thank you for this opportunity to testify on the irises effort to effectively administer the american recovery and reinvestment that expanded first time home buyer credit the service moved aggressively to implement this important program as soon as it was enacted by congress and signed by the president there has been a strong response as previously noted to the program between january two thousand and nine and september two thousand we have process claims for more than one point five million individuals or families who have purchased a home in administering this program the i r s has undertaken significant outreach to ensure that taxpayers are aware of the benefit we develop new forms and instructions to allow tax payers to file the claim and we instituted significant compliance programs to ensure the validity of the claims filed as with any tax credit the i r s must run a balance program aimed at delivering the benefits that the taxpayers who purchased a principal residence after april and before july of zero nine were allowed to claim credit equal to ten percent of the purchase price not to exceed seventy five hundred it also was required that taxpayers claiming that credit paid it back over a fifteen year period beginning two years after the credit was playing with the february passage of the credit the amount was increased eight thousand dollars and extended to purchases pleaded on or after january two thousand and nine and before this december unlike the credit provided for in the zero eight act there is no repayment requirement if they retain the resident to three years taxpayer seeking to claim the a r a credit may do so on either their two thousand and eight or their two thousand and nine tax return the iris was therefore faced with the administrative challenges of implementing to first time home buyer credit provisions during two thousand and nine in response we developed a robust outreach and compliance strategy through a series of expansive outreach efforts the i r s worked to make sure that taxpayers were aware of the band of credit these efforts included numerous media interviews press event podcast public service announcement nationwide tax forms a national marketing campaign expanded use of our work web site and working with business stakeholders and our partners in the tech community additionally the i r s conducted extensive education and outreach activities with the return prepare and practitioner community we sought to ensure that these individuals understood the end eligibility requirements and endeavored to minimize inaccurate claims the i r s recognizes that there is potential for both fraud an error when ever a new refundable tax credit like the first time homebuyers is enacted as we began implementing this credit in the day after the recovery act legislation was passed we  identified different types of potential errors or fraudulent claims and matched your compliance program to those abuses we are and we will continue to vigorously pursue those who filed fraudulent claims for the credit it is important to put the administration of this credit in overall context as the tax filing process the expanded credit was made available to taxpayers beginning instead be wary right in the middle of the to ensure the accuracy applying this included compliance checks to identify and select for audit high risk lines and criminal investigations of possible fraudulent activities as with any other compliance program the i r s is continuously refining the steps it takes to detect an eligible filers the i r s has already identified more than one hundred sixty potential gains resulting in scores of ongoing criminal investigation we have selected more than one hundred thousand returns for audit the first time home buyers credit has helped more than a million american families purchased we cannot let fraudulent activity undermine a program that has been updated so many mr chairman the i r s administered the statute as written in a responsible way to meet the legislative intent of stimulating the economy quickly and providing first time  homebuyers with the credit promptly we appreciate and we welcome the independent feedback that we have received from a number of our stakeholders including my colleagues and i thank you for the opportunity to testify i will be happy to respond to any questions and thank you for your acknowledgment and kind words as i approach retirement madam commissioner thank you very much for your statement and shows the income level of people who claim credit based on claims to date a clear majority fifty nine percent of credit claimants have adjusted gross income of less than fifty thousand dollars compared to all taxpayers credit claimants  disproportionately in the income range from twenty five thousand dollars to one hundred thousand dollars because purchasing a home is such a major anshul commitment it is not surprising that people with incomes of less than twenty five thousand dollars are under represented those with incomes above one hundred thousand are under represented for a variety of reasons including income caps on eligibility appendix three on page eleven shows credit claimed there is considerable variation in state claim rates measured programming changes i r s does face significant challenges ensuring compliance with the credit complex rules to determine eligibility i r s must among other things determine the tax payers of not own the house in the previous three years and verify the closing date of the purchase also and the fifteen year payback provision for the credit which is important because the amount to be repaid is on the order of seven billion dollars and i r s  also enforce the recapture provisions of the nine credit one reason compliance is a challenge is that iris did not require substantiation through supplemental documentation provided by taxpayers or third part validate the information on the fifty four i r s officials said they do not have the ability to accept supplemental documentation from taxpayers electronically so requiring such documentation could cause more paper f providing supplemental documentation would be burdensome i r s has to stop some credit and attack some tax payer so they can be corrected before refunds are issued as a result of the  seems to have subsided very concerned about and this is not what we're talking about today but the foreclosures in this country how devastating that to me would be a priority if i have to make priorities in a limited budget which seems to me that we want to keep people in their homes and then secondly we want to encourage people to buy new homes because of that ripple effect in the economy but if i have to make a judgment if i have to establish priorities and that's what the congress is all about so i would i was hoping that we would talk about foreclosures but i but this is the subject and i want to the question are you saying that you couldn't do more to review these applications for credit mainly because of manpower situation  preventing you from going a step further and these are very disturbing things to all of us when we read about taxpayers money particularly in this atmosphere going out the window and on retrievable to the great i mean what's the main problem with manpower let me say that it's a combination of it was that we were in the middle of the filing going to be implemented what kind of discussion is the how would you ministration before this even happened let me let me say this that we generally enact to implement a reprogram our system until we have legislation that's enacted because you're in the middle of a filing season and our programming was designed for the credit that was passed the prior july and so it required two different programming and we try to make those decisions in a responsible way so that we're not poised for one thing and then it doesn't happen on this day and taxpayers are held up in the system the second thing is it would have required us to take you had a you had one point five one point one million taxpayers that filed for this credit from february to may you would have had to take every one of those out of the processing stream and make a contact with each and every one of those if you wanted to do that before they got their credit what a being reviewed through a set of filters and the high risk ones are being pursued as a part of the audit process for next year we have that robust process in place as we go in for the tax payers who are actually going to file the claim on their own return as opposed to the way return and i think we're poised to administer that in a way that will enable us to catch more of it as it's going through in real time i think with the reference to this particular program how would you grade them i don't have a specific grade but i as i said i r s quickly implemented the credit  challenging credit to implement there were two versions of the credit and they are both very complicated credit there are a lot of rules and a lot of exceptions to the rules for the challenge i think the strategy of trying to shift as much of the that we can do that i think it would be significant because we'd like to know if we're spending our money in the right ways we want to encourage first time home buyers there's no question about it we can do that successfully or we can do it unsuccessfully my i don't know the financial terms for what you deal with but you know it seems to me prevention is really should be the focus and i disagree with mr pascrell just a little bit in that i think it is an i r s problem i think it also isn't a racial problem but i think that investigations that you're involved in you're not requiring the supplemental documentation up front to screen some of these things so you don't have to conduct investigations and uncover scams and schemes to assign more personnel it seems to me you need more mr george do you know the number well i don't have that number i just want to point out to your question about it's really in effect it's common sense because one of the recommendations was that we simply have the transcribed the information that this morning testifying i don't need to remind you the recession has hit all sectors of our economy but really the housing industry has been here the special hard and their troubles continue and as a result the does those checks very quickly as part of their normal processing of tax returns they don't slow down refunds all computerized on an automated fashion and in addition to being low cost  and i think in general there's some agreement here about the advantage of these kinds of pre refund automated checks to the extent that they can be used and reduce the need for audit done after the refund side the bulk of the problem use on the back side i'm not asking do we need not need people to follow up obviously but can we reduce yours substantially which is where we are right now i think with  how to take advantage of we others around the country with a result of their own vested interest there was expansive outreach and education for taxpayers for consumers regarding the credit and i think that speaks to the fact that we've had one point which i think actually exceeded what was originally estimated to occur in this year and so i think we're going to have to continue that education campaign going into the next filing  because the act provides eligibility on the returns that are filed next year and we'll do that i think the other thing that with the passage of the new legislative tools and education and outreach campaign with prepares and tax payers as to what's going to be required and what they're going to need to do to be able to meet the eligibility requirements i think as a result of our criminal investigative activities that's also going to serve as an education and i don't know if you saw i turned to mr davis for his question thank you very much mr chairman and let me thank all three of the witnesses inspector general george let me go to you first documentation which is the issue of the point of disagreement we would not have been able to not process the claim or not allow the claim we would have had to engage in an audit in every one of those situations the same as we are today  we had more information loaded with more information armed with more information going into that we made a decision because we did not have to actually get there it's already to use that information to make a decision whether to process it or not that we created a schedule and got some of that information there and were able to use the failure to comply with that as a screen for filtering return and lastly requiring that had had one documentation another factor was it would have met the one point five million taxpayers who filed that would not have been able to have easily filed electronically or get their refunds that were entitled to it as quickly as they did in looking at the full range of factors that we were considering we made a decision that i still think is the right one at this time i advocate for the additional legislative authority because i think that would be the breaking point in terms of how we use it going forward just when you acknowledge that the internal revenue service moved quickly to implement the program do you think that perhaps had there been some additional pre planning that might have helped or does it really look like they may have needed additional resources to do a more effective job well it clear that they did not have the legislative authority needed many of the pre refund checks that i've been talking about could do and that  ten billion dollars in credit over half of those have incomes under fifty thousand alors but well you know fraud is always can be part of this it should not be accepted and i would hope that the us would embrace the inspector general's report toward the goal of significantly reduce c and ideally eliminating fraud altogether but i'm just curious i mean if there is fraudulent claims or questionable claims as you have characterized i presume that's true with any of the spread of programs so how does this program compare in terms of the percentage of likely fraud versus that of let's say the earned income tax credit or anybody or i would answer and i have to be candid with you is not trying to be of a set but i think it's too early to know that because we need to finish the contacts on the audit that we have underway and be able to see how much of that actually winds that we don't allow versus how many is allowed and it's just after the passage of the program and the time it takes to enforcement effort to have an answer to know what that is going to be and then compare it to another program so i think for several months away from being able to give you a definitive answer there will be put to you know the way what would be a program that has been you know duration and income tax credit what is the percentage of fraud associated with that i don't know off the top of my head what the percentage of fraud is because we use fraud is that it meets a criminal standard and we have a number of questionable iranians claims that are disallowed each year the objective of the program has been that perhaps not numbers but it's a good program and i want to be sure that the seventy thousand questionable claims representing a half a billion dollars which is very  the program so that we're more accountable and more responsible to the american taxpayer alternately and i'm still trying to wrap my head around what exactly is going on here commissioner staff let me start with you maybe you can help clarify some things of the questionable claims that have been submitted already do you have any indication of you've broken down what percentage of that is a clear criminal intent to defraud or just mistakes being made  harmless errors that you're detecting now that we need to intercept a couple ways to slice that we've had indications on a hundred and fifteen cases a potential game involving about eight thousand taxpayers in tax returns that are currently under criminal investigation remains to be seen whether indeed that's the case how many schemes as you say  audit we've got the hundred six thousand or so under exam it's just we've closed somehow extrapolate that and projected on to the whole i think would be doing a disservice on a little more confused because somewhere i was some information that a lot of one hundred sixty seven schemes that you detected could be as high as twenty five thousand different returns that might be involved that number ring any bells actually there's eight thousand where we had a clear enough indication of being a part of a fraudulent activity ok that we stopped the processing and didn't let the money go out of the hundred sixty seven different hundred six thousand we're that i mean is it because the individual tax preparers involved with the real estate agents or as with those who are purchasing the home that i would have to get back to you to give you a complete answer i know the ones that  most familiar with have involved prepare be helpful because if we knew where the major problem exists and that we have a better idea where we need to concentrate resources and attention and we're looking at that because that's what we're going to want to do this next filing and i'll be  i would say that the indications suggest that but it's too early for me to weigh in and say that it's more one thing than the other right right what you're doing right now as far as intercepting some of the claims that have been submitted or anything else is this going to impede or slow down the closing date process because we're bumping up against the end of november and there's a lot of concern that those purchasing a home for the first time won't be able to get in under the and we appreciate the support we've had to continue to focus on that we're reaching a point in some instances we can say wait in other instances we need time i think the reason we were able to do this as quickly as we did admittedly not as quickly as it perhaps warranted but it was a matter of weeks was the fact that it was similar to other things that we had experience with that we were able to start our effort to get the technology aligned that well know not to be present but since you are looking at impending retirement is this a legitimate area that communities have a little more focus on is helping the i r s be able to make the adjustments you have to make in light of new tax changes that were that were we're doing here and i'm thinking especially we're going to have some tax extenders measures that we're going to deal with at the end of this year because they're expiring usually we sit around wait to the eleventh hour to do these things and puts you in a real box then but just a our next report we are specifically looking at that issue to determine whether they are related party transactions or claims by multiple parties for the same property so that is something that we'll be able to address in a subsequent report  you for holding this hearing thank you to all the witnesses for the testimony we wish you very well and we thank you for all your years of service to people in this country from what i understand  that is going to require you have a lot of very good people doing a lot of really diligent work to make sure that they're being used by those who qualify for your you also have to do quite a few audits just take care of the normal stream of activity from people who file their taxes one hundred thirty or fifty million people in america and i know that you sometimes have to rely on the marching orders you get from above or from down the street house office of management and budget in terms of what you can do and say about what you need but i don't see how you do all this work well without having the resources to actually do the checks the audit the follow through so that we could come back and say it really looks like we should extend this homebuyer tax credit to more americans because we're still in a very difficult economic time there's still a lot of families that would like to get into their first home but if we continue to have errors or fraud in a system like this we can sell this to the american public because we're running these deficits that are very large and so i ask you this and maybe you have a little bit more freedom as you're getting ready to exit the doors of the service are you able to with the resources or the new authority we give you fully examine this tax credit so that when you come back again we won't find a situation where a four year old to do that but i stand here to tell you that i believe with the legislative authority i believe with the passage of the budget that we stand ready to handle the work that you put in front of us let me ask a different way let me go through door number two you right now have personnel at the i r s who are sitting around twiddling their thumbs because they don't have enough to do absolutely not do you now have personnel who are handling  workload that is greater than it was for people working at the r s a ten years ago i think the work available to the agency has expanded would you say that the workload of is growing or diminishing i say the workload is growing based on the taxpayer base growing but i would also say that the agency has become much more efficient and productive and getting the work done i don't i think you actually have some phenomenal people at the i r s i think we place such burdens on the emotional burden on them because of the work they do and it's so easy to attack an iris worker because it becomes after our money but at some point i think it's unfair to expect to produce good results to perform well unless you have the ability to reward your workers for what they do and if we continue to rely on productivity increases only i think we're going to diminish the public support for the work that we do have a voluntary tax compliance system and i know your shackles i know you can't say much more but i think you sort of answered my question door number two by telling me that your workers don't twiddle their thumbs and they become very productive but we're about to i think give you more  top of all the extra work that's coming in because of the regular flow of activity so i hope that mr chairman we're able to move forward to do what we need to do to give you the ability to produce so that when you give us numbers will be happy and then we can quality of service they are providing to taxpayers in terms of their productivity things like their ability answer telephone calls and provide correct answers to taxpayers their ability to more quickly turn around and get those checks out the difficult effort on the part of the when you have two different classes of recipients of this credit again those who received it in two thousand and eight will be required to retain over the course of fifteen statistics here about the state breakdown by state per capita and their use of the first time home buyer tax credit  seems to be benefiting the states the hardest hit by the real estate bubble is there any documentation of who the type of taxpayer is that is filing for this credit or the types of homes they may be buying  for instance do you see a tendency towards buying foreclosed properties going on some states you know properties that are really being done for speculative purposes i'll be they may be holding on to the probably thirty six months but hundred homes purchased out of state of one thousand and a half million people in comparison to say new jersey with this thirty thousand of the state of eight million people and i can go on i mean it's kind of interesting is just looking at utah for instance almost twenty thousand in the state of two and a half million people can we get a comment on that yes first of all we did not have information about the type of did do a little bit of comparison of the list one comparison we looked at was state foreclosure rates and we did find a pretty high correlation between states with high foreclosure rates  did this comparison for two thousand and eight but for states that had high foreclosure rates in two thousand and eight there was a correlation with the take up rates for the credit beyond that we have been able to do and does anyone else have a concern or   more question to my colleagues but that's one of the fundamental questions about the effectiveness of the credit what fraction of the would have been purchased anywhere what fraction of these home buyers making use of the credit