at that M Olsson no does anybody here know what they're doing does anybody know what kind of keystrokes changes they're making in their permanent does anybody know what their backgrounds are does anybody know what they're doing with the information that they have and how they're using it I agree with my colleagues who noted before that Mr Little John who disclosed
▶ 1:59:33this information is a criminal and deserves to be in jail and I'm happy that he's been prosecuted and anybody who has violated 6103 that takes private data and shares it with other people should be prosecuted to the full extent of the law we in Congress have an obligation as an equal branch of government to monitor what's going on right now we're all for cut finding cost efficiencies I know Mr Bean for example has the Doge committee that's a great thing for us to look
▶ 2:00:03for efficiencies to root out waste Fraud and Abuse but there's a thing pesky thing called the United States Constitution and has the responsibilities of the United States Congress in the oversight and power of the purse I yield back Mr chairman thank you thank you Mr B thank you very much Mr chairman good morning to you and good morning Ways and Means Committee I know there's many members of the minority party that want to create a scandal out of President Trump's desire to know how many improper payments
▶ 2:00:34our government sends out each year and as the uh co-chair of the house Doge caucus just want to take just one little tiny moment and set the record straight business is longer business as usual is no longer acceptable president Trump campaigned on changing Washington and that's exactly what he's doing president Trump is head of the federal government and secretary bassette is in charge of the Treasury Department if president Trump and the secretary betet want to open the books on Treasury Payment Systems
▶ 2:01:04that's their prerogative and we would encourage him to do so uh subject to applicable legal rules after review and sign off by career Treasury Department attorney secretary bassette gave Reed only access to two treasury Department officials subject to safeguards that will prevent them from making changes to the payment system Elon Musk himself does not have access to the system neither he nor Doge have the power to cut off Social Security checks Medicare benefits or
▶ 2:01:34tax refunds to clear up other issues Elon Musk is a federal employee special government employee and he currently holds a top secret security clearance that was granted by President Biden in 2022 the US do service is a duly created organ organization within the Executive Office of the President and there is simply no evidence to suggest that secretary betet or Doge has compromised taxpayer privacy or broken any law if you're doing
▶ 2:02:05what's right you welcome audits you welcome uh uh the sunshine you welcome to open the books and you want the world to see what you're doing but if not if not what do you do you criticize the messenger you criti the auditor so it doesn't make any sense to me why this is uh such an issue the the American taxpayer is dancing in the street and saying finally finally somebody is auditing the books that have been
▶ 2:02:35hidden in the shadows far to Long coach is there any evidence at all that confidential taxpayer data has been illegally accessed or illegally disclosed we have not done any work to identify if that has occurred in short no there's no evidence there's no evidence so there's smoke there's accusations but no evidence uh so let's talk modernization
▶ 2:03:05uh Mr Deo Mr SE Mr ladwa we've been given a d the IRS has been given a d on the grade of modernization is the D the correct grade is that fair that they've been given a d in our report card which Debbie Jennings and my colleague Damen Brady uh contributed to we think it's a fair grade Fair grade but wait a minute we're using technology in your testimony Mr seph you say we're using technology from
▶ 2:03:36the 60s from the 60s uh wouldn't a grade of f be more appropriate that was the overall grade based on a b in form design a sea and other things gotta so it is still a low grade we agree Mr ladwood you see world over you see IR uh foreign uh foreign Nations irs's uh is it just us or is everybody stuck in the 60s or is it just the United States IRS uh tax collection um there are other countries um
▶ 2:04:06but um a lot of them have already started their modernization some time ago okay very good Mr de why why is the IRS stuck in the decade of rotary phones and black and white televisions that were three feet wide well I think it's a great question congressman and I think that's the question that the folks over at Doge and uh Mr musk want to answer which is why they're rightly turning uh a microscope under this agency that uh comes with an electoral mandate from
▶ 2:04:36president Trump there was a pull out this morning I I saw coming in that Doge has a net approval rating well outside the margin of error as a taxpayer I'm glad we're getting scrutiny on that and I would add there's been a lot of comments about unelected bureaucrats having act or unelected individual having access to information the entirety of the Internal Revenue Service is unelected I I welcome a microscope on that type of expenditures and uh you like me like any taxpayer is ready to do a dance in the street finally finally they're getting some accountability but I just can't
▶ 2:05:06understand why the IRS uh is is not going forward it can't be money we gave them $80 billion and they double down on more fax machines in the same technology that's got is here so Mr chairman thank you for the hearing on Modern let's get to it I yield back thank you Mr chairman I want to thank all of you for taking the time today to be here and testify about the importance of making sure that the US government is working for her citizens
▶ 2:05:36and putting them first we have all heard about the negative effects of the $80 million that was given to the IRS through the inflation reduction act and what that negativity has done on Americans but I want to focus on how this increased funding to the IRS exacerbated external as well as internal threats if you go back last year at the end of last year the US Treasury Department experienced more than one cyber security breach by the Chinese government into sensitive us financial information in these breaches Chinese
▶ 2:06:06hackers stole thousands of documents we still don't know exactly the impact these breaches have had on our national security but if it involves China I think everybody in this panel would agree it's not good not good at all the breach comes amid a number of security breaches all over the country due to outdated cyber security infrastructure that has proven to be vulnerable to foreign operatives on a number of occasions while these threats are growing the IRS is spending more Federal funding on targeting American taxpayers
▶ 2:06:37through enforcement than it is on improving cyber security and modernization to protect the American taxpayer it's amazing to me the IRS directed 4.75 billion of the 80 billion it received from the IRA towards system modernization that is puny to put it that in comparison the agency spent 45.6 four billion on increasing informant efforts against American taxpayers mainly the middle class
▶ 2:07:08in August 2024 the US Treasury Inspector General for tax administration released a report stating that the IRS had made little to no progress on implementing safeguards for Americans making less than $400,000 a year even though they continue to jack up their enforcement efforts against those very individuals that puts Americans in the Crosshair and leaves China out of the Crosshair where they they need to be in the Crosshair I find this unfortunate and very ironic given
▶ 2:07:38the inability of the IRS simply to answer questions respond to my constituents I hear from them every day that they send an inquiry M taxpayers send back information and the IRS will not respond timely and will not provide information Mr ladwa could you explain the ways you've seen other uh modernized countries throughout the world ramp up cyber security efforts within their Tax and Revenue systems to thwart potential threats particularly from adversarial Nations like China and Russia thank
▶ 2:08:08you uh Congressman so what I will say without going into the details of cyber security um is that these commercially available Solutions in terms of infrastructure in terms of application access and stuff which essentially has uh and has uh uh taxpayer records and taxpayer informations are battle test tested and are created uh to specifically for uh cyber SEC security attacks by spending us as private sector companies spend like Millions hundreds
▶ 2:08:38of millions of pounds ensuring that um we're preventative against these types of measures yeah does anybody on the panel if you do raise your hand does anybody think we need to be spending more money of the money allocated to the IRS towards enforcement against American taxpayers or uh should we be doing uh should we be doing it more towards enforcement and protection against cyber security threats of China I think everybody in the panel would say we need to protect the American taxpayer we need to put more into cyber
▶ 2:09:08security threats and protecting our American taxpayer data than we should about enforcing uh these mechanisms against American taxpayers do you guys agree with that does anybody disagree with that Miss Olsson do you disagree that we need to be doing more absolutely agree and I wanted to make a point about the IRA funding that right now it's limited you know it's in different budget categories and so the IRS is limited with what how much it can move from the enforcement category to modernization that means we should probably go back and prioritize
▶ 2:09:39where that money goes would you agree with that and the priority should be first to protect the American taxpayer and their data from cyber security threats by Russia and China instead of going after them on these bogus enforcement actions would you agree with that well I don't think they're bogus enforcement actions but I think you need to protect them from cyber security check and that should be our number one priority on the use of the money and reallocate it towards that would the rest of the panel agree on that yeah I see the heads bobbing up and down
▶ 2:10:09Mr SE considering our our focus on modernization and Innovation what are some of the ways we may not have touched on yet to think that the IRS uh that you think the IRS could do to to make it more efficiently work for the American taxpayer certainly improving customer service measurements is important as my colleague Damen Brady has pointed out also the quality of the advice you know if you manage to get through to a livea sister there are 130 topics that are considered out of scope
▶ 2:10:39if you ask a question that's a problem we also need to be looking at other states not just other countries when it comes to improving and modernizing tax systems a m of the uh Electronic Tax Administration advisory committee was from Missouri he was at one of our panel presentations describing how Missouri strove for and largely attained a 100% phone service level and they were very good
▶ 2:11:09at it thank you for that my time is up I will end by saying this taxpayers in my opinion are the client not the target Mr chairman I you thank you Mr dogget Mr chairman you know my respect for you and uh understanding of your interest in the topics that are here today but I don't see how we can explore some of these topics and ignore what is going on with the Rampage through our government that uh Mr musk and Mr Trump are engaged in at present these are not normal times
▶ 2:11:40uh my understanding was that speaker Johnson committed to holding a hearing today before our committee on Dodge Dodges as I call it or Doge unprecedented access to sensitive information where is the Doge representative here today I agree fully with the comments that our colleague just made from the uh as head of the Doge caucus he tells us about if you don't have anything to hide let the sun shine in well where's the sun shining in
▶ 2:12:10on Doge today we have had our Witnesses questioned by Republican members as to whether they know anything about whether sensitive information has been out there or whether any improper use has been made of this data of course they don't know because it has all been hidden from them and from the world what we do know is that Doge really deserves the name Dodge because it is dodging the law dodging accountability dodging this Congress and
▶ 2:12:40a federal judge has determined that there is irreparable harm uh from what they've been doing uh and has enjoined them from doing what they've been doing and from has asked that they return the documents that they took but there is no one here today to explain there has been no accountability we don't know how many people we don't know that whether they had any background clearance we don't know what use they have made uh though there have been claims made today
▶ 2:13:10and prior to today that they were read only there is plenty of evidence that it went far beyond reading and has been used to cut off funds Mr musk is never been elected to anything and yet through his minions his Musketeers he's been accorded access to the most confidential information on every American citizen information about social security about health care about bank accounts about tax return return information
▶ 2:13:41that is so sensitive that if you expose it improperly you can go to prison for 5 years the safeguards on this abusive use of this information are lacking uh now there was reference to the Inspector General would that we had an inspector General but remember that as a part of insulating himself from any independent accountability the Watchdog over at the treasury Department was fired by President Trump along with 17
▶ 2:14:11other inspectors who had the responsibility of safeguarding the public interest and looking for Waste Fraud and Abuse the former career of official 35 years at the treasury Department a nonpartisan guardian of our privacy he was pushed aside because he had the audacity to question this 25-year-old musk minion coming in and going through the records of every American This
▶ 2:14:41is highly sensitive and confidential information what we do know and we don't know much about this 25-year-old but we know that he recently Bo posted that quote for the record I was racist before it was cool and urged that we quote normalize Indian hate as he denigrated indian-americans that's the kind of person that's been assigned the ability to look at the record of every single one of us and it cannot be at
▶ 2:15:11all clear as to what misuse and abuse of those records may be made at the same time within the last 48 hours the vice president sent up a trial balloon and Mr musk joined in perhaps they don't even need to follow the judge who said that there had been such harm uh caused by what they've already done Mr musk contends that anyone that disagrees with him is a quote corrupt judge and so he put that brand
▶ 2:15:42on the judge who found irreparable harm and Mr Vance has suggested that maybe they don't need to follow court orders well they do there was a vote in the last election for a change and we should honor that as we did we were never the election deniers but defending the Constitution and the laws of the United States are vital and respecting the independence of this body and of the courts is vital and that's what is in question
▶ 2:16:12today and what is not being addressed adequately in this hearing as the big dodge has taken place on Doge I yield back thank you very much uh the chair now recognizes the gentleman from the great state of California representative Thompson thank you Mr chairman want to thank everyone on the panel uh today I I waved on today's uh subcommittee I'm not on this uh subcommittee but when I heard the topic I was sure to wave on because at home
▶ 2:16:42uh my phone is ringing off the hook in all my district offices in my Capital office when I go home on the weekend people stop stop me on the street in the supermarket and talk to me at at events because they're very concerned about this chaos that we're seeing in Washington DC especially as it pertains to this unprecedented access to our uh nation's taxpayers data they are concerned so I
▶ 2:17:12assume that's what we're going to be uh talking about uh today and we have thank you to my uh Democratic colleagues for for bringing uh this up but this is something that deserves the oversight of this committee and I know that Ways and Means Republicans care deeply about taxpayer privacy given that every one of them who were on the committee last year co-sponsored and voted for our Chairman's Bill to increase the
▶ 2:17:42criminal penalties for unauthorized disclosure of data when our committee marked it up last May and let me be clear I don't know how anybody could think that anyone on this side of the aisle is cheering the illegal activities of Mr Little John I think he's a criminal he's where he belongs he's in jail and that's where he should uh stay but in
▶ 2:18:13when we took that bill up we had near unanimous support for the bill and the fact that um this committee recognized that this crime is serious uh is evident by the fact that in that bill we increase the fine from $5,000 to $250,000 and we increased the prison sentence uh to 10 years rather
▶ 2:18:43than five so given how important this issue is to all the members of this committee and to our constituents it only makes sense that we carefully investigate the credible allegations that Mr musk and his doge folks violated federal law by gaining access to taxpayer data this unlawful disclosure of millions of Americans most sensitive data is just flat wrong
▶ 2:19:14it's so wrong in fact that a federal judge has ordered those who uh who are prohibited from accessing this data to immediately destroy all copies I'd like to uh enter for the record a copy of that judge's uh opinion without objection so uh it's troubling today to hear my Republican colleagues uh being so silent on this
▶ 2:19:44obviously serious uh issue that is before us and it's troubling our uh constituents so miss Olsen um as a former United States taxpayer Advocate you were responsible for assisting millions of taxpayers in your time at the IRS was it ever imaginable that an outside billionaire would be given access to the sensitive information of million of American taxpayers that you advocated
▶ 2:20:14on behalf of um I will have to say that commissioner rosadi um was a billionaire but he divested himself of his Holdings that would create any conflict of interest and he was a commissioner he wasn't somebody brought in from the outside because they were a big campaign Don under exactly and under his statutory duties it's his duty to administer the internal revenue laws of this country and uh if you were the current
▶ 2:20:45taxpayer Advocate what message would you send to the IRS commissioner oh I be saying that he needs to be very careful about who is getting in and looking at this and that everything needs to be cleared through the statutes that that their their access is under a congressionally mandated or required you know access Grant of con Grant of access to the return information thank you I I agree with my Republican colleagues that we need
▶ 2:21:15to be uh working with the IRS to bring them up to speed and bring them up into the time and make sure that they are working effectively and efficiently for our constituents but isn't it true Miss Olsen that the IRS has been woefully underfunded for years uh in being able to address these uh needed upgrades be quick Mi sson be quick and answering quick yes thank you are you back very good thank you very uh very much uh let's go to the great state of Illinois representative
▶ 2:21:45Davis you're recognized thank you very much Mr chairman and I also want to thank all of the Witnesses you know I was surprised that this hearing was framed as highlighting the lack of return on investment on the critical funding given to the Internal Revenue Service frankly the only way that statement is true is if acting president musk gives his millionaire buddies who cheated on their taxes back
▶ 2:22:15the $1 billion dollar in Revenue that the Biden IR r s collected and sadly I have a concern that he may do just that President Trump allowed the biggest Federal date of breach in history when he allowed Elon Musk and his hackers to steal Americans extremely Private Financial and health information
▶ 2:22:45from the treasury Department we don't know if Mr musk will illegally stop one's Social Security tax or Medicare payments we don't know if he'll sell our social security numbers our bank account information to the highest bitter all delay government contract payments of Grants to his competitors of people he
▶ 2:23:16dislikes Miss Olsen given statements made by this admin Administration that it can decide unilaterally to stop funds to people or organizations that it does not think deserve certain funds can you please talk about the power of the Internal Revenue Service to lavy taxpayer accounts and to use the treasury
▶ 2:23:46offset program if this Administration decided it didn't think certain Americans or entities deserved certain funds could the IRS freeze funds from Americans bank accounts I'm asking whether it is legal or ethical to take Americans money like this but could the
▶ 2:24:16irsr treasury freeze funds from someone's bank account or subject them to treasury offset if it wanted to typically we learn about improper access of taxpayer data from the IRS police and itself if the IRS ignores its responsibility to oversee fair tax
▶ 2:24:47Administration I believe the only way will know that the Trump historic data breach of people's private Financial or health information is when those individually affected people notice the harm so miss Olsen could you speak about importance of confidentiality at the IRS and Treasury and why these
▶ 2:25:18orders and memos undermining that confidentiality are so so dangerous to the American public so so in response to your question about could the IRS or Bureau fiscal service retrieve funds from people's bank accounts I would think that mechanically they would be able to is it legal they would need to have a basis in law they would need to do an assessment they would need to identify an improper
▶ 2:25:48payment and if the law allowed them to do it then they could do that and I think those legal those legal authorities are limited and have due protections um I would also say that um as our colleague from from GAO has said that internally it's the agencies that decide what's a fraudulent payment or a legitimate payment and they send that over to BFS and BFS then issues that payment it has its own fraud detection
▶ 2:26:18by looking at the death matter Master file or if someone's incarcerated or something like that and whether that's an improper payment but the agencies themselves are the ones that execute the improper payments the problem is if someone has access to all that information and overrides all those checks and balances that are built into the system and that's what we don't know is are those checks and balances being overridden or are they not and that creates great uncertainty in the populace
▶ 2:26:49thank you very much can I go back chairman thank you very much let's go to the great Commonwealth of Virginia where representative buer is standing by representative Byer you are recognized Mr chairman Thank You for Your Enthusiasm um thank all of you very much for for sitting in with us and I want to make the point that I think everyone on the way Means Committee strongly agrees with the need to modernize I would like to point out that in the 24 years of this this Millennia 12 years led by Republican presidents 12 years by democratic presidents
▶ 2:27:19um it's not a good idea for us to blame this on one party or the other in fact I think our primary argument about putting the 80 billion doar in for IRS was to modernize was to bring us into the 21st century I know sap you some wonderful ideas about what to do I don't think you're going to do that for free I've R around politics for a long time and seen technology companies try to modernize things sometimes successfully sometimes they get halfway through and walk away leaving the government with the tab so I know you would never do that um but we are going to have to
▶ 2:27:50spent money to make this modernization happen um M Olsson you noted in your testimony that section 6103 of the Internal Revenue code provides taxpayers with the right to confidentiality once they file their returns with the IRS and there are only a handful of circumstances in which it's lawful for government officials to disclose or even view a taxpayers return or information found on a return with that in mind I'd like to ask you a hypothetical question if an unqualified non IRS political appointer were granted access to the Bureau of fiscal
▶ 2:28:20Services payment system and they inspect confidential taxpayer information for political purposes not authorized by law could that be a crime if it's not authorized by law it would be a crime in my opinion could it also be a crime for this individual to share private taxpayer information gleam from run rding around the fiscal Services payment system with his boss and unelected unconfirmed billionaire um it would be a crime to share it to disclose it yes to people who do not not have
▶ 2:28:50authorization to receive it and finally what are the penalties for violating section 6103 and is there statute of limitations so under 7214 um the the penalties as we've discussed earlier it can be a fine up to $10,000 and then also up to 5 years imprisonment or both and it is the normal statute of limitation for criminal offenses six years three years from the occurrence and then in certain aggravated instances six years thank you very much
▶ 2:29:20so if I'm understanding that correctly this individual would be subject to criminal prosecution six years after the end of this current Administration for six years after the offense it could be if it if it involved fraud of some sort thank you Mr chairman I'm almost done but Mr DBL was fascinated by your testimony um and I intend to send it to the Congressional budget office um because I'd love to hear the other side of the equation um I I'm not accusing you of cherry-picking data um
▶ 2:29:50but just based if that's the only thing I'd heard I would be horrified I'd love to hear what the other side is and the defense because once again this is a non-political organization U you may believe that they have a leftist bias but um I think I've been here 10 years and mostly my Republican friends use their data as often as we do to justify the things that they do if I could respond to that congressman and I appreciate that and I would be welcom I would welcome to hear cbo's um response to that I think um looking at the evidence of the last 15 years
▶ 2:30:21it's concerning and we're I can shine a little bit of light on something that we're going to be releasing in the next week uh regarding a research paper matching OPM data through a wide number of government agencies uh including CBO with voter files that demonstrates throughout the bureaucracy uh an inbalanced Federal bureaucracy it demonstrates that the uh civil Ser servants especially in higher ranking uh positions aren't uh uh nonpartisan as
▶ 2:30:51is often thrown around they do have a partisan affiliation that leans to the left side of the political spectrum and I think when you see that reflected in uh scores that dramatically wind up being substantially wrong years afterwards and it tends to lean again and again on one side favoring one side the side of growing government being underestimated the size of providing tax relief being overestimated in terms of costs that's a cause for concern and I would hope the CBO would have some
▶ 2:31:21uh good answers as to why that might be the case I think it would be let me interrupt to I may just because we're running out of time that uh that would be fascinating I'm looking forward to reading that the my very first response is what a huge difference in commitment to Public Service based on the party that you align with your willingness to take a smaller salary um to in order to serve the public and that may well be true with that I yield back thank you very much uh let's go to the Silver State better known as the the great state of Nevada representative Horford
▶ 2:31:52you are recognized thank you Mr chairman and to the ranking member Miss for holding this hearing uh I really have to follow up on the last statements uh and and the question from my colleague uh to the witness because it it actually goes to my biggest concern that we're not addressing today which is a data breach the largest data breach in US history that is happening right now under this administration's watch and there is absolutely nothing that the
▶ 2:32:22Republicans in the house are doing to protect the American people from a data breach and if the witness is saying that you have employees information from OPM office of personal management with data files voting files in order to determine their political affiliation in order to reach certain conclusions of about what
▶ 2:32:52their Civil Service no I'm not asking you a question you you already explained your position and I'll be look forward to the report but this is the concern Mr chairman why are we not addressing the major issue which is the largest data breach in US history that's impacting all of our constituents not Democrats not Republicans not Independents all Americans instead of worrying about the harm a data leak on the
▶ 2:33:22Internal Revenue Service could mean for the American people and making that the center of this hearing this Administration has instead asked the IRS to deputize their employees to assist other agencies including ice in their enforcement all the while my constituents and yours too Mr chairman our constituents taxpayer data is less
▶ 2:33:53safe and we're not addressing that yet under Internal Revenue code 7803 it provides that taxpayers have the right confidentiality it was chairman Smith who rightfully noted that it's this protection that should be afforded every citizen this fundamental right has been reinforced time and again by several congresses and administrations including
▶ 2:34:24by the taxpayer First Act which I supported in 2019 and tightened protections for 6103 the American people trust our civil service to meet their needs not the billionaire class and I don't want to know people's political affiliation when when people call my office I don't ask them what party they belong to I ask them what they need and how my office can help support them
▶ 2:34:54Miss Olsen I'd like to focus on your testimony you note that the IRS holds information spanning from family and business relationships Financial dealings employment Investments and medical and educational information information I agree that the effectiveness of our tax system is dependent on taxpayers trust that the information they voluntarily provide to the IRS
▶ 2:35:25will be held confidential can you explain what would happen to that system if there was widespread disclosure of this information I think that people would stop disclosing information on their returns they would also be calling you you know yelling about this but I think it would really erode the voluntary compliance system that our tax administration is based on and the fact that an
▶ 2:35:55unelected billionaire the richest person in the world and his hackers have now broken in to the agencies and taken this information illegally puts who at risk well I don't know what they're doing but if someone is accessing IRS in or tax return and return information without authorization under the statute
▶ 2:36:26it is undermining that right to confidentiality and that will that will chill taxpayers willingness to participate in the tax system and voluntary disclose their information and this is the fundamental issue at a time when we already have tax evasion occurring by the very wealthy Meanwhile my constituents that try to qualify for the earn income tax credit gets audited at a higher rate that disproportionately affects working
▶ 2:36:56people but yet we're going to not protect their information it's fundamentally wrong and this should be the priority of this committee and every other committee until it's resolved it is not authorized it's illegal Elon Musk and his hackers have caused the largest data breach in US history and they need to be held accountable now I yield back thank you very much we're nearing the end of our uh our committee we've had a great day uh it's been brought up
▶ 2:37:26three times and that is the overwhelming support this committee is giving the taxpayer data protection act it was overwhelmingly supported by this committee we've talked about it several times it is stuck in the Senate right now so members are encouraged reached out to their Senator and say let's get that data protection act for the taxpayers witnesses you did a great job thank you so much you'll always have this day to say this was a day I went before Congress and testified it's your it's your own time it's your own dime
▶ 2:37:56we appreciate you very much members are reminded that they have two weeks from today to submit written questions to be answered later in writing maybe you'll have homework those questions and your answers will be made part of the formal hearing record with that the subcommittee stands adjourned have a great day thank you