Internal Revenue Service commissioner Chuck Rettig testified Wednesday before a House oversight subcommittee about the IRS’s performance during the novel coronavirus pandemic, where he heard complaints from lawmakers about their constituents missing stimulus payments.
The hearing also focused on the financial condition of the IRS and the state of its aging technology systems.
As special counsel, Zoe Sharp advises Board Member Lewis H. Ferguson on all matters that come before the Board for decision. Prior to becoming Special Counsel in March 2013, Ms. Sharp worked as counsel in the Division of Enforcement and Investigations. In that role, she assisted in investigation and litigation of possible violations of the PCAOB rules and other applicable securities laws and professional standards. Before joining the PCAOB in March 2012, Ms. Sharp was an assistant general counsel at Sallie Mae, Inc. She also practiced as a general litigator at Williams & Connolly LLP. Earlier, Ms. Sharp served as a law clerk to Judge Sidney H. Stein of the U.S. District Court for the Southern District of New York.
Lewis H. Ferguson was appointed by the Securities and Exchange Commission to be a member of the Public Company Accounting Oversight Board in January 2011. In April of 2015, he began a four year term as Chair of the Global Public Policy Committee Working Group of the International Forum of Independent Audit Regulators (IFIAR). From April 2013-April 2015, he served as Chair of IFIAR following a one-year term as vice chair. From 2004 to 2007, Mr. Ferguson served as the first General Counsel of the PCAOB. Before joining the PCAOB as a Board Member, Mr. Ferguson was a partner in the law firm of Gibson Dunn & Crutcher LLP, where he focused on securities regulation, disclosure issues and corporate governance matters. Earlier from 1979 to 1994 and from 1998 to 2004, he was a partner at the law firm of Williams & Connolly LLP, specializing in corporate transactions, securities enforcement matters and representation of audit committees and boards of directors. From 1994 to 1998, he was Senior Vice President, General Counsel and Director of Wright Medical Technology. Mr. Ferguson also has been a Director at several public and private companies, primarily in the medical device and technology areas. He was an Adjunct Professor of Law at the Georgetown University Law School.
Tom Dresslar is a former reporter and also served as a deputy commissioner at the California Department of Business Oversight. He is now retired.
“IRS employees have worked around the clock since mid-March to develop new tools and deliver meaningful guidance to simultaneously deliver Economic Impact Payments in record time while still keeping the annual filing season on track,” Rettig said in his opening statement. “In fact, millions of Americans started seeing EIPs show up in their banking accounts within 14 days after the CARES Act was enacted on March 27. So far, more than 160 million payments totaling more than $270 billion have been delivered, most by direct deposit and some by paper check or prepaid debit card.”
He noted that in the IRS’s efforts to deliver the Economic Impact Payments, the agency balanced the statutory requirement to provide the payments as “rapidly as possible” with the need for accuracy and concern about potential fraud. He pointed to a report in June from the Treasury Inspector General for Tax Administration saying the IRS correctly computed the payment amount for approximately 98 percent of the more than 157 million EIPs issued as of May 21.
Subcommittee chairman Gerald Connolly, D-Virginia, praised the IRS’s ability to operate during the pandemic despite years of budget cuts and aging computer systems, but also pointed to the complaints about the stimulus payments that were never received.
“While our witnesses will testify that the IRS did what it could with the available resources, it’s what didn’t get done that is really troubling,” he said. “It’s the millions of taxpayers who were unable to get their refunds because they filed a paper return. It’s the millions of tax returns that hit a snag and the corresponding taxpayers couldn’t get assistance because IRS call centers were closed. It’s the 9 million people who have yet to receive their stimulus checks, primarily because the IRS does not have their information because their income is so low they don’t qualify to file a return. These are our nation’s most vulnerable. We have a duty to help.”
Rettig pledged to do more to help. “Although the IRS has sent out the vast majority of these payments, it continues its extensive outreach efforts into the historically underserved communities of our nation,” he said. “We have remained especially focused on getting payments out to people who are homeless, who don’t normally have a return filing obligation, or who otherwise live their life outside normal lines of communication. The IRS is taking every possible step to reach potential EIP recipients. We have extended our reach far beyond our normal contacts to many lower-income, military, veterans, retired, older, limited English proficient, and homeless communities around the country. In fact, we have worked with our partners to distribute EIP outreach materials in 35 languages within these communities.”
He pointed to the IRS’s efforts to offer tax information in Spanish and other languages, noting his wife is an immigrant for whom English wasn’t her first language. Rettig said the IRS has also been getting assistance from hundreds of local community groups and religious organizations and has developed a special online toolkit containing helpful information for them to use in identifying and getting the word out to people who qualify for EIPs. He said the IRS is also mailing out letters to approximately 9 million Americans who either haven’t received an EIP yet, or haven’t filed a tax return for 2018 or 2019, as the stimulus payments initially went out to those who had filed returns for those prior years, using their direct deposit information on file with the agency.
Lawmakers pressed Rettig to provide more specific data about who was still owed the payments and to allow incarcerated people to receive the stimulus payments as well. The CARES Act did not specify that incarcerated individuals couldn’t receive the payments, but the IRS and the Treasury Department later made that interpretation. Some lawmakers argued the exclusion of incarcerated people from receiving the payments also leaves out those who are joint filers, exposing their spouses and families to further economic hardship during the recession. Rettig refused to commit to rectifying the situation, citing ongoing litigation, although a judge in California ordered the IRS last month to stop withholding the stimulus funds from incarcerated individuals and their families.
The hearing also covered other matters, such as the IRS’s relatively high audit rate of low-income taxpayers who receive the Earned Income Tax Credit compared to wealthier taxpayers. Rettig bristled angrily at accusations of improper bias at the agency.
“According to studies out of the University of Pennsylvania, by simply beefing up the auditing capacity of the IRS to allow for more oversight of the super wealthy — those claiming more than $10 million in adjusted gross income — our government would collect more than $7.5 trillion over the next decade,” said Connolly. “Because that’s the size of the tax gap that the wealthy — who fear little consequence from a beleaguered IRS — have left in our nation’s coffers.”
Connolly said he was pleased with reports this week that the IRS is finally investigating allegations of criminal tax fraud at the National Rifle Association. “I have long led congressional efforts asking the IRS and the Department of Justice to investigate the NRA and its CEO Wayne LaPierre,” he said.
The hearing also looked at the IRS’s aging computer systems. In conjunction with the hearing, the Government Accountability Office released a report that found problems with those systems.
Vijay D’Souza, director of information technology and cybersecurity at the GAO, also testified at the hearing. “Effective IT is essential to IRS’s operations and was important to the distribution of millions of economic impact payments dispersed as part of the CARES Act,” said D’Souza. “IRS’s IT budget has been fairly flat over the last 10 years.”
Rettig said the IRS has been working on improving its technology in response to the Taxpayer First Act, which Congress passed last year in an effort to reform IRS operations. He also outlined the ways the IRS has been using technology to respond to the pandemic.
“During this time, the IRS has been using innovative approaches to make sure our employees can deliver on the agency’s mission,” he said. “We have set records for the number of IRS employees teleworking, thanks to the continued support of our Information Technology division. Our IT systems continue to perform at a high level. Our internal networks are supporting approximately 57,000 employees online at the same time, all in a secure environment.
He noted that the IT department provided the equipment necessary to allow thousands of IRS customer service representatives to telework, and the IRS was able to continue bringing on new employees through the use of a virtual onboarding process.
“We have also been continuing the agency’s ongoing work to find new ways to serve taxpayers, including our efforts to expand online and other options for them,” Rettig added. “For example, this summer for the first time we began offering an electronic filing option for taxpayers who need to amend their income tax returns. Providing an online filing option for the amended return — also known as Form 1040-X — has been an IRS goal for many years and is a major milestone for us. Electronically accepting Form 1040-X posed a number of unique challenges, but we succeeded thanks to a great deal of hard work by employees across the agency.”
Some lawmakers agreed with Rettig that the IRS could use a bigger budget to update its computer systems, some of which date back to the Kennedy administration.
“We need to be asking what the IRS could have done to help our country if it had been properly funded and adequately staffed, instead of being subjected to years of bitter Republican abuses,” said Rep. Carolyn Maloney, D-New York.
National Taxpayer Advocate Erin Collins said the IRS could use some help with its technology to deal with the pandemic and just the regular tax season. “In the best of times, the filing season presents challenges for the IRS,” she said. “Considering the additional challenges the pandemic has presented, the IRS has performed admirably. Yet despite the IRS’s best efforts, some taxpayers experienced unusual difficulties in their dealings with the IRS. While a portion of those difficulties is attributable to the impossibility of anticipating and planning for the impacts of a national shutdown, some of the difficulties would have been substantially lessened if the IRS had better technology and more staff to meet the needs of taxpayers.”
