for the education cren potentias for the education credit. as demand for taxpayer services continue to rise, researchers have affected the quality of customer service that the irs was able to provide. in september of 2012, it was reported that an increase in limited resources continue to adversely affect the level of service of the irs with its toll-free telephone lines. continued enforcement remains important more than these executives that are eligible for retirement. within five fiscal years, nearly 70% of all irs executives and nearly one half of the managers are projected to be eligible for retirement. overall, 40% of the irs employees will be retirement eligible within five fiscal years. finally, madam chair, as you requested information on, it includes mitigating risks associated with security over taxpayer data and employees and procurement and the tax gap, and human capital challenges confronting both the irs and in addition to responding to growing number of threats against irs employees, we will continue to put that as a priority. including an efficient use of resources concerning wireless computer services and library use. smart phones and shortcomings with the improper payments and the elimination recovery act and the way that we refer and recognized indications. furthermore, determining that the irs could develop or improve processes that will increase the ability to protect and prevent fraudulent refunds resulting from identity theft. madam chairwoman, ranking member, senator udall, thank you for the opportunity to share my views. i'm happy to address any questions that you may have. >> that is a very content rich presentation. >> gentlemen, thank you for being here. having worked with an inspector general and i have great respect for what you folks do. i enjoyed the meetings with the inspector general, but the oversight was very positive and it challenges the departments to be better. at the first of the year, there is a mandate that goes and placed under the act, basically to say that thou shall have shalt have this, or if you don't, you get penalized. it upheld the validity and said this is a tax and i guess that means the irs is now involved. so let's say that you have thousands or maybe millions of people out there that aren't compliant with the act. taxpayers. i am assuming that the inspector general or the commissioner, the normal rules of collecting a tax apply. is that a safe assumption? >> well, i will start, senator. it includes a $95 tax the collection rules are different and a lighter tax is required with respect to 5000 individuals >> could you withhold this? commissioner? >> i was just going to say th commissioner? >> i was just going to say that i agree with what mr. miller stated. and i think you are alluding to this. it would be in the ability of the irs to withhold a refund from the noncompliant taxpayer, and that is the way they would enforce this penalty. >> that's right, i am not suggesting that this is to start selling houses across america. but if you owe the irs money, one of the ways you have of collecting that is you are on the positive side in terms of your refund for the next year. that can be seized and effect, and applied to the penalty. my assumption is you would have every intention of doing that to taxpayers. they owe the money, you hold the refund. >> i think that the offset rules do apply. it will be a topic of some it will be a topic of some discussion. we will have to take a good hard look at exactly how we do that. we are talking about filing seasons and talking 15 in terms of that decision-making. >> there is always a day of reckoning with the irs. there will be a day where you collect whatever penalty is a vote if they have a refund. >> i would assume with any other provision of law that it will be enforced. >> okay. in terms of the law itself, complicated legislation, the regulation and the pictures of this that has been from ewell dated by folks implementing this law. in terms of the irs. it seems to me that willing or unwilling, you are a major player in how this law works. and you have to determine a bunch of things about taxpayers to see if they qualify for the premium assistance. you have to determine do they have the appropriate policies, should they be penalized. you have businesses out there that maybe choose not to provide insurance that should be providing insurance. they have to be penalized. it just kind of goes on and on and i'm not even mentioning half of it. do your systems today have the information and plays where whatever effective date you are dealing with, you hit the switch and you are ready to go. >> let me walk you through that. divide the world into two pieces. the first piece of the world begins in october of this year when the health exchange includes state and federal partnerships. it includes respect to the exchanges or the federal government. our job with respect to the op tober timeframe is to make sure that the information is available to make a reasonable decision is as to whether that advanced premium credit is available or not. we are not really involved other than providing information. and that has been worked on and i believe that we will be ready. the second piece is are we set up to do the matching and 2015 for the year 2014 when these things come into play. to answer that question is that we are not yet ready for that. we are working on it. part of the budget request goes to that. we are working on that and i have no doubt that we will be ready. but that is how we will build systems and how we will receive exchange with the insurance companies and employers. that is not completely done yet. >> as you are well aware, there are aspects of this in effect. this includes a number of other provisions and the ultimate implementation of this is over a number of years. we have conducted a few reviews of the irs is progress in implementing the laws. it will require approximately 50 changes to the tax code, very complicated in many respects. the irs has a huge responsibility to inform the american taxpayers, taxpayers and businesses and individuals and what have you of the new requirements under the law. thus far, the assessment has been that they have done a sufficient job. but it's just the beginning and there is a lot more that needs to be done. really, the bottom line is with limited resources, whether sequestration or what have you, the irs is going to have to be in enforcement, customer service, we have this huge responsibility. but i always referred refer to the acting commissioner to respond further. >> i will wrap up there. i have used up all my time. that is why i like the inspector general's. they are straight shooters and they don't try to color this. this is a different kind of problem in a difficult one that you have. i can't imagine how you get from point a to point be and i appreciate the candor of your response. thank you. >> madam chair? >> we hear this that is unvarnished and independent. that is why we say it shows the complexity of the affordable care act and in order to implement the affordable care act, we have other things that will derail a policy that is now part of the law. that is what i'm concerned about. we have no averted 39 times to repeal it. i would hope if we go through our regular order, we don't have the appropriations subcommittees to go after it. so mr. miller has a day job and also, one of which is the certainty of his appropriations with the president and also the impact of sequester on implementing not only that, but other laws. i will be clear on the request. the president has requested for the treasury department, $14,177,000,000. in that there is a request for the irs. and that includes 12,861,000,000. is that correct? >> yes. >> then when we enact this, fiscal 13, finally on march 20 evan, with incredible bipartisan support, we would able to pass the continuing funding resolution. that was bad 11,793,000,000, i believe. but sequester is 594 million and then because you are a big agency -- don't we have across-the-board cuts? is that what we are talking about? >> that sounds right. okay, $620 billion coming out of the irs with technological challenges. one is cybersecurity and the other is technological and modernization in ordering you to receive data and do the job we ask you to do. then you have personnel. from what i gather, your personnel is a highly talented one because it requires people with business and accounting and other technical skills. am i correct in that? >> the vast majority of our folks are very professional in dealing with different aspects of it. >> okay, so it's not on the person answering the phone who has to know everything about everything, and turbotax is sometimes not as turbo as we would like it to be. and the people who actually have to do all of this, so how is the morale? very talented businesspeople. i would think that they are highly desirable in the private sector. >> yes, i am quite sure that morale is not what we would like it to be an employee that will not be getting the opportunity that they might have expected. that we have an incredibly highly dedicated workforce and i would like to think they are dedicated to public service. so while morale is not what i would like it to be, we are dedicated we will get the job done. >> okay, suppose you were given so-called flexibility. were you are our to cut, if you have flexibility, will that solve your problem? >> are not quite sure what flexibilities we are talking about, whether it is the integrity cap worn -- i'm not sure what we are speaking of here. >> well, what i am saying is that giving management flexibility as a substitute for money for some. >> i think management flexibility will help, but will only go so far. i think it will get us part of the way but not all of the way. >> okay, a couple of other issues. i am so honored that the irs is headquartered i don't exactly join the dance party on friday night, but i am out there at a worship service or some of the others in our community. the irs employees are apprehensive. they signed up for a government career. they learned that tax code, implemented that tax code, they make sure that if you filed a return, you get it and you get in a timely way and if you call, you get it answered. and by the way, let's go after those crooks in prison that are even trying to make things more complicated or comply with the va mandate. so i think that this is not about research, i think it's about us, and we really need to come to grips with these issues and i know that we want them to have certainty and i am for that. i am for regulatory certainty. i am also for federal employees having certainty. but if they work hard, that they have a job, that they are doing jobs and meeting performance standards, where they are going after fraud or they are doing the job that they should, we should be shaking their hand. so i am pretty firm about this. now, standing up for the little guy, small business and a problem that i have come across. i come from a family of small business. my father was a small neighborhood grocer, when you go to businesses like that, it could be a home-improvement agency, the person who is maybe a florist, they often turn to what they call a funeral service provider in order to meet compliance. they are giving them the money to pay their taxes and they think they are signing up for their taxes to be paid. well, we have a company whose name i will not mention that just disappeared. you know what disappeared? they disappeared and the money that these businesses, like those in others paid and, thinking that they have paid their taxes, it also disappeared. what is now happening is that the irs is coming to them and so they feel that they are going to double pay and then they are getting penalties and fees and so on. some want to talk about this, but i was pretty jazzed when i heard about this situation. businesses, the irs has seen these types of problems before what reforms will you make to deal with this? i want to look at prevention and also make sure that these small businesses don't have to double pay. can you tell me how you see this problem and what you see to correct this problem? >> okay, in general, it is a horrible situation. i have people that don't necessarily know that they have been taken advantage of area and you do have the tax liability unpaid. so in these cases, and we need to get better about this, we need to ensure that there is some way that people have received the notices that we send out. because they are not receiving taxes. we will try to contact people and there are occasions when things happen but that doesn't go to the right place and we need to get better about that. >> not just better, but it has to be solved and i will leave pretty firm about this. they didn't get these notices. the company was supposed to send the money to you. that company gave them the wrong address, so they never got a notice. so it has to be pretty much near-perfect. >> again, i will agree with you that that is a problem that we need to solve. and we will work on not with you as well. >> what resources would you need? is this a lack of why hasn't this been dealt with? is it a lack of resources? >> part of this hits too close to the individual pay. i'm more than willing to talk to you about it. >> years ago, the company sold millions of dollars. this has been one thing that has come about other kinds the market has. >> so are the yellow flashing lights to have dealt with this -- is not important? >> i think all the cases are a little different. i am not as familiar with that individual case. but all of the cases are a little bit different and it does happen. there are times when taxpayers are absolutely unknowingly involved and times when they are a part of this more than not. what i will tell you is that in these cases we will work with the taxpayer to try to leave as much stress and liability as we possibly can with respect to penalties. it is not difficult. with respect interest, it is a little bit more difficult. with taxes it is very difficult. >> right now, does the irs notify taxpayers for these business addresses? >> i don't think so. >> canisius that would constitute the reform? >> it's one of the areas that i agree with you. >> that the irs notify taxpayers >> the one i do not know. >> these go to systemic reform. i know every case is different, but then we would never have one. in the prosecution of these cases, do you seek restitution? >> i would have to defer to the department department of justice. i do believe there is some restitution aspects of it. but i'm not familiar enough that i would have come back in a investigation of these cases, how does that were? >> the irs will investigate, make a recommendation to the department of justice. and they will prosecute. >> i do not disagree with most of what mr. miller stated. but i would elaborate on the following. that we do have some responsibility investigating those types of incidents, especially when it involves third-party preparers. they play an integral role in the overall system of tax administration. you are exactly right, madam, that the irs has to get a closer look and we have done work that has shown many irs employees wear multiple hats. the time sometimes they are answering phone calls for the average taxpayer and sometimes individuals have been victims of tax fraud and that has a little bit more and clarity, as well as for the internal revenue service itself. there are so many aspects and thank you for raising it. it is not limited solely to tax preparers, such as the one that you have talked about earlier in your statement, senator. but also again, individual taxpayers in terms of there is some complicity, as mr. miller alluded to, that people know that they are under investigation for alleged tax impropriety. and they will immediately claim. >> okay, have to stick to the ring. what troubles me about your answers, you are treating this as a cluster of individual cases. and that is a nationwide problem. we are seeing this differently. i see this as a nationwide problem. most of these cable agencies are honest people in small to medium-sized business and must be relied upon in order to meet all rules and requirements they could never learn working all by themselves. but do you see this as a nationwide problem? do you see this as each case is different? >> it is a recurring problem, whether it is a nationwide problem, we would agree with you absolutely that there is systemic ways to solve it. >> i would really like you to take a look at this and truly identify over the last five years in the complaint have you gone like this. so you actually know what you got. i invite frannie datsun knossos and recommendations that you have. and in going through this process. .. let's work on reform. to see some and it's been going on for 10 years. acknowledging that could be both. i'm telling you, i've got a real problem. it's not that i have a problem, only at people who really worked hard. senator udall. >> thank you, madam chair. very good line of questioning and very much of who she have any of those here. as you noted in your comments over for the the irs is critically in part that is good is to the questioning of government. in your testimony, you spoke about identity act and refund fraud. i know these issues and my state, every true constituents claimed by someone who is one identity to cases where refunds are sent directly to another account and the filer numbers these any of it. these problems are prevalent in rural areas, target limited proficiency speakers and native american communities and share more about what the irs is doing his top identity theft and refund fraud in these communities. >> i think were doing a much better job identity theft and that would include rural communities as well. we have quite a few new filters that stuff about return from coming through. we are not where we need to be yet, but a $20 billion, we are so much better than they were. but there's no question about it. the individual would have to authenticate there or they say they are, whether it is through something like that. yes he knows where he lives in the 295 and the return would come in and cut down on the tremendous amount of this word occur through our filters. the second piece is any ticket so much better it happens to the second individual who comes in. the real taxpayer because the person hit the wall and has to fire the paper was with an affidavit insert room what is often five valleys, not just two, but five. that has buried us quite frankly we are digging our way out. what i have 400,000. we are well on their end getting past that we should be stopping the witches very need to be and get the technology to have them prove who they are at that time and let it go through. we are starting to do that now a pilot faces. re/max senator udall. no, sir, i need to excuse myself and i ask you to take over the hearing and go as long as you want as long as miller and george can get and close it out. i want to thank out to you for your participation. we need your advice on an ongoing basis for some difficult challenges around protecting zero. >> thank you, madam chair. >> commissioner miller come my next question is an issue that affects native american communities come in the welfare exception. as you know, the general welfare exception allows indian tribal government to provide social benefit programs to promote general welfare. there have been some incidents where field examiners have not had the proper chain guidance of how it should be applied in native american communities. i understand the irs and i'm pleased you take steps to ensure proper application of the exemption. >> scheuer, senator. in december 2012 it had a draft revenue procedures that he not a whole series of safe harbors