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FULL COMMITTEE HEARING ON 

ENTREPRENEURS AND TAX DAY: 

HOW IRS POLICIES AND PROCEDURES 

IMPACT SMALL BUSINESSES 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

April 14, 2010 

Small Business Committee Document Number 111-062 

Available via the GPO Website: http://www.access.gpo.gov/congress/house 


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

DENNIS MOORE, Kansas 

HEATH SHULER, North Carolina 

KATHY DAHLKEMPER, Pennsylvania 

KURT SCHRADER, Oregon 

ANN KIRKPATRICK, Arizona 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

DAN LIPINSKI, Illinois 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

DEBORAH HALVORSON, Illinois 

SAM GRAVES, Missouri, Ranking Member 

ROSCOE G. BARTLETT, Maryland 

W. TODD AKIN, Missouri 

STEVE KING, Iowa 

LYNN A. WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

BLAINE LUETKEMEYER, Missouri 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KAREN HAAS, Minority Staff Director 

(II) 

STANDING SUBCOMMITTEES 

Subcommittee on Contracting and Technology 

GLENN NYE, Virginia, Chairman 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

KURT SCHRADER, Oregon 

DEBORAH HALVORSON, Illinois 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

AARON SCHOCK, Illinois, Ranking 

ROSCOE BARTLETT, Maryland 

W. TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

GLENN THOMPSON, Pennsylvania 

Subcommittee on Finance and Tax 

KURT SCHRADER, Oregon, Chairman 

DENNIS MOORE, Kansas 

ANN KIRKPATRICK, Arizona 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

DEBORAH HALVORSON, Illinois 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

VERN BUCHANAN, Florida, Ranking 

STEVE KING, Iowa 

W. TODD AKIN, Missouri 

BLAINE LUETKEMEYER, Missouri 

MIKE COFFMAN, Colorado 

Subcommittee on Investigations and Oversight 

JASON ALTMIRE, Pennsylvania, Chairman 

HEATH SHULER, North Carolina 

BRAD ELLSWORTH, Indiana 

MARY FALLIN, Oklahoma, Ranking 

LOUIE GOHMERT, Texas 

(III) 

Subcommittee on Regulations and Healthcare 

KATHY DAHLKEMPER, Pennsylvania, Chairwoman 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

LYNN WESTMORELAND, Georgia, Ranking 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

Subcommittee on Rural Development, Entrepreneurship and Trade 

HEATH SHULER, North Carolina, Chairman 

MICHAEL MICHAUD, Maine 

BOBBY BRIGHT, Alabama 

KATHY DAHLKEMPER, Pennsylvania 

ANN KIRKPATRICK, Arizona 

YVETTE CLARKE, New York 

BLAINE LUETKEMEYER, Missouri, Ranking 

STEVE KING, Iowa 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

(IV) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1 

Graves, Hon. Sam .................................................................................................... 2 

WITNESSES 

Hon. Shulman, Douglas , Commissioner, Internal Revenue Service .................. 3 

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 22 

Graves, Hon. Sam .................................................................................................... 24 

Hon. Shulman, Douglas , Commissioner, Internal Revenue Service .................. 27 

Statements for the Record: 

Associated Builders and Contractors, Inc. ............................................................. 41 

(V) 

(1) 

FULL COMMITTEE HEARING ON 

ENTREPRENEURS AND TAX DAY: 

HOW IRS POLICIES AND PROCEDURES 

IMPACT SMALL BUSINESSES 

Wednesday, April 14, 2010 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 2:07 p.m., in Room 

2360, Rayburn House Office Building, Hon. Nydia M. Vela ́zquez 

[Chair of the Committee] presiding. 

Present: Representatives Vela ́zquez, Moore, Dahlkemper, 

Schrader, Nye, Bean, Graves, Bartlett, King, Buchanan, and 

Coffman. 

Chairwoman VELA ́ ZQUEZ. Good afternoon. This hearing is now 

called to order. With tax day now just hours away, most Americans 

are wrapping up their paperwork, looking forward to 12 months 

without touching a W-2. For many small business owners, however, 

the process is still underway. The weak economy, along with a series of new tax measures has compounded its historic complexity, 

making the process of filing a small business tax return especially 

challenging. This is not the first time our committee has met to 

discuss the tax challenges facing small firms. In the past, small 

businesses have told us that complexity is the most stubborn of 

those obstacles. With good reason—entrepreneurs face more than 

200 IRS forms and schedules. The process of navigating this maze 

of regulations is not only complex, it is expensive and time consuming. 

Businesses with fewer than 20 workers spend roughly $1,300 per 

employee on tax compliance, and according to one IRS study, up to 

80 hours. At a time when many businesses are struggling, every 

hour counts and so does every dollar. This afternoon we will discuss the role that the IRS plays in helping entrepreneurs meet 

their tax obligation and examine the agency’s management of certain Recovery Act tax incentives. Last year, Congress passed one 

of the largest and most sweeping tax cuts in U.S. history. The Recovery Act incorporated $15 billion in relief for entrepreneurs, including provisions to not only put cash back in their pockets, but 

to increase demand for their products, such as the first-time home 

buyers’ tax credit. 

Now we need to be asking whether or not those refunds and the 

resulting economic boost are being disbursed effectively. With the 

economy still struggling, it could use a fresh influx of circulating 

2 

capital, and it is critical that the IRS do everything it can to stoke, 

rather than restrict, our economic recovery. But as one study recently found, that isn’t happening. 

Since 2005, the agency has increased its small business audits by 

30 percent. Meanwhile, audits of large companies dropped 21 percent. I understand that in light of our Nation’s fiscal constraints, 

closing the $345 billion tax gap is critical to our long-term prosperity. But so are small businesses. These are the companies that 

create 70 percent of new jobs and will play a leading role in rebuilding our economy. Any effort to increase our tax base must be 

done in a way that is responsible, fair and not unduly burdensome 

to small businesses. Small firms should be able to look to the IRS 

as an ally, not an enemy. 

Given the myriad of available small business schedules and incentives, entrepreneurs need to know that they can count on the 

IRS to address their concerns quickly and answer their questions 

accurately. The agency’s move to increase staff levels within the 

Small Business/Self-Employed program should be an important 

step in delivering those resources, and I was pleased to see Commissioner Shulman place a greater emphasis on small firms overall. 

In this afternoon’s conversation, we will discuss the improvements he has made and look to see if more can be done. Tax law 

operates most effectively when small businesses have certainty and 

stability and now is the time for policies to deliver both. Now is the 

time for incentives that encourage would-be entrepreneurs to start 

up and existing businesses to expand. With the proper tools, America’s small firms can strengthen the economic recovery that is currently underway and spark the job creation we are waiting to see. 

With that, I would like to welcome and thank Commissioner 

Shulman for being here today. I know this is a busy time over at 

the IRS, and I look forward to hearing from you. So now I will yield 

to Ranking Member Graves for his opening statement. 

[The statement of Ms. Vela ́zquez is included in the appendix.] 

Mr. GRAVES. Thank you, Madam Chairman, and I want to thank 

you for calling this important hearing on tax issues affecting small 

businesses. Special thanks to Commissioner Shulman for testifying 

today. Unemployment is hovering around 10 percent; new home 

sales are still falling; consumer confidence is low; and our government’s rampant spending could soon jeopardize the United States’ 

AAA credit rating that keeps borrowing affordable. The 

unsustainable policies of government bailouts, skyrocketing Federal 

spending, higher taxes and record national debt have had a devastating effect on small businesses. In order to hire new workers, 

expand operations and help our economy, entrepreneurs and small 

business owners, need some certainty. However, right now the only 

thing that is certain for small business owners is more taxes and 

more regulation. Today’s businesses are facing more uncertainty 

than ever as they try to determine the real impact of the new 

health care law is going to have on their families, their businesses 

and their community. I am particularly concerned about who is 

going to enforce the new health care mandates on individuals and 

small businesses and how much it is going to cost. 

3 

Estimates on this information vary, and no one seems to know 

the real numbers. Initiating such a massive overall of health care 

without first having a clear understanding of the cost and impact 

to me is a recipe for disaster. In addition to the health care laws, 

$569 billion in tax increases, employers have to worry about other 

tax hikes that may be just around the corner. The expiration of the 

2001 and 2003 tax cuts threatens to raise the capital gains rate on 

dividends from the current 15 percent for middle-class taxpayers 

and 20 percent for higher income earners to as much as 45 percent. 

This is not the kind of policy that is going to allow small business 

owners to expand and create jobs. 

Rather than increasing taxes and unfairly punishing small businesses, one of the best steps we could take to help small business 

owners is simplifying the Tax Code. The IRS taxpayer advocate reported that U.S. taxpayers and businesses spend about 7.6 billion 

hours a year complying with filing requirements. In fact, tax complexity has been consistently ranked as the number one issue facing both taxpayers and the IRS. By making it easier for small businesses to navigate the Tax Code, we could save them the time and 

expense of hiring tax professionals. Churchill once said that a nation trying to tax itself into prosperity is like a man standing in 

a bucket and trying to lift himself up by the handle. Forcing small 

business owners to create the majority of private sector jobs to 

carry the financial burden of damaging Washington initiatives is 

only going to lead to more unemployment and fewer opportunities 

for Americans. Again, Madam Chairman, I want to thank you for 

holding this hearing. I look forward to Commissioner Shulman’s 

testimony today. 

[The statement of Mr. Graves is included in the appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you. Now it is my pleasure to 

welcome the Honorable Douglas Shulman, IRS Commissioner. He 

is the 47th commissioner of Internal Revenue and began his 5-year 

term on March 24, 2008. Prior to joining the IRS, he worked for 

the Financial Industry Regulatory Authority, the private sector 

regulator of all security firms doing business in the United States. 

The IRS collects approximately $2.4 trillion in annual tax revenue 

that funds most government operations and public services. Welcome. 

STATEMENT OF HON. DOUGLAS SHULMAN, COMMISSIONER, 

INTERNAL REVENUE SERVICE 

Mr. SHULMAN. Thank you, Madam Chairman, Ranking Member 

Graves. Members of the committee thanks for giving me the opportunity to testify today. The IRS has two equal parts of its mission: 

Service and enforcement. I have been very clear since I started that 

we need to excel at both. For the vast majority of American taxpayers—small businesses included—they are trying to wrestle with 

the complex Tax Code and get it right. We need to be there to educate them, give them world-class service, and for those who don’t 

pay their taxes, we need to run rigorous compliance programs. 

My written testimony highlights our efforts for the small business community especially focusing on outreach, but I want to 

highlight a few things we are doing here today. We have moved 

4 

swiftly to implement the new laws in the last 15 months that were 

intended to help small businesses. We have put out over $9 trillion 

in net operating loss carrybacks, which was part of the Recovery 

Act. The HIRE Act, which was signed into law last month, gives 

small businesses an important incentive to start hiring again and 

we are working to implement that quickly. We have already begun 

to mobilize and let small businesses know the new tax credit that 

is available for them to help buy insurance, health insurance for 

their employees. These actions reflect our commitment to service. 

As I said, most small business owners want to pay what they 

owe. They don’t want to pay too much. And they certainly want to 

take all credits and deductions that are available to them. So we 

have redoubled our efforts to make sure small businesses know 

what credits what deductions are available to them. At my prompting, the agency has also shown greater flexibility in dealing with 

small businesses. After all, the public trust depends on people believing that everyone is paying what they owe, but this trust also 

demands that we be flexible and principled in dealing with taxpayers who are in financial trouble. This year we are holding hundreds of special Saturday open houses staffed by my employees 

where we can resolve problems on the spot and we are dedicating 

in May and June a number of those open houses just to small businesses, to help them work through installment plans, help them 

clean up tax debt, help them work out settlements. We remain 

committed to service at the IRS. 

Today as everybody knows, too many small business owners continue to struggle to make their payroll, secure lines of credit, provide health insurance coverage, contribute to their employees’ retirement plans and stay current with their taxes. As Commissioner, 

I have sought to give our employees the guidance and discretion 

they need to assist small businesses with the service that they 

need. Let me end with a word about our employees and our employees’ commitment to public service. 

This February, many of you may know, an individual flew a 

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

We have no reason to believe that this attack could have been prevented or that it was part of an organized opposition to the agency. 

However, I continue as Commissioner to be concerned that the IRS, 

and especially its employees, who are doing the work of the American people, not be demonized. The IRS is filled with dedicated 

public servants who serve taxpayers every day. 

I am very appreciative of the support that Congress gave the 

agency immediately after the attack, and I ask all members of this 

committee to help me in explaining to the vast majority of Americans that when they interact with the IRS, it is us getting a refund 

to them. It is us answering a question, and that at its core we 

spend just as much time on service as we do on compliance. 

So in closing, Madam Chairwoman, let me assure you that I appreciate that the Small Business Committee needs the IRS to provide service and education. We are going to continue to search for 

ways to do our job better, and I look forward to working with you 

and all the members of this committee as we move forward. 

[The statement of Mr. Shulman is included in the appendix.] 

5 

Chairwoman VELA ́ ZQUEZ. Thank you. Commissioner, starting in 

2011, credit card companies and merchant banks will be required 

to verify the taxpayers’ ID number for businesses they provide 

services for. If the bank cannot confirm the team, it is required to 

withhold 28 percent of the gross credit card transactions. If there 

is a mistake, this could have major consequences for honest small 

businesses. How will the IRS ensure that small firms are not 

harmed by paperwork errors? 

Mr. SHULMAN. One of the problems that many small businesses 

have, as you alluded to, is they are not hiring. Accountants keep 

their books every day. They have record keeping issues they have 

cash issues, et cetera. And our hope is actually that this regulation 

will help people with getting a simple statement from their credit 

card company about their gross receipts which will help reduce the 

paperwork and let them file their taxes. 

I have been very clear from the outset that we think this piece 

of legislation that Congress passed is an important piece of legislation because information reporting helps us do our job and it helps 

simplify the job of small businesses. But we have been doing a lot 

of outreach, both to the small business community and to the credit 

card community to make sure there is smooth implementation. If 

we see issues like people having hard times—we won’t hesitate to 

jump on it and help people sort through any issues. 

Chairwoman VELA ́ ZQUEZ. Recent reports indicate that the average tax reform is up nearly 10 percent over last year and that the 

IRS has already sent out $6 billion more in refunds than last year. 

Would you attribute increasing reforms to provisions contained in 

the Recovery Act, like the home buyer tax credit, increased sections 

179 expensing, energy efficiency tax credits and other refundable 

credits and deductions? 

Mr. SHULMAN. Yes. I mean, I think it is certainly a factor. There 

were major tax cuts and tax credits. A lot of those tax credits are 

now coming out in people’s refunds. Just the fact that you get an 

$8,000 tax credit for buying a house, obviously there are a number 

of people who have bought houses and that has increased the average refund. 

Chairwoman VELA ́ ZQUEZ. As of mid-March, the IRS has sent out 

a record $175 billion in refunds, and the average tax refund was 

over $3,000. However, at that time, nearly half of all taxpayers had 

not filed their returns. Do you have any updated data on the 

amount of refunds the IRS has sent out or if the average refund 

has changed? 

Mr. SHULMAN. The average refund stayed around $3,000. About 

90 million returns from filed as of Friday last week which were our 

last count. We expect another 20 million to 30 million this week, 

and then there is usually about 10 million extensions. So this year 

the only major change in trends that we have seen has been the 

increase in refund amount, which clearly there has been a lot of 

tax law changes that is attributable to that. 

Chairwoman VELA ́ ZQUEZ. Let’s talk about the increase in business audits that I mentioned in my opening statement. A recent 

study determined that audit hours of small businesses have increased by 34 percent while large corporate audits have decreased 

by 33 percent between 2005 and 2009. Small firms are worried that 

6 

small business audits will rise because the audits are easier and 

quicker to complete. Can you discuss why small business audits 

continue to rise? And will the IRS focus their enforcement efforts 

for closing the tax gap on large corporations rather than small 

businesses? 

Mr. SHULMAN. There was a study released on Monday that I 

have serious concerns about the way that it characterized our numbers. We are a pretty transparent organization. We have data 

books and reams of data. That study actually used a very specific 

number which was audit hours of closed cases. And so if you look, 

they use 2005 as an example, which was an anomaly year because 

my predecessor had a campaign to close a number of cases and get 

all of the cases current that year. And they added up multiple 

years of audits for closed cases that year, which I think is a skewed 

statistic. 

And then they did the same thing with the small businesses. Let 

me give you the numbers that I think are the most relevant to see 

where our audit resources are spent. 

Chairwoman VELA ́ ZQUEZ. Didn’t the study also show that three 

out of four large corporations are not being audited by the IRS? 

Mr. SHULMAN. Let me give you the broad audit numbers. These 

are the numbers. These are our published numbers and the ones— 

rather than commenting on theirs. Our audit rate overall for individuals is 1 percent. 

Chairwoman VELA ́ ZQUEZ. And small business too and large corporations? 

Mr. SHULMAN. So for people who make more than $1 million— 

I am just going to give you four numbers—it is 6.5 percent. For 

businesses which are defined as large, over $10 million in assets 

it is 14.5 percent. For businesses under $10 million in assets it is 

less than 1 percent. So the small businesses in this country have 

a smaller chance of being audited than an average individual and 

a 1-in-14 chance of being audited as compared to a large business. 

And then as you go up the scale for large businesses, if you are 

what you think of as a multinational, they are under continuous 

audit. 

Anyone with more than $20 billion of assets, there is 100 percent 

chance of being audited. If you have got $5 billion or more of assets, there is a 50 percent chance of being audited. So I feel very 

comfortable that we have been for the last 5 years increasing our 

resources because there had been a dramatic decline in compliance 

resources for a 10-year period that we are in the process of reversing. But I, by no means, think we are disproportionately focused 

on small business. If anything, they are the lowest number. 

Chairwoman VELA ́ ZQUEZ. You mentioned in your statement that 

a small business solution Saturday is planned. Would you please 

tell us, how will you determine the main topics for the forums? 

What will be the focus? 

Mr. SHULMAN. So the topic is whatever a business is having trouble with. So we define topics by the taxpayer that comes to us. I 

have a motto that I go around the country and talk to our employees and I say, our job is to walk in the taxpayers’ shoes and meet 

them based on what their needs are. So if there is a small business 

who got way behind on their taxes or had a lot of profit last year 

7 

and their cash flow has fallen off the books and they literally can’t 

pay, trying to work out some sort of a payment plan. 

If there is somebody who has complexity and trying to figure 

something out, doing that. The way this will work, call your local 

office set up an appointment, we will make sure all the right people 

are there. And we may have an agent there who can settle the 

case; we may have a collection person if they are in collection; and 

we have appeals officers there if someone who disputes what has 

happened in an audit so they can settle it. 

Our goal is to solve problems on the spot. Our first set of open 

houses we had last month, 88 percent of the people who showed up 

walked away with all of their issues resolved, which was the goal 

of these open houses. 

Chairwoman VELA ́ ZQUEZ. Okay. So without waiting for one of 

those solution Saturdays that you are planning, I will tell you that 

one of the issues that small businesses are confronting today is 

they are struggling to meet tax obligations because of the economic 

downturn that we are experiencing. So I would like to ask you, why 

is it that the IRS has accepted 72 percent fewer OIC than 2001? 

And is the IRS taking action to increase OICs for small businesses 

in 2010? 

Mr. SHULMAN. Yeah. I am glad you asked me about that because 

when I came in, I looked at our Offer-in-Compromise program. I 

was not pleased that people weren’t using it as much and that applications that were coming in weren’t accepted. We made a major 

change this year which we announced in January. In the past, our 

policy was, if you wanted to come in for a settlement, an Offer-inCompromise, we would look at your last 3 years of income to determine your ability to pay, recognizing that a lot of people are unemployed. People have shuttered some of their businesses and there 

are people who really can’t meet basic living expenses and pay. 

We changed our criteria starting in January that we are now 

looking at current income. So we are not looking at whatever you 

made a couple of years ago. We are looking at what you are making 

right now and assessing your ability to pay, which my hope is for 

taxpayers who are struggling, that will help them out. 

Chairwoman VELA ́ ZQUEZ. Given the economic crisis and the fact 

that small businesses continue to struggle and especially to get access to capital, are you planning to do anything to simplify the 

OIC’s process? Because one of the complaints that we hear from 

small businesses is about the fact that the process is complicated 

and is complex. 

Mr. SHULMAN. We have been looking at that. Our first step was 

to do what I mentioned. We are also looking at seeing if there is 

a way to simplify it. So I mean, what I would tell you is I am very 

focused on this. I actually have a working group with an outside 

consultant looking at ways we can improve the program. Obviously 

within the confines of the law and the flexibility that is given to 

us because we can’t just compromise any debt. We don’t have that 

kind of authority, but it is something that we are definitely looking 

at. 

Chairwoman VELA ́ ZQUEZ. Thank you. I have more questions but 

we will continue and then in the next round I will ask you. Mr. 

Graves. 

8 

Mr. GRAVES. I have questions, too, Madam Chair. But we have 

a time conflict, so I will pass it to Mr. Buchanan. 

Mr. BUCHANAN. I want to thank the ranking member. Madam 

Chair, thank you for putting on this hearing on today. Commissioner Shulman, I was interested, how did you manage to be up on 

the Hill the day before tax day? 

Mr. SHULMAN. I was invited. 

Mr. BUCHANAN. Let me mention a couple of things. And I have 

been in business 30 years before I got here in 2007 and in small 

business primarily. Why is the Tax Code so complex? I mean, I 

read the other day, or someone showed me that USA Today reported 60,000 pages of Tax Codes, deductions and this. I can’t 

imagine anybody ever signs a tax return that is accurate because 

I know in my case—I had a bunch of different businesses, and my 

CPAs fill it out. We want to get it all right. But isn’t there a way 

we could simplify this process, especially for small businesses? 

Many of them may have 15 employees or less. It just seems like 

it is crazy. What are your thoughts on it? 

Mr. SHULMAN. My thoughts are, my job as Commissioner of the 

IRS is to administer the law that Congress writes and policymakers write. So I am a big fan of simplification because I have 

to go out there and be the one who interacts with the American 

people with this complex Tax Code. I would ask you and use your 

expertise, you know, the Tax Code is used for everything from collecting the funds to run the government to administering credits 

for a variety of targeted social programs to giving breaks to different industries and different special interest groups along the 

way. I think the reason it is so complex is that the Tax Code, over 

the last 20 years, has been used more and more for specialized purposes rather than the general raising of funds to run the government. 

Mr. BUCHANAN. It is how many thousands of pages is what is 

amazing to me. I want to get into the heart of what I want to talk 

about. I know the Democrats and Republicans, all of us have focused on helping people get back to work, but yet it looks like we 

are going to take our taxes up to 39.6 and then they are asking 

for a surtax of 5.4. Now most businesses—and I am in Florida— 

99 percent of the businesses register in Tallahassee, our capital, 

are classified as small businesses. Most small business, as you 

know, have pass-through income, whether they are an LLC, sub S, 

partnership, soul proprietorship, whatever they might be. So it just 

seems strange to me in a time where we are trying to create jobs, 

we are going to be raising taxes from 34 percent to 45. 

Is that your understanding of what this will net out to be if the 

Bush tax cuts sunset and we add a 5.4 percent surtax to people 

making over $200,000 or $250,000 which are—a lot of those people 

I know, a lot of those people are running small businesses, so we 

are going to add another 10 percent in tax to their bottom line, 

which is another liability. Is that your understanding? 

Mr. SHULMAN. You know, I would defer you to the Joint Committee on Tax. Again, you know, my job is to interface with the 

American people to run the tax system, to administer the laws on 

the books, not to run the economics of where the— 

9 

Mr. BUCHANAN. I am not asking for the economics. I am asking 

for your understanding. My understanding is that is going to take 

the top tax bracket of the tax cuts, do sunset up to 39.6 and then 

another 5.4 surtax which I told you, most small businesses, as you 

know, have pass-through income. So it seems to me—because I get 

asked this. I go to town hall meetings. People are saying, What is 

the net, the top tax bracket? I have got a person who said, I have 

40 jobs. I am trying to figure out how to get some cash flow. I can’t 

borrow from the banks. I need access to capital. Are they going to 

charge me another 10 percent in tax? I think that is something you 

should know ideally or should figure out. 

Mr. SHULMAN. I don’t want to respond to a bunch of moving 

numbers and do it accurately for you. So I would be happy to work 

with my colleagues at Treasury, work with your staff and get you 

that net effect so you can answer that for your constituents. 

Mr. BUCHANAN. The other thing is, is that in terms of the jobs 

bill—and maybe you can run this down too—the President and I 

both agree. I talked to him. He was up in Baltimore—about the 

idea of taking capital gains to zero from 15 percent, just with conceptually the idea that at some point that it would sunset. And the 

reason I think it is important is because there is a lot of capital 

on the sidelines. People don’t have confidence in the economy. I 

would just say they don’t have confidence in the Congress and the 

administration, a lot of small business people. Do you have an 

opinion on that or a thought at all about capital gains? I think the 

President supports it. Not forever but for a period of time. And I 

support it because I think that small businesses—our community 

banks and our area has been decimated. They did a lot of lending 

3 years ago. Banks aren’t lending in general. So again we are trying to find a way to get capital available and there is some capital. 

There are people who thank have money but they don’t have the 

confidence. But yet if it goes to zero maybe for a couple of years, 

it could make capital available for people that invest it in the small 

businesses. 

Mr. SHULMAN. So there is actually a proposal in the President’s 

2011 budget to have no capital gains for certain investments for entrepreneurs in small businesses. So I think conceptually, my understanding is—I haven’t talked to the President about this. I can’t 

speak for him—but that he has been quite supportive of this. I ran 

a small business. I started one. 

Mr. BUCHANAN. I like it a lot more. 

Mr. SHULMAN. So I totally understand all the things from operations to raising funds, et cetera. And I think that, again, you 

know, it is not the arena I spend my time playing in, the policy 

arena. I spend my time in the administration arena, on the numbers on the books. But I think anything we can do to get funds and 

capital to small businesses is a good thing. 

Mr. BUCHANAN. The other thing, we have an ag community in 

our area, a pretty substantial ag community, and of course, across 

the country in small businesses. I am against raising taxes or the 

tax amount we have on estate taxes. Where does that sit today? Is 

it your understanding that if someone passed away today, they pay 

zero; the next year, they pay 55, is that where that sits today? 

10 

Mr. SHULMAN. I think it is influx. That is what is on the books 

now, but I think that Congress hasn’t decided what it wants to do. 

I think there has been talk about people taking it up. I think we 

are not in a good situation right now because there is uncertainty, 

right? So yes, if someone died today, you know the estate tax has 

expired. But the Congress has the option to make it retroactive and 

there are different parts of the provision. So I think right now for 

my job and for the American people, it is not in a good place. 

Mr. MOORE. [presiding.] Excuse me. The gentleman’s time has 

expired. 

Mr. BUCHANAN. Thank you. 

Mr. MOORE. The chair next recognizes the gentlelady from Illinois, Ms. Bean. Ms. Bean, do you have questions? 

Ms. BEAN. Thank you, Mr. Chairman. First of all, thank you so 

much for being here and providing your testimony. I also want to 

thank your staff, has been out to help at some of the constituent 

service fairs in the Eighth District that I represent as well as the— 

I have done a small business Federal resources form specifically to 

allow small businesses to come in contact with the agencies that 

do provide resources towards their success. 

And you had Lynda Dyer at our Constituents Services Fair and 

Yolanda Ruiz at the Small Business Fair. Both were very well received and they did answer very specific questions about tax credits 

that were available to both constituencies. 

I would like to back up and ask you about the—of the $280 billion of tax cuts that were included in the stimulus, money of 

those—many of those cuts were directed to the small business community, the NOL carryback being one, the 179 bonus depreciation 

that we had in there. We had the smart grid technology, we had 

health IT initiatives along with—we happened to have at our 

forum, we had the DOE there to talk about some of the grants 

there and the IRS was able to talk about some of the specific questions for those that came. I would like to specifically talk about the 

NOL carryback. I believe I saw in your written testimony but I 

don’t know if I heard you say it that there were 40,000 businesses 

that have already participated in the NOL. And I think there was 

a number I saw here. Was 22.6 billion. 

Mr. SHULMAN. From the—so there is $9 billion between the Recovery Act and then there was the extension that happened in the 

fall. We staffed up that operation because we recognized a lot of 

small businesses. This was their lending when credit was crunched. 

This was their access to capital and we wanted to make sure we 

got that out quickly. 

Ms. BEAN. So it was a total of how much? 

Mr. SHULMAN. $9 billion is the number where we are running, 

but these move every day. 

Ms. BEAN. Good. I am really glad to hear you say that. I think 

it is really important. There are a lot of fears the business community has had in these uncertain economic times, but there have 

been tremendous resources provided to assist small businesses, 

both in the guarantees that we provided to the SBA lending programs so there would be capital flowing in over 20 billion has been 

put in the hands of small businesses through the SBA lending programs that we increase the government guarantee on also as part 

11 

of the stimulus, but I think you said well carryback bonus depreciation and other initiatives are important as well. 

So I want to thank you for highlighting that. And one other 

thing, I guess I would also mention, is of the 6 million small businesses in the country, 5.8 of them are under 50 employees. So for 

those who are concerned about ramifications or mandates or penalties to small businesses, there will be no penalties or mandates 

for those 5.8 million of the 6 million businesses. There is only 

200,000 that are over 50. And of the 200,000 businesses that have 

more than 50 employees, only 5 percent don’t already have insurance. So there is no issue there for those companies. 

So while there are some fears and concerns as people are learning what is actually in the bill, it is important that we clarify that 

this is a very positive move forward and of those businesses, of the 

6 million, four of them are eligible for tax credits that will assist 

them, for those who already have insurance, to pay their premiums, and for those who don’t, it will assist them to enter the 

health care market and provide coverage to themselves and their 

employees. 

So I just wanted to clear up the record on that because there 

sounded like there was some confusion. Thank you. I yield back. 

Mr. MOORE. Dr. Bartlett, the gentleman is recognized for 5 minutes. 

Mr. BARTLETT. Thank you very much. Thank you for your testimony. I was in small business in another life before I came here, 

so I understand what we are talking about. For a small business 

to be able to pay their taxes, don’t they have to charge more for 

their product or their service? 

Mr. SHULMAN. Well, I think, you know, the U.S. Tax Code, people can figure out what they are going to do. So that is a presumption that you are welcome to make. 

Mr. BARTLETT. Well, I think most people would agree with that. 

Doesn’t that then make this a very regressive tax since the—it simply becomes another part of the cost of doing business, and if they 

can’t pass it on to the consumer, they go out of business, don’t 

they? So doesn’t that make tax on business a very regressive tax? 

Because the poorest of the poor have to buy the products of business? Bill Gates doesn’t care. He can pay the tax. Why do we want 

to have this really regressive tax? Why don’t we make this a fair 

tax, just don’t tax business at all and tax the people who buy the 

product, isn’t that fair? 

Mr. SHULMAN. Like I told your colleague, I am going to defer on 

broad tax policy and broad characterizations of how the taxes work. 

My job is to kind of get it technically right and make sure we administer it fairly. 

Mr. BARTLETT. I understand that. I understand that you don’t 

develop policy, that you simply administer the policy that is developed from the laws that the Congress passes. But if you really look 

at the tax on business, if they can’t pass that on as a part of the 

cost of doing business, then they can’t continue in business, so then 

that makes it a very regressive tax. My question is, why do we 

want to have regressive taxes? Why don’t we simply tax the product when it is bought by people, rather than increasing the cost of 

the product, wouldn’t that greatly simplify the tax? 

12 

Mr. SHULMAN. Again, I think you are talking about a VAT. 

Mr. BARTLETT. No, sir. I am not talking about a value added tax. 

That is a horrible tax. It is a hidden tax. And I like a consumption 

tax. In fact, I would like to tax in big red letters, big red numbers 

at least as large as the cost of the product so that when you bought 

a product, you knew what taxes you were paying. I remember 

when I was younger, you went to the gas station. You bought your 

gasoline. There were a number of numbers on the gas pump there, 

and it was the cost of the gas and the cost of the taxes that were 

added to it. Now it is just all lumped in together. I think it is 40- 

some cents taxes we pay in Maryland but that is hidden. Whatever 

taxes are hidden, they are easier to collect, aren’t they? 

Mr. SHULMAN. Again, you know, these are all conversations that 

are very interesting to me. But the kind of broad characterizations 

of what is hidden, what is not, what is regressive, what is not, I 

am going to stay away from. 

Mr. BARTLETT. I am always concerned that we wanted to tax 

businesses, not understanding that what we are doing is hurting 

the poorest of the poor who have to buy the product of that business. And since you tax the business, you increase the cost of the 

product unnecessarily or the small business can’t stay in business 

if they can’t collect enough money to pay their taxes, right? So now 

we have increased the cost of the product. I have trouble understanding why we want to hurt poor people. I would like to make 

things cheaper for poor people and to collect the taxes from those 

who can pay the taxes. 

Last year I think 52 percent of Americans got more from government than they paid into the government. Why would we want to 

increase the cost of the things that these people are buying by 

taxes? I would like to have a zero tax on business. I think that is 

the fairest tax, the simplest tax and simply to collect it from the 

consumer. Why wouldn’t that be a better tax system? I know you 

are not in the policy. You are in administration. But wouldn’t that 

simplify your job if we did that? 

Mr. SHULMAN. Again, I encourage you to take it up with the 

Ways and Means Committee and the other tax writing committees. 

Mr. BARTLETT. Thank you. Thank you very much. I appreciate 

your testimony. Thank you. 

Mr. MOORE. Thank you. And the chair recognize himself for one 

question. My question is focused on the IRS’s task of educating taxpayers about the new laws that may affect them. As you know, the 

IRS’ small business self-employed divisions specifically provides information, service and education to the millions of small businesses 

and self-employed taxpayers. As you also know, in 2009, this division hired over 3,500 additional employees for a total of almost 

30,000 employees. How are these new employees being utilized by 

the IRS? And how are all the employees of this division being utilized to assist small business taxpayers in general? If you would, 

sir. 

Mr. SHULMAN. As I mentioned before, we spent a lot of time on 

average. Let me give you some of the output measures, which are 

I think interesting. In 2009, we attended or held 2,400 symposium 

seminars for small businesses to help them understand the Tax 

Code, directly reaching 180,000 small business taxpayers. We have 

13 

members of the staff in that division who put out a small business 

electronic newsletter every month that goes to 170,000 small businesses or their tax advisers. Again, specifically to help them understand small business tax provisions. 

I mentioned the open houses that are being staffed by people 

from that division. We have phone forums where 3,000 people can 

get on the phone, e-mail in questions and answer any questions 

they have got about issues. We hold those throughout the year. 

And we hold what we call nationwide tax forums where we send 

people from that group to help people understand their tax obligations. There is one we have in Las Vegas every year, that is 5,000 

people who show up who either advise or are small businesses in 

taxes. 

So that division clearly has a compliance role and does a variety 

of compliance but has a tremendous amount of time spent educating taxpayers doing outreach. 

Mr. MOORE. Thank you, sir. The chair will next recognize Mr. 

King for 5 minutes. 

Mr. KING. Thank you, Mr. Chairman. Commissioner, thank you 

for your testimony. I appreciate you being here today. I want to 

suggest for your opening remarks, too, that I believe there are also 

a lot of highly qualified people who work for the IRS. And I am seeing the President and ObamaCare look to expand those numbers 

by 16,000 to 17,000 people. That is a huge number at a cost of $10 

billion. 

I have watched the private sector shrink dramatically under the 

nationalization of private sector policy that actually began under 

the Bush administration, was accelerated dramatically under the 

Obama administration. And by the way, everything that began 

under the Bush administration that sent us in that direction was 

supported by then-Senator Obama. There is no exit strategy to divest ourselves from the Federal consumption of the private sector. 

I did hear a notice that some of Citigroup might be spun off. I don’t 

think there has been any action on that at this point. But you add 

to that ObamaCare, the student loan program all being nationalized, it is curious to me there is no exit strategy on the part of the 

Federal Government. 

Do you find yourself in a position here to enforce tax policy? And 

again, I would compliment the workers and their intelligence and 

skills there. I think you know also by their reputation that I think 

they could also do very well in the private sector. So I don’t have 

any hesitation about the skills. 

I do have a couple of things that I would like to follow up on. 

With ObamaCare and the collection that you apparently will be 

soon required to carry out, can you tell me the discussion that has 

been in the open dialogue has been about the IRS having the authority to withhold a refund if one does not comply with the mandate to purchase insurance for their employees or perhaps as individuals, soul proprietors, partnerships, LLCs, et cetera? And does 

your power go beyond that, beyond withholding a refund? What 

about the tax lien component of the collection that the IRS, I expect, will be using when the refund is not a tool that is effective 

for them? 

14 

Mr. SHULMAN. Let me respond and give you a sense of what I 

view our role as and then get to your specifics. One is, as I mentioned in my opening statements, I think that there has been some 

irresponsible demonizing of the IRS around this health care debate. 

First of all, there is no 16,000 people out there that are going to 

be hired. 

Mr. KING. How many? 

Mr. SHULMAN. That was a number put out by a study. It wasn’t 

put out by us. 

Mr. KING. How many? 

Mr. SHULMAN. So that number is just floating around. I don’t 

have a number for you. Second of all— 

Mr. KING. Excuse me, Mr. Commissioner. My clock is ticking 

here. I would point out that you did feel free to speculate on capital 

gains tax cuts, which has been floated by the administration, but 

not willing to talk about policy changes when Mr. Buchanan talked 

about the increase in small business taxes. So I just want to make 

sure that we are on a subject matter where that we can get definitive responses. 

So do you have a number that you could give me as to how many 

IRS agents? If a person doesn’t have a number, then how can they 

have a number that the number that is out there isn’t accurate? 

Mr. SHULMAN. I can argue about the number because I actually 

get to set how many agents are out there, and I haven’t set how 

many people are out there. Second of all, what I was talking about, 

which I think is irresponsible, people throw around numbers like 

agents and 16,000 agents. Well, most of what we are going to have 

to do around the health care law is— 

Mr. KING. Commissioner, my time is ticking here. If you are 

going to set the number, what will you set it at? 

Mr. SHULMAN. I will finish and answer the question. 

Mr. KING. There is 1 minute and 13 seconds left on our clock. 

I am sorry I have to be abrupt, but I would like to get a response 

if I could, please. 

Mr. SHULMAN. Most of what we are going to spend our time on 

is building computer systems to get credits to people and administering tax law provisions. Right now there is no— 

Mr. KING. Commissioner, I do have to interrupt you because you 

have not answered any of my questions. And I have asked if you 

have the authority to apply a tax lien beyond withholding someone’s tax refund as a means to enforce ObamaCare. And I have 

asked you if you are going to set the numbers of agents or officers 

or employees of the IRS, and you disagree with the number at 

what you expect to set it at. If you will not answer either one of 

those questions, I don’t think there is any reason for us to carry 

on this dialogue. 

Mr. SHULMAN. The law specifically prohibits liens, levies and seizures. Most of what you can think about when you think about the 

requirement to buy insurance and the penalty to not have insurance is it will be like a 1099. The insurance company will send the 

employee and say either you have the insurance or you don’t. They 

will send that same information. And a letter will go out. This is 

not the kind of thing that we have agents for. 

Mr. KING. So how do you follow up? 

15 

Mr. MOORE. The gentleman’s time has expired. 

Mr. KING. Mr. Chairman, I ask unanimous consent for an additional minute. 

Mr. MOORE. We have got one more person who needs to have a 

chance to ask questions here. 

Mr. KING. Do I hear an objection? 

Mr. MOORE. I am objecting. 

Mr. KING. Okay, Mr. Chairman, let the record note that the witness refused to answer my questions and I have been gaveled down 

before I could get an answer. I apologize to the chairman for having to be rude and abrupt. 

Mr. MOORE. Thank you, sir. Mr. Schrader, you are recognized for 

5 minutes, sir. 

Mr. SCHRADER. Thank you, Mr. Chairman. Mr. Commissioner, 

thank you for coming. 

Mr. SHULMAN. Thank you. 

Mr. SCHRADER. I guess I don’t agree with everyone on the panel 

that would have individuals pay all the taxes in this country. I 

think there is a shared burden that needs to be going forward. I 

am a little surprised that some people seem to be suggesting that 

we need to increase taxes on individuals, especially in these very, 

very difficult times. I don’t think America is really ready for that. 

I am interested in, you know, some of the recommendations that 

the taxpayer advocate has made. I came in late. I apologize if you 

have addressed this. But there are several changes regarding some 

of the check box things on form C and adding lines to form C that 

most small businesses file their returns with. Was that discussed 

at all? Are you familiar with that? 

Mr. SHULMAN. No, it wasn’t. And I am not sure exactly what you 

are talking about. 

Mr. SCHRADER. Well, it is my understanding that for the last several years, the taxpayer advocate report had talked about making 

some changes to form C and trying to simplify it a little bit, make 

it a little bit more user-friendly for small businesses. Well, I will 

get to you later then to make it easier for you going forward. 

We have also introduced a bill on home office deduction simplification. And hopefully that will lend its way through this Congress at some point in time. I am trying to make it easier for small 

businesses—I mean, really small business, mom and pop shops, 

shops with, you know, a token office in their home or residence, 

how they could take advantage of that. Do you see that as something being popular that a lot of business folks would end up taking advantage of going forward? 

Mr. SHULMAN. I think the home office, figuring out which piece 

of that is an expense and not, is incredibly complicated for people. 

They are trying to figure it out. I would welcome simplification. 

Mr. SCHRADER. I went through that a little bit when I started up 

my farm in trying to allocate a chunk of my house to that. I was 

trying to figure out the mortgage piece, the insurance piece, the 

property tax piece. It became very, very difficult. So some of that 

stuff would be very, very helpful. I guess the other comment I 

would be interested in is with regard to the health care bill. It 

looks like there is going to be a lot of tax credits for small busiVerDate Aug 31 2005 15:12 May 07, 2010 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\55997.TXT DARIEN
16 

nesses, particularly as they deal with some of the health insurance 

things. 

I would assume that most small businesses are not aware of this, 

at least not to any great degree. Do you see a way we would be 

getting that word out to make sure small businesses concerned 

about health care in general but wanting to do the right thing, 

which I think most small business—my little veterinarian clinic included—try to do, how they can access some of the small business 

tax credits for many, many businesses out there? 

Mr. SHULMAN. Yes. So obviously the recently passed health care 

bill is a big bill. It is a multi-year bill. And one of the reasons why 

I am unable to answer some of the things that will come into place 

in 2014 is the bill was just passed and we are focusing on the 

things we have to do this year. Just to be very clear and get on 

the record, what we are doing is administering the tax provisions, 

not the health provisions. The things that we have to do this year 

is get a credit program up and running, out to small businesses to 

help them pay for health care. There is a new tax on tanning salons. There is a therapeutic discovery credit to give tax grants to 

companies who come up with innovative ways and innovative 

therapies. 

So that is what we are very focused on. The thing that is immediately effective is the small business tax credit. We have put out 

questions and answers. We have deployed our people who do lots 

of outreach to small business every day to make sure people know 

that this is available to them because we want people to get credits 

that are available to them. And we plan on doing a lot of outreach 

and would be able happy to do with any member of this committee 

outreach events in your district on this other or tax provisions and 

also on just general how IRS can help the open houses, things like 

that. So we are very focused on doing outreach on the early provisions in this law, just like we are with every law. 

Mr. SCHRADER. I appreciate that because I think that is going to 

put money in the pockets of many small businessmen and women 

right now so they can improve their bottom line, hire people and 

expand their business. The last question would be, the Blue Dogs 

of which I am a member, are putting out a fiscal platform, trying 

to make sure we get our own fiscal house in order now that we 

have helped save the country. And what we are trying to do is, one 

of the elements is program integrity. Would you comment a little 

bit? One of the pieces is empowering the IRS. I happen to think 

that is a good thing, to make sure that some people who aren’t paying their fair share in taxes pay their fair share. I don’t mind paying mine. We get great services in my State, education, health care, 

public safety. There are some benchmarks you can use to figure out 

for a dollar of investment in the IRS, we can get something back? 

Mr. SHULMAN. The general benchmarks we use—I am a big believer that compliance comes about because of service and enforcement. So we put a lot of money into service, trying to help people 

just to meet their tax obligations, understand the complex code. So 

the best benchmark we have is just a 5-1 return on the overall IRS 

budget and our dollars that are brought in—not the overall collection for the country but the dollars from direct IRS actions. 

17 

Depending on the program, though, we have up to 20-to-1 returns, some of our document matching programs. In our appropriation every year we have details about program by program, the return and we would be happy to share that with you. 

Mr. SCHRADER. Thank you very much. I yield back. 

Mr. MOORE. The gentleman’s time has expired. The last questioner is Mr. Coffman. You have 5 minutes, sir. 

Mr. COFFMAN. Thank you, Mr. Chairman. Commissioner 

Shulman, please know that my colleagues, for your employee that 

was lost in Texas, the families of the diseased are in our thoughts 

and prayers and very respectful of not simply his service to his 

country through the IRS, but his service to the country through the 

military prior to that. 

Mr. SHULMAN. Yes. 

Mr. COFFMAN. You all certainly do the best you can do under 

these challenging times. 

Mr. SHULMAN. Thank you. 

Mr. COFFMAN. I have a question about the new health care law. 

It will require you to develop a host of new forums, collection methods and implementation strategies. What is the timeline for these 

changes to develop this? 

Mr. SHULMAN. Yes. So as I mentioned, there is a bunch of things 

that went into effect immediately. And that is what we have got 

a team working on right now. We also are putting teams together 

now to look at the longer-term impact of what happens. Most of the 

individual provisions and the employer provisions go into effect in 

2014. So if you think about us building our systems, generally you 

want to have systems built a year ahead of time and then they are 

going to have to interface with the exchanges, insurance companies, employers because you think of us as the payment system 

around that. That means you need to get it designed in 2012 within a couple of years. Just so I am clear, I don’t have numbers now, 

but we are diligently working on them and we are trying to scope 

this out. We have people going through the entire bill and we are 

hoping to be able to come to Congress in the near future and work 

out exactly what resources we are going to need in a lot more details. 

Mr. COFFMAN. Is the time frame to have this up and running by 

2014 realistic? 

Mr. SHULMAN. I think it is. My understanding is that it was designed to give plenty of lead time. For us, we are running tax provisions which we do every day. A lot of times Congress passes 

things retroactively or passes things in December that we have to 

implement in January. So we are not through the entire bill but 

I am confident that if we have administrative flexibility and if we 

are given proper resources, that at least for our portion, we will be 

prepared by 2014. 

Mr. COFFMAN. Do you have any feeling as to what the budgetary 

impact of that will be in terms of ramping up to meet the obligations of the bill? 

Mr. SHULMAN. I don’t right now. Obviously, CBO put a number 

out there which is the tradition. CBO puts out numbers which Congress votes on. I think it will be potentially in that range, but it 

is just really too early to say. 

18 

Mr. COFFMAN. Well, let’s see. I think the Congressional Budget Office came up with this $10 billion in costs, additional funds and 

17,000 employees. Is that at all accurate in your view? 

Mr. SHULMAN. Sir, the only number they came up with was $5 billion to $10 billion over 10 years. They didn’t come up with an 

employee number. My understanding is—and we didn’t do those 

numbers with them—is that they recognized a lot of that is technology interface to get the flow of funds back and forth. A lot of 

that is service and answering questions on the phone. So the employee number, I really don’t know, as we had this discussion with 

your colleague. I think the broader numbers—we are still getting 

our arms around it but it could be within that range. 

Mr. COFFMAN. So it could be in the 17,000 individual range? 

Mr. SHULMAN. No, no, no. I am just talking about the number 

range. 

Mr. COFFMAN. When do you think you will have the costs down 

and be able to project out the cost for the implementation as well 

as the number of personnel? 

Mr. SHULMAN. I think we will be able to know the costs for the 

next year and a half provisions through fiscal year 2011 pretty 

soon. I think the rest really depends on design, a bunch of choices 

that are made, how these exchanges get set up, et cetera, because 

again, a lot of us, it is just flowing money and doing interchange 

on the money provisions, not on the health provisions, with the exchanges. So I really don’t have a date for you exactly when. 

Mr. COFFMAN. Okay. But the exchanges are not the enforcement? 

Mr. SHULMAN. But the exchange is you sign up at an exchange 

and you get your tax credit in exchange and it is based on tax data. 

So there is going to be a lot of information flow going back and 

forth. 

Mr. COFFMAN. Okay. Very well. Madam Chairman, I yield back 

the balance of my time. 

Chairwoman VELA ́ ZQUEZ. [presiding.] Mr. Graves. 

Mr. GRAVES. Thank you, Madam Chairwoman. Commissioner, 

could you walk me through? Obviously, we have been talking a lot 

about health care and what your role is going to be. But would you 

walk through with me what your role is going to be with the 

verification process, kind of clarify that? As far as verifying whether or not, a small business has complied with the mandate or is 

that going to be part of the collection process beyond that? 

Mr. SHULMAN. So let me give you as much as I can right now 

with me still getting up to speed on this because it is a new provision and it doesn’t go into effect for a while. One is with individuals 

who will be required to have adequate health insurance, the way 

that I think this is going to work is, first of all, I want to be 100 

percent clear, IRS is not going to be involved in any way in the 

sensitive health matters of individuals. I think HHS and insurance 

companies will work out what adequate coverage means. We will 

get a simple yes/no information return from the insurance company, the same information return—think of it like a 1099 will get 

sent to the individual which will say, attach this to your tax return 

and show that you had coverage or you are going to have to have 

a fee that you pay, and we will get that same thing that says, Yes, 

they had it or no, they didn’t. 

19 

So I think of it similar to a 1099 right now that we get for dividend income where we get information from a brokerage firm about 

your dividends and we go off of that information. So it will be information reporting and information matching. 

For employers, the shared responsibility provision, as I understand it, it is only for people who employ more than 50 employees. 

And if they don’t offer health insurance and an employee goes into 

an exchange and gets federally subsidized health insurance and 

gets a benefit and again, I think we will administer that like we 

administer anything else. People will pay in. If we see a lot of employees that are getting subsidized insurance from an employer 

and they haven’t self-reported that, that will trigger something. 

But we haven’t really worked through any of the compliance programs. 

Mr. GRAVES. Do you foresee problems with if an individual 

doesn’t attach their verification or says that they have got their 

health insurance, goes ahead and sends in their return, goes 

through the process? Are still going to have to go ahead and charge 

them the penalty for not doing that or you will have to verify it 

someplace? That is going to be a horrendous issue trying to figure 

out how you are going to move forward. Because, there are going 

to be people out there who just aren’t going to attach that or aren’t 

going to comply or whatever the case may be. But is that burden 

going to fall on you completely to then make a phone call to—you 

don’t even know who the insurance company is, for that matter. 

Mr. SHULMAN. We will get an information return from the insurance company and we match that against the return of the individual. I don’t even know that they will need to attach it because 

we will have the information, and they will get a letter. And we 

have automated programs right now where if you don’t report your 

interest from your bank but we get information from your bank 

that you had interest you will get a letter. Or we can make an adjustment on your return, and so I think it will work very much like 

that. I think of this like other tax provisions that we administer. 

Mr. GRAVES. Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Commissioner Shulman, the new uncertainty tax position reporting will apply to business taxpayers 

with assets in excess of $10 million. Was it even considered that 

there are numerous small businesses that have equipment, land 

and inventory that might push them above this threshold and will 

face increased reporting compliance costs? 

Mr. SHULMAN. Yes. So that is our standard number where we 

put people into large business. There is no specific definition of 

large or small business, but the 10 million cutoff is what we use 

for electronic filing, it is what we use. It gets you out of our small 

business division into our large business division. It is $10 million 

and having audited financials so audited financials that are audited under the standard where you have to take a reserve for uncertain tax positions. And so this proposal which is an important 

one of ours is looking at basically getting a list of where people 

think that they have uncertain tax positions. We are in the notice 

and comment period and we ask specifically about the $10 million 

asset question and ask is that the right threshold. 

20 

Chairwoman VELA ́ ZQUEZ. Would the IRS consider raising the $10 

million threshold? 

Mr. SHULMAN. We haven’t seen the comments yet, when we are 

in comment period and ask for specific questions, absolutely. I 

mean, we would consider anything depending on the comments and 

the persuasiveness of them. 

Chairwoman VELA ́ ZQUEZ. Commissioner, many CPAs work as apprentices before taking the CPA exam, performing most of their returns and then having a manager review it. Likewise, many law 

graduates or financial planners begin work while waiting to hear 

the results of their licensing exams. Because they are not licensed 

they will likely have to complete education training and testing 

processes increasing cost for small CPA firms and other tax professionals. 

Has the IRS considered any way to differentiate for exemption 

purposes between professionals with advanced training from other 

licensed preparers with little, if any, advanced tax education? 

Mr. SHULMAN. Frankly, no one has brought this specific issue 

about a apprentices to my attention. What we are trying to do is 

make sure that a lot of our licensing and registration focus was on 

people who are really filling out the tax return, really doing the 

work, that the people that American people think are providing 

them service and then they ship it off, someone else’s name is on 

it and those people disappear. A lot of it has been focused on low 

income communities where people run these EITC mills. 

Chairwoman VELA ́ ZQUEZ. Yes. 

Mr. SHULMAN. And people aren’t qualified to do the work. We exempted CPAs, attorneys, enrolled agents out of this requirement 

because they already have a professional credential. We certainly, 

as we move into this, are going to have to have a bunch of discussions about this exact kind of example and make sure that it 

makes sense. My main goal is the people who are interfacing with 

the American taxpayers are qualified and provide good service. And 

so if there is protections built in other ways, we certainly would 

look at that. 

Chairwoman VELA ́ ZQUEZ. Very good. 

Commissioner, the deadline for the home buyers tax credit will 

occur in a few weeks. Based on 2009 returns, do you have data on 

the number of and type of individuals who have claimed a credit? 

And are you able to determine if the credit boosted home sales? 

Mr. SHULMAN. I think generally people think the credit boosted 

home sales and helped at least stabilize the housing market from 

its dramatic decline that was going on a year ago when it was put 

in place. We don’t have that data parsed right now. We are trying 

to keep up and make sure we process credits and get refunds out 

quickly. And so we usually do an after-the-fact analysis to see 

where it is, we would be happy to work with your staff. 

Chairwoman VELA ́ ZQUEZ. At this point, you don’t have any data 

on the number of and type of individuals who claimed the credit? 

Mr. SHULMAN. I don’t have it off the top of my head. We might 

have some more that we can get to you. 

Chairwoman VELA ́ ZQUEZ. Ranking member, do you have any 

other questions? Mr. Schrader? If not I ask unanimous consent that 

members will have 5 days to submit a statement in supporting maVerDate Aug 31 2005 15:12 May 07, 2010 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\55997.TXT DARIEN
21 

terials for the record. Without objection so ordered. This hearing is 

now adjourned. Thank you. 

[Whereupon, at 3:14 p.m., the committee was adjourned.] 

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