[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




  .
                  THE TAXPAYER ADVOCATE ANNUAL REPORT

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         GOVERNMENT OPERATIONS

                                 OF THE

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 15, 2015

                               __________

                           Serial No. 114-22

                               __________

Printed for the use of the Committee on Oversight and Government Reform







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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                     JASON CHAFFETZ, Utah, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, Jr., Tennessee       CAROLYN B. MALONEY, New York
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
TIM WALBERG, Michigan                    Columbia
JUSTIN AMASH, Michigan               WM. LACY CLAY, Missouri
PAUL A. GOSAR, Arizona               STEPHEN F. LYNCH, Massachusetts
SCOTT DesJARLAIS, Tennessee          JIM COOPER, Tennessee
TREY GOWDY, South Carolina           GERALD E. CONNOLLY, Virginia
BLAKE FARENTHOLD, Texas              MATT CARTWRIGHT, Pennsylvania
CYNTHIA M. LUMMIS, Wyoming           TAMMY DUCKWORTH, Illinois
THOMAS MASSIE, Kentucky              ROBIN L. KELLY, Illinois
MARK MEADOWS, North Carolina         BRENDA L. LAWRENCE, Michigan
RON DeSANTIS, Florida                TED LIEU, California
MICK MULVANEY, South Carolina        BONNIE WATSON COLEMAN, New Jersey
KEN BUCK, Colorado                   STACEY E. PLASKETT, Virgin Islands
MARK WALKER, North Carolina          MARK DeSAULNIER, California
ROD BLUM, Iowa                       BRENDAN F. BOYLE, Pennsylvania
JODY B. HICE, Georgia                PETER WELCH, Vermont
STEVE RUSSELL, Oklahoma              MICHELLE LUJAN GRISHAM, New Mexico
EARL L. ``BUDDY'' CARTER, Georgia
GLENN GROTHMAN, Wisconsin
WILL HURD, Texas
GARY J. PALMER, Alabama

                    Sean McLaughlin, Staff Director
                 David Rapallo, Minority Staff Director
            Christopher D'Angelo, Professional Staff Member
                           Sarah Vance, Clerk
                           
                           
                           
                           
                           
                           
                           
                           
                 Subcommittee on Government Operations

                 MARK MEADOWS, North Carolina, Chairman
JIM JORDAN, Ohio                     GERALD E. CONNOLLY, Virginia, 
TIM WALBERG, Michigan, Vice Chair        Ranking Minority Member
TREY GOWDY, South Carolina           CAROLYN B. MALONEY, New York
THOMAS MASSIE, Kentucky              ELEANOR HOLMES NORTON, District of 
MICK MULVANEY, South Carolina            Columbia
KEN BUCK, Colorado                   WM. LACY CLAY, Missouri
EARL L. ``BUDDY'' CARTER, Georgia    STACEY E. PLASKETT, Virgin Islands
GLENN GROTHMAN, Wisconsin            STEPHEN F. LYNCH, Massachusetts









                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 15, 2015...................................     1

                                WITNESS

Ms. Nina Olson, National Taxpayer Advocate, Internal Revenue 
  Service
    Oral Statement...............................................     4
    Written Statement............................................     8

                                APPENDIX

Colleen M. Kelley, National President, National Treasury 
  Employees Union, Statement for the record......................    82


                  THE TAXPAYER ADVOCATE ANNUAL REPORT

                              ----------                              


                       Wednesday, April 15, 2015

                  House of Representatives,
             Subcommittee on Government Operations,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:07 p.m., in 
room 2247, Rayburn House Office Building, Hon. Mark Meadows 
(chairman of the subcommittee) presiding.
    Present: Representatives Meadows, Jordan, Walberg, Massie, 
Buck, Carter, Grothman, Connolly, Maloney, Norton, and 
Plaskett.
    Mr. Meadows. The subcommittee will come to order.
    Without objection, the chair is authorized to declare a 
recess at any time.
    I thank the witness for coming in today. Actually, the 
Taxpayer Advocate is an independent voice, which is well 
needed, certainly in our society, that defends the American 
taxpayer, and it is a privilege, Ms. Olson, to have you here 
and testify today.
    The complexity of the tax code and need for IRS to restore 
trust underscores that the taxpayers need to have someone 
fighting on their behalf, which is why Taxpayer Advocates do 
that so well and do it on a daily basis. As Members of 
Congress, we have an obligation to work with the American 
people and for the American people, and are committed to 
working with you in your efforts to ensure that the IRS 
improves taxpayer service delivery.
    The Taxpayer Advocate's 2014 Report to Congress highlights 
unacceptably low levels of service that the IRS is delivering 
to the taxpayers, with the IRS estimating that it will only 
answer half of the incoming calls, and those answered may wait 
over 30 minutes for service.
    To give just a short personal story, in fact, when a member 
of my staff was receiving help for her personal tax return 
through the electronic Federal tax payment system and asked how 
long she would have to wait to speak with someone at the IRS 
who could help her over the phone, she was told, ``Well, it's 
really more of an exception that you will get to talk to 
someone.''
    I find that extremely troubling in light of the fact that 
most people, at least people in our generation, believe that 
you need to talk and you have to have that dialog to fully 
understand it. Hopefully there will be a day when a computer 
can answer things as compassionately and as completely as we 
would like to see.
    That is why I think it is critical that the IRS takes to 
heart the recommendations that you have offered, and the 
ranking member and I believe that we better work in a 
bipartisan way to not only support those that work for the IRS, 
but to restore the integrity of many of our Federal workers, 
not just with the IRS. So we know that that will have a 
component of financial obligations which may be painful to my 
ears, but we have all talked about that going forward.
    I would like to say, though, that some of these issues, and 
what I look forward to hearing from you today, are those issues 
that may not have a direct correlation with the budget. We know 
that we have to address that, and as we look at that, and 
certainly there will be questions on both sides of the aisle as 
that happens, but I want you to look at those areas that maybe 
have been systemic in their nature that have not been a result 
of just fiscal budgetary constraints.
    So as we restore the faith in the IRS with the American 
taxpayer, I believe that part of that is with a more simplified 
tax code, one that I would think that it wouldn't be difficult 
for me or anyone else to be able to figure out how to complete 
their tax return. Now, it almost ensures, today on tax day, I 
was on the phone with my son who was saying, well, what do I 
put in this column and what do I put in that column? I said, 
well, you should have done it a few days before today. But he 
was asking me all these different questions and what I found 
was, and being a guy who had been in business for many, many 
years, that I couldn't answer the simple questions of someone 
who is just now getting to the point of paying real taxes. And 
he said, ``Man, I can't believe they take this much.''
    So, Ms. Olson, thank you so much for your tireless work 
advocating on behalf of so many people who feel like they are 
fighting against a machine that doesn't care. And I say that 
because that is the general view. But I will say that whether 
it is with your group or with the IRS in particular, I find 
that there are a lot of people who truly want to serve this 
Country, and do so each and every day. And I think it is 
important that we address the issues so that the broader 
spectrum of those who faithfully carry out their duties each 
and every day do not get painted with that broad brush.
    With that, I would recognize the ranking member for his 
opening Statement.
    Mr. Connolly. Thank you, Mr. Chairman, and thank you so 
much for holding this hearing.
    Welcome to Nina Olson, who has served as the national 
taxpayer advocate since, I think, 2001. I know all of us 
appreciate your service, Ms. Olson, and your appearance today.
    The 2014 Report identifies declining levels of taxpayer 
service the chairman just referenced as the No. 1 most serious 
problem causing serious compliance issues and inflicting undue 
hardship and stress on our fellow American taxpayers. The 
challenges facing the IRS are real and many, including an 
increasing number of filed tax returns; escalating threats of 
identity theft, refund fraud, and data breaches, and an 
enormous gap in the amount of taxes owed versus those that are 
actually paid. That gap could do a lot for helping reduce the 
national debt.
    But despite these increasing and evolving challenges, 
according to Ms. Olson's Report, there is a ``widening 
imbalance between the IRS's increasing workload and its 
diminishing resources.''
    One can't ignore the reality that many of these serious 
problems are a result of the fact that we here in Congress 
created our Nation's incredibly complex tax code, but in recent 
years we have stubbornly refused to appropriate the funds to 
administer it.
    The Annual Report notes that over the past five Fiscal Year 
the IRS's inflation adjust to budget was cut by 17 percent. 
These budget cuts have forced the IRS to shed at least 12,000 
employees. That is 12,000 employees. And further significant 
work force reductions expected this fiscal year.
    In this Fiscal Year alone, the IRS budget was slashed by 
$346 million, costing at least $2 billion in lost revenue, 
according to IRS estimates.
    The irony here is that in deliberately lowering the funding 
level for the IRS to make the agency, in the words of the 
Financial Services Appropriations Subcommittee chair think 
twice about what you are doing and why and ``focus on your core 
mission of providing taxpayer services, such as processing 
returns and refunds, providing customer service like answering 
the phone and catching tax cheats.''
    Unfortunately, with these budget cuts, we have achieved 
exactly the opposite result, and it almost looks, by design, to 
guarantee the opposite result.
    The Report highlights the consequences of these ill advised 
cuts, noting ``35.6 percent of phone calls went unanswered by 
customer service representatives; 50 percent of pieces of 
correspondence not handled in a timely fashion; zero tax 
returns, virtually, were prepared by IRS walk-in sites; and 
localized outreach in education have all but disappeared.
    Ms. Olson, in her report, eloquently captured the bottom 
line in the 2014 Report, noting, ``It's a challenge for any tax 
agency to properly administer a system such as the one we have, 
but it's impossible for an under-funded tax agency to do so. 
The victims of this under-funding are not just the IRS and its 
employees, but maybe, more importantly, the victims are U.S. 
taxpayers themselves.''
    I couldn't agree more with that assessment. Gutting the 
IRS's budget is, to me, penny wise and pound foolish. We don't 
have to love the IRS to understand that it is the revenue 
collection agency of the U.S. Government and that we could 
actually, by making it more efficient, we could spread the idea 
of tax fairness and equality. It doesn't preclude making the 
tax system, as the chairman said, fair and easier and more 
efficient. But starving the IRS of resources has created lots 
of problems for our fellow citizens, and I certainly look 
forward to hearing Ms. Olson's testimony to further elucidate 
that issue.
    Thank you, Mr. Chairman.
    Mr. Meadows. I thank the ranking member.
    I will hold open the record for five legislative days for 
any members who would like to submit a written Statement.
    We will now recognize our witness. I am pleased to welcome 
Ms. Nina Olson, the National Taxpayer Advocate at the Internal 
Revenue Service.
    Welcome, Ms. Olson. Pursuant to committee rules, witnesses 
will be sworn in before they testify, so if you would please 
rise and raise your right hand.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    [Witness responds in the affirmative.]
    Mr. Meadows. Let the record reflect that the witness has 
answered in the affirmative.
    Thank you. You are now recognized for your opening 
testimony. And we will be more lenient with our 5 minute rule 
so that we can hear completely from you.

 STATEMENT OF NINA OLSON, NATIONAL TAXPAYER ADVOCATE, INTERNAL 
                        REVENUE SERVICE

    Ms. Olson. Thank you.
    Chairman Meadows, Ranking Member Connolly, and members of 
the subcommittee, thank you for inviting me today to discuss 
the National Taxpayer Advocate's 2014 Annual Report to 
Congress. As you know, I am required by statute to report each 
year on at least 20 of the most serious problems facing 
taxpayers and to make administrative and legislative 
recommendations to mitigate, if not eliminate, those problems.
    In addition to my reporting function, the Taxpayer Advocate 
Service, through its local taxpayer advocate offices, handles, 
on average, about 250,000 cases each year in which taxpayers 
have a problem or a dispute with the IRS and are experiencing 
significant hardship.
    The underpinning of my 2014 Report is the Taxpayer Bill of 
Rights, or TBOR, which the IRS adopted at my recommendation in 
June 2014. Because taxpayer rights, their existence and their 
protections, are essential to establishing and maintaining 
taxpayer trust in the tax system, I recommended that Congress 
codify the TBOR. I am delighted that the House is voting today 
on this important piece of legislation and that companion 
legislation will be introduced in the Senate, probably today.
    The next step is to ensure that these rights have 
enforceable remedies. In my report, my first legislative 
proposal is a brief description of all of my office's 
recommendations for taxpayer protections, including some new 
ones, organized under one or more of the 10 rights in the TBOR. 
It is my concern about the right to quality service that drove 
me to identify as the No. 1 and No. 2 most serious problems the 
IRS's current failure to meet taxpayer service needs and the 
IRS's lack of a method to determine what those needs are from a 
taxpayer's perspective.
    From January 1st through April 13th of this year, the IRS 
answered only 37 percent of the calls it received from 
taxpayers who were gated to a customer service representative, 
and those taxpayers who managed to get through sat on hold an 
average of about 24 minutes. By comparison, 71 percent of 
taxpayers got through and waited on hold an average of about 14 
minutes during the same period just last year.
    The IRS is only answering the most basic of tax law 
questions through April 15th, and none after that date. Let me 
repeat. If you call tomorrow, April 16th, you will not get 
answers to any tax law questions from the IRS.
    The IRS is no longer preparing tax returns for the most 
vulnerable populations, namely, the elderly, the disabled, and 
the low income; and as of April 4th, over 44 percent of 
individual correspondence, that is, letters from taxpayers, is 
over age, compared to 28 percent last year.
    I have never seen such low levels of taxpayer service 
during my 40-year career in the field of tax, and they are 
officially the worst since at least 2001, when the IRS 
implemented its current performance measures.
    Taxpayers call and write the IRS not only to get answers to 
tax law questions, refund status, or transcripts, but also to 
request penalty abatements, respond to math error assessment 
notices, and arrange to make payments. If taxpayers can't get 
through to the IRS for any of these transactions, the IRS will 
proceed to collect taxes and penalties that the taxpayer 
actually may not owe or cannot afford to pay and still meet 
basic living expenses. This causes real harm to real taxpayers.
    This performance decline is huge and results largely from a 
combination of more work and reduced resources. On the workload 
side, the IRS is receiving 11 percent more returns from 
individuals, 18 percent more returns from business entities, 
and 70 percent more telephone calls through Fiscal Year 2013 
than 10 years ago, not to mention implementation of the 
Affordable Care Act and the Foreign Account Tax Compliance Act.
    On the funding side, the IRS's budget has been reduced by 
about 17 percent in inflation-adjusted terms since Fiscal Year 
2010. As a consequence, the IRS has already reduced its work 
force by nearly 12,000 employees, and it projects it will have 
to reduce its work force by several thousand additional 
employees during Fiscal Year 2015.
    Even considering advances in technology, these cuts go too 
far too fast. I don't see any substitute for sufficient 
personnel if high-quality taxpayer service is to be provided.
    Having said that, I also believe it is incumbent on the IRS 
to spend the resources it has as effectively and efficiently as 
possible. Reductions in service always should be made with the 
goal of minimizing the impact on taxpayers and performance. I 
find it difficult to ascertain exactly how the IRS made its 
resource allocation decisions with respect to taxpayer service 
or what data it relied upon in regard to taxpayer impact and 
need.
    Similarly, it is my experience and the findings of several 
research studies conducted by my office that the IRS regularly 
creates work for itself, especially in the context of its 
enforcement programs. In my testimony and my Report, I have 
provided numerous examples of programs in which I believe the 
IRS can utilize its resources more effectively and efficiently.
    To illustrate with just one example, I have testified 
before this subcommittee twice before on the subject of tax-
related identity theft. For years I have pointed out the waste 
of government resources and taxpayer time and the angst caused 
by the IRS's failure to assign a single employee to identity 
theft cases involving multiple years or multiple IRS functions. 
But because the IRS does not evaluate its performance from the 
taxpayer's perspective, that is, having to navigate one's way 
around multiple divisions even as you experience the trauma of 
having your identity stolen, the IRS has refused to conduct a 
pilot of our proposal, much less implement it.
    In my 2014 Report, I have produced the hard evidence of 
just how much time and effort on the IRS's and the taxpayers' 
part the current IRS identity theft procedures cost. Our 
studies showed that over two-thirds of IRS identity theft cases 
were moved around within or between IRS functions, with each 
reassignment delaying resolution and frustrating the taxpayer. 
When cycle time was measured from the perspective of the 
taxpayer, it was 2 months longer than what the IRS officially 
pronounces it to be. And we found that the IRS closed 22 
percent of the cases prematurely, that is, not providing to the 
taxpayers the relief they so badly needed.
    All of this burden and delay is avoidable. The IRS just 
needs to spend a few minutes at the first contact identifying 
those cases involving multiple years and issues, and assigning 
those folks to a single employee who serves as their sole 
contact throughout the duration of the case and ensures that 
all issues are addressed. That would provide victims with the 
effective assistance they deserve.
    I am sometimes asked why the IRS does not adopt more of my 
office's recommendations, which to many people seem so 
reasonable. It is worth noting that the IRS actually accepts 
somewhere around half of the recommendations we make in each 
report. But even when there is agreement in principle, the 
recommendations may not be implemented because of funding or 
programming priorities, or because a conceptual agreement is 
undermined by disagreement over the details.
    First and foremost, the IRS defines itself as an 
enforcement agency. As a result, it sometimes seems to overlook 
the fact that the real driver of our self-assessment system is 
taxpayers' willingness to voluntarily come forward and report 
and pay the tax they owe. So high-quality taxpayer service is 
critical. Yet, the IRS knows very little about why taxpayers 
comply with the tax law, and it knows even less about how its 
enforcement and service initiatives actually impact taxpayers' 
willingness to comply.
    The world changes, and unless management continually tests 
and evaluates its assumptions about the effectiveness of its 
programs, it will continue to run them the same way, causing it 
to miss opportunities to improve efficiency and productivity, 
and to win taxpayer trust.
    I don't want to paint a very dark picture of the IRS. The 
IRS actually functions very well for the significant majority 
of taxpayers, and IRS employees, including Taxpayer Advocate 
Service employees, are incredibly dedicated and hardworking. In 
addition, the IRS is embarking on a comprehensive review of its 
service and compliance approaches to map out a vision of how 
tax administration should operate 5 years from now. This effort 
provides Congress with an opportunity to ensure the IRS is on 
track for treating taxpayers fairly and reasonably.
    So, in my view, to sum up, the best way for Congress to 
hold the IRS accountable for how it allocates resources and 
makes decisions is through active, consistent oversight of the 
agency; not just on the issue of the day, but on the routine 
work the IRS does. It is critical that the IRS take steps to 
rebuild congressional and taxpayer trust. It is also critical 
that Congress provide the oversight and funding that the IRS 
needs to do its important work of helping taxpayers meet their 
tax obligations and collecting the revenue on which the rest of 
the Government depends.
    This hearing is a significant step in that direction of 
consistent oversight, and I thank you for inviting me here 
today to be part of this important work. Thank you.
    [Prepared Statement of Ms. Olson follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Meadows. Thank you, Ms. Olson, for your important work. 
Your entire written Statement will be made part of the record.
    The chair recognizes the vice chair of the Government 
Operations Subcommittee, the gentleman from Michigan, Mr. 
Walberg.
    Mr. Walberg. I thank the chairman and thank you for holding 
this hearing.
    Ms. Olson, thank you for the work you do and thank you for 
still having a smile on your face as you to do it.
    Today I guess we would say Happy Tax Day. Relative to the 
complexity of the IRS tax code and the fact that as a result of 
the, last count, 18 different tax increases put into the code 
now through the Affordable Care Act, at a cost of over $770 
billion over the course of the next 10 years, I wanted to ask 
this starting question, Ms. Olson. Why did your office identify 
health care implementation as a ``most serious problem'' in 
your most recent report?
    Ms. Olson. Well, whenever you have a program of such size 
as the Affordable Care Act, there are opportunities for things 
to go wrong, so we have tried to identify in advance, based on 
just past experience, what could possibly go wrong in this 
filing season and what burden it puts on taxpayers.
    This program, the Affordable Care Act, is particularly 
challenging because the IRS, who has actually accorded itself 
very well during this filing season on its obligations under 
ACA, is on the receiving end of lots of other Federal agencies, 
and that is often where the problems are arising; for example, 
getting incorrect information from the exchanges that we are 
supposed to be matching up against taxpayers' returns. We 
didn't create that information; we are just on the receiving 
end of it.
    Mr. Walberg. Is that part of the problem for the 800,000 
people who got wrong information that they are probably going 
to pay for?
    Ms. Olson. That is correct. Well, I think that the idea is 
that they are supposed to wait. If they filed early with the 
incorrect information, no one will collect that, so all the 
taxpayers of the United States will pay for that. Others who 
got incorrect information but may be owed more money should 
file amended returns if they have already filed before they got 
their corrected information. And that, I would note, creates 
more work for the IRS, because we not only have to process the 
original return, but the amended return.
    Mr. Walberg. What additional problems may result for the 
taxpayer from this law?
    Ms. Olson. So we are seeing some issues where taxpayers 
aren't aware that they are eligible for an exemption of the 
individual shared responsibility payment, and so they may be 
either paying the penalty or we may be sending them a bill when 
in fact they may not have to pay it. We are seeing instances 
where we are getting returns in where we think taxpayers do 
have a premium tax credit but they haven't submitted a 
reconciliation, so we have to go back out and ask them to do 
that.
    So all of these touches take time and bring in phone calls. 
And I think we really won't see the impact of this until after 
the filing season, when we start sorting through all this 
stuff.
    Mr. Walberg. Which is my next question. Will your office or 
the IRS, or both, collect data related to this tax season on 
the number of individuals who will have their tax refund 
changed as a result of the health care law?
    Ms. Olson. Yes. And in my June report to Congress we will 
do a summary based on the information we have as of June 30th 
on this filing season and the outcome of the filing season with 
respect to the Affordable Care Act.
    Mr. Walberg. Do you have any estimates now or guesstimates?
    Ms. Olson. I really don't. I do know, and this is an 
interesting thing, that as of this week the IRS was still 
looking for 1.5 million returns from taxpayers who should be 
getting the premium tax credit. I think a lot of taxpayers held 
off until the last week of the filing season because they were 
concerned whether they would owe or not. And that is why we 
just don't know what the impact of the Affordable Care Act is. 
We were anticipating 4 million total and we haven't gotten in 
1.5 million, and that is the last week of the filing season. So 
anything could happen.
    Mr. Walberg. Wow.
    Ms. Olson. Yes.
    Mr. Walberg. After this filing season, will you be able to 
review or collect the actual numbers of Americans who saw their 
tax bill grow or shrink as a result of the health care law?
    Ms. Olson. Yes, at least with respect to the Affordable 
Care Act or the individual shared responsibility payment.
    Mr. Walberg. Will you also be able to collect information 
on the number of Americans who filed for an exemption?
    Ms. Olson. I think so. Some of the exemption data comes 
from the exchanges, but we would at least know some taxpayers 
have said we have a pending exemption at the exchanges, so we 
would at least have that kind of information.
    Mr. Walberg. Thank you. My time has expired. I yield back.
    Mr. Meadows. I thank the gentleman.
    The chair will recognize Mrs. Maloney from New York because 
the ranking member has deferred to you.
    Mrs. Maloney. I want to thank the ranking member for 
deferring to me. I have a conflict with another committee I am 
supposed to be participating in, but I very much wanted to hear 
Ms. Olson's testimony and to tell you that the Americans living 
abroad, the legitimate taxpayers living abroad, have told me 
numerous times how cooperative you have been, and I have a 
series of questions they asked me to ask you. I hope I have a 
chance to get them answered; otherwise, I will put them in the 
record.
    I was very interested in your attention to identity theft, 
and I think every member on this panel can attest to the fact 
that we are getting calls every day in our district offices 
about that, and I just would like to followup on those points 
that you raised in your testimony and in your written report. 
In light of the limited operating budget at the IRS, are you 
satisfied with the agency's ability to evolve its fraud 
detection filters to keep up with these new schemes that are 
coming out every day?
    Ms. Olson. You know, I think that this is a challenge for 
any kind of agency, and I think the IRS is actually doing a 
very good job, and I think that recently they held a security 
summit with some of the private entities to identify ways to 
learn from them what schemes they may be seeing and sharing 
information so we can maybe get even further ahead of this.
    But I do have to say people who are perpetrating these 
schemes are very, very creative and we are always going to be 
in the instance of letting some returns go through and then 
picking it up on the back end when somebody has come in and 
said, wait, you have harmed me instead of the thief.
    Mrs. Maloney. And would additional funds improve your 
ability at the IRS for fraud detection filters?
    Ms. Olson. I think that it would allow us to maybe bring in 
some folks, who had also critical pay authority to bring in 
really talented people to work on this, yes.
    Mrs. Maloney. And also the IRS has reported that it was 
able to prevent, this is tremendously important, to prevent the 
payment of approximately $24.2 billion in tax refunds. Would 
you expect the amount of fraudulent refunds the IRS could 
prevent, do you think they would be higher if you were funded 
to the point that you feel is proper?
    Ms. Olson. I think we would be able to prevent more. I 
think that the amount of refunds we will prevent will continue 
to increase anyway because word is out: hit the IRS.
    Mrs. Maloney. I just also want to ask you about taxpayers 
abroad. We are in a world economy now and we have many 
Americans with business interests overseas, and they owe taxes 
to the United States, and there is widespread fear and 
uncertainty for potential assessment of onerous tax evasion 
penalties when a taxpayer makes a filing error and the general 
complication of filing from overseas to the extreme number of 
forms that are required.
    I fully support your efforts to find tax avoiders and 
prevent tax havens overseas, but I have a concern and I support 
the legitimate American citizens that are residing abroad and 
they often find themselves without regular banking services. 
Now, this is a huge problem. My office has seen notices from 
individual account holders from foreign banks that effectively 
State that Americans need not apply because of our onerous 
banking requirements, and these U.S. citizens have had their 
foreign and domestic accounts closed or have been refused 
accounts.
    I really want to commend that you have really been 
responding to this, but this is a tremendous problem if 
Americans, because their companies are abroad or whatever 
reason, they are studying abroad or they have a business abroad 
or whatever, that they can't even have a bank account because 
of the onerous requirements that the banks put on them that are 
put on by our system.
    So I want to commend your recent recommendations with 
regard to bona fide, honest Americans living abroad with their 
taxes, such as eliminating duplicative reporting requirements 
and developing a definition of financial accounts based on 
where the American citizen is a bona fide resident.
    What is the next step in consideration for these 
recommendations that you have put out?
    Ms. Olson. Well, first, I think that the laws actually 
allow the IRS to interpret them much more reasonably toward 
American citizens and other U.S. taxpayers living abroad. You 
don't need additional legislation, in most instances, and that 
is why we have made administrative recommendations to the IRS. 
The next step is for Congress to basically hold the IRS and the 
Treasury Department accountable for making these changes.
    Mrs. Maloney. But the problem that we have is that the 
foreign banks or the banks overseas are refusing to service 
American bank accounts, and this is a huge problem.
    Ms. Olson. I think if you really carved out that exception 
for bona fide residence, that you would eliminate some of the 
fears from the foreign banks about these reporting 
requirements. The FATCA regime is new and it remains to be seen 
whether it is effective, and I think some entities are running 
scared because it just sounds so onerous. They may join up in 5 
years, but 5 years going without an account is crazy for 
someone abroad. And there are at least 7 million U.S. citizens 
living abroad, not to mention the U.S. taxpayers.
    If I might also add, at the same time that we are imposing 
all these requirements on foreign U.S. taxpayers abroad, the 
IRS announced that it was closing the remaining four tax 
attache offices that we have in U.S. embassies abroad to save 
$4 million; and that is, to use the same phrase, it is penny 
wise and pound foolish as we are imposing more and more 
responsibilities and burdens on these taxpayers.
    Mrs. Maloney. Well, my time has expired. I just feel this 
is a huge problem that we should have a bipartisan approach to 
because many Americans, we are in a global economy, Americans 
live overseas and they are entitled to bank accounts.
    Anyway, thank you so much.
    Ms. Olson. Thank you.
    Mr. Meadows. I thank the gentlewoman.
    The chair recognizes the gentleman from Ohio, Mr. Jordan.
    Mr. Jordan. I thank the chairman.
    Ms. Olson, you have been the taxpayer advocate for 14 
years?
    Ms. Olson. Yes, I have.
    Mr. Jordan. God bless you. How many people work for you?
    Ms. Olson. I have about 1,800, 1,900 employees.
    Mr. Jordan. Nineteen hundred employees all around the 
Country, right?
    Ms. Olson. Yes, 74 offices.
    Mr. Jordan. When did your main office or any of your 
offices first learn that the Internal Revenue Service was 
targeting conservative groups around the Country?
    Ms. Olson. I think it was about February. My office and 
headquarters learned in February 2013. We got, between 2011 and 
early 2013, about 19 cases, and they showed up in different 
offices.
    Mr. Jordan. So you learned before Ms. Lerner went public on 
May 10th, 2013 at the Bar Association with the plan and 
questioning and gave the false narrative that she gave, you 
learned before that date, 2 months before that date.
    Ms. Olson. We had one case elevated to us in my headquarter 
office.
    Mr. Jordan. And how did that get elevated to you?
    Ms. Olson. Through my employees who had two or three cases 
in their office and they saw a pattern, and they went over to 
Ms. Lerner and Holly Paz, Ms. Paz, and we talked to them about 
this case and we got that case moving.
    Mr. Jordan. So you met with Ms. Lerner and Ms. Paz in 
February 2013.
    Ms. Olson. I personally did not, but my staff did.
    Mr. Jordan. Your people did. And tell me about that 
discussion.
    Ms. Olson. They talked about what was going on in that 
case, and we said what are your concerns and what information 
do we need to get, and they said we are putting out guidance 
and we will start processing these cases; and at that point 
they put out guidance.
    Mr. Jordan. Did they tell you at that time that the terms 
Tea Party and Patriot were the identifying terms used to select 
these groups, pull them out, give them enhanced scrutiny, and 
deny them their First Amendment rights to get their tax-exempt 
status and exercise their free speech?
    Ms. Olson. No, they did not.
    Mr. Jordan. They didn't tell us that?
    Ms. Olson. No, they did not say that to my staff.
    Mr. Jordan. So you learned official targeting was taking 
place when the rest of the world learned on May 10th, 2013.
    Ms. Olson. Yes, I did.
    Mr. Jordan. OK. Now, you said you had a few cases come to 
you. We had dozens of people, Tea Party groups, come to us 
clear back in 2011 and 2012. We actually met with Ms. Lerner, 
our personal staff and oversight staff met with Ms. Lerner in 
2012 and she lied to us and said there was no targeting going 
on, so we asked for the investigation. So I have to believe the 
taxpayer advocate, as your stuff said, you are the voice of the 
taxpayer. Your job is to resolve problems at the IRS every year 
and address systematic issues within the IRS. I have to believe 
you had notice before February.
    Ms. Olson. I did not.
    Mr. Jordan. So no one of those 1,900 employees across the 
Country, dozens and dozens of news accounts of groups saying, 
you know what, we are getting asked all kinds of intrusive 
questions, we are being delayed now a couple of years, no one 
in your 1,900-employee organization came to you and said, you 
know what, we may want to come to look into this; after all, we 
are supposed to be the voice of the taxpayer and we have 
millions of people across the Country who are being denied 
their First Amendment rights by the Internal Revenue Service? 
That never set off any alarms?
    Ms. Olson. My employees worked each of those 19 cases, and 
most of them were from the congressional offices that folks had 
referred to us, and they worked them and they got relief in 
some and they didn't get relief in others, but they kept 
working them. And it wasn't until February 2013 that one office 
had three cases that looked like it was a pattern and elevated 
it to my office.
    Mr. Jordan. OK, I want to clarify something, Ms. Olson, and 
I appreciate that. So those 19 cases you referred to, you said 
there were two or three that you took to Ms. Lerner and Ms. Paz 
in February 2013.
    Ms. Olson. There was one.
    Mr. Jordan. Oh, one of them you took. So when did you get 
that first of those 19, was that back in 2011, 2012?
    Ms. Olson. It was spread out over a million cases. It was 
spread over from 2011 to 2013.
    Mr. Jordan. So the Office of the Taxpayer Advocate was on 
notice much earlier than 2 months before Ms. Lerner gave her 
Statement?
    Ms. Olson. About six of my offices received cases between 
2011 and 2013.
    Mr. Jordan. OK. I got it.
    Ms. Olson. Those 19 cases were spread out.
    Mr. Jordan. OK, I have 1 minute left and I want to go to an 
article in Politico from just last month, well, 2 months ago, 
February 26th of this year, and it says, From the IRS, Death by 
Delay. At least a half dozen applicants are still waiting for 
an answer from the IRS. And the one that they cite the most in 
here is the Albuquerque Tea Party, which is still waiting, been 
waiting 5 years to get something that should take a lot less 
time than that. What are you doing about that situation and the 
other five entities who are in the same position?
    Ms. Olson. I can't discuss individual taxpayer cases.
    Mr. Jordan. OK, take it from the general sense. What are 
you doing about these entities who are still being denied their 
opportunity to exercise their most fundamental right, their 
First Amendment free speech rights in a political nature? What 
are you doing as the voice of the taxpayer to help these 
groups, who some have been waiting as long as 5 years?
    Ms. Olson. My staff is closely looking at the IRS's exempt 
organization procedures with respect to 501(c)(3)'s and 
501(c)(4)'s. And I can't really talk about the specific cases 
to say whether they are reasonably being looked at or that the 
IRS is still----
    Mr. Jordan. I am out of time. If I could, Mr. Chairman.
    Can you get us the date that you got the first notice from 
a Tea Party or conservative organization that they were being 
harassed, the very first time that your office was noticed that 
something might be going wrong here?
    Ms. Olson. I think the first case arrived in the Taxpayer 
Advocate Service sometime in early 2011 or late 2010, in one 
office in the Taxpayer Advocate Service.
    Mr. Jordan. Great.
    Thank you, Mr. Chairman.
    Mr. Meadows. I thank the gentleman.
    The chair recognizes the ranking member of the Government 
Operations Subcommittee, the gentleman from Virginia, Mr. 
Connolly.
    Mr. Connolly. Thank you, Mr. Chairman.
    Just to clarify your testimony, did your offices or your 
employees also get complaints about BOLOs involving progressive 
names?
    Ms. Olson. I think there were two cases or so dealing with 
that.
    Mr. Connolly. In your opinion, were groups denied their 
First Amendment rights by the IRS in this process?
    Ms. Olson. I think the IRS used certain terms to identify 
cases that raised questions, and I think that was incredibly 
inappropriate. And I am not a judge, so I will not render an 
opinion on whether it violated their First Amendment rights.
    Mr. Connolly. And are you aware of a number of 
organizations that, in fact, to this day have been denied their 
request for tax-exempt status?
    Ms. Olson. I think that we may have had one case where they 
were denied, but that was after 2013.
    Mr. Connolly. One.
    Ms. Olson. I think that is correct.
    Mr. Connolly. One.
    Ms. Olson. I can certainly verify it and get back to you.
    Mr. Connolly. So the narrative that a whole bunch of people 
are out there being persecuted by the hot nail boot of 
government would seem to be a bit of an exaggeration.
    Ms. Olson. I think most of them during that time were just 
held up and no decisions were made.
    Mr. Connolly. Is it not also true that with respect to 
501(c)(4)'s, many of these organizations, if they chose, could 
self-declare?
    Ms. Olson. Yes, they do not need the IRS letter to be 
treated as a tax-exempt organization.
    Mr. Connolly. Thank you.
    Mr. Chairman, I also would ask unanimous consent to enter 
into the record a Statement of Colleen Kelly, the National 
President of the National Treasury Employees Union, responding 
to the testimony today, and a letter addressed to both you and 
me from the Professional Managers Association just for 
inclusion in the record.
    Mr. Meadows. Without objection.
    Mr. Connolly. I thank the chair.
    Mr. Connolly. I want to go back now to the whole issue of 
the funding of IRS. To what extent do you think a lot of the 
problems we are talking about, closing overseas office 
representatives, customer service, let alone audit capability 
and the like, has to do with, frankly, the starvation of--I 
mean, it is one thing to say let's get efficient and let's cut 
back, but $1.2 billion in cuts, 12,000 employees fewer in 
roughly a 4-year period, that sounds pretty serious to me.
    And when I go a little further in terms of what that 
actually represents, half the work force is over 50, 40 percent 
are eligible to retire within 4 years, the number of employees 
under 30 has actually been declining, suggesting a less 
desirable workplace and is now less than 3 percent of the IRS 
work force, translating into 1,900 employees under the age of 
30 out of, I think, 9,100 employees, something like that, is 
that roughly right?
    Ms. Olson. [No audible response.]
    Mr. Connolly. As the advocate on behalf of the rest of us, 
what does this mean from your point of view, Ms. Olson?
    Ms. Olson. Well, I think there is no answer to the taxpayer 
service side of the equation except more funding, even as we 
move more into electronic taxpayer accounts and things like 
that. When the IRS is proposing to do things to you, you really 
want to talk to somebody to make sure they got your information 
and understand what you are saying.
    On the enforcement side, I really do believe that they can 
do a lot better with their procedures, and there what I really 
worry about is that they are just not bringing the innovation 
in and they are not bringing the young folks that can look at 
it and say, well, let's think about it as a different way, 
let's take a different approach. So I think that there are 
opportunities on both sides.
    And then I will also say that I can't emphasize enough that 
it is not just about the funding, because we could maybe absorb 
fewer employees as we get more electronic, but it is the amount 
of work that the IRS is getting. There is so much more work 
that we are doing.
    Mr. Connolly. Well, let me stop you right there, because I 
asked Mr. Koskinen this question. The funding affects the IT 
investment.
    Ms. Olson. Yes.
    Mr. Connolly. So, for example, at IRS, correct me if I am 
wrong, the average replacement age is 7 years or above for a 
computer; whereas the standard in the private sector is between 
two and 4 years. Is that correct?
    Ms. Olson. I can only attest to my own, the age of my own 
computer and my own BlackBerry and, yes, it is pretty darn old.
    Mr. Connolly. And what can go wrong with that?
    Ms. Olson. A lot.
    Mr. Connolly. Right.
    Ms. Olson. Like this morning I was bumped off the major IT 
system.
    Mr. Connolly. And we were also told that in terms of 
archiving material, records, taxpayer records and the like, the 
general guidance at IRS is print and save. Is that correct?
    Ms. Olson. [No audible response.]
    Mr. Connolly. Well, when you are talking about the volume, 
we are talking about the number of taxpayers, number of 
employees, and so forth, print and save is just a pretty 
primitive way of trying to do business in this part of the 21st 
century, would you not agree?
    Ms. Olson. I would agree with that.
    Mr. Connolly. So when we look at reinvesting in IRS, it is 
technology, it is targeted personnel, and it is capability so 
that we are returning a level of customer service for American 
taxpayers that we would all agree is acceptable, as opposed to 
where we are right now, would that be fair?
    Ms. Olson. That is correct. And I would also suggest 
setting some goals for the IRS and holding them accountable for 
it and saying how are you going to achieve this if we give you 
this money.
    Mr. Connolly. I am all for doing that.
    Mr. Chairman, I think that is very good advice, setting 
goals before we, tying it to whatever additional resources we 
provide.
    Thank you very much.
    Ms. Olson. Thank you.
    Mr. Meadows. I am shocked. I am shocked.
    We will go to the gentleman from Georgia. Mr. Carter is 
recognized.
    Mr. Carter. Thank you, Mr. Chairman.
    Ms. Olson, thank you for being here. We appreciate this 
very much. Let me ask you, earlier this year we heard testimony 
that there were over 800,000 incorrect forms sent to taxpayers. 
Has that been corrected?
    Ms. Olson. I have been told that they have either all been 
corrected or they are in the process of being corrected. It is 
not us correcting them, so I don't know for sure.
    Mr. Carter. Who was it correcting them?
    Ms. Olson. It is CMS that is doing the correction.
    Mr. Carter. And who is responsible for getting them to the 
taxpayers?
    Ms. Olson. It would be CMS getting them to the taxpayers, 
and the IRS would get a copy as well.
    Mr. Carter. OK. So you are assuming that it has been taken 
care of?
    Ms. Olson. I have been told that it is either completely 
taken care, there may be a few stragglers, and they are in the 
process of being corrected.
    Mr. Carter. Are these people who were impacted by this 
given any kind of extension or anything?
    Ms. Olson. They were not given an extension; they were told 
to hold off filing if they hadn't filed already, and if they 
had filed and they got a corrected one and they owed tax, they 
would not have to re-file. If they didn't owe tax and they were 
due a refund, they should file an amended return. They were 
also given penalty relief, so if they owed tax and they 
couldn't afford to pay, they wouldn't be penalized for not 
paying the tax on time or not paying estimated taxes.
    Mr. Carter. Is this going to have any kind of impact to 
delay their refunds?
    Ms. Olson. Yes, I am sure it will. And we are also showing 
not just with the 800,000, but we have a bunch of returns that 
are coming in where we don't have information from many of the 
State exchanges, so we have to delay the returns for a few days 
in order to be able to get information and match them. We have 
also just sent out about 290,000 letters to taxpayers where we 
are expecting to have a premium tax credit reconciliation and 
there isn't any on their returns, so their refunds are being 
held up too; and that will require some work to go through.
    Mr. Carter. Just out of curiosity, has this been more of a 
problem with the Affordable Care Act than you thought it would 
be?
    Ms. Olson. Actually, I have to say I was very negative in 
my estimations; I thought it would be a huge problem and it has 
actually not been as much of a problem as I had thought it was.
    Mr. Carter. Unless, of course, you are one of those 
800,000.
    Ms. Olson. Yes.
    Mr. Carter. So it is the luck of the draw.
    Ms. Olson. Oh, I am saying for those people who were caught 
up in it, it is very unpleasant and very disturbing.
    Mr. Carter. For those people whose refunds may be delayed, 
are they going to draw interest or anything on that?
    Ms. Olson. If it is after a certain period of time, I think 
it is May 15th, they draw interest; that is the law. Most of 
them come to us and ask for us to help with the processing of 
their returns if they have an economic hardship of some sort.
    Mr. Carter. OK. And if they owed and it was sent to them 
incorrectly and then they got the correct form in, they won't 
be penalized.
    Ms. Olson. They won't be penalized. And if they owe, they 
wouldn't have to re-file.
    Mr. Carter. OK. In one of the issues that you Stated was 
the most serious problem was No. 8: IRS does not ensure 
penalties to promote voluntary compliances recommended by 
Congress and others. When was that recommendation by Congress 
made?
    Ms. Olson. Many years ago. Congress actually, in the 1998 
Act and elsewhere, said to IRS, you know, we want you to look 
at how penalties are being used and whether they work. We 
passed these penalties and they are supposed to drive voluntary 
compliance in the future; come back and report to us whether we 
have got it right, are they using them in a way that drives 
voluntary compliance.
    Mr. Carter. Has that been done?
    Ms. Olson. Never.
    Mr. Carter. Never.
    Ms. Olson. Never.
    Mr. Carter. And have we been given any explanation as to 
why it was not done?
    Ms. Olson. No.
    Mr. Carter. Who was in charge of it?
    Ms. Olson. Well, it would be part of the IRS research 
function, and there is also a service-wide penalty office, and 
when we asked them are you looking at it, they said they didn't 
have the resources. That was their official answer to us.
    Mr. Carter. Are you serious?
    Ms. Olson. I am serious.
    Mr. Carter. You are not kidding, that is just what they 
told you?
    Ms. Olson. I am not kidding. That was the answer.
    Mr. Carter. So essentially they just ignored Congress.
    Ms. Olson. Yes, that is part of our point in the Annual 
Report to Congress. And that is partly what I am saying about 
the oversight of the IRS, is that having a hearing that says, 
well, what do penalties do and how are you using them, and are 
you using them appropriately? Are you penalizing the wrong 
people? Are they making people angry?
    My office did a study that showed that taxpayers who are 
penalized and later got the penalty abated, taken away, 
actually became more noncompliant in the future than taxpayers 
who were never penalized at all.
    Mr. Carter. That is very disturbing, very disappointing.
    Ms. Olson. Which is just the opposite of what we want.
    Mr. Carter. Absolutely.
    Ms. Olson. Which creates rework for us. We now have a whole 
bunch of taxpayers who are more noncompliant than they were 
beginning.
    Mr. Carter. OK.
    Mr. Chairman, I appreciate that and I yield back the 
remaining time.
    Mr. Meadows. I thank the gentleman.
    Ms. Olson, let me ask one question, because you know I have 
a burr in my saddle on this particular issue. Under sworn 
testimony before this subcommittee, it was a joint subcommittee 
hearing between this committee and Mr. Jordan's health care 
committee, we were told that the 800,000 wrong forms were a 
printing error and would be corrected within a week or so. That 
was sworn testimony. Do you believe that it could be as simple 
as a printing error if we are still dealing with it or just 
getting it fixed on April 15th?
    Ms. Olson. I really don't know what the cause of it is, so 
I can't answer that. I apologize, but I don't know.
    Mr. Meadows. Let me ask it a different way, then. How long 
does it take to reprint something if it is a printing error? 
Now, you can answer that.
    Ms. Olson. Well, it should not take long if it is a 
printing error.
    Mr. Meadows. A week?
    Ms. Olson. Correct.
    Mr. Meadows. All right. Thank you. I appreciate the 
clarification.
    The chair recognizes the gentlewoman from the Virgin 
Islands, Ms. Plaskett.
    Ms. Plaskett. Thank you, Mr. Chairman, ranking member.
    Good afternoon, Ms. Olson. I noted that in your 2014 Report 
you identified your most serious problem as the declining 
levels of taxpayer services, and that would appear to be a 
funding issue, if that is correct.
    Ms. Olson. Yes.
    Ms. Plaskett. Can you explain to me how that declining 
taxpayer services that you outlined in your report is affecting 
your ability to service the people that you are required to?
    Ms. Olson. Well, as I have noted before, that people cannot 
get through the phones, their correspondence can't be answered, 
so you actually get into a cycle where the taxpayer is calling 
and they don't get through on the phone, so they write the IRS, 
and then they don't get an answer from the IRS, so they call 
back.
    And the impact to the taxpayers is that taxpayers aren't 
just calling about where their refund is, but they are calling 
to say you sent me a notice and you are going to assess tax 
against me and I don't owe this tax. They are calling to say I 
know I owe some tax, but I want to enter into an installment 
agreement, don't levy on my bank account.
    Ms. Plaskett. Right.
    Ms. Olson. And if they can't get through, then the IRS is 
just automated. That is where they have done automation, for 
levying on bank accounts.
    Ms. Plaskett. For getting the money.
    Ms. Olson. For getting the money and for assessing 
additional tax. So that stuff just goes on auto-pilot and then 
bad things happen to taxpayers.
    Ms. Plaskett. Well, I think that this is probably a very 
important area that Congress needs to consider, is the funding 
for the IRS generally and for your division so that you are 
able to assist individuals who are attempting to do the right 
thing, but may not understand or have the resources to do that.
    Ms. Olson. Right.
    Ms. Plaskett. I represent a particularly interesting area, 
the Virgin Islands, which has a very unique relationship with 
the IRS. We use the mirror tax code and we have very stringent 
guidelines about what makes you a bona fide tax resident, what 
your sourcing rules are with regard to how people can take 
exemptions or whatever for their tax purposes. I wanted to ask 
you if you feel that the IRS is adequately represented in the 
Virgin Islands to deal with the issues that are unique to the 
people there.
    Ms. Olson. I am very concerned about the IRS's presence 
throughout the world on the civil side, and I think that the 
Virgin Islands we could certainly have more of a footprint 
there, just as I mentioned before with Mrs. Maloney that we 
needed more presence internationally on the civil side to 
provide taxpayers throughout the world who are U.S. taxpayers 
with assistance.
    Ms. Plaskett. So one of the things that my constituents 
have noted is in the criminal investigations unit, potentially 
the lack of training that they may have in terms of 
understanding the mirror tax code. We have people who are 
constantly calling the Taxpayer Advocacy Group. Do you know or 
have you a record of what the size of your group or 
individuals, do you have people specifically that are assigned 
to the territories?
    Ms. Olson. My Puerto Rico office and my Hawaii offices, 
both of them handle international taxpayer concerns, and Puerto 
Rico is one of my largest offices, so they get most of the 
Virgin Island cases; and we do a lot of training on them and we 
are very much aware of the bona fide resident issue and the 
statute of limitations issue in the mirror code issues.
    Ms. Plaskett. Right, right. Because, of course, we are 
concerned that if you are in Puerto Rico, it means that the 
agents will focus more of their attention on Puerto Rico, so 
the Virgin Islands, which oftentimes is in competition with 
Puerto Rico for some of the individuals that are living there, 
that we may be getting short-shrift and that there may not even 
be due process that is completely adequate for all of the 
residents of those territories because of those specific 
issues. We are seeing a lot of litigation going on right now 
with the IRS because of that, which potentially could have been 
avoided if there had been a larger presence of the taxpayer 
advocates there.
    Ms. Olson. Well, we were very involved in that issue that 
led to some of the litigation, and I think that my writings 
have been cited by the court, actually, in some of that 
litigation favorably, which I was pleased to see. We have 
actually put proposals out about expanding our taxpayer 
advocate offices into foreign countries. The reason why I have 
offices in every single State is because Congress put in the 
law that the taxpayer advocate has to have at least one office 
in each State.
    I can tell you today that if that wasn't in the law, I 
wouldn't have offices in every single State. There is no such 
language about territories and there is no such language about 
being some of the tax attaches that they are proposing to close 
abroad. So it is sort of hard for me to get that growth. And we 
have made a legislative recommendation and administrative 
recommendations to that effect of Congress actually legislating 
that we have some offices abroad or in the territories.
    Ms. Plaskett. Well, I would love to work with your office 
to try and support that and push that forward.
    Ms. Olson. Great.
    Ms. Plaskett. Thank you very much.
    Thank you very much, Mr. Chairman.
    Mr. Meadows. I think there is general agreement that there 
would be a number of people wanting to support that particular 
effort.
    Ms. Olson. A lot of people competing in that position.
    Mr. Meadows. I think so.
    The chair recognizes the gentleman from Wisconsin, Mr. 
Grothman.
    Mr. Grothman. Thanks much.
    In 2009 the IRS agreed to develop a plan to the way it 
administers penalties and offers a compromise. Could you 
comment on whether they have implemented such a plan or what is 
going on there?
    Ms. Olson. This was for like payroll service providers or 
just generally offers and compromise?
    Mr. Grothman. In general.
    Ms. Olson. Yes. Well, we are constantly disappointed about 
how the IRS is underutilizing the authority Congress gave it to 
settle tax debts for reasonable collection potential or 
principles of equity or, you know, economic hardship. 
Basically, after a debt is 3 years old, the IRS has 10 years, 
in general, to collect a tax debt, and after a debt gets to 
year three, we collect essentially nothing on that debt. Old 
debts you just don't collect on.
    So for the IRS to have all of these old debts and not use 
offer and compromise authority is just silly. We could get 
these taxpayers clean going forward. They have to promise to 
comply with the laws for the next 5 years. That is long enough 
to train a taxpayer to be a compliant taxpayer.
    Mr. Grothman. Are tax debts dischargeable in bankruptcy?
    Ms. Olson. Some debts are and some debts are not.
    Mr. Grothman. A lot of these debts, what do you see causes 
somebody to be that far in debt? There is always the 
stereotype. You know, you think of somebody living the high 
life and not paying their taxes, but what do you think is the 
average person who owes 50, 100, 20 grand?
    Ms. Olson. Yes. Most of it is somebody that might be self-
employed and just didn't account for the self-employment tax 
that is always a surprise at the end of the year. And the thing 
that is really disappointing is that many of the debts, whether 
it is on the business side or the individual side, are very 
small at the beginning; and the IRS just puts them in a queue 
and they sit there for years and years and the penalties and 
interest double. And interest accrues daily under the law, so 
it is just a huge amount, and before long the tax is actually 
dwarfed by the amount of penalty and interest. By the time the 
IRS picks up that case 6 years later, it is something that the 
taxpayer can't pay, when they might have been able to enter 
into an installment agreement the first or second year and get 
rid of it over two or 3 years and be good going forward.
    Mr. Grothman. You could have a situation where you have a 
self-employed person or maybe a small businessman, which is a 
self-employed person, who is just not making money.
    Ms. Olson. Right.
    Mr. Grothman. Right? And that is what is going on.
    Ms. Olson. Right.
    Mr. Grothman. A lot of these debts, they are not bad people 
who are buying boats and vacations, they are just people who 
are working 60 hours a week losing money, right?
    Ms. Olson. Yes. And some of these folks, they have gotten 
into trouble and they realize that they need to maybe not run 
the business; and going forward they are a wage earner and they 
have this back debt. So here we have a taxpayer who is 
compliant going forward. Let's use offer and compromise to deal 
with this debt and help them not be burdened by it.
    And I don't think the rest of the taxpayers of the world 
will object too much if they know that it is the amount that 
the person can really afford to pay. And that is the rules for 
offer and compromise, the reasonable collection potential, what 
we reasonably expect to be able to collect over the remaining 
10 years.
    Mr. Grothman. So what would happen is we probably get in 
more money and somebody's life would no longer be ruined.
    Ms. Olson. We have studies that show that. At one point, in 
2005, we studied the offer and compromise program and saw that 
the IRS, by rejecting offers, left money on the table. We 
tracked what happened with those cases, and not a dollar was 
collected and we turned down money that was being offered to 
us.
    Mr. Grothman. Ms. Olson, it has been over 20 years since I 
was a lawyer, and I finally found somebody who has compassion 
on the poor small businessmen whose businesses fail. Well, good 
luck. I am glad you brought it to our attention. Do you have 
any suggestions what we can do to move these people along in 
the IRS, prod them along so they aren't hounding these people 
onto death?
    Ms. Olson. Submitting questions to them, holding a hearing 
about what they are doing on the collection side and why aren't 
they using the offer and compromise authority better. That is 
the kind of oversight I think would be very, very productive 
because, actually, Congress has given it the tools to be able 
to resolve these issues and bring people into voluntary 
compliance going forward; and that is the name of the game, 
that they get into voluntary compliance, they go and sin no 
more.
    Mr. Grothman. IRS is less compassionate than Congress? Good 
grief. OK. Thank you very much.
    I yield the rest of my time.
    Mr. Meadows. I thank the gentleman.
    Ms. Olson, I want to thank you for your testimony. I want 
to ask just a few, very few followup questions. I will give you 
a few others that your staff can respond to.
    One of those, and you touched on it much earlier in your 
testimony, was really with regards to service levels and 
measuring service levels, how the IRS does it, how you see it 
from a consumer's point of view. How difficult would that be to 
start to look at it from the taxpayer's point of view?
    I often think that the best penalty for some of the highest 
senior levels within the IRS is to make them get on the phone 
and wait for a response, as I do with some of our airline 
executives, because they get a special deal. If they experience 
what the average person experiences, perhaps they would see it 
as a problem.
    So how do we best, in a bipartisan way, establish a 
standard for those service, what I call the cycle of service as 
they would see it from a taxpayer's point of view?
    Ms. Olson. I think the first thing the IRS needs to do is 
to really beef up its research on what taxpayer needs are. We 
have a very diverse population, and they have really not done 
the research in recent years to identify what taxpayers need 
and what types of taxpayers need what kind of services. We have 
proposed a model and we have worked with the IRS, but we have 
gotten to a stopping point, where you would be able to rank 
taxpayer services by the method in which it is delivered.
    So by the phone, face-to-face, online, and the difference 
types of services like answering tax law questions, answering 
account questions, and those sorts of things; and looking at it 
from the Government perspective, saying how much does it cost 
us to do, but then looking at it from the taxpayer perspective 
and surveying taxpayers and saying do you want this this way, 
do you want this service delivered this way, what are the 
barriers; and then matching them up and actually ranking 
services.
    I think in that way you would actually be able to say 
taxpayers have told us if we don't get service delivered in 
this particular way, we will make mistakes on our returns. And 
then you could start doing research to see whether that 
actually bears out; and that would tell you that this service 
needs to be funded for phone, whereas this service could be 
done online. And it would be a data based method of resource 
allocation, but it would take into consideration the 
Government's concerns about cost with the taxpayers' concerns 
about burden and accuracy and being able to comply with the 
laws.
    Mr. Meadows. So why do you think they don't have this 
rigorous methodology? I think counsel just shared with me it is 
No. 2 on your list.
    Ms. Olson. Yes.
    Mr. Meadows. So why would they not have that?
    Ms. Olson. I think some of it is because they are in a 
reactive mode. You know, they look at the budget and they say, 
we have to cut this much money. What things cost this much 
money? We will cut them. That is why you don't have return 
preparation in the walk-in sites. That is why you got the four 
offshore offices cut. They are just looking around. It is not 
research based.
    And I think that goes to the point about making some 
investments, but holding them accountable; that you have to do 
some investments and say we want you to do this research. We 
know we might not see a return on investment this year, but it 
will guide your decisions going forward and will get 
investments and efficiencies down the line.
    Mr. Meadows. All right. How can we best give you the tools 
to continue to apply pressure? Because we will have this 
hearing, you will make another report in June, I guess it will 
be. But we will have these hearings and what both of us find is 
that there is a flurry of activity that happens leading up to 
the hearing, and then the hearing happens and everybody goes 
whew, it's over, and then there is a flurry of activity if we 
have you in a year from now.
    How can we make sure that the recommendations that you have 
get implemented, and then when you go to the agency and they 
say, well, it is not a priority? What we would love to do is 
look at it from a real budget standpoint and a real cost-
effective standpoint and try to figure out where we need to be 
on that. How can we do that? Is it to get highlight reports 
from your office on a more regular basis?
    Ms. Olson. Well, that is one thing. For the last 2 years, I 
have given the commissioner a memorandum with 10 or 12 
recommendations from my annual report that are low or no cost, 
and the proposal that we did for the second problem is one of 
those low or no cost. Do this, just work with us on it.
    I think it would be very helpful if this committee looked 
at some of our recommendations and thought this makes a lot of 
sense and we think the IRS should move in this direction, and 
communicate that to the commissioner one way or another and say 
please come back and tell us what you are doing on these 
recommendations.
    Mr. Meadows. All right. I will close with this. I will give 
you the other questions that you can answer and submit back to 
the committee as your time permits. But can you prioritize for 
us, not only from the top 10, but the ones that you have out 
there that have been out there that are an easy fix that have 
been out there forever, and what I would say is an aging 
process? This has been a problem for 10 years or 20 years, or 
the fact that they are not even willing to do a beta test on 
one of the easy recommendations.
    Ms. Olson. Right.
    Mr. Meadows. I do believe that the commissioner wants to 
improve service. And that may not be a popular thing to say, 
but I do believe that he wants to do that. I also believe that 
when we get so big at times there is a difficulty at finding 
the right balance between, as you say, just cutting out.
    For example, some of the additional Dodd-Frank regulations 
that came in exacerbated the problem overseas that Mrs. Maloney 
was talking about. So we passed something on one side. It makes 
it more difficult in compliance. And as you and I have 
personally discussed, the form for the Affordable Care Act, I 
do know that it was probably designed by Jonathan Gruber, 
because it takes an MIT guy to figure it out. It is 
unbelievably complex, would you agree?
    Ms. Olson. Yes, it is right up there with the alternative 
minimum tax.
    Mr. Meadows. If you would do that and highlight that for 
us. We are going to continue to come back to this and make it a 
priority. As the ranking member talked about, from an IT 
standpoint, I think there are some things that we can help out 
with and continue to work.
    I notice that we have been joined by the delegate from the 
District of Columbia, so the chair, if she is ready, is ready 
to recognize Ms. Norton.
    Ms. Norton. I want to thank my good friend, the chair and 
the member from North Carolina. He always means well, believe 
me, I say to the taxpayer advocate.
    I have some questions for you. I think all of my colleagues 
must have had the same issues I have had for the first time 
ever. I must say it must be amazing to the IRS to see people 
willing to wait in line for the kinds of services. When I read 
about lines that the IRS had to come out and say no more today, 
you will have to come back, it is as if we are having something 
you were giving away. They are trying to give away their money.
    And I have to say to my good friends in the majority, there 
is a lot of chutzpah on taxpayer day to call in the taxpayer 
advocate, because what we are told is that it is the taxpayer 
advocate that everybody is being sent to when they have 
problems.
    And it looks like the Congress is taking no responsibility 
for what has happened. No one has ever heard of a 17 percent 
cut in any agency, but my friends are not able to abolish the 
IRS, although there are two or three Presidential candidates 
running on abolishing the IRS, so they are trying to abolish it 
by starving it to death without recognizing that who gets 
starved are constituent services. Yes, constituent services, 
something we live by.
    I was particularly outraged at what the Congress has done 
to the IRS has made it difficult for the IRS to take advantage 
of one of the great innovations in the Federal Government, and 
that is the VITA services. VITA volunteers, who must be 
certified, who come forward and, for free, fill out the tax 
preparation forms for people who are in modest income, and I 
think people $60,000 or so can still have that done.
    We have VITA sites that we work with. Indeed, I have a 
whole day where I invite the sites and we all fill out the 
forms. The tax advocate, of course, comes. Then the VITA sites 
go. They spread throughout the District of Columbia. This is 
typical, I am sure, of other members, and close to their 
neighborhood they just help whoever comes in.
    Now, you require that these people, 100 percent volunteers, 
be certified, take a test, as if they were civil servants. It 
is an amazing thing that the IRS has done for years. Now we are 
told that the VITA sites have been put in this extraordinary 
position that they now are being hammered because you can't 
expand the VITA sites, these volunteers who have become expert 
in doing what you do, and yet here is the Congress kind of 
calling the taxpayer advocate to task. It is amazing. Chutzpah 
or something else beyond that it takes to say why aren't you 
doing a better job.
    I have asked to come up, though, particularly because of 
the VITA sites. I adore them. They have to be certified; 
whereas, and correct me if I am wrong, if you are a company and 
you want to do taxes, does the IRS require any kind of 
certification for somebody who simply wants to set up a 
business and fill out your taxes and charge you for doing so?
    Ms. Olson. First, I don't feel this committee is calling me 
to task; they are holding me accountable and they have been 
very supportive.
    Ms. Norton. Oh, you are so polite.
    Ms. Olson. I am polite. They have been very supportive of 
the work that I have been doing.
    Ms. Norton. And by the way, for every reason, the taxpayer 
advocate is everybody's friend. The taxpayer advocate is who 
figures out the real problems our constituents have. But I 
can't imagine offloading to you all the problems, saying the 
IRS is not available, but the tax advocate is.
    Ms. Olson. Right. Well, we are seeing a growth in our 
cases.
    I want to talk about the VITA program because we did make 
it a most serious problem this year in the Annual Report 
because of some of our concerns.
    The IRS staff supporting the program has been truncated, so 
I think the volunteers have not gotten the kind of support that 
they have needed in the last few years, and we have been 
concerned about how the IRS--Congress has appropriated funds to 
make matching grants to some of the volunteer programs, but 
there have been a lot of restrictions on them. They are not 
being able to use them in some of the ways that the individual 
programs may think best.
    Ms. Norton. I don't understand what you mean by that.
    Ms. Olson. Well, for example, some of the programs want to 
be able to have a paid quality review person on their staff, 
which we should all agree would make sense. You have volunteers 
doing the returns. Maybe hire someone whose job it is to look 
at the quality of the returns.
    Ms. Norton. They still have to do quality review.
    Ms. Olson. That has to be a volunteer too.
    And then one of the issues about taking that test, it is 
deeply ironic that we require the volunteers to take a test, 
but we don't have the authority to require unenrolled return 
preparers, people who can just hang up a shingle, aren't 
attorneys, aren't CPAs, aren't enrolled agents. And the IRS did 
try to do that through the regulation, but the courts have 
overturned that, so now it is back in Congress's court to 
really give us the legal authority.
    Ms. Norton. And, of course, that would make more work for 
you if they made an error.
    Ms. Olson. Yes, exactly. That is one of the biggest ways 
that we could get more quality in the tax system.
    But I have recommended this year, and I think the IRS may 
do this, we are actually limiting the number of volunteers who 
are attorneys, CPAs, or enrolled agents who are willing to 
volunteer, because every year they have to take this test; and 
these are people who are already, you know, have passed the bar 
exam, they have passed the CPA exam, they have passed the 
enrolled agent exam.
    So what I have recommended is have them take the test once 
in their lifetime and they just take a short quiz every year 
about any changes in the law, but don't make them sit through 
it again; and you might get more volunteers.
    Ms. Norton. And the IRS would get to do that? Congress 
wouldn't have to do that?
    Ms. Olson. Yes, it is all IRS rules. You don't need 
legislation.
    Ms. Norton. Well, as much as you can do to help yourself, 
the IRS, I think the IRS should simply do it. I think even 
Congress this year will look at those cuts and understand that 
they have contributed to the crisis. It is a crisis. I wanted 
to come out and just apologize and to thank you for the work of 
the tax advocate not only now when we are just dumping on you 
and nobody else is available to go see the tax advocate, but to 
thank you for what the tax advocate does all year, all the 
time, and how essential you have been to our constituents. 
Thank you very kindly.
    Ms. Olson. Thank you.
    Mr. Meadows. I thank the gentlewoman.
    The chair recognizes the gentleman from Ohio.
    Mr. Jordan. I thank the gentleman.
    In the last questioning from the gentlelady from the 
District, you talked about growth in cases you are dealing 
with, and you attribute that to what exactly?
    Ms. Olson. This year we have a 5 percent growth so far, and 
we are seeing that from the filing season, people not being 
able to get through on the phones and coming to us.
    Mr. Jordan. Oh, that is because they are not getting 
answers to their questions.
    Ms. Olson. That is right, or they are not getting their 
returns processed.
    Mr. Jordan. And maybe I missed this earlier. Is that a 
trend?
    Ms. Olson. The 5 percent is a trend, yes.
    Mr. Jordan. So it was 5 percent bigger than last year and 
last year was 5 percent bigger than the previous year?
    Ms. Olson. Let's see. The previous year dropped from the 
year before, 2013 to 2014 had dropped a bit.
    Mr. Jordan. It dropped, so it is not a trend.
    Ms. Olson. It is not a trend, it is actually reversing the 
trend.
    Mr. Jordan. OK, so the trend was coming down and this is 
the first year it went up.
    Ms. Olson. It was going down for about 2 years, yes.
    Mr. Jordan. All right. And, in your professional judgment, 
that is because of financial concerns?:
    Ms. Olson. It is a taxpayer service issues and would bring 
financial concerns.
    Mr. Jordan. Might it also, I am just going to hazard a 
hypothesis, might it also be the complexity of the tax code. 
The tax code continues to get more and more complex. Maybe we 
need a new one.
    Ms. Olson. I have made the complexity of the code a No. 1 
most serious problem for several years.
    Mr. Jordan. OK. And that is based on your professional 
judgment that it is a financial cause, but also in your 
professional judgment it could be because of the complexity?
    Ms. Olson. Absolutely.
    Mr. Jordan. The ever-increasing complexity of the code.
    Ms. Olson. Absolutely.
    Mr. Jordan. And you have not had an outside study done to 
say which is bigger, or have you?
    Ms. Olson. That is hard, but just looking at my cases, for 
example, 1 year we had a huge bump in our cases solely 
attributable to the first-time home buyer credit because it was 
a complex credit and we got 40,000 cases in 1 year.
    Mr. Jordan. I would think that is the biggest concern. If 
you have a code that is that big, of course there are going to 
be questions. That is why we need to reform the tax code.
    Early on in the hearing you mentioned critical pay 
authority. Can you define what that is exactly?
    Ms. Olson. That is a special hiring authority where the IRS 
is able to bring people from the private sector and pay them 
above the general pay scale based on their skills, and it is a 
limited authority; they are able to come in for 4 years. But it 
is a way to bring the best and the brightest from the private 
sector.
    Mr. Jordan. And what has happened to that authority?
    Ms. Olson. It is called critical pay.
    Mr. Jordan. No, no, what has happened.
    Ms. Olson. It has expired.
    Mr. Jordan. And you and Mr. Koskinen would like that to be 
back in place?
    Ms. Olson. I think, yes.
    Mr. Jordan. So just to be clear, this is the authority to 
pay people at a higher level, higher wage, higher salary than 
what they are entitled to under the Federal pay scale.
    Ms. Olson. Yes, that is correct.
    Mr. Jordan. And where do these people typically work?
    Ms. Olson. They would work often in our IT function. That 
is what it was really originally intended for, was the 
information technology.
    Mr. Jordan. And you know the difficulty we have as 
policymakers with that, right?
    Ms. Olson. Would you explain that to me?
    Mr. Jordan. Well, so you had critical pay authority for all 
this time and we had this whole escapade with--and these are 
the IT people, the tech people, of losing Lois Lerner's emails; 
finding out you had lost them; the IRS not telling, not you, 
but Mr. Koskinen waiting 2 months to tell us they had lost 
them.
    Then once they inform us they had lost them, the inspector 
general, 2 weeks after, were informed that they were lost and 
that Mr. Koskinen has assured us that they cannot be recovered, 
that the backup tapes have been destroyed; 2 weeks after that, 
the inspector general drives to Martinsburg, West Virginia and 
gets the backup tapes and, lo and behold, we have found them.
    So all these IT people that you need critical pay authority 
to pay didn't do a very good job in that situation, which has 
been the most high profile situation at the Internal Revenue 
Service over the last 2 years. And now you and Mr. Koskinen is 
asking to pay these people more than anyone else on the Federal 
pay scale makes and give you this critical pay authority. I 
think that is going to be really difficult.
    Ms. Olson. I can only say that it is my belief that it 
would benefit the IRS to be able to bring people from the 
private sector in to help us learn more about innovation and 
those sorts of things. And to get those people in, it is very 
hard to match the salaries that they are able to make on the 
outside, and that is the purpose of critical pay.
    Mr. Jordan. Well, we respectfully have a slight different 
opinion.
    I thank the chairman for his indulgence.
    Mr. Meadows. The chair recognizes the ranking member, Mr. 
Connolly.
    Mr. Connolly. Thank you, Mr. Chairman.
    Well, let's try the other side of this. So maybe the way to 
get the IRS technologically advanced and solving the kinds of 
problems Mr. Jordan just described is actually let's pay 
everyone in the technology and IT sector half of what they 
might make otherwise. Would that work?
    Ms. Olson. I don't know. I mean, that is a proposal, yes.
    Mr. Connolly. So do we have a brain drain going on in the 
IRS?
    Ms. Olson. I think that right now it is very difficult to 
bring people in from outside. Some people view it as a 
challenge. I certainly do. I think Commissioner Koskinen does.
    Mr. Connolly. Would it be fair to say that whatever that 
brain drain is or, put differently, the difficulty to recruit 
is particularly acute in the higher skilled end?
    Ms. Olson. Yes, I would say that.
    Mr. Connolly. So maybe having some pay differential or some 
kind of incentive pay structure might be useful if we are going 
to compete with the private sector or even have a fighting 
chance to do that.
    Ms. Olson. I agree with that, and I don't think it has to 
be matching private sector salaries because people come to work 
for the Government out of a public service motivation. But it 
is hard to take such a huge hit in your private sector salar.
    Mr. Connolly. Switching subjects, what percentage of 
American taxpayers are voluntarily compliant in paying their 
taxes?
    Ms. Olson. It is 83 percent or so before we count later on 
collections, and it is a little under 86 percent if you count 
late payments and enforcement collections.
    Mr. Connolly. If you had a subset of those Americans where 
that percentage was 97 percent, how would you characterize 
that?
    Ms. Olson. That would be extraordinarily compliant.
    Mr. Connolly. Thank you very much.
    I yield back.
    Mr. Meadows. I thank the gentleman from Virginia.
    Ms. Olson, I would like to thank you for your time today, 
for taking the time to appear for your direct answers. It is 
very welcoming, coming from some committees where perhaps the 
answers are not as direct or complete. So thank you so much.
    Ms. Olson. Thank you.
    Mr. Meadows. I would also like to thank the staff of the 
committee here. Much of the work that gets done is always their 
hard work that we carry out.
    And I would like to thank your staff, so many of them who 
are here today. Thank you for your work. Truly appreciate it.
    If there is no further business, without objection, the 
subcommittee stands adjourned.
    [Whereupon, at 2:30 p.m., the committee was adjourned.]

 
                                APPENDIX

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               Material Submitted for the Hearing Record


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