U.S. GOVERNMENT PUBLISHING OFFICE

31–117 PDF WASHINGTON : 2018

CONTINUED OVERSIGHT OVER THE INTERNAL 

REVENUE SERVICE 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON 

GOVERNMENT OPERATIONS 

AND THE

SUBCOMMITTEE ON HEALTHCARE, BENEFITS, AND 

ADMINISTRATIVE RULES 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

APRIL 17, 2018 

Serial No. 115–78 

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

( 

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

http://oversight.house.gov 


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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

Trey Gowdy, South Carolina, 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 

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 

Greg Gianforte, Montana 

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 

Raja Krishnamoorthi, Illinois 

Jamie Raskin, Maryland 

Jimmy Gomez, Maryland 

Peter Welch, Vermont 

Matt Cartwright, Pennsylvania 

Mark DeSaulnier, California 

Stacey E. Plaskett, Virgin Islands 

John P. Sarbanes, Maryland 

SHERIA CLARKE, Staff Director 

ROBERT BORDEN, Deputy Staff Director 

WILLIAM MCKENNA, General Counsel 

MICHAEL KOREN, Professional Staff Member 

KILEY BIDELMAN, Clerk 

DAVID RAPALLO, Minority Staff Director 


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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 A. 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 

Brenda L. Lawrence, Michigan 

Bonnie Watson Coleman, New Jersey 

SUBCOMMITTEE ON HEALTHCARE, 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 


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C O N T E N T S 

Page 

Hearing held on April 17, 2018 .............................................................................. 1 

WITNESSES 

The Honorable David Kautter, Acting Commissioner, Internal Revenue Service 

Oral Statement ................................................................................................. 5 

Written Statement ............................................................................................ 8 

The Honorable J. Russell George, Inspector General, Treasury Inspector General for Tax Administration 

Oral Statement ................................................................................................. 14 

Written Statement ............................................................................................ 16 

Ms. Nina Olson, National Taxpayer Advocate, Internal Revenue Service 

Oral Statement ................................................................................................. 37 

Written Statement ............................................................................................ 39 

APPENDIX 

Rep. Mark Walker Statement for the Record ........................................................ 116 

Letter from EPIC.org, submitted by Ms. Maloney ................................................ 118 

Questions for the Record, submitted by Members of the Committee .................. 121 


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CONTINUED OVERSIGHT OVER THE 

INTERNAL REVENUE SERVICE 

Tuesday, April 17, 2018 

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON GOVERNMENT OPERATIONS JOINT

WITH SUBCOMMITTEE ON HEALTHCARE, BENEFITS, AND

ADMINISTRATIVE RULES

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

Washington, DC 

The subcommittees met, pursuant to call, at 10:08 a.m., in Room 

2154, Rayburn House Office Building, Hon. Jim Jordan presiding. 

Present: Representatives Jordan, Meadows, Walker, Hice, Issa, 

Sanford, Massie, Grothman, DeSantis, Mitchell, Blum, 

Krishnamoorthi, Connolly, Maloney, Norton, and Lawrence. 

Also Present: Representatives Gianforte and Duncan. 

Mr. JORDAN. The Subcommittees on Healthcare, Benefits, and 

Administrative Rules, and Government Operations, will come to 

order. 

Without objection, the presiding member is authorized to declare 

a recess at any time. 

We will get to our witnesses here in a second. We will do some 

opening statements and then hear their testimony, but we appreciate everyone being with us this morning, especially our three important witnesses. 

Today is tax day, the deadline for American taxpayers to file 

their taxes with the Internal Revenue Service. We have before us 

the Acting Commissioner of the IRS, its Inspector General, and the 

National Taxpayer Advocate, all who play a role in taxpayer service, tax enforcement, IRS oversight, and implementing the tax code 

with fairness and integrity. 

Integrity at the IRS is something I want to address in particular 

today, something former Commissioner John Koskinen disregarded 

as was made clear to this committee during his tenure as he tried 

to cover up IRS targeting conservative groups. While under subpoena, 422 backup tapes potentially containing up to 24,000 emails 

were conveniently destroyed. The continued shortcomings make it 

difficult for taxpayers to trust the IRS. 

At our most recent hearing about the IRS mismanagement, we 

learned that the agency rehired bad employees who engaged in 

fraud, who were under investigation, and who repeatedly violated 

internal policies and the law. 

In January we wrote to the IRS to ensure this problem has been 

fixed. Today we plan to hear an update on whether full compliance 

is actually in place. 


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But we are seeing repeated failures. There is yet another report 

issued in February highlighting the IRS continues to give bonuses 

to employees who have had all kinds of shortcomings in their 

record, with recent misconduct and tax compliance issues as part 

of those shortcomings. 

Only at the IRS are bad employees, those with conduct issues, 

unauthorized access to taxpayer information, rewarded with bonuses. 

Another area of concern is the IRS’ implementation of the employer mandate. In April of 2017, TIGTA assessed the IRS was not 

capable of starting to implement Obamacare’s employer shared responsibility provision, finding processes were not functioning. But 

then in March, TIGTA issued a report finding that the process to 

identify employers subject to the employer mandate needed improvement, the Inspector General’s reporting problems for the IRS 

enforcing the employer mandate. Yet last November, when Mr. 

Koskinen was heading out the door, the IRS decided to start collecting penalties from companies going all the way back to 2015. 

I know many members have concerns about this, and we will have 

questions about this, particularly Congressman Hice from Georgia. 

This month we requested documents about the IRS’ capacity to 

evaluate compliance and assess penalties regarding the employer 

mandate. In 2016 the Government Accountability Office released a 

report suggesting that the IRS is systematically evading the law 

when issuing their expansive regulations. In February we requested documents from Treasury about IRS rulemaking practices. 

Mr. Kautter, I am still waiting for those documents. 

We need to hear how these and other issues will be resolved. The 

American people are tired of this pattern of IRS abuse. It is time 

for the Internal Revenue Service to fulfill its duties with fairness 

and integrity. 

Thank you to our witnesses for appearing here today on tax day, 

and I look forward to your testimony. 

With that, I think we will allow our Democratic colleagues, the 

Ranking Members, to offer their opening statements if they wish, 

when they arrive, but I will turn now to the gentleman from Georgia, Mr. Hice, for an opening statement, and then we will get right 

to our witnesses. 

Mr. HICE. Thank you, Mr. Chairman. 

As you mentioned, today is one of the most dreaded days in 

America, tax day. I hope that the recent passage of the tax reform 

bill will provide relief to American citizens and hopefully less dread 

in the future as this day comes upon them. 

Not only does this hearing allow us to continue our oversight of 

the IRS, but it is also the first since the passage of the Tax Cut 

and Jobs Act, and so this is particularly good timing for the hearing that we have today. 

The new tax cuts are critical to individuals and small businesses, 

and the IRS must move quickly to implement that law. It is my 

sincere hope that the culture and the management problems that 

have proven so prevalent at the IRS throughout the course of previous administrations does not imperil the implementation of the 

Tax Cuts and Jobs Act and the reforms that are in it. 


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The IRS has been entrusted with the most powerful tools of the 

Federal Government. I think it is safe to say that nothing strikes 

fear in the heart of a person like receiving a letter from the IRS, 

and the abuses that have taken place in the past are unacceptable. 

I personally have experienced the aggressive IRS tactics prior to 

running for office. In fact, as a pastor I joined a group of other pastors that since then has turned into thousands of pastors to fight 

to resist the IRS intimidation and their chilling efforts to chill freedom of speech in churches. That fight, of course, is still ongoing. 

Ninety-eight percent of tax compliance is voluntary. This means 

that the IRS must work with, not against, taxpayers. This starts 

with ensuring taxpayers receive the best customer service possible 

at every level. I am sure the witnesses today will probably say that 

the IRS needs more money to provide better services. I disagree 

with that personally, but nonetheless Congress has provided additional resources this year to improve customer service and implement tax reforms. 

But we have to be clear that these additional funds cannot be 

used as an opportunity for the IRS to sweep its longstanding problems under the rug. To quote the Taxpayer Advocate, ‘‘Limited resources cannot be used as an all-purpose excuse for mediocrity.’’ It 

is time for the IRS to hold itself to the same high standards that 

it requires of the American taxpayers. And this committee, I can 

assure you, will be watching closely. 

I want to thank our witnesses for being here today. I look forward to hearing your testimony. 

I yield back. 

Mr. JORDAN. I thank the gentleman. 

I now recognize the gentleman from Virginia for an opening 

statement. 

Mr. CONNOLLY. I thank you, Mr. Chairman. 

I guess I couldn’t disagree more vehemently than with my friend 

who just spoke. Year after year, the IRS has been asked to do more 

with less. Since 2010, when the Republicans took over Congress, 

the number of individual tax returns filed increased by 11 percent, 

while the IRS budget in inflation terms decreased by 20 percent. 

That might have something to do with the mediocrity that was just 

characterized. 

These funding reductions have substantially weakened the agency’s capacity to enforce the tax code and meet taxpayer needs. In 

fact, it looks like it has delivered. 

Over the same time, the IRS workforce has been reduced by 

18,000, leaving one-third the number of enforcement agents and 

less than half the number of customer service representatives. That 

might have something to do with customer service quality. 

In her written testimony for today’s hearing, Nina Olson, the 

Taxpayer Advocate, states: ‘‘There is no substitute for having 

enough IRS employees to answer the 100 million telephone calls 

and 10 million pieces of correspondence the IRS receives every 

year.’’ 

The IRS budget constraints are impeding the agency’s ability to 

update its outdated IT systems, something this committee on a bipartisan basis has been concerned about, delaying more than $200 

million in investments. Approximately 59 percent of the informaVerDate Nov 24 2008 11:50 Sep 04, 2018 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 H:\31117.TXT APRIL

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tion technology systems at the IRS have aged beyond their useful 

life, leaving the IRS and taxpayers at risk of a cyber intrusion or 

a catastrophic failure that prevents taxpayers from filing tax-related paperwork. 

The recently passed Trump tax scheme will only exacerbate 

these issues in the coming years. The law contains 119 provisions 

that must be addressed by the IRS, and its estimated to cost the 

agency $397 million to implement. This figure includes the need to 

hire over 1,700 new employees, reprogram approximately 140 IT 

systems, revise or create roughly 450 different tax forms and publications and instructions, issue guidance and other activities to help 

taxpayers comply with the new law. 

In the recently passed omnibus spending bill, as my friend did indicate, Congress did provide IRS a total of $11.4 billion for Fiscal 

Year 2018, an increase of $196 million over the previous fiscal 

year. Despite an increase of $196 million, funding for the IRS is 

still below the $12.1 billion the agency received before the Republicans took over the Congress in 2010. 

Now, despite all these increased responsibilities with the new tax 

code, they are still below their funding level of eight years ago. Additionally, the omnibus directs the IRS to spend $320 million 

to implement changes in that new tax law, which means that funding for other IRS functions will probably have to be reduced to 

meet that requirement. So net new funding for normal IRS activities actually goes down. 

The increased funding in Fiscal Year 2018 will do little to address the need for increased enforcement capacity or the well-documented customer service problems my friend just talked about that 

have plagued the IRS. This week the House will vote on legislation 

that includes new IT and cyber requirements for the IRS. The 21st 

Century IRS Act would, among other things, promote electronically 

filed tax returns, enforce strict standards for confidentiality safeguards among IRS contractors, and strengthen efforts to combat 

identity theft. If Congress wants the IRS to deploy 21st century 

technology to improve services it provides, we must provide adequate resources to enable it to do so. 

However, it is important to recognize that new technology alone 

cannot replace the nearly 9,500 customer service representatives 

that the IRS has lost since Fiscal Year 2010. For example, 46 percent of taxpayers calling the IRS have already checked IRS online 

resources and still need assistance. Depending on online resources 

also ignores the millions of households across the country that have 

no broadband access, especially low-income and elderly taxpayers. 

Additionally, those who reach out to the IRS by phone or through 

a taxpayer assistance center often have more complicated issues 

that can’t easily be addressed simply online. Therefore, while I support efforts to modernize the IRS IT systems—in fact, I passionately advocate for it—these efforts must be done in conjunction 

with, not at the exclusion of, increasing customer service employees 

needed to answer those phones and provide thoughtful guidance to 

taxpayers. 

I hope my colleagues on both sides of the aisle will recognize that 

our constituents deserve better, and now is the time to fully and 

adequately fund the IRS so it can do so. 


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I yield back. 

Mr. JORDAN. I thank the gentleman. 

Today we have before us Mr. David Kautter, Acting Commissioner of the Internal Revenue Service. We welcome you here for 

the first time, Mr. Kautter, and look forward to your testimony and 

your participation with the questions from our members. 

Mr. George, the Inspector General for the Treasury and for Tax 

Administration. He has been in front of our committee many times. 

We welcome you back, Mr. George. 

And, of course, Ms. Olson, Nina Olson, the National Taxpayer 

Advocate at the IRS, has been in front of us several times as well. 

We welcome you back and look forward to all your testimony. 

You know how it works. You have to stand up and we swear you 

in, and then you get your 5 minutes. So if you will please stand, 

raise your right hand. 

[Witnesses sworn.] 

Mr. JORDAN. Let the record show each witness answered in the 

affirmative. 

Mr. Kautter, we are going to start with you. You have 5 minutes, 

and then we will move right down the list. 

WITNESS STATEMENTS 

STATEMENT OF HON. J. DAVID KAUTTER 

Mr. KAUTTER. Mr. Chairmen Jordan and Meadows, Ranking 

Members Krishnamoorthi and Connolly, and members of the subcommittees, thank you for the opportunity to provide you with an 

update on IRS operations. My appearance today is particularly appropriate since, as has been noted, this is tax day, and the filing 

deadline is at midnight tonight. 

In case you haven’t filed yet, just a reminder that we have a sixmonth extension request available on IRS.gov. Look for Form 4868. 

As of last Friday, 119 million returns have been filed and refunds have gone out quickly to more than 86 million taxpayers so 

far. About 92 percent of the returns have been filed electronically, 

and the average refund is up by $16 from last year, to $2,831. Visits to IRS.gov are up by 24 percent. 

On my way over here this morning I was told that a number of 

IRS systems are unavailable at the moment. We are working to resolve this issue, and taxpayers should continue to file their returns 

as they normally would. 

Having said that, this year’s tax season is a good example of 

what the IRS must do more of going forward, delivering for the nation’s taxpayers. 

Following five months on the job at the IRS, I would like to share 

with you my observations about the IRS so far and offer a few 

thoughts about how to improve its performance in the future. 

When I agreed to Secretary Mnuchin’s request to serve as the 

Acting IRS Commissioner, I told him that if I was going to bring 

value to this role, I needed to approach my responsibilities with an 

analytical, unbiased perspective, and that is what I have tried to 

do. At one point in my career I served on the Senate staff, but most 

of my career, more than four decades, has been spent as a tax practitioner running large business units within a Big Four firm. I 


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spent 13 of those years as the Director of National Tax within my 

firm, and after leaving public accounting I spent four years as a 

full-time professor at American University, where I established a 

tax center focused on small businesses and middle-income taxpayers. 

I frequently dealt with the IRS throughout my career, and I like 

to think I came to the IRS with an objective, unbiased view of the 

tax agency. Clearly, the IRS has had significant difficulties during 

the past five years, both from an internal operations point of view 

and when it comes to dealing with taxpayers. Those difficulties 

have been well documented by these subcommittees, TIGTA, and 

others. 

As I have met with people at the IRS, I have several observations that I would like to share with you today. 

First, my personal experience is that the vast majority of its employees and its current career senior leadership are committed to 

helping taxpayers, to operating an efficient agency, and to doing 

the right thing. They realize they need to do better, and they realize they need to serve taxpayers, not the other way around. 

Second, I found the senior career leadership currently in place to 

be open-minded, forward thinking, and willing to implement 

change. It is worthwhile to keep in mind that the vast majority of 

the leadership now in place at the IRS is new. The Deputy Commissioner for Services and Enforcement has been in her job just 

over a year. The Deputy Commissioner, which is the second of the 

two primary deputy commissioners, has been in his job for a little 

over two years. Most of the leaders of our internal operations and 

support functions have been in place for less than two years. 

This is a group that seems not only open to change but eager to 

change. Having said that, my view is that the path to improvement 

involves the critical elements of leadership, measurement, and accountability. These are areas where the IRS must do better. 

At this point, my belief is that there are six key things that need 

to change at the IRS, and all flow from the elements I just mentioned. 

First and foremost, the IRS needs to make improvements in taxpayer service to help taxpayers meet their obligations under the 

tax law. While enforcement is important, leadership needs to make 

clear that taxpayer assistance and enforcement are part of a continuum and not mutually exclusive concepts. 

Second, for operations support work, we need to be clear that we 

must be judicious stewards of taxpayer dollars. While following the 

many rules of contracting, hiring, and firing are important, developing new ways of operating more efficiently, especially when it 

comes to software development, technology, and cyber security are 

not a ‘‘nice to have,’’ they are part of the job. 

Third, measurements that determine whether various parts of 

the IRS are facilitating compliance with the law and being careful 

stewards of taxpayer dollars are critical. 

Fourth, there needs to be accountability. I cannot stress this 

enough. That has not been a strength of the IRS in recent years. 

Fifth, the IRS needs to be adequately funded, but with oversight. 

Finally, the cardinal rule of organizational management is that 

structure follows strategy. I would consider restructuring the IRS 


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in a manner that facilitates a focus on taxpayer service and operational efficiency. 

I think the IRS is heading in the right direction, but there is still 

a long way to go. For example, I think the IRS is doing a solid job 

implementing tax reform, but that promises to be a lengthy and intensive effort. And with the tax deadline approaching tonight, I 

think the work of the IRS this filing season is an encouraging sign 

of the agency’s commitment to taxpayers. 

As someone who has been in this business for over 40 years, I 

am impressed that the IRS has delivered an extremely smooth filing season so far in view of the legislation enacted in February, 

which required the IRS to adjust its systems after the tax filing 

season had begun. 

IRS has answered 23 million taxpayer questions this filing season. The average hold time this filing season is less than 6 minutes, down a minute from last year. 

Still, I think the IRS needs to do better in a range of areas. The 

IRS needs to do more, it needs to continue to get better, and it 

needs to enhance accountability. 

Chairmen Jordan and Meadows, Ranking Members 

Krishnamoorthi and Connolly, and members of the subcommittees, 

that concludes my statement. I would be happy to answer your 

questions. Thank you. 

[Prepared statement of Mr. Kautter follows:] 


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Mr. JORDAN. Thank you, Mr. Kautter. 

Mr. George, you are up. 

STATEMENT OF HON. J. RUSSELL GEORGE 

Mr. GEORGE. Chairmen, Ranking Members, members of both 

subcommittees, thank you for the opportunity to provide a status 

report on the 2018 filing season and other challenges facing the 

IRS. 

A continuing challenge the IRS faces each year in processing tax 

returns is the implementation of tax law changes. The recent Tax 

Cuts and Jobs Act will result in significant changes to both business and individual income taxes. 

The IRS indicates that implementation will require it to create 

or revise about 450 forms, publications, and instructions. Moreover, 

the IRS estimates that 140 information technology systems will require modification. 

TIGTA’s initial assessment found that the IRS used several wellestablished processes to immediately begin implementing the new 

provisions. This assessment was the first in a series of reviews we 

will be conducting to monitor the IRS’ efforts to implement the first 

major tax reform legislation of more than 30 years. 

The IRS is projecting its toll-free telephone level of assistance to 

be 80 percent for this year’s filing season, a slight increase from 

the 79 percent achieved last year. The IRS also plans to assist 3 

million taxpayers at tax assistance centers, a 9 percent decrease 

from last fiscal year. 

For the 2018 filing season, the IRS transitioned all of its taxpayer assistance centers to an appointment service model. Although the IRS reports that it had 363 tax assistance centers, 24 

are not open because they have not been staffed. 

Improper payments are another continuing challenge to the IRS 

encounters. The IRS now receives wage documents earlier in the 

filing season, but the law does not give the IRS authority to systematically adjust refundable credits when the income used to compute the credit is not supported by third-party income documents. 

We estimate the IRS issued nearly $25 billion in improper payments associated with refundable credits in Fiscal Year 2017. It is 

unlikely that this situation will improve significantly without additional authority or compliance resources. 

As the IRS continues to expand its online tools to assist taxpayers, the risk of unauthorized access to taxpayer accounts increases. As such, 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 authorized 

individuals. The IRS spends a significant amount of time and resources combatting external attempts to compromise our nation’s 

tax system. However, our work has shown that more actions are 

needed to address internal threats. 

Hiring employees of high integrity is critical to the IRS protecting taxpayer information from internal threats. In two separate 

reports we found that the Service rehired hundreds of employees 

with prior conduct performance issues. Hiring employees with serious financial problems and integrity issues and giving them access 

to taxpayer information is a risky practice that must end. 


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In response to our 2014 report, the IRS said its process was more 

than adequate to mitigate risks to America’s taxpayers. However, 

in July of 2017, we reported that the IRS had not effectively implemented our past recommendations and rehired more than 200 

former employees who were previously terminated from the IRS or 

who had separated while under investigation for conduct or performance issues. The IRS has agreed to the recommendations from 

our July 27th report, which we will follow up with an audit later 

this year. 

The IRS has also provided awards to employees with misconduct, 

including the Federal compliance issues relating to tax. Using taxpayer funds to reward IRS employees with tax problems sends the 

wrong message to the vast majority of taxpayers who pay their 

taxes in full and on time. In March of 2014, we reported that the 

IRS provided $2.8 million in monetary awards to more than 2,800 

employees disciplined for recent conduct issues. 

In February of this year, we reported that the IRS had made 

progress in this area. However, we did find that nearly 2,000 current employees with tax compliance or misconduct issues received 

more than $1.7 million in awards. The IRS has also agreed to our 

recommendations relating to awards. 

In conclusion, TIGTA plans to provide continuing audit coverage 

of the IRS’ efforts to provide high-quality service to taxpayers and 

to operate efficiently and effectively. 

Chairmen, Ranking Members, members of the subcommittees, 

this ends my statement. Thank you for the opportunity to share my 

views. 

[Prepared statement of Mr. George follows:] 


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Mr. JORDAN. Thank you, Mr. George. 

Ms. Olson, you are recognized. 

STATEMENT OF NINA E. OLSON 

Ms. OLSON. Mr. Chairmen and Ranking Members and members 

of the subcommittees, thank you for inviting me to testify today at 

today’s hearing on IRS operations. As you well know, Congress has 

passed the most comprehensive tax law reform since 1986. The IRS 

faces serious challenges as it implements and administers the new 

law, from issuing guidance to creating new forms and publications, 

to answering basic questions about the new law. The stakes are 

high for both taxpayers and the IRS. The IRS is dedicating significant resources to these efforts, and my office will continue to support the IRS to ensure that taxpayers have the information and assistance they need to comply with the new tax law. 

Tax reform notwithstanding, the IRS still must fulfill its continuing tax administration duties. Since Fiscal Year 2010, the IRS 

budget has been reduced by 20 percent on an inflation-adjusted 

basis, and the IRS workforce has declined about that same percentage. These reductions have led to significant cuts in taxpayer service levels, including a 23 percent decline in the number of employees conducting pre-filing taxpayer assistance and education. 

Moreover, these cuts have prevented the IRS from deploying new 

technology that would improve the taxpayer experience, including 

customer call-back technology. 

While the IRS generally ran a smooth 2018 filing season, this 

morning notwithstanding, especially given the mid-season enactment of extender provisions, taxpayers were burdened by an overly-restrictive appointment-only system at the taxpayer assistance 

centers and inconsistent service on phone lines. The IRS’ official 

measure of telephone service, its account management customer 

service representative level of service, or LOS, excludes the significant majority of taxpayer telephone calls the IRS receives. In Fiscal 

Year 2017, the official LOS reflected the results of only 32 percent 

of IRS calls. Thus, unlike the official LOS of 79 percent for the accounts management lines, the Fiscal Year 2018 LOS for calls to the 

installment agreement balance due line was only 50 percent. These 

are people calling to make payments to us. 

The IRS’ response to its resource constraints has been to push 

taxpayers to online self-service. Now, I have long advocated that 

the IRS develop an online account application, but it must be positioned as just one component of an omni-channel service strategy, 

including telephone and in-person assistance. Taxpayers must be 

the focus of this strategy, and their needs and preferences paramount. 

In 2016 and 2017, TAS conducted a nationwide survey of U.S. 

taxpayers about their needs, preferences, and experiences with IRS 

taxpayer service. The survey results confirm that taxpayers choose 

different channels of communication to accomplish different types 

of service tasks. We found that about 41 million U.S. taxpayers do 

not have broadband access in their homes. About 50 percent disagreed with the statement ‘‘I feel secure sharing personal financial 

information over the Internet.’’ Forty-six percent of taxpayers calling the IRS already checked IRS online resources and still needed 


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assistance. And we found the single biggest driver of customer satisfaction is the first contact resolution rate. Yet, almost 40 percent 

of taxpayers calling the IRS felt one call did not fully resolve their 

problems. 

Another filing season problem is the unacceptably high falsepositive rates, or FPRs, associated with IRS’ identity theft and 

fraud detection filters. While the IRS has improved its detection of 

questionable refund returns, it has not devoted the same level of 

attention to preventing false positives, resulting in significant 

delays or freezes of refunds due to hundreds of thousands of legitimate taxpayers filing legitimate returns. 

In 2017, the FPR was over 60 percent for both identity theft and 

non-identity theft filters, and the rate will be higher this year. 

High FPRs harm legitimate taxpayers and create unnecessary and 

often manual work for the IRS and for the Taxpayer Advocate 

Service. Our cases in this area have increased 98 percent this year 

over last year. 

The IRS can, while stopping fraud, can also reduce false 

positives. It can and should be able to walk and chew gum at the 

same time. 

Finally, the current state of IRS technology substantially limits 

the IRS’ ability to carry out effective tax administration. As an example, the IRS possesses the two oldest information system databases, each nearly six decades old, in the entire Federal Government. Today, no IRS employee, much less the taxpayer or the taxpayer’s representative, has a 360-degree view of the taxpayer’s account and interactions with the IRS. 

Improving taxpayer service and IRS operations generally requires a combination of strong leadership and adequate resources. 

I encourage Congress provide more funding to the IRS to improve 

taxpayer service and modernize its technology, and to pair that 

funding with sufficient oversight to ensure the funds are well 

spent. 

Thank you. 

[Prepared statement of Ms. Olson follows:] 


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Mr. JORDAN. Thank you, Ms. Olson. 

I now recognize the gentleman from Georgia for his 5 minutes of 

questioning. 

Mr. HICE. Thank you, Mr. Chairman. 

Mr. Kautter, the IRS decided to begin enforcing the employer 

mandate this past fall, as Commissioner Koskinen was leaving office. This was the first time that the IRS ever actually enforced 

that employer mandate since the law came into existence in 2010. 

Is that correct? 

Mr. KAUTTER. Yes, sir, that is correct. 

Mr. HICE. Okay. And at this point, I understand your agency is 

issuing penalty letters to employers. I understand somewhere in 

the ballpark of 9,000 or so letters have been sent out. Is that right? 

Mr. KAUTTER. Yes, sir. It is around 10,000 at this point. 

Mr. HICE. Ten thousand, okay. Were these employers notified 

prior to receiving a penalty letter? I mean, after all, we are talking 

years of no enforcement, and then all of a sudden this is a pretty 

big change coming down the pike. These employers are accustomed 

to this employer mandate not being enforced. Were they notified 

beforehand? 

Mr. KAUTTER. No, the letter is the first they have heard from the 

IRS on this. 

Mr. HICE. Okay. That sounds pretty harsh, to say the least, for 

these folks to be living for years under no enforcement, and then 

all of a sudden being slapped with it. 

Mr. George, TIGTA has examined the IRS’ ability to enforce the 

employer mandate. I understand that you have found multiple 

problems with the enforcement systems for that employer mandate. 

Is that correct? 

Mr. GEORGE. That is correct, Congressman. 

Mr. HICE. Okay. Can you briefly explain what some of those 

problems are? 

Mr. GEORGE. Yes. Our review of the IRS’ process to identify tax 

year 2015 applicable large employers potentially liable for the employer shared responsibility payment found that the IRS did not 

identify 840 employers potentially subject to more than $113 million in employer shared responsibility payments. Now, the difference in identified applicable large employers occurred because 

the data used by the IRS were not complete or accurate. 

We subsequently made five recommendations to improve the 

process. The IRS agreed with all five of those recommendations, 

and we certainly shall follow up with them to see if they enact 

those changes. 

Mr. HICE. Okay. So, change is coming, but would you be able to 

say with a strong degree of confidence right now that the IRS is 

effectively and accurately enforcing the employer mandate? 

Mr. GEORGE. I would say this, sir: When the IRS puts its mind 

to something, it gets the job done. 

Mr. HICE. But that is not my question. You said they have problems. The solution to those problems has not yet been implemented. So the assumption I have is at this point they can’t with 

confidence say that this is being handled effectively and accurately. 

Mr. GEORGE. Until we have had a chance to analyze the actions 

taken, that is correct, sir. 


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Mr. HICE. Sure. Okay. 

Mr. Kautter, are you familiar with the President’s Executive 

Order 13765? 

Mr. KAUTTER. Yes, sir. 

Mr. HICE. Okay. And you understand that basically that directs 

the Federal agencies to ease the financial burdens of the Affordable 

Care Act? 

Mr. KAUTTER. Yes, sir. 

Mr. HICE. Okay. Is the IRS subject to that executive order? 

Mr. KAUTTER. It is. 

Mr. HICE. Okay. It seems to me pretty obvious that it is rather 

burdensome for employers, having no previous communication 

whatsoever, to all of a sudden be forced with penalties on the employer mandate. Would you agree with that? 

Mr. KAUTTER. I would. 

Mr. HICE. Okay. So based on your testimony and based on the 

executive order, why would the IRS be rushing to enforce the employer mandate? 

Mr. KAUTTER. Sure. So, let me give you a little bit of background, 

if I can. 

Mr. HICE. Not too much. I have less than a minute, still have 

some questions. 

Mr. KAUTTER. Okay. At this point, the letters are the IRS’ best 

estimate of what the employers owe. There have been constant negotiations as those letters have gone out. About 3,000 of the 10,000 

letters that have gone out, cases have been settled, and in 82 percent of those cases the employers have not owed anything as a result of the letter. 

What we found are two responses when we have gone to employers. One is the forms were filled out incorrectly. So once we work 

with the taxpayer, there is nothing owed. And then in the other 18 

percent of the cases the employers have basically said we haven’t 

been able to determine the amount of the penalty ourselves, we 

were waiting to hear from you. 

Mr. HICE. Okay. But we still have the admission that we can’t 

accurately be doing this. We have an executive order not to do it, 

or to ease the burden, not specifically on the employer mandate but 

to ease the burden that comes with this. 

My question to you would be would you agree that we need to 

cease the enforcement of this employer mandate until your agency 

at least can straighten out the mess and for this committee to review all the documents that we have requested? 

Mr. KAUTTER. Well, I think we have done a pretty good job, Congressman, of trying to straighten out the problems that —— 

Mr. HICE. But my question is, Mr. Chairman—and I know my 

time just expired. But the question is this thing needs to cease 

until the problems are resolved and this committee gets the documents that have been requested and until—I mean, these employers don’t even know that it has been reinstituted, or instituted for 

them. 

Mr. KAUTTER. We are trying to work with everyone who we have 

sent a letter out to, Congressman, and our challenge is it is the 

law, and I don’t think anybody on this committee wants the IRS 


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determining which laws it is going to enforce and which ones it is 

going to ignore. 

Mr. HICE. But it was not enforced for eight years, and now all 

of a sudden it is being enforced, even with an executive order. 

I thank you for your graciousness, Mr. Chairman. I yield back. 

Mr. KAUTTER. I cannot disagree. 

Mr. HICE. Thank you. 

Mr. JORDAN. The gentleman from Virginia is recognized. 

Mr. CONNOLLY. I thank the Chair. 

Mr. JORDAN. If you could hold for one second? 

Mr. CONNOLLY. Sure. 

Mr. JORDAN. With unanimous consent, I ask that Mr. Gianforte 

be allowed to participate in today’s hearing, along with Mr. Duncan. 

Mr. CONNOLLY. We have no objection. 

Mr. JORDAN. The gentleman is recognized. 

Mr. CONNOLLY. Welcome to the panel. 

Mr. Kautter, I was just going to remind you, but you didn’t need 

reminding, to be advised not to enforce a provision of the United 

States law would put you in grave jeopardy, actually, until and unless Congress repeals the law or parts of the law, which it has tried 

to do and hasn’t succeeded. He is all for it; I am not. And thank 

God there were enough votes to block that. So it remains the law 

on the books, it is working, and the IRS has a constitutional responsibility to uphold the law. Is that not correct? 

Mr. KAUTTER. That is correct. 

Mr. CONNOLLY. It was also characterized as all of a sudden companies are unaware. The law has been on the books how long? 

Mr. KAUTTER. Since 2010. 

Mr. CONNOLLY. So that is how many years? 

Mr. KAUTTER. Eight years. 

Mr. CONNOLLY. So it is not exactly all of a sudden, is it? 

Mr. KAUTTER. No. 

Mr. CONNOLLY. And the individual mandate idea, one might remember, came from the Heritage Foundation. In fact, when Bill 

Clinton was president and had a health care program, Newt Gingrich, et al., objected to it precisely because it lacked an individual 

mandate. So the idea that it is all of a sudden and a terrible thing, 

and the novel interpretation that the President’s executive order to 

ease the burden could be construed as suspend enforcement, those 

are two very different things, are they not? 

Mr. KAUTTER. Yes, sir. 

Mr. CONNOLLY. Thank you. 

Commissioner Kautter, is it true that IRS’ budget is only about 

80 percent of what it was in 2010? 

Mr. KAUTTER. That is true. 

Mr. CONNOLLY. And that is how many years ago? 

Mr. KAUTTER. That would be eight years. 

Mr. CONNOLLY. So even with inflation, that is a big cut. 

Mr. KAUTTER. Yes, sir. 

Mr. CONNOLLY. Is it also true you have 18,000 fewer employees 

than you did in 2010? 

Mr. KAUTTER. Yes, sir. 


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Mr. CONNOLLY. I am just spit-balling here, but could that level, 

that magnitude of cuts and employee decreases, have anything to 

do with performance at IRS? 

Mr. KAUTTER. Those reductions have had an impact on the performance at the IRS. Yes, sir. 

Mr. CONNOLLY. Your predecessor testified once before this committee that one of the problems plaguing IRS, besides those that 

also affect performance and quality of service, is aging IT systems. 

Is that true? 

Mr. KAUTTER. Yes, sir. 

Mr. CONNOLLY. And I think he said one system that is still in 

operation went back to the administration of Lyndon Johnson. Is 

that true? 

Mr. KAUTTER. It does. Yes, sir. 

Mr. CONNOLLY. Lord almighty, that is a long time ago. 

I don’t know, could you just elaborate a little bit on how aging 

IT systems might also, on top of budget cuts and personnel reductions, affect performance? 

Mr. KAUTTER. Certainly. The IRS hardware, 59 percent of it is 

obsolete; 32 percent of its software is at least two updates behind, 

so that is out of date. The IRS systems are subject to 2.5 million 

cyber attacks a day. 

Mr. CONNOLLY. I am sorry. Would you repeat that statistic? 

Mr. KAUTTER. The IRS systems are subject to 2.5 million cyber 

attacks a day, 1 million of which are sophisticated attacks. So that 

is on an average day. 

Mr. CONNOLLY. So you are saying that works out to something, 

if I am doing my math right, like three-quarters of a billion a year? 

Mr. KAUTTER. Yes, sir. 

Mr. CONNOLLY. Wow. 

Ms. Olson, are you concerned at all about what we are hearing? 

Ms. OLSON. I am very concerned, obviously, on the cyber security. On the taxpayer service side, and enforcement, there is a real 

impact with our aging taxpayer systems, IT systems. The IRS, depending on how you count it, has between 60 to 200 case management systems where taxpayer data is stored, and how that impacts 

taxpayers is if you call the IRS, the person on the phone assisting 

you will not see the whole picture of what is going on. They may 

not have access to 40 of those 60 major systems, so they can’t tell 

you. They can say ‘‘I can see that you wrote us, but I have no idea 

what you wrote us about, and I can’t see what is being done on 

that.’’ 

Mr. CONNOLLY. And presumably aging systems, Mr. Kautter and 

Ms. Olson, also can’t be encrypted. They don’t adjust to current 

encryption methodologies or software, and therefore they are vulnerable to the hacking you described. 

Mr. KAUTTER. They are more vulnerable. Yes, sir. 

Mr. CONNOLLY. And how many Americans have data stored at 

the IRS? 

Mr. KAUTTER. Pretty much all. 

Mr. CONNOLLY. All. 

Mr. KAUTTER. Pretty much. 

Mr. CONNOLLY. So the threats are real threats that you are dealing with every day, with 2.5 million cyber attacks. 


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Mr. KAUTTER. Yes, sir. 

Mr. CONNOLLY. And with aging equipment, that threat is enhanced. 

Mr. KAUTTER. It is. I mean, I think, Congressman, just one point. 

Over years, over recent years, what the IRS has done a pretty good 

job of is taking the technology money that it has, the IT money, 

and using it to update the core filing system so that the equipment 

that surrounds the core filing system is in pretty good shape. It is 

not as good as we would like, but it uses old language, and it is 

built block upon block, so it is not as integrated as it needs to be. 

Where a lot of our old equipment rests is in the day to day functioning of the laptops that the employees have, the printers and so 

forth. 

About two weeks ago we conducted four calls with IRS managers, 

about 3,000 managers. What impressed me was the theme that 

came through was a workforce that wants to do well but feels as 

though it is handicapped by the tools and the equipment that it 

has. 

Mr. CONNOLLY. Mr. Chairman, my time is up, although on a 

lighter note I am informed, I hope reliably, one silver lining in legacy systems, the Chinese don’t know how to hack into COBOL. 

[Laughter.] 

Mr. CONNOLLY. I thank the Chair for his indulgence. 

Mr. JORDAN. I thank the gentleman. 

The gentleman from North Carolina is recognized for 5 minutes. 

Mr. MEADOWS. Thank you, Mr. Chairman. I want to thank my 

vice-chair for his eloquent opening remarks and questioning and 

pitch hitting. 

I thank all of you for coming. Obviously, many of you, this is not 

your first rodeo in terms of the date or when you come to try to 

give what I would say is the annual to-do list. 

Ms. Olson, I want to say thank you for your work. Obviously, you 

have been very responsive to my personal office, but also from a 

committee standpoint on helping taxpayers. So I look forward to 

making sure that there is a good relationship, and I want to reinforce that—a good relationship, if not great relationship—with Ms. 

Olson. There has been previously, but we want to make sure we 

have that going forward, and we will be looking at that very closely. 

Mr. Kautter, I am assuming that—you are nodding yes—that you 

will do that. 

Mr. KAUTTER. Before I joined government I was a fan of Ms. 

Olson. I read her reports, her two reports, religiously every year, 

and I think she does great work. 

Mr. MEADOWS. That is great. So now in this new position, we 

want to make sure that you not only read her reports but that they 

actually get implemented. So we will go forward from there. 

Ms. Olson, I would ask, can you tell me about the false positives 

in terms of fraudulent reports? 

Ms. OLSON. Well, I stand with everyone here about stopping refund fraud and improper payments coming out from the system. 

But I have been concerned for the last four years that the falsepositive rate, the rate of stopping legitimate returns beyond the 

normal time for just being able to review them and determine, oh, 


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this is a legitimate return, these returns to be false-positive are already past that timeline, and that is what makes them false. And 

then they turn out to be from legitimate taxpayers. 

My concern is the way the filters and the rules are run. I think 

there are almost 200 rules that are in the systems to identify these 

things, and I am very concerned about their interaction, and I 

think that the IRS has been focusing a lot on stopping the fraud 

but not enough on the refinements. And I try to keep reminding 

people this is the 21st century, we have data mining techniques, 

artificial intelligence, all sorts of things. We can learn from past experience and focus as much on not harming the legitimate taxpayers. 

I have talked to tax administrations around the world, and all 

of them are shocked at the over 60 percent false-positive rates. 

Mr. MEADOWS. So what do you say to that, Mr. Kautter? 

I mean, Mr. George, do you see that happening as well, false 

positives? 

Mr. GEORGE. We are currently taking a look at this very issue, 

Mr. Meadows, and we will be issuing a report shortly. I agree with 

Ms. Olson that it is an issue for anyone who is entitled to a refund 

not to get it, but it is also extraordinarily important that Congress 

keep in mind that once the IRS lets money go out the door, it is 

almost next to impossible to get it. 

I want to give time for the Commissioner to respond, but I will 

say this, that the IRS itself reports that if they are able to use 

something called math error authority, or, in effect, the ability to 

correct mistakes that they identify internally before the money 

goes out, it costs the IRS about $1.50. But once the money goes out, 

in order to do a pre-audit review, it is $278. 

Mr. MEADOWS. So, Mr. Kautter, based on Mr. George’s testimony, 

what would stop us from being able to do that? Do you need a legislative fix to help you? 

Mr. KAUTTER. I don’t think it is a legislative fix, Congressman. 

I think it is a matter of balance. 

Mr. MEADOWS. A matter of what? 

Mr. KAUTTER. Of balance. 

Mr. MEADOWS. Okay. 

Mr. KAUTTER. So the IRS has put in place, as the taxpayer advocate states, about 200 filters. That may be too many. But it is this 

balance of trying to protect taxpayer dollars from going out the 

door and trying to protect —— 

Mr. MEADOWS. Yes, but when you get to 60 percent false positive, 

let me just tell you, once you go beyond 50 percent, you have a 

problem, because what you have is you have the assumption that 

it is wrong even though you have it kicking out as a fraudulent 

claim. 

Mr. KAUTTER. There is no question, we need to look at it. 

Mr. MEADOWS. Well, you need to do more than look at it. Do you 

have a plan to address that and to bring the false positives under 

50 percent? 

Mr. KAUTTER. I will go back and develop a specific plan. 

Mr. MEADOWS. What would be a reasonable timeframe to get a 

plan to this committee on how you are going to do that? 


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Mr. KAUTTER. We are constantly looking at it. So I would think 

within, say, two to three months. 

Mr. MEADOWS. So within 90 days you can have a plan to this 

committee on how you are going to get false positives under 50 percent. 

Mr. KAUTTER. Yes, sir. I think we can do that. 

Mr. MEADOWS. All right. 

In my 11 seconds—well, I don’t have any time remaining, so I 

will yield back to the Chairman. 

Mr. JORDAN. We would have let you go there. 

We will now go to the Ranking Member, I think, and then we 

will come to Ms. Norton, I believe, if that is all right. So the Ranking Member is recognized. 

Mr. KRISHNAMOORTHI. Thank you, Chairmen Jordan and Meadows, and Ranking Member Connolly, for facilitating this joint subcommittee hearing. 

Thank you to all of you for testifying today, and all the audience 

members for coming, and all of my colleagues as well. 

I also want to thank basically these witnesses specifically for 

participating in this very important hearing. 

In the recently passed Tax Cuts and Jobs Act, I was dismayed 

by my Republican colleagues’ decision to cap the state and local tax 

deduction, otherwise known as the SALT deduction, at just $10,000 

per person or family. In my district, the 8th Congressional District 

of Illinois, the average family files a SALT deduction of nearly 

$14,000 a year. Furthermore, one in every three tax filers in Illinois relies on this important deduction annually. In 2015, for example, Illinois residents deducted $1.4 billion and saved a total of 

$345 million on their Federal tax returns thanks to SALT. As a result, our local institutions received critical funding for public services, while my constituents avoided being subject to double taxation. 

Mr. Kautter, welcome back. I am sure you have heard that before. 

Mr. KAUTTER. That is the best day of my life when that show 

went off TV. 

[Laughter.] 

Mr. KRISHNAMOORTHI. The Pew Charitable Trusts published an 

interactive map illustrating the most recent SALT deduction data. 

This data showed that the average SALT deduction for working 

families in the U.S. is $12,471. The first question, very basic, is 

this number higher or lower than the devastating $10,000 cap imposed by the Tax Cuts and Jobs Act? 

Mr. KAUTTER. It would be higher. 

Mr. KRISHNAMOORTHI. Thank you. It is higher. It is $2,471 higher, is it not? 

Mr. KAUTTER. Yes, sir. 

Mr. KRISHNAMOORTHI. Well, it should come as no surprise that 

state and local tax jurisdictions across the country are introducing 

legislation to circumvent changes to the SALT deduction. Are you 

aware of these efforts? 

Mr. KAUTTER. Yes, sir. 

Mr. KRISHNAMOORTHI. And in my home state of Illinois, where 

$2,500 is, naturally, a lot of money for most hard-working families, 


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elected officials are trying to restore full deductibility to contributions to local services. In fact, both Democratic and Republican legislators in the Illinois Assembly have proposed legislation to create 

the Illinois Excellence Fund, a law that will mitigate the damage 

caused by the Republican changes to the SALT deduction. As this 

legislation forges ahead and other states begin to follow suit, I sincerely hope the IRS will recognize the validity of these proposals. 

Thank you, and I yield back the balance of my time. 

Mr. JORDAN. I thank the gentleman. 

I think we will go to Ms. Norton, and then move to Mr. 

Grothman. Since that was sort of a combination opening statement 

and some questions, we will get back to you, Mr. Krishnamoorthi. 

Ms. NORTON. I thank you, Mr. Chairman. I thank you for this 

hearing. 

I am particularly interested in this hearing because the Americans I represent who live in the District of Columbia pay the highest Federal taxes per capita in the United States, higher per capita 

than any member of this committee, and they do so without a vote 

on the House floor and with no vote in the Senate. We do have a 

vote in this committee, which I intend to use. 

This tax cut is not yet popular with the American people, but 

they will be looking for service from the IRS, and certainly my residents will be. 

I note that the IRS has an amazing half the number of customer 

services than it had in 2010. Now, I congratulate the IRS on what 

it has done with digital upgrading, but at the same time the IRS 

has closed 30 taxpayer assistance centers, and that is again over 

the last eight years. 

Mr. Kautter, does the IRS believe, for example—this is for you 

and Ms. Olson—that whatever digital impact we now have, that 

that will make up for loss of half the customer service representatives and the closing of 30 taxpayer assistance centers? 

Mr. KAUTTER. Thank you, Congresswoman. What the IRS is trying to do is meet taxpayers in the way they want to be met. In 

other words —— 

Ms. NORTON. And you think they do not want to be met face to 

face? Particularly now I ask this question when there are 100 new 

provisions that they have never seen before, that you have never 

seen before, that you have to enforce. You think that they would 

just as soon go online? 

Mr. KAUTTER. Oh, no. I think there are some taxpayers clearly 

who would prefer to be dealt with face to face, some that would like 

to discuss issues on the phone, and then an increasing number prefer technology. The number of —— 

Ms. NORTON. Do you think taxpayers who are, let us say, over 

55, 65, prefer the digital approach or the face to face approach, Mr. 

Kautter? 

Mr. KAUTTER. Interestingly, I think most would prefer face to 

face or on the phone, but an increasing number do prefer technology. 

Ms. NORTON. What has the IRS done this year to make up for 

the fact that there are going to be hordes of people coming forward 

to say what do these 100 new provisions mean? Will you be able 

to accommodate these people with half the number of customer 


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service representatives and with no assistance in their communities in the case of 30 of those centers that have now been closed? 

Are you able to accommodate this rush of need for assistance in 

light of what the Congress has put on your shoulders to bear? 

Mr. KAUTTER. We will try to do the best we can with the resources we have available to us. 

Ms. NORTON. What do you think, Ms. Olson? What will be the 

effect of the 100 new provisions as people try to figure out their 

taxes in an entirely new way for the first time? 

Ms. OLSON. Our survey that we did of U.S. taxpayers, a representative sample of U.S. taxpayers nationwide over the last two 

years showed that taxpayers, many will go online. But for tax law 

questions and tax issues like notices and needing to resolve a problem, they want to either talk to someone or they want in-person assistance. And although there does seem to be some concentration 

in low-income and elderly, it is really surprising how many not-lowincome people prefer talking over the phone to resolve a problem. 

Ms. NORTON. Is this going to increase with the new provisions? 

For example, SALT is —— 

Ms. OLSON. Absolutely. No matter how good your system is online, people have specific circumstances, and I am particularly concerned that in the past the IRS has ended its tax law phone line 

after today. 

Ms. NORTON. What does that mean, please? 

Ms. OLSON. They have a dedicated tax law question line, and 

since 2014 that line has discontinued as of the last day of the filing 

system. 

Ms. NORTON. Mr. Kautter, why is that happening, and what does 

it do? 

Mr. KAUTTER. In the past it has been a matter of resources. We 

continue to answer certain tax law questions —— 

Ms. NORTON. Now, these are tax law questions put by —— 

Ms. OLSON. Taxpayers. 

Ms. NORTON.—taxpayers, not lawyers, taxpayers. 

Mr. KAUTTER. That is right. And we have decided for all of this 

year, we will answer questions with respect to the new tax law 

throughout the year. 

Ms. NORTON. So wouldn’t this be the time you need a tax line? 

Because there are 100 new tax laws. 

Mr. KAUTTER. And that is what we intend to do. 

Ms. NORTON. But the tax law line is gone as of today, according 

to Ms. Olson. 

Mr. KAUTTER. I guess what I was trying to say, Congresswoman, 

and I wasn’t clear, this year we will keep that tax law line with 

respect to the new Tax Cuts and Jobs Act open for the entirety of 

the year. 

Ms. NORTON. This is very important, Mr. Chairman, as I yield 

back my time. We have learned at this hearing that this tax law 

line, which was discontinued in 2014, will be renewed, and I must 

thank the IRS for that in light of the new tax law. And I thank 

you very much, Mr. Chairman. 

Mr. JORDAN. I thank the gentle lady. 

I think, just to clarify, you have had the tax question line open, 

and it just always closed on filing date. 


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Mr. KAUTTER. That is right. 

Mr. JORDAN. Now they are going to keep it open for a longer period of time. 

Mr. KAUTTER. Right. 

Mr. JORDAN. Right, just to be clear. 

The gentleman from Wisconsin is recognized. 

Mr. GROTHMAN. First of all, this is to Mr. George a little bit. 

Thanks for being here, first of all. You guys are always very impressive. 

You issued reports last July on the IRS giving out awards to employees with serious misconduct issues. There have been examples, 

apparently, of employees even being removed and rehired. Could 

you comment on that? Do you think that has been cleared up? How 

can that possibly go on? What type of culture would there be where 

you let somebody go and then rehire them, or give out bonuses to 

people who are engaged in misconduct? 

Mr. GEORGE. Congressman, it was simply an issue of a lack of— 

I want to say common sense in some instances, but of a process 

that allowed the person making the hiring decision to have all of 

the information he or she needed regarding the candidate by their 

side or in the paperwork associated with the candidate’s application. 

Mr. GROTHMAN. So you mean the person made the hiring decision and didn’t have access to the file on this person in the past? 

Mr. GEORGE. Well, I don’t necessarily want to use the word ‘‘access,’’ but they didn’t have it with them while making that decision. 

We have been told now that has changed and that the IRS has implemented policies where the hiring decision-maker will have all of 

the relevant information relating to the candidate, especially someone who previously worked at the IRS. 

Mr. GROTHMAN. Okay. I know some people want to hire more 

people for the IRS. Years ago I used to do tax returns, and at the 

time sometimes you would have a sticky question and you would 

ask the IRS questions. Quite frankly, at the time I and the other 

preparers almost unanimously felt that the Wisconsin Department 

of Revenue understood Internal Revenue Service laws better than 

the average IRS employee. 

So to me, the important thing is not hiring more employees, because what is the sense of hiring an employee if they give you the 

wrong answers, right? 

Do you guys, in your audits, do you test IRS employees to see 

if they are giving right or wrong answers to inquiries? 

Mr. GEORGE. That was a regular process that we did employ 

many years ago, and when we initially did this, especially at taxpayer assistance centers, the numbers were abysmal. I mean, more 

than 50 percent, almost 60 percent of the information or the answers given to our testers were inaccurate. 

Mr. GROTHMAN. I will cut you off just because I will ask you to 

follow up. I mean, 60 percent, I believe this. When I was doing 

taxes, that is entirely believable. You would ask an IRS employee 

a tax question, 60 percent of the time they would give you a wrong 

answer. That would be typical of my experience 25 years ago. 

Go ahead. 


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Mr. GEORGE. But it has improved dramatically, though, since 

then. So I don’t have the latest figures. We can supply that for the 

record. But it has improved tremendously, and we don’t do it every 

single year in terms of having people vet the taxpayer assistance 

centers, so I will supply that information for the record. 

Mr. GROTHMAN. Okay. Do you have a guess? I mean, is it 20 percent wrong, 30 percent wrong? 

Ms. OLSON. If I might add —— 

Mr. GROTHMAN. Sure. 

Ms. OLSON. One of the ways it improved is that the IRS then, 

after those abysmal numbers, it took a whole bunch of more complex questions and put them in what they call ‘‘out of scope.’’ So 

the numbers improved because the IRS just simply refused to answer questions that it was getting wrong. 

Mr. GROTHMAN. Oh, like schools. 

Ms. OLSON. Yes, there you go. So one of the things we are going 

to do this summer is we are going to be testing—my office is going 

to be calling the tax law line, posing some typical questions relating to the new tax law to see how they are being answered, or are 

they even in scope. 

Mr. GROTHMAN. That is a real good idea. If you are hiring new 

people who don’t know the tax law, that is worse than hiring nobody at all, correct? Do we all agree on that? If you are in an audit 

or the IRS audits you and asks for more money and interest and 

penalties, and you say this is the way the IRS told me to fill out 

the return, what does the IRS do? I know what the IRS will do. 

What will the IRS do to you? 

Ms. OLSON. You know, one side effect of the funding or just priorities is that the training for the employees in the Wage and Investment Division who answered the phones last year was $87 per employee. That is it. 

Mr. GROTHMAN. Well, okay. 

Mr. GEORGE. I found, sir, that they are not Draconian. If you can 

reasonably state and point to a time when you called into the IRS 

and the information that they provided you, they will take that 

into consideration. That is anecdotal, but that is still my understanding. 

Mr. GROTHMAN. Thank you. 

Mr. JORDAN. Now to turn to the gentle lady from New York, Ms. 

Lawrence. 

Ms. LAWRENCE. Thank you, Mr. Chair. 

I have a question for Mr. Kautter. As we know, the new tax law, 

I feel strongly, does a lot of damage to our community. In Michigan, the poorest 20 percent of families will pay $120 more in taxes 

by the year 2027, and the richest will pay 1 percent. 

However, Working Women and I sent a letter to Gene DeLauro 

outlining the impact that this law will have on women in low-income families, because Working Women represents the largest portion of low-income working people in America. However, you have 

stressed that you are reducing the assistance centers. Is the IRS 

planning specific outreach and assistance to vulnerable groups to 

better assist them in the next tax season, including working 

women and mothers? Can you tell me the details of what the new 


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outreach campaigns, community work, advertising, and new materials have you planned? 

Mr. KAUTTER. About 19 percent of the funds we have asked for 

to implement tax reform involves outreach to taxpayers. We are in 

the process of developing a detailed plan, so I don’t have those details at this point as to which groups we will reach out to and in 

what manner. 

Ms. LAWRENCE. So you don’t know who you are reaching out to, 

you just know you need to do it. 

Mr. KAUTTER. We are developing a plan at the moment. Yes, 

ma’am. 

Ms. LAWRENCE. So through the Chair, it is important that we 

know who you are reaching out to and what the plan is, and I don’t 

expect the plan to be two days before the next tax season. So what 

is the date for the new plan? 

Mr. KAUTTER. It should be developed by early summer. So I 

would think mid-June at the latest, probably before then. 

Ms. LAWRENCE. I want you to know that I am very concerned because I get calls in my congressional office. We are talking about 

the accuracy of the information that the employees are given, but 

actually getting to a person is an extreme challenge right now, and 

it is frustrating, especially for those. 

Ms. Olson, you know that going online is not an action to a lot 

of people and to our seniors. It is extremely challenging. And so 

while you have to have a sense of the challenge that the public is 

having now just to get to resources, and it is not acceptable. 

Ms. OLSON. You know, there are only about 390 IRS employees 

charged with doing outreach and education to individual taxpayers, 

the 150 million U.S. individual taxpayers. There are only about 96 

IRS employees charged with doing outreach and education of small 

businesses and self-employed, and that goes to the cuts of pre-filing 

assistance and education and outreach, being in the communities. 

It is not just about telling taxpayers what the law is but hearing 

from them what their challenges are so that then you can do better 

online materials, better —— 

Ms. LAWRENCE. Ms. Olson, that gets back to Mr. Kautter. It 

doesn’t do us any good if you create a plan that is not going to 

solve the problem, and we have a serious problem. We implemented a tax plan, we have cut the workforce in the IRS, we have 

now not done our outreach, we are doing a plan, and I am telling 

you I am very, very concerned. 

Mr. KAUTTER. Thank you, Congresswoman. I agree, we need a 

meaningful plan that reaches those folks who need help. Let me 

just say with respect to the phones, this filing season the average 

wait time has been about 6 minutes. Last year it was 7. This year 

it is 6 minutes. In addition, we are looking at some features like 

amending the phone assistance line so taxpayers know how long 

the wait is, and to add a call-back feature. 

So I think there are some things we can do that are fairly 

straightforward that we need to do. But the numbers I have at the 

moment say the average wait time so far this busy season has been 

about 6 minutes. 

Ms. LAWRENCE. If I could, you say some of these taxpayers can 

be helped by the phone, but in 2018, 33 million calls have been 


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made to the IRS, and only 6.4 million have been answered by a 

real person or a tax assistant. This information is what we have, 

and you are saying it is 6 minutes to an answer, and so many of 

these people aren’t even getting an answer. 

Mr. KAUTTER. Many folks, when they call the telephone numbers, 

are prompted to see if their question can be answered by a recorded message, and many taxpayers opt to opt out of talking to 

a live person and go to a recorded message with respect to the topic 

they are interested in. 

Ms. LAWRENCE. My time, I have gone over, but I just want to 

close with this. The reduction in the workforce, we cannot continue 

to say that we have this overall objective and our philosophy and 

our values if you don’t have the workforce and the trained workforce to perform the job. It is not acceptable for you as the leadership to not bring that to Congress and be truthful about what is 

happening. It is one thing to try to be appeasing in these hearings. 

It is another thing for us to hear the truth, and I hear from those 

Federal employees who are inundated with lack of resources and 

technology without having enough resources to perform the job that 

they swore and took an oath to. 

I am going to continue to push this and not sit here and listen 

to ‘‘we are trying, and our philosophy is to perform the job’’ when 

we know we are not. We have to roll up our sleeves and fix this. 

And I yield back. Thank you. 

Mr. MEADOWS. Mr. Chairman, with your indulgence. 

Mr. Kautter, Ms. Lawrence makes a very good point. I used to 

manage a phone center. There is no way possible that your sworn 

testimony right now is accurate. If her numbers are accurate in 

terms of the number of calls that went unanswered, there is no 

way that 6 minutes is the average wait time. So I would ask you 

to maybe, before you enter that into the record, to go back and 

have a look at that and let’s make sure we get accurate information. I am just telling you. 

Mr. KAUTTER. Yes, sir. Well, I will confirm that, but I would also 

say that many people, as I mentioned, many people opt out of —— 

Mr. MEADOWS. I get that. But even with that, if there are that 

many unanswered phone calls, there is no way that it can be 6 

minutes, Mr. Kautter. I used to manage a phone center. 

Mr. JORDAN. I appreciate the gentleman. 

The gentleman from California is recognized. 

Mr. ISSA. Thank you, Mr. Chairman. 

You know, there is always an impossible question, Mr. Kautter, 

but I am going to ask you the impossible question. 

Today, how can the American people know that a Lois Lerner 

couldn’t do again what she did to so many Americans? 

Mr. KAUTTER. That is a hard question. Thank you. I think the 

IRS —— 

Mr. ISSA. And by the way, after you I am going to the Inspector 

General and ask the same question. 

[Laughter.] 

Mr. KAUTTER. Having been there five months, I will give you my 

impression. I think over the last couple of years the IRS has implemented a number of changes with respect to reporting structures 

and with respect to annual evaluations to make sure that these 


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sorts of things don’t happen again. It is partly the people you hire, 

it is partly the processes that you have in place, and I think the 

IRS has tried to be judicious in who it hires, and it has tried to 

be pretty deliberate about its annual review process structurally 

and through HR processes. Thank you. 

Mr. ISSA. Mr. George, as you know, Lois Lerner had already 

abused people when she was at the Federal Election Commission. 

She had already testified before Congress, this committee in the 

’90s, that going after the Republican Party of Florida and not the 

Democratic Party of Florida for the exact same illegal donors’ 

money, that, in fact, she was already a bad actor with a long history who, it is not surprising, hated Republicans, hated conservatives, was a strident Democratic activist. 

So I appreciate the Commissioner’s ‘‘we have to hire better,’’ but 

from a systems standpoint, which is what you look at so often, from 

a systems standpoint, where are the checks and balances? Who is 

it besides yourself, sometimes locked out of the process, but who is 

it besides yourself who is the watchdog to look for these and, early 

on, stop the kinds of abuses that Lois Lerner did for most of the 

Obama Administration? 

Mr. GEORGE. It is not a single point of contact, Congressman. It 

starts from the hiring of the person to the managing of that person 

during the process, and to looking at the results that person 

achieves or doesn’t achieve. It is a multifaceted enterprise. The bottom line is, it is impossible to stop someone who, with ill intent, 

who can put on a fa?ade that will get them through the door, get 

them access to sensitive information, and that allowed them to engage in egregious behavior. So it does require at all times people 

monitoring the activity of their subordinates and of supervisors. 

When you see something wrong, you have to say something about 

it. 

Mr. ISSA. As you know, the groups that were being asked absurd 

questions, sometimes unlawful questions, and not being granted 

their status were saying things, but it went on deaf ears at the 

time. It was a process. There was no one to complain to, essentially, within the process. 

So let me ask you a related question, and then I want to get to 

Ms. Olson. If somebody is guilty of sexual harassment at the IRS, 

do you today have a process that only takes one offense, one claim 

in order to open an active investigation and go to the bottom of 

that to prevent it from happening a second time? 

Mr. GEORGE. It is a very fact-specific answer. If it is something 

that occurred outside of the workplace and is within local law authority jurisdiction, we have to be deferential to the separation of 

Federal and state —— 

Mr. ISSA. But I am talking about on the worksite, if somebody 

does something that would qualify for that, there is in most of the 

agencies a fairly rapid response where, for political leaning wrongdoing, it is less obvious. Is that a fair statement? 

Mr. GEORGE. That is a fair statement. But again, for the administrative versus criminal, that is a distinction that has to be made. 

But that problem does exist within the IRS as you know. 

Mr. ISSA. Ms. Olson, I am using those two examples because they 

do seem like they are both important and they both have to be 


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dealt with systematically. As an outsider looking in, what should 

we know? 

Ms. OLSON. You know, I have thought a lot about my organization’s role in that whole process. We had 19 cases come in over twoand-a-half years dealing with C4 issues out of a million cases, and 

it is really hard to see a pattern with that. But I have really 

thought that most of those taxpayers complained to their congressional offices, and we really need to rely on the congressional offices to raise to my office when you see those kinds of cases and 

those kinds of concerns, get them to us, because if they really are, 

then I can get them to the Inspector General, or we can delve into 

is it just an employee who doesn’t understand, is it leadership, 

what is it and where does it need to go, because 19 out of a million, 

I am not going to see a pattern. But if they come from a congressional office, that will help us. They will be better developed, and 

I may be able to get more than 19. That will at least be a protection going forward. 

Mr. ISSA. Excellent. Thank you. 

Yield back. 

Mr. JORDAN. I thank the gentleman. 

The gentle lady from New York is recognized. 

Ms. MALONEY. Thank you, Mr. Chairman, and welcome to all the 

panelists. 

First, Mr. Chairman, I would like to ask unanimous consent to 

place in the record a letter from EPIC.org to the Chairman of the 

committee, the Electronic Privacy Information Center. 

Mr. JORDAN. Without objection. 

Ms. MALONEY. Thank you. 

My first question is to Inspector General George. Good to see you 

again. I know you used to work for the committee, and it is nice 

to see your presence here with us today. 

For years the IRS has struggled to keep the information technology systems up to date and in line with industry standards. So 

my question to you is, how does aging IT threaten the IRS’ ability 

to do its job? 

Mr. GEORGE. This question was addressed slightly earlier in 

more detail, but I will give you from my perspective. Aging IT depends, of course, on the particular system you are referring to. So, 

for example, a laptop could be considered aged after three years. 

A mainframe, it could be five to ten years. And then, of course, you 

have the master file and the Kade, and as you are aware, because 

you have been involved in this issue for many years, they are still 

using software or language from the 1960s. 

So it is a problem, especially if you try to adapt to a 21st century 

environment. The IRS had many grand plans for modernization to 

make it easier for taxpayers to identify their tax obligation and to 

comply with it. Unfortunately, because of budgetary constraints, 

they have had to make hard choices. Some of those again include 

whether to implement extenders, and now with the new tax law 

changes, the largest in 30 years, provide more customer service, 

people answering phones, or—and this is an area that really hasn’t 

been touched upon, but going after people who owe money; in other 

words, doing examinations and audits. I mean, it is almost at a 

record low, and the IRS, hence the American taxpayers, the honest 


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taxpayers, are being harmed because the IRS has had to have 

made very tough decisions, which I don’t necessarily fault them on 

because of the lack of resources. 

Ms. MALONEY. Well, it really hurts IT workers because they are 

very much in demand and they are very well paid, and I can imagine that it is hard to recruit them, and you need them in order to 

modernize for the 21st century. One of the biggest sticking problems has been the IRS’ inability to hire and retain experienced IT 

workers and professionals because of the pay gap. 

I know from 1998 to 2013 the IRS was able to address this by 

hiring 40 individuals under what is known as the streamlined critical pay authority. So I would like to ask the Acting Commissioner, 

is it accurate to say that the IRS filled a total of 168 positions critical to this area of IT over the past 15 years by using this program? 

But I understand the program has expired and that you can no 

longer hire from this program, and what has that meant to the 

agency? 

Mr. KAUTTER. You are exactly right, Congresswoman. The ability 

to hire and to streamline critical pay was enacted in 1998. Between 

then and 2017, I think the actual number is 171 people that have 

been hired under that program. We were authorized to hire 40 people at a time. The most we ever had was 30. The last person on 

that program left in September of 2017. 

Under streamlined critical pay, which we have asked for for the 

last three years, we would be able to hire somebody in six weeks, 

which now takes six months, and we would be able to pay them 

competitively, which we cannot do at the moment. So our ability 

to deal with data analytics, cyber security and other critical technology needs is limited at the moment. 

Ms. MALONEY. So right now that authority has expired, and you 

are calling for it to be re-implemented because this would help you 

address many of the issues that we are talking about today? 

Mr. KAUTTER. Yes, ma’am. It is included in the President’s budget. 

Ms. MALONEY. It is included in his budget? 

Mr. KAUTTER. It is in the budget. 

Ms. MALONEY. Mr. George? 

Mr. GEORGE. I would just add, though, there is a secondary hiring authority that is government-wide that can be used. The difference is the pay differential. Under the special authority that the 

IRS had, they could pay substantially more, up to the Vice President’s salary, whereas under the existing program it is less, but it 

is rarely used in government, and I don’t believe the IRS at this 

time has anyone at that rate. 

Ms. MALONEY. But you say this authority is in the President’s 

budget? 

Mr. KAUTTER. It is. 

Ms. MALONEY. But the funding is not in the President’s budget. 

Is that the problem? 

Mr. KAUTTER. It is included for the Fiscal Year 2019 budget. It 

was also in 2018, and it wasn’t included in the final bill. 

Ms. MALONEY. Okay. Well, my time has expired. Thank you. 

Mr. JORDAN. Thank you. 

The gentleman from Montana is recognized. 


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Mr. GIANFORTE. Thank you, Mr. Chairman, and thank you for 

letting me sit in today. 

To the committee, being here on tax day, this is game day for the 

IRS. 

Mr. KAUTTER. Yes, sir. 

Mr. GIANFORTE. Ms. Olson, in your testimony you discuss metrics 

for customer service regarding taxpayer phone calls. Have those 

metrics been improving or getting worse over the last three years? 

Ms. OLSON. It depends on what your metric is. If you are looking 

at the level of service on the phone, a percentage of calls that are 

answered, the calls from taxpayers who want to speak to a live 

human being on the main phone line, that has been improving. My 

observation has been that it has been improving at the expense of 

other phone lines, and the measure doesn’t reflect a comprehensive 

measure of all the phone lines the IRS has. 

The other thing that we did this year is that we did a survey of 

private sector, private industry customer service practices and the 

measures that they used, and based on our research, which we reported in our annual report, the most important measure that they 

used was first contact resolution rate. The IRS doesn’t measure 

that. And when we did find some measures just from survey, in our 

survey we found that the vast majority of taxpayers did not have 

their issue resolved on the first point of contact. 

Mr. GIANFORTE. Okay. Thank you, Ms. Olson. 

Mr. Kautter, I know you are acting head for just five months, so 

you are just getting started, so I want to tell you a little story. 

Prior to being here, I built a technology business focused on customer service, and we had about 2,000 major corporations all over 

the world, including 170 Federal agencies that we work with. We 

handled about 8 million customer interactions a day on behalf of 

our clients, and our mission was really to help organizations instrument and improve customer service. That is what we did. 

So I want to talk to you for part of my time here about how you 

are driving a culture of customer service within IRS. The first 

question: Who is in charge? Who on your executive team is responsible for customer experience? 

Mr. KAUTTER. I think it is the Commissioner, frankly. It is me. 

Yes, sir. 

Mr. GIANFORTE. So you have no one on your team whose sole 

focus is customer experience? 

Mr. KAUTTER. In the executive team, we don’t. That is a responsibility of everyone on the team. 

Mr. GIANFORTE. That is fine. I would just encourage you to consider that. 

If you had to name the top two or three customer service metrics 

that are important to the agency, what would they be? 

Mr. KAUTTER. I think the first one would be the level of assistance in complying with the law, and I think it would be a broader 

measure than just phone response. In other words —— 

Mr. GIANFORTE. Do you think citizens are happiest if you are following the law? 

Mr. KAUTTER. I think it is assisting citizens to comply with the 

law. So it is providing advice to taxpayers in a way that is meaningful to them. 


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Mr. GIANFORTE. Do you have a dashboard from this individual 

who is responsible for customer service that shows you how you are 

doing on the most important metrics? And how often do you review 

those metrics? 

Mr. KAUTTER. I do not believe we have a dashboard at the moment. 

Mr. GIANFORTE. Okay. Let me switch topics for a second. In your 

opening testimony, you said that 92 percent of taxpayers are filing 

online, and you also testified that the website is down today. So in 

a real sense, this is game day for the IRS, and it seems the IRS 

can’t get out of the locker room. So my question for you is, on the 

biggest day of the year for the IRS, how did you prepare for game 

day, and why were those preparations deficient? 

Mr. KAUTTER. Sure. So, we have—well, first of all, taxpayers can 

continue to prepare their returns and submit them to their electronic Turbotax, Intuit. They can continue. The challenge we have 

is between the transmission from the software providers—H&R 

Block, Intuit—to the IRS systems. So taxpayers will be unaffected 

at the moment. They can file, fill out the return, give it to their 

submitter. Then the challenge is the transmission, as I said, between that processor and the IRS. 

We have backup systems that we are bringing up online, and I 

haven’t had an update since we have been in the hearing, but 

hopefully we will have that issue resolved quickly. 

Mr. GIANFORTE. Okay. I did get an update, and it says that the 

IRS direct payment system is down, which means people cannot 

pay the IRS currently. Clearly, we understand the significance of 

this. Generally, for most Americans, there is one day when they 

interact with the IRS. It is today. And the system, by your testimony, that 92 percent of Americans use is not available. 

So with that, my time is up and I yield back. 

Mr. JORDAN. I thank the gentleman. 

Mr. George, has the IRS hired people who they previously fired? 

Mr. GEORGE. Yes. 

Mr. JORDAN. And in one instance there were specific instructions 

not to rehire this individual who they had previously fired. Is that 

accurate? 

Mr. GEORGE. That is my understanding, yes. 

Mr. JORDAN. And does the IRS give bonuses to their employees? 

Mr. GEORGE. Yes, they do. 

Mr. JORDAN. In 2016, wasn’t there approximately 1,000 employees at the Internal Revenue Service who had trouble paying their 

taxes on time or had some kind of tax complication of their own 

who received a bonus? 

Mr. GEORGE. That is correct. 

Mr. JORDAN. And last year, isn’t it true that there were approximately 2,000 employees at the IRS who got bonuses, and yet during the year they had some kind of disciplinary action against 

them? 

Mr. GEORGE. Correct. 

Mr. JORDAN. So, Commissioner, when you talk about the critical 

pay, the streamlined critical pay, you have to remember the background, and there is a reason why—I just went through a few of 

them—why the Congress is a little reluctant to give you this ability 


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to hire whomever you want and pay them just about whatever you 

want in light of what we just went through with Mr. George. 

Mr. KAUTTER. I agree. I mean, it is indefensible to be in the position that the IRS has been in. Back in 2014, Mr. George’s organization made a series of recommendations, all of which we implemented. We stopped about 80 percent of the payments that would 

have gone to people who had performance problems. We didn’t stop 

100 percent. 

In February, Mr. George’s organization made three more recommendations, which we have implemented. But it is indefensible 

for those types of payments to be made. It shouldn’t be. 

Mr. JORDAN. Again, I appreciate that, and I appreciate the fact 

that you as the interim commissioner understand how the American taxpayer looks at this, 2,000 employees with disciplinary actions getting a bonus of their hard-earned tax money, 1,000 employees who can’t file their taxes right getting a bonus when they 

are in the business of collecting tax money from the American taxpayer. And then for you to ask for, oh, by the way, we have to have 

this streamlined critical pay ability to pay folks way above the Federal pay scale which, frankly, a lot of Americans think is too high 

already, that is just tough, and I don’t know that you are going to 

find a receptive audience, at least with Republicans, on that issue. 

We will look at it. 

Now, we talked earlier with Mr. Hice—and I know he wants to 

come back to it—about the employer mandate. So, Obamacare is 

passed in 2010. It starts to be implemented in 2013, but the employer mandate for small businesses was not implemented, was not 

enforced until just the end of last year. Is that right? 

Mr. KAUTTER. Yes, sir. 

Mr. JORDAN. So what happened at just the end of last year where 

suddenly it was, shazam, we have to enforce it now? Mr. Koskinen 

has one foot out the door, and all of a sudden the last thing he does 

before he officially leaves as the commissioner is say we are going 

to now enforce something that we haven’t since the law passed 

seven years prior, and we haven’t since it has been in effect, in essence, since 2013, but suddenly we are going to do it. 

Mr. KAUTTER. Sure. So, let me give you the chronology as I understand it. The employer mandate was deferred until taxable year 

2015. The information returns required in 2015 were due June of 

2016. When the IRS got that data, there were about 330 applicable 

large employers who could be subject to the penalty. So June of 

2016 IRS has the data to determine who has provided coverage and 

who hasn’t. It was not ready, frankly, to process those effectively. 

It took about 15 months for it to determine that the population of 

employers likely to owe the mandate is about 33,000. So it started 

to send those notices. 

So June of 2016, they have the information. It takes them about 

15 months to process it. November, before I get to the IRS, the notices go out. At this point about 10,000 notices have gone out. The 

potential population is about 33,000 employers who have said they 

haven’t provided coverage. The notices are based on the data that 

was submitted by the employers in 2016. Of the 10,000 letters that 

have gone out, about 3,000 cases have been settled, and of those 

3,000, as I mentioned earlier, 82 percent—so we sent letters out 


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saying it looks like this amount is owed in those 3,000 cases that 

we settled. Eighty-two percent of those, the employer owed nothing. 

In part, the forms had been filled out incorrectly. 

So, as I said, we have gotten two responses in general in the 

cases where we talked to taxpayers. One is we filled out the paperwork incorrectly or a third-party processor filled it out incorrectly, 

and the other 18 percent has been pretty much we knew we didn’t 

provide coverage, we knew we owed the penalty, and we were waiting to find out how much it was because we can’t determine it on 

our own. 

Mr. JORDAN. I will go to the gentleman from Georgia for some 

follow-up. 

Mr. HICE. Thank you, Mr. Chairman. 

I do want to continue down this line of thought, and I regret that 

the gentleman from Virginia was not able to follow my reasoning 

and thought with this. I am in no way asking you or anyone else 

not to abide by the law, but the fact is the law has not been followed, has not been enforced for eight years, requiring the employer mandate, and then all of a sudden it is, by your own sworn 

testimony, without any notification, it is implemented and businesses are facing penalties without any notification that it is now 

being implemented. 

So, it is wrong. It is wrong yesterday, it is wrong today, it will 

be wrong tomorrow for us basically to communicate that this law 

is not going to be enforceable, and then all of a sudden start penalizing them for not being in compliance. That is the point. And for 

that reason we ought to continue not enforcing it until we get our 

act together here, until these employers are notified that this is 

going to be enforced. 

What are the total number of companies not in compliance? 

What is the universe? 

Mr. KAUTTER. Our estimate for 2015 is about 33,000. 

Mr. HICE. All right, 33,000, which I find very difficult to believe, 

to be very honest with you. Do you know how many businesses 

there are in America that employ over 50 people? 

Mr. KAUTTER. I believe it is about 330,000, 340,000. 

Mr. HICE. Okay. By my rough estimates, and this is by 2010, the 

2010 Census, there are almost 28 million businesses, small businesses, that employ less than 50 people. The Treasury says that 96 

percent are less than 50 people. That means 4 percent are 50 people or more. That is over a million, over a million companies that 

employ over 50 people. 

Now, you say 33,000 are not in compliance. Am I supposed to believe, then, that we have a law that we say is not going to be enforced, and yet only 33,000 out of a million are not in compliance? 

So you have almost a million companies out there complying with 

the law that they are told they don’t need to comply with. It doesn’t 

add up. 

Mr. KAUTTER. I will go back and check our numbers, Congressman. 

Mr. HICE. But it doesn’t add up, any number that it is. You say 

500,000. Whatever number it is, are we really to believe that these 

companies are complying with a law that they have already been 


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told they don’t need to comply with because it is not going to be 

enforced? 

Mr. KAUTTER. From the data that I have seen, the vast majority 

of companies do provide health care coverage for their employees. 

So the 330,000 is the number of applicable large employers that 

are not providing the coverage. 

Mr. HICE. The numbers don’t add up to me, and I want to get 

to the bottom of all of this because how in the world do you pick 

10,000 out of a million, even if your own statements right here are 

correct, that 33,000 are not in compliance, but we are only reaching 

out to 10,000 of those? How do we determine which 10,000 or whatever number it may be that we are going to pick on? 

Mr. KAUTTER. First we have looked at those employers who 

clearly state they do not provide coverage. So we started with 

them, with a group of those, and we are continuing to send out letters periodically. 

Mr. HICE. And so we start with them and say you are now under 

penalty for not complying with a law that we said you didn’t have 

to comply with yet because it is not going to be enforced. I mean, 

that whole concept is wrong. 

Mr. KAUTTER. Congressman, the letter is not an assessment. The 

letter says based on the data that we have in front of us, it looks 

like you owe this amount. And then there is a discussion, and as 

I have said, in 82 percent of these 3,000 cases that we settled it 

has been agreed that the employer didn’t owe anything. 

Mr. HICE. I understand that. Here is part of my problem with all 

this, and it is just part of the problem. Under Commissioner 

Koskinen, we know that there was targeting of certain groups and 

individuals. The last thing Koskinen does when he leaves is instate 

a law that has previously been not enforced. How do we know that 

this 10,000 is not still targeting certain groups? We have a million 

companies out here, and we are supposed to believe that they have 

all been complying with something that has been communicated is 

not going to be enforced? The numbers don’t add up, and then all 

of a sudden we have 10,000 of them that we are penalizing. 

I want to know, how do you pick these? I hear what you are saying, but the whole thing just smells fishy. I think we need a backup 

and make sure we know what we are doing before we start imposing penalties on companies that have been communicated just the 

opposite. 

Mr. KAUTTER. I think that is fair, Congressman, and let me get 

more detail to you. 

Mr. HICE. Thank you, and I yield back. 

Mr. JORDAN. I thank the gentleman. 

Commissioner, we sent you a letter a week-and-a-half ago that 

goes right to what the gentleman from Georgia was asking about. 

I believe we are still waiting for you guys to respond. So the documents and the responses we requested will go a long way, I think, 

into clearing up the very real concerns that the gentleman has. 

Let me just ask, do you anticipate us getting the response and 

the documents sometime soon? 

Mr. KAUTTER. We do. We had a good conversation with the staff 

yesterday, and I think we can get most of the information you requested to you pretty quickly. 


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Mr. JORDAN. That would be important. Thank you. 

The gentleman from North Carolina is recognized. 

Mr. MEADOWS. Mr. Kautter, let me come back to the customer 

service side of things, because the gentleman from Montana was 

asking you some unique questions, and when you answered the 

way you did it gave me a real concern, mainly because I have been 

to the IRS and talked to some of your employees. I found the vast 

majority, in fact, the overwhelming majority of them want to just 

serve this country and do their job. 

And yet, if we are not placing importance on customer service, 

you will continue to get bad customer service, and it is partly because of the system that we created that creates bad customer 

service. I didn’t see anybody sitting back eating bon-bons when I 

was there. I mean, they were actually working. 

So in doing that, how can you expect good customer service if you 

don’t have a senior-level person with the responsibility of the customer experience, like the gentleman from Montana outlined? 

Mr. KAUTTER. I think his point is an excellent point. 

Mr. MEADOWS. So here is my request of you. If you would take 

some of your senior officials and you require them to call into the 

same phone center that we have to call into, make it mandatory. 

The punishment of having them do that alone would require them 

to do things differently, I promise you. Let me just tell you, you 

have no idea what it is like to call in and get the type of—I have 

often said, in the private sector, if CEOs would only go into their 

own phone system, they would change it immediately because there 

are certain companies—and I won’t name them in this public 

forum—that I don’t do business with just because I can’t get to 

anybody. 

I would say that the IRS, it is a systemic problem. Ms. Olson 

would agree with that. I have talked with her a number of times 

on that. 

So why don’t we do that? Would you agree in this particular 

venue to take your top 10 senior officials and make them call in 

at random during the random hours for the customer service experience, and then report back to Congress in 90 days on what they 

found? 

Mr. KAUTTER. I will do that, Congressman. I will tell you, I was 

a tax practitioner for 40 years and, believe it or not, the telephone 

service today is remarkably better than it had been, which is not 

to say it is where it should be, and I think it has to start at the 

top. I think it has to start with a commissioner who emphasizes 

taxpayer service. And as I tried to emphasize in my oral statement 

—— 

Mr. MEADOWS. You did. 

Mr. KAUTTER.—it has to be infused in everything this agency 

does. 

Mr. MEADOWS. All right. Let me go to the issue that the gentlemen from Ohio and Georgia have mentioned, on the mandate and 

the enforcement. Do you enforce every single law that you have 

with the same priorities? 

Mr. KAUTTER. I would hope so. I mean, I would hope that we implement everything within the Internal Revenue Code. 


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Mr. MEADOWS. Well, maybe since this is your first hearing, I will 

give you a swing and a miss on that particular answer. 

Does the IRS—let me ask it a different way—put a different priority on who they go after, on who they audit? Is there a matrix 

which is going after those who they think might be the problem? 

Mr. KAUTTER. Sure. The taxpaying population is segmented with 

respect to a selection for audit. So, for example, for individuals, the 

likelihood of being audited for someone who makes more than $1 

million —— 

Mr. MEADOWS. But you have criteria is my point. 

Mr. KAUTTER. Oh, yes, very detailed. 

Mr. MEADOWS. So in your testimony a few minutes ago, what 

was really troubling is it sounded like you were going after the people that were honest with you and said we didn’t provide it, and 

the other 23,000 you didn’t. 

Mr. KAUTTER. No, that is not —— 

Mr. MEADOWS. That is what it sounded like. 

Mr. KAUTTER. No. Then I am sorry. I did not properly convey. 

The plan is to approach all 33,000 —— 

Mr. MEADOWS. But you went after the 10,000 that admitted they 

were not providing it first, because they were the most honest with 

you. So you went after the first 10,000 that said, hey, by the way, 

we didn’t provide it. 

Mr. KAUTTER. We went after those who were clearly in violation 

of the law. 

Mr. MEADOWS. By their own admission. 

Mr. KAUTTER. By their own admission. 

Mr. MEADOWS. But that is my whole point. So the 23,000 that 

make it more difficult for you, they are getting a little bit of delayed action. 

Mr. KAUTTER. Not much, but yes, sir, a little bit. 

Mr. MEADOWS. Okay. So the ones who admitted that they 

hadn’t—and here is the interesting point that both the gentlemen 

have been making. The IRS did not have their act together as it 

related to this particular implementation of this particular law. Is 

that correct? 

Mr. KAUTTER. That is correct. 

Mr. MEADOWS. So inaction and inability on the part of IRS creates a crisis for the taxpayer. Do you see that as fair? 

Mr. KAUTTER. I don’t think it is fair for taxpayers to be disadvantaged when the IRS can’t function properly. I just do not think that 

is fair. 

Mr. MEADOWS. So this is a question of fairness, to me. We start 

to look at this, we have 10,000 people who say we didn’t do it, we 

wanted to comply. By the way, we didn’t provide the insurance, so 

they are the ones who won’t complain to Ms. Olson. It is the other 

23,000 that will. So when we look at that, are they getting treated 

differently because they admitted that they didn’t do it, versus the 

ones who did? 

Mr. KAUTTER. By the time the process is completed, all 33,000 —— Mr. MEADOWS. That is not the question I asked. Are they getting 

treated differently? Did you send out the same demand letters to 

all 33,000? 


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Mr. KAUTTER. All 33,000 will get the same letter. It is just a matter of timing. 

Mr. MEADOWS. You are answering a good question that I didn’t 

ask. Did you send out the same response to all 33,000 at the same 

time? 

Mr. KAUTTER. We did not send 33,000 out on the same day. 

Mr. MEADOWS. So people are getting treated differently. 

Mr. KAUTTER. In that sense, yes, sir. 

Mr. MEADOWS. Okay. Here is what I would ask you to do, because you seem like a fair guy. I would ask you to re-look at this 

with some of your senior officials and work with the National Taxpayer Advocacy group, with Ms. Olson’s group, because we are creating a situation that individual taxpayers are getting treated differently based on their response. But we are also creating a situation where ultimately, because of our inability to implement a law, 

that they are getting perhaps penalties that they wouldn’t normally 

get because of our inability for 15 months, according to your sworn 

testimony, that we didn’t have our act together. 

It is bad enough when we have a law that is clear and it gets 

implemented that we go after people, but it is really bad when it 

is not clear and we are holding them accountable. Can you re-look 

at that for this committee? 

Mr. KAUTTER. Yes, sir. 

Mr. MEADOWS. All right. I yield back. 

Mr. JORDAN. I thank the gentleman. 

The gentleman from Wisconsin is recognized. 

Mr. GROTHMAN. No, thank you, Mr. Chairman. 

Mr. JORDAN. Okay. Well, I will do a couple of quick things. All 

right. I appreciate that. 

Commissioner, the Office of Personnel Management has indicated that there are approximately a quarter of a million Federal 

employees whose salaries are now redacted, compared to 3,400 that 

were in the previous year. A number of those redactions are IRS 

employees. Now taxpayers can’t see what some people are actually 

making. 

Do you know what the number is of IRS employees who fall into 

that category? 

Mr. KAUTTER. I do not. Sorry. I just became aware of the issue 

yesterday, so I just don’t. I can get back to the committee on that. 

Mr. JORDAN. Okay. We would appreciate knowing the number of 

folks there. 

Let me do one other quick thing. There was a Memorandum of 

Understanding that the IRS was exempt from the typical OIRA 

rulemaking process. My understanding is that that is no longer in 

existence as of just a few weeks ago. Is that accurate? 

Mr. KAUTTER. That is correct. Last week we reached agreement, 

Treasury Department reached agreement with OMB on a new 

Memorandum of Understanding which I think strikes a pretty good 

balance between greater OMB review of regulations that might impose a burden on the American public while letting Treasury get 

regulations out in a timely fashion. It was a very thoughtfully negotiated agreement, and I think it is going to be pretty effective. 

Mr. JORDAN. Okay. Well, we appreciate that step, what I would 

consider a step in the right direction. It is my understanding, 


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though, that the IRS still, most of the regulations you view as interpretive versus actually rulemaking requirements, and therefore 

still a bunch of what you do doesn’t go through the typical rulemaking authority. 

I see Ms. Olson nodding her head. 

So I would hope we can improve that as we go forward, as well. 

Mr. KAUTTER. Sure. What the Office of Management and Budget 

typically reviews are regulations. Regulations have the force and 

effect of law once finalized. So OMB has looked at those for decades. There is a lot of what is called sub-regulatory guidance that 

is issued by the Internal Revenue Service, which are expressions 

of the IRS view of the law. So fact sheets, frequently asked questions, revenue rulings, and those are not typically subject to review 

by the Office of Management and Budget, and they were specifically considered as part of this negotiation. 

Mr. JORDAN. Right, but you can obviously see the problem. If you 

as the agency get to define what you believe is interpretive and 

guidance and don’t have to follow the rules even though you got rid 

of the Memorandum of Understanding which exempted you from 

all of them in the first place, but now you are not, it is basically 

the same difference. 

Mr. KAUTTER. Yes, sir. That is not our intent. 

Mr. JORDAN. Okay. 

The gentleman from North Carolina. 

Mr. MEADOWS. So, Mr. Kautter, can you give us a copy of this 

new MOU? 

Mr. KAUTTER. Yes, sir. 

Mr. MEADOWS. All right. If you will do that. 

The gentleman from Ohio’s point is this. I know the IRS has had 

a unique—I want to thank you for working with OMB to look at 

a more transparent regulatory process. If your, as you called it— 

what was it, sub-regulation? 

Mr. KAUTTER. Sub-regulatory guidance. 

Mr. MEADOWS. That is a unique one for the IRS. Normally they 

call it guidance in other areas. But if it has the function of law— 

i.e., somebody is going to get audited and a penalty would be attached to that—then it would still come under the review process. 

Is that your —— 

Mr. KAUTTER. Yes, sir. That is correct. 

Mr. MEADOWS. All right. I yield back. I thank the gentleman. 

Mr. JORDAN. I thank the gentleman. We look forward to getting 

that memorandum. 

I would just say, Mr. Commissioner, you have a tough job. God 

bless you for taking it on, even for whatever length of time, until 

Mr. Rettig is confirmed. But when you have an agency that has rehired people they were specifically told not to rehire, it is giving 

bonuses to people who haven’t actually paid their taxes, giving bonuses to people who have been disciplined, I just think you have 

a tough job, particularly in light of what we just witnessed with the 

previous Commissioner and what took place at the IRS over the 

last several years and the whole targeting scandal. But I feel like 

I have the confidence that you are going to do it right and get us 

the information we need in a timely fashion. 


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I want to thank all of you for the work you do, Ms. Olson, Mr. 

George, for the numerous times you have appeared before this committee with important information for the American taxpayer. And, 

Commissioner, thank you for being with us today. 

And with that, we are adjourned. 

[Whereupon, at 11:58 a.m., the subcommittees were adjourned.] 


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