six years ago the gap measure now like very grown even larger by now but even that tax gap from six years ago is one hundred billion dollars more than last year's unified budget deficit which was two hundred forty eight billion dollars this suggest that if we can only do a better job of collecting taxes there are already current policy already in the current tax code a fiscal situation could be substantially better persistence a tax gap means that large classes and we for the sake of both fairness and practicality a good place to look and look carefully at the tax what we can do to collect better what is already owed the united states government that's why we will some of this group witnesses to help us understand more about how we can narrow this tack gap and reap the benefits i look forward to the witness's testimony as i said we first hear from all risk commission every single thing question from him for him  the revenues that are now coming into the federal government in fact we have seen double digit revenue growth for two consecutive years the first time that this has happened since the one nine hundred eighty s and again through the first four months of fiscal year to see two thousand and seven revenues are coming in at a rate of nine point eight percent over last year so right along with our economy revenues are going to continue to grow at a robust rate clearly our budget challenges are on the spending side rather than on the revenue side but i understand that we're here to talk today about how we might close the so called tax gap or the difference between the amount of taxes owed and then not actually collected to get even more revenue this tax gap has proven extremely difficult to define i've spent the last six years on the ways and means committee looking at this issue and it's in it's tougher than it first seems we're not really sure how big it is and we really don't know whether closing it would actually bring in much additional revenue but beyond that we've got to ask ourselves whether or not it is worth it to significantly tactics tactics were violating their rights to really this congress passed the i r s restructuring and reform act the i r s has come a long way since that time and i r s commissioner is really to be commended for that progress they've done a great job of developing a very respectful relationship with the american people and clearly that's something i'd imagine members on both sides of the aisle want to preserve and see continue so i think we need to be extremely careful that we don't reverse that progress and force the i back into the time when the american taxpayers consider compliant enforcement measures methods and actual threat furthermore i think there is great danger that if we significantly increase enforcement in paperwork requirements to try and close this gap we could be placing a larger burden on those who can afford at least on individuals in our small businesses who are struggling to compete in the global marketplace finally i think it's also important to note that while we have very limited data on the so called tax gap we do know that more than eighty percent of the tax gap is thought to be a result of simple individual taxpayer error so what we're really talking about is well meaning americans understand one or more portions of the federal government's seventeen thousand page tax code and sixty six thousand pages of accompanying regulations as the treasury department concluded in his two thousand and six comprehensive strategy for reducing the task effort the fact is that most americans simply don't understand how to calculate their taxes because our tax code is too complex trying to comply with the current tax code is also tremendously difficult and costly for small business owners according to the tax foundation the cost of tax code compliance has more than doubled in the past ten years and was at two hundred sixty five billion dollars in two thousand and five pressing a large drain on our economy so clearly the key to get after all these taxpayer errors is to first reform the i r s tax code this would provide significant improvement in taxpayer compliance rates and get us as close as we'll ever be to closing the tax gap while avoiding adding a mensch new tax payer burdens and returning to a free reform style i r s i think if we really want to get at this which we clearly do we want people to pay the taxes that they will end of story that's what the fair thing to do is but the question is do we do it with an army of i r s agents and more complexity the tax code and make it more burdensome for those who can least afford it like individuals and small businesses especially when we have a challenge of global competition or do we clean the whole code up reform the i r s code and make it much easier for people to willingly and easily comply with a tax code that seems to be to me the crux of this debate and i hope that we can flesh that it problem we do have a revenue problem i think you'll agree with the alternative minimum tax if we can stop it from applying to middle income tax payers who are targeted range right now we're going to see millions of middle income alternative minimum tax and this is one talks i think we should look for first let's see what we can squeeze without bearing down over over over much on the taxpayer out of the tax so that reason among others we welcome you to commissioner we're glad to have you before turning to you let me ask you know consent that all members who wish may be able to submit an opening statement for the record at this point and i would like to say if you have a statement  discuss the president's f y two thousand and eight budget proposals that cover this subject of tax compliance i'm glad that the committee has an interest in the subject of tax administration this is my first appearance before the committee before i start i would like to introduce my daughter emma stand up emma she is here today because carol fairfax county has decided to close the schools for the third day and we did not let her sleep late she came down for a civics lesson and if i get any particularly tough questions she's quite good and i'm going to ask her to answer them but thank you i've been in this job almost four years now and during this period we have worked hard to rebuild the i r s in forstmann capabilities we have made it real progress over the last several years i would suggest we have resorted respect for tax in forstmann and they need to comply with the law but i to add that we have not done so at the expense of service to taxpayers at the i r s our working equation remains service plus enforcement equals compliance service or enforcement you have to do both i think we have a pretty good balance right now and are making strides in both areas turning to the president's two thousand and eight budget request for the i r s i want you to know that i am pleased with the submission which provides almost a five percent increase from the two thousand and seven funding level most significantly the requests not only augments our enforcement activities but also devote monies to rebuild our systems infrastructure increase our research capabilities i feel that the request reflects secretary paulson's and director portman's confidence that the i r s will use these monies wisely and generate a real return for the government i know that a subject of keen interest to the members of the committee and to many others in congress is the tax gap by the tax gap i mean the difference between taxes the government actually paid on a timely basis before taking your questions i would like to make several observations about the tax gap first well the most recent national research program study did a good job of updating our numbers and sizing the gap we need more research to better identify the sources of noncompliance we need to conduct this research on a timely and continuing basis second we cannot audit our way out of the tax gap and while simplification of our tax laws will surely help the vast majority of americans who already voluntarily comply with those laws i would note that we will actually have to complicate the tax laws to change the behavior of non compliant tax payers as an example by requiring more information reporting third in recent years we have may consider progress in improving compliance indicated by the steady growth in forstmann revenues are the direct monies that we receive from our audit collection and document matching programs to quickly and dramatically reduce the tax gap would take steps that would fundamentally alter the relationship between tax payers and their government require an unexpectedly high commitment of enforcement resources and risk impose imposing unacceptable burdens on compliant taxpayers that having been said there are reasonable steps that can be taken to improve compliance we have made sixteen such proposals in order to further improve tax  ask the congress to both fully support the president's oh wait budget request for the i r s and to enact the sixteen accompanying legislative proposals into law before closing since this is my first appearance before this committee i would like to explain the nature of my duties and how they impact my ability to answer some of the questions you may wish to pose as commissioner of internal revenue i oversee our nation's tax administration system i don't however develop tax policy proposals or take a position on them as a part of the legislative process questions on tax policy issues are better addressed to treasury secretary paulson or assistant secretary solomon beyond the fact that policy questions are outside of my lane there are very practical reasons for the i r s not to be drawn into policy conversations if for example a commissioner were to take a position against a piece of pending legislation on policy grounds and then the congress were to actually pass it into law the public might be skeptical concerning i r s limitation of the statute because of the commissioner's previously stated opposition to the legislative proposal in the tax policy area the i r s role is limited to advising on the potential compliance impact of legislative proposals having offered that clarification mr chairman i'm happy to take your questions thank you very much would you take a stab at what the size of the so called tax gap is today let's put up the  the tax gap map as you indicated our research on this was conducted in two thousand and one place and what happened was the last time we really updated this previous to that was in hundred eighty eight and then we stood down you know our research programs for a period of years largely at the behest of the congress the feeling that the audits that you did to to get the numbers were intrusive and it was a pretty tough climate issue as was indicated back in the ninety's what we did in two thousand and one you can see the areas on this map that are sort of in the under the under reporting the gap the gap has three components there's an under reported component and that's the biggest piece of it over eighty percent and there's a non filing component which is about eighty percent of it and then there's an underpayment component that's where somebody a return but then they just don't pay or they don't pay at all so those are just three pieces of it and what we did in two thousand and one was we conducted forty six thousand audits of individuals we didn't look at it if you if you link all those together some two thirds of the tax gap we would estimate is is tied to the individual income tax reporting i would i readily concede this thi look at that i wouldn't have reallocated or i don't think any commission would have reallocated our our resources because we're already doing quite a bit on the corporations with much higher a lot higher audit rates to get to a question about there  grows the tax gap grows but there are other things that happened there are mixed changes in the revenue streams there are rate reductions in capital gains there are lots of other areas many that all impacts the other thing is happening in a ninety's we drew down our enforcement resources by over twenty five percent we step back from really doing all that we could in forstmann we were very clearly had to improve services but we did so at the expense of armed force man activities we have now brought the enforcement back as i indicated with this chart does is the blue lines are the monies that we get in on our collection activities the yellow strip is the money that we get in from our document matching activities and the green lines up top the money saved come in from audit our exam activities and you can see that between two thousand and one when those monies totaled about thirty four billion and now this past the school year they came up to forty nine billion that is that's increase of some fifteen billion dollars because of our in force and activities but the other point about this is that when we audit you mr chairman even if you're clean as a whistle if one of your colleagues is a little more aggressive and might be inclined to take over state that he duction they hear about that audit people talk and there is an indirect impact and those individuals because of the experience that you had they are less likely to over cheat whatever you want to call it it's not unlike the state trooper under the bridge who doesn't just pull over the guy doing eighty everybody who sees that state trooper slows down and  that i'm talking about very simply says if there's a three to one indirect effect then what you'd get is on that fifteen billion extra enforcement effort since all one may be clawed back something like sixty billion so that is the other thing that is happening in here that i would draw your attention to in terms of if you're trying to say what we do well we now you would look at a variety of different factors and i think you also look at some improvement last essay and so i've gone on so long here is that one of the problems of the indicated is getting research the president's budget request forty one million dollars of incremental funding for the i which will put into the base so that now instead of just having two thousand and one updating and waiting all bunch of years will start to work on this on a regular basis and that's the real key is to get regular recurring research on all the different facets of this and to be able to have a more timely conversation can you get using the factory sixteen percent can you give us an updated current dollars estimate of what the tax gap is in two thousand and six two thousand and seven i would decline to do that sir just because there are so many moving parts what we're going to do now is we are going to start working on out that in research right now on eleven twenty s corporations which we haven't done a research on at a long time and we're go restart during the individual shortly but i think it would really be very difficult because of all the factors i've outlined for you indicated i believe that the factor in driving the three hundred forty in the president's budget which is again indicated would be about you want to bring up the budget chart and they would be about  five percent and you can see as i indicated the first thing we're doing is we're asking for money for infrastructure improving the infrastructure is critical because it supports not just the enforcement but also the service side  the processing of the returns the ability to communicate with the tax payers very important but we have a big enforcement increment there as you can see two hundred almost two hundred fifty million dollars what we've done is  we categorize we can we can show a direct impact we believe are a correlation on things like adding auditor's there are some areas where we don't we would not we don't show a number it would be like any criminal investigator we don't have the direct we don't draw direct point but what happens here with this basket of proposals we anticipate that after you hire the workforce and then you train them which takes of course a couple years that you would get the point where on this basket you get something like seven hundred million of direct a direct incremental revenues the president's budget as i mentioned has sixteen legislative proposals that run from the reporting of gross receipts for small businesses from credit card issuers that does get after this issue on small businesses that cuts both ways as mr ryan was talking about it if you look at all those sixteen proposals they have been scored by the treasury economists as adding after by two thousand and ten about three and a half billion dollars we would and that doesn't there's no direct impact necessarily on that in the way they calculated i think their calculations are pretty conservative if you think also about the normal growth in productivity that the i r s would have and just say that that's two percent a year over three or four year period that would get you another four billion dollars let's say of the of these enforcement revenues that i'm talking about i don't know a very great follow follow that but in a business you would expect us to get more productive and i'm saying if you study state our our funding we would i would expect your organization do something along that line if you take that productivity increase you take the incremental enforcement increase to seven hundred million you probably get to talking about five billion  direct direct impact then you could add an indirect impact on that so all things considered what i testified wednesday before the senate your counterpart committee in the senate was that if you compare all get another twenty billion pa or more from where we are now but that doesn't score i mean one of the issues here is you know is that doesn't score the only thing that you folks score is need legislative proposals none of this none of the impact we're just a drag we have five hundred million that's a that's a two point five billion drag on the budget even though we make money which is kind of understand couple more questions and others who have similar compliance challenge for the i r s and i would suggest to you that that our estimates don't include either illegal activity here in the country or or i don't think that they have a particularly good we don't have a pretty good we don't have as good an idea as we ought to have about what's going on in some of some of these countries that you're talking about because the whole idea is that they're trying to obscure information from us now what we have done is we have significantly stepped up what we're doing in the corporate arena and in the high income individual arena and when we do see indications that there may be some abuse we will follow that as best we can including criminal there are criminal batters that we have brought looking at it across borders we commissioned a study is the role of intermediaries because a lot of this is is put together by investment banks accounting firms and offerings and the other thing we've done here the i r s led an effort we formed a joint international tax shelter information center here in washington where we have counterparts from the u k canada and australia and we need to work side by side and share information all of in treaty obligations  standards to try and get some of this but what you've just raised the taxations is amongst the most challenging areas for us to get after one final question some years ago there was a move on the part of our us to improve like a lot more rigorous information reporting for example there was a proposal to require contractors who make payments to vendor or suppliers for just one but i do want to get to the core of this point we go to the tax gap math again just first secondly if you look at that individual income tax number that has the one nine hundred seven you go drop down there the biggest piece of this is the under reported business income hundred billion dollars let's go to the visibility chart now as you look as we looked across these forty six thousand returns there are some very clear conclusions and these are not going to really surprise anybody out of the left here you have the spreading of some of these amounts where we're talking about that is your wage income  have substantial information reporting him or calling that's to say that it's there is a police officer in your district mr chairman that individual is not cheating on their salary the non compliance rate on their salary is one per cent that is the minimum that's because we get the information withholding the information we're filing we have the information reporting you get to a four point five percent noncompliance rate all the way out here at the right indicates that the noncompliance rate is about fifty percent where there's no reporting so what we have done is we made issuers to us and we want to do this we think that this would it's not this is not a collection of new information each one of us gets a gets a bill from the credit card company issuer they know how  much they report and the business gets a summary of what they get as well so you're not capturing new information what you're doing is you're sending the information the i r s it's not and it's not a small business it's fast to send that information the s it's a it's a pretty big business the credit card issuers are are pretty big what this would do is if you had a dry cleaning business for example and let's assume that the typical breakdown of that revenue was fifty percent credit and fifty percent cash and if your were reporting to us a million dollars in revenues and then we got a notice from the series of credit card issuers that there was actually a million dollars of credit card revenues from that business that would raise a red flag and why prompt an audit it would certainly prompt the communication the other thing would do is it would change behaviors let me just draw one simple example about the impact of reporting the last time the congress really went after the tax code was in eighty six as you recall any sex after eighty six on the face of the ten forty taxpayers put down the social security number of their dependents the next year even though the i r s had not phased in any matching capability yet it didn't have the infrastructure do that had to work on this it gets to your question but the next year five million dependents vanished five million so what you really have here is you have an interaction in the changing behaviors so you need to do two things need to build the infrastructure is right recoverable then to the question of how do you score this stuff you're telling us that you think with the direct about five billion in direct and maybe another fifteen indirect you know having the trooper out of the bridge that it's about a twenty billion dollars additional revenue that can be recovered without resorting to sort of draconian things but that banks all those sixteen legislative changes you would make at the additional people at the agency that's about twenty billion dollars you're saying that's that's by two thousand and ten that's the delta between six and two thousand and ten that's right i think that's that's in the park again this is an earl it's really hard to be precise because these things have i think they have a reinforcing effect throughout the system if you just do the stuff the budget stuff but you don't change the code that the road and each year you get more purchases and you'd be capturing more information well ok now under this credit card ideas i'm trying to get a better handle on this that seems to be sort of one of the bigger pieces of your legislative package last year when the administration proposed requiring banks to provide annual information reports the i r s and total payment credit card reimbursement to merchants your estimate of the treasury's estimate was that this would raise two hundred twenty five million over ten years this year it seems  them because i don't make those estimates those are messed up it's tax policy by the economists well i give me an idea of last year's proposal versus this year's proposal last year's but i don't think we're making a substantially different proposal we want the information from  pts by credit card issuer to do a business and that's that's the long in the short of the proposal i actually do think as a whole i would say i think the treasury estimates are on the conservative side now there's a reason why they do that and it gets back to you're talking about not the credit card companies reporting their information to the i r s you're talking about banks reporting the information to their credit card there's a difference between as i understand it the banks or the issuer it's the issuer the credit card  which i think most do they're the ones who are supposed to report this now how is this data square with what you know your typical a g i measurement how does receipts how does that how does credit card receipts square which measuring the profit and therefore the taxable income of a merchant well the merchant where a lot of this problem is is in the schedule c filers that's the biggest number  part of what i indicated when you're not incorporated you're doing you're doing the business and if you're if you're if you're showing your receipts you have to report your receipts to the i r s you've got a number there we're going to have a different number we're going to have information reporting it's coming says what you've got in the credit card receipts from a student probably be from a series of issuers for just the reason you you indicated it wouldn't be just people don't just accept the americans  don't have one hundred thousand customers in a given year dry cleaner i don't know i can think of a number but let's say you have ten thousand people to come your dry cleaner in a given year with all their different credit cards so for you to audit that dry cleaner you're going to have to have the how much they do over the course of the year with you if you're the merchant they're just getting that data they have that data that is different from say asking which we do we have suspicious activity reports you're familiar with when you r transactions that takes the creation of a different business process within a bank say to look at that and then do a special report here you are talking about the rolling up of the information which they already roll up by customer and  some of that's in there but this would make a big change one quick last one your budget also proposes that all contractors who receive payments of six hundred dollars or more in a calendar year from a particular business would be required to furnish the business with the holding how does this work in practice i was going to be tens of millions of contractors would be subject to this requirement in end and do you have the capability of an real time basis furnishing this this tent to people who call for a question we appearance before the committee and you've been on the job for four years i don't think it should go on notice that this is the budget committee i've been on it for four years and it is a shocking their election of our duty that we did not have a commissioner here before we look at the government as an enterprise to ignore the revenue side of the income statement it's truly an amazing oversight so i would like to congratulate the current management of the committee for conducting things in a business like fashion we should have regular visits we can discuss exactly how big the tax gap is i think it's important to remember the many flaws in our code i think going all the way back to jimmy carter i think he called it an abomination so what we're discussing is a gap in complying with an abomination it's our job as lawmakers to try to improve that abomination to make it easier to comply with and to cut out some of the loopholes i'm worried sometimes that there's barely enough law left to hold the loopholes together we've seen an astonishing increase in so called tax expenditures and with seventeen thousand lobbyists in washington who lobby t the committee alone most of them are seeking tax expenditures and that doesn't create a tax gap that creates someone who doesn't have to pay taxes because they were able to be successful in persuading congress for it in need to pay taxes according to o testimonies coming up following you a number of tax expenditures is up to eight hundred forty seven billion dollars a year that's a lot of money and i'm sure many of these are quite legitimate but perhaps some of them are less legitimate and the analytical question i want to focus on is the nose was presented to this committee before by hamilton a former treasury official yes who pointed out that as bad as untied what programs are and they are burgeoning the and our ability to  pay for them that tax expenditures are even worse because as she put it these are unanswered and unmeasurable losses in revenue and verified and unverifiable wa revenue so while we can conduct estimates of what a tax expenditure cost we don't really know there was not the methodology in place to be accurate in giving us an estimate of foregone revenue so i was yes our colleagues on ways and means need to be particularly careful and now that we're on our new and improved and handing out these things because they are so difficult to measure and verify of course if you can't succeed persuading congress you get a tax write well then you the next thing is to hope that the i r s will be slow in noticing there's a problem and i wonder about your efforts and coordinating and of course you don't want to invade client privacy but coordinating with the big four big five accounting firms to find out their experience because as a former investment banker and businessman i work with probably several hundred small businesses and i've noticed that when they were forced to adopt real accounting standards it was amazing how many hunting dogs were found on the payroll how many minor children were hired as janitors to take out the garbage and other words abuses sometimes including an entire industry that had adopted overly lenient accounting standards and a lot of these are practices known to our brother in the big four big five accounting firms and i would suggest that your employees would learn a lot if they talk more frequently  with those folks it seems to me that we're in a situation right now where the government needs more revenue we need to arrive at legitimately and no one wants a tax increase so i would hope that we could encourage more of our tax payers to remember the proper basis for their stocks i thought when we sold out those forms we were supposed to tell the truth that if you bought intel or g e at x y z cries and it's pretty easy to look up that that should be reported honestly on the return as you point out the large majority of noncompliance is under reporting the business income and our hope our friends in the business community would help encourage their members to report honestly their true revenues and to be fair about claiming these new tax breaks because as the g a o again will point out following you there's a thirty two billion dollar noncompliance problem because we give someone a tax write that's not good before this committee thank you i appreciate your comments and if i could just respond very briefly one of the challenges in the system is about visibility you will write a law and it could take ten or twenty years before anybody really knows what the impact of that is because it takes us sometimes a year or two to write the regulations that interpret the law and then in the corporate area where there's a lot of complexity we may not be audited in those companies for years and then you get into challenges goes into our appeals or administration somewhere ultimately the court so you're your visibility can be ten or twenty years down the road before this gets resolved that is not in anybody's interest simplifying the code is clearly something that's very important we've got to get after but i have to say it there's a tension there between that and represented democracy because you're paid by your constituents to get the best deal  for the industries or the the people in your district that means a different deal all too often so simplification is a very tough thing to get after but it will it would help a great deal and we do meet regularly with the accounting firms and we can do more of that thank you mr chairman and thank you commissioner i'm for again i'm a little shocked about the five million dependents that have banished in one year i'm hoping that the i r s is looking into being tracked down those people and bring him home pattern which is best paid the treasury is not even a patriotic duty to increase one's taxes over and over again the courts have said that there is nothing sinister in so arranging affairs as to keep taxes low as possible everyone does it rich and poor alike and or do it right for everyone and no one owes any public duty to pay more than the law demands so we're just trying to find out those who are paying less than what the law demands that's an entirely correct or right part part of the question goes to the issue of the complex that complexity of the other tax code ranking member pointed out there are seventeen thousand pages sixty some odd thousand pages of rules i'd be curious how many members around here actually still do their own taxes i stopped doing my taxes a number of years ago because of that complexity and as it gets more and more complex i assume that the burden on both the taxpayer and the i r s and that is in part what adds a basic complexity of the code what i say sir is that complexity obscures understanding what that means is that the taxpayer who seeks to be compliant has difficulty doing so and can ultimately throw up their hands and say why bother and then on the other hand the taxpayer who who seeks to be non compliant counts on the complexity and uses that complexity to the first question the earth comment most people would say is well i pay my legitimate share i'm paying what i'm supposed to be paying it's too much they all say but i think their share in their first gut reaction is yeah if there's somebody out there that's not paying then the i r s and the government should do everything they can to track him down but the flip side argument on that is if i explain to them well in order for us to do that there may be added complications or added burden on you the honest taxpayer and additional requirements are additional troops and by their i r s and forms in addition to what you're talking about here as far as the administration's recommendations then the response might be a little bit different but i agree with both of those observations and  we say that we want to our service obligation is to help taxpayers understand their obligation and facilitate their participation in the system but that in forcing law is important because average citizens do pay their taxes may have every right to expect neighbors and competitors are doing the same we think that some have criticized our sixteen proposals regulator proposals as meager but both the secretary and i are truly conscious of this second issue you're talking about before we try to do is craft things that are minimally burdensome that don't get to be too much and each deck extra step to going to take in this or we know we'll get more resistance just for the reasons you're far on this and i hope neither side the aisle would as well because it does put a burden on the legitimate taxpayer addition to the dishonest crook out there is doing in this maybe beyond your area comment on this curious is anything either in the proposals that you're on small businesses and mid sized businesses as well again i think that we are sensitive that as i think you know the secretary's particularly been clear i'm looking at the whole question of the regulatory environment i think that we're comfortable that what we've put in here thus far doesn't doesn't really get to where it's too burdensome thank you appreciate it commissioner years and thank you very much for being here and look look forward to working with you on some of these matters i know that when you've been before us and ways and means you've talked about this and i know we try to figure out ways to tackle this in a more efficient way give me a quick sense i know that iris underwent an automation of its computer systems and so forth and it didn't work too well first but overall how much did that caustic and he's a complete idiot what happened was there were several sort of false starts that took place on this one and then in the i guess in the early ninety's and then and i'm just trying to find out how much have you spent i have to get your figure but we have each year now a separate appropriation that over the last couple years has been running two hundred between two hundred and four hundred million dollars a year we actually brought it down and now we're bringing it back up my point here is that if we could help you get automated yes in ways that are modern and comprehensive so that your system can is double with systems another with other agencies and so forth or with other private sector and disease then it's probably going to be easier  to move towards compliance through the internet systems to the the new wireless systems that we have in place today around the world you're entirely correct if you go back to that budget chart the most important number in there for me is this hundred forty six million dollar increment for apartments hundred forty three on the infrastructure modernization side in fact if you ask our operating people right now somebody running a unit we can give you five million bucks or we could spend five million bucks on getting better systems to support your people they would to a person take the take the systems money in the infrastructure money so you're right so if you have a three hundred forty five billion dollars gap and you know that a major portion of that is coming from those who are in the small business arena who are not filing all their information and for example the the proposal that you have in your budget that would try to get us towards using the credit card of a business or of an enterprise to try to  credit cards that are used to make purchases by with that commercial enterprise that you could do a better job of tracking what's going on if you could find a system and i t system that could help make it easier for the banks and commercial enterprises that have to report all that information on credit cards you could then probably do a pretty decent job of collecting far more than the cost of that id system that you acquire to try to do a better job of collecting then they are collecting this information what we would have to do with any time we do need new document we have to adjust our systems so and then we have to work with them we this last year we at the end of two thousand and four we mandated electronic filing for large corporations that had never been done before and that information started to come in this this past year two thousand and six for two thousand five that required new software and real change for us and for the companies seems as important is it fair to say that efficient investment in i t infrastructure pays off for you it is essential and it does pay off ok could you use more than what you have in your current budget every penny of the sri quest but not a penny more and what i said we have to be extremely careful in this area because what happens and we  i know what you're going to have to say let me move to another question given your testimony in the chart that you showed us if i were a wage earner if i got a check and i had to doctors and by the way i guess all of us as members of congress do wage earners yes we are wage earners we get a paycheck and out of that paycheck every month is deducted or every two weeks or however often you get the is the ducted the income taxes that were supposed to be along with the fica taxes so security and so forth taxes whereas if you're an independent business if i own a business i get to report what i want but if i work for that business it gets reported automatically and then the charts show it that wage earners who want to pay the honest folks are the folks who probably make the least amount of money the folks who aren't paying are the folks who could most afford to pay their taxes and i hope what we can do is work with you to make sure that to get rid of that tax gap of three hundred forty by five billion dollars and we have a budget that exceeds two hundred billion dollars and we do more to make sure that the wage earner was having to compensate for the folks that aren't paying their taxes and by paying more out of a paycheck every every month or every week we do a little bit more and i hope we can work with you because i think it's extremely unfair and it seems to me it's right for revolt by those who are getting taxes deducted every month  two points i can respond briefly first of all there is a disparate treatment between wage earners and others the second thing i would say is i also do it as a matter of fairness in the small business community because as  probably most of your homeowners but we've all been given two different quotes for a job at our house one by somebody who is playing all by the rules and another that's a better quote by somebody who is not the person who is not paying the taxes or his or her business has an unfair competitive advantage that should be a concern to all of us to chairman commissioner welcome and thank you for your service to your nation you have a thankless job you may be only a man in america less popular than we are we thank you for that fifteen twenty congresses republican and democrats are roughly six or seven presidents republican and democrat through i don't know how many different iris commissioners apparently this tax gap has remained fairly constant so i think all of us on this committee would certainly share the goal of ensuring that every american paid their fair share in taxes not a penny less not of painting more  and i know that we're always searching for that elusive pot of free money out there the easy fix but why should i not be skeptical if it's such an easy fix been done before now i think that your observations in the broadest sense are quite fair and there are there are some who say just let's just get rid of tax cap and then we take care of our fiscal issues here is not that easy and it's not that easy for a variety of reasons one is this issue of how much of a presence you would want to have for the i r s the other gets into the very real issue we talking about burden and getting more reporting so what i think we've done is we believe there is opportunity here sure and what we have made is what i would consider some pretty significant proposals but it doesn't say you're going to eliminate or usually reduce that gap just because of the difficulty and the many complicated things you get into if you try to do it all so commissioner is it is it possible that the cure could be worse than the ill i mean the state the ridiculous you could order an iris agent in every small business in home in america i think yes let me say this and i have said this really enjoyed the best system in the world let's all be clear on that our system is the envy of other countries i meet with a fair number of international  got a great system here so we want to make it better but we we could make some real mistakes here if we overreach well in speaking of possibly the cure being worse than the ill according to the tax foundation compliance cost has doubled over the last ten years and now our is a two hundred sixty five billion dollar drain on our economy i mean that's a huge figure huge transaction cause theoretically might we raise more federal revenue say ninety percent compliance instead of one hundred in other words if we could somehow figure out how to take part of that two hundred sixty five billion being devoted to compliance instead turn it more into economic growth capitalizing more small businesses increasing the revenue base isn't it at least theoretically possible then we know one hundred percent compliance because that would create less revenue than say ninety percent was i think what you're saying just it's common sense that that to get ever after every last nickel here that causes a whole series of costs to get in there and burden is important we have an office of burden reduction and we're constantly seek in ways to reduce burden and simplify within our view commissioner speaking in simplification and i know at the outset of your testimony you said you work here to favor one particular tax proposal policy over another but would you be in a position to offer an opinion if our sole goal if our sole goal was to close that tax gap have you run models on either the flat tax or the fair tax and what the tax gap might be under one of those two policies would we have a smaller tax gap if congress adopted one or the other i have not run those models before treasury may look at this what i say about legislative proposals or bad or a flat tax is that my observation is that you can't compare a perfect theoretical system with an imperfect actual system so you need to make sure you look at these things fairly as an example i know from discussions my colleagues in the u k there are real compliance issues with the eighty just need to bear that in mind when you have those conversations thank you and thank you for your service commissioner in your testimony it is a measure of the new direction in which this congress is moving that you're here today serval i'm our colleagues have used the term shock and i have to say frankly and sincerely that i i view your response as shocking as i understand your testimony as the internal revenue service commissioner you're unable to tell us are the american people to give us a an estimate that you believe is reliable that you can that you can feel comfortable with of what the gap is between taxes owed and taxes collected in america today i think that's correct sir because and we don't have a precise number to put your map back up i think we can get a boner understanding of why that is so because your tax gap math as you pointed out the last time that you did any study of this matter was tax year two thousand and one right yes and that takes over it takes several years to complete a study in that actually year that ended on december thirty first of two thousand and one actually the end of the first year of the bush administration and in tax year two thousand to actually or two thousand and three two thousand and four x year two thousand and five you didn't do a study you said because you were told to stand down at the request what i said was that we had done the last time before two thousand and one was in eighty eight yes and nothing was done in the intervening years because during the ninety's the service was told to stand up to stand down and that you also had a twenty five percent reduction in your enforcement resources in the end of the ninety's from ninety six i think through about two thousand and two or three that you did in two thousand and one as i understand it you said there's a thirty billion dollars figure there for corporations and you didn't really study that in two thousand and one used old data  you believe from your chart is is business income i realize much of that is not related to tax havens but i was concerned that in your legislative recommendations you don't really seem to have much of anything to deal with that other thing and the one sixty three j provision on related party interest deductions which the ways and means committee should have put a stop to and change but instead ask you to do a study is the study complete i don't have an answer for that that's a treasure that would be what you're going to swirl legislative proposal policy proposal sir and and you have been put on those but these are really treasuries recommendations out there as again what i'm talk about here are the sixteen that are more tax compliance and let me turn to an area that is within your direct jurisdiction and i wrote your about this three weeks ago and i know that some other colleagues wrote about it and that was the report in the new york times on january twelfth saying that the our s when it came to large and mid sized business on basically had a catch and release program that you limit the time of your auditors that if your auditor's find other tax avoidance schemes they're only there to go for the tax avoidance scheme that they were sent to employees were interviewed auditor's were interviewed retired auditor's were interviewed in a number of states indicating that the there'd been an increase in collections that that they said that could be explained by the fact that so many more tax avoidance schemes out there and that the our s limited the access of the auditors to information you set up  a way that they would be rewarded the faster by close the case not based on how al affected they were i ask you for a report about what i thought were very disturbing practices as reported in it is shame for the things take years and years to get resolved that serves neither the corporation's interest nor the government's interest the compliant taxpayer needs to get issues resolved because there's a real cost of uncertainty and the government needs to move quicker in any given examination decisions are going to be taken and there will be a tension between the employee can talk you know examination and the manager i think we get things by and large correct and if somebody thinks that something's being left behind and they think it's being done intentionally then they may object because they could get more but the manager has to make a decision as to whether at a certain point they can be more productively used elsewhere that's that's a basic question i'm not sure but i would say to you sir that we get it right each and every time but when i look at the big picture and yes we are trying to drive down the cycle time i am reassured by the statistics to two point seven percent or wherever they are now when i look at the big picture sir i think this is all working we're doing more we're trying to move faster i don't i don't doubt that some people don't like that the other things we've done is we've changed our personnel policies here we rotate people off the big companies they can get too cozy frankly by staying five or six or seven or ten years and that's not good so not everybody is thank you mr chairman and i thank you commissioner soon for being here i have a series of kind of unrelated informational question better first one is my understanding is that the senate finance committee has talked about perhaps having the i r s build online tax preparation software through a web portal as a suggestion on the tax gap is that something you think will reduce the tax gap or not this is a very important issue it could be helpful i would say to you as a general matter right now eighty percent of the returns are repaired with the use of some computer software and returns are so complex code is so complex that i'm sure we people couldn't comply they didn't go through the software when you get into the issue of should there be a portal develops i am reluctant to embrace that idea at this time first because going back to the chairman and other comments about the infrastructure this is not an easy thing to do if you really want to do it i don't think we're as some of indicated here today is better than it was there is a big industry out there and they will go too far with this policy is pursued and they already did that in california when california said big pictures of you know dogs eating steaks and there will be a collision here and i don't welcome that as trying to run a system where people have trust in the our i'm from california and was in the state legislature during that whole issue and but i will say that there are a lot of privacy concerns having to do with the california proposals actually going to keep track of entries and strokes of someone put in three hundred dollars a charitable contributions and raced and put in four hundred they would accept now there are a whole lot of privacy there would be all and there would be a lot about allegations about it yeah and another issue relating to the tax gap and i'm just curious how we get to this but  computing the correct tax is an art not a science and you can put together all everyone in this room and have them do the best job they can to interpret ingle laws and regulations to come up with the correct tax and the i r s do the same thing there could be a gap between those two which completely honest people if they weren't ambiguity there wouldn't be tax court there wouldn't be revenue rulings private letter rulings etc it can come all the way from anyone who gives a piece of furniture to the salvation army and what's that worth to correct and the resolution of that i'm certainty is a very important facet of our system and the fact that it happens fairly it happens we have a group that is independent within the r s c appeals group that takes  this and then people do go into the courts and one of the reasons why getting the right number on corporations for example in the tax cap is so difficult because it takes so many years often to figure out where the courts will land on the ideas for clothes and i was unclear if that was the cumulative total to that point or if that was the annual total at that point that it's the second so it would be the lift you would get between zero six and two thousand and ten you have to  you get from the banks the merchant credit information will it have detail or is it just going to be a total number just be a total number ok and then the last thing is just kind of getting back to the  out if everything on an individual tax return which can include bank account numbers all kinds of i mean everything about that individual were present on any on any computer anywhere and the only place it could be would be in the i r s isn't that  a should we have privacy concerns with that this is another reason to support the infrastructure requests because we do have money for heightened security there we work very hard on this issue it's a constant challenge i have to say and it is i get a little embarrassed when people joke about it because what you said is true that our tax system is the envy of the civilized world and where you don't have a tax system that people can have confidence in then you have bribery then you have underfunding of government services then you have back channel activities you have corruption this is an industry of civilization and a democratic function i agreed entice her and i i just personally find it offensive that people make the i r s sort of a second class citizen not just casual jokes but what we saw this congress do i thought when i first came here vilifying the i r s the people who work for it exaggerating pretty dramatically some problems and resulting in what we saw in terms of severely restricting your ability to manage the agency you and your predecessors resulted in lots of money being lost and corners being cut there are people who are saying well this is this is confusing and so certainly there's problems but if it were just a matter of confusion then we'd see as many people being confused and overpaying as underpaying and it seems there's a pretty systematic problem with a lot of people who are confused in ways that she the government and put their competitors who play by the rules and most businesspeople do put them at a disadvantage i agree with that is also or so the fact that this congress under republican control i'm sad to say well you were increasing the complexity of the tax code talking about it being too complex but adding thousands of pages of regulation and new taxes starve the ability of i r s for compliance and so i'm pleased that our leadership is bringing you here before the budget committee i hope you will have a better reaction from the ways and means committee now so that we don't pile on all sorts of things while claiming we're for simplification making your job more difficult doing it in the back room in the dark of the night at the last minute so that it's a nightmare for you to even try and  i think the record of what happened and it happened just before your wife did happen back in the news that's wrong in terms of dragging people in jogging them making all sorts of goofy and outrageous actions i recently met with about a dozen tax professionals in my community top drawer people some of whom i've known for years some of our new friends seeking advice and counsel there was one that had had an audit in the last eight years they were saying you know it's fascinating in terms of what doesn't happen anymore they had suggestions in terms of our having some sense of the positions that are funded in mr chairman my question as much to the committee as to the commission or deals with the bizarre notion of scoring what we're being suggested as being suggested to us is that by giving the resources to the i r s to do things like having just gross amounts of money reported a little bit of unfortunate action a little bit of infrastructure is going to produce far more tax revenue than it costs and everybody will agree to that at some level yet under the way that our budget rules work that is  cost right now it's it's a difficulty for our budget for our appropriators it's difficult for you in terms of crafting the budget even though in the in the ten year budget window it will pay for itself many many many times over i've talked to the director of c b l about some of these areas where our scoring rules have the perverse effect of actually costing money and misstating the economic impact over a five or ten years i would hope that there would be some way working for example with the commissioner of i r s and with c b s and with the certified smart people in the staff on both sides of the aisle that we could go back and look at some of these scoring conventions from a present value perspective because i think it is perverse i think it's costing us money it's preventing investments that make sense we're starting to do that in some areas of government finance and i it's a it's something that i plan on bringing to the later i want to bring it up now it is cheaper for the government to spend billions of dollars cleaning up after a disaster than spending a couple has proven out that's why we're holding this hearing like the basis for lots of claims like that but that's the scoring mr chairman is sounding that i would like to address but that does exactly what he said it was done in the dark of night and and same day rules today and all those kinds of things that i agree with my colleagues knew with the gentleman yield no i won't you had about eight minutes on your five minutes of mine compliance client would you describe what compliance on it looks like you know it is unfair to describe it as a colonoscopy i think that was certainly the way the research had been done back in eighty eight that was one of the contributing factors that got to this sort of instruction to stand down we worked pretty hard in this last cycle to make sure that we weren't asking for information we already had or that we didn't think was out of line so we very much revised a procedure and we didn't get but a handful of complaints in terms of those forty six thousand reviews we did it in plans to we're now six years away from that research tax rates are lower now than when they were two thousand and one which i believe personally contributes to better compliance when the we're trying to a small sample and get the different elements of it an update on a continuing basis ok but again i'm sorry to say it takes several years because by the time you go through all the audits and then which have to do is you do you do the work and then you've got  technically i could do my return without a computer i would never want to even try it because it wouldn't be close to being right right disastrous work with these various providers to make sure that they are the system they put in place in which millions of taxpayers  practitioners we depend on practitioners in this country to help taxpayers understand the law and i think that gets to the to the numbers question your colleague asked a few minutes ago it's another point some people say well if only the i r s were doing this that would be returns because i do think the private sector does it better it's quicker it's more nimble as example there are the changes made in december there are certain pieces on that that the ten forty itself doesn't provide for and you've had to issue some  that she's here this morning to thank you sir was the number that you gave us as to your forecast of revenue off this idea of the gross receipts of the credit card companies the  number that is in the current estimate is about ten or eleven billion over the over the period of several years and but i w i look at the blue notes from a two thousand and one study on under reporting and if we put aside the state tax excise tax and employment tax and simply look at corporate returns and individual returns my data indicate that there's a two hundred two thousand and one study indicated two hundred twenty seven billion dollars a year of under reporting do you have any estimate of as to how much of that under repair reporting might be at least put into question or identified if we need this reform with the gross receipts of the credit cards being reported iris well i think that that's what we're saying you would individual income tax side sir if you want to you have to break out of that one one ten but here's here's what i'm trying to say we're here ok that the two thousand and one study talked about animal under reacting two hundred twenty seven billion dollars in the two categories that i talked about yes and i soon a lot of that is people that are getting cash income and not reporting that there were some cash and what this does here is this just takes that biggest piece  chart the one tenant where it is and this idea that you have which i applaud is a way to sort of identify the most likely targets who are exploiting that know the words if i run a business and you know i'm reporting that eighty five percent of my receipts come from credit cards and history tells us and that kind of business is really fifty fifty use your example and i'm a likely target for an audit right understand g yeah but i see different businesses run at different ratios and what's going to be told about them to use your example is if in drycleaning the norm is fifty fifty credit to cash yes sir i file a return and it shows that eighty five percent if you look at the credit card receipts eighty five percent of my receipts are credit card nearly fifty percent cash you're probably going to take a look at me you know that's the i didn't i guess what you would do is it depends on what information we get coming in and i think what you're getting at is  this doesn't get a cash as an example and all that but what it would do though is it would give you the most prime targets for audit so i would think it's a targeting tool is well it's it's got two things one it would indicate a problem in this very t why is the number so low that us to meet you would get from this with the i don't do the apartments or and i do believe the estimates are conservative i wouldn't put a precise number on them but i think that what you get is there is an historical reluctance to overstate the numbers g would feel that way the joint committee and part of it is that sometimes we'll put a provisional law and then the i r s won't follow up i think this is wise to underestimate but i frankly believe that those estimates significantly understate the value of this idea because if you had sufficient infrastructure and you had sufficient auditor's this would be a very effect targeting system is that who was understating income which would then let you chase cash which would have a deterrent effect on people running more of a cash business and have the stripper sitting on the bridge underscores want to comment has the service looked at st governments that have been particularly effective in reducing their own tax have you looked at states that have had success in this area we work very closely with the states as you appreciate most state income tax system drives off of the federal system we work with them on a continuing basis and actual fact we are in the particularly the shelter area we are now leveraging our work with them  work states like california new york well if we can't get after something they'll pursue an investigation and then we'll ride their assessment instead of the other way around take my times but i would just ask if he could submit for the record any summary of best practices that you've identified from the what you're doing the things improve substantially but american people are scared to death of having an iris asian shop at their door i know they're all hard working individuals or work for the i r s but so i just idea ike i still cringe when i get a letter from the just on my health benefits or something well said and then you take in account small businesses you know where mom pa businesses are the chief cook and bottle or sure there are there are there are six am and they go home at midnight and they're having trouble with paperwork making sure they stay on top of since the eighty's and you think it's got more complex first i agree with your observation that basically we've got to be careful here or the inference i think you're making it because  e perception about the i r s we are the government to many people and there is a there is a where yes and we don't want to overdo the enforcement very clearly the second point clearly calls got more complex i also agree with your point that the it's the well to do the rich and the big companies that can find ways around this like i talked to told a story often i'll probably never be invited back but i i get i was gave a speech two years ago to the new york state bar association taxation section there were ninety eight tables of ten there and those people are not representing  you as we talk about a tax cab i think most americans would pay if it was much easier i guess my next question is what part of it was under reported by undocumented and illegals that are in this country what amount of taxes are we losing or not and the way the law works for provides a protection we get we do have several million filers who are filing with an itin and they're meeting their obligation they're filing their taxes even though they may not be entitled to be in the country so they are following that obligation but i don't have a precise number and people who are illegally here and are not meeting their obligations would you have for a had the definition accurate because yes family is different in taxes paid that's exactly right sir so that everyone will understand there is a difference that's right that's when you file a return and you're almost five thousand but you only send us one thousand correct now we next update our research it would be several years later we're looking at how long it's going to take us to do that now we will try to speed it up compared to what we did in the past but if we're working and i know seven electronically what we did was i don't have an overall number but what we did was as i mentioned earlier we mandated at the end of zero four that the big companies all said that we're in certain asset class and filed two hundred fifty returns that includes employment returns they had to i'm trying to play and they all came in this last year and this will have a huge and positive impact on our work because we'll be able to array the data and only look at things that are really out of line let me ask you a question as relates to you is this is one of the reset in terms of our collection workforce we look at the most rigorously because what happens is this can pyramid and compound very very rapidly a lot of money and what happens is typically i would say more often than not a small business gets extended they get in trouble they say well i'm just going to not spend it in this quarter and because things are going to get better the next quarter there are very few people who are intentionally using the government as a bank but a compounds quickly and very hard to work your way out of it so all revenue officers they get right and they're still the best their capability and they work they in what they do so i've been out with a couple of them they try to make a determination whether the business can pay it off or not and what they say is first of all can you make current payments if you're not capable of getting making the payments from the outset our word then what they'll do is they'll basically end up shutting the business down real reason i asked this question is it you know an employer you guess in some trouble but the employees depending on who they are how many they have lost their quarters for social security yes and that delayed it for year they've lost a whole year in their retirement earnings trigger that because well let me touch one more piece from a time's running out one of the things i think the bothers taxpayers the most and we just had a case in our state of a person who was of some substantial position and it really has people losing faith in our system for the biggest somebody gets away with at least the yep let me thank you for your paying attention to that because i think it does help in  thank you i have not just come question first an observation i guess i have i'm surprised to to hear the question raised is it worth it i mean this is i understand this three hundred fifty billion dollars on the table in one form or another and and i mean i'm just quite surprised to hear that question raised is it worth it to go after that or some portion of it i cannot imagine us having any other problem of that magnitude either on the revenue side or on the expenditure side of our budget where we would ask that question and so my own answer is yes decidedly it is worth going after a certain and the first question i have is  corporate income tax piece of that three hundred fifty billion is if i if i got your numbers correctly approximately twenty five billion in large corporations and approximately five billion in small corporations i think that's what your charts enhanced in force meant run the risk of impairing the dynamic that exists between tax payers and the i r s and will we be creating more problems than we're solving but isn't going after large corporations that constitute low hanging fruit i mean couldn't we i mean are we really worried about our relationship with large corporations who have the capacity to employ the very best tax advice the very best legal advice and are thriving in our economy i mean  really worry about whether or not increased enforcement is going to somehow impair their ability to do business i think there is a different dynamic between the relationship between the iraq and the large corporations and there is between the i r s and the individuals we have very high order wages talk about before we're doing a lot in that area we want to do more there's twenty six million dollars in the in forstmann monies that would go towards the corporations we've got a pretty aggressive program  remember your numbers right now i think we're quite we're ordering something like seventeen percent of returns of large corporations is not a that's correct but that's that's that's the number which has the ten million up if you look at the big the biggest players the number is is much higher it's about double that and with the increased monies that you're requesting for the fiscal zero eight watching how will you be able to move that number i don't think the number itself would would move as a percentage that dramatically would be the way we deploy that money and the kinds of issues we're going after but if you're not going to see that dramatically ramp up there ok one more question the the on reported cumulative number that's a total i guess over the ten year life of the budget projection so it's only about one percent then it would be i'd have to look at the individual year so we can talk about two thousand and ten i would have to take a look and see what we would project for that  thousand not trying to be difficult here i'm just focusing on a number of media eleven per if it's eleven billion cumulative over the course of the budget window that's about a billion a year so that would be about one percent of the subtle problem is that about right that 's i understand your math yes one thing i can do and my question is can we do better i mean if you mean can't we if we haven't got one hundred nine billion dollars problem can't we come up with a set of this allows us to knock that down by more than one percent we we haven't gotten into this too much today but i sort of alluded to it there are some who said these issues are meager holes but the secretary and i have gone over this we're pretty clear on this  want to get the funding for the i r s insisting that and then we want to get these proposals and if these proposals which i think are going to generate sir quite a bit of controversy as you've seen here this  morning i was in the small business community committee last year and pretty well shot it down because of this credit card proposal i think that we'll come back and work with the congress so we get these through well we'll talk about  more but i think these are important steps thank you but let the record reflect that the vote that we're going to take on that bill the tax bill today is a bill that was developed and written and co sponsored by the democratic chairman charlie rangle and the republican ranking member in favor simplification you said it best simply simplification is something that you strongly favor made an argument for that by saying that complexity hurts those who want to comply and helps those who want to cheat correct or i think that's basically what you said yes given the tax gap and so as to my question though given the tax gap and ways that you can solve this i don't think there's any discussion today about the private collection right could you talk a little bit about that and address number one i know how that's working right now what they're trying to collect i know the taxpayer advocate has some problems with it what those problems are and how you're trying to address now yeah are only so many people you can bring on and hire any given time so that with the increment that we've got in the budget proposal even if we were pretty well maxed out on terms of what we can bring on and it would be a period of years a period of years of adding people to the i r s before we get took acidy where we could work some of these cases that we are giving to the private club action agency this was passed into law i think was in the jobs act in the end of zero four what we're doing is we are implementing this we have implemented starting september got about eleven million dollars that came in through january and we have a set of standards that we hold the contractors to that are comparable to what the i r s has held and i would say to you my assessment is so far so good i know that there are many who want to stop but i had a conversation with chairman rangle on this up in his office in harlem just a week or two ago but i i think i'm with senator grassley on this that we should give this a chance to work and see how how girls we're working very hard on it the people i have on to meet with me monthly to tell me how it's going and  busier because we've brought back the enforcement what the collection agencies are working on is is really the simplest trip where somebody has agreed that they all got money thank you very much and thank you  night and it really wasn't there was actually some really good feeling about this and i agree when we can work in a bipartisan way when we agree why fight about that you know so thank you i want to follow up on some misfortune comes and that's to me they feel good about it they'd like to continue doing that the the fact that they are twenty eight hundred employees that are going to be laid off in that one facility in my district is very significant and again these are employees so my as i understand it would need some retraining some of the kind of work that is now being contracted out to a private collection agencies and actually we're paying far more for those the private collection agencies than we do who are going to do it in house my staff give me some information on this so we're talking about a net return when the i r s does itself so as the complement to you i guess and your workers is about ninety seven cents on the dollar cost about three cents on the dollar when we do it in house by contracting it out to these products collection agencies the net return is seventy six cents on the dollar so that we're losing twenty one cents on the dollar now so they were new tax payer use the twenty eight hundred people in my district who are going to lose their jobs who want to stay might need some retraining to do this next this different level of job but would like to do that and why not use them particularly when we know that  two factors when we're spending more private collection agencies not getting the dollars back that we might and there are issues raised on the other side i agree with their concerns about the potential confidentiality of very sensitive personal information being out there you know all we want is we actually may not always like to hear from the i r s trust that you keep this information to yourself so that is one of the aspects i think most americans you believe in so if you would address you know specifically you know the decision that's been made an option but the decisions been made to substantially downsize our i r s workers your employees who are dedicated and knowledgeable and want to continue to do the good work in order to spend more taxpayer dollars by using private agencies outside i presume you're good in philadelphia yes yes i think that there are a couple of issues in there that are getting a little bit mixed we talked this morning about the increase in electronic filing and as the number returns that are trying to flee have has increased that has resulted in a phasing down obviously if your paper returns a smaller footprint of work force and you know submissions processing pipeline we've already mr bishop's area has a center and we've work true in memphis as well and philadelphia is in line and ultimately will get down to a much smaller footprint now what like what percentage of those twenty two hundred if not all of those people i'm not i don't know being attacked i'm that's a new number for me a good maybe a number i should know but i'll certainly take a look after this hearin make sure that we are anchoring as much work in those centers and a lot of work to those centers from other areas where we can and as you know we're also making an investment in the post office there in philadelphia it's going to  that's the campus right now in philadelphia is probably the worst facility of the big campuses were were we want to do the same thing there that we've done in kansas city where we just reopened a much modernized the great society so i think that's individuals we're committed to that and i'll look at the office and shoot center raising it terms of opportunities but again as to collection itself we do have issues as to how many people you can bring on and training get going and i would say to you again as i just said to your colleague it would be a period of several years before we would be able to change our employment file and yet after the by our people my time is almost up now but if you had the option which you may not but if you had the option to do it in house with that you would be able to do that you'd be pleased to do it i'm going to write we we happily take on all appreciate your cooperation providing sansa certainly makes some witness we appreciate your forthrightness new full answers as well as your forbearance thank you very much for coming and we look forward to working with you on these objectives are set on the budget thank you thank been good to prepare and come here for this hearing we are notified that we need to be on the on around one o'clock so we're going to try and wrap this up in an hour if we can and  george just for a good starting point les tarr with you if you if you will and up the outset mary say it's an honor to appear before you as you may recall you and i worked together almost a dozen years ago when subcommittee and you were a member of that committee high and even at that time we looked at issues such as the very one that we're discussing today chairman spratt ranking member ryan members of the committee thank you for the invitation to appear before you today to discuss opportunities for clothing the tax gap the tax gap is a complicated subject which at times appears simpler than it really is it is accepted that every year the i r s fails to receive roughly three hundred forty five billion dollars owed to the federal government as has been noted that figures consider the gross amount not received the net is thought to be approximately two hundred ninety billion dollars take there however has expressed some doubts about the accuracy of these figures we are concerned that the i r s does not have a complete picture of the magnitude of the problem which is an essential starting point to addressing the problem nonetheless in two thousand and six the i r s updated its estimate of the tax gap based on data from the two thousand and one tax year law the updated information on individuals is important since they comprise the largest segment of the tax gap there is no new information about employment corporate and other tax payer segments the service does not have firm plans to update the information study for these segments as you heard earlier there are opportunities for the ira to pursue new initiatives lated to the tax gap in our view of the virus programs we have made recommendations that would enhanced the effectiveness and efficiency of the irises tax compliance programs the i r s has appropriately refocused audit attention on high income tax payers however this has been done through an increase in correspondence examinations as opposed to face to face reviews correspondence examinations to limit the tax issues that can be addressed high income households typically have a large percentage of their income that is not subject to third party reporting and withholding without additional third party reporting it is difficult to determine whether these tax payers have reported all of their income to improve tax compliance and business tax filings take to have recommended that the i r s establish a comprehensive document matching program for the various business documents it receives similar to its program for verifying individual wage earnings i'll go implementing such a program among businesses would be difficult it could have done a feisty if it can pockets of noncompliance among business tax payers over the years the i has had several strategies for reducing the tax gap attributable to individual non filers unfortunately the i r s was since it was reorganized in two thousand to each i r s business division has been responsible for tracking and monitoring its own action items there is no formal system in place for courtenay ting and tracking across all iris business divisions and responds to a two thousand and five two or that report the i r s took some steps to improve efficiency and working non final cases including the development of a non while a work plan however the i r s still does not have a single executive charged with overseeing its non final or efforts it needs one in one thousand nine hundred three that iraq developed a voluntary compliance program for the food and beverage industry which was extended to the industry the program has been successful and tax year nine hundred ninety four eight point five two billion dollars and tip wages were reported in text to two thousand and four the amount exceeded nineteen billion dollars despite this success the i r s has not expanded the program to include other industries which would i believe would further enhance tax receipts the i r s needs to focus more attention on its role as a collector of social security and medicare taxes these taxes are primarily paid through payroll taxes withheld from employees with matching amounts paid by employers as well as through self employment taxes however the procedures the i to implement this program has floors take the recently conducted a review of tax returns that were processed in two thousand and five we estimated that the i r s have the sest twenty million dollars in taxes but with changes to the procedures the iressa could have assessed approximately twenty million dollars more we recommended several changes to this process which could result in an additional one hundred eighty million dollars in social security and medicare taxes each source information it receives from tax treaty countries we have also recommended that prior to issuing refunds to foreign partners the i r s implement an automated cross check of withholding claims against available credit for partnerships with foreign partners mr chairman while the i r s clearly needs to resources it has requested it also must feel the resources it has more efficiently and effectively of the committee thank you for inviting me to testify today about the tax gap and i believe there are three principle steps that can be taken to address this gap first congress should simplify the tax code corporate tax shelters and abusive schemes pursued by individual tax payers exist solely because there are ambiguities in complex laws that they can exploit at the same time tax law complexity confounds tax payers and is responsible for the significant majority of taxpayer reporting errors second congress should consider expanding third party information reporting and in certain situations withholding requirements iris data show  direct correlation between third party information reporting by pay yours of in common tax reporting compliance by the recipients of income where taxes withheld from income tax payer reporting compliance is above ninety nine percent where income is reported to the iris such as interest and dividends on the form ten ninety nine tax payer reporting compliance is above ninety five percent where income is not reported to the i r s tax payer reporting compliance drops below fifty percent expanded information reporting would reduce the tax gap significantly and backup withholding can be used where tax payers repeatedly underpay their taxes but both must be done with care to avoid placing undue burdens on the pay yours of income i discuss this issue in more detail in my written statement i will devote the rest of my testimony today to my stirred point because it falls squarely within your committee's jurisdiction i believe the rules by which the iris is funded need to be fixed so that the iris receives adequate resources to collect taxes as a starting point we should keep in mind that the iris functions as the accounts receivable department of the federal government on a budget of about ten point six billion dollars the iris currently collects about two point two four trillion dollars a year that translates to an average return on investment or r o i of about two hundred ten to one but the congressional budget rules do not recognize the irises unique role as the revenue generator for the federal government rather the budget rules treat spending for the iris exactly the same way they treat spending for all other federal programs the irises placed within a category of spending programs that is subject to spending ceiling and the relevant appropriations subcommittee that allocates dollars between the i r s in the other agencies thus the iris competes dollar for dollar against classic spending programs for resources and there is no explicit rip mechanism in the budget process for recognizing the revenue that the iris collects these procedures make little sense if the federal government were a private company it management clearly would fund the accounts receivable department at a level that it believed would maximize the company's bottom line since the iris is not a private company maximising the bottom line is not and in and of itself should not be an appropriate goal but the public sector analogy should be to maximize tax compliance especially voluntary tax compliance with due regard for protecting taxpayer rights and minimizing taxpayer burden no one seems to dispute this premise if the current budget rules treat the iris as a classic spending program and if changing the rules will be required if the iris is to be treated the way a company would retrieve its accounts receivable department in the last three years the administration has proposed and congress has considered a mechanism known as program integrity caps to give the iris additional funding while these cap but just means are better than nothing they suffer from two flaws first they don't address the fundamental problem i am raising which is that decisions about iras funding levels should be made on the basis of maximizing tax compliance not fitting within a cap second the program integrity caps have generally been used to provide additional funding for tax law enforcement without providing any additional funding for taxpayer service this is happening because the i r s can document that it collected forty eight point seven billion dollars through direct in for some actions last year and budget crunchers can compare this figure with the dollars spent on enforcement to compute a positive return on investment the problem with this approach is that forty eight point seven billion dollars is only two percent of the revenue that the i r s collected the remaining ninety eight percent of revenues were collected through some combination of tax payer service and the indirect or deterrent effects of enforcement the iris current strategic plan is based on the formula tax payer service plus enforce equals compliance but there are no data that show whether there is a greater need at this time for service or enforcement in the absence of such data i think it is misguided to provide disproportionate increases to enforcement simply because we have measurement tools to compute the r o y with respect to ten percent of our collection in my written statement i describe some recent unexpected reductions in taxpayer service and the negative effect these reductions could have on compliance in conclusion i urge the committee to consider making changes to the budget rules to provide funding for the i r s at a level designed to maximize tax compliance and that does not shortchange taxpayer service as taxpayer service may provide an equal or greater r o i that enforcement in focusing on what the iris can do to reduce the tax gap i suggest that giving the iris the tools to do the job in conduct junction with proper oversight is the single most helpful step congress can chairman specter spratt and members of the committee i'm pleased to participate in today's hearing on the tax gap my statement focuses on the multiple approaches that are needed to successfully reduce the gap including the importance of quality services to taxpayers it then covers a potential reductions in the tax gap that could ensue from simplifying to reforming the tax code providing iris more tools to deal with noncompliance and dedicating more resources to tax and fortune with tax gap as a persistent problem although as measurement methodology to vary over time the rate at which tax payers pay their taxes voluntarily and on and on time has tended to range between eighty one and eighty four percent over the past three decades this suggests that materially we need to try new approaches and to expand current effective approaches in many cases congress will need to purchase a paid in the solution either through providing our as new tools or additional resources providing quality services to  taxpayers as a necessary foundation for high levels of voluntary compliance quality services help taxpayers who wish to comply but who do not understand their obligations and such services are needed even in pursuing other approaches to reduce the tax gap for instance even if tax laws are simplified iris needs to educate taxpayers and answer the questions they're likely to have regarding tax simplification or tax reform there is no reliable estimate of how much simplification could actually reduce the tax gap one indication of the potential is that iris has estimated a two thousand one revenue shortfall of about thirty two billion dollars due to errors taxpayers made in claiming various tax credits and deductions over the decades more and more special provisions have been added to the tax code while with the number of credits to duction and the like doubling a number between one hundred seventy four and two thousand five i'm making the rules across tax provisions more uniform by merging multiple related provisions and deleting provisions that may not be accomplishing their intended purpose at an acceptable revenue cost the tax code could be simplified if so both intentional and unintentional noncomplian should decline further iris would be able to reallocate its resources to other more programs problematic compliance problems actually form also has the potential to reduce the tax gap but it is most likely to do so if any reform system has few if any tax preferences or complex provisions in taxable transfer transactions are transparent to the tax agency these characteristics are difficult to achieve and to my knowledge all tax systems have tax gaps tax withholding and information reporting are among the most powerful tools for promoting compliance if we can spread these tools over more types of income that are major contributors to the tax gap tax reductions might be achieved our recent work requiring information reporting on the basis for securities sales like stock transactions has a potential to improve compliance with capital gains reporting importantly a key additional benefit would be less taxpayer burden to understanding comply with the bas reporting rules finally devoting additional resources to enforcement has the potential to reduce the tax gap by billions of dollars in part devoting greater resources to enforcement could reduce the tax gap because every year iris identifies far more cases of probable noncompliance than it can to address how much the tax gap could be reduced by dedicating more resources to enforcement depends critically on how well iris can manage these resources  information is key which taxpayers are non compliant why are they non compliant what amount of noncompliance can be corrected for an additional dollar of investment in iraq when others have frequently called for improved information like this in part this is why we encourage direst to and undertake compliance studies like the most recent one of the tax gap we are heartened that the president's two thousand and eight budget calls for annual tax gap for research as a question if additional resources are devoted to enforcement returns on that investment are likely to lag as iris hires and trains new personnel and we see that in the budget estimates for the president's new budget also several years can elapse between the time iris actually tax and when those taxes are collected for instance in study we had done earlier we found that five years after taxes were assessed against individuals with business income only forty eight percent of the s s taxes had been collect think to most people that sounds like a pretty high number we rarely get a hundred percent compliance with any law i looked up compliance yesterday on the internet on the on the department transportation site regarding automobile seatbelt laws and the nationwide compliance rate with automobile feet but laws is only eighty one percent and that's after many years of education on that issue international evidence also suggests that the u s tax compliance rate is very high frederick schneider has completed detailed studies for the i economies according to his budget is only eight percent of g d p the lowest in the always cd so americans do seem to be highly law abiding when it comes to reporting government taxes and complying with regulations heard earlier the size of the us tax gap does not seem to be increased over time the g a o says that the tax gap has been about the same a right over the last three decades for these reasons the current intense focus in congress of the tax gap is perplexing americans of course should pay the taxes that are owed but the tax gap in my view is far down the list of important tax system issues that we should be dealing with i think congress should instead focus on issues such as america's high corporate tax rate and how long competitive a it is especially in the globalized economy we live in and of course the enormous complexity of the tax code and the number of tax expenditures that i think we heard earlier has doubled since nine hundred seventy five and this is a huge problem and i think we need to deal with that before we get to the issue of the tax gap interesting well if you compare the fica or payroll tax compliance according to the i r s numbers we saw earlier very high compliance compliance rate of course you've got withholding there but it's also a flat simple tax with no deductions compare that to the very low compliance with the federal estate tax the federal estate tax tax gap is about twenty eight percent o the amount of revenue collected by that tax because it's a grossly complex on any fish and tax americans have responsibility to pay their taxes but congress also has a responsibility to make tax laws that are simple and easy to comply with i think congress is failing that corporations create only nine percent of the tax gap in that week and we constantly hear about spodes of rampant corporate tax evasion in recent remarks senator kent conrad talked about the hemorrhaging of tax revenues from cheating by corporations with offices in the cayman islands the corporate tax cheating is not such a black and white affair as many think the complexity of the tax code makes it very difficult to determine how much a company should actually be paying interestingly the joint committee on taxation report on enron a couple of years ago which was over two thousand pages long found hundreds of enron subsidiaries in the cayman islands but the joint committee had a very hard time showing that the firms tax structures were actually illegal they were abused but they had a very hard time saying that they're actually illegal and as i think was raised by this forever since earlier corporate tax revenues are stored in recent years in two thousand and seven corporate tax revenues will be three hundred forty two billion up sixty five percent from the peak reached in two thousand so corporate tax compared to revenue collected them big businesses and the i r s taxpayer advocate and in the past is found that heavy heavy compliance burden on small businesses is one of the most serious problems of the tax code so it seems to me that targeting small businesses with more tax gap regulation seems very unfair to conclude the great attention being placed on the tax gap i think is that a place given that u s tax compliance is high compared to other countries and that has remained stable over time federal revenues are are above historic norms at eighteen point five percent of g d p this year and as you may know data for the first four months of fiscal two thousand and seven show a ten percent increase in federal revenues over the same period last year so the fiscal problem in washington is not a lack of revenue in his famous book wealth of nations adam smith argued that quote subjecting the people to the frequent visits and audience examination of tax gatherers exposes them too much on necessary trouble vexation and oppression unquote so rather than imposing more back station on the taxpayers i think we should reform the tax code to reduce marginal rates in special preferences and i think a positive side effect would be to reduce the tax gap again thanks a lot for  gap is today two thousand and six two thousand and seven as opposed to two thousand and one well useful clarification the g a o testimony that it's three forty five grows fifty five late payments so the net numbers to n one number scientific or is it just a separate self no no no they did a detailed study the national review they did a detailed review of this but it's just an incomplete they only looked at one aspect of the overall picture if we direction as fast as i think it actually can to have a five year cycle of studying different components of the tax gap so that the taxpaying population one year you would be updating your corporate numbers one year you'd be updating your pass through numbers and dating some components of the individual income tax and and as you went through this five year cycles you'd also be looking at what services those different populations needed since so much of what we ask taxpayers to do they do need assistance from us or others in some way and i think if you got on an ongoing five year cycle in that way you would have reasonably good estimates so that if there were something that congress and changed in laws or had close a loophole or something you could back out or add to the effect of those changes to your bottom line estimate right now we have so many squishy numbers the tax gap chart that the commissioner uses you know their whole colors that are in these are squishy numbers that's what the i think it's blue collar represents on the tax sketch well that's another whole problem for this committee because we need current and up to date numbers and typically the definitive all revenue collection for a given year may not be available for as much as twelve eighteen months after the close of the year which is a problem for us knowing it h possibility or at least exploring this notion of having a lot more information filing small business community came down heavily on the side of saying if you give all this rings of information to the internal revenue service then you have the wherewithal the software all the hardware to begin to process it correlated and make good use of it do then out is the system there such a site now that if they did indeed have information reporting say contractors w wherewithal to do this there is a much needed infrastructure improvements in order to adequately address that and how long would it take to install them that's a great question i don't have an answer to that is a software design it's still they're still in the process as you may recall texas but martin chairman you know i have witnessed over the last three years the iris ramp up of private collection agency initiative where they have spent millions and millions of dollars both in infrastructure and staff time to bring on a whole new program dealing with software conveying data data security and what i have seen is that the iris when it puts its mind to things in a laser like fashion can accomplish some amazing things so it seems to me that if the i r s work to be given the authority to do these things and the directive that it has to focus on as it focused on the private collection agency it should be able to accomplish that and probably cheaper than the costs of the private collection agency we have a separate that looks at the businesses going modernization effort from the team that i am in we have frequently found problems with the management of that modernization and it certainly is behind the schedule it was intended to to follow and it hasn't had as much delivered as it was supposed to have to levered on the other hand they do have greater capacity now than they certainly did back in the period you were talking about earlier to do this kind of matching it would undoubtedly take them additional effort to implement any new requirements they would have to do software development and then they need additional there would be a lag time or several years in all probability between the backbone of the legislation and the appropriations then the affected think that's certainly true and it would depend a lot on the specific initiatives that was implemented and how complex for instance the rulemaking would be to determine exactly how the if nation reporting would be  housewife i'm happy to make an observation or prior question you asked about what compliance might be now in two thousand and seven and it does strike me looking at the g a o shows the overall number being fairly stable in compliance over the decades but there are many conflicting forces of course going into that that are probably balanced out tax for marginal tax rates are much lower than they were in the sixty's and seventy's and even since in the in the eighty's so that's good for compliance  the capital gains rate was cut from twenty to fifteen percent in recent years that's reducing the incentive to be capital gains taxes by twenty five percent on the other hand you've got this huge increase in tax expenditures even while a few years more tax credits for energy  not spend all their refund at one time and hopefully save a portion of it so thank you for that on behalf of the congressional savings and ownership caucus that was one of our parties i'd like to focus on tax expenditures again and as mr edwards just noted congress has legislated through the tax code to an amazing degree if you add up all the tax expenditures as i mentioned in an earlier question some eight hundred forty seven billion dollars a year that approaches the size of all federal discretionary spending including all defense spending and all domestic discretionary spending so that's how much we've rising revenues just to serve a remarkably undefined constituency here because as i quoted in the other ms olson earlier unmeasured a non measurable on verified and verifiable so it seems to me if you analyze that what we've created here is a system in which the seventeen thousand ways to experiment with you the idea that perhaps we should make the tax expenditures more measurable and verifiable for example if you asked for and receive a tax break would it be nice if in succeeding years you had to report who benefited from it and to what degree that would improve accountability i would think gross today we don't really know where the money goes and that's astonishing amount of federal money to go the more confusion you have in the code the more people don't pay their taxes so these breaks create their own tax gap and from mr ross six numbers it looks like we lose thirty two billion dollars a year just an increase noncompliance as a result  expenditures that's about four percent of the total tax expenditures so if the government were really interested in collecting that money from the tax gap related to tax breaks we'd go ahead and have an upfront fee of about four percent anticipating that there would be about four percent noncompliance and i'm already unpopular with a seventeen thousand lobbyists for there anything that even if the government just has a theoretical question we're interested in  simplifying the code improving verifiability and measurability when you consider undertaking those steps of identifying who the beneficiaries are of these breaks and to what extent and also going had an anticipating a certain degree of non compliance resulting therefrom and those steps would come closer toward improving accountability of government comments we did a report on tax expenditures a couple of years ago and we've been updating the figures since that's how we have the figures in my testimony today we felt that these provisions should have the same type of scrutiny as an outlay program there's a wide variety of tax expenditures or a lot of different purposes for the tax expenditures but many of them are akin to a social program that is in the internal revenue code yet from our viewpoint there's really not the same ownership that you would have if you had it in a line agency that's responsible for overseeing outlays of federal funds so we did in fact press for more visibility for these in the budget process more research and more data collection so that we can determine whether or not the provisions are worthwhile whether they're returning monkey on their back to report that certainly is a reasonable proposition to me i think that would generally be the case there would be the need to collect data that we don't collect already and one of the things that would be an issue here your that and your expertise in tax and budget policy how do we what do we do about the largest deficit in the history of the nation in the last three years well i mean i'm very concerned about what's going on the spending side of the budget i looked at the numbers the other day in and under president bush from zero one to zero seven if you take it interest which has been pretty stable over recent years federal  parts of the budget i mean all that spending sucks money out of the private sector spending on defense is not good for the economy just like excess spending on title one program but you would concede until you attack the defense and entitled what side you really not solve i understand that you have some issues with that would you care to comment what those are and what you see those problems as well i've been involved with the private collection issue since its inception for the last five years before it even was legislation when treasury asked me to ensure that taxpayer rights were protected in this initiative and my goal was to make sure that taxpayers were being treated in the same manner and under the same rules and under at this pretty much the r s s sixty five monitoring seventy five right private employees and you have three monitoring risk and all the information in our report we report on has come from the i r s so we are reliant on the i r s giving us that information so i don't know whether there are more iris employees really that just aren't i don't know who's in that sixty five number that i know mine are and then it was some of those numbers as we looked at the program as it went out as it really started rolling out and looking at the cases that were going out there that led me this year in my december thirty first report to recommend that congress repealed the authority to use the private collection agencies because i believe that the business case wasn't there it was just costing taxpayers too much and that the iris could do it much cheaper i believe that there is a workforce that could be trained to do that inside the i r s that would be much more stable would protect taxpayers better and some of the very premises that the program was was based on such is that there were easy cases that we just weren't getting to that we could just ship out to the private collection agencies and they could just do like that do not exist in fact the i r s is now having to go to higher dollar accounts and small business accounts and accounts where taxpayers hav filed other tax returns in order to make up the current the number of cases that they're shipping out and i guess the third concern that i had about it was that if you go online to the i r s his web site and you look up under our annele revenue manual which is essentially our instructions to staff about how they are to treat tax payers you can find specific instructions for the complex collection employs about what they're supposed to do but because we are contracting out to these employees to these private parties as a matter of federal procurement law we cannot disclose the instructions that they give to their employees we cannot tell taxpayers how private collection agency employees are being told to treat taxpayers that is a matter for the private collection agencies to agree because it's considered proprietary information and i found that very disturbing  sequester the fines on a bank account for example of another time taxpayer no sir they are limited under the constitution it's you know the federal government that has the authority to lay and collect assess and collect taxes and so the way this and one of the problems is that it's a taxpayer says well i need sixty months or i don't think i should have to pay this penalty i was in a coma during all these years i couldn't pay it while i was in a coma then that case has to go back to the i r s to be work then we have two people working a case at any given time mr chairman if i could just briefly address this issue on my office is very closely monitoring the implementation of this program been given the sensitive nature of it we believe it's it's much you mentioned in your testimony that it is a special accounts receivable function of our us that they should have greater budget leeway than some other agencies what should their current budget be what would be the right amount of money for the i r  well i would want to see i'm not subject to the same restraints is the commissioner you know i get to speak freely in that respect and my views don't represent the views of the administration or the commission or nor the secretary of the treasury or i pretty much anybody else but i believe that we should be that the current budget is a good start and i would want to see more funding for taxpayer service we are ramping down  some of the walk in sites and some of the level of service on answering the phones and i think i would take a good look at what more we need in the i t department and then i'm a going forward basis i think that we just need to think that the iris needs for a period of years and i'm not quite sure what that period would be but at least fort least ten increases roughly in the two percent to three percent range overall both enforcement and taxpayer service and i t to get caught up and stay abreast with some of the demands that we have i also think that we have to look at the way the i r s calculates return on investment and one of the things that we just suggested was that the iris report annually to congress about its return on investment calculations both on the service side and the enforcement side and what you're getting for your investment a couple of other questions there are a number of small but nuisance areas for example household employee paperwork that's just a trap for the unwary it's a nightmare a blizzard of ink and paper is it your responsibility or who is it to come up with simpler approaches for that so we can take that recommendation and perhaps that's been in the law when we have looked at that in the past and we will continue to look at that i agree with you that it's very very complex we've also looked at just the whole federal employment tax arena because that's where so many small businesses get into problems just the complexity of the rules and we've tried to come up with some proposals well since you're the taxpayer advocate i look forward to hearing from  those things another question so many people just run and hide when they hear the t word or they don't want to understand the complexity of the code is there a simple breakdown i thought i remembered from all school or someplace that discretionary spending here in congress we have some twenty committees including our friends on the appropriations committee to oversee that eight or nine hundred billion dollars we're spending but on the tax expenditure side we've barely had any committees inequities in the code people with the earning the same amount of money can pay substantially different amounts of tax and even if you look at you look at education tax expenditures they've increased from seven to sixteen just in the in the last eighteen years so what we're doing is subsidizing you know young lawyers who are going to last cool on the one hand but we're burdening truck drivers and garbagemen on the other hand because they don't get that sort of tax break so there is a fairness thing here as well without data though levels of data that we have available for instance on the earn income credit we have a pretty good understanding of who's receiving it and how much and where they live in the country and all kinds of things like that some of the other provisions we had virtually nothing at all if we have a surely there is not a truth that was getting at the i t c fraud i think that there is a lot actually that the iris is doing on t c and we do have a very active matching program and that does stop a fair number of refunds going out i think any time you have something that is in the realm of four thousand dollars on top of that could be without any withholding you could get a check back to four thousand dollars that's a great enticement for people to find ways to claim and the human mind being what it is there are always new ways once we find the way that they're doing they invent a new one it just requires ongoing watching i think there's a large amount though we're working on trying to quantify this of tax payers who are eligible for the t c who are not claiming it we think that might be with the childless worker where it's not involving the children but it's there i have worked with united kingdom and studied their credit and made some recommendations about how to restructure our all of our family provisions the child credit the dependency exemption the head of household status and the earned income credit to sort of lessen some of the complexity it's a initiative you said it's too early how much time do you think you'll need for your group to to make an assessment of valuation of whether it's working or not we expect issuing a report in april can you make sure that that we get a