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67–115—PDF 2010

S. HRG. 111–1012 

FILING SEASON UPDATE: CURRENT IRS ISSUES 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

APRIL 15, 2010 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

BLANCHE L. LINCOLN, Arkansas 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

JOHN ENSIGN, Nevada 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

RUSSELL SULLIVAN, Staff Director 

KOLAN DAVIS, Republican Staff Director and Chief Counsel 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 3 

WITNESSES 

Miller, Steven T., Deputy Commissioner for Services and Enforcement, Internal Revenue Service, Washington, DC ............................................................... 4 

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

Washington, DC ................................................................................................... 6 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

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

Prepared statement .......................................................................................... 25 

Grassley, Hon. Chuck: 

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

Prepared statement .......................................................................................... 27 

Miller, Steven T.: 

Testimony .......................................................................................................... 4 

Prepared statement .......................................................................................... 29 

Responses to questions from committee members ......................................... 47 

Olson, Nina E.: 

Testimony .......................................................................................................... 6 

Prepared statement with attachment ............................................................. 70 

Responses to questions from committee members ......................................... 123 

(III) 

(1) 

FILING SEASON UPDATE: 

CURRENT IRS ISSUES 

THURSDAY, APRIL 15, 2010 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:07 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Bingaman, Wyden, Carper, Grassley, Roberts, 

and Enzi. 

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Cathy Koch, Chief Tax Advisor; and Mary 

Baker, Detailee. Republican Staff: Mark Prater, Deputy Chief of 

Staff and Chief Tax Counsel; and Theresa Pattara, Tax Counsel. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

It is the time of year when the days grow longer. It is the time 

of year when the daffodils are in bloom. In fact, I do not know if 

any of you listened to NPR this morning and you heard Wordsworth’s poem ‘‘Daffodils.’’ It is the time of the year when we Americans file our tax returns. So it is time for this committee to call 

in the IRS. It is time to ask the IRS for an update on the recent 

filing season, and it is time to discuss other matters affecting tax 

administration. 

The Finance Committee holds the IRS to a high standard. It is 

appropriate to do so, not only because of the committee’s responsibility to oversee the IRS, but also on behalf of the American people. 

Taxpayers have a right to expect that their government applies 

the tax laws fairly and correctly. They have a right to expect that 

the IRS operates efficiently. And they have a right to know that 

the IRS is protecting their personal tax information. 

We will have the opportunity to consider all of these matters 

with our witnesses today. I am pleased that we have with us today, 

first, Steve Miller, IRS Deputy Commissioner for Services and Enforcement, and also Ms. Nina Olson, the IRS National Taxpayer 

Advocate. Welcome to you both. 

Today we will want to know what actions the IRS is taking during this filing season to encourage and facilitate the use of the 

many new tax incentives to jump-start the economy and create 

jobs. The IRS has reported, on average, a 10-percent increase in refunds this year following the enactment of these incentives. 

2 

For individuals, these incentives include the Making Work Pay 

Tax Credit, the American Opportunity Education Tax Credit, the 

New Homebuyer Tax Credit, the Military Homeowner Assistance 

Program, and the Adoption Tax Credit, just to name a few. 

For businesses, these incentives include extension of bonus depreciation, extension of increased small business expensing, the 5- 

year carry-back of net operating losses, Build America bonds, the 

payroll tax exemption, and Advanced Energy Investment Credit, to 

name just a few. 

These incentives are effective only if taxpayers use them. The 

IRS plays an important role, especially during filing season, in 

helping taxpayers understand the availability of these tax breaks 

and how to claim them. If the IRS can help to make these incentives work effectively, the country can grow more rapidly and create more jobs. 

More generally, I look forward to learning how the 2010 filing 

season has unfolded. I look forward to updates on electronic filing 

rates and the IRS’s modernization efforts to reduce filing errors 

and generate faster refunds. 

I want to know how the IRS is working to improve its taxpayer 

services, including the level of service on the telephone to ensure 

that taxpayers who contact the IRS with a tax question are able 

to get through and have their questions answered timely and accurately. 

I am interested to hear more about the IRS’s new strategy to improve paid preparer competency, accountability, and transparency. 

With paid preparers doing more than 60 percent of individual tax 

returns, the quality of paid preparers has a direct and significant 

effect on voluntary compliance and the tax gap. 

The committee also will take this opportunity to catch up on 

other matters of tax administration. One is this: I am interested to 

receive an update on the tax gap. How are we going? I would like 

to know when the $345-billion annual figure will be updated. I 

would also like to hear what specific actions the IRS is taking to 

implement the comprehensive plan to close the tax gap that the 

Treasury developed at my request and that was updated last summer. 

Of particular interest to me is the IRS’s progress on the planning 

and implementation of several of my tax compliance proposals that 

recently have been enacted. These include the credit card information reporting, securities basis reporting, offshore loophole closures, 

and corporate information reporting. 

These provisions are estimated to raise over $40 billion in revenues over the next 10 years. Each of them will improve voluntary 

compliance and reduce the tax gap without raising one single dime 

of taxes on anyone, making timely and efficient IRS implementation especially critical to their effectiveness. 

I also want the IRS to address the rumors and rhetoric that have 

been circulating about the IRS’s role in administering health care 

reform. We have all heard the rumors alleging that the IRS will 

hire up to 17,000 armed U.S. agents to enforce health care, rumors 

that fly in the face of specific proscriptions in the law against 

criminal penalties for failing to buy health insurance. 

3 

We want to hear directly from the IRS to what extent it has determined the need for increased staffing and resources to conduct 

its role in health care reform, as well as what functions any increased staffing will perform. 

Finally, I would like to extend my sincere condolences to the IRS 

victims of the airplane crash in the IRS building in Austin on February 18th of this year. Our thoughts especially are with the family 

of Vernon Hunter, a long-term IRS employee who was killed in 

that accident. Threats and violence against the IRS and its employees are unacceptable and intolerable. 

So we have a lot to cover today. Again, I want to thank Mr. Miller and Ms. Olson for appearing. I look forward to your testimony. 

Senator Grassley? 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, 

A U.S. SENATOR FROM IOWA 

Senator GRASSLEY. Thank you, Mr. Chairman. 

As may be appropriate for tax day, we are going to be hearing 

a lot about numbers during this hearing. There are billions of dollars of refunds, millions of returns processed, and millions of phone 

calls received by the IRS. There are millions of individuals who 

filed for Home Buyer and Making Work Pay credits, and millions 

of dollars in errors with those credits. Then there is the $12-billion 

IRS budget and the almost half-billion-dollar request increase for 

fiscal year 2011. But as the chairman has just related, we are not 

hearing anything about the billions of dollars and thousands of employees IRS will need to implement health care reform. 

I first raised the issue in a letter 6 months ago to Secretary 

Geithner and Commissioner Shulman. The response back to me 

was that Treasury and IRS would not have estimates until legislation was enacted. Well, the House passed their bill last fall and the 

Senate passed its bill on Christmas Eve, over 3 months ago. While 

the final bill was not signed into law until last month, the provisions did not change much, so it is not clear why we still do not 

have estimates on the dollars and people needed by IRS to implement health reform. 

Meanwhile, CBO has estimated that IRS will need between $5 

and $10 billion over 10 years to implement health care reform 

alone, so that does not take into account any other legislation Congress may pass. What is troubling about this anticipated growth of 

IRS is that it is not all related to the IRS’s mission, and that is 

the collection of revenue to fund the operations of the Federal Government. 

What is more, we in this body, in the landmark IRS restructuring legislation of 1998, directed the IRS to revise its mission 

statement to ‘‘provide greater emphasis on serving the public and 

meeting the needs of the taxpayers.’’ 

Health care reform provisions require the IRS to make sure that 

every individual has health insurance. IRS employees will have to 

become experts in calculating a very complex subsidy for those who 

are eligible to receive financial assistance for purchasing that 

health insurance. IRS employees will also have to verify subsidy 

eligibility by sharing income information with Federal, State, and 

other entities, including the new exchanges. It is likely that IRS 

4 

will not have the necessary information, since subsidy eligibility is 

based upon household income, which is not taxable income. 

These are just some of the provisions impacting an individual’s 

interaction with the IRS. There are many more that impact a 

business’s interaction with the IRS which I will not get into at this 

time. 

The Earned Income Tax Credit is the largest social spending program administered by the IRS. This program also, unfortunately, 

has one of the highest fraud and abuse rates of any tax provision. 

While IRS has steadily reduced the fraud in this program, knowledge of and outreach to the eligible populations have been huge 

challenges for the IRS. 

A former IRS Assistant Commissioner said it best: ‘‘These kinds 

of programs require social welfare expertise. IRS agents are not recruited or trained to do that well. The IRS record is mixed and 

sometimes abysmal with regard to effectively administering these 

kinds of programs.’’ 

Ms. Olson also indicates in her testimony today that the IRS is 

not keeping up with the needs of low-income taxpayers. Experience 

with the EITC teaches us that a social worker with a calculator 

and green eye shades should be a job description at the Department of Health and Human Services, not at the agency before us 

today. The IRS already struggles to stay on top of its core mission. 

IRS should be training its employees to combat complex tax evasion schemes and to improve customer service instead of administering social programs at which the IRS has historically failed. 

Taxpayers trying to do the right thing regarding their tax responsibilities should not have to be put on hold or have to call back because the IRS is now answering questions about health insurance. 

So I thank you, Mr. Chairman, for holding this hearing so we can 

discuss in greater length these particular issues. 

The CHAIRMAN. Thank you, Senator. 

Our first witness is Mr. Steven Miller. Mr. Miller is Deputy Commissioner for Services and Enforcement at the Internal Revenue 

Service. Our next witness is Ms. Nina Olson, National Taxpayer 

Advocate at the IRS. 

So, thank you both very much. I think you know the drill. We 

will include your prepared statements, and I just urge you to summarize, each, in about 5 minutes. 

Senator GRASSLEY. Can I explain to our distinguished witnesses, 

I am going to be in and out because of Judiciary down the hallway, 

so I will be back for questions later on. 

The CHAIRMAN. All right. 

Mr. Miller? 

STATEMENT OF STEVEN T. MILLER, DEPUTY COMMISSIONER 

FOR SERVICES AND ENFORCEMENT, INTERNAL REVENUE 

SERVICE, WASHINGTON, DC 

Mr. MILLER. Thank you, Mr. Chairman, Ranking Member Grassley, and members of the committee. Thank you for the opportunity 

to testify on the IRS’s efforts to ensure a successful tax filing season and provide you with an overview of our proposed 2011 budget 

request. 

5 

The 2010 filing season has proceeded smoothly and with some 

noteworthy gains. For example, telephone assister level of service 

has improved considerably over the same period last year, and our 

accuracy remains very high. 

With respect to returns, e-file, as a percentage of total individual 

returns, is up to almost 80 percent, continuing a very positive 

trend. And in a challenging economy, it is good news that the average refund is over $2,900 at this point, up by 9.4 percent as compared to last year. 

The IRS has taken several other additional steps this tax season 

to help people with financial problems. One of the most recent and 

most significant is new flexibility for offers in compromise. For 

those taxpayers facing economic troubles, including recent unemployment, IRS employees can now consider current income and potential future income when negotiating an offer. 

And we are holding hundreds of special Saturday open houses to 

give struggling taxpayers more opportunity to resolve issues. At 

our most recent event just earlier in March, more than 8,000 taxpayers were helped, and, of those who had problems, more than 80 

percent got them resolved that day. These events will continue, and 

on one Saturday we will focus on small business issues. 

In addition, the IRS has begun its implementation of the Hiring 

Incentives to Restore Employment, or HIRE Act. We are working 

on revised forms, instructions, and programming so eligible employers will be able to claim the new tax incentive. We have acted 

quickly to get the word out. We have also put out a revised form 

941 for use for the incentive and an affidavit for use by newly hired 

employees. 

We are also spreading the word to small employers about the 

new health care tax credit, including sending out information about 

the credit on postcards to potential eligible employers. 

We also have under way a major initiative to regulate paid tax 

return preparers, including registration, minimum competency 

testing, and continuing education. The goal of this strategy is to leverage the return preparer community to improve compliance. 

Mr. Chairman, in recognition of the critical role that the IRS 

plays in the Nation’s economy, the President’s 2011 budget includes a judicious investment in the IRS’s core service and enforcement programs. It provides the resources for the IRS to implement 

a strategic and balanced agenda. This investment includes improved service to taxpayers, such as continuing to raise the level 

of our toll-free telephone service, and providing enhanced e-products and tools. 

The budget also helps us carry out our robust and targeted enforcement program, including adding staff to address offshore tax 

evasion and improving tax compliance for corporate and highincome taxpayers. For example, additional resources are given to 

our global high-wealth group to further centralize and focus IRS 

compliance expertise on high-wealth individuals and their complex 

web of related entities. 

The 2011 budget will also help the IRS implement the new taxpayer account database for the 2012 filing season. Achieving this 

milestone will allow the migration of 140 million individual taxVerDate Nov 24 2008 16:52 Jul 12, 2011 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 R:\DOCS\67115.000 TIMD
6 

payers to a modernized, relational database that will support faster 

processing and result in faster refunds for individual taxpayers. 

In the wake of recent events, I would like to end with a word 

about our employees and their commitment to public service. This 

February, as you mentioned, Mr. Chairman, an individual flew a 

plane into an IRS building in Austin, killing one of our employees. 

We have no reason to believe this attack could have been prevented or that it was part of a more organized effort. However, we 

continue to be concerned that the IRS and our people not be demonized. The IRS is filled with dedicated public servants, reflective 

of the overall general public. The vast majority of Americans experience an IRS that is trying to help them by answering questions, 

processing returns, and issuing refunds. 

Mr. Chairman, this concludes my oral testimony. I would be 

happy to take any questions. 

The CHAIRMAN. Thank you, Mr. Miller. 

[The prepared statement of Mr. Miller appears in the appendix.] 

The CHAIRMAN. Ms. Olson? 

STATEMENT OF NINA E. OLSON, NATIONAL TAXPAYER 

ADVOCATE, INTERNAL REVENUE SERVICE, WASHINGTON, DC 

Ms. OLSON. Thank you, Mr. Chairman, Ranking Member Grassley, and members of the committee. Thank you for inviting me 

today to discuss the 2010 tax filing season. 

I would like to begin by commending the IRS’s response to one 

problem I identified in 2002, and again this year: the need to improve oversight of the return preparation industry. 

Since 2002, there has been considerable congressional support for 

preparer regulation, including legislation passed by this committee 

and the full Senate. In January 2010, the IRS issued a report setting out a blueprint to do the job itself. While the devil is in the 

details, when fully implemented, I believe this initiative will improve tax administration significantly by helping taxpayers locate 

qualified preparers, establishing clear requirements of competence 

and ethics for preparers, and disciplining and even shutting down 

unqualified and unethical preparers. 

With respect to the 2010 filing season, this year I designated the 

inability of the IRS to adequately answer taxpayer phone calls as 

the number-one most serious problem for taxpayers. The IRS’s target for the current fiscal year is to answer only 71 percent of the 

calls from taxpayers seeking to reach a telephone assister. Among 

the calls that do get answered, the IRS projects the average wait 

time will be nearly 12 minutes, up from just over 4 minutes in the 

2007 fiscal year. 

I encourage the committee to support sufficient additional funding for the IRS toll-free lines so that the IRS can achieve an 85- 

percent level of service and an average wait time of 5 minutes. 

Much of the impact on IRS service and program delivery over the 

last few years is directly attributable to the passage of special initiatives, including the economic stimulus payment, the First-Time 

Home Buyer Credit, and the Making Work Pay Credit. For example, because of the documentation requirements for the First-Time 

Home Buyer Credit, taxpayers are unable to e-file, so processing of 

these original or amended paper returns can take anywhere from 

7 

8 to 11 weeks in the best of circumstances, and about 5 months if 

audited. 

As of the end of February, the IRS received more than 1.8 million original and amended returns claiming the Home Buyer Credit 

and selected over 260,000 for examination. Of the over 650,000 correspondence exams closed through March of this fiscal year, over 

139,000 involved the Home Buyer Credit. Home Buyer Credit audits, thus, account for almost 21 percent of IRS correspondence 

exams closed this fiscal year. This means that the IRS has had to 

scale back its audits of other issues to concentrate on preventing 

improper Home Buyer Credit claims. 

My point here is not to say that the IRS should not be administering social programs; rather, as I discuss in this year’s report 

to Congress, I believe that social programs placed in the tax code 

should be designed in such a way, and the IRS should be funded 

sufficiently, so that the IRS can administer them effectively in addition to performing its core functions, instead of displacing those 

functions. 

In my written testimony, I make several recommendations for 

improvements to the existing programs. For example, if Congress 

extends the Making Work Pay Credit, I recommend that it require 

the payer agencies like Social Security to report on their end-ofyear statements the amount of credit taxpayers received. Had this 

procedure been in place for this filing season, the IRS would not 

have rejected over 1.8 million e-filed returns as of the end of February, which generated calls and re-work for the IRS and confusion 

and delay for taxpayers sorely needing their refunds. 

More importantly, I recommend that Congress and the IRS explicitly recognize that the IRS has a dual mission of collecting Federal revenue and delivering benefits to both individuals and businesses, a trend that is common in tax administrations around the 

world. This recognition will enable us to better identify the resource needs for both IRS core functions and to better design and 

administer these programs. 

One initiative that would vastly improve tax administration 

would be for the IRS to process information returns, such as forms 

W–2 and 1099, before it processes tax returns. Such an approach 

would enable the IRS to substantially reduce fraudulent and other 

erroneous refunds, largely eliminate post-filing season documentmatching exams, and assist taxpayers by making this information 

available through pre-filled returns or by downloading into existing 

software programs. 

This is also vitally important for effective administration of the 

new tax gap closers recently enacted by Congress. However, this is 

much easier said than done. Thus, I recommend that Congress require Treasury to study and report back within 1 year on the steps 

necessary to make this happen. 

Finally, I note that my report designated IRS lien filing policies 

as the second most serious problem for taxpayers. Although perhaps counter-intuitive, more liens do not necessarily translate into 

more revenue. As discussed in my written testimony, when longterm damage to the taxpayers’ financial viability and the costs of 

lien filings are taken into account, an automated or shotgun apVerDate Nov 24 2008 16:52 Jul 12, 2011 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 R:\DOCS\67115.000 TIMD
8 

proach to lien filings may actually result in less revenue collection 

in many types of cases. 

Thank you. 

The CHAIRMAN. Thanks, Ms. Olson. 

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

The CHAIRMAN. I would like to begin, Mr. Miller, by asking you 

a question about the degree to which the IRS is informing taxpayers of recent provisions we have passed here in the Congress 

that helped reduce individuals’ income taxes, and also helped, as 

you indicated, increase refunds. Those include the Making Work 

Pay tax credit, the New Homebuyer Tax Credit, increasing small 

business expensing, carry-back, and Build America bonds. 

So, if you could just tell us the degree to which the Service is 

making taxpayers aware of these incentives and the degree to 

which the Service is making it easier for taxpayers to take advantage of them. 

Mr. MILLER. I would be happy to do that, Mr. Chairman. We are, 

and continue to be, aggressive in terms of our outreach events, 

going out to both partners and out into the taxpayer domain and 

talking about these things. We have a very good relationship with 

a batch of partners who also, as people are working on their returns, will be informed of this. We have, obviously, web-based information out there. 

As I mentioned, on the HIRE Act, in particular, we have gone 

one step further, and we will be issuing postcards. Not in the HIRE 

Act. I apologize. The Small Business Health Act credit. We will be 

sending out postcards to those we think may be eligible so that 

they can plan accordingly, because that is live right now as we 

speak. 

The CHAIRMAN. Could you address the small business tax credit 

in the health legislation we passed? That is, I mentioned in my 

opening statement that there are some allegations that the IRS is 

going to have 17,000 armed agents to enforce small business compliance. As you know better than most, small businesses with 50 

or fewer employees are under no obligation to provide health insurance to their employees. 

Mr. MILLER. Right. 

The CHAIRMAN. I just know in my State of Montana, 97 percent 

of businesses are small business, so virtually every business—at 

least 97 percent—will not have any obligation. But at the same 

time, as you all know, there are credits available for small businesses to provide insurance to their employees, should they choose 

to do so. I think there is one that is under 10 or 25, I have forgotten the exact numbers, and 35 percent, then later on 50 percent. 

But could you explain the degree to which the IRS has armed 

agents enforcing small business provisions in the health care reform legislation? 

Mr. MILLER. I will do that. 

The CHAIRMAN. Let me say—go ahead. 

Mr. MILLER. No, please. 

The CHAIRMAN. Go ahead. 

Mr. MILLER. So the way we would approach the small—— 

The CHAIRMAN. So, do you have armed agents going out there enforcing? 

9 

Mr. MILLER. We have no armed agents. We have some criminal 

investigators, about 2,000 of those, who do criminal investigations. 

The CHAIRMAN. Generally? 

Mr. MILLER. Generally. In total, yes. 

The CHAIRMAN. That is right. You have no specific new agents 

targeted to the small business tax credit provisions? 

Mr. MILLER. Not at this point. It is very early. I recognize Senator Grassley’s view that it has been a few months, but in point 

of fact the bill was signed incredibly recently. Until the bill was 

signed, we were not prepared to dig in and decide and determine 

exactly how we will be proceeding in terms of the entire health bill, 

which will include—and this is a perfect example, the Small Employer Health Credit—starting with making people aware of what 

they may be entitled to and what their responsibilities are, such as 

the postcard, such as the web, and moving from there to making 

sure people have the ability to reach out to us and get the information they need, whether it is call assisters or the web, and filing 

systems. 

The CHAIRMAN. Are you taking affirmative action to make taxpayers aware of some of the other provisions I named? 

Mr. MILLER. We are. We have, obviously, worked to get the word 

out by various news releases and the web, and in our meetings on 

the HIRE Act, on the jobs credit, and we have worked on Making 

Work Pay and First-Time Home Buyer—it is very hard to get the 

word out. 

The CHAIRMAN. Is there any way you can determine the degree 

to which taxpayers have taken advantage of these provisions, sort 

of on a percentage basis? I know it is hard to determine, but your 

gut take. 

Mr. MILLER. I do not have at hand any way to say that X percentage could have taken and X minus Y did. We have the numbers, X percentage did take it. I mean, Nina has raised—on FirstTime Home Buyer, in total, in 2009, 1.7 million-plus folks took the 

First-Time Home Buyer Credit. This year, another 700,000 or 

something like that. We have those sorts of numbers we can make 

available to the committee. 

The CHAIRMAN. All right. Thank you. My time has expired. 

Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. Thank you for holding this hearing. Mr. Chairman, I was struck this morning—apparently, many of America’s restaurants and retail establishments are 

letting people eat for free today. You can get free coffee at 

Starbucks, and get free tax bites at Cinnabon just because the restaurants—— 

Senator BINGAMAN. What are we doing here? 

The CHAIRMAN. I was going to ask! [Laughter.] 

Senator WYDEN. It is because Chairman Baucus is at his post 

trying to assuage the pain other than by getting everybody those 

goodies. But my favorite, Mr. Chairman, was apparently Morton’s 

is giving some kind of discount to the CPAs at some of their restaurants. It dawned on me that maybe the CPAs are the one group 

in America that gets so much income out of the tax code, that they 

can regularly afford Morton’s. 

10 

The CHAIRMAN. Well, that may be, but I have talked to some who 

are quite frustrated. One is because, apparently, the Service has 

delayed the date on which the brokerage firms need to file their 

1099s. I have talked to preparers who say that has put a huge burden on them to get their tax returns processed by April 15. That 

might be something we should look into. I am sorry to interrupt. 

Senator WYDEN. No, no. A fair point. 

So let me ask you about one idea that I have been interested in, 

Ms. Olson. The IRS already gets a substantial amount of information, say on an individual’s wages and their interest and their investment income, the value of the mortgage deduction they are getting. 

So one idea that has become popular that I have been interested 

in is the idea of letting the taxpayer, on a voluntary basis—in other 

words, this is the taxpayer’s choice—if the taxpayer chose to do so, 

the taxpayer could ask the Internal Revenue Service to, in effect, 

take the information they already have and in effect send them 

what amounts to their judgment about what is owed, and the taxpayer could then vet it and modify it and file it and do these various things that ensure that it actually reflects what they believe 

is owed. It seemed to me like an attractive kind of option and 

something that could substantially short-circuit the more than 6 

billion hours that people put into preparing these returns, the $180 

billion spent preparing these returns. 

My question to start with is, if the IRS had enough time for a 

transition, because you obviously cannot do this overnight, and I 

think Chairman Baucus is right about some of the hassles already. 

If you had enough time to make a transition, what do you think 

about the idea of letting the taxpayer voluntarily request something like this? 

Ms. OLSON. Well, this is something that we covered in this year’s 

annual report, where we looked at, how could you get that information available, because we think it would minimize error and certainly be a burden reduction for the taxpayer. It is also key that 

the IRS have this information before returns are filed, as we have 

more and more programs that are relying on information reporting, 

such as the credit card reporting, some of the health care provisions, the basis reporting. 

The problem is that the IRS right now does not start getting the 

data until sometime in mid-February, and we do not really start 

pulling it together until May. That is partly a problem in that we 

have pushed the filing dates back for the payers to the end of 

March on some of these things. 

So what we recommended was that Congress require Treasury to 

study, what would it take to get the information quickly, in a usable form, to run against returns, but also make available to taxpayers as they want it, and report back in a year. Some of our suggestions have been, you push forward the date on which payers 

have to get us the information. 

You figure out whether we could get the W–2 information directly. Does it need to go to Social Security first or can we scrub 

it and clean it up as easily as Social Security does? Then you might 

even want to think about, right now, taxpayers get their W–2s on 

January 31. You might want to say, in this day of electronic filing, 

11 

can you push that date up to January 15, and can you get us the 

information at the same time? So very early on, we could have that 

data available to taxpayers. 

Senator WYDEN. Let me ask you one other one, very quickly. It 

looks to me like there are a fair number of abuses with these refund anticipation loans. These are the ones where the person, in 

effect, gets this short-term cash advance from the preparer, and it 

is backed by the refund. How serious a problem do you think this 

is, and if you think it is a serious problem, what are you all doing 

about it? 

Ms. OLSON. Well, I think it is a very serious problem. I know 

that the IRS is in discussions with various Treasury and banking 

regulator officials about what they can do. Our recommendation 

has been that you do not give the debt indicator on the refund anticipation loan until you have run the entire return through all of 

our fraud checks and eligibility rules, and that in itself will slow 

up the process and increase the risk for the lenders so much that 

they will basically look elsewhere to make their money. That is my 

approach. 

Senator WYDEN. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Bingaman? 

Senator BINGAMAN. Thank you very much, Senator Baucus, for 

having this hearing. This is obviously the right day to be talking 

about the filing of tax returns and problems that need to be addressed there. 

Today we are also going to introduce the Taxpayer Bill of Rights, 

which is legislation Senator Schumer, Senator Kerry, and various 

others are going to co-sponsor that contains provisions to improve 

services and put in law some of the protections that we think are 

important. 

It supports representation clinics and tax preparation programs 

such as one we have in New Mexico that has been extremely successful, called Tax Help New Mexico. It enhances oversight of paid 

tax return preparers, which is what Ms. Olson just responded to 

Senator Wyden’s question about, enhances low-income taxpayers’ 

access to financial institutions, and does a variety of other things. 

At any rate, I hope very much we can consider that legislation 

this year. I know it is difficult to get anything considered this year, 

but this ought to be some good government legislation that could 

be acted upon. Much of the bill, many of the provisions in the bill, 

were passed out of this committee in the 108th Congress but were 

not acted upon by the full Senate. I hope very much we can act on 

them this year. 

Let me ask, Ms. Olson: one of the issues that you and I spoke 

about when you were kind enough to come by my office a few 

weeks ago, was this whole issue of liens and the concern that you 

have expressed about the IRS lien filing policies causing harm to 

taxpayers without necessarily increasing IRS revenue collections in 

the process. I guess I would just ask if you could briefly describe 

the concern you have there and the solution you think we should 

consider. 

Ms. OLSON. Well, what we identified was that IRS, over the last 

few years, has been instituting policies where liens are essentially 

12 

filed automatically if the taxpayer meets certain requirements 

without really looking at the taxpayer’s specific facts and circumstances. We looked further into, what is the effect of that lien 

filing on the taxpayer? 

We learned that it caused the taxpayer’s credit score to plummet 

100 points immediately, and, even when the taxpayer paid off the 

lien or it expired after time, it sat on their credit report for years 

and years and years, even though it might not be enforceable. That 

has a huge effect on the taxpayer’s financial viability and their 

ability to pay their future taxes. 

We did a study that showed that, for the payments that we could 

track, very few payments and very few dollars actually came from 

liens, and that the vast majority of payments that taxpayers made 

on their past tax debts came from collection activity that needed 

no lien involved. So we felt that we were really doing harm to taxpayers rather than having the lien be helpful. 

Senator BINGAMAN. I think that is a good suggestion. I think if 

there is a way we can act on that, it would be good. 

Let me ask also on this issue of return preparer standards: I 

know that the IRS is beginning to move on that issue and trying 

to put in place initiatives to require certain competence by preparers and certification by preparers. 

Mr. Miller, could you explain that? Perhaps you did in your comments before when I was not here. But if you could explain the status of that, that would be helpful. 

Mr. MILLER. Certainly, Senator. We did a study on this issue. We 

came out with some proposed recommendations basically that 

would require preparers to actually get a preparer identifier so we 

would know and be able to track through the system what a particular preparer was doing in terms of returns. 

We are going to require testing for those other than attorneys 

and CPAs and enrolled agents who have other testing. We are 

going to require that continuing education occur for folks who do 

not otherwise have a requirement. We hope to get the registration 

in place for the 2010 filing season, and that is our effort at this 

point. Over the next 3 years, probably, we will be testing people in 

and then we will be fully up and running. 

Senator BINGAMAN. All right. You are going to exempt attorneys 

from the testing requirement? What is the underlying assumption 

that justifies doing that? 

Mr. MILLER. The assumption around CPAs and attorneys is that 

they are otherwise bound by some other standards and testing procedures. There are also some limited legal impacts that limit us in 

that regard. 

Senator BINGAMAN. Well, as one attorney who went to law school 

a long time ago, I do not know that exempting lawyers from the 

testing requirements is a wise course, but I will defer. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Grassley? 

Senator GRASSLEY. Ms. Olson, in your 2009 annual report, you 

report that you issued 16 taxpayer assistance orders. The examples 

listed in your report seem to indicate that they are good examples 

of the IRS’s aggressive use of liens and levies. I understand that 

13 

you may have issued three for just one taxpayer, including one to 

the SB/SE Commissioner, to request that a lien be withdrawn. 

Further, the taxpayer lost his job because the lien impacted his 

credit rating, which was not tolerated by the employer. Could you 

describe the details surrounding this case to the extent possible, 

and whether you think it resulted in the best outcome for the government? 

Ms. OLSON. Yes. The taxpayer has given me permission to discuss the facts of his case, so the normal confidentiality provisions 

do not apply. 

This taxpayer had lost his job. He had actually had his first employment reduced because he was in a particular industry that did 

due diligence and found a lien on the books. This taxpayer was 

working with the IRS to pay in full the debt without the lien having been filed, and, while he was talking to the IRS over a period 

of 3 months and had about seven or eight phone calls with the IRS 

telling them he was refinancing his home, he was borrowing money 

from his partner’s retirement account, so it was money the IRS 

normally could not get its hands on. 

The IRS then informed him that, because the dollar amount was 

over a certain threshold, they were going to file the lien on him 

anyway, which made the taxpayer very angry, as the record noted. 

It would have made me angry, too. Ultimately, the taxpayer paid 

the face amount of the lien, and it left very little money, about 

$1,700, on the past due bill. 

The IRS refused to withdraw the lien so that the taxpayer could 

keep his employment, and ultimately the taxpayer lost his job. 

That is what led to the three taxpayer assistance orders issued in 

that case. Ultimately, we showed the IRS that their reading of the 

law was incorrect. They believed that they could only withdraw 

liens where the IRS had made a mistake. We showed them that 

Congress had actually passed, in 1996, a completely different provision and that it made economic sense for us to have a taxpayer 

earning money so that he could pay his debt. 

Senator GRASSLEY. Well, so the bottom line of it is, if you are 

working and paying your debt, you are paying your taxes too and 

continue to be productive. 

Ms. OLSON. Yes. 

Senator GRASSLEY. Mr. Miller, Ms. Olson’s testimony about the 

IRS’s use of liens adds to what I learned personally about the IRS’s 

use of liens from a conversation I had with Commissioner Shulman 

last fall. In that call, we discussed IRS’s decision to file liens 

against taxpayers subject to the tax shelter disclosure penalty, 

even though the IRS had agreed not to pursue collection actions 

against such taxpayers until Congress had a chance to change the 

law. 

In general, I am disappointed in the lack of judgment and discretion exercised by IRS employees, agents, lawyers, collections and 

appeals officers in certain of these cases. In some cases, it was an 

IRS regulation that prohibited the IRS from abating the penalty, 

such as by not allowing the filing of amended returns. In another 

case, IRS did not consider the negative impact to a taxpayer’s credit line, which was critical to the operation of his business, before 

filing a lien. 

14 

Mr. Miller, everyone, including the President and Treasury Secretary, agrees that small businesses are economic engines of our recovery. The health reform bill imposes new burdens on these small 

businesses. So, while I appreciate the Commissioner’s statements 

regarding a kind of policy of restraint for the individual mandate, 

I would like to understand what the IRS will be doing to help small 

businesses comply with a multitude of new laws and regulations. 

Specifically, will the IRS develop a communications or outreach 

plan for small businesses and develop a similar policy of restraint 

for the employer mandate, when appropriate? If you think I am too 

much concerned about small businesses, before you answer that 

question—and that will be my last question—I will just give you 

the background that, when we set up the commission prior to 

1998—and I think it was a couple of years before that, we reported 

in 1998—it was because there was a heck of a lot of lack of concern 

about small business and some outright harassment of small business that we do not see in regard to big corporations. So, that is 

where I am coming from. If you would answer the question, I 

would appreciate it. 

Mr. MILLER. Certainly, Senator Grassley. 

First, with respect to whether we will have an outreach plan for 

small business, as well as other important components of the economy, yes, we certainly will do that, and we are working on that as 

we speak. 

As we approach health care, we will do what we do with any 

piece of legislation, which is approach it on a holistic basis, beginning with communicating to people about what they are entitled to 

under the bill and what their responsibilities are, making available 

folks to answer questions, putting in place systems that will allow 

the processing of returns, and obviously we will have an enforcement component as well. 

On the second piece, as to whether we will utilize similar restraint with respect to small business, I do not have an answer to 

that. I do know that, when you talk about the individual mandate, 

Congress acted there to limit the number of tools in our toolbox. 

They did not act with respect to small businesses, but it is my assumption that we will work together to get to a place that we are 

comfortable. 

Senator GRASSLEY. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Let me ask you, Mr. Miller—I think this is also true in the State 

of Iowa. There is no permanent IRS appeals officer in the State of 

Montana. I think it is also true in the State of Iowa. I think it is 

true that there are 18 States without one. Some of our States are 

pretty big. It takes a long time to drive to one in another State. 

So what about that? Why can we not have a permanent appeals officer in Montana? It just seems to me, and in these other States 

too, all 18 States. I am not going to just say Montana only. If somebody wants to appeal and has to drive to Salt Lake City or Denver, 

that is a long drive. 

Mr. MILLER. I would agree, Mr. Chairman. It is a long drive. I 

do not know why appeals officers are where they are. I can say two 

things. One is, it is about resources. Second, we are looking to try 

to get to the point where not all appeals work is done face to face. 

15 

I think for the most part that is the case today. But as to whether 

it makes sense to have somebody in Montana, to have somebody in 

Iowa, I do not have an answer to that today. I can come back to 

you on that. 

The CHAIRMAN. One thing that has always struck me over the 

years is that some cabinets, some departments that have people 

out in the field, frankly, do better and there is better rapport with 

people and the department compared with other departments that 

do not have a lot of people out in the field. 

I will give an example. In my State of Montana, there are a lot 

of USDA personnel. Of course, we are an agriculture State. There 

are very few Department of Housing people in the State of Montana. The opinion that Montanans have of USDA is quite high, but 

it is certainly much higher than it is of the Department of Housing 

and Urban Development, because there is nobody in Montana. But 

we do have a lot of issues that face that department. 

I am just throwing an idea out. Given the marvels of modern 

technology—as you mentioned, not all appeals are face-to-face—I 

think it makes more sense to put people out in these States so they 

can then conduct not only face-to-face appeals, but also they can do 

some of the appeals by correspondence that might be in some other 

State. 

At least you have people there in the State and it gives that appeals officer and his or her people a little bit of sense of that State 

too, and it gives access to people in a State, say Montana, for example, to an appeals officer if a taxpayer wants to appeal a decision. 

I just think it is good to have people out of Washington, DC. Get 

people outside—and I believe that very strongly—of the major cities and get them out in the country so they can better understand 

what is going on. 

Mr. MILLER. Yes. We do have appeals officers that are outside of 

the Washington, DC office. 

The CHAIRMAN. Well, I am sure you do. By definition, you do in 

32 other States. 

Mr. MILLER. Yes. 

The CHAIRMAN. But you do not in 18. 

Mr. MILLER. I will come back to you with a more detailed answer. I am not sure what the thought process is, except, again, we 

have a limited amount of resources. There are 2,000-plus appeals 

officers. 

The CHAIRMAN. No, no, no. You did not hear my point. You could 

take those same resources and put them in other places because 

you can do a lot of work now electronically and by correspondence. 

Mr. MILLER. And we circuit ride, Mr. Chairman. 

The CHAIRMAN. But as we know, it takes a long time for the circuit rider to get there. 

Mr. MILLER. Agreed. 

The CHAIRMAN. It is pretty frustrating for a lot of people. 

Another frustration in mind is the failure, frankly, of the executive branch, Treasury and IRS, to address the tax gap. The last 

time the tax gap was estimated by, I think, either Treasury or IRS 

was 2001. Back then, I think it was $340-some billion. Why? It is 

unconscionable—unconscionable—that the IRS and the Treasury do 

not more aggressively address the tax gap. These are taxes legally 

16 

owed but not paid, and it puts the burden on the rest of the taxpayers who are paying their taxes. What is the plan? I have made 

this point constantly, and I get nowhere. Nowhere. Just a stone 

wall. I mean, it sounds like you are protecting all these folks who 

are not paying their taxes. 

Mr. MILLER. I do not think we are trying to do that, Mr. Chairman. 

The CHAIRMAN. Well, it appears that you are not doing much 

about it. 

Mr. MILLER. Well, let me answer what we are doing with respect 

to the tax gap. My understanding of when we will update the chart 

that we have is at the end of 2011. That is the current target. 

What we are doing is multi-faceted. We have talked about some of 

the things already this morning. I split up what we are doing currently, what we will be doing, and then what I would ask for you 

all to help us with. 

The CHAIRMAN. We will help, but we do not have a plan. 

Mr. MILLER. The first is, what we are doing currently. We have 

talked about return preparers, which is leveraging with respect to 

individual taxpayers. We have talked about offshore compliance, 

which is work that we are doing, and we have in fact increased the 

number of examinations. We have increased our non-filer work considerably over the last decade. 

With respect to where we are headed, Congress, and you in particular, sir, have helped us immensely in terms of the new information, streams of information we will be receiving, and we will be 

able to do that matching as it comes in, and that will target specifically the under-reporter portion of the program, whether it is credit 

card, whether it is basis reporting, these are things that are going 

to help in the next few years. 

What I guess I would ask, finally, is the 2011 budget support 

which provides staffing for some of those, which provides a couple 

of ideas as to how we can move forward, including an employer 

independent contractor provision that will help us get at misclassified employees, another key component of the tax gap. 

The CHAIRMAN. All right. 

I asked Secretary Paulson—in fact, I do not want to restate 

this—when he was Secretary to set a goal for a voluntary compliance rate of 90 percent by the year 2017, compared with a rate of 

84 percent, I am told, in 2007. So, that is a 6 percentage-point increase in compliance over 10 years. That was the goal. I asked 

Treasury and IRS to develop a plan. So I am asking you again. I 

would like to—what is today? This is tax day. It could not be more 

appropriate. Next tax day, when we meet again next year, I would 

like to know the degree to which you progressed. I want to hear 

your plan. What is the percentage progress that you have achieved? 

Mr. MILLER. Understood. 

The CHAIRMAN. I want numbers. I do not want just goals, I want 

numbers. I want data. I want metrics. I want benchmarks. I am 

fed up with the failure of Treasury and IRS to adequately deal with 

this problem. I am fed up. There is one way to change that, and 

that is to produce. We want to help, and we will help. But I do not 

get any sense from the IRS that you are really significantly adVerDate Nov 24 2008 16:52 Jul 12, 2011 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 R:\DOCS\67115.000 TIMD
17 

dressing it in a meaningful way. It is like you are brushing it off, 

just brushing it off. That is how it appears. 

Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. I share your view, 

Mr. Chairman, with respect to the tax gap and look forward to getting that information as well. 

The CHAIRMAN. Thank you. 

Senator WYDEN. I think it is absolutely pivotal. 

A couple of points. One, of course, Ms. Olson, if you simplify the 

tax system, it will be easier to collect taxes owed. Is that not correct? 

Ms. OLSON. One would hope so, yes. 

Senator WYDEN. Now, the overwhelming majority of taxpayers in 

this country are honest, they are people who work hard, and they 

play by the rules. There is just no question about that. But it 

seems to me that taxpayers whom I am speaking about, the overwhelming majority who are honest, often make inadvertent errors, 

they end up overpaying their taxes, or they underpay their taxes 

because the system is so complicated it is not possible to get an accurate assessment of what is owed. 

How prevalent is that? I am struck, when I listen to folks at 

home in Oregon, that this is a very, very substantial problem. 

Could you kind of put some numbers around it? How many people 

are honestly trying to comply with tax law who get snared in this 

bureaucratic water torture and either over-pay or under-pay? 

Ms. OLSON. The only numbers that I have seen are from the 

2001 National Research Program audits of individuals, where we 

asked auditors to identify whether an error was essentially intentional or inadvertent, and the auditors only classified 3 percent of 

the errors of the returns that they audited—and this was a random 

sample of individual taxpayers—as intentional. 

Now, the IRS—— 

Senator WYDEN. Just to make sure—— 

Ms. OLSON. I just need to do a caveat here: the IRS always says 

that we did not give good guidance to the auditors, so they do not 

know what they answered. 

Senator WYDEN. I understand. 

Ms. OLSON. But that is the only number I have seen. 

Senator WYDEN. All right. And I recognize, with your caveat, 

that these are not always scientific in every particular. But what 

you have told us is what my seat-of-the-pants assessment is—— 

Ms. OLSON. Right. 

Senator WYDEN [continuing]. That the vast, vast, overwhelming 

majority of instances involve people who are anxious to comply 

with the rules, want to be honest, and just get ensnared in this 

sort of net of bureaucratic torture, and that is essentially what I 

think has to change. 

Now, my view is—and I think you all have recommended it—we 

ought to have a 1-page 1040 form. It ought to be 28, 30 lines. What 

is striking is, this has been recommended over the years by Democrats, Republicans, all aboard. Absent legislation, I do not think we 

are going to get a 1-page 1040 form. Do you agree? 

Ms. OLSON. I think that is correct. There have been versions of 

1040 that the IRS has worked on, because we have basically run 

18 

out of room on the 1040 to add anything new, so we have had a 

draft version where we have a schedule where we move all sorts 

of provisions off the 1040. That makes it simpler to look at, but it 

does not get rid of all those additional provisions. It needs legislation. 

Senator WYDEN. That is another area, Mr. Chairman, I would 

very much like to work with you on. I just, for the life of me, cannot figure out, after Republicans and Democrats for years have 

been calling for a 1-page 1040 form, why we cannot get one. So, I 

am anxious to work with you in that area as well. 

One last question, if I might, Ms. Olson. Another great frustration I hear about from taxpayers is that they get different answers 

from the IRS on a particular problem. You hear this from preparers. You hear this from business folks. You hear this from individuals. You hear about differences between IRS regional offices, 

where you call one regional office and they tell you one thing, you 

call another regional office and you get another. This destroys, for 

business, the prospect of certainty and predictability. The same is 

true for individuals. Preparers, of course, feel very frustrated as 

well because they are trying to give accurate answers to their clients. 

How serious is this problem of getting consistent answers from 

the IRS, and what ought to be done with it? 

Ms. OLSON. Well, I think this is a result of the complexity of the 

law, and the IRS’s response when their accuracy rate went down 

several years ago was to limit the questions that they would answer. So they have gotten a very high accuracy rate now, in the 

90s, on the phone, but they get there by taking off all the difficult 

questions or things that many taxpayers would ask questions 

about, but the IRS people call it ‘‘out of scope,’’ which does not 

solve the problem. The problem is that the law is very complex and 

it is very difficult for IRS employees to answer a particular taxpayer’s questions accurately consistently. 

Senator WYDEN. So they are trying to solve a problem by pretending it does not exist. 

Ms. OLSON. That is my assessment. 

Senator WYDEN. Mr. Chairman, thank you. Thank you for holding this very important hearing. 

The CHAIRMAN. All right. Thank you very much, Senator. 

Senator Enzi, you are next. 

Senator ENZI. Thank you, Mr. Chairman. Earlier you asked some 

questions along this line. I want to delve into it just a little bit 

more, too. This would be a question for Mr. Miller. 

The IRS Restructuring and Reform Act of 1998 says, ‘‘The Commissioner of the Internal Revenue Service shall ensure that an appeals officer is regularly available within each State,’’ yet Wyoming 

and eight other States do not have such personnel physically located within their borders. 

The appeals process is the last step that taxpayers get to argue 

the merits of their tax return before a Notice of Deficiency is recorded and the collection process begins, so I think it is critical that 

all taxpayers, even rural taxpayers, have unfettered access to IRS 

appeals officers, ones that kind of understand their area. Wyoming 

19 

is a State of high altitudes and low multitudes and lots of roads, 

but somebody has to understand the people who live there, too. 

I realize the Act also permits the IRS to consider the use of video 

conferencing in rural areas, but when our Nation’s founders guaranteed our rights of due process under the Constitution, I do not 

think they meant that the IRS ought to be able to ‘‘phone it in.’’ 

I know in some circumstances that could be handy, but video 

conferencing does not give you all of the body language and nuance 

that being there in person does. I understand that all agency budgets are strained, and I am not asking you to hire new staff. I think 

it is perfectly reasonable to suggest that the IRS redeploy existing 

resources to provide at least one full-time appeals officer and one 

full-time settlement agent in every State. 

So, would you agree today to assess the feasibility of that redeployment so that there would be IRS resources that would guarantee a full-time appeals officer and one full-time settlement agent 

per State? If you do not feel they would be busy enough in the 

State they can always drive into the other States or phone it in to 

the more populous States, but we would like for them to be in 

there. 

I would hope that you would agree to give this assessment to the 

committee in a timely fashion. I am sure my colleagues from Arkansas, Idaho, Montana, Kansas, and North Dakota would be very 

interested in the findings, since they too lack these appeals officers 

and settlement rights. 

Mr. MILLER. Understood. We will be glad to take a look at that, 

Senator. 

Senator ENZI. All right. 

The CHAIRMAN. And I might ask, more than take a look at it. 

Send a letter back to this committee after you have made that assessment. 

Mr. MILLER. All right. 

Senator ENZI. Yes. This is of critical importance to almost a majority of this committee. So, we would like answers on that. I have 

had comments from our taxpayer advocate in the State about what 

a difference that would make. I thank the chairman, and I would 

yield the balance of my time. 

The CHAIRMAN. Thank you, Senator, very much. 

Now we are going to hear from the great Senator from Kansas, 

Senator Roberts. 

Senator GRASSLEY. Do not encourage him! [Laughter.] 

Senator ROBERTS. Well, I think that adjective is certainly apropos. [Laughter.] 

I apologize for being late, and thank you, Mr. Chairman, for 

holding the hearing, and I thank the ranking member for his diligent work, Senator Enzi as well. Thank you folks for coming up— 

I know it is a very busy time for you—and taking the time to come 

up and try to answer our questions. 

As you know, most of the questions have been about the mandate 

that individuals purchase health insurance, and basically the bill 

imposes a penalty that would be collected by you folks for those 

who fail to obtain and prove to the IRS they have obtained insurance. 

20 

I think our role is going to be very straightforward. It is going 

to be administering the tax provisions. I think that was a statement made by one of your folks. I would like to know, how will people prove to the IRS that they have health insurance? How will 

proof of insurance be reported to the IRS? I have read several reports in the press. There has been a lot of, I think, confusion about 

this. Is this going to be some form of a 1099 with an attachment 

from an insurance company, or what? How are they going to prove 

this? 

Mr. MILLER. Well, Senator, I think that is basically correct. The 

bill itself—and we are in the beginning stages of exactly working 

out the systems and all of that, and we can get into that—indicates 

that insurance companies will be sending 1099s. 

Our thought is, that is how we will match a yes/no answer as 

to whether you have eligibility and have taken up a plan that 

meets the requirements under the law, but the insurer is making 

that determination. We are probably, in all likelihood, not going to 

look behind that. We are basically going to receive a 1099 that says 

‘‘yes’’ or ‘‘no.’’ If the answer is no, we will talk to the taxpayer, but 

we will do that by correspondence, no doubt. 

Senator ROBERTS. Well, you have asked my next question: how 

will the IRS be able to cross-check or verify the information submitted by the taxpayer when the information is submitted by the 

insurance provider? There is a form in Massachusetts. They call it 

the 1099 HC form. That is an additional 3-page tax form and a 10- 

page instruction booklet. Is that what we envision for everybody 

here? 

Mr. MILLER. I am unfamiliar with the form, Senator. I do not 

think so, but I will be glad to take a look at it and come back. 

Senator ROBERTS. I hope not. I hope not. If it were 3 pages from 

the State’s standpoint and 10 pages on an instruction booklet, it 

would probably be 6 and 20 at least. 

What will happen if an individual does not purchase insurance, 

and is therefore required to pay a penalty, initially as little as 95 

bucks, but increasing up to $695 per person a year? How will you 

collect that penalty? 

Mr. MILLER. So, with respect to the individual mandate, Congress has been very clear in terms of some tools that we can use 

and some tools that we cannot. We cannot use liens, we cannot use 

levies. It is not a criminal penalty. But there are tools we can use, 

and we obviously will be notifying folks and letting them know that 

we have these questions. 

Senator ROBERTS. How? 

Mr. MILLER. We will do, as I mentioned, the matching program. 

We will be sending out a notice saying we happen to notice that 

we did not get a 1099 with respect to health insurance here, and 

we will ask for an explanation of that. 

Senator ROBERTS. You have a highly mobile society here within 

that particular group, as well as being highly mobile everywhere. 

I do not know how you are going to keep up with that by mail. I 

guess it is by mail. Well, we will let that go. 

Let me just point out that you said that you are still in the process of trying to figure this out, and I understand that, or trying to 

implement it, and you have plans or contingencies. Everybody does. 

21 

Everybody in the business community, every health provider is sitting down there with their lawyer, their CPA, and their actuary. 

This is the Lawyer, CPA, Actuary Full Employment Act, I think. 

They have divided it up, and they keep coming to my office and the 

offices of the gentleman over here to my right, asking these questions. 

If an individual does not have a tax liability, does not need to 

file a return but is required to pay the penalty for not having insurance, how will you enforce this provision? 

Mr. MILLER. You have gone a step beyond my understanding of 

the bill. If there is no filing requirement, I will have to come back 

to you as far as to what the health bill requires in that situation, 

Senator. 

Senator ROBERTS. I am down to 14 seconds here, but the health 

care reform bill provides a tax credit for small business for 2 years 

to help them to manage the cost of providing mandated health insurance to their employees, but there is a cliff in that second year 

where the credit expires. 

What will be the cost to small business? Have you made any 

kind of estimates, or guesstimates, for that matter, to provide 

health insurance without this tax credit? What will be the cost of 

compliance for small business? That is a very key question. Can 

you comment just generally if you do not have that specific answer 

on the cost of compliance for small business? 

Mr. MILLER. I do not think I have any numbers in that regard 

from the IRS, sir. 

Senator ROBERTS. When do you think you might have it? 

Mr. MILLER. I am not sure the IRS would be doing the analysis 

on that. We are administering the provision as best we can. 

Senator ROBERTS. Who would? 

Mr. MILLER. I would assume it would be—— 

Senator ROBERTS. If we asked CBO, is that the answer, or what? 

Mr. MILLER. It is possible. It is possible. 

Senator ROBERTS. All right. 

Mr. MILLER. Certainly, we have responsibility over administering 

the credit, and they are pretty active in terms of making sure folks 

know that it exists. 

Senator ROBERTS. What would be the compliance costs for individuals and families to meet the individual mandate requirement? 

That is, the individuals who purchase insurance prove they have 

insurance to the IRS or pay a penalty to the IRS for not obtaining 

insurance. It gets back to that individual and that individual’s cost 

and what they are obligated to do or not obligated to do. I think 

that is your repeat question, as I think upon it, but if you would 

like to comment on it. 

The CHAIRMAN. And also, your time is more than expired. 

Senator ROBERTS. Thank you, sir. 

The CHAIRMAN. And I might also add that there is no mandate 

for any small business with 50 or fewer employees. 

Senator ROBERTS. Right. 

Senator GRASSLEY. Can I ask? 

The CHAIRMAN. Senator Grassley? 

Senator GRASSLEY. Yes. I just had one question, and it is for Mr. 

Miller. It is in regard to Commissioner Shulman’s comments at the 

22 

National Press Club on April 5th. In that speech, he indicated that 

the individual mandate would be enforced through a matching program of some sort based on insurance companies providing a 1099- 

like document to an individual who would attach it to the return. 

Then in a recent television interview, he stated that the IRS would 

not be auditing individuals to check their insurance status. This 

position then was reiterated today in a Washington Post op-ed. 

So what incentives do individuals have to purchase insurance if 

they know the IRS will not be checking and will not be seeking to 

collect the individual mandate penalty? 

Mr. MILLER. Well, we will be looking, Senator Grassley. We will 

be looking. We will have that matching program. We will be corresponding with people. Whether that triggers an examination or 

not is going to depend on a given case. It is not in all likelihood, 

I think, what my boss was saying. That is not the kind of case that 

we send out an agent to pursue, it is the kind of case where we 

correspond with the taxpayer. At the end of the day, again, Congress has limited the tools we can use, but we will be talking to 

the taxpayer, and we do have a refund offset mechanism in order 

to enforce that provision. That is in our toolbox. 

Senator GRASSLEY. All right. Well then, let me give you this, 

some idea of something that could happen. So if you have matching, which is one of the ways of checking, if an individual does not 

purchase health insurance and so would not be receiving anything 

then from the insurance company, and also has no filing requirement with the IRS, what would the IRS be matching against? 

Mr. MILLER. And again, that is Senator Roberts’s question as 

well. I am not sure of the income levels and when that requirement 

triggers, and so I have to get back to the committee on that. 

Senator GRASSLEY. All right. Thank you. 

The CHAIRMAN. Thank you, Senator. 

Mr. Miller, I would like to ask a couple of questions about offshore compliance. About how many dollars do you think are lost to 

offshore tax evasion each year? 

Mr. MILLER. I know that numbers are thrown around a lot, Mr. 

Chairman. We do not have an estimate on that. We do not know 

what we do not know, is unfortunately the answer there. 

The CHAIRMAN. Is there a way to find out? 

Mr. MILLER. Ultimately, yes. We obviously have done some, I believe, very good things in the last 12 months in this area, and Congress has as well. As you are very much aware and have supported 

us on, the Fair and Accurate Credit Transactions Act (FACTA) bill 

is going to give us a much better sense of what is out there as people either come in or foreign organizations become subject to the 

30-percent withholding alternative. So, that will give us a much 

better feel for what is out there. 

The CHAIRMAN. Right. That is a provision that we put in the 

HIRE Act. 

Mr. MILLER. Yes, sir. 

The CHAIRMAN. So how much do you think you will be able to 

clamp down on that loophole? That is, how much will that help, 

that 30 percent? 

Mr. MILLER. I think I started with the statement we do not know 

what we do not know. FACTA is going to give us much more inforVerDate Nov 24 2008 16:52 Jul 12, 2011 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 R:\DOCS\67115.000 TIMD
23 

mation to know more, and so the uncertain part should be reduced 

considerably within the next couple of years. 

The CHAIRMAN. So what questions should I ask you next year 

when we have this hearing? 

Mr. MILLER. By this time next year, I think we will have a much 

better sense of our next targets in the offshore area. I think it 

would be fair for this committee to be looking for, obviously, a 

much more robust discussion on where we are on health care and 

on credit card reporting, basis reporting, FACTA, the information 

tools that you have provided us. We should be prepared to discuss 

that in much more detail. 

The CHAIRMAN. Well, a year is a long time from now. Some of 

that can be addressed earlier, do you not think? 

Mr. MILLER. Certainly. And we are not waiting for the hearing 

to move. Some of the information reporting requirements are not 

yet triggered. They will not be in effect yet. Certainly in offshore 

we will have made significant progress, I hope. 

The CHAIRMAN. Well, this is a little bit incomplete, this answer 

of yours. You are basically saying you just do not know. Help us 

figure out a way to get that information even more than you have 

just now said. Maybe we should meet again 6 months from now. 

Mr. MILLER. I am certainly willing to do that, Senator. 

The CHAIRMAN. But do you think you will know more in 6 

months than you know now? That is, enough to make a progress 

report that is meaningful? 

Mr. MILLER. On offshore? 

The CHAIRMAN. Yes. 

Mr. MILLER. We will certainly be much farther along in terms of 

the outcome on our voluntary disclosure program, on the outcome 

of some of our John Doe work, and in follow-up investigations as 

we pursue other leads through the voluntary disclosure of information and other information—— 

The CHAIRMAN. So when are you going to know how much is lost 

offshore? 

Mr. MILLER. That probably does have to wait until FACTA reporting comes in, and that is not for a couple of years yet. I will 

know—— 

The CHAIRMAN. Why does that take so long? 

Mr. MILLER. Again, Senator, we do not know what we do not 

know. We do not know who is holding assets offshore. 

The CHAIRMAN. Why does it take 2 years to figure that out? 

Mr. MILLER. There is no reporting right now of that, or they are 

not reporting accurately. The leverage points are being created by 

FACTA, which will come into play in a couple of years. 

The CHAIRMAN. You will have to refresh my recollection of 

FACTA. What is FACTA? 

Mr. MILLER. FACTA is requiring a new qualified intermediary 

program and increased reporting both on the individual side with 

respect to bank accounts that I might hold offshore, and also a new 

withholding regime whereby—— 

The CHAIRMAN. That is what we have just been discussing, is it 

not? I mean, the potential 30-percent withholding requirement for 

failure of foreign banks to report? 

Mr. MILLER. Correct. 

24 

The CHAIRMAN. That is FACTA? 

Mr. MILLER. That is FACTA, along with beneficial ownership and 

statute of limitations help. A whole host of excellent provisions, for 

which I thank you. 

The CHAIRMAN. Well, you are very welcome. But I just cannot for 

the life of me figure out why it takes so long to know how much 

we are losing offshore. I am really kind of surprised that you cannot, with more diligence, answer that question more quickly. Irrespective of what the law says, why do you not come back to us and 

tell us what changes you need in the law to get it more quickly, 

if it takes additional legislation? 

Mr. MILLER. Well, there are a couple of provisions in the 2011 

budget along those lines, sir. 

The CHAIRMAN. What are they? 

Mr. MILLER. There is one about the transfer of intangibles overseas to a low-tax jurisdiction, and there is also the removal of a deduction for certain premium payments to U.S. foreign affiliates for 

reinsurance, so I would commend those to the committee to help 

us out on. 

The CHAIRMAN. So, to what degree will those provisions deal 

with offshore loss? 

Mr. MILLER. I think they will help in terms of the shifting of income overseas, and they will help in terms of, not necessarily offshore accounts obviously, but in terms of our largest business taxpayers shifting the income to a low-tax jurisdiction and escaping 

U.S. tax. 

The CHAIRMAN. All right. Well, I appreciate your intent. I would 

just urge you to be a little more aggressive in trying to close this 

loophole. 

Mr. MILLER. Yes, sir. 

The CHAIRMAN. All right. Thanks very much. 

Mr. MILLER. Thank you. 

The CHAIRMAN. We are going to certainly meet a year from now 

and follow up on these questions. We may even meet earlier. I 

think we will meet earlier. And you are going to answer the request by Senator Enzi and myself with respect to appeals in each 

State? 

Mr. MILLER. Yes, sir. 

The CHAIRMAN. Good. Thank you. Thank you very much. 

The hearing is adjourned. 

[Whereupon, at 11:25 a.m., the hearing was concluded.] 

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