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IRS Commissioner Charles Rettig testified before the Senate Finance Committee April 10 on "The 2019 Tax Filing Season and the 21st Century IRS," with the most high-profile topic of discussion being the Administration's response to a request for the President's tax returns from House Democratic tax-writers.

Ranking Member Ron Wyden (D-OR) said the Finance Committee should duplicate House Ways and Means Committee Chairman Richard Neal's (D-MA) April 3 request for the President's returns, asserting that Finance has used the same Section 6103 of the tax code to investigate tax-exempt hospitals and the treatment of tax-exempt organizations. He said such requests are typically handled by the IRS Commissioner or subordinates and "do not cross the Treasury Secretary's desk," though Rettig reminded Wyden that IRS is part of and supervised by Treasury. Whether Rettig or Treasury Secretary Steven Mnuchin handles the request has been the subject of interest in Congress.

"The Administration has responded to Chairman Neal's request by launching a campaign of blatant political intimidation," said Wyden said. President Trump reasserted April 10 that he will not release his returns while under audit, and acting Chief of Staff Mick Mulvaney has said Democrats will "never" see them.

Regarding IRS reform legislation, Chairman Chuck Grassley (R-IA) said he is "working with our leadership now to try to clear" in the Senate the Taxpayer First Act, which would codify the independent appeals process, require the IRS to develop a long-term plan to improve customer service, modernize the IRS, and implement an information technology strategy. The bill (H.R. 1957) was approved by voice vote in the House April 9, but Senate action may wait until May following the upcoming two-week recess.

Addressing a controversy that has cropped up with the bill, that the Free File program it addresses may preclude the IRS from creating its own online tax filing system, Senator Wyden said he has received "confirmation from the IRS Chief Counsel that the IRS can terminate Free-File and design [its] own direct-file product with 12 months' notice." Wyden said he has challenged "a long-standing policy that blocks the IRS from competing with private tax preparation companies" and he is going to continue fighting for a right to file directly with the IRS online, but that the bill nonetheless would permanently extend a "highly successful program that helps low-income taxpayers file their returns for free." Yesterday, Chairman Grassley released a statement saying, "Nothing in the legislation would prevent the IRS from continuing to provide online assistance to taxpayers or develop new online options to help taxpayers."

IRS reform hit a snag in the Senate during the last Congress as Senators Rob Portman (R-OH) and Ben Cardin (D-MD) worked to advance the Protecting Taxpayers Act, which addressed additional issues like reshaping the IRS Oversight Board and regulation of tax return preparers. Senator Wyden said he and Senator Cardin will introduce a bill April 11 to require minimum standards for paid tax preparers.

Chairman Grassley's questions focused on a whistleblower program that he feels has been underutilized by the IRS and described proposals in the Taxpayer First Act to bolster whistleblower protections, including anti-retaliation provisions. On the heels of a letter from himself and Senator Wyden "calling on the IRS to fully enforce the tax laws against those involved in the recent college admissions scandal," he asked for assurance that IRS is aware of allegations of tax wrongdoing and will investigate cases. Rettig said, when appropriate, criminally charged defendants are mandated to cooperate with IRS to correct returns and pay outstanding liability, including interest and penalties.

Senator Portman made clear during the hearing that he supports the IRS reform legislation passed by the House and noted that he has seen some successes since Commissioner Rettig has been in the post, including in combatting tax-related ID theft.

Senator Pat Toomey (R-PA) said there has been "wildly misleading media coverage" suggesting that taxpayers are not getting as big of a refund this year over last and thus must be paying more in taxes. Rettig said as of April 5 the average refund was $2,833 compared to $2,864 last filing season.

Senator John Thune (R-SD) highlighted his worker classification bill and asked about the biggest obstacle facing the IRS. Consistent with his testimony, Commissioner Rettig said the biggest impediment is the equipment needed to modernize the agency.

Senator Maggie Hassan (D-NH) said the refundable R&D credit is vital for new businesses that aren't yet profitable enough to have taxable income. She said IRS has had challenges in administering the refundable credit, as was documented in a December Treasury Inspector General for Tax Administration (TIGTA) report and asked what progress has been made in implementing the report's recommendations. Commissioner Rettig said he didn't have that information on hand today but would follow up.

Senator Steve Daines (R-MT) highlighted his bill to curb abuses of the conservation easement tax benefit by limiting qualifying conservations contributions, used for tax deductions, to those transactions that do not exceed 2.5 times (250%) of the partner's adjusted basis. He said those abusing the deduction discourage legitimate conservation efforts. Commissioner Rettig said syndicated conservation easement transactions have not declined since the release of an IRS notice on the issue.

Opening statements are attached.

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ATTACHMENTS

Grassley Statement

Wyden Statement