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Witnesses Highlight Benefits of PATH Act in First Year, Need for 21st Century IRS

April 26, 2017

Today, Ways and Means Oversight Subcommittee, chaired by Rep. Vern Buchanan (R-FL), held its annual hearing to review the Tax Filing Season and examine what the Internal Revenue Service (IRS) is doing to improve customer service, combat fraud, and protect taxpayers from identity theft and other privacy threats.

As Chairman Buchanan said:

“The annual hearing is an opportunity to hear about the progress and challenges IRS has administering the tax code—and to learn what Congress may be able to do to help.” 

Throughout the hearing, witnesses pointed to policies Congress passed in the Protecting Americans from Tax Hikes (PATH) Act of 2015 to help the IRS prevent fraud and improper payments.

For example, before the PATH Act was signed into law, the IRS faced more than $1.3 billion annually in potentially undetected fraudulent claims as a result of false reporting of wages and withholding. The PATH Act gave the IRS the tools to address this issue by increasing the agency’s ability to verify the accuracy of a taxpayer’s claimed wage information prior to issuing a refund.

As Acting Director of Strategic Issues for the Government Accountability Office, Jessica Lucas-Judy, explained:

“Wage information reported on W-2s had not been reported to IRS until after most refunds had been processed and refunds had been paid. We had previously reported that earlier access to that information could allow the IRS to verify income reported on returns before issuing billions of dollars in fraudulent refunds. Consistent with our findings, Congress advanced the deadline for filing W-2s to January 31st.”

She added:

Congress also required the IRS hold all refunds for taxpayers claiming the Earned Income Tax Credit or the Additional Child Tax Credit, to provide time to use W-2 data to verify returns. As of February 17, IRS had over 214 million W-2s available from the Social Security Administration. That’s more than twice as many as the same time last year.”

As IRS’ Deputy Commissioner for Services and Enforcement, Kirsten Wielobob, noted:

“These changes together help the IRS improve our ability to spot incorrect or fraudulent returns, as well as to better identify valid returns.”

The IRS is also taking steps to address identify theft-related tax fraud. As Deputy Inspector General for Audit with the Treasury Inspector General for Tax Administration Michael McKenny said:

“We reported in February 2017 that IRS efforts are resulting in improved detection of identity-theft individual tax returns at the time returns are processed and before fraudulent tax refunds are released. For example, the IRS reported in its October 2016 Identity Theft Taxonomy Analysis that, for TY 2014, it had detected and prevented approximately $12 billion in identity theft refund fraud.”

Despite these improvements, witnesses all recognized the IRS continues to face challenges when it comes to serving taxpayers and protecting taxpayer dollars from waste and fraud, such as:

  • An Overly Complex Tax Code: Explaining one of the dozens of tax credits that exist today, Ms. Wielobob said, “The provisions in the earned income credit area are quite complex considering the fluidity of family situations. They’re very difficult for the IRS to verify and so any move toward simplification would be helpful.”
  • No Customer Service Strategy: Ms. Lucas-Judy noted that, despite taking some steps to address customer service, the IRS lacks “long-term strategies for customer and online services to ensure that IRS is maximizing the benefit to taxpayers and reducing costs in other areas, such as for IRS’s telephone operations.”
  • Poor Resource Management: As Rep. George Holding (R-NC) said, despite billions of dollars appropriated to the IRS specifically to improve its IT, “the IRS still uses computer programs from the Kennedy Administration.”
  • Cybersecurity Threats: As McKenney points out, the IRS faces growing challenges in authenticating taxpayers. Inconsistent authentication levels have “increased the risk of unscrupulous individuals accessing and obtaining personal taxpayer information and/or defrauding the tax system.”

These challenges underscore the need to fundamentally redesign the IRS for the 21st century. Ways and Means Republicans are working to transform the IRS into a simpler, fairer, modern tax administrator focused on serving taxpayers.

CLICK HERE to learn more about today’s hearing.

CLICK HERE to learn more about the Committee’s efforts to redesign the IRS for the 21st century.