>> for the second time in eight years the government accountability office have done an independent inquiry and has proven that the absence of meaningful oversight of much of the tax preparer industry is harming to many citizens who can least afford it. end it could also be much worse. in some cases, taxpayers refunds were prepared in person and skip the one who shows who did the work. and the worst of all plus the taxpayer can prove what happened, they are on the hook for the money when the irs finds out. witnesses said they can share some more eye-opening stories and we are eager to get their thoughts on what the government can do to come up with more sensible policies here in the most important step is to restore standards to protect the american taxpayer. i am proud to say that my home state of oregon gets this issue right. taxpayers keep up with the changing landscape of the tax code in order to maintain their licenses. oregon standards work. take a look at the system a few years ago and we found that the tax return with 72% likelier to be accurate then returns from the rest of the country and that puts fewer oregonians at the mercy of unscrupulous preparers and reduces the risk of a dreaded audit. now, there are ways for congress to help in this arena. for example, i strongly believe that comprehensive tax reforms must make filing easier and that must be a priority. making sense of why they tripled the standard deductions and that would eliminate the need for more than 80% for taxpayers who itemize deductions. then they could easily prepare their own returns and never fault with two tax preparer's ineptitude or misconduct. the senator has perfected us from identity theft and the senator has also fought very hard for taxpayer right. they and others have ideas on how to solve the challenge and that is the point of today's hearing, to look at a variety of protecting the taxpayers system as long as the code is so overgrown and so complicated that most americans have to seek out this and they shouldn't have to worry about crooked or incompetent preparers. it is that simple. as i wrap up the mod like to thank both of our panels o >> even "the washington post" that the attackers called it a silly and unproductive that the phrase targeting describes what happened to with three pinocchios for saying otherwise. with that effort that was designed with the conservative groups. with the proposed regulations from the 501(c) fo) organizations. across the political spectrum rightly condemned the regulations because it undermines free speech to participate in the political process. the irs had a record number of comments for all points on the political spectrum and from what i gather they were uniformly negative. this regulation with the grass-roots organization is seen as political event the critics remain on the sidelines of the critical debate. that could work both ways in the future. i don't wanted to but this proposal is disturbing with what has already gone on at the irs with the scandal. that the regulations are not likely to be finalized but that is not good enough. they should go away entirely. we have the power to make that happen. throughout the public debate under this proposal to approve the final regulation however as was confirmed to before this committee the irs commissioner has the authority to unilaterally prevent these regulations from taking effect. so in a direction as you could see we have a number of issues to discuss a look forward to a robust during. hess the next hour hearing today will consist of two panels with two government witnesses for the irs and from the gao and a cross-section of individuals of them were knowledgeable about the tax preparation we had 81 dash we have eight witnesses help you will live in your testimony to five minutes. we have the commissioner from the irs and the national taxpayer advocate of the irs. the q your prepared statements will be made a part of the record and you may start. >> chairman and ranking member and members of the committee thank you for the opportunity to discuss irs regulation of the tax returns prepared community is a key allied efforts to fulfill the mission of taxpayer services and compliance. each year prepares are called on to do 80 million returns about 56% of total individual income-tax returns filed they beat the irs job easier helping clients at the same time it is of and even act as. walla enrolled agents and cpas must be mandated daley make up 40 percent of the tax return for pairs that and has another 60% preparing returns of the oversight although a few states have begun regulating and license for pairs -- prepares that avoids the possibility of conflicting requirements. while the majority operate with a the highest ethical standards there are those that do in gauging fraud others of having enough trading under not equipped to do an adequate job. to ensure they are competent the irs wants the tax return prepare initiative in 2010 they must register with the i rs if they have been a substantial part of compensation to refund claim the initiative requires paid prepares to are not cpas to pass a competency exam, with continuing education requirements with tax law and professional conduct. the also extended the ethical rule known as treasury department 232 all paid preparers to allow us to suspend or discipline tax return preparers to engage in an unethical or despicable conduct since 2010 when 1 million individuals have registered to the tape a tax id number. half 677,000 preparers were active in the database they must use their pyin -- ptin and must review annually. all along with those regulations the irs has a comprehensive enforcement strategy with regard to these efforts it is important to note the registration requirement gives the irs a better light aside in to the return preparers community than ever before. that helps us to do more to analyze trends to detect fraud. the irs announced the testing phase the was designed to cover preparation of form 1040 into related schedule. with 84,000 tests given and 62,000 received a passing grade with a pass rates of 74 percent that means 26 percent were unable to pass. the 58 dash hour annual education requirement is 10 hours a federal tax loss three hours of tape to hours of professional time. it resulted in a court decision of the testing requirements of january 2013 and a court upheld that decision. well consideration was given it is true that they're prepared registration and alone does help to identify the community to analyze trends in determinate general level of taxpayer service at competency testing and continuing education may put aside past to ensure all tax return preparers give the appropriate level of service. we believe this level was ill translate into reproved overall tax compliance and is certainly with that the administration therefore we urge congress to pass the proposal in the fiscal year 2015 budget that would explicitly authorize the irs to regulate all tax returns prepares to resume mandatory testing. in the meantime we take a close look at the possibility of an interim step of voluntary continuing education before moving forward on this idea we will solicit feedback >> under $3000 per return and is often higher for low income taxpayers who receive refundable tax credits. and therefore a work a preparedness can have a significant impact on the tax payer very at other financial professionals whose work affect the lives of their clients are widely regulated. yet anyone can hang out as a tax return preparer with no knowledge and skill and no experience required. i know this well because i begin my career in tax administration in 1975 when i myself hung out as an on and will return preparer that time there was no widely available return preparation software packages to do my job, i had no choice but to study and learn tax law and rules, regulations and publications. because we have to learn something and know about the tax law, tax repairers had to have competency. today there is no such assurance. these three transformational changes have taken place in a return reparation field. first, the advent of return preparation software has eliminated and this has extended the taxpayer base to include low-income individuals. third, preparers have financial incentive to inflate refunds and this includes paystub loans, and in many tax season advertisements today, it is difficult to discern the active tax-preparation and this is in regards to vulnerable taxpayers in the industry as national taxpayer advocate in 2002, i recommend that congress enact a program to register and test and certify these preparers. i also recommended that congress authorize greater preparer penalties and strengthen due diligence requirements. but there is an important distinction between these approaches. while penalties and due diligence requirements are a component of the committee's actions occur only after the taxpayer has been harmed. prevention is the last costly and more effective. accordingly congress should clarify that the irs has the authority to establish minimum standards for the unenrolled preparer population and to test with continuing education of these preparers. establishing the preparer standards is that the cost will ultimately be passed onto the consumer and the implementation of these decisions seemed very reasonable as compared with the far more significant cost of the gao and other visits have found were some are over paying their taxes by thousands of dollars and others to underpay their taxes by thousands of dollars. an unlikely face the action of irs down the road. first, a voluntary examination is being offered and continued to an education certificate. second, restrict unenrolled prepares to represent taxpayers in audits of return for they prepare, unless they earn that certificate. and third, not the consumer protection campaign that and remind them to obtain a copy of your tax return with the preparer signature on it. finally, the irs should develop a publicly accessible and searchable he prepared database to include all those who register with the irs. after all, the best enforcement and consumer protection strategy is to have an informed and educated consumer base. in this instance, taxpayers who need to have clear-cut way of knowing which prepares me minimum levels of competency and which are not willing to make the effort. and it is a bright line that taxpayers can understand. thank you. >> meselson, thank you. colleagues, we've all take five minutes at this point. ms. olson, if i could start with you first, you are the national taxpayer advocate. it is your job around the country. i was particularly struck and would like you to amplify a bet on that. you said that there are new incentives and new opportunities for the unscrupulous tax preparer to rip people off and. >> there are several ways that we see this. the first is that entities that would not normally be involved in the profession of return preparation, they use the ability to give advance loans on the refund itself to cross market goods whether it is hire cars at very high interest rates and the other thing that we are seeing is out and out fraud. where is described in your statement, preparers will take the taxpayers return after the taxpayer has approved it in the taxpayer later find out about the when the irs is contacting them and sing to you all as taxes. and that drives the taxpayer to be engaged in a long and extended conversation by the irs and by that point the preparer is long gone and you can't find that preparer. >> i appreciate your clarifying that. because i didn't think the standards for adequate even before we sought taxpayers bumping up against these kinds of problems that you're talking about. and i appreciate your demonstrating net is usually the case that the unscrupulous are always one or two steps ahead of efforts, particularly voluntary efforts to deal with the problem. and i hear that this has new terms of this as well. >> yes, absolutely. first of all the mind reading is that it did not go to the fact of whether regulation is desirable or not. but whether the irs has the authority to regulate the current law and an injunction being able to implement the exam and the continuing education requirements. and that is a significant obstacle. we can register the tax preparers but we cannot test them or require them to be tested or take an exam in order to do returns. >> how limited are the tools that are left two given this decision? i understand our tools left, but they don't really go to the heart of what you've been talking about, which is protection against the unscrupulous and i share the view that there are a majority of tax repairers who are honest and reputable. but it sure looks like some new opportunities and new chart doors have been created for those that are unscrupulous. so tell us how given the decision, how restricted they are to deal with the preparer. >> reign of the irs has policies that identifies where and it requires for prepares to complete due diligence certification that they have to ask the taxpayer and certify it. we have the ability to seek injunctive relief working with the department of justice. this is a situation where they can't audit itself or do injunctions with 1.2 billion preparers and it cannot did the kind of confidence that we need to engender by doing one-on-one audits and we need a much broader approach. more importantly taxpayers need the designation so that they have a bright line and they can say yes, this is something that has demonstrated competency in this is someone i should go to. if you go to someone other than that. that goes to someone who is competent. that's a distinction that audits will not get you. >> i appreciate that. i especially appreciate that last point because in effect we need a system that upfront makes it clear to those who have these bright lines and where we are to go to get this protection you need. and it is essentially reacted for your playing catch-up. >> yes man they have already experienced this rather than being able to prevent this. >> thank you, mr. chairman. i may just ask both of you, what is the irs doing to educate the public on how to do this and also what should we do to educate the public and make it easier to include the ethical standards of a preparer? you have the answers to this, but i would like to have a little bit more. >> as part of our outrage, we provide on a regular basis are out of here a wide range of information in the system and their times to find out what you pay. so we advise people that they should be careful and they should check them out. but as noted, there is no way that we can provide any minimal standards guarantee. all we can do, which we do is to say that you should be careful and you should make sure that you know what the tax preparer is and what the background is and experiences. but for the average taxpayer, that is a very difficult thing to do and there are no listings, there's no way for them to figure out those who have studied will have a minimum level of confidence in who does not. so our view has been if you have a way of giving that information to the taxpayer, then the free market would be more intelligent and more applied. so i am taking a bigger chance than if i go to a tax preparer who has passed the iris examination. so we simply have to tell them that this is not particularly helpful to the average taxpayer. >> we are warning taxpayers to do things to protect themselves. repairs are required to give you a copy of your return that is signed by the preparer and has their number on it. so i think that if there is one piece of information in this environment without having entered, it would be for tax payers to restate that. because then if the preparer alters the return afterwards, you would have the name and identifying number of the preparer and then you can show that there really was fraud committed. and that is a very important piece of information for us to have when that happens. >> that is good. mr. commissioner, when you confirming on this committee, one of my charges to you is that we have confidence in the irs and it was your ability to make that a top priority. we have several recent incidents to which the public still may have reason trust in the irs. between the furor over the irs's proposal, which received over 148,000 comments, most of which were negative, and recent concerns raised by my colleagues on the house side about whether or not your agency is fully cooperating with producing documents related to the ongoing irs political timing investigation, i am concerned that there is no longer such a priority. the american people deserve to have an irs that is free from political bias and of course we have to hold you accountable and i assume he will make this a top priority going forward. >> thank you, senator. >> with regard to the production of documents for it the tax writing committees, the house ways and means committee, we had no complaints about the material that we have now provided well over 7000 pages of information. to identify information and we are providing that information in volume. and the discussion has been a concern by those who do not have the authority to seek taxpayer information and we have to review every single page and we provided them by the end of this week another 50,000 pages of redacted information. no one has a greater interest than me personally aside the iraq than to have this come to a close. as i have said from the start, whenever we get a final report from someone we will look at the facts as they are found and we will consider what additional actions need to be taken, if any. we have already accepted all of the inspector general's recommendations. then we will move forward because i do think it is important for every taxpayer to be confident. that no matter who they are, their organization or political beliefs, who they voted for in the last election, when they deal with the irs they will be treated fairly and evenhanded way in the same way that everyone else is treated as we go forward. >> that is good. thank you. >> i would only say that i don't see any evidence that protecting taxpayers from unscrupulous preparers as part of this partisan issue. and i think that that is what we are focusing on today and we have a lot of heavy lifting. we will go to senator casey next. >> thank you very much. before i pose some questions for witnesses, i would like to talk about an issue that has been raise the number of time. this is about the processing of those with the subcommittee assignment and i just appointed the new chair of the subcommittee on taxation and irs oversight. so i like folks in both parties that are committed to making sure that any kind of abuse of practice that is engaged is not repeated and is rooted out and exposed. the committee, i guess, mr. chairman, undertook an investigation which has been a bipartisan investigation that includes interviews with those that are impacted with irs employees. and it's my understanding that the committee staff has essentially completed the investigation is prepared to release its findings and conclusions. so i welcome the release of the conclusions of that bipartisan investigation and i look forward to working with you on the issue. >> thank you, senator casey. certainly that investigation is well underway when chairman baucus chaired that committee. it's very constructive in terms of working with you. this is the only bipartisan investigation of taking place in these issues and i'm very hopeful that we will have that quickly. >> thank you very much. commissioner, i wanted to start with you. i know that your team has identified the tax scams on the so-called dirty dozen list. and there are two issues that i have worked on that are related to this with a kind of abuse of data of information. one is preventing that being used for fraudulent purposes, as well is working with the social security administration preventing criminals from stealing social security checks. more broadly on this issue, what would you hope that we could do here in the congress and the senate finance committee to better help the u.s. protect taxpayers? i'm assuming that some form of the items on pages six and seven of your testimony are part of this. >> i appreciate the question. obviously we are here supporting congressional efforts to give us the authority and minimum standards for taxpayers to most tax payers are competent and educated than they and they do a good job. what we are worried about those on the periphery who either don't have enough information to adequately prepare a return or worse, figuring out various ways to defraud taxpayers by taking all or a portion of their refunds were channeling them into other activities which may or may not be in their best interest. we also are proposing with regard to identity theft and refund fraud, generally, that the congress to vest authority to get w-2 information by the end of january. we're sort of the victims of our own progress. in the old days he used to get your refund months later. in the meantime we would've gotten all the third party information. but now with electronic filing and tremendous progress that the filers have made, when you file the return we see that we will get you a refund within 21 days and we have leapfrogged the third party information. so a critical part of that information fries would be to have third-party information earlier so that we could refund applications to ensure at least there is some comparison. and the congress already talked to some that have been very helpful, although there are some that have access to it and we are concerned across the board with the ease of theft of social security numbers and in the public sector. no one has ever used them from the irs database, but they use it to file a false return. >> we appreciate that. missiles and? >> i think that one thing that is an emerging trend that have just been briefed on it but that of social security numbers from the preparers themselves hacking into prepared databases. that is very difficult because you do get the information so even if we had the information, we can't necessarily tell that that is a bad return. the irs right now is doing a pilot to see if we can match the name on the return where the deposit is supposed to be made with the name on the account itself and that is having some extra salt. but there may be things on that and where you can work with the financial institutions to do greater security. and so i know that the irs is limiting how many refunds can be made into a particular account so that it would be a very easy thing. again, these criminals, we are talking about scams and these are opportunistic criminals. they're going to do whatever is easiest. and they won't necessarily go criminally but they will go somewhere else. >> thank you very much. >> thank you, senator casey. senator grassley? >> go ahead. >> senator roberts? >> thank you, senator grassley. when you talk to me last year prior to your confirmation, you told me that you thought was your role to queen of the irs and get the agency back on track and regards to the processing of these applications in and the implementation of the portable health care act. both monumental tasks indeed. use of your longer-term goal, however, was raised more the integrity on these and other things as well. i have confidence that you will be able to do that. however, prior to your confirmation needs that the irs was targeting certain groups during the application process thereby trampling on the first amendment rights. it seems to me there's a commonsense attitude that you need to take and you should take it today. stop all action on the proposed regulations so the house ways and means committee knows what goes on in what the amplification of all this is and how we can address the issues raised and hold people accountable. that is why i have joined with the senator from arizona, offering legislation to stop you from proceeding with this until we have answers. here is the deal. we have a code of regulation title 26. i'm sure you're familiar. internal revenue takes various forms as regulations as prescribed by the commission or an approved by the secretary and his elegant. other rules may be issued with the signature of the commissioner or any other official to whom authority has been delegated. regulations and trade are prepared in the office of the chief counsel after approval by the commissioner. here is the deal. our constituents informed us with some degree of outrage that there is an irs box in the first amendment chicken house. yes, we know that, we are writing regulations that will tell the fox to behave himself. but that makes no sense. we are investigating why the fox was even in the first amendment chicken house in the first place. so i have some suggestions. first, why don't we get the don fox out of the chicken house and second, we the regulations and wait until we get our investigation done a lease until we find out who put them in the chicken house and held them accountable. can we stop when these regulations are done with the investigation. >> having worked on my uncle's farm in minnesota, have a little bit of familiarity with foxes in houses. let me just respond to the point. as i have said for some time and in my early testimony in february, especially since the volume of common sense and have increased, the chances of us finishing regulation before the end of the year are slim if nonexistent in our hope has been that one or more of the six investigations from plaster will be completed well in advance of that. so i think in terms of not having the regulations we have some investigation done, unless it is going to go on in the next year, somebody will listen least one and hopefully this will issue their report in the next three or four months which will be well in advance of any time we would have in chance of completing this regulation. with regard to the regulation as i have set in the past, not having been around when it was formulated originally, any regulation that is ultimately issued should be fair to everyone and clear and it should be easier to administer. and so we are going to carefully review the 150,000 plus comments that have been made. we have just started this, so i'm not sure how everyone knows whether it's positive or negative. but really the regulation has attracted a lot of interest. by the time we hold a public hearing, in all likelihood we propose any regulation that we would be considering, it is going to be well into this year and my hope would be someone would have at least, that one of the six investigations would've been done if not more and we are committed to reviewing the findings in taking any additional action that is necessary. >> my time is about up. i want to thank you for that were committed. so you are unequivocably committed to this committee and you're committing to this committee the 501 c-4 relations will not be finalized this year. >> i think what i'm i'm saying is that we'll become ice before the end of the year, not the elections, we are not rushing to get them done. >> an expression that, you know, the chances of something happening are slim to none. .. that category of businesses is not specified in the health care law at all. in order to qualify for the delay you require employers to certify that they did not lay off employees to get below 100 employees thresholds'. this certification seems like unnecessary information unless you think the employer mandate will cause businesses to lay people off. to you think that businesses will lay off their employees in order to avoid paying penalties under the health care law? if not, why are you requiring the certifications? five what is the legal justification for a new category of businesses with 50 to 99 employees and the certification process. >> senator, as you know, tax policy issues like this are all the domain of the treasury department. those decisions were made by the treasury department. i did not participate in those. as a general matter, do nothing that companies with regard to health care issues are going to willy-nilly lay off their employees. most companies are dedicated to their work force and to developing them. the question in terms of what basis for those decisions were made his earlier question that has to be addressed the treasure department. >> when you have to sign off on them. all treasury regulations are issued by treasury and the irs. the policy issues behind questions like this are decided by the treasury department. the chief counsel's office actually reports directly to the treasury department. >> well, i requested a response on march the seventh. so when can i expect such a response? i assume you can be an errand for making sure this is done. >> i clearly commit that i don't know why the fact that in the response is cleared of the process. my commitment to this committee and all of you has been that we will reply promptly to any letter we get from you, and i assure you that i will give you a prompt response. i can tell you when the treasury department will respond, but we should probably. >> he made this same promise the made many calls for the committee. well, anyway, let's call on to the second question just last week wrote to you concerning the proper forms of life out third and were enacted in 2010. these reforms impose new requirements on nonprofit hospitals. what is ben the delay of finalizing regulations and when can we expect final regulation? >> a series of regulations and proposals of been drafted pursuant to the statute. and december, january of this year we provided, treasury provided with the ira's charlie guidance to hospitals that they could rely on the existing proposed regulations that are out there. we expect that the final regulations will be issued before the summer is out. if they can rely upon the earlier regulations or proposals that are out there. >> the 2010 nonprofit hospital performs also required the irs and the department of health and human services to collect information on nonprofit hospitals and report to congress every year. in annual reports should of been issued to congress for fiscal year 2012, but congress never received any report. congress has yet to receive a final report fiscal year 2013. a 2012 report by the inspector general of treasury recommended that the ira's enter into a memorandum of understanding with hhs in order to better coordinate the collection and sharing of the information for the report. the irs agreed with the inspector general's recommendations. as i have extended, the memorandum of understanding has not been finalized. what is the status of the memorandum between the irs, hhs? windy you expected to be finalized? why is there not been an annual report as required by law and when can congress expect the 2013 report? >> we have been swapping. we expect not a memorandum of understanding but jen final confirmation from them about the process we will use going forward. the problem with timing is it takes to get three years for all the data to be filed. so the 2011 data it has now been made public. we expect that the data will measure. the hospitals all ask us to use apples to apples data. we will be issuing to the congress a report for 2011 because that's the timing in which we actually get the final data. every year thereafter we will provide the report on an annual basis jointly with hhs. data for 2011 is already public from hhs. we are collecting for the same time for an calendar 2011 putting the data together. you will get every year it will be late because of the time the hostels have to file all the data. as a regular matter you will get the data required. >> thank you, senator. six. >> a want to thank you and the center for holding this hearing. i think all americans expect the heiress to a minister our tax laws in an impartial manner. they expect the taxpayers to operate in a competent and ethical manner. the concerns that have been brought to light by the gao in its recent stay are very troubling. in sure that americans are protected from unscrupulous and incompetent tracks ---return preparers. i want to give you an opportunity, turn to something that has been mentioned here by my colleagues and has been discussed oblique and give you an opportunity to correct the record. last week the "washington post" fact checker awarded three pinocchio's for a stigma that the treasury inspector general for tax and ministration have not used the term starting when referring to tell the irs as treated conservative social welfare groups. the post article noted that he specifically stated in his testimony to congress that the irs target specific groups applying for tax-exempt status. of the late processing of these applications and requested necessary information as well as objecting these groups to special scrutiny. and given that the confusion around recent statements that you have made on this topic, want to give you an opportunity to correct the record. the question specifically is, do you agree that the treasury inspector general for tax administration has filed that certain conservative groups a target for extra scrutiny by the irs. >> appreciate the opportunity to correct the record. it has become a big issue inappropriate criteria were used . that was in response to a question about the findings, and my point was the ids finding in the report said it was improper criteria. the ig clearly in the testimony to congress use the word targeting, talked about targeting beforehand. in response to a question in which the inspector general's finding was targeted, the actual findings and proper criteria. one man's improper criteria is another man's targeting. how come to be this big of an issue, i don't know. however you describe it should not happened. should not happen going forward. we are committed. we have already made all of the ids recommendations and accepted them. we are committed that when people not only received applications but in any relationship we will continue on the people. some democrats, some republican says. when you hear from us it's only because of something in your tax return. people need to be confident that that is our commitment, our general approach to these issues and how we will behave. >> just as a follow-up to that, the post article also referenced says to your use of the term starting. the question was, was the phrase so toxic that it was white from the lexicon once you arrive at the irs? and i guess i would just ask that your confirmation as commissioner, anyone in the administration within the irs target or targeting in reference to the men were talking about. >> the only concern i have heard has been toward the offices of the virus, listens to a man with over eight dozen employees. several of the employees have objected, but no one in the white house of the treasury board ministration has asked me not to use the word. >> thank you. sachs for more and more americans seeking tax preparation assistance, the incredible complexity of the tax code. as you know, much of the chief of the need to figure out whether they qualify. the complexity of the issues that we already have making it even more difficult for driving even more americans to tax repairs when it comes to getting the returns in on time since. and do you believe that most tax payers are adequately prepared to handle the complexities? >> i think were going avalon of questions about prepares and taxpayers about the affordable health care act, the vast majority will be unaffected by it. it will check off boxes as they have insurance people who are in the area that are applying for insurance and getting in and spending increases the will be questions asked to make sure we're prepared answer. by there is certainly a great deal of complexity in the affordable care act. i would now, and i am watching carefully and closely how the virus is approaching that also on the compliance side. what they do if someone owes money. there is one thing about the affordable character is important. we're going to get a lot of the information from third-party some which will allow us to identify inaccurate claims. during the filing season, that is very different. it's very important for us to get w-2 and 1099 information early in order to avoid all this fraud in the regular tax system. there's an actual added benefit to the affordable character that we don't have palm some. >> think you. >> thank you, senator. i very much appreciate your highlighting the complexity of the code because congress is not blameless here. virtually every session some other group comes out. what happens here on the finance committee, we just added to the code. there's something like 15,000 changes, one or two for every working day in recent years when. that's right at the heart of tax reform. >> thank you, mr. chairman. i concur with the opening statement talking about tax simplification is the key. how and a half to stay and answer questions. the proximity to april 15th, everything was about the irs. so, we are close to having conclusions. is that correct? >> i'll let the senator chime in here. i believe so. certainly the staff of been talking. the senator has been very constructive given the fact that this is the only bipartisan investigation into this. obviously there were errors made there is no question about that. it is important that we wrap this up, and i'm hopeful we can do that quickly. >> we're trying to wrap this up as quickly as we can. i agree that we are working in a bipartisan manner. hopefully we can conclude this the near future. >> commissioner, can we have some clarity? i understand you sent us a letter indicating that you made available. is that right? >> a couple weeks and not three weeks ago we said we provided you all the documents we at about the determination process which was the subject of the inspector general's report. since then we have had requests for additional information not about the determination process, but about any involvement in the exam process. we are providing all that additional information. the issue of the determinations that the ig race on senator isaacson is time. i will let senator hatch of the last word. >> they have given us most. it found that they hadn't. we're appreciative. we still have not gotten to the documents as much as you like to , although we are starting. all i can say is we're trying to do the best we can on this investigation. hopefully we will and the future. >> we are committed to getting this time. it will get done in a bipartisan way. i want to assure you that we will be following up quickly on any remaining questions, but has of a couple of weeks ago you had given us everything that we ask for which strikes me as indicative of your corporation. this is not going terrible the imputed to senator isaacs as time. let us make sure. >> let me make -- let me say i appreciate that. we have good working relationships, and we are committed to continue in to work for whatever you need. >> you can roll the clock back. a full five minutes. >> i'm glad. in of voluntary compliance system confidence the american people have which is the key to voluntary compliance. the quicker we can get all the answers, whenever they are, the better off of us are. want to thank the commissioner for the visit he made to edmonton performance ago. i would just common having run a business before to my department manager or business said motivating employees, if your performance in atlanta was typical of what you do, i think the conference and the ira's employers will go up. i was very impressed. >> how did they pocket the difference? >> well, a larger tax refund. you are actually preparing. other kinds of unrelated, then you can get a loan advancing funds so that fretted refunds to purchasing a product. what we are seeing, i used to see this in a low income tax baroclinic iran when i represented taxpayers. the vehicles purchased. the purchase of automobiles, the irises been allowing them refund. the taxpayer would be unable to make the payments on going on the higher dollar vehicle than they could afford. they of refunds back to the irs, and the car was ultimately repossessed. the taxpayer would end up with cancellation of debt income for the next year. >> the bank account to which the refund should go, it's all done electronically. the prepared and i did take out a big fee or keep some of the refund for keeping all. there's no way for us electronically to tell when he puts down his bank account to keep it from going to his bank account. a lot of those taxpayers don't have bank accounts. >> in either case of fraud. >> which brings me to the question i want to ask. you talked about a low income taxpayer being the one most often used. this seems like technology would help avoid people patting deductions. >> many of these taxpayers do not have computer literacy. they're level of computer literacy that will enable them to do that. in some of the sites were trying to get taxpayers to sit down and walk them through each prepare. you can go and prepare your own return. maybe next year you can do it yourself. as a very high learning curve. i think one thing that can help, if we can get this w-2 to 99 information advance and may be the irs can pour into whether its software or free file or the free syllable form that we have as part of this consortium and you can pour some of the data in which white make it easier for taxpayers to then say, okay, i have these dependants and prepare their own returns. but -- >> that's my last question. i appreciate the time. >> when you catch and enrolled preparing a fraud under the. can you defer to the justice department? >> and we do that whenever we find systemic fraud. we can refer for prosecution. as the taxpayers advocate noted, after the taxpayer. we can't prosecute says. we all have the resources to catch everybody is fraudulent or to prosecute if they commit fraud, by letting of their returns for their clients, that pilot the law and our risk for prosecution. the question is whether and how we can catch enough to make a difference. >> cms is a good job of trying to enforce fraud against fraud in medicare and medicaid, make it highly visible 71 the catch might be the same thing, might be beneficial. >> give the stability. there is no trick to figuring out there playing roulette. at the levels their operating it's hard to find. the question is whether there would be enough resources to prosecute. >> thank you. >> thank you, senator isaacson. among the good points you just made some time there really ought to be more inquiry one of the strengths and limits. for example, in these kinds of matters submitted. >> commissioner, senator coburn and i have shared some correspondence with you in the last two weeks. you have responded. at thank you for your timely response to be let me refresh your memory. the definition of an employee for labor law does not control whether the individual is an employee for the purposes of federal tax. in other words, scholarships are governed by iris code. this is going to raise her of a big question because a letter, and the tax cut which is providing a service. the major state say, nlrb decisions says the students or employees. the suit was brought because they said were under the control of the university. they tell us when the gun a practice, when to go to a game. they control, therefore we should have the average in it a bargain with them because we are in police -- excuse me, the nlrb made the decision. they refer to section 23 of the nlrb act. the act provides that any employee. the supreme court has held that by applying this definition of employee is necessary to consider the common-law definition. under the common-law definition, person to perform services for another under contract of hire such to the subject of this control right of control and in return for payment. let me suggest the that the fed doesn't need the susan a part of section 117i really don't understand. i understand your point here that labor law doesn't dictate tax-loss. let me point than to tax law. in revenue will 77-263 which discusses of section 17 teen and the tax law treatment of athletic scholarships their estates this clearly. any amount paid on behalf of an individual to enable studies or research is not considered to be for the purposes of section 117. if such amount represents compensation for past, present, or future employment services offer services that are subject to, and i underline direction or supervision order such student or research is primarily for the benefit. negate the existence of the scholarship or grants has to find a regulation. so the body of tax law is pretty clear on this question, commissioner. their employees and scholarships are compensation for services rendered. let me just ask you, how can the irs ignored tax law and the facts in the answers that they prefer you send me? >> well, first of all command would be interesting to see what the nlrb final decision is to be the issue from the regional office comes forward. >> it it goes as currently written. i those dollars of taxable? >> well, the revenue they are talking about, obviously a graduate students will teach and do research and it paid. obviously interesting discussions are going on about whether they should get stipends. they should, in fact, be paid in addition. on the principles thus far has been that they ashton athletes that the scholarship allows them to participate in athletics which historically has been the rule applied. to the extent that the circumstances change significantly, then obviously we will take another look at the definition of compensation is and what the situation is. thus far the people who have looked at it, experts have ruled that nothing is changed thus far that would cause us to make -- >> let me ask just from the explanation, where have i missed it that it is clearly stated that if they are supervised, if they perform service required by the entity that controls them, this is no longer considered a scholarship. i think that you are reinterpreting what tax law says . >> what i'm saying is historically with football players did today is no different than what they did five, ten, 20 years ago. those were scholarships to the extent that the nature of the compensation changes and we would take a look at it. in terms of what a student athlete does nothing is changed as a result of that decision. >> i think we have to move on. we have a lot of additional witnesses. we are way over. >> let me just say, mr. chairman, it concerns me that we might look at it in the future. we either follow the statute in law which is very clear. and i'm not sure that the irs statue is open for interpretation when it's as clear as it is. you would have to change a lot of words there to suggest that this does not fit, the determination. >> senator brown. >> thank you, mr. chairman. i appreciate this and they're bringing up such an interesting issue. i met with a couple of them. they're definitely not asking for compensation. the senator did not say that, but it's about concussions. a kid gets hurt and loses a scholarship. he may not have his health care provided for. i remember a suspension some years ago of a major player at the university in my state, a suspension that did not take effect until after the ball games because of the revenue he represented to the university in the n.c.a.a. so even though he deserved suspension he did not deserve it until after he had played that ball game to bring in that revenue. we have a lot of discussion at of us. >> colleagues, we have a number of witnesses. we're just going to have to continue. senator brown there has not been much to say -- no one in this bill has talked about the earned income tax credit. i do know one of the witnesses in the second panel will have much to say about the an income tax credit. my use it for going to look at the poverty program, known this olson has been outspoken about that. it's too much fraud. we always should be vigilant to be sure. in my be just as focused. let me ask to ms. olson, there was a report that found higher rates. they also estimate that between 20 to 22 percent of eligible workers are not claiming itc. for many as we put real-time and real staff time in getting people to sign up, to know about it, be aware of it. two questions. what we do to maintain and enhance the itc and ctc will reducing the honor great and increasing in norman? and professor barracks written testimony states that the risk of fraud is so great that it should be addressed by eliminating credits. comment on both of those, if you would. >> okay. i think that the irs has some very good research from its random audit of the night to see taxpayers. but really demonstrate that the air is great. you have to find its complicated statutes. you have those kind of errors, and then you do have fraud. the vulnerability of the population. the population changes. it's very hard at learning curve. teaching people in great numbers i have proposed in other testimony multiple ways of addressing the errors, including folks education, redesign the statute the family related credit and dependency exemptions , a larger family credit and then a worker credit. that makes the dollar, overall dollar amount alas and a little less attractive for fraud. the main point is that the itc has very low administration costs for such a large social benefit program. where its costs are in the compliance, and we don't know what is wrong and we don't know what is the error. of a benefit programs have very high administration costs and not as high, you know, error cost. that is because they have all lot of front-end application processes. we don't. we file an income tax return and is very inexpensive. we have the cost of the back end with the itc has that no other benefit program hands is a high participation rate. seventy-five to 80 percent of the eligible taxpayers in that money is higher than any of a benefit program. the nine states and ministers to that population to my knowledge. and so if you really want to look at the effectiveness and the efficacy, yes, we have i error rate below costs. a high participation rate. as opposed to the programs that have low error rate but very high administration costs and the participation rates. i think if you look at it holistic it, yes, we have to get down our error rate. i have made really substantive proposals on how to do that. an effective program, it's very get in my personal opinion and my professional opinion six. >> yes. i agree. we have had two big meetings. we tried a lot of different things. it's a great program. as i told everybody, we have to make it clear to the public will understand the problem. we care about it. impact will do something about it. one of the things that we need and ask congress for is a 44 what is called correctable error . cannot change the return. and contacting the taxpayer. correctable error 40 would allow us to make the change. the taxpayer could appeal and come back, but it will allow lost to eliminate some of the improper payments of the front end rather than require an audit each time. >> my colleagues time has expired. >> thank you, sir. banks, mr. chairman. very nice to see. thank you for your service. i just want to say, mr. mr. chairman, on the lead and were having this hearing. my colleagues in the say from time to time there's a a few things need to do. the come down. it's only $680 billion. expected to come in. going back up. for serious about deficit reduction we have to do three things. save some money. number two, we need tax reform. and also generate some runs. have you get a better result for less money? this falls right into that. how we get -- make sure in terms of the revenue coming to the treasury that taxpayers are paying a fair and reasonable amount some of our neighbors. and this hearing puts a real spot one of the ways it can better ensure that everyone is paying their fair share. the years of investigation, serious problems. tax return preparation by preparers or not attorneys are cpas. as we know, the tax administration, particularly for highly complex tax provisions like the itc, fill up the tax forms to apply, but the actual compliance of it is quite a different matter. in light of the reason circuit court decisions it looks like legislation is necessary to allow the irs to adequately regulate taxpayers. in the meantime i support your iras efforts to create a voluntary certification program. and then me ask this question, do you believe that offering voluntary certification will offer enough opportunity for return prepares to distinguish themselves so that repairs will participate? >> the conditions, for example, right now and then will return prepares can prepare artists before the irs over terms that they prepare. the answer will now we have promulgated. we should change that will talk only grant that ability to people who of taken the test and demonstrate competency. continuing education. it can also write there name on the return and say, you can call us of the questions about the return. we should restrict at to certified prepares so that that is a lag of up to those people who are taking the time not to do that voluntary testing and continuing education. we can do these things and and people cannot. it won't work if we don't have a comprehensive education campaign . the seal of approval, you have a clear choice. go to someone, an attorney, cpa, enrolled agent, or certify prepare. >> how can we help mack faugh? and maybe nothing. there may be something. >> this hearing is very valuable the beatty gives visibility to the issue. determine what their background is in their competence in. again, the government and the irs have a great interest incompetent prepared because the errors that are provided for the fraud that is created when it's not done well creates a tremendous burden on the system as well as a question of whether we are getting adequate compliance. a voluntary program would be a step forward, but instead of going to lead people on the periphery forward a reason that a side and not going. the exams and demonstrate competence to produce erroneous returns that we then have to deal with him contact taxpayers and others about. ultimately it's not as if it's 61, have chosen the other. from our standpoint it's critical that taxpayers get proper advice and that we get as many accurate tax returns as we can so that we don't waste a resources. >> my time has expired. the questions were highlighting about the affordable care act being implemented through the taxes. thank you so much. >> i appreciate my colleague bringing up as voluntary compliance issue. my concern about voluntary compliance is it really does not deal with the spirit in of a majority appears are scrupulous and honest. the problem is what to do about the el wires, the people who are not going to be tripping over themselves to comply with the voluntary compliance. we're going to discuss that and of the options for dealing with this problem. >> thank you, mr. chairman. falling down and out one of the options is continuing to make things from a technology perspective. some of my colleagues to brought up the pre file program which is a public-private partnership between the irs and commercial tax sulfur companies that offer free tax preparation. cents the inception it has a with 30 million taxpayers, helping them with their filings and as also said the federal government something like $91 million by making an easier on the processing cost. so one of the things that i kind of disagree with you a little bit on the context of on sure there are a lot of people who make less than $58,000 know how to use word or excel or various software programs. this is about continuing to make the complexity of the tax cut simple so that the administration of it is simpler. so i wanted to talk to you about what else we can do to continue to advance the use of technology , helping taxpayers filed efficiently. i've heard stories of young people thinking of using an online version and then coming in pang of them before that, thinking there were going to get some greeted by some of there doing is sitting across from somebody that knows barely more than they do but charging them two times or three times the rate. to me it makes the tax code simpler, easier for people to file and makes the code easier to understand so the people know exactly what they're doing. is that the direction we should be going? >> amid the complexity of the tax code and number one serious problems. i do think, you know, i was an attorney in prepared returns for many clients. i was baffled why people would not do some of the returns that they were bringing to me. there were going to make. i think, you know, that's driving people in low income levels to return preparers. of rebound usage has not been robust in terms of the numbers even though it covers a large population. i think some of that is the taxpayers like to buy the product it all the of the bells and whistles incorporating with their accounting programs. others want to go to return preparers because they don't want to make a mistake and they just don't trust themselves even with software. i think the irs publicizes of refillable form. come back to something as said earlier. it is important for the irs to be able to get w-2 and 1099 date in early as possible. a little further along. and that is accurate information . that would be the technology push. if congress could do something about this by selling some goals for the irs to move forward in this the congress of schools for the irs to get into electronic funneling. even though it did not hit the goal, the rationale, it became our goal and the irs organized itself around achieving that. to get to this next electronic sound which giving the third party information reporting timely, being able to help taxpayers but also protect against fraud. >> software has the focus of attention on making it into it. put it into the tax code. rules of me take you upon an offer. i also want to has quickly. my aunt and looking in all of this as it relates to disaster relief. you have certainly seen a lot of these incidents. the tank that we need to look at this issue of what is available? seems like we are so almost trifle shy. here's a community where you have lost your house, you still have to plan in mortgage it and i your house has been totally wiped out to be out of we help these communities? >> we made some recommendations in the past about disasters that did not quite qualify. on go back. working with your office about some of that. i also think your idea about some of a mortgage relief and debt relief and things so you don't trigger taxable events because you can't pay these things, that's a very important. i would be more than happy to look into that. >> thank you. >> thank you. both of you, this was helpful in terms of technology. there is no one in the senate who is more tax and the than the senator. we're going to follow-up. on the mortgage, in terms of trying to protect people from tax increases. and they did that really. at this point as think we have completed our first round. i would like to introduce our second panel. senator hatch introduced dr. john barrett, a professor at brigham young university. thank you both very much. he spent a lot of time at the witness table. thank you for your expertise and patience. for a second panel of like to introduce the first witness, director of tax issues from the government accountability office . director of investigative services and will answer any questions of members have. i know this topic generates a lot of passion. [laughter] think we're all right. we will have wayne mcelrath answer question some. our next witness, the president and ceo of h&r block. our third witness is janis salisbury. and we know the you have tax clients waiting for you at home in oregon. we thank you for coming. senator hatch will introduce john barrick momentarily. been our final witness, attorney for the institute of justice. let us know how the senator introduces as a professor at brigham young. >> college of business professor , a leading academic expert. practical experience, two years of tax experience with the bipartisan joint committee on taxation. a tax consultant with price waterhouse. the family is with him here today. welcome. >> thank you very much. we thank all of our witnesses for coming. you're prepared statements will automatically be part of the record process. >> up to care. >> and mike is on. >> can you hear me? >> yes. >> okay. thank you, mr. chairman, members of the committee. employees to be here to discuss the quality of services provided by page tax preparers. millions rely on paper paris to provide them with accurate and fully compliant tax returns. the irs has long recognized that pay prepares actions have an enormous impact on the ability to administer tax laws effectively and collect the revenue. despite the importance, the irs authority to regulate is limited to return preparers such as attorneys and certified public accountants. the majority of repairs and none has done in world preparers and are not regulated by the irs. in 2010 the irs initiated steps to regulate and general preparers, but the courts ruled that irs lacks the authority. in order to gain some insight into how to enroll prepares perform we developed to scenarios based on common tax issues. we call this area as a waitress scenario and mechanics scenario. our waitress in area our undercover investigator, a single mother received wage income and unreported cash income from tips, one child in live with her during the year and qualify for the and income tax credit and one he did not to be in our second scenario the majority of their income from wages, but also have decided in new. they have three children live at home. as you can see from the board on my right, and 19 visits to randomly selected repairs refund fares range from $52 lower $3,700 higher than they should have been. in only two instances did the paid prepare calculate the correct refund amount. in the waitress in area prepares made to key errors. first, not reporting of the cash to it and come and second, claiming both children as being eligible to receive the earned income tax return. the clustering of the buyers illustrates the different prepares made the same errors. for example, prepares to not plan but cashed it and come back one prepared told our investigator that if she reported the tip income it would be a red flag, and her employer would be audited. three pairs may both errors. again, one preparer told our investigator that she could claim her second child if no one else to it, even though the child did not live with their more than half the year. in the mechanics and area reporting cash income resulted in refunds overstated. one preparer told our investigator that if a side income was reported that tax preparation fees would go up and his refund would go down. to prepares showed our investigator how the refund would change on this side income was reported. clearly taxpayers were not. but as the next board illustrates, they paid a lot of money for the services. for example, with the mechanics and area fees range from $300 to $600. alarmingly the average fee was nearly $300, more than 80 percent of her weekly pay. paper bears either do not provide enough fees up front or the actual fees charged for hire higher fees to not translate into more accurate returns. in fact, the fee charged was one of the lowest at $311. when our investigators inquired about the hi-fis we're range of responses like we charge more in the morning and the afternoon. we charge more early in the taxis and later, and the earned income tax credit is one of the most expensive. although our findings are anecdotal gao analysis of the research program, national research brand in reveals that prepare file returns show an estimated 60 percent error rate compared to an estimated 50% for so prepared. errors or consent -- similar. for example, prepared filed returns coming earned income tax credits had an estimated error rate of 51%. undoubtedly many pay prepares to their best to provide clients with returns that are accurate and fully compliant. however, having to pay back taxes him and possibly even penalties. in 2008, states that regulate paid preparers, we've done the returns filed in oregon which have the most stringent requirements are more likely to be accurate then returns filed by preparers and the rest of the country. given the importance of paper paris in our voluntary tax system we are recommending that if congress agrees it should consider granting iras the authority to regulate i enrolled tax preparers. this concludes my statement, and i'm happy to answer any questions. thank you. >> thank you very much. from think you will be next. >> would you like to add to go after that? >> no, i have nothing to add. >> chairman, ranking member, distinguished members of the committee, thank you for inviting age and are blocked. we're pleased to participate in this important discussion. as the world's largest consumer tax services provider, competent, ethical tax preparation is something we take seriously. last year we filed more than 22 million u.s. individual tax returns. about 15 million returns and are more than 10,000 offices, and another 7 million. we know a lot about consumer views on taxes to know what it takes to maintain expertise and is always changing tax landscape. in order to protect taxpayers from incompetent and added a tax return prepares there are two key items that must be addressed. first a minimum standard for tax return prepares and second consistent fraud prevention mothers across of tax preparation. first, we support legislation that sets standards for professional tax return preparers. the most obvious way is to establish a set of minimum standards. standards provide an objective measure for both consumers and taxpayers to measure and monitor the overall competency, expertise, and performance of-return preparers. this is critical because the ultimate goal was out taxpayers file more complete and accurate returns. equally important is the reduction in the fraudulent tax returns and the improper payment rate of the earned income-tax credit. more than 80 million people filing individual tax return every year. consumers need an objective way to know the person they turn to for one of the biggest financial transactions of the year is competent and standards necessary that actively prepare tax returns. taxpayers themselves agree. a national survey that we commissioned found that nine out of ten consumer support requiring professional tax repairs to meet minimum training standards. as this initiative moves forward the u.s. treasury department and ira's most levers the lessons learned from the prior register tax pair program and partner with private industry to create an effective and cost-efficient program. the components of the program must include tax repair registration, demonstrated competency, continuing education , and background screening. at the end of the dave requiring return paris to me that of standards is to occur with the tax code is not about granting the ira's additional authority they should not have power to advance anti-competitive pursuits. it is about protecting the 60% of consumers should get help with their taxes every year. this is why we require our h&r block tax to paris to meet stringent education and competency standards. seventy-five hours of tax laws and return preparation education plus 35 hours and skill training in their first year and annually another 15 hours of continuing education and 20 hours of skill training. the second key item that must be addressed is implementing consistent fraud prevention measures across all tax preparation methods. the steps designed to prevent the itc fraud are notably absent in the do-it-yourself channel, specifically for the 40% of taxpayers to do their own taxes using do-it-yourself software such as h&r block. they are not required to provide the same information and documentation to substantiate their eligibility for this. congress must close the obvious gaffes not only for e itc but for all refundable credits with the itc and proper payment rate persisting a 20% or higher this is an obvious opportunity it can and should be seized immediately consumers are not concerned about answer more questions. in the same survey i mentioned before a significant majority of taxpayers expressed a willingness to do more to help combat tax fraud such as answering more questions on their returns or even waiting a little longer. government, tax preparers, suffer developers, and taxpayers each play a significant role new. taxpayers are willing to do their part as long as it is the minister consistently. additionally, the standards create a loophole for those prepares who don't want to comply. they simply use the do-it-yourself products. iras should set the standards for tax of four to ferret out those repairs. before i close, let me take a moment to a knowledge and interest in streamlining the tax code and tax filing process. we would be pleased to share our consumer tax expertise in these issues with you and your staff comprise of enrolled agents, tax attorneys, cpas and former irs officials, analyze the proposed legislation and regulations. in doing this analysis the texas to take as access to the real world expertise of our 7000-professionals around from one. in conclusion, we urge congress to listen to consumers and move to enact minimum standards for return prepares and implement consistent anti-fraud measures for taxpayers. the standards are essential for protecting consumers combating fraud and reducing improper payments. >> thank you. welcome. you made a long track. be some late-night said of you. we appreciate your coming. >> chairman, i am not sure your mike is on. >> all right. chairman, ranking member, distinguished members of the committee, my name is janis salisbury. i am an irs enrolled agent in the lessons tax consultant. for the past six years i have served the state of oregon as a member of the board of tax petitioners and have served on that board for the last two years as chairman. i am pleased to be here to discuss with this committee the actions that oregon has taken to protect taxpayers from incompetent and unethical tax returns and to recommend that congress provide the irs with the authority to require individuals to demonstrate minimum competency and tax return preparation. either by casting a state board examination or for the individuals to pass an irs examination after passage of such examination. the primary reason oregon fell to it necessary to develop a paper para regulatory probes around 40 years ago is the same today as it was then. initial training and registration is essential before anyone can even begin preparing a tax return. oregon's track record proves this. in 1972 oregon determined that people engaging in tax return preparation should be licensed and required to obtain continuing education relating to tax return prepare occupation. the board of tax practitioners currently regulates tax return prepares an oregon. oregon requires paid preparers who are not already licensed by the state has cpas are attorneys to obtain a state license to prepare tax returns, to become a licensed tax prepare you must have a high-school diploma or equivalent, complete atrs of reproved qualified education, pass a state administered examination and pay a registration fee. annual renewal requires approval of at least 30 hours of continuing education. according to the report that this committee has submitted by the gao office in 2008 federal tax returns for the year 2001 filed in oregon were more likely to be accurate. specifically the gao found a return prepared by an oregon page prepare was accurate, about 72% higher than the odds for comparable return filed by paid preparers in the rest of the country. oregon has been a leader in requiring the licensing of tax return prepares for over 40 years, and the results noted by the gao show the excellent results of organs regulations. accordingly the oregon state board of tax practitioners urges the congress to enact legislation similar to organs legislation which would require individuals to demonstrate competency in the preparation of tax returns and satisfy continuing education requirements. we suggest that such competency be demonstrated by our written examination approved by a state board of accounts for a board of law examiners or a state entity such as the oregon border tax practitioners or by the irs. the passage of an examination recognized by a state such as oregon to show competency in tax returns, competency in tax return preparation must be considered to demonstrate tax competency in order to recognize efforts that have been undertaken at the state level and to avoid duplicate an unnecessary testing. we commend the senate finance committee for holding this hearing and considering this important legislation. thank you ready up originally to be with you and let me know if you have any questions. >> thank you. that is helpful. >> chairman, ranking member, members of the committee, thank you for inviting me to participate in this hearing. return preparers, and important topic. to illustrate the problem with like to share our former colleague and classmates recent experience with the taxpayer previously receive return preparation services for moscow prepare. a new kind comes to a cpa and indicates he has a tax problem. klein never attended college, a single father, two young children. facing uncertain economic times. during the previous year you returned to engage a preparing a plan to give him and $8,000 refund. fair return prepared did not sign the return or provide reliable prepare contact information as promised a plan to it received an $8,000 refund and began spinning it. however, a short time later decline received an irs notice denying the three credits that were claimed. the money had to be returned. who is to blame jack but the client and a tax preparer knowingly submitted or had an opportunity to know about the returns at the return plant false information. the client is now worse off than before. he goes the full amount of the refund policy is out $800 filing fee, the return preparation fee. the pair is a ghost not to be found to be $800 richer than before. we would like to prevent this type of behavior from happening again. how come we busted that? first, our tax system is necessary to raise revenue and complex. the 6 billion hours complying with the law having over 4 million containing 4,600 change since 2001, this complexity has led to the need for tax return preparers. they're three main problems associated with regulations in ability to regulate the most unscrupulous and unethical, and ability to impose ethics on return preparers and the creations of winners and losers within the industry. i firmly believe that the current regulatory framework is needing addressing pitbull makes several recommendations. first, voluntarily -- voluntary disclosure. we live in a free society. let the markets decide. create incentives for return prepares to voluntarily register. attorneys and cpas. if the irs uses to endorse or certify a new class of return preparers with only 15 hours of education the virus will provide an approval and a false sense of security to taxpayers. i do not recommend the latter approach. second, eliminate or limit credit. the growth of refundable credit in the income tax system encourages and unethical behavior by taxpayer ghost prepares and others wishing to defraud the federal government. the earned income credit, a child tax credit, and education credits are refundable. a new crest provided by the affordable care act will double the amount of refundable credits available by the income tax system. prior research shown that financial incentives to matter, current law encourages increase incentives for fraud to the unscrupulous, and ethical this is easy money. third, and enforce existing return preparer laws. 2005 the irs criminal investigation division stated that the irs currently have more tools available to address returns repair fraud. the irs already has ample steps toward out barstools wide and they need regulations to address this issue? incurred the ira's to enforce the existing tools. educate tax preparers. taxpayers are ultimately responsible for their return. they have an obligation to put a good effort. if something sounds too good to be true, it probably is. buyer beware. taxpayer education can be an effective tool been. in conclusion, the tax law is large and complex. for these reasons the majority of taxpayers. there are ghosts that attempt to defraud the income tax system. rather than regulate, the most important protection for taxpayers would be a simpler income tax system as suggested by the chairman today. i would encourage the committee to continue to pursue meaningful reform. thank you for giving me the time and opportunity. >> thank you. >> chairman. mr. chairman, thank you for holding this hearing and the need to protect taxpayers. this is a consumer protection issues as well as our revenue detection issue. denny's to be licensing and competence standards for pay tax preparers. congress is to give virus the authority. difficult in getting federal legislation passed, we have issued a model act to encourage states to adopt such loss. i have worked for over a decade. live began this work tax prepares or licensed professionals with certain educational credentials. tax return is the most important financial transaction during the year for many americans and only makes sense that prepares can have just placed in them. to my surprise the exact opposite was true. essentially unregulated in 46 states. contrasted with other professions that to require licensing such as their addresses are landscape architects. the laws of regulation. will french prepares, tax preparation offered by businesses such as pay lenders, pawnshops, check asher's, used car dealers, jewelry shops, liquor stores, and this of course raises questions. one can imagine that the incentive for accuracy might get an backseats. unfortunately the problems go beyond that. in 2008 we conducted testing the original purpose of which was to investigate disclosures. to our surprise and there were serious tax errors some. one example is a pair did not know tell -- no have a handle. there was a problem she did not know how to handle. there was of $5,000 dividend that we must pay taxes on. i return was only returned $100. if you were to ignore it it would receive $3,000. she then called her tax people and told her, we do not need to report the dividend and just ignore it. in 2010 we conducted another round of testing and found incompetence and fraud and six out of 19 tests or about 30%. one example, failed to receive a thousand dollar refund. the tester does not attend church. the prepared deducted the cost of were close and laundry. of the refund would increase to 3,000 from 1,000. whom showing her that her refund would go to $5,000. the qualifier even those not eligible. finally detected $400 even after the tester told the pair she did not pay. unfortunately these tests are not isolated. the testing announced by the gao looking at the totality, they're not limited to a handful. bringing enforcement actions is simply inadequate. for example, a recent lawsuit by the department of justice might be considered a success. it probably cost government hundreds of thousands of dollars crass personnel. cal after all of the bad actors. furthermore, we disagree with the discussion. they're far away any increase marginal cost. after all an erroneous concern puts taxpayer at risk. ..

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