Arlington, VA, October 23, 2015 Thank you for that warm welcome. I’m delighted to join you again at your fall meeting, and I appreciate the opportunity for a return engagement. I’ve learned that’s not a given for the IRS Commissioner. It’s hard to believe it’s been a year since I spoke to CERCA for the first time. Back then I was just coming to understand the importance of the strong partnerships the IRS has with stakeholders such as your organization. Since then, my appreciation for that partnership, and for all you do for the tax system, has only deepened. The value of the partnership we have with CERCA was never more apparent than this year, as we worked together to meet some very difficult challenges. One of those challenges was, of course, the filing season that just ended. At this time last year we were bracing for one of the more complicated filing seasons in recent memory. We were preparing our systems for major tax-related provisions of the Affordable Care Act along with the Foreign Account Tax Compliance Act, and we were waiting for Congress to pass tax extender legislation, which it finally did in December. Despite those complications, the processing of tax returns during this past filing season went very smoothly for the vast majority of taxpayers. That was due not only to the efforts of our dedicated workforce, but also the critical support provided by everyone in this room. I want to thank all of you for helping to make that happen. Another major challenge we faced together this year was the need to improve our efforts to protect taxpayer information and combat stolen identity refund fraud. We began in March, with an unprecedented sit-down meeting with the states and leaders in the tax industry, including members of CERCA. That meeting led to a remarkable, ongoing collaborative effort that holds short-term and long-term promise to better protect the nation’s taxpayers. And of course, there have been surprises along the way this year, such as the discovery of unauthorized attempts to obtain taxpayer data through the IRS’s Get Transcript online application. The Get Transcript problem highlighted how the landscape has changed, and how sophisticated cybercriminals have become. What happened with Get Transcript showed all of us that we were right to be focusing on taxpayer protections, and we have no time to lose in making improvements. The most difficult challenge the IRS has faced this year, and for the last several years, has been our budget situation. Since 2010, the IRS has suffered deep, dramatic funding reductions that have undermined our ability to provide taxpayers with top quality service and ensure compliance with the tax laws. The IRS funding level for Fiscal Year 2015, which just ended, was $10.9 billion. That’s about $350 million less than Fiscal 2014. But the decline from the previous year was closer to $600 million, after accounting for mandated costs and inflation. The IRS had already spent several years working to reduce costs and find efficiencies in our operations, which included cutting our workforce through attrition by about 15,000 full-time employees. But there is a limit to how much we can do to find efficiencies. In 2015, we reached the point of having to make very critical performance tradeoffs. There was simply no way around the severity of these budget cuts without taking difficult steps, which have had negative impacts on service, enforcement and information technology. Take taxpayer service. A moment ago I said the 2015 filing season went very smoothly in terms of processing returns. True enough, but for taxpayers or preparers who needed our help during the filing season, it was a completely different story. The level of service we were able to provide, both on the phone and in person, was far worse than anyone would want. Taxpayers who called the IRS had long wait times on the phones. On bad days, fewer than 40 percent of calls were able to reach a live assistor, and that was after a 30-minute wait or longer. And taxpayers who needed in–person help at IRS Taxpayer Assistance Centers often waited in very long lines just to get in the door. These problems did not end with the filing season. Callers have continued to experience long wait times on the phones, and we are still getting reports of long lines at TACs in some locations. Our compliance programs have suffered as well. Consider that the 15,000 full-time employees we have lost since 2010 include 5,000 key enforcement personnel. These are the people who audit returns, perform collection activities and investigate tax fraud and other crimes. The IRS remains deeply concerned about the effect of budget cuts on our enforcement operations. For Fiscal Year 2015, which ended on September 30th, we anticipate that individual audit rates will fall again, and we expect a drop in revenue coming in from examinations. It’s clear when you have fewer employees doing compliance work, you end up leaving money on the table. In cutting the IRS budget, the government is forgoing billions just to achieve budget savings of a few hundred million dollars, since we estimate that every $1 invested in the IRS produces $4 in revenue. Some estimates are even higher. Limited resources for both taxpayer services and IT investments have also hurt our ability to do more to combat stolen identity refund fraud and assist victims, and the same is true for cybersecurity. While we continue to invest in these areas, our investments have not been up to the level that is needed to ensure we’re doing everything possible to thwart cybercrime. The ultimate irony of our funding situation is that, while Congress keeps cutting our budget, we continue to be given new legislative responsibilities. As this group well knows, we have spent significant time and resources over the last several years implementing the tax-related provisions of the Affordable Care Act. This mandate came without a dime of additional funding. This meant that we had to take about $450 million each year from other critical needs to meet this statutory mandate. Another good example came last December. At the same time Congress was cutting our budget by $350 million, it also enacted the Achieving a Better Life Experience, or ABLE, Act, along with a new certification requirement for Professional Employer Organizations. Both had to be accomplished without any additional funding, and on a very tight timeframe. As I have said many times, we have no choice but to do statutory mandates. But when those mandates are unfunded, implementation comes at the expense of taxpayer service and enforcement. Given the situation I just described, any decision by Congress to cut funding levels further would make matters even worse. For 2016, the House has proposed reducing our budget by another $838 million, and the Senate has proposed a $470 million cut. Either funding level, coming on top of five consecutive years of cuts to the IRS budget, would have devastating effects on taxpayers and our tax system. The IRS would be forced to reduce its workforce by several thousand more full-time employees. That means still fewer workers to answer taxpayer calls and letters, help identity-theft victims, conduct audits, collect revenue, and maintain and improve our IT systems. At this point, three weeks into the fiscal year, we’re still operating under a temporary funding bill for 2016. Although we don’t yet know the final outcome of the budget negotiations, it should be clear to everyone that even holding us constant at last year’s level of $10.9 billion would mean further degradation of our ability to function effectively, since we must absorb a number of inflationary costs. We will certainly continue to play the hand we’re dealt as we’ve always done, but the number of cards in that hand is getting smaller and smaller. Amid all this uncertainty, we are already deep into planning for the 2016 filing season. It promises to be another complicated filing season, and not just because of our budget situation. As I mentioned a moment ago, the IRS and its partners, including members of CERCA, have embarked on a new effort against stolen identity refund fraud. The unprecedented level of cooperation among the members of this group has allowed us to accomplish quite a bit in just a few months. Earlier this week, we announced the IRS and its partners are on track to fulfill our goal of having new protections in place by the time taxpayers have to file tax returns in 2016. Although we’re still a few months away from W-2s going out to taxpayers, we want everyone to know they can expect more protections than ever when they file their taxes next year. Our defenses are strong. But this year, to put it in sports terms, we’re going on offense like never before. We will have new data coming in to help identify false returns and prevent fraudulent refunds from going out the door. We’re working together to build a strong, reinforced system that lets the taxpayers in and keeps the bad guys out. And we will continue to pursue identity thieves who steal refunds. Ken Corbin, the IRS Director of Return Integrity and Compliance Services, will be giving you more of the details later. But I will tell you that for the upcoming filing season, we have been focusing on a two-pronged approach. This involves both improving taxpayer authentication on the front end, and obtaining more matching data so we can make our fraud filters more effective at identifying and stopping false returns. The bottom line here is that we are breaking new ground in the battle against refund fraud caused by identity theft. And that’s good news for taxpayers and the tax system. But we need to do more, and we will. There are many people in this room who have made important contributions to this effort, and I want to thank everyone who is participating in this process and helping to make it a success. I also want to mention that our experience with the situation involving Get Transcript has helped inform the decisions we’re making in this area. In fact, I believe what happened with Get Transcript is a great illustration of how any problem can also be viewed as an opportunity. The discovery of those unauthorized attempts to use the application taught us quite a bit. For example, it helped us realize how important it is to improve authentication procedures. The attempts to access tax information using Get Transcript were perpetrated by criminals who had already stolen taxpayers’ personal data from sources outside the IRS. We believe this was done with an eye toward filing false tax returns next year. Any prior-year return information criminals could obtain would help them more easily craft seemingly authentic returns that could potentially make it past our fraud filters. So we are working to strengthen our authentication protocols by moving beyond information that used to be known only to individuals but now, in many cases, is readily available to these very sophisticated criminal organizations. But there is a difficult balancing act here. While we must provide the strongest possible authentication processes, we also have to be mindful of the need for taxpayers to readily access their data. We could make the application so secure that no criminal would ever be able to access it, but then legitimate taxpayers wouldn’t be able to use it either. As we work to strengthen Get Transcript before bringing it back online, we’re also reviewing this application in the context of our larger efforts to build for the future. As I explained to CERCA last year, we believe it’s critical to respond to taxpayer demand for a more comprehensive online filing experience. We have been looking at how we can take advantage of the latest technology so that taxpayers can have a secure online account for all of their interactions with us. As with Get Transcript, the challenge in moving toward this future state will be to find the best way to provide these critical services while making them as secure as possible. Before leaving this subject, I would note the problem with Get Transcript is also an important reminder to Congress and the public that the IRS needs adequate resources in order to properly protect taxpayer information and combat cybercrime. The President’s Fiscal 2016 budget request includes $281 million to improve cybersecurity and fight stolen identity refund fraud. This additional funding is critical because without it, the resources for these efforts would have to come from other areas of our operations. Along with stolen identity refund fraud, our efforts to prepare for the upcoming filing season once again involve the Affordable Care Act. We are preparing our systems for additional ACA changes that took effect this year. One is a reporting requirement that applies to health coverage providers and certain large employers. Also taking effect for 2015 is the employer shared responsibility provision. Certain large employers will owe a shared responsibility payment if they do not offer adequate, affordable coverage to their full-time employees and at least one of those employees receives the premium tax credit. Once again, I want to say a special thank-you to the CERCA task force that helped us last year when we were preparing for the implementation of the premium tax credit and the individual shared responsibility provision. This year the task force has again worked closely with our ACA office to make sure the IRS is ready for these additional changes. We would not be as prepared as we are without the support and insight provided by the task force, and I deeply appreciate their work. Another concern we have about the upcoming filing season involves the possibility of late tax legislation. As you all remember, we had this same concern last year. Once again, Congress has been working on legislation to extend a group of expired tax provisions, but it has not completed action yet. The uncertainty we face over the extenders legislation raises operational and compliance risks for the IRS in its administration of the tax law and delivery of the filing season. This uncertainty imposes stress, not only on the IRS, but on the entire tax community as well. If this uncertainty persists, we could be forced to postpone the opening of the 2016 filing season. This would delay the start of processing of tax refunds for millions of taxpayers. So I will continue to urge members of Congress not to let this uncertainty drag on. We believe it is critical for Congress to make a decision one way or another on the extenders legislation as soon as possible in order to ensure there are no disruptions to the upcoming filing season. I’ve laid out a number of challenges we face in the year ahead. I’m an optimist by nature, so I’m confident we can meet them. I’m confident because the IRS has a very dedicated and professional workforce, and we can rely on the support of partners like CERCA. But that confidence comes with a caveat. I remain deeply concerned that, despite our best efforts, the continuing decline in funding for the IRS could hamper our ability to accomplish what needs to be done for the American taxpayer heading into next year. The situation leaves policymakers with a very clear choice. A decision to adequately fund the IRS will give us the tools we need to carry out mission-critical activities like delivering the filing season, while at the same time building for the future. A decision to keep underfunding the agency will punish taxpayers, reduce the revenue needed to fund the government, inject risk into our system of voluntary tax compliance, and also threaten the good work of the electronic tax industry. I will continue urging Congress to make the right decision. Thank you for letting me spend this time with you today. I would be happy to take questions in the time we have left.
