At Senate Finance Hearing, Portman Discusses Concerns Regarding IRS’ Processing Backlog of Tax Filings, Modernization
WASHINGTON, DC – During a Senate Finance Committee hearing today, U.S. Senator Rob Portman (R-OH) highlighted the current processing backlog at the Internal Revenue Service (IRS) and concerns from constituents that the backlog would affect their current and future tax return filings. Senator Portman asked IRS Commissioner Charles Rettig to address concerns that the Independent Office of Appeals, an office within the IRS, created by legislation introduced by Senator Portman in 2018, was not being given the resources it needed to be truly independent, especially during the COVID-19 pandemic. Portman also highlighted an upcoming legislative proposal he is working on to define cryptocurrency for tax purposes and the information reporting requirements, which would aid in efforts to close the tax gap.
Senator Portman: “Thank you, Chairman Wyden and Commissioner, really appreciate your being here and more importantly, for what you and your team have done over the past year. I know it’s been a big challenge for you, including the workforce challenges you’ve had with COVID and people working remotely and also being asked to do so much by us, including the direct payments and the CTC changes and others. I appreciate your staying in touch with us.
“On tax gap, I was intrigued hearing earlier the comments from Chairman Wyden and other members of the committee. I think this is a great opportunity and it’s always been kind of a frustration. You know, how do you get at it? You mentioned more electronic filing, that’s happening. That should make it easier. As you know, we exceeded our expectations on that. You also mentioned information reporting to help close it. We’re working on a cryptocurrency bill which would define cryptocurrency for tax purposes and try to provide appropriate reporting rules. Can you give us any specific suggestions on what reporting would be helpful on the cryptocurrency side, and would that help in closing the tax gap?”
Mr. Charles Rettig, IRS Commissioner: “Absolutely, reporting with respect to cryptocurrencies would be important. I think it’s noteworthy, if you go back and you look at the 2019 Form 1040, I was instrumental in adding a provision together with Diane Grant, who’s here with me today, adding a provision in there, asking a question: “Did you have transactions in cryptocurrency?” That, because of timing, got on a schedule further in. But the 2020 Form 1040, right under the address portion, is a cryptocurrency question similar to the FBAR question. It’s a yes-no question.
“So, visibility, and we could give you a lot of guidance from what we see with respect to areas in the crypto world. It’s replicating itself constantly. And so now we have these non-fungible tokens, which are essentially collectibles in the crypto world. These are not visible items by design. The crypto world is not visible. I will say in the criminal context, the IRS Criminal Investigation Cyber Crimes Unit has been spectacular operating in the dark web, engaging with cryptocurrency-related transactions. We have a lot of experience.”
Senator Portman: “Great. We’d like your input on it, get some technical advice. We’re working on the bill, it’s meant to be bipartisan, it’s something where we can help to close the tax gap in that area. Obviously, there’s a lot of other issues related to cash businesses, and frankly, going to the issue of modernization, back many years ago when I was working on IRS reform, I remember getting this call from a constituent saying, ‘I had to wait on the line for 45 minutes. I’m not going to keep waiting on the line that long.’ And here we are again, waiting on the line for 45 minutes and, therefore, this individual chose not to file.
“So part of the modernization efforts that we’ve been trying to undertake is about closing that gap as well. Do you agree with that? And let me ask you specifically about what happened with the filing season in 2019. We still had people who filed paper returns who haven’t heard, and this is tough for them. You know, one is actually a cousin of a tax court judge who happens to live in Ohio, who calls every couple of months and says, you know, ‘I’ve got to have my certification from the IRS that I’ve at least filed my tax return,’ because you can’t get a mortgage. In some cases, people are not getting their refunds because some people who file by paper actually do expect the refund. So they haven’t been able to get it.
“It’s caused a lot of complications and some have received this CP59 notice for failing to file a tax return, even though they filed it over a year ago. So I know you’ve made some progress in reducing the mail backlog, but unfortunately, a large delay still exists. What do you plan to do to mitigate the impact on these taxpayers? And how does this delay impact the processing of the 2020 returns for these same individuals?”
Mr. Rettig: “We have about 1.7 million returns still in process that were filed prior to January 1 of 2021. Those, for the most part, will be 2019 returns filed in 2020. We are current with respect to our mail. At one point we had over 20 million pieces of unopened mail. We are current and that standard is actually right around a million pieces of mail. We always have substantial mail. As far as processing returns, it’s all hands on deck. In our submission processing, we have mandatory overtime, split shifts, dual shifts, mandatory weekends, processing as quickly as we can. And we expect to get through this.
“You know, the term that we use, fortunately, unfortunately, is summer. Being a lawyer on the outside, I used to categorize things and say, ‘Well, that’s kind of a lawyer answer.’ It is because “summer” could be May or could be September. I can just assure you that we are giving it our best. Folks who did not get an EIP, who have not had their 2019 return filed, must file a 2020 return to get their EIP. And we have a lot of avenues to help them with that.”
Senator Portman: “Yeah, well I’ll tell you on that, in particular we’ve heard from constituents who can’t file electronically in 2020 because they don’t have the adjusted gross income from 2019 because they haven’t received from the IRS, you know, the processed return, so it does affect your 2020 filing season as well. So I appreciate you are throwing a lot at it. I think you should let us know what more we can do to be helpful, because this is causing real heartburn for people.
“On the modernization effort, and this is an issue that you and I have talked about, one thing we got into the legislation in 2019 was to have an Independent Office of Appeals. There’s a concern about the independence of that office, that the IRS employees, particularly during COVID, they didn’t have the ability to have video conferences. Often it was held by telephone, making it more difficult, and other concerns that they’re not following the rules of independence that we laid out in that legislation. How is the IRS protecting taxpayer data as employees work from home? And what technology is the IRS using to allow IRS employees to review, but not retain, protected taxpayer data such as trade secrets?”
Mr. Rettig: “We take, as you can imagine, because we receive – we’re one of the largest data warehouses on the planet, other than maybe a few organizations that probably don’t have an identity – but beyond that, we collect data from everybody who does business in the United States, as well as every American, so we take to heart the protection and security of the data that we do have. Tying that into the Independent Office of Appeals, we also, from the outside, worked with Appeals for 36 years, truly respect the independence of appeals. Most matters that are not resolved in exam, are actually resolved inside appeals, and the training and effort – every employee could not become telework eligible because every employee did not have a particular secluded area, maybe at their home, did not have broadband, did not have this or that. So the ability to telework, work from home, and particularly to use access taxpayer data, was determined on an individual basis based on the employee’s circumstances. And we do have employees who we could not get into it.”