U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

25–223 PDF 2017

EXAMINING IRS CUSTOMER SERVICE CHALLENGES 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON 

GOVERNMENT OPERATIONS 

AND THE

SUBCOMMITTEE ON HEALTH CARE, 

BENEFITS, AND ADMINISTRATIVE RULES 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

MARCH 8, 2017 

Serial No. 115–2 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 


KING-6430 with DISTILLER
(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

Jason Chaffetz, Utah, Chairman 

John J. Duncan, Jr., Tennessee 

Darrell E. Issa, California 

Jim Jordan, Ohio 

Mark Sanford, South Carolina 

Justin Amash, Michigan 

Paul A. Gosar, Arizona 

Scott DesJarlais, Tennessee 

Trey Gowdy, South Carolina 

Blake Farenthold, Texas 

Virginia Foxx, North Carolina 

Thomas Massie, Kentucky 

Mark Meadows, North Carolina 

Ron DeSantis, Florida 

Dennis A. Ross, Florida 

Mark Walker, North Carolina 

Rod Blum, Iowa 

Jody B. Hice, Georgia 

Steve Russell, Oklahoma 

Glenn Grothman, Wisconsin 

Will Hurd, Texas 

Gary J. Palmer, Alabama 

James Comer, Kentucky 

Paul Mitchell, Michigan 

Elijah E. Cummings, Maryland, Ranking 

Minority Member 

Carolyn B. Maloney, New York 

Eleanor Holmes Norton, District of Columbia 

Wm. Lacy Clay, Missouri 

Stephen F. Lynch, Massachusetts 

Jim Cooper, Tennessee 

Gerald E. Connolly, Virginia 

Robin L. Kelly, Illinois 

Brenda L. Lawrence, Michigan 

Bonnie Watson Coleman, New Jersey 

Stacey E. Plaskett, Virgin Islands 

Val Butler Demings, Florida 

Raja Krishnamoorthi, Illinois 

Jamie Raskin, Maryland 

Peter Welch, Vermont 

Matt Cartwright, Pennsylvania 

Mark DeSaulnier, California 

John Sarbanes, Maryland 

Jonathan Skladany, Majority Staff Director 

Rebecca Edgar, Deputy Staff Director 

William McKenna, General Counsel 

Jack Thorlin, Counsel 

Kevin Eichinger, Professional Staff Member 

Kiley Bidelman, Clerk 

David Rapallo, Minority Staff Director 


KING-6430 with DISTILLER
(III) 

SUBCOMMITTEE ON GOVERNMENT OPERATIONS

Mark Meadows, North Carolina, Chairman 

Jody B Hice, Georgia, Vice Chair 

Jim Jordan, Ohio 

Mark Sanford, South Carolina 

Thomas Massie, Kentucky 

Ron DeSantis, Florida 

Dennis Ross, Florida 

Rod Blum, Iowa 

Gerald E. Connolly, Virginia, Ranking 

Minority Member 

Carolyn B. Maloney, New York 

Eleanor Holmes Norton, District of Columbia 

Wm. Lacy Clay, Missouri 

Bonnie Watson Coleman, New Jersey 

SUBCOMMITTEE ON HEALTH CARE, BENEFITS, AND ADMINISTRATIVE RULES

Jim Jordan, Ohio, Chairman 

Mark Walker, North Carolina, Vice Chair 

Darrell E. Issa, California 

Mark Sanford, South Carolina 

Scott DesJarlais, Tennessee 

Mark Meadows, North Carolina 

Glenn Grothman, Wisconsin 

Paul Mitchell, Michigan 

Raja Krishnamoorthi, Illinois, Ranking 

Minority Member 

Jim Cooper, Tennessee 

Eleanor Holmes Norton, District of Columbia 

Robin L. Kelly, Illinois 

Bonnie Watson Coleman, New Jersey 

Stacey E. Plaskett, Virgin Islands 


KING-6430 with DISTILLER

KING-6430 with DISTILLER
(V) 

C O N T E N T S 

Page 

Hearing held on March 8, 2017 .............................................................................. 1 

WITNESSES 

Mr. John Dalrymple, Deputy Commissioner for Services and Enforcement, 

Internal Revenue Service 

Oral Statement ................................................................................................. 3 

Written Statement ............................................................................................ 5 

Mr. Russell Martin, Assistant Inspector General, Returns Processing and 

Account Services, Treasury Inspector General for Tax Administration 

Oral Statement ................................................................................................. 16 

Written Statement ............................................................................................ 18 

Ms. Jessica Lucas-Judy, Acting Director, Strategic Issues, U.S. Government 

Accountability Office 

Oral Statement ................................................................................................. 31 

Written Statement ............................................................................................ 33 

APPENDIX 

Statement for the Record of Nina Olson, National Taxpayer Advocate, submitted by Chairman Meadows ............................................................................ 62 

Get Backs from The Hon. John Dalrymple, Deputy Commissioner for Services 

and Enforcement, Internal Revenue Service ..................................................... 77 


KING-6430 with DISTILLER

KING-6430 with DISTILLER
(1) 

EXAMINING IRS CUSTOMER SERVICE 

CHALLENGES 

Wednesday, March 8, 2017 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT OPERATIONS, JOINT

WITH THE SUBCOMMITTEE ON HEALTH CARE, BENEFITS, AND ADMINISTRATIVE RULES, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, D.C. 

The subcommittees met, pursuant to call, at 2:10 p.m., in Room 

2154, Rayburn House Office Building, Hon. Mark Meadows [chairman of the Subcommittee on Government Operations] presiding. 

Present from the Subcommittee on Government Operations: Representatives Meadows, Hice, Jordan, DeSantis, Blum, and 

Connolly. 

Present from the Subcommittee on Health Care, Benefits, and 

Administrative Rules: Representatives Jordan, Meadows, 

Grothman, Mitchell, Krishnamoorthi, and Plaskett. 

Mr. MEADOWS. The Subcommittee on Government Operations 

and the Subcommittee on Health Care, Benefits, and Administrative Rules will come to order. And without objection, the chair is 

authorized to declare a recess at any time. 

The IRS is the Federal agency that the average American probably interacts with more frequently than most other agencies in the 

Federal Government. And as we look at customer service at the 

IRS and how most Americans experience the Federal Government, 

we owe it to them to make sure that their experience is clear and 

helpful. And if the taxpayers can get help from the IRS to understand some of the often more complicated tax obligations, the IRS 

then does not have to spend as much time looking or providing resources for audits or enforcement. 

Unfortunately, the 2015 tax season had one of the worst customer service records in IRS history with only 38 percent of the 

taxpayers who called the IRS assistance line actually getting a representative. And thereafter, the average wait time was well over 30 

minutes. 

And so as we look at this, as the IRS calls for more resources, 

Congress indeed did grant them $298 million in for the 2016 tax 

season with $176 million specifically marked for taxpayer services. 

As a result, the 2016 filing season was better but still not as good 

as it was a decade earlier. 

So as we look at today’s hearing, I am going to keep my opening 

remarks very brief because we are expecting votes here in just a 

few minutes. And we will certainly yield to a number of the other 


KING-6430 with DISTILLER
2 

members as they have questions. And I will include some of that 

in my questioning. And the entire written statement will be made 

part—or opening statement will be made part of the record. 

Mr. MEADOWS. So with that, I will now recognize the ranking 

member for his opening statement. 

Mr. KRISHNAMOORTHI. Thank you, Chairmen Meadows and Jordan, for holding this important hearing on a topic that is so familiar to so many Americans: IRS customer service. 

Many of the individuals I represent encounter challenges when 

dealing with the IRS. The individuals are hardworking, honest 

Americans who are doing everything they can in order to comply 

with their tax obligations. I have seen some of these individuals go 

to great lengths to fulfill their responsibilities: contacting the IRS 

and others for help, providing what seems like an endless stream 

of documentation to their agency and their employers in order to 

get on an installment plan, and in some cases even digging into 

their hard-earned retirement savings to pay their outstanding tax 

debts. So while IRS says that it is working hard to improve customer service, it can be difficult for many of my constituents to believe in some cases. 

As our nation’s tax code becomes increasingly complex, the burden placed on those trying to maintain tax compliances also increases. It is absolutely critical that the IRS have the appropriate 

channels to assist these well-meaning taxpayers and processes in 

place to rectify situations in which these channels fail. 

For that reason, and as a former small businessman, I hope we 

can shed some light on the processes currently in existence at the 

IRS for assisting customers before, during, and after the filing season. All customers deserve to have their questions answered in a 

timely, effective, and respectful manner. 

What does it take to make that happen? As the Oversight Committee, we have a responsibility to ensure that government works 

effectively and efficiently and is responsive to the citizens it serves. 

We should encourage agencies to take a hard look at themselves 

and identify areas that are working, as well as those that need improvement. We should encourage agencies to adopt best practices 

from other areas of government and the private sector, and we 

should certainly encourage agencies to listen to feedback from 

those on the other side of the table. Only after doing that can we 

have a meaningful discussion of what needs to be done and what 

resources need to be devoted in order to make our system succeed. 

I hope that these are discussions we can have today, and I look 

forward to the testimony of our witnesses. Thank you. I yield back. 

Mr. MEADOWS. I thank the gentleman. 

The chair recognizes the gentleman from Ohio, Mr. Jordan, for 

his opening statement. 

Mr. JORDAN. I want to just thank the chairman for helping us 

put this important hearing together. As we are heading into tax 

season or into tax season, I think this is going to be some hopefully 

valuable information for the folks we get the privilege of serving 

and representing. 

So with that, I would yield back and look forward to the witness’ 

testimony. 


KING-6430 with DISTILLER
3 

Mr. MEADOWS. I thank the gentleman. We will hold the record 

open for five legislative days for any member who would like to 

submit a written statement. 

I will now recognize our panel of witnesses. I am pleased to welcome the Honorable John Dalrymple, deputy commissioner for 

Services and Enforcement at the Internal Revenue Service. Welcome. Mr. Russell Martin, deputy inspector general with the Treasury, inspector general for the Tax Administration, welcome. And 

Ms. Jessica Lucas-Judy, acting director of Strategic Issues at the 

U.S. Government Accountability Office, welcome. 

And pursuant to committee rules, all witnesses will be sworn in 

before they testify, so if you would please rise and raise your right 

hand. 

[Witnesses sworn.] 

Mr. MEADOWS. Thank you. Please be seated. And let the record 

reflect that all witnesses answered in the affirmative. 

In order to allow time for discussion, we would ask that you 

please limit your oral testimony to five minutes, but your entire 

written testimony and statement will be made part of the record. 

And so, Mr. Dalrymple, we will recognize you for five minutes. 

WITNESS STATEMENTS 

STATEMENT OF JOHN DALRYMPLE 

Mr. DALRYMPLE. Thank you. Chairmen Meadows and Jordan, 

Ranking Member —— 

Mr. MEADOWS. Maybe just pull the—yes, a little bit closer to you 

there. Yes. 

Mr. DALRYMPLE. I thought I was loud enough. Sorry. 

Chairmen Meadows, Jordan, and Ranking Member 

Krishnamoorthi, and members of the subcommittees, thank you for 

the opportunity to testify on IRS’s taxpayer service efforts. 

The IRS spends a significant amount of time and resources on 

this part of our mission because every taxpayer contact is important to us. The most visible taxpayer service the IRS provides is 

the delivery of a smooth, problem-free tax filing season so people 

can file their returns and receive their refunds as quickly and easily as possible. I am pleased to report that, so far, the 2017 filing 

season has gone smoothly in terms of tax processing and the operation of our information technology systems. 

As of February 24, the IRS received more than 53.2 million individual returns on the way to a total of about 152 million. We’ve 

issued more than 41.3 million refunds for more than $127 billion. 

The average refund so far is more than $3,000. 

During the filing season and throughout the year, the IRS provides assistance to taxpayers to help them meet their tax obligations. With over 150 million individual taxpayers, we realized there 

is no one-size-fits-all in terms of delivering service to them. 

We offer a mix of service channels and are always looking for 

ways to improve service delivery. Over many years, we’ve been 

working to expand our online service offerings because our research 

tells us that taxpayers increasingly prefer to interact with us 

through digital channels. Last year, taxpayers visited our website, 

IRS.gov, more than 500 million times. They used IRS.gov to find 


KING-6430 with DISTILLER
4 

helpful tax information, check on the status of their refund, and 

perform transactions such as paying their tax bill. 

We’ve also been working to develop an online account at the IRS 

where taxpayers or their representatives can log in securely, get information about their account, and interact with the IRS as needed. We recognize that there will always be taxpayers who prefer 

not to interact with the IRS online. For that reason, we will continue providing and improving service on our other channels. 

One of these is phone service. The IRS receives more than 63 

million taxpayer calls a year on our toll-free lines. A very challenging year in fiscal year 2015 the level of service provided on the 

phones improved significantly in 2016 as a result of additional 

funding from Congress. I’m pleased to report that during the 2017 

filing season we are again seeing an even improved phone service. 

The IRS also provides in-person help to millions of taxpayers 

who visit our Tax Assistance Centers, or TACs, as we call them. 

Each of these contacts is also important to the IRS, and to cut 

down on long lines at our TACs, the IRS in 2015 began testing the 

idea of letting people make appointments in advance. We extended 

the appointment process to call—I’m sorry, to all TACs as of this 

year. Doing so has dramatically cut wait times, and we’ve had no 

reports of any lines outside TACs so far this filing season. 

Another way the IRS provides in-person help is by supporting 

nearly 12,000 volunteer income tax assistance and tax counseling 

for the elderly sites around the country. Volunteers at these sites 

provide free tax preparation help to eligible individuals. Along with 

the service we provide on these channels, the IRS also processes 

nearly 8 million pieces of correspondence from taxpayers each year, 

and these taxpayers are also important to us. 

The IRS remains dedicated to improving taxpayer service across 

all of our channels. Chairmen Meadows and Jordan, Ranking Member Krishnamoorthi, this concludes my statement, and I’d be happy 

to take questions. 

[Prepared statement of Mr. Dalrymple follows:] 


KING-6430 with DISTILLER
5 


KING-6430 with DISTILLERInsert offset folio 1 here 25223.001

WRITTEN TESTIMONY OF 

JOHN M. DALRYMPLE 

DEPUTY COMMISSIONER FOR SERVICES AND ENFORCEMENT 

INTERNAL REVENUE SERVICE 

BEFORE THE 

HOUSE OVERSIGHT AND GOVERNMENT REFORM COMMITTEE 

SUBCOMMITTE ON GOVERNMENT OPERATIONS AND 

SUBCOMMITTEE ON HEALTH CARE, BENEFITS AND ADMINISTRATIVE 

RULES 

INTRODUCTION 

ON IRS TAXPAYER SERVICE 

MARCH 8, 2017 

Chairmen Meadows and Jordan, Ranking Members Connolly and 

Krishnamoorthi, and Members of the Subcommittees, thank you for the 

opportunity to discuss the many ways in which the IRS provides assistance to 

taxpayers, and how we work continuously to improve those services. 

Former IRS Commissioner Lawrence Gibbs once said that there are three types 

of taxpayers: those who comply, those who are trying to comply, and those who 

are actively trying not to comply. It is the responsibility of the IRS to ensure that 

those who are complying and trying to comply have everything they need to fulfill 

their tax obligations. It is also imperative that those two categories of taxpayers 

can feel confident the IRS will pursue those taxpayers who have decided not to 

comply. 

The IRS is dedicated to helping taxpayers meet their tax obligations. The agency 

spends a significant amount of time and resources each year fulfilling this critical 

mission, as every inquiry from a taxpayer is important to us, and we know that 

taxpayers' overwhelming preference is to not interact with us at all, beyond filing 

a tax return and getting a refund. 

DELIVERING THE TAX FILING SEASON 

The most visible taxpayer service the IRS provides is the delivery of a smooth, 

problem-free tax filing season, so that people can file their returns and receive 

their refunds as quickly and easily as possible. It is important to note that 

delivering the filing season does not happen automatically or by accident, but 

because thousands of dedicated and experienced IRS employees work for 

months planning for the next filing season and then administering it effectively. 

I am pleased to report that the last several filing seasons have gone smoothly in 

terms of tax return processing. Thus far the 2017 filing season has been no 

exception. As of February 24, the IRS received more than 52.3 million individual 
6 


KING-6430 with DISTILLERInsert offset folio 2 here 25223.002

returns, on the way to a total of about 152 million. We have issued over 41.3 

million refunds for more than $127 billion, with the average refund totaling 

approximately $3,071. I would note this smooth operation of the filing season has 

been accomplished while using antiquated IT systems, as approximately 60 

percent of the agency's hardware and 28 percent of its software are out of date 

and in need of an upgrade. Continuing to rely on such outdated systems is costly 

and poses a risk of outages or failures. 

This tax filing season is notable for certain Protecting Americans from Tax Hikes 

(PATH) Act changes that were enacted in 2015 and took effect this year. For 

example, the IRS is now required to hold tax returns until February 15 each year 

if they claim either the Earned Income Tax Credit (EITC) or the Additional Child 

Tax Credit (ACTC). This change and another change accelerating the filing date 

of Forms W-2 have together helped the IRS improve its ability to spot incorrect or 

fraudulent returns. Another PATH Act provision required Individual Taxpayer 

Identification Numbers (ITINs) to expire if they had been issued before 2013 or if 

they had not been used on a federal tax return for three straight years. While 

these changes have increased the IRS's ability to detect and stop noncompliance 

and fraudulent refund claims, they required significant resources and 

coordination to implement. I am pleased to say that so far it appears that the IRS 

has been able to implement these important revenue-protecting changes while 

delivering a successful filing season. 

By setting the effective date for these changes about a year after enactment, 

Congress gave the IRS sufficient lead time to get our systems ready and also 

prepare taxpayers and tax practitioners, which we greatly appreciate. We spent 

several months working extensively with many partner groups and using various 

outreach and communications channels - including press releases, speeches, 

social media and the annual IRS Nationwide Tax Forums- to get the word out so 

people would understand what the changes would mean for them. This has 

greatly reduced the need for taxpayers to call or write us with questions about 

these changes. 

HELPING VICTIMS OF IDENTITY THEFT 

Another important aspect of taxpayer service involves protecting taxpayers and 

their personal data from identity theft, and assisting taxpayers when they 

discover they have been victimized by identity thieves who use their personal 

information to file false tax returns and claim fraudulent refunds. 

The problem of personal data being used to file fraudulent returns increased 

dramatically from 2010 to 2012, and for a time overwhelmed law enforcement 

and the IRS. Since then, we have been making steady progress even within our 

reduced resources, in terms of protecting against fraudulent refund claims, 

criminally prosecuting those who engage in this crime, and helping minimize the 

adverse effect on victims. 

2 
7 


KING-6430 with DISTILLERInsert offset folio 3 here 25223.003

That progress has accelerated since 2015, thanks to the collaborative efforts of 

the Security Summit group. Over the past two years, this strong, unique 

partnership between the public and private sectors has allowed us to coordinate 

our efforts on many different levels. As a result, we put in place many new 

safeguards for the 2016 filing season that produced real results. To illustrate, the 

number of people who reported to the IRS that they were victims of identity theft 

declined from 698,700 in Calendar Year (CY) 2015 to 376,500 in CY 2016- a 

drop of 46 percent. 

Even with this progress, the fraud filters in our processing systems are still 

catching a large number of false returns, which shows that identity theft 

continues to be a major threat to tax administration -a threat that receives our 

sustained vigilance and the continuous strengthening of our defenses against 

this crime. During Fiscal Year (FY) 2016, our systems stopped more than $6.5 

billion in fraudulent refunds on 969,000 tax returns confirmed to have been filed 

by identity thieves. 

Importantly, the IRS continues its efforts to help taxpayers who have been 

victims of identity theft. Here too, the IRS has made steady progress over time in 

our ability to close identity theft cases quickly and efficiently. Several years ago, it 

was taking us an average of 300 days to close a case, but more recently the IRS 

has been meeting its goal of resolving cases in an average of 120 days or less. 

Additionally, case inventory for identity theft victims dropped from about 95,000 

at the end of FY 2015 to 34,300 at the end of FY 2016. As of last month, the 

number was down to 28,900. 

TAXPAYER OUTREACH AND EDUCATION 

Another way in which the IRS serves taxpayers, especially as they are getting 

ready for the annual filing season, is by providing them with the information they 

need to help fulfill their tax obligations. The IRS conducts a wide range of 

outreach and education efforts, including enlisting the assistance of a variety of 

partners to serve taxpayers' filing and reporting needs. 

A critical part of our work involves partnering with the tax professional 

community. These groups are critical to the nation's tax system, helping meet the 

needs of taxpayers ranging from individuals to businesses. The IRS shares 

information with groups at the national level and works across the country with 

local tax professional groups. 

We have used these partnerships to share critical information related to such 

issues as identity theft and emerging tax scams, which can help taxpayers as 

well as tax professionals and businesses watch out for these evolving threats. 

The work with the tax professional community is also an important component of 

our Security Summit group. 

3 
8 


KING-6430 with DISTILLERInsert offset folio 4 here 25223.004

An important example of the IRS's outreach efforts to the tax professional 

community involves the annual IRS Nationwide Tax Forums for tax return 

professionals. More than 10,000 professionals, most of whom are small 

businesses and self-employed individuals, attended the 2016 Tax Forums. These 

three-day events were held in five cities over the summer, with sessions 

providing updates on many critical tax law issues. Additionally, we provide 

special case resolution services for tax preparers with clients who have 

unresolved tax issues with the IRS. 

Each year at the Tax Forums the IRS also solicits feedback from the tax 

community to find out how we can better serve them and their clients. For 

example, the tax professional community is critical to our Future State efforts as 

they serve taxpayers' needs. We used the 2016 Tax Forums to get feedback and 

input on the best way the IRS can help meet the evolving needs of taxpayers and 

the tax professionals who serve them going forward. This effort was wellreceived by participants last summer, and we plan to continue this effort during 

the upcoming 2017 Tax Forums. 

In addition, the IRS works with a wide range of partner groups to share 

information to benefit taxpayers. For example, each year on Earned Income Tax 

Credit (EITC) Awareness Day, the IRS works with hundreds of partners across 

the nation to share details about this tax credit for working Americans. This year, 

EITC Awareness day was held on January 27. 

In addition, the IRS continues to share information with taxpayers in new and 

evolving ways to adjust for changes in the communications landscape. 

Our communications efforts use a variety of channels. Given what our research 

has told us about taxpayers' preference for receiving information digitally, we 

have increasingly employed social media, including You Tube and Twitter, to 

provide important service messages to taxpayers such as important updates 

about tax law changes, the tax season and consumer alerts involving tax scams. 

Our Twitter accounts have more than 130,000 followers, and tweets are regularly 

retweeted by our partners and the tax professional community. In addition, the 

IRS continues to provide information for taxpayers on YouTube, where our 

videos have received a total of nearly 12 million views. 

Communicating with taxpayers involves not only providing them with tax 

information, but also finding out what they want and need from the IRS to ease 

the tax filing experience. The IRS for decades has done customer research to 

help us understand what service improvements we need to make. Examples 

include the following: 

• The IRS developed a roadmap, the Taxpayer Assistance Blueprint, for 

future taxpayer service improvements. The Blueprint was initially 

completed based on a careful analysis of a large body of research, and it 

4 
9 


KING-6430 with DISTILLERInsert offset folio 5 here 25223.005

provided critical guidance on how the IRS could enhance the efficiency 

and effectiveness of service delivery. The IRS continues to update the 

Blueprint, including updating research and analysis designed to 

understand taxpayers' evolving preferences for how to get needed 

assistance. Taxpayer Experience Surveys have been conducted 10 times 

over the last 16 years, and each one has provided important insights into 

the needs, opinions and behaviors of individual taxpayers. The most 

recent survey was conducted for tax year 2014 and completed in 2015. 

• The IRS has recently established the Taxpayer Experience Coordinating 

Council to understand, leverage and expand research activities to gain 

insights about the taxpayer experience. Members of the Council include 

IRS operating divisions, the Taxpayer Advocate Service and IRS 

researchers. 

SERVICE DELIVERY CHANNELS 

The IRS provides service and assistance throughout the year, particularly during 

the filing season when the demand is greatest, and it comes through a variety of 

channels. We provide service online on our website, IRS.gov; answer taxpayer 

calls on our toll-free line; offer in-person help at our Taxpayer Assistance Centers 

(TACs); and correspond with taxpayers through the mail. All of our service 

channels are designed to provide taxpayers and their representatives with the 

information and answers they need to fulfill their tax responsibilities as quickly 

and as easily as possible. However, the IRS will not sacrifice the security of 

taxpayers' information in our efforts to increase taxpayers' ease in getting the 

information and assistance they need. 

The National Taxpayer Advocate noted in her 2016 report to Congress that tax 

administrators in other countries and the private sector have found that taxpayers 

and other customers usually prefer a mix of service channels. Consistent with 

these findings, IRS also provides assistance through a variety of service 

channels, and we are continuously looking for ways to improve and expand 

service channels to serve taxpayers' needs. No matter what channel taxpayers 

choose, every taxpayer contact is important to us. 

Online Services 

The IRS continually works to improve and expand our online offerings to meet 

taxpayers' expectations, so they can interact with the IRS just as they do with 

any financial institution. Taxpayers come to IRS.gov to find information that is 

important to them, such as information about when their refunds will be sent. Our 

tool, "Where's My Refund?" was used about 300 million times in FY 2016, and 

160 million times already this filing season. Taxpayers also use IRS.gov to find 

tax information, download forms and pay their tax bills. During FY 2016, 

taxpayers visited IRS.gov over 500 million times, and have returned over 175 

million times so far this fiscal year. 

5 
10 


KING-6430 with DISTILLERInsert offset folio 6 here 25223.006

Beginning in 2014, the IRS launched a number of digital applications to further 

improve taxpayers' interactions with the IRS, focusing on high-volume 

transactions that taxpayers have said they want to conduct online, and those that 

minimize burden. These include: 

• "Where's My Amended Return?" - a tool that helps taxpayers understand 

the status of their Form 1040X amended tax returns for the current year 

and up to three prior years. Status includes information about when their 

amended return was received, adjusted and completed; 

• Get Transcript, which allows taxpayers to go online and download a copy 

of their tax records from prior years; 

• Online Payment Agreement, which taxpayers can use to set up a payment 

plan and pay their tax obligations over time; and 

• Direct Pay, which provides taxpayers with a secure, free, quick and easy 

online option for making tax payments. 

The IRS understands the need to continually improve the online content we 

provide to taxpayers. For that reason, over the last few years we have updated 

many of the most-often used sections of IRS.gev through our Content Upgrade 

program. We have used clearer writing, employed web and editorial best 

practices, and made design improvements - all to improve taxpayers' online 

experience and increase taxpayers' understanding of the information provided on 

IRS.gov. 

While the current online content and digital services have been helpful to 

taxpayers, the IRS is taking a broader look at the future of taxpayer service. Our 

goal is to find out how we could enhance and expand important services for all 

taxpayers, no matter what their circumstances. 

Through this effort, it became apparent that taxpayers needed services, tools and 

support that are both innovative and secure, and specific to their needs, 

especially in relation to online interactions. To that end, we are developing online 

accounts at the IRS where taxpayers, or their representatives, can log in 

securely, get the information they need about their account and interact with the 

IRS as needed. 

In December 2016, we took the first step toward a fully functional IRS online 

account with the launch of an application on IRS.gov that provides information to 

taxpayers who have straightforward balance inquiries. This new feature allows 

taxpayers to view their IRS account balance, including the amount they owe for 

tax, penalties and interest, in a secure, easy and convenient way. Soon, we will 

add another feature that will let taxpayers see recent payments posted to their 

account. These balance-due and recent-payment features, when paired with 

existing online payment options, will increase the availability of self-service 

interactions with the IRS. 

6 
11 


KING-6430 with DISTILLERInsert offset folio 7 here 25223.007

This is just the first step, but an important one. Over time, we will be adding other 

features to this platform as they are developed and tested with taxpayers and tax 

professionals. One such service improvement is Taxpayer Digital 

Communications. This feature, which we are now testing, provides a secure 

online messaging capability so that taxpayers, their authorized representatives 

and IRS employees can correspond electronically and resolve issues more 

quickly than through traditional mail. 

As we improve the online experience, we understand the responsibility we have 

to serve the needs of all taxpayers, whatever their age, income or preferred 

method of communication. Although our research tells us that taxpayers 

increasingly prefer to interact with the IRS through digital channels, we recognize 

there will always be taxpayers who do not have access to the digital economy, or 

who simply prefer not to conduct their transactions with the IRS online. 

Consequently, the IRS remains committed to providing the services these 

taxpayers need. While we will continue to offer more web-based services, 

taxpayers will still be able to call our toll-free lines, write to us or obtain in-person 

assistance if that is how they want to interact with the IRS. In fact, we believe that 

providing more online services for those who want them will free up valuable 

resources to allow us to further improve service on our other channels- phone, 

in person, and correspondence, particularly for those taxpayers with more 

complex issues. 

An excellent example of our commitment to providing service to all taxpayers 

involves the tax return filing process. Although e-filing by individuals has grown 

steadily over the years, and is expected to reach 87 percent this filing season, 

that still leaves roughly 20 million taxpayers filing paper returns. We remain 

dedicated to serving these paper filers. 

In addition, although all tax forms and publications are conveniently available 

online at IRS.gov, we continue to mail hard copies of tax forms to taxpayers who 

request them by phone or online. Taxpayers can also obtain copies of many tax 

forms at our T ACs, as well as at their local public libraries. 

Telephone Service 

The IRS's toll-free telephone line constitutes one of the world's largest customer 

service phone operations and receives considerable attention from observers of 

the IRS's taxpayer service delivery, even though it is only one of many channels 

taxpayers choose to get assistance. The IRS receives more than 63 million 

taxpayer calls a year, with more than one-third of those, or more than 25 million, 

handled by our customer service representatives. The rest are calls made to 

lines providing automated messages containing helpful tax information. Each of 

these taxpayer contacts is extremely important to us. 

7 
12 


KING-6430 with DISTILLERInsert offset folio 8 here 25223.008

After a very challenging year in FY 2015, the level of service (LOS) provided on 

the phones improved significantly in FY 2016 as a result of additional funding 

from Congress. We received a total of $290 million in extra funding to improve 

service to taxpayers, strengthen cybersecurity and expand our ability to address 

identity theft. 

We used approximately $178 million of this additional funding to add about 1,000 

extra temporary employees to help improve phone service during the filing 

season. As a result, the average level of service on our toll-free lines during the 

2016 tax filing season exceeded 70 percent, compared to the average of 37 

percent during the FY 2015 filing season. When the temporary employees went 

off rolls at the end of the 2016 filing season, phone LOS dropped, and our 

average for all of FY 2016 ended up at 53 percent, which nonetheless was still 

higher than 2015. 

I'm pleased to report that during the 2017 filing season, we are again seeing 

improved phone service. We anticipate that the average phone LOS for the filing 

season as a whole will be about 75 percent. Although we are still performing 

research to understand what other factors, aside from resources, may be 

contributing to this year's sustained high LOS, we believe a major factor is a 

relative lack of major tax law changes enacted in 2016, as call demand is lower 

than expected. Without such changes, fewer taxpayers need to call us with 

questions. Another factor is that the 2017 tax filing season has been a smooth 

one thus far, which also reduces taxpayer inquiries on the phone. 

In-Person Assistance 

The IRS serves millions of individuals each year at our TACs located around the 

country, and each of these contacts is extremely important to the IRS. In recent 

years T ACs in many locations experienced such heavy demand during the filing 

season that taxpayers were lining up for hours before the centers opened, just to 

ensure they would get in the door. To cut down on those long lines, the IRS in 

2015 began testing a new way of doing business: letting people make 

appointments in advance - a process that had already been used successfully in 

other countries. 

We found the pilot conducted in 2015 to be so successful that, with some 

adjustments, we have moved to extend the appointment process to all T ACs as 

of this year. We also started a program this year in which taxpayers can make 

appointments to meet with IRS employees at several Social Security 

Administration offices. 

I am pleased to report that the appointment process has dramatically cut waiting 

times for taxpayers seeking assistance at TACs. In contrast to the last couple of 

years, we have had no reports of long lines so far this filing season. 

8 
13 


KING-6430 with DISTILLERInsert offset folio 9 here 25223.009

We have also found this arrangement provides major advantages to the 

taxpayer. First, when a person calls for an appointment, we can tell them what 

documents they need to bring with them, reducing the number of return trips. 

Secondly, the IRS employee making the appointment can often help the taxpayer 

resolve their issue over the phone, eliminating altogether the need to visit a TAC. 

In fact, we have found that about 50 percent of the taxpayers who call for an 

appointment resolve their issues during that initial phone contact. 

This fiscal year, through February 18, just over 1 million people have called for 

an appointment. Of that total, about 526,000- more than half- were able to 

resolve their issue over the phone, meaning there was no need for the time and 

expense of visiting a TAC. This is an important point, because we believe TAC 

employees can now spend more time with those who do visit, as they tend to 

have more-complex issues that cannot be resolved over the phone. 

In implementing this new arrangement, we realized it would take time for people 

to adjust, so we have also served 610,000 people who walked in without an 

appointment so far this fiscal year, bringing the total number served so far in FY 

2017 to over 1.6 million. The 610,000 number also includes people who visit 

TACs to pay their tax bill, a transaction for which no appointment is needed. 

Given these results, we view the move to appointments as a common-sense 

change that increases and improves the level and quality of customer service the 

IRS can provide while minimizing burden on taxpayers. At the same time, we are 

still getting feedback and adjusting the appointment process to make sure it 

works as efficiently as possible. 

To supplement the in-person service provided at TACs, the IRS is collaborating 

with various partners to provide a secure Virtual Service Delivery (VSD) 

capability in some areas where there is limited staffing at a TAC or where no 

T AC exists. VSD involves taxpayers interacting with live assistors that are 

located in a different geographic area, via secure IRS computer and highresolution video capabilities. The computer can be placed in community partner 

locations, such as public libraries, or in other government offices. We currently 

have 28 VSD locations serving taxpayers. We will continue to look at VSD as 

well as exploring other technologies to deliver service in new ways. 

Another way the IRS facilitates in-person assistance is through its support of 

nearly 12,000 Volunteer Income Tax Assistance (VITA) and Tax Counseling for 

the Elderly (TCE) sites around the country. These sites provide free tax 

preparation assistance to low-income taxpayers who make $54,000 or less, as 

well as older Americans, people with disabilities and those with limited 

proficiency in English. These VITA and TCE sites are staffed by nearly 90,000 

dedicated volunteers, and I'm proud to say that many of them are IRS employees 

9 
14 


KING-6430 with DISTILLERInsert offset folio 10 here 25223.010

and retirees. These volunteers help prepare more than 3 million federal income 

tax returns a year. 

The IRS also works with partners to provide the Free File program, which allows 

taxpayers to prepare and e-file their federal income taxes at no cost. Free File 

can be used by anyone who earns $64,000 or less, which is approximately 100 

million individuals and families. Free File is made available through an 

agreement between the IRS and more than a dozen companies that form the 

Free File Alliance. 

The IRS continues to look for ways to make it easier, not only for taxpayers to file 

their taxes, but to pay what they owe. Although some of the newer options have 

involved making payments via credit card or through direct debit, the IRS also 

began offering a new cash payment option, PayNearMe, in 2016. PayNearMe 

allows taxpayers who want to pay their taxes in cash to go to any of more than 

7,000 7-Eieven convenience stores in 34 states to make those payments. 

Taxpayer Correspondence 

Another aspect of our customer service efforts involves taxpayer written 

correspondence, which gets less attention than other channels, but is critically 

important in resolving account and compliance issues for taxpayers and their 

representatives. In a given year, the IRS processes nearly 8 million pieces of 

mail from taxpayers. Each of these taxpayer contacts is extremely important to 

the IRS. 

Typically, taxpayers write to the IRS after receiving a notice from the agency 

about an issue with their tax return. When taxpayers do not receive a timely 

response from the IRS to their letters, they call for an update. In other words, 

failing to manage correspondence can actually increase phone demand 

In 2014 and 2015, our inventory of correspondence from taxpayers grew 

significantly above what it would normally be, because our constrained funding 

forced us to shorten the period of employment for our seasonal employees who 

help answer taxpayer correspondence. To illustrate, inventory of pending 

correspondence stood at 900,000 at the end of FY 2014 and 859,000 at the end 

of 2015. During 2015, to keep the escalating correspondence backlog from 

worsening still further, we ultimately shifted resources from the phones to 

correspondence to answer the letters and prevent additional phone calls. 

As noted above, the $290 million in additional funding we received for 2016 

allowed the IRS to significantly improve phone service that year. This also freed 

up more resources to help reduce the correspondence inventory, which declined 

to 690,000 by the end of FY 2016, and stood at 539,000 as of last month. 

10 
15 


KING-6430 with DISTILLERInsert offset folio 11 here 25223.011

The difficulties we experienced in 2015 with both correspondence and phone 

service need to be seen in a broader budget context, which includes the 

availability of user fees to supplement resources for taxpayer service. We have 

allocated user fees to effectively fund taxpayer service activities when 

discretionary appropriations are lower than what is necessary to support 

taxpayers' demand for services. 

Historically, the IRS had spent about $150 million a year in user fees on taxpayer 

service. But in 2015, we needed funding to maintain many of our current 

information technology (IT) systems and for IT upgrades needed to implement 

numerous unfunded legislative mandates. Therefore, for the 2015 filing season, 

we were forced to divert user fees to prepare for the upcoming filing season. As a 

result, only $45 million was available from user fees to help fund taxpayer service 

in 2015. To help make up this shortfall, we transferred $30 million from 

enforcement to taxpayer service that year. 

It is important to note the number of provisions enacted by Congress over the 

last several years that came with little or no funding for their implementation. This 

list includes: the Affordable Care Act (ACA); Foreign Account Tax Compliance 

Act (FATCA); a new certification program for professional employer 

organizations; reauthorization of the Health Coverage Tax Credit (HCTC); the 

private debt-collection program; the registration requirement for newly created 

501(c)(4) organizations; the seriously delinquent debt certification program; the 

delay of refunds of returns claiming the EITC and ACTC; and expiration of ITINs. 

As you can see from the multiple service channels and options we offer 

taxpayers and their representatives, and our continuous efforts to find ways to 

improve and expand those options, we take former IRS Commissioner Gibbs' 

admonition seriously about efficiently and effectively serving the needs of all 

taxpayers, especially those who comply and those trying to comply. 

Chairmen Meadows and Jordan, Ranking Members Connolly and Krishnamoorthi 

and Members of the Subcommittees, the IRS has always believed, and continues 

to believe, that every taxpayer is important, and we need to serve each one in 

whatever manner they interact with us. For that reason, the agency and its 

workforce remain dedicated to improving taxpayer service throughout the year, 

especially approaching and during the filing season, through outreach, education 

and across all channels. We look forward, with Congress's help, to continuing to 

do so. This concludes my statement. I would be happy to take your questions. 

11 
16 

Mr. MEADOWS. Thank you so much for your testimony. As Murphy’s law would have it, they called votes just about the time that 

you started speaking. And so what we are going to do is go into 

recess. And for planning purposes, it will actually be subject to the 

call of the chair, but for those of you that may want to get a cup 

of coffee, if you will plan on being back here no later than 10 till 

3:00. It may be later than that but certainly—the subcommittees 

stand in recess subject to the call of the chair. 

[Recess.] 

Mr. MEADOWS. The subcommittees will come to order. Thank you 

all for your patience and willingness to stay with us throughout 

this. 

Mr. Dalrymple, I want to congratulate you on your upcoming retirement. A little birdie told me that you were retiring in a couple 

of weeks, so we will try to make this as painless as possible. How 

about that? 

Mr. DALRYMPLE. You can’t imagine how I appreciate that. 

Mr. MEADOWS. And before I recognize you, Mr. Martin, I want 

to recognize Mr. Sapp who is here from Drake Software, a good 

friend and constituent from back in North Carolina, who actually 

deals with these kinds of issues. And so it is good to have you here 

as well. 

So, Mr. Martin, you are recognized for five minutes. 

STATEMENT OF RUSSELL MARTIN 

Mr. MARTIN. Thank you. Chairmen, Ranking Members, and 

members of the subcommittee, thank you for the opportunity to testify on IRS’s efforts to provide customer service to taxpayers, including those who are victims of identity theft. 

For the 2017 filing season, taxpayers have multiple options to 

choose from when they need assistance from the IRS. Examples include the toll-free telephone lines, face-to-face assistance, the mail, 

self-assistance through IRS.gov, and social media channels such as 

Twitter and Facebook. 

Despite other available options, taxpayers continue to use the 

telephone as the primary method to seek assistance from the IRS. 

The IRS is projecting a 75 percent level of service for the 2017 filing season, an increase from 72 percent reported for the 2016 filing 

season. The level of service represents the relative success rate of 

taxpayers who call the IRS for assistance. 

As of February 11, 2017, the IRS reports it answered approximately 2.5 million calls and provided an 82 percent level of service. 

Each year, millions of taxpayers also seek assistance from one of 

the IRS’s 376 walk-in offices known as Taxpayer Assistance Centers or TACs. Although the IRS reports there are 376 TACs for the 

2017 filing season, 24 are not open because they have not been 

staffed. The IRS estimates that the number of taxpayers it will assist at its TACs will continue to decrease. The IRS plans to assist 

more than 3.4 million taxpayers at its TACs in fiscal year 2017, a 

22 percent decrease from fiscal year 2016. 

Taxpayers also interact with the IRS through the mail. The IRS’s 

ability to timely process taxpayer correspondence remains a challenge. IRS management stated that the reduction in available staff 


KING-6430 with DISTILLER
17 

is the most significant factor in not timely responding to taxpayer 

correspondence. 

In response to increased demand for online self-assistant options, 

the IRS continues to increase the services they provide online. 

However, as we have reported, the risk of unauthorized access to 

tax accounts increases as the IRS expands its focus on delivering 

online tools. Therefore, it is critical that the methods the IRS uses 

to authenticate individuals’ identities provide a high level of confidence that tax information and services are provided only to individuals who are entitled to receive them. 

Much of the IRS’s ability to serve taxpayers require staffing. Beginning in fiscal year 2015, the IRS made some resource decisions, 

which significantly affected the level of service provided to taxpayers. This included shifting a significant portion of the user fees 

it collects to operation support to implement other obligations required by law. In fiscal year 2016, the IRS received $178 million 

in additional funding by Congress. As a result, it has increased its 

level of service substantially from its low of 38 percent in fiscal 

year 2015. 

The IRS also continues to devote significant resources to assist 

victims of identity theft. In July 2015 the IRS created a centralized 

unit to combine the skills of employees working identity theft cases 

in multiple functions into one directorate. This has resulted in improvements in case closure time frames and a reduction in case 

closing errors. 

To help protect identity theft victims and improve authentication, the IRS began issuing unique identification numbers to eligible taxpayers in fiscal year 2011. The issuance of these numbers 

to confirmed victims of identity theft reduces IRS’s resources needed to resolve identity theft cases. Specifically, this number helps 

the IRS verify a victim’s identity at the time their tax return is 

filed and, as a result, not delay the processing of the taxpayer’s return or issuance of their refund. 

However, TIGTA has identified that confirmed victims of identity 

theft tax accounts were not always consistently updated to ensure 

that these identification numbers were generated as required. This 

results in the need to unnecessarily use additional resources to review future tax return filings. 

TIGTA has reported that the trend of lower budgets and reduced 

staffing has affected the IRS’s ability to deliver its priority program 

areas, including customer service and enforcement activities. The 

allocation of limited resources requires difficult decisions to balance 

customer service with enforcement activities. 

This ends my statement, and I look forward to your questions. 

[Prepared statement of Mr. Martin follows:] 


KING-6430 with DISTILLER
18 


KING-6430 with DISTILLERInsert offset folio 12 here 25223.012

JOINT HEARING BEFORE THE 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

SUBCOMMITTEE ON HEALTH CARE, BENEFITS 

AND ADMINISTRATIVE RULES AND 

SUBCOMMITTEE ON GOVERNMENT OPERATIONS 

U.S. HOUSE OF REPRESENTATIVES 

"Examining the IRS's Customer Service Challenges" 

Testimony of 

Russell P. Martin, Assistant Inspector General for Audit 

Treasury Inspector General for Tax Administration 

March 8, 2017 

Washington, D.C. 
19 


KING-6430 with DISTILLERInsert offset folio 13 here 25223.013

TESTIMONY 

OF 

RUSSELL P. MARTIN, ASSISTANT INSPECTOR GENERAL FOR AUDIT 

TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION 

before the 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

SUBCOMMITTEE ON HEALTH CARE, BENEFITS 

AND ADMINISTRATIVE RULES AND 

SUBCOMMITTEE ON GOVERNMENT OPERATIONS 

U.S. HOUSE OF REPRESENTATIVES 

"Examining the IRS's Customer Service Challenges" 

March 8, 2017 

Chairman Jordan, Chairman Meadows, Ranking Member Krishnamoorthi, 

Ranking Member Connolly, and Members of the Subcommittees, thank you for the 

opportunity to testify on the customer service challenges facing the Internal Revenue 

Service (IRS). 

The Treasury Inspector General for Tax Administration (TIGTA) was created by 

Congress in 1998 and is mandated to promote integrity in America's tax system. It 

provides independent audit and investigative services to improve the economy, 

efficiency, and effectiveness of IRS operations. TIGTA's oversight activities are 

designed to identify high-risk systemic inefficiencies in IRS operations and to investigate 

exploited weaknesses in tax administration. TIGTA plays the key role of ensuring that 

the approximately 83,000 IRS employees1 who collected more than $3.3 trillion in tax 

revenue, processed more than 244 million tax returns, and issued more than $400 

billion in tax refunds during Fiscal Year (FY) 2016, 2 have done so in an effective and 

efficient manner while minimizing the risks of waste, fraud, and abuse. 

TIGTA's Office of Audit reviews all aspects of Federal tax administration 

and provides recommendations to improve IRS systems and operations; ensure the fair 

and equitable treatment of taxpayers; and detect and prevent waste, fraud, and abuse 

in tax administration. The Office of Audit places an emphasis on statutory coverage 

required by the IRS Restructuring and Reform Act of 1998 (RRA 98) 3 and other laws, as 

1 Total IRS staffing as of January 7, 2017. Included in the total are approximately 16,200 seasonal and 

part-time employees. 2 1RS, Management's Discussion & Analysis, Fiscal Year 2016. 3 Pub. L. No. 105-206, 112 Stat. 685 (1998) (codified as amended in scattered sections of 2 U.S. C., 5 

U.S.C. app., 16 U.S. C., 19 U.S. C., 22 U.S. C., 23 U.S.C., 26 U.S. C., 31 U.S.C., 38 U.S.C., and 49 

U.S.C.). 
20 


KING-6430 with DISTILLERInsert offset folio 14 here 25223.014

well as on areas of concern raised by Congress, the Secretary of the Treasury, the 

Commissioner of Internal Revenue, and other key stakeholders. 

TIGTA continues to review the IRS's efforts to provide quality customer service 

and recommend areas for improvement. Although the IRS has implemented 

recommendations to better assist the American taxpayer, significant challenges remain. 

In this section of my testimony, I will briefly discuss the status of the 2017 tax 

return Filing Season4 and the IRS's efforts to provide customer service to taxpayers, 

including those who are victims of identity theft. 

STATUS OF THE 2017 FILING SEASON 

The annual tax return filing season is a critical time for the IRS because it is 

when most individuals file their income tax returns and contact the IRS if they have 

questions about specific tax laws or filing procedures. During Calendar Year 2017, the 

IRS expects to receive approximately 152 million (approximately 17.7 million paper and 

134.3 million electronic) individual income tax returns. As of February 17, 2017, the 

IRS had received more than 42.5 million tax returns-more than 40.4 million 

(95.2 percent) of which were electronically filed and more than 2 million (4.8 percent) of 

which were filed on paper. The IRS has issued more than 32.9 million refunds totaling 

more than $103.2 billion. 

Implementation of tax law changes will continue to present challenges in the 

2017 Filing Season. As in previous years, the IRS had to identify the tax law and 

administrative changes affecting the upcoming filing season. Once identified, the IRS 

had to revise its various tax forms, instructions, and publications and reprogram its 

computer systems to ensure tax returns are accurately processed. Problems with tax 

return processing may delay tax refunds, affect the accuracy of taxpayer accounts, 

and/or result in the generating of incorrect notices. 

For the 2017 Filing Season, tax law changes include the continued 

implementation of the Patient Protection and Affordable Care Act and the Health Care 

and Education Reconciliation Act of 20105 (collectively referred to as the Affordable 

Care Act or ACA}, and provisions from the Protecting Americans from Tax Hikes Act of 

4 The period from January 1 through mid-April when most individual income tax returns are filed. 5 Pub. L. No. 111-148, 124 Stat. 119 (201 0) (codified as amended in scattered sections of the Internal 

Revenue Code and 42 U.S.C.), as amended by the Heath Care and Education Reconciliation Act of 

2010, Pub. L. No. 111-152, 124 Stat. 1029. 

2 
21 


KING-6430 with DISTILLERInsert offset folio 15 here 25223.015

2015 (PATH Act) 6 specifically intended to reduce fraudulent and improper refundable 

credit claims. 7 For example, these provisions modify the filing dates for income and 

withholding documents to January 31st. 

The law further mandates that no refund based on claims for the Earned Income 

Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) may be made to a 

taxpayer before February 15th. These provisions will provide the IRS with additional 

time to review refund claims based on the EITC and ACTC at the time tax returns are 

processed to validate income reported to support the amount claimed. In September 

2014, TIGTA identified 677,000 Tax Year 2012 tax returns for which third-party Forms 

W-2, Wage and Income Statement, were not sent to the IRS by the employer for either 

the taxpayer and/or spouse listed on the tax return. These tax returns claimed EITCs 

totaling more than $1.7 billion. 

In response to the January 20, 2017, Affordable Care Act Executive Order 

directing Federal agencies to exercise authority and discretion available to them to 

reduce potential burden on taxpayers, the IRS changed its processes and procedures 

on February 3, 2017. These changes now will allow electronic and paper-filed tax 

returns to be accepted for processing in instances in which taxpayers do not indicate 

their health care coverage status. At the start of the filing season, processes and 

procedures were developed to reject electronically filed tax returns from taxpayers that 

did not claim an exemption from insurance coverage or self-report a Shared 

Responsibility Payment (SRP). 8 For those taxpayers that filed a paper tax return, the 

IRS would hold their tax return and correspond with the taxpayer. If the taxpayer did 

not respond or provide adequate documentation, the IRS would assess the SRP. 

For the 2017 Filing Season, as of February 23, 2017, the IRS has processed 

1.3 million tax returns that reported $4.9 billion in Premium Tax Credits9 that were 

either received in advance or claimed at the time of filing. In addition, the IRS has 

received approximately 36.5 million tax returns reporting that all members of the 

taxpayer's family maintained minimum essential coverage as required by the ACA, with 

6 Consolidated Appropriations Act of 2016, Pub. L. No. 114-113, Div. Q, (2015). 7 A refundable credit allows taxpayers to reduce their tax liability to below zero and thus receive a tax 

refund even if no income tax was withheld or paid. 6 A payment based on each month that individuals or their dependents are without Minimum Essential 

Coverage and do not qualify for an exemption. Minimum Essential Coverage is health insurance 

coverage that contains essential health benefits including emergency services, maternity and newborn 

care, and preventive and wellness services. Minimum Essential Coverage also includes doctor visits, 

hospitalization, mental health services, and prescription drugs. 9 A refundable tax credit to assist individuals and families in purchasing health insurance coverage 

through an Affordable Insurance Exchange. 

3 
22 


KING-6430 with DISTILLERInsert offset folio 16 here 25223.016

more than 1.5 million tax returns reporting shared responsibility payments totaling 

$986 million for not maintaining the required health insurance coverage. During the 

2016 Filing Season, as of March 3; 2016, a total of 2.7 million taxpayers self-reported 

SRP payments totaling $1 billion. 

INCREASED DEPENDENCE ON TECHNOLOGY-BASED ASSISTANCE SERVICES 

For the 2017 Filing Season, taxpayers have multiple options to choose from 

when they need assistance from the IRS, including assistance through the toll-free 

telephone lines, 10 face-to-face assistance at the Taxpayer Assistance Centers (TAG) or 

Volunteer Program sites, and self-assistance through IRS.gov and various other social 

media channels (e.g., Twitter, Facebook, and YouTube). However, the IRS is 

continuing its trend towards increasing dependence on technology-based services and 

external partners by directing taxpayers to the most cost-effective IRS or partner 

channel available to provide the needed service. The IRS notes that this approach 

allows it to focus limited toll-free and walk-in resources on customer issues that can be 

best resolved with person-to-person interaction. 

Self-assistance options can be accessed 24 hours a day, seven days a week. 

For example, the IRS offers IRS2Go, which is a mobile application that lets taxpayers 

interact with the IRS using their mobile device to access information and a limited 

number of IRS tools. As of February 11, 2017, the IRS reports that the IRS2Go 

application had 1.78 million active users. 

In addition, the IRS uses various forms of social media, including YouTube, 

Twitter, Tumblr, and Facebook, to provide customer service and outreach. As of 

February 11, 2017, there have been 675,537 views of IRS YouTube videos and a total 

of 157,879 Twitter followers. In an effort to redirect taxpayers to online services, the 

IRS continues to expand its online tools available on IRS.gov. The IRS advises that its 

website is the best source for answers to their tax questions. The IRS reports more 

than 98.6 million visits to IRS.gov this filing season, as of February 11, 2017. 

However, as we have reported, the risk of unauthorized access to tax accounts 

increases as the IRS expands its focus on delivering online tools. The increasing 

number of data breaches in the private and public sectors means more personal 

information than ever before is available to unscrupulous individuals. Many of these 

data are detailed enough to enable circumvention of most authentication processes. 

10 The IRS refers to the suite of 29 telephone lines to which taxpayers can make calls as "Customer 

Account Services Toll-Free". 

4 
23 


KING-6430 with DISTILLERInsert offset folio 17 here 25223.017

Therefore, it is critical that the methods the IRS uses to authenticate individuals' 

identities provide a high level of confidence that tax information and services are 

provided only to individuals who are entitled to receive them. 

The IRS's goal is to eventually provide taxpayers with dynamic online account 

access that includes viewing their recent payments, making minor changes and 

adjustments to their accounts, and corresponding digitally with the IRS. In November 

2015, TIGTA reported that, although the IRS recognizes the growing challenge it faces 

in establishing effective authentication processes and procedures, the IRS had not 

established a Service-wide approach to managing its authentication needs. 11 As a 

result, the level of authentication the IRS uses for its various services was not 

consistent. The existence of differing levels of authentication assurance among the 

various access methods increased the risk of unscrupulous individuals accessing and 

obtaining personal taxpayer information and/or defrauding the tax system. 

In response to TIGTA recommendations, the IRS has undertaken a number of 

steps to provide for more secure authentication, including strengthening application 

and network controls. However, we continue to have concerns about the IRS's logging 

and monitoring abilities over all connections to IRS online systems. We are currently 

assessing the IRS's efforts to improve its authentication. This includes evaluating 

whether the IRS has properly implemented secure eAuthentication in accordance with 

Federal standards for public access to IRS online systems and effectively resolved 

identified control weaknesses. We expect to issue the final report in September 2017. 

TRADITIONAL SERVICES CONTINUE TO BE ELIMINATED OR REDUCED 

Despite other available options, most taxpayers continue to use the telephone 

as the primary method to contact the IRS about their account. The IRS is projecting a 

75 percent Level of Service12 for the 2017 Filing Season with an overall projected Level 

of Service for FY 2017 of 64 percent. For the 2017 Filing Season, as of 

February 11, 2017, the IRS reports that there were approximately 12.6 million attempts 

to contact the IRS by calling the various customer service toll-free telephone 

assistance lines. Assistors answered approximately 2.5 million calls and provided an 

82.1 percent Level of Service with a 7.1 minute Average Speed of Answer. 13 The 

reported Level of Service for the 2016 Filing Season as of February 13, 2016 was 

11 TIGTA, Ref. No. 2016-40-007, Improved Tax Return Filing and Tax Account Access Authentication 

Processes and Procedures Are Needed (Nov. 2015). 12The primary measure of service to taxpayers. It is the relative success rate of taxpayers who call for live 

assistance on the IRS's toll-free telephone lines in reaching an assistor. 13 The average amount of time for an assistor to answer the call after the call is routed to a call center. 

5 
24 


KING-6430 with DISTILLERInsert offset folio 18 here 25223.018

76.1 percent. 

In addition, the IRS's ability to timely process taxpayer correspondence remains 

a challenge. As of May 7, 2016, the IRS reported 1 million cases in its over-aged 

inventory. This inventory includes, but is not limited to, amended tax returns, 

responses to taxpayer notices, and identity-theft cases. Inventory greater than 45 

calendar days is generally considered over-aged. Staff responsible for working 

taxpayer correspondence are divided between working taxpayer correspondence and 

staffing the customer service telephone lines. IRS management stated that the 

reduction in available staff is the most significant factor in the increasing over-age 

inventory. 

To address congressional inquiries regarding the IRS's allocation of resources 

to taxpayer service, we reviewed the IRS's Taxpayer Services appropriation14 for 

FY 2013 to FY 2016. In December 2016, we reported that, overall, the IRS's 

appropriation to Taxpayer Services increased $198 million from FY 2013 to FY 2016. 15 

However, the amount of user fee receipts 16 the IRS used to supplement its annual 

Taxpayer Services appropriation was only about $40 million of the total $421 million 

user fee receipts in FY 2015. This $40 million is a 79 percent decrease in the 

supplemented amount to the annual Taxpayer Services appropriation since FY 2013. 

IRS officials stated that the reason for the decrease in the amount of user fee 

receipts supplementing the Taxpayer Services annual appropriation in FY 2015 was 

that the Operations Support appropriation 17 continued to be reduced despite funding 

needs to implement legislative obligations. The implementation of these laws requires 

the use of funding from the Operations Support appropriation. These include the ACA, 

Foreign Account Tax Compliance Act 18 and the implementation of the Health Coverage 

Tax Credit. Each of these laws requires funding over several years to implement; 

however, the IRS did not receive additional funding to implement them. 

14 Funds used to provide support for programs that focus on helping taxpayers understand and meet their 

tax obligations. 15 TIGTA, Ref. No. 2017-40-013, Analysis of Resources Allocated to Taxpayer Services 

(Dec. 2016). 18 The IRS has statutory authority to supplement its annual appropriations with user fee receipts received 

from various services provided to taxpayers. For example, the IRS charges taxpayers a user fee when 

taxpayers do not have the funds necessary to fully pay their taxes and instead enter into an installment 

agreement with the IRS. 17 Funds used to provide support for functions that are essential to the overall operation of the IRS, such 

as infrastructure and information services. 18 Pub. L. No. 111-147, §§ 501-541, 124 Stat 71, *96-116 (2010) (codified in scattered sections of 26 

USC.) 

6 
25 


KING-6430 with DISTILLERInsert offset folio 19 here 25223.019

Our review also identified that the overall number of Full-Time Equivalents 

(FTE) 19 allocated by the IRS to the functional area that works taxpayer correspondence 

and provides telephone assistance steadily decreased from FY 2013 to FY 2015. 

Specifically, the overall number of FTEs decreased by about 11 percent (14,757 to 

13,157 FTEs) between FYs 2013 and 2015. Moreover, of the reduced FTEs allocated 

to this functional area, the IRS continued to allocate a higher percentage of them to 

working correspondence rather than answering the telephones. These actions resulted 

in 38.1 percent Level of Service in FY 2015. 

In FY 2016, Congress appropriated an additional $290 million for key areas that 

directly support taxpayers. This additional funding was the first significant increase to 

the IRS budget in six years. In its spending plan for these funds, the IRS informed 

Congress that $178.4 million would be used to increase telephone Level of Service. 

The IRS reported a toll-free telephone Level of Service of 53.4 percent for FY 2016, 

including a 72.1 percent Level of Service for the filing season. In total, the IRS's 

Taxpayer Services appropriation was approximately $2.3 billion of its total $11.2 billion 

budget in FY 2016. In addition, the IRS also increased the amount of user fee receipts 

to $66.4 million used to supplement its annual Taxpayer Services appropriation. 

Besides telephone or correspondence assistance, each year many taxpayers 

seek assistance from one of the IRS's 376 walk-in offices (TACs). Although the IRS 

reports 376 TACs for the 2017 Filing Season, 24 TACs are not opened because they 

have not been staffed. The IRS estimates that the number of taxpayers it will assist at 

its TACs will continue to decrease. IRS plans to assist more than 3.4 million taxpayers 

at its TACs in FY 2017, an approximately 22.5 percent decrease from FY 2016. The 

IRS indicated that budget cuts and its strategy of appointment service at TACs, along 

with continued promotion of alternative service options, will result in the reduction of 

the number of employees to assist taxpayers at the T ACs. 

In June 2014, TIGTA reported that the IRS eliminated or reduced services at 

TACs. 2° For example, the IRS eliminated providing assistance with preparing tax 

returns. The IRS indicated that its strategy of not offering services at TACs that can be 

obtained through other service channels, such as the IRS's website, is the reason that 

the IRS plans to assist fewer taxpayers at the TACs. However, in making its decision, 

the IRS did not perform the required evaluation to assess the additional burden on 

19 A measure of labor hours. One FTE equals eight hours multiplied by the number of compensable days 

in a fiscal year. For FY 2016, one FTE was equal to 2, 096 staff hours. 20 TIGTA, Ref. No. 2014-40-038, Processes to Determine Optimal Face-to-Face Taxpayer Services, 

Locations, and Virtual Services Have Not Been Established (June 2014). 

7 
26 


KING-6430 with DISTILLERInsert offset folio 20 here 25223.020

taxpayers most likely to visit a TAC (such as low-income, elderly, and limited-Englishproficient taxpayers). Between FY 2014 and FY 2016, the IRS reduced the number of 

taxpayers it assisted by 18 percent. 

The IRS is implementing initiatives in an effort to better assist those individuals 

seeking assistance from a TAC. For the 2017 Filing Season, the IRS has transitioned 

all TACs to appointment service. The IRS indicated that they initially began providing 

services at TACs by appointment, in an attempt to alleviate long lines that sometimes 

occur at many TACs and to help ensure that taxpayers' issues are timely resolved. In 

addition, when taxpayers contact the IRS to schedule an appointment, an IRS assistor 

will attempt to resolve the taxpayer's question or provide the taxpayer with information 

on alternative services. The IRS reports that during the first quarter of FY 2017, IRS 

employees answered over 500,000 calls resulting in approximately 260,000 that 

necessitated a TAC appointment. As of February 11, 2017, taxpayers had scheduled 

452,934 appointments. The IRS notes that taxpayers that travel to a TAC without an 

appointment are assisted if there is availability. As of the first quarter of FY 2017, the 

IRS reported that they provided a walk-in exception to the requirement for an 

appointment to nearly 70,000 taxpayers. 

The IRS also offers Virtual Service Delivery, which integrates video and audio 

technology to allow taxpayers to see and hear an assistor located at a remote TAC. 

For the 2017 Filing Season, the IRS offered Virtual Service Delivery at 28 partner site 

locations. It should be noted that of the 24 walk-in offices that do not have staff, the 

IRS is providing service through Virtual Service Delivery located at community partners 

at four of these locations. The IRS reports that 990 taxpayers had used the service as 

of February 11, 2017. 

Finally, the IRS has an initiative to co-locate with the Social Security 

Administration to assist taxpayers who are victims of identity theft. For the 2017 Filing 

Season, the IRS has placed employees in four Social Security Administration locations. 

TIGTA is planning a follow-up audit to assess the IRS's efforts to expand customer 

service options to taxpayers seeking face-to-face assistance. 

8 
27 


KING-6430 with DISTILLERInsert offset folio 21 here 25223.021

SIGNIFICANT RESOURCES CONTINUE TO BE ALLOCATED TO ASSIST VICTIMS 

OF IDENTITY THEFT 

Identity-theft tax refund fraud occurs when an individual uses another person's 

name and Taxpayer Identification Number21 to file a fraudulent tax return. 

Unscrupulous individuals steal identities for use in submitting tax returns with false 

income and withholding documents to the IRS for the sole purpose of receiving a 

fraudulent tax refund. Tax-related identity theft adversely affects the ability of innocent 

taxpayers to file their tax returns and timely receive their tax refunds, often imposing 

significant financial and emotional hardships. 

In addition to the legislation that requires income and withholding to documents 

to be provided to the IRS by January 31 51 to further enhance IRS fraud detection 

capabilities, the IRS initiated the W-2 Acceleration Program in Processing Year (PY)22 

2016. This initiative enables the IRS to receive Forms W-2 directly from reporting 

agents, 23 Federal agencies, and State governments to supplement the W-2 data 

received from the Social Security Administration with additional third-party data as 

early in the filing season as possible. The accelerated reporting of Forms W-2 

information has proven to have an added benefit of allowing the IRS to exclude 

legitimate tax returns from identity theft treatment because the income information 

matched. For example, the IRS reports that the use of the accelerated income 

information in PY 2016, as of April25, 2016, resulted in the IRS excluding 33,628 tax 

returns from identity theft treatment because the income information matched. This 

reduces the burden on taxpayers filing legitimate tax returns and their refunds being 

delayed. 

However, TIGTA reviews have identified long delays in case resolution and 

account errors, and that not all identity-theft victims receive Identity Protection Personal 

Identification Numbers (IP PIN). 24 For example, in March 2015, 25 we reported that 

victims continue to experience long delays waiting for the IRS to resolve their cases 

21 A nine-digit number assigned to taxpayers for identification purposes. Depending upon the taxpayer, 

the number can be an Employer Identification Number, a Social Security Number (SSN), or an Individual 

Taxpayer Identification Number. 22 The calendar year in which the tax return or document is processed by the IRS. 23 A reporting agent is a payroll service provider that is authorized to perform certain acts on behalf of its 

clients' employees. 24 An IP PIN is a six-digit number assigned to taxpayers that allows their tax returns/refunds to be 

processed without delay and helps prevent the misuse of their SSNs to file fraudulent Federal income tax 

returns. 

25 TIGTA, Ref. No. 2015-40-024, Victims of Identity Theft Continue to Experience Delays and Errors in 

Receiving Refunds (Mar. 2015). 

9 
28 


KING-6430 with DISTILLERInsert offset folio 22 here 25223.022

and issue their refunds. Our review of a statistically valid sample of 100 identity theft 

tax accounts resolved by the IRS between October 1, 2012, and September 30, 2013, 

revealed that the IRS took an average 278 days to resolve the tax accounts. Our 

report also identified that IRS employees did not correctly resolve 17 of the 100 tax 

accounts. We reported that an estimated 25,565 (10 percent) of the 267,692 taxpayers 

whose accounts were resolved may have been incorrectly resolved, resulting in 

delayed issuance of refunds to victims or in some victims receiving an incorrect refund 

amount. 

In July 2015, the IRS created the Identity Theft Victim Assistance (IDTVA) 

Directorate to combine the skills of employees working identity-theft cases in multiple 

functions into one directorate. The goal is to improve the taxpayer's experience 

working with the IRS to resolve his or her tax-related identity-theft case. Approximately 

1,200 employees work in the IDTVA Directorate to resolve taxpayer-initiated 

identity-theft cases. 26 TIGTA's current review27 of all taxpayer initiated refund cases 

closed from August 1, 2015, through May 25, 2016, identified improvements in case 

closure timeframes and a reduction in case closing errors in comparison to our prior 

audit completed before the IDTVA Directorate was created. The IRS's efforts to 

centralize operations under a unified leadership, along with its enhanced procedures 

and processes, have contributed to the improvements identified since our prior audit. 

We plan to issue our final report in April 2017. 

To provide relief to identity-theft victims, the IRS began issuing IP PINs to 

eligible taxpayers in FY 2011. For PY 2016, the IRS issued more than 2.7 million 

IP PINs to taxpayers for use in filing their tax returns. TIGT A is currently assessing IRS 

actions to address prior recommendations regarding the administration of the IP PIN 

Program and determined that some improvements are needed. 28 Specifically, TIGTA 

identified that taxpayer accounts were not always consistently updated to ensure that IP 

PINs were generated for taxpayers as required. For example, the IRS did not generate 

an IP PIN for more than 2 million taxpayers for whom the IRS resolved an identity-theft 

case by confirming that the taxpayer was a victim. This results from inconsistent 

processes and procedures when closing resolved identity-theft cases. Without the 

26 A taxpayer-initiated identity theft case is created when taxpayers contact the IRS to report that after 

filing their tax return they received a notice indicating the return was rejected because someone (an 

identity thief) already filed a return using the same Social Security Number and name. 27 TIGTA, Audit No. 201640015, Identity Theft Victim Assistance Directorate, report scheduled for April 

2017. 

28 TIGTA, Audit No. 201640017, Identity Protection Persona/Identification Numbers (Follow-up), report 

scheduled for March 2017. 

10 
29 


KING-6430 with DISTILLERInsert offset folio 23 here 25223.023

required marker on their account to generate an IP PIN, these taxpayers will experience 

delays when tax returns are subsequently filed. 

Additionally, the PY 2016 IP PIN notice continues to contain inaccurate 

information. For example, the IRS mailed more than 2.7 million IP PIN notices to 

taxpayers for PY 2016 erroneously instructing them not to use their IP PIN if they are 

claimed as a dependent on a tax return. These instructions conflict with PY 2016 e-file 

programming, which requires the IP PIN assigned to a dependent to be used on a filed 

tax return. For those taxpayers that follow the erroneous instructions, their 

electronically filed returns without the assigned IP PIN listed for a dependent will be 

rejected. 

Furthermore, we identified that the IRS's Opt-in Program was designed to focus 

on taxpayers in States and locations with the highest per capita rate of identity theft and 

offer them the opportunity to obtain an IP PIN before becoming a victim of tax-related 

identity theft. However, the IRS has not updated its identification of locations that may 

now have the highest per capita rate based on identity-theft complaints. In addition, 

taxpayers in Opt-in locations may not be aware of the option to obtain an IP PIN. 

TIGTA plans to issue its final report in March 2017. 

In November 2016, TIGTA reported that additional actions can be taken to 

improve the accuracy and timeliness of processing tax return requests by victims of 

identity theft. 29 In 2015, the IRS changed its policy to allow identity-theft victims to 

receive, upon request, redacted copies of fraudulent tax returns filed using their names 

and SSNs. To process taxpayer requests, the IRS established a new program called 

the Fraudulent Return Request Program. According to the IRS, it has received, as of 

December 31, 2016, more than 7,200 requests for copies of fraudulent returns since 

the program's inception in November 2015. 

While the IRS took prompt action to establish this program, TIGTA's review of a 

statistically valid sample of 130 taxpayer requests, from a population of 1,962 taxpayer 

requests as of March 11, 2016, identified 33 taxpayer requests with one or more 

processing errors. Based on the results of this sample, TIGTA projects that 498 

taxpayers' requests could contain processing errors. These errors included not timely 

processing the request, not providing a copy of the fraudulent tax return, and not 

29 TIGTA, Ref. No. 2017-40-011, Actions Can Be Taken to Improve Processes of a Newly Developed 

Program That Enables Victims of Identity Theft to Request Copies of Fraudulent Tax Returns (Nov. 

2016). 

11 
30 


KING-6430 with DISTILLERInsert offset folio 24 here 25223.024

properly redacting all required information from the return, such as taxpayer names, 

street numbers of an address, and telephone numbers. 

Individuals can also learn that they are victims of employment identity theft if 

they receive a notification from the IRS of an income discrepancy between the amounts 

reported on their tax returns to the amount employers reported to the IRS. This can 

occur when an innocent taxpayer's stolen identity is used to gain employment. It can 

cause significant burden due to the incorrect computation of taxes and Social Security 

benefits based on income that does not belong to the taxpayer. 

In August 2016, we reported that during the period February 2011 to December 

2015, the IRS identified almost 1.1 million taxpayers who were victims of employment 

identity theft, but were not notified. 30 We have an ongoing audit that is evaluating the 

IRS's processes to identify and mark victims' tax accounts and notify the Social 

Security Administration to ensure that individuals' Social Security benefits are not 

affected by the misuse of their identities to gain employment. 31 During our review, the 

IRS announced that it will notify victims of employment identity theft starting January 

2017. The notification letter describes steps the taxpayers could take to prevent further 

misuse of their personal information, including reviewing their earnings with the Social 

Security Administration to ensure that their records are correct. TIGTA expects to 

issue its report in April2017. 

We at TIGTA take seriously our mandate to provide independent oversight of the 

IRS in its administration of our Nation's tax system. As a result, we plan to provide 

continuing audit coverage of the IRS's efforts to operate efficiently and effectively and to 

provide high-quality service to taxpayers. 

Chairman Jordan, Chairman Meadows, Ranking Member Krishnamoorthi, 

Ranking Member Connolly, and Members of the Subcommittees, thank you for the 

opportunity to share my views. 

30 TIGTA, Ref. No. 2016-40-065, Processes Are Not Sufficient to Assist Victims of Employment-Related 

Identity Theft (Aug. 2016). 31 TIGTA, Audit No. 201640028, Employment Related Identity Theft- Returns Processing, report 

scheduled for Apri12017. 

12 
31 

Mr. MEADOWS. Thank you, Mr. Martin. 

Ms. Lucas-Judy? 

STATEMENT OF JESSICA LUCAS–JUDY 

Ms. LUCAS-JUDY. Chairmen Meadows and Jordan, Ranking 

Members Connolly and Krishnamoorthi, members of the subcommittees, thank you for this opportunity to discuss GAO’s recommendation for improving IRS customer service. My statement 

today focuses on two areas: IRS’s performance in 2016 compared to 

prior years and its efforts to improve service for victims of identity 

theft. 

During the filing season, millions of taxpayers contact IRS. The 

service also processes most of the approximately 150 million tax returns it receives during this time and issues more than 100 million 

refunds. The scale of these operations, as well as IRS’s declining 

resources, have raised concerns about its ability to provide service 

to taxpayers. Maintaining quality customer service is important because it helps taxpayers comply with the tax code. 

Regarding the first area, performance, IRS provided better telephone service to callers during the 2016 filing season compared to 

2015. More people who wanted to speak to an assister were able 

to get through. In fact, it was the highest level of service for a filing season since 2011. However, IRS performance during the full 

fiscal year remained low. 

In addition, wait times were much shorter than in 2015, 11 minutes rather than 23 minutes on average. Total calls where taxpayers abandoned the call, were disconnected, or received a busy 

signal declined about 10 percent. These improvements were because IRS devoted additional resources and staff to answering 

calls, as well as offered overtime to staff after receiving additional 

funding and allocating user fees. 

However, IRS does not make customer service information, including average wait time, easily available such as through an online dashboard. Without this information, taxpayers are not well 

informed on what to expect when they’re requesting services from 

IRS. Accordingly, we recommended that IRS display customer service standards and performance online, and the agency agreed. 

The second area is customer service for victims of identity theft 

refund fraud. IRS estimates it paid at least $2 billion identity theft 

refunds in 2015. Such fraud also burdens honest taxpayers because 

authenticating their identities can delay processing their returns 

and their refunds. 

We found IRS has overall improved aspects of service for victims 

of this fraud. For example, IRS reduced its backlog of cases and 

began consolidating inventory and better managing its case flow. 

However, we did find three things that IRS could further improve. 

First, IRS’s file retrieval and scanning processes contributed to 

delays and unnecessary document requests. We reviewed a sample 

of 16 identity theft cases, and in two of those cases it had taken 

six weeks or more for IRS to retrieve and scan the requested documents, during which time the assisters closed the cases without receiving the documents. This leads to the question whether or not 

they were even needed. We recommended IRS review its retrieval 


KING-6430 with DISTILLER
32 

and scanning procedures for improvements, which IRS agreed to 

do. 

Second, we found potential weaknesses in IRS’s internal control 

processes could lead to IRS paying refunds to fraudsters. In discussion groups, IRS assisters and managers told us some assisters 

may release refunds even if indicators on the account show the tax 

return was under review for identity theft. We recommended IRS 

improve its data or collect new data to monitor how and why assisters might be releasing refunds before closing these types of 

cases. 

IRS disagreed, stating that the problem was not widespread and 

current processes are sufficient. However, we maintain the data 

IRS was using had weaknesses and were not sufficient to make 

that determination. 

In response to our draft report, IRS sent us an analysis that they 

said showed this type of error does occur but may not be as widespread as the discussion group participants suggested. We’ll continue to work with IRS on this important issue. 

Finally, we found IRS does not notify taxpayers when a dependent’s identity appears on a fraudulent return. By not doing so, IRS 

is limiting taxpayers’ ability to take action to protect its dependents’ identity. We recommended IRS revise notices to victims to include information such as whether dependents were claimed on the 

fraudulent return, and IRS agreed with this. 

In summary, as taxpayers file their returns for 2016, it’s important that IRS ensures timely, quality service. IRS can increase 

transparency and accountability by implementing our recommendations to provide performance information, improve file retrieval and 

scanning, determine how assisters might release refunds, and notify taxpayers when dependents’ identities have been used fraudulently. 

This concludes my prepared remarks, and I’ll be happy to answer 

any questions that you may have. 

[Prepared statement of Ms. Lucas-Judy follows:] 


KING-6430 with DISTILLER
33 


KING-6430 with DISTILLERInsert offset folio 25 here 25223.025

For Release on Delivery 

Expected at 2 p.m. ET Wednesday, March 8. 2017 

GA0-17-492T 

United States Government Accountability Office 

Testimony 

Before the Subcommittees on Government Operations 

and Health Care, Benefits, and Administrative Rules, 

Committee on Oversight and Government Reform, 

House of Representatives 

2016 FILING SEASON 

IRS Improved Telephone 

Service but Needs to 

Better Assist Identity Theft 

Victims and Prevent 

Release of Fraudulent 

Refunds 

Statement of Jessica Lucas-Judy, Acting Director, 

Strategic Issues 
34 


KING-6430 with DISTILLERInsert offset folio 26 here 25223.026

Chairmen Meadows and Jordan, Ranking Members Connolly and 

Krishnamoorthi, and Members of the Subcommittees: 

Thank you for the opportunity to discuss our January 2017 report on the 

Internal Revenue SeNice's (IRS) customer seNice.' As taxpayers file 

their returns for 2016, it is important that the IRS ensures timely and 

quality seNice. In recent years, IRS has experienced declining resources 

and an increased workload. For example, in December 2015, we reported 

that IRS provided the lowest level of telephone seNice during fiscal year 

2015 compared to prior years. 2 Callers experienced long wait times and 

difficulty in reaching an IRS assistor. The severe decline in seNice 

highlights the challenges of managing IRS's operations and underscores 

the importance of IRS making tough decisions to improve seNice. 

Maintaining quality customer seNice is important because it helps 

taxpayers comply with the tax code. 

IRS also has been confronted with the growing problem of identity theft 

(IDT) refund fraud over the past several years. IDT refund fraud occurs 

when a fraudster obtains an individual's Social Security number, date of 

birth, or other personally identifiable information (PII), and uses it to file a 

fraudulent tax return seeking a refund. 3 This crime is an evolving and 

costly problem that causes hardship for legitimate taxpayers who are 

victimized and demands an increasing amount of IRS resources. IDT 

refund fraud burdens honest taxpayers because authenticating their 

identities is likely to delay the processing of their returns and refunds. IRS 

estimates that at least $14.59 billion in IDT tax refund fraud was 

1GAO, 2016 Filing Season: IRS Improved Telephone SeNice but Needs to Better Assist 

Identity Theft Victims and Prevent Release of Fraudulent Refunds, GA0-17 -186 

(Washington, D.C.: January 31, 2017). 

2GAO, 2015 Tax Filing Season: Deteriorating Taxpayer SeNice Underscores Need for a Comprehensive Strategy and Process Efficiencies, GA0-16-151 (Washington, D. C.: Dec. 

16, 2015). For additional information see our Key Issues web page on tax administration, 

http://www.gao.gov/key_issues/tax_administrationlissue_summary. 

3

This testimony discusses !DT refund fraud and not employment fraud. lOT employment 

fraud occurs when an identity thief uses a taxpayer's name and Social Security number to 

obtain a job. 

Page 1 GA0-17-492T 2016 Filing Season 
35 


KING-6430 with DISTILLERInsert offset folio 27 here 25223.027

attempted in calendar year 2015-of which it prevented at least $12.35 

billion (85 percent), but at least $2.24 billion (15 percent) was paid' 

My remarks today highlight the findings from our January 2017 report on 

aspects of IRS's customer service, including for those who are victims of 

lOT refund fraud. Accordingly, this testimony addresses (1) how well IRS 

provided service to taxpayers in 2016 compared to its performance in 

prior years, and (2) its efforts to improve service for lOT victims, including 

selected internal control processes. 

To conduct this work, we analyzed IRS documents and data for fiscal 

years 2011 through 2016 related to the filing season and reviewed 16 

randomly selected lOT cases open or closed during a 10-month period in 

2015 and 2016. We also conducted 5 discussion groups with 15 IRS 

assistors and 13 managers who handle lOT cases, and interviewed IRS 

officials and external stakeholders, such as representatives from the tax 

preparation industry. The results of the case studies and discussion 

groups are not generalizable but provide a better understanding of the 

characteristics of various lOT cases that IRS handles as well as the 

perspectives of IRS assistors and managers handling lOT cases. We 

compared IRS actions to federal standards for evaluating performance 

and internal control. Our January 2017 report includes a detailed 

explanation of the methods used to conduct our work. The work on which 

this testimony is based was performed in accordance with generally 

accepted government auditing standards. 

In summary, we found that IRS provided better telephone service to 

callers during the 2016 filing season-generally between January and 

mid-April-compared to 2015. However, its performance during the full 

fiscal year remained low. Furthermore, IRS does not make this nor other 

types of customer service information easily available to taxpayers, such 

as in an online dashboard. Without easily accessible information, 

taxpayers are not well informed of what to expect when requesting 

services from IRS. We also found that IRS has improved aspects of 

service for victims of lOT refund fraud. However, inefficiencies contribute 

to delays, and potentially weak internal controls may lead to the release 

4Given current and emerging risks, in 2015, we expanded our high risk area on the 

enforcement of tax laws to include IRS's efforts to address !DT refund fraud. See GAO, 

High~Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed 

on Others, GA0-17-317 (Washington, D.C.: Feb. 15, 2017). 

Page2 GA0~17-492T 2016 Filing Season 
36 


KING-6430 with DISTILLERInsert offset folio 28 here 25223.028

IRS Improved 

Telephone Service 

Compared to Last 

Year, but Does Not 

Make Customer 

Service Information 

Easily Available 

of fraudulent refunds. In turn, this limits IRS's ability to serve taxpayers 

and protect federal dollars. 

Specifically, IRS's file retrieval and scanning processes contributed to 

delays and unnecessary requests for documents, potential weaknesses in 

IRS's internal control processes could lead to IRS paying refunds to 

fraudsters, and IRS does not notify taxpayers when a dependent's identity 

appears on a fraudulent return. Accordingly, we recommended that IRS 

display customer service standards and performance online; review its 

retrieval and scanning processes; improve existing data or collect new 

data to monitor how and why assistors release refunds before closing an 

IDT or duplicate return case; and revise its notices to IDT victims. IRS 

disagreed with our recommendation to improve data for monitoring refund 

releases, stating that the problem is not widespread and current 

processes are sufficient. We maintain that the data IRS uses are not 

sufficient to make such a determination. IRS agreed with the remaining 

three recommendations. 

In our January 2017 report, we found that IRS provided better telephone 

service to callers during the 2016 filing season compared to 20155 For 

example, IRS's level of telephone service-which is defined as the 

percentage of people who want to speak with an assistor and were able 

to reach one-was 72 percent during the 2016 filing season compared to 

37 percent during the 2015 filing season. This was the highest level of 

service reached during this time since 2011. In addition, during the 2016 

filing season, taxpayers waited about 11 minutes to speak with an IRS 

assistor. which was substantially better than IRS expected and an 

improvement over the close to 23-minute average in the previous filing 

season. 

Figure 1 shows that, in fiscal year 2016, call volume increased from 111.9 

million calls to slightly more than 114 million calls (about 2 percent) and 

full-time equivalents answering phone calls increased from 6,268 to 7,704 

(about23 percent) compared to the prior year. 6 Total calls where 

5

Most taxpayers file their tax returns between mid-January and April15, which is the 

deadline for filing individual income tax returns. However, millions of taxpayers receive 

extensions from IRS, which allows them to delay filing (but not payment) until as late as 

October 15. 

6

Full-time equivalents represent the total number of hours worked based on IRS payroll 

data divided by the number of compensable hours applicable to each fiscal year. For 

example, in fiscal year 2016 there were 2,096 compensable hours. 

Page3 GA0-17492T 2016 Filing Season 
37 


KING-6430 with DISTILLERInsert offset folio 29 here 25223.029

taxpayers abandoned the call, were disconnected, or received a busy 

signal declined by about 10 percent (from 56.2 million in 2015 to 50.6 

million in 2016). IRS officials attributed the improvements to additional 

appropriations from the Congress and user fee funds, which in part 

allowed for more hiring and use of overtime compared to the prior year. 7 

Figure 1: IRS's Ability to Answer Telephone Calls Improved Compared to Last Year 

but Remains Lower than Prior Years 

Calls to IRS's taxpayer 

service lines (in millions) 

200 

180 8,840 

160 

140 

120 

100 

•• 

•• 

•• 

20 

Full-time equivalents 

-telephone10,000 

8,000 

6,000 

4,000 

2,'000 

2011 2012 2013 2014 2015 2016 

Fiscal year 

Caller abandons and IRS disconnects and busy signals 

Calls answered by assistors 

Calls answered by automated tines 

Full-time equiva1ants- telephone 

Source·GAOanalyslsofiRSdata IGA0-17-492T 

7Federa! agencies may assess a fee to users when providing goods and services. These 

fees are referred to as user fees. While IRS does not need congressional approval of its 

user fee spending plan, it must obtain approval from the Department of the Treasury and 

the Office of Management and Budget. For fiscal year 2016, IRS was directed to wait 30 

days following the submission of the user fee spending plan before obligating these 

funds.161 Gong. Rec. H10135-36 (Dec. 17, 2015). For additional information about IRS's 

budget, see GAO, IRS 2017 Budget: IRS Could Improve Presentation of Budget Data in 

Its Congressional Justification, GA0-16-695 (Washington, D.C.: July 21, 2016). 

Page4 GA0-17-492T 2016 Filing Season 
38 


KING-6430 with DISTILLERInsert offset folio 30 here 25223.030

IRS Improved 

Aspects of Service 

but Inefficiencies and 

Potentially Weak 

Internal Controls 

Reduce IRS's Ability 

to Serve IDT Victims 

and Protect Federal 

Dollars 

IRS provides key stakeholders, including Congress and federal oversight 

agencies, historical performance data and forecasts concerning what it 

expects to deliver during the fiscal year, such as for telephone level of 

service. However, this information is not necessarily designed for or 

accessible to taxpayers. One exception is that, on the telephone, IRS 

provides taxpayers with an expected wait time to speak with an assistor. 

Key performance information, such as level of service and average wait 

time, is not easily available to taxpayers when they access IRS's website. 

IRS does not make such information or other types of customer service 

information easily available to taxpayers, such as in an online dashboard. 

Without easily accessible information, taxpayers are not well informed on 

what to expect when requesting services from IRS. Therefore, we 

recommended that IRS display customer service standards and 

performance online so that it is easily accessible and improves the 

transparency of its service. IRS agreed with this recommendation. 

In our January 2017 report, we found that IRS has improved aspects of 

service for victims of IDT refund fraud. 8 For example, IRS formed an IDT 

reengineering team to improve customer service and began implementing 

the team's recommendations to streamline the process, such as 

consolidating inventory and better managing IDT case flow. However, 

inefficiencies contribute to delays, and potentially weak internal controls 

may lead to the release of fraudulent refunds. In turn, this limits IRS's 

ability to serve taxpayers and protect federal dollars. While IRS has 

reduced its backlog of IDT cases and formed a team to improve its 

handling of these cases, we identified three areas for potential 

improvement, as follows: 

Inefficiencies in file retrieval and scanning. We found that file 

retrieval and scanning processes contributed to delays and 

unnecessary requests for documents. For example, in 2 of 161DT 

cases we reviewed, resolution was delayed by at least 1 month while 

an assistor waited for another unit to retrieve and scan documents 

into IRS's system. In one of those cases, the document request was 

unnecessary because the assistor closed the case without the 

document. In our discussion groups with IRS staff, 14 of 28 assistors 

and managers generally agreed that delays in receiving scanned 

documents were a primary factor that delayed case resolution. 

Assistors and managers described a typical waiting period of more 

8GA0-17-186. 

PageS GA0..17-492T 2016 Filing Season 
39 


KING-6430 with DISTILLERInsert offset folio 31 here 25223.031

than 30 days for document requests to be fulfilled. IRS officials noted 

that some documents must be retrieved from IRS's paper records 

storage facilities, which can take time to locate and then scan. 

Inefficient processes and unnecessary requests to retrieve and scan 

documents can delay case resolution and refunds to the legitimate 

taxpayer. As a result, we recommended that IRS review its retrieval 

and scanning procedures to identify training or guidance needs. IRS 

agreed with this recommendation. 

Weaknesses in internal control processes. We found that potential 

weaknesses in IRS's internal control processes could lead to IRS 

paying refunds to fraudsters. In discussion groups with us, IRS 

assistors and managers said some assistors may release refunds 

even if indicators on the account show that the tax return is under 

review for lOT, or two returns have been filed for that taxpayer. Some 

participants said assistors answering telephone calls can release 

these holds because they do not understand the codes on the 

taxpayer's account. IRS officials said that these errors are not 

widespread and provided data that they said would support their 

position. However, we identified weaknesses in those data, which IRS 

officials acknowledged. We recommended that IRS should improve 

existing data and collect new data, as needed, to effectively monitor 

how often and why IRS staff release refunds before closing an lOT (or 

duplicate return) case. Based on these data, IRS should take 

corrective steps such as providing training or guidance to assistors. 

IRS disagreed with this finding and recommendation. In its written 

response, IRS stated that we concluded that frozen refunds were 

being erroneously released to fraudsters by customer service 

employees. 9 This was incorrect. As stated in our report, we identified 

a potential weakness that could lead to releases of fraudulent refunds. 

IRS also said that it was aware that some refunds are released by 

assistors prior to the case being closed and that its current methods 

are sufficient for detecting such errors and the problem is not 

widespread. However, as we noted, the data that IRS provided do not 

include sufficient information for IRS to determine the extent to which 

the problem exists nor the total number of erroneous refunds. 

After several discussions with IRS officials about the weaknesses we 

identified in the data, officials acknowledged these weaknesses and 

explained that they generated some of these data in response to our 

findings. Nevertheless, officials maintained that their current methods 

PageS GA0-17-492T 2016 Filing Season 
40 


KING-6430 with DISTILLERInsert offset folio 32 here 25223.032

GAO Contact and 

Staff 

Acknowledgments 

(101910) 

are sufficient. We stand by our finding that the data IRS provided are 

not sufficient to monitor how often and why assistors are releasing 

refunds before IDT or duplicate return cases are closed, and we 

believe that the associated recommendation is warranted. In response 

to our draft report, in January 2017 officials provided another analysis 

of IRS data that they said showed this type of error does occur but 

may not be as widespread as the discussion group participants 

suggested. We will continue to work with IRS to determine if these 

additional data are sufficient to address our recommendation. 

No notification for dependents. We found that IRS does not notify 

taxpayers when a dependent's identity appears on a fraudulent return. 

According to IRS officials, the agency does not consider a dependent 

to be a victim if his or her Social Security number had been used as a 

dependent on a fraudulent return. However, IRS has previously 

provided guidance to taxpayers when a dependent was a victim of 

identity theft. After one data breach in 2015, IRS notified taxpayers 

and provided information on actions that parents could take to protect 

a minor's identity when their dependents were also victims. By not 

notifying taxpayers that their dependents' information may have been 

used to commit fraud, IRS is limiting taxpayers' ability to take action to 

protect their dependents' identity. Therefore, we recommended that 

IRS revise its notices to IDT victims to include information such as 

whether dependents were claimed on the fraudulent return and how to 

request a redacted copy of the fraudulent return. IRS agreed with this 

recommendation. 

Chairmen Meadows and Jordan, Ranking Members Connolly and 

Krishnamoorthi, and Members of the Subcommittees, this concludes my 

prepared remarks. I look forward to answering any questions that you 

may have. 

For questions about this statement, please contact me at (202) 512-9110 

or lucasjudyj@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this 

statement. Individuals making key contributions to this testimony were 

Joanna Stamatiades, Assistant Director; Jehan Chase; James Cook; 

Robert Gebhart; Kirsten B. Lauber; Kimberly Madsen; Erin SaundersRath and Robert Robinson. 

Page7 GA0~17~492T 2016 Filing Season 
41 


KING-6430 with DISTILLERInsert offset folio 33 here 25223.033

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further pennission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 
42 


KING-6430 with DISTILLERInsert offset folio 34 here 25223.034

GAO's Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Phone 

Connect with GAO 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

Strategic Planning and 

External Liaison 

The Government Accountability Office, the audit, evaluation, and investigative 

arm of Congress, exists to support Congress in meeting its constitutional 

responsibilities and to help improve the performance and accountability of the 

federal government for the American people. GAO examines the use of public 

funds; evaluates federal programs and policies; and provides analyses, 

recommendations, and other assistance to help Congress make informed 

oversight, policy, and funding decisions. GAO's commitment to good government 

is reflected in its core values of accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost is 

through GAO's website (http://www.gao.gov). Each weekday afternoon, GAO 

posts on its website newly released reports, testimony, and correspondence. To 

have GAO e-mail you a list of newly posted products, go to http://www.gao.gov 

and select "E-mail Updates." 

The price of each GAO publication reflects GAO's actual cost of production and 

distribution and depends on the number of pages in the publication and whether 

the publication is printed in color or black and white. Pricing and ordering 

information is posted on GAO's website, http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TOO (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, MasterCard, 

Visa, check, or money order. Call for additional information. 

Connect with GAO on Facebook, Flickr, Linkedln, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov and read The Watchblog. 

Contact: 

Website: http://www.gao.gov/fraudnetlfraudnet.htm 

E-mail: fraudnet@gao.gov 

Automated answering system: (800) 424-5454 or (202) 512-7470 

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-4400, 

U.S. Government Accountability Office, 441 G Street NW, Room 7125, 

Washington, DC 20548 

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800 

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548 

James-Christian Blackwood, Managing Director, spel@gao.gov, (202) 512-4707 

U.S. Government Accountability Office, 441 G Street NW, Room 7814, 

Washington, DC 20548 

(j Please Print on Recycled Paper. 
43 

Mr. MEADOWS. Thank you all. 

The chair recognizes the gentleman from Ohio, Mr. Jordan, for 

five minutes. 

Mr. JORDAN. Thank you, Mr. Chairman. 

Mr. Dalrymple, why has taxpayer service at the IRS been terrible? 

Mr. DALRYMPLE. Taxpayer service at the IRS has been improving, in fact, I think this year is a perfect example of where taxpayer service could be going forward given the resources necessary 

—— Mr. JORDAN. Taxpayer advocates said that taxpayer service is 

the number one most serious problem at the Internal Revenue 

Service. The current Commissioner, someone who, frankly, I am 

not a big fan of, said it was ‘‘abysmal.’’ Mr. Meadows, the chairman, indicated in his opening comments that 38 percent of the callers asking for assistance, only 38 percent actually got to a representative. 

Mr. DALRYMPLE. That was in 2015. In —— 

Mr. JORDAN. That is why I said why has taxpayer service at the 

IRS been terrible? 

Mr. DALRYMPLE. Well, it’s—it was clearly a resource issue, Congress. 

Mr. JORDAN. Resource issue? 

Mr. DALRYMPLE. Yes. 

Mr. JORDAN. Could it be your priorities were misplaced? Could 

that be a problem? 

Mr. DALRYMPLE. I don’t think so. I think the real issue here is 

how the budget actually works. You know, the IRS receives its 

budget in three specific categories: taxpayer service, enforcement, 

and operation support. And in order to move money from—between 

those appropriations, it has to ask for permission from Congress to 

do so. 

And in 2015 actually we moved $30 million from enforcement 

into our taxpayer service operation. So I don’t think that’s —— 

Mr. JORDAN. And you asked Congress for that —— 

Mr. DALRYMPLE. And we asked Congress to do that, and they allowed us to do that. 

Mr. JORDAN. Why didn’t you ask for more? Why didn’t you ask 

for it more often —— 

Mr. DALRYMPLE. We had —— 

Mr. JORDAN.—to offset this terrible performance —— 

Mr. DALRYMPLE. We—if —— 

Mr. JORDAN.—with 30-minute wait times, only 38 percent actually talk to a representative. 

Mr. DALRYMPLE. The —— 

Mr. JORDAN. Your own Commissioner said it was abysmal. 

Mr. DALRYMPLE. It was abysmal. There’s not enough money to go 

around for anything. The audit rates at the IRS have also dropped 

—— Mr. JORDAN. Well, let’s talk about —— 

Mr. DALRYMPLE.—dramatically. It’s —— 

Mr. JORDAN. Let me just give you one example of what I would 

argue is mismanagement of taxpayer resources at the Internal Revenue Service. You know a gentleman named Terry Milholland? 


KING-6430 with DISTILLER
44 

Mr. DALRYMPLE. I—he was the former CIO. 

Mr. JORDAN. He was former what? 

Mr. DALRYMPLE. The former CIO. 

Mr. JORDAN. Chief information officer? 

Mr. DALRYMPLE. Yes. 

Mr. JORDAN. Okay. And was he chief information officer when 

the IRS targeted conservative groups? Was he functioning in that 

role at that time? 

Mr. DALRYMPLE. I’m not certain when he became CIO. 

Mr. JORDAN. Yes, between 2008 and 2016 he definitely was. Was 

he chief information officer when Lois Lerner’s hard drive crashed? 

Mr. DALRYMPLE. I think he probably was. 

Mr. JORDAN. He was. And was he chief information order— officer, excuse me, when 422 backup tapes were destroyed at the IRS, 

tapes under subpoena? 

Mr. DALRYMPLE. I think he would have been the CIO at that 

point. 

Mr. JORDAN. Yes. And was he the gentleman who issued the 

preservation order to not destroy those 422 backup tapes? 

Mr. DALRYMPLE. He could have been. 

Mr. JORDAN. He definitely was. I have seen it. And did Mr. 

Milholland live in Washington, D.C.? 

Mr. DALRYMPLE. I’m not sure where Mr. Milholland lived. 

Mr. JORDAN. Yes. He lived in Texas. In fact, in 2015 alone, 

$55,000 was spent by Mr. Milholland, taxpayer money, for him to 

commute to Texas, come up here to Washington, and 30 weeks of 

commuting back and forth, the guy who is in charge of maintaining—keeping the records, the guy who gave the preservation order 

that wasn’t followed, backup tapes destroyed, $55,000, $18,000 for 

lodging, $7,000 for meals and incidentals, $2,500 for airport parking, 14—$1,100, excuse me, for mileage and toll reimbursement, 

$1,500 he charged for taxi service. He probably took taxis instead 

of Uber. 

Mr. DALRYMPLE. I’m not sure when Uber even began, Congressman. 

Mr. JORDAN. Well, it was certainly in 2016, 2015. So maybe it is 

that the IRS doesn’t have the priorities in the right place. Do you 

know what is streamlined critical pay authority, Mr. Dalrymple? 

Mr. DALRYMPLE. Streamlined critical pay authority allows the 

IRS to be able to direct hire skilled individuals that we need to, 

particularly generally in our IT functions to be able to —— 

Mr. JORDAN. Allows you to pay them more than they would otherwise get, right, more than the top salary allowed under the pay 

schedule for Federal work? 

Mr. DALRYMPLE. For SES, that’s correct. 

Mr. JORDAN. Yes. Was Mr. —— 

Mr. DALRYMPLE. And—but also in addition to that, it allows us 

to directly hire them quickly because these people —— 

Mr. JORDAN. Okay, quickly. 

Mr. DALRYMPLE.—have skills that don’t —— 

Mr. JORDAN. You hired this guy quickly, but he couldn’t move 

here in eight years. He still lived in Texas charging in one year 

alone $55,000, couldn’t take Uber, took a taxi instead. Was Mr. 

Milholland getting critical pay? 


KING-6430 with DISTILLER
45 

Mr. DALRYMPLE. I believe he was. 

Mr. JORDAN. I know he was, right? So he was getting paid more than any other Federal worker, couldn’t live here, $55,000 in one 

year, hanging out at the Hyatt, taking taxis, reimburse him for everything you can imagine it looks like here. And while he is the 

chief technology officer, the guy who is critically important, we 

have got to pay more than we pay anyone else in the Federal Government under his watch, the chief technology officer, Lerner’s 

hard drive crashes, 422 backup tapes are destroyed even though he 

personally gave the preservation order to preserve all communication. And here is the kicker: He purchased some $12 million email 

archiving system that these guys at GAO said he never even implemented, $12 million just thrown down the drain. And you are telling me that it is improving and it wasn’t pathetic and it wasn’t terrible? 

Mr. DALRYMPLE. You asked me about the taxpayer service activities, not about the IT organization. And by the way, they don’t 

work for me. 

Mr. JORDAN. Was this taxpayer dollars that were used for Mr. 

Milholland? 

Mr. DALRYMPLE. I assume that they would have been, of course —— Mr. JORDAN. Of course, right? 

Mr. DALRYMPLE.—appropriated dollars. 

Mr. JORDAN. And you just told me you can ask to have money 

transferred and that we have already given the authority to do that 

in situations to actually better serve the taxpayers. All I am saying 

is it could be priorities are a little out of place at the IRS, and that 

is contributing to the pathetic taxpayer treatment, customer service, or lack of customer service that the hardworking taxpayers of 

this country have been receiving. I went over time, Mr. Chairman. 

I appreciate the indulgence. 

Mr. MEADOWS. I thank the gentleman. The chair recognizes the 

gentleman from Virginia, Mr. Connolly, for five minutes. 

Mr. CONNOLLY. I thank the chair, and I would ask —— 

Mr. MEADOWS. A generous five minutes. 

Mr. CONNOLLY. I thank the chair. I ask that my opening statement be entered into the record without objection. 

Mr. MEADOWS. Without objection. 

Mr. CONNOLLY. I thank the chair. Welcome to the panel. 

Well, in listening to my friend Mr. Jordan—and I will say this 

underscores for me why it makes sense to have the seat of government here in Washington and limit some of this remote location for 

some of our key hires. 

Why was Mr. Milholland traveling back and forth from Texas, 

Ms. Lucas-Judy? 

Mr. DALRYMPLE. I really don’t know what Mr. Milholland’s arrangement was with the IRS. 

Mr. CONNOLLY. Do you know, Ms. Lucas-Judy? 

Ms. LUCAS-JUDY. No, I don’t. 

Mr. CONNOLLY. Okay. Mr. Martin? 

Mr. MARTIN. No, I do not. 

Mr. CONNOLLY. Okay. I guess I want to shift the subject a little 

bit to the—well, the budget and the IT budget in particular, which 


KING-6430 with DISTILLER
46 

you brought up, Mr. Dalrymple. Ms. Lucas-Judy, how much has 

IRS budget been cut in the last six or seven years, about $1 billion 

or more? 

Ms. LUCAS-JUDY. It’s been about—a decline of about $900 million. 

Mr. CONNOLLY. I am sorry? 

Ms. LUCAS-JUDY. About $900 million since 2011 I believe. 

Mr. CONNOLLY. Okay. And how many—in terms of numbers of 

personnel, what has been the reduction or increase net? 

Ms. LUCAS-JUDY. I don’t have the precise figures. I’d be happy 

to get those to you. But I know it’s—the number of full-time 

equivalents has gone down across —— 

Mr. CONNOLLY. Rather significantly, has it not? 

Ms. LUCAS-JUDY. Yes. 

Mr. CONNOLLY. Do you know, Mr. Martin? 

Mr. MARTIN. I would agree it’s gone down rather —— 

Mr. CONNOLLY. No, I am not asking —— 

Mr. MARTIN.—but I don’t have the—I don’t have a specific number. 

Mr. CONNOLLY. Mr. Dalrymple, do you know? I can’t hear you, 

sir. 

Mr. DALRYMPLE. Seventeen thousand employees over that span. 

Mr. CONNOLLY. Fewer? 

Mr. DALRYMPLE. Fewer. 

Mr. CONNOLLY. Net? 

Mr. DALRYMPLE. Net. 

Mr. CONNOLLY. Seventeen thousand. Well, that is a number 

worth GAO’s attention, Ms. Lucas-Judy. I mean, it is has not just 

gone down a bit. Seventeen thousand by any account is a lot. 

Ms. LUCAS-JUDY. Yes, and that is something that GAO has noted 

in a number of our reports, and we are looking at —— 

Mr. CONNOLLY. But, I mean—but isn’t that —— 

Ms. LUCAS-JUDY.—capital management —— 

Mr. CONNOLLY. Isn’t that about 20 percent of the workforce? 

Ms. LUCAS-JUDY. Yes. 

Mr. CONNOLLY. Well, that is a lot of people. And your budget has gone down almost by $1 billion. I mean, even if everyone whistled 

while they work, I would think those kinds of reductions might 

have some effect on productivity and on the ability to provide highquality customer service. Fair statement, Ms. Lucas-Judy? 

Ms. LUCAS-JUDY. Yes, sir. 

Mr. CONNOLLY. From a management point of view. Now, sometimes we do more with less. Sometimes we make ourselves more 

efficient. But when I look at IRS, given the, you know, unceasing 

war on the IRS and the constant drumbeat about Lois Lerner and 

the so-called attack on certain political orientation of various organizations, it has all seemingly been a justification for gutting the 

IRS, an agency we don’t like because it is big and it is the vehicle 

that finances the enterprise, which we also apparently don’t like. 

Would you say, Mr. Dalrymple, that these cuts have had an appreciable effect on the ability of the IRS to fully perform its mission? 

Mr. DALRYMPLE. Absolutely. Taxpayer service has been in some 

instances abysmal. I mean, the Commissioner was right about that. 


KING-6430 with DISTILLER
47 

We haven’t been able to answer the telephones when we should. 

We haven’t been able to answer correspondence as—at the speed 

we should. We haven’t been able to develop online services at the 

rate we should for taxpayers. Our audit rates are down dramatically. Our collection—our collections are down over time. There 

—— Mr. CONNOLLY. Just speaking of collection so people understand, 

how much money is left on the table do we estimate every year 

really owed to the government but not collected because of lack of 

resources? 

Mr. DALRYMPLE. Well, the tax gap is estimated at about $450 billion, and that’s just —— 

Mr. CONNOLLY. A year? 

Mr. DALRYMPLE. A year. 

Mr. CONNOLLY. Wow. That is a lot of money. Okay. One thinks 

about what one could do with that amount of money if you had it. 

And on the IT side, last time we looked at this I want to say the 

average age of computers at the IRS was about seven years. I assume it is now older. Is that about right, Mr. Dalrymple? 

Mr. DALRYMPLE. I can’t comment on that. I’m not a—I’m not familiar enough —— 

Mr. CONNOLLY. Ms. Lucas-Judy, do you know? 

Ms. LUCAS-JUDY. I do know that we have recommended that IRS 

needs to modernize a lot of it systems —— 

Mr. CONNOLLY. Right. 

Ms. LUCAS-JUDY.—that that will go a long way towards helping 

the organization. 

Mr. CONNOLLY. But, I mean, if you are replacing computers 

every seven or eight years, that is not the industry standard. The 

industry standard is more like two to three years, is that right? 

Ms. LUCAS-JUDY. Right. And they are relying a lot on legacy systems. 

Mr. CONNOLLY. Correct. And so—that is right, on top of that. So 

part of the problem, what could go wrong with that? Well, a lot of 

hard drive crashes like that which occurred in the IRS that was 

certainly the focus of hearings in this committee, is that not correct? 

Ms. LUCAS-JUDY. I’m not—I have not looked at that specific instance. 

Mr. CONNOLLY. Well, I am not asking about that specific instance. I am generally saying when computers are that old and 

—— 

Ms. LUCAS-JUDY. They do become unreliable. 

Mr. CONNOLLY. Right. And we have problems. And the guidance 

in some parts of the IRS anyhow—correct me if I am wrong—was 

in order to archive material, the instructions were print and save. 

Ever hear of that, Mr. Dalrymple? 

Mr. DALRYMPLE. I have, and that’s —— 

Mr. CONNOLLY. That is astounding. And we have, what, 81,000 

employees, something like that? 

Mr. DALRYMPLE. Something in that neighborhood —— 

Mr. CONNOLLY. Yes. 

Mr. DALRYMPLE.—including all of the full-time folks plus temporaries and seasonal —— 


KING-6430 with DISTILLER
48 

Mr. CONNOLLY. Right. 

Mr. DALRYMPLE.—et cetera. 

Mr. CONNOLLY. And we have got data on every single tax filer, 

which is several hundred million, right? 

Mr. DALRYMPLE. That’s correct. 

Mr. CONNOLLY. So what could go wrong with that? So at the very 

least, hopefully, we here in Congress, if we are concerned about 

customer service, if we are concerned about the very issues that 

have been cited, maybe we could make a smart investment in IT 

to make the IRS more efficient, doing more with less, and we can 

close that gap of the amount of money owed but not collected, my 

shorthand, I think obviously could make an appreciable difference 

in financing other investments, including the new President’s defense initiative, which is $54 billion, a small part of the $450 billion you referred to. 

So with that I yield back. Thank you, Mr. Chairman. 

Mr. JORDAN. [Presiding] Mr. Martin, just real quick, my good 

friend from Virginia said the so-called targeting. When TIGTA did 

its report, did it use the term so-called or did it say targeting took 

place at the IRS? 

Mr. MARTIN. We said inappropriate criteria was used. 

Mr. JORDAN. Okay. I appreciate that. I appreciate that. 

The gentleman from Georgia is recognized. 

Mr. HICE. Thank you, Mr. Chairman. 

Mr. Dalrymple, let me just go with you here. I am shocked—actually, not shocked. Probably all of us have experienced these kind 

of statistics with the IRS, but in 2015, less than 10 percent of the 

callers whose returns were flagged as suspicious for possible identity theft, less than 10 percent were able to get through an IRS 

helpline. What is that number now? 

Mr. DALRYMPLE. Well, our levels of service right now on our 

helplines is right around 80 percent. We’re scheduling about 75 

percent for this filing season and about 70 percent overall. 

Mr. HICE. More than 60 percent could not get through the National Taxpayer Advocate phoneline that is the safety net. What is 

that figure now? 

Mr. DALRYMPLE. I have no idea what the—what it is. 

Mr. HICE. In 2015 the IRS received more calls than ever. Is that 

true? 

Mr. DALRYMPLE. Yes. And the reason for that—that’s true is because people call back over and over if they can’t get through so 

—— 

Mr. HICE. Okay. Well, it doesn’t matter to me what the reason 

is but they received more calls than ever and answered fewer calls 

—— 

Mr. DALRYMPLE. That’s correct. 

Mr. HICE.—than ever. Do you know what official time is? 

Mr. DALRYMPLE. I do know what official time is. 

Mr. HICE. Do you have any idea how many people with the IRS 

are on official time? 

Mr. DALRYMPLE. I couldn’t tell you that number. I have no idea. 

Mr. HICE. Could you get that number and provide it for me? 

Mr. DALRYMPLE. Yes, we can. 


KING-6430 with DISTILLER
49 

Mr. HICE. All right. I would like a divided in those that are 100 

percent —— 

Mr. DALRYMPLE. Sure. 

Mr. HICE.—versus those that are part-time. 

Mr. DALRYMPLE. Absolutely. 

Mr. HICE. Thank you for that. 

Mr. HICE. In 2012, our reports show that the IRS approved 62 

people to be 100 percent on official time as contact service representatives. These are people answering phones, that type of 

thing, approved 62. I am assuming that is 62 more than what perhaps were on official time before. Now, official time means that 

they are hired to do IRS work but they end up doing union work. 

In 2012 you had 62 of them that you approved who were customer 

service reps that went to 100 percent. In addition to that, there 

were another 70 that were approved for other IRS jobs. Any idea 

how many phone calls those 62 people could have answered? 

Mr. DALRYMPLE. I couldn’t tell you that. I —— 

Mr. HICE. Our calculations show that those 62 people could have 

answered approximately 11,000 phone calls a week. That is over 

half-a-million phone calls a year, and yet you were not able to answer phone calls. People were waiting in line. And I am quite confident that there are more people on official time now at the IRS 

then there were five years ago. Is that a fair assessment? 

Mr. DALRYMPLE. I have no idea how many people were on official 

time. 

Mr. HICE. Okay. But we are going to find out that, and like I 

said, I’m confident. Was there any discussion during 2015 on those 

who were on official time 100 percent of their time—was there any 

discussion saying that a crisis was underway of getting people who 

are on official time to come off and go back to work? 

Mr. DALRYMPLE. No. That’s governed by our union contract. So 

no, there was no discussion —— 

Mr. HICE. So who allows these people to go on official time to 

begin with? 

Mr. DALRYMPLE. Well, if they’re in a position—a specific position 

with the union that allows for them to be on 100 percent official 

time, that’s governed by our union contract. 

Mr. HICE. So you have no say-so—no one at the IRS has any sayso whatsoever as to how many people are on official time? 

Mr. DALRYMPLE. We have—they have to justify their official time 

based on the amount of time that they’re expected —— 

Mr. HICE. And you are not able to justify your reason for them 

not to be on official time because you have a crisis with people not 

being able to get in to the IRS? 

Mr. DALRYMPLE. I have to say I’m not familiar enough with the 

union contract to be able to say that we couldn’t move them to 

work status —— 

Mr. HICE. So so far as you know there is no mechanism in place 

for the IRS to retrieve people who are on official time to come back 

to work? 

Mr. DALRYMPLE. I’m not aware—it’s possible that the union contract allows for that but I’m not certain. 


KING-6430 with DISTILLER
50 

Mr. HICE. Don’t you think that might be something to be certain 

of if there is such a catastrophe where people are not able to get 

answers? 

Mr. DALRYMPLE. I think that it’s probably something I should 

know but I don’t. 

Mr. HICE. I think it probably is, too. I have just got a couple of 

seconds left. You know, we hear of these kind of issues over and 

over, and the IRS has come before this Congress, this committee 

over and over, and always the answer is we need more resources. 

I am absolutely convinced the IRS does not need—you don’t have 

a resource problem; you have a waste problem. You have got people 

right there who were hired to do the job who are going off doing 

union work rather than the job for which they were paid to do. 

That seems awfully wasteful to me on the backs of taxpayers and 

on the backs of people who need answers to their tax returns. 

Mr. Chairman, I yield back. Thank you. 

Mr. JORDAN. I thank the gentleman. 

I now recognize the gentleman from Illinois for his five minutes 

of questions. 

Mr. KRISHNAMOORTHI. Thank you, Mr. Chairman. 

Mr. Dalrymple, after your experience here, are you still planning 

to retire in two weeks? 

Mr. DALRYMPLE. If not earlier. 

[Laughter.] 

Mr. DALRYMPLE. Just kidding. 

Mr. KRISHNAMOORTHI. Well, in any case, thank you all for coming today. I know this is not a—I think it is always useful to have 

a feedback loop and obviously this hearing is part of that process. 

Look, as a former small business owner, I too have struggled to 

consistently obtain quality, timely customer service from the agency. I don’t think this is just merely one or two data points. I think 

that there are a lot of people who have struggled at times. But I 

hope and believe that you want to do your best to improve the level 

of service there. 

One question I have is, you know, does the IRS survey taxpayers 

to better understand, you know, their concerns? And if so, how does 

that process work? 

Mr. DALRYMPLE. We do survey taxpayers and on a fairly regular 

basis. We’ve surveyed taxpayers individually, we survey practitioners. So we do a fair amount of survey work and have for quite 

some time, in fact, that is how we have focused our whole view of 

what the future of the IRS should look like in the work that we’re 

doing so we know what taxpayers want and need and how they 

want to get that information, et cetera. We have that information 

available to us. 

Mr. KRISHNAMOORTHI. But do you do the survey or do you have 

third parties do these surveys? 

Mr. DALRYMPLE. We get them through surveys we do ourselves. 

We get them through surveys that are done for us. So we have 

multiple ways of getting that information and data. 

Mr. KRISHNAMOORTHI. And these percentages that you folks 

quote, the 70, 80 percent, and so forth, who actually completes— 

how is that percentage computed? 


KING-6430 with DISTILLER
51 

Mr. DALRYMPLE. It’s a model that we’ve—we have that we’ve 

agreed with our auditors on in terms of how it is calculated. It goes 

back, you know, almost 20 years. And so, yes, it’s a model that we 

use. We know exactly how—what our demand is, how many people 

try to get in, how many people weren’t able to get in, how many 

people got cut off, et cetera. All that goes into the level of service 

number that I’ve mentioned. 

Mr. KRISHNAMOORTHI. Right. Let me just suggest that perhaps 

you folks may want to take another look at this model of how you 

survey taxpayers to determine what is really underlying their concerns, you know, what is working, what is not working, and with 

regard to what is working, learning from those best practices. What 

is not working, we have to kind of deal with it. And I know from 

personal experience as a former small business owner, as well as 

people I have worked with, you know, there is just a kind of a— 

how do I say it—kind of a frustration that they are not being heard 

sometimes. And so I think I respectfully submit that perhaps you 

should go back and take a look at these customer survey methodologies, as well as those percentages that you compute, because 

I am not sure that they are consistent with how people perceive the 

IRS. And I think that if you did that, it might be, you know, a salutary benefit for all of us really. 

Ms. Lucas-Judy, I have a question. Do you folks kind of try to 

get a sense of what are the best practices of the IRS and, you 

know, how to learn from them? 

Ms. LUCAS-JUDY. One of the things you’re talking about, the customer service in looking at surveys and models, one of the things 

that we have recommended for a long time that IRS do is compare 

its phone service with best in the business —— 

Mr. KRISHNAMOORTHI. Right. Right. 

Ms. LUCAS-JUDY.—you know, try to do some sort of 

benchmarking. 

Mr. KRISHNAMOORTHI. Right. 

Ms. LUCAS-JUDY. Initially, when we made the recommendation, 

IRS did not agree with it. They thought that, okay, they’re the only 

ones who provide that kind of service —— 

Mr. KRISHNAMOORTHI. Right. 

Ms. LUCAS-JUDY.—and there’s nobody really comparable out 

there to look at. But I’m pleased to say that in working with IRS 

over the last couple of years on this, they’ve come around and decided that it actually would be worthwhile to do a benchmarking 

study. And, in fact, they completed the study and we’re reviewing 

it now to try to see— because you can never get to 100 percent. 

You would love to be able to answer 100 percent of the calls, never 

have anybody get a busy signal, but that’s not realistic. And so we 

were hoping that they can look at what other industries do to figure out what is a good level of service, what is a good target to 

strive for. 

Mr. KRISHNAMOORTHI. Yes, I think it is really important to borrow from what we learn in the private sector about benchmarking 

against the best practices out there for customer service and just 

generally, you know, how do you handle such a large volume of 

calls and make sure that people are treated fairly, with respect, 

with dignity and responsiveness? 


KING-6430 with DISTILLER
52 

And so if you leave with anything today, I would just respectfully 

submit that there has to be a bigger emphasis on that going forward because at this time, I mean, given how people perceive government and the IRS, we can’t afford for them to—their trust to 

further erode. And so I would respectfully, you know, request you 

folks to really take a hard look at this and do some soul-searching 

on this. 

Thank you. I yield back. 

Mr. JORDAN. The gentleman from Michigan is recognized. 

Mr. MITCHELL. Thank you. And, Mr. Dalrymple, first let me wish 

you well in your retirement. I hope it goes well for you, sir. 

Let me ask you, in 2016, Commissioner Koskinen testified that 

as he computed, the return investment for enforcement operations 

is roughly $4 for every $1 spent on enforcement. Can you enlighten 

the committee as to how that calculation was made? Because I understand that the number was thrown out there but there is no description of how that calculation was—that return investment was 

calculated. 

Mr. DALRYMPLE. Actually, I’d be happy to get the calculation and 

submit it back to the record. I can’t describe it specifically, but basically let me give some general —— 

Mr. MITCHELL. Well, rather than take up a lot of time, if you 

would submit that to the committee, that would be appreciated. I 

have questions, and rather than tie them up —— 

Mr. DALRYMPLE. Sure. Certainly. 

Mr. MITCHELL. I would like to see that. That would be—I am a 

business guy like my colleague from Illinois and would like to know 

how—I believe return investment matters. 

Mr. DALRYMPLE. Just a small point on that, it’s a compendium, 

so some things we have $15 or $20 to $1 return, some we have $3 

or $4 to $1 return, et cetera. So it’s a compendium and we can get 

you that information. 

Mr. MITCHELL. Have you done a similar analysis in terms of return investment for customer service spending? And what is that 

number? 

Mr. DALRYMPLE. We’ve had a very difficult time finding any way 

to measure that. We’ve tried over the years, but to be honest, we’ve 

never come up with a legitimate measure of return on investment 

for service activities. 

Mr. MITCHELL. Okay. Enforcement comprises about 43 percent of 

your budget as of this year, $11.2 billion, which is roughly $5 billion just doing quick a government math. You spoke of moving $30 

million from enforcement to customer service. 

Mr. DALRYMPLE. Right. 

Mr. MITCHELL. With all due respect, I mean, of a budget of $5 

billion for enforcement, moving $30 million is like the light bill for 

the week. I mean do we really seriously think that is going to make 

an impact on it—from business, $30 million of $5 billion isn’t 

much. 

Mr. DALRYMPLE. Well, it’s $30 million against a $2 billion budget 

for taxpayer service, so it’s a bigger percentage for them. Having 

said that, though, it’s not a huge amount. It’s what was necessary 

to reach certain levels of either inventory or levels of service on the 

phone, et cetera. So we had the additional $290 million that ConVerDate Nov 24 2008 13:01 Jun 01, 2017 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 H:\25223.TXT APRIL

KING-6430 with DISTILLER
53 

gress gave us, which $178 million of it was dedicated to taxpayer 

service. We had some monies from user fees that we put into taxpayer services, and then in addition to that we still had a shortfall 

in terms of where we wanted to be in terms of levels of service, and 

we were able to move another $30 million out of enforcement into 

taxpayer service. Now —— 

Mr. MITCHELL. And even after moving the money, you still end 

up with significant shortfalls of reasonable customer service response. 

Mr. DALRYMPLE. Well, for this year, as I said, we’re very close 

to—we’re between 75 and 80 percent on our telephone level of service. Our inventories and correspondence are the lowest they’ve been 

in four years. Generally speaking, taxpayer services here is the 

best it’s been in the last five or six years. And I can’t really speak 

prior to that. 

Mr. MITCHELL. Well, let me suggest that—I mean, part of the 

frustration that my colleagues noted about the reputation of the 

IRS is the difficulty people have, as you have already heard, getting someone to answer the phone. Now, for the world of the private sector, we actually had standards of that. 

Mr. DALRYMPLE. Right. 

Mr. MITCHELL. Calls were answered in three to four rings. In 

fact, we actually had secret shoppers that went around and 

shopped it to see if calls were answered, and when they were answered, did they get their questions responded to. 

Mr. DALRYMPLE. Right. 

Mr. MITCHELL. It seems to me that you haven’t set the same 

kinds of standards that we would expect in the private business 

world. 

Mr. DALRYMPLE. We actually do some of that. We have quality 

reviewers that shop the lines, listen for responses, whether they’re 

correct or not. You know, we are not in business for a profit so we 

don’t really want to answer the telephone in—on the first or second 

ring because what that means is you are actually waiting for the 

next call to come in. 

Mr. MITCHELL. Well, what is your standard for answering the 

phone? 

Mr. DALRYMPLE. We would love to be at about an 85 to 86 percent level of service, which would mean basically that people were 

waiting less than a minute or two to get the next assister on the 

line. 

Mr. MITCHELL. Now, I am new here —— 

Mr. DALRYMPLE. And we’ve been there before. We have achieved 

that in the past. 

Mr. MITCHELL. When were you there last? 

Mr. DALRYMPLE. In the—you know, I—just a little history here. 

I left the—I retired from the service before in 2006. 

Mr. MITCHELL. And you came back? 

Mr. DALRYMPLE. And I came back. I was asked to come back. I 

was also—at one point in time the Commissioner Wage and Investment Division, which handles all of our telephone services. When 

I was Commissioner of the Wage and Investment Division, our telephone service was in the high 80s, and at that point in time we 

started to drift into the high 90s. We actually found out that we 


KING-6430 with DISTILLER
54 

had employees waiting for the next call, which is not an efficient 

way for a government to run their telephone systems. So about 85 

to 87 percent we found out was really the right place to be if we 

could get our telephone service to that level. 

Mr. MITCHELL. Well, my time is expired. I thank the chair. And 

let me wish you well again in your retirement, sir. 

Mr. DALRYMPLE. Thank you. 

Mr. MITCHELL. Thank you. 

Mr. DALRYMPLE. I appreciate that. 

Mr. MITCHELL. I yield back. 

Mr. JORDAN. The gentleman from Florida is recognized. 

Mr. DESANTIS. Thank you, Mr. Chairman. 

Mr. Dalrymple, the news just broke this afternoon that two years 

after the fact the IRS has located almost 7,000 documents that are 

related to the targeting of conservative groups. Are you familiar 

with those documents? 

Mr. DALRYMPLE. I am not. 

Mr. DESANTIS. Are you familiar with the news report? 

Mr. DALRYMPLE. I am not. 

Mr. DESANTIS. We would like to know on our committee if you 

can get us an answer —— 

Mr. DALRYMPLE. Sure. 

Mr. DESANTIS.—whether those are documents that have previously been provided to this committee or to other committees in 

the Congress —— 

Mr. DALRYMPLE. I’ll find that out. 

Mr. DESANTIS.—because we went through this for years and 

years and there were a lot of emails that were destroyed, there 

were backup tapes, and it was really, really frustrating to do that 

experience. 

Mr. DESANTIS. We have asked, a number of us on the committee, 

for the President to make a change at the IRS to really bring in 

some new blood so we can start reforming the agency. And the targeting was one of the issues and how the agency responded to that, 

but there is also issues that we see about really a contempt for the 

taxpayer. I mean, the agency will go and they will, you know, try 

to get taxpayers dead to rights on producing their taxes and all 

this other stuff, but then you have employees—you had a single 

IRS employee that spent, according to a Senate Committee on Finance report, spent $43,000 staying at the Ritz-Carlton in Pentagon City. How is that acceptable? 

Mr. DALRYMPLE. I’m not familiar with a report that says that we 

had an IRS employee that spent $43,000 staying at the RitzCarlton. 

Mr. DESANTIS. It was over the course of a year. It was a lot of 

stays obviously, but that is the —— 

Mr. DALRYMPLE. Well, I have to assume that the Ritz-Carlton 

was offering government rate per diem at that location is all I can 

assume, but I don’t know the particulars around that. 

Mr. DESANTIS. Well, it would be the type of thing that I think 

it would be tough for that to have been the most appropriate thing. 

You also had—again, this is the same report, the Senate Finance 

Committee, IRS employee rented a $1 million townhome in ArlingVerDate Nov 24 2008 13:01 Jun 01, 2017 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 H:\25223.TXT APRIL

KING-6430 with DISTILLER
55 

ton for almost $5,000 a month with tax dollars. I mean, how is that 

acceptable? 

Mr. DALRYMPLE. Again, I’m not really familiar with that. 

Mr. DESANTIS. Okay. Well, this is I think frustrating for us. And 

I know there are a lot of taxpayers that they don’t feel that they 

always get the benefit of the doubt from the IRS. In fact, when 

Congress reduced the budget for the IRS in response to the targeting, there was a major drop-off in customer service. It was very 

difficult for the people, the taxpayers to get through. So the bureaucracy was really not affected. It was all put on the taxpayer. 

And you had people that really couldn’t get their questions answered, and that obviously has a lot of effects for our economy and 

for their well-being. 

Ms. Lucas-Judy, let me ask you this. What are the metrics that 

the IRS uses to assess customer service, to measure it? 

Ms. LUCAS-JUDY. The primary one is the one we’ve been talking 

about, the telephone level of service, but they also for correspondence—for paper correspondence they track the percentage of—the 

backlog. They track the percentage that are what they call overage, so those that are 45 days or older. They track the traffic to 

the different services that they provide online, as well as —— 

Mr. DESANTIS. Does it track whether people are satisfied with 

their level of service? 

Ms. LUCAS-JUDY. That I think would be a question that I would 

defer to Mr. Dalrymple. 

Mr. DALRYMPLE. Actually, we do—we survey every taxpayer that 

we have contact with on a satisfaction survey, so the answer is yes, 

we do. 

Mr. DESANTIS. Okay. And so you keep—do you know what percentage of callers are satisfied? 

Mr. DALRYMPLE. Actually, the number’s quite high so—but I 

don’t know what it is off the top of my head, but I could get that 

for you. 

Mr. DESANTIS. Okay. 

Mr. DESANTIS. Now, did we satisfactorily answer your question? 

Is that kind of the way you go about it in terms of customer service? 

Mr. DALRYMPLE. It’s a series of questions that try to get at how 

satisfied the taxpayer was with the interaction that they had. 

Mr. DESANTIS. Ms. Lucas-Judy, what are the GAO recommendations, if any, about—are there other metrics that can be used so 

that the IRS can better understand the issue with customer service? 

Ms. LUCAS-JUDY. Well, we’ve made a number of recommendations, including that they have a comprehensive customer service 

strategy to help them determine overall among telephones, correspondence, walk-in, online, what they’re looking for ideally and 

what’s the most efficient, most effective way to get to that. 

We’ve also made recommendations that they have other metrics 

for correspondence, that they include performance targets for their 

correspondence. And in addition, we’ve got some recommendations—we’ve made some suggestions to Congress that would help 

IRS as well in terms of having authority to adjust or correct math 

errors that they see. 


KING-6430 with DISTILLER
56 

Mr. DESANTIS. Great. My time is up. Mr. Chairman, these 

emails, we need the answers on those emails —— 

Mr. JORDAN. Sure do. 

Mr. DESANTIS.—and see, were they responsive to us then not 

provided? And they may have been provided because this is in the 

context of a FOIA suit with Judicial Watch, but even within the 

context of that FOIA suit, this is two years late where they said 

they didn’t have them and now all of a sudden they are producing 

them. And so —— 

Mr. JORDAN. No, we will —— 

Mr. DESANTIS.—that obviously is troubling. I yield back. 

Mr. JORDAN. Well, sir, I thank the gentleman for raising that 

issue and the others. 

Do you need congressional authority to move user fee dollars 

around, Mr. Dalrymple? 

Mr. DALRYMPLE. No, that authority was granted to us back in 

the ’90s to be able to use that —— 

Mr. JORDAN. You can use it wherever you want? 

Mr. DALRYMPLE. Yes. 

Mr. JORDAN. You can use it on customer service? 

Mr. DALRYMPLE. Yes. 

Mr. JORDAN. Did you focus in on customer service or were some 

of those user fees moved over to implement the Affordable Care 

Act? 

Mr. DALRYMPLE. We used—we did have to use user fees for the 

Affordable Care Act, FATCA, the FAST Act, the PATH Act, the 

HTCs, the human—HCTC. We’ve had a number of —— 

Mr. JORDAN. But of those acts, which one would you have used 

more—which one was probably the bigger hurdle or the one that 

required most of the user fee dollars? Would it be the Affordable 

Care Act? 

Mr. DALRYMPLE. It would be a guess for me to answer that. I can 

find out for certain —— 

Mr. JORDAN. Well, give me your best guess. You have worked 

there a few years. 

Mr. DALRYMPLE. I would guess—I would have guessed it would 

have been the ACA. 

Mr. JORDAN. Yes, so would I. So would I. So that could have contributed to the terrible customer service that taxpayers were receiving. 

You mentioned earlier that —— 

Mr. DALRYMPLE. But that’s a legislative mandate. 

Mr. JORDAN. No, I understand. 

Mr. DALRYMPLE. Yes. 

Mr. JORDAN. I understand. 

Mr. DALRYMPLE. Okay. 

Mr. JORDAN. Yes. The ability to use the user fees or the ACA or 

both? 

Mr. DALRYMPLE. Both. 

Mr. JORDAN. Right. I understand that. But the ACA is one I 

didn’t vote for. 

Mr. DALRYMPLE. I can’t —— 

Mr. JORDAN. I didn’t vote for the user fee, the ability to move the 

user fees because I wasn’t here. 


KING-6430 with DISTILLER
57 

Mr. DALRYMPLE. I appreciate that. Okay. 

Mr. JORDAN. You mentioned earlier that the budget has been reduced at the IRS and that, as a result of that, there is 17,000 less 

people working at the IRS. Is that accurate? 

Mr. DALRYMPLE. That’s accurate, yes. 

Mr. JORDAN. Okay. I mean, that is reflecting your testimony in 

an accurate way, I think. What time frame are you talking about, 

that 17,000? 

Mr. DALRYMPLE. I believe that’s between 2010 and 2016. 

Mr. JORDAN. And that 17,000 were because you received fewer 

dollars in your budget. Were those people let go? Were they fired? 

Were they said, dismissed? 

Mr. DALRYMPLE. Most of them were either—have retired and not 

hired behind or we didn’t bring as many temporary or seasonal employees on because that’s —— 

Mr. JORDAN. So no one was actually told to hit the road? 

Mr. DALRYMPLE. We did—there was no riff if that’s what you’re 

asking. 

Mr. JORDAN. That is exactly what I am asking. 

Mr. DALRYMPLE. No, not to my knowledge. 

Mr. JORDAN. Okay. 

Mr. DALRYMPLE. Again, I didn’t report back to the IRS until 

2013, but I don’t believe there was a riff. 

Mr. JORDAN. So people retired, you just didn’t rehire? 

Mr. DALRYMPLE. That’s right. 

Mr. JORDAN. Okay. 

Mr. DALRYMPLE. Or hire people that would have come back from 

a seasonal job, so that is a bit different. If you’re a seasonal employee with us, we don’t have to offer your season back to you, and 

in instances like that —— 

Mr. JORDAN. No, I understand. You probably hire a few more 

people at tax season than other times of the year I can guess. 

Mr. DALRYMPLE. A lot more, yes. 

Mr. JORDAN. Right. I get that. Okay. If he is ready, we will get 

Mr. Grothman. We will just be at ease for a second while we wait 

for the gentleman from Wisconsin to come back. Is Glenn coming? 

The gentleman from Wisconsin is recognized. 

Mr. GROTHMAN. I know, you know, you certainly keep track of 

the quality of your folks and I hope you do. Years ago, I used to 

do taxes. And at the time not just me, other people felt compared 

to the Wisconsin Department of Revenue, because obviously we 

dealt with them both, that if you talk to your guys on the phone, 

they weren’t always the sharpest. They didn’t know their own laws. 

You know, you would call them three times and you would get 

three different answers. Well, you call them twice, you get two different answers anyway. Do you monitor the quality of your folks? 

I haven’t done taxes for 20 years, but do you have an opinion as 

to whether your folks know what the law is? 

Mr. DALRYMPLE. Yes. Actually, we do monitor their—every call 

is—can be monitored. We have a quality review system that statistically selects calls at random for quality assurance, and during 

that process, we determine whether—one of the main things we’re 

looking for is did the taxpayer get the correct answer. And actually, 


KING-6430 with DISTILLER
58 

we do quite well there. So if you get through to us, you’re going 

to get pretty high quality. 

Mr. GROTHMAN. Has it improved over time? 

Mr. DALRYMPLE. It’s really been pretty stable over time, in the 

high 90 percent rage. 

Mr. GROTHMAN. How long have you been monitoring it? 

Mr. DALRYMPLE. At least 20 years. And 20 years ago it was actually quite low. Probably for the last 10 or 15 years it’s been quite 

high. 

Mr. GROTHMAN. Better than 20 years ago, you have improved. 

Some of the stuff they want to know here is the amount that can 

be spent traveling by employees and, you know, it says here Federal employees can spend over $7,000 per month on lodging. Do 

you keep track of that or what is your travel policy for your people 

when they get around? 

Mr. DALRYMPLE. Well, first—well, travel policy isn’t set by the 

IRS; it’s set by—you know, government-wide by —— 

Mr. GROTHMAN. Right, right, I understand. 

Mr. DALRYMPLE.—the GSA. So we do monitor, and we actually 

monitor how many people are traveling at any time and how long 

they’re traveling. And we don’t generally have very many people 

traveling for extended periods unless they’re on some project. But 

that’s typically what we monitor. 

Mr. GROTHMAN. And how does it work? If somebody goes out 

there for a week or whatever, I mean, how much are they allowed 

to spend? Who determines where they stay, that sort of thing? 

Mr. DALRYMPLE. It’s based on the per diem rate, so if they find 

a place to stay within the per diem rates, then, you know, they’re— 

we don’t ask them, you know, where they’re staying or prohibit 

them from staying in places that are within those —— 

Mr. GROTHMAN. Okay. 

Mr. DALRYMPLE.—rates. 

Mr. GROTHMAN. I am going to give you a more open-ended question, and any one of you can answer it. And in part I think of the 

earned income tax credit, but in any event, people are always—you 

know, have ideas how to use the tax code for more and more 

things. Hopefully, this time around we use it for less and less, but 

historically, Congress always liked to use it for more and more. 

And I sometimes think when Congressmen propose things, they 

don’t think how it is going to look to the Internal Revenue Service 

who has to deal with it, like somebody once came up with the 

earned income tax credit and they apparently didn’t think of the 

fact that if you fill out a form and get a $5,000 check, fill out an 

easy form, a lot of people will take a crack at it, which is why the 

fraud is so high. 

But do you have any comments on the earned income tax credit? 

Or are there any other parts of the tax forms that you feel invites 

cheating or I guess I would say would require you to spend a lot 

more on compliance than you would want to? 

Mr. DALRYMPLE. Anything that is a refundable credit has always 

been a challenge for the Internal Revenue Service so whether it’s 

the earned income tax credit or the advanced child tax credit, anything that actually is refundable back to the taxpayer. And by the 


KING-6430 with DISTILLER
59 

way, there are corporate refundable credits, too. They’re not just to 

individuals. 

Mr. GROTHMAN. Right. 

Mr. DALRYMPLE. They cause us difficulty from a compliance 

standpoint. 

Mr. GROTHMAN. Okay. So when you retire and run for Congress, 

you are going to take a swing at these things? 

Mr. DALRYMPLE. I am not running for Congress. 

Mr. GROTHMAN. Oh. But you would take a swing at these things? 

Mr. DALRYMPLE. I don’t know that I’d take a swing at them because, you know, there are reasons for them I understand. But 

from a tax standpoint they are challenging. 

Mr. GROTHMAN. From a compliance standpoint they require a lot 

of your resources, and the reason they require a lot of your resources is they invite fraud, right? 

Mr. DALRYMPLE. They invite confusion and fraud both. 

Ms. LUCAS-JUDY. The GAO has reported that EITC does have a 

very high improper payment rate, and part of the reason for that 

is the complexity of the credit itself. And it’s also self-reported. 

Mr. GROTHMAN. Right. It would be easy if one wanted to cheat 

to try to cheat, right? 

Mr. DALRYMPLE. Right. 

Ms. LUCAS-JUDY. That’s one of the reasons I think that IRS does 

audit—a lot of audits of EITC returns. 

Mr. GROTHMAN. What happens when you find somebody has gotten a few thousand dollars they shouldn’t get? 

Mr. DALRYMPLE. Well, what we try to do is actually find out that 

before they get the money back, so we do—most of those audits 

that were referred to are pre-refund audits. We do over 300,000 of 

those every year, so we’re stopping the refund from going out on 

the front end. It’s very, very unlikely to get an EITC refund back 

if it’s given to a taxpayer. 

Mr. GROTHMAN. Once it is out, it is gone, huh? 

Mr. DALRYMPLE. It is very difficult to get it back at that point. 

Mr. GROTHMAN. Do you ever try to do anything with those people? 

Mr. DALRYMPLE. I’m sorry? 

Mr. GROTHMAN. Do you ever try to do anything with those people? I mean —— 

Mr. DALRYMPLE. Yes —— 

Mr. GROTHMAN.—if somebody—if it is very apparent that somebody is claiming a credit they shouldn’t get, does anything happen 

to the people who do that? 

Mr. DALRYMPLE. Well, actually, we bar them from getting the 

credit then afterwards. The other thing that would be incredibly 

helpful would be to have correctible error authority around earned 

income tax credit in terms—because we have to do examinations on 

all of these. If we had correctible error authority, the process would 

be much easier to stop the refunds when we saw them. 

Mr. GROTHMAN. What does that mean, correctible error authority? 

Mr. DALRYMPLE. It means that when it’s an obvious error on the 

return, we can actually reverse the credit that’s being asked for as 


KING-6430 with DISTILLER
60 

opposed to having to do a full examination to be able to stop the 

credit. 

Mr. GROTHMAN. Okay. I know my chairman is indulging me, but 

you know I love this committee. 

Mr. JORDAN. That is good. 

Mr. GROTHMAN. I will give you one more—can I have one more 

question? 

Mr. JORDAN. You sure can. 

Mr. GROTHMAN. If there is one business, refundable business tax 

credit or one corporate tax credit, refundable credit that you feel 

is prone to be given erroneously, what would it be, if something 

comes to mind? You mentioned it is not just earned income tax 

credit; there are business credits, too. 

Mr. DALRYMPLE. I can’t think of one off the top of my head, but 

I’d be happy to come back to you with —— 

Mr. GROTHMAN. Yes, think of some so we can—yes. And how 

many of the EITCs percentagewise did you guys review do you 

think are fraudulent or erroneous? I should put it that way. 

Mr. DALRYMPLE. Yes. Because—the point that my colleague from 

the GAO made is this is an incredibly complex law for a very unsophisticated group of taxpayers. And so a lot of the mistakes made 

are not necessarily fraudulent. They are honest mistakes. And then 

the other thing that you’ve got here are not normal nuclear families, so determining who has the ability to claim the dependent, et 

cetera, all those things are incredibly difficult in this environment. 

Mr. GROTHMAN. You are a nice man, Mr. Dalrymple, but I think 

you are naive. I think they do it on purpose. But —— 

Mr. DALRYMPLE. Yes, I don’t know that many people would call 

me that, but I appreciate that actually. 

Mr. GROTHMAN. You are a nice guy, as we say. Okay. Thank you 

much. 

Mr. JORDAN. Let the record show the gentleman kept us waiting 

and still got eight minutes of questioning. 

[Laughter.] 

Mr. JORDAN. Let me thank our witnesses. And, Mr. Dalrymple, 

we want to wish you the best in your retirement. 

Mr. DALRYMPLE. Thank you. 

Mr. JORDAN. Thank you for being here on this important subject 

and for the important work that you do in uncovering what has 

been happening at the IRS. 

I would ask unanimous consent that members have five legislative days to submit questions for the record. Without objection, so 

ordered. 

The subcommittees stand adjourned. 

Mr. DALRYMPLE. Thank you. 

[Whereupon, at 4:33 p.m., the subcommittees were adjourned.] 


KING-6430 with DISTILLER
(61) 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD


KING-6430 with DISTILLER
62 


KING-6430 with DISTILLERInsert offset folio 35 here 25223.035

STATEMENT OF 

NINA E. OLSON 

NATIONAL TAXPAYER ADVOCATE 

JOINT HEARING ON 

IRS CUSTOMER SERVICE CHALLEGES 

BEFORE THE 

SUBCOMMITTEE ON GOVERNMENT OPERATIONS 

AND 

SUBCOMMITTEE ON HEALTH CARE, BENEFITS AND ADMNISTRATIVE 

RULES 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

U.S. HOUSE OF REPRESENTATIVES 

MARCH 8, 2017 
63 


KING-6430 with DISTILLERInsert offset folio 36 here 25223.036

TABLE OF CONTENTS 

I. Simplify the Internal Revenue Code ..................................................................... 2 

II. Establish Competency Standards for Federal Tax Return Preparers ................... 3 

Ill. To Fairly, Effectively, and Efficiently Administer the Tax System, the IRS Needs 

More Funding, But It Also Should Orient Its Mission Around Taxpayer Service 

and Taxpayer Rights ............................................................................................ 4 

IV. Greater Congressional Oversight Over the IRS's Strategic and Operational Plans 

Would Help Restore Trust in the Tax System ....................................................... 9 

V. The IRS Must Better Understand the Needs and Preferences of Its Diverse 

Taxpayer Population to Increase Long-Term Voluntary Tax Compliance ........... 10 

VI. Conclusion .......................................................................................................... 12 
64 


KING-6430 with DISTILLERInsert offset folio 37 here 25223.037

Chairmen Meadows and Jordan, Ranking Members Connolly and Krishnamoorthi, and 

Members of the Subcommittees: 

Thank you for inviting me to submit this statement regarding customer service 

challenges at the Internal Revenue Service. 1 

Last year, I and the Taxpayer Advocate Service (TAS) embarked on an extraordinary 

endeavor to actively engage with the taxpayers we serve. As announced in my 2015 

Annual Report to Congress, in which we analyzed the IRS's "Future State vision," I 

traveled the country and held 12 Public Forums on Taxpayer Needs and Preferences. 2 

Together with Members of Congress, including Chairman Meadows, I heard directly 

from taxpayers and their representatives about the challenges they face in complying 

with the tax laws and dealing with the IRS.3 TAS also held "Future State" focus groups 

of tax return preparers and practitioners at the IRS Tax Forums. 4 And we engaged 

every TAS office in meetings about the Future State because TAS typically assists 

between 220,000 and 250,000 taxpayers a year in resolving their problems with the 

IRS, so our employees see first-hand the challenges taxpayers face.5 

We also conducted a nationwide survey of U.S. taxpayers to hear directly what they 

need in the way of taxpayer service.6 Finally, my immediate staff identified significant 

1 The views expressed herein are solely those of the National Taxpayer Advocate. The National 

Taxpayer Advocate is appointed by the Secretary of the Treasury and reports to the Commissioner of 

Internal Revenue. However, the National Taxpayer Advocate presents an independent taxpayer 

perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the 

Office of Management and Budget. Congressional testimony requested from the National Taxpayer 

Advocate is not submitted to the IRS, the Treasury Department, or the Office of Management and Budget 

for prior approval. However, we are providing courtesy copies of this statement to both the IRS and the 

Treasury Department. 

2 See National Taxpayer Advocate 2015 Annual Report to Congress xv. National Taxpayer Advocate 

Public Forums were held in the following locations: Washington, DC (Feb. 23, 2016); Glen Ellyn, IL 

(Mar. 9, 2016 with Congressman Roskam); Bronx, NY (Mar. 18, 2016 with Congressman Serrano); 

Hendersonville, NC (Apr. 4, 2016 with Congressman Meadows); Harrisburg, PA (Apr. 8, 2016); Red 

Oak, lA (May 5, 2016 with Senator Grassley); Baltimore, MD (May 13, 2016 with Senator Cardin); 

Washington, DC (May 17, 2016); Parma, OH (Aug. 16, 2016 with Congressman Renacci); Portland, OR 

(Aug. 18, 2016); Los Angeles, CA (Aug. 22, 2016 with Congressman Becerra); and San Antonio, TX 

(Aug. 30, 2016 with Congressman Doggett). 

3 For information about and full transcripts from the National Taxpayer Advocate Public Forums, see 

https://taxpayeradvocate.irs.gov/public-forums (last visited on Mar. 4, 2017). 

4 TAS Communications and Liaison, 2016/RS Nationwide Tax Forums TAS Focus Group Report: 

Preparers· Thoughts About IRS's Proposed Future State (Oct. 2016), 

https://taxpayeradvocate.irs.gov/Media/Default/Documents/ResearchStudies/2016 TaxForum FutureStat 

e FocusGroup Report.pdf. 

5 For the results of the discussions with TAS employees, see https://taxpaveradvocate.irs.qov/publicforums (last visited on Mar. 4, 2017). 

6 See National Taxpayer Advocate 2016 Annual Report to Congress, vol. 2, at 1-30 (Research Study: 

Taxpayers' Varying Abilities and Attitudes Toward IRS Taxpayer Service: The Effect of IRS Service 

Delivery Choices on Different Demographic Groups). 
65 


KING-6430 with DISTILLERInsert offset folio 38 here 25223.038

-2-

research on topics that have relevance for tax administration, including approaches to 

voluntary compliance, worldwide taxpayer service, alternative dispute resolution, 

taxpayer rights, fraud detection, online accounts, and the impact of geographic 

presence and focus. We expanded our searches beyond the tax literature, to 

psychology, behavioral economics, organizational theory, network theory, marketing, 

and other disciplines. These literature reviews are published in volume 3 of the National 

Taxpayer Advocate's 2016 Annual Report to Congress. 

Last year's "learning tour" culminated in a Special Focus section of my most recent 

Annual Report to Congress, in which I set forth my observations and recommendations 

to turn the IRS into a taxpayer-centric 21 51 century tax administration.? The Special 

Focus is appended in its entirety to this testimony, but I summarize some of my findings 

and recommendations below. 

I. Simplify the Internal Revenue Code 

At the outset I note the need for comprehensive tax reform, including provisions relating 

to the taxation of individuals. The compliance burdens the current tax code imposes are 

overwhelming for taxpayers and the IRS alike. My staff analyzed IRS data for 2015 and 

determined that individuals and businesses spend about six billion hours a year 

complying with the code's filing requirements - not including the millions of additional 

hours they spend responding to IRS audits or notices. If tax compliance were an 

industry, it would be one of the largest in the United States. To consume six billion 

hours, the "tax industry" requires the equivalent of three million full-time workers. 

The tax code, which runs several million words, contains more than 200 tax deductions, 

credits, exclusions, and similar tax breaks, known collectively as "tax expenditures." In 

combination, the Treasury Department has estimated that tax expenditures in Fiscal 

Year 2016 came to about $1.4 trillion- more than the $1.2 trillion Congress 

appropriated to fund the entire federal government. Put simply, Congress now spends 

more money each year through the tax code than it spends through the appropriations 

process .a 

7 National Taxpayer Advocate 2016 Annual Report to Congress 1-41 (Special Focus: IRS Future State: 

The National Taxpayer Advocate's Vision for a Taxpayer-Centric 21 Century Tax Administration), 

https:l/taxpayeradvocate.irs.gov/Media/Default!Documents/2016-

ARC/ARC16 Volume1 SpeciaiFocus.pdf. 

8 For prior discussions of tax compliance burdens and recommendations for tax reform, see National 

Taxpayer Advocate 2012 Annual Report to Congress 3-23 (Most Serious Problem: The Complexity of the 

Tax Code); National Taxpayer Advocate 2010 Annual Report to Congress 3-14 (Most Serious Problem: 

The Time for Tax Reform Is Now); National Taxpayer Advocate 2010 Annual Report to Congress 365-372 

(Legislative Recommendation: Enact Tax Reform Now); National Taxpayer Advocate 2005 Annual 

Report to Congress 375-380 (Key Legislative Recommendation: A Taxpayer-Centric Approach to Tax 

Reform); Fundamental Tax Reform: Hearing Before the H. Comm. on Ways and Means. 1121h Cong. 6-38 

(2011) (statement of Nina E. Olson, National Taxpayer Advocate), https'//www.gpo.gov/fdsys/pkq/CHRG112hhrg70869/pdf/CHRG-112hhrg70869.pdf; Public Meeting of the President's Advisory Panel on 
66 


KING-6430 with DISTILLERInsert offset folio 39 here 25223.039

- 3-

As the National Taxpayer Advocate, I believe the most effective and comprehensive 

way to reduce taxpayer burden is for Congress to vastly simplify the Internal Revenue 

Code. 

II. Establish Competency Standards for Federal Tax Return Preparers 

Despite the complexity of the current tax code, anyone may hold himself or herself out 

as a tax return preparer. Two studies conducted by the Government Accountability 

Office (GAO) illustrate the consequent inaccuracy of tax returns. 9 In both studies, GAO 

auditors posed as taxpayers and had 19 returns prepared, and also in both studies, 17 

out of the 19 preparers computed the wrong tax liability. In most cases, the preparers 

caused taxpayers to underpay (subjecting them to audit adjustments later), while in 

other cases, the preparers caused taxpayers to overpay. High-quality return 

preparation is critical because the majority of taxpayers pay preparers to complete their 

returns for them, and the consequences of filing inaccurate tax returns can be 

significant. 

In the past, legislation requiring tax return preparers to pass a minimum competency 

test and keep up on tax-law changes through continuing education was approved by the 

Senate on a voice vote, 10 and has been introduced by Republicans and Democrats in 

the House.11 I recommend Congress pass this legislation so that, as long as the tax 

code remains so complicated, taxpayers will be better served by the tax return 

preparation industry.12 

Federal Tax Reform (Mar. 3, 2005) (statement of Nina E. Olson, National Taxpayer Advocate), 

http://govinfo.library.unt.edu/taxreformpanellmeetings/meeting-03032005.html. 

9 See GAO, GA0-14-467T, Paid Tax Return Preparers: In a Limited Study, Preparers Made Significant 

Errors (2014), http://www.gao.gov/assets/670/662356.pdf" GAO, GA0-06-563T, Paid Tax Return 

Preparers: In a Limited Study, Chain Preparers Made Serious Errors (2006), 

http://www.gao.govlassets/120/113330.pdf. See also Treasury Inspector General for Tax Administration 

(TIGTA), Ref. No. 2008-40-171, Most Tax Returns Prepared by a Limited Sample of Unenrol/ed 

Preparers Contained Significant Errors (Sept. 3, 2008). 

10 Tax Administration Good Government Act, H.R. 1528 (incorporating S. 882), 108'" Gong. (2004) 

(approved by the Senate by unanimous consent on May 19, 2004). 

11 See, e.g., Taxpayer Return Preparer Competency Act, H.R. 4141, 1141" Gong. (2015) (sponsored by 

Congresswoman Diane Black); Taxpayer Rights Act, H.R. 4128, 114'" Gong.§ 202 (2015) (sponsored by 

Congressman Xavier Becerra). 

12 For prior discussions of preparer problems and recommendations for minimum standards, see National 

Taxpayer Advocate Fiscal Year 2015 Objectives Report to Congress 71-78; National Taxpayer Advocate 

2013 Annual Report to Congress 61-74 (Most Serious Problem: Regulation of Return Preparers: 

Taxpayers and Tax Administration Remains Vulnerable to Incompetent and Unscrupulous Return 

Preparers While the IRS Is Enjoined From Continuing Its Efforts to Effectively Regulate Unenrolled 

Preparers); National Taxpayer Advocate 2009 Annual Report to Congress 41-69 (Most Serious Problem: 

The IRS Lacks a Servicewide Return Preparer Strategy); National Taxpayer Advocate 2006 Annual 

Report to Congress 197-221 (Most Serious Problem: Oversight of Unenrolled Return Preparers); National 

Taxpayer Advocate 2004 Annual Report to Congress 67-88 (Most Serious Problem: Oversight of 
67 


KING-6430 with DISTILLERInsert offset folio 40 here 25223.040

-4-

Ill. To Fairly, Effectively, and Efficiently Administer the Tax System, the IRS 

Needs More Funding, But It Also Should Orient Its Mission Around 

Taxpayer Service and Taxpayer Rights 

To create an environment that encourages taxpayer trust and confidence, the IRS must 

change its culture from one that is enforcement-oriented to one that is service-oriented. 

Of the IRS's current appropriated budget of $11.2 billion, 43 percent is allocated to 

enforcement, while less than six percent is allocated to taxpayer outreach and 

education activities. 13 In 2014, the IRS ceased all tax return preparation in its Taxpayer 

Assistance Centers (TAGs), sharply curtailed the scope of tax-law questions it would 

answer during the filing season on its telephone lines and in its TAGs, and stopped 

answering any tax-law questions after April 15. 

The TAGs, which were previously known as "walk-in sites," moved to an "appointment 

only" system this year. I previously recommended the IRS offer appointments by 

request as an option. However, the IRS's new policy against accepting walk-in 

taxpayers has led to considerable taxpayer frustration and a failure to meet taxpayer 

needs. Many- if not most- taxpayers have no way of knowing the IRS is no longer 

accepting walk-ins, so some travel considerable distances only to be sent home. The 

IRS cites customer satisfaction surveys to suggest taxpayers are pleased with the 

appointment-only approach. But these surveys are misleading because they are only 

administered to taxpayers who have been served. They do not reflect the opinions of 

taxpayers who are turned away. The IRS has reduced the number of TAGs from 401 to 

376 since 2011. 14 In addition, 22 TAGs have no staff, while 95 have only one 

employee.15 

Twelve states have no Appeals Officers stationed within their boundaries, 16 and 14 

states have no IRS liaisons to Small Business and Self-Employed taxpayers. 17 In fact, 

Unenrol/ed Return Preparers); National Taxpayer Advocate 2003 Annual Report to Congress 270-301 

(Legislative Recommendation: Federal Tax Return Preparers: Oversight and Compliance); National 

Taxpayer Advocate 2002 Annual Report to Congress 216-30 (Legislative Recommendation: Regulation of 

Federal Tax Return Preparers). 

13 Consolidated Appropriations Act, 2016, Pub. L. No. 114-113 (2015). An additional 33 percent of the 

IRS budget is allocated to the Operations Support account, which is used to support program activities. 

The balance of the budget is allocated mostly to returns processing and to the Business Systems 

Modernization account. 

14 1n 2011, the IRS operated 401 TACs. IRS response to TAS information request (Dec. 23, 2014). As of 

December 31,2016, the IRS operated 376 TACs, a reduction of six percent. IRS response to TAS fact 

check (Dec. 20, 2016). 

15 IRS response to TAS fact check (Dec. 20, 2016). 

16 The 12 states that lack a permanent Appeals Officer are Alaska, Arkansas, Delaware, Idaho, Kansas, 

Montana, North Dakota, New Mexico, Rhode Island, South Dakota, Vermont, and Wyoming. There is 

also no Appeals Office in the territory of Puerto Rico. IRS Office of Appeals response to TAS information 

request (June 6, 2016). 
68 


KING-6430 with DISTILLERInsert offset folio 41 here 25223.041

- 5-

according to IRS data, the agency dedicates only 98 employees to conduct outreach 

and education to the roughly 57 million Small Business and Self-Employed taxpayers 

(i.e., taxpayers who are self-employed or own small businesses), and only 376 

employees to conduct outreach and education to the nearly 125 million Wage and 

Investment taxpayers (i.e., taxpayers who are classified as "employees"). Meanwhile, 

the IRS has over 3,000 revenue officers (who conduct field collection activities) and 

over 8,800 revenue agents (who conduct field audit activities). 18 

Figure 1: Locations with Specified Employees in the Last Pay Period of the Fiscal Year 

795 739 

3,191 3,072 

9,090 8,811 

105 98 

405 386 365 

Despite this imbalance, the IRS budget request for FY 2017 sought an increase of 7.2 

percent in enforcement funding, as compared with an increase of just 3.1 percent in 

taxpayer services funding. 19 This proposal to increase enforcement funding by more 

than twice the rate of taxpayer services funding was made against a backdrop in which 

the agency has been unable to meet basic taxpayer needs. Among calls routed to its 

telephone assistors, the IRS was able to answer only 38 percent in FY 2015 and 53 

percent in FY 2016, and taxpayers who managed to get through to the IRS were kept 

on hold for an average of 30 minutes and 18 minutes, respectively, in those years20 

For calendar year 2017, although the IRS is showing a much higher level of service 

(LOS) on general assistor calls, it has only been able to answer 37 percent of the nearly 

17 The 14 states are Alaska, Delaware, Hawaii, Kentucky, Mississippi, Montana, North Dakota, Nebraska, 

New Hampshire, South Dakota, Vermont, West Virginia, Wisconsin, and Wyoming. There also is no 

liaison in the District of Columbia. IRS response to TAS fact check (Dec. 15, 2016); IRS Human 

Resources Reporting Center, Report of Small Business/Self-Employed (SB/SE) Job Series 0526. 

Stakeholder Liaison Field Employees as of the week ending October 1, 2016 (Dec. 1, 2016). 

18 1RS response to TAS fact check (Dec. 16, 2016). 

191RS FY 2017 Kllf1nAf-ln-Kri1Af 

20 IRS, Joint Operations Center, Snapshot Reports: Enterprise Snapshot (week ending Sept. 30, 2016) 

(showing both FY 2015 and FY 2016 toll-free telephone performance statistics). 
69 


KING-6430 with DISTILLERInsert offset folio 42 here 25223.042

-6-

1.4 million calls received on its Installment Agreement/Balance Due line. 21 This is down 

53 percent over the same period last year. The hold time for the taxpayers who actually 

get through on this line is up even more significantly -from ten minutes last year to 57 

minutes this year. 22 To be clear: The 1.4 million taxpayer calls to this line generally 

reflect taxpayers who owe money to the IRS and are trying to make arrangements to 

resolve their delinquent tax debts. Yet the IRS is not accepting 63 percent of these 

calls, and it is making the other 37 percent of callers wait nearly one hour to get 

through. 

Much of this state of affairs has been brought about by sustained decreases in the IRS's 

annual appropriation over the last decade - about 19 percent on an inflation-adjusted 

basis.23 Despite these cuts, the IRS must deliver a filing season in which it processes 

some 150 million individual tax returns and issues over 115 million refunds totaling over 

$345 billion, 24 while guarding against between $22 and $24 billion in identity theft and 

refund fraud,25 and implementing legislative changes that have averaged more than one 

a day since 2001.26 Cuts of this magnitude ultimately hurt taxpayers. Each year, the 

IRS receives more than 100 million telephone calls, roughly five million taxpayer visits in 

its TAGs, and some ten million pieces of correspondence from taxpayers responding to 

proposed tax adjustment noticesP Without sufficient staffing, the IRS cannot handle 

21 See IRS, Joint Operations Center, Snapshot Reports: Product Line Detail: Installment 

Agreement/Balance Due (week ending Feb. 25, 2017}. 

22 IRS, Joint Operations Center, Snapshot Reports: Enterprise Snapshot (week ending Feb. 25, 2017) 

(showing calendar year 2017 year-to-date telephone performance statistics with a comparison to the 

corresponding period in 2016). 

23 In FY 2010. the agency's appropriated budget stood at $12.1 billion. For FY 2016, its budget was 

$11.2 billion, a reduction of nearly eight percent over the six-year period. Inflation over the same period is 

estimated at nearly 11 percent. See Office of Management and Budget, Fiscal Year 2016 Budget of the 

U.S. Government, Historical Tables (230-31}, Table 10.1, 

https:/lwww. whitehouse.govlsites/default/files/omb/budget/fV20161assets/h ist. pdf (showing Gross 

Domestic Product (GOP} and year-to-year increases in the GOP). In addition, the IRS was required to 

implement the statutory requirements of the Patient Protection and Affordable Care Act and the Foreign 

Account Tax Compliance Act during this time, causing a further drain on its resources. 

24 1RS Pub. 558, IRS Data Book 2015 (Mar. 2016), Tables 2, 7 and 8. Figures are for FY 2015. 

25 Treasury Inspector General for Tax Administration, Ref. 2015-40-026, Efforts Are Resulting in the 

Improved Identification of Fraudulent Tax Returns Involving Identity Theft 2 (Apr. 24, 2015}. 

26 Unpublished data provided by Wolters Kluwer Tax & Accounting to TAS (Dec. 8, 2016}. Wolters 

Kluwer notes there is some subjectivity in computing these numbers because the counts are tied to how 

legislation is written. In general, an "Act Finding List" lists every Act section (or portion thereof) in a given 

Public Law and the corresponding amendment(s) it makes to the Internal Revenue Code. For example, 

assume an Act adds three new sections to the Internal Revenue Code. If the Act contains three sections 

that each adds one Code section, Wolters Kluwer would count three Code changes. But if the Act 

contains one section that adds a new Part to the Internal Revenue Code and that Part, in turn, contains 

the same three new Code sections, Wolters Kluwer would count one Code change. 

27 1RS, Joint Operations Center, Snapshot Reports: Enterprise Snapshot, IRS Enterprise Total (final week 

of each fiscal year for FY 2008 through FY 2016) (showing telephone call volumes exceeding 100 million 

in every year}; IRS Wage & Investment Division, Business Performance Review 7 (1'' Quarter- FY 2017, 
70 


KING-6430 with DISTILLERInsert offset folio 43 here 25223.043

-7-

this volume of traffic quickly and accurately. In addition, cuts in enforcement funding 

require the IRS to rely more heavily on automated notices, which are often unclear and 

sometimes inaccurate, and then taxpayers often cannot reach an employee to obtain 

clarification or resolve the matter. 

In this funding environment, the IRS has to make hard choices. Taxpayer service is a 

likely target for reductions, because it is difficult (but not impossible) to measure the 

return-on-investment of such activities. While the IRS can compute that every dollar 

spent on collection activities bring in $9.60,28 the IRS has no such measure for revenue 

brought in by answering tax-law questions on the phones or providing free tax return 

preparation service for low income, disabled or elderly taxpayers in the TAGs. 

Notwithstanding these funding challenges, the IRS in a variety of ways signals to its 

employees that it disproportionately values enforcement. For example, the IRS every 

year posts annual "Enforcement and Service Results" on its website.29 This generally 

consists of five or six pages of enforcement data (including audit rates for individuals 

and business entities, enforcement dollars assessed, enforcement dollars collected, 

liens filed, levies issued, and criminal indictments and convictions), with a single page of 

taxpayer service data tacked on at the end. There is a lot of truth to the well-known 

adage, "you get what you measure." The fact that the word "Enforcement" comes first 

and is much more heavily emphasized makes a statement to the public - and to the 

IRS's own employees - about agency priorities. 

Congress has previously expressed concern about the IRS's focus on enforcement at 

the expense of service. In the IRS Restructuring and Reform Act of 1998 (RRA 98), 

Congress directed the IRS to "restate its mission to place a greater emphasis on serving 

the public and meeting taxpayers' needs."30 In response, the IRS adopted the following 

mission statement: "Provide America's taxpayers top quality service by helping them 

understand and meet their tax responsibilities and by applying the tax law with integrity 

and fairness to all."31 (Emphasis added.) In 2009- with no public discussion or notice 

to Congress- the IRS quietly changed its mission statement to read: "Provide 

America's taxpayers top quality service by helping them understand and meet their tax 

responsibilities and enforce the tax law with integrity and fairness to aJI."32 (Emphasis 

Feb. 9, 2017} (showing 5.6 million visits in FY 2015 and 4.5 million visits in FY 2016); IRS, Joint 

Operations Center, Adjustments Inventory Reports: July-September Fiscal Year Comparison (FY 2007 

through FY 2016) (showing annual taxpayer correspondence volumes regarding potential adjustments 

has ranged from a low of 7.3 million letters to a high of 11.8 million letters and has averaged around ten 

million per year). 

2s1RS FY 2017 Budget-in-Brief, at 10, 

https://www.irs.gov/PUP/newsroom/IRS%20FY%202017%20BIB.pdf. 

29 1RS, Fiscal Year 2015 Enforcement and Service Results, https://www.irs.gov/uac/newsroom/fiscal-year2015-enforcement-and-service-results. 

30 IRS Restructuring and Reform Act, Pub. L. No. 105-206, Title I,§ 1002, 112 Stat. 685,690 (1998). 

311RM 1.1.1.1 (Mar. 1, 2006). 

32 IRM 1.1.1.2 (June 2, 2015). 
71 


KING-6430 with DISTILLERInsert offset folio 44 here 25223.044

-8-

added.) This shift in tone and emphasis- from applying the law to enforcing the lawsuggests the IRS leadership disagreed with the Congressional directive and decided to 

place greater emphasis on "enforcement" in its mission statement. 

Perhaps the most important point I am trying to make is that service and enforcement 

should not be treated as an "either/or" proposition. The IRS, like any tax administrator, 

should have one overriding goal -to increase tax compliance, and particularly voluntary 

tax compliance. That means, for example, that part of every compliance touch should 

involve talking to the taxpayer and making sure the taxpayer understands what he or 

she did wrong so he or she is less likely to do it again. Indeed, if the IRS engages with 

taxpayers in this way, it might even learn where it is wrong itself- as it often is. 

Regardless, there is substantial research and documentary evidence that show a 

service-oriented approach toward tax administration is effective and efficient, and 

maximizes long-term voluntary compliance. Moreover, the Taxpayer Bill of Rights 

provides U.S. taxpayers with, among other things, the right to challenge the IRS's 

position and be heard. 33 The last part of that right is critical. It is not enough simply for 

taxpayers to be able to object; the IRS must listen. This right is fundamental to 

procedural due process. 

All this is not to say that IRS employees don't care about taxpayer service, nor am I 

saying the IRS is "just" focused on enforcement. But I do believe that IRS employees 

and the taxpaying public often see things quite differently. Often, the IRS doesn't 

clearly see how it is presenting itself to the public. For example, as part of the process 

of developing the IRS's Future State vision, each of the four IRS Business Operating 

Divisions (or BODs) began by developing its own Concept of Operations (CONOPS) 

and an accompanying "taxpayer vignette" to illustrate how its vision of the Future State 

will work. Notably, each BOD's vignette shows the IRS contacting a taxpayer to 

conduct an audit or otherwise challenge a taxpayer's return, and in every case, the 

vignette shows the taxpayer ultimately conceding the IRS is correct and consenting to 

the IRS's proposed adjustment. At best, these vignettes reveal a lack of sensitivity as to 

how external stakeholders (such as taxpayers) will perceive them. At worst, they 

suggest to the taxpaying public that the IRS believes it is always right and the taxpayer 

is always wrong.34 

33 See Taxpayer Bill of Rights (TBOR), www.TaxpayerAdvocate.irs.gov/taxpayer-rights. The rights 

contained in the TBOR are codified in the Internal Revenue Code. See Consolidated Appropriations Act, 

2016. Pub. L. No. 114-113, Division Q, § 401(a) (2015) (codified at IRC § 7803(a)(3)). 

34 "I find it funny that in both scenarios, there's more taxes. I think that reflects the idea that this model is 

about the IRS finding new ways to use technology for their benefit, and not for taxpayer purposes." 

Statement of Audience Member, National Taxpayer Advocate Public Forum 39 (Aug. 18, 2016), 

https://taxpayeradvocate. irs.gov/Media/Default/Docu ments/PublicForu ms/PortlandOR Transcript 081816 

&>If. ''I'm a CPA, and I've been practicing for 35 years... [T]he examples here- both end up resolving in 

more tax being owed- is like, 'We were right, you were wrong, pay us the money.'" /d. at 55-56. 
72 


KING-6430 with DISTILLERInsert offset folio 45 here 25223.045

-9-

Accordingly, I recommend that the IRS: 

• Revise its mission statement to re-emphasize a non-coercive approach to tax 

administration and explicitly affirm the role of the Taxpayer Bill of Rights as the 

guiding principle for tax administration.35 

IV. Greater Congressional Oversight Over the IRS's Strategic and Operational 

Plans Would Help Restore Trust in the Tax System 

Congress has a significant role to play in ensuring that the IRS has adequate resources 

to do its job and that it allocates those resources wisely. Appropriate oversight and 

greater transparency increase taxpayer trust in the tax agency and the tax system. As 

part of the reorganization mandated by Congress in RRA 98, Congress held joint annual 

hearings, over five years, to review the IRS strategic plan. 36 The hearing participants 

included three members (two majority and one minority) from each of the congressional 

committees with jurisdiction over the IRS- Senate Finance, Appropriations, and 

Governmental Affairs, and House Ways and Means, Appropriations, and Governmental 

Reform and Oversight. The hearings were to cover the following topics: 

(1) IRS progress in meeting its objectives under its strategic and business plans; 

(2) IRS progress in improving taxpayers service and compliance; 

(3) IRS progress on technology modernization; and 

(4) The annual filing season.37 

By reinstituting these joint oversight hearings, Congress can provide the IRS with the 

opportunity to articulate, with specificity, its need for additional resources and its plans 

for applying them. Hearing from both the IRS and outside experts - including tax 

professional organizations, business representatives, Low Income Taxpayer Clinics, 

and behavioral scientists - Congress will better understand the challenges that both the 

IRS and taxpayers face. It can then make informed decisions about the level and 

general application of resources necessary for the IRS to provide U.S. taxpayers with a 

21 51 century tax administration that they can trust and admire. 

35 See Taxpayer Bill of Rights (TBOR), www.TaxpayerAdvocate.irs.gov/taxpayer-rights. The rights 

contained in the TBOR are now listed in the Internal Revenue Code. See Consolidated Appropriations 

Act, 2016, Pub. L. No. 114-113, Division Q, § 401(a) (2015) (codified at IRC § 7803(a)(3)). 

36 Pub. L. No. 105-206, § 4001 (enacting IRC § 8021 (f)) and § 4002 (amending IRC § 8022), 112 Stat 

685, 783-784 (1998). 

37 H.R Rep. No. 105-364, at 84-85 (1997). The IRS Restructuring Commission earlier recommended 

that Congress create a joint committee on IRS administration, which would conduct joint hearings on 

similar topics. National Commission on Restructuring the IRS, A Vision for a New IRS 11 (June 25, 1997). 
73 


KING-6430 with DISTILLERInsert offset folio 46 here 25223.046

- 10-

Accordingly, I recommend that Congress: 

• Reinstate the joint review of the IRS strategic plans and budget provided for 

under IRC §§ 8021 (f) and 8022; 

• Require the IRS to submit a comprehensive "Future State" plan that describes in 

detail its vision for a 21 51 century IRS, including an explanation of how this vision 

meets the needs and preferences of different U.S. taxpayer segments as well as 

a description of the challenges and obstacles the IRS faces in achieving this 

"Future State;" and 

• Provide funding for IRS initiatives that enhance and maintain voluntary 

compliance and that align with the needs and preferences of taxpayers as they 

attempt to comply with the tax laws. 

V. The IRS Must Better Understand the Needs and Preferences of Its Diverse 

Taxpayer Population to Increase Long-Term Voluntary Tax Compliance 

With respect to the IRS's plans for its Future State, I have previously written about my 

concerns in the National Taxpayer Advocate's 2015 Annual Report to Congress.38 In 

addition to calling attention to the IRS's lack of transparency with taxpayers and 

Congress about the specifics of its plans, I expressed concerns about the IRS's move 

away from person-to-person assistance and compliance contacts in favor of impersonal 

electronic "self-service" and greater reliance on private third parties to provide for-fee 

services previously provided by the IRS for free, thereby increasing taxpayers' costs for 

the "privilege" of paying their taxes. 

While the IRS has partially addressed my concerns about transparency39 and the 

Commissioner has made clear that the IRS does not intend to eliminate phone or inperson assistance,40 I remain unconvinced that the IRS Future State vision addresses 

the diverse needs and preferences of the diverse U.S. taxpayer population. At the heart 

of the Future State vision is the IRS online account. I myself previously have advocated 

for an online account,41 because for many taxpayers and many types of activities, it can 

be convenient and informative. Indeed, I applaud the IRS for developing an online 

38 National Taxpayer Advocate 2015 Annual Report to Congress 3-13 (Most Serious Problem: Taxpayer 

Service: The IRS Has Developed a Comprehensive "Future State" Plan That Aims to Transform the Way 

It Interacts with Taxpayers, But Its Plan May Leave Critical Taxpayer Needs and Preferences Unmet). 

39 See IRS, https://www.irs.gov/uac/newsroom/irs-future-state (last visited on Mar. 4, 2017). 

40 See, e.g., Tax Return Filing Season: Hearing Before the H. Subcomm. On Oversight, Comm. on Ways 

and Means, 114'h Cong. (Apr. 19, 2016) (written statement of John Koskinen, Commissioner, Internal 

Revenue Service). 

41 See, e.g., National Taxpayer Advocate 2013 Annual Report to Congress, vol. 2, at 67-96 (Research 

Study: Fundamental Changes to Return Filing and Processing Will Assist Taxpayers in Return 

Preparation and Decrease Improper Payments). 
74 


KING-6430 with DISTILLERInsert offset folio 47 here 25223.047

- 11 -

account option that seems simple, clear, and effective for taxpayers in accomplishing 

certain basic tasks. However, as we heard repeatedly in our Public Forums and our 

TAS employee focus groups, digital interaction is not appropriate for certain taxpayer 

populations, nor is it suitable for taxpayers with intensely factual and specific matters 

(which is what all but the most simple tax transactions are). 

For example, over 46 percent of individual taxpayers filing returns in 2016 are low 

income taxpayers, having incomes at or below 250 percent of the federal poverty 

level.42 These taxpayers can ill afford to pay more for tax return preparation and 

assistance. Moreover, TAS survey research shows that 33 million U.S. taxpayers have 

no broadband access at home, including 14 million U.S. taxpayers who have no home 

Internet access at all.43 Thus, for a significant portion of the taxpaying population, the 

IRS Future State, with its heavy emphasis on an online account and online "selfcorrection," will leave them out in the cold. 

Even among taxpayers who are able to go online, there are significant concerns about 

being able to pass authentication screens, sharing financial information over the 

Internet, and sharing personal information with the government. After the IRS 

established its current online account in the fall of 2016 with three-factor security 

authentication, only about 30 percent of the taxpayers who attempted to create an 

online account were able to do so.44 Thus, the necessity to protect the integrity of 

taxpayer data creates a barrier to access. I am not suggesting we should reduce our 

security. To the contrary, I believe protecting the security of taxpayer information is 

absolutely essential. But we must recognize that providing this security has implications 

for how many taxpayers will be able to access their accounts electronically and how 

many will need to contact the IRS by telephone or in TACs. 

According to a recent TAS nationwide survey of U.S. taxpayers, more than half of the 

Low Income, Senior, and Disabled respondents said they do not feel secure sharing 

personal financial information over the Internet. Indeed, even among the Not Low 

Income population, over 43 percent of taxpayers said they do not feel secure sharing 

their personal financial information over the Internet. And significant percentages of all 

taxpayer segments said they do not feel secure sharing personal information with a 

government agency. In fact, only 33 percent of the Not Low Income population, 19 

42 Of the 135.8 million individual taxpayers who had filed Tax Year 2015 individual income tax returns 

through October 2016, nearly 63 million taxpayers (46.2%) had Total Positive Income at or below 250 

percent of the federal poverty level. These numbers exclude filers who are claimed as a dependent on 

another tax return. IRS Compliance Data Warehouse, Individual Returns Transaction File for Tax 

Year 2015 (returns processed through October 31, 2016). 

43 See National Taxpayer Advocate 2016 Annual Report to Congress, vol. 2, at 1-30 (Research Study: 

Taxpayers' Varying Abilities and Attitudes Toward IRS Taxpayer Service: The Effect of IRS Service 

Delivery Choices on Different Demographic Groups). 

44 IRS response to TAS fact check (Dec. 20, 2016) (providing data through Dec. 18, 2016). The IRS 

declined to provide us with an updated pass rate and has said it will no longer make the rate available. 

Email from IRS Identity Assurance Executive to National Taxpayer Advocate (Mar. 4, 2017). 
75 


KING-6430 with DISTILLERInsert offset folio 48 here 25223.048

- 12-

percent of the Low Income, 16 percent of the Seniors, and 18 percent of Disabled 

taxpayers said they are comfortable sharing personal information with the government. 

These findings have profound implications for taxpayers' willingness to interact with the 

IRS online in all but the most rudimentary of actions.45 

Accordingly, I recommend that the IRS, in collaboration with my office, undertake a 

comprehensive study of taxpayer needs and preferences by taxpayer segment, using 

telephone, online, and mail surveys, focus groups, town halls, public forums, and 

research studies. These initiatives should be designed to determine taxpayer needs 

and preferences, and not be biased by the IRS's own desired direction. I also 

recommend that Congress direct the IRS and the National Taxpayer Advocate to jointly 

report on the results of this comprehensive study. 

VI. Conclusion 

The sharp reduction in IRS funding since FY 2010 has left the IRS with fewer resources 

with which to meet taxpayer needs. Without sufficient resources, there is simply no way 

the IRS can effectively serve the 100 million taxpayers who call, the ten million 

taxpayers who write, and the five million taxpayers who visit the IRS each year. 

However, I believe the IRS's culture is also a source of its customer service challenges. 

Historically, I think it is clear the IRS has viewed itself as an "enforcement first" agency 

rather than a "service first" agency. In my conversations with IRS leaders, they do not 

agree with my assessment, but I think that disagreement highlights that there is a 

significant difference between how the IRS views itself and how taxpayers view it. 

There are many examples of this, and in this statement I have cited several -a budget 

that provides considerably more funding for Enforcement than for Taxpayer Services, 

particularly outreach and education; the 2009 change in the IRS mission statement from 

"applying" the law to "enforcing" the law; the dearth of IRS employees assigned to 

perform outreach and education activities; and the vignettes in which the agency's four 

operating divisions illustrate their "Future State" through compliance examples where 

the IRS is always right and the taxpayer is always wrong- and no outreach and 

education is illustrated. 

Several incidents over the last few years have reduced the confidence of many 

Members of Congress in the leadership of the IRS. Largely as a result of that reduced 

confidence, Congress has cut the IRS budget to the point where the agency is now 

struggling to meet taxpayer needs. For the sake of our country's roughly 150 million 

individual taxpayers and ten million business-entity taxpayers, I believe it is critical that 

Congress and the IRS work together to find a better way forward. The IRS should take 

steps to rebuild congressional trust, and Congress should respond by providing the IRS 

45 See National Taxpayer Advocate 2016 Annual Report to Congress, vol. 2, at 1-30 {Research Study: 

Taxpayers' Varying Abilities and Attitudes Toward IRS Taxpayer Service: The Effect of IRS Service 

Delivery Choices on Different Demographic Groups). 
76 


KING-6430 with DISTILLERInsert offset folio 49 here 25223.049

- 13-

with the funding it needs to do its important work of helping taxpayers meet their tax 

obligations and collecting the revenue on which the rest of government depends. I have 

tried to offer some recommendations to help in this regard, and I believe the most 

important is for Congress to hold regular oversight hearings on core IRS work -

taxpayer service, audits and collection activities -so it can be confident the funds it 

provides are being well spent. 
77 


KING-6430 with DISTILLERInsert offset folio 50 here 25223.050

Get Backs for Hearing on March 8, 2017 

1. Rep. Hice asked how many IRS employees are on "official time" for National 

Treasury Employees' Union (NTEU) business. He asked for this number to be 

provided for both full-time and part-time union stewards. He also asked about 

approval!! for employees to use official time, and whether there is any 

mechanism in place for the IRS to disallow employee use of official time. 

The IRS had 65,429 bargaining unit employees in 2016. There are 1,9251RS 

employees who may use "official time" to perform their representational duties for the 

NTEU, and of these employees, 185 are full-time stewards and 1,740 are part-time 

stewards. The National Agreement between IRS and NTEU (National Agreement) limits 

the number of full-time NTEU stewards to 217 employees, but there is no limit for parttime stewards. Part-time stewards annually spend an average of about 120 hours on 

official NTEU duties. 

Official time is authorized by section 7131 of Title 5 (Government Organization and 

Employees) of the United States Code and by the National Agreement to allow IRS 

employees to represent the NTEU on certain workplace matters when they would 

otherwise be in a duty status. We work closely with NTEU on many matters that benefit 

the IRS, our employees, and taxpayers, including major taxpayer service improvement 

projects. From Fiscal Year (FY) 2012 to FY 2016, official time hours decreased by 18% 

from 568,699 to 466,070 hours. This represents less than 0.3% of IRS full-timeequivalent employee hours (including duty time, official time, and leave) in FY 2016. 

NTEU selects IRS employees from many different IRS business units to work as NTEU 

stewards. The National Agreement limits the type of activities that IRS employees can 

perform while using official time, and requires part-time stewards to get approval from 

their supervisors to engage in NTEU representational duties. 

2. Rep. Mitchell noted that in 2016, Commissioner Koskinen testified that the 

return on investment for enforcement operations was $4 for every $1 spent on 

enforcement, and asked how this calculation was made. 

The calculation of $4 returned for every $1 spent on enforcement is based on the 

annual Total Enforcement Revenue Collected (TERC) divided by the total IRS budget, 

as shown in the table below. TERC is the sum of tax, penalties and interest collected 

through our enforcement actions. This estimate does not include any indirect effects of 

IRS service and enforcement efforts on voluntary compliance. 
78 

Æ 


KING-6430 with DISTILLERInsert offset folio 51 here 25223.051

2 

2011 2012 2013 2014 2015 2016 Average 

TERC ($M) 55,229 50,188 53,345 57,146 54,203 54,292 54,067 

IRS Budget($M) 12,122 11,817 11,199 11,291 10,945 11,235 11,435 

Overall ROI 4.6 4.2 4.8 5.1 5.0 4.8 4.8 

3. Rep. DeSantis asked about documents discussed in a press release issued on 

March 9 by Judicial Watch, the plaintiff in a FOIA suit. The suit is based on 

FOIA requests made by the plaintiff relating to the selection of individuals and 

section 501(c)(4) organizations for audit Rep. DeSantis asked whether these 

documents were previously provided to the Oversight Committee or any other 

committee in Congress. 

The documents responsive to the FOIA requests generally involve different topics and 

time frames than those that were responsive to the Congressional investigations into 

the section 501(c)(4) tax exempt determinations process. The FOIA requests focus on 

selection for audit, rather than the determinations process. Notwithstanding these 

differences, the IRS is taking the proactive step of producing additional documents to 

key Congressional committees, including the Oversight Committee. Our review of the 

documents provided through April18, 2017, identified only two documents relating to 

the determinations process that were responsive to the Congressional investigations but 

not previously produced. Those two documents are Internal Revenue Manual provisions 

and, as such, they were already publicly available. 

4. Rep. Groth man asked about refundable business or corporate tax credits that 

are susceptible to improper payment. 

Although there are a few refundable business tax credits, they are not prone to the 

same vulnerabilities as fraudulent claims for the earned income tax credit. 

Section 168(k)(4), for example, allows corporations or consolidated groups with 

alternative minimum tax (AMT) credits to accelerate the use of these credits instead of 

claiming the bonus depreciation for eligible qualified property. This credit is refundable. 

Although there have been adjustments in this area, the adjustments are not based on 

fraud, but rather on a disagreement of interpretation.