IRS Return on Investment and the Need for Modernization

1[House Hearing, 119 Congress]2[From the U.S. Government Publishing Office]34                 IRS RETURN ON INVESTMENT AND THE NEED5                           FOR MODERNIZATION67=======================================================================89                                HEARING1011                               BEFORE THE1213                       SUBCOMMITTEE ON OVERSIGHT1415                                 OF THE1617                      COMMITTEE ON WAYS AND MEANS18                        HOUSE OF REPRESENTATIVES1920                    ONE HUNDRED NINETEENTH CONGRESS2122                             FIRST SESSION2324                               __________2526                           FEBRUARY 11, 20252728                               __________2930                          Serial No. 119-OS013132                               __________3334         Printed for the use of the Committee on Ways and Means3536[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]3738                                __________3940                   U.S. GOVERNMENT PUBLISHING OFFICE4159-659                    WASHINGTON : 20254243-----------------------------------------------------------------------------------4445                      COMMITTEE ON WAYS AND MEANS4647                    JASON SMITH, Missouri, Chairman4849VERN BUCHANAN, Florida               RICHARD E. NEAL, Massachusetts50ADRIAN SMITH, Nebraska               LLOYD DOGGETT, Texas51MIKE KELLY, Pennsylvania             MIKE THOMPSON, California52DAVID SCHWEIKERT, Arizona            JOHN B. LARSON, Connecticut53DARIN LaHOOD, Illinois               DANNY DAVIS, Illinois54JODEY ARRINGTON, Texas               LINDA SANCHEZ, California55RON ESTES, Kansas                    TERRI SEWELL, Alabama56LLOYD SMUCKER, Pennsylvania          SUZAN DelBENE, Washington57KEVIN HERN, Oklahoma                 JUDY CHU, California58CAROL MILLER, West Virginia          GWEN MOORE, Wisconsin59GREG MURPHY, North Carolina          DON BEYER, Virginia60DAVID KUSTOFF, Tennessee             DWIGHT EVANS, Pennsylvania61BRIAN FITZPATRICK, Pennsylvania      BRAD SCHNEIDER, Illinois62GREG STEUBE, Florida                 JIMMY PANETTA, California63CLAUDIA TENNEY, New York             JIMMY GOMEZ, California64MICHELLE FISCHBACH, Minnesota        STEVEN HORSFORD, Nevada65BLAKE MOORE, Utah                    STACEY PLASKETT, Virgin Islands66BETH VAN DUYNE, Texas                TOM SUOZZI, New York67RANDY FEENSTRA, Iowa68NICOLE MALLIOTAKIS, New York69MIKE CAREY, Ohio70RUDY YAKYM, Indiana71MAX MILLER, Ohio72AARON BEAN, Florida73NATHANIEL MORAN, Texas74                       Mark Roman, Staff Director75                 Brandon Casey, Minority Chief Counsel76                                 ------7778                       SUBCOMMITTEE ON OVERSIGHT7980                  DAVID SCHWEIKERT, Arizona, Chairman81MICHELLE FISCHBACH, Minnesota        TERRI SEWELL, Alabama82BETH VAN DUYNE, Texas                JUDY CHU, California83NICOLE MALLIOTAKIS, New York         SUZAN DelBENE, Washington84RUDY YAKYM, Indiana                  THOMAS SUOZZI, New York85MAX MILLER, Ohio                     LLOYD DOGGETT, Texas86AARON BEAN, Florida87NATHANIEL MORAN, Texas8889                        C  O  N  T  E  N  T  S9091                              ----------9293                           OPENING STATEMENTS9495                                                                   Page96Hon. David Schweikert, Arizona, Chairman.........................     197Hon. Terri Sewell, Alabama, Ranking Member.......................     298Advisory of February 11, 2025 announcing the hearing.............     V99100                               WITNESSES101102Hayden Dublois, Data and Analytics Director, Foundation for103  Government Accountability......................................     3104Pete Sepp, President, National Taxpayers Union...................    12105Minesh Ladwa, Global Solution Manager, Tax and Revenue106  Management, SAP................................................    25107Kristen Kociolek, Managing Director for Financial Management and108  Assurance Team, Government Accountability Office (GAO).........    34109Nina Olsen, Executive Director, Center for Taxpayers Rights......    43110111                   PUBLIC SUBMISSIONS FOR THE RECORD112113Public Submissions...............................................   137114115[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]116117                    IRS RETURN ON INVESTMENT AND THE118                         NEED FOR MODERNIZATION119120                              ----------121122                       TUESDAY, FEBRUARY 11, 2025123124                  House of Representatives,125                         Subcommittee on Oversight,126                               Committee on Ways and Means,127                                                    Washington, DC.128    The subcommittee met, pursuant to call, at 10:02 a.m., in129Room 1100, Longworth House Office Building, Hon. David130Schweikert [chairman of the subcommittee] presiding.131    Chairman SCHWEIKERT. The subcommittee will come to order.132    As we get going, this is our first one, and I would like to133actually say I am elated to have Ms. Sewell sitting next to me,134one of the people I genuinely like, and my little boy is135fascinated with your jacket. If you hear sudden noise, I have a1362-year-old in the little room right behind us.137    So shall we actually get going?138    I can let you introduce your witness. Do you have a139witness?140    Ms. SEWELL. I do.141    Chairman SCHWEIKERT. I am going to let you--when we get142done with--143    Ms. SEWELL. Okay.144    Chairman SCHWEIKERT. So let's do opening statements, and145then let's get this going.146    First, good morning. Welcome to the 119th Congress and our147first Ways and Means Oversight hearing. I have a script here,148but I am going to go off of it because I already shared with149you, for many of us, we have had a couple of years here, the150fussing back and forth between the cash that was put in the151Inflation Reduction Act, hiring lots of people. The fact of the152matter is we now have data of how hard it has been, almost153impossible, to hire those very staffers. We actually have data154in here that we would like to present and walk through on the155actual spend versus the actual projected collections now that156we are, what, 30-plus months in and how far off target we are.157We have data in here talking from the IRS's own information158when 31 percent of the phone calls during tax season are159actually being answered.160    Is the solution an army of more bodies in the same161environment where when they had even the resources they were162not able to hire, or is it ultimately a technology solution,163just as so much of the rest of the world has actually stepped164into?165    My personal fixation is how do you modernize the IRS so it166can meet its mission and actually reduce the friction with the167population taxpayers, those who are just trying to survive and168trying to understand?169    Our history here, particularly when you get near the IRS,170it becomes a partisan whipping boy, but the fact of the matter171is you have a country that is borrowing about $70,000, $80,000172every second. And by the end of this decade, those numbers go173autopsy dramatically.174    Maybe actually understanding what we are doing, how we are175doing it, could we do it better, could we do it fairer, could176we do it with more public understanding, and maybe less sense177of hostility between the agency, Congress, and the very public178we represent.179    And with that, let me hand it over to the ranking member180whom I am elated to be sitting next to.181    Ms. SEWELL. Thank you, Mr. Chairman.182    As the new ranking member of the Oversight Committee, I183would like to first thank you for your warm words of184introduction as well as for the opportunity to work with you on185behalf of the American people. I also want to welcome my186Democratic colleagues to our first subcommittee hearing. I look187forward to working with everyone on this subcommittee on188important oversight issues before Congress.189    Today, I am pleased to have the opportunity to talk about190the Internal Revenue Service and the historic Inflation191Reduction Act. The IRA made a once-in-a-generation investment192in modernizing the IRS. The results have been record-breaking.193The IRS announced that it collected $1 billion from high-wealth194taxpayers due to the IRA funding. It dramatically improved195taxpayer service, including answering more calls, providing196extended in-person outreach to rural and underserved taxpayers,197and simplifying notices and letters.198    I can tell you that in my district, in the Black Belt of199Alabama, we have some of the highest audit communities for the200EIT recipients. EITC, as we know, the Earned Income Tax Credit,201is for moderate- to low-income folks being able to reduce their202tax liability if they so qualify. These are hardworking203Americans who make less than the minimum wage, with a median204income close to $30,000 in my district. The IRS attempts to205even the playing field giving resources that ensure the IRA--206sorry--the Inflation Reduction Act with those monies we attempt207to even the playing field by giving resources that ensure208wealthy individuals who have evaded taxes are audited209proportionately. And we still have a lot of ways to go.210    Yet my colleagues on the other side of the aisle want to211hamstring the IRS at a very important point where the IRA212funding is actually making a difference.213    This is abundantly clear by the fact that they have214rescinded over $20 billion in enforcement funds, and they have215frozen another $20 billion in the previous continuing216resolution. We need to fix this issue, and slashing funds is217not the solution. The IRA funding is not an endless piggy bank218for the majority.219    Mr. Chairman, I would be remiss if I did not mention the220elephant in the room, which is, of course, this faux Department221of Government Efficiency, or DOGE, and its unlawful access of222the taxpayers' sensitive payment systems and confidential223taxpayer information. DOGE's takeover of the Federal payment224system is an egregious invasion of the privacy of every225American, especially every American taxpayer. Federal tax laws226specifically ensure that Americans' tax return information is227confidential. As you know, unauthorized disclosure of this228information is a felony. Elon Musk and DOGE should not be229rummaging around in the confidential information of private230taxpayers and private citizens.231    No one knows what information DOGE has accessed or how it232will use such information. And, Mr. Chairman, we should all be233concerned that our private confidential taxpayer information234has been exposed.235    Today I want to welcome all of our witnesses. I really look236forward to the opportunity to hear from you and for us to have237a substantive conversation about the IRA funding for the IRS.238    Thank you. And I yield back.239    Chairman SCHWEIKERT. Thank you, Ms. Sewell.240    All right. Now let's do some quick introductions, and I am241going to let you introduce Ms. Olson.242    Is it Hayden Dublois?243    Mr. DUBLOIS. Dublois.244    Chairman SCHWEIKERT. Dublois. I was never going to get that245right.246    Mr. DUBLOIS. That is okay.247    Chairman SCHWEIKERT. Who is a data analytics director at248the Foundation for Government Accountability.249    Pete Sepp is president of the National Taxpayers Union.250    Minesh Ladwa.251    Mr. LADWA. Chairman, it is Minesh Ladwa.252    Chairman SCHWEIKERT. All right. Is global solution manager253for tax and revenue management at SAP.254    And Kristen----255    Ms. KOCIOLEK. Kociolek.256    Chairman SCHWEIKERT [continuing]. Kociolek. That one I257might have gotten--is managing director for financial258management and assurance team at the Government Accountability259Office.260    Ms. SEWELL. And I would like to introduce probably the261easiest pronounced name on this witness list, Ms. Nina Olson.262Ms. Olson is a former national taxpayer advocate. She is now263the executive director of the Center for Taxpayer Rights.264Welcome, Ms. Olson, to this subcommittee hearing, and we look265forward to your testimony.266    Chairman SCHWEIKERT. Each of you will have 5 minutes, and267at that point we will begin statements and questions.268    Hayden.269270   STATEMENT OF HAYDEN DUBLOIS, DATA AND ANALYTICS DIRECTOR,271            FOUNDATION FOR GOVERNMENT ACCOUNTABILITY272273    Mr. DUBLOIS. Well, Chairman Schweikert, Ranking Member274Sewell, and members of the committee, thank you for having me275here today and for hosting this very important hearing.276    My testimony is going to differ just slightly from some of277my counterparts and focus on a related issue of the capacity of278the Congressional Budget Office to accurately estimate the279fiscal effects of legislation, including the Inflation280Reduction Act. Unfortunately, CBO tends to underestimate the281costs associated with measures that would increase the size of282government and overestimate the cost of tax relief for283Americans. And one of the most prominent examples of that, of284course, pertains to the Inflation Reduction Act which is285obviously relevant to today's hearing.286    Following the enactment of the Inflation Reduction Act, CBO287predicted the legislation would decrease the Federal budget288deficit by $58.1 billion over the following decade. But a 2024289update by CBO suggested the law would actually increase the290deficit by roughly $300 billion.291    It turns out the CBO's revision reflected a $224 billion292upward adjustment in green energy expenses. And additionally,293CBO projected that the nearly $80 billion dedicated to IRS294enhanced enforcement measures would actually reduce the deficit295by $180 billion, but by the end of fiscal year 2024, the IRS296announced just $1.3 billion had been collected through those297increased enforcement measures, compared to the $7.2 billion298CBO projected it would have collected in that first year. In299fact, more money had been spent to hire these new IRS agents300than they had collected in revenue. For every $1 in new revenue301gained, these enforcement efforts had cost $1.04.302    According to the Economic Policy Innovation Center, the303CBO's faulty estimates are a result of the projected far higher304rate of return on IRS enforcement efforts than what actually305occurred. As a result, CBO's estimated return on investment was306off by more than sixfold.307    And this is not the first time that CBO has made these308mistakes. In 2010, the CBO projected that approximately 13309million Americans would enroll through Medicaid expansion under310the Affordable Care Act in all 50 States. By 2019 actual311enrollment had reached 19.5 million in just 34 States.312    In the food stamp program, CBO estimated that food stamp313changes contained in the 2009 stimulus bill would have cost314approximately $20 billion. A decade later CBO revised its315estimate and said food stamp driven spending from the stimulus316bill had reached $43 billion, more than twice as much as their317initial estimates.318    Likewise, another provision of the 2009 stimulus was the319enhanced unemployment benefits which CBO predicted would cost320$39.2 billion. Six years later, CBO revised their score to $64321billion.322    And on the revenue side, as Ways and Means Committee323Chairman Smith has correctly noticed, actual 2024 corporate324receipt collections reached $529 billion well ahead of the $421325billion predicted by CBO following the passage of the historic326Tax Cuts and Jobs Act. In fact, cumulative revenues are half a327trillion dollars above where CBO estimated they would be328following the passage of TCJA.329    Now, there are a variety of reasons why CBO has made these330inaccurate estimates. Through the Inflation Reduction Act, they331failed to account for developments in green energy markets and332substantially overestimated the IRS's return on investment. For333Medicaid, they dramatically understated enrollment. For the3342009 stimulus package, they were wrong about their assumptions335regarding the record slow Obama economic recovery. And for336TCJA, they failed to predict the tremendous impact that lower337taxes would have on the middle class.338    Unfortunately, the cumulative effect of these errors339demonstrates CBO's implicit bias for more government spending340through provisions like the IRA and higher taxes. Now CBO will341undoubtedly have a role to play in scoring key pieces of342legislation, especially as it relates to the ongoing343reconciliation conversation. But already the baseline CBO uses344misleads Congress, because CBO assumes, one, certain345discretionary appropriations will continue without statutory346budget authority; two, all discretionary appropriations will347continue to grow with inflation; three, certain mandatory348spending programs will continue beyond their expiration; and349four, Social Security and Medicare payments will continue at350their current levels even after the trust funds are depleted.351    Finally, by using a current law baseline rather than a352current policy baseline, the likely effect of various programs353on outlays is distorted. Congress should not only evaluate354CBO's fiscal scores with scrutiny but also consider amending355law to have the baseline more accurately resemble reality.356    Thank you for the opportunity to testify today, and I am357happy to answer any questions.358    [The statement of Mr. Dublois follows:]359    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]360361    Chairman SCHWEIKERT. Thank you.362    Mr. Sepp.363364  STATEMENT OF PETE SEPP, PRESIDENT, NATIONAL TAXPAYERS' UNION365366    Mr. SEPP. Chairman Schweikert, Ranking Member Sewell,367members of the committee, you honor NTU and taxpayers368everywhere by holding this hearing. As you know, NTU has had a369long history of involvement in the tax administration space. We370thank you, Mr. Chairman, for kicking off the Taxpayers FIRST371event that we held last year. That was fantastic. Our taxpayer372defense center continues to be very active in presidential373litigation, but I would like to focus on a couple of points374here.375    Surprise, the IRS needs more money. It needed more prior to376the Inflation Reduction Act, and if the IRA money for IRS is377zeroed, we will have to scale up from there. However, point 2,378the IRS must prioritize any additional funding it receives379toward taxpayer services and modernization. Three, Congress,380the IRS, and Treasury must develop a genuine detailed strategic381plan for that modernization with transparent benchmarks and382accountability safeguards if those benchmarks aren't achieved.383And four, the damaged system of IRS oversight needs to be384repaired so that Congress has more partners in ensuring the385funding is properly spent.386    Now, there are lots of illustrations over the history of387IRS modernization that I can go into. Hopefully we will when we388get more technical in the Q&A period, but I would like to point389out two comparisons and contrasts here.390    The IRS Restructuring and Reform Act of 1998, that was the391product of 2 years of commission work, hundreds of testimonies,392multiple committee hearings, and a 184-page bill set up that393tripartite system of IRS oversight that ensured for a few years394at least the Service was actually transforming, meeting the395objectives of its strategic plan. That system began to weaken,396which I will discuss a bit later, but that was generally a397success.398    Contrast this with the Inflation Reduction Act, which took399all of nine paragraphs to describe an agency transformation,400three paragraphs to describe how 99 percent of the funds would401be spent. This was not a real transformation. It was an attempt402to meet a score in the Inflation Reduction Act. That is what403the funding was really intended for. And unfortunately, the404strategic planning, the resulting strategic operational plan,405and now the implementation roadmap, well, those came long after406the money was let out the door, and it shows.407    It is folly to think that as we discuss estimates ranging408from $180.4 billion to $316 billion for the collections the409agency could get from the IRA funding when, again, we were410trying to meet a score, not modernize. We need to move forward411with the real modernization here. And, again, it is going to412take money. There is no apparent project in the implementation413roadmap for modernizing the individual master file, or the414business master file. Customer service priorities are starting415to lag.416    These are a few reasons why our evaluation of the IRS's417report card of IRA funds earned an overall D grade, and I would418be happy to explain further as to why that grade was given, but419I will just recommend here, we need to restore the strength of420that tripartite accountability system I mentioned going421forward. If modernization is going to succeed, we have to have422more itemized spending plans for the IRS going forward beyond423the 100-odd page budget justification that Members of Congress424see. We have to have more detailed real-time data on service425levels in the IRS. That will help us figure out where we need426to shift personnel and how we can better use technologies like427AI. And we have to measure the fiscal benefits of modernization428and customer service on compliance. Several witnesses here can429talk in greater detail about that as well as myself.430    But let me close this oral presentation with an important431and inspiring quote. ``Even in the most difficult times, we can432come together as a Nation, as a people, and as a Congress to433accomplish important things for the American people.'' That was434said 5.5 years ago by the late great John Lewis who many of you435know from this panel.436    History can repeat itself. It wasn't that long ago when you437worked together to produce that legislation. Let's do it again.438    Thank you.439    [The statement of Mr. Sepp follows:]440    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]441442    Chairman SCHWEIKERT. Thank you.443    Mr. Ladwa.444445  STATEMENT OF MINESH LADWA, GLOBAL SOLUTION MANAGER, TAX AND446                    REVENUE MANAGEMENT, SAP447448    Mr. LADWA. So, Chairman Schweikert, Ranking Member Sewell,449and distinguished members of the subcommittee, my name is450Minesh Ladwa, and it is an absolute honor to be here today from451London to discuss this opportunity about modernizing the IRS,452to put technology at the forefront of modernization. That453drives economic growth, compliance efficiency, and taxpayer454engagement.455    So with the right strategy, the IRS can become the world's456leading tax authority, setting a global benchmark for modern457tax administration.458    It is not just about compliance and enforcement. It is459about ensuring that America's tax system remains competitive,460scalable, and cost efficient in the digital economy.461    So for nearly two decades, I have worked with tax agencies462worldwide to modernize systems, implement AI-driven automation,463and enhance compliance strategies. I have seen firsthand what464works and what doesn't work.465    So governments across Europe and Asia are not building IT466systems from scratch. They are leveraging commercially467available scalable IT solutions to increase efficiency, enhance468compliance, and improve taxpayer engagement.469    So today, I want to focus on three critical--I was going to470call it actions, but I will say suggestions. Number one,471transforming the IRS into a technology first agency, moving472beyond fragmented custom built IT solutions. Number two,473leveraging AI automation and digital services to reduce474administrative burdens while improving compliance. And number475three, implementing a modernization in a phased, controlled476manner, ensuring seamless revenue connection and taxpayer477services.478    This is how we do it, and I want to share some ideas.479    So one of the biggest challenges tax agencies face globally480is data fragmentation, disconnected systems, and inconsistent481taxpayer records, and inefficiencies that increase compliance482risks and costs.483    So there is a better way. So I would like to think about a484real-time, AI-enabled tax platform that can provide things like485360-degree views of the taxpayer obligations, or to make things486like case management and call center, reducing manual reviews487and errors while improving accuracy, enable digital self-488service tools making compliance easier and faster.489    So how do you do it? Where do you begin with the scale that490the IRS is? So one option for consideration, rather than a491full-scale transformation, is taking a pragmatic approach. I492would suggest we prototype, we leverage good taxpayers. Big493large corporations are willing to participate in pilot494programs. We sometimes focus on, Hey, let's solve, you know,495the big master of our problem. Well, yes, it is a big issue,496but how do we begin in a way that we don't have risk to497revenue, but we can pilot these new programs with commercially498available solutions?499    So if modernization is implemented effectively, here is500what I believe the IRS can achieve and what I have seen sort of501globally from around the globe. The potential is anywhere502between 5 to 40 percent improvement in tax debt collection503using AI-driven compliance solutions. So I have been reading504some stats. Over $600 billion net tax gap, you know, just 5505percent of that would be about $30 billion, you know, in tax506debt collection. 8 to 12 percent reduction in IT costs,507eliminating things like outdated systems, and hopefully, an508automation of over 170 tax administration processes.509    I am going to say that modernization tax systems must not510come at the expense of security or taxpayer trust. That is why511leading tax agencies use secure cloud-based solutions that made512things like FedRAMP standards, ISO standards that ensures that513the IRS remains in full control of tax data.514    So my final thought, Chairman Schweikert, Ranking Member515Sewell, and distinguished members of the subcommittee, the IRS516stands at a pivotal crossroads. So modernization isn't a517choice. It is an economic necessity. The opportunity in front518of us is to turn the IRS into the intelligent AI-driven tax519agency that provides unified taxpayer views internally and520externally, uses AI and automation to enhance compliance, and521delivers seamless digital taxpayer services.522    By adopting proven commercially available solutions, the523opportunity is now for the IRS to modernize that scale becoming524the global benchmark for technology-first tax administration525and setting a new standard for efficient, intelligent526governance that serves the American people.527    I appreciate your time, and I look forward to your528questions later.529    Thank you.530    [The statement of Mr. Ladwa follows:]531    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]532533STATEMENT OF KRISTEN KOCIOLEK, MANAGING DIRECTOR FOR FINANCIAL534MANAGEMENT AND ASSURANCE TEAM, GOVERNMENT ACCOUNTABILITY OFFICE535536    Ms. KOCIOLEK. Chairman Schweikert, Ranking Member Sewell,537and members of the subcommittee, I am pleased to participate in538today's hearing. I have been asked here today to discuss the539Department of Treasury's payment process and related systems.540    Treasury operates and maintains systems that are critical541to the government's financial infrastructure. This includes the542disbursements of payments to the American public and543businesses, the collection of taxes and revenues, and the544borrowing of funds necessary to run the Federal Government. The545General Fund of the U.S. Government is the reporting entity546responsible for accounting for the cash activity of the Federal547Government. The Secretary of the Treasury has delegated548management of the General Fund to the Bureau of the Fiscal549Service.550    In fiscal year 2022, the General Fund reported $23.2551trillion of cash inflows, primarily debt issuances and tax552collections, and $22.8 trillion of cash outflows, primarily553debt repayments.554    My statement today discusses our understanding of the555payment process as they relate to the General Fund, and556knowledge of the audit activities over the payment systems.557This statement is based primarily on work we performed as part558of our financial statement audit of the fiscal year 2022559schedules of the General Fund. We are currently auditing the560fiscal year 2024 schedules of the General Fund, and we plan to561issue that report in March of this year. Our fiscal year 2022562report provides more detailed information on the objectives,563scope, and methodology for our audit.564    We conducted the work in which the statement is based in565accordance with generally accepted government auditing566standards. Those standards require that we plan and perform the567audit to obtain sufficient appropriate evidence to provide a568reasonable basis for our findings and conclusions based on our569audit objectives, and we believe that our audit evidence570provides a reasonable basis for our findings and conclusions.571    We audited the fiscal year 2022 schedules of the General572Fund because of their significance to the consolidated573financial statements of the U.S. Government. The Secretary of574the Treasury, in coordination with the director of the Office575of Management and Budget, is required to annually submit576audited financial statements for the executive branch of the577U.S. Government to the President and Congress. GAO is required578to audit these statements.579    Our most recent report on the U.S. Government's580consolidated financial statements, discusses progress that has581been made but also underscores that much work remains to582improve Federal financial management, and that the Federal583Government continues to face an unsustainable long-term fiscal584path.585    We continue to encounter limitations that prevented us from586expressing an opinion on the fiscal year 2022 schedule of the587General Fund or on Fiscal Service's internal control over588financial reporting relative to the schedules. We have provided589recommendations to Fiscal Service to address these limitations590in their financial reporting processes. Treasury agreed with591our recommendations and has plans to address them. We will592provide an update on their status in our fiscal year 2024593report.594    Our audit procedures included obtaining an understanding of595the Federal payment process and related internal controls over596financial reporting relevant to our audits. The U.S. Government597disburses cash payments for various reasons. This includes598Federal debt redemptions and interest, Federal income tax599refunds, benefit payments, vendor and salary payments, and600other miscellaneous payments.601    The majority of Federal entities, such as individual602departments and agencies process their payments through Fiscal603Service's Treasury disbursing offices. These Federal entities604internally review and approve payments to be made and submit605certified payment schedules to Fiscal Service using Fiscal606Service systems.607    Federal entities are responsible for maintaining the608detailed information supporting their payment transactions and609related internal controls, such as controls designed to prevent610improper payments, including fraud. Fiscal Service then611processes the payment schedules via several system applications612and submits payment files to the Federal Reserve to make the613payments which are primarily electronic fund transfers.614    Fiscal Service's processes include certain edit and format615checks which can include checking scheduled payments against616certain information in the do-not-pay portal. After payments617are made, various Fiscal Service systems capture payment618information for accounting and reporting purposes.619    Since our initial audit of the schedules of the General620Fund, we have conducted limited audit procedures over621information system controls. These include procedures related622to access controls, configuration management, and security623management.624    During the course of our audit, we also consider the625results of relevant information system controls performed as626part of Treasury's consolidated audit. In addition to audit627procedures performed as part of recurring financial audits,628Treasury's Office of Inspector General annually evaluates the629effectiveness of Treasury systems in accordance with the630Federal Information Security Modernization Act.631    Chairman Schweikert, Ranking Member Sewell, and members of632the subcommittee, this completes my prepared statement. I would633be pleased to respond to questions that you may have.634    [The statement of Ms. Kociolek follows:]635    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]636637    STATEMENT OF NINA OLSON, EXECUTIVE DIRECTOR, CENTER FOR638                        TAXPAYER RIGHTS639640    Ms. OLSON. Chairman Schweikert, Ranking Member Sewell, and641members of the subcommittee, thank you for holding this hearing642today and inviting me to testify on IRS return on investment643and modernization.644    I view these topics through the lens of taxpayer rights,645rich or poor, multinational or small business, native-born or646immigrant, U.S. taxpayers deserve to be treated with dignity647and respect. Because taxpayer dignity is closely correlated648with taxpayers' trust of the tax agency and willingness to649comply with the tax laws, taxpayer rights' protections will not650only increase taxpayer trust but also increase the efficiency651and effectiveness of the tax system.652    The IRS is a large organization that touches nearly every653person and business entity in the United States, yet its654operations have been mired in mid-20th century processes and655technology that create inefficiencies and frustrate taxpayers656and IRS employees alike.657    The IRS has over 60 case management systems so there is no658360-degree picture of the taxpayers' data, interactions, and659filings with the IRS. The situation creates significant660inefficiencies. Phone assisters cannot assess or access certain661databases, and, therefore, cannot help the taxpayer in real-662time. IRS case selection does not reflect all of the663information available in IRS systems and databases leading to664no-change audits and false positives. Documentation taxpayers665have sent in is not available for review by the employee with666whom they are speaking. The sheer waste of taxpayer and IRS667employee time is both infuriating and costly.668    According to the Inspector General, however, with IRA669funding, the IRS IT organization, quote, ``is making670significant technical advances in the areas of AI, automation,671cloud capabilities, data access, data quality, and data672standards. The IRS is undergoing multiple new processes, and673once fully operational, they will pave the way for a new674technology era across the enterprise,'' end quote. In my 50675years of working in tax, I have never seen an IG report praise676the IRS like this.677    Through 2024, using IRA funding, there has been significant678improvements to taxpayer service on the phones, and online679account to the fairness of the tax system by focusing on areas680of complex noncompliance, and to efficiency and effectiveness681through digitalization. Digitalization requires both the682retention of employees who have institutional knowledge and683hands-on experience in tax administration and the hiring of new684employees who are bring new skills and outside-the-agency685experience. The balance between seasoned employees and those686with new skill sets will not be achieved if government service687is vilified and current IRS employees are painted as inept, or688even worse, corrupt. Moreover, with a Tax Code as complex as689ours, digitalization cannot replace in-person assistance. In690many instances, human judgment and intervention are required.691    Through June 2024, the IRS spent $1.4 billion or 44.3692percent of IRS funding dedicated to taxpayer service. If the693IRS continues to apply IRA funding to make up for the annual694appropriation gap, it projects it will run out of IRA taxpayer695service funding at the end of this fiscal year. That means that696taxpayers will experience a cliff. In one filing season they697are able to get through on the phone and have their returns698processed relatively quickly and the next filing season will go699back to pandemic levels of assistance that is almost no700assistance at all. This path is unsustainable and violates the701trust of U.S. taxpayers.702    I close my testimony with the fundamental right to703confidentiality of returns and return information. Indeed the704efficiency and effectiveness of our self-assessment tax system705is dependent on taxpayers' trust that information they706voluntarily provide the IRS will be held confidential. Congress707has recognized that tax returns and tax return information can708be very helpful in administering nontax administration709policies, but every single exception to confidentiality in the710Code contains language restricting such use and disclosure,711quote, ``for the purpose of and only to the extent necessary,''712end quote, for carrying out that nontax administration purpose.713    Congress has only granted exceptions to 6103 where it has714carefully balanced the compelling need for disclosure against715the fundamental taxpayer guarantee that if they voluntarily716provide the IRS with personal and private information it will717remain confidential. We all need to ensure that protection and718right is not violated.719    Thank you.720    [The statement of Ms. Olson follows:]721   [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]722723    Chairman SCHWEIKERT. Thank you to our witnesses.724    Now we begin the fun part. We try to educate those of us725sitting up here.726    Ms.--and I apologize to everyone.727    Ms. KOCIOLEK. Kociolek.728    Chairman SCHWEIKERT. Kociolek. Maybe the single thickest 5729minutes I think we have ever had someone sitting there. But I730want to walk through just a couple of things and get my head731around it.732    Are you familiar with RAAS, Research Applied Analytics and733Statistics Division?734    Ms. KOCIOLEK. I am not.735    Chairman SCHWEIKERT. Okay. Apparently, they are the ones736that are supposed to do certain data. They also do apparently737data sharing agreements for researchers. Apparently right now,738there are more than 50 researchers that have that type of739access.740    And part of my reason for this is, you know, I know the pop741culture right now is to attack DOGE and those things, but the742fact of the matter is the data we have says there are 50743researchers. How do you think groups on the left and the right744write their, you know, reports on so and so are being picked on745or so and so aren't paying enough? But we also have letters746going back a couple of years--and you touched on this--that for747those who do have access for research, that we probably need748additional protocols for privacy and security, because it turns749out right now from what we are finding in our own quick750research, which took us a half an hour, that 50 researchers out751there actually look like they have more access over history752than the current DOGE process does. So that will be fun to dig753into and figure out what is true and what is pop culture.754    What if you--am I on track?755    Ms. KOCIOLEK. So what I can say about access to sensitive756systems, certainly there is an expectation that anybody757collecting sensitive information, tax information, any kind of758information----759    Chairman SCHWEIKERT. My point was just are you familiar760with the fact that we are coming up with over 50 different761research groups that have access already.762    Ms. KOCIOLEK. Yes. And there should be agreements in place,763so that is what I was getting at. Any time there is someone764with access to information, there are policies that are765expected to be followed, yes.766    Chairman SCHWEIKERT. Could I beg of you for probably all of767us out here who have an interest in that, could you please just768grab some of that and send it our direction.769    Ms. KOCIOLEK. Absolutely.770    Chairman SCHWEIKERT. And you made a comment that--was it in771the 2022 audit that you almost weren't able to complete that?772Could you put some more information around that?773    Ms. KOCIOLEK. Yes. So on both the General Fund audit and on774the consolidated financial statements audit of the U.S.775Government, GAO is unable to express an opinion on the776financial statements given various limitations in data777available.778    At the General Fund level, much of the information that is779in the systems, like I said, details are maintained at780agencies, and summary information is in some of the systems,781and that prevents us from having the detailed information that782would allow us to provide an opinion on the financial783statements and the line items there.784    At the consolidated financial statement level, there are785several reasons we are not able to give an opinion on those786statements. One being challenges at the Department of Defense,787and them being able to have good financial management systems788and processes in place; the second being the ability of the789government to eliminate the transactions between each other;790and then the third being in the consolidation process.791    So there are a variety of reasons that we are unable to792give opinions on the statements, yes.793    Chairman SCHWEIKERT. Okay. And for years I have been trying794to get an AI audit of the Pentagon just because they failed now795for 8 years. Now it turns out we should probably do the same796with the IRS.797    Mr. Ladwa, could your system solve GAO's problem?798    Mr. LADWA. I think we would have to look at the intricacies799without a resounding yes or no. I think there are sort of lots800of complexities and processes between what I have just heard in801order to do that.802    I would say there are, you know, as I said, solutions that803we provide that look at things like that to provide those----804    Chairman SCHWEIKERT. Well, Ms. Olson pointed out something805that I am surprised none of the rest of you did, 60 different806sort of tracking systems for the individual taxpayer. You have807done this now in other countries. If we reached out to you and808said fix it, how would you deal with that?809    Mr. LADWA. So I think there was a few conversations around810this master file that I have read a little bit about and know a811little bit about the architecture in terms of tracking and812audit. I think if I was going to tackle it and think about, you813know, how you solve this problem, it is about consolidation and814understanding where the data is, how it is being stored, how it815is being accessed. And my first thing would be understanding816and moving away from sort of old archaic, custom-built file817systems like this. That is the first to ensure that we have got818consolidated taxpayer record.819    Chairman SCHWEIKERT. And for those of us who are not very820bright, would you build a mirror, run the systems, run them821parallel, and then do a switchover? I mean, how do you do the822migration and how quickly could migration happen?823    Mr. LADWA. Yes. So I think the first and foremost is that--824for example, the complexity of the master file system from what825I understand has a lot of detailed information about the826taxpayer, right, obligations, previous history, and various827other sort of artifacts.828    What I would do, you know, what is in my migration period,829I would first start with a fresh level of thinking. So first I830would understand what is important when we are administering831the various taxes at this Federal level. That is needed for a832transparent taxpayer journey and the efficiencies internally of833the tax agency. Because there are solutions which basically834consolidate and that you can deploy very, very quickly.835    Then it becomes a question of historic. So do I need to836look at the intricacies of what is in the master file now to837bring it over? And I would essentially--mirroring is probably,838I would say, a--it could be a consideration. I would say we839would look at, if we were going to do this again from scratch,840how would we do it rather than rely on, you know, how we have841built things in the past.842    Chairman SCHWEIKERT. Okay. Absolutely perfect.843    A couple of others just because these are idiosyncrasies.844So even with the stepped-up funding--and this is a little845different, the facts I am holding here in my dataset and846actually from a press release from the IRS itself--during the847tax season, only 31 percent of the phone calls were actually848being answered.849    If I came to you today and said, I need you to design me a850hyper accurate, hyper friendly--so my mom calls, bless her851soul, but calls. An IRS chatbot stays on the phone, helps her852fill out the form, maybe sends you a text message of the853YouTube video of how to do the form, maybe a PDF if you don't854have the form, instead of a world where only 31 percent of the855phone calls are being answered. And then I have the whole856statistics here of how many of the responses are actually not857accurate on those calls.858    How difficult would be that type of the outreach859technologically?860    Mr. LADWA. Chairman, I don't think it is that difficult. I861don't think it has to be that----862    Chairman SCHWEIKERT. Just stop right there. That was a863brilliant answer. No, no, please go on, because this is a864fixation because, first off, that is not right or left. It is865just decency.866    Mr. LADWA. Yeah. And I would like to take tax867administration right down to its basics. Right? It is868understanding what you need to populate and then populating it869and processing it. So in order to help, you know, there are870solutions that exist which do exactly those types of things.871Right? So depending on the channel, you could absolutely, you872know, guide and do it effectively as long as you know exactly873who the taxpayer is and what they are trying to file based upon874their previous history, or them as an individual. It is not875that hard.876    Chairman SCHWEIKERT. If I came to you--and this is one for877anyone this would have comfort. Ms. Sewell and I have had this878running conversation for years on--let's first just use certain879core tiles, Earned Income Tax Credit populations. Past years880they delayed it by 2 months because of the amount of fraud of881duplicate, you know, tax forms are being put in, but that also882ends up being a population now that will get multiple letters883of inquiries, technically not audits, but please explain this884to us.885    We have had a data scientist in our office a couple of886years ago who basically said if you just did a data match, you887could wipe out the fraud because the quality--and it could be888blinded public databases, commercial databases. If I came to889you right now and said, I have a population here which890qualifies under the law for an Earned Income Tax Credit, we891want to get rid of the 2-month delay, but we want to eliminate892the fake, the fraudulent tax forms being turned in trying to893steal someone else's credit, do you do that through an AI894algorithm, a data bounce off commercially available databases?895How do you solve both of our problems, fixation on fraud, the896morality of people getting something they are earned faster?897Walk me through real quickly how you solve both of our898problems.899    Mr. LADWA. That is a great question. We have got 2 hours,900right?901    So, first and foremost, Chairman, I think the understanding902before we talk about technology, yes, technology exists to be903able to use things like machine learning algorithms,904configurable business rules to be able to detect battens, to905understand who are our highest-risk customers, should refunds906be made, things like receipt submissions in terms of907extractions and understanding what someone is claiming is what908they are due.909    So I think, first and foremost, the technology is there. It910exists. I think the question would be is what are the rules and911what are the sort of legal and policies that allow us to912configure those rules in order to quickly be able to identify913those.914    Chairman SCHWEIKERT. Right. My eccentricities have been915dominating this far too long.916    Ms. Sewell.917    Ms. SEWELL. So my questions, my initial questions are to918our managing director of GAO. And I really do want very simple919yes or no because I only have 5 minutes and there are a lot of920things I want to cover.921    So my first question is that--well, it is really not really922a question. It is yesterday in the New York Times five former923Treasury secretaries wrote an op-ed entitled ``Our Democracy is924Under Siege.''925    Without objection, I would like to submit this article op-926ed for the record.927    Mrs. FISCHBACH [presiding]. Without objection.928    [The information follows:]929   [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]930931    Ms. SEWELL. In the op-ed the former Treasury secretaries932noted that the Nation's payment systems have historically been933operated by a very small group of nonpartisan career civil934servants until recently when that norm was upended. They also935express significant data privacy cybersecurity and national936security threats with, quote, ``political actors from the so-937called Department of Government Efficiency being involved.'' I938too am quite concerned about the privacy of my constituents and939American taxpayers being accessed.940    So, my question, yes or no, does GAO know what confidential941tax or sensitive information was accessed and shared with DOGE?942Yes, or no?943    Ms. KOCIOLEK. No, we do not.944    Ms. SEWELL. So, GAO does not know what was shared.945    Please answer yes or no: Does GAO know who accessed the946data or what code was rewritten?947    Ms. KOCIOLEK. No. We have not done work on that.948    Ms. SEWELL. So, I understand that there are audit laws that949keep track of who accessed the payment systems. Can you answer950yes or no, is it possible for management to override controls951in place and delete those audit logs?952    Ms. KOCIOLEK. Logs are designed to--I want to just mention953the concept of segregation of duties. So when access is954granted----955    Ms. SEWELL. I just have a few minutes----956    Ms. KOCIOLEK [continuing]. There have to be different957people to do the audit logs.958    Ms. SEWELL [continuing]. So yes or no, ma'am. You can say959you don't know.960    Ms. KOCIOLEK. Yeah, we can get back to you. Generally you961would have someone separate from who creates the audit logs962monitoring them.963    Ms. SEWELL. So, Ms. Olson, please just answer yes or no. Is964there confidential taxpayer information protected by section9656103 in the Treasury payment systems?966    Ms. OLSON. Yes.967    Ms. SEWELL. Do you know what confidential taxpayer968information is in the Treasury payment systems? Yes, or no?969    Ms. OLSON. Yes, at the very least.970    Ms. SEWELL. So, Ms. Olson, I am very concerned that this971DOGE and unelected folks have access to this payment972information. As the previous national taxpayer advocate, do you973share my concerns? And what do you think I should say to my974constituents who are really afraid that their taxpayer975information, their confidential private information is being976exposed?977    Now I do know that the managing director did say that there978were--there may have been like 50 or so researchers, but they979had contracts that specifically required them to keep that980confidential private information confidential and private.981    So, can you talk to us a little bit about that concern? And982then I want to ask you, how do we address this with no budget,983with no budget for the IRS to actually do what it is supposed984to do? I think everyone on this panel has said a couple of985things: first, that the IRS needs to be reformed; and secondly,986that the IRS has an outdated technological technology system987and we have to update it. All of those things take cost, and I988would like to know your concerns and how you would address989them.990    Ms. OLSON. Well, I am very concerned about anyone accessing991confidential taxpayer information. I am a confidentiality hawk992in that regard. And I think that if the law is followed, then993the inappropriate people will not get access to that. There are994criminal sanctions for improper inspection and disclosure. The995issue is how do you detect that? And that is really something996that not only is for GAO and the Inspector General to look at,997but also Congress to make sure that----998    Ms. SEWELL. I think the Inspector General--I think all of999them have been summarily dismissed.1000    Ms. OLSON. Pardon?1001    Ms. SEWELL. I think the Inspector Generals have been1002summarily dismissed.1003    Ms. OLSON. Right, but that is their function to look at1004fraud, waste, and abuse.1005    I also think that there should be notification procedures,1006you know, where someone's information has been accessed1007improperly, and that would give someone the right, an1008individual, or any taxpayer, the right to sue in a private1009cause of action, either the Federal Government employee or an1010independent contractor or any person is what the law says. The1011problem is getting that disclosure, and that is what is serious1012right now. We don't know.1013    Ms. SEWELL. I am running out of time. I think what you are1014saying is we need more transparency in government and1015accountability in government. I think all of us agree that the1016IRS can do it more efficiently and more effectively, but I just1017want this committee to know we cannot do it when funds are1018frozen, and we are not getting access to the IRS to actually1019complete any of these tools.1020    I, like the chairman, do agree that certain populations I1021feel are targeted for audits. They are low-hanging fruit. They1022are people who literally don't make more than $50,000 a year.1023Using the Earned Income Tax Credit, they are able to decrease1024their liability, and that is fair. But why are they four times1025more likely to be audited than some complicated tax return?1026    Having said that, I look forward to working on this1027committee to address the concerns that have been laid out by1028all of our witnesses on the panel.1029    Thank you for your indulgence.1030    Mrs. FISCHBACH. Thank you very much.1031    And pursuant to committee practice, we will now move to 2-1032to-1 questioning, and I recognize Chairman Smith.1033    Chairman SMITH. Thank you, Madam Chair Fischbach. That is a1034great, great thing to say.1035    The Congressional Budget Office has a track record of1036wildly missing the mark when it comes to projecting economic1037and fiscal outcomes. In 2022, Democrats gave the IRS an $801038billion windfall that CBO initially projected would bring in1039$200 billion in revenue. Not surprisingly, the CBO has been1040proven wrong again on this point. The IRS has missed CBO's1041initial revenue projection from enhanced IRS resources by 561042percent, which adds up to billions of dollars.1043    Mr. Dublois, I was in the back office watching your1044testimony, and you were speaking my language because you are1045dead-on with the failures of Joint Tax and CBO because they1046work hand-in-glove when it comes to tax policy. They have1047proven to be wrong. Whether it is the Tax Cut and Jobs Act of10482017, or whether it was the Inflation Reduction Act, they were1049off by hundreds of billions and, in some cases, trillions of1050dollars in their scores. And if we as lawmakers have to make1051decisions based on CBO and Joint Tax's analysis, you bet it had1052better be right, and it hasn't been.1053    So, Mr. Dublois, as you know, part of today's hearing is1054focusing on the return on investment from the Inflation1055Reduction Act. Based on your previous research related to CBO1056projections and government funding, why do you think CBO has1057been so incorrect on their projections?1058    Mr. DUBLOIS. Well, thank you for the question, Chairman1059Smith.1060    I think you are exactly right. Specifically, regarding1061their accuracy on the Inflation Reduction Act and the enhanced1062enforcement efforts, I think it is pretty clear CBO1063dramatically overstated the efficiency of the IRS. It is1064readily apparent when considering the estimated ROI they had1065for the enhanced enforcement effort returns compared to the1066actual ROI, which is off by a factor of sixfold, just for1067fiscal year 2024. The actual ROI is less than one, meaning for1068every $1 in revenue gained through the enhanced enforcement1069efforts, the IRS has already spent more than $1 to gain that.1070    But consider today--and I know you have spoken to this in1071the past--under the CBO's broken model, if Congress were to1072rescind this slush fund to the IRS, they would assume that the1073deficit would increase. In reality, I think it is pretty clear1074that an $80 billion fund to the IRS isn't all that helpful1075towards deficit reduction, and the early results seem to1076suggest that.1077    I would add more broadly, as I mentioned in my testimony, I1078think CBO does contain an implicit bias of underestimating the1079costs of increasing the size of government and overstating the1080costs associated with tax relief. This is due to a number of1081factors, from incorrect assumptions about welfare enrollment,1082the pace of economic recoveries, organic revenue growth that is1083generated when you give substantial tax cuts to the middle1084class. And I think these errors reflect this implicit bias that1085requires on CBO's part some serious self-reflection in order to1086make sure we don't make the same mistakes again in the future.1087    Chairman SMITH. Thank you.1088    Mr. Sepp, first off, welcome back to the best committee in1089Congress.1090    Mr. SEPP. I agree.1091    Chairman SMITH. Thank you. This is why you are invited1092back. We appreciate you being here to share your expertise as1093it relates to the modernization efforts at the IRS.1094    We have read your organization's report which gave the IRS1095a D grade for modernization. Can you share with the committee1096more about the IRS's history of modernization efforts? And what1097is the biggest factor that led to giving the agency a D in1098their modernization efforts?1099    Mr. SEPP. Glad to do so.1100    The history of IRS modernization really dates back to the11011950s. There was an interesting headline in Time Magazine in11021962 that the IRS is developing a computerized system of1103taxpayer records that will frighten the living daylights out of1104taxpayers. Since then we have had various modernization1105programs under acronyms like ERP, TISM, TAS, TSR, all kinds of1106different modernization systems that have ballooned in costs1107dramatically, sometimes doubling in cost and falling behind.1108    We are witnessing that now with the replacement of the1109individual master file. Back in 2009, the IRS had projected1110that this project would take until 2028 to complete. What is1111the date now? It is still 2028. Did the infusion of funding1112from IRA have any impact on that? Were they falling behind and1113it is allowing them just barely to keep up? We don't really1114know that the because the metrics aren't adequate. That is one1115thing that went into the D grade in our report, and we brought1116copies of it along by my colleague, Debbie Jennings, who1117contributed very well to this testimony along with Demian1118Brady, but there are other elements in the overall grade of D.1119    The IRS actually did better in simplifying notices,1120letters, and forms, a B grade. I think that reflects some of1121what Nina had said, TIGTA is praising some of these1122modernization efforts. But in others, like I just said,1123progress and scanning technologies, customer service1124technologies, they are still not making the grade. We have got1125to help them do better.1126    Chairman SMITH. Thank you.1127    Any American who has spent one minute interacting with the1128IRS knows the agency desperately needs to be modernized. But1129the main goal behind modernization ought to be improving the1130taxpayer experience, not just giving an agency with a horrible1131track record of betraying the trust of taxpayers billions of1132more dollars in additional funds to hire more people and1133increase audits.1134    Mr. Ladwa, in your opinion as an expert in tax1135administration with nearly two decades of experience in1136modernizing tax agencies across the world, what can the IRS do1137to modernize its operations? And where does the IRS rank1138compared to other tax agencies when it comes to utilizing new1139technologies, such as artificial intelligence and machine1140learning?1141    Mr. LADWA. Thank you, Chairman. I also would like to be1142invited back.1143    I think we touched upon it in terms of if I first start1144with taxpayer experience, and I think in order to get the best1145taxpayer experience, I think we need transparency, and real-1146time transparency, not waiting to see once I have submitted a1147tax return what the amount I owe or am due is.1148    In order to do that, we have to start with modernizing the1149databases that hold these types of customer records, the1150taxpayer records. We call them customers in the U.K.1151    How does the IRS rank in terms of AI and modernization? In1152general, I think I have seen from working with different1153countries that the first real sort of journey that people go on1154is actually recognizing that they need to modernize. Some1155countries don't even recognize that they need to modernize. I1156am aware that there are sort of AI prototypes and things going1157on, but I think in parallel to deploying tactical solutions on1158top of old architectures, I think there needs to be a real1159review, and my colleague next to me said the same thing, in1160terms of really holding how we move away from the old cobalt-1161based systems into newer technologies, as well as deploying AI1162capabilities that can help increase tax revenue.1163    Chairman SMITH. Thank you, Mr. Chair.1164    Chairman SCHWEIKERT. Thank you.1165    Mrs. Fischbach.1166    Mrs. FISCHBACH. Thank you very much.1167    And, Mr. Dublois, Chairman Smith kind of got at it and was1168mentioning some of the CBO's overestimating and some of the1169biases. And, you know, I was just wondering if maybe you could1170expand on some of those--getting at more of those biases? And1171what are some of the other biases that you think CBO has1172demonstrated, how do you think they shape those incorrect1173projections and recognizing them, I guess? So just looking1174maybe to drill down a little bit more on what we were having1175the discussion with Chairman Smith.1176    Mr. DUBLOIS. Sure. Happy to, Congresswoman. So a couple1177things. I think if you look over the last 15 years to some of1178the most substantial pieces of legislation that had been placed1179before Congress, whether it is 2009 stimulus bill, the1180Affordable Care Act, the Inflation Reduction Act, we see an1181error rate that is alarming because it means that Congress is1182not being equipped with the information that they need to make1183accurate decisions at the time they are voting on legislation,1184because the actual costs associated with that legislation1185differs so substantially from the fiscal reality that occurs.1186    And as I alluded to in my testimony, what is most1187concerning to me, is that those errors frequently tend to be on1188the side of a fiscal mistake that underestimates the cost of1189new or increased government programs and overestimates the1190costs associated with tax relief. We have seen it time and time1191again with legislation after legislation.1192    Now, if I were the CBO, I would be thinking, How can we1193adjust some of our assumptions about things like the IRS is our1194ally? How can we not make the same mistake that we did about1195welfare benefits when we looked at the post-2009 recession1196economic recovery, and it came out to be record slow? What can1197we do to make sure we don't make those mistakes again?1198    I would hope those conversations are happening at the CBO's1199level. But I am concerned that they are not. And I am concerned1200that even the baseline itself that Congress uses from--that CBO1201uses to inform Congress is itself containing flaws that will1202continue to lead Congress down a road towards making inaccurate1203decisions because it is based on inaccurate information.1204    Mrs. FISCHBACH. And maybe without going into it too much--1205--1206    Mr. DUBLOIS. Sure.1207    Mrs. FISCHBACH [continuing]. Do you think that Congress1208needs to take action to make some of those things happen that1209you are----1210    Mr. DUBLOIS. Yeah, I think--two things, first, I would like1211scores with somewhat of a grain of salt, number one. Number1212two, I think Congress should seriously look at amending1213requirements about how the baseline is constructed, and also,1214think about viewing it differently. I mean, I have briefly1215alluded my testimony to whether we look at a current law1216current or policy baseline. This shouldn't be controversial, it1217should be bipartisan. When the Bush tax cuts were up for1218expiration in the early 2010s, it was the Obama administration1219who was advocating for a current policy baseline.1220    I think considering the current policy baseline in light of1221conversations around reconciliation is the right way to go, and1222yet, CBO is continuing to use a current law baseline. So I1223think we need to have those conversations, and Congress should1224play a very important role in that.1225    Ms. FISCHBACH. Thank you very much.1226    And, Mr. Sepp, Chairman Smith did kind of get at1227modernization a little more broadly. And I wanted to ask you,1228you know, a little bit about the direct file return. And, you1229know, the Inflation Reduction Act contained $15 million for1230them to study the feasibility and cost of establishing the1231direct file program. Yet, the Biden administration overstepped1232its authority and created the pilot program which cost the IRS1233around $129 million without congressional approval.1234    You know, do you agree that Congress did not authorize the1235establishment of the direct file program in the IRA?1236    Mr. SEPP. Yeah, I would agree with that.1237    Mrs. FISCHBACH. And the IRS had previously indicated that1238they are considering expanding the program. Given the over-$9001239per filer they spent in 2024, do you think this would provide a1240good return on investment for taxpayers?1241    Mr. SEPP. No, because there are other imperatives that the1242IRS could be using these resources for. Let's pick a number. It1243is between $114 million, which is what the IRS set aside first1244year of direct file, and $250 million to run the system a year.1245That is the high-end projection. Let's take a middle one at 2001246million a year for a direct file going forward. Over a 10-year1247period of time, $2 billion.1248    Now, the service has said that it needs an additional $31249billion for modernization outside of what was given in IRA.1250Shift it out of direct file, and you are two-thirds of the way1251there in meeting that. Or take a look at low-income tax clinics1252and the Voluntary Income Tax Assistance Program, the Elderly1253Tax Counseling Program combined, that is about $80 million a1254year. You could more than double the funding for those1255organizations which serve moderate- and low-income taxpayers1256rather than direct file. I mean, those are choices Congress1257should be considering right now.1258    Mrs. FISCHBACH. Thank you very much. And thank you all for1259being here. And I yield back.1260    Chairman SCHWEIKERT. Thank you, Mrs. Fischbach.1261    Ms. Chu.1262    Ms. CHU. Ms. Olson, thank you for your 18 years of service1263as our country's national taxpayer advocate. You know the1264system inside out. And one of your accomplishments as taxpayer1265advocate was working with the IRS to adopt the Taxpayer Bill of1266Rights to more clearly articulate taxpayers' rights to the1267public and the IRS.1268    And one of those 10 rights is the right to confidentiality1269in which it says: Taxpayers have the right to expect that any1270information they provide to the IRS will not be disclosed1271unless authorized by the taxpayer or by law. Taxpayers have the1272right to expect the IRS to investigate and take appropriate1273action against its employees, return preparers, and others who1274wrongfully use or disclose taxpayer return information.1275    Well, taxpayers entrust the IRS with their most sensitive1276information, and Congress has gone to great lengths to ensure1277that it be kept safe and treated with respect. In fact, you1278asked us to imagine what would happen to that trust and to1279voluntary compliance if taxpayers' confidential information is1280inspected or disclosed by actors outside of the you--IRS.1281    And yet, we have Elon Musk, so-called Department of1282Government Efficiency, which has gained access to the1283Treasury's Bureau of Fiscal Service, the sensitive payment1284system responsible for paying out more than $6 trillion in1285benefits, tax refunds, Treasury bonds, and other payments each1286year. And what that means is that unvetted, unaccountable1287billionaires and their staff could access People's Social1288Security numbers, bank information, and tax returns, which are1289protected under Section 6103 of the Tax Code.1290    Can you specify the types of confidential taxpayer1291information that is in the payment system that is endangered1292through this action? And also, can you imagine for us what the1293consequences are to the voluntary system of taxpayer compliance1294with this action?1295    Ms. OLSON. Well, the very, very basic information that is1296available is the taxpayer's name, the taxpayer's identity, the1297amount--their address, their Social Security number, the amount1298of the refund, the type of tax that the refund relates to, the1299type of--the year, if BFS is levying--is issuing a levy or1300doing an offset, you have all of that information, what the1301total debt is, et cetera.1302    This is very personal information and can be very damaging1303to taxpayers. The fact that there is debt that you have is1304something that is closely guarded, unless the IRS has decided1305to file a notice of federal tax lien, and that is a very1306considered opinion, you know, a considered decision.1307    Ms. CHU. And I want you to imagine what would happen to1308taxpayer compliance.1309    Ms. OLSON. Well, I personally believe that confidentiality1310is core why taxpayers agree to send in and self-assess. Let me1311repeat, self-assess their tax liabilities on the 1040, or1312whatever income tax return they are using. And if they believe1313that that information is widely disseminated throughout other1314Federal agencies or State agencies or local agencies, then this1315will actually be a bar to people. It will chill people1316reporting information.1317    Ms. CHU. Ms. Olson, the Trump administration sent an email1318to almost all Federal employees, including IRS employees about1319a so-called deferred resignation. But in reality, this was an1320attempt to pressure and corner civil servants into quitting.1321    What impact will that have on taxpayers who rely on the1322IRS? And will these coerced job cuts and firings even save the1323taxpayers money?1324    Ms. OLSON. Well, I am concerned about the IRS workforce and1325my former employees. And I think what I said in my testimony1326that in order to do true modernization, you have to retain the1327people who have institutional knowledge while you are bringing1328on more people. And trying to just willy nilly disappear people1329or get them to retire means that you will very likely get the1330most talented people leaving because they can find their places1331in the private sector.1332    So what you have done is a brain drain from the IRS which1333will mean that modernization will not occur with that1334knowledge. Outside contractor cannot bring that internal1335knowledge of tax administration and the tax system, no matter1336how talented they are.1337    Ms. CHU. And will it save us money?1338    Ms. OLSON. I doubt it, in the long run.1339    Ms. CHU. Thank you. I yield back.1340    Chairman SCHWEIKERT. Ms. Van Duyne.1341    Ms. VAN DUYNE. Ms. Olson, do you have any evidence that1342confidential taxpayer data has actually been illegally accessed1343or illegally disclosed?1344    Ms. OLSON. As GAO has said, we have not seen that. That is1345part of the problem there is no transparency----1346    Ms. VAN DUYNE. So we have absolutely seen no evidence that1347that has happened, even though we heard it today? Except for1348the fact that we actually had existing IRS policies that1349allowed security measures to fail that prevented an employee1350from un-authorizing access in leaking the tax returns of Donald1351Trump, and approximately 76 other individuals way before we1352ever even saw Elon Musk take an interest in this. We do know1353that that happened.1354    Ms. OLSON. You know what, I know that IRS employees are1355trained from day one about----1356    Ms. VAN DUYNE. But we do know----1357    Ms. OLSON [continuing]. Confidentiality and information.1358    Ms. VAN DUYNE. I am going to take my time back, Ms. Olson,1359thank you very much. Ms. Olson, thank you very much.1360    But in stark contrast, you know, Elon Musk's approach to1361this is about transparency. It is about open systems. And we1362say, ``transparency in government,'' it doesn't mean that were1363allowing rogue employees to weaponize confidential records. It1364actually means creating systems where access is properly1365monitored, security logged, and justified with clear oversight.1366    The IRS scandal demonstrates what happens when1367unaccountable bureaucrats control private citizen data with1368very little transparency or consequences. Musk's vision by1369contrast--and he has been very clear about this, as is1370President Trump's vision--it represents a future where1371government efficiency is achieved through technological1372safeguards, open auditing mechanisms, and a commitment to1373individual privacy.1374    So as much as we have heard all of these things about an1375unelected member of our community having access, we have seen1376what has happened when unelected bureaucrats have access, and1377we have seen thousands of information on taxpayers, I would1378argue, on Republican or highly conservative members of our1379society have been leaked. That is a fact, that has happened.1380    Ms. OLSON. May I respond?1381    Ms. VAN DUYNE. I actually have a statement I would like to1382make, but if you want to respond in writing later on, I would1383appreciate that.1384    But I do want to get back to the point of this entire1385hearing, which I would hope that both sides would want to do1386that. In conversations with north Texans, I have repeatedly1387heard complaints regarding the IRS' poor system delays. Their1388poor customer service and lack of responsiveness in1389transparency. Ironically, we continue to hear claims that the1390IRS just needs more funding to improve. But the fact is that1391when the government agency was given a significantly larger1392budget, it doubled its employee count. Customer service1393actually declined. But harassment of law-abiding American1394taxpayers increased.1395    And rather than focusing on improving the core functions of1396the IRS, the previous administration spent their time and our1397money creating misguided and expensive pet projects like the1398new direct file scheme. In its 2024 annual report to Congress,1399the National Taxpayer Advocate found that it took the IRS1400almost two years to resolve identity theft cases and issue1401refunds to victims.1402    The advocate noted that, quote: These delays impacted1403nearly half a million taxpayers and were even worse than the1404delays seen in fiscal year 2023. The delays were deemed1405unconscionable by the taxpayer advocate, and I could not agree1406more.1407    In addition to egregious delays in the process that ERTC1408claims, delays in the processing of regular tax returns have1409hurt people across our country, especially small businesses and1410their most basic operations of the IRS. It must be modernized1411to better serve and protect small businesses. I think that is1412exactly where you see the focus of this administration.1413    Mr. Sepp, would you agree that IRS should focus on1414congressionally mandated functions before working on1415questionable initiatives, like the direct file program?1416    Mr. SEPP. Absolutely it should. There are many priorities1417that should be in the front of the line here, and touching on1418this cybersecurity question, which we haven't really explored1419in detail, GAO has warned that the IRS lacks an oversight1420structure to protect taxpayer data from cyber as well as1421internal threats since 2018.1422    And so how do we approach that comprehensively? I think it1423is a first-things-first kind of operation. We have to look at1424individual master file, business master file, cybersecurity,1425and devote the resources there.1426    Ms. VAN DUYNE. Thank you very much.1427    And, Mr. Dublois, as is mentioned, CBO failed to accurately1428project the amount of revenue that IRA funding would bring into1429the IRS, suggesting that perhaps the funding was not properly1430used on enhanced enforcement efforts in this instance.1431    What can be done to improve the IRS' return on investment?1432And it is really enhanced enforcement efforts, or is it1433something else?1434    Mr. DUBLOIS. Thank you, Congresswoman, for the question. I1435would say doubling down on the enforcement efforts would be a1436mistake. That is what caused the mess, so to speak. And I think1437evaluating the fundamental assumption that these enforcement1438efforts are a good idea is something that we need to do. It is1439not just bad fiscal estimates and a poor ROI, it is the reality1440that these collection efforts are going to hit middle-class1441Americans.1442    So collectively, I think Congress needs to reevaluate this1443$80 billion venture, realize it was a mistake that shouldn't be1444repeated, but also relieve the IRS of that funding, and engage1445in better activities in the first place.1446    Ms. VAN DUYNE. Thank you very much. I yield back.1447    Chairman SCHWEIKERT. Ms. Malliotakis.1448    Ms. MALLIOTAKIS. Thank you, Mr. Chairman. I want to use my1449time to highlight a real critical problem that has been facing1450my constituents, and that is the issue of stolen IRS checks.1451This has cost my constituents alone millions of dollars. And in14522022, there was $4.7 billion that was purposed for IRS business1453system modernization.1454    The IRS' need for information technology modernization is1455critical with the potential to reallocate IRA funds from1456enforcement to IT improvements, the key priority of the newly1457established Department of Government Efficiency.1458    The IRS plays a critical role in ensuring taxpayers receive1459their hard-earned refunds securely and efficiently. However,1460outdated IT infrastructure and delivery systems have left many1461vulnerable to fraud and stolen tax reimbursement checks.1462    In my district alone, 377 cases of stolen checks totaling1463$5 million--$5,399,808 to be exact. Nationally, it has been1464reported that the IRS--that for IRS checks alone,1465approximately, 40,000 checks have been stolen in 2024, up from1466just 100 in 2022.1467    So, obviously, we are going backwards, despite the funding1468that was put in place for IT modernization. The numbers are1469getting worse. The value stolen has been approximately $11470billion as well as the hardship and stress that the intended1471recipients had to ensure as they seek to get their checks.1472    Modernizing these systems is no longer optional. It is1473necessary to protect taxpayers, enhance efficiency, and reduce1474fraud. And we know the fraudsters are always ahead of the game.1475Right, they are two steps ahead.1476    By investing in secured digital payment options, real-time1477tracking, and enhanced verification measures the IRS can better1478safeguard taxpayer funds and restore trust in the system. It is1479time for meaningful upgrades to ensure the agency meets the1480demands of the 21st century and prevents financial harm to1481American taxpayers.1482    I was pleased to learn that the Bureau of the Fiscal1483Service recently launched a pilot program to leverage existing1484technology and services offered by the U.S. Postal Service to1485track the transmittal of checks. And I also recently introduced1486the Recovery of Stolen Checks Act with my colleagues1487Congresswoman Terri Sewell and Congressman David Kustoff. It is1488bipartisan legislation. It is common sense. And it would allow1489taxpayers who have had tax refunds stolen in the mail to1490receive a replacement check, via direct deposit, which believe1491it or not has been incredibly difficult to get the IRS to move1492people to direct deposit so they don't become victims again.1493And my legislation will fix that.1494    So the IRS' failure to modernize and adapt has led to a1495significant rise in stolen checks and billions and dollars in1496fraud. But despite these ongoing issues, the agency still lacks1497the ability to offer taxpayers that direct deposit option when1498their checks are stolen.1499    And so I will start with, I guess, Mr. Ladwa, but I am1500happy to anyone who wants to chime in. Based on your experience1501working with these tax agencies from around the world, can you1502speak to the impact that modernizing will have on preventing1503fraud and abuse? And if you have any particular example of an1504effort that has led to secured tax refunds.1505    Mr. LADWA. Thank you, Congresswoman. So I think it is an1506interesting--listening to, you know, the inherent problem we1507have this fraud here, especially when it comes to checks.1508    So, first thing I will say with my experience is that1509around the world I have seen that tax agencies are phasing out1510checks more and more often to move to digital-based solutions,1511right, which essentially can speed up the refund prices in a1512matter of, like, sort of minutes or seconds with real-time sort1513of the digital payments that happen or requests for refunds.1514    Technologies exist, which allow us using things like1515machine learning to categorize taxpayers, high-risk taxpayers1516based upon previous behaviors, for example. So we know that if1517someone is requesting a refund, what is the sort of profile1518based upon prior submissions, based upon prior behavioral1519patterns. Have we sent them an enforcement letter before, or1520some type of debt collection letter? Should we be having a1521human being audit this person before a refund can be sent? So1522that is the first thing I will say.1523    In regards to specific references, I can get back to your1524staff in regards to----1525    Ms. MALLIOTAKIS. Mr. Sepp, I saw you nodding your head. Do1526you have anything you would like to add there.1527    Ms. OLSON. If I might add something?1528    Ms. MALLIOTAKIS. I would like for both of you to comment if1529time allows. Just a minute.1530    Mr. SEPP. Let me just add, there is a parallel experience1531going on right now in development of farm bill reauthorization.1532Food stamp fraud is a real problem.1533    Ms. MALLIOTAKIS. Also----1534    Mr. SEPP. And there are electronic payment solutions being1535discussed there. So you probably have some great synergy with1536members who are crafting that bill.1537    The other thing I would like to point out, Mr. Ladwa's1538experience and that of many other private sector individuals1539can and should be harnessed through something like the IRS1540Oversight Board that was created in the 1998 bill. It was1541tailor-made to bring private sector expertise to problems like1542these.1543    Chairman SCHWEIKERT. Ms. Olson, just within seconds.1544    Ms. OLSON. Yes, I was just going to say for decades I have1545recommended that Treasury creates a debit card similar to what1546you have in Social Security where people don't have bank1547accounts, they are unbanked, but they get their Social Security1548payments direct deposited on a debit card has been negotiated1549by the U.S. Government. And that is another solution to avoid1550some of these lost checks.1551    Chairman SCHWEIKERT. Thank you. Good. Thank you.1552    Ms. DelBene.1553    Ms. DelBENE. Thank you, Mr. Chairman. And I want to thank1554all our witnesses for being with us here today.1555    At the direction of President Trump, Elon Musk and the1556DOGE, they have gained access to Americans' most sensitive,1557personal data. President Trump and Elon Musk have clearly no1558respect for the rule of law. We have seen the IG fired,1559employees fired for disagreeing.1560    In fact, I would like to insert this article into the1561record titled: The U.S. Treasury Claimed DOGE Technologist1562Didn't Have Right Access--when he actually did.1563    Mr. Chairman.1564    Chairman SCHWEIKERT. Without objection.1565    [The information follows:]1566   [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]15671568    Ms. DelBENE. Thank you.1569    Elon Musk has called for the impeachment of the judge who1570blocked DOGE's access to Treasury's database and has called for1571the President to defy judicial court orders. This is1572unprecedented, it is dangerous, and it is illegal. Five former1573Treasury Secretaries wrote about the dangers of providing1574unfettered access to our Nation's payment systems to political1575actors, like Elon Musk and his team.1576    Ms. Olson, thank you for all of your service. I wondered if1577you could talk about what events during the Nixon1578administration led to the major reform of what is now Section15796103, and what are the parallels between the events of nearly158050 years ago and those being taken by the Trump administration1581today? Your mic.1582    Ms. OLSON. Before I do, I would like to correct the record1583that Craig Littlejohn was not an IRS employee. He was in fact1584an IRS contractor. And he is serving time in jail for his1585unlawful leaking of individual taxpayer return and return1586information. So it was not the IRS employees who leaked that.1587    Regarding 1970s, what happened was that prior to 1976 and1588the Tax Reform Act of 1976, the President controlled the1589decisionmaking as far as who had access to return and return1590information. So the Department of Agriculture asked for all1591return information and returns on all American farmers. And1592that triggered Congress to be very concerned. What were you1593doing with this information? Why were you getting this1594information?1595    At the same time, there was concern about the White House1596using return information, both to target enemies, but also, to1597inquire and interfere with audits of allies of the White House.1598So that politicization of return information led Congress to1599flip so that whereas before 1976, the President and the1600executive branch controlled who had access to that information.16016103 says very clearly that return information is1602confidential--returns and return information is confidential,1603and it is not to be shared except by statute, namely, where1604Congress describes where and now it is going to be shared and1605subject to what limitation.1606    Ms. DelBENE. Thank you. Can you speak to the importance of1607Treasury maintaining the disbursement of congressionally1608unauthorized payments and the risks of breaching a fundamental1609trust and suspending those funds?1610    Ms. OLSON. Well, I just think this is very personal1611information. And if we are asking people to come in and give us1612their financial information so we don't have to spend billions1613of dollars seeking it and tracking people down, then it is very1614important that they know that that information is held closely1615to the government's chest and not shared willy-nilly around1616agencies. Only for specific purposes that Congress has1617authorized.1618    Ms. DelBENE. And, finally, how did the actions of the DOGE,1619the Department of Government Efficiency and Elon Musk threaten1620the fundamental rights of taxpayers? And how does that impact1621the efficiency of our tax system?1622    Ms. OLSON. Well, see that is very hard to answer because we1623don't know what they are doing. So we don't if what they are1624doing is actually pursuant to some--at a illegally authorized1625exception, or it is not. And that is where we have to have1626greater transparency on this. And I think the question marks1627are creating uncertainty and concern among taxpayers about how1628their information is being used and who is getting it. And that1629will erode trust in the tax system.1630    Ms. DelBENE. And in the absence of an Inspector General to1631provide accountability, who is going to provide that?1632    Ms. OLSON. I don't know. If you find out your information1633has been improperly accessed, you have access to the courts to1634be able to sue. And if it is by a third party, it is subject to1635punitive damages.1636    Ms. DelBENE. And that is after the effect?1637    Ms. OLSON. That is after the effect. And for the taxpayers1638who Craig Littlejohn unconscionably exposed their information,1639that is small comfort.1640    Ms. DelBENE. So, if we want transparency, one should have1641an unbiased Inspector General. Two, Congress needs to have a1642knowledge of what is going on. And then you ask to be approved.1643    Ms. OLSON. That is the Inspector General's task to attack1644fraud, waste, and abuse. And in the tax agency, they1645particularly look at violations of 6103. It is their job to1646investigate that.1647    Ms. DelBENE. It is unfortunate that there is not bipartisan1648consensus on that. Thank you so much. I yield back, Mr.1649Chairman.1650    Ms. MALLIOTAKIS [presiding]. Thank you. And the chair1651recognizes Mr. Yakym from Indiana.1652    Mr. YAKYM. Thank you, Madam Chair. And thank you to our1653witnesses for being here today.1654    Ms. Olson, Mr. Littlejohn was an IRS contractor that stole1655the tax returns for thousands of Americans, including President1656Trump. He pled guilty to, do you know how many counts of1657unauthorized disclosure of tax return?1658    Ms. OLSON. I don't know. I understand maybe 70-some odd.1659    Mr. YAKYM. One count. One count he pled guilty on.1660    And we prosecute, by the way, for serial killers. We don't1661prosecute them just on one count. We go after everything. But1662on this one, we went after truly ultimately one count.1663    There are 5,000 IRS contractors today that have access to1664confidential taxpayer data.1665    Ms. Olson, do you know if the IRS has closed all of the1666vulnerabilities that allowed Mr. Littlejohn to steal this1667information?1668    Ms. OLSON. I don't know that. I do know in preparing for1669this hearing that I found an Inspector General report that1670reported this summer that the IRS had not retrieved laptops, et1671cetera, from contractors or limited their access, and I am very1672concerned about that.1673    Mr. YAKYM. In short, the answer is no. The IRS has not1674closed the vulnerabilities that allowed Mr. Littlejohn----1675    Ms. OLSON. Well, I can't answer that question because I1676don't know what vulnerabilities there were that Littlejohn1677accessed.1678    Mr. YAKYM. I am giving you the answer. The answer is no.1679    So the largest wholesale theft of confidential taxpayer1680information--we had just one charge. How many years is he doing1681in prison? Do we know the answer to that?1682    Ms. OLSON. Under 724--I forget the statute. But under the1683statute, you can only get up to 5 years in prison. And it1684doesn't matter how many returns you have accessed. So that is1685something Congress should look at.1686    Mr. YAKYM. I completely I agree.1687    Ms. OLSON. Then maybe make that statute per return or per1688access.1689    Mr. YAKYM. That is absolutely something that we should look1690at. The Biden administration prosecutors argue that just the1691one count covered Mr. Littlejohns multitude of thefts. And he1692leaked confidential tax and returns to two news outlets. Do you1693know, are those news outlets authorized to view confidential1694tax information on those thousands of Americans?1695    Ms. OLSON. No, they are not.1696    Mr. YAKYM. All right. So as far as we know, do the outlets1697still have ongoing access to the thousands of confidential tax1698returns that were stolen earlier?1699    Ms. OLSON. I don't know that.1700    Mr. YAKYM. Thanks. So my colleagues are talking about the1701sanctity of tax returns while whistling past the graveyard of1702the largest theft of tax returns in history by Mr. Littlejohn.1703    He stole thousands of confidential tax returns, including1704President Trump's tax returns, from our fellow Americans, but1705he has been labeled as a quote, unquote, ``public hero'' by1706left-wing groups because of whose tax returns he actually stole1707and leaked.1708    Ms. Olson, in your testimony, you know that the IRS'1709progress in improving its level of service since the passage of1710the Inflation Reduction Act. The taxpayer advocate found that1711during the 2024 filing season, the IRS achieved an 88-percent1712level of service with an average answer speed of three minutes.1713Does that mean that 88 percent of all taxpayer calls to the IRS1714were answered in three minutes?1715    Ms. OLSON. No, this is part of the problem with that1716measure. What that measure does is it measures how many calls1717that were routed by the phone tree system to a live assister1718were answered. What it doesn't mean is how many calls overall1719actually were routed to a live assister out of all the calls.1720And that is where you get to 32 percent. Only 32 percent of the1721calls were routed to a live assister.1722    Mr. YAKYM. Indeed, because this level of service only1723counts for 10 million calls out of the nearly 40 million it1724received. It does not include taxpayers calling with other1725questions----1726    Ms. OLSON. Right.1727    Mr. YAKYM [continuing]. Like tax law questions, compliance1728issues, identify-theft issues, collection matters, nor does it1729count the calls routed, as you said, to an automated to a live1730assistant.1731    So when you tally all that up, we are talking about only 321732percent. So, when Janet Yellen, President Biden's Treasury1733Secretary, promised, quote: ``The vast majority of callers will1734be connected to live assisters.'' That was not true1735necessarily, was it?1736    Ms. OLSON. Well, not when you count all the calls. That is1737correct.1738    Mr. YAKYM. So when something up, by quoting the taxpayer1739advocate one more time, the Biden IRS, quote: Add allocated1740resources to hit ambitious but arbitrary goals that mean less1741than meets the eye, and consequently, have required the IRS to1742neglect calls to other telephone lines and work streams like1743paper correspondence.1744    The pomp and pageantry surrounding the Inflation Reduction1745Act's improvements to the IRS customer service is, I think, of1746a bit if a mirage. It is like looking at Sunday's Super Bowl1747result and saying, ``Well, yeah, you know but Patrick Mahomes,1748he threw for 257 yards, I think, a bit of a mirage.'' It is1749like looking at Sunday's Superbowl result and saying, ``Well,1750yeah, you know, but Patrick Mahomes, he threw for 257 yards,1751but Jalen Hurts only threw for 221.''1752    So sometimes the underlying stats don't only always tell1753the real and actual story of the game. And with that Mr.1754Chairman, I yield back.1755    Chairman SCHWEIKERT. I was wondering how long it was going1756to be before someone did a Super Bowl reference.1757    Mr. Miller.1758    Mr. MILLER of Ohio. Thank you, Mr. Chairman. And thank you1759to our witnesses for their time and testimony today. We are1760here to discuss the importance of ensuring taxpayer dollars1761yield a real return when invested in IRS modernization efforts.1762    The need for a modernized IRS is clear and urgent as we1763have heard today. Taxpayers deserve an agency that keeps up1764with the times, operates efficiently, and acts as a responsible1765fiduciary of the American people's money, which is, I believe,1766what the IRS was intended to do.1767    Modernization isn't just about convenience, it is about1768safeguarding taxpayer information and delivering a better1769customer service experience to the American people. They are1770entitled to this.1771    We know that deploying new, efficient, and secure digital1772tools could save the Federal Government billions of dollars.1773Unfortunately, the IRS has struggled to deliver these intended1774outcomes and rather than investing in new and more secured1775technologies, which is somewhat puzzling to me, and we will get1776into it--the agency continues to utilize decades-old systems,1777which only make sensitive taxpayer more vulnerable.1778    Mr. Sepp, by now, we are all well aware of the legacy1779system of the IRS. Not only does the IRS continue to utilize1780hundreds of old and obsolete systems, including fax machines to1781store and analyze and transfer sensitive taxpayer information.1782But the IRS also fails even to attempt to improve these1783systems. And let's be real. It looks like I just graduated from1784high school 2 days ago. I haven't even seen a fax machine out1785in the wild. I mean, anyone here that is working in technology1786or innovation in business and technology, or even for the1787public, you know, government to operate off for the American1788people, I don't even know what a fax machine looks like. Excuse1789me. It is confounding to me. And I understand that to a certain1790extent, you may say it is more secure because of a phone line.1791But I am not buying it anymore. It is 1960s technology. I was1792born in 1988. We need to do better.1793    Going back, Mr. Sepp, can you speak to the risk associated1794with continuing to use or failing to maintain or update these1795legacy IT systems, especially considering the sensitive and1796private taxpayer information that is stored on them?1797    Mr. SEPP. There is a huge risk. It is not only a 6103 risk1798with disclosure being in play, but accidental data breaches1799that could be massive. I mean, how many other agencies have one1800billion, billion individuals on their master file? I mean, that1801would rival Social Security, if not exceed it.1802    And again, GAO has said since 2018 those systems are1803vulnerable. If we don't devote the resources to that kind of1804security, and we continue to worry about fax machines and1805keeping them up, we are headed for a major disaster.1806    And I would just point out, we still don't have a clear1807idea of the milestones that the IRS intends to make with1808modernization, and whether they're keeping them.1809    Paperless processing initiative is one of them. By this1810year, the Service is supposed to have all, all paper tax forms1811digitized. I don't know. Maybe someone on the panel knows had1812they met the 100 percent goal yet?1813    Mr. MILLER of Ohio. We know the answer to that one.1814    Mr. SEPP. You do?1815    Mr. MILLER of Ohio. Well, I would speculate. So I shouldn't1816say we know the answer. But I would speculate that we know the1817answer to that. And throughout all these conversations, I would1818think to truly believe the IRS would do something to meet1819somewhere in the middle amicably between a fax machine and1820where we are today in 2025, which I think is pretty reasonable1821that there is some other system that could be put in place that1822would be a lot more safe, secure, and protective of the1823American people's sensitive information as we are talking about1824here today.1825    And you know what? This is where I see a need for an1826outside individual to look at something like the IRS to make1827sure it is running more efficient and responsible for the1828American people, as we still have fax machines that are still1829in an agency, which is 1960s technology, which confounds me up1830and down.1831    You know what? I'm glad for Mr. Musk, and I am glad that he1832is doing what he is doing with the federal government to clean1833this nonsense up, and to make it more secure and more safe for1834the American people.1835    Mr. Ladwa, I am going do my best to squeeze this one in. If1836not, we will try. I will just go right to the question.1837    Can you provide us a real-world example of tax agency1838utilizing AI and how this technology can help improve1839operations and efficiency?1840    Mr. LADWA. Sure, Congressman. So I am bound by some privacy1841agreements for my customers. But I can certainly get back to1842you and your staff in terms of references and maybe even1843contacts to said tax agency. But let me answer your question on1844how they are doing it.1845    So we talked a lot about AI. AI is lots of different1846things, not just a chat box. So one of the use cases we have is1847embedded machine learning. So embedded AI, which doesn't1848essentially leave to go outside of a sort of consolidated1849system, which is owned by the government, for example. And we1850are using things like predictions of taxpayer behavior, so we1851can be more empathetic to the taxpayers who can't pay, and a1852lot stricter with higher enforcement for the taxpayers who1853basically are not willing to pay or are trying to do some1854unfortunate activity. And we have got examples of that. As I1855said in my statement, five percent returns on investment.1856    Mr. MILLER of Ohio. Thank you, Mr. Ladwa.1857    Chairman SCHWEIKERT. The gentleman from New York.1858    Mr. SUOZZI. Mr. Chairman, I first want to register my1859objection to the idea of two Republicans to every one Democrat,1860considering we have the same number of people when we started1861this hearing. I know it is in your power and purview to do1862that, but I find it offensive.1863    Let me just first start by saying, you know, we really got1864to work together to try and solve the problems that we have1865here instead of fighting with each other. So, I want to just1866try and get some basic questions answered.1867    There is a thing called the tax gap. How much money is owed1868to the IRS, and how much is collected by the IRS? And the IRS,1869in 2022, projected that there is $696 billion that was owed1870that was not paid.1871    I wanted to ask each of the witnesses: Do you agree that1872there is a tax gap? And do you agree it is as big as $6961873billion?1874    Mr. Dublois.1875    Mr. DUBLOIS. I think there is a tax gap. I am not sure it1876is that large. And I don't think that the methods employed1877during the Inflation Reduction Act were the appropriate1878measures.1879    Mr. SUOZZI. Okay. But I am just asking. Do you think there1880is a tax gap of--do you have any idea of the magnitude of it.1881    Mr. DUBLOIS. I don't, I don't.1882    Mr. SUOZZI. Is it hundreds of billions of dollars?1883    Mr. DUBLOIS. I don't have an idea.1884    Mr. SUOZZI. Is it hundreds of billions of dollars?1885    Mr. DUBLOIS. I don't have an idea of the magnitude.1886    Mr. SUOZZI. Okay. Mr. Sepp.1887    Mr. SEPP. Yes and no.1888    Mr. SUOZZI. Yes, you think there is a tax gap; you don't1889think it is $690 billion?1890    Mr. SEPP. Correct.1891    Mr. SUOZZI. How much do you think it is? Do you have any1892sense of that?1893    Mr. SEPP. Less than half that. When you account for1894currently noncollectible tax debts and estimates that cannot1895possibly account for things when the IRS----1896    Mr. SUOZZI. But $350 billion.1897    Mr. SEPP. Or less.1898    Mr. SUOZZI. Mr. Ladwa, do you have any sense of this?1899    Mr. LADWA. I would say, yes, there is a tax gap. It is1900probably inappropriate of me from being from the United Kingdom1901to comment on the U.S. tax gap.1902    Mr. SUOZZI. Okay. Ms. Kociolek.1903    Ms. KOCIOLEK. Yes, GAO has reported on the tax gap, and we1904can get back to you with the details on the specifics.1905    Mr. SUOZZI. Ms. Olson.1906    Ms. OLSON. Yes, there is a tax gap. I think there are whole1907portions of it that can be accurately estimated. I think the1908hardest part is the unreported income. You don't know what you1909don't know.1910    Mr. SUOZZI. Do you think it is as high as $696 billion?1911    Ms. OLSON. It could be $400 billion.1912    Mr. SUOZZI. Okay. So, hundreds of billions of dollars.1913    Okay. So what's the best way for us to get that money? I1914need quick answers from people. What's the best way for us to1915collect that money?1916    Ms. OLSON. So it is a combination of doing audits and1917collection, but also taxpayer service. And if I may just talk1918about return on investment for a minute----1919    Mr. SUOZZI. No, no, no. I don't want to hear it. Ms.1920Kociolek, what is the best way for us to collect that money?1921    Ms. KOCIOLEK. I can get back to you on that. I think we do1922have----1923    Mr. SUOZZI. Mr. Ladwa, what is the best way for us to1924collect that money?1925    Mr. LADWA. Understand who is filing late, who is paying1926late, and why they are paying late.1927    Mr. SUOZZI. Mr. Sepp.1928    Mr. SEPP. Taxpayer service and modernization come first.1929    Mr. SUOZZI. And that includes the technology that Miller1930was referring to. We got this crazy outdated system.1931    Mr. SEPP. Yes.1932    Mr. SUOZZI. Mr. Dublois.1933    Mr. DUBLOIS. I would wholeheartedly agree with Mr. Sepp's1934answer on that, modernization and taxpayer services.1935    Mr. SUOZZI. Okay. People who come to work for the Federal1936Government, if you are a cabinet official, you have to go to1937these big hearings, a lot of people have to go through1938background checks, a lot of people have to go through security1939checks, if they get a security clearance. What kind of1940background checks or transparency into the background of Mr.1941Musk or the people that are working for him has been done? Do1942you know, Mr. Dublois.1943    Mr. DUBLOIS. I don't know the background checks. I know1944President Trump had an electoral mandate to create the----1945    Mr. SUOZZI. No, no, no, I understand that. He has an1946electoral manager to hire cabinet officials----1947    Mr. DUBLOIS. Sure.1948    Mr. SUOZZI [continuing]. But they have to go through1949hearings and things like--Mr. Sepp, do you know how these1950people are vetted?1951    Mr. SEPP. No.1952    Mr. SUOZZI. Mr. Ladwa, do you know how they are vetted?1953    Mr. LADWA. No.1954    Mr. SUOZZI. Ms. Kociolek, do you know how they are vetted?1955    Ms. KOCIOLEK. We have not looked at these specific1956individuals.1957    Mr. SUOZZI. Ms. Olson, do you know how they were vetted?1958    Ms. OLSON. No.1959    Mr. SUOZZI. What kind of access does Mr. Musk and his team1960have? What kind of changes have they been making to the1961computer programs? How many of those changes to computer1962programs are permanent? And how will that affect people going1963forward?1964    Mr. Dublois, what is he doing?1965    Mr. DUBLOIS. I don't know what he is doing----1966    Mr. SUOZZI. You don't know. Okay.1967    Mr. Sepp, do you know what he is doing?1968    Mr. SEPP. No.1969    Mr. SUOZZI. Mr. Ladwa, do you know what he is doing?1970    Mr. LADWA. It would inappropriate for me to comment.1971    Mr. SUOZZI. Ms. Kociolek, do you know what he is doing?1972    Ms. KOCIOLEK. We have not looked at that.1973    Mr. SUOZZI. Ms. Olson.1974    Ms. OLSON. No.1975    Mr. SUOZZI. Does anybody here know what they are doing?1976Does anybody here know what kind of keystrokes changes they are1977making and they are permanent? Does anybody know what their1978backgrounds are? Does anybody know what they are doing with the1979information that they have and how they are using it?1980    And I agree with my colleagues who noted before that Mr.1981Littlejohn, who disclosed this information as a criminal and1982deserves to be in jail, and I am happy that he has been1983prosecuted. And anybody who has violated 6103, that takes1984private data and shares it with other people should be1985prosecuted to the full extent of the law.1986    We in Congress have an obligation as an equal branch of1987government to monitor what is going on right now. We are all1988for finding cost efficiencies. I know Mr. Bean, for example,1989has the DOGE Committee. That is a great thing for us to look1990for efficiencies, to root out waste, fraud, and abuse. But1991there is a thing, a pesky thing called the United States1992Constitution, and it has the responsibilities of the United1993States Congress and the oversight and power of the purse. I1994yield back, Mr. Chairman. Thank you.1995    Chairman SCHWEIKERT. Mr. Bean.1996    Mr. BEAN. Thank you very much, Mr. Chairman. Good morning1997to you. And good morning, Ways and Means Committee. I know1998there are many members of the minority party that want to1999create a scandal out of President Trump's desire to know how2000many improper payments our government sends out each year. And2001as the co-chair of the House DOGE Caucus, I just want to take2002just one little tiny moment and set the record straight.2003Business as unusual is no longer acceptable. President Trump2004campaigned on changing Washington, and that is exactly what he2005is doing.2006    President Trump is head of the federal government, and2007Secretary Bessent is in charge of the Treasury Department. If2008President Trump and Secretary Bessent want to open the books on2009Treasury payment systems, that is their prerogative. And we2010encourage him to do so, subject to applicable legal rules.2011    After review and sign-off by career Treasury Department2012attorneys, Secretary Bessent gave read-only access to two2013Treasury department officials subject to safeguards that will2014prevent them from making changes to the payment system. Elon2015Musk himself does not have access to the system. Neither he nor2016DOGE have the power to cut off Social Security checks, Medicare2017benefits, or tax refunds.2018    To clear up other issues, Elon Musk is a federal employee,2019special government employee. And he currently holds a top-2020secret security clearance that was granted by President Biden2021in 2022.2022    The U.S. DOGE service is a dually created organization2023within the executive office of the President, and there is2024simply no evidence to suggest that Secretary Bessent or DOGE2025has compromised taxpayer privacy or broken any law.2026    If you are doing what is right, you welcome audits. You2027welcome the sunshine. You welcome to open the books, and you2028want the world to see what you are doing. But if not, if not,2029what do you do? You criticize the messenger. You criticize the2030auditor. So it doesn't make any sense to me why this is such an2031issue. The American taxpayer is dancing in the street and2032saying finally. Finally, somebody is auditing the books that2033had been hidden in the shadows far too long.2034    Ms. Kociolek, is there any evidence at all that2035confidential taxpayer data has been illegally accessed or2036illegally disclosed?2037    Ms. KOCIOLEK. We have not done any work to identify that2038that has occurred.2039    Mr. BEAN. In short, and no, there is no evidence, there is2040no evidence. So there is smoke, and there is accusations, but2041no evidence. So let's talk modernization.2042    Mr. Dublois, Mr. Sepp, Mr. Ladwa, the IRS has been given a2043D on the grade of modernization. Is the D the correct grade? Is2044that fair that they have been given a D?2045    Mr. DUBLOIS. In our report card, which Debbie Jennings and2046my colleague, Demian Brady, contributed to, we think it is a2047fair grade.2048    Mr. BEAN. It is a fair grade. But wait a minute. We are2049using technology in your testimony, Mr. Sepp. You said we are2050using technology from the sixties. From the sixties. Wouldn't a2051grade of F be more appropriate?2052    Mr. SEPP. That was the overall grade based on a B in form2053design, a C in other gadgets.2054    Mr. BEAN. So it is still a low grade, we agree, Mr. Ladwa.2055You see it the world over. You see foreign nations' IRS's. Is2056it just us, or is everybody stuck in the sixties? Or is it just2057the United States IRS tax collection?2058    Mr. LADWA. And there are other countries, but a lot of them2059have already started their modernization some time ago.2060    Mr. BEAN. Okay. Very good.2061    Mr. Dublois, why? Why is the IRS stuck in the decade of2062rotary phones and black and white televisions that were 3 feet2063wide.2064    Mr. DUBLOIS. Well, I think--it is a great question,2065Congressman--and I think that is the question that the folks2066over at DOGE and Mr. Musk want to answer, which is why they are2067rightly turning a microscope under this agency that comes with2068an electoral mandate from President Trump. There was a pullout2069this morning, I saw it coming in, that DOGE has a net approval2070rating well outside the margin of error. As a taxpayer, I am2071glad we are getting scrutiny on that.2072    Mr. BEAN. Amen.2073    Mr. DUBLOIS. And I would add that there have been a lot of2074comments about unelected individuals having access to2075information. The entirety of the Internal Revenue Service is2076unelected. I welcome a microscope on that type of expenditure.2077    Mr. BEAN. Amen. And you like me, like any taxpayer is ready2078to do a dance in the street. Finally, finally, they are getting2079some accountability. But I just can't understand why the IRS is2080not going forward. It can't be money. We gave them $80 billion,2081and they doubled down on more fax machines in the same2082technology that has got us here.2083    So, Mr. Chairman, thank you for the hearing on2084modernization. Let's get to it. I yield back.2085    Chairman SCHWEIKERT. Mr. Moran.2086    Mr. MORAN. Thank you, Mr. Chairman. I want to thank all of2087you for taking the time today and be here and testify about the2088importance of making sure that the U.S. Government is working2089for her citizens and putting them first.2090    We have all heard about the negative effects of the $802091million that was given to the IRS through the Inflation2092Reduction Act, and what that negativity has done on Americans.2093But I want to focus on how this increased funding to the IRS2094exacerbated external as well as internal threats.2095    If you go back last year, at the end of last year, the U.S.2096Treasury Department experienced more than one cybersecurity2097breach by the Chinese Government and the sensitive U.S.2098financial information. In these breaches, Chinese hackers stole2099thousands of documents. We still don't know exactly the impact2100these breaches have had on our national security. But if it2101involves China, I think everybody in this panel would agree, it2102is not good. Not good at all.2103    The breach comes amid a number of cybersecurity breaches2104all over the country due to outdated cybersecurity2105infrastructure that has proven to be vulnerable to foreign2106operatives on a number of occasions. While these threats are2107growing, the IRS is spending more federal funding on targeting2108American taxpayers through enforcement than it is on improving2109cybersecurity and modernization to protect the American2110taxpayer. It is amazing to me.2111    The IRS directed $4.75 billion of the $80 billion it2112received from the IRA towards system modernization. That is2113puny. To put that in comparison, the agency spent $45.642114billion on increasing informant efforts against American2115taxpayers, mainly the middle class.2116    In August of 2024, the U.S. Treasury Inspector General for2117tax administration released a report stating that the IRS had2118made little to no progress on implementing safeguards for2119Americans making less than $400,000 a year, even though they2120continued to jack up their enforcement efforts against those2121very individuals. That puts Americans in the crosshair, and2122leaves China out of the crosshair, when they need to be in the2123crosshair.2124    I find this unfortunate and very ironic given the inability2125of the IRS simply to answer questions and respond to my2126constituents. I hear from them every day that they send an2127inquiry. My taxpayer sends back information, and the IRS will2128not respond timely and will not provide information.2129    Mr. Ladwa, could you explain the ways you have seen other2130modernized countries throughout the world ramp up cybersecurity2131efforts within their tax and revenue systems to thwart2132potential threats, particularly from adversarial nations like2133China and Russia?2134    Mr. LADWA. Thank you, Congressman. What I will say without2135going into the details of cybersecurity is that these2136commercially available solutions in terms of infrastructure, in2137terms of application access and stuff, which essentially has2138and has taxpayer records and taxpayer information are battle-2139tested and are created specifically for cybersecurity attack by2140spending private sector companies spend like millions, hundreds2141of millions of pounds ensuring that we are preventative against2142these types of measures.2143    Mr. MORAN. Yeah, does anybody on the panel--if you do,2144raise your hand. Does anybody think we need to be spending more2145money of the money allocated to the IRS toward enforcement2146against American taxpayers, or should we be doing it more2147towards enforcement and protection against cybersecurity2148threats of China?2149    I think everybody on the panel would say we need to protect2150the American taxpayer, we need to put more into cybersecurity2151threats and protecting our American taxpayer data than we2152should about enforcing these mechanisms against the American2153taxpayers. Do you guys agree with that? Does anybody disagree2154with that?2155    Ms. Olson, do you disagree that we need to be doing more2156for cybersecurity efforts----2157    Ms. OLSON. I absolutely agree. And I wanted to make a point2158about the IRA funding. That right now, it is limited--it is in2159different budget categories. And so the IRS is limited with how2160much it can move from the enforcement category to2161modernization.2162    Mr. MORAN. So that means we should probably go back and2163prioritize where that money goes. Would you agree with that?2164And the priority should be first to protect the American2165taxpayer and their data from cybersecurity threats by Russia2166and China instead of going after them on these bogus2167enforcement actions. Would you agree with that?2168    Ms. OLSON. Well, I don't think they are bogus enforcement2169actions. But I think you need to protect them from2170cybersecurity checks.2171    Mr. MORAN. And that should be our number one priority on2172the use of the money and reallocated towards that. Would the2173rest of the panel agree on that? I see the heads bobbing up and2174down.2175    Mr. Sepp, considering our focus on modernization and2176innovation, what are some of the ways we may not have touched2177on yet to think that the IRS, that you think the IRS could do2178to make it more efficiently work for the American taxpayer?2179    Mr. SEPP. Certainly improving customer service measurements2180is important, as my colleague, Demian Brady, has pointed out.2181Also, the quality of the advice. You know, if you managed to2182get through to a live assister, there are 130 topics that are2183considered out of scope. If you ask a question, that is a2184problem. We also need to be looking at other states, not just2185other countries when it comes to improving and modernizing tax2186systems. A member of the Electronic Tax Administration Advisory2187Committee was from Missouri. He was at one of our panel2188presentations, describing how Missouri strove for and largely2189attained a 100 percent phone service level. And they were very2190good at it.2191    Mr. MORAN. Thank you for that. My time is up. I will end by2192saying this: Taxpayers, in my opinion, are the client, not the2193target. Mr. Chairman, I yield back.2194    Chairman SCHWEIKERT. Thank you. Mr. Doggett.2195    Mr. DOGGETT. Mr. Chairman, you know my respect for you and2196understanding of your interest in the topics that are here2197today. But I don't see how we can explore some of these topics2198and ignore what is going on with the rampage through our2199government that Mr. Musk and Mr. Trump are engaged in at2200present. These are not normal times.2201    My understanding was that Speaker Johnson committed to2202holding a hearing today before our committee on DOGES, as I2203call it, or DOGE unprecedented access to sensitive information.2204Where is the DOGE representative here today? I agree fully with2205the comments that our colleague just made from the--as head of2206the DOGE caucus he tells us about if you don't have anything to2207hide, let the sun shine in. Well, where is the sun shining in2208on DOGE today?2209    We have had our witnesses questioned by Republican members2210as to whether they know anything about whether sensitive2211information has been out there or whether any improper use has2212been made of this data. Of course they don't know. Because it2213has all been hidden from them and from the world.2214    What we do know is that DOGE really deserves the name dodge2215because it is dodging the law, dodging accountability, dodging2216this Congress. And a Federal judge has determined that there is2217irreparable harm from what they have been doing and has2218enjoined them from doing what they have been doing and from--2219has asked that they return the documents that they took.2220    But there is no one here today to explain there has been no2221accountability. We don't know how many people. We don't know2222whether they had any background clearance. We don't know what2223use they have made. Though there have been claims made today2224and prior to today that they were read-only, there is plenty of2225evidence that it went far beyond reading and has been used to2226cut off funds.2227    Mr. Musk has never been elected to anything, and yet2228through his minions, his musketeers, he has been afforded2229access to the most confidential information on every American2230citizen, information about Social Security, about healthcare,2231about bank accounts, about tax returns. Return information that2232is so sensitive that if you expose it improperly you can go to2233prison for 5 years.2234    The safeguards on this abusive use of this information are2235lacking. Now, there was reference to the Inspector General.2236Would that we had an Inspector General, but remember that as a2237part of insulating himself from any independent accountability,2238the watchdog over at the Treasury Department was fired by2239President Trump, along with 17 other inspectors who had the2240responsibility of safeguarding the public interest and looking2241for waste, fraud, and abuse.2242    The former career official, 35 years at the Treasury2243Department, a nonpartisan guardian of our privacy, he was2244pushed aside because he had the audacity to question this 25-2245year-old Musk minion coming in and going through the records of2246every American. This is highly sensitive and confidential2247information. What we do know--and we don't know much about this224825-year-old, but we know that he recently boasted that, quote,2249``For the record, I was racist, before it was cool,'' and urge2250that we, quote, ``normalize Indian hate, as he denigrated2251Indian Americans.''2252    That is the kind of person that has been assigned the2253ability to look at the record of every single one of us, and it2254cannot be at all clear as to what misuse and abuse of those2255records may be made.2256    At the same time, within the last 48 hours, the Vice2257President sent up a trial balloon, and Mr. Elon Musk joined in.2258Perhaps they don't even need to follow the judge who said that2259there had been such harm caused by what they have already done.2260    Mr. Musk contends that anyone who disagrees with him is a,2261quote, corrupt judge. And so he put that brand on the judge who2262found irreparable harm. And Mr. Vance has suggested that maybe2263they don't need to follow court orders. Well, they do.2264    There was a vote in the last election for a change, and we2265should honor that as we did. We were never the election2266deniers. But defending the Constitution and the laws of the2267United States are vital, and respecting the independence of2268this body and of the courts is vital. And that is what is in2269question today. And what is not being addressed adequately in2270this hearing as the big dodge has taken place on DOGE. I yield2271back.2272    Chairman SCHWEIKERT. Thank you very much. The chair now2273recognizes the gentleman from the great State of California,2274Representative Thompson.2275    Mr. THOMPSON. Thank you, Mr. Chairman. I want to thank2276everyone on the panel today.2277    I waived on today's subcommittee. I am not on this2278subcommittee, but when I heard the topic, I was sure to waive2279on because at home, my phone is ringing off the hook in all of2280my district offices, in my Capital office. When I go home on2281the weekend, people stop me on the street, in the supermarket,2282and talk to me at events because they are very concerned about2283this chaos that we are seeing in Washington, D.C., especially2284as it pertains to this unprecedented access to our Nation's2285taxpayers' data. They are concerned. So, I assumed that that is2286what we were going to be talking about today and we have. Thank2287you to my Democratic colleagues for bringing this up, but this2288is something that deserves the oversight of this committee.2289    And I know that Ways and Means Republicans care deeply2290about taxpayer privacy, given that every one of them who are on2291the committee last year cosponsored and voted for our2292chairman's bill to increase the criminal penalties for2293unauthorized disclosure of data when our committee marked it up2294last May.2295    And let me be clear, I don't know how anybody could think2296that anyone on this side of the aisle is cheering the illegal2297activities of Mr. Little john. I think he is a criminal. He is2298where he belongs. He is in jail, and that is where he should2299stay.2300    But when we took that bill up, we had near-unanimous2301support for the bill. And the fact that this committee2302recognized that this crime is serious is evident by the fact in2303that bill we increased the fine from $5,000 to $250,000, and we2304increased the prison sentence up to 10 years rather than 5.2305    So, given how important this issue is to all of the members2306of this committee, and to our constituents, it only makes sense2307we carefully investigate the credible allegations that Mr. Musk2308and his DOGE folks violated Federal law by gaining access to2309taxpayer data. This unlawful disclosure of millions of2310Americans' most sensitive data is just flat wrong. It is so2311wrong, in fact, that a Federal judge has ordered those who are2312prohibited from accessing this data to immediately destroy all2313copies.2314    I would like to enter for the record a copy of that judge's2315opinion.2316    [The information follows:]2317    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]23182319    Mr. BEAN [presiding]. Without objection.2320    Mr. THOMPSON. So, it is troubling today to hear my2321Republican colleagues being so silent on this, obviously,2322serious issue that is before us and is troubling our2323constituents.2324    So, Ms. Olson, as a former United States taxpayer advocate,2325you were responsible for assisting millions of taxpayers. In2326your time at the IRS, was it ever imaginable that an outside2327billionaire would be given access to the sensitive information2328of millions of American taxpayers that you advocated on behalf2329of?2330    Ms. OLSON. I will have to say that Commissioner Rossotti2331was a billionaire, but he divested himself of his holdings that2332would create any conflict of interest.2333    Mr. THOMPSON. And he was the commissioner. He wasn't2334somebody brought in from the outside because they were a big2335campaign donator.2336    Ms. OLSON. Exactly. And under his statutory duties, it was2337his duty to administer the Internal Revenue laws of this2338country.2339    Mr. THOMPSON. And if you were the current taxpayer2340advocate, what message would you send to the IRS commissioner?2341    Ms. OLSON. Oh, I would be saying that he needs to be very2342careful about who is getting in and looking at this and that2343everything needs to be cleared through the statutes, that their2344access is under a congressionally mandated or required, you2345know, access, grant of access to the return information.2346    Mr. THOMPSON. Thank you.2347    I agree with my Republican colleagues that we need to be2348working with the IRS to bring them up to speed and bring them2349up into the time and make sure that they are working2350effectively and efficiently for our constituents. But isn't it2351true, Ms. Olson, that the IRS has been woefully underfunded for2352years in being able to address these needed upgrades?2353    Ms. OLSON. Yes.2354    Mr. BEAN. Ms. Olson, be quick in answering. Quick.2355    Ms. OLSON. Yes.2356    Mr. THOMPSON. Thank you. I yield back.2357    Mr. BEAN. Very good. Thank you very much.2358    Let's go to the great State of Illinois. Representatives2359Davis, you are recognized.2360    Mr. DAVIS. Thank you very much, Mr. Chairman. And I also2361want to thank all of the witnesses.2362    You know, I was surprised that this hearing was framed as2363highlighting the lack of return on investment on the critical2364funding given to the Internal Revenue Service. Frankly, the2365only way that statement is true is if acting president Musk2366gives his millionaire buddies who cheated on their taxes, back2367the $1 billion in revenue that the Biden IRS collected. And2368sadly, I have a concern that he may do just that.2369    President Trump allowed the biggest Federal data breach in2370history when he allowed Elon Musk and his hackers to steal2371Americans' extremely private financial and health information2372from the Treasury Department. We don't know if Mr. Musk will2373illegally stop one's Social Security tax on Medicare payments.2374We don't know if he'll sell our Social Security numbers or bank2375account information to the highest bidder, or delay government2376contract payments or grants to his competitors, the people he2377dislikes.2378    Ms. Olson, given statements made by this administration2379that it can decide unilaterally to stop funds to people or2380organizations that it does not think deserves certain funds,2381can you please talk about the power of the Internal Revenue2382Service to levy taxpayer accounts and to use the Treasury2383Offset Program? If this administration decided it didn't think2384certain Americans or entities deserved certain funds, could the2385IRS freeze funds from Americans' bank accounts?2386    I am asking whether it is legal or ethical to take2387Americans' money like this, but could the IRS or Treasury2388freeze funds from someone's bank account, or subject them to2389Treasury offset if it wanted to?2390    Typically, we learn about improper access of taxpayer data2391from the IRS policing itself. If the IRS ignores its2392responsibility to oversee fair tax policy administration, I2393believe the only way we will know that the Trump historic data2394breach of people's private financial or health information is2395when those individually affected people notice the harm.2396    So, Ms. Olson, could you speak about the importance of2397confidentiality at the IRS and Treasury, and why these orders2398and memos undermining that confidentiality are so, so dangerous2399to the American public?2400    Ms. OLSON. So in response to your question about could the2401IRS or Bureau of Fiscal Service retrieve funds from people's2402bank accounts, I would think that mechanically they would be2403able to. Is it legal? They would need to have a basis in law.2404They would need to do an assessment. They would need to2405identify an improper payment. And if the law allowed them to do2406it, then they could do that. And I think those legal2407authorities are limited and have due process protections.2408    I would also say that as our colleague from GAO has said,2409that internally, it is the agencies that decide what is a2410fraudulent payment or a legitimate payment, and they send that2411over to BFS. BFS then issues that payment. It has its own fraud2412detection by looking at the death master file or if someone is2413incarcerated or something like that, and whether that is an2414improper payment. But the agencies themselves are the ones that2415execute the improper payments.2416    The problem is if someone has access to all of that2417information and overrides all of those checks and balances that2418are built into the system, and that is what we don't know is,2419are those checks and balances being overridden or are they not?2420And that creates great uncertainty in the American populace.2421    Mr. DAVIS. Thank you very much.2422    And I yield back, Mr. Chairman.2423    Mr. BEAN. Thank you very much.2424    Let's go to the great Commonwealth of Virginia where2425Representative Beyer is standing by. Representative Beyer, you2426are recognized.2427    Mr. BEYER. Mr. Chairman, thank you for your enthusiasm.2428    I thank all of you very much for sitting in with us. And I2429want to make the point that I think everyone on the Ways and2430Means Committee strongly agrees with the need to modernize.2431    I would like to point out that in the 24 years of this2432millennia, 12 years led by Republican Presidents, 12 years by2433Democratic Presidents, it is not a good idea for us to blame2434this on one party or the other. I fact, I think our primary2435argument about putting the $80 billion in for IRS was to2436modernize, was to bring us to the 21st century.2437    I know SAP has some wonderful ideas about what to do. I2438don't think you are going to do that for free. I have been2439around politics for a long time and seen technology companies2440try to modernize things, sometimes successfully. Sometimes they2441get halfway through and walk away leaving the government with2442the debt. So, I know you would never do that, but we are going2443to have to spend money to make this modernization happen.2444    Ms. Olson, you noted in your testimony that section 6103 of2445the Internal Revenue Code provides taxpayers with the right to2446confidentiality once they file their returns with the IRS. And2447there are only a handful of circumstances in which it is lawful2448for government officials to disclose or even view a taxpayer's2449return or information found on a return.2450    With that in mind, I would like to ask you a hypothetical2451question. If an unqualified nonIRS political appointee were2452granted access to the Bureau of Fiscal Services payment system2453and they inspect confidential taxpayer information for2454political purposes not authorized by law, could that be a2455crime?2456    Ms. OLSON. If it is not authorized by law, it would be a2457crime, in my opinion.2458    Mr. BEYER. Could it also be a crime for this individual to2459share private taxpayer information gleaned from rummaging2460around the Fiscal Service's payment system with his boss an2461unelected, unconfirmed billionaire?2462    Ms. OLSON. It would be a crime to share it, to disclose it,2463yes, to people who do not have authorization to receive it.2464    Mr. BEYER. And, finally, what are the penalties for2465violating section 6103? And is there a statute of limitation?2466    Ms. OLSON. So under 7214, the penalties as we have2467discussed earlier, it can be a fine up to $10,000, and then2468also up to 5 years imprisonment, or both. And it is the normal2469statute of limitation for criminal offenses, 6 years; 3 years2470from the occurrence, and then in certain aggravated instances,24716 years.2472    Mr. BEYER. Thank you very much.2473    So, if I am understanding that correctly, this individual2474would be subject to criminal prosecution 6 years after the end2475of this current administration or 6 years after the offense?2476    Ms. OLSON. It could be if it involved fraud of some sort.2477    Mr. BEYER. Thank you.2478    Mr. Chairman, I am almost done.2479    But, Mr. Dublois, I was fascinated by your testimony, and I2480intend to send it to the Congressional Budget Office, because I2481would love to see the other side of the equation. I am not2482accusing you of cherry-picking data but just based if that is2483the only thing I heard, I would be horrified. I would love to2484hear what the other side is and the defenses.2485    Once again, this is a nonpolitical organization. You may2486believe that they have a leftist bias, but I think I have been2487here 10 years and mostly my Republican friends use their data2488as often as we do to justify the things that they do.2489    Mr. DUBLOIS. Well, if I could respond to that, Congressman.2490    Mr. BEYER. Sure.2491    Mr. DUBLOIS. And I appreciate that, and I would welcome to2492hear CBO's response to that.2493    I think looking at the evidence over the last 15 years, it2494is concerning, and we are--I can shine a little bit of light on2495something that we are going to be releasing in the next week2496regarding a research paper matching OPM data for a wide number2497of government agencies, including CBO, with voter files that2498demonstrates throughout the bureaucracy an imbalanced Federal2499bureaucracy. It demonstrates that the civil servants,2500especially in higher ranking positions, aren't nonpartisan as2501is often thrown around. They do have a partisan affiliation2502that leans to the left side of the political spectrum. And I2503think when you see that reflected in scores that dramatically2504wind up being substantially wrong years afterwards and it tends2505to lean again and again on one side favoring one side of the2506side of growing government being underestimated, the side of2507providing tax relief being overestimated in terms of cost, that2508is a cause for concern. And I would hope the CBO would have2509some good answers as to why that might be the case.2510    Mr. BEYER. I think that would be--let me interrupt too----2511    Mr. DUBLOIS. Yeah.2512    Mr. BEYER [continuing]. If I may, just because we are2513running out of time, but that would be fascinating. I am2514looking forward to reading that. My very first response is what2515a huge difference in commitment to public service based on the2516party that you align with, your willingness to take a smaller2517salary in order to serve the public. And that may well be true.2518    With that, I yield back.2519    Mr. BEAN. Thank you very much.2520    Let's go to the Silver State, better known to the great2521State of Nevada. Representative Horsford, you are recognized.2522    Mr. HORSFORD. Thank you, Mr. Chairman, and to the ranking2523member, Ms. Sewell, for holding this hearing.2524    I really have to follow up on the last statements and the2525question from my colleague to the witness, because it actually2526goes to my biggest concern that we are not addressing today,2527which is a data breach, the largest data breach in U.S. history2528that is happening right now under this administration's watch,2529and there is absolutely nothing that the Republicans in the2530House are doing to protect the American people from a data2531breach.2532    And if the witness is saying that you have matched2533employees' information from OPM, Office of Personnel2534Management, with data files, voting files in order to determine2535their political affiliation, in order to reach certain2536conclusions about what? Their civil service? I am not asking2537you a question. You already explained your position, and I'll2538be looking forward to the report.2539    But this is the concern, Mr. Chairman. Why are we not2540addressing the major issue, which is the largest data breach in2541U.S. history that is impacting all of our constituents, not2542Democrats, not Republicans, not Independents, all Americans.2543    Instead of worrying about the harm a data leak on the2544Internal Revenue Service could mean for the American people and2545making that the center of this hearing, this administration has2546instead asked the IRS to deputize their employees to assist2547other agencies, including ICE, in their enforcement. All the2548while, my constituents, and yours too, Mr. Chairman, our2549constituents' taxpayer data is less safe, and we are not2550addressing that. Yet, under Internal Revenue Code 7803, it2551provides that taxpayers have the right to confidentiality. It2552was Chairman Smith who rightfully noted that it is this2553protection that should be afforded every citizen. This2554fundamental right has been reinforced time and again by several2555Congresses and administrations, including by the Taxpayer FIRST2556Act which I supported in 2019, and tightened protections for2557section 6103.2558    The American people trust our civil service to meet their2559needs, not the billionaire class, and I don't want to know2560people's political affiliation. When people call my office, I2561don't ask them what party they belong to. I ask them what they2562need, and how my office can help support them.2563    Ms. Olson, I would like to focus on your testimony. You2564note that the IRS holds information spanning from family and2565business relationships, financial dealings, employment,2566investments, and medical and educational information. I agree2567that the effectiveness of our tax system is dependent on2568taxpayers' trust that the information that they voluntarily2569provide to the IRS will be held confidential.2570    Can you explain what would happen to that system if there2571was widespread disclosure of this information?2572    Ms. OLSON. I think that people would stop disclosing2573information on their returns. They would also be calling you,2574you know, yelling about this, but I think it would really erode2575the voluntary compliance system that our tax administration is2576based on.2577    Mr. HORSFORD. And the fact that an unelected billionaire,2578the richest person in the world, and his hackers have now2579broken into the agencies and taken this information illegally2580puts who at risk?2581    Ms. OLSON. Well, I don't know what they are doing, but if2582someone is accessing IRS information, or tax return and return2583information without authorization under the statute, it is2584undermining that right to confidentiality, and that will chill2585taxpayers' willingness to participate in the tax system and2586voluntarily disclose their information.2587    Mr. HORSFORD. And this is the fundamental issue. At a time2588when we already have tax evasion occurring by the very wealthy,2589meanwhile my constituents to try and qualify for the Earned2590Income Tax Credit get audited at a higher rate, the2591disproportion affects working people, but yet, we are going to2592not protect their information. It is fundamentally wrong, and2593this should be the priority of this committee and every other2594committee until it is resolved. It is not authorized. It is2595illegal. Elon Musk and his hackers have caused the largest data2596breach in U.S. history, and they need to be held accountable2597now.2598    I yield back.2599    Mr. BEAN. Thank you very much.2600    We are nearing the end of our committee. We have had a2601great day. It has been brought up three times, and that is the2602overwhelming support this committee is giving the Taxpayer Data2603Protection Act. It was overwhelmingly supported by this2604committee. We have talked about it several times. It is stuck2605in the Senate right now. So members are encouraged to reach out2606to their Senator and say let's get that Data Protection Act for2607the taxpayers.2608    Witnesses, you did a great job. Thank you so much. You will2609always have this day to say this was the day I went before2610Congress and testified. It is your own time. It is your own2611dime. We appreciate you very much.2612    Members are reminded that they have 2 weeks from today to2613submit written questions to be answered later in writing. Maybe2614you will have homework. Those questions and your answers will2615be made part of the formal hearing record.2616    With that, the subcommittee stands adjourned.2617    Have a great day.2618    [Whereupon, at 12:23 p.m., the subcommittee was adjourned.]26192620                   PUBLIC SUBMISSIONS FOR THE RECORD26212622=======================================================================26232624[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]26252626                             [all]