S. HRG. 113–440 

PROTECTING TAXPAYERS FROM INCOMPETENT 

AND UNETHICAL RETURN PREPARERS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

APRIL 8, 2014 

( 

Printed for the use of the Committee on Finance 

PROTECTING TAXPAYERS FROM INCOMPETENT AND UNETHICAL RETURN PREPARERS 

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90–922—PDF 2014

S. HRG. 113–440 

PROTECTING TAXPAYERS FROM INCOMPETENT 

AND UNETHICAL RETURN PREPARERS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

APRIL 8, 2014 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

RON WYDEN, Oregon, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

MARK R. WARNER, Virginia 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JOSHUA SHEINKMAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee on 

Finance .................................................................................................................. 1 

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 

WITNESSES 

Koskinen, Hon. John A., Commissioner, Internal Revenue Service, Washington, DC ............................................................................................................. 5 

Olson, Nina E., National Taxpayer Advocate, Internal Revenue Service, 

Washington, DC ................................................................................................... 7 

McTigue, James R., Jr., Director, Strategic Issues, Government Accountability 

Office, Washington, DC ....................................................................................... 32 

Cobb, William, president and CEO, H&R Block, Kansas City, MO .................... 34 

Salisbury, Janis, chair, Oregon Board of Tax Practitioners, Oregon City, 

OR .......................................................................................................................... 36

Barrick, John, Ph.D., associate professor, Brigham Young University, Provo, 

UT .......................................................................................................................... 37

Wu, Chi Chi, staff attorney, National Consumer Law Center, Boston, MA ....... 39 

Alban, Dan, attorney, Institute for Justice, Arlington, VA .................................. 40 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Alban, Dan: 

Testimony .......................................................................................................... 40 

Prepared statement with attachment ............................................................. 49 

Barrick, John, Ph.D.: 

Testimony .......................................................................................................... 37 

Prepared statement .......................................................................................... 62 

Cobb, William: 

Testimony .......................................................................................................... 34 

Prepared statement with attachments ........................................................... 76 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 3 

Prepared statement with attachment ............................................................. 126 

Koskinen, Hon. John A.: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 131 

McTigue, James R., Jr.: 

Testimony .......................................................................................................... 32 

Prepared statement .......................................................................................... 138 

Olson, Nina E.: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 163 

Salisbury, Janis: 

Testimony .......................................................................................................... 36 

Prepared statement with attachments ........................................................... 193 

Wu, Chi Chi: 

Testimony .......................................................................................................... 39 

Prepared statement with attachments ........................................................... 257 

Wyden, Hon. Ron: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 288 

Page

IV 

COMMUNICATIONS

Gonzalez, Manuel .................................................................................................... 291 

Jennings Advisory Group, LLC .............................................................................. 292 

Latino Association of Tax Preparers, Inc. (LATAX) ............................................. 294 

Maryland State Board of Tax Preparers ................................................................ 301 

National Association of Enrolled Agents (NAEA) ................................................. 302 

National Association of Tax Professionals (NATP) ............................................... 306 

National Society of Accountants ............................................................................. 310 

Williamson, Donald T. and James Gale ................................................................. 316 

(1) 

PROTECTING TAXPAYERS FROM 

INCOMPETENT AND UNETHICAL 

RETURN PREPARERS 

TUESDAY, APRIL 8, 2014 

U.S. SENATE, 

COMMITTEE ON FINANCE, 

Washington, DC. 

The hearing was convened, pursuant to notice, at 10:08 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Ron Wyden 

(chairman of the committee) presiding. 

Present: Senators Cantwell, Carper, Cardin, Brown, Casey, 

Hatch, Grassley, Crapo, Roberts, Thune, Burr, and Isakson. 

Also present: Democratic Staff: Michael Evans, General Counsel; 

Anne Cammack, Senior Tax Counsel; Joshua Sheinkman, Staff Director; Todd Metcalf, Chief Tax Counsel; Maureen Downes, 

Detailee; and Juan Machado, Professional Staff Member. Republican Staff: Chris Campbell, Staff Director; Shawn Novak, Senior 

Accountant and Tax Advisor; Jim Lyons, Tax Counsel; and Preston 

Rutledge, Tax Counsel. 

OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR 

FROM OREGON, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The Finance Committee will come to order. 

There is just a week to go before the April 15th deadline for filing taxes, and millions of Americans are spending a good portion 

of the spring struggling to fill out tax forms and digging through 

piles of receipts in a painful annual ritual. The complexity of the 

tax code creates an environment where confusion and errors flourish. And the Congress is not blameless on this issue, and that is 

one reason, in my view, why it is time to rewrite the tax code and 

make filing your taxes easier in America. 

For many Americans, maybe even a majority, nothing will have 

a bigger impact on their pocketbooks all year long. The great majority of Americans want to get it right, but because the tax code 

is so byzantine and so complicated, and so overgrown, nearly 80 

million Americans pay for help preparing their tax return. And 

what is especially alarming is that most of those paid tax return 

preparers do not have to meet any standards—any standards—for 

competence in order to prepare somebody else’s tax return. 

Earlier this year, because of the baffling outcome of that Federal 

Appeals Court case called Loving v. IRS, protection for American 

taxpayers against incompetence and fraud among tax preparers 

has taken a significant blow. As too often seems to be the case in 

2 

situations like this, the most vulnerable people in America are 

going to bear the brunt of the effects of this decision. These are 

often people who are struggling from paycheck to paycheck, counting down the days until their refund comes through to help them 

make ends meet. They could be seniors or working families who 

qualify for the Earned Income Tax Credit, or they could be immigrants proud to pay taxes in their new country who just want to 

make sure they are following the rules of a tax code that is hard 

for anybody to understand. 

Here is my bottom line. For the second time in 8 years, the Government Accountability Office has done an independent inquiry 

and proven that the absence of meaningful oversight of much of the 

tax preparer industry is harming too many citizens who can least 

afford it. The problems they run into could be as simple as a typo 

or a miscalculation on a form, but they could also be much worse. 

In some egregious cases, preparers calculate a taxpayer’s refund 

in person and skip the line that shows who did the work. Then, 

after the taxpayer leaves, the preparer falsifies the math to boost 

the refund, files the return, and pockets the difference. And worst 

of all, unless the taxpayer can prove what happened, they are on 

the hook for the money when the IRS finds out. 

Witnesses today are going to share some more eye-opening stories, and we are eager to get their thoughts on what the government can do to come up with more sensible policies here. The most 

important step is to restore standards to protect the American taxpayer. 

Now, I am proud to say my home State of Oregon gets this issue 

right. Tax preparers at home study, pass an exam, and keep up 

with the changing landscape of the tax code in order to maintain 

their licenses. And Oregon’s standards work. The Government Accountability Office took a look at the system a few years ago and 

found that tax returns from Oregon were 72 percent likelier to be 

accurate than returns from the rest of the country. That puts fewer 

Oregonians at the mercy of unscrupulous preparers and reduces 

the risk of a dreaded audit. 

Now, there are ways for Congress to help in this arena. For example, I strongly believe that comprehensive tax reform must simplify the tax code and make filing easier. That must be a priority. 

When the Finance Committee passed the EXPIRE Act last week, 

practically every Senator here on the dais agreed it is time to end 

stop-and-go policies and give Americans more certainty about their 

taxes. The bipartisan tax reform plan I worked on with Senators 

Begich and Coats, as well as former Senator Gregg, would make filing much quicker and more simple for millions of taxpayers by tripling the standard deduction. That would eliminate the need for 

more than 80 percent of taxpayers to itemize deductions. Then they 

could easily prepare their own returns and never fall risk to tax 

preparers’ ineptitude or misconduct. 

Now, Senator Nelson of the committee has led our charge to protect taxpayers from identity theft, and Senator Cardin has also 

fought very hard for taxpayer rights. They and other Senators have 

valuable ideas on how to solve the challenge, and that is the point 

of today’s hearing: to look at a variety of approaches to protect the 

American taxpayer and the integrity of our tax system. 

3 

* For more information, see also, ‘‘Present Law and Background Related to the Regulation of 

Conduct of Paid Tax Return Preparers,’’ Joint Committee on Taxation staff report, April 4, 2014 

(JCX–34–14), https://www.jct.gov/publications.html?func=startdown&id=4580. 

As long as the code is so overgrown and so complicated that most 

Americans have to seek out help to file, they should not have to 

worry about crooked or incompetent preparers. It is that simple.* 

As I wrap up, I would like to thank both our panels of witnesses 

for being here today. As always, Senator Hatch and I plan to work 

on this issue in a bipartisan way. You saw that, again, last week. 

[The prepared statement of Chairman Wyden appears in the appendix.] 

The CHAIRMAN. Senator Hatch, we welcome your comments. 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Thank you, Mr. Chairman, for holding this timely hearing. As we all know, the day for individuals to complete and 

file their annual income tax returns is 1 week away, and, at this 

point in the year, millions of Americans face a number of difficulties in trying to comply with that deadline. 

The sheer complexity of our tax system requires the majority of 

Americans to seek the services of a paid preparer in order to navigate through and comply with the tax code. Of the 142 million income tax returns filed by individuals last year, nearly 80 million, 

as the distinguished chairman has said, or roughly 56 percent, 

were prepared by a paid preparer. 

Our income tax system relies heavily on good faith, voluntary 

compliance, which, in turn, requires the services of paid preparers 

who are both competent and ethical. The IRS attempted to implement regulations in 2011 that, for the first time, imposed both ethical and competency standards on any person who sought to prepare tax returns for compensation. The D.C. Circuit Court of Appeals, however, has since prevented IRS from enforcing those regulations when it upheld the Loving decision on appeal, as mentioned 

by our chairman. 

Among the approaches to solving the problem of incompetent and 

unethical paid preparers that we will hear about today is government regulation. However, there are other approaches worthy of 

thoughtful consideration. One approach is comprehensive tax reform that results in a much simpler and straightforward tax system, with fewer compliance and administrative burdens. 

A less complex tax system that allows for simpler compliance 

rules will reduce taxpayer and preparer errors—certainly errors associated with complexity—decrease the need for complex tax filings, and eliminate opportunities to cheat the system through unethical behavior. It is my belief that the best way to protect tax filers from incompetent and unethical tax preparers is to implement 

a fair and simple tax system that dramatically reduces their dependence on paid return preparers. Until we get there, we need to 

minimize the damage that incompetent and unethical return preparers can cause, and I look forward to hearing about different 

ideas on how to accomplish this worthy goal during today’s hearing. 

4 

Of course, with the IRS Commissioner testifying before us today, 

there are other matters that deserve the committee’s attention. For 

example, there is the ongoing investigation into the IRS’s targeting 

of conservative groups during the 2010 and 2012 campaign seasons. 

Four congressional committees, including the Finance Committee, are currently looking into this matter. And up to now, the IRS 

officials have, with some exceptions, been cooperating. That is why 

it was disheartening to hear that 2 weeks ago, Commissioner 

Koskinen apparently tried to spin what had gone on at the IRS, 

claiming that no one had used the word, quote, ‘‘targeting’’ to describe what happened. 

The fact is that the Treasury Inspector General for Tax Administration, or TIGTA, Russell George, used the word ‘‘targeting’’ in his 

May 2013 report to describe the allegations; and, in testimony before Congress, he stated that the allegation had proven to be true. 

Furthermore, Commissioner Koskinen himself described the activities as ‘‘targeting’’ during his confirmation hearings before this 

committee. I want to remind you of that, although I really appreciate you being here today, more than you know. 

Now, this may seem like we are engaging in semantics, but the 

words we use here are important. If the administration, rather 

than acknowledging what went on at the IRS and trying to fix it, 

is going to engage in word play to minimize what happened, we are 

going to continue to have difficulties as we try to resolve these important issues. 

Even the Washington Post fact checker said it is ‘‘silly and counterproductive’’ to deny that the phrase ‘‘targeting’’ describes what 

happened, awarding the Commissioner 3 Pinocchios for saying otherwise. On top of that, we have the regulatory effort at the IRS 

that appears to be designed to further marginalize these same conservative groups. I am talking, of course, about the proposed regulations governing the political activities of 501(c)(4) organizations. 

People in organizations across the political spectrum have rightly 

condemned these proposed regulations, because they undermine 

free speech and the ability of American citizens to participate in 

the political process. The IRS had a record number of public comments filed in response to the proposal from all points on the political spectrum, and, from what I gather, they were almost uniformly 

negative. 

This regulation, if given the force of law, would effectively silence 

grassroots organizations by categorizing a number of routine and 

long-accepted activities as political, and it would ensure that a 

number of the administration’s critics remain on the sidelines of 

the political debate, and that could work both ways in the future. 

And I do not want it to work both ways. 

This proposal is particularly disturbing given what has already 

gone on at the IRS with the targeting scandal. Now, last week, 

Commissioner Koskinen publicly stated that the regulation is not 

likely to be finalized this year. To me, that is not good enough. 

These regulations should go away entirely, and Commissioner 

Koskinen has the power to make that happen. 

Throughout the public debate over this proposal, little has been 

said of the role of the IRS Commissioner in approving the final regVerDate Mar 15 2010 17:30 Oct 27, 2014 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 R:\DOCS\90922.000 TIMD
5 

ulation. However, as was confirmed by Secretary Lew in his recent 

appearance before this committee, the IRS Commissioner has the 

authority to unilaterally prevent these regulations from taking effect. That being the case, any effort to deflect responsibility in a 

different direction would appear to me to be futile. 

Now, as you can see, Mr. Chairman, we have a number of issues 

to discuss today, and I look forward to a robust and informative 

hearing. So I want to thank you for this. 

The CHAIRMAN. Thank you, Senator Hatch. 

[The prepared statement of Senator Hatch appears in the appendix.] 

The CHAIRMAN. Our hearing today is going to consist of two panels. Our first panel includes two government witnesses from the 

IRS. Our second panel will include the Government Accountability 

Office and a cross-section of individuals who are knowledgeable 

about tax preparation. 

I would note that we have eight witnesses, and, to that end, we 

hope that all of you are going to limit your testimony to 5 minutes. 

Our first witness is the Honorable John Koskinen, Commissioner 

of the Internal Revenue Service. Our second witness is Ms. Nina 

Olson, the National Taxpayer Advocate of the IRS. 

Thank you both for coming. Your prepared statements are going 

to automatically be made a part of the record. 

Why don’t you start, Commissioner? 

STATEMENT OF HON. JOHN A. KOSKINEN, COMMISSIONER, 

INTERNAL REVENUE SERVICE, WASHINGTON, DC 

Commissioner KOSKINEN. Thank you. Chairman Wyden, Ranking 

Member Hatch, and members of the committee, thank you for the 

opportunity to discuss IRS regulation of paid return preparers. 

The tax return preparer community is a key ally in our efforts 

to fulfill our dual mission of taxpayer service and tax compliance. 

Each year, paid preparers are called upon to complete about 80 

million returns, as noted earlier, about 56 percent of total individual income tax returns filed. 

Preparers make the IRS’s job easier by helping their clients properly report their taxes and pay what they owe. At the same time, 

the level of oversight of paid return preparers has traditionally 

been uneven, at best. While attorneys, enrolled agents, and CPAs 

must meet mandated professional competency requirements, they 

make up only about 40 percent of the universe of paid tax return 

preparers. That has left another 60 percent preparing returns with 

little or no Federal oversight. 

Although a few States, including the State of Oregon, as noted, 

have begun regulating unlicensed preparers, most of the tax professional community favors Federal oversight to avoid the possibility 

of a patchwork of conflicting State requirements. 

While a majority of return preparers are competent and operate 

with the highest ethical standards, there are those who do engage 

in fraud. Others do not have enough training and are not equipped 

to do an adequate job of preparing tax returns. To ensure that return preparers are competent and adhere to professional standards, 

the IRS launched the Tax Return Preparer Initiative in 2010. 

Under this initiative, individuals must register with the IRS if they 

6 

prepare all or a substantial portion of any Federal tax return or refund claim for compensation. 

The initiative also required paid preparers who are not CPAs, attorneys, or enrolled agents to pass a competency exam and complete annual continuing education requirements related to tax law 

and professional conduct. 

The IRS also extended the ethical rules found in regulations, 

commonly known as Treasury Department Circular 230, to all paid 

preparers. This allows us to suspend, or otherwise discipline, tax 

return preparers who engage in unethical or disreputable conduct. 

Since 2010, more than a million individuals have registered with 

the IRS and obtained a Preparer Tax Identification Number, or 

PTIN. As of last month, approximately 677,000 return preparers 

were active in our tax professional database. 

Preparers must use their PTIN as the identifying number on returns they prepare for compensation, and they must renew their 

PTINs annually. Along with regulation of return preparers, the IRS 

also has a comprehensive compliance and enforcement strategy. 

With regard to these efforts, it is important to note that the registration requirement gives the IRS a better line of sight into the 

return preparer community than ever before. The information we 

obtain through the registration process helps us do more to analyze 

trends, spot anomalies, and potentially to detect fraud. 

The IRS announced the testing phase of its return preparer program in November of 2011. The test was designed to cover preparation of Form 1040 and its related schedules. Through 2012, about 

84,000 tests were given, and about 62,000 preparers received a 

passing grade, for a pass rate of about 74 percent. This, obviously, 

means that 26 percent were unable to pass the exam. 

The 15-hour annual education requirement consisted of 10 hours 

of Federal tax law topics, 3 hours of tax law updates, and 2 hours 

of ethics or professional conduct. A lawsuit against the return preparer program, as noted, resulted in a court decision that invalidated the testing and education requirements in January of 2013. 

An appellate court recently upheld that decision. The IRS is continuing to assess the appeals court decision while consideration is 

given to options for appeal. 

It is true that preparer registration alone does help in identifying 

the paid preparer community, analyzing trends, and determining a 

general level of taxpayer service. But competency testing and continuing education may put us on a path to ensuring that all tax 

return preparers provide the appropriate level of service to taxpayers. We believe that this level of service will translate into improved overall tax compliance and certainly, with that, more effective tax administration. 

Therefore, we urge Congress to pass the proposal in the administration’s fiscal year 2015 budget that would explicitly authorize the 

IRS to regulate all tax return preparers. This would let us resume 

mandatory testing and continuing education. In the meantime, we 

are taking a close look at the possibility of an interim step involving a program of voluntary continuing education. 

Before moving forward on this idea, we will solicit feedback from 

a wide range of external stakeholders as to whether such an interim step would be useful and appropriate. But the better solution 

7 

would be for Congress to grant us explicit authority to provide better oversight of tax preparers. 

This concludes my testimony, and I would be happy to take your 

questions. 

The CHAIRMAN. Thank you, Mr. Koskinen. 

[The prepared statement of Commissioner Koskinen appears in 

the appendix.] 

The CHAIRMAN. Ms. Olson? 

STATEMENT OF NINA E. OLSON, NATIONAL TAXPAYER 

ADVOCATE, INTERNAL REVENUE SERVICE, WASHINGTON, DC 

Ms. OLSON. Chairman Wyden, Ranking Member Hatch, and 

members of the committee, thank you for holding today’s hearing 

on a subject I consider among the most important for U.S. taxpayers. 

Nearly 150 million individual taxpayers file tax returns every 

year, many jointly with their spouses. Because the tax code is so 

complex, the significant majority of taxpayers pay preparers to 

complete their returns for them. Unfortunately, many taxpayers 

have no easy way to determine whether the preparer they are hiring can do the job. 

In recent years, around 80 percent of tax filers have received tax refunds. The average refund amount is a little under $3,000 per return, and it is often higher for low-income taxpayers who receive 

refundable tax credits. Therefore, the work a preparer does can 

have a significant financial impact on the taxpayer. 

Other financial professionals whose work affects the financial 

lives of their clients are widely regulated. Yet, anyone can hang out 

a shingle as a tax return preparer, with no knowledge, no skill, and 

no experience required. I know this well, because I began my career in tax administration in 1975, when I myself hung out a shingle as an unenrolled return preparer. At that time, however, there 

were no widely available return preparation software packages. To 

do my job, I had no choice but to study and learn tax law, rules, 

regulations, and publications. Because one actually had to know 

something about the tax law to be a return preparer, taxpayers had 

some assurance of the preparer’s competency. 

Today, there is no such assurance. Three transformational 

changes have taken place in the return preparation field. First, the 

advent of return preparation software has eliminated barriers to 

entry into the profession. Second, the enactment of refundable credits has expanded the taxpayer base to include low-income individuals. Third, preparers have financial incentive to inflate refunds 

and cross-market non-tax goods and services, like pay-stub loans. 

In fact, in many tax season advertisements today, it is difficult to 

discern the connection between the service offered—get money 

quick—and the act of tax preparation. 

As a result of seeing firsthand the radical change in the industry 

and its impact on vulnerable taxpayers, as National Taxpayer Advocate, in 2002, I recommended that Congress enact a program to 

register, test, and certify these preparers. I also recommended that 

Congress authorize greater preparer penalties and strengthen due 

diligence requirements. But there is an important distinction between these approaches. 

8 

While penalties and due diligence requirements are a vital component of any oversight regime, these actions occur only after the 

taxpayer has been harmed. Prevention is less costly and more effective. Accordingly, Congress should clarify that the IRS has the authority to establish minimum standards for the unenrolled preparer population and to test and require continuing education of 

these preparers. 

The only credible argument I have heard against establishing 

preparer standards is that the cost will ultimately be passed on to 

the consumer. But the per-taxpayer cost of the program the IRS 

was implementing before the Loving decision seemed very reasonable as compared with the far more significant cost the GAO’s and 

other ‘‘shopping visits’’ have found, where preparer errors caused 

some taxpayers to overpay their tax by thousands of dollars, and 

other taxpayers to underpay their tax by thousands of dollars and 

then likely face IRS enforcement action down the road. 

In the absence of clear legislative authority, I believe the IRS 

should do the following: first, offer unenrolled return preparers the 

opportunity to earn a voluntary examination and continuing education certificate; second, restrict the ability of unenrolled preparers to represent taxpayers in audits of returns they prepared 

unless they earn that certificate; third, mount a consumer protection campaign that educates taxpayers about the need to select preparers who can demonstrate competency and reminds taxpayers to 

obtain a copy of their tax return with the preparer’s signature on 

it. 

Finally, the IRS should develop a publicly accessible and searchable preparer database to include all preparers who register with 

the IRS. After all, the best enforcement and consumer protection 

strategy is to have an informed and educated consumer base—in 

this instance, the taxpayers, who need to have some clear-cut way 

of knowing which preparers meet minimum levels of competency 

and which are not willing to make the effort. That is why having 

a mandatory ‘‘certified preparer’’ designation, along with enrolled 

agents, CPAs, and attorneys, is so important. It is a bright line 

that the taxpayers can understand. 

Thank you. 

The CHAIRMAN. Ms. Olson, thank you. 

[The prepared statement of Ms. Olson appears in the appendix.] 

The CHAIRMAN. Colleagues, we will all take 5-minute rounds at 

this point. 

Let me start with you, Ms. Olson, if I could. You are the National 

Taxpayer Advocate. In other words, it is your job to go to bat for 

the kind of people whom we are seeing getting fleeced around the 

country. 

I was particularly struck—and I would like you to amplify a bit 

on it—when you said that there are actually new incentives and 

new opportunities for the unscrupulous tax preparer to, in effect, 

rip people off. Could you describe that in a little more detail? 

Ms. OLSON. Well, there are several ways we see this. One is that 

entities that would not normally be involved in the profession of return preparation use the ability to give advance loans on the refund itself to cross-market goods, whether it is cars that the client 

could purchase with a down payment, but at the very highest interVerDate Mar 15 2010 17:30 Oct 27, 2014 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 R:\DOCS\90922.000 TIMD
9 

est rates, or just simply the loan product itself, like the pay-stub 

loans. 

The other thing we are seeing is really out-and-out fraud, where, 

as was described in your statement, preparers will take the taxpayer’s return after the taxpayer has approved it or, in some instances, the taxpayer has not approved it, but the preparer will inflate items on the return and pocket the refund. And then the taxpayer later finds out about this when the IRS is contacting them 

and saying ‘‘You owe us taxes,’’ and that causes the taxpayer to be 

engaged in a long, extended conversation with the IRS. 

By that point, the preparer is long gone. You cannot find that 

preparer. 

The CHAIRMAN. I appreciate your clarifying that, because I did 

not think the standards were adequate even before we saw taxpayers bumping up against the kinds of problems that you are 

talking about. And I appreciate your demonstrating that it is usually the case that the unscrupulous are always one or two steps 

ahead of efforts, particularly voluntary efforts, to deal with the 

problem. 

Now I gather, so we are clear on this point, that the Loving decision, in your view, has created new problems in effect, in terms of 

protecting taxpayers; is that right? 

Ms. OLSON. Absolutely. The Loving decision, first of all, my reading of it is, it did not go to the fact of whether regulation is desirable or not. It addressed whether the IRS has the authority to regulate the return preparer under the current law. And right now 

there is an injunction in place against the IRS being able to implement the exam and the continuing education requirements, and 

that is a significant obstacle. We can register tax preparers, but we 

cannot test them, require them to be tested, or require them to 

take continuing education in order to do returns. 

The CHAIRMAN. How limited are the tools that are left given the 

Loving decision? Because my sense is that there are some tools 

that are left, but they are pretty narrow and they really do not go 

to the heart of what you have been talking about, which is protection against the unscrupulous preparer. 

I share the view that there are many, if not the majority, of preparers who are very honest and reputable, but it sure looks like 

some new opportunities, some new trap doors, have been created 

for those who are unscrupulous. 

Tell us, given the decision in the Loving case, how restricted the 

tools are for the IRS to deal with the unscrupulous preparer. 

Ms. OLSON. Well, right now, the IRS has penalties that it can 

apply against preparers that it identifies as unscrupulous. It requires, in the Earned Income Tax Credit arena, for preparers to 

complete due diligence certifications, sort of questions that they 

have to ask the taxpayer, and certify that they have done so. 

We have the ability to seek injunctive relief against some unscrupulous preparers, working with the Department of Justice. But this 

is a situation where the IRS cannot audit itself out of this situation. It cannot audit or apply penalties or even do injunctions with 

1.2 million preparers. 

It cannot get the kind of competence that we need to engender 

by doing one-on-one audits. You need a much broader approach. 

10 

And more importantly, taxpayers need the designation so that they 

have a bright line, so that they can say, ‘‘Yes, this is someone who 

has demonstrated competency, and this is someone I should go to.’’ 

If you go to someone other than that, all bets are off whether that 

person is competent. That is a very important distinction that audits will not get you. 

The CHAIRMAN. I appreciate that, and I especially appreciate 

that last point, because, in effect, what you are saying is, we need 

a system that up front makes it clear to those who need these services where the, as you call it, bright lines are and where you ought 

to go to get the kind of consumer protection you need. 

The alternative to that, what we are stuck with, in effect, post 

the Loving decision, is essentially reactive kind of tools where you 

are playing catch-up ball. Is that a fair appraisal? 

Ms. OLSON. Yes. And the taxpayer has already experienced the 

harm rather than being able to prevent the harm. 

The CHAIRMAN. It is very helpful to have your views today. 

Senator Hatch? 

Senator HATCH. Well, thank you, Mr. Chairman. 

Let me just ask both of you. What is the IRS doing to educate 

the public about how to select a competent and ethical return preparer, and what else should it do to educate the public on this 

issue and make it easier to confirm the competence and ethical 

standards of a particular preparer? 

You have alluded to answers to this, but I would like to have a 

little bit more. 

Commissioner KOSKINEN. As part of our outreach to taxpayers, 

we provide, on a regular basis throughout the year, a wide range 

of information and advice to taxpayers, trying to assist them in 

their attempts to figure out how much they owe and how to pay 

it. So we advise people they should be careful who their tax preparer is. They should check them out. But as noted, there is no 

way we can provide any minimum standard guarantee for tax preparers. 

So all we can do for taxpayers, which is what we do, is say, you 

should be careful; you should make sure you know who the tax preparer is and what their background and experience are. But for the 

average taxpayer, that is a very difficult thing to do. There are no 

listings, there is no way for them to figure out who are those who 

have studied and have a minimum level of competence and who do 

not. 

So our view has been, if you had a way of giving that information 

to the taxpayer, then the free market would be more intelligently 

applied. People would be able to say, ‘‘All right. If I am going to 

a tax preparer who has not received the minimum standards, I am 

taking a bigger chance than if I go to a tax preparer who actually 

has passed the IRS examination.’’ But at this point, we cannot give 

them that additional information. So we simply have to tell them, 

be careful with your preparer, but that is not particularly helpful 

to the average taxpayer. 

Ms. OLSON. There is one thing that my office did, which is, we 

created a poster last year in this environment to warn taxpayers 

to obtain two things to protect themselves, and they are: preparers 

11 

are required to give you a copy of your return that is signed by the 

preparer and has their PTIN number on it. 

So I think if there is one piece of information in this environment, without setting standards, it would be for taxpayers to at 

least get that, because then if the preparer alters the return afterwards, you, one, have the name and identifying number of the preparer, and, two, you can show that there really was fraud committed, and that is a very important piece of information for us to 

have when that happens. 

Senator HATCH. That is good. 

Mr. Commissioner, when you were confirmed by this committee, 

one of my charges to you was that you needed to restore public confidence in the IRS, and you affirmed it was your intent to make 

that a top priority. However, there have been several recent incidents which underscore the degree to which the public still may 

have reason to not trust the IRS. 

Between the furor over the IRS’s proposed rulemaking for 

501(c)(4)s, which received over 150,000 comments, most of which 

were negative, and recent concerns raised by my colleagues on the 

House side about whether or not your agency is fully cooperating 

with producing documents related to the ongoing IRS political targeting investigation, I am concerned that it is no longer such a priority. 

The American people deserve to have an IRS which is free from 

political bias, and, of course, we have to hold you accountable as 

members of Congress, and I personally am holding you accountable 

for ensuring that, under your watch, no such bias is or will be 

present, and I believe you believe that and intend to do that. 

To that end, can you tell me what steps you have taken to begin 

restoring that trust and how my colleagues and I can be assured 

that you are continuing to make this a top priority? 

Commissioner KOSKINEN. Thank you, Senator. It is and always 

has been and will continue to be a priority of mine and the agency’s. 

With regard to the production of documents for the tax writing 

committees, the House Ways and Means Committee and this committee, we have had no complaints about the volume of material 

we have now provided, well over 700,000 pages of information. We 

do not have to redact it. So, as we work through it, we are simply 

giving you everything we can find. 

We have worked closely with your staff and with the Ways and 

Means Committee staff to identify additional information that you 

may need, and we are providing that material in volume. We hopefully are nearing closure on that. We have provided you all the information about the determinations process that we have. 

The discussion has been, and the concern has been, with those 

committees that do not have the authority to see taxpayer information, where we have to review every single page and redact any information related to individual taxpayers before we can provide 

that information. But we are continually providing information. 

Since the hearing I had before the House Oversight Committee, we 

have provided them, by the end of this week, another 50,000 pages 

of redacted information. 

12 

No one has a greater interest than me personally, within the 

IRS, to have these investigations come to a close. As I have said 

from the start, whenever we get a final report from someone, we 

will look at the facts as they are found, and we will consider what 

additional actions need to be taken, if any. We have already accepted all of the Inspector General’s recommendations. And then we 

will move forward, because I do think it is important for every taxpayer to be confident that no matter who they are, what their organization, what their political beliefs, who they voted for in the last 

election, when they deal with the IRS, they will be treated fairly, 

in an evenhanded way, and they will be treated the same way everyone else is treated as we go forward. 

Senator HATCH. That is good. 

Thank you, Mr. Chairman. 

The CHAIRMAN. I thank my colleague. 

I would only say—it is Senator Casey’s turn—I would just say 

that I do not see any evidence that protecting taxpayers from unscrupulous preparers is a partisan issue, and that is what we are 

focused on here today, and we have a lot of heavy lifting to do. 

We will go to Senator Casey next. 

Senator CASEY. Mr. Chairman, thank you very much. Before I 

pose some questions for our witnesses, I wanted to address an 

issue that has been raised a number of times, including this morning. This is the 501(c)(4) issue, the processing of those. 

We did our subcommittee assignments recently, and I was just 

appointed the new chair of the Subcommittee on Taxation and IRS 

Oversight. So I, like folks in both parties on this committee, am 

committed to making sure that any kind of abusive practice that 

is engaged in is not repeated and is rooted out and exposed. 

The committee, Mr. Chairman, I guess, undertook an investigation, which has been a bipartisan investigation, into the issue. The 

investigation included interviews with individuals who are impacted, as well as IRS employees. 

Mr. Chairman, it is my understanding that the committee staff 

has essentially completed the investigation and is prepared to release its findings and conclusions. So, Mr. Chairman, I would welcome the prompt release of the conclusions of that bipartisan investigation and look forward to working with you on the issue, as well 

as other members. 

The CHAIRMAN. Thank you, Senator Casey. Certainly, that investigation was well underway when Chairman Baucus chaired the 

committee. Senator Hatch has been very constructive in terms of 

working with me. 

This is the only bipartisan investigation that is taking place into 

these issues, and I am very hopeful that we will have that report 

ready for members quickly. 

Senator CASEY. Thanks very much. 

Commissioner, I wanted to start with you. I know that your team 

has identified some tax scams on a so-called ‘‘dirty dozen’’ list, and 

there are two issues that I have worked on that are related to this, 

the kind of abuse of data or information. One is the Death Master 

File, preventing that from being used for fraudulent purposes, as 

well as working with the Social Security Administration to prevent 

criminals from stealing Social Security checks. 

13 

I guess more broadly, on this issue of scams and preventing 

them, what would you hope that we could do here in the Congress, 

starting here in the Senate and the Senate Finance Committee, to 

better help the IRS protect taxpayers? I am assuming that it would 

be some form of the items that you outlined on pages 6 and 7 of 

your testimony. 

Commissioner KOSKINEN. Right. I appreciate the question. Obviously, the Taxpayer Advocate and I are here supporting congressional efforts to give us the authority to set minimum standards for 

tax preparers—a reasonable amount. 

As I say, most tax preparers are competent, they are educated, 

and they do a good job. What we are worried about is those on the 

periphery who either do not have enough information to adequately 

prepare a return or, worse, are figuring out various ways to defraud taxpayers either by high fees, by taking all or a portion of 

their refunds, or by channeling them, as the Taxpayer Advocate 

said, into other activities which may or may not be in the taxpayer’s interest. 

We also are proposing, with regard to identity theft and refund 

fraud generally, that the Congress give us authority to get W–2 information by the end of January. Right now, what has happened 

is—we are sort of the victims of our own progress. 

In the old days, you used to get your IRS refund months later, 

and, in the meantime, we would have gotten all of the third-party 

information. Now, with electronic filing and the tremendous progress the IRS and its employees have made, when you file your return, we say we will get you a refund within 21 days. So we have 

leapfrogged the receipt by the IRS of the third-party information. 

So a critical part of that information for us would be to have thirdparty information and W–2 identifiers earlier so we could check refund applications to ensure that at least there is some comparison 

before issuing refunds. 

The action the Congress already took to close the Death Master 

File has been very helpful, although there are still people who have 

access to it. We are concerned across the board with the ease of 

theft of Social Security numbers in the public sector. No one has 

ever stolen Social Security numbers from the IRS database, but 

they use the Social Security number to file a false return. 

Senator CASEY. I appreciate that. 

Ms. Olson? 

Ms. OLSON. I think one thing that is an emerging trend that I 

have just been briefed on is the theft of Social Security numbers 

from preparers themselves, hacking into preparer databases. And 

that is very disturbing, because you do get the wage information. 

So, even if we have the wage information, we cannot necessarily 

tell that that is a bad return. 

The IRS right now is doing a pilot to see if you can match the 

name on the return, where the deposit is supposed to be made into 

an account, with the name on the account itself, the bank account 

itself, and that is having some mixed results. But there may be 

things on that end where you can work with the financial institutions to do greater security—are these dollars supposed to go into 

there? And I know that the IRS is considering limiting how many 

14 

refunds can be made into a particular account. So that would be 

a very easy fix. 

Again, these criminals are—you are truly talking about scams. 

These are opportunistic criminals. They are going to do whatever 

is easiest, and the more you can create barriers for them committing fraud, the more they will look somewhere else. They will not 

necessarily go away permanently, but they will go somewhere else. 

Senator CASEY. Thank you very much. 

The CHAIRMAN. Thank you, Senator Casey. 

Senator Roberts? 

Senator ROBERTS. Mr. Koskinen, when you visited with me last 

year prior to your confirmation, sir, you told me that you thought 

it was your role to clean up the IRS and get the agency back on 

track in regard to the processing of exemption applications and the 

implementation of the Affordable Health Care Act, both monumental tasks indeed. You said that your longer-term goal, however, 

was to restore the IRS’s reputation and integrity on these and 

other functions. 

I have some confidence that you are going to be able to do that. 

However, prior to your confirmation, you said that the IRS was targeting certain groups during the exemption application process, 

thereby trampling on their First Amendment rights. 

It seems to me that there is a common-sense step that you need 

to take, and you should take it today—stop all action on the proposed 501(c)(4) regulations until the House Ways and Means Committee, this committee, and everyone knows what went on, who 

was involved, what the implication of all of this is, and how we can 

address the issues raised and hold people accountable. That is why 

I have joined with Senator Flake from Arizona and 40 of my colleagues to offer legislation to stop the IRS from proceeding with the 

new rules until we have answers. 

Here is the deal. We have Code of Federal Regulations title 26. 

I am sure you are familiar with it. Internal Revenue rules take 

various forms. The most important rules are issued as regulations, 

and the Treasury decisions are prescribed by the Commissioner 

and approved by the Secretary or his delegate. Other rules may be 

issued with the signature of the Commissioner or the signature of 

any other official to whom authority has been delegated. Regulations and Treasury decisions are prepared in the Office of the Chief 

Counsel after approval by the Commissioner. 

Here is the deal. Our constituents informed us, with some degree 

of outrage, that there is an IRS fox in the First Amendment chicken house. The response by the IRS: ‘‘Yes, we know that. We are 

writing regulations that will tell the fox to behave himself.’’ But 

that makes no sense. We are investigating why the fox was even 

in the First Amendment chicken house in the first place. 

So I have some suggestions. First, why do we not get the damn 

fox out of the First Amendment chicken house? Second, why not 

waive the regulations until we get our investigations done, at least 

until we can find out who put the fox in the chicken house in the 

first place and how and hold them accountable? 

Why can we not stop on these regulations until we are done with 

our investigation? 

15 

Commissioner KOSKINEN. Having worked on my uncle’s farm in 

Minnesota, I have a little bit of familiarity with foxes and henhouses, but let me just respond to the point. 

As I have said for some time, actually in my earlier testimony 

in February, especially since the volume of comments since then 

has gone up, the chances of our finishing any regulation before the 

end of the year are very slim, if not nonexistent. 

Our hope has been that, in fact, one or more of the six investigations that have been going on now since last year will be completed 

well in advance of that. So I think, in terms of the goal of not having a regulation until we have some investigations done, I think 

that unless the investigations are going to go on into next year, 

somebody will issue at least one, and hopefully this committee, perhaps others, will issue their report sometime in the next 3 or 4 

months, which will be well in advance of any time that we would 

have a chance of completing this regulation. 

With regard to the regulation, as I have said in the past, not 

having been around when it was originally formulated, my commitment and dedication is that any regulation that is ultimately 

issued should be fair to everybody, should be clear, and it should 

be easy to administer. 

And we are going to carefully review the 150,000-plus comments 

that have been made. We have just started the review, so I am not 

quite sure how everybody knows whether they are positive or negative, but clearly the regulation has attracted a lot of interest. 

And as I have said, by the time we hold a public hearing, in all 

likelihood, re-propose any regulation that we would be considering 

and get more public comments, it is going to be well toward the 

end of this year. And as I say, my hope would be at least one of 

the six investigations will have been done by then, if not more, and 

we are committed to reviewing the findings of those investigative 

reports and taking any additional action that is necessary to put 

this behind us. 

Senator ROBERTS. My time is about up. I want to thank you for 

that word ‘‘committed.’’ So you are unequivocally committed to this 

committee and you are committing to this committee that 501(c)(4) 

proposed regulations will not be finalized this year? 

Commissioner KOSKINEN. I think what I have said is that the 

chances of it being finalized before the end of the year, not before 

the election, before the end of the year, are slim. 

We are not rushing to get them done. We are actually being—— 

Senator ROBERTS. There is an expression that the chances of 

something happening in Dodge City, KS are slim and none, and 

slim left town. So why do we not just say ‘‘none’’ this year and, 

more especially, until the investigations are done? Why can’t we do 

that? 

Commissioner KOSKINEN. We could do that, and I think probably 

that it is a slim chance and it is fairly likely. What I can easily 

commit to is, we will not be anywhere near completing these regulations before somebody has completed an investigation, because I 

am confident—— 

Senator ROBERTS. I hope you share these regs with us as we go 

through this, because there are an awful lot of people—— 

The CHAIRMAN. The Senator’s time has expired. 

16 

Senator ROBERTS [continuing]. Who are outraged by this. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Grassley? 

Senator GRASSLEY. Mr. Koskinen, I wrote to you and Secretary 

Lew on February the 20th. I asked about the administration’s decision to delay the employer mandate until 2017 for businesses with 

50 to 99 employees. That category of businesses is not specified in 

the health care law at all. 

In order to qualify for the delay, you require employers to certify 

that they did not lay off employees to get below the 100-employee 

threshold. This certification seems like unnecessary information, 

unless you think the employer mandate will cause businesses to lay 

people off. 

(A) Do you think that businesses will lay off their employees in 

order to avoid paying penalties under the health care law, and, if 

not, why are you requiring the certification? And (B), what is the 

legal justification for a new category of businesses with 50 to 99 

employees in the certification process? 

Commissioner KOSKINEN. Senator, as you know, tax policy issues 

like this are all the domain of the Treasury Department. Those decisions were made by the Treasury Department. I did not participate in those. 

As a general matter, I do not think that companies, with regard 

to health care issues, are going to willy-nilly lay off their employees. I think most companies are dedicated to their workforce and 

to developing them. 

But the question in terms of on what basis those decisions were 

made, is really a question that has to be addressed to the Treasury 

Department. 

Senator GRASSLEY. But you have to sign off on them. 

Commissioner KOSKINEN. All Treasury regulations are issued by 

Treasury and the IRS, but the policy issues behind questions like 

this are decided by the Treasury Department. The Chief Counsel’s 

Office actually reports directly to the Treasury Department. 

Senator GRASSLEY. Well, I requested a response from you and 

Secretary Lew by March the 7th. So then, when can I expect such 

a response? And I assume you can be an Aaron for making sure 

that this gets done. 

Commissioner KOSKINEN. I will clearly commit that I do not 

know why the delay, other than the fact that any response gets 

cleared by a complicated process. But my commitment to this committee and you and all of you has been that we will reply promptly 

to any letter we get from you, and I will assure you that I will get 

you a prompt response from our side. I cannot tell you when the 

Treasury Department will respond, but we should respond to you 

promptly. 

Senator GRASSLEY. Well, you surely talk to Secretary Lew, and 

he made the same promise that you made: when he comes before 

the committee, he is going to answer our questions. And I do not 

know why people say they will answer our questions if they will 

not. 

Well, anyway, let us go on to the second question. Mr. Koskinen, 

just last week, I wrote to you concerning the nonprofit hospital reforms that I authored and were enacted in 2010. These reforms imVerDate Mar 15 2010 17:30 Oct 27, 2014 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 R:\DOCS\90922.000 TIMD
17 

posed new requirements on nonprofit hospitals to hold them accountable for their tax-exempt status. 

To date, key legal guidance needed to ensure compliance with the 

law does not appear to be finalized. What has been the delay in finalizing regulations in this area, and when we can expect final regulations? 

Commissioner KOSKINEN. A series of regulations and proposals 

have been drafted pursuant to that statute. And in January of this 

year, Treasury provided, with the IRS jointly, guidance to hospitals 

that they could rely on the existing proposed regulations that are 

out there. 

We expect that the final regulations will be issued before the 

summer is out. But the hospitals have already been advised that 

they can rely upon the earlier regulations or proposals that are out 

there. 

Senator GRASSLEY. The 2010 nonprofit hospital reforms also required the IRS and the Department of Health and Human Services 

to collect information on nonprofit hospitals and report to Congress 

every year. An annual report should have been issued to Congress 

for fiscal year 2012, but Congress never received any report. Congress has yet to receive a final report for fiscal year 2013. 

A 2012 report by the Inspector General of Treasury recommended that the IRS enter into a memorandum of understanding 

with HHS in order to better coordinate the collection and sharing 

of the information for the report. The IRS agreed with the Inspector General’s recommendations, and, as I understand it, the memorandum of understanding has not been finalized. 

What is the status of the memorandum between IRS and HHS? 

When would you expect it to be finalized? Why has there not been 

an annual report, as required by law, and when can Congress expect the 2013 report? 

Commissioner KOSKINEN. We have been working cooperatively 

with HHS. We expect not a memorandum of understanding, but 

written, final confirmation from them about the process we are 

going to use going forward. 

The problem with timing is, it takes 2 to 3 years for all of the 

data to be filed. So the 2011 data has now been made public by 

HHS. We expect to provide it jointly, because our data is going to 

measure with theirs. The hospitals all asked for us to use applesto-apples data. 

So this summer we will be issuing to the Congress a report for 

2011, because that is the timing in which we actually get the final 

data. And then every year thereafter, we will provide that report 

on an annual basis jointly with HHS. 

So the data for 2011 is already public from HHS’s side. We are 

collecting then for the same time period, calendar 2011, putting the 

data together, and every year it will be late because of the time the 

hospitals have to file all of that data. But as a regular matter, 

starting this summer, you will get annually the data required. 

The CHAIRMAN. Thank you, Senator Grassley. 

Senator Thune is next. 

Senator THUNE. Thank you, Mr. Chairman. I want to thank you 

and Senator Hatch for holding this hearing. 

18 

I think all Americans expect the IRS to administer our tax laws 

in an impartial manner, and they expect the tax preparers to act 

in a competent and ethical manner too. And so the concerns that 

have been brought to light by the GAO in its recent study are very 

troubling, and I am pleased the committee is examining this issue 

in order to determine if legislative action is necessary to ensure 

that Americans are protected from unscrupulous and incompetent 

tax return preparers. 

I do want to, Mr. Koskinen, give you an opportunity—I want to 

turn to something that has been mentioned here by my colleagues 

and has been discussed of late, and give you an opportunity to correct the record. 

Last week, the Washington Post fact checker, Glenn Kessler, 

awarded you three Pinocchios for your statement that the Treasury 

Inspector General for Tax Administration, Russell George, had not 

used the term ‘‘targeting’’ when referring to how the IRS has treated conservative social welfare groups. The Post article noted that 

Mr. George specifically stated in his testimony to Congress that the 

IRS targeted specific groups—I am quoting now—‘‘applying for taxexempt status. It delayed processing of these groups’ applications 

and requested unnecessary information, as well as subjected these 

groups to special scrutiny.’’ 

Given that Post article and the confusion around recent statements that you have made on this topic, I want to give you an opportunity to correct the record. And the question, I guess, specifically, is, do you agree that the Treasury Inspector General for Tax 

Administration has found that certain conservative groups were 

targeted for extra scrutiny by the IRS? 

Commissioner KOSKINEN. I appreciate the opportunity to correct 

the record. It has been intriguing to me that it has become this big 

issue, a tempest in the teapot. What I said in my testimony, which 

seems to have triggered this, was that the Inspector General’s report last May, in his findings, said that he found that inappropriate criteria were used to select applications for further review. 

It was in response to a question about the findings of the IG, and 

my point was the IG’s finding in the report said it was improper 

criteria. 

Thereafter, I have—and a couple of times since then—made it 

clear the IG clearly in his testimony to Congress used the word 

‘‘targeting.’’ He talked about targeting beforehand. My only point 

was in response to a question in which I was asked if the Inspector 

General’s finding was ‘‘targeted.’’ I said his actual finding said ‘‘improper criteria.’’ 

But one man’s improper criteria is another man’s targeting. How 

it got to be this big an issue I do not know, because clearly the 

issue is, however you describe it, it should not have happened. It 

should not happen going forward in the future. 

We are committed. We have already taken all of the IG’s recommendations and accepted them. We are committed that, as I 

say, when people, not only for (c)(4) applications, but in any relationship with the IRS—we are going to continue to audit people. 

Some will be Democrats, some will be Republicans; some will go to 

church, some will not. 

19 

When you hear from us, it is only because of something in your 

tax return. People need to be confident that that is our commitment, that is our general approach to these issues, and that is how 

we are going to behave going forward. 

Senator THUNE. Just as a follow-up to that, the Post article also 

referenced your use of the term ‘‘targeting’’ and posed this question. The basic question was, was the phrase so toxic that it was 

wiped from the lexicon once you arrived at the IRS? 

And I guess I would just ask, since your confirmation as Commissioner, has anyone in the administration, within the IRS, the 

Treasury, the White House, anyplace like that, pressured you or 

counseled you against using the terms ‘‘target’’ or ‘‘targeting’’ in 

reference to the matter that we are talking about? 

Commissioner KOSKINEN. No one in the administration. The only 

concern I have heard—I have been to 20 offices at the IRS now, 

and I have listened to and met with over 8,000 employees. Several 

of the employees have objected to the use of the term ‘‘targeting,’’ 

but nobody in the White House, nobody in the Treasury, nobody in 

the administration, has asked me not to use the word. 

Senator THUNE. Thank you. 

Mr. Chairman, I want to just—I have about a minute left here— 

focus on what I believe is a major driver of more and more Americans seeking tax preparation assistance, and that is the incredible 

complexity of the tax code. 

As you know, much of the Affordable Care Act is administered 

through the tax code, which means that when uninsured Americans file their taxes, they are going to need to figure out whether 

they qualify for the subsidies, how much they can receive, whether 

it makes more financial and medical sense to get coverage or to pay 

the penalty for violating the law. 

The question is, doesn’t the Affordable Care Act create a lot of 

new complexity issues on top of those that we already have, making it even more difficult and driving even more Americans to tax 

preparers when it comes to getting their returns in on time? And 

do you believe that most tax preparers are adequately prepared to 

handle the complexities arising from the Affordable Care Act? 

Commissioner KOSKINEN. I think we are going to have a lot of 

questions by preparers and taxpayers about the Affordable Care 

Act. 

The vast majority of Americans are going to be unaffected by it. 

They are going to check off a box that says they have insurance, 

they have Medicare, and they will not be affected. But for the people who are in that area, who are applying for insurance, getting 

advanced premium credits, there are going to be questions asked. 

One of our concerns is to make sure we are prepared to answer 

those questions. 

Senator THUNE. Ms. Olson, quickly, on that, do you have a comment? 

Ms. OLSON. I think that there is certainly a great deal of complexity in the Affordable Care Act. I would note that I am watching 

very carefully and closely how the IRS is approaching that also, on 

the compliance side, what they do if somebody owes money as a result of the ACA. 

20 

But there is one thing about the Affordable Care Act that is very 

important. We are going to get a lot of information from third parties, which will allow us to identify inaccurate claims during the 

filing season. As the Commissioner earlier alluded, it is very important for us to get W–2 and 1099 information early in order to avoid 

all this fraud and errors in the regular tax system. 

So there is an actual added benefit in the Affordable Care Act 

that we do not have with the rest of the filing system that would 

be really good to have in the rest of the filing system. 

Senator THUNE. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Thune. 

I very much appreciate your also highlighting the complexity of 

the code, because the Congress is not blameless here. Virtually 

every session, some other group comes up, usually with a good 

cause, and what happens here on the Finance Committee is, we 

just add it to the code. There have been something like 15,000 

changes. It comes to maybe one or two for every working day in 

recent years. 

So that is right at the heart of tax reform, and I look forward 

to working with my colleague. 

Senator Isakson is next. 

Senator ISAKSON. Thank you, Mr. Chairman. I concur with your 

opening statement, talking about how tax simplification is the key 

to this, and I think it is the key. 

There is another key that I use to determine what Georgians are 

interested in, and that is how long I have to stay in the narthex 

after church to answer questions and what that subject is about. 

Yesterday, given the proximity to April 15th, everything was about 

the IRS. Listening to Senator Casey’s statement, I think I heard 

that we are close to having conclusions from our bipartisan investigation. Is that correct? 

The CHAIRMAN. I will let Senator Hatch chime in here, but I believe so. Certainly, the staffs have been talking. 

Senator Hatch has been very constructive, given the fact that 

this is the only bipartisan investigation into this, and, obviously, 

there were errors made. There is no question about that. It is important that we wrap this up, but I am very hopeful that we can 

do that quickly. 

Senator Hatch, would you like to add to that? 

Senator HATCH. Well, we are trying to wrap this up as quickly 

as we can. It has been slow. We still have not gotten a number of 

documents that we still have to get, but I agree with the distinguished chairman that we are working in a bipartisan manner and 

hopefully we can conclude this within the relatively near future— 

at least I hope so. 

The CHAIRMAN. Commissioner, can we have some clarity on that 

point? 

I understand you have sent us a letter indicating that you have 

made available all the documents for purposes of this investigation. 

Is that right? I do not have the letter with me. 

Commissioner KOSKINEN. Yes. We, 3 weeks ago, said we had provided you all the documents we had about the determinations process, which was the subject of the Inspector General’s report. 

21 

Since then, we have had requests for additional information, not 

about the determinations process, but about any involvement by 

Lois Lerner in the exam process, the appeals process, and the regulatory process, and we are completing the provision to you of all of 

that additional information as well. 

But for the base issue of the determinations issue that the IG 

raised, you have all of the documents we could find. 

The CHAIRMAN. We are intruding on Senator Isakson’s time, and 

I will let Senator Hatch have the last word here. 

Senator HATCH. They said they had given us most of the documents, and then we found out that they had not. So we just got 

a new set of documents last week. 

We are appreciative of the cooperation. We still have not gotten 

into the Treasury documents as much as we would like to, although we are starting. All I can say is, we are trying to do the 

very best we can to conclude this investigation, and hopefully we 

will in the near future. 

The CHAIRMAN. We are committed to getting this done, Commissioner. We are going to get it done in a bipartisan way, and I want 

to assure you that we will be following up with you quickly on any 

remaining questions. But I knew that, as of a couple of weeks ago, 

you had given us everything we asked for, and that strikes me as 

indicative of your cooperation. 

This is not going to be imputed to Senator Isakson’s time. So let 

us make sure that—— 

Commissioner KOSKINEN. In that case, let me just say I appreciate that. We have had good working relationships with the staffs 

of the majority and the minority, and we are committed to continuing to work with you. Whatever you need, we are anxious to 

get it to you. 

The CHAIRMAN. Very good. 

Senator Isakson, we are going to roll the clock back so you can 

have your full 5 minutes. 

Senator ISAKSON. Well, I asked the question, and I am glad you 

all went into the detail to answer the question, because, in a voluntary compliance-dependent system, which ours is, the confidence 

the American people have in the Internal Revenue Service is the 

key to voluntary compliance. 

I think the quicker we can get to all the answers, whatever those 

answers are, the better off all of us are. I want to thank Commissioner Koskinen for the visit he paid to Atlanta 3 or 4 months ago 

and his including me in that visit. 

I would just comment, having run a business before and watched 

a department manager or a business head motivate employees, if 

your performance in Atlanta was typical of what you do when you 

visit other offices around the country, I think the confidence of the 

IRS employees and the IRS will go up, because I was very impressed. 

Commissioner KOSKINEN. Thank you. 

Senator ISAKSON. Ms. Olson made a statement about financial 

incentives to inflate numbers in tax returns for the preparer to 

take advantage and pocket the difference. How do they pocket the 

difference? 

22 

Ms. OLSON. Well, one of the ways that you see is, if you can get 

a larger tax refund for your customer, and you are actually preparing returns in a car dealership or in a furniture rental place or 

in any number of other kinds of entities that are selling products 

unrelated to tax, then you can give a loan advancing funds so that 

the taxpayer can apply those inflated refunds to purchasing a product. 

And what we are seeing in some instances—and I used to see 

this in the low-income taxpayer clinic I ran when I represented taxpayers—is we see this in a vehicle purchase, where a taxpayer 

would use the loan on an inflated refund to purchase an automobile. The IRS would then disallow that refund. 

The taxpayer would be unable to make the ongoing payments on 

this higher-dollar vehicle that they really could not afford. They 

owed the refund back to the IRS, and the car would ultimately be 

repossessed, and then the taxpayer would end up with cancellation 

of debt income for the next year, which was taxable. 

Commissioner KOSKINEN. Another, more direct way of fraud is, 

the preparer puts his bank account down as the bank account to 

which the refund should go, and it is all done electronically. Then 

the preparer can either take out a big fee before he provides the 

refund to the taxpayer, can keep some of the refund, or may keep 

it all. And there is no way for us—because it is all done electronically, when he puts down his bank account—to keep the refund 

from going to his bank account rather than the taxpayer’s. A lot 

of those taxpayers do not have bank accounts. 

Senator ISAKSON. In either case, that is a fraud against the taxpayer. 

Commissioner KOSKINEN. Fraud against the taxpayer. 

Senator ISAKSON. Which brings me to the question I wanted to 

ask about IRS’s Free File program. You talked about low-income 

taxpayers being the ones who are most often abused in something 

like that. 

Has Free File helped? Because it seems like electronic technology 

would help prevent people from padding deductions or padding income. 

Ms. OLSON. Well, I think that the issue is, many of these taxpayers who are most vulnerable do not have computer literacy, the 

level of computer literacy, that would enable them to do that. 

In some of the walk-in sites that the IRS has and at some of the 

Volunteer Income Tax Assistance sites, they are actually trying to 

get taxpayers to sit down, and they walk them through. You can 

prepare—they have computer terminals. You can go and prepare 

your own return, and, if you can learn it once, maybe next year you 

can do it yourself. But there is a very high learning curve. 

I think one thing that can help is if we can get this W–2/1099 

information in advance, then maybe the IRS can pour that into, 

whether it is commercial software or into Free File or into the free 

fillable forms that we have as part of the consortium, if you could 

pour some of the data in, that might make it easier for taxpayers 

to then say, ‘‘Okay, and I have these dependents,’’ et cetera, and 

prepare their own returns. But it is a big lift for this population. 

Senator ISAKSON. This is my last question, and I appreciate the 

time, Mr. Chairman. 

23 

When you catch an unenrolled preparer in a fraud, under the 

Loving decision, you do not have any standing to do anything to 

that person, but can you refer them to the Justice Department for 

prosecution or investigation? 

Commissioner KOSKINEN. Yes, and we do that. Whenever we find 

either systemic fraud or fraud that is a violation of law, we can 

refer it for prosecution. As the Taxpayer Advocate noted, that is 

after the fact, after the taxpayer has been abused, and we cannot 

prosecute every case. We do not have the resources to either catch 

everybody who has defrauded their clients or to prosecute them all, 

but they are at risk. 

If they commit fraud in the filing of their returns for their clients, if they violate the law, they are at risk of prosecution. The 

question is whether we can catch enough of them to make a difference. 

Senator ISAKSON. Well, if CMS does a good job of trying to enforce against fraud in Medicare and Medicaid by making highly 

visible profiles of anybody they catch defrauding the government, 

the same thing might be beneficial for the IRS as well. 

Commissioner KOSKINEN. We give as much visibility as we can 

to the prosecutions we get and to the sentences we get, but there 

are still a lot of people figuring out that they are playing roulette. 

And assuming that, at the levels they are operating, it will be hard 

to find them, and the question is whether there will be enough resources to prosecute them. 

Senator ISAKSON. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Isakson. 

Among the good points that you just made, I think there really 

ought to be more inquiry into Free File to actually see what its 

strengths and limits are. I have heard, for example, questions 

about whether they can do State returns and these kinds of matters. So I want to work closely with you on it. 

Senator Burr? 

Senator BURR. Commissioner, welcome. Senator Coburn and I 

have shared some correspondence with you in the last 2 weeks. 

You have responded. I thank you for that very timely response. 

Let me refresh your memory. This was in relation to the Chicago 

District of the NLRB’s decision as it relates to the Northwestern 

Football Players and their potential unionization. 

We said to you that our interpretation of section 117 of the Internal Revenue Code was, in fact, exactly what your tax experts said, 

that there was an exclusion specifically stated in there for scholarships, educational scholarships, that made those exempt from ordinary income. 

But the statute goes on to note one exception, and I will quote 

it. It says section 117, and I quote, ‘‘shall not apply to that portion 

of any amounts received which represents payment for services by 

the student required as a condition for receiving the qualified 

scholarship,’’ meaning if the individual received a scholarship, a 

portion or the portion that represented a payment for service was 

no longer tax-exempt. 

I got a very detailed letter back from you basically stating the 

first part, which is about section 117 and the exclusion for scholarships, and you made a very specific statement in here that the 

24 

NLRB definition of an employee for labor law does not control 

whether the individual is an employee for the purposes of Federal 

tax. In other words, scholarships are governed by IRS code, and 

this is going to raise a big question, because nowhere did your letter note the disqualifying thing found in the tax code, which is providing a service. 

Now, let me just state for my colleagues, the NLRB decision said 

these students are employees. The suit was brought by Northwestern football players because they said, ‘‘We are under the control of the university. They tell us when to go to practice, when to 

go to a game. They control. Therefore, we should have the opportunity to bargain with them because we are employees.’’ 

The NLRB made a determination that they were employees, and 

they referred to section 2.3 of the National Labor Relations Act. Let 

me just quote from the NLRB decision. 

‘‘The Act provides, in relevant part, that the term ‘employee’ 

shall include any employee. The Supreme Court has held that by 

applying this broad definition of an employee, it is necessary to 

consider the common law definition of an employee. Under the common law definition, an employee is a person who performs services 

for another under a contract of hire, subject to the others’ control 

or right of control, and in return for payment.’’ 

Now, let me just suggest to you that, if that does not meet the 

exclusionary part of section 117, I really do not understand it. And 

I understand your point here that labor law does not dictate tax 

law. 

So let me point then to tax law. In Revenue Ruling 77–263, 

which discusses section 117 and the tax law treatment of athletic 

scholarships, the IRS states this clearly: ‘‘Any amount paid or allowed to or on behalf of an individual to enable an individual to 

pursue studies or research is not considered to be an amount received as a scholarship or a fellowship grant for the purposes of 

section 117, if such amount represents compensation for past, 

present, or future employment services or for services that are subject to,’’ and I underline, ‘‘direction or supervision of a grantor or 

if such studies or research are primarily for the benefit of the 

grantor. Any of these conditions will negate the existence of a 

scholarship or fellowship grant as defined in the regulation.’’ 

So the body of tax law is pretty clear on this question, Mr. Commissioner. Bargained-for payments cannot be excluded from income 

as athletic scholarships. Again, the players were seeking to unionize in the Northwestern case, and they make the argument that 

they are employees and that the scholarships they receive from the 

university are compensation for services rendered. The NLRB has 

agreed with the players that they are employees and that their 

scholarships are compensation for services rendered. 

Let me just ask you, how can the IRS ignore tax law and the 

facts in the answer that they prepared for you to send me? 

Commissioner KOSKINEN. Well, first of all, it would be interesting to see what the NLRB final decision is as that issue from 

the regional office goes forward. 

Senator BURR. If it goes as currently written, are those scholarships taxable? 

25 

Commissioner KOSKINEN. Well, the revenue ruling you are talking about talks about and tries to distinguish, obviously, graduate 

students who teach, who do research, who get paid, and that issue. 

Obviously, interesting discussions are going on in the NCAA 

about whether, in fact, student athletes should get stipends, so 

whether they should, in fact, be paid in addition to their scholarships. The principle thus far has been that all of these students are 

student athletes, that the scholarship allows them to attend college 

and to participate in athletics, and that historically has been the 

rule applied. 

To the extent that the circumstances change significantly—and 

that is why I say it will be interesting to see where this goes— 

then, obviously, we will take another look at what the definition of 

compensation is, what the definition of scholarships are, and what 

the situation is. But thus far, the people who have looked at it, the 

experts in the IRS, have ruled that nothing has changed thus far 

that would cause us to make a—— 

Senator BURR. Commissioner, let me ask. Just from the explanation and what I read of tax law, where have I missed it that it 

is clearly stated there, that if they are supervised, if they perform 

a service required by that entity that controls them, this is no 

longer considered a scholarship? 

I think that you are reinterpreting what the tax law says 

and—— 

Commissioner KOSKINEN. What I am saying is, historically, what 

football players do today is no different than what they did 5, 10, 

or 20 years ago, and they have always been treated as if those were 

scholarships. 

To the extent that the nature of the compensation changes, then 

we would take a look at it. But nothing in terms of what a student 

athlete does has changed, even as a result of that NLRB decision. 

The CHAIRMAN. Senator Burr, I just think we have to move on. 

We have a lot of additional witnesses. Is that acceptable to you? 

Do you have anything else you need to do? You are way over. 

Senator BURR. Let me just say, Mr. Chairman, it concerns me 

that we might look at it in the future, because we either follow the 

statute that is in the law, which I think is very clear, or we do not, 

and I am not sure the IRS statute is open for interpretation when 

it is as clear as it is. You would have to change a lot of words there 

to suggest that this does not fit the determination that the labor 

law makes. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Brown? 

Senator BROWN. Thank you, Mr. Chairman. 

I appreciate Senator Burr bringing up such an interesting issue 

of what happens at Northwestern with these players, and I might 

add, I have met with a couple of them, and they are definitely not 

asking for compensation. 

I know Senator Burr did not say that, but it is about concussions, 

and it is about a kid who gets hurt and loses his scholarship because he is of no use to the university then and may not have his 

health care provided for. 

I remember a suspension some years ago of a major player at a 

university in my State. The suspension did not take effect until 

26 

after the bowl games because of the revenue he represented to the 

university, the NCAA, and ESPN. So, even though he deserved suspension, he did not deserve it until after he would play that 

ballgame that would bring in that revenue. So I think we have a 

lot of discussions ahead of us on this. 

Senator BURR. If I could say to my good—— 

The CHAIRMAN. Colleagues, we have quite a number of witnesses 

on the second panel. We are just going to have to continue on the 

question of fraud by tax preparers. 

Senator Brown? 

Senator BROWN. Thank you, Mr. Chairman. And it will be that. 

There has not been much said—well, nobody on this panel has 

talked about the Earned Income Tax Credit. I cannot stay for the 

second panel. I do know one of the witnesses on the second panel 

will have much to say about the Earned Income Tax Credit. 

My view is, if we are going to look at the EITC—which President 

Reagan, as you know, called the best poverty program going in 

America—couple it with the Child Tax Credit and what that 

means. I know Ms. Olson has been outspoken about that. If we are 

going to look at EITC as being subject to too much fraud, and we 

always should be vigilant, to be sure, we might be just as focused 

on carried interest and blocker corporations and accounts in the 

Cayman Islands. 

But let me ask Ms. Olson. There was a TIGTA report that found 

higher rates of improper payments for EITC. They also estimate 

that between 20 percent to 22 percent of eligible workers are not 

claiming EITC. 

For many of us, in our States, we put real time and real staff, 

real personal staff and real staff time, into getting people to sign 

up, to know about it, to be aware of it. 

First, two questions, Ms. Olson. What do we do to maintain and 

enhance the EITC and the Child Tax Credit while reducing the 

error rate and increasing enrollment? And second, in Professor 

Barrick’s written testimony, he states that despite the fact that 

EITC and the Child Tax Credit lift millions of families out of poverty, he says the risk of fraud is so great that it should be addressed by eliminating both credits. 

So comment on both of those, if you would, Ms. Olson. 

Ms. OLSON. I think that the IRS has some research, some very 

good research, from its random audits of EITC taxpayers that really demonstrates that the sources of error are very great. And it is 

a complicated statute, so you have those kinds of errors, and then 

you do have fraud, for all the reasons we have talked about here, 

including the vulnerability of the population. 

The population also changes one-third every year. So it is very 

hard to have a learning curve where you are teaching people. They 

are leaving the EITC and coming into the EITC in great numbers. 

I have proposed in other testimony multiple ways of addressing 

the errors, including both education and redesigning the statute a 

little bit to combine the family-related credits and dependency exemptions and child credit into a larger family credit that would be 

refundable, and then a worker credit, because that makes the overall dollar amount a little less for each provision and a little less attractive for fraud. 

27 

But the main point I really want to make about this is that the 

EITC has very low administration costs for such a large social benefit program. Where its costs are are in the compliance and error 

and fraud rate, and we do not know what is fraud and we do not 

know what is error. 

Other benefit programs have very high administration costs and 

not as high error costs. That is because they have a lot of frontend application process. We do not. You file on an income tax return. That is very inexpensive. We have the costs at the back end. 

But what the EITC has that no other benefit program has is a 

high participation rate. We have 75 to 80 percent of the eligible 

taxpayers getting that money. It is higher than any other benefit 

program that the United States administers to that population, to 

my knowledge. 

So, if you really want to look at the effectiveness and the efficacy 

of the EITC, yes, we have a higher error rate, but we have low cost 

and we have a high participation rate, as opposed to the programs 

that have low error rates but very high administration costs and 

low participation rates. 

I think if you look at it holistically, yes, we have to get down our 

error rates—and I have made really substantive proposals on how 

to do that—but as an effective program, it is very good, in my personal opinion, and my professional opinion too. 

Commissioner KOSKINEN. Yes. I agree with the Taxpayer Advocate. We have had two big meetings with everybody who has ever 

thought about this program. We have tried a lot of different things. 

I think the error rate, 20 percent to 22 percent, and the amount 

of payment made in error—it is not all fraud, as the Taxpayer Advocate said—are untenable. It is a great program, and, as I have 

told everybody, we have to make it clear to the public that we understand it is a problem, it is a serious problem that we care about, 

and, in fact, we are going to do something about it. 

One of the things we need, and we have asked the Congress this 

time around for, is authority for what is called ‘‘correctable error 

authority.’’ We, if we find and know there is a problem in a return, 

cannot change that return, unless it is just simple math errors, 

without an audit and contacting the taxpayer. Correctable error authority would allow us, when we know there is an error in the return, to make the change, then advise the taxpayer. The taxpayer 

could appeal and come back to us. But it would allow us to eliminate some of the improper payments at the front end rather than 

requiring us to have an audit each time. 

The CHAIRMAN. My colleague’s time has expired. 

Senator Carper? 

Senator CARPER. Thanks, Mr. Chairman. 

Commissioner Koskinen, Ms. Olson, it is very nice to see you 

both. Thank you so much for your service and for being with us 

today. 

I just want to say, Mr. Chairman, I am delighted we are having 

this hearing, and I commend you and Senator Hatch for holding it. 

My colleagues hear me say from time to time that there are 

three things we need to do for deficit reduction if we are serious 

about it. We have seen the deficit come down from about $1.4 trillion in 2009; last year it was only $680 billion. This year it is exVerDate Mar 15 2010 17:30 Oct 27, 2014 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 R:\DOCS\90922.000 TIMD
28 

pected to come in at about $550 billion, then drop a little bit more, 

and then start going back up again. 

But if we are serious about deficit reduction, we need to do three 

things. One is entitlement reform, save these programs for our 

kids, save some money, so it does not savage old people or poor 

people. Number two, we need tax reform that actually brings down 

our top corporate rates to something that is more competitive with 

the rest of the world and also generates some revenues for deficit 

reduction. The third thing we need to do is look at everything we 

do in government and ask this question: how do we get a better result for less money? And this falls right into that bailiwick. 

GAO has spent a lot of time in recent years looking at this and 

how we make sure, in terms of other revenue that is coming into 

the Treasury, that taxpayers are paying a fair and reasonable 

amount, but others are not being unduly burdened because some 

of our neighbors are not doing their fair share. And this hearing 

puts a real spotlight on one of the ways that we could better ensure 

that everybody is paying their fair share. So I am delighted we are 

having this hearing. 

The investigations by the GAO and by the Treasury Inspector 

General have revealed serious problems with tax return preparation by preparers who are not CPAs or who are not attorneys or 

otherwise credentialed, and, as we know, this poses serious problems for tax administration, particularly for highly complex tax 

provisions like the EITC. You indicate it is pretty easy to fill out 

the form, the tax form to apply for it, but the actual compliance of 

it is quite a different matter. 

In light of the recent circuit court decision, it looks like legislation is necessary to allow the IRS to adequately regulate the tax 

preparers. In the meantime, I support IRS’s efforts to create a voluntary certification program for preparers. And let me ask this 

question. 

Do you believe that offering voluntary certification will offer 

enough opportunity for return preparers to distinguish themselves 

so that many preparers will participate? 

Commissioner KOSKINEN. Go ahead. 

Ms. OLSON. I think that if we couple that voluntary certification 

with some conditions—for example, right now, unenrolled return 

preparers can represent taxpayers in audits before the IRS for returns that they prepare, and that is a rule that we have promulgated. We should change that rule to only grant that ability to people who have taken the test and demonstrated competency and 

continuing education. 

They can also write their name on the return and say, ‘‘You can 

call us if there are questions about the return,’’ and we should restrict that to certified preparers. So that gives a leg-up to those 

people who are taking the time out to do that voluntary testing and 

continuing education. They can say, ‘‘We can do these things,’’ 

whereas other people cannot. 

It will not work if we do not have a comprehensive education 

campaign. We have to make it the Good Housekeeping Seal of Approval, that you have a clear choice. You go to someone, an attorney, a CPA, an enrolled agent, or a certified preparer, or all bets 

are off. 

29 

Senator CARPER. How could we help in this regard, other than 

passing legislation, which I would like to see us do, but how can 

we help short of that? There may be nothing, but there may be 

something. 

Commissioner KOSKINEN. This hearing is very valuable to give 

visibility to the issue to try, as we do, to get taxpayers to be careful 

when they select a preparer, to try to determine what their background is and their competency. 

Again, the government and the IRS have a great interest in competent preparers, because the errors that are provided, or the fraud 

that is created when it is not done well, create a tremendous burden on the system, as well as a question of whether we are getting 

adequate compliance. 

So I think a voluntary program, which we are considering, would 

be a step forward, but it is still going to leave people on the periphery, if for whatever reason they decide they are not going to register and take the exams and demonstrate competence, to produce 

erroneous returns that we then have to deal with and have to contact taxpayers about. 

Ultimately, it is not as if it is sort of six of one and half a dozen 

of the other. From our standpoint, it is critical that taxpayers get 

proper advice and that we get as many accurate tax returns as we 

can so that we do not fritter away resources chasing people who 

had no business filling out that return in the first place. 

Senator CARPER. Mr. Chairman, my time has expired. I am going 

to be submitting a question for the record, because I thought Senator Thune asked a question that is worth highlighting and returning to about a substantial portion of the Affordable Care Act being 

implemented through the tax system. So you will get a question 

from me on that. 

But thank you so much. It is great to see you both. 

The CHAIRMAN. I appreciate my colleague bringing up this voluntary compliance issue. My concern about voluntary compliance is 

it really does not deal with the scofflaws. We know that the majority of preparers are scrupulous and honest. The problem is what 

to do about the outliers, and those are the people who are not going 

to be exactly tripping over themselves to comply with the voluntary 

compliance point. But we are going to discuss that, and we are 

going to discuss all of the options here for dealing with this problem. 

Senator Cantwell? 

Senator CANTWELL. Thank you, Mr. Chairman. And following on 

that note, one of the options, I believe, is continuing to make things 

simpler from a technology perspective. 

So some of my colleagues have brought up the Free File program, 

which is a public-private partnership between the IRS and commercial tax software companies that offer free Federal tax preparation. And since its inception, it has saved over 30 million taxpayers 

in helping them with their filings, and it has also saved the Federal Government something like $91 million by making it easier, 

obviously, on the processing costs. 

So one of the things that I kind of disagree with you a little bit 

on, Ms. Olson, is, I am sure there are a lot of people who make less 

than $58,000 who know how to use Word or Excel or various softVerDate Mar 15 2010 17:30 Oct 27, 2014 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 R:\DOCS\90922.000 TIMD
30 

ware programs. This is about continuing to make the complexity of 

the tax code simple so that the administration of it is simpler too. 

So I wanted to talk to you about what else we can do to continue 

to advance the use of technology and help taxpayers file efficiently, 

because I have certainly heard stories within my own office of 

young people using an online version, and paying a little bit for 

that, and then going the next year, thinking they were going to get 

some great advice from somebody, and all they are doing is sitting 

across from somebody who knows barely more than they do, but is 

charging them 2 times or 3 times the rate. 

So to me, I think we need to make the tax code simpler, make 

it easier for people to file, make the code easier to understand so 

that people know exactly what they are doing. Is that not the direction that we should be going? 

Ms. OLSON. Absolutely. I have made the complexity of the tax 

code the number-one most serious problem for taxpayers many 

times in my annual report to the Congress. 

I was an unenrolled return preparer and then an attorney who 

prepared returns for many clients, and I was baffled why people 

would not do some of the returns that they were bringing to me. 

There is this nervousness factor that they are going to make a mistake, that they missed something, and I think that is driving people of all income levels to return preparers. 

The Free File usage has not been robust in terms of the numbers 

of taxpayers, even though it covers a large population, and I think 

some of that is that some taxpayers like to buy the tax software 

products to get all the other bells and whistles that are on those 

products, incorporating them with their accounting programs, et 

cetera. Others want to go to return preparers, like I said before, because they do not want to make a mistake and they just do not 

trust themselves, even with the software. 

I think the IRS publicizes the Free File or the free fillable forms. 

I will come back to something I said earlier. I think it is very important for the IRS to be able to get W–2 and 1099 data early in 

the filing season, as early as possible, so we can make it available 

to taxpayers, so they can download it into their software programs 

that they may purchase, so preparers can download it into their 

programs, and so that people can download it into Free File or free 

fillable forms and get a little further along and that is accurate information then. 

You avoid keystroking errors and things like that and that 

missed W–2 that got sent to a wrong address. That would be the 

big technology push, and Congress could do something about this 

by setting some goals for the IRS to move forward in this. 

Congress set goals for the IRS to get into electronic filing, and, 

even though it did not hit the goal on time, it became a rationale, 

it became a goal, and the IRS organized itself around achieving 

that. And I think to get to this next electronic umph with getting 

the third-party information reporting timely, being able to help taxpayers, but, also, protect against fraud—— 

Senator CANTWELL. I think software developers have to focus all 

their attention on making it intuitive, and I think there is some intuitiveness we could probably put into the tax code explanations. 

And so we will certainly take you up on that offer. 

31 

I also wanted to ask, quickly, because we have, obviously, suffered this devastating loss in the Oso, Darrington mud slide area 

of our State, and so we have been looking at all of this as it relates 

to disaster relief, and you certainly have seen a lot of these incidents with Sandy. 

Do you think that we need to look at this issue of what is available to communities? It seems like we are so almost rifle-shot, and 

then here is a community where you have lost your house. In a lot 

of instances, you still have to pay on your mortgage even though 

your house has been totally wiped out. 

How do we help these communities? 

Ms. OLSON. We have made some recommendations in the past 

about disasters that did not quite qualify for presidentially declared disasters, and I will commit to working with your office 

about some of that. And I also think your idea about some of the 

mortgage relief and debt relief and things, so you do not trigger 

taxable events because you cannot pay these things, that is very 

important. I would be more than happy to look into that. 

Senator CANTWELL. Thank you. 

The CHAIRMAN. Thank you, Ms. Olson, both of you. This was 

very helpful in terms of the technology issue. There is no one in 

the Senate who is more tech-savvy than Senator Cantwell. So we 

are going to follow up on these two issues and on the mortgage 

point in terms of trying to protect people from tax increases when 

they get debt relief. That is part of the extenders, as a result largely of Senator Stabenow. 

At this point, I think we have completed our first round. 

I would like to introduce our second panel, and we will have Senator Hatch introduce Dr. John Barrick, associate professor at 

Brigham Young University. 

Thank you both very much. You have spent a lot of time at the 

witness table, and we thank you for your expertise and your patience. 

Now for our second panel. I would like to introduce the first witness, Mr. James McTigue, Director of Strategic Issues from the 

Government Accountability Office. Mr. Wayne McElrath is Director 

of Investigative Services and will answer any questions that members have after Mr. McTigue provides his testimony. 

Our next witness is Mr. William Cobb, the president and CEO 

of H&R Block. 

Our third witness is Ms. Janis Salisbury, the chair of the Oregon 

Board of Tax Practitioners. Ms. Salisbury, we know that you have 

tax clients waiting for you at home in Oregon, so we thank you for 

coming. 

Senator Hatch will introduce Dr. John Barrick momentarily. 

Our fifth witness will be Ms. Chi Chi Wu, staff attorney at the 

National Consumer Law Center. 

Our final witness will be Mr. Dan Alban, attorney for the Institute of Justice. 

Let us now have Senator Hatch introduce Dr. John Barrick, associate professor, Brigham Young. 

Senator HATCH. I would like to welcome Professor John Barrick 

from the School of Accountancy in the Marriott College of Business 

32 

at Brigham Young University, which is a very highly rated business school. 

Professor Barrick is a leading academic expert in taxation. In addition, he has a wealth of practical experience. His highlights include 2 years of tax experience with the bipartisan Joint Committee on Taxation and 4 years as a tax consultant with PriceWaterhouse. 

John’s family is with him here today. And we welcome you all 

here, and we are very happy to have you here helping us to understand these issues. 

The CHAIRMAN. Thank you very much, Senator Hatch. 

We thank all of our witnesses for coming. 

In order to give members of the committee time to ask questions, 

we would ask that you limit your testimony to 5 minutes. Your prepared statements are going to automatically be part of the record. 

Why don’t you start, Mr. McTigue? 

STATEMENT OF JAMES R. McTIGUE, JR., DIRECTOR, STRATEGIC ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE, 

WASHINGTON, DC 

Mr. MCTIGUE. Thank you, Mr. Chairman and members of the 

committee. I am pleased to be here today to discuss the quality of 

services provided by paid tax preparers. 

Millions of taxpayers rely on paid preparers to provide them with 

accurate and fully compliant tax returns. The IRS has long recognized that paid preparers’ actions have an enormous impact on its 

ability to administer tax laws effectively and collect the revenue 

that funds the government. Despite the importance of paid preparers in our tax system, IRS’s authority to regulate paid preparers 

is limited to certain preparers, as you have heard, such as attorneys and certified public accountants. The majority of preparers, 55 

percent, are known as unenrolled preparers and are not regulated 

by IRS. In 2010, IRS initiated steps to regulate unenrolled preparers, but the courts ruled that IRS lacked the authority. 

In order to gain some insight into how unenrolled preparers actually perform, we developed two scenarios based on common tax 

issues. We call these scenarios our waitress scenario and our mechanic scenario. In our waitress scenario, our undercover investigator posed as a single mother who received wage income and unreported cash income from tips. She had one child who lived with 

her during the year and qualified for the Earned Income Tax Credit and one who did not. In our second scenario, a mechanic and his 

wife derived the majority of their income from his wages, but also 

had some side income from repair work and child care. They had 

three children who lived at home; one attended college. 

As you can see from the board on my right and figure 3 in my 

written statement, in 19 visits to randomly selected commercial 

paid preparers, refund errors ranged from $52 lower to $3,700 

higher than they should have been. In only two instances did the 

paid preparer calculate the correct refund amount. 

In the waitress scenario, preparers made two key errors; first, 

not reporting all the cash tip income and, second, claiming both 

children as being eligible to receive the Earned Income Tax Credit. 

The clustering of the bars illustrates that different preparers made 

33 

the same errors. For example, four preparers did not claim the 

cash tip income, which overstated the waitress’ refund by $654. 

One preparer told our investigator that if she reported the tip income, it would be a red flag, and her employer would be audited. 

Three preparers made both errors, which resulted in refunds that 

were overstated by more than $3,700. In one case, the preparer 

told our investigator that she could claim her second child if no one 

else did, even though the child did not live with her for more than 

half of the year. 

In the mechanic scenario, not reporting cash income also resulted in refunds that were overstated by $3,000. One preparer told our 

investigator that if the side income was reported, his tax preparation fee would go up and his refund would go down. Two preparers 

went as far as to show our investigator how his refund would 

change if the side income was reported. 

Clearly, taxpayers were not well-served by the preparers that we 

visited. But as the next board on my right illustrates, figure 6 in 

the written statement, they paid a lot of money for the services, 

and fees varied widely. For example, with the mechanic scenario, 

fees ranged from about $300 to $600. Alarmingly, the average fee 

for the waitress scenario was nearly $300, more than 80 percent of 

her weekly pay. 

Often, the paid preparers either did not provide an estimate of 

the fees up front or the actual fees charged were higher. Higher 

fees, however, do not translate into more accurate returns. In fact, 

the fee charged for the correct mechanic return was one of the lowest at $311. When our investigators inquired about the high fees, 

we heard a range of responses like, we charge more in the morning 

than the afternoon, we charge more early in the tax season than 

later, and the Earned Income Tax Credit form is one of the most 

expensive. 

Although our findings are anecdotal, GAO’s analysis of IRS’s national research program data reveals that preparer-filed returns 

showed an estimated 60-percent error rate compared to an estimated 50-percent for self-prepared returns. Errors on paid preparer 

returns were similar to those encountered during our visits. For example, preparer-filed returns claiming the Earned Income Tax 

Credit had an estimated error rate of 51 percent. 

Undoubtedly, many paid preparers do their best to provide clients with returns that are accurate and fully compliant. However, 

poor performance can result in taxpayers being audited, having to 

pay back taxes and interest, and possibly even penalties. 

In 2008, when GAO looked at States that regulate paid preparers, we found that returns filed by paid preparers in Oregon, 

which has the most stringent requirements of any State, were more 

likely to be accurate than comparable returns filed by preparers in 

the rest of the country. 

Given the importance of paid preparers in our voluntary tax system, we are recommending that, if Congress agrees significant preparer errors exist, it should consider granting IRS the authority to 

regulate unenrolled tax preparers. 

This concludes my statement, and I would be happy to answer 

any questions. 

Thank you. 

34 

The CHAIRMAN. Thank you very much. 

[The prepared statement of Mr. McTigue appears in the appendix.] 

The CHAIRMAN. Mr. Cobb, I think you will be next. 

Mr. McElrath, would you like to add to that? 

Mr. MCELRATH. No. I have nothing to add. 

The CHAIRMAN. Very good. 

Mr. Cobb? 

STATEMENT OF WILLIAM COBB, PRESIDENT AND CEO, 

H&R BLOCK, KANSAS CITY, MO 

Mr. COBB. Chairman Wyden, Ranking Member Hatch, and the 

distinguished members of the committee, thank you for inviting 

H&R Block. We are pleased to participate in this important discussion about protecting consumers from incompetent and unethical 

preparers. 

As the world’s largest consumer tax services provider, competent, 

ethnical tax return preparation is something we take very seriously. Last year, we filed more than 22 million U.S. individual income tax returns, about 15 million returns in our more than 10,000 

offices, and another 7 million through our do-it-yourself software 

offerings. 

We know a lot about consumer views on taxes and know what 

it takes to maintain expertise in this always-changing tax landscape. In order to protect taxpayers from incompetent and unethical tax return preparers, there are two key items that must be addressed: first, minimum standards for tax return preparers, and, 

second, consistent fraud prevention measures across all tax preparation methods. 

First, we support legislation that sets standards for professional 

tax return preparers. The most obvious way to address incompetent 

and unethical tax return preparers is to establish a set of minimum 

standards. Standards provide an objective measure for both consumers and tax preparers to measure and monitor the overall competency, expertise, and performance of tax return preparers. 

This is critical, because the ultimate goal is to help taxpayers file 

more complete and accurate returns. Equally important is the reduction of both fraudulent tax returns and the improper payment 

rate of the Earned Income Tax Credit. More than 80 million people 

file an individual income tax return with the help of a tax return 

preparer every year. Consumers need an objective way to know 

that the person they turn to for one of the biggest financial transactions of their year is competent and meets standards necessary 

to accurately prepare tax returns. 

Taxpayers themselves agree. A recent national survey that we 

commissioned found that 9 out of 10 consumers support requiring 

professional tax preparers to meet minimum training standards. As 

this initiative moves forward, the U.S. Treasury Department and 

IRS must leverage the lessons learned from the prior registered tax 

preparer program and partner with private industry to create an 

effective and cost-efficient program. 

The components of the program must include tax preparer registration, demonstrated competency, continuing education, and 

background screening. At the end of the day, requiring return preVerDate Mar 15 2010 17:30 Oct 27, 2014 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 R:\DOCS\90922.000 TIMD
35 

parers to meet minimum standards and stay current with the tax 

code is not about granting the IRS additional authority that it 

should not have or to advance anti-competitive pursuits. It is about 

protecting the 60 percent of consumers who get help with their 

taxes every year. This is why we require our H&R Block tax preparers to meet stringent education and competency standards: 75 

hours of tax law and return preparation education, plus 35 hours 

of skills training in their first year, then annually, another 15 

hours of continuing education and 20 hours of skills training. 

The second key item that must be addressed is implementing 

consistent fraud prevention measures across all tax preparation 

methods. The steps designed to prevent EITC fraud in the paid 

preparer channel are notably absent in the do-it-yourself channel. 

Specifically, for the 40 percent of taxpayers who do their own taxes 

using do-it-yourself software, such as H&R Block’s, they are not required to provide the same information and documentation to substantiate their eligibility for this refundable credit. 

Congress must close such obvious gaps not only for EITC, but for 

all refundable credits. With an EITC improper payment rate persisting at 20 percent or higher, this is an obvious opportunity that 

can and should be seized immediately. 

Consumers are not concerned about answering more questions. 

In the same survey I mentioned before, a significant majority of 

taxpayers expressed a willingness to do more to help combat tax 

fraud, such as answering more questions on their returns or even 

waiting a little longer for their refund. 

Government, the tax preparers, software developers, and taxpayers each play a significant role in the tax filing process. Taxpayers are willing to do their part as long as it is administered consistently for all. Additionally, this difference in standards creates 

a loophole for ghost preparers who do not want to comply with the 

paid preparer requirements. They simply use a do-it-yourself product. IRS should set standards for tax software to ferret out ghost 

preparers. 

Before I close, let me take a moment, Mr. Chairman, to acknowledge your interest in streamlining the tax code and the tax filing 

process. We would be pleased to share our consumer tax expertise 

on these issues with you and your staff. 

The Tax Institute at H&R Block, comprised of enrolled agents, 

tax attorneys, CPAs, and former IRS officials, analyzes proposed 

legislation and regulations with an eye on how they will affect consumers. And in doing this analysis, the Tax Institute has access to 

the real world expertise of our 70,000 tax professionals who are on 

the front line with consumers. 

In conclusion, we urge Congress to listen to consumers and move 

to enact minimum standards for return preparers and implement 

consistent anti-fraud measures for taxpayers. These standards are 

essential for protecting consumers, combating fraud, and reducing 

improper payments. 

Until Congress can enact minimum standards for return preparers, we recommend that Treaury and IRS implement a voluntary certification program as supported by IRS Commissioner 

Koskinen and the National Taxpayer Advoate. 

36 

Thank you for the time, and I look forward to working together 

to implement these common-sense measures. 

The CHAIRMAN. Mr. Cobb, thank you. 

[The prepared statement of Mr. Cobb appears in the appendix.] 

The CHAIRMAN. Ms. Salisbury, welcome. You made a long trek at 

a busy time of the year, and I know you have some late nights 

ahead of you, so we really appreciate your coming. 

STATEMENT OF JANIS SALISBURY, CHAIR, OREGON BOARD 

OF TAX PRACTITIONERS, OREGON CITY, OR 

Ms. SALISBURY. Thank you. Chairman Wyden, Ranking Member 

Hatch, and distinguished members of the committee, my name is 

Janis Salisbury. I am an IRS enrolled agent and a licensed tax consultant in Oregon. For the past 6 years, I have served the State 

of Oregon as a member of the Board of Tax Practitioners and have 

served on that board for the last 2 years as chair. 

I am pleased to be here to discuss with the committee the actions 

that Oregon has taken to protect taxpayers from incompetent and 

unethical tax return preparers, and to recommend that Congress 

provide the IRS with the authority to require individuals to demonstrate minimum competency in tax return preparation, either by 

passing a State board examination or for the individual to pass an 

IRS examination, and then to impose continuing education requirements after passage of such examination. 

The primary reason Oregon felt it necessary to develop its own 

paid preparer regulatory program 40 years ago is the same today 

as it was then. Initial training and registration is essential before 

anyone can even begin preparing your tax returns. Oregon’s track 

record proves this. 

In 1972, Oregon determined that people engaging in tax return 

preparation should be licensed and be required to obtain continuing 

education relating to the tax return preparer occupation. The 

Board of Tax Practitioners currently regulates tax return preparers 

in Oregon. Oregon requires paid preparers who are not already licensed by the State as CPAs or attorneys to obtain a State license 

to prepare tax returns. 

To become a licensed tax preparer, a person must have a high 

school diploma or the equivalent, complete 80 hours of approved 

qualified education, pass a State-administered examination, and 

then pay a registration fee at application. Annual renewal by licensees requires proof of at least 30 hours of continuing education. 

According to a report to this committee prepared by the GAO in 

August of 2008, Federal tax returns for the year 2001 filed in Oregon were more likely to be accurate than returns filed anywhere 

in the rest of the country. Specifically, the GAO found that the 

odds that a return prepared by an Oregon paid preparer was accurate were about 72 percent higher than the odds for a comparable 

return filed by paid preparers in the rest of the country. 

Oregon has been a leader in requiring the licensing of tax return 

preparers for over 40 years, and the results noted by the GAO 

show the excellent results of Oregon’s regulations. Accordingly, the 

Oregon State Board of Tax Practitioners urges the Congress to 

enact legislation similar to Oregon’s legislation, which would reVerDate Mar 15 2010 17:30 Oct 27, 2014 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 R:\DOCS\90922.000 TIMD
37 

quire individuals to demonstrate competency in the preparation of 

tax returns and satisfy continuing education requirements. 

We suggest that such competency be demonstrated by passing a 

written examination approved by a State board of accountancy or 

a board of law examiners or a State entity, such as the Oregon 

Board of Tax Practitioners, or by the IRS. The passage of an examination recognized by a State, such as Oregon, to show competency 

in tax return preparation must be considered to demonstrate tax 

competency for Federal tax return preparers, in order to recognize 

efforts that have been undertaken at the State level and to avoid 

duplicate and unnecessary testing. 

We commend the Senate Finance Committee for holding this 

hearing and considering this important legislation. Thank you for 

the opportunity to be with you, and please let me know if you have 

any questions. I am very willing to answer. 

The CHAIRMAN. Thank you. That is very helpful, and we will 

have some questions in a moment. 

[The prepared statement of Ms. Salisbury appears in the appendix.] 

The CHAIRMAN. Professor Barrick? 

STATEMENT OF JOHN BARRICK, Ph.D., ASSOCIATE 

PROFESSOR, BRIGHAM YOUNG UNIVERSITY, PROVO, UT 

Dr. BARRICK. Chairman Wyden, Ranking Member Hatch, and 

members of the committee, thank you for inviting me to participate 

in this hearing. Protecting taxpayers from incompetent and unethical tax return preparers is an important topic. 

To illustrate the problem, I would like to share a former colleague and classmate’s recent experience with a taxpayer who previously received return preparation services from a ghost preparer. 

A new client comes to visit a CPA and indicates that he has a 

tax problem. The client never attended college, is a single father, 

has two young children, ages 4 and 6, and is facing uncertain economic times. During the previous year, he engaged a tax return 

preparer who claimed that he could get him an $8,000 refund at 

the cost of $800 or 10 percent of the refund due. 

The return preparer did not sign the return nor did he provide 

reliable preparer contact information. As promised, the client did 

receive an $8,000 refund and began spending it. However, a short 

time later, the client received an IRS notice denying the three 

American opportunity credits that were claimed, one for himself 

and each of his two young children. The money had to be returned. 

Who was to blame? Both the client and the tax preparer knowingly submitted or had opportunity to know that the return 

claimed false information. 

The client is now worse off than before. He owes the full amount 

of the refund, plus he is out the $800 return preparation fee. The 

preparer is a ghost, not to be found, $800 richer than before. 

All of us at this hearing would like to prevent this type of behavior from happening again. But how can we best do that? 

First, our tax system is both necessary to raise revenue and complex, as has been noted today. With 6.1 billion hours spent complying with the law and the code having over 4 million words and 

38 

containing 4,600 changes since 2001, this complexity has led to the 

need for tax return preparers. 

There are three main problems associated with regulations: the 

inability to regulate the most unscrupulous and unethical, the inability to impose ethics on return preparers, and the creation of 

winners and losers within the industry. I firmly believe that the 

current regulatory framework is insufficient to address these limitations, and I will make several recommendations that the Congress and the IRS could follow to better protect these taxpayers. 

First, voluntary disclosure. We live in a free society. Let the markets decide. Create incentives for the return preparers to voluntarily register. Attorneys, CPAs, and enrolled agents already do 

this. If the IRS chooses to endorse or certify a new class of return 

preparers with only 15 hours of education, the IRS will provide a 

seal of approval and a false sense of security to taxpayers. I do not 

recommend this latter approach. 

Second, eliminate or limit refundable credits. The growth of refundable credits in the income tax system encourages unethical behavior by taxpayers, ghost preparers, and others wishing to defraud the Federal Government. The Earned Income Tax Credit, 

Child Tax Credit, and education credits are refundable. The new 

credits provided by the Affordable Care Act will double the amount 

of refundable credits available by the income tax system. Prior research has shown that financial incentives do matter, that current 

law encourages and creates incentives for fraud. To the unscrupulous and unethical, this is easy money. 

Third, enforce existing return preparer laws. In 2005, the IRS 

Criminal Investigation Division stated that the IRS currently has 

numerous tools available to address return preparer fraud. If the 

IRS already has ample statutorily authorized tools, why do they 

need regulations to address this issue? Encourage the IRS to use 

the existing tools. 

Fourth, educate taxpayers. Taxpayers are ultimately responsible 

for their returns. They have an obligation to put forth a good effort. 

If something promised to you by anyone sounds too good to be true, 

it probably is. Buyers beware. Taxpayer education can be an effective tool that the IRS has historically used successfully. 

In conclusion, the tax law is large and complex. For these reasons, the majority of taxpayers seek out return preparers to help 

them. But there are ghosts that attempt to defraud the income tax 

system. 

Rather than regulate, please take the previous steps that I have 

mentioned. The most important protection for taxpayers would be 

a simpler income tax system, as suggested by Chairman Wyden 

today. I would encourage the committee to continue to pursue 

meaningful reform. 

Thank you for giving me the time and opportunity to speak. 

The CHAIRMAN. Thank you, Dr. Barrick. 

[The prepared statement of Dr. Barrick appears in the appendix.] 

The CHAIRMAN. Ms. Wu? 

39 

STATEMENT OF CHI CHI WU, STAFF ATTORNEY, NATIONAL 

CONSUMER LAW CENTER, BOSTON, MA 

Ms. WU. Chairman Wyden, Ranking Member Hatch, and members of the committee, thank you for inviting me here today. My 

name is Chi Chi Wu. I am a staff attorney at the National Consumer Law Center. 

Mr. Chairman, thank you for holding this hearing on the need 

to protect taxpayers from incompetent and unethical tax preparers. 

This is a consumer protection issue, as well as a revenue protection 

issue. Simply put, there needs to be licensing and competency 

standards for paid tax preparers. Either Congress needs to give 

IRS the authority, or the States need to enact such laws. Indeed, 

mindful of the difficulty in getting Federal legislation passed, we 

at NCLC have issued a model act to encourage States to adopt 

such laws. 

I have worked at the intersection of taxpayer and consumer 

rights for over a decade. When I began this work, I assumed, as 

do many Americans, that tax preparers were licensed professionals 

with certain educational credentials. After all, the tax return is the 

most important financial transaction during the year for many 

Americans, and it would only make sense that the preparers in 

whom consumers place their trust and their sensitive financial information would be required to take some courses and pass a test. 

To my surprise, the exact opposite was true. Preparers are essentially unregulated in 46 States. Contrast this with other professions that do require licensing in all or most States, such as hairdressers or landscape architects. 

The lack of regulation for tax preparers has resulted in an environment that breeds incompetence and fraud. One indication is the 

existence of fringe preparers, tax preparation offered by businesses 

such as payday lenders, pawn shops, check cashers, used car dealers, jewelry shops, even liquor stores and a ‘‘rent-a-wheel’’ business. 

This, of course, raises questions. How accurate are tax returns 

prepared by used car dealers? One can imagine that the incentive 

for accuracy might take a back seat to the desire to sell a car by 

using a tax refund as a down payment. 

Unfortunately, the problems go beyond that. In 2008, we conducted mystery shopper testing, the original purpose of which was 

to investigate disclosures concerning refund anticipation loans. To 

our surprise, what we found were serious tax errors and fraud in 

four out of the 17 tests we conducted, or nearly 25 percent. One 

example involved a preparer who did not know how to handle a 

Form 1099–D. To quote, ‘‘The preparer said that there was a problem she did not know how to handle. The problem was that there 

was a $5,000’’—that is a fictional number—‘‘dividend that we must 

pay taxes on. With the dividend, our return would only return 

$100. If she were to ignore it, then we would receive $3,000 in returns. She then called her ‘tax people,’ who told her we do not need 

to report the dividend and just ignore it.’’ 

In 2010, we conducted another round of testing and found incompetence and fraud in six out of 19 tests, or about 30 percent. One 

example involved a preparer who, when realizing the tester would 

only receive a $1,000 refund and would owe State taxes, began 

making up deductions. 

40 

To quote, ‘‘The tester does not attend church, but the preparer included a $2,000 church donation. The preparer also deducted the 

cost of work clothes and laundry, even showed the tester that her 

Federal refund would increase to $3,000 from about $1,000. The 

preparer also tried to convince the tester to make up a dependent, 

as she does not have any, showing her that her refund would go 

to $5,000 if she did. The preparer also tried to qualify her for the 

EITC, even though she is not eligible. Finally, the tax preparer deducted $400 in 2008 tax preparation costs, even after the tester 

told the preparer she did not pay for tax preparation last year.’’ 

Unfortunately, these test results are not isolated and unique. 

Similar testing, including the testing announced by the GAO today, 

has found equal or greater levels of fraud or incompetence. Looking 

at the totality, we can see these problems are not limited to a 

handful of bad apples. Thus, bringing enforcement actions on a 

one-by-one basis is simply inadequate. 

For example, a recent lawsuit by the Department of Justice 

against Instant Tax Service might be considered a success because 

it shut down that chain, but it probably cost the government tens 

or even hundreds of thousands of dollars in staff time by IRS personnel and DOJ lawyers. 

There are simply not enough resources to go after all the bad actors. Furthermore, we disagree with the notion that preparer regulation could harm taxpayers because preparers will raise their fee 

to cover the cost of education and testing. 

First, the interest of consumers in obtaining competent, accurate, 

and ethical tax preparation far outweighs any increased marginal 

cost. After all, an erroneous return could put the taxpayer at risk 

of an IRS audit or even criminal sanctions. 

Second, we believe that preparer regulation will not actually 

even create significantly greater costs. Preparer compliance costs 

are minimal. For example, prior to the Loving decision, the IRS 

had planned to charge less than $120 for the exam. These costs are 

dwarfed by the hundreds of dollars in fees that some paid preparers charge for a single return, as we heard from the GAO today, 

and as our testing revealed—$400 to $500 in somes cases. 

And the DOJ’s lawsuit against Instant Tax Service revealed that 

that chain typically charged about $550 for as little as 15 minutes 

worth of work. Preparer regulation has more potential to lower 

costs than increase them by improving transparency and reducing 

abuses. 

Thank you for the opportunity to testify, and I look forward to 

your questions. 

The CHAIRMAN. Thank you very much, Ms. Wu. 

[The prepared statement of Ms. Wu appears in the appendix.] 

The CHAIRMAN. Mr. Alban, welcome. 

STATEMENT OF DAN ALBAN, ATTORNEY, 

INSTITUTE FOR JUSTICE, ARLINGTON, VA 

Mr. ALBAN. Thank you, Chairman Wyden and Ranking Member 

Hatch, and other members of the committee. 

Congress should not give the IRS additional power over tax preparers by forcing them to get an IRS license before they can assist 

taxpayers with their tax returns. Tax preparers are already reguVerDate Mar 15 2010 17:30 Oct 27, 2014 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 R:\DOCS\90922.000 TIMD
41 

lated by numerous Federal statutory requirements imposing both 

civil and criminal penalties for everything from failing to keep a 

list of the returns they prepared for the past 3 years to actual tax 

fraud. Tax preparers are also required to register with the IRS to 

obtain an individualized number, known as a PTIN, that they must 

include on every return they prepare, so that the IRS can track 

and analyze their returns. These tools already provide the IRS with 

what it needs to identify, track, and penalize the few bad apples 

without unnecessarily burdening the vast majority of law-abiding 

preparers. 

I have three main critiques of preparer licensing as bad public 

policy, followed by a few recommended solutions that are superior 

to licensing. 

First, preparer licensing is protectionist and anticompetitive. 

Rather than protecting consumers, licensing regulations can protect large incumbents and industry insiders from competition, by 

erecting costly barriers to entry. Indeed, several financial analysts 

have concluded that the largest firms, such as H&R Block, stand 

to benefit the most from licensing preparers. 

Unsurprisingly, the IRS licensing regulations were a product of 

lobbying by powerful special interests. H&R Block, Jackson Hewitt, 

and Intuit, the makers of TurboTax, all actively supported licensing, while other industry insiders, such as the American Institute 

of CPAs, obtained special exemptions for their members. Former 

H&R Block CEO Mark Ernst even oversaw the drafting of the regulations at IRS. 

Of course, mom-and-pop preparers generally do not have the resources to send lobbyists to Washington, DC to represent their interests. At the same time, licensing burdens usually fall hardest on 

the little guys who do not have the same financial resources and 

cannot benefit from economies of scale. Licensing was expected to 

push out tens of thousands of independent preparers, possibly as 

much as 10 percent to 20 percent of all preparers. Most of those 

who would have been put out of business were seasonal mom-andpop preparers, like my client, 81-year-old Elmer Kilian, of Eagle, 

WI, who hangs a shingle outside his house every tax season and 

has been preparing tax returns for over 30 years on his dining 

room table. 

Second, consumers would be harmed by preparer licensing, which 

raises prices and reduces choices. Licensing reduces competition, 

which is bad for consumers. Between reduced competition and increased regulatory compliance costs, licensing is expected to artificially drive up the prices consumers pay for tax preparation. 

Licensing also reduces consumer choices and interferes with consumer autonomy over personal finances. Many taxpayers will not 

only be left with fewer options, but will be forced to pick a new preparer if licensing drives their current preparer out of business. Instead, taxpayers, not the IRS, should be the ones who get to decide 

who prepares their taxes. 

Licensing may also result in other unintended consequences that 

harm consumers. Higher prices and fewer choices may push unqualified taxpayers to prepare their own returns. It will also likely 

boost the number of unregistered ghost preparers who do not sign 

42 

the returns they prepare and are, thus, very difficult for the IRS 

to monitor. 

Third, preparer licensing offers a false promise and fails to deliver. As an initial matter, licensing regulations cannot do much 

about fraud prevention that is not already achieved by the PTIN 

registration combined with existing criminal penalties. Dishonest 

preparers can take exams and sit through continuing education 

courses just as well as honest preparers. 

Moreover, licensing and IRS-mandated training are largely ineffective. For example, IRS-trained and certified preparers in the 

VITA volunteer program were found by TIGTA to have a 61-percent error rate in 2011. Similarly high error rates have been found 

over the years in TIGTA studies of IRS employees answering just 

a single tax question. 

Likewise, an IRS study found that licensed California preparers 

had the third-highest error rates in the country for 2 years in a 

row, despite the State’s long-standing licensing program. That is 

because the real problem is not competency, but tax code complexity. 

As the National Taxpayer Advocate explained last May, tax code 

complexity almost guarantees that every return has an error in it, 

some inadvertent, some intentional. Thus, licensing will not prevent tax preparers from making errors. It will simply limit who is 

licensed to make those errors. 

Licensing should be rejected because better solutions for these 

problems already exist. First, voluntary certification is far superior 

to mandatory licensing. It allows both consumers and preparers to 

decide if they value certification and permits them to opt in or opt 

out. 

Second, the best way to reduce errors is to reduce complexity. 

Simplify the tax code to reduce error rates. 

And, third, the IRS already has the legal and technical tools it 

needs to identify, track, and penalizes the few bad apples. Enforcement of these existing laws is far preferable because, unlike licensing, it does not impose substantial costs on the vast majority of 

law-abiding tax preparers. 

Thank you. 

The CHAIRMAN. Thank you, Mr. Alban. And all of you have been 

very helpful. 

[The prepared statement of Mr. Alban appears in the appendix.] 

The CHAIRMAN. I want to see what I can do to draw out some 

key questions. 

Mr. Alban, as I understand it, is particularly concerned about the 

small practitioner, and I certainly understand why small businesses can be frustrated with needless government red tape and 

bureaucracy. My understanding, however, here, Ms. Salisbury, is 

that you are a small practitioner. Are there not two practitioners 

at your firm? 

Ms. SALISBURY. Yes. There are a total of four. Two are CPAs and 

two are licensed tax consultants. 

The CHAIRMAN. So I think that would certainly qualify you as a 

small practitioner. 

Do you all feel, apropos of Mr. Alban’s point, that somehow this 

disadvantages you against Mr. Cobb? Because it looks to me like 

43 

both of you passed a competency test. That does not look to me like 

a disadvantage to a small practitioner. 

Ms. SALISBURY. Well, the numbers prove it is not in Oregon and 

in California. In Oregon, with our licensing, and as recently as 

2011—these are the most recent facts I have—nearly 84 percent of 

the practitioners in Oregon are not employed by H&R Block, Jackson Hewitt, or Liberty Tax Service, the three big companies in Oregon. And in California, it is nearly 89 percent. 

So it disproves that small practitioners will be affected, and both 

of those States have some form of registration for practitioners. 

Mr. COBB. Mr. Chairman, if I may add, quickly, forty percent of 

our system is small business people. We have 1,670 franchisees, 

many of whom are like Ms. Salisbury, have one or two offices, and 

really they are small businesses. 

The CHAIRMAN. So now that we have at least addressed, to some 

extent, this question of whether small practitioners are disadvantaged by having some minimum standards, I want to ask you, Ms. 

Salisbury—we have had our system for decades, and we Oregonians are pretty outspoken souls. 

I can tell you, I have been on the Finance Committee now since 

2005, and I have not had anybody who is a practitioner come and 

say, ‘‘Oh, my goodness, Ron, it is going to be bureaucratic water 

torture if we have the kind of thing that you have in Oregon.’’ We 

pass a competency test. We undertake 30 hours per year of continuing education, audit preparation, and sanctions for those who 

are not competent. 

We have done this for decades. Nobody is marching in the 

streets, nobody is picketing. There is no sign of unhappiness. Is 

that a fair appraisal of what we have had? And then, of course, the 

results have been documented by the Government Accountability 

Office, which you have referred to as well. We have superior results 

with this kind of system, and I think Oregonians would agree that 

appropriate oversight is missing today, which is the minimum competency standard. 

Is that a fair assessment? 

Ms. SALISBURY. Very much so, very fair. 

The CHAIRMAN. What lessons can the IRS learn from Oregon’s 

experience over these decades? I heard discussion from Mr. Alban 

about the cost. I have not heard complaints about Oregon’s cost or 

things of this nature. Are there other lessons here from the standpoint of Oregon’s experience for the IRS? 

Ms. SALISBURY. Well, the costs in Oregon are very affordable. 

Probably the most expensive cost is education, but because we require education, we have a lot of resources in the State that provide cost-effective education. 

Rather than spending $200 or $300 or $400 for a day of education, you can get education through other resources, not as expensive. So education is not an issue. The registration fees are very 

affordable for even a small business. I had a larger business in 

years past and paid those fees for my employees and still managed 

to keep my head above water with the business. So it is not a concern. 

We have wondered why it has taken the Nation so long to be—— 

44 

The CHAIRMAN. We are always too logical for the rest of the 

country. 

One other question, if I might, for you, Mr. McTigue. One of the 

things that concerns me about some of these questions with respect 

to having minimum competence and the like is, those who are opposed say we already have these tough standards, and it seems to 

me what you all have found is that that is not the case. 

What we basically have is reactive, after the fact, when the harm 

is done to people who just want to get every single dollar back that 

they are owed. Is that a fair characterization? 

Mr. MCTIGUE. Yes, Mr. Chairman, that is a fair characterization. 

As you stated, the majority of tools and actions that the IRS can 

take are after the fact, after the refunds have gone out, after the 

paid preparer has disappeared in some cases, and it is the taxpayer 

who is left explaining, dealing with the back taxes, having to pay 

back interest and penalties, whereas up-front regulation has the 

potential to prevent some of these return errors. 

The CHAIRMAN. My time has expired. I just appreciate the fact 

that you have done this second independent inquiry. People can 

question the value of one independent inquiry. I would not, because 

I have watched the professionalism of your office over the years, 

but you have now found it twice. 

I also know, because you are quite scrupulous in documenting 

the facts, you said, ‘‘Look, we have looked at 19 sites,’’ but as you 

know, there have been other analyses which are pretty much in 

line with yours. 

So we have a lot of heavy lifting to do to fix this, and we are 

going to be working with all of you. 

Senator Hatch? 

Senator HATCH. Thank you, Mr. Chairman. 

I want to thank all of you for being here. Each of you has presented us with the various perspectives that I think will benefit the 

committee and hopefully the IRS as well. 

Dr. Barrick, let me just ask you a question. Credentialed preparers, such as attorneys, CPAs, and enrolled agents, have long 

been regulated and subject to professional standards of competence 

and ethical conduct. Is there clear evidence that returns prepared 

by these credentialed preparers are less prone to error than those 

returns that are prepared by now-unregulated preparers or even 

ghost preparers? 

Dr. BARRICK. I am unaware of specific evidence that shows that 

credentialed preparers in those specifically mentioned groups are 

fundamentally different. However, I do not have full access to the 

data that the GAO or TIGTA or others have used. 

As an academic, though, I am always willing to help them design 

more statistically reliable and more educated studies examining 

these important questions. 

Senator HATCH. Thank you. 

Mr. McTigue, let me ask you this. Software developments and increasing computer literacy have made it easier for many people to 

prepare and, of course, file their own tax returns. In fact, the percentage of self-prepared returns has been increasing in recent 

years. 

45 

Is this trend one that is improving or degrading the overall quality of tax compliance? 

Mr. MCTIGUE. Senator Hatch, that is an issue that we did not 

look at in this study. But when we did look at data from IRS’s national research program database on error rates for preparer-filed 

returns versus self-prepared returns, and we did see a significant 

difference. Returns prepared by paid preparers had an error rate 

of 60 percent versus 50 percent for self-prepared returns. 

Senator HATCH. Let me throw this one out. When a tax filer 

stops using the services of a paid preparer and instead uses software to self-prepare their own return, do we know or have any statistics or any evidence—do we know what happens to the quality 

of their tax filings? 

Mr. MCTIGUE. The data that IRS collects through random audits—the most recent national research program audit covered tax 

years 2006 through 2009—estimates error rates for both paid preparers and self-prepared returns, both in the aggregate and, also, 

for specific tax issues or line items. For example, for the Earned 

Income Tax Credit, the estimates showed that returns prepared by 

paid preparers had an error rate of 51 percent versus 44 percent 

for self-prepared returns. 

Senator HATCH. Now, some have expressed concern that regulation will drive unethical preparers underground, turning them into 

what have been referred to here as ghost preparers who are very 

difficult to discover and shut down. How big is this problem of 

ghost preparers, and is the problem getting worse? What is being 

done to address that particular problem? 

Mr. MCTIGUE. I am not aware of any data that exists, either IRS 

data or otherwise, that goes to the scope of that problem. Again, 

GAO feels that some basic level of regulation can help provide consumers with assurance that the people whom they are using to prepare their tax returns meet certain qualifications, and they have a 

certain level of assurance that their tax returns will be as compliant as they expect. 

Senator HATCH. Well, I want to thank all of you. H&R Block certainly does a great job, as do others. 

I would like, Mr. Chairman, to put this Intuit letter into the 

record. 

The CHAIRMAN. Without objection, so ordered. 

[The letter appears in the appendix on p. 129.] 

Senator HATCH. Thank you. Thank you all for being here. 

The CHAIRMAN. Senator Casey? 

Senator CASEY. Thank you, Mr. Chairman. I only have time for 

one question, and I know the panel will not necessarily be upset 

about that. 

But, Mr. Cobb, I wanted to ask you a question that relates to 

your testimony. On page 12, you summarize what the so-called 

VITA folks have to go through, the Voluntary Income Tax Assistance folks, in their minimum standards. 

We all would agree, I think, that that is especially important. 

Those kinds of standards are especially important to vulnerable 

populations, folks who are easily misled or often isolated and who 

have to depend upon someone whom they come into contact with 

who might mislead them. 

46 

I would assume that when we talk about kind of basic minimum 

standards here, that you would hope that everyone would have an 

opportunity to be served by an individual who goes through the 

minimum standards that would be comparable to your Appendix D, 

which were the requirements that these so-called volunteer tax 

preparers go through. Is that generally accurate? 

Mr. COBB. Yes. That is generally accurate, Senator. For our people, we have continuing education every year. For people who start 

out wanting to be a tax preparer for us, it is over 100 hours of 

training, and 75 hours of it is income tax training, including ethical 

training. We also do skills training. 

For continuing education, we average around 35 hours—15 hours 

of income tax training plus 20 hours of skills training. For anyone, 

even if you have been a tax preparer for 30 years, you have to come 

in and get that. And we can adjust the hours, depending upon what 

the statute is. But, generally, we agree with your point. 

Senator CASEY. And what is set forth in this appendix, these requirements that you just outlined, you would think that those 

would be the best direction that the Federal Government should 

move in? In other words, how do you effectuate this as a matter 

of national policy for all taxpayers to benefit from? 

Mr. COBB. And again, I think Ms. Salisbury—I think we have a 

great model. The chairman has certainly pointed out with pride 

what Oregon does. I think that is a model to be built off of. 

I think the research we have done shows that this is—you have 

heard all day about fraud and various cases that people have cited. 

I think that we have a standard which has been implemented for 

a number of years in Oregon. We have the test in the market, if 

you will. We do a lot of training. 

So I think the outline is there to put the national policy in place. 

Plus, you have clients, consumers, who in our research are saying, 

‘‘Of course, I want to know that the person sitting across from me 

has certain standards.’’ 

Usually, people in my position are not in front of a committee 

like this asking for more regulation. I do not imagine you would 

find that very often. What we want is a level playing field. What 

we want to do is protect consumers; this is not about anticompetitive behavior. This is about going up against people who are just 

looking out for themselves. You have heard the horror stories about 

tax preparers in a furniture store or somewhere else saying, ‘‘How 

big is your refund,’’ to make loans to people based on that amount. 

We do not do refund anticipation loans. We just want to clean 

up this industry. 

Senator CASEY. Thank you very much. 

The CHAIRMAN. Thank you, Senator Casey. 

I want to thank all of our witnesses for their participation. 

Members of the committee are going to have until the close of 

business on Friday, April 11 to submit questions for the record. 

I just want to make a short statement and then give the last 

word to Senator Hatch on this topic. 

Last week, in this room, on a bipartisan basis, our committee 

committed to dealing with what are called the tax extenders. There 

are a number of provisions that expired, that will expire this year 

and next year, and we indicated this was going to be the last time 

47 

this committee did this. We called the proposal the EXPIRE Act because it was meant to expire. That is it, turn the lights out on it. 

So really, with this hearing, we begin the effort at overhauling 

the tax system and particularly making it simpler, doing it in a bipartisan way, so that Americans this time of year do not feel like 

they are going through bureaucratic water torture to comply with 

the tax rules. 

You have given us some very helpful suggestions here. Senator 

Hatch and I will be working together on this in a bipartisan way. 

The challenge is to figure out, with our colleagues on both sides of 

the aisle, the appropriate oversight of preparers. 

The two of us are going to talk about it, and then we will inform 

members of our proposal. But, clearly, what we have learned today, 

starting with the GAO, is this problem persists. You have documented it a second time. It is consistent not just with your analyses, but with others. 

Nina Olson, the independent Taxpayer Advocate, said not only 

does the problem exist now, but there are incentives for additional 

opportunities for the unscrupulous—who are, fortunately, a minority—to fleece our people, and very often those are the most vulnerable, those are the low-income. So that ought to concern us. 

Then, Ms. Salisbury, we are really glad that you came, because 

you have shown once again that Oregonians know that there is a 

better way. We do not just sit around and say, ‘‘Oh, this is wrong, 

and that is wrong.’’ We roll up our sleeves, and we come up with 

solutions. 

So you all have been very helpful to us, and I just want you to 

know I am going to work very closely with Senator Hatch on comprehensive tax reform, and on appropriate oversight with respect 

to tax preparers. 

I want to give my friend and colleague the last word here. 

Senator HATCH. Thank you, Mr. Chairman. 

I am grateful to all of you for being here, and all I can say is 

that, the more I look into this, the more I worry about the problems that are involved. 

On the other hand, there are a lot of good people in this industry 

who are trying to do what is right and who do do what is right. 

So we have to look at this very carefully. I do not want another 

great big bureaucratic institution to make it even more expensive 

to file tax returns. I have certain feelings for your libertarian approach toward tax preparers as well. 

So I am grateful that you all took time to come and see us here, 

helping us to understand this better, and hopefully you will continue to weigh in and give us your ideas on how we might do a better job here. 

Thanks so much. 

The CHAIRMAN. The committee is adjourned. 

[Whereupon, at 12:34 p.m., the hearing was concluded.] 

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