The IRS has been urging Congress to get the permanent funding it needs to meet all of its goals, from tax collection to taxpayer service and all of the technology upgrades needed to improve both.
In an April 13 "Taxing Issues" webinar, Tax Analysts president and CEO Cara Griffith discussed those issues with IRS Commissioner Charles Rettig.
Cara Griffith: Welcome everyone. I'm Cara Griffith, the president and CEO of Tax Analysts. Thank you for joining us today for a very special event: a conversation with IRS Commissioner Charles Rettig. Over the next hour, we'll talk about a host of issues affecting the IRS and taxpayers. Today's event is the 17th in Tax Analysts' series of public discussions that we call Taxing Issues. We launched this series in 2020 as another of our efforts to encourage the debate on tax issues. We've been bringing the tax community together with leading policy makers and experts for bipartisan discussions on the future of tax policy as the country begins to emerge from the COVID-19 pandemic. I am happy to announce that we will hold our first in-person event with this series next month. It's going to be in conjunction with the ABA Tax Section meeting in Washington. Nevertheless, we are going to move very carefully in that direction, so we will continue to hold most of our taxing issues discussions in a virtual format, and we will broadcast all of our events. We welcome your feedback on how to make our events more interactive, we also welcome your suggestions on future webinar topics. You can send both your feedback and suggestions to events@taxanalysts.org.
CG: We also welcome questions for today's event. Thank you to those of you who emailed in advance, and please use the chat feature to submit questions during today's event. For today's conversation, I'll try to integrate questions throughout, and I promise to get to as many questions as time permits. Now, our guest today needs no introduction, but it would be very impolite of me if I didn't give him one. As the 49th IRS commissioner, Mr. Rettig entered the service as a known commodity, with more than 36 years in private practice, representing taxpayers in both civil and criminal matters. Now, of course, during his long tenure in private practice, I would say he reached the height of his career when he wrote pieces of commentary for Tax Notes — I think back in 2010, 2011. In his time as commissioner, Mr. Rettig has shown that he believes deeply in the importance of the IRS's work and the strength of its people. He is focused on improving the service that the IRS provides, and he's worked to balance stronger enforcement with a continued commitment to taxpayer rights. That has been no simple challenge, particularly during a time of a global pandemic. Like many employers, the IRS in 2020 significantly scaled back its in-person operations. At the same time — and while still processing tax returns — the IRS was also required to process several rounds of stimulus payments.
CG: So now the IRS is facing a massive backlog of paper returns that are not yet processed, and the service is scrambling to try to clear that backlog by the end of the year. It's an enormous challenge, especially because, arguably, the IRS is still underfunded and understaffed. So we've got a lot to discuss today, and I want to thank the commissioner for taking time out of his very busy schedule to be here. I also want to thank all of you for joining us today. I'm really looking forward to our conversation. So let's get started, commissioner. It's almost tax day. How is the filing season going so far? And could you give us a general state of affairs at the IRS?
Charles Rettig: First let me say, Cara, that it's a pleasure to be here. When I was on the outside, it was a pleasure to be able to write — what I thought, at least, and others — timely articles. And frequently, if I was writing something, it was something I picked up from practice, being out and about, whether it's at conferences or otherwise. As you said, I'm a tax guy, and I always introduce myself as a tax guy in the professional environment. To me, in tax, what somebody's credentials are is only part of it. But basically a tax administration, whether it's from the private sector or the government sector, it's important for the country. And what we faced at the Internal Revenue Service, certainly during the pandemic, I think has been important for the country. And also I would be the first to say, as a tax guy with 36 years’ experience, with a wife who is a tax preparer — she's in the tax department of a business management firm — has been anything but user-friendly for tax professionals. And that's not lost on anybody at the IRS, including myself. Like everyone else, the pandemic hit us hard and continues to hit us hard.
CR: I will say today, and I'll say after my term expires, I think we gave it our best. It's very clear and it's easy to say we didn't always get it right, but I would tell you that we tried our best and there's a lot of limitations. I'm not somebody typically who says, “Well, we didn't have funding. Well, we didn't have staffing. Well, we didn't have this or we had the pandemic.” And my comments inside the IRS have been — from day one when COVID first started to surface — we have to operate, we don't have a choice to sort of sit back, wait and see what's going to happen, and sort of weather the storm, if you will. Everybody in the country is relying on us, and from one perspective or another. So the pandemic has been difficult for us, but not more difficult than it's been difficult for folks in the private sector.
CR: The one issue that we needed to deal with is we were not able to operate in a virtual environment in February and March of 2020. Today we are able to operate in a virtual environment, very proud of the government, and certainly the people at IRS, and a lot of folks who helped us — and we use a lot of contractors as well — of the pivot that we did in March, April of 2020, into a virtual environment. And again, I'll be the first to say, from the private sector's side, it might not be as noticeable, and a lot of people can say, “Well, geez, IRS, you're not answering calls, or you're not this,” so we had the mail. If you look at it from our side, every effort was made by every person at the IRS to lessen the impact on tax professionals as well as taxpayers.
CR: We shut down in March of 2020, and recently I've been getting questions, “When is IRS going to come back into the office?” We've been in the office since March of 2020. We operate in an obviously socially distanced environment. Our three big processing centers in Ogden, Austin, and Kansas City have been back on-site processing paper since June of 2020. We have more people doing that than we've ever had in the history of the Internal Revenue Service, and the lanes that I'm sure we're going to talk about when we get to inventories, specifically in backlogs, are under our Wage and Investment Division. We have more employees in Wage and Investment Division than we've ever had in the history of the IRS. For those of you who are math and accounting majors, you're probably reading where I'm going, which is the unprecedented demand that came in our direction during the pandemic didn't allow us to quickly or rapidly enough, maybe, advance with certain technologies to get to where we wanted to be. And I'll give some explanations in that arena, but we moved where we could.
CR: So in March of 2020, our CSRs — who are the folks that answer the phones — only 3 percent were telework eligible. By the summer of 2020, 100 percent of them were telework eligible. And those would be the people who answer the phones, and so your next question might be, “Well then, how come every time I call, I can't get an answer?” And you can't get an answer because during the pandemic, we were receiving — at various points in time, we received between four and 600 percent of the highest volume of calls the IRS has ever received in history. And at various points, we were receiving phone calls at the rate of 1500 per second. We had about 15 or 16,000 people total who can answer those calls. Through COVID funding, we were able to onboard an additional thousand. And that doesn't sound like a lot in terms of 1500 calls per second — by the way, I think it's per minute, but it's per second — or maybe in terms of 200 or 300 million calls, but I will tell you, every one of those folks is critical to us and critical to you.
CR: The people in this country deserve to have an IRS that answers the phone when people call, that responds when people reach in, that you can walk in and interact with people, and I hope to give you, no excuses. But an understanding of where the IRS was, where it is, and certainly where it's going forward from here. That the challenges that we faced — we had short-term challenges, which are pretty obvious today, inventories and phones, level of service and such, and hiring is another short-term challenge.
CR: The long-term challenges are funding, and I interacted with the IRS from the outside forever in my entire professional career. This agency should have been modernized 10 years, before I came on board, and it's unacceptable for the stage it's in today, and it's unacceptable for the agency to go forward without being a really state-of-the-art modern agency. We touch more Americans than any organization on the planet, public or private sector. I think, fiscal ‘21, our gross revenue was $4.1 trillion. That translates into about 95 or 96 percent of gross revenue of the country. And during the pandemic, we were the front line for the U.S. government. We were the people who talk to people who were holed up in their home for this or that, and maybe people called with respect to trying to get an economic impact payment or such, or tax related issue. But I will tell you, once they got on the phone with us, those calls very rapidly switched to people telling us their life story — the impact of the pandemic, they lost their spouse, they lost a neighbor, and things like that.
CR: And so one area that you may not be supportive of, but I'm going to tell you that what we did was I told our people to stay on the phone, right? We are the only people who are touching people in that scenario. Stay on the phone, interact with them as a person, because people in this country were going through something they had never gone through before, none of us had ever gone through before. Let people talk about their family, their this or that. So that raised our average call time by about four minutes in the average. Some obviously would be longer and some would be shorter, but the average went up about four minutes. But when you look at the volume we're trying to deal with, that impacted the ability of the IRS people to answer a lot of other calls. But we're trying to take care of the people who we could take care of who we answered the phones for and let them know that somebody cares.
CR: And to me, that's incredibly important. And the stories that our front-line folks received, I'll just tell you, were really a reflection of the people in this country and the hardships in this country. So I think looking back, I can tell you that from a math perspective, had we not done that and said, “Hey listen, ma'am, I've got 14 calls in queue, I gotta go.” But when we look back and see that we were part of the healing process, if you will, for the country, I think the IRS employees will be very proud of that, and long-term, I think history would be polite to the IRS, and that's not saying that we didn't create some significant hardships for taxpayers and tax professionals, but we really would not have been able to do it much different, and it was trying to serve the ones that we could in what at times was sort of a triage-type environment.
CR: And keep in mind, throughout, our employees had the same concerns for health and safety as everybody else on the planet, and we needed to figure out a way to get them back in to do what we could do — the ones who we could make telework eligible. The ones who we couldn't, we put into split shifts and whatnot, as you would expect in a socially distanced environment. But the volume of what was coming in was astronomical. And I'm not going to use that as an excuse, because I think — as you should think, and as every American should think — I think this agency — I was going to say above all else, I'll cut out the military — but above all other agencies, this agency should have been put in a position where it was prepared for a pandemic regardless of volume, where it's technologically advanced, where it can help people, where somebody can call in and the people here can answer any question, you know, that the person coming in might have, et cetera, et cetera.
CR: And we are not there. We're far from it. But I think you'll get — during this discussion, you'll see that we have made significant headway. So as horrific as the pandemic was — and I'm kind of closing out on this question — but as horrific as the pandemic was, it did give the IRS significant funding, and we have used that funding, as you would have if you were on the inside, to try to be as impactful as we could. And it has helped us position ourselves for the present and for the future, and I think that all of us would look back and go, “So it was horrific, the IRS couldn't answer the phones, the IRS couldn't process the paper, but look where they are today.” And I am not somebody necessarily that spends my life looking backward. So we're here today, how can we get forward? And we've done that every day during the pandemic, so that's a long-winded explanation of the challenges that we've faced, and I think it's sort of a set-up really for the rest of the discussion here. So back to you.
CG: Absolutely. That's a terrific setup for the rest of the discussion. And that was a very human approach for the IRS to take. I did not realize that. But the IRS is often put in the position where it is asked to do additional tasks above and beyond what would be its normal return processing tasks, and does somehow muddle through. So let's get to the one of the biggest questions that I think is on the minds of everyone, and that is the backlog. So we've been through the pandemic. We are where we are. Is it realistic to think that you can get through the backlog of unprocessed returns by the end of the year? Is that a realistic expectation? There's going to be challenges, there's going to be challenges that we don't yet know about that will happen, and if you can't then what's the back-up to that?
CR: So let me tell you that Chuck Rettig and Commissioner Chuck Rettig both are committed that we are going to be healthy by the end of calendar year ‘22 — so December 31, 22. We talk in terms of “before we go into filing season ‘23,” and you have my commitment on that. We are not operating on, “Well, there's 39 weeks, we can process this many per week, therefore we do that many per week” and we go home? We have done everything we can to process as quickly as we can. We have tried things that a very risk-averse agency never would have considered two years ago, and we are looking to — my terminology is crush this inventory as quickly as possible. And so if we finish up early, you're not going to see us pat ourselves on the back, because I would be the first to say we probably should have finished up early last year. But our volumes were significantly larger last year than they are this year. We're seeing things that we've done in the last six months — so the last quarter of last year, and the first quarter of this year — have had a significant impact on where we are and where we're headed.
CR: And when you see IRS folks use the terminology about getting back to healthy, healthy is in the eyes of the taxpayer and the tax practitioner, tax professional. It's not the eyes of the IRS. Healthy for us is to run on sort of a stable level, stable system. Where are we currently — I'm going to throw out a couple of numbers with respect to the current filing season and then some backlog numbers that are really current as of this or last week. And I'll try to identify that as I go through, but they're immediate numbers. Now, I'm going to drop a couple of things on you as to where this came from, and then I'm going to give you a portion of the checklist — depending upon time —portion of the checklist of what is working.
CR: But let me be the first to say, we have tried things that myself and others thought would work, and they didn't work. And so we didn't abandon them; we changed the process of how to get there. Because I like to say, if we're here and we need to be there, we need to be there. If we don't get there, I attribute it to, we didn't come up with the right road, if you will, the right plan to get there. So we go back to the drawing board and figure out how to get there, because just saying, “Well, there's no way to do it” is really unacceptable. But where we are today: So some volumes, unprocessed paper returns — paper is the item that's got the IRS on its heels — we received last year almost 17 million paper returns. As you know, for what it seems like ever, the government has been saying, “electronically file,” “electronically file.” We came into filing season ‘22, the current filing season, really pushing buttons to say “e-file request direct deposit,” “make sure you have an accurate return,” and to “get an accurate return.” We send out 200 million reconciliation letters on the EIP payments that people received. Another 57 million reconciliation letters in the advanced child tax credit arena on the amount of payments they received. People received either six or seven of those payments during the last half of last year.
CR: So in total we sent out 257 million letters saying, “Hey, this is how much you got.” We also said, “You can get an online account and you can check in your online account to see how much you got.” Well, why would we put all that effort in there? Well, last year, we had more than 10 million returns where people were unable to reconcile two economic impact payments, and we knew this year we're coming into an economic impact payment and advanced child tax credit payment.
CR: The idea was, get as much information in the hands of the tax professional and the taxpayer, if they're going to go in on their own to be able to reconcile that. So we sent out 257 million payments. I interacted with one large transmitter very early in this year, when I heard that they were basically advising their franchisees to start collecting and sending returns in on January 4. We opened on January 24, and basically I touched base and said, “You know, you're people who are preparing the returns to reconcile these numbers. We cannot get tens of millions of returns again where those numbers aren't right. Because even an e-file return, if those figures don't match what we have, the filters kick them out and they go into a manual processing environment. A manual processing environment. We got almost 30 million returns that had to be manually processed with respect to reconciliation of economic impact payments with respect to the unemployment compensation, the $10,200 being an exclusion.
CR: And with respect to the look back, people who earned income tax credits and certain other things could use their 2019 instead of their 2020 income as a basis. And basically in theory, their '19 income was higher, so they would get a higher EIP. The $10,200 and the look back happened while we were already in filing season, and once we program our systems, we cannot go back in during filing season and reprogram without seriously jeopardizing filing season, which means we don't go back in. And so all of that had to happen manually. Where we are now — unprocessed paper returns is a correct figure for individuals, returns that we received during calendar year '21 — we have 2.4 million left. Not that long ago, I was giving out numbers of 8 to 10 million, so 2.4 million sounds like a lot. Those are paper returns received in calendar year '21 — 2.4 million.
CR: Paper returns received in calendar year ‘22 is another 2.5 million. Those are not necessarily out of date — we are in this filing season '22. But the paper returns that we have to process, the total there for 1040s right now, is 4.9 million returns. A big issue for a lot in the tax community. 1040-X during filing season ‘22 — we have 2.6 million amended returns in process, 1.6 million of those are over in what we call a submission processing side of the house — which generally speaking will be the less complex 1040-Xs — and 917,000 are in our accounts management side of the house, which will be the more complex ones. So why am I telling you that? Because you're about to hear that we were doing a huge shift of 1040-Xs from submission process side over to accounts management, because the accounts management folks are well ahead of the curve in processing 1040-Xs.
CR: That's a good sign. So everything I'm trying to identify here for you is we're trending in a really positive direction. People concerned about retention credit, we have 317,941 Xs and 1.8 million 941s. Those are being handled on an expedited basis to allow people to file the current return. The last kind of statistic I'll throw at you — and then I'm going to give you how we've kind of pivoted on something — but the last statistic I'll give you is unopened mail, because I get a lot of inbounds, whether it's from the Hill or from others, of IRS has this mail backlog. We have been current on our mail for many months. We had 23 million pieces of unopened mail in July of 2020. This week, we have 381,000 pieces of mail unopened, but that's current. Every week we would receive between one and one and a half million pieces of mail, and we process one to one and a half million pieces of mail, so unopened mail in the 300,000-400,000 range is typical. It's not unusual. Like in private practice, I never finished my last case, I always had an inventory of other cases. This is the same thing here in mail — so opening and sorting, by the way, the mail, getting it into the right channel, getting it out to the right folks.
CR: We are current, so mail is something that we have, if you will, overcome. How do you overcome 23 million pieces of unopened mail when you can only open one to one and a half million pieces a week? Pretty easy: mandatory overtime. We have 6000 IRS employees who've been on mandatory overtime since last year. We have 10,000 employees who have been on voluntary — call it authorized — overtime forever. It seems like forever for me now, but I'll say for more than six months, the employees here stepped in. And you can say, “Well, mandatory, you force them to step in.” Know that . . . If I was to characterize myself, I'd characterize myself as a people person. One thing I'm very aware of in overtime, whether it's mandatory or authorized, is at some point, we do some harm to the employees, they need a breather, they need some time off. And some of these are very difficult to stand on your feet all day and open mail, sort mail, et cetera, et cetera. Not an easy job.
CR: To look at 1040-Xs paper returns all day and then do some type of adjustment with respect to that — not easy. And it's not easy when we're adding hours. But I will say employees there stepped into this, when we shut down and we came back into submission processing, which is the front-end processing of returns and the paper that come in. In June of 2020, we went to a 50 percent capacity in Ogden, Utah, which is one of our three big centers.
CR: The first day we opened, 70 percent of the employees showed up, and we're like, “No, no, you can't be here.” “No, I want to be here.” The number of calls I got from people who had retired or people who were in a different function, asking to be reassigned, if you will, to the front lines, was really inspiring. And in some cases we're able to do that and some we weren't.
CR: So why am I saying we're trending in a good direction? You may know the term error — and as I'm saying that there's so many acronyms here that you learn the acronyms — error resolution service. So all these returns that fall out of the system — whether it's unemployment, whether it's reconciliation, reconciliation of the 2019 versus ‘20 reconciliation, of EIPS or advance child tax credits — they go to ERS and ERS processing is in Kansas City. Last year, year to date, we had 7.8 million returns in error resolution system. 7.8 million. April 7 of this year, we have 722,000. So we're below 10 percent of where we were last year. The volume of calls coming in . . . We project our calls based on a three-year rolling average, but we know that last year was unique, so we project up. The volume of calls coming in right now is far below our projections. It's not enough that we can answer every call, but it shows that some of the decisions we made are working in the right direction.
CR: And let me just kind of quickly — if I can have a couple of minutes — walk you through some of what we have done that you're reading about, and maybe I can give you a little more background to some of it. So you read a lot about search teams in the two lanes I'm talking about and been talking about, which is where our inventories are — submission processing and accounts management. In total, we have about 1500 people that we pulled back into those lanes. They had promoted out into a different part of the IRS within the last two years. The reason we cut it at two years is these folks are experienced and can almost walk in the door and do the job they did within the last two years, so the training was down, so they become immediately impactful. You're going to say, and people say, “Well, geez, that leaves a gap somewhere else.” The gap that we have to deal with right now, and it's the most impactful gap, is the inventories. And I'll put it on myself and say if I was retired and we didn't have an amended return process, so we didn't get a refund, every Thursday, my wife would say honey you need to call IRS and you need to send them another letter? What we are seeing is one taxpayer has multiple touch points with us, so if I say we've got 50 million phone calls, that's not 50 million unique taxpayers, because we're not able to get to their items. Taxpayers call in multiple times and they send us multiple letters, and if they don't get a refund, they send an amended return, then they send another amended return.
CR: The fortunate or unfortunate part is the agency is designed that folks who work the phones also work paper, so when we have a huge volume of phone calls, those folks can't get to the paper, or if we put them on the paper, our level of service . . . the percentage of calls that we can answer goes down significantly. Last year we made a decision, whether you agree with it or not, was to keep as many people as we could on the phones. We were dealing with — as much as anything else . . . certainly, we're dealing with tax and economic impact payments and all the rest of that, and refunds — but we're also dealing with people who had nowhere else to call, and we tended be sort of, in a way, the therapist.
CR: And by the way, we have therapists for our employees, and we have employees who talk about some of the calls they have, and they get quite emotional. So there was a people part of the agency last year that we needed to pay attention to. And that goes back to being the agency that's on the front lines. This year, we've had to take a different posture because we need to get rid of this, we need to crush the inventory, so we've slid a higher percentage of folks from phones into full-time on this paperwork. We've pulled people back into this. We've engaged contractors — Alaskan native organizations actually — that are coming in and providing us with people to help backload, if you will. So as we move the experienced people back in somewhere, we bring in people who can handle the, if you will, more routine. They can be trained quickly to handle the more routine stuff, so we're up-skilling our own people and we're back filling with lots of skilled people to go to the other spots, as you would expect. That's contractors.
CR: Well, how effective are contractors going to be? Well, last year, for the first time ever, we used contractors on some of our phones, and contractors successfully handled 16 million phone calls. We received about 27 million that went through the contractor's lane, but they successfully handled 16 million and the rest went into our IRS assistance.
CR: By the way, when you see — and we do it as well — level of service, we always couch it in terms of how many calls out of 10, what's the percentage of phone calls that people can answer? Know that we have moved significantly into other lanes of communications with taxpayers. We have put a fortune by government standards — and by IRS standards — a fortune into expanding the other options, whether it's the self-service options online. People can go into their online account and negotiate a payment agreement on their own. People go in their online account and update information for us, they can request an ID, PIN, all of that. You see that happen in person or on the phone. This is where we've started to put some of the money, the app funds and other funds that we've received. So we've tried to do it, if you will, as impactful as we could.
CR: We had to make decisions. And I'm supportive of the fact that people can disagree with our decisions, but we have X number of people to do this. Well, why can't we just go out and hire 10,000 more people and put them on the phones tomorrow? The IRS has a unique accounting system, which I refer to as buckets, and we get appropriated funds and in significant . . . What we got hit with here, we get X amount of dollars to put Y number of people on the telephones, and that figure is determined two years before the year, for example, we're in right now. Our budget work is being done with respect to the ‘23 year, and we're actually programming filing season ‘23 now while we're in ‘22. So we always have that going on. So when your base year was a non-pandemic year, and then you have two years of pandemic, the math doesn't work. What we were able to get in COVID was specific funding for another 1000 employees, but know that I couldn't take 1000 employees — or FTEs, as they call it — you know, the dollar value — and move it on to the phones and be impactful.
CR: So we had to come at it from other directions. Why do I believe that we're going to be able to get through this? March 15 of this year, we got our budget. We got it last year, by the way, March 11. Why am I telling you March 11 and March 15? It means that we went half of each year on what's known as a continuing resolution, which says “IRS, operate on your prior fiscal year enacted budget.” So we get our budget halfway into the year to know what our annual budget is. I basically get six months to figure out how to spend the money they give us, let's say in the IT world for technology. If we can't spend it, it goes back. It's one-year money, not two-year money, so we get the money and we try to do it, but the start-stop — and this goes back 10 years — the start-stop on the funding is just death for any organization, let alone the IRS, to be able to build out a robust IT infrastructure. And had this infrastructure been built out, designed, implemented, et cetera, 10 years ago, we would have been answering those phone calls, we would have been processing that mail, and in a more timely manner. Instead we're somewhat caught on our heels.
CR: So you'll hear people at IRS talk a lot about continuing resolutions — CRs. There have been more than 100 CRs since tax year 2001. Start, stop, start, stop, start, stop. And it's not unique to the IRS, but the IRS is the one that's kind of behind the curve trying to do this. What we got on March 15, Congress rescued us. I testified last week — Senate Finance Committee. It can't be more clear, Congress rescued us with not only a budget, they gave us direct hiring authority. And what that means is for submission processing accounts manager, what that means, we can hold a job fair, and we started our job fairs. We got that authority on March 15, we started holding our job fairs in Kansas City, Ogden, and Austin. We did on a rotating basis in-person job fairs, people come out. Starting March 16, we have brought on board more than 2500 people in the last two weeks of March. And as an example, in Austin, we held a job fair. 500 people showed up with resumes, 500 people got job offers.
CR: We're way over 90 percent on offers for people who show up in person. We're also holding job fairs virtually. It's a lower percentage because they need to follow up, but the critical thing is to offer somebody a job and get them in our doors within 30 to 45 days. That is significant in terms of going forward, so those types of matters make a big difference. Customer call back, we now have call back on more than 70 percent of our toll-free lines.
CR: And so I and others thought, “Well, you just kind of do something fancy with the phones, and then it goes through a tape recording, if you will, and somebody gets a phone call.” We had to rebuild our phone infrastructure to be able to process that system, so it's much more complex than one might imagine. And then when you consider the volumes that we're working with, it makes it complex — hugely complex. And the government — I think like most others — but testing and re-testing is really where we are.
CR: But we've also — and I'm kind of closing this part, I might have overrun you with some of the information — but we've also gone wholesale into voice bots. People can call up and work out their own payment agreement with us on the phone. We've had about 3 million successful interactions of people using our voice bots that's on the phone. Chat bots are available in English and in Spanish. Watch for us to continue to expand those arenas. To give you one example, one customer service representative can handle one taxpayer on one phone call; one customer service representative can handle four chat bots at any time. So now my 15,000 CSRs, I just quadrupled that, which meant I'm able to provide, if you will, at least in that lane, four times better service.
CR: We also have online live assistance, which is a version of track chat bot, but it's a one-on-one. Those are in multiple languages — and I'm closing this part for you. I couldn't be more proud of any organization, let alone the Internal Revenue Service, that we have gone wholesale into the different languages. You know, for the first time ever, the Form 1040 is in a language other than English, which is Spanish. People can check a box and schedule LEP and tell us what language they want us to interact with them in writing. We have 90 percent of our top 100 pages on irs.gov — top 100 by volume are in multiple languages, letting people know that they're important and having the IRS try to earn the trust and respect of everybody. That has been huge, let alone it takes some of the pressure off our phones and other surfaces that we have available. So look for the IRS to continue to expand in languages.
CR: But lastly, let me say, I'm kind of an old school guy. I'm more paper than I'm sure I should be. But also, I'm an in-person guy, so the telephone and being able to walk in and talk to somebody are important for me.
CR: IRS interacts with the most unsophisticated taxpayers on the planet who don't have broadband, who don't have a smartphone, et cetera, et cetera. And we also interact with the most sophisticated individual and corporate taxpayers on the planet. Our taxpayer assistance centers are understaffed; that's a funding issue. The president's budget for ‘23 provides for us to have a minimum of three taxpayer assistance folks — CSRs — in each one of our 358 TACs, as we refer to them. Right now, what we do, we have 38 that are not staffed full-time. Well, how did you end up with 38 non-staffed? Attrition. People retired, and it's very difficult to get people back into these TACs. But what we do is we take somebody, let's say, from Denver to go man, be the person in the TAC in another city on Tuesdays or Thursdays or something like that. The reason I bring up the TACs is our TACs have been opened on the second Saturday of every month for the last three months. The next and last Saturday is the second Saturday of April, and it's in over 90 cities. You do not need an appointment, you walk in with anything you want to ask them about. Professional tax pro cannot walk in or a taxpayer can walk in.
CR: And we have multiple languages. We do have TACs that can connect virtually as well, which we did not have. And I think when you pull all that together, I'm hoping you get a sense of these are not excuses, and it's not saying that we should have done better or we could have done better, or that we didn't care. But we really have looked at everything we can, and I will tell you, growing up in Los Angeles, I thought I was a pretty sensitive guy, and I learned three weeks ago — again, I think most of you are aware that my wife came into the country as a refugee — and that's when I learned about sensitivity things that I never considered. And you talk to people who grew up in a different country, et cetera, et cetera, and have some real hardship, you learn the privilege of growing up in the United States. But I thought I got there or close at least after 25 years with her. Three weeks ago, as IRS commissioner, I get presented with something and realize, gosh, I can't get sensitive. We launched Spanish braille. We are already in braille. We launched Spanish braille.
CR: Right, I will say and I will admit, I did not know braille is in multiple languages until I'm looking at it and I'm like, “How could I have missed that?” So those efforts are part of, if you will, our inventory efforts and our service efforts, and as well as trying to earn the trust and respect, but know that last fiscal year, we received more than 90 million visits on our non-English speaking pages.
CR: It is significant for this agency to stay in that space, but without jeopardizing the other levels of service and types of services that we have. So Cara, I apologize. That's, I'm sure, way beyond what you were thinking you were going to get. But I want — as a tax guy — I want people outside to know. You have not been ignored. I know it feels like you've been ignored. Right, and those of you who've had teenage children, you know exactly what I'm talking about. You can talk to him 10 times, and it's not sinking in. I know you think you've been ignored, but I want you to know that the non-Commissioner Chuck Rettig, the tax guy, who's married to a tax accountant who prepares returns . . . and I understand tax season runs from January 1 to December 31. I understand that. I'll wrap it around my wife and say the fact that . . . She doesn't like me to tell her age, so I'm not going to tell her age, but if you are a 57-year-old tax accountant, you shouldn't have to do multiple all-nighters to get tax returns out the door. The system should be better. The tools that we provide and the services we provide should be better. And closing out the section, I really, really appreciate the patience and the support that the IRS and IRS employees and that I have received. And I've received a lot of, “Hey, we're with you, we get it. You're not doing perfect buddy, but we get it.” And that's kind of what I'm trying to convey here. So sorry about that. But back to you, Cara.
CG: Well, you answered a whole bunch of the questions that I was going to ask, naturally, so that was perfect. I applaud the IRS in particular on the languages. That is a tremendously difficult task. I say that as a small company who has tried to do things in different languages, and figuring out what we can do. It is incredibly difficult, but obviously a very necessary task for the IRS, having to deal with so many different taxpayers.
CG: I think that there is a recurring theme throughout what you were saying on the use of technology, and that technology is going to be really important to a modern IRS and for the ability of the IRS to serve taxpayers. And it sounds . . . As you're talking about chatbots and things like that, and one question that I was kind of thinking throughout was whether the IRS is looking at different types of AI and machine learning in order to improve processes. I know most businesses are even . . . Tax Analysts is considering how can we take some of the human nature out of identifying a code section in a story and having a computer link to it so that we can have humans doing other, more sensitive, arguably maybe more important types of things. So what is the technology future for the IRS and where do you see it going? And how can that then lend to better taxpayer service?
CR: So technology is critical for the IRS to get to the point to get people the service that they deserve. We have the greatest country in the world, and we have the greatest IT folks. The tech companies are here, they're founded here, and they stay here. And it's really a lot of what people have to interact with with all federal agencies, not just the IRS. It's really unacceptable, when you wrap it with the United States of America. We should be the lead. We should be the ones that people go, “IRS has this,” and unfortunately, we're not. And so in 2019 — April 16, 2019 — we launched our business modernization plan, a six year plan — $2.3 to $2.7 billion — to "modernize," to bring present day technology into the IRS. $2.7 billion might sound like a lot of money, but at the same exact time that we announced that, two of the large banks announced that they were spending $12 to $14 billion a year for five years to do what we're trying to do for $2.7 billion, that's the difference between private sector and government. Big private sector, right?
CR: And then also we really have to scramble for the money, so we launched this six-year plan. We came up with it internally. We had it reviewed by McKinsey, which is an outside consultant. We adjusted from McKinsey's plan and pushed some stuff beyond the six-year timeline. As of today . . . We launched in 2019. As of today, we've received 57 percent of the funding we should have received since 2019. So you'll say, “Well, then you must be way . . . You must be what? Forty-three percent behind.” What we have to do, and every commissioner has always done, is take funds from less visible parts of the agency. Move other things downstream because we cannot fail to modernize, right? And we're behind where we want to be. But I have to tell you, some of the hurdles that collectively we've had to — we and people on the outside — have had to cross during the pandemic could have been avoided if this agency was modernized 10 years ago, five years ago, three years ago.
CR: There are technologies that would have helped us tremendously during the pandemic. And unfortunately, a large portion of our technology budget goes for operations and maintenance, basically the ability to keep the pumps running, to keep the lights on. In the tech side of the house, we have 6000 people in our IT department internally, and I think we have about 7000 contractors in that space. But when you talk about 200 million phone calls or this to that, what we're trying to . . . We averaged . . . Last year, I think we processed 168 million individual returns. But know that our all-in numbers is in the trillions, when you add in all the information returns, all the other forms, et cetera, et cetera. Business and it's foreign and domestic, and then we interact with our counterparts around the world in this space. So it's these billion here, billion there, sounds like, well, somebody's not doing their job. If you can't do it, know that the vast majority of the funds that we get are basically already accounted for three years before those funds show up.
CR: Let me also talk about the current budget for fiscal ‘22 that we got March 15. There's a lot of press saying, “Well, IRS got an extra $675 million. Isn't that amazing? They ought to really be able to turn a corner.” Know that somewhere between $300 and $350 million of that, so about a half of that extra, goes for basically what I loosely refer to as our cost of living adjustments — scheduled salary increases that happen, but also with our contractors — everything goes up. So we didn't get that. We got $675 million — basically cut that in half. And the half is going to go to help fund projects that should have been done before I came on board almost four years ago. So it's a struggle in terms of paper returns, because paper returns are the struggle for the agency. There's been a lot of talk recently about 2D barcoding and scanning, and there's been talk about what, “Gee, various states do it” or “They do both.” I would suggest that you reach out and you talk to those states and see if they actually in fact are doing both and see how it's going for them. We have for 2013, ‘14, ‘15, ’16, and ’17 requested in our congressional budget justification funding for the 2D barcode effort.
CR: We never got funding despite asking for it every year between 2013 and 2017, and so in ‘18, the IRS pivoted from paper to digital processing. So there's a scanning technology that's out there. Know that what we get in paper is not lock-step, so what we get from one person might be different when you scan it, it might queue it a little bit differently, so getting things in what we refer to as an acceptable file format for modernized e-filing is a struggle. It's not a struggle that we're oblivious to, and it's a struggle that this agency must get to.
CR: Yeah, 96 percent of the returns are e-filed, but we will always receive millions of returns in paper. I'm really referring to individual returns, but you know, it happens in the business sense, too. And we have forms we've not been able to make available for e-filing. So part of this is on us, which brings us back into the technology. Now the president's ‘23 fiscal budget — which is next year, starts October 1 of ‘22 — provides that we will get to that space. And if we get the funding for that, we will get to that space.
CR: The back-up question will be, “Well, if you don't get to the funding for that, don't you need to do that?” Yes, we need to do that. We are constantly looking at what we can do, and we don't look at necessarily, OK, jump into scanning, and we'll be able to scan 100 percent. Or don't do it unless we can scan 100 percent. This is not a 100 percent agency. The best example I can give you that when you look at our budget request for any year, you'll see that the target that the agency requests — and I use that term loosely, but I'll come back to that, and if I don't, Cara, ask me about why I stumbled on “request” — but the target that we request for level of service. The ability to answer the phones is generally speaking around 70 percent — the ability to answer seven out of 10 calls. The fiscal ‘23 budget asks for the ability to answer 85 percent of the calls. But know that those are for a normal, non-pandemic environment — the theory being, it's going to get there. So the reason I struggled on that is I've read things.
CR: And by the way, I think, Cara, I think you know I read Tax Notes every single day. I read every tax court case that comes out every day. It's my passion. I am a tax guy. You don't go 36 years in one lane and then go to straight-up administrator. So you are one of the first buttons that I click in the morning. I read what's there. I tend to bypass sometimes, “Rettig, can't this or that.” That's okay, I guess I signed up for that. But you don't come into this position to make friends, you come into this position to help people try to get it better. And I will always say to the journalists as well as people on the Hill, as well as the tax professional community — I said it day 1, I'll say it my last day here: “This is a journey we're on together.” It's a privilege, somebody gave us collectively the keys to try to improve tax administration. I think that there have been tremendous efforts to get there. The pandemic — there was no playbook for that. But I think overall, people have done the best they can, but kind of hold the agency accountable. And even when I'm gone for getting into these spaces, the reason I stumbled on, we request 70 percent funding. Understand the IRS internally doesn't drive numbers for a budget request and then send it up to the Hill. And the Hill does what it wants. We're a bureau of Treasury — Treasury has its budget.
CR: So we've got to come within a portion of Treasury’s budget, Treasury needs to come within other budgets, everything goes through OMB, then it goes to the Hill. And then, if you will, it's negotiated — say, Treasury versus defense spending and whatnot. And I won't name the senator, but I had a senator when I got on board early who said, “I am 1000 percent supportive of you, your agency. You're very important to this country, I'm very proud that you'll come on board and do this.” And then he flipped, and he said, “If I have $10 million, I give it to military or I give it to education. Because I hope to get re-elected, and when I go over to my home state and say, “Hey, I just gave $10 million to the IRS, they're not going to elect me again.” And he goes, “But, good luck, I'm with you.” And that goes on a lot. I choose to believe — and maybe I'm naïve — that people understand the importance of this agency to the success of the country. And I will say, when I said 96 percent of the gross revenue of United States of America goes through the IRS, understand that the IRS slips, the country slips, right?
CR: And understand that the government, if you will, doesn't build bridges. The government doesn't build, whether it's aircraft carriers or whatnot. They contract that out. So I do a lot of interactions with military, and I routinely say, “Hey, you know, the next time you get on a new ship or a plane or this or that — and for those of you at the external, when you drive across a new bridge — give a nod to an IRS person.” If we're not successful, that bridge isn't happening, that aircraft carrier isn't happening, and a lot of us don't necessarily support the concept of aircraft carriers in this . . . I happen to have a son who is a major in the United States Army. But I will tell you that . . . and he's deployed twice . . . I will tell you that when somebody makes the decision that he's going to deploy, I want him protected to the best of any person in that position on the planet. These are our people who go and do what they do. And 96 percent of the surroundings of them went through — in some fashion — the IRS, if you will, if you connect all these dots. So I am hugely proud to be here.
CR: I did neglect, Cara, when I was talking about hiring another avenue that a lot of people are not aware of, is we partnered up with what's known as the Military Spouse Employment program — MSEP. And if you know in the military context, somebody goes to a base and they're typically there three years, sometimes less. And they move on to another base, and families move with them, and it's very difficult for a person — the spouse, let's say, the non-military spouse — to get a job for three years. We'll take them all. We will hire every one of them. We've got the ability to work with them, and so that has been huge for us. And, if you will, back-filling some of our gaps. And we're proud to assist.
CR: So Cara, I will come back to you, and I apologize for running all over. I am going to need two minutes on something, if you ask. If you want to ask me what am I most proud about, right? After all this I might have an answer for you.
CG: So I'm going to leave two minutes at the end, and I'm going to ask you that exact question.
CR: Perfect.
CG: One of my questions was going to be, how on the earth is the IRS going to hire that many people given the hiring environment? Then it is, but it seems like you've had a lot of different avenues and you are having success in that department. I will say for us it has been a very challenging year trying to hire people and keep them on board. One thing that I did want to touch on, before we have our final two-minute there, was . . . and there have been a lot of proposals on this increased information reporting, and that inevitably is going to be a burden on the IRS. If you're getting in all of this additional information, how are you going to gather . . . And then what are you going to do with it when you get it? What are your thoughts on that? On how the IRS is going to handle the prospect of increased information reporting, whether it's from the American Rescue Plan of 2021 or some future legislation? And does the IRS have the resources to do something with this additional information that it might acquire?
CR: So as you know, in the information reporting space, something like 99 percent — where there's withholding and information reporting — gets accurately reported. When you drop one of those lanes, your drop's going to go down considerably, and it goes below 50 percent without information reporting. So from a tax administration perspective, information reporting itself is helpful. I was in support of information reporting in the virtual currency space, because we know, if you look at the affidavits in the various John Doe summons cases in the public, if you look at the affidavits there, we know that information reporting and the receipt of information in a virtual currency space, people are challenged and I get it. Some people say, “Well, I don't know whether or how to report it.” The questions that are there are there for a reason. We asked straight up, “Did you have any such and such transaction?” We moved it from three pages back to right under the signature line for a reason. Read into — when you see us move something from one part of a return to another — read into it that it has a lot of internal attention. And know that every space on a tax return is highly sought after, so when we take up space and we take up space in the first page, know that the IRS is focused in that arena.
CR: Look at those John Doe summonses and you will see that we know that there is under-reporting in that arena. I'm not saying underpayment of tax, because we have to look, but I'm saying underreporting. So it comes back to technology and funding to get us there. And the best example I can get is go back and look at the FATCA litigation. We got litigation to enact FATCA. We did not get — and we got legislation to enact FATCA — we did not get funding to implement FATCA in the terms of technology. So if you wonder, “Well, IRS has all this FATCA information they've not been able to use,” we're waiting for the funding. Or we have to less visible to more visible, et cetera, type of a thing there. So information reporting in my mind in the virtual currency space would be very well received. We need funding for that. Otherwise you're just building a bigger haystack to be out in the yard, and by itself those haystacks are not impactful. Certainly, there's a deterrent effect any time you have information reporting, but you don't burden people just to create a deterrent effect. As much as it helps to get information reporting and maybe to open up some audits or this or that in certain spaces.
CR: It should also help us stay away from certain audits. And you mentioned AI a few minutes ago. More than half of the audits that are conducted in small business are selected by AI. And as you go forward, I think within two or three years, it'll be 100 percent of the audits in the small business space will be selected by AI. And then you will see AI continue to enhance. We have quite a few data scientists and analysts on board, and they're helping us know where to go. But I like to say, as importantly, they're helping us know where not to go. You can't fault us for opening some examinations. You can fault us for staying in that exam too long or ignoring the obvious, if you will. And I used to maybe make comments like that when I was representing taxpayers, but that was my job, sort of, to help the IRS understand what they're looking at if they don't . . . In that space, we need funding because we need to train our people. It's unfair for us to train our people, if you will, at a taxpayer expense. We need to go to the right place with the right people who are trained to ask the right questions, who understand the answers. And if the right move is to get out of that audit, we need to get out early, not just stay in it just because we happened to open that audit.
CR: So information reporting, overall, there's a big help for tax administration, but it needs to be channeled, it needs to be appropriate. And it's unfair to burden taxpayers in that space, particularly if it's space that the IRS can't use. So we need to get both pieces of that. We need to get legislation for information reporting; we need to get funding for the appropriate technology to be able to process that, to tell us where to be, and as importantly, where not to be.
CG: That's right. Well, I want to give you a few minutes because I am actually very interested in what are you most proud of in your time that you've been at the IRS.
CR: So this is a unique agency. When I got on board, some people said it's tax collection, tax examination and tax administration, at various points in time, data processing, data collection and all that. And I get it that people say that. And I was pretty familiar with the agency, probably knew 5000 IRS employees, first name basis, when I came on. All of whom, by the way, were frontline employees, and I'm not sure I know too many executives as they use the word around here, but again, I got it on the outside, what's there? I'm proud to say that this is no longer a brick and mortar agency, this is a group of people who care about people. I'm hugely proud to be able to tell you that within a year or so, and hopefully less, the largest call center of any government agency will be located in Puerto Rico.
CR: Why did we get to Puerto Rico? Because they had two hurricanes, and this builds into the second part of this — two hurricanes and an earthquake. And I'd like to say the 20-somethings left Puerto Rico and they'll come back in 10 years when their parents’ generations rebuild the island. We went in there with federal jobs, which are very highly sought after and praised. And the first round we looked for 500 people, we got 600 qualified applicants. A benefit, but not the sole reason that we went there, is they tend to be bilingual, which in Spanish obviously helps if you have people on the phone that can they, themselves, handle something without going to the interpreter. And I will give you an example. The first group of IRS folks from here who went down there, came back to me, and the person that came back to me is pretty much a tough guy, former Navy SEAL, and he comes in, he goes, “Sir, you're not going to believe what you did down there.” And I said, “Well, what did we do? Chuck doesn't do anything. This is a team effort. What did we do?” And he says, “Well, a lady got a job, the average compensation there is $21,000 a year. She signed on with us. She got a $31,000 position with us, and she was crying and crying, and she asked if she could give me a hug, and I said, “Of course.” And she said, “You have changed my life. You have changed my children's lives, and you have changed my parents lives.” And culturally — I hope my children understand that comment — but culturally, my wife's one of seven children, and those seven children in Vietnam were the social security package for her parents.
CR: Number two — and this is all part of what we call our Lifting Communities Up Initiative, and I would hope to at some point see more written about this, if you will — number two, Mississippi Delta, we are wholesale going into the Mississippi Delta, Clarksdale and Greenville, Mississippi. Why are we going in the Mississippi Delta? Because when I looked for positions, 2000 positions in Austin, Texas, 600 applicants, 100 qualified. And we're up against Amazon. We're up against Target, paying $20 an hour. We are up against Amazon paying truck drivers $110,000 a year. And I need to bring people in at $15 an hour. It's not going to be a successful venture. Mississippi Delta. How did we get there? We got there from the EITC heat map. There are more claims that we disallow in the Delta region than anywhere else in the country, so obviously that is . . . the EITC is to help people in the poverty and below levels and above, but people who qualify, who are eligible. So we're going into the Delta with federal jobs. And how are you going to do this? Lifting communities up. We've paired up with two-year and four-year institutions down there, we're bringing high school VITA into the high schools there, so people understand giving back, people understand the IRS. And we're going to create a pipeline of skilled employees.
CR: This is probably a six-or-more-year project, and we are just now getting off the ground, but it's a longer term project for the IRS to go into communities that are underserved, that are challenged, bring jobs in, skill the people in the communities with a hope that they stay with us. But if they don't, we scale them up and they go somewhere else, and bottom line is they're better off. So rather than maybe a data processing or a tax collection or whatnot, agency, what I've given to the employees here is we are a group of people — and I just say it loosely — if you have better words then I could say it shorter — but a group of people who care about people. Expect us to go into communities as a method going forward. We have six different places, which we're not going to announce, but we have six different places around the country that are equivalent to where we are now in the Delta. And the best way I can describe what we've seen from facilities down there, we were offered a closed school, we were offered a closed hospital, a community that has a closed hospital. A community that has a closed school needs federal jobs in that community to help support the community, and I want you to be proud.
CR: This is the IRS, it's the people in the IRS. And I might have opened that door, but I will tell you that our employees have passionately gone through that door. We go down there, we do a lot of different things, and everybody who comes back from there comes back from there energized to say, “You know what, I work for the IRS, It's my team that's down there.” And I'm as proud. So I went over my two minutes, but I want people in this country to understand in a broad perspective of, IRS is people who are working really hard, who have done their best to give you the services that you deserve, who know we have not been able to provide those services, but we are trending in a good direction both for inventories as well as, I think, skill sets. And we need funding for the technology. And the last thing I'll say is we are hiring across the board, so . . .
CG: That's right. It's a good plug.
CR: I apologize for going over. I'm hugely thankful for the opportunity.
CG: No, I think you have a lot to be proud of, and I really, really enjoyed the conversation today. I've learned a lot. I learned things about the IRS that I didn't know, and I genuinely appreciate that you took the time today to come and talk to us. It was an absolute pleasure, and I look forward to the next time that we get to talk. And I want to thank everyone for joining us today. I hope they enjoyed the conversation as much as we did, and I look forward to maybe seeing some of you at our main event. Have a great day, everyone. Thank you.
CR: Thank you. You're welcome.