IRS-Related Excerpts of House Appropriations Report Are Available

[FULL COMMITTEE PRINT]

115TH CONGRESS
1st Session

HOUSE OF REPRESENTATIVES

REPORT 115–

FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS BILL, 2018

, 2017. — Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed

Mr. GRAVES, from the Committee on Appropriations,
submitted the following

REPORT

[To accompany H.R. ]

The Committee on Appropriations submits the following report in explanation of the accompanying bill making appropriations for financial services and general government for the fiscal year ending September 30, 2018.

INDEX TO BILL AND REPORT

	Page Number
	Bill	Report
Title I — Department of the Treasury	2	4
Title II — Executive Office of the President and Funds Appropriated to the President	31	24
Title III — The Judiciary	46	34
Title IV — District of Columbia	57	39
Title V — Independent Agencies	67	44
Administrative Conference of the United States	67	44
Consumer Product Safety Commission	67	44
Election Assistance Commission	69	45
Federal Communications Commission	70	46
Federal Deposit Insurance Corporation — Office of Inspector General	71	48
Federal Election Commission	71	48
Federal Labor Relations Authority	72	49
Federal Trade Commission	73	49
General Services Administration	74	50
Merit Systems Protection Board	87	59
National Archives and Records Administration	88	59
Office of Government Ethics	89	60
Office of Personnel Management	89	61
Office of Special Counsel	94	64
Postal Regulatory Commission	95	64
Privacy and Civil Liberties Oversight Board	95	65
Public Buildings Reform Board	96	65
Securities and Exchange Commission	96	66
Selective Service System	98	67
Small Business Administration	99	68
United States Postal Service	104	71
United States Tax Court	105	73
Title VI — General Provisions — This Act	107	73
Title VII — General Provisions — Government-wide: Departments, Agencies, and Corporations.	121	76
Title VIII — General Provisions — District of Columbia	153	79
Title IX — Other Matters	165	80
Title X — Additional General Provision — Spending Reduction Account	253	80
House of Representatives Report Requirements

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INTERNAL REVENUE SERVICE

The Committee recommends providing $11,085,943,000 for the IRS, which is $149,057,000 below current level, but $110,943,000 above the request. This recommendation would fund the IRS, in total, below their fiscal year 2008 level. Funding for the Taxpayer Service account is at $2,315,754,000 which is slightly below their current level when factoring in the additional funds provided for Taxpayer Services in fiscal year 2017.

In addition, the Committee includes language to:

• Prohibit funds for finalizing any regulation related to the standards used to determine the tax-exempt status of a 501(c)(4) organization;

• Prohibit funds for IRS employee bonuses and awards that do not consider the conduct and tax compliance of such employees;

• Prohibit funds for hiring former IRS employees without considering the employees past conduct and tax compliance;

• Prohibit funds for targeting groups for regulatory scrutiny based on their ideological beliefs;

• Prohibit funds for targeting citizens for exercising their First Amendment rights;

• Prohibit funds for conferences that do not comply with the Treasury Inspector General for Tax Administration’s (TIGTA) recommendations regarding conferences;

• Prohibit funds for the production of videos that have not been reviewed for cost, topic, tone, and purpose and certified to be appropriate;

• Require extensive reporting on IRS spending and information technology; and

• Provide TIGTA with $165 million for its audit and investigative oversight of the IRS.

The Committee remains concerned with the level of service taxpayers are receiving and continued cybersecurity threats. Targeted reporting is included to assist the Committee monitor and evaluate the IRS’s progress in these areas.

A description of the Committee’s recommendation by appropriation is provided below.

TAXPAYER SERVICES

Appropriation, fiscal year 2017	$2,156,554,0001
Budget request, fiscal year 2018	2,212,311,000
Recommended in the bill.	2,315,754,000
Bill compared with:
Appropriation, fiscal year 2017	+159,200,000
Budget request, fiscal year 2018	+103,443,000
1 As directed by Public Law 115–31, Division E, Section 113 of the Administrative Provisions — Internal Revenue Service, $209,200,000 was transferred by the Commissioner of the Internal Revenue Service to the Taxpayer Services which increased the Taxpayer Services fiscal year 2017 level to $2,365,754,000.

The Taxpayer Services appropriation provides for taxpayer services, including forms and publications; processing tax returns and related documents; filing and account services; taxpayer advocacy services; and assisting taxpayers to understand their tax obligations, correctly file their returns, and pay taxes due in a timely manner.

COMMITTEE RECOMMENDATION

The Committee recommends an appropriation of $2,315,754,000 for Taxpayer Services, which is $50 million below the account’s fiscal year 2017 total appropriated funding level. Within the amount provided, the Committee expects the IRS to sufficiently fund the Taxpayer Advocate Service.

Identity Theft. — Identity theft remains a persistent obstacle to accurate, fair, and efficient tax collection. Innocent taxpayers, who otherwise comply with their tax obligations, have their refunds delayed and are drawn unwittingly into the IRS examination process because their identity was stolen and misused.

The Committee requires a report, reviewed by the National Taxpayer Advocate, from the IRS that covers 2010–2017 period on: the number of taxpayers who have had their tax return rejected because their Social Security or taxpayer identification number was improperly used by another individual to commit tax fraud; the average time to resolve the situation and provide innocent taxpayers with their refund, when a refund is due; and the number of cases involving taxpayer identification numbers of residents of the territories. The report will also include a discussion on IRS’s progress and plans to expedite resolution for these taxpayers, to prevent non-victims from becoming victims, to educate the public on the threat of identity theft, and to detect, prevent, and combat identity-based tax fraud and actions. The Committee directs the IRS to submit the report to the Committees on Appropriations of the House and Senate by June 1, 2018.

Pre-Filled or Simple Tax Returns. — The Committee believes that converting a voluntary compliance system to a bill presentment model would represent a significant change in the relationship between taxpayers and their government. The simple return model would also strain IRS resources and the data retrieval systems required would create new burdens on employers, particularly small businesses. In addition, a fundamental conflict of interest seems to be inherent in the nation’s tax collector and compliance enforcer taking on the simultaneous role of tax preparer and financial advisor. The Committee expects that the IRS will not begin work on a simple tax return pilot program or associated systems without first seeking specific authorization and appropriations from Congress, and should instead focus on helping Congress and the Administration achieve real tax simplification and reform.

Level of Service Plan. — The IRS would benefit from exploring new customer service innovations to deliver quality and timely telephone and written correspondence service to taxpayers. The Committee agrees with the Government Accounting Office recommendation that the IRS should systematically and periodically compare its level of telephone service to the best in business to identify gaps between actual and desired performance and directs IRS to submit a plan to the Committees on Appropriations of the House and Senate six months after the enactment of this Act. This should include a customer service plan with specific goals, strategies, and resources to achieve those goals.

Earned Income Tax Credits. — The Committee recognizes the importance of continued efforts to improve the administration of the Earned Income Tax Credits (EITC) for all taxpayers and encourages the IRS to submit a report to the committees on Appropriations of the House and Senate six months after the enactment of this Act that explores new strategies to reduce fraudulent EITC claims. The Committee directs the IRS to develop a report on efforts taken by the agency to protect taxpayer information, and how the agency is addressing the specific issue with the EITC.

Safe Harbor. — The Committee instructs the Internal Revenue Service to follow and apply, the 75 percent math safe harbor test. Section 4052(f)(1) provides a safe harbor test that excludes from the tax previously taxed tractors that are refurbished as long as the restoration cost does not exceed 75-percent of the cost of a comparable new tractor. Therefore, the Committee expects that the IRS apply these longstanding statutory provisions as written and without additional interpretation, modification, or added conditions.

IRS Phone Scams. — The committee supports the IRS efforts to provide taxpayers with information on how to protect themselves from telephone scam artists calling and pretending to be with the IRS. However, these aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers. The Committee strongly encourages the IRS to partner with federal and state law enforcement agencies to develop a plan to curtail and stop these calls. The IRS shall report to the Committees on Appropriations of the House and Senate 120 days after enactment of this Act on their plan of action. The IRS has provided public information on tips and best practices in this area. Currently, the IRS recommends individuals report these abuses to the Treasury Inspector General for tax Administration.

Taxpayer Correspondence. — The Committee encourages the IRS to implement a system for tracking delivery status of taxpayer correspondence and integrating that information into its systems. By utilizing services provided through the USPS Intelligent Mail Barcode, the Committee believes that IRS can prevent fraud, enhance taxpayer service, and reduce costs through real-time awareness of delivery exceptions, updated address information, and the capability to automatically send undeliverable taxpayer correspondence to a USPS facility for secure destruction. The Committee directs the IRS to produce a report to the Committees on Appropriations of the House and Senate no later than six months after enactment of this Act on the potential future savings, benefits, time-frame and costs for implementation of such a system.

ENFORCEMENT

Appropriation, fiscal year 2017	$4,860,000,000
Budget request, fiscal year 2018	4,706,500,000
Recommended in the bill	4,810,000,000
Bill compared with:
Appropriation, fiscal year 2017	-50,000,000
Budget request, fiscal year 2018	+103,500,000

The Enforcement appropriation provides for the examination of tax returns, both domestic and international; the administrative and judicial settlement of taxpayer appeals of examination findings; technical rulings; monitoring employee pension plans; determining qualifications of organizations seeking tax-exempt status; examining tax returns of exempt organizations; enforcing statutes relating to detection and investigation of criminal violations of the internal revenue laws; identifying underreporting of tax obligations; securing unfiled tax returns; and collecting unpaid accounts.

COMMITTEE RECOMMENDATION

The Committee recommends an appropriation of $4,810,000,000 for Enforcement. Of the funds provided, the Committee recommends not less than $60,257,000 to support IRS activities under the Interagency Crime and Drug Enforcement program. The Committee carries the provision that none of the funds may be used by the Internal Revenue Service for implementation of the Patient Protection and Affordable Care Act.

Favorable Determination Letters. — The Committee believes the Favorable Determination Letter program is a valuable and useful service, assuring tax administrators that they are operating employee plans in compliance with tax law.

Printed Forms and Instructions. — The Committee encourages the IRS to continue to provide printed forms and instructions to vulnerable populations, especially rural communities where internet usage rates are below the national average.

Compliance and Tax Gap. — GAO has highlighted in their April 2017 report (GAO–17–371) the importance of the IRS’s National Research Program (NRP) study on tax compliance issues. GAO reviewed how practices from NRP examination could improve operational examinations. GAO notes that the NRP study on employment tax returns provide a valuable opportunity to identify what noncompliance areas are contributing to the $16 billion annual employment tax gap, and better align IRS resources with the most prevalent areas of noncompliance. The Committee encourages the IRS to review GAO’s recommendations with the intent to improve operational examinations.

Income Verification Express Services. — The Committee directs the IRS to produce a report to the Committees on Appropriations of the House and Senate no later than six months after the enactment on this Act on automating its Income Verification Express Services (IVES) with a data sharing Application Programming Interface (API) that could help reduce operational costs; reduce paperwork and waiting period burdens on borrowers; provide more safeguards to ensure the privacy and security of taxpayer account information; and potentially expand access to credit. The IRS should include the steps necessary to create this API, including working with U.S. Digital Services, to build a pilot test version of the API with dummy data that allows lenders to test prototype loan application interface and backend system improvements as well as testing the user verification system to protect taxpayer information, all of which would inform the IRS’s ultimate API design.

OPERATIONS SUPPORT

Appropriation, fiscal year 2017	$3,638,446,0001
Budget request, fiscal year 2018	3,946,189,000
Recommended in the bill	3,850,189,000
Bill compared with:
Appropriation, fiscal year 2017	+211,743,000
Budget request, fiscal year 2018	-96,000,000
1 As directed by Public Law 115–31, Division E, Section 113 of the Administrative Provisions — Internal Revenue Service, $80,800,000 was transferred by the Commissioner of the Internal Revenue Service to Operations Support which increased the Operations Support fiscal year 2017 level to $3,719,246,000.

The Operations Support appropriation provides for overall planning and direction of the IRS, including shared service support related to facilities services, rent payments, printing, postage, and security. Specific activities include headquarters management activities such as strategic planning, communications and liaison, finance, human resources, Equal Employment Opportunity and diversity, research, information technology, and telecommunications.

COMMITTEE RECOMMENDATION

The Committee recommends an appropriation of $3,850,189,000 for Operations Support. The Operations Support account reflects a higher appropriation as the result of a permanent realignment of funds from Systems Modernization.

Obligations and Employment. — Not later than 45 days after the end of each quarter, the Internal Revenue Service shall submit reports on its activities to the House and the Senate Committees on Appropriations. The reports shall include information about the obligations made during the previous quarter by appropriation, object class, office, and activity; the estimated obligations for the remainder of the fiscal year by appropriation, object class, office, and activity; the number of full-time equivalents within each office during the previous quarter; and the estimated number of full-time equivalents within each office for the remainder of the fiscal year.

Information Technology Reports. — The Committee directs the IRS to submit quarterly reports on particular major project activities to the Committees on Appropriations of the House and the Senate and the GAO, no later than 30 days following the end of each calendar quarter in fiscal year 2018. The Committee expects the reports to include detailed, plain English explanations of the cumulative expenditures and schedule performance to date, specified by fiscal year; the costs and schedules for the previous 3 months; the anticipated costs and schedules for the upcoming 3 months; and the total expected costs to complete the following major information technology project activities: IRS.gov; Returns Remittance Processing; EDAS/IPM; Information Returns and Document Matching; E-services; Taxpayer Advocate Service Integrated System; Affordable Care Act administration; and other projects associated with significant changes in law. In addition, the quarterly report should clearly explain when the project was started; the expected date of completion; the percentage of work completed as compared to planned work; the current and expected state of functionality; any changes in schedule; and current risks unrelated to funding amounts and mitigation strategies. The Committee directs the Department of the Treasury to conduct a semi-annual review of IRS’s IT investments to ensure the cost, schedule, and scope of the projects goals are transparent. The Committee further directs GAO to review and provide an annual report to the Committees evaluating the cost and schedule of activities of all major IRS information technology projects for the year, with particular focus on the projects about which the IRS is submitting quarterly reports to the Committee.

Utilization of Cloud Services. — The Committee is concerned the Department’s largest agency, the Internal Revenue Service appears slow to adopt new IT strategies including transition to commercial cloud services that offer enhanced security and cost savings including the use of digital workspace technologies for the IRS. The IRS shall provide a report six months after enactment of this Act to the Committees on Appropriations of the House and Senate, to include the use of and plans for expansion of commercial cloud computing services, the security benefits of transitioning Federal Information Security Management Act (FISMA) moderate and high systems and data to commercial cloud computing services, the cost savings achieved in fiscal year 2017 by the utilization of commercial cloud computing services, and how the agency is performing against their goal for data center consolidation as required by the Federal Information Technology Acquisition Reform Act.

BUSINESS SYSTEMS MODERNIZATION

Appropriation, fiscal year 2017	$290,000,000
Budget request, fiscal year 2018	110,000,000
Recommended in the bill	110,000,000
Bill compared with:
Appropriation, fiscal year 2017	-180,000,000
Budget request, fiscal year 2018	—

The Business Systems Modernization (BSM) appropriation provides funding to modernize key business systems of the Internal Revenue Service. Funds have been permanently transferred from this account to Operations Support to fund operation and maintenance for the existing infrastructure that will help protect the IRS from cyber threats.

COMMITTEE RECOMMENDATION

The Committee recommends an appropriation of $110,000,000 for BSM. The Committee continues to support IRS in its efforts to modernize its business systems such as CADE 2 and the Return Review Program that enhances IRS capabilities to detect, address, and prevent tax refund fraud as well as web applications that will help the IRS transition to a more serviceable digital government.

Information Technology Reports. — The Committee expects the IRS to continue to submit quarterly reports to the Committees and GAO during fiscal year 2018, no later than 30 days following the end of each calendar quarter. The Committee expects the reports to include detailed, plain English explanations of the cumulative expenditures and schedule performance to date, specified by fiscal year; the costs and schedules for the previous 3 months; the anticipated costs and schedules for the upcoming 3 months; and the total expected costs to complete CADE2 and Return Review Program. In addition, the quarterly report should clearly explain when the project was started; the expected date of completion; the percentage of work completed as compared to planned work; the current and expected state of functionality; any changes in schedule; and current risks unrelated to funding amounts and mitigation strategies. The Committee directs the Department of the Treasury to conduct a semiannual review of CADE2 and Return Review Program to ensure the cost, schedule, and scope goals of the projects are transparent. The Committee further directs GAO to review and provide an annual report to the Committee evaluating the cost and schedule of CADE2 and Return Review Program activities for the year, as well as an assessment of the functionality achieved.

Audit Trail Compliance — Audit trails are a key component of effective information technology security. Maintaining sufficient audit trails is critical to establishing accountability over users and their actions within information systems. The Committee directs the IRS to submit quarterly reports to the Committees on Appropriations of the House and Senate and Treasury Inspector General for Tax Administration (TIGTA) on its progress towards implementing the audit trail requirements described in TIGTA’s ‘‘Semi-annual Report to Congress April 1, 2015–September 30, 2015’’, consistent with the Internal Revenue Manual, for legacy and planned business systems modernization investments with priority consideration to business systems presenting the most significant threats to taxpayer information.

Aging Infrastructure — The IRS estimates that 64 percent of its information technology hardware infrastructure is beyond its useful life. This aging infrastructure creates significant risks in the American tax system. The Treasury Inspector General for Tax Administration is currently reviewing this issue and has identified that outdated hardware infrastructure has negatively affected the IRS’s ability to ensure the security of taxpayer information. It has also affected IRS productivity and taxpayer service due to system downtime. The Committee looks forward to seeing TIGTA’s pending report on this issue and encourages TIGTA to monitor and periodically report on the impact aging IT infrastructure has on the IRS’s ability to operate efficiently and protect the security of taxpayer information.

ADMINISTRATIVE PROVISIONS — INTERNAL REVENUE SERVICE

(INCLUDING TRANSFERS OF FUNDS)

Section 101. The Committee continues a provision that allows for the transfer of five percent of any appropriation made available to the IRS to any other IRS appropriation, upon the advance approval of the Committees on Appropriations of the House and Senate.

Section 102. The Committee continues a provision that requires the IRS to maintain a training program to include taxpayer rights, dealing courteously with taxpayers, crosscultural relations, and the impartial application of tax law.

Section 103. The Committee continues a provision that requires the IRS to institute and enforce policies and procedures that will safeguard the confidentiality of taxpayer information and protect taxpayers against identity theft.

Section 104. The Committee continues a provision that makes funds available for improved facilities and increased staffing to provide efficient and effective 1–800 number help line service for taxpayers.

Section 105. The Committee continues a provision with modifications requiring videos produced by the IRS to be approved in advance by the Service-Wide Video Editorial Board.

Section 106. The Committee continues a provision that requires the IRS to notify employers of any address change request and to give special consideration to offers in compromise for taxpayers who have been victims of payroll tax preparer fraud.

Section 107. The Committee continues a provision with modifications that prohibits the IRS from targeting U.S. citizens for exercising their First Amendment rights.

Section 108. The Committee continues a provision with modifications that prohibits the IRS from targeting groups based on their ideological beliefs.

Section 109. The Committee continues a provision with modifications that requires the IRS to comply with procedures and policies on conference spending as recommended by the Treasury Inspector General for Tax Administration.

Section 110. The Committee continues a provision with modifications that prohibits funds for giving bonuses to employees or hiring former employees without considering conduct and compliance with Federal tax law.

Section 111. The Committee continues a provision with modifications that prohibits funds to violate the confidentiality of tax returns.

Section 112. The Committee includes a new provision that prohibits funds from being used to implement the individual mandate of the Affordable Care Act.

Section 113. The Committee continues a provision with modifications that prohibits funds for pre-populated returns.

Section 114. The Committee includes a new provision that prohibits funds to implement an IRS Notice on conservations easements.

Section 115. The Committee includes a new provision that prohibits funds to finalize, implement, or enforce amendments related to restrictions on liquidation of an interest with respect to estate, gift, and generation-skipping transfer taxes from taking effect.

Section 116. The Committee includes a new provision to prohibit funds for the Internal Revenue Service (IRS) to determine that a church is not exempt from taxation for participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidates for public office unless the IRS Commissioner consents to such determination, the Commissioner notifies the tax committees of Congress, and the determination is effective 90 days after such notification.

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