Transcripts For CSPAN3 Tax-Writing Panel Considers IRS Reform 20170520

Congress seriously considered reforms to the irs. Im hopeful that we embark on a new effort to improve the agency that can work hand in hand with members on both sides of the aisle. Working together im confident we can find Common Ground and make progress. I think its important to emfa soois size that our effort to reform the irs should not be seen as a punishment or criticism of the average agency or employee. Instead, they were recognized that the irs mission is very important. Every Government Entity just whether its private companies can benefit from a thorough review and some thoughtful longterm planning and action and thats what we are here today for. I have a business background, i started my own businesses 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 bis always ask myself the reason for improving, but the big goal is to have Continuous Improvement i think as your organization has over the years. The task before us today has asked 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. 98 of our tax revenues come to the irs voluntarily, only 2 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 thats one of our biggest focus. As second on the list, an irs publication describes the right is the right to receive prompt, kurt yes, sir taxpayer assistance in dealing with the ir is the as we consider forms tots irs we should keep this right as well as well as the other nine in line. I look order in to working with the Ranking Member mr. Lewis and other members of the committees to make the irs a 21st century agency. I want to thank ms. Olson for being here today. Shes been a champion for taxpayers for many years and her insight on this topic will be valuable. I look forward to her testimony. I know yield to the distinguished Ranking Member mr. Lewis for the purposes of an opening statement. Good morning, mr. Chairman. I 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. I agree. But were 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. 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 ref srss for many years. Congress cut the agencys budget by almost 1 billion since 2010. These cuts hurt and harmed Taxpayer Services and Tax Compliance. And the irs need 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, small farms and Internet Access create opportunities for some and various for others. Both taxpayers and those who serve them struggle with increased Identity Theft, fraud, and scams. Unfortunately, Certain Program like private Debt Collection, which has been tried and repeatedly failed, just tloend more confiegs. Mr. Chairman, i believe that we agree on the importance of an agency that will provide taxpayer with greater access to Customer Service online, over the phone, and in person. I believe we can help build a Tax Administration system that would take advantage of new technology while enhancing the security of taxpayer data. I believe that we must do better and 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. 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. Todays Witness Panel includes one witness, nina olson for Taxpayer Advocate services at the irs. I did mention to her earlier i met way 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 dont want to you 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 know have five minutes to zlifr your oral remarks. You may begin when youre ready. Thank you. 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. Its been nearly two decades since Congress Last reviewed and updated the laws governing irs operations. A lot ha 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, engauges 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 nations bills the right thing do, but theres significant Empirical Data that suggests Building Trust with taxpayers which requires respecting their rights enhances voluntary compliance as well. In 2015, congress codified the provisi provisions of the taxpayer bill of rights as part of a commission providing that the irs ensure irs employees receive training and act in accord with those rights. The challenge now is to ensure that it is not merely aspirational but it incorporated into the very eej thoesz thoes of the irs and explicitly into its business practices. I believe a clear statement that taxpayers ally have the ten 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, theres no conflict whatsoever between providing highquality 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 current appropriate eighted budget, 43 is allocated to enforcement while only 4 , i repeat, only 4 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 selfemployed 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 888 agents who conduct field audits. In ra 98, congress directed it to serve greater emphasis on serving the public and meeting taxpayer needs. It adopted the the following Mission Statement. Provide americas taxpayers top Quality Service by helping them understand and meet their tox 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 smift in tone and emphasis from applying to enforcing the law suggests irs leadership disagreed way congressional directive and decided to place greater imfa sis on enforcement in the Mission Statement. Accordingly, i recommend that congress, i the irs to revise its Mission Statement to reemphasize a noncoercive approach to Tax Administration and explicitly affirm the role of taxpayer rights in the guide as a guiding principle for Tax Administration. Fourth, congress has passed three important taxpayer rights build including ra 98 and in my testimony i highlight provision dollars that irs has that congress has enacted that the rirks irs has not implemented, defined a way through guidance or only done a partial job. Fifth, ra 98 joint oversight hearings would give Congress Better insight into the strategic and operational plans, promote dialogue between congress, irs and interested stakeholders, and help ensure the tax rating and rowe appropriations committees, coordinate their operations. Thank you for this tantd look forward to answering any questions. Thank you very much. At this time well now proceed to the questions and answer section. I think were going to have to limit the questioning to four minutes instead of five because we have a briefing at 10 00 so id ask all the members to adhere to that. As is my custom, i will hold my question till the end. I know recognize the gentleman from arizona mr. Schweikert for any question he may have. This is unique for a couple of us because were so used to have witness from the irs where we have a series of dodgy stories and things that are frustrating and whn weve reached out to arizona, we had people say nice things about the organization. So a little concern on speed, but actually said nice things. So you win a prize for having a unique conversation with us today. I can start with one thing that did come up in the conversations we had in arizona about this hearing that was coming up, and that was outreach to our office and then also to your office of individuals who are 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, heres the rules for me to, say, for my retirement, heres my rules on what must be set aside. First, as the advocate, do you believe your organizations doing enough to make it toes 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 differs that information to those folks in that part of our economy . Well, im very concerned about this population as its growing its a very fastgrowing part of it. And im concerned theyll get into trouble with selfemployment tax, not save 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 an employer identification number, understand about calculating selfemployment tax and when they need to make 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. Thats something were developing right now. And i know that may be slightly different than as you may have viewed your charter as the advocate, but sometimes the advocate may be proactive. And this is something 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. And 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 were 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 . Is the public access, because you cant get it from, you know, the organization youre contracted with, where does that person go right now to get that information . So the irs did create a web page last year to address some of the issues for the gig economy. I think you and i think has always we can all do more. This goes back to the fact that there are only 98 employees conducting outreach and education to the selfemployed population in the United States and there are 12 states 14 states that zo not have one of those employees located in them. And i know were 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, heres how its been resolved. Right. Heres the form you need, what are you doing proactive in that part of the world . Well, we identify the needs of the gig economy as the most serious problem in my annual report to congress and we made recommendations and we have also created materials for my local Taxpayer Advocates in each state to actually conduct outreach proactively to groups. And thats one of their assign mebts, to identify stakeholders in their communities. Thank you, mr. Chairman. Yield back. I now recognize the distinguished Ranking Member mr. Lewis for any questions he might have. Thank you, mr. Chairman. Ms. Olson, its my understanding that you held a dozen Public Meetings around the country. What do you learn . You know, it was remarkable. We lernld 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 from them and listen to them. We learned that from all sorts of different populations a 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 useable by people but not replace the communication, the persontoperson communication with us on the phone, or in person. And that was a very strong message. I know as the Taxpayer Advocate you dont believe that Quality Service can be provided on the cheap . I Taxpayer Service is, to me, the key way that you build trust with taxpayers. And you can do Taxpayer Service whether youre trying to do outreach and education or within an audit or within collection activities. If you take that approach that youre trying to bring the taxpayer into voluntary compliance and understand why theyre having compliance difficulties and youre listening to the taxpayer, then that is how you bring Taxpayer Service and taxpayer rights into what i call the ethos. Providing Taxpayer Service doesnt eliminate a single one of those powers that the irs has when they need to use them. Do you think in 1998 reform act was successful . I think the 1998 reform was very successful. I think that what we need to do is go back and thats partly why i gave you all the list of some of the provisions that i saw that werent successfully implemented from the irs. I think what congress focused on in 98 was very key, and we need to make sure that the irs does what you all directed them to do, or learn why they couldnt do it and then revise it so that it fits into 21st century Tax Administration. Did it achieve its goals . I think that it achieved 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 its really moving away from that persontoperson 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 we cant solve your problem in the way you want, this is the law, by listening to them we gain trust. And thats what we need to do and weve gotten away from that. Again, thank you for being here and thank you for your years of service. I now recognize the lady from indiana. Thank you mr. Chairman. Again, many thanks from the foelkz in the indiana district. Youve helped in the five years ive been here youve been able to mitigate and help somewhere over 90 of the questions weve had and im very, very greatful for you for what youve done. Youve probably seen everything in 16 years. I wanted to pick up on what you said that you learned from the hearings that you guys had on the issues of i. D. Theft, tax froud fraud and scams. Thats what we get burdened by, foikz folks in our district that have gotten dmaut these issue. On this return review program, the rrp thwart stad in 2009, this thing has tended to end up to be like a boone dog, i wanted to hear from you on it on its successor, the electron anybody fraud system which in 2010 the irs said the 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 isnt ready for prime time. They said theres no estimated date for full implementation and jao estimates that the program has incurred over 86. 5 million in cost overruns. So when the rrp has run as a pilot, it ed yield a high false positive right and missed 313 in fraudulent filings. So lets set aside the numbers and stats and talk about the people behind them. Youve documented well what taxpayers go through in your annual reports, but for the benefit of everyone here, you can walk us through what happens to a single mom, a Small Business owner are a person who either gets flagged as a false positive or fraudulent return . You can just go through how they find out what hoops they go through and what this really means to people . Right. Depending on what system triggers them as a suspected fraudulent return, they either get a letter or their refund is just held up and they have to call the irs if the if they get a letter theyre told they have to verify themselves online or they may have to go to a walkin nt sight site. And do that they volunteer thaik make an appointment and sometimes youre told it might take weeks to get an appointment and you wont be alk to get your refund before you do that. And then even 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 vow to go through it all again. Identity theft and refund fraud have been the top two case receipts in Taxpayer Advocate service for the past five years and they are a significant part of our inventory. Its devastating to people. And so aside from the time element and the frustration, does it not cost taxpayers as well money if they need to seek professional services to be their advocate . Absolutely. And this affects people who are low income, high income, it doesnt 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 weve 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 i. T. Side so as we start seeing filters that have very high false positive rights that you have a team that can get in there and adjust those filters, dont wait until later. I can i apologize to interrupt, but what about spleshlly Available Technology thats there . Is it your opinion from a common sense perspective this would be where we would pluf to with an unbelievable amount of errors in fraud and money thats being spent and this whole lock of accountability on this system, would you not agree that would be some place we would look at and say lets mitigate this as quickly as we can . Certainly the private sector has tried to figure out about electronic fraud and the irs is bheegt those people, the commissioners established the Security Summit and i think thats a significant step. I appreciate it and were out of time pit yield back and thanks again. Thanks, mr. Chairman. I now recognize the general lady from washington, ms. Delbene. Did 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 its in right now. You can give ace 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 . Well, i think right 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 weve got in addition to the rrp system, which is our return fraud detection system, is our enterprise Case Management system. We have over 60 systems and they dont communicate with one another and so employees have to get permission to get into things and often they cant. It slows things down, its manual, its not virtual. Our case files arent virtual. Its a ston nishing. 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 were still on we have the two oldest Information Systems in the federal government, according to gao where were keeping our taxpayer information on. And thats a significant concern, getting from those systems to something thats 21st century it is going to be a huge lift. And i assume when we talk about cyber having old system thats very concerning and its concerning because access to information is so cumbersome, as you said, it slows down your ability to, you know, irss ability do its job. Right. Why do you think things have gotten so bad . Why are we so outdated . I my personal opinion from observing it while ive tried to develop my own Case Management system from my own employees is that partly we dont have the talent inside the irs. We havent been able to recruit the people that we need to. And then i think that theres not enough communication between the i. T. Function and the business operating divisions who are going to use these systems so that things go get developed that actually arent what the operating divisions need. But then the operating divisions dont have a chance to tell that and then money gets wasted. And ive seen that a lot. You know, i think thats a common problem that weve 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 . I think particularly for the ecm the irs 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 a request for 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 weve invested 80 million in it or Something Like that. So then 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. Thank you so much. My times expired i yield back, mr. Chair. Thank you. I know recognize the gentleman from pennsylvania, mr. Meehan. Thank you mr. Chairman and thank you ms. Olson for your work. Ms. Olson, often times the irs has a direct relationship with taxpayers because it relates to the taxpayer paying their taxes, but they serve another role. And it implicates a lot of people in which the information that one puts into their 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, theyre 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 on to my Financial Aid application. As a parent whos gone through this process and i know i am speaking for many, it is so incredibly frustrating to begin with. But now were seeing that this system which has purportedly been put in place, the outward facing tools has been compromised. Hundreds of thousands of americans trying to make this application have found that their identities have been stolen. Has a result now we cant only not utilize the tool, but have you people who are trying to make those applications who are now frustrated were feeling time deadlines for applying to their schools, dont know where to go to get the information and its particularly egregious because often times the very people making these applications they may not it may be a student that doesnt know the information that their parents have. You can speak to me about the outward facing fools that the irs is using, what you know about this situation, and what theyre doing to make that taxpayer relationship move more slowly flow more appropriately . 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 highlevel 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 overtime, they learned what the irs needed for the pro section of that data the department of education couldnt put into their system. And they had to make they gave several work arounds and those work arounds werent able to be implemented by the doe. Was the problem on the department of education part . It was my understanding it was on the level of you know, the types of systems that doe has. And we were seeing 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 theyve just put it back up again, theyve worked through some issues. But i think that its going this is where you have some difficulty where you have one agency and another agency and you need to get them together. Whats your sense . Is the department of education collaborating and cooperating with the irs . I think they are now and this smie personal opinion, but i think they are now. I think it is a matter of technology. But it is also that i think they didnt understand initially the level of concern that we have about people getting access to this incredibly important data. And misusing it. Well thank you. I would ask for your continuing oversight on that particular issue because, as we speak, millions of americans are. Certainly. Dealing with this very frustrating system. Thank you, i yield back. Certainly. I know recognize the gentleman from connecticut, mr. Larson. Thank you, mr. Chairman. I especially appreciate the opportunity to audit the committee. I want to thank you and mr. Lewis for this opportunity and ms. Olson, i have nothing but Great Respect and admiration four and the job that youve done. Representative courtney and myself have been dealing with an issue along with representative neil 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 in the and in both cases, the circumstances are that through no fault of the individual, they all of the sudden find themselves in a situation in the case of connecticut where their foundations are crumbling, theres no insurance coverage. And so were pursuing relief in this case from the irs to use this as a casualty loss. And, as i said, theres ample precedent for this in the china drywall situation. And our initial discussions with both the commissioner and secretary ma mnuchin have been very positive. But and we also know that in connecticut the Taxpayer Association has been incredibly supportive. Any advice or recommendations then could we bee seech you for the National Taxpayer association . Well, ive been aware of this problem and had my my staff attorneys meet with chief counsel attorneys of the irs to look at the law pertaining to causally lost did he dukss and how it could afly 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 actually it wasnt a request, we pointed out how they could do it so grant relief to these taxpayers. And ill be more than happy to share that that request with you so you can see what we wrote up. I would be delighted to see that and we appreciate your continued advocacy. And, as i said earlier, this is something that impacts people and now its estimated that more than 30,000 people in connecticut will be impacted by this. But the strain actually runs from canada all the way down to the sound, so. Thats very interesting. Were trying to forewarn people as well with this. But i cant thank you enough as well as both the cooperationing that cooperation that weve received today from the irs and treasury and i stlu in large part because of your involvement add the Taxpayer Association involvement. Thank you. With that, mr. Chairman, i would i just like to also ask you at some point, not for here, but id love to get your opinion on the japanese system of collecting and simplifying their tax code and what opinions you might have on that. Thats not a question for here, but perhaps later i could talk with you on that. Certainly. With that, i thank the committee for indulging me and yield back my time. Anytime, mr. Larson. I now recognize the gentleman from north carolina, mr. Holding. Thank you, mr. Chairman. Ms. Olson, id like to ask you about a subject that came up at one of your meet gds last year. A taxpayer raised concerns in iowa raised concerns for statistical kaud dits being done for research. And although you acknowledged the importance of these, you also recognize that they can be painful for taxpayers and you even describe the taxpayer under ought did is, quote, a guinea pig. So i have significant concerns about these audits. You mentioned a couple of potential solutions at the forum last year and at the time you said you had only been discussing these options internally. So has your thinking evolved any on these suggestions . 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 outaud detectives, the Tax Compliance Measurement Program and it was expensive and painful for the taxpayer, painful for the representative. And but i also recognize the importance of these audits so that we dont go out and willynilly audit people that shouldnt be audited. We need some kind of statistical gathering thing. And my thinking about these taxpayers being guinea pigs is they are actually doing a service for the public. Threes 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. If theyre doing that Public Service they should be paid. And either that, or either and maybe we dont assess the tax at the end of the audit. You know were we found the errors, but theyve sat through this for the public good and so maybe we dont assess the tax that we found, or we give them compensation for sitting through it. And i would suggest that that computation be nontaxable. So we dont, you know, insult them. Let me ask you this. Yesterday gao released a report on the National Research program and employment taxes and the gao concluded that irs doesnt even have a formal plan that 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 theres no plan to use the information and smunt the irs actually use the data . If its going to pay fol folks for the data, your suggestion, shouldnt they tuesday or shouldnt they just shut down the program . I dont think they should. Thats kind of doubling disturbing. I dont think they should shut down the program. 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 doesnt deaf strategies based develop strategies or it fakes a long time and thats just inexcusable. Listening to your answer on ms. Dellmen bennies question on technology in the irs, it seems the irs has difficulty with technology in its basic functions and this is something above its basic function and that makes it perhaps triply disturbing now that ms. Delbene asked the probing question. I think that the irs is challenged in a lot of ways. I do believe that thats the understatement of the day. Yes. Mr. Chairman, i yield back. Thank you. I now recognize the gentleman from new york, mr. Crowley. Thank you, mr. Chairman. Thank you for holding this hearing today. Thank you, mrs. Olson for participating here as well. Ms. Olson, recently my good friend and colleague john lewis introduced a bill the Taxpayer Protection act of the 2017 which im aco response or 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 do this, hire private companies to collect unpaid taxes . 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 congress has made the decision to create this outreach and now my focus has been on how the irs is implaent mging this provision. And i have a lot of concerns about how its being implemented. For a for profit foet motive, is that it . I think thats part of the fundamental flaw of the program. Whaufr say about irs i think irs collection employees flrs that the goal of collection is to bring taxpayers into voluntary compliance and that may mean that youre focussing on the future, that they be able to pay Going Forward and well deal with their debt later. And the private debt collectors have the incentive to collect tax, just the amount thats before them and ghet their commission. They have no incentive to think about voluntary compliance Going Forward. The consequence as it pertains to the taxpayer as well. Yeah. Kind of a in my mind, my concern about criminal Justice Reform and prief ties egg of prison, you create beds, they need to feel them, thats how they get paid. In terms of the eitc, i know theres been a great deal of concern about fraud existing within the program itself. Id 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 finding filling out the proper requisite papers. Well. Hank paulson, for instance, when he was at Goldman Sachs he filed and did it wrong just to demonstrate even the most brilliant, so to speak, can make mistakes. What do you have to make it even more efficient and more accessible but more efficient as well . This year in my report to congress i made a legislative recommendation that was designed around trying to minimize the errors and fraud in the eitc. And weve attached it to my testimony. I do think that most of the errors are attributable to the cox 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 thats too good to be true. So youve got a lot 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 fot design and others is going into the kind of both outreach and education and oversight that the irs needs to do on this issue. I think for the integrity of the program itself we need to be vigilant and mindful but also understand the complexities in terms of the clientele. Yeah. And theyre ability to fill out those forms properly. And, mr. Chairman, let me thank you for holding this hearing today as well in a very bipartisan spirit. Mr. Ross come and i have been working on issues in relation to taxpayers relationship with the irs. We know its not always plez and the, we know you all dont always get it right, and thats 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 interests of our constituents the u. S. Taxpayer. Thank you mr. Chairman. Thank you. I know recognize the general lady from tennessee, ms. Black. I thank the chairman. I thank you for allowing me to sit in on the committee although im not a member of the committee. But ms. Olson i want to thank you for the work that you and your fom folks do in your agency. 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 of voluntarily voluntary Tax Compliance rate and has always been perceived to be fair and impartial. But in the most recent years we have seen more of that impartiality and i think that thats part of what were seeing in the general population that theyve really lost the trust in the irs. So youre 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 cox complexity of the tax code doesnt help and thats 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 doesnt really have a regulatory process like other agencies, federal agencies do. And so they issue these guidances, and they dont 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, understanding the irs guidance and it has seven kinds of guidance to taxpayers that they should be familiar with. And ill 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. The irs has many different types of guidances you point out, and some of them do go through the administrative procedure act in the regulations that we do. But 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, i notice and comment, it does stuff to get out guidance faster. The downside about that is, as you say, theres no vehicle that theyve designed for Public Comment on that. That doesnt mean you couldnt do it that way, but they dont. And i am very concerned about that. I am even more concerned, and ive 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 cant 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 theyre not reliable, so that if you say you rely on an faq and then the irs says, well, thats wrong, thats no defense. So and as that gets done more, youre really leaving the taxpayer in a vulnerable situation. And i want to reference that. That is one of the things that i here fromny constituents is they call in to get the guidance and they get the guidance and they ask can you please send me an email or something to that i can use to verify if i use what youre recommendations are. And the irs will refuse to send them anything in writing. And this, to me, is a big problem where people are trying so hard to do it the right way and then they get called on it and they i say i called in and ask a question and what they got was we cannot give you that in writing. Right. So i see this as a big area that are has to be looked at and i appreciate you being here today and. Im very happy to work with you on that. Thank you. I know recognize the gentleman from michigan, mr. Bishop. Good morning. Thank you. Thank you, mr. Chair for the hearing today. Im looking at the irs is responsible for processing approximately 150 million tax returns every year issuing refunds to taxpayers to about70 of those 150 million tax returns. According to the irs estimates, it says that the cost for a ree refund check is about 1. Im wondering what the cost would be for a direct deposit and also how we might address that issue at a cost and a time using prepaid debit cards and whether or not the irs uses for the tax returns the debit express cards. You know, this is something we identified in my annual report this year is that its so much and its so less expensive to do direct deposit. And then we have a large part of our pop haitiulation thats unb. So rather than them going to Check Cashing places, et cetera, if theyre already participants in this direct express program run by treasury, why couldnt we put tax refunds on it, and frankly, im baffled as to why we dont. The treasury can negotiate good rates. And they already have this process. And i dont have a good answer for you. Thats why we made it a serious problem. Why arent we using it . Doesnt it leave us wide open for fraud if we dont utilize this system . I think the concern for the fraud is obviated by the fact that people have to go to the bank to prove their identity. So you have all the patriot act concerns. And thats what they have to do for direct express, its actually much more than what they would have to do to get a card from some Check Cashing place. Thats assuming you could use that product for the refund. We now use prepaid debit cards that dont have to go through that process. Exactly. Thats what im talking about, to expose yourself to fraud whereas if we utilize the direct express debit card we wouldnt have that problem. Exactly. Has there been any discussion about allowing taxpayers to use prepaid debit cards for tax payments . For payments . Yes. I think that they can, actually. If they havent, then the irs is working on that to accept that online. Theyre really trying to work on the different ways that you can make Electronic Payments on line directly. Part of the problem, though, is they now have on their online account, you can make those paint payments, but you do have to be able to sign on as a taxpayer, and some of the security for that is very, very high. Whats it cost to process a check from a taxpayer. You had said 1. I dont have that information right here, but i can get you that versus a direct deposit versus a debit card. We can agree its probably significantly significantly less, yeah. Ms. Olson, i want to thank you up front for your leadership in service over the years, ive heard a lot of good things, but i have a litany of things i want to run down and touch on. Identity theft. Its been huge in florida. Cpas coming to me, i think even the cpa had his identity stolen. Its big. This is more, maybe two or three years ago, two years ago. It seems like its a little better today, but id like to get your take on where are we at with the Identity Theft . I think its going better than it has been. The irs has improved its processes somewhat. But three things have happened that have really made a dip. One is the legislation that you all passed, getting us the w2 information by january 31st. Because that lets us, if we can get the employer w2s, we can see which is the legitimate w2 versus the altered, fake w2. The other thing thats happening is that the irs is now requiring the Software Companies to ask for motor, drivers licenses when theyre 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 that theres a program that were trying to get more and more employers to use, theres a code that is unique to that taxpayers w2 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 w2, and its not an Identity Theft. Let me ask you for the sake of time. How much of the criminals or the syndicates are outside the u. S. In do you have any sense of that . Or someone claims that a lot of this is done i really dont know. The criminal Investigation Division is working with so many other enforcement agencies to really monitor that, and, you know, its so hard to track this stuff down. You say, theres a bunch in the states, but theres also, you hear its outside the country. You hear about india yeah. Mr. Crowley brought up earned income tax credit. I know theres some complications in filing, but 24 fraud, tens of billions of dollars i guess a year. Whats your take on that . Why is it we cans set seem to improve it somewhat, is it lack of resources to educate people . Im sure thats part of it, but i was cure juious, just from yo stand point. I think its a sum of multiple things. Education, doing really specific audits on it, its 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. Does it help to have Higher Standards for preparers . Education, training, maybe some licensing . I do think that there have to be minimum competency standards for preparers, technically in the eitc area. Because that is where we see we know that the unregulated, unaffiliated preparers, not with the large firms, are the greatest source of errors for the eitc population in the preparer base. Now you were here, i think 20 years ago, when they did irs, were you here then when they did the irs reforms . I was actually a witness before this committee as the representative of a lowincome taxpayer clinic. And 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 seems like 20 years, we could work on a bipartisan basis to make some real reforms that would make a big difference to the country, do you agree with that . Yes, and i think the way that it was done in 98, where you heard from a Diverse Group of people. Experts in business, experts in government, internal, external. It made an incredible record. And when you read those hearings again, theyre just very impressive. We want to work with you and get all the stakeholders, have multiple hearings. One of the things thats come up in our area is Small Business disputes. They seem like its usually sometimes not a lot of money, but its a dispute, and they could end up spending more in professional fees and outsiders than just paying the check itself. Where are we at on that . Or whats your sense of that . I think that raises the issue of not just the audit side where there are these disputes, but the appeals function, and that is one of my concerns that the ers has movered to a more centralized, remote, appeals function which really was the safety valve for Small Businesses. There are 12 states that dont have an appeals officer in them. So they dont understand the conditions of that state. And i think we should take a look at that appeals function and see how we really make it work as the safety valve that it was insteaded tended to be. My last question, protecting taxpayers rights as a key foundation. What additional tools could you use to make it even more effective on behalf of taxpayers in. Yeah, ive 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 theyre just at that, the Taxpayer Advocate director is just administrative. Thank you. Id 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, the subcommittee stands adjourned. Cspans washington journal, live every day with news and policy issues that impact you. Coming up saturday morning, military Times Pentagon Bureau chief, Andrew Degrandpre discusses the fight against isis. Then social for advancement of science ceo rush holt will join us to talk about Advisory Boards under the trump administrations epa. And a discussion concerning how the u. S. Education system has left gifted children and their parents behind. Be sure to watch cspans washington journal, live at 7 00 a. M. Eastern. Water systems across the country testified at a house hearing about federal funding for infrastructure to provide clean Drinking Water and treat wastewater