June 9, 2016 Arlington, Va. Good morning! I’m delighted to be here. I appreciate the warm welcome you gave me a year ago, and I’ve been looking forward to seeing you again. CERCA is an important group and a great partner to the IRS. Helping identify suspicious returns, protecting taxpayers, facilitating voluntary tax compliance…your contributions are worth highlighting at the outset because they are critical to our success in administering the tax system — and to the millions of taxpayers using tax software and filing electronically. Last year, we started an unprecedented collaboration through the Security Summit which has been actively supported throughout the tax community, You’ll hear details of the group’s activities throughout this conference, but today, I’d like to recap some of what we have accomplished. What started as three working groups has grown to seven, and the momentum is building; 40 state departments of revenue and 21 tax industry participants have officially signed on to the effort. We also have virtually all of the large tax professional groups participating. So thanks to the enthusiastic support of everyone involved — as well as the strong suggestion, if not demand, from many, including some in this room — the partnership is now becoming permanent. We also have virtually all of the large tax professional groups participating. The Federal Advisory Committee known as ETAAC (the Electronic Tax Administration Advisory Council) has been determined to be the appropriate group to continue the work of the Security Summit. Newly appointed members will begin their terms late this summer, and we look forward to working with them and the ETAAC committees. Initially, three groups were established to focus on authentication, information sharing and cybersecurity. As the work of the Summit continued, the decision was made to establish an additional group for tax professionals…a group for financial services…a group for public communications…and a group to help establish the new “Information Sharing and Analysis Center” or ISAC. I have more to say about the ISAC and its status in a minute. But first, another thank you…this time for what you did to support the filing season. We had another successful filing season which doesn’t happen automatically or by accident. It happens because of the commitment, expertise and dedication of IRS employees and the people in this room. It’s a tremendous accomplishment, both on your part and ours. Shortly after the end of filing season this year: We had received more than 139 million individual returns, with nearly 9 out of 10 filed electronically. We processed more than $276 billion in taxpayer refunds, with the majority choosing to Direct Deposit their refund. The number of visits to our website (IRS.gov) went up almost 5%, reaching over 342 million in all. Where’s My Refund? inquiries surpassed 276 million — up more than 30% since last year. (People really do love pushing that button.) And nearly 2 million contacts were handled by our employees in Taxpayer Assistance Centers around the country, and our toll-free assistors answered more than 14 million calls, five million more than the year before. The safeguards we created through the Security Summit this year— things like stronger password requirements and new data elements shared — all made a significant difference. Another major accomplishment was standing up the so-called “rapid response team” to alert the IRS, industry and state partners of emerging issues…often within 24 to 48 hours. The ultimate goal is to catch and stop fraudulent refunds before they go out and clearly, the Security Summit is making a difference. We protected millions in revenue this year. And based on referrals and leads from our partners, we stopped thousands of potentially false returns not identified by our filters and models. So we’re making important progress. We’ll provide more details later this month at the next meeting of the Security Summit Group. Another positive development this year was the additional funding we received. Congress approved our first significant increase in six years, providing $290 million for taxpayer service, identity theft and cybersecurity. We were able to make good use of those funds and have made measurable improvements in each of those areas: We were able to expand our work addressing identity theft (this includes seed funding for establishing the Information Sharing and Analysis Center). We were able to dramatically improve the level of service on our toll-free lines during the filing season (more than doubling the level of service compared to last year). And we were able to further strengthen our cybersecurity programs. It was an important step forward in those areas, but it was only a step. That additional funding was less than half of what was requested and we still have significant unmet needs. As I said when I began two and a half years ago, putting the IRS budget on a stable and sustainable footing was going to be a marathon, not a sprint. But at least we’re running in the right direction. We don’t know where 2017 will go, but the initial House proposal would reduce our funding by $236 million. Being known as an incorrigible optimist, my view of this is that it’s progress because it’s a smaller cut than the House has proposed in several years. Two years ago they voted for a $2 billion cut on the House floor and last year their proposal was an over $800 million cut. But still, their proposal this year would take back most of the additional funding provided last year. If that turned out to be the final result, taxpayer service, enforcement and IT improvements would all suffer. If nothing else, we have established this year that there’s a simple algorithm in all of this. If you give us more money, we hire more people to answer the phones and enforce the code. If you give us less, the reverse is true. We’ll see how all this plays out. Just look at what happened with taxpayer service this year, including the practitioner priority line. The level of service on our toll-free help lines was over 70% during the filing season, almost double our experience last year. Our numbers for the year will be lower since we had no additional funds for the first three months of the fiscal year and, now that the additional seasonal employees hired have left, our service levels are down again to an unacceptable level. Before leaving the subject of taxpayer service, I also wanted to mention an issue that we’ll be looking at more closely before the next filing season. I’ve recently had discussions with the National Taxpayer Advocate about the need for the IRS to focus on some of the changes going on in our economy and the implications for taxpayers. There’s a growing number of people who are earning income as a result of their participation in what’s come to be known as the “shared economy.” Uber and Airbnb are two good examples of this. These people face some interesting tax situations, and they need our help. So the IRS will be working to raise public awareness in the coming months, and I would encourage you as you’re considering your software requirements for next year to take a look at this area. Another challenge we had last year at this time was the unauthorized attempts to access our “Get Transcript” web application. Increasingly crafty cybercriminals have an unbelievable amount of taxpayer information which allows them to increase their ability to impersonate individual taxpayers. We surmise that the criminals were after prior year transcripts to be able to use the information to file even more believable false refund applications. Updating and improving our authentication procedures in response to this attack was important to get the Get Transcript application up and running again. But secure authentication is also critical to our Future State goal of providing taxpayers with a secure, on-line account with us to transact business as they do today with other financial institutions. We understood that we needed to look across the agency at all the ways that taxpayers and organizations are verified and allowed to access applications or information. After months of hard work, we began testing a new authentication and access process in late March. I am pleased to report that, after a beta test launch last week, we have the online, Get Transcript system back up, as of Tuesday. Rene Schwartzman, director of our newly created Identity Assurance Office, will share more on this later. As Rene will explain, the goal is to shut out all the criminals without, at the same time, shutting out taxpayers who legitimately need to use the service. With the new authentication process, we know a substantial number of people at the start won’t be able to get through and order their transcript online. This is not a new problem. Even with our previous authentication process for Get Transcript, over 35% of taxpayers could not get through. But we think — or hope — that the public understands and supports the need to make our systems as secure as possible. For now, those taxpayers who can’t successfully use the online request feature, will still be able to order their transcript on-line, or by mail or phone, with the transcript mailed to their home. Always having a non-digital solution available to taxpayers, who either can’t authenticate themselves electronically, don’t have access to the internet or who are simply not comfortable working online is an important part of our Future State Initiative. That initiative is focused on responding to taxpayer requests and expectations that they should be able to deal with us on-line in the future the way they do today with other financial institutions. But we also recognize that we need to provide all taxpayers the services they need in the way that works for them. Thus we’ll always provide the opportunity to contact us by phone or face to face. We also continue to support taxpayers who have had their identities stolen and a return filed in their name. We have centralized our assistance programs and significantly cut the time it takes to straighten out a taxpayer’s account. We also continue to make progress prosecuting those committing these crimes. We have thrown over 2,000 people in jail for long sentences for refund fraud. One indictment after another has taken place across the country. Earlier this year in Miami, Florida, six defendants were sentenced for their participation in an extensive stolen identity tax refund fraud scheme involving the personal identifying information of more than 29,000 individuals. In another case in Los Angeles, 53 people were convicted in relation to the “Old Quest” tax refund scheme to steal more than $250 million in tax refunds. So it’s an ongoing battle to protect taxpayers and their information. And we’re not alone in this fight. Every organization, whether operating in the public or private sector, is facing challenges with cybersecurity and the threats will continue to evolve, as the criminals do. In that regard, the Information Sharing and Analysis Center I referenced earlier is an important step forward. We’ve been exploring the merits of creating an ISAC for some time now, recognizing it requires funding and new levels of cooperation throughout the tax community. We’re working as quickly as we can, and, even though it’s a long-term effort, I’m confident we’ll have some aspects of it working by next filing season. With the ISAC in place, the ability of all partners in the Security Summit Group to share and access information will be greatly improved, to the benefit of all. Obviously there’s still a long road ahead of all of us, but I’m greatly encouraged by the progress we have made so far. The experience we have gained together, and the relationships developed this past year, should serve as the basis for even greater progress in the days ahead. With that, it’s time for discussion. I’d like to hear what’s on your mind and what questions you have. The Security Summit, the IRS budget…there are no limits to what I’m delighted to discuss. I should also mention: In a few days I’m scheduled to meet with the state tax commissioners at their annual meeting in Annapolis, so I’d be delighted to pass along any message or request from you. There’s a lot of interesting work going on at the state level, and they’ve been great partners in the Security Summit as well.
