Washington, D.C. , March 31, 2015 Thank you for that warm welcome. I’m delighted to be back here at the National Press Club. The IRS Commissioner isn’t always the hottest ticket in town, because everyone knows the subject is going to be taxes. So I want to thank the Press Club for allowing me a return engagement, and I promise to stifle the impulse to remind everyone, as a public service announcement, that April 15th is just around the corner – although it is. I hope everyone is doing well with their taxes, and would remind you that the complexity of the tax code is not my fault. I’ve now been leading the IRS for 15 months. It has certainly been in an interesting time, to say the least – and has led me to conclude that, next time, I should pay more attention to the fine print of the contract. Especially the part about long hearings running into the night with no breaks. Today, I want to share with you some observations and some insights about the IRS, on the past, the present and the future. First, I’d like to talk a little bit about what I’ve learned about the IRS. When people hear “IRS,” they usually think of tax enforcement, a letter in the mail or a knock on the door. While we are the nation’s tax collector, that’s not the whole picture. Besides enforcement, another big part of our job is to help taxpayers fulfill their tax obligations as quickly and easily as possible. When I arrived at the IRS, it surprised me to learn that more than a third of our employees work in taxpayer service. For example, we run one of the world’s largest customer service phone operations. But after seeing everything they do to keep the tax system running and help taxpayers, I’m no longer surprised. Let me give you a few numbers to show you what I mean, courtesy of our excellent research division. The leader of that group, Rosemary Marcuss, is here on the dais today. She will be retiring shortly, and I want to thank her for more than three decades of wonderful public service, at the IRS, the Bureau of Economic Analysis, and the Congressional Budget Office. So consider some of these breath-taking numbers. This year, the IRS has already received about 92 million tax returns from individual taxpayers, on the way to an expected total of 150 million. We have issued more than 71 million refunds to individuals so far. Last year, the refunds we processed topped $330 billion. Put another way, that’s more than the GDP of entire nations, such as Chile, Portugal, Ireland, and my own personal favorite, Finland. I should note, in passing, that given my Finnish ancestry, I get better press in Finland than I sometimes get here. But that’s another story. This year, through March 20th, the average refund check issued by the IRS was nearly $2,900. That’s real money going into people’s wallets and back into the economy. In a way, I suppose you can blame the IRS at this time of year for the annual surge in loud commercials selling furniture, flooring and cars – all in pursuit of the biggest check many people see all year. Also, thus far in 2015, the IRS has assisted more than 24.2 million taxpayers who called our telephone help lines. We’ve helped more than 1.3 million people who visited one of our 350 Taxpayer Assistance Centers around the country. Our website, IRS.gov, continues to grow, with more than 231 million visits. Our electronic tracking tool, “Where’s My Refund, is even more popular than ever, with more than 173 million hits already this year. But there’s more. We also routinely provide help to people who are victimized by identity theft, dispute a tax liability or face some form of hardship. In 2014, our Appeals officers assisted more than 100,000 taxpayers, while the Taxpayer Advocate Service provided help to more than 200,000. Our employees with special identity-theft training worked with victims to resolve about 825,000 cases of tax-related identity theft. And our tax collection continued as well. As the economy improved in 2014, the IRS collected a total of $3.1 trillion in federal revenue. And yes, that’s $3.1 trillion – not billion. We’ve been working hard to improve our operations. One interesting figure that comes out of this is the cost of collecting this revenue. According to statistics gathered by the OECD, the IRS spends less than half the amount to collect a dollar of revenue than do the tax administrations of Germany, France, England, Canada and Australia. I could go on. If there’s any place that has numbers, it’s the IRS. But we only have an hour, so I won’t. But I hope this gives you a better idea of what the IRS does year-in and year-out. I also want to mention the people behind these numbers. None of the work I just described could happen without the dedication, professionalism and expertise of our employees, and my admiration for them continues to grow. I’ve never seen such a dedicated workforce in my entire career. The smooth filing season we’re experiencing is a great testimonial to our employees. They have achieved an amazing degree of success, when you consider that the challenge this filing season was to build into our system the back end of the Affordable Care Act, the front end of the Foreign Account Tax Compliance Act and the tax extenders passed in December. We often only hear from people only when things go wrong so I thought it would be helpful to remind you of something significant that’s going right. A great exemplar of the caliber of our work force is sitting up here on the dais with us: Eric Smith, who has spent nearly four decades at the IRS working with reporters, helping them put the complexities of the tax code into plain English. And he shows no signs of slowing down. His dedication to public service is what you find with employees in locations all across the country. I wanted to give you this picture of the IRS today because I think it has been obscured by the intense focus on the problems of the past. For a while now, you’ve heard a lot about these problems: overspending on conferences, making some ill-advised videos and, of course, inappropriate scrutiny of applications from groups seeking social welfare status and others. The criticism of these areas is absolutely deserved. But what gets lost is that these mistakes occurred several years ago, and we have taken concrete steps to address them. In the tax-exempt area, we acted on all of the Inspector General’s recommendations to fix the management problems they identified nearly two years ago. These problems should not have happened, and we continue to work to make improvements to insure that they never happen again. As for conferences, spending has been reduced by 80 percent since 2010. Not only that, but we require all conferences costing above $20,000 to get prior approval from the IRS Commissioner, otherwise known as me. And, for any expense over $50,000, planners have to get my approval and that of the Treasury Department. And as for videos, many of the ones we’re making these days are aimed at helping taxpayers. The IRS channels on YouTube now have more than 100 videos, with nearly 9 million views to date. Make no mistake – we’ll never compete with Taylor Swift, Jimmy Fallon or funny animal videos. But our videos do offer help on some tough tax topics. Their subjects run the gamut from understanding how to claim various tax credits to protecting yourself from identity theft and avoiding tax scams. What’s more, the much-criticized videos from years ago could not be made today. Any IRS division seeking to make a video must receive prior approval from an executive review board the agency created more than two years ago. And not to miss anything that people might have listed to justify cuts to our budget, we no longer pay performance awards to employees who have willfully failed to pay their taxes. But I would note that the tax compliance rate of IRS employees is over 99 percent, by far the highest compliance rate of any government agency. And we are working to insure that no former employee with a serious performance problem is rehired. I would stress that, while these problems are important, and deserved our attention and the remedies we have applied, they are from a prior era. We have addressed them so they will not happen again. That really does make it a new day at the IRS. It’s not the IRS of 2010, 2011 or even 2012. I can’t guarantee that we won’t have problems in the future. No one could, since we have 87,000 employees who deal with 150 million individual taxpayers and administer the world’s most complicated tax code. But I can assure you that our commitment is to find problems quickly, fix them promptly and be transparent in the process. So how are we doing that? In the past, problems sometimes were not found fast enough or corrected right away. We are now building a culture within the IRS that is focused on risk management, that encourages the flow of information up from the front lines through the organization, and that encourages every employee to think of themselves as a risk manager, responsible for reporting problems as soon as they see them. Employees are beginning to believe that I mean it when I say that bad news is good news, we don’t shoot the messenger, we reward him or her, and the only problem we can’t fix is the one we don’t know about. In trying to build for the future, one of the challenges we’re facing involves our workforce, which has changed dramatically over the years. The workforce issues facing the IRS are similar to the challenges facing many other government agencies. For years, we’ve heard concerns about the “brain drain” confronting the federal workforce as large numbers of workers head toward retirement. The IRS has been dealing first-hand with that issue. The problem is aggravated by our steadily declining employee numbers, which in turn are driven by our budget cuts. The high-water mark of the agency’s workforce in terms of size was in 1992. Since then we have lost more than 30,000 full-time employees, and are at our lowest level since the early 1980s. The drop has been accelerating. Between 2010 and 2014, the IRS lost over 13,000 employees. These aren’t just positions in Washington or one or two other cities. Every state in the country now has fewer IRS employees than they did a few years ago – meaning fewer people to help with taxpayer service and enforcement. We expect to lose through attrition another 3,000 people – possibly more – by October 1st of this year. The resulting composition of the IRS workforce also presents a challenge. The problem is simple. Given my own age, I think I can diplomatically say our workforce is maturing at a rapid rate. As highly skilled employees retire, we need to replace them with the next generation of talented, dedicated people. But that is becoming harder and harder to do, in large part as the result of the hiring freeze we have been forced to maintain for the last several years to absorb the significant cuts to our budget since 2010. More than 70 percent of our budget is devoted to employee costs, so we have had no choice but to constrain our hiring of new employees. As a result, the portion of our workforce over 50 years of age has been growing steadily during the last several years. Today more than half of our employees are in that age group. And we estimate that by next year, more than 25 percent of the IRS workforce will be eligible to retire. By 2019, that number will be over 40 percent. Meanwhile, the number of IRS employees under 30 has been steadily declining, and is now less than 3 percent of our workforce. We only have about 1,900 employees under age 30 – and about half of those are only part-time. And we have only 650 employees who are 25 or younger. Essentially, the IRS is facing its own version of the Baby Bust. This situation makes it extremely difficult, if not impossible, for the IRS to properly develop its next generation of leaders. We estimate that by next year 41 percent of our front-line managers and 61 percent of our executives will be eligible to retire. With so many departures go knowledge and expertise that we will find difficult or impossible to replace, especially if our severe underfunding continues. For anyone who questions whether it really is a new day at the IRS, let me share another piece of information with you about our workforce. Since October, 2011, 101 IRS executives, or 46 percent of the leaders of our agency, have left. The turnover for our top tier of leaders on our senior team is even higher: nearly two-thirds since 2011. Some of our business divisions have experienced a still higher rate of turnover. A good example is our Small Business/Self-Employed Division, where about 80 percent of the current leadership team is new since the end of 2010. The changes are so significant throughout the agency that you could hang a sign on our headquarters saying “Under New Management.” Tax issues aren’t simple, and neither are the core skills we need to run the IRS. For our technical positions, it’s not like hiring people for a fast-food restaurant or a grocery store. When we hire a tax auditor, it takes years for them to reach full productivity. And it can take even longer for those auditing the largest, toughest corporate cases that involve complex issues spanning industries and national boundaries. That’s one of the reasons we have decided, even in this budget environment, that we have to continue to train our employees to insure that they are as prepared as possible to deal effectively with taxpayers and their questions and problems. These negative impacts of our budget situation on our workforce are generally overlooked in our funding discussions. And yet these issues are critical to the future of the agency and will only grow in importance in the months and years ahead. As I have noted along the way, my term will end before the true magnitude of this problem is visible to outsiders. But it would be irresponsible to just slide along without beginning to address the situation. We have a number of initiatives underway to deal with this specific challenge. With regard to the loss of insights and experience when employees retire, we have initiated an agency-wide knowledge management program designed to capture, to the extent that we can, the lessons learned along the way by employees at all levels of the organization. Our Large Business and International Division is leading the way in this area, and our Human Capital Organization is coordinating similar activities in other areas. The Office of Personnel Management has approved a phased-retirement program designed to have retirees spend time transferring their experiences to ongoing employees. We are still studying how to fit that program into operations that don’t have the resources to support that activity. With regard to our lack of younger employees in the work force, I have advised our senior leadership that this is the last year that we will deal with budget constraints by freezing or severely limiting new hires into the agency. We have interesting and exciting career opportunities to offer to young people beginning their careers, and we need to encourage more of them to join the agency. In days gone by, the IRS had a reputation of being a great place to start your career, because of everything you learned that made you attractive to accounting firms, businesses and law firms. Many of those who started with the IRS, and assumed they would move on after what sometimes was viewed as a post graduate education, discovered the challenge and satisfaction of the work here, and stayed throughout their careers. We need to restore our reputation in that regard. But I’m not here today just to talk about problems we face. We are also working to move the agency forward with new ideas and new initiatives, especially new ways of helping taxpayers. Even with our budget constraints, many good things have been happening at the agency recently that people may not be aware of. Let me give you just a couple of examples. One is our adoption last summer of a Taxpayer Bill of Rights. We believe this is a cornerstone document that will provide clearer help to taxpayers. The Taxpayer Bill of Rights contains 10 fundamental rights that every taxpayer should be aware of, such as the right to receive quality service from the IRS, the right to pay no more than the correct amount of tax, and the right to retain representation when a taxpayer has a disagreement with the Service. Our employees believe in these rights and are doing their best to advise taxpayers about them and to support them in their day-to-day activities. Given the complexity of our tax code, the majority of taxpayers these days seek professional help with their taxes. Last year, more than half used a professional preparer. The IRS has been taking steps to help taxpayers know where and how to get the help they need. We’ve also been working with the national tax groups, including some of those here in the room, on raising taxpayer awareness about the different types of tax professionals available to help. As part of that effort, we launched a new directory of tax return preparers on IRS.gov earlier this year. For the first time, taxpayers can use this directory to find tax professionals with credentials and qualifications in their local area. We also are trying new ways of doing business in our Taxpayer Assistance Centers. We remain deeply concerned about helping people at these walk-in sites, given our resource limitations. We are aware of taxpayers lining up outside some of our offices many hours before they open. You would think we were selling the Apple Watch. This isn’t a new story this year, it’s just gotten worse, and we are working to find a better approach for taxpayers. To help cut down on the long lines, one new approach we’re trying is very simple: Why not let people make appointments in advance rather than wait in line for hours? We began doing this at 10 centers in February, and recently added 34 more. If this works, we’ll consider expanding the approach to all of our Taxpayer Assistance Centers. We have already discovered one major advantage of this new system. The IRS employee setting the appointment time is often able to determine what the taxpayer’s problem is and, as a result, what information the taxpayer needs to bring with them to their appointment. This saves the taxpayer the aggravation of having to make a return trip later. This pilot program is a great example of a common-sense change that increases the level of customer service we can provide while minimizing needless, pointless burden on taxpayers. Another good example of a new initiative is in the tax-exempt area, where 15 months ago we had a backlog of applications from groups seeking status as private, nonprofit organizations. These applications come in at a rate of 70,000 a year, and at one point the backlog surpassed 60,000. This kept these groups in limbo for months or years. So our exempt organizations group got to work trying to come up with ways of tackling the problem before it got further out of hand. Those efforts led to new processes and the development of a simpler application form for small groups, the 1023-EZ. That form debuted last year. The result is that our inventory of applications is now current. That’s a huge accomplishment – and a change that’s helping all applicants, including larger organizations completing the longer, more complicated forms. Those are just a few of the new innovative initiatives we’ve been working on to help taxpayers and improve tax administration. All of these efforts are important, but we want to do still more. In the time remaining, I want to talk about the IRS of the future and some of the things we’re looking at. Before we do that, I need to talk for a minute about our current budget and technology challenges. By now, some of you may wonder why I don’t get tired of talking about this subject. The simple answer is that the underfunding of the agency is the most critical challenge facing the IRS today. As the serious ramifications of five years of budget cuts become increasingly visible, I don’t want anyone to say that we didn’t warn you in advance. Consider this your warning. In case you missed it, the IRS budget for Fiscal Year 2015 was set at about $10.9 billion, which is $1.2 billion less than five years ago. The IRS is now at its lowest level of funding since 2008. If you adjust for inflation, our budget is now comparable to where we were in 1998. Despite that, we’ve taken on many new additional responsibilities while our taxpayer base continues to grow by millions. As a result, this year, we reached the point of having to make very critical performance tradeoffs. For enforcement, the budget cut means we will close fewer audit and collection cases. We estimate that the reduced closures this year will translate into a loss for the government of at least $2 billion in revenue that otherwise would have been collected. This is a classic example of being penny wise and pound foolish. We are also seeing a noticeable negative impact on taxpayer service. This year, we were forced to substantially reduce hiring of extra seasonal help we usually bring in during the filing season. As a result, our phone level of service is now below 40 percent. That means more than six out of every 10 people who call can’t get reach a customer service representative. That is truly an abysmal level of service. In looking to the future, we believe it is not an option to stay at our current level of funding with our current portfolio, given the extent to which both taxpayer service and enforcement will suffer as a result. Further cuts, with the increasing responsibilities we face, threaten to destroy the ability of the IRS to discharge its fundamental responsibilities. It’s especially troubling to me that these cuts prevent us from fully improving and modernizing our IT infrastructure and operations support. This situation hurts taxpayers and the entire tax community. We are operating with antiquated systems that are increasingly at risk, as we continue to fall behind in upgrading both hardware infrastructure and software. Despite more than a decade of upgrades to the agency’s core business systems, we still have very old technology running alongside our more modern systems. We have many applications that were running when John F. Kennedy was President. About the only good thing you can say about them is that the code they use has been out of date for so long that it has the unintended effect of creating problems for hackers who may be trying to figure out how the system actually operates. But this ancient technology compromises the stability and reliability of our information systems, and leaves us open to more system failures and potential security breaches. While IRS systems have held up well, it a continuing area of major concern for us in this era of daily headlines of major companies and institutions seeing security breaches. So there you have it – there’s no doubt the IRS has budget and IT challenges. So where does that leave us? Will simply providing additional funding for the agency solve these problems? While funding will certainly help, I am increasingly convinced the IRS needs to do more and take a different approach – and one that doesn’t just rely on funding. As I told our Appropriations Committees a few weeks ago, the IRS can’t keep doing business in the old ways. If we get additional money, we are not going to build the IRS back to where it was in 2010. We need to be looking forward to a new, improved way of doing business. The world is changing, taxpayers are changing and so, too, must the IRS. We need to look at the future in a more comprehensive way, and consider how we can take advantage of the latest technology to move the entire taxpayer experience to a new level – and do it in a way that’s cost-effective for the government. That’s what we’re doing. In particular, we are focused on how best to use our limited information technology resources. Our goal is for taxpayers to have a more complete online experience for all their transactions with the IRS. The online experience should give everyone confidence in knowing they can take care of their tax obligations in a fast, secure and consistent manner. This goal is not unrealistic. We’re not trying to go to the moon. We’re simply saying people should expect the same level of service when dealing with the IRS in the future as they have now from their financial institution, whether it’s a bank, brokerage, or mortgage company. The idea is that taxpayers would have an account at the IRS where they, or their preparers, can log in securely, get all the information about their account, and interact with the IRS as needed. Most things that taxpayers need to do to fulfill their obligations could be done virtually, and there would be much less need for in-person help, either by waiting in line at an IRS assistance center or calling the IRS. Improving service to taxpayers in this way can also help us on the compliance side of the equation. We need to be faster and smarter. With a more modern system, the IRS could identify problems in tax returns when a return is filed – rather than coming back to taxpayers years after the fact while the meter is running on potential interest and penalties. We want to interact with taxpayers as soon as possible so that those issues can be corrected without costly follow-up contact or labor-intensive audits. This up-front issue identification effort could also help in other areas as well, such as the ongoing battle over the use of stolen identities to file fraudulent tax returns. And we must provide greater security in the future. We need to find more ways to protect taxpayers’ private information. At tax time, we need to be sure we are interacting with the right person. Improving identity authentication is a major goal going forward. We have already taken a number of steps in the identity theft area. The most recent occurred earlier this month, when we held an unprecedented sit-down meeting with the leaders of the software and tax industry and state tax administrators. We agreed to build on our cooperative efforts of the past and find new ways to leverage this public-private partnership to help battle identity theft. We agreed to form three working groups to come up with short-term solutions to help taxpayers in the next tax season, and work on longer-term efforts to protect the integrity of the nation’s tax system. You could say, of course, that if I find it this exciting to talk about the possibility of taxpayers being able to conduct all of their communications with the IRS electronically, I may need to find a way to put a little more balance into my life. I do look forward to talking more about the future vision of the IRS in the months ahead. Many of our efforts to improve taxpayer service will take years to fully implement. Our progress will be affected by many factors, including changes in the tax law, the continuing evolution of refund fraud and the demographics of our aging workforce. And of course, how quickly we can deliver on this concept will depend on future levels of agency funding. But, even with our constrained funding, we are going to continue to find some funds to support these efforts to build toward the future, even at the expense of other areas of our activities. Otherwise, if we just wage a guerilla-style fight every year through the continuing funding challenges, focusing only on the present, we’ll wake up in five years and be no further ahead than where we are today – in fact, we’ll be five years further behind. So that gives you an idea of where the IRS stands today, how we’ve changed from the past and where we want to go in the future. I took this job 15 months ago because I understand the critical role the IRS plays in the lives of taxpayers and in the collection of the revenues that fund the government. I know I speak for the thousands of professional, dedicated employees of the IRS when I say that we are committed to continuing to do all we can to build for the future, in the interest of serving the American taxpayer. I hope all of you who have filed your taxes this year had a smooth experience. For those of you who haven’t filed yet, remember the clock is ticking and you’re now down to 16 days before the deadline. (You’ve now had the benefit of two public service announcements for the price of one.) But at the IRS, we serve all taxpayers, and that includes procrastinators. So if you can’t make the April 15 deadline, remember everyone can file for a six-month extension. Thank you.
