staggering to this mere mortal when you think that you're going to be processing more than two and a half trillion dollars in tax receipts and pay billions of hundreds of billions of dollars in refunds to more than one hundred ten million taxpayers you obviously have a big assignment ahead of you and of course once the filing season is over then the service will calculate process and mail more than one hundred billion dollars worth of stimulus payments as required by the stimulus act the reason for for mentioning the magnitude of your of your mission is i think  is not serious is not that we're not for going too much in collection revenues in lieu of of using budget proposes several initiatives to close that gap and additional resources toward i r s and forstmann efforts and i remember last year's hearing on the filing season and the i r s we had this discussion as well as several other good morning chairman lewis ranking member ram staff and members of the subcommittee thank you for the opportunity to be here today my name is linda stiff and i have served as the acting commissioner of the i r s since last september i am a career i employee having started as a revenue agent more than twenty seven years ago my written statement provides information on the number of virus programs and activities and i will be happy to respond to questions about any of the however in the brief time i have today i would like to mention several key areas that i think are of interest to the subcommittee first allow me to update you on the progress we have made on the economic stimulus program enacted by congress in early february through extraordinary planning effort and the dedication of the iris workforce we are poised to deliver not only the filing season but to distribute stimulus checks just as we complete the filing season we expect the first checks to be deposited electronically in taxpayer bank accounts in the first week of may and for the first checks to be mailed to taxpayers who did not choose the direct deposit option second week of may we are making every effort to keep taxpayers informed about the stimulus payments we have posted a special section on iris dot gov designed to answer questions and provide updated information this month we sending letters to all tax payers reminding them that they must file a two thousand and seven tax return in order to be eligible for a stimulus payment in late march we will send a special mailing to re cypriots of social security and veterans affairs benefits because those benefits are generally nontaxable and those recipients may not ordinarily be required to file a tax return we are reaching out to the veterans administration the so security administration and private groups such as a a r p to ask that they assist us in reaching those that may be eligible for the stimulus payment but who may not be otherwise required to file a two thousand and seven return to assist those individuals we have created a sample form ten forty a with information on how to fill out just a few lines that will enable eligible people to receive the stimulus payment the second major point i wish to touch on is the current filing season we're positioned to deliver yet another successful tax filing season we're on target to process more than one hundred forty million individual tax returns in issue more than two hundred twenty five billion dollars in tax refunds in the coming weeks i am pleased to report that based on early results the number of returns filed electronically is once again higher than at the same point a year ago the number of tax payers using free freiler is also on the rise up almost twelve percent compared to the same point in time last year i am also pleased to say that we were able reprogram our system to accommodate the a m t patch that was enacted less late last year and we were able to do that far quicker than i could have ever imagined that is a credit to the hard work of a number of iris employees who work nights weekends and even the holidays as a result we were able to allow most a m t impacted tax payers to begin filing in january and all others by february eleventh at the i r s the most fundamental premise of our compliance efforts involves balancing taxpayer service with our enforcement programs last year we provided services to more than three hundred thirty two million taxpayer that was an increase of ten percent year over year we have leverage technology improves processes and enhanced workforce training to not only increase our service capacity but to significantly increase the quality of the service to ranges in excess of ninety percent this is accomplished through many service channels that we provide at the i r s we saw an eleven percent increase in visits t dot gov for tax return information on web services an application where you your constituents can go online and say where's my refund we served more than thirty two million taxpayers accessing that last year that was a thirty percent increase over the prior year through our automated self assist telephone services and a sister calls answered we serve five hundred thousand more taxpayers than we did the prior year and we served one million additional taxpayers through our field assistance and community based volunteer effort i am pleased to report to you today that we are positioned to deliver these services again this year in a quality manner during the current filing season the third topic i want to touch on is the president's two thousand and nine budget request for the i r s this year's budget is an increase of four hundred sixty nine million over the budget approved last year guided by the i r s tax get strategy this increase will enable the i r s to strengthen enforcement programs to address compliance by small businesses the south employed in large corporations it will allow us to expand our ongoing research of filing payment and reporting compliance levels this budget request will allow us to expand our efforts efforts to a dentist in address issues relating to globalization and offshoring activities additionally the funding will allow the i r s to expand our document matching program and implement a legislative permit pros will submit it is a part of that budget we are confident at the i r s that we can do this while maintaining a strong tax payer service program that will allow us to continue forward progress in implementing the taxpayer assistance blueprint in closing i would also like to share with you the continuing progress being made in modernizing i r s systems kates the replacement to the master file system is processing almost a quarter of the returns filed thus far this year this means that those accounts are being settled in a twenty four hour cycle comparable to other private sector best practices refunds for returns processed and processed in cade's are delivered to taxpayers an average of four day sooner than those non early release is to the replacement system for accounts management have been on time and delivered functionality as promised we have improved our management and governance to ensure the success and are well positioned to deliver new modernized capabilities in the coming years thank you again for the opportunity appear before you this morning and i'm happy to respond to any questions you may have and i'm a commissioner thank you very much for your testimony before we recognize you we may have tad and members of the subcommittee thank you for inviting me to testify today at the outset i would like to say that the i r s has done an admirable job during the filing season given all the challenges it is facing what with late your tax law changes and the recently authorized economic stimulus payments the iris not only must process payments to over one hundred thirty million taxpayers who currently file income tax returns but it also must identify and process returns from payments to more than twenty million persons who have no filing requirement the i r s has managed to turn on a dime and deliver this filing season without significant glitches and extraordinary achievement i must note however that now that the i demonstrated its ability to change process is virtually overnight i fully expected to adopt and implement some of my the recommendations from my annual report to congress in the same time frame i will address some of these issues in my following remarks first in my two thousand and seven annual report to congress i mark the tenth anniversary of the iris restructuring and reform act of one thousand nine hundred eight by recommending that congress address taxpayer rights again by creating a true taxpayer bill of rights tha incorporates a clear statement of taxpayer rights and a clear statement of taxpayer responsibilities second i note in my report that identity theft is the number one consumer complaint in the united states far outpacing all others misuse of another person's social security number or identity generally occurs in tax administration in two contexts first the filing of a false return to obtain a fraudulent refund and second the theft in use of another person's social security number or and to obtain employment regardless of motive identity theft result in serious consequences for the innocent taxpayer such consequences may include the delay or denial of refunds the assessment of tax deaths resulting from income reflected on the fraudulent filers return and the requirement for victims to prove their identity to the i r s year after year the iris has a duty to these taxpayers to expeditiously determine the true owner of the s s n to restore the integrity of the affected taxpayers account and certainly not to exacerbate the victim's injury the iris does not know how many taxpayers are impacted by identity theft until recently the taxpayer advocate service was the only iris function tracking identity theft cases stolen identity cases within tath has increased by six hundred forty four percent from fiscal year two thousand and four to fiscal year two thousand and seven from four hundred forty seven cases to three thousand three hundred twenty seven cases my employees now report that they are receiving calls from senior citizens who filed for the economic stimulus payment after not filing for years only to find that someone else had been using their s s n on tax returns i applaud the iris for taking some proactive measures to assist victims of identity theft for example the iris recently implemented a tracking system through which an indicator will be placed on an identity theft victim's account once he or she has provided verification of identity theft unfortunately the i r s has not issued central guidance to its employees about how to apply the indicator thereby allowing each function to create its own procedures moreover the i r s has no coordinated approach to address and identity theft victims issues from start to finish i have recommended that the i r s develop a dedicated centralized unit to handle all identity theft cases and a centralized internal revenue manual to house all identity theft procedures a centralized unit will be able to identify all trends and systemic problems and can serve as a central contact point for discussions with the social security administration to improve processing my third issue involves elderly or disabled persons who receive in home personal and household care under state and local government health and welfare programs under current law the home care service recipients in these programs are often treated as common law employers of the caretakers as such they are personally responsible for reporting filing and paying the employment taxes on their caretakers wages these tasks may be difficult for an elderly or disabled person as a result of government entities often contract with a variety of third parties to handle these tax responsibilities one common arrangement is for the government to hire an intermediary service organization or iso however these isos or other third parties sometimes fail to meet their own these employment tax obligations when that happens the elderly and disabled home care service recipients as the common law employers remain liable for the tax interest and penalties such liabilities can result in severe hardship placing employment tax reporting and payment obligations on elderly and disabled taxpayers who need government assistance for in home care defies logic and does not not reflect good tax administration in my written testimony i make several administrative recommendations in this area but i believe the simplest and most elegant solution is to amend the code to provide a home care service worker is the statutory employee of the administrator of the program's funding be it states localities their agencies or isos by designating these workers as statutory employees the proposal is neutral as to whether the administrator must treat the home care service worker as a common law employee for purposes of other employee or retirement benefits thereby addressing some administrators concerns next in my annual report to congress and in prior testimony i have expressed significant concerns about the many aspects of private collection initiative today i will focus on the revenue projections and return on investment the private debt collection program or p d c generates about twenty three million dollars a year in gross revenue after subtracting out the direct costs of the program seven point six five million dollars and commissions payable to the collection agencies about four point six million dollars the annual net revenue  t c program is about eleven million dollars which translates to a return on investment or are i of about one point four five to one if we instead allocated the seven point six five million dollars to the iris automated collection system function the r o i would be much greater even using the irises conservative r o i estimate of thirteen to one for a c s and expenditure of seven point six five million dollars would produce gross whether new of ninety nine point four five million dollars and net revenue after cost of ninety one point eight million dollars very simply the p t c program will cost the government more than eighty one million dollars in foregone revenue this year and the cost is likely to reach nearly half a billion dollars over the next six years since the purpose of the p t c program was to raise revenue the fact that it is costing the government at least eighty million dollars a year destroys whatever thin rationale might remain for its existence it is time for this program to end my next issue involves the low income tax payer clinic program which congress funded in one thousand nine hundred eighty eight after hearing testimony about the problems that low income and english as a second language taxpayers encounter in on taining representation and in learning about their rights and responsibilities as taxpayers the importance of l i t c's is underscored by a recent study by my office showing that tax payers who are represented in earned income tax credit ought it's almost twice as likely as unrepresented taxpayers to retain all their despite this program's demonstrated result i r s employees who talk with tax payers often are reluctant to refer taxpayers to l i t c s although iris employees can direct tax payers to the l i t c website or publication forty one thirty four the list of l i t c's or read a list of clinic names and phone numbers in the tax payers areas there is doubt as to whether they can refer a taxpayer to a specific l i t c many low income tax payers actually lack access to the internet or cannot wait to receive a publication by mail before they get help in light of the vital role role that representation can play in the outcome of the tax payers audit i urge you to consider legislation expressly authorizing i r s employees to refer low income tax payers who do not have representation to specific l a t c s in their locale finally for several years i have highlighted pain problems finally for several years i have highlighted problems with the irises delivery of face to face tax payer service in the taxpayer assistance centers or tax i am pleased that the iris is now reversing its trend in recent years of limiting the types of services in the tax nevertheless many challenges remain in two thousand and one the iris committed to opening one hundred eighteen new tax over the next eight years none of these tax were opened today tac offices adequately serve only sixty percent of the us population and only fifty five percent of tax are open for thirty six to forty hours per week during the last three years the iris reduced tax staffing by nine percent leaving most tack offices with staffing shortages although the irises now hiring seasonal workers to ease the staffing crunch it should make a firm commitment to providing a permanent and sufficient level of staffing moreover the iris must conduct appropriate research to determine the taxpayer service needs by geographic and demographic factors in order to identify the most appropriate number and placement of tax moreover the iris is still downplaying its role in tax preparation which is a core service for the tax administrator for example the irises declared returns involving cancellation of debt can come out of scope for both the tax and volunteer preparations site even though these subjects are highly likely to impact the very taxpayers who are eligible for tax services whether bec of credit card forgiveness or home foreclosures thus these low income taxpayers have no alternative but to pay for return preparation something they personally cannot afford to do thank you for this opportunity to testify today issues that i think all of us are facing individually and as citizens and other financial sector private public agencies in attacking identity theft is certainly a growing area i think and in  testimony and in her documents she says that it's the number one consumer come point that's registered with the federal trade commission with the i r s take identity theft very seriously we have procedures and processes in place when we  that we encounter two forms of identity theft of tax administrators one is where someone uses your s s than to file a fraudulent return and get a refund in another instance someone is using your s s and to get employment and then the i r s receives a ten ninety nine or a w two showing income that doesn't belong to you in each of those instances the tax payers who get caught up in that and experience that are subject to notices to potential bills and to having to work with to establish verify and validate both their identity and their address in the past six once we have stood up an entire organization whoso mission is to help us find ways to strengthen our ability to help taxpayers who are victims of identity theft from a tax administration standpoint we have simplified the documentation that's required we've provided taxpayers with the option to fax the documentation in and i think that what we're finding with stimulus is not in any great number but i think nina has run into several instances already where people haven't had a filing requirement for years if you're someone who's prying into stealing someone's s s n that makes a good target because this is someone who's not filing so the ability to be caught and identified as doing something criminal was probably somewhat reduced and so as we're finding now we're trying to deal with them on an individual case basis we're reaching out we've told seniors to contact us and we have procedures in place both in tasks and on the i r s side that we will work with the seniors to ensure that we get their identity verified on our database and that they do in deed receive their answer the telephone is my understanding that the g a o g a o estimate that before going to revenue from shifting to collection employees to answer the phone would be six hundred eighty one million dollars ok let me let me provide some context for what we're facing as an agency when the stimulus laws were enacted and we said we would be able to get the same english checks in play and may i think everyone was of a like kind mind that sooner was better than later if the goal was to simulate the economy then we're faced with dealing with tax payers at the same time that we're dealing with taxpayers who are trying to file their tax returns and let me just context that one hundred thirty five million individual returns that will process between now and the end of april two hundred twenty five billion dollars in refund checks that we want to issue to one hundred million taxpayers and in any given year during filing season we hear from about sixty million of those tax payers on our phone line seeking assistance either through the south assisted automated phone lines or a personal assist or to help them navigate the tax system now we've got one hundred thirty five million taxpayers plus maybe twenty million so security recipients and veterans benefit recipients who are expecting stimulus and from the time congress in active the stimulus provision up until as recently as yesterday we have been receiving fifty thousand plus calls from taxpayers on a daily basis wanting to talk about their stimulus and we can only imagine those numbers increasing the closer it gets to may second so now we've got the convergence of trying to handle the increased emulous calls at the same time that we're doing refund calls and we believed it was important still believe that it's important that a senior citizen of veterans  a recipient of veterans benefits or any other taxpayer for that matter should be able to call us and get a question answer so they can do what they need to do to receive their stimulus and in order to expand  our to answer telephone for those taxpayers in this compressed time frame that we're all dealing with we looked to our a c s our telephone collection operations because that operation operates on the same phone lines that our customer service to us and we're able to switch them over on an hour to hour basis to supplement our toll free tax assistance to taxpayers so we worked with nina and we worked with our compliance operations and we made a decision to train our a c s assisters to provide that assistance if needed we're monitoring hour by hour day by day and only supplementing as the traffic demands it the estimate you have is the top end if we needed all of those people the answer calls every hour of the day it would be up to a six hundred million dollars loss on the collection side but thus far we have been on the low side of the demand where only having to migrate people over on occasion as opposed to all day long so we're actually hoping that the impact on the lost revenues will be significantly less but i think more importantly it's imperative that tax payers income tax planets why is it so important as you know the low income taxpayer clinics provide representation to taxpayers in controversies and we did a study that showed that low income tax pairs who are audited by the i r s for earned income credit that in those exams if they are represented they are twice as likely to get the earned income tax credit and and get almost twice as much earned income tax credit than an represented taxpayer so it's clear that representation helps these taxpayers navigate our audit our audit procedures and we feel it's very important for taxpayers when they are it when they are low income and they may not be able to navigate the iris they may have language different languages that they speak as their primary language that getting representation really assists them in getting the right answer from the i r s rather than a default answer that is not the correct answer so the i r s employees who have the taxpayer on the phone we really want them to be able to say you live in this area and there is a low income tax payer clinic that serves this area and they have language capabilities they have translators that can speak your language so let me give you the phone number for this the intake number for that clinic and we just think that that will improve tax administration overall and get the right answer for these tax payers right now a lot of times are getting an answer in an audit or a collection issue because that's the wrong answer because they just don't know the right things to give us in terms of information thank you very much  testified before this committee that even if the i r s were given more resources to hire and forcing their employees it wouldn't be used to collect the type of debt currently being collected by the p c a program instead i r s employees in your predecessors would be used for more complex higher priority cases is this still the case yes it is then it seems to me there is not really a choice between using i r s employees and using private collection agencies to collect this debt isn't the real choice whether we use private collection agencies or let these tax debts go on collected but i think to respond to that and maybe to clarify to what mean included in her testimony is that the cost that the iris incurs to support the p c a is is it's not a choice of seven million dollars to spend on this or on that this is money that the p c a work is paying for itself ok on an annual basis the sunk cost to start the program will be recovered in late two thousand and ten but what we're doing is through the p c a program collecting thus far i think roughly forty three million dollars that as you pointed out otherwise wouldn't be collected because the competition isn't it's not a choice they're not mutually exclusive so you could curve then with the finding of the of our own  nonpartisan joint committee on taxation which believes that iris employees would not be used to collect this debt and therefore if we terminate the pca program it would reduce tax revenues by again according to the joint committee on taxation it would reduce tax revenues by over one billion hours during the next ten years i can't confirm their projection there but you would lose what it is that we're getting each year and to the treasury the fisc is getting fifty percent of what's collected you have those numbers i can get it to back off the right i'll have to follow up very well i certainly hope we don't take a step backward in our efforts to close the tax in point of fact the iris has a test underway right now that is testing what would happen if we used i r s employees to collect this very debt because my contention is that for less money we would be more protected productive with it it's just the irises policy call that they don't want to use employees to collect this debt which i do not support that call secondly the iris is running out of cases to send to these people and as i speak right now they are looking at other cases that the i r s is working right now preparer penalty cases a c s actual cases in a c s inventory that they want to ship out to the private debt collection agencies which are not the case is upon which the congress authorized this program they were told that they would only get these easy cases and finally in terms of the tax gap our projections show and these are the actual numbers from the irises private debt collection program that the net revenue from the p c a program is only about eleven million a year we have a three hundred forty billion annual tax gap and when you do the chart that shows three hundred forty five billion and then you're levon million the eleven million is a blip on the rate it doesn't even show up it's a blip on the radar screen so i just remain when i'm completely unconvinced that this program is worth it's the expenditure of the resources and the risk that we have in sending taxpayer program would reduce tax revenues by over a billion dollars in the next ten years and so there's obviously a disagreement there and i think we i just hope we don't  eliminate a program that in my judgment everything i've seen all the and trying to look at it objectively all the evidence points the fact that it's working anyway i just hope we will continue to collect those  revenues and i hope they do total over a billion dollars over the next ten years because we need to do everything possible to close tax gap with that mr chairman i'll yield back thank you i want all of the members to be aware that we're going to be operating  considering the fact that we're borrow we are borrowing in all of our nights from foreign sources over five hundred million dollars a day primarily going to wartime expenditures ten to twelve billion dollars a month in iraq i think it becomes a matter of patriotism for people to pay what they legally and fairly under the law i i guess been grumbling about paying taxes since eighteenth century and certainly i'm not immune to that we all pay whatever it is we legally and equitably unfairly i would be curious in that budget resolution there is an additional appropriation of four hundred ninety million for this purpose of tax compliance do you have if we can make this happen plans and if so could you give us an idea of what that might be the budget requests that you have before you as i outlined in my opening statement will allow us to expand our compliance efforts in our enforcement programs in a number of areas we have a tax gap report we have a tax assistance a tax payer service blueprint and we have a modernization vision and strategy those documents guide our investments whether they be in enforcement services or technology and any additional funding we would be guiding those investments by the priorities that are outlined in those areas but we are focused on reducing noncompliance and small business arena and large corporation high wealth individuals and particularly as a result of globalization looking at offshoring transactions i can tell you that for every dollar invested in iris enforcement program get on average a five to one return of investment so applaud appreciate you mentioning the offshore business we try to do something with that will respect to paying for the a m t fix you know were unsuccessful maybe you'll have more success always phone calls you're getting from sixty million people looking for help on their tax returns how many are getting an accurate response we've been undertaken significant efforts in recent years to improve the accuracy of our responses in the last year and again this year the quality meaning the accuracy in the tiling us of the responses is in the ninety percentile both on the front and at the walk inside this is significantly  improved number than where we were even three years ago what five or six years ago you were at fifty percent and we've like i said we've had all hands on deck and number of africa both leveraging technology training and  person acted for stimulus for i r s was about two hundred two million and i don't know that i have the exact number on outreach i suspect that it's probably almost fifty percent of that total appropriation wasn't the first letter about forty three million dollars yes probably heard the statistic before it says that where we have information reporting we have about a ninety five percent plus compliance rate with what happens on the tax return on small businesses particularly where they're not subject to third party information reporting that we're getting about fifty three cents on the dollar what is compliance rate of the big box companies the wal mart's assam's well our tax gap data  the corporate area or in a has not been refreshed as currently as the other numbers that i just gave you but i think the estimates of corporate non compliance are north of thirty billion dollars annually  hundred million filers they're really you're arguing here argues for a pure consumption tax as opposed to an income tax or you can reduce the number of filers from two hundred million to forty million you have big box companies collecting fifty percent of all or of those you know three point six percent of all the companies in america collecting eighty seven point five percent of all the revenues if they were if they were honest you have a better collection rate them are as currently those i know i certainly couldn't weigh in on that probably one where are the other without the lack of experience and i know that's a discussion that appears every time we talk about tax reform and probably one that will continue do you pay any attention or have any policy staff looking into more efficient collection systems more efficient collection systems i'm not sure what you mean by that we are constantly looking at in improving our collection of delinquent taxes and taxes owed and do but from a policy perspective of looking at the broader tax system i think that treasury tax policy undertakes that work thank you for your help thank to skirt payroll tax liability for american workers in iraq by offshore subsidiaries can you tell the committee whether the i r s was ever contacted by any official at the defense department alerting you to the fact  company is workers would not be making payroll tax payments so i'm unable to comment on any specific case let me say that we're certainly familiar with the issues surrounding that  case understand that employment taxes is an area where we have to stay vigilant to improve compliance we've increased our employment tax programs enforcement efforts and audit significantly in the last twenty four months we continue to do that the issues in the case you raised clearly reflect the changing world with globalization and more and more workers doing business in foreign countries and how transaction structured in the legality of those transactions and certainly we continue to as i said be vigilant in trying to stay on top of those emergency it's appreciate your part the second part of your answer but my response to that  will have a bill for iraq more than a trillion dollars by conservative estimates and so the follow up question would go like this in a similar vein has the i r s apply and in any fashion as to whether u s citizen workers of these work contractors are employees or independent contractors for income and employment tax purposes we wouldn't have opined broadly speaking we have a twenty factor test that we use to determine if someone's an independent contractor versus an employee and it's a it's a case by case taxpayer by taxpayer decision when you look at it and it's a complex area because even when one makes  determinations then you have to step back and look at the application if appropriate of section five thirty in the tax code what would you consider offshoring in these instances here to be i don't without the specific facts and circumstances of an individual case but i couldn't say broadly speaking at tax avoidance well a sign on the side of a building with no employees inside not enough self what i say that tax evasion i would have to look at the avoidance i don't even know that that would suggest that there's avoidance in and of itself i'd have to look at the facts and circumstances in the legality that governed what was reported on the tax return versus not a more specific question constituent company which is recently bought been bought by a canadian entity ask me if i understood the reporting and filing requirements for visiting executives i didn't but now that i do i have some questions about their utilization and effectiveness apparently  executive exceeds three thousand dollars in u s sourced earnings he or she must file a form ten forty nonresident form for some visiting executives a week or two of meetings here in new york boston or l a would trigger that threshold i wonder if you could tell the committee what the compliance rate is do you believe that all foreigners visiting the us on business which exceed this threshold are filing with the i r s and if so are these finally shoes will for the i r s office in your  let me take the latter first the filings are definitely useful we were receiving roughly six hundred fifty thousand a year it goes up or down if you in each of the last three years what i can tell you sitting here today is what's the compliance rate because i don't know what the universe that that should be filing we're undertaking research looking at that as i mentioned earlier as we see globalization and we see more and more work done cross border these issues are taking on a greater ally then perhaps they had and other decades and so we are looking at that would you judge this to be a priority for enforcement it's a priority particularly we've redone our international focus this past year  and our priorities and this is certainly one of the ones it's being worked while we sit here today to determine it's whether or not it's worthwhile i don't know the answer to that yet because i don't know what the compliance levels are we're going to have to incur some costs and research to determine whether this is a significant issue or if most people are indeed complying might i suggest that given the irony of your respective responses to the two questions i raised that having a sign on a building indicates that indicates that it's an address when it really not is probably more of a priority in terms of enforcement than the idea of a visiting executive who's here for a week at a time and the enthusiasm with which we demonstrate pursuit of those revenues is something that the committee along with the i r s needs to examine well and let me assure you that we recognize the issues particularly in the employment tax arena we've tripled our efforts there in the thank you for your testimony here today let me start with you and i want to follow up with something that mr leonard just touched upon briefly with you and that's the i r s notification letters that are gone out regards the tax rebates and when i started reading these articles that appeared in the paper over the last week or so i my reaction was kind of similar to everyone else well i think looking at this you know forty two million dollars for the first notification letter going out this month just how necessary is this in this business strike it as an incredible waste of taxpayer dollars you can certainly understand the need to do some outreach with those who qualify for the rebate checks that normally would have to file a return all this is based on tax filings but we're talking about the vast majority of americans receiving the rebate checks that those who have always filed returns are going to file returns this time isn't there a way that the i r s can do a better job of targeting and still save taxpayer dollars rather than a blanket notification procedure it's my understanding and reading out arrest letter that's going out this month and it's not just one notification but everyone's going to be receiving a second notification after eligibility has been determined already and it just seems to be incredible redundancy and none unnecessary expenditure of tax dollars as you indicated in your testimony stablish your own website with information most of us have already established a website with information about the tax rebates and would  qualify i know my office is doing some outreach in the district to help if they have questions i think there are better ways and more efficient ways for us to get the notice out there but without just a blanket dual notification system for something that they and have to react to they just file a return and the stuff goes out automatically could you help me with this letter those are that fair fair question our discussions that we had as we crafted our strategy for informing and educating taxpayers as to the stimulus and let me just share with you what drove our decision and i'm never one to say there's not a better way to do anything because i'm confident there is and we'll find it but at the time that we made this decision what we were looking at is the this scenario that i scribed earlier this stimulus is overlapping with the filing season we had sixty million calls coming in and now we've got one hundred thirty five million fifty thousand calls already before any notice is gone out of taxpayers calling every day then we look back to our experience in two thousand and one we did rebates and mind you that was identical to the situation you described there was no social security it was taxpayers who filed in new we got twenty seven million calls in june and july we shut down the system crashed we weren't able to answer anyone's calls for a period of time recognizing what happened in zero one and that we were now going to overlay the same set of facts in april may timeframe when you're at the peak of your filing season and add twenty million potential non trying to get in we made the decision and you know we were very fortunate that the congress supported that decision in the appropriation that that was a risk too great to take and that my mailing this notice to taxpayers if we could somehow give them enough information that they didn't feel the need to call that we were going to be ahead of the game the second notice is one for a record creeping record keeping requirements and it's to an individual them won't get their full rebate this year you provided a true up the following year they don't need that information for that record creepy and i think most taxpayers want that and so that was the convergence of facts and like i said it may be a good call or a bad call but we felt it was the prudent call given the risk in the prior experience that we may be in just underestimating the power of free money out there what that does in the making motivating on the make phone calls now but it just seems to and do this was there any thought given to including a paragraph about identity theft in the cause as miss olsen you know testified a lot of this could be a very major issue that's going to arise with these rebate checks and identity and identity theft just simple order to protect themselves from this i think that's an excellent suggestion and i only wish i had thought of it or we had done it on the front end i don't think when we were doing it you know we were moving in real time trying to be responsive to getting the checks out in may and i'm not sure that we scope the identity theft is something that we need to put in that letter but what we are doing now is working with naina working with a a r p working with every newspaper public service announcements with the computer system with the i r s why can't we get something changed quicker than what we encountered and then we fixed it late last year but there was a lot of concern that with the late date was going to slow down the whole  have in the united states today an online system a free file system then my understanding is that at this point in time this year is up fourteen percent some have advocated getting rid of that system and going to a system where the i r s does all filing online self administered and i believe you're an advocate of doing that i'd like your comments on that at the same time the system in britain which today is administered by the british government the online system completely is looking at going to the american system of having a free file online system for taxpayers as well in america that's for tax payers  about fifty four thousand dollars a year that's like my my question to you is why should we limit a system that appears to be working well i would first challenge the statement that it appears to be working with all due respect but let me tell you try to describe my thinking about electronic tax returns i believe that the government has a responsibility to develop a free port for electronic filing for all tax payers so that no taxpayer has to pay four hundred ninety five or nine hundred ninety five or whatever it is just for the act of electronic filing that will spend forty two cents to do the stamp rather than pay four hundred ninety five myself included i also believe that the iris the government should provide the electronic equivalent of a paper ten forty and what is available in paper that the government publishes in electronic format so i have it in vision at ten forty with fill in blanks and math because people make math errors when they do it on paper and for each line you would click on the the line to get linked to the instructions not spiffy things that all the software has but instructions and if in the instructions we refer to an iris publication then we link to that publication these are all things that the taxpayer can have on paper in their desk in front of them if they go to that trouble and then taxpayers who are not happy with that is i think many taxpayers would like the bells and whistles that the other software programs and the links to their bookkeeping software and all that the name can go out and purchase those those other products i think that where the government goes awry with the free file alliance is first of all to closed shop free file gets to decide who gets to be in that alliance so just this past filing season we had a nonprofit program that had developed an excellent very modest but right to the point program for free e filing and free tax preparation and was used by millions and millions of taxpayers and they petitioned free file to be part of the free file alliance and free file lines decided no they couldn't be part of that alliance and i don't really understand their rationale well we also have found that listing all of these sites it's not clear what they offer up front taxpayers get part of the way through and find out that what they need is not part of that program and they have to purchase that from the program in order to get the full capability for example a schedule c some of the programs do not allow you know a listing more dependency exemptions than a certain number so if you have x number of kids you know you don't have those that's very confusing to the taxpayers and i think you see that in the low numbers that taxpayers are using on the free file alliance even though they had fourteen percent increase this year they had a decline last year and the numbers have been in the three million to four million usage when you have one hundred thirty million taxpayers thank you let me ask you one of the questions my time is expiring the the issue  chairman talked about earlier at the very beginning about seniors being targeted i have heard that actually with respect to the sea with respect to the refund the rebate coming up that some predator are going after people saying i'll take a percentage of your return i'll give you some of it upfront if you can sign it over to me is your refund to me or your tax code to me is there anything that this committee can do this congress can do to stop that from happening or the the i r s can do i don't know how you stop that that is pure fraud and they're all in wherever there's money involved going to be people messing with that but the iris has a very good you know publicity campaign about these schemes and scams as i see them and certainly criminal investigation is trying to monitor these schemes and scams to the extent that we can find them and they're doing a very good job in my opinion i would also suggest that you know we can get you information about these so you are can put them into your newsletters and on your websites because the and as you're talking to the press the more awareness that the public has about buying into these things they come in as emails and you click on them and it looks legitimate thank you  in september two thousand and six the r s p b began turning over thousands of taxpayer files which include private insensitive taxpayer information to private sector debt collectors under the i r s plan i figured under the i r s plan the private collection agencies are allowed to keep up to twenty four percent of what they collect depending on the size of the case but in testimony before congress i officials have repeatedly acknowledged that using private collection companies to collect federal taxes is more expensive than having i r s do the work itself according to the i r s the return on investment from using i r s employees to collect these taxes is thirteen to one while the are alive for the p c s is just three to one in addition according to the i after commission payments to the p c a is totally more than five point million dollars the net revenue generated by private collectors for nineteen for two thousand and seven was just twenty million dollars today now given the drastic disparity in the return on investment between the private contractors in the i r s employees and the dismal performance of private collectors to date do you believe it makes sense for the i r s to continue to pay private collectors almost twenty five cents for every dollar collected on the easiest cases in which i r s employees could collect much more with a choice of seven million dollars on the table and do i spend it for p c s or do i spend it for iris employees there's not seven million dollars they're self funding through their collection process and i think that we've been very candid in saying that iraqi employees would have a higher return on investment for seven million dollars that comes from the p c a program but the choice is never been one or the other or why should there even be a choice then if that is the record why don't we simply support provide the resources and have enough of i r s employees to do the job if we're not getting the returns that we expect or we can get from the right the public employees wind guy's name are we or person that's come before us has never ever contradicted those numbers which i provided in the basis of my question are you debating now i'm not i'm not debating the numbers then why are we continuing to practice this is an collection tool that the congress authorized the i r s to use and it is bringing in twenty million dollars and it's this is ideologically driven there's no two ways about it this process should be ended and it immediately is a waste of taxpayers money and i believe that it is wrong to continue my second question is this since nine hundred ninety five the total number of virus employees have been cut by more than twenty seven thousand do you believe the staffing reductions have hampered the service efforts to close the what's your opinion on it i know that in the last in this decade since two thousand we have achieved double digit improvements in our productivity we got our audit coverage up to where it was through technology through better management through better training we saw dollars collected through the tax system last year as a direct result of iraq intervention increased almost sixty billion dollars from thirty three billion in two thousand and three record numbers so i think that we're using the resources that were given in a way that is producing the end result in the return at a higher rate than we've ever seen before and yet the amount of the number of people and the amount owed to the government which we're not collecting has risen substantially substantially since we've lost twenty seven thousand employees thank you m me just make a quick statement that pertains to ms t very statement before about this rebate and those unscrupulous individuals out there who may take advantage of those who may be eligible for this i would just want to also you suggest that those nationally known tax preparers that are out there and i will not name any specific one but this is a great opportunity for them to show some some kindness as well as build some good public relations particularly as it pertains to those individuals who do not have to file for taxes but under these circumstances need to in order to avail themselves of the rebate i'm talking specifically of social security recipients as well as disabled veterans it's been brought to my attention that some of those not all are charging at least thirty five dollars to file on behalf of those individuals for some of them that is about ten percent or more of the rebate that they were receiving i think  into consideration those individuals the level of income is negligible for some of them this is really something that they need to get every penny possible out of so i would ask those as an act of goodwill to those individuals take  conform penalty standards between preparers and tax payers does the i r s agree with this proposal to conform the penalty standards for tax payer and tax repair and for tax payers to taxpayers yes we did the disparity that today present unique challenges and problems both for the taxpayer and for the practitioner well thank you very much for your response missiles and for you i understand your annual report which is too heavy to lift up and showed everyone here today  and i want to thank you for you do great work you also have stated concerns for what the current more likely than not and quote standard so do you also support the administration's position on this issue and if so why yes and first let me note my report does come in a cd rom which is lighter and will be glad to get one yes we do support that those two standards that the preparing the taxpayer standard be be ma before we left and before time ran out ever so moving back the the deadline period by which i always needed to know what the intention of congress was going to be so they can prepare for the  change in your schedule and your ability to react to the effects is there any way that the i r s knowing that having a good good faith a good good sense that the congress is going to act to intercede  out between the committee and the i r s is there any way we can we can bore that out now to kind of have a full cooperation not having that front overhead by the white house not having that threat that if we don't act now we can't get it done knowing we're going to do something answer has to be yes well i think there's always an opportunity to work more closely together i do need to thank you because we actually were able to get some pre planning underway because of the letter that you gave us that provided some specificity  what to expect i think the challenge is and is going to continue to be that the tax system is so large there's so many systems that i don't know that the taxpayers you or us would want to incur the cost to allow that tax system to be program multiple multiple ways for any eventuality but i think there has to be a way to narrow down what the what the choices are going to look like and get ahead of it a little so i put in so no law just legislation to pass in order to act i don't want to rolling faster is to provide during the year early in the year a list to congress to the two tax writing committee of the expiring provisions and then an estimate of the impact that the expiration would have plus the the drop that date when do we need to have a real action by so that folks who really care about these issues can use that information to move things along accordingly thank you very much  process to to limit access of this information so you doesn't go out of those who are supposed to have it as a result of that there some conversation as to whether or not prosecutors are attorneys for that you can contract to this information it's a big deal for twenty counties in the state of ohio child support enforcement is a big deal and i just want to be able to have my tax council follow up with your folks to see if we can continue this conversation to work that out