[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]






                INTERNAL REVENUE SERVICE OPERATIONS AND
                   THE 2014 TAX RETURN FILING SEASON

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 7, 2014

                               __________

                           Serial No. 113-OS8

                               __________

         Printed for the use of the Committee on Ways and Means


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





                                
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                      COMMITTEE ON WAYS AND MEANS

                     DAVE CAMP, Michigan, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington        XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida               RON KIND, Wisconsin
ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas                 ALLYSON SCHWARTZ, Pennsylvania
ERIK PAULSEN, Minnesota              DANNY DAVIS, Illinois
KENNY MARCHANT, Texas                LINDA SANCHEZ, California
DIANE BLACK, Tennessee
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio

        Jennifer M. Safavian, Staff Director and General Counsel

                  Janice Mays, Minority Chief Counsel

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

             CHARLES W. BOUSTANY, JR., Louisiana, Chairman

DIANE BLACK, Tennessee               JOHN LEWIS, Georgia
LYNN JENKINS, Kansas                 JOSEPH CROWLEY, New York
KENNY MARCHANT, Texas                DANNY DAVIS, Illinois
TOM REED, New York                   LINDA SANCHEZ, California
ERIK PAULSEN, Minnesota
MIKE KELLY, Pennsylvania













                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 7, 2014 announcing the hearing...................     2

                                WITNESS

The Honorable John Koskinen, Commissioner, Internal Revenue 
  Service, Testimony.............................................     7

                       SUBMISSIONS FOR THE RECORD

Richard N. Brown.................................................    45
H&R Block........................................................    49
RAC COALITION....................................................    62

                   MATERIAL SUBMITTED FOR THE RECORD

Questions for the Record.........................................    67
 
  INTERNAL REVENUE SERVICE OPERATIONS AND THE 2014 TAX RETURN FILING 
                                 SEASON

                              ----------                              


                         WEDNESDAY, MAY 7, 2014

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.

    The subcommittee met, pursuant to call, at 10:30 a.m., in 
Room 1100, Longworth House Office Building, the Honorable 
Charles Boustany [Chairman of the Subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

 Boustany Announces Hearing on Internal Revenue Service Operations and 
                   the 2014 Tax Return Filing Season

1100 Longworth House Office Building at 10:30 AM
Washington, April 30, 2014

    Congressman Charles W. Boustany, Jr., M.D., (R-LA), Chairman of the 
Subcommittee on Oversight of the Committee on Ways and Means, today 
announced that the Subcommittee will hold a hearing on the Internal 
Revenue Service (IRS) and the 2014 tax return filing season. The 
hearing will take place on Wednesday, May 7, 2014, in Room 1100 of the 
Longworth house Office Building, beginning at 10:30 A.M.
      
    The Commissioner of the Internal Revenue Service, the Honorable 
John Koskinen, will be the only witness at the hearing. However, any 
individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion into the printed record of the hearing.
      

BACKGROUND:

      
    In fiscal year 2013, the IRS collected over $2.8 trillion in taxes, 
processed 145.9 million individual tax returns, and issued $364.3 
billion in refunds. With the 2014 tax return filing season concluded, 
the Subcommittee will review IRS performance with a focus on taxpayer 
service, taxpayer rights, and refund administration.
      
    In conjunction with the review of the current tax return filing 
season, the Subcommittee will review IRS operations in general. 
Specifically, the Subcommittee will consider: (1) efforts to prevent 
waste, fraud, and abuse, including identity theft, (2) the agency's 
implementation of the Affordable Care Act (ACA), (3) fairness in 
examinations and tax administration, and (4) whether the agency is 
pursuing all necessary reforms to address the Treasury Inspector 
General for Tax Administration's (TIGTA) findings that the IRS targeted 
certain groups on the basis of name and policy position.
      
    In announcing the hearing, Chairman Boustany said, ``The IRS has a 
long way to go in restoring public trust after the unprecedented 
targeting scandal. Beyond that, I am concerned about the agency's 
ability to effectively deter waste, fraud, and identity theft, as well 
as its new role in the President's troubled health care law, and the 
billions of taxpayer dollars it must administer in the Exchanges. The 
agency is obligated to spend its nearly $12 billion budget wisely, and 
the Subcommittee is committed to ensuring the IRS is putting these 
taxpayer dollars to efficient and effective use. The Subcommittee looks 
forward to discussing these and other important issues with 
Commissioner Koskinen.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the 2014 filing season and other issues 
facing the IRS, including efforts to prevent waste, fraud, and abuse, 
implementation of the ACA, promoting fairness in examinations and tax 
administration, and changes at the agency to address the findings of 
targeting by TIGTA and Congressional investigations.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
written comments for the hearing record must follow the appropriate 
link on the hearing page of the Committee website and complete the 
informational forms. From the Committee homepage, http://
waysandmeans.house.gov, select ``Hearings.'' Select the hearing for 
which you would like to submit, and click on the link entitled, ``Click 
here to provide a submission for the record.'' Once you have followed 
the online instructions, submit all requested information. ATTACH your 
submission as a Word document, in compliance with the formatting 
requirements listed below, by the close of business on Wednesday, May 
21, 2014. Finally, please note that due to the change in House mail 
policy, the U.S. Capitol Police will refuse sealed-package deliveries 
to all House Office Buildings. For questions, or if you encounter 
technical problems, please call (202) 225-3625 or (202) 225-5522.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman BOUSTANY. In the interest of time, we are going to 
go ahead and get started. We are still waiting on the ranking 
member Mr. Lewis. He should be here shortly. The subcommittee 
will now come to order, and good morning to everyone. Welcome 
to the subcommittee on oversight's hearing on the Internal 
Revenue's operation budget and filing season.
    This filing season, millions of taxpayers across America 
have struggled to meet their tax filing obligations. Doing so 
has become harder over time as the Tax Code grows in 
complexity, forcing taxpayers to spend over $6 billion and $160 
billion every single year to comply with its filing 
requirements. At the IRS, hard-working public servants also 
bear the weight of America's outdated Tax Code.
    Despite these challenges and another late start to the 
filing season, the IRS appears to have carried out the 2014 
filing season with success. Initial reports suggest the 2014 
filing season was free of problems that have marred previous 
filing seasons. As of early April, the Service processed over 
98 million returns, issued 80 million refunds, responded to 
nearly 40 million calls with lower wait times, and all of these 
are improvements over last year.
    Members of subcommittee and I congratulate Commissioner 
Koskinen and the thousands of dedicated career IRS employees on 
a successful filing season. We thank them for their hard work 
under difficult circumstances. In IRS offices across the 
country, public servants work hard to administer the Nation's 
tax laws fairly and accurately. This is not an easy task, and 
we thank them for their service
    However, these successes have occurred against the backdrop 
of the ongoing investigation into the agency's targeting of 
conservative groups applying for tax-exempt status. As the 
agency works to recover from the scandal, these kinds of 
successes will help the agency regain the trust of the American 
people. It is still a long road, and how the IRS responds to 
the ongoing investigation will affect the pace of recovery for 
better or worse. But I have to say, we still have serious 
concerns with regard to the integrity of the agency based on 
three findings so far in this investigation.
    First, Lois Lerner defied internal IRS controls to target 
certain taxpayers. This is a serious concern. On April 9th, the 
committee sent a letter referring former executive--or Exempt 
Organization Division Director Lois Lerner to the Attorney 
General Holder for potentially engaging in criminal wrongdoing 
in her capacity as EO director. One of these actions, in 
particular, has serious implications for the IRS as it 
rebuilds. The committee uncovered evidence that shows Ms. 
Lerner acted in defiance of internal controls developed to 
ensure that no single IRS employee could target an organization 
for adverse determination or exam. Ms. Lerner was not only 
familiar with these internal controls, they were policies she 
created and touted publicly as a way of commending her agency's 
impartiality.
    The evidence shows that Ms. Lerner knowingly bypassed these 
controls, reached into her division, and directed that specific 
organizations be subjected to audit. And yet, as official IRS 
reports declare--an official IRS report declared, quote, ``we 
have not found evidence of intentional wrongdoing by IRS 
personnel,'' end quote.
    Given the evidence the committee has uncovered--given the 
evidence the committee has uncovered so far, this is to the 
contrary, and I call on the IRS to review the agency's internal 
controls to ensure that this type of targeting can never happen 
again.
    Second, donors whose names were inappropriately requested 
by the IRS were audited. Equally troubling is new evidence 
uncovered by the committee that shows the IRS' exam function 
may have been used for political purposes. It is well known 
that the IRS improperly requested donor information from scores 
of conservative groups. For months, this committee has asked 
the IRS what it did with these improperly obtained lists and 
whether those lists were used to target individual donors to 
right leaning groups. Recently, the committee uncovered new 
information indicating that after groups provided the 
information to the IRS, nearly 1 in 10 donors were subject to 
audit, and the abuse of discretion in audit selection must be 
identified and stopped.
    Because of failures in IRS policy exploited by Lois Lerner 
and the possible targeting of conservative donors, I have 
requested that the Government Accountability Office undertake a 
thorough review of the policies and procedures for audit 
selection by the IRS' small business and self-employed 
division. Last year, I made a similar request that GAO audit 
the Exempt Organizations Division. I understand that audit is 
already under way.
    And Commissioner Koskinen, I call on you to give GAO your 
unqualified cooperation to the--with these audits so we can 
shed sunshine on this to begin to restore the public confidence 
in the IRS.
    Third, the IRS has denied some applicants for exempt status 
their right to an independent appeal. Through the committee's 
investigation, we have also found the IRS was, until recently, 
denying certain applicants with tax-exempt status their right 
to an independent appeal process as guaranteed by the IRS 
Restructuring and Reform Act of 1998. Ordinarily, if an 
applicant for exempt status is denied, the applicant can appeal 
to an independent appeals division. This was mandated by the 
1998 IRS Restructuring Act. However, if Washington, D.C., 
selected an applicant for additional review, an adverse 
determination was not appealable. The most a disappointed 
applicant could actually do was protest to the very same 
officials who denied the group in the first place. Noteworthy 
is that all of the applicants were subject to extra scrutiny 
based on the name ``Tea Party'' or ``policy objective'' to 
``Make America a Better Place to Live.'' These groups had their 
appeal rights taken away.
    This practice would never have come to light but for the 
committee's thorough oversight of the agency, and as a 
consequence, the IRS has now pledged to change its practice, 
and I know, Commissioner, we discussed some of this yesterday. 
We are gratified by this change, but I call on the IRS, Mr. 
Commissioner, today, to ensure that all applicants who were 
denied their right to a fair independent appeal process receive 
one. Some of these are left sort of in limbo on this, and we 
hope they will be given due consideration with a fair appeals 
process.
    The IRS cannot be an agency in which one senior executive 
can easily circumvent policies designed to safeguard taxpayers' 
due process rights. It cannot be an agency in which taxpayers 
are denied their right to an appeal based on the location of 
their file, and it cannot be an agency that audits taxpayers 
based on improperly obtained information.
    Commissioner Koskinen, I do appreciate your hard work under 
difficult circumstances, but this subcommittee cannot simply 
take the IRS' assurances at face value. The IRS' problems must 
be addressed through frank and serious conversations, so I look 
forward to discussing these matters and more during today's 
hearing. And again, I applaud the commissioner and the IRS for 
the good work during the 2014 filing season, and I hope the 
agency will continue with this success and continue all the 
work that it is going to take to rebuild the trust of the 
American people.
    With that, I now am very pleased to yield to my dear friend 
and distinguished ranking member Mr. Lewis.
    Mr. LEWIS. Thank you very much, Mr. Chairman.
    Mr. Chairman, I want to apologize to you and other Members 
of the Committee for being a little late here.
    Chairman BOUSTANY. No need for apologies.
    Mr. LEWIS. Well, thank you very much.
    Thank you, Mr. Chairman, for holding this important 
hearing.
    Mr. Commissioner, thank you for joining us today and 
congratulations to you and the IRS staff on a successful filing 
season. Over the past year, the IRS has dealt with many serious 
challenges. I commend you for taking the time to get out into 
the field to visit and connect directly with IRS staff across 
the country. Your thoughtful work and outreach has restored the 
morale of thousands of IRS employees, and I speak for many when 
I thank you for your efforts to tackle the serious challenges 
facing the agency.
    As we all know, many issues remain. Chief among them is the 
need to increase the IRS budget. Last month, the Government 
Accountability office released a report that makes it clear 
that reducing the IRS budget has cut thousands of staff and 
hurt taxpayers. The agency sorely needs adequate resources in 
order to provide our taxpayers with the service they expect and 
deserve.
    When you can't get an answer on the telephone for 20 
minutes, taxpayers hang up. When you don't get an answer to 
your letter for 30 or 60 or even 90 days, you get aggravation. 
Taxpayers deserve better. There are hard-working Americans who 
need a functioning IRS and want to have faith in our 
government.
    For the very first time, the Affordable Care Act has opened 
the doors for millions of Americans to access for healthcare. 
This will mean more work for the IRS, and we need to make sure 
that the agency has all of the necessary resources to do their 
part in a fair and transparent manner. The administration had 
requested $12.5 billion for the IRS fiscal year 2015 budget. 
Although that may seem like a lot, the IRS is getting less 
funding today than they did in 2009, and even if they were 
fully funded, which we know is unlikely, the GAO estimates this 
would only bring the IRS back up to 2012 staff levels.
    It is important to highlight that providing the IRS with 
the necessary resources also helps crack down on identity theft 
and tax cheats. Last year, the IRS examination on individual 
tax returns declined 5 percent and collection activity declined 
3.3 percent--rather, 33 percent. That is a great deal. When we 
don't fund the IRS enforcement effort, we essentially endorse 
an unfair playing field and reduce compliance across the board.
    Mr. Chairman, I am hopeful that this committee, with us 
working together, we can find a way to work together and with 
the commissioner to provide the IRS with adequate resources and 
to make the IRS the best Federal agency in our government.
    Again, Mr. Chairman, thank you for holding today's hearing, 
and I look forward to working together, as I stated before, in 
a bipartisan manner for the good of our country and the good of 
all of our taxpayers. Thank you, and I yield back.
    Chairman BOUSTANY. I thank the gentleman for his comments.
    Now, it is my pleasure to welcome our one witness for this 
hearing today, the Honorable John Koskinen, Commissioner of the 
Internal Revenue Service.
    Commissioner Koskinen, thank you for your time today. We 
welcome the opportunity to discuss a whole host of issues, the 
state of the IRS with you today, how you see things going 
forward. The committee has certainly received your written 
statement, which will be made part of the formal hearing 
record, and as is customary, we will give you 5 minutes to make 
an opening statement to deliver your oral remarks, and then we 
will go forward with questioning.
    So, sir, you may begin.

    STATEMENT OF THE HONORABLE JOHN KOSKINEN, COMMISSIONER, 
           INTERNAL REVENUE SERVICE, WASHINGTON, D.C.

    Mr. KOSKINEN. Thank you, Mr. Chairman.
    Ranking Member Lewis, members of subcommittee, thank you 
for the opportunity to discuss the 2014 filing season and our 
actions to reduce improper payments. The IRS, as noted, 
delivered another successful filing season this year, rising to 
the challenges posed by an incredibly tight budget.
    Through April 25th, the IRS received more than 134 million 
individual income tax returns, of which 87 percent were file 
electronically. We will have processed nearly 150 million 
individual returns and sent out well over 100 million refunds 
when we close the books on this filing season next fall. This 
is a tremendous accomplishment that does not happen 
automatically or by accident, but as the chairman noted, as a 
result of the efforts of our highly experienced, capable, and 
dedicated workforce.
    During this filing season, we were able to improve our 
phone service somewhat, despite our funding limitations. This 
was done in large part to the diligent efforts of our employees 
as well as our improved ability to provide information to 
taxpayers on our Web site, IRS.gov, and the lack of major tax 
legislation in 2013.
    Because of the dropoff in call volume, we maintained a 
level of phone service during the filing season of about 71 
percent, which is better than last year's average of 60.5 
percent but still an unacceptable level of service since it 
means that about 30 percent of calls did not go through.
    Furthermore, now that filing season is over and we no 
longer have extra seasonal employees, we will have fewer people 
on the phones, and we expect wait times to increase 
significantly between now and the end of September. For all of 
this fiscal year, we expect our level of phone service to drop 
below 70 percent and end up closer to last year's number.
    Looking beyond the filing season, we are concerned that 
levels of service and enforcement will continue to decline as a 
result of budget constraints. Our funding for this year was set 
at $11.29 billion, more than $850 million below our fiscal 2010 
level, and $500 million below our presequestration level. We 
have 10,000 fewer employees today than we did in 2010, even as 
our responsibilities have continued to expand.
    Turning to improper payments, one of our major areas of 
focus, it remains the fight against refund fraud, especially 
fraud caused by identity theft. I am pleased to report that 
over the last couple of years, the IRS has made important 
progress in this area. In 2013, we suspended or rejected 5.7 
million suspicious returns worth more than $17.8 billion in 
refunds. Through April 18th of this year, more than 3 million 
suspicious returns have been stopped.
    We have also opened more than 500 new investigations into 
identity theft and refund fraud screens thus far in fiscal 
2014, bringing the total number of active cases to more than 
1,800. We will remain vigilant, given the propensity of 
fraudsters to adapt to changing circumstances and to develop 
new and more complicated schemes. Even with the progress we 
have made thus far, I have recently asked our senior leadership 
team to reevaluate everything we are doing in this area and to 
consider additional steps we could take to prevent refund 
fraud, especially that caused by identity theft.
    Another way we are working to reduce improper payments is 
by improving compliance with regard to refundable tax credits, 
especially the earned income tax credit program. Our programs 
that focus on EITC combine to protect approximately $4 billion 
annually. Even so, we continue to be concerned that the 
improper payment rate for EITC remains unacceptably high. We 
now have a working group assessing our past and current efforts 
in this area and exploring new possibilities for improving 
compliance.
    Congress can help us on both refund fraud and EITC by 
enacting several proposals in this year's budget for the IRS. 
One would accelerate the due dates of third-party information 
returns, which would allow us to match up those documents 
against income tax returns earlier in the tax filing process 
and to more quickly spot errors and potential fraud. Another 
proposal would provide the IRS with greater flexibility to 
address correctable errors, which would allow us to 
automatically fix more errors on returns than we can do now, 
thus avoiding costly audits or allowing errors to go 
uncorrected.
    We also urge Congress to enact our proposal to explicitly 
authorize the IRS to regulate paid tax return preparers. Given 
that more than half of the returns claiming an EITC refund 
credit are done by paid preparers, this proposal would be an 
important addition to our efforts to improve compliance in this 
area.
    Even with these legislative changes, which would be very 
helpful, the biggest challenge to our efforts to reduce 
improper payments remains our ongoing lack of adequate 
resources. Without sufficient funding, our ability to proceed 
with any new initiatives in this area will be constrained, and 
it will be increasingly difficult even to maintain current 
levels of service and enforcement.
    This concludes my opening statement. I will be happy to 
take your questions.
    Chairman BOUSTANY. Thank you, Commissioner.
    [The prepared statement of Mr. Koskinen follows:]
    
    
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    Chairman BOUSTANY. I want to cover some of the information 
and concerns we have with regard to the investigation to start 
with. I know we had a wide-ranging conversation yesterday, and 
I do appreciate talking about all of the issues, but the 
committee's investigation of targeting has yielded a number of 
insights into operations during that timeframe of the Exempt 
Organizations Division, and the committee found that EO has 
been run in a manner that was inconsistent with the IRS 
Restructuring and Reform Act of 1998, as mentioned in my 
opening.
    The act calls for an independent appeals function that 
would ensure taxpayers' due process rights. And during the 
course of the investigation, we found that some groups whose 
applications were sent to IRS headquarters in Washington 
automatically lost their right to an independent appeal.
    Commissioner, isn't it true that the groups that TIGTA said 
were targeted on the basis of their name or policy position 
were sent to Washington, D.C., for review? In other words, 
bypassed the determinations process in Cincinnati, went 
straight up to, I think it was EO Technical for review; is that 
true?
    Mr. KOSKINEN. Yes. I am not sure whether all of them went 
but certainly a number of--significant number went to 
Washington to that Technical review process.
    Chairman BOUSTANY. Right. Did any of those groups that were 
referred to EO Technical, did they lose their right to an 
independent appeal as a result--for an adverse determination?
    Mr. KOSKINEN. Yes. It is my understanding that in lieu of 
an appeal, as you noted, they were referred--they did have a 
right to appeal, but it was to a set of 3 IRS executives, not 
the appeals process.
    Chairman BOUSTANY. Right. And so can you give us your 
commitment, because part of this oversight activity is to 
understand where there were breakdowns. Can you give your 
commitment to these groups that were treated unfairly in this 
independent appeals process, will they be given an opportunity 
to have due process?
    Mr. KOSKINEN. Yes. We have changed the process. Anyone that 
comes to Washington--well, retain their appeal rights that they 
would have had if they were in Cincinnati, and anyone who would 
like to avail themselves of that appeal process will have it 
open to them.
    Chairman BOUSTANY. Okay.
    Mr. KOSKINEN. And going forward, everyone who is given a 
proposed denial will have the right to appeal.
    Chairman BOUSTANY. And I appreciate that reform, and that 
is going prospectively forward. What about those who are caught 
in this problem? Will they be given due process?
    Mr. KOSKINEN. Yes. Anyone who was caught in that process, 
would like to come back through and appeal their--the decision. 
There were relatively few denials. The biggest problem in the 
process was the lengthy, far too lengthy time that people were 
stuck in the process, but the handful of those that were 
denied, if they did not have their appeal right out of the 
Washington, they can come, and we would give them that.
    Chairman BOUSTANY. I thank you for that answer. Now I am 
going to give you a sampling of some kinds of statements 
Congress has heard from key IRS officials over the past couple 
of years. At a hearing before the House Appropriations 
Committee Subcommittee on Financial Services and General 
Government in March of 2012, former Commissioner Shulman said, 
and I quote, ``we have the safeguards built into this process 
so that no one person can decide to examine an organization 
based on political activities. You can't just get a case, go 
off in a corner, and run with your own agenda,'' end quote.
    Then, separately, as we embarked on the investigation, 
Joseph Grant, the former IRS commissioner for TEGE, Lois 
Lerner's former boss, was asked by our staff in a transcribed 
interview if it would be appropriate for an IRS manager to 
refer a specific taxpayer to Exams, and he said, and I quote, 
``I believe it would not be appropriate to intervene on their 
own,'' end quote.
    So, Commissioner, the IRS has long insisted, and we have 
gotten numerous documentation through letters and responses 
that our subcommittee has received, IRS has long insisted that 
Americans should not worry about political targeting at your 
agency because the IRS has layers of internal protections to 
guard against it.
    But in the course of our investigation, however, we found 
that Lois Lerner acted in defiance of these internal 
protections to select groups--in order to select groups for 
adverse determination or audit. She was doing all of this while 
IRS officials were assuring Congress it wasn't happening. But 
those assurances ring hollow now, and you have got the 
responsibility of restoring the trust.
    How will you assure the American people that no one IRS 
employee is going to decide whether or not they are audited and 
that there are safeguards in place?
    Mr. KOSKINEN. I think it is a critical issue. As I said in 
the past, every taxpayer deserves the right to assume that they 
will be treated fairly, no matter what their political beliefs, 
what organization they belong to, who they voted for in the 
last election.
    As I said, if you hear from us, you are hearing from us 
because of something in your application or in your return, and 
anybody else with a similar issue would be treated similarly. 
So there are--and we have reviewed and we look forward to the 
GAO, and we are delighted to cooperate with the GAO reviews of 
the entire examination process, the controls that are in place. 
They are significant controls. No situation and no system self 
executes, so one of the reasons I have been out to all 25 of 
the major offices, I have talked to over 10,000 IRS employees 
is to encourage employees to understand that we need the 
benefit of their advice and their insights, their suggestions 
for improvements, but we also need to hear from them when they 
think something isn't going the way it ought to go. We need to 
have that information flow easily from the bottom up.
    I also, as you know, am a great support of inspectors 
general. I once chaired the cross-agency Council of Inspectors 
General for 3 years, and when I was in the private sector, I 
had the same view that internal auditors, as I tell employees, 
and inspectors general are management's best friends because 
they find problems before they get bigger.
    So we have to be open to all flows of information and 
concerns. I have said in the past and I truly believe it, that 
when we hear from Members of Congress, if we hear from one 
Member, it is probably about an anecdotal issue. If we hear 
from several Members of the Congress, that means there is an 
issue that we should investigate, so I think the process that I 
hope will reassure Americans is that not only do we have a 
structure in place, but we are trying to build a culture that 
will accept and be welcoming to people who say there is a 
problem you need to look into. Whether that information comes 
from frontline employees, managers in the middle, whether it 
comes from Members of Congress and their constituents, whether 
it comes from GAO or the IG, we have to be open to that and be 
prepared to respond.
    Chairman BOUSTANY. And then my final line of questioning. I 
want to address this issue that received some media attention 
recently with regard to bonuses of IRS employees.
    The Treasury Inspector General for Tax Administration 
recently published an audit report on bonuses awarded to IRS 
employees who had tax compliance issues themselves. Of course, 
every agency, most employers have employers--or have employees 
who owe taxes or may be late in paying their taxes or errors 
and those kinds of things, but unlike other employers, the IRS 
has the ability to look into employee tax compliance. It is a 
special ability, so to speak, because you are--you are bringing 
in employees who deal with very, very personal tax matters, and 
a highest level of integrity is necessary in all of this.
    So, in fact, I know it is a condition for employment. It is 
something that--reviews are done several times a year, but the 
recent TIGTA audit found that in 2011, the IRS awarded 1,100 
IRS employees more than $1 million in cash awards, over 10,000 
hours of time off, and 69 quality step increases, despite the 
fact that these employees all had a substantial record of 
noncompliance with the tax laws, and these were not just 
employees who paid late or had some issue or they were 
disputing an issue. These were actually employees who were 
actually disciplined for their tax delinquency, disciplined by 
the agency.
    I understand that these bonuses were awarded before you 
became commissioner. I know we are dealing with something in 
the past, but can you explain the steps you are taking to make 
sure that IRS employees don't get performance awards if they 
are disciplined for nonpayment of taxes? I think the American 
people deserve an explanation, and they also deserve to know 
what steps are going to be taken to put a halt to this 
egregious behavior.
    Mr. KOSKINEN. I think it is an important issue. We take tax 
compliance, obviously, very seriously. I think it is fair to 
say that if we are encouraging others to pay their taxes, we 
should ensure that IRS employees are paying theirs. The 
compliance rate at the IRS is over 99 percent, so we have less 
than a 1 percent noncompliance rate, which is higher than the 
rest of the Federal Government and Congress and certainly much 
higher than the public, but that is not the standard. We ought 
to have the public confident that IRS employees are held to the 
highest standard.
    As you say, when IRS employees join the agency, they sign 
up to that. We monitor all 90,000 employees to make sure that 
they are compliant. We have a separate disciplinary proceeding. 
You are subject to termination if you have a willful violation 
of the Tax Code, and all of that we take seriously.
    As the IG noted, there is no policy across the government 
or in the IRS that conjoins performance issues with 
disciplinary issues. We have a program that says for senior 
executives, if you are behind in your taxes, you are not 
compliant, you are not eligible for an award. We are now--
timing turns out to be good. We are in the middle of 
negotiations, near the end of them with the union about a new 
5-year agreement. Under the union agreement, we did not take--
it was not allowed, we are not allowed to take into 
consideration tax compliance. We are developing a policy that 
we will be sharing with the union this week. They have 
indicated they understand the issue and are willing to 
negotiate that with us, and I expect we will have that included 
in the contract so that going forward, if someone has been 
disciplined for failure to comply with the Tax Code, they will 
be ineligible for a performance award. I would note again, 
these are performance awards, so when the pool is established, 
generally 30 to 35 percent of the employees do not get an 
award. It is not an automatic bonus. So even if you are in the 
pool, it doesn't mean you will get one, but I do think it is 
important for the public to be confident that we take this very 
seriously.
    As I say, we just can quote--conclude by reminding everyone 
that we are over 99 percent compliant to begin with, but our 
view is that, in fact, as you say, while--people need to be 
committed that employees will not be eligible for an award if 
they are not compliant with--if they have been disciplined for 
not being compliant with the Tax Code.
    Chairman BOUSTANY. And I would agree with you. There are a 
lot of hard-working people at the IRS. They do their jobs day 
in and day out. They pay their taxes. Compliance level is high 
overall. But when you have employees who have actually been 
disciplined for tax related matters and yet they receive 
performance awards, that is problematic. And so I am glad to 
see that you are taking steps to address this. And we will 
follow up with you and follow it closely, but I appreciate your 
answer on this.
    And now I am pleased to yield to ranking member, Mr. Lewis.
    Mr. LEWIS. Thank you very much, Mr. Chairman.
    Mr. Commissioner, thank you for your testimony.
    Now, Mr. Commissioner, I am deeply concerned about the lack 
of adequate funding for the IRS. Your workload is getting 
heavier. The issues you are facing are becoming more and more 
complex, but your appropriations keep getting smaller. I said 
it before and I will say it again this morning, you can only 
get out what you put in, and you cannot get blood out of a 
turnip.
    Identity theft is an important national concern. Tax 
preparation for low-income, elderly, and disabled taxpayers is 
on the chopping block, and as a constant increased workload, 
how would the IRS be able to even to begin to address the real 
needs of taxpayers? How will your staff be trained and prepared 
for the challenges and work ahead? Are you being stood up for 
failure, for disaster?
    Mr. KOSKINEN. While we have a very can-do agency of--full 
of employees dedicated to the mission who will, I think, go 
down swinging doing their best with the resources, but I am 
very concerned. As I have said in the past, I spent 20 years in 
the private sector managing large failed enterprises. I have 
never dealt with an organization, even major ones in 
bankruptcy, that is so consistently understaffed across the 
board. We don't have enough people in any division of the 
organization, and it is not just a few. Everyone, from counsel 
on across, is down 10 to 15 percent. We have 4,500 fewer 
revenue agents and revenue officers than we had 4 years ago. We 
have 350 fewer criminal investigative officers than we had 4 
years. The head of Criminal Investigation is--projection is 
that he will lose 150 more agents every year.
    So, it is--as you say, we are doing more and more, I think, 
with less and less. There comes a point at which you hit the 
wall, and the wall isn't because we don't have good employees, 
and it is not because they are not working hard. It is a wall 
that you hit because you simply don't have the resources. So 
this coming year, we are very concerned. We have a statutory 
obligation to implement the Foreign Account Tax Compliance Act 
and the Affordable Care Act, and we will do that, but to the 
extent that our resources remain constrained, the way we will 
have to fund that is out of declining taxpayer services and 
taxpayer enforcement.
    Mr. LEWIS. Thank you, Mr. Commissioner.
    Mr. Commissioner, I have a letter here from a group of 
civil rights organizations, consumer groups, including the 
NAACP, the National Council of La Raza, the Consumer Federation 
of America, and the National Consumer Law Center. They are 
opposed to a proposal to require the use of a private 
collection agency to collect taxes. This is an issue on which 
this subcommittee worked greatly, spent so much time in the 
past. We listened to examples, a call from private debt 
collectors, and discussed 130 years of this committee oversight 
on this issue. It was clear that the best interest of taxpayers 
was not being upheld and that the collection of Federal income 
tax is a core government function. It is the mission and 
purpose of the IRS.
    Do you have any views on whether we should have--any 
feeling or thoughts whether we should have private groups 
collecting taxes?
    Mr. KOSKINEN. While having spent 20 years in the private 
sector. I am a big believer in the private sector. My concern 
is--about private debt collection for taxes is we have done 
that a couple of times in the IRS, in 1996 and in 2006, and 
part of the problem is that it has a huge expense to it beyond 
the debt collection because the IRS does have to monitor very 
carefully the work of people that are not their employees. And 
private debt collectors are limited because they do not have 
enforcement authority, so they cannot apply liens or levies 
when they go out to collect, so almost by definition they are 
going to be less effective than they would be if they had the 
tools of the IRS available.
    So, the experience in the 1996 experience and 2006 was that 
it was an inefficient way for the government to collect taxes, 
that you would be much better off if you hired a few more 
revenue agents and officers to proceed. In fact, the analysis 
of 2006 is we actually ended up losing money because of the 
information technology changes we had to make and the amount of 
monitoring we had to do to try to make sure the taxpayers were 
not abused in the process.
    An additional problem now that it was not then is, over the 
last year, one of the major tax scams that we have been trying 
to warn the public about have been people calling up saying 
they represent the IRS and demanding that people either make 
immediate payments to them or provide them personal 
information. We normally don't contact people by phone to begin 
with. We send you notices and letters, so as I have said, as I 
have traveled across the country, if you are surprised to be 
hearing from us on the phone, you are probably not hearing from 
us, which means that it is going to be an additional burden for 
private debt collectors, if they are retained, to convince the 
taxpayer that they are legitimate on the phone, and they won't 
have other means of actually dealing with the taxpayers.
    So I think it is going to be an inefficient way to proceed, 
and it does have problems that we all worried about, which is 
how do we monitor what the conversations are that those people 
are having with taxpayers. Our employees are held personally 
accountable. If there is an issue, taxpayers can complain to 
us, they can complain to the taxpayer advocate. They can write 
Congressmen and Senators and will respond. For employees that 
are not our employees, it is a more complicated oversight 
problem.
    Mr. LEWIS. Well, thank you very much, Mr. Commissioner.
    I yield back, Mr. Chairman.
    Chairman BOUSTANY. I thank the gentleman.
    We are now--we are also joined today by Sam Johnson, who is 
a subcommittee chairman, and I am going to break precedent and 
allow him 5 minutes for questioning.
    Mr. JOHNSON. Well, thank you.
    Thank you, members.
    Welcome, Mr. Commissioner. It is good to see you again.
    In your prepared testimony for your confirmation hearing 
before the Senate, you said public trust in the IRS is most 
important, their most important asset. I couldn't agree more.
    Unfortunately, it seems, each week goes by, we learn yet 
another problem at the IRS which further undermines Americans' 
trust in the agency. For example, just last month, we learned 
from the Treasury Inspector General for Tax Administration that 
the IRS rewarded tax--IRS workers with tax problems with 
bonuses and other awards, such as time off, and that is 
outrageous, and you have more or less talked to that. But let 
me start off by asking, is the IRS right now still paying out 
bonuses and other awards to those who owe back taxes, yes or 
no?
    Mr. KOSKINEN. Right now, we are not paying bonuses to 
anyone because we are between the bonus period, and as I said, 
we are negotiating--about to negotiate with the union to make 
clear, assuming we can negotiate that out with them, but they 
have expressed an interest in it that, going forward, anyone 
disciplined for not paying taxes will not be eligible for a 
performance award.
    Mr. JOHNSON. Okay. Now, for the record, do you agree that 
the IRS workers who owe taxes should not be getting 
performance-related awards, and you just said no. Is that in 
your regulations now?
    Mr. KOSKINEN. No. In other words, there is--the IG 
appropriately noted there are no regulations that the IRS or 
across the government that did not--would cause someone not to 
get a performance award if they were not compliant. We have 
that process for senior executives. We are about to negotiate 
with the union about making sure that that rule applies to all 
IRS employees, and I am----
    Mr. JOHNSON. Well, then will it be in law?
    Mr. KOSKINEN. It will actually be in the contract, and it 
will be in our regulations and policies.
    Mr. JOHNSON. Good.
    Now, according to the IG, examples of workers with tax 
related problems include, quote, willful understatement of tax 
liability over multiple tax years. As you well know, the IRS 
Restructuring and Reform Act of 1998 includes the so-called 
deadly IRS sins for IRS workers. One of those sins is a willful 
understatement of Federal tax liability. According to the 1998 
Act, the commission--commissioner, you, shall fire a worker for 
this, but instead what happened is that all the IRS rewarded 
the workers. It is hard for my constituents and folks across 
the country to understand how this could happen. Do you agree 
that this was wrong for the IRS to do that?
    Mr. KOSKINEN. As I said, we take it very seriously, and I 
think that going forward--I can't look backwards. I don't know 
what the decisions were.
    Mr. JOHNSON. I hear you.
    Mr. KOSKINEN. But going forward, if you have willfully not 
paid your taxes, you are subject to termination, and we have 
terminated employees for that. We have a separate disciplinary 
review, but clearly, going forward, it is our policy, and we 
hope to be able to negotiate with the union about this, that 
you will not be eligible for a performance award if you have 
willfully violated--not been in compliance.
    Mr. JOHNSON. But you would fire them if you caught them 
doing that?
    Mr. KOSKINEN. Pardon?
    Mr. JOHNSON. You would fire them if you caught them doing 
that. Is that true?
    Mr. KOSKINEN. We have the ability to fire every--you know, 
there is a wide range of situations in which people find 
themselves, but the indication, if it is someone for several 
years willfully underreported, they would in fact be 
terminated.
    Mr. JOHNSON. Finally, you come with a reputation as Mr. 
Fix-it. I appreciate that. And you certainly have your hands 
full, so I will close by saying I have introduced a bill, No 
Bonuses for Tax Delinquent IRS Employees Act, to help you 
restore the public trust in the IRS. It is a simple and 
commonsense bill, prohibits the commissioner from paying out 
bonuses and other performance-related awards to workers who owe 
back taxes. So we are going to try to help you.
    Mr. KOSKINEN. As always, legislation is kind of a blunt 
instrument. That bill, for instance, says even if you have an 
installment program, which many taxpayers take advantage of 
when they have difficulties, and we have low-paid employees, 
like everybody else who aren't tax experts, that legislation as 
drafted would say even if you are in effect compliant, you are 
on an installment plan, you would not be eligible for a 
performance award. I am not sure that those nuances can ever be 
built in successfully to statute, and as I said, I think you 
will be satisfied, I hope, with our union negotiations that the 
policies we have are appropriate and that the public can be 
satisfied. If you are disciplined for not being compliant with 
taxes, you are not eligible for a performance award.
    Mr. JOHNSON. Thank you, sir.
    Thank you, Mr. Chairman.
    Chairman BOUSTANY. I thank the gentleman.
    By the way, Commissioner, I am going to send a letter to 
you regarding the Foreign Account Compliance Tax Act with a 
number of questions because I--we are not going to have the 
time to get into detail on that here today, but I wanted to 
give you notice. I will be sending you a letter with a number 
of questions and look forward to your response.
    Mr. KOSKINEN. I will be happy to do that, and I will do my 
best to respond promptly. As you know, I have a strong view 
that when I hear from a Member of Congress, A, I should read 
the letter personally, and B, we should get back to you 
quickly.
    Chairman BOUSTANY. I appreciate that.
    All right. Ms. Sanchez, you have 5 minutes.
    Ms. SANCHEZ. Thank you, Mr. Chairman, for this hearing 
today.
    And thank you, Commissioner Koskinen. It is good to see you 
again. I want to begin by commending you for the hard working 
and--the hard-working Federal employees of the IRS for a 
successful tax filing season on what we know is a very 
challenging and inadequate budget for everything that you are 
being asked to do. I know that working for the IRS is 
oftentimes a thankless job, and I want to take an opportunity 
to thank you and the dedicated men and women who are working 
hard to try to process claims, get information to taxpayers and 
make the process as painless as possible.
    I know that you have been asked to do more and more with 
less and less, and if I am not mistaken, your current budget is 
under the sequester level budget. Is that correct?
    Mr. KOSKINEN. That is correct. We are about $500 million 
below where we were before the sequester. We are the only major 
agency that is operating, in effect, at the post-sequester 
level rather than at the pre-sequester level.
    Ms. SANCHEZ. I think it is important for people to bear 
that in mind when they ask you to do more and more with less 
and less.
    Because of that cut in funding to your agency, I know that 
IRS was forced to make many service cuts, and you know, the 
constituents that I represent, very, you know, hard-working 
American families, many of them low income or elderly, they are 
doing their best to file complete and accurate tax returns, but 
I don't think that we can--we are doing them a big--we are 
doing them a tremendous disservice when we slash the budget of 
the IRS and take some tools out of their toolbox in order to 
help them complete their returns in an accurate way.
    I was hoping that you could perhaps speak directly to how 
the budget cuts at the IRS hurt all of our constituents in 
terms of the services that they are able to get from the 
agency.
    Mr. KOSKINEN. Well, as I noted, to begin with, I have been 
surprised. One of the surprises that I have had is how much 
time, energy, and resources we devote to trying to help 
taxpayers, trying to make it easier for them to pay, figure out 
what they owe, respond to their questions, so the most 
immediate problem and concern I have heard from employees, as I 
have talked to over 10,000 IRS employees in the 25 offices I 
have visited, their major concern is that not that they are 
overworked, although they probably are, it is that they don't 
have enough resources to provide taxpayers the services that 
our employees think the taxpayers deserve.
    So, even at 71 percent as a level of service, as I noted, 
that means 30 percent of the calls aren't going through, and 
then that builds because if you call and can't get through, 
then you call again. So now we have got two calls for the price 
of one. This year, also, in addition, for the first time, we 
had to tell people we could not answer complicated tax 
questions, and they are relatively simple complicated tax 
questions. We had to tell people they either had to go to the 
Web site, which we are trying to improve, or get private--you 
know, hire somebody to help them.
    Our employees are concerned because I have heard from 
several of them in call centers saying, But we know how to 
answer those questions, and I had to explain, but it takes 
longer, and the longer we take with that person, the more 
people are sitting in the queue. So, we have had to do that. We 
don't prepare. We used to, in our taxpayer assistance centers, 
for people who would walk in, we would help them prepare their 
returns. We don't do that anymore because we don't have the 
resources.
    On the enforcement side, as I have said, not facetiously, I 
don't know who got our $500 million of sequester funds, but I 
am sure they are not going to give back the government the $2 
billion to $3 billion we would have given had we had those 
funds. In our request for 2015, to just hire another 1,200 
people, we think we would provide the government $2.1 billion 
more, which would be more than the entire budget increase we 
are talking about.
    Ms. SANCHEZ. So, if the money were well spent on the 
enforcement end, you could make up that money and then some in 
terms of lost revenue that currently we are not able to get 
because nobody is looking at this.
    Mr. KOSKINEN. That is right. Our estimate is that we 
historically, and nobody is--the argument is whether it is four 
or six or eight times the amount of investment, but the 
government, we are the only agency where if you give us money, 
we give you more money back, and whether it is four times as 
much, six times as much depends on the issue, but we are the 
revenue arm of the government. We collect over 90 percent of 
the money that runs the organization.
    So when we have fewer enforcement agents, fewer criminal 
investigative divisions, it means we are collecting fewer 
dollars. And when I talk to revenue agents and officers, those 
that are left, across the country, their concern as well is it 
is not theoretic. They know that there are returns that owe us 
money that they can't pursue because we simply don't have 
enough people.
    Ms. SANCHEZ. Right. Really quickly, because my time is 
almost up. I want to--you and I have discussed EITC--EITC 
payments and the issue of correctable error authority. I just 
would like you to quickly, if you can, summarize for the 
committee how narrowly tailored authority could help the IRS 
process EITC claims more effectively.
    Mr. KOSKINEN. What we have now is what is called math 
authority, so if your columns don't add up, we can make a 
correction and send you a notice and say we have adjusted to 
make sure the columns add up. Correctable error authority would 
allow us, when we have independent verification of information 
that is wrong on your return, would allow us to correct it. So 
if you say, particularly in the EITC program, I have three 
children, and we have independent information that you have got 
one, we would, with correctable error authority, be able to 
make that correction, send you the notice. You wouldn't lose 
any appeal rights. If you really thought we had made an error, 
you could call us up, if you get through, but send us the 
information and we could make an adjustment, but what happens 
now is we, in many returns, see that there are errors that we 
could correct, but the limitation we have is we have to audit 
you before we can make that correction. If we had correctable 
error authority for the obvious errors, beyond math authority, 
we would make those corrections, advise the taxpayer, send a 
smaller refund, give them an explanation, they could then 
appeal to us if they disagreed, but we estimate that there are 
several billion dollars out there that, again, because of 
resources, we can't audit our way out of it, improper payments 
are being made, and I think it is a wonderful program, but as I 
made it clear to people, we need to attack the problem of the 
rate of improper payments and the amount of improper payments.
    Ms. SANCHEZ. Thank you so much for your time.
    I appreciate your thoughtfulness.
    I yield back.
    Chairman BOUSTANY. Thank you. Ms. Jenkins.
    Ms. JENKINS. Thank you, Mr. Chair, thank you for holding 
this hearing.
    Commissioner, thank you for being here.
    Mr. KOSKINEN. Thank you.
    Ms. JENKINS. Commissioner, you suggested that resource 
constraints affect the ability of the IRS to stop fraud and 
provide customer service, but the committee understands that 
the IRS allows employees to spend a total of more than 500,000 
hours a year on union activity on the taxpayers' dime. Were you 
aware that taxpayers were paying for union activity on official 
time?
    Mr. KOSKINEN. Yes. Actually, taxpayers pay for union 
activity across the government. Wherever there are employee 
unions, part of the organizational structure of the entire 
government is that union representatives represent employees, 
and they do that while they are working, and that is, in 
effect, on government time.
    Ms. JENKINS. But wouldn't you agree that some of those 
500,000 hours might have been better spent stopping fraud. For 
example, how many phone calls do you think the IRS could answer 
with 500,000 hours of worker time?
    Mr. KOSKINEN. That is a little hard to know, but then you 
would have to ask what would happen to labor-management 
relationships, the operation of the agency if employees didn't 
have the ability to deal with their unions when they have 
problems and issues. As I say, one of the issues, and I have 
talked to the union about that, is sometimes employees are 
nervous about reporting a problem directly for fear that, you 
know, their manager won't like that, and I have encouraged 
them, A, I have a separate mailbox, they can call me--or 
contact me, not call me, but email me directly, but the union 
performs a very valuable role for us as an intermediary in that 
area.
    So, as I say, it is a little like saying, well, if I didn't 
pay anybody any awards or if I didn't pay them any pay 
increases, I would have more money for something else, you 
would, but you would have to look at the negative implications 
of what happened when you moved that money. And all I can tell 
you is, at the budget levels we are, even if I didn't--if I got 
rid of the union and had those 500,000 hours, I still wouldn't 
get back to the level of customer service we think is 
appropriate, and I would have changed significantly the way the 
organization operates.
    Ms. JENKINS. It just seems like with limited choices, we 
have to--or limited resources, we have to make good choices in 
government. And this seems like maybe a less than optimal use 
of taxpayer dollars. And my main concern isn't with your 
relations necessarily with your employees but looking out for 
the hard-working taxpayers that I represent, and I am just sad 
for them that they are having to underwrite that cost.
    The Affordable Care Act's premium tax credit subsidy will 
be based on folks' income estimates, and these estimates will 
often use the prior year's tax returns. Taxpayers will 
eventually have to reconcile the premium subsidies that they 
received with amounts that they are eligible to receive based 
on their actual income. So in many cases, whether it is due to 
a salary increase, a move across State lines, or another change 
in their individual situation, they could find themselves owing 
thousands of dollars back to the IRS.
    So I am just curious, first of all, do you believe that the 
taxpayers fully understand this risk, and can you explain to us 
how your agency will handle the reconciliation process?
    Mr. KOSKINEN. All right. On the first issue, we are 
concerned that taxpayers need to understand that. We have 
already started publicizing the issue. In my--every city I have 
been to, I have talked with the press and said one of the 
issues we hope taxpayers will be aware of, if their situation 
changed for the better--they get a promotion, they get a pay 
increase, their wife gets a job--something happens and they 
earn more, they need to call back the exchange and adjust their 
premium tax credit so they don't owe us a refund.
    We will continue to do that through the year to try to make 
sure that we get taxpayers as much information about this as 
possible so that they are not surprised when, fortunately, 
would be a good event on their part if they made more money 
than they assumed when they first calculated the credit, but we 
are anxious for them to make those adjustments as they go 
forward. So we will do the best we can to publicize that. We 
thought and talked with some about perhaps even providing 
frequently asked questions and answers for Members of the 
Congress so they could share that information with their 
constituents. We have got YouTube video. We have got a Web site 
that does it.
    Secondly, the way the reconciliation will happen is in the 
filing season, which is why we have a major challenge to make 
sure next year's filing season is at least as good as this, 
because everyone is making an estimate. In fact, we all do when 
we make an estimate for our W-2s, about what they earn. We 
provided information about the income for 2012, but the premium 
credit will be based on what you actually earned in 2014.
    So we will, when you file, you will have a form you will 
fill out, and we will make the adjustment. If you have got too 
small a credit, you underestimated because you wanted to be 
careful or some change in your financial circumstances, we will 
owe you a refund for that, in other words, the additional 
credit. If you withheld too much, which is the concern we are 
concerned about with you, you will then have an additional tax 
owing, and our hope is to minimize that to the extent we can by 
providing as much public information as we can.
    Ms. JENKINS. Thank you.
    I yield back.
    Chairman BOUSTANY. Mr. Marchant.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    Commissioner, just recently, I sent you a letter and would 
like to compliment you. You gave me a very prompt reply, which 
has not been the case with the last three of your predecessors, 
and we had a very good visit last week, and I appreciate it.
    The issue, as I explained to you in my office that day, is 
that there are still a number of groups out there that have not 
received a final determination on their 501(c)(4) request. We 
are approaching the political season again, and all of these 
groups are involved in primaries. They are involved in 
educating the public about candidates. They are involved in 
educating them on getting out to vote, et cetera, and I just 
wonder if there is being any progress made on clearing up the 
backlog of those groups that continue to not have a 
determination.
    Mr. KOSKINEN. We are sensitive to that. We are trying to 
proceed. Of the more or less 145 backlogged organizations a 
year ago when the issue was raised, 90 percent of those have 
been cleared through, so we are down to a relatively small 
number. Some are suing us, so you know, it depends on what the 
process of litigation is. As you know, we did have a 
streamlined proposal Acting Commissioner Werfel put in place 
last summer that any organization that made a commitment that 
it was going to spend no more than 40 percent of its resources 
on political activity would automatically be approved, and 
about 40 to 45 organizations immediately accepted that process.
    So there are a handful left. We are doing our best; 
although if they are in litigation, it is harder for us to try 
to resolve those because my sense on all of these is whether we 
are voting up or down, whether we are saying you are approved 
or denied, what we need to do is be as quick as we can, as 
prompt as we can, and so, going forward, that is our 
commitment. We are trying to redo the 501(c)(3) area, again, to 
make sure that one way or the other, you get an answer as 
quickly as we can. And so, as you and I have talked, we will 
review, and I have asked people to review to make sure that we 
are doing everything we can to resolve issues that are pending.
    Mr. MARCHANT. In this letter that you sent me, and I made 
it available to my constituents so they could see the response, 
it was indicated that if a lawsuit was pending, that that could 
be a factor in the determination. Is that still the case?
    Mr. KOSKINEN. If you have got a lawsuit pending and you are 
suing us, then you know, you can always settle that. We settle 
litigation without forcing everybody to go to trial. In fact, a 
lot of these we would be delighted to settle. Litigation is a 
complicated, expensive way to resolve any issue. So the fact 
that you have sued us doesn't necessarily mean you can't 
actually negotiate with us to settle the case.
    Mr. MARCHANT. So to be clear, can you issue a determination 
letter if you are in active litigation?
    Mr. KOSKINEN. Well, that gets more complicated. If you have 
actually sued us and it is in litigation, then you know, we are 
sort of caught in the litigation process back and forth and 
there are issues that if we could have resolved them we would 
have. And so if you are suing us, then it makes it much more 
difficult while the lawsuit is going on to actually then issue 
independently that determination.
    But it is a case-by-case issue. There probably are some 
where the issues in the lawsuit are separate from, the 
determination process in which we could do that, and I have 
asked people to take a look to make sure that we are not 
holding things up unnecessarily. As you and I discussed I think 
there are probably some people who are happy to sue us because 
it keeps the issue alive longer. We have actually I think 
reached out as much as we could to organizations trying to 
resolve issues as quickly as we could.
    Mr. MARCHANT. We also--I use the same rule that you do. If 
I receive any mail from a constituent about a subject, 
sometimes it is an isolated situation and it is anecdotal and I 
treat it that way. But, when I receive half of my emails on a 
particular subject, then I actually take that one much more 
seriously and I think that it does represent a greater slice of 
what my constituents are thinking.
    And I can, without duplicating what other members have said 
up here today, this issue of bonuses to IRS employees that have 
delinquent taxes, is a big issue in our constituencies and in 
your negotiations with the labor unions, it is something that 
needs to be resolved, it needs to be addressed. There may be 
legislation, there may be a law passed before that gets done.
    But thank you for your time.
    Chairman BOUSTANY. I thank the gentleman.
    We will go to Mr. Davis next.
    Mr. DAVIS. Thank you very much, Mr. Chairman, and 
Commissioner, thank you for being here. And I appreciate the 
work that you have done.
    Everything that I have read, seen or heard suggests that we 
have had a pretty smooth tax filing system and experience this 
year, notwithstanding any shortages that there may have been 
relative to man or woman power. So let me compliment you and 
the agency on that.
    I also detect from people I speak with, news reports that I 
get and what I read, that there has already begun, even though 
your tenure has been quite brief, a different level of 
confidence that people feel in the agency and that their 
experiences and problems are being resolved far more quickly 
than what they may have experienced in the past, and I want to 
compliment you and the agency on that.
    I want to follow up a little bit on a question that was 
raised by Representative Sanchez. It is my understanding that 
maybe 70 to 80 percent of the individuals who are entitled to 
make use of the Earned Income Tax Credit are doing so. Because 
of the fact that there is such a large number of individuals 
who could in fact and do qualify, many of them live in my 
Congressional District, which has lots of low income people, 
are there any ways that we can think of that might increase 
utilization of that opportunity?
    Mr. KOSKINEN. It is a major challenge. As I say, we have 
both sides of the question. On the one hand we want to make 
sure the payments are properly made to the right people for the 
right amount and on the other hand we want to make sure that 
everybody eligible participates. So we do again a significant 
amount of outreach. I was in Baltimore at the start of filing 
day. There is an EIT awareness day that we hold across the 
country in January.
    Part of the challenge is that, and it is probably a good 
sign for the program, about one-third of the people every year 
rotate in and out of the program, which means they are in the 
program, they earn enough that they no longer need that 
subsidy. So part of the challenge is, if it were a stable 
population, we could probably make bigger inroads. Right now 
about 80 percent of the eligible people participate. But with a 
third of them rolling over, it means we have got to keep 20 to 
25 percent new people coming in just to sustain ourselves.
    So we are again spending a reasonable amount of time and 
effort trying to give visibility to the program, publicize it 
through our local sites, work cooperatively with people in 
communities. But it is a significant challenge to make sure 
that everybody eligible is aware of the program and 
participates.
    Mr. DAVIS. Thank you very much.
    And of course we know that next year the Internal Revenue 
Service is going to have some additional responsibility for 
assisting taxpayers with the Affordable Care Act.
    Mr. KOSKINEN. Correct.
    Mr. DAVIS. How have you been preparing for that?
    Mr. KOSKINEN. Well, we are preparing for it--well first, we 
have a fairly significant technological challenge to adjust all 
of our systems to be able to absorb the data and process it 
appropriately in terms of matching what people thought they 
were eligible for in terms of an advanced premium credit and 
what they actually were entitled to.
    So the technology challenge in our budget for this year was 
$300 million of technology work. We got zero dollars for it, so 
we have had to in effect postpone another $300 million worth of 
work. So I meet every two weeks with the interagency, across-
agency group of IT people, policy people, operating people, to 
make sure we are on schedule to be able to implement.
    As I said earlier, we also are anxious to provide as much 
information to the public as we can about eligibility, about 
making sure that they are not over--as their income gets better 
that they don't in effect get too large a premium credit so 
they will owe more taxes when they file as we go forward.
    So, we are doing the best we can. Our concern is we 
estimate we are going to get 11 million more calls during the 
filing season next year about the Affordable Care Act, on top 
of the normal calls we get, and that is a major concern for us 
going forward. We are trying to make sure our website is as 
user friendly as we can between now and then so that people 
will be comfortable, they can go to the website, get simple 
answers to their questions so they don't have to call us to the 
extent that we can avoid that.
    Mr. DAVIS. Thank you very much.
    And I know that my time has run out but could I get a 
response in writing for this question. 2006 data suggests that 
there was a big gap of $67 billion unreported of corporate 
income and I would like to know how we are trying to figure out 
ways to recapture and collect some of that money.
    Mr. KOSKINEN. I would be happy to provide that information.
    Mr. DAVIS. Thank you very much.
    Chairman BOUSTANY. I thank the gentleman.
    Mr. Reed.
    Mr. REED. Thank you, Mr. Chairman.
    And thank you, Commissioner, for being here today, and 
thank you for the hard work you are doing in regards to the IRS 
and overseeing the IRS and I appreciate it. I am glad to see 
the results of this tax season and your testimony and the stuff 
we read over last night in preparation for today.
    And I know my colleagues have asked about issues that are 
just important to me as it is to them, but I wanted to narrow 
down on a kind of a narrow issue that impacts my district and 
that deals with Native American sovereignty in particular.
    I represent the western portion of New York. We have long 
heritage of the Seneca Nation being part of our area, and what 
I am concerned with is I have been getting reports from not 
just that nation, as well as other nations of a general sense 
or concern about the IRS' operation when it comes to 
challenging tribal general welfare programs, many of which are 
nearly identical to programs provided by Federal and State 
governments. There is a sense that the IRS may be unfairly 
targeting these Native American nations, but is also not 
respecting tribal sovereignty, and that is something that I 
want to bring to your attention.
    And I know in 2012, December 2012, the IRS issued guidance 
on the application of the general welfare exclusion to Indian 
nations and their citizens and that was viewed as a very 
positive development. But the guidance still remains in draft 
form and is deficient in several important respects in my 
opinion and in the view of many Native American tribes across 
America.
    So my question, Mr. Commissioner, is this: What can Native 
American nations expect of you as the new Commissioner and the 
agency you run with respect to these issues and the fundamental 
relationship between the IRS and tribal nations of America?
    Mr. KOSKINEN. I think it is an important issue. Obviously 
as you said I think it is critical for us to respect the 
sovereignty of tribal nations, to treat them appropriately, 
respectfully. I am concerned across the board whenever things 
take too long, and so I can commit to you that if we have got a 
draft regulation that has been out since December of 2012, that 
we need to get that finalized and I will commit to you.
    It is a joint effort when we do regulations with the 
Treasury Department and the IRS tax policy, it is the domain of 
the Treasury Department, but I have been trying to make it 
clear, I have actually asked for a list of everything that has 
been around for more than a year just to see if we can't 
expedite it. My experience has been in the private sector and 
my private life as well, everybody's, is that you are much 
better off giving people an answer even if it is ``no'' early 
than ``yes'' late, because by the time you get around to it 
late they are aggravated enough and disappointed enough that it 
doesn't get you much credit.
    So on the outstanding regulation, I am committed we will 
look at that and get it put into final as quickly as we can.
    Mr. REED. Well, I greatly appreciate it, and I greatly 
appreciate your comment about respecting the sovereignty of the 
tribal nations, and I think that is something that is critical 
to the future relationship with the nation and I am glad you 
shared that belief as I do. So I appreciate the work there.
    I wanted to ask just a general operations points of view, 
and we have had this conversation before and I am a big 
believer in metrics and asking for, okay, you want more money, 
you want more staff, okay, what are you going to do with that 
type of thing.
    But one thing I was looking at in preparation, last night 
for your testimony today is, we have a lot of effort up here on 
this committee to engage in comprehensive tax reform, and I 
wanted to know from you as the Commissioner have you looked at 
what a revised simplified complete rewrite of the code would 
bring in regards to the relief on your resources, be it 
staffing, funding levels; that if you had a code, you know, the 
chairman has put out a draft, we put out a draft after 2\1/2\ 
years of work, that really in my opinion goes a long way to 
simplify that code, how much of that simplicity have you ever 
thought about, and if you haven't, I would ask you to consider 
it, would that mean in relief to your agency when it comes to 
funding and staffing requests that you are putting forward to 
us.
    Mr. KOSKINEN. I don't have a number for you. As you know, I 
am a big believer in tax simplification because I do think the 
most important impact would be it would make it a lot easier 
for taxpayers to figure out what they owe and compliance I 
think would go up and we would certainly spend a lot less time 
and money across the country and across the economy filling out 
tax returns.
    It clearly would make our life simpler, particularly in 
taxpayer service on the call centers. If you had a relatively 
simple straightforward Tax Code, we would get a lot fewer 
calls. It wouldn't mean we wouldn't get any because there will 
always be issues about filing status, heads of household, other 
issues. But, a significant part of the calls are related to the 
complexity of the code. So we would be able to without many 
additional resources significantly improve our level of service 
on that end.
    On the enforcement end, again, to the extent it was if 
compliance went up you would expect we would have somewhat 
lowered enforcement needs, but there again, no matter what it 
is, because it is not going to be a simple one line form, my 
expectation is that a lot of our enforcement activities against 
people who are actually are consciously trying to cut corners, 
and whatever the rules are they will keep trying to cut the 
corners. But, again, I think that the willing-to-pay as we say 
who are trying to figure out the right amount would in fact be 
able to do it much more quickly.
    Mr. REED. I know my time has expired, and I so appreciate 
you saying that, and maybe we can work offline having a further 
conversation about it, what simplicity would mean to you in 
regards to that deficiency of the agency, and that is where I 
think there is a lot of common ground. If we all agree that 
simplicity will result in less need for resources, there will 
still be a need for that resource but a less need for that 
resource, be it staff or financial resources, where it is a 
win-win situation in my opinion, and I look forward to working 
with you on that, and any information you have in regards to 
that from your day-to-day operations would be helpful.
    So, with that I yield back. Thank you, Mr. Commissioner.
    Chairman BOUSTANY. I thank the gentleman.
    Mr. Kelly.
    Mr. KELLY. Thank you, chairman.
    Mr. Koskinen, good to see you again, and as Sam Johnson 
said, you are the fix it guy. But I think Mr. Reed just hit on 
the issue. It is the code. It is the code. That is the problem. 
The problem isn't that you don't have enough people, you don't 
have enough money, the problem is the code is far too big to 
work with.
    You mentioned fraud, people out there are who are sending 
letters to people, to taxpayers, and they are unwittingly 
spending money in, and the reason they are doing it is because 
they are scared to death.
    Here is the problem. Of all the things you are talking 
about, if we cannot restore faith and confidence in this model 
Government that we have, of the general public, everything we 
talk about is just chatter, just idle chatter.
    We talk about revenue. We need more revenues. Do we? So 
let's make it really hard on the people who produce the 
revenues. Let's make it so damn difficult for them that they 
are afraid to do their own tax return; not because they don't 
want to pay their fair share, but they are scared to death that 
somebody is going to come in and hold them accountable for a 
mistake they didn't mean to make but happened.
    And I got to tell you coming from the private sector as you 
had, you can be Mr. Fix it everywhere you want, but until this 
code gets fixed, there ain't no fix. There is no way that 
anybody can look at our current situation and feel that somehow 
they can trust and have confidence in what we are doing with 
them. It is just as impossible, it just can't be done.
    I know you are talking about giving credentials to people, 
now, what is the term, and this is a town that works on all 
these acronyms, the PTIN. These are the preparers tax 
identification numbers. In order to get that number you have to 
make a fee of $63 and take 15 hours of continuing education 
courses and that was shot down.
    Mr. KOSKINEN. That was shot down.
    Mr. KELLY. Yes. Okay, so now, now what are we doing? What 
is the IRS doing now? Is this a suggestion, about having this 
PTIN or having the people who have the credentials to do these 
things?
    Mr. KOSKINEN. No. What happens is the court said we could 
ask people to register so we would at least know who was out 
there holding themselves out as a preparer, and this year we 
have about 667,000 of them out there, PTINs, as they are 
called, but we have no other ability to supervise them. So they 
could be totally incompetent, which a few of them are. Most 
preparers are well-educated. They do a good job.
    Our concern is a lot of people--as somebody once said, 
hairdressers are regulated in all 50 States, tax preparers are 
regulated in four, and you ought to be as at least concerned 
about who is doing your tax preparation as who is giving you a 
haircut.
    Mr. KELLY. No, and I get that. Again, it goes back to what? 
A code that is so complicated that the average person is scared 
to death to do it themselves. Now, I got to tell you, the 
problem isn't that--they don't trust any of us, by the way. You 
know, approval ratings are not very high and we are all getting 
painted with the same brush. And I got to tell you, I serve 
with a lot of really outstanding people, on both sides of the 
aisle, by the way and I don't know that we talk about ourselves 
as strong Republicans or strong Democrats, but we talk about 
ourselves as strong Americans trying to protect something that 
was given to us. This is a long, long process of people passing 
on to the next generation something that makes a lot of sense 
and is the envy of the world.
    This particular agency though, for as many good people as 
you have, you are getting painted with the same brush. And I 
got to tell you, being from the private sector, if I got a 
letter in the mail and the outside of the envelope had the IRS 
address, I was scared to death to open it, because it was never 
good news.
    And we talk about improper payments. Improper payments 
would also be defined not only underpayment or nonpayment but 
also overpayment. Right? I mean, so if we are using that 
definition. I think what we are trying to get to, and, again, 
as Tommy talked about, and I think this is critical, if we 
don't get this Tax Code reformed, if we don't get it to the 
point where people can actually read it and understand it, if 
we don't get it to the point where they have confidence that 
the people who are enforcing that code are on their side and 
not on the other side, then America loses and continues to lose 
and the gap keeps widening between what the American people 
have faith and confidence in and what they have been subject 
to.
    That is your toughest job. I know you are a turnaround guy 
and you are a fix it guy, but, man, you are working with a 
pretty tough operation right now to get through it. I had a 
flat tire on the way here yesterday. I got out the owner's 
manual. Hell, it took me almost 20 minutes just to find the 
section about changing the spare tire to find out where the 
tools were and I would have paid somebody else to do it at the 
time but there was nobody available. So we are having the same 
problem with people when they do their tax returns.
    Mr. Chairman, we are doing a lot of good things here, but 
the one thing we better decide on really quickly is these are 
American problems. This is not a Republican issue or a Democrat 
issue or a libertarian issue or an independent issue. We are 
talking about revenues that supply all the vital monies that we 
need and you know who we are holding hostage and making the 
trouble maker in this? The taxpayer.
    There is something wrong with the model where we continue 
to do that. I got to tell you there is an old saying, is about 
don't worry about the mule, just load the wagon. The mule is 
starting to unhitch himself. He is going to walk away from it 
because there is just no upside to what we are doing.
    Thanks for what you are doing. Good luck and we will keep 
doing everything we can to make it easier for you to do your 
job and make it easier for the American people to actually put 
their head on the pillow at night and know it is not the 
Government they have to worry about or the IRS coming in their 
place or some other agency that can destroy their personal life 
with just a little bit of an investigation.
    So, thanks for what you are doing. I yield back.
    Chairman BOUSTANY. I thank the gentleman.
    Ms. Black.
    Ms. BLACK. Thank you, Mr. Chairman, and thank you for this 
hearing.
    This certainly is a very important issue. I do want to just 
tag a little bit on what my colleague said about trust, and 
certainly that is something that I think right now the American 
people have had, broken trust. And I appreciate what you are 
doing, the efforts that you are making to reestablish that 
trust in the IRS.
    In your opening comments you made a statement that you are 
making important progress in identity theft, and that, of 
course, is so, so important and we look at that from so many 
different realms, not just within the IRS but with a lot of 
other issues, and banking and even medicine, and identities are 
being stolen.
    Most recently we have started getting information, not 
particularly in the State of Tennessee but as I look at several 
of the States and territories that are affected by this and 
victims of fraudulent tax filings and stolen identities within 
State medical associations.
    Mr. KOSKINEN. Yes.
    Ms. BLACK. And it seems to me that this is really, as I 
look at the number of States, it is a growing issue and I think 
that certainly it is one that we have got to look at very 
quickly, because these are physician databases and being 
uncertain about just where they are getting the information 
from, how many people that are within this database are also 
potentially a victim for potential theft, ID theft, and some 
stolen refunds I understand are occurring right now.
    So my question is actually three parts on asking you about 
whether you will make this a priority, how you seek to resolve 
this and how you think you might be able to prevent it and 
whether as you look at this will you look at it as a national 
issue or because this seems to be regional will you be 
addressing it more regionally?
    How will you let the public know about this, whether this 
will be a public release that the people can be aware of and 
watching out for. And then, finally, the concern of the Federal 
identification numbers, such as the Medicare's national 
provider ID or the DE registration numbers for those 
prescribers of controlled substances. Will you take a look to 
see is this the cause that is occurring?
    So let me go back to the three. Will you make this a 
priority? Number two, how do you propose to resolve it? And 
then looking forward, how would you prevent it?
    Mr. KOSKINEN. Well, it clearly is a priority. It became an 
explosion in 2010 to 2012, it overwhelmed law enforcement as 
well as the IRS, and we have made great progress. It is a high 
priority. We have 3,000 people who spend no time on anything 
other than worrying about refund fraud. We have very 
sophisticated modelers who are developing our ability to look 
for schemes as they come through the system. As I noted, we 
stopped three million suspicious returns in this filing season 
that didn't get through our filters.
    As somebody said, because as I noted, I pulled everybody 
together and said we are making progress but we have got to 
take a fresh look at what else can we do to fight this battle. 
I want to see if we can change the rules of the game a little, 
so we are not fighting in their ballpark, we move it to our 
ballpark, which is why I have asked for some of the legislative 
changes we have got.
    But as somebody said, we have eliminated a lot of the 
amateurs who were doing this one or three or five returns. We 
are now dealing with organized criminals and crime and some 
nefarious tax preparers. The organized crime people are filing 
hundreds of these and as we develop filters they are just 
reverse engineering and figuring out what goes through, what 
doesn't go through, and they can pretty much figure out where 
we are and so we are again trying to figure out how to change 
that.
    One of the things that will help will be to get W-2 
information earlier. We are a victim of our own success. It 
used to be the refunds went out in August. Now the technology 
is such we will say we will give you a refund in 21 days. So we 
gave 90 million refunds out before the end of the filing season 
on April 15th, most of those before the third party information 
got to us. Now, we have sophisticated filters. W-2s won't solve 
the problem by themselves, but they are very critical.
    We are looking at all sorts of E-authentication methods so 
that in effect we circumvent Social Security numbers. Because 
part of the problem with preparers, with medical services, as 
you note, everybody's Medicare card is their Social Security 
number, and so there are file cabinets around the country full 
of Social Security numbers.
    Hackers have now discovered if I could hack into a tax 
preparer's databases I have got all of their clients. More 
important just their name and Social Security number, I have 
got all of their returns so I can prepare a false return that 
looks a lot better than the one I just make up as we go.
    So it is an ongoing battle. I think that we are holding our 
own, I would say. I am not sure which is better than we were 
doing a couple of years ago where we looked like we were 
overwhelmed.
    We have programs going on with financial institutions, with 
prisons, where it first started, with law enforcement. We have 
task forces with hundreds and State and local law enforcement 
agencies. When people get arrested we suddenly discover they 
have got all sorts of Social Security numbers or debit cards.
    You know, one of our problems is how to deal with debit 
cards. When we send out the refund, the debit cards can all 
go--you know, somebody can go get debit cards in a grocery 
store. You just pull them off the rack. And they are harder for 
us to track. They are virtually untraceable.
    So it is a complicated problem. There is no higher priority 
for us both to stop the fraud and the refund fraud, but also to 
deal with taxpayers. There is nothing more I think anxiety 
producing for a taxpayer than to suddenly file their return and 
get it rejected because somebody already filed with their 
Social Security number.
    So there, as I have noted, we actually used to take almost 
a year to resolve those. We are now down to 120 days in 
resolving them. Our backlog has gone from over 600,000 to about 
98,000. But we are trying to do better there as well because we 
understand the burden on the taxpayer.
    Ms. BLACK. Thank you.
    And Mr. Chairman, if I may, I have another question about 
minors' Social Security numbers being stolen and how that is 
being handled. I will put that in a letter form and send it to 
you. I would really like to hear back from you on that issue as 
well. That is a really important issue we have to make sure we 
are addressing.
    Thank you.
    Chairman BOUSTANY. I thank the gentlelady.
    Commissioner, thank you for being here. Thank you for the 
status report on a whole host of activities. We want to 
continue to work with you to reform, make improvements, rebuild 
trust and right size the budget on all this. So we appreciate 
you appearing before us today.
    Please be advised members will submit written questions as 
has been stated to be answered in writing. All of that will be 
made part of the formal record as will be your formal 
statement.
    With that, the committee stands adjourned.
    [Whereupon, at 11:57 p.m., the subcommittee was adjourned.]

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