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tv   IRS Treasury Officials Testify on Tax Gap  CSPAN  May 12, 2021 6:31am-8:27am EDT

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>> let me call this hearing to
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order. ranking member senator soon as i hear about just went off in the senate chamber i was one of the first to vote so i am here now. with those router member on - - rudimentary's of the with the research of analytics at the irs and douglas o'donnell at the irs. j russell george the treasury inspector general and the executive director for the center of taxpayer rights and former commissioner of internal revenue currently a senior advisor at the carlyle
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group i am delighted that you are all here. and i will begin with my opening statement and give the other members a chance. this is an important or timely hearing on the tax cap with offshore tax evasion. i may disagree on what makes a fair tax code but everyone should pay that is what today's hearing is about. the irs conservatively estimates the difference between taxes owed and collected to be $441 billion per year.
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the commissioner recently to testify the tax gap may have grown as $1 trillion in recent years. and one reason is that estimate incorporates the so-called international tax gap headed by wealthy individuals and corporations overseas with the offshore many is difficult. research shows treasury could losing were between 40 and $123 billion every year from tax evasion. of course typical american taxpayers don't have the option to hide money abroad. .
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. . the answer is we made it
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happen. over the decades republicans cut the budget by 20% with enforcement hit especially hard. there are 30% fewer staffers than a decade ago and the number of agents who tackle the complex audits of the wealthy and large corporations is down 40%. the result, millionaire and billionaire audits dropped over 72% and of the largest corporations those with $20 billion in assets declined by half. the worker receiving the earned income tax credit is nearly as likely to be audited as a seven figure earner. what do we do? we should start with the approach of the biden
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administration. ensuring that they have the resources to collect what the taxpayers owe with the experience to untangle the networks. regular taxpayers can hide their wages. they are reported by the employer. the super rich shouldn't be able to hide them either. number three, support a technological reboot at the irs the agency still relies on the 1960s system. the tools and technologies could help root off the offshore tax evasion. $80 million spent to revitalize
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will yield a $700 million in revenues, funding we could invest in working families. they use the high return investment as a pay for. that needs to change. ramped up enforcement is essential but no substitute for addressing the injustice in the tax code particularly for the ultra rich large corporations for example. i'm pleased to be joined by such a distinguished panel of witnesses to discuss the size and scope of the tax cap and the role of offshore tax evasion's in that gap and what we should best do to combat it.
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>> the first witness we will call barry johnston thank you for your participation. proceed with your testimony.if .
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[inaudible conversations]
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why don't i go to a live witness and let the technical stuff catch up with us and start with mr. george, please. >> you are good. >> chairman white house, senator grassley thank you for the opportunity to provide information on the tax cap. a substantial challenge for the irs finding effective solutions to the challenge would yield additional tax revenue. as you noted, mr. chairman, the tax gap estimates currently in use are outdated, and the tax
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gap is likely much higher at this point in time. irs studies have shown audits of have the largest impact on tax compliance. the irs lost 15,000 employees between 2010 and 2018 which led to a significant reduction in the number of audits also referred to as examinations. over that period the number dropped by about 40%. even as the number of returns filed grew by 5%. since 2010 the irs conducted fewer examinations between 2010 and 2018 the individual returns fell by 46% the percentage of the decline and examination rate was larger for the higher income
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returns. for the returns with more than $1 million in total income they examined rate dropped from 8% in 2010 to 3% in 2018, a 63% decline. in march, 2021, they reported the irs could more effectively prioritize high income taxpayers that owed delinquent taxes but do not pay. in addition, we've also raised concerns that in 2015, the small business division of the irs terminated its high income strategy which was designed to address high income taxpayers who had not reported all of the rendered income with the growth
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of online platform companies it is likely that income and self-employment tax underreporting will continue to be a growing problem. the report on the economies and tax compliance and the lack of the strategy to address the challenge we reported the irs is not working cases with billions of dollars of potential tax discrepancies. many cases were not selected to be worked by the irs to due to the constraints and the large volume of discrepancies that were identified. the use of virtual currency also called crypto currency and an alternative asset to other currencies however, we found that it is difficult for the irs to identify taxpayers with the transactions because of the information reporting. nonpayment of taxes is a smaller
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proportion of the tax gap. reductions and resources have also impacted the payment compliance from fiscal year 2015 to fiscal year 2019 the officers have decreased by approximately 14% from 2,612 to 2,239. in proving international tax compliance remains a challenge for the irs. the irs has not developed an estimate of the tax cap, estimates of the international tax gap very widely previous estimates range from $40 billion to $123 billion annually. congress gave important tools to help spend international tax evasion with a passage of the foreign account tax act.
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to report eight years of spending at least $380 million and efforts to establish international agreements across the globe the irs hasn't taken the actions needed to meaningfully and force it. in conclusion it can more effectively reduce the tax gap by developing strategies for the changing domestic and global economies and using its resources more effectively. mr. chairman, that concludes my statement. thank you very much. i appreciate it and on behalf of myself and also senator grassley and a great one for whistleblowing and transparency, thank you for your service to the countries.
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mr. johnson is still experiencing technical difficulties, so if we could turn to doug o'donnell that would be the commissioner for the services and enforcement that the internal revenue service to make his statement. for the services and enforcement at the irs before stepping into that role i spent several years to address the tax gap and increase compliance and ensure the integrity of the tax system. addressing the tax gap requires service and enforcement. we need to help people who want
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to comply with the tax law to track down those that willfully refuse and fulfill their obligations or commit tax fraud. the entire workforce is focused on doing the best we can in both of these areas with the resources that we have. this includes employees who develop clear and understandable forms of publications and taxpayer questions, process paper returns that investigate tax fraud. every one of us has an important role to play in providing service to taxpayers and ensuring compliance with a fair and impartial manner. we struggle to keep pace with change. the size of the economy and the number of taxpayers we serve and the global nature account for much to keep pace and our ability to deliver on our mission is limited by the level
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of funding that we receive. the irs uses the tax gap to help decide where to deploy the limited resources to minimize the burden on the taxpayers and to concentrate on reaching taxpayers that avoid complying. thanks to the help of artificial intelligence, advanced data analytics strategies and emerging tools we are able to identify areas that were impossible just a few years ago. with that said there is room to further modernize these efforts and the irs has requested funding to do that. likewise they've asked for modernization funding that will allow us to make better use of the data we already collected yet we cannot promote the resources to the pockets of noncompliance. it is important that the irs as a presence in every neighborhood so to speak. if the irs were to stop the noncompliance in that segment
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would be at risk to increase that's because the tax enforcement has not only a direct effect on the taxpayers but also an indirect effect on taxpayers generally. since compliance we are exercising our best efforts with limited numbers of experienced specialized examination personnel covering enforcement from several angles. in my previous role i was very involved in directing a wide range of noncompliance both domestically and internationally. a good example is focused on ensuring tax compliance among the wealthiest taxpayers those with income or assets in the tens of millions of dollars. audits under this program look at the picture of an individual and the entities that they control. we worked hard to stretch the limited resources to address two
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issues that consume the times, transfer pricing and the research and experimentation credit. we could improve the risk analysis in both of these areas if we had the tools, more data and additional examiners with subject matter expertise. in the international arena we've put a great deal of time and effort into administering the foreign account act. congress enacted to improve the offshore compliance efforts by requiring the financial institutions to report information to the irs about accounts held abroad by the u.s. taxpayers. while increased tax enforcement is critical to addressing the tax gap making further progress on the tax gap also requires policy and legislative changes to reduce the complexities and increase information reporting, to improve the irs access to the relevant data and increase authority in certain areas such
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as regulating as the president recently proposed this concludes my statement. thank you. >> thank you, deputy commissioner. we have been joined by my distinguished ranking member. we went ahead with the testimony of the inspector general george. we are having technical difficulties that may or may not be resolved with mr. johnson. mr. o'donnell just concluded his testimony so we are to move down and three to go. we are still going through mr. johnson's technical
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difficulties. >> thank you for allowing me to testify. thank you for allowing me to testify about the tax gap. we estimate those that were not paid was $574 billion in 2019 and will accumulate to 7.5 trillion over ten years. this amount was equal to the lower 90% of individuals 135 million paid in income taxes and as we know, the commissioner testified that it might be even higher than that. we estimate that as practical to recover $1.4 trillion of the tax gap over ten years which is still 19% of the total. in our estimate all of the games would be from the top 25% of taxpayers and majority in the top three. tax compliance is heavily driven weather taxpayer's income is reported by third parties in a manner the information can be
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efficiently used by the irs. where income is reported and checked for the forms like the w-2 and 1099, compliance is 95 to 99% and almost all is paid without any irs intervention. but the income is not reported as low as 50%. the plan is based on integrated three-part purpose. first move more of the income from low visibility to high visibility in upgrade the technology to make full use of all the information available to the irs and increase the efficiency of the compliance activities. third, rebuild the skilled workforce but also provide them technology to resolve the cases more rapidly and efficiently. it is critical in our view to use technology to make the entire irs compliant process more efficient because simply
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scaling up what they do today will not produce the desired results. as important as the audits are currently all of the auditing activity recovers about 2.5% of the tax gap for example it cannot efficiently evaluate information on 40 million returns modern technology can use this information to identify potential deficiencies. technology will allow them to transform the follow-up process when inefficiencies are identified for one that is far more accurate and efficient for taxpayers and the irs. and that technology we are suggesting is not futuristic it is used including on a limited scale for example screening refunds. but most of the gain in the plan
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would come from increased voluntary compliance, so it is essential at the easiest possible. and reduce the number of unnecessary audits. we also recommend the committee follow its bipartisan practice of establishing pertinent taxpayer rights when it considers legislating authority for the irs and our plan proposes several new or clarified taxpayer rights. our program would require both authorization and consistent long-term funding from congress. we recommend the increase of about 6% per year above what is required to stay in operations but spreading this increase over ten years is what will allow the irs to make use of these funds. over a decade it will produce revenue gain of 20 times its cost and increase the quality of service the irs provides to the taxpayers. implementing a program like this is challenging but based on my
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50 years of managing programs and business i believe it is achievable and very clearly out of balance is any risk. as congress did when it passed to the restructuring reform act from years ago both compliance and service goals can be established progress measured year by year and can and should be monitored by congressional oversight committees. i note our proposal offered long-term investments and in the short term must focus on the immediate priorities of the filing season and economic recovery program and the new program such as the child tax credit. finally, i believe the fundamental fairness alone is a compelling reason to address the problem particularly when congress is contemplating raising the taxes on people who pay what they owe. that concludes my testimony. thank you mr. chairman. >> i've got to say i'm on the budget committee where we look at ten year increments and in
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your testimony there's a ten year increment of the taxes owed but not paid of $7.5 trillion is pretty stunning. let me turn now to ms. olsen who served nearly 20 years the national advocate leading an independent organization within the irs dedicated to assisting taxpayers now the director of the center for taxpayer rights. welcome. thank you for being here. please proceed with your statement. thank you members of the subcommittee. i'm pleased to appear here today to discuss the central tax gap to address the tax gap the irs needs transformational change and that must occur in the context of minimizing undue taxpayer burden and protecting taxpayer rights. that also will require significant investments in new technology leadership employees, training and procurement skills.
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it requires a massive redesign of the systems so that the update quickly and can process information and a talk to one another in real time. all of this is not going to happen overnight but it must occur if we do not make these investments in the irs we will not only not address the upper reaches of the tax gap but we will risk increasing the tax gap by failing to meet the needs of taxpayers in good faith trying to comply with the law. there are a few things we should note as we measure the tax gap. the drive cannot come at the expense of the taxpayers service. approximately 2% of the $3.6 trillion collected each year comes from direct enforcement actions the remaining 98% comes from the indirect effect of a mix of people's fear of the irs and desire to be compliant. when the taxpayers have problems
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they call the irs because it has consequences that don't accrue to the airline transaction yet the irs routinely answers less than 50% of calls and this year at times answered only 2% of calls to its main 1040 number. the irs doesn't have a 360-degree view of the accounts because there is no database in which all information is stored or linked, so they cannot provide issue resolution to callers. the lack of the picture has significant consequences not only for taxpayer assistance but also audit selection, collection prioritization and protection of taxpayer rights the tax gap doesn't equal tax evasion.
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framing the noncompliance as tax evasion not only undermines compliance who begin to feel naïve for complying but it feel justified in undermining if not outright ignoring the rights and tax compliance is a continuum of behavior including procedural complexity and should not treat a taxpayer who made a mistake who is actively evading tax. for example, between 2009 and 2018, the irs offered a series of settlement programs for u.s. taxpayers with unreported foreign bank accounts in income. although the irs recovered 11.1 billionhe dollars please sledges settlement programs just a little over one billion a year for tenju years, the data for te 2009 program paint a shocking picture of a regressive penalty structure where shall taxpayers with lowest dollar kowngts and
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least amount of unreported income paid the higher percentage and highest percentage rate of penalty per taxes. fourth, intelligent use of data can improve tax administration enormously if it is fit for the purpose intended and use an algorithm other techniques that mimic human reasoning it does not displacef human decision making and discretion. today irspl data is mired in the 1980s with sol note public exceptions. there's heavy emphasis on data matching and rule base systems that rarely include feedback loops. many irs systems have positive and abatement rate and irs does not use data proactively to alleviate burden and prevent burden to taxpayers for example, irs could use a little taxpayer income data allowable expense guidelines to identify taxpayer who is may be at risk of economic hardship and protect them from harmful collection actions. finally, proposals to expand information reporting are very
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promisingo but they must be accompany by taxpayer protections. bank account information alone is not primefacie evidence and product use of data in automated jurntiond reporting and extend burden of proof protections of tesection 6120d and matching activities. thank you very much for the invitation pier attendty welcome forward to answering any questions you may have. >> thank you very much ms. olson thank you for your long service as our national taxpayer advocate i appreciate that very much. let me turn now to my ranking member and opening comments he should care to make. ivelg will the me begin by saying i'm looking forward to working request you on sub committee. sub committee on staff oversight koofers number of important issues perhaps none more so than spornt of taxpayer dollars and
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i'm optimistic we will work to find common ground and common solutions. today we're here to discuss the tax cuts and interest in evasion important issue as well and tax gap is real. republicans onue this committee support closing. the tax gap the difference between taxes owed and paid has been a stubborn problem for decades tax gap using audit and data collectings and as of september 2019 irs estimates the average gross s tax gap at 441 billion per year for 2011 to 2013 and after late payment and enforcement net tax gap is 281 billion and numbers are improves tax gap remains a problem. the irs commissioner speculated tax gap could be as much as one
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trillion per year number that far exceeds irs estimate while that guesstimate might con flat with tax evasion one thing is certain no one at any income level should believes they are safe and cheat on their taxings and we should purr sigh bipartisan measures to reduce the tax gap and better enforce our tax laws. buttt any such effort must strie appropriate balance between taxpayer responsibilities and taxpayer rights. to address the tax gap some believe that increase irs resource it is tabs audit and intrusion of taxpayer personal information will yield a golden goose of revenue for example president biden recently proposed increasing irs funding to $8 billion next ten years 0 projecting funds nab 700 billn over the decade. former irs commissioner john who served as comingser under president obama and trump said he thought that 80 billion was too much. i agree. based on official estimates about the tax gap, and whack reasonably collected a return of 700 billion dollars is a tall order as well.
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and analysis from the ward and business school lower payoff by 220 billion. cbo estimated increasing irs funds for examinations by 40 billion over ten years increase revenue by 103 billion in a net 63 billion decrease in deficit it is not to say resources couldn't find real money and particularly when those figures are portrayed as offsetrl for new spending proposals republicans arefs open to discussions of irs resources but those discussions should include measures to improve customer service in sure existing resources are optimally and just as with trump budget which also included additional irs funding and enforcement resources, any increase to the agency should come with commensurate accountability and transparency. memories we main fresh of past irs use to of taxpayer resources
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disproportionately for extra scriewt nying. someo of the other side of the aisle will say republicans hallow out coughers but been stable for past 15 years any budget reductions are compared to agency all time high budget despite under democrat rule and biden administration is proposed tackling the tax gap but giving first new documentation on income from businesses such as partnerships and sole proprietorships with business on income and irs soon would be recovering trolls of new data on taxpayers bank accounts. as you might imagine many americans are understandably concerned with the risk of government overreach. more specifically, they're concerned their local banks could turn into extension of tax enforcement on behalf of the irs. well we should look at ways to improve reporting and irs use information it receives like partnership income reports collected for years just for everyone to understand enforcement is only one method to reduce the tax gap.
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it is o actually two degrees of separation between the tax gap estimate and revenue that can be scored from enforcement proposals. cbo budgets rules product scoring hope for but entirely uncertain revenue from enforcement. policy marks need to be reasonable wheel what is doable on persistent problem of the tax gap limits of score keeping roles particularly for near schools and find ways to reduce the tax gap, it is worth noting that our nationed has a relativy high and stable voluntary tax compliance rate. according to most recent irs data 84% of taxes paid voluntarily and on time after enforcement late payments taken into account about 86% of taxes were paid. tax compliance levels remain substantially unchanged since at least the 1980s. there's not one solution to solving the tax gap or one type of tax facer responsible for it. reducing the tax gap requires a comprehensive strategy and
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effective execution from the irs. sand appropriate safeguards accountable to tarps. we have an expert panel before us thank you for your testimony thank youu all for being here i look forward to vaccination the opportunity to engage with you and some questions. mr. chairman. i yield back. thank you. >> thank you very much. senator look forward to working with you on solving this problem and i'm told speaking of solving problems that we have solved the problem of -- mr. johnson connection is that true? okay. we're good to go. let me ask our last, first witness now our last witness barry johnson w acting chief of analytics to mac a statement. >>o thank you chairman white house and members of the sub committee can you hear me? >> yes. >> super i apologize for the technical problems i'm barry johnson irs chief analytic officer i appreciate opportunity to discuss my office as work on
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the tax gap. i direct the office of research of flight and statistics within the irs. we support effective and sufficient by providing strategic research, analytic and insight to irs business units to inform decision making, and increase innovation across the agency. one of the functions of the irs is to oversee data collection and methodology used to measure the tax gap. as you have heard already most recent irs study of the tax gap was released in 2019 it covered tax years 2011 through 13 and included method logical improve that had updates to earlier estimates. the study estimated average annual gross tax gap for that period was 441 billion dollars. as a voluntary compliance it was 83.67% in process of tax years 2014 and 2016 also include projections pup to tax year 2019 last year for data. we expect to release this report early next year. the gross tax gap estimate of 41
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billion dollars does not account for revenue brought in to enforcement activities such as audit and document matching and late payments. after factorying in efforts average net tax gap with 2013 is estimated that 381 billion dollars. when looked at by mode of noncompliance it can be divided into three components nonfiling or not filing required returns on time underreporting or not reporting one full tax liability when return is feeled on time. and underpayment. or not paying by the due date full amount of tax report on time and solve return. but for the largest component of the tax gap is underreporting representings 352 billion of the 441 billion total. and individual underreporting compromise 245 billion and employment tax represents 6 0 billion dollars corporate tax 37 billion, and taxes one billion.
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the report confirms an important point about the tax gap. the compliance rate is very high for income and subject to third party information reporting and higher skill when you have withholding net reporting percentage which is one percent for amounts subject to substantial information reporting and withholding and was 5% for amount subject to information reporting without withholding. and percentage jumps to 5% for income not subject to any information reporting or withholding. while the irs is tax gap methodology has been deemed a gold standard for tax administrators around world recognize that lag between focus years and release of estimates reduce for some purpose. and developing improve methodology we believe will produce more timely estimates. research using this methodology to gross up to 2013 to estimates just that the tax year 2019 approximately 600 billion dollars. we also know that our kurnghts methodology primarily capturings known factors that contradict to
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tax gap based on actual examination activity but may not include emerging issues issues not disclose during examinationings, certain international issues issues that are concentrated relatively small portion of the a highest income preengtly researchers explore two such factors ewed by very wealthy offshore accounts past through business entities. using the find frustration his paper we estimate that underreporting from these sources would add about 33 billion dollars to our 2011 to '13 tax gap and tax year 2019. and written testimony has ways to use to improve irs processes. tosi ensure that we direct scare resources to most important opportunities, doug deputy commissioner co-chair the board, which created a small enno vaition lab what brings together subject matter experts and develop solutions to highest priority cross setting challenges. to date we have new tool and
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technique strategies to reduce tax gap and increase voluntary compliance. for example, working with the paper advocate service we recently developki a new online educational materialings on employment taxes and testing to have a payment and appear at risk of becoming noncompliant stliment limited resources to modernize process and reduce the tax gap. additional resources to scaling up these efforts enable hardworking deeds kateed staff to make more progress. chairman white house ranking member and members of the sub committee this conclusive my statement and i'll be happy to answer your questions. >> thankud you so much mr. john sob and my apologies for technical difficulties. let me ask you even the conservative irs estimates of 441 billion dollar annual tax gap is more than honest taxpayers ought to tolerate and commissioner has testified that
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it may be as high as a trillion dollars. how do you think the international tax gap fits into that discrepancy between 400 and 41 billion and one trillion? tax gap has some activity did you not all and in estimates that we've been talking about this afternoon we measure international activities by domestics tax return filers in the general estimates. we f do not include activities from taxpayers with addresses abroad and businesses foreign businesses in effect estimate mainly because of the difficulty of trying to collect data using our standard statistical mtdology for those estimates we do hope with a new methodology i mention that we'll be tiebl address that in the future i think that the research i cited gives some insight into the magnitude of money that is
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overseas. we have done some preliminary analysis of the fact of reporting for 2017. and we find that there are 3.7 trillion dollars in -- in assets that are abroad. and 56 trillion is located it in what is tax giving countries. so we think that the -- tax gap attributable to international activities particularly overseas ngts could be quite large. >> is inspector general george correct that irs has not developed a reliable estimate, though, the international tax gap? >> we have not produced a separate estimate of the tax gap that's true. and it is partly because it is difficult to define what it is -- >> i see that it is not easy but importantt to nail down starting place where we're at right now.
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mr. johnson outside research suggested that -- u.s. citizens hold as much as a trillion dollars in offshore tax havens. do you think that that is a reasonable estimate or could the number be larger than that? >> based on estimate using 2017 factor reporting looks like that number would be about 2 trillion so twice that. >> 2 trillion dollars. okay well -- thank you. question for commissioner rasdi -- you described gaps in income not reported it that need to be filled your testimony describes importance of filling gaps in income that is not reported. are there some fairly simple ways that we could help the irs fill those gaps? >> well, we have proposed a method to do that which would be one additional 1099 report on money in and money out of
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certain financial accounts. which we think would be covering basically and we also suggested that be limited to certain taxpayers. mainly upper income taxpayers and closed for businesses. we believe together with the other informationon the irs has, and with the new technology, that would go a long way to closing the gap. i do point out about that even though we estimated our total revenue gain higher than others atth 1.4 trillion that's 19% of the total over the ten years, and so my feeling is that with the information reporting that technology and the resources, that is not an unreasonable goal for a ten year period. >> will you help us define whatever we may need to do legislative or oversight to close that gap? >> i would be delighted to and submitted for the report a rather lengthy document but that's a starting point of impact we are private citizens here but trying to help as best
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we can. >> one thing i'll note if i close out my questioning is that we've heard testimony today that 36% of the missing tax revenues of the tax gap 36% of that come from 1% of the taxpayers and comes from one percent of the taxpayers at the top. the high income -- 1%, and yet and yet the county with the highest audit rate in the united states is a poor mostly black county in mississippi. where over half of the taxpayers claim earn income tax credit and medium household income is 26,000. i will now turn to senator thoon before i do let me read off list we have now of senators we have senator here. we have senator brown would be next on the web. we have then senator grassley then senator warren. then senators portman, danes,
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stabenow harper senator thoon. >> interested in your observation about the area -- lower income that gets the grattest attention from the auditors great for them to answer. ms. olson your written testify does not equal tax evasion. or how the tax gap does not equal tax evasion i should say how con flatting could lead to long corrections about the tax gap can you tell us about tax gap and evasion why it is important to be clear with the terminology? >> i think that there many causes for the tax if gap. which canth go to -- from tax law complexity to even procedural complexity people not understanding what the irs is requiring of them.
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and in terms of submitting documentation, it can go to evasion of a social form and protest against how money is beingca used. there are any number of reasons, and if you treat every single taxpayer the same way, you really risk converting complaint taxpayers because they feel they've been treated badly. poorly --ta >> according to the latest official irs estimates and this was alluded to in your -- panels testimony, the gross tax gap is 441 billion i think mr. said that that's before the late payments enforcement after payment in enforcement the net tax gap is 381 billion. and again, pointing out earlier in year irs commissioner did speculate a finance committee hearing that the tax gap could approach or exceed 1 trillion a figure that many have taken as a
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factual data point for example on a the day of the hearing "the new york times" ran a headline straight tax chiefs cost u.s. $1 trillion per year irs chief says. even with the rise of virtual currency other changings in economies numbers, obviously, don't square. mr. johnson, could you clarify official irs estimate of the tax gap? >> yes, sir. the official tax gap estimate, estimate is the 441 billion dollar gross tax gap that we discussed today that that relates to tax years 2011 to 2013. i think the commissioner was updating that -- ethat to the present and i testified earlier that if we do that with just the first tax estimate we've discussed we can get to a tax gap estimates of $600 billion if we add in the
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little bit extra that was identified as -- disclosed or uncovered in current estimates of 50 billion more up to 650 billion dollars. factoring in other issues that related to changes in the structural changes in our economy that have taken place since 2013. the incredible rise of cryptocurrency, the growth of thehe platform economies, tax ad indicated and microcap of insurance, but i think we would be looking at adding in significant additional amount it is to the potential tax gap also we have to keep in mind that over last ten years irs audits have fallen. we know that some benefits of the irs audits is that there are direct consequences we collect more money and indirect consequences others perceive their risk of being -- of being audited are higher that might cause them to dispose more information when they're
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reporting their income in taxes. the fact that the audits have fallen and been very well publicized due to budget cuts has to also be having an impact on that deterrence effect. whining we add all of these things together and think about what the tax gap might be today i don't think that is not a reasonable speculate to be a science commissioner estimate and before we think about illegal source income. >> when you talked about break down of the 381 billion, i think you said that 245 billion of that is on individual side. did i get get that right? >> that's correct. >> okay. so 245 billion, and most of this you suggest is underreporting. give me some examples of that. i understand chairman was saying about some of this being offshore accounts that people aren't reporting. wealthy folks -- you have the components or how you compose the 245 billion
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dollars onse individual side. >> sure. i believe i provided a copy of the tax gap map in written testimony. we estimate that business income makes up 110 billion of that. nonbusiness income 57 billion of that. credits that are misreported 42%, 42 billion i'm sorry. incomeoff sets 20 billion filing status, miss reporting 5 billion other taxings about one billion. >> very we cannily ms. olson former irs watch dog what do you think about the significant higher guesstimate and methodology? >> i am very disturbed about guesstimates about the tax gap. iog think that sends a message both to irs employees that there are lots of people out there cheating and so whomever they see may view as that and need to do really responsible work it sounds like irs is trying to do
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that with offshore. but i think we should wait to hear what the actual rigorous methods are. the article by the narb has not been peer reviewed yet and all things needs to be taken very carefully. es>> thank you mr. chairman. >> thank you very much senator now turn to senator brown and after senator brown if senator grassley is not here we'll turn to senator warren. >> thank you chairman white house. and senator ranking member thank you for this hearing that 2017 tax law as we know gave a huge win fall to owners of so-called pass through businesses, contrary to what our republican colleagues say these are mostly not small businesses they're more likely to be hedge funds, real estate, and the companies like trump organization, the 2017 tax law gave these wealthy taxpayers a huge tax cut to make matters worse the irs.
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it is not funded staffed to effectively audit them either so commissioner, your proposal how to explain to us how it will help the irs move to help them more effectively target pass through businesses entities that largely drive the tax gap. >> yeah. yes. senator brown, so i think one of the observations that underlies our proposal is that over the last --- even i would say 40 years, the fractione of business income tht is earned in pass throughs which wass relatively limited very limited few years back many years back has become as large as although corporate income combine to a large sector and you know honestly the irs programs for compliance have not kept up. so that what we proposed is really three things same as other areas. what some additional reporting really one additional information report secondly the technology to make use of it because right now even where the
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irs has information, for example, k1's report income from partnerships to individualings but the irs has no technological ability to use that so that's almost $2 trillion of income that is reported but is not checked. and finally, of course, i think use of that information to follow-up when there are deficiencies that are identified right now even though congress has given irs some additional authority a few years back, the ability the irs to use that and to audit rate is very, very limited there's essentially negligible auditing in that sector. so those are some of the proposals that we think could help to identify underreporting in that sector. >> thank you commissioner. and i can think of no better way to undermine faith in our democracy that is working americanset that there are realy when it comes to paying taxes two sets of rules run for those who pay for taxings another 1%
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that everybody on this panel -- is mentioned. who don't pay close to their fair share. and that is not bad enough we if, obviously, said we have a serious infrastructure needs that people here want to pay for and pay for with real tax dollars. other question is to ms. olson asked about itc. does it -- doesed itc compromise i heard chairman question about mississippi. or comment does it compromise significant part of the tax gap? >> sir, no. it is about 3.9% of the tax gap if you estimated at 441 billion and ifu you take the commissioners estimate of a trillion it would be about 1.7%. >> spread out spread out over -- lots and lots of taxpayers, of course, in the itc. would we see fewer improper payments than can see returns irs has authority to have
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minimum standards for pay tax prepares? >> i think that is a significant provision that would reduce noncompliance in that area since so much of the returns are prepared by paid preparers and ghost preparers. people that don't sign returns. but are actually getting paid. and theirs where you have highest error rates. >> thanks ms. olson something to propose in budget congress needs to enangt it. with expansion of the itc and child tax credits and eligible filers take advantage of these contracts support workers, support families, and it's a very high priority of this congress. chairman white house thank you for allowing me to be apartment of this hearing today. j thank you very much senator brown turn now to senator grassley followed by shift and order senator carper and then
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senator portman so grassley carper portman. >> ms. olson thank you for your long service before i answer my question i like to acknowledge your good work. one of the difficulties of the irs has is targeting its limited audit resources that bad actor. well not unduly burdening honest taxpayers. in short, avoiding no change audits. the irs whistle-blower program has proven to be effective means of identifying and examining noncompliant taxpayers. as a result the irs whistle-blower program providing significant bang for the buck. this also benefits honest taxpayers since they are less subject to what hassle frommistt are your general thoughts on the whistle-blower program? do you agree that a robust whistle-blower program must be a partus of any effort to reduce e
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tax gap? >> i think the whistle-blower program is uniquely designed in the area of offshore. that is where you will through whistle-blowers get information that you might not be able to achieve elsewhere. and obtain elsewhere -- >> so it is the useful tool? >> yes. absolutely. >> mr. george, i've been a proponent of the irs private tax collection program as one means of closing the tax gap. the program is proven able to collect hundreds of millions of dollars annually that otherwise would go uncollected. however, as mentioned in your testimony, one issue that enters the program is the old age of the accounts of assigned to program no address this issue, thero taxpayer first act shorted time period for when accounts may be assigned it to the program after assessment by over one year. this shorter timeline became
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effective beginning 2021. mr. george, can you confirm where irs has implemented this updated time frame for assigning accounts to the program? >>g we know that -- they are taking steps now, senator to implement the changes that are required. and to the extent they've completed those i would have to get back to you. >> okay please get back to me also mr. george concerned about amount of time irs employees spend on union activity at taxpayers expanse sensible standards for granting and using taxpayer funded union time or imposed during's trump administration this result in about a 26% drop in number of hours treasury employees spend on union time. this equates to the annual workload of about 61 full-time employees.
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if we're serious about closing the tax gap, a top priority should be ensuring irs personnel or use defectively now current administration repealed trump era limitation on this activity. mr. george, can you speak whether treasury and the irs have rerted to prepresident trump policy with that time? >> that i cannot address mr. senator i don't have information regarding that we'll look at it and if -- >> submit to me in writing? >> i most definitely will. >> my last question for you mr. george for everybody, i'm concerned by a finding in a recent report by your office titled, quote, high income taxpayers dlingt taxes could be more effective prioritized engsd of quote. according to this report irs failed to assign 3,180 accounts
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to the private death complex despite meeting program's eligibility requirements. this suggest that the irs is not making full use of the private debt collection program. so my question, do you have any suggestions on how the irs would improve the process it uses to identify in assign eligible accounts to the program? >> senator, we have reported that the irs does receive very dated tax accounts of providings those to the private debt collection organizations. and the longer as you all know you wait to provide those tax accounts to these private debt collectors the less likely it is that they're going to receive anything?th from it, that said even though my general standards, percentage of accounts that are given to
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private debt collectors is -- below industry standards in terms of the recovery rate, they are still the private dealt collectors receiving more money in terms of collecting it from people who owe it than the cost that it is being a charging to the government. so giving more we quickly accous for these private debt collectors to address would help address that problem among many other factors that could be, that could happen. >> thank you mr. george thank you mr. chairman. thank you very much senator grassley we'll turn now to senator karp earl followed by senator it warren. senator carper.
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senator carper logged off senator warren. [silence] senator carper. mr. chairman. yes proceed senator carper. thank you so much. i want to thank you and i want to thank senator for this -- i'll never forget as a congressman a million years ago both seem every year i hosted a attack and budget workshop and like to come to town hall meetings been trying to figure out how to balance the budge and one of the meetings i suggested facing revenues was part of the solution and one lady in the back said i don't mind paying x
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amount i want to make sure everybody is paying their fair share i'll never forget that conversation. but for years former irs commission john said somebody has -- enormous respect for i know others do to and testified about the need for increase resources for additional a personnel updated technology year after year after year. fortunately, much of the testimony fell on deaf ears. the irs budget has shrunk i think since 2010 by something like 20% and number of revenue agency specialize in evaluating the complex returns and high income individuals and corporations decrease i'm told by nearly 40%. next monthas our colleagues will call it a current commission reiterated need for additional resources that former enforcement. but providing additional appropriations funding to the irs -- is may not be enough.
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but certainly apartment of what is needed but the fact of enforcement structure at the irs was going to require staying in longer term funding and predictability five including -- ten-day in i believe "the washington post," and this support of president biden irs plan, thanks for joining us here today. what the components of the president's plan for the irs would be do you think most effective for congress to adopt as we address tax gap? >> thank you, senator harper i think all five of us commissioners have discussed that editorial before we reassign it and we think that there are three parts to administration proposal which are together what makes -- there's a need for additional information reporting to fill some gaps in types of income that is reported. the secondly, the administration
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proposal does provide for funding on a long-term basis for technology. and for rebuilding work portion, and i think those two latter they thinks are why it is so important to have a sustained after it. it's not possible in a case like the irs to put a one time appropriation and frankly you could overdue putting money in too quickly and not tiebl get it used effectively so most effective about the administration proposal what we certainly support is the idea of funding over tenure period that would be reasonably assured but not overdone in any one year. our own estimate we've made indently that a 6.a year increase that would cover both technology and staffing would be, would be most effective and could be readily managed. >> thank you commissioner. second with this responsibility and irs enforcement i think i'll
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address this -- mr. johnson and to general russell george. part of maintaining fiscal responsibilities making sure that we have ample revenue as we all know and this includes collecting taxes owed under law. commissioner a month or so ago estimated that every enforcement funds to bring in somewhere between 5 and 7 dollar additional revenue pretty good on investment revenue and i would ask mr. johnson and george how would robust investment represent the efficient use of taxpayer and raise revenues in way they boost our fiscal problem? sir johnson, george? >> thank you. i can comment on how we reduce those revenue estimates. those revenue the return of investments that are used are produced in my office in conjunction with the chief financial officers office.
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we look at the historic revenue collected by the enforcement staff over the most recent tenure period putting more weight on more recent years because those -- activities, obviously, reflect current uses and as you noted, the roi does vary a bit between taxpayer work that we do but that on average it is about four or five to one. and you know for my money i would be happy to have any money that investment 5-1 as a return. >> i think we all leak a piece of that action. >> mr. george -- senator. i would give the following example in response to your question. the irs is high income threshold for underreporting around 200,000 and it's threshold for nonfiling is 100,000. average revenue agent productivity on incomes above 10
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million is over 4500 dollars per hour of revenue agents times. aser compared to a few hundredsf dollars per hours at audit of taxpayers with incomes between 200,000. 400,000 bottom line is if you give the money so that the expertise can aim towards the group that is in a position better to manipulate their taxes so that their responsibility to the government i'm not saying intentionally hidden. but that the avoidance versus evasion argument is a addressed, the irs could get a better return on it investment for all of the dollars that is expends. >> thanks. >> george your words remind me of words at my commencement address in talking with graduating seniors i say aim
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high there's more room up there. and probably -- jermaine here as well thanks for all of the witnesses also very nice to see you again. nice to see you all thank you all for joining us today. >> thank you senator carper. nextxt is senator warren. then senator stabenow. >> all right thanks very much. thank you. i'm glad we're focus on gap between taxes owed and taxes collected. i'm introducing billion with mandatory funding so the funding last year by year by year -- is so that the irs can boost taxes enforcement for wealthy individuals and for giant corporations who are some of the biggest tax chiefs and i know that president biden has a similar proposal. but funding isn't all that the irs needs to do better enforcement. when a teacher sits down to do her tax she will rely on a w2 that tells her how much she earned in wages her school center this w2 automatically and
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it sent a copy to irs as well. and this is called third party reporting and it helps the teacher fill out her tax return accurately also helps irs do its job. both by making it easier to verify income and by keeping people honest because they know that irs can spot it. if they fudge the numbers -- so i want to run through a few examples with you if we can. if you own your own law firm, is there as much third party reporting on how much you made as there is for the teacher? >> what most law firms organize partnerships and there's limited there's sol reporting but it is quite limited on partnerships where, of course, wage earners 100% reported. >> okay. >> what about if you own a giant beach front mansion? and you sell it for a lot more money than you bought is in other words you made a cap tailing gain of capital gain income is irs likely to know
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exactly how much income you received? >> well required it to report it as a capital gain but no third party reporting on a that kind of a transaction. >> irs has no indefinite information of it automatically. sms unless it does an audit. >> what about instead of sell your mansion you decide to post it on craigslist and rent it out. is the income you got lookly to be automatically reported to the irs? >> same answer. i mean, you're required to report it ok but there's no third party reporting on that transaction if you just rent the property yourself. >> okay so here's the thing least visibility into are the kinds of income that are overwhelmingly concentrated among the very richest taxpayers so if you're a teacher or construction worker, a bank teller, nearly all of your income comes from wages and that information is automatically reported to the irs by your
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employer but if you're in top 1% most of your income is coming from business and capital income, and the irs is counting on you to follow the honor system when you file your taxes. so as a former commissioner of the irs you saw this first hangsd let me just ask you -- do you think the honor system is working? >> it works to a certain extent because there's great deal of income that is reported by taxpayers but it is also true i think, as mr. johnson noted in this report earlier that the reporting level on income that is not third party reported is as low as 50% on the kinds of income that you identified in your example. >> okay. >>t there's a big difference. >> so i think that conclusion we can draw is that strengthening third party information reporting would, obviously, help people file their taxes more easy lis and more accurately and
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frankly make it harder per wealthy tax cheats to get away with hiding their income. top 1% fail to report i've heard more than a fifth of their income and you're saying of as half and more than a third of all unpaid federal income taxes that cost us an estimated 175 billion dollars. in tax revenues last year -- so that's why my legislation takes the advice and requires banks and other financial institutions to provide the irs with information on ngt holders balances. it would fill in holes that allow richest taxpayers to underreport their income and skip out on taxing they owe strengthening information reporting as well as providing protected and sustain irs
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functioning when sure we focus enforcement on the biggest fish. this is about making our tax system fair and about raising the revenue that we need to create opportunities for every kid in america. thank you mr. chairman. i yield back my time. >> thank you very much. senator warren, we'll now turn to senator stabenow and then to senator danes joined us in hearing room senator steb now. >> well thank you so much chairman this is such an important discussion and i know that folks in michigan surely scratching their heads or maybe very mad about what they're hearing in terms of the level scriewt new england on their taxes as middle income working people versus someone who is very, very wealthy let me ystart by saying typical michign
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family goes to work earn pay with taxes withheld and sent a w2 every year and irs knows exactly how much money they make and how much money they owe. but when as we're talking about today when you look at households who have more money -- more assets, the more capital gains income, and pass through income, those shockingly less oversight by the irs, and so -- it is important to not talking about how much -- but how many taxes qeat should pay but talking about how much they should pay and what they already owe. which is p i think is really important and so i know today we're looking at whether it is commissioner -- estimate of one trillion dollars a year in a tax gap or 600 or 2 trillion any of that pretty much adds up to a lot of money. and when i think about the they thinks that we can do request
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that like extending the child tax credit to permanently lift children out of pofert or fix our roads or bridges or critical investment in infrastructure and small business and manufacturing on and on and on. i think we hopefully would all agree that qeat should be paying their fair share so johnson my first question would be can you talk a little bit about more why the top 1% account for disproportionate tax gap and likely not to pay their taxings for whatever reason than the bottom 50% of americans? >> i think the best way to think about this is when we have -- information reporting and withholding, the reporting of that income is 99% accurate when we have integration reporting without withholding that information is reported with 95% accuracy. but when we have income that
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doesn't have any information reporting at all that is reported with accuracy rate of about 45%. and so you know, i think that answer to your question is that -- for those taxpayers who's income primarily made up of income with substantial reporting and withholding -- those folks are going to -- are more likely to be compliant more with income coming from sources where there's no third party reporting that's where we see higher levels of nonreporting. so i think that's something what we've been hearing from other speakers. >> yes, absolutely thank you important for us to consider here that for sure. and -- mr. george one other thing -- as the chairman was talking, and depicted in a report the highest audit rates are -- located in predominantly black
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and brown lower income household in rural counties. yet the number audited tax returns of millionaires have fallen by 72%. fallen by 72%. down from 40,965 millionaire audits in 2012 to just 11,000. in 2020 similarly nearly two out of every three of the 755 largest corporations in the country goes with over 20 billion dollars in assets were not audited last year. we know that tax evasion using offshore accounts and entities are most employed by top 1.. the fbi irs underestimates systemically tax evasion as a very top to the tune of we've heard of 175 billion and so mr. george we have the data. we understand what's happening, why is thehe irs unable to targt
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these individuals? who are deliberately evading the taxes that they owe but lowering income individuals who have less resources less wealth, less recourse are subject to audits and costly fees at higher rates from errors or unintentional noncompliance. >> senators a multinumber of factors that come into play here. everything from, of course, a lack of resources, to where some of the tax examiners are located physically located who can do more complex tax returns versus less complex tax returns. as it relates to the very high income taxpayer, you need someone to go in and literally physically look at information as it relates to return whereas some very simple taxpayers in terms of their returns and --
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issues relating to that could simply be a correspondent a letter sent to them and so -- when you look at the actual numbers, a lot of the irs examiners are in areas that have a preponderance of low income taxpayers. it really -- it's interesting that the irs you would think would be able in this day and age to do things electronically. or -- in other ways that would not require a physical presence. but unfortunately in many instances that's not the case. >> well certainly can do better what you're describing doesn't make any sense because -- it doesn't make any sense to anybodyen listening to this. i think even those who benefit would have trouble really being able to explain why this is a good idea. i mean we're saying you make more money and your tax returns are more complex more likely
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you're going get out of ten year taxes right than somebody who what has a simple form working hard, has withholding, and is just going to work every day. paying their taxes so thank you mr. chairman for this. >> thank you very much stabenow. >> hope we're gong get -- >> senator danes in the room and chairman wyden will be recognized next. senator danes. pnches thank you charm white house and safe to say republicans and democrat os pose tax evasion and support taking steps to close the tax gap. increase irs funding as well as reenforcement resource which is incorporate congressional budget recommendations, i do believe there's room for further bipartisan cooperation to address the tax gap. however, i do have some concerns about president biden's proposal to increase the irs budget by an unprecedented 80 billion dollars over ten years.
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i'm even more concerned that administration is using a highly questionable estimate of some 700 billion dollars in revenue raised as a key opposite for late as $2 trillion infrastructure package. i've not seen the modeling that explains exactly how this 700 billion dollars in that ref revenue would be raised to my knowledge nobody outside administration has either. ms. olson former irs commissioner recently stated he's not sure the irs would be able to use that 80 billion dollars effectively would you agree request that statement? >> i think that's -- that it will be very hard for the irs to ramp up that quickly what commissioner has suggested, you know, is a sustained increase over their basic what they need to just keep lightings on t do their basic job and that set aside over sustained period of years to bring on the technology and the skilled
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employees. different skillsets to be tiebl use that technology wisely. and then the last thing is, it need continued congressional oversight to make sure those dollars are applied well. but it needs to be a level increase over sustain period of years not a really huge ramp up it won'tst be able to do that well. >> ms. olson thank you for your thoughting answer follow-up on that cbo estimated last year, that an additional 40 billion dollars in funding for the irs would result in a net revenue collection of $63 billion. 40 billion invested 63 billion collected. could you explain how doubling that funding level to $80 billion would magically produce an additional $637 billion in net revenue? >> i don't know that not an economist and i don't know what underlies any of those numbers. if you're focusing on the
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highest income so you may get a greater return, on investment there, then just the basic level of return of investment is four to five that may be something but again i can't answer where those numbers come from. >> we're pointing gap between 40 billion and 63 billion. 40 billion back from cbo, and administration is suggesting 80 billion dollars would give us 637 billion that's a huge, huge disconnect. mr. johnson some of my colleagues across the aisle liked to state that low income individuals are audited at higher rates than high income individuals. we had commissioner redding before the finance committee and mid-april. i think did a pretty good job of responding to this charge but i think it is highlighting i think it is worth highlighting that once again and my question is mr. johnson are you more likely to get audited if you're a low income taxpayer t or a high ince
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taxpayer? >> thank you for the question. ie think you're asking -- what the audit rates are for those different taxpayer groups and the audit rate for low income taxpayers is lower as a percentage of all taxpayers in that categoryer than audit rate for higher income taxpayers. looking at total positive income -- >> i wanted to spell this myth where we've heard my colleagues suggest that low income individuals are audited high higher rates than high income individuals. ... individuals and i would note according to the irs for the record high income taxpayers would be over a million dollars audited at about an 8% rate whereas earned income tax creditors are audited at about 1.12%, just want to set the record just want to set the record straight on that.
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mr. chairman, thank you. yield about my time. >> thank you very much, and i have the privilege now to turn to chairman wyden. >> thank you, mr. chairman and thanked for scheduling a veryh f important hearing and your long history going after these kinds of cases and trying to protect taxpayers. what i like to do with our panel, we havefi a terrific pan, is better understand how the irs uses the tools at its disposal. forced collection from repeat offenders. i don't believe we have talked about the at, and what were talking about is high income non-filers with multiple years of unfilled -- unfiled tax return. and 26 u.s. code makes the willful failure to file a tax return and failure to pay federal income tax a crime. what we're talking about is high-income individuals with multiple years of unfiled tax
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returns, and the agency recently estimated there were almost 50,000 high income non-filers owing $7.1 billion in taxes with multiple unfiled returns for tax year 2014-2016. so my question is for you, for cases involving high income non-filers, people with multiple years of unfiled returns, has the irs made any recent criminal referrals to the tax division of the department of justice for the willful failure to file a tax return or pay estimated tax? >> thank you, senator wyden. i am uncertain whether or not we have made any criminal referrals to the department of justice. i will look into that and get back to you. but what i can say is officers are hard at work out in the field ensuring that high income non-filers, that we're aware of,
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are being brought into compliance and we're using all tools available to bring them into compliance. currently in this environment where it's very difficult to go out in the field but our revenue officers continue to perform that work. >> respectfully, mr. o'donnell, i don't understand how one can assert that all tools are being used when we're talking about high income filers, multiple years of unfiled returns, , an estimate of $7.1 billion in taxes in just two years, and you're not aware of whether there were any criminal referrals to the tax division of the department of justice. department of justice. what i would like you to do is to furnish to chairman white house and myself the chairman of the full committee why this is the case and you said you were
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not aware of this because i just believe it sends the message that there's not much of a deterrent, that there hasn't been any referral at all and that's why we are going to need the facts. i would like that to be available to myself, the chairman of the full committee, chairman white house within two weeks. can you make that possible? >> just to clarify my response this is my second day in this role and i'm not yet up to speed on that program, but i will certainly get there and be happy to provide you the information that you've asked for. >> thank you. i certainly understand that if you are new it takes time to gather all the facts but i think you can get a sense of why i think that this is a showstopper. repeat offenders, enormous sums of money it's not somebody
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making a once in a rare instance kind of mistake. we've got to get on top of that and we will expect an explanation within two weeks about whether there have been any referrals and if there have been, either haven't been and what's going to be done about it. .. >> not just -- [inaudible] the taxpayers who are noncompliant, but to help
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taxpayers ensure they get full access to the benefits that they deserve. in our last hearing with the irs commissioner, i raised that the advanced child tax credit portal should provide -- [inaudible] >> senator cortez masto, we are having trouble hearing you in the hearing room. i don't know if there is a sound issue of some kind. >> let me try that. is that better? >> we hear you and we will restart the clock. clock.
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no. your screen is moving very slowly. we are being advised that you can turn off your video then your voice can come through. taking advice from me in a technological matter is not the wisest. >> can you hear me okay. >> yes we can hear you. proceed. >> wonderful. thank you. sorry for the technical
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difficulties. you recommended in your testimony the irs not just those that are noncompliant a raise the advanced child tax credit that find a unique situation such as domestic violence advisor so could the portal be designed to help survivors get the advanced child tax credit? >> absolutely. because of the marital status where the children reside with that change with the domestic violence survivors. the time it has been filed the portal should be allowed them to do a simplified electronic filing to update the filing to
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have the change in marital status. there would be a disagreement between the abuser in the survivor estimate the children are. but without expedited appeals process. and not filing of the next year's tax return to get the credit and there are procedures with a two or three day turnaround and minimizes improper payments. >> i really do appreciate that
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because this is an area we need to prioritize and i know there was a way to get this that i appreciate your comments i will submit the rest for the record. thank you. >> i believe senator portman is holding i will call on him if he is available. >> thank you to those who come today thank you for your continued interest in the work you have done over the years i loved working with you as well.
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met with the tax gap and with that tax gap would be with those massive funds that should be provided and that is much about those estimated revenues from enforcement so can you speak to that a little bit? there are enforcement numbers out there. with a 100 billion-dollar investment for the changes that they propose is more than 1 trillion in revenue. that is the most generous one i suppose.
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can you talk about what the limits are? if these predictions get higher and higher and then also the significant ratios. where is a balance? >> those are based on historic tax data so we look over the last ten years at the revenue generated by actual workers working on groups taxpayers and we look at the revenue that is brought in that the revenue the officers do.
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and the revenue raised by those agencies and then with that tax situation. and so when we produce those estimates of the impact then we take into account for the first year or so working in the field but not raise very much money. and then to take someone off line to do training and for the first year there is loss. and then to recognize that the larger number of cases in a particular activity code that the return on those will fall.
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if we pick the returns that are the most noncompliant as we increase the number we will work those with lower dollar return. and for those what the return would be on different kinds of investments. >> and the law of diminishing returns must come from. >> correct. >> that is a joke, mr. johnson. [laughter] >> i know when the commissioner was before as he explained how the tax cap numbers and then to specifically say he would ask the research division to a date the approach is that new
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approach or are you still updating your methodology? >> so we have been working for a year and a half with a methodology going on machine learning or some would call ai. to make greater use of the data with tax gap traditionally and then it was just those that have been used and we believe by bringing in more of the operational data for those that are more timely and better able for those emerging issues. while the current estimates for those tax returns filed in 2011 through 2013 and in the years after that, those that
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we will put out next year we will also be using the new methodology to update those which is the tax year the way the returns are filed with the irs. >> so can you tell us what you recommend to recognize the optimal amount of tax revenue to close the tax gap? that's not a decision my office would make that we do hope to have the information and then to make those kinds but we hope.
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>> is that your hope just to come up with some suggestions as to the notion of diminishing returns that at some point the return on investment is not as great and also the issue of taxpayer rights and the way it is appropriate? deputy commissioner you in a position to say you have a sense for that optimal number might be? >> no senator. that i do know the work mr. johnson's team does helps us to understand where did you foyer resources. we heard from the commissioner there is obesity and income sources and third-party reporting they are likely to be less compliant that's what we want to put additional resources. we do know we are down 17000
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and personnel over the past decade. >> and then to target these resources appropriately. former commissioner you still with us? >> i can't not see you. >> i'm in the hearing room. [laughter] >> it's good to hear your voice but i appreciate you mr. chairman indulging me back on the reporting i agree more reporting is a good idea generally with that same balance we talked about. in 2011 expended 1099 for the affordable care act because it
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was a component of the healthcare law and with those burdens on small businesses in my question is can you tell us there is a way to improve reporting with that taxpayer privacy is something colleagues have a working on for a number of years. that is an additional 1099 uncertain accounts that would basically backstop all the others. as it is now, there are 22, 1090 nines reported. everybody is getting a lot of 1090 nines now there are significant holes in the less visible kinds of income. the difficulty is in the past when i was commissioner
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because the technology did not exist. actually tried some experiments and they did not work. because technology was to rule driven in specific. but that can essentially what it would do not all of it but some of it. that would allow you to use the new kinds of information not available today so i'll the discussion of productivity and scaling up is meaningful i am not suggesting to make a huge difference in the tax gap but i really think it is the combination using all the information that would make a big difference. >> may be the best way forward.
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>> we appreciate you doing it. thank you mr. chairman. >> we appreciate very much the effort at tax humor that is not a well-known category of humor that i think point of diminishing returns set a pretty high bar within the category of tax humor see were afforded a few extra minutes. [laughter] ending on that note thank you to all of the witnesses. let me ask mr. george for a clarification. your testimony said as of 2018 the irs take virtually no compliance action to enforce the tax compliance act. that was as of 2018 it's now 2021 do you have an update
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from that observation quick. >> i would never say the irs has done absolutely nothing to advance the implementation of that. they are lacking some very basic tools. one of them is the ability to literally have taxpayers and the entities that they utilize overseas provide information taxpayer identification numbers for the irs to match the information the entity has versus the taxpayer has provided are not provided and we are literally talking about social security numbers the irs has done a tremendous amount of work working with nations across the globe to initially get this program off the ground but the most basic
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thing is the ability for the irs to match up the information that it receive that it may not receive from one party or the other. i would like us to be placed under the irs. it is a low hanging fruit. >> we need to continue to work on fact check compliance. can we put an extra t? [laughter] that would be the appropriate acronym. [laughter] there's my effort at tax humor. this is been very helpful. the first hearing of the finance subcommittee on tax and irs oversight on my watch and i hope all of them are and
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successful as a piano we have had today with the same level of input and engagement from our distinguished members. so with all of that do we keep the record open? q at are do one week from today for our response by chairman wyden i would hope and expect that would be honored and the hearing is adjourned. thank you all very, very much. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]
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[inaudible conversations] >> coming up today the house is back at 10 a.m. eastern for general speeches followed by legislative business at noon. members are working on several bills including one that directs the v.a. to establish a pilot program using service dogs to help treat veterans with post-traumatic stress disorder. there's also legislation that would designate the pulse nightclub site in orlando, florida, as a national memorial. on c-span2 the senate returns at 10 a.m. eastern to consider moving forward with nomination for the u.s. postal service and
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the centers for medicare and medicaid services. and at 10 a.m. on c-span3 attorney general merrick garland and homeland security secretary alejandro mayorkas testify on the threat of domestic extremism. also there is more streaming live on our website including a hearing on the biden administration's trade priorities with u.s. trade representative the katherine tai. that's at 9:30 a.m. eastern. at 10:30 a.m. health and human services secretary xavier becerra testifies that house energy and commerce subcommittee hearing on the president's 2022 budget request budget request. and at noon the house administration committee looks at how the u.s. capitol can be better prepared for an emergency following the january sixth attack with testimony from the architect of the capitol inspector general. >> is c-span's online store with a collection of


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