[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]

THE NATIONAL TAXPAYER ADVOCATE

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

HEARING

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT

OF THE

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

ONE HUNDRED FIFTEENTH CONGRESS

FIRST SESSION

__________

MAY 19, 2017

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Serial No. 115-OS04

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Printed for the use of the Committee on Ways and Means

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COMMITTEE ON WAYS AND MEANS

KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
DEVIN NUNES, California SANDER M. LEVIN, Michigan
PATRICK J. TIBERI, Ohio JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois MIKE THOMPSON, California
VERN BUCHANAN, Florida JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska EARL BLUMENAUER, Oregon
LYNN JENKINS, Kansas RON KIND, Wisconsin
ERIK PAULSEN, Minnesota BILL PASCRELL, JR., New Jersey
KENNY MARCHANT, Texas JOSEPH CROWLEY, New York
DIANE BLACK, Tennessee DANNY DAVIS, Illinois
TOM REED, New York LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania BRIAN HIGGINS, New York
JIM RENACCI, Ohio TERRI SEWELL, Alabama
PAT MEEHAN, Pennsylvania SUZAN DELBENE, Washington
KRISTI NOEM, South Dakota JUDY CHU, California
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
TOM RICE, South Carolina
DAVID SCHWEIKERT, Arizona
JACKIE WALORSKI, Indiana
CARLOS CURBELO, Florida
MIKE BISHOP, Michigan

David Stewart, Staff Director

Brandon Casey, Minority Chief Counsel

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SUBCOMMITTEE ON OVERSIGHT

VERN BUCHANAN, Florida, Chairman

DAVID SCHWEIKERT, Arizona JOHN LEWIS, Georgia
JACKIE WALORSKI, Indiana JOSEPH CROWLEY, New York
CARLOS CURBELO, Florida SUZAN DELBENE, Washington
MIKE BISHOP, Michigan EARL BLUMENAUER, Oregon
PAT MEEHAN, Pennsylvania
GEORGE HOLDING, North Carolina

C O N T E N T S

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Page

Advisory of May 19, 2017 announcing the hearing.................. 2

WITNESS

Nina Olson, National Taxpayer Advocate........................... 5

QUESTIONS FOR THE RECORD

Questions from The Honorable Vern Buchanan, to Nina Olson........ 126
Questions from The Honorable David Schweikert, to Nina Olson..... 130
Questions from The Honorable Carlos Curbelo, to Nina Olson....... 134
Questions from The Honorable Mike Bishop (MI-08), to Nina Olson.. 138
Questions from The Honorable George Holding (NC-02), to Nina
Olson.......................................................... 141

PUBLIC SUBMISSIONS FOR THE RECORD

The Bright Lines Project......................................... 145

IRS REFORM: LESSONS LEARNED FROM THE NATIONAL TAXPAYER ADVOCATE

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FRIDAY, MAY 19, 2017

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The Subcommittee met, pursuant to call, at 8:59 a.m., in
Room 1100, Longworth House Office Building, Hon. Vern Buchanan
[chairman of the subcommittee] presiding.
[The advisory announcing the hearing follows:]
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Chairman BUCHANAN. The Subcommittee will come to order.
Welcome to the Ways and Means Oversight Subcommittee
hearing on IRS Reforms: Lessons Learned from the National
Taxpayer Advocate.
It has been nearly 20 years since Congress seriously
considered reforms to the IRS. I am hopeful that as we embark
on a renewed effort to improve the agency that we can work
hand-in-hand with Members on both sides of the aisle. Working
together, I am confident that we can find common ground and
make progress.
I think it is important to emphasize that our efforts to
reform the IRS should not be seen as a punishment or a
criticism of the average agency employee; instead, they are a
recognition that the IRS's mission is very important. Every
government entity, just like private companies, can benefit
from a thorough review and some thoughtful, long-term planning
and action. And that is what we are here for today.
I have a business background. I started my own business
many years ago, and my experience tells me that we always need
to look for ways to improve. Continuous improvement has been
part of my philosophy over a lot of years. We always find a way
to get better and more efficient.
When evaluating any entity- government or business- I
always ask myself the reason for improving, but the big goal is
to have continuous improvement, I think, as your organization
has done so over the years.
The task before us today is to ask the tough questions and
look for solutions. This work is important because taxpayers
need to be able to trust the entity administering the Tax Code.
Ninety-eight percent of our tax revenues come to the IRS
voluntarily. Only 2 percent is collected through the IRS
enforcement action.
Trust is a key component of voluntary compliance. The
Taxpayer Bill of Rights contains the right to quality service,
and I think that is one of our biggest focuses as second on the
list. An IRS publication describes the right as the right to
receive prompt, courteous, and professional assistance in
taxpayer dealings with the IRS. As we consider reforms to the
IRS, we should keep this right, as well as well as the other
nine in mind.
I look forward to working with the Ranking Member, Mr.
Lewis, and other Members of the Committee, to make the IRS a
21st century agency.
I want to thank our witness, Ms. Olson, for being here
today. She has been a champion for taxpayers for many years,
and her insight on this topic will be valuable. I look forward
to her testimony.
I now yield to the distinguished Ranking Member, Mr. Lewis,
for the purposes of an opening statement.
Mr. LEWIS. Good morning, Mr. Chairman. Thank you very much
for holding this hearing with the National Taxpayer Advocate.
And I want to thank Ms. Olson for being here and for her
many years of service.
I would also like to thank our Members for being here. I
know for some of us, this is a little early.
Chairman BUCHANAN. I agree.
Mr. LEWIS. But we are here.
Mr. Chairman, we must approach the important matter of
reforming and improving the Internal Revenue Service with a
great deal of care. We must remain focused on doing what is
right, and what is just for the interests of every American
taxpayer. If we stay on a bipartisan path together, we help the
IRS become a model of success for constituent services.
The IRS is a large and complex organization that has
suffered from a lack of resources for many years. Congress cut
the agency's budget by almost $1 billion since 2010. These cuts
hurt and harm taxpayer services and tax compliance.
And the IRS needs technology, infrastructure, and employees
to provide secure, quality customer service. For these reasons,
responsible reform must include strong, robust funding. As we
study the IRS structure and service, we must also consider how
much the world has changed since Congress last acted on this
matter.
Over the last 20 years, smartphones and internet access
created opportunities for some and barriers for others. Both
taxpayers and those who serve them struggle with increased
identity theft, fraud, and scams. Unfortunately, certain
programs, like private debt collection, which have been tried
and repeatedly failed, just lead to more confusion.
Mr. Chairman, I believe that we agree on the importance of
an agency that would provide taxpayers with greater access to
customer service online, over the phone, and in person. I
believe we can help build a tax administration system that will
take advantage of new technology, while enhancing the security
of taxpayer data.
I believe that we must do better, and that if we work
together, we can do better. I look forward to hearing from the
National Taxpayer Advocate today, and learning more from her
experience with taxpayers and the agency.
And again, thank you, Mr. Chairman, for holding this
hearing today. And thank you for your service. I yield back.
Chairman BUCHANAN. Thank you, Mr. Lewis. And I look forward
to working with you on the IRS reforms.
Without objections, other Members' opening statements will
be made part of the record.
Today's witness panel includes one expert, Nina Olson, the
National Taxpayer Advocate for Taxpayer Advocate Services at
the IRS. And I did mention to her earlier, I met with a group
of CPAs from Florida, and your organization was well thought
of.
And also last week, preparers that are here in Washington,
I asked them about your organization, and they gave you high
marks. I don't want you to get a big head, but the point is, we
do believe in continuous improvement.
Ms. Olson, we appreciate you being here today. The
subcommittee will receive your written statement, which will be
made part of the formal hearing record. You now have five
minutes to deliver your oral remarks. You may begin when you
are ready. Thank you.

STATEMENT OF NINA E. OLSON, NATIONAL TAXPAYER ADVOCATE

Ms. OLSON. Chairman Buchanan, Ranking Member Lewis, and
Members of the Subcommittee, thank you for inviting me to
testify today regarding the operations of the Internal Revenue
Service, and to offer some suggestions to improve the
responsiveness of the agency to U.S. taxpayers.
It has been nearly two decades since Congress last reviewed
and updated the laws governing IRS operations. A lot has
changed during that time, and tax administration would benefit
from a fresh review of those laws.
In my written statement, I make the following points:
First, reforms to IRS operations will be most successful if
Congress consults widely on its proposals, engages IRS
employees and external stakeholders, and provides the IRS with
adequate funding to succeed.
Second, sound tax administration should be predicated on
foundational principles, and the most important principle is
respect for taxpayer rights. Not only is respecting the rights
of the taxpayers who pay our Nation's bills the right thing to
do, but there is significant empirical data that suggests
building trust with taxpayers, which requires respecting their
rights, enhances voluntary compliance as well.
In 2015, Congress codified the provisions of the Taxpayer
Bill of Rights, or TBOR, as part of a provision requiring that
the Commissioner ensure IRS employees receive training and act
in accord with those rights. The challenge now is to ensure
that TBOR is not merely aspirational, but is incorporated into
the very ethos of the IRS, and explicitly into its business
practices.
I believe a clear statement that taxpayers actually have
the 10 fundamental TBOR rights would provide a stronger
foundation for effective tax administration. And, therefore, I
recommend that Congress enact the Taxpayer Bill of Rights as a
freestanding provision in the Internal Revenue Code.
Third, to become an effective 21st century tax
administration, the IRS must place greater emphasis on taxpayer
service. In my view, there is no conflict whatsoever between
providing high-quality taxpayer service and taking actions to
ensure tax compliance, particularly on the part of persons
actively seeking to evade tax. It should not be an either/or
proposition.
But to create an environment that encourages taxpayer trust
and confidence, the IRS must change its culture from one that
is enforcement-oriented to one that is service-oriented.
Of the IRS's current appropriated budget of $11.2 billion,
43 percent is allocated to enforcement, while only 4 percent--I
repeat, only 4 percent--is allocated to taxpayer outreach and
education activities.
According to IRS data, the agency dedicates only 98
employees to conduct outreach and education to the roughly 62
million small business and self-employed taxpayers, and only
376 employees to conduct outreach and education to the 125
million wage and investment taxpayers. Meanwhile, the IRS has
over 3,000 revenue officers who collect field collection
activity, and over 8,800 revenue agents who conduct field
audits.
In RRA 98, Congress directed the IRS to restate its mission
to place a greater emphasis on serving the public and meeting
taxpayers' needs. In response, the IRS adopted the following
mission statement: ``Provide America's taxpayers top-quality
service by helping them understand and meet their tax
responsibilities and by applying the tax law with integrity and
fairness to all.''
In 2009, with no public discussion or notice to Congress or
to myself, the IRS quietly changed its mission statement to
read, ``and enforce the tax law with integrity and fairness to
all.'' This shift in tone and emphasis from ``applying'' to
``enforcing'' the law suggests IRS leadership disagreed with
the congressional directive and decided to place greater
emphasis on enforcement in the mission statement.
Accordingly, I recommend that Congress require the IRS to
revise its mission statement to reemphasize a noncoercive
approach to tax administration and explicitly affirm the role
of taxpayer rights as a guiding principle for tax
administration.
Fourth, Congress has passed three important taxpayer rights
bills, including RRA 98. And in my testimony, I highlight
provisions that IRS has--that Congress has enacted, that the
IRS has either not implemented, defined away through writ
guidance, or only done a partial job.
Fifth, RRA 98 joint oversight hearings would give Congress
better insight into the IRS strategic and operational plans,
promote dialogue between Congress, IRS, and interested
stakeholders, and help ensure the tax writing and
appropriations committees coordinate their expectations and
approaches toward the IRS operations.
Thank you for this opportunity, and I look forward to
answering any questions.
[The prepared statement of Nina Olson follows:]
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Chairman BUCHANAN. Thank you very much.
At this time, we will now proceed to the question-and-
answer session. I think we are going to have to limit the
questioning to four minutes instead of five, because we have a
briefing at 10:00, so I would ask all the Members to adhere to
that.
As is my custom, I will hold my question until the end. I
now recognize the gentleman from Arizona, Mr. Schweikert, for
any question he might have.
Mr. SCHWEIKERT. Thank you, Mr. Chairman, and Ms. Olson.
This is sort of unique for a couple of us up here because
we are so used to actually having witnessed, particularly in
the IRS, where we have a series of dodging stories and things
that are frustrating.
When we have reached out to Arizona, we actually had people
say nice things about the organization, a little concern on
speed, but actually said nice things. So you win a prize for
having a unique conversation with us today.
Can I start with one thing, though, that did come up in the
conversations we had in Arizona about this hearing that was
coming up, and that was, with outreach to our office and then
also to your office, individuals who are--were called in the
gig economy, the Uber driver, the person who crowdsources their
work through the internet, and the discussion of how they
access information saying, ``Hey, here are the rules for me to
save for my retirement, here are my rules on what must be set
aside.''
First, as the Advocate, do you believe your organization is
doing enough to make it easy to access that information? The
way you post it up on your website, the way you deliver that
information? And then the same thing for, as you observe, how
the IRS delivers that information to those folks in that part
of our economy?
Ms. OLSON. Well, I am very concerned about this population
as it is growing. It is a very fast growing part of it. And I
am concerned they will get into trouble with self-employment
tax, not save for retirement, et cetera.
One thing that my office is working on right now, that we
receive suggestions about from other sectors, is to develop a
wizard where people who are starting in the gig economy can
actually go on to our taxpayer toolkit online and see all the
steps that they need to do and get to the different places: Get
an employer identification number, understand about calculating
self-employment tax and when they need to pay it; get to the
place where they can calculate or learn about the different
forms of retirement saving, et cetera; and then, most
importantly, if they have problems, how they can resolve them,
including getting to the Taxpayer Advocate Service. That is
something we are developing right now.
Mr. SCHWEIKERT. And I know that may be slightly different
than as you viewed your charter as the Advocate, but sometimes
the Advocate may be proactive. And this is something that we
all, as Committee Members, are going to have to deal with right
now is that associated mother organization, if they were to
give advice saying, ``You know you can save for your
retirement.'' They may have just set them off as becoming an
employee and no longer being an independent contractor. And we
are going to have to sort of figure out, you know, what are we
going to do to help this population be able to have that
future?
Now, on the IRS side, do we see the agency itself doing
enough? Does the public access have access to the organization
you are contracted with? Where does that person go right now to
get that information?
Ms. OLSON. So, the IRS did create a web page in response to
a small business hearing last year to address some of the
issues for the gig economy. I think, as always, we can all do
more.
This goes back to the fact that there are only 98 employees
conducting outreach and education to the self-employed
population in the United States. And there are 14 States that
do not have one of those employees located in them.
Mr. SCHWEIKERT. And I know we are in our last 30 seconds. I
have a fixation that the use of technology as a way to direct
folks who are having difficulties with the IRS.
Do you actually, as the Advocate, almost publish saying
this is a problem that comes to us quite often, here is how it
has been resolved, here is the form you need? What are you
doing proactively in that part of the world?
Ms. OLSON. Well, we identified the needs of the gig economy
as a most serious problem in my annual report to Congress, and
we made recommendations. And we have also created materials
from my local taxpayer advocates in each State to actually
conduct outreach proactively to groups, and that is one of
their assignments to identify stakeholders in their
communities.
Mr. SCHWEIKERT. Thank you, Mr. Chairman. I yield back.
Chairman BUCHANAN. I now recognize the distinguished
Ranking Member, Mr. Lewis, for any questions he might have.
Mr. LEWIS. Thank you, Mr. Chairman.
Ms. Olson, it is my understanding that you held a dozen
public meetings around the country. What did you learn?
Ms. OLSON. You know, it was remarkable. We learned a number
of things: One was how hard people are trying to communicate
with the IRS and how much they actually want to. We learned
that people thought that having digital online tools would be
very, very helpful, but they were no replacement for talking to
the IRS; and that there was a very strong desire for the IRS to
hear them and listen to them.
We learned that--from all sorts of different populations,
the concern about identity theft and the scams that are going
on out there. Those were very strong issues. We learned about
issues about payroll service providers ripping off taxpayers
who are securing their services.
And then we heard from experts about how best to design
digital services to make them usable by people, but not replace
the communication, the person-to-person communication, whether
it is on the phone or in person. And that was a very strong
message.
Mr. LEWIS. I know, as the Taxpayer Advocate, you don't
believe that quality service can be provided on the cheap.
Ms. OLSON. Taxpayer service is, to me, the key way that you
build trust with taxpayers. And you can do taxpayer service
whether you are trying to do outreach and education or within
an audit or within collection activities.
If you take that approach that you are trying to bring the
taxpayer into voluntary compliance and understand why they are
having compliance difficulties, and you are listening to the
taxpayer, then that is how you bring taxpayer service and
taxpayer rights into what I call the ethos of the organization.
And there is no conflict with exercising the enforcement
and compliance tools that you have. Providing taxpayer service
doesn't eliminate a single one of those powers that the IRS has
when they need to use them.
Mr. LEWIS. Do you think the 1998 Reform Act was successful?
Ms. OLSON. I think the 1998 Reform was very successful. I
think that what we need to do is go back--and that is partly
why I gave you all the list of some of the provisions that I
saw that weren't successfully implemented from the IRS.
I think what Congress focused on in 1998 was very key, and
we need to make sure that the IRS does what you all directed
them to do, or learn why they couldn't do it and then revise it
so that it fits into 21st century tax administration.
Mr. LEWIS. Did it achieve its goals?
Ms. OLSON. I think that it achieved it. It made the IRS
focus on taxpayer service, but with these budget cuts, it sort
of moved away from that as a primary focus. And it is really
moving away from that person-to-person contact.
And I keep saying to people in the IRS, people are giving
up their money. We are taking their money for the greater good.
Why would we not want to talk to them and hear from them and
listen to their concerns, even if we have to tell them, you
know, we can't solve your problem in the way you want, this is
the law. By listening to them, we gain trust, and that is what
we need to do. And we have gotten away from that.
Mr. LEWIS. Again, thank you for being here, and thank you
for your years of service.
Chairman BUCHANAN. I now recognize the gentlelady, Mrs.
Walorski, from Indiana.
Mrs. WALORSKI. Thank you, Mr. Chairman.
Thanks, Ms. Olson. Again, many thanks from my constituents
in Indiana's Second District. You have helped--in the five
years I have been here, you have been able to mitigate and help
somewhere over 90 percent of the questions that we have had.
And I am very, very grateful to you for what you have done. You
have probably seen everything in 16 years.
So I just wanted to pick up on what you said that you
learned from the hearings that you guys had on the issues of ID
theft, tax fraud, and scams. That is what we really get
burdened by, folks in our district that have gotten caught in
these issues.
And my question is this: On this Return Review Program, the
RRP, that started in 2009, this thing has tended to end up to
be like a boondoggle. I just kind of wanted to hear from you on
its predecessor, the Electronic Fraud Detection System, or the
EFDS, which, in 2010, the IRS said was too risky to maintain,
upgrade, or operate beyond 2015. But here we are in 2017. The
EFDS is still the principal fraud detection system, because the
RRP still isn't ready for prime time.
In fact, TIGTA said there is no estimated date for full
implementation, and GAO estimates that the program has incurred
over $86.5 million in cost overruns. So when the RRP has run as
a pilot, it yielded a high false-positive rate, and it missed
$313 million in fraudulent filings.
So let's set aside the numbers and stats and talk about the
actual people behind them. You have documented well what
taxpayers go through in your annual reports. But for the
benefit of everyone here, can you walk us through what happens
to a single mom, a small business owner, a person who either
gets flagged as a false positive or a fraudulent return?
Can you just go through how do you find out what hoops they
go through and what this really means to people?
Ms. OLSON. Right. Depending on what system triggers them as
a suspected fraudulent return, they either get a letter or they
are just--their refund is just held up and they have to call
the IRS.
If they get a letter, they are told that they have to
verify themselves either online or they may have to go into a
walk-in site. And to do that, they just can't walk in. There
are no longer walk-in sites; they have to make an appointment.
And sometimes you are told it might take weeks to get an
appointment, and you won't be able to get your refund before
you do that.
And, then, even if you go through that, it may be that your
return is stopped by some other filter once it goes back into
the processing, so then you have to go through it all again.
Identity theft and refund fraud have been the top two case
receipts in TAS, Taxpayer Advocate Service, for the last 5
years, and they really are a significant part of our inventory.
It is devastating to people.
Mrs. WALORSKI. So aside from the time element and the
frustration, does it not cost taxpayers money as well if they
need to seek professional services to be their Advocate?
Ms. OLSON. Well, absolutely. Absolutely. And this affects
people who are low income, high income. It doesn't matter. And
people are having to get their preparers to call, and people
often submit documentation multiple times.
There is no one person assigned to their case, so every
time they call, they have to tell their story to a different
person. These are all recommendations we have made.
You know, the other thing on the filters is that we have
recommended that the IRS create sort of a dedicated team during
the filing season on the IT side. So as we start seeing filters
that have very high false positive rates, that you have a team
that can get in there and adjust those filters. Don't wait
until later.
Mrs. WALORSKI. I apologize about interrupting, but what
about commercially available technology that is there? Is it
your opinion that just from a commonsense perspective, this
would be where we would move to with an unbelievable amount of
errors in fraud and money that is being spent and this whole
lack of accountability on the system?
Would you not agree that that would be someplace that we
could look at and say let's mitigate this as quickly as we can
on behalf of the taxpayers?
Ms. OLSON. Certainly, the financial sector has tried to
figure out about financial fraud and, you know, electronic
fraud. And the IRS is meeting with those people. The
commissioner established the security summit, and I think that
is a significant step.
Mrs. WALORSKI. I appreciate it. We are out of time.
I yield back. And thanks again. Thanks, Mr. Chairman.
Chairman BUCHANAN. I now recognize the gentlelady from
Washington, Ms. DelBene.
Ms. DELBENE. Thank you, Mr. Chair.
And thank you, Ms. Olson, for being with us today and for
all of your service.
I wanted to talk to you about technology in particular,
because you talked so much about that in your testimony and
kind of the dire state that it is in right now. Can you give us
a brief overview of how technology decisions are made at the
IRS today, and kind of, briefly, whether you think the
organizational chart is working well in terms of helping make
those decisions?
Ms. OLSON. Well, I think, you know, there are lots of
executive steering committees on the technology side that
review the priorities of how the IRS is going to spend its
money. And the IRS, in addition to the cybersecurity concerns
that we have, which are very great, the major concern that we
have got, in addition to the RRP system, which is our return
fraud detection system, is our enterprise case management
system.
We have about over 60 systems, and they don't communicate
with one another. And so employees have to get permission to
get into things, and often they can't. It slows things down. It
is manual. It is not virtual. Our case files aren't virtual.
It is astonishing. And that is a heavy lift that the IRS,
in my opinion, is very far behind on, but is finally
beginning--after spending millions of dollars, to get up to
speed.
And then we have the fact that we are still on--we have the
two oldest information systems in the Federal Government,
according to GAO, where we are keeping our taxpayer information
on. And that is a significant concern, getting from those
systems to something that is 21st century is going to be a huge
lift.
Ms. DELBENE. And I assume, when we talk about cyber having
old systems, that is very concerning, and it is concerning
because access to information is so cumbersome, as you said, it
slows down your ability--IRS's ability to do so its job.
Ms. OLSON. Right.
Ms. DELBENE. Why do you think things have gotten so bad?
Why are we so outdated?
Ms. OLSON. My personal opinion, from observing it while I
have tried to develop my own case management system for my own
employees, is that partly, we don't have the talent inside the
IRS. We haven't been able to recruit the people that we need
to.
And then I think that there is not enough communication
between the IT function and the business operating divisions
who are going to use these systems, so that things go--get
developed that actually aren't what the operating divisions
need, but then the operating divisions don't have a chance to
tell that. And then money gets wasted, and I have seen that a
lot.
Ms. DELBENE. You know, I think that is a common problem
that we have seen in technology implementations in government
generally and something we need to continue to focus on. Do you
have current modernization plans within the IRS that you think
are going to help address these issues?
Ms. OLSON. I think particularly for the ECM, the IRS has
just put out a request for information to hear from off-the-
shelf products that are doing a case management system to see
what is out there, and then they will build to request for a
proposal.
I think that is the appropriate approach to really get a
sense of the universe, instead of focusing on one thing that
turns out not to be good, but we have invested $80 million in
it or something like that. So they are finally on the right
track in that regard.
They do need more funding to be able to bring in the
talent, but they also need more oversight from you all so that
you all are understanding that that funding is being spent
appropriately.
Ms. DELBENE. Thank you so much. My time has expired.
I yield back, Mr. Chair.
Chairman BUCHANAN. Thank you.
I now recognize the gentleman from Pennsylvania, Mr.
Meehan.
Mr. MEEHAN. Thank you, Mr. Chairman.
And thank you, Ms. Olson, for your work.
Ms. Olson, oftentimes, the IRS has a direct relationship
with taxpayers because it relates to the taxpayer paying his or
her taxes. But they serve another role, and it implicates a lot
of people in which the information that one puts into his or
her IRS tax return is relevant for another purpose.
And I speak to something which is touching families all
across America today, and that is, college applications,
including for financial aid. And so as colleges and
universities interact with their students, they are reliant on
the ability for the applicants to let people know what their
financial status is, and that means they need to get into IRS
databases.
Outward facing tools have been used by the IRS so that I
authenticate who I am, and then you allow me to go back into my
tax return and forward that information onto my financial aid
application. As a parent who has gone through this process--and
I know I am speaking for many--it is so incredibly frustrating
to begin with.
But now, we are seeing that this system, which has
purportedly been put in place, the outward-facing tools, has
actually been compromised. Hundreds of thousands of Americans
trying to make this application have found that their
identities have been stolen.
And as a result, now we not only can't utilize the tool,
but you have people who are trying to make those applications
who are now frustrated, feeling time deadlines for applying to
their schools, don't know where to go to get the information.
And it is particularly egregious because oftentimes, the
very people making these applications, may be a student who
doesn't know the information that his or her parents have.
Can you speak to me about the outward-facing tools that the
IRS is using, what you know about this compromised situation,
about what the IRS is doing to make that taxpayer relationship
move more slowly--flow more appropriately.
Ms. OLSON. Well, first, the information the IRS has is such
a valuable asset of the Federal Government and the taxpayers of
the United States that we have to make sure that it is
protected in every way possible. And that means that there has
to be very high--high-level screens for people to authenticate
who they are, because identity thieves are very sophisticated.
And last year, the IRS learned that there were risks to the
way that people were getting access to IRS data through this
FAFSA system. And while they tried to work with the Department
of Education over time, they learned that what the IRS needed
for the protection of that data, the Department of Education
couldn't put into their system. And they had to make--they gave
several workarounds, and those workarounds weren't able to be
implemented by the DOE.
Mr. MEEHAN. Was the problem on the Department of Education
part?
Ms. OLSON. It was my understanding it was on the level of,
you know, the types of systems that DOE has, and we were
setting very high standards for access to that information. And
so the IRS had to--really felt, according to their risk
analysis, that they had to stand down.
And now they have just put it back up again. They have
worked through some issues. But I think that it is going--this
is where you have some difficulty where you have one agency and
the another agency, and you need to get them together.
Mr. MEEHAN. Well, what is your sense? Is the Department of
Education collaborating and cooperating with the IRS?
Ms. OLSON. I think they are now, and I think--this is my
personal opinion, but I think they are now. I think it is a
matter of technology. But it is also that I think they didn't
understand initially the level of concern that we have about
people getting access to this incredibly important data and
misusing it.
Mr. MEEHAN. Well, thank you. I would ask for your
continuing oversight on that particular issue, because as we
speak, millions of Americans----
Ms. OLSON. Certainly.
Mr. MEEHAN [continuing]. Are dealing with this very
frustrating system. Thank you.
Ms. OLSON. Certainly.
Mr. MEEHAN. I yield back.
Chairman BUCHANAN. I now recognize the gentleman from
Connecticut, Mr. Larson.
Mr. LARSON. Thank you, Mr. Chairman. I especially
appreciate the opportunity to meet the committee. I want to
thank you and Mr. Lewis for this opportunity.
Ms. Olson, I have nothing but great respect and admiration
for you and the job that you have done.
Representative Courtney and myself have been dealing with
an issue, along with Representative Neal up in New England,
that deals with foundation crumbling, not dissimilar to a case
that happened many years ago in the south with what they
referred to as a Chinese drywall.
And in both cases, the circumstances are that, through no
fault of the individual, they all of a sudden find themselves
in a situation in the case of Connecticut where their
foundations are crumbling. There is no insurance coverage. And
so we are pursuing relief--in this case, from the IRS, to use
this as a casualty loss.
And as I said, there is ample precedent for this in the
China drywall situation. And our initial discussions with both
the Commissioner and Secretary Mnuchin have been very positive,
but--and we also know that in Connecticut, the Taxpayer
Advocate Service has been incredibly supportive.
Any advice or recommendations, and could we beseech you for
the support of the National Taxpayer Advocate?
Ms. OLSON. Well, I have been aware of this problem and had
my staff attorneys meet with chief counsel attorneys of the IRS
to look at the law pertaining to casualty loss deductions and
why it--how it could apply in this instance. And just this
week, we submitted to the IRS chief counsel a request for
priority guidance that they put this issue on their priority
guidance plan to give guidance.
And we have actually--it wasn't just a request, we pointed
out how they could do it to grant relief to these taxpayers.
And I will be more than happy to share that request with you so
you can see what we wrote up.
Mr. LARSON. I would be delighted to receive that. And we
appreciate your continued advocacy. And as I said earlier, this
is something that impacts people, and now it is estimated that
more than 30,000 people in Connecticut will be impacted by
this. But the straining actually runs from Canada all the way
down to the Sound, so we are trying to forewarn people as well
with this.
But I can't thank you enough as well as both the
cooperation that we have received today from the IRS and
Treasury. And I view that, in large part, because of your
involvement and the Taxpayer Advocate Service involvement.
Ms. OLSON. Thank you.
Mr. LARSON. With that, Mr. Chairman, I would--I would just
like to also ask you at some point--not for here--but I would
love to get your opinion on the Japanese system of collecting
and simplifying their Tax Code and what opinions you might have
on that. That is not a question for here, but perhaps later I
could follow up with you on that.
Ms. OLSON. Certainly.
Mr. LARSON. With that, Mr. Chairman, I thank the committee
for indulging me and yield back my time.
Chairman BUCHANAN. Anytime, Mr. Larson.
I now recognize the gentleman from North Carolina, Mr.
Holding.
Mr. HOLDING. Thank you, Mr. Chairman.
Ms. Olson, I would like to ask you about a subject that
came up at one of your public forums last year. A tax
practitioner in Red Oak, Iowa, raised concerns about
statistical audits, meaning audits that are done for research
purposes by the IRS.
And although you acknowledge the importance of these
research audits, you also recognize that they can be painful
for taxpayers, and you even described the taxpayer under audit
as, quote, ``a guinea pig.'' So I have significant concerns
about these audits. You mentioned a couple of potential
solutions at the forum last year. At the time, you said you had
only been discussing these options internally. So has your
thinking evolved any on these suggestions?
Ms. OLSON. So, you know, the audit--as a representative--I
represented taxpayers for 27 years, and as a representative, I
had to sit through the predecessor to these audits, the tax
compliance measurement program. And it was expensive and
painful for the taxpayer, painful for the representative.
But I also recognize the importance of these audits so that
we don't go out and willy-nilly audit people that shouldn't be
audited. You know, we need some kind of statistical gathering
thing.
And my thinking about these taxpayers being guinea pigs is
that they are actually doing a service for the public. These
are random audits. There may be nothing wrong with their
returns at the end of the day, but the IRS is using it for data
gathering.
And so if they are doing that public service, they should
be paid. And either that or either/and maybe we don't assess
the tax at the end of the audit. You know, we found the errors,
but they have sat through this for the public good, and so
maybe we don't assess the tax that we found. Or we give them
compensation for sitting through it. And I would suggest that
that compensation be nontaxable so we don't, you know----
Mr. HOLDING. Well, let me ask you this: Yesterday, GAO
released a report on the national research program and
employment taxes. And the GAO concluded that the IRS doesn't
even have a formal plan to timely analyze, let alone actually
use, the data it collected.
So do you believe the IRS should continue to subject
taxpayers, in your words, guinea pigs, to these burdensome,
random audits if there is no plan to even use the information?
And shouldn't the IRS actually use the data? If it is going to
pay folks for the data, you know, of your suggestion, shouldn't
they use it or shouldn't they just shut down the program? I
mean, if GAO says there is no plan to even use it. So that is
kind of doubly disturbing.
Ms. OLSON. Yeah. I don't think they should shut down the
program. I mean, they need to use the data. And I will look
very carefully at the GAO audit, because I think GAO--that
gives a plan for how the IRS could use it.
I think the IRS needs to be an organization that uses the
data that it has. And often, it doesn't develop strategies
based on the data or it takes a long time to get it into
operation, and that is just inexcusable.
Mr. HOLDING. Well, listening to your answer to Ms.
DelBene's question on technology in the IRS, it seems like the
IRS has difficulty with technology just in its basic functions,
and this is something above its basic function. And it makes
it, perhaps, triply disturbing now that Ms. DelBene asked the
probing question.
Ms. OLSON. I think that the IRS is challenged in a lot of
ways. I do believe that----
Mr. HOLDING. That is the understatement of the day.
Ms. OLSON. Yes.
Mr. HOLDING. Mr. Chairman, I yield back.
Chairman BUCHANAN. Thank you. I now recognize the gentleman
from New York, Mr. Crowley.
Mr. CROWLEY. Thank you, Mr. Chairman. Thank you for holding
this hearing today.
Thank you, Ms. Olson, for participating here, as well.
Ms. Olson, recently, my good friend and colleague, John
Lewis, introduced a bill, the Taxpayer Protection Act of 2017,
which I am a cosponsor of, to repeal the private debt
collection program. Do you think the IRS should outsource
Federal tax collection, and should a new IRS have the authority
to do this, hire private companies to collect unpaid taxes?
Ms. OLSON. Well, it is my personal and professional opinion
that the collection of tax is an inherently governmental
function, because it requires the exercise of judgment and
discretion to do it right, and take into consideration the
facts and circumstances of taxpayers.
But Congress has made the decision to create this
outsourcing, and now, my focus has been on how the IRS is
implementing this provision. And I have a lot of concerns about
how it is being implemented.
Mr. CROWLEY. For for-profit motive. Is that it?
Ms. OLSON. I think that is part of the fundamental flaw
with the program, that at least whatever you say about IRS--I
mean, I think that IRS collection employees understand that the
goal of collection is to bring taxpayers into voluntary
compliance. And that may mean that you are focusing on the
future that they be able to pay going forward, and will deal
with their debt later.
And the private debt collectors have the incentive to
collect tax, just the amount that is before them, and get their
commission. They don't--they would have no incentive to think
about voluntary compliance going forward.
Mr. CROWLEY. The consequence as it pertains to the taxpayer
as well. Kind of, in my mind, my concern about criminal justice
reform and privatizing of prisons, you know, you create beds.
They need to fill them. That is how they get paid.
In terms of the EITC, I know there has been a great deal of
concern about fraud existing within the program itself. I would
like to get your thoughts in terms of how much is really fraud
and how much is basically mistakes that are made in terms of
filling out the proper requisite papers.
Ms. OLSON. Well----
Mr. CROWLEY. Hank Paulson, for instance, I went into
Goldman Sachs, he filed and he did it wrong, just to
demonstrate, even the most brilliant, so to speak, can make
mistakes.
What recs do you have to make it an even more efficient--
and more accessible and more efficient as well?
Ms. OLSON. Right. Well, this year, in my annual report to
Congress, I made a legislative recommendation that was really
designed around trying to minimize the errors and fraud in the
EITC, and we have attached it to my testimony.
I do think that most of the errors are attributable to the
complexity of the law, but the complexity of the law also
creates opportunities for others to game it. And a lot of the
fraud, the pure fraud, comes from some unregulated preparers
that, you know, are preying upon an unsophisticated population
and selling them something that is too good to be true.
So you have got a lot of different things playing around
there. But I believe that there are things that you can do,
both administratively and legislatively, to minimize the
improper payments. Some of that is going to the design, and
others are going into the kind of both outreach and education
and oversight that the IRS needs to do on this issue.
Mr. CROWLEY. Thank you. I think for the integrity of the
program itself, we need to be vigilant, mindful, but also
understand, I think, the complexities in terms of the
clientele----
Ms. OLSON. Yeah.
Mr. CROWLEY [continuing]. And their ability to actually
fill out those forms properly.
And, Mr. Chairman, just let me thank you for holding this
hearing today as well in a very bipartisan spirit.
Mr. Roskam and I have been working together on issues in
relation to taxpayers' relationship with the IRS. We know it is
not always pleasant. We know you all don't always get it right,
and that is why I think we need a Congress, a vigilant
Congress, Mr. Chairman, and a committee like this to keep an
eye on it to help you do your job, help us do our job, but
help, most importantly, protect the interest of our
constituents, the U.S. taxpayer.
So, thank you, Mr. Chairman.
Chairman BUCHANAN. Thank you.
I now recognize the gentlelady from Tennessee, Mrs. Black.
Mrs. BLACK. I thank the Chairman. I thank you for allowing
me to sit in on the Subcommittee, although I am not a Member of
the Subcommittee.
But, Ms. Olson, I want to thank you for the work that you
and your folks do at your agency. And as you said at the
beginning of your comments that most people do want to pay
their fair share and just to be left alone. They understand
that they have a responsibility to pay their taxes. The U.S.
has about 98 percent of voluntary tax compliance rate and has
always been linked to be perceived fair and impartial.
But in the most recent years, we have seen more of that
impartiality, and I think that that is part of what we are
seeing in the general population, that they have really lost
trust in the IRS. So your agency is particularly important for
helping us to be sure that we do at least have one reach into
helping with that.
One of the things that I wanted to go to is, of course, the
complexity of the Tax Code doesn't help, and that is up to
Congress to reform the Tax Code so that it can be something
much simpler, which we are working on on our side.
But the IRS is also a unique creature in that it doesn't
really have a regulatory process like other Federal agencies
do. And so they issued these guidances, and they don't solicit
any public comments like you would in a Federal agency where
there would be a change and there would be an opportunity for
those public comments.
And, in fact, on the IRS website, it actually has a section
that says, ``Understand the IRS guidance. '' And it has seven
kinds of guidance to taxpayers that they should be familiar
with. And I will note the irony of this is that the IRS
actually acknowledges within that statement that they say, and
I quote, ``It may be puzzling and a mystery.''
And so I wanted to ask you to talk a little bit about those
guidances and what we can do to keep that from happening, and
how that actually rolls out and takes place?
Ms. OLSON. The IRS has many different types of guidances
you point out, and some of them do go through the
Administrative Procedure Act, you know, notice and comment, the
regulations that we do.
But it has--you know, it believes that getting out guidance
is helpful to taxpayers. And, so, rather than going through
what it views as the cumbersome regulatory process, which would
require notice and comment, it does stuff to get out guidance
faster.
The downside about that is, as you say, there is no vehicle
that they have designed for public comment on that. That
doesn't mean you couldn't do it that way, but they don't. And I
am very concerned about that.
I am even more concerned--and I have written about this as
a most serious problem--that they are moving more toward FAQs,
you know, which are great in the sense that you get things up
quickly, but you can't tell when a change has been made in the
FAQ unless you print out the FAQ every single day and track it
word for word.
And they are not reliable, so that if you say you rely on
an FAQ, and then the IRS says, Well, that is wrong, that is no
defense. So you are--and as that gets done more, you are really
leaving the taxpayer in a very vulnerable situation.
Mrs. BLACK. And I want to reference that that is one of the
things that I hear from my constituents is they call into to
get the guidance, and they give the guidance, and they ask, can
you please send me an email or something that I can use to
verify if I use what your recommendations are.
And the IRS will refuse to send them anything in writing.
And this, to me, is a really big problem, where people are
trying so hard to do it the right way, and then they get caught
on it. And they say, ``But I called in, and I asked a
question,'' and what they got from the IRS was, ``We cannot
give you that in writing.''
Ms. OLSON. Right.
Mrs. BLACK. And so I see this as a big area that has to be
looked at. And I appreciate you being here today and, again,
thank you----
Ms. OLSON. I am very happy to work with you on that.
Mrs. BLACK. Thank you.
Chairman BUCHANAN. I now recognize the gentleman from
Michigan, Mr. Bishop.
Mr. BISHOP. Good morning. Thank you. Thank you, Mr.
Chairman, for the hearing today.
I am looking at--the IRS is responsible for processing
approximately 150 million tax returns every year, issuing
refunds to taxpayers for about 70 percent of those 150 million
tax returns. According to the IRS estimates, it says that the
cost for a refund check is about a dollar.
And I am wondering what the cost would be for a direct
deposit--instead of a check, and also, how we might address
that issue, the cost and the time using prepaid debit cards,
and whether or not the IRS uses, for the tax returns, the debit
express cards.
Ms. OLSON. You know, this is something we identified in my
annual report this year, is that it is so much--and it is so
less expensive to do direct deposit, and then we have a large
part of our population that is un-banked.
And, so, rather than them going through check cashing
places, et cetera, if they are already participants in this
direct express program that is run by Treasury, why couldn't we
put tax refunds on it?
And, frankly, I am baffled why we don't do it. The Treasury
can negotiate very good rates and charges. They already have
this product. And it just makes sense. So I really don't have a
good answer for you. That is why we made it a most serious
problem: Why aren't we using it?
Mr. BISHOP. So doesn't that open this wide open for fraud
if we don't utilize this system?
Ms. OLSON. Well, I think the concern about the fraud is
obviated by the fact that people have to go to a bank to prove
their identity. So you have all the PATRIOT Act requirements
that were put in about proving your identity to open a bank
account, and that is what they have to do for direct express.
It is actually much more than what they would have to do to
just get a card from, you know, some check cashing place.
Mr. BISHOP. That is assuming that you could use that
product for the refund.
Ms. OLSON. Right.
Mr. BISHOP. But we now use prepaid debit cards that don't
have to go through that process.
Ms. OLSON. Exactly.
Mr. BISHOP. So that is what I am talking about to expose
yourself to fraud; whereas, if we utilized it at the direct
express debit card, we wouldn't have that problem.
Ms. OLSON. Right, exactly.
Mr. BISHOP. Has there been any discussion about allowing
taxpayers to use prepaid debit cards for tax payments?
Ms. OLSON. For payments?
Mr. BISHOP. Yes.
Ms. OLSON. I think that they can, actually. If they
haven't, then the IRS is working on that to accept that online.
They are really trying to work on the different ways that you
can make electronic payments online directly.
Part of the problem, though, is they now have on their
online account you can make those payments, but you do have to
be able to sign on as a taxpayer, and some of the security is
very, very high for that.
Mr. BISHOP. What is the cost to process a check from a
taxpayer?
Ms. OLSON. You had said a dollar. I don't have that
information right here, but I can get you it between the check
versus direct deposit versus a debit card.
Mr. BISHOP. We can agree it would probably be significant
savings?
Ms. OLSON. Oh, significantly less--yeah.
Mr. BISHOP. Thank you very much.
And, Mr. Chairman, I yield back.
Ms. OLSON. Thank you.
Chairman BUCHANAN. Thank you.
Ms. Olson, I want to thank you upfront for your leadership
and service over a lot of years. Like I said, I have heard a
lot of good things. But I have got a litany of things I wanted
to run down and touch on. We have got a few minutes.
Identity theft. It has been huge in Florida. A CPA is
coming to me--I think the CPA even had maybe his identity
stolen. And I have got to tell you, to be candid about it, I
think this is more, maybe two or three years ago, two years
ago. It seems like it is a little better today, but I would
like to get your take on where are we at with identity theft?
Ms. OLSON. I think it is going better than it has been. The
IRS has improved its processes somewhat. But three things have
happened that have really made a difference: One is the
legislation that you all passed, getting us the W-2 information
by January 31, because that lets us be--if we can get the
employer W-2s, we can see which is the legitimate W-2 versus
the altered, fake W-2.
The other thing that is happening is that the IRS is now,
you know, requiring the software companies to ask for driver's
licenses when they are filing electronic returns, and that
really helps us identify whether this is a legitimate taxpayer
or an identity thief, in many instances.
And the third thing is there is a program that we are
trying to get more and more employers to use where there is a
code that is unique to that taxpayer's W-2 from that employer.
And when they go to file electronically, if that code is put
in, then we can tell that this is the correct W-2 and it is not
an identity theft W-2.
Chairman BUCHANAN. Let me ask you, just for the sake of
time, you know, how many of the criminals, or the syndicates,
are outside the U.S.? Do you have any sense of that? Someone
claims a lot of this is done by Russia and others----
Ms. OLSON. I really don't know. The criminal investigation
division is working with so many other enforcement agencies to
really monitor that. And, you know, it is so hard to track this
stuff down.
Chairman BUCHANAN. Because you say there is a bunch in the
States, but you also hear that it is outside the country----
Ms. OLSON. You hear about India and elsewhere, yeah.
Chairman BUCHANAN [continuing]. Different organizations,
Eastern bloc countries or something like that.
Mr. Crowley brought up earned income tax credit. I know
there are some complications probably in filing, but 24 percent
fraud, tens of billions of dollars, I guess, a year. What is
your take on that? I mean, why is it we can't seem to improve
it somewhat? Is it lack of resources to educate people? I am
sure that is part of it. He asked how much that was a part of
it, but I was curious, just from your standpoint, where are we
at on that?
Ms. OLSON. I don't think there is any one thing we can do
to bring that rate down. I think it is a sum of multiple
things: It is education; it is doing really specific audits on
it; it is doing other kinds of compliance activities; and it is
doing a redesign of the provisions. Knowing what we know about
where the errors and fraud are, we can change the design a
little bit legislatively.
Chairman BUCHANAN. Does it make sense to have higher
standards for preparers, do you think, a lot of people are
doing a lot of this work? Would that make a difference,
education, training, and maybe some licensing?
Ms. OLSON. I do think there would have to be minimum
competency standards for preparers, primarily in the EITC area,
because that is where we see--we know that the unregulated,
unaffiliated preparers, not with the large preparation firms,
are the greatest source of errors for the EITC population in
the preparer base.
Chairman BUCHANAN. Now, you were here, I think, 20 years
ago, at the IRS. Were you here then when they did the IRS
reforms?
Ms. OLSON. I was actually a witness before this committee
as the representative of a low-income taxpayer clinic.
Chairman BUCHANAN. Okay. In your thought, it seemed like
that made a big difference. I thought I heard you say that in
your testimony. So in terms of where we are at today, it sure
seems like 20 years, we could work together on a bipartisan
basis to make some real reforms that make a big difference to
the country. Do you think--you agree with that?
Ms. OLSON. Yes. And I think the way that it was done in
1998, where you heard from a diverse group of people, internal
and external, experts in government, experts in business, you
know, it made an incredible record. And when you read those
hearings again, they are just very impressive.
Chairman BUCHANAN. Well, we want to work with you and get
all the stakeholders at multiple hearings. We are going down
the road to see if we can't make a difference in that space.
One other thing that has come up, or a couple of things
that have come up in our area, is small business disputes. They
seem like--it is usually sometimes not a lot of money, but it
is a dispute. But they could end up spending more in
professional fees and outsiders than just paying the check
itself. Where are we at on that, or what is your sense of that?
Ms. OLSON. You know, I think that that raises the issue of
not just the audit side where there are these disputes, but the
appeals function. And that, again, is one of my concerns that
the IRS has moved to a more centralized, remote, impersonal
appeals function, which really was the safety valve for small
businesses.
There are 12 States that don't have an appeals officer in
them, so they don't understand the conditions of that State.
And I think that it really takes--we should take a look at that
appeals function and see how we really make it work as the
safety valve that it was intended to be.
Chairman BUCHANAN. And then my last question is just
protecting taxpayers' rights is a key foundation. What
additional tools could you use to make you even more effective
on behalf of taxpayers?
Ms. OLSON. Yeah. I think--I have written about this in my
annual report. I have made recommendations about codifying,
strengthening the taxpayer assistance order authority, and
codifying something called the taxpayer advocate directive,
where I can order the IRS to change its processes that would
affect groups of taxpayers.
And those are very important tools. But right now, they are
just--the taxpayer advocate directive is just administrative.
Chairman BUCHANAN. Okay. Thank you.
I would like to thank our witness for appearing before us
today. Please be advised that Members have two weeks to submit
written questions to answer later in writing. Those questions
and your answers will be made part of the formal hearing
record.
With that, this Subcommittee stands adjourned.
[Whereupon, at 9:58 a.m., the Subcommittee was adjourned.]
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