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74–455 PDF 2011

PROBLEMS AT THE INTERNAL REVENUE SERVICE: 

CLOSING THE TAX GAP AND PREVENTING 

IDENTITY THEFT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, 

EFFICIENCY AND FINANCIAL MANAGEMENT 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

APRIL 19, 2012 

Serial No. 112–142 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

DAN BURTON, Indiana 

JOHN L. MICA, Florida 

TODD RUSSELL PLATTS, Pennsylvania 

MICHAEL R. TURNER, Ohio 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

CONNIE MACK, Florida 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

ANN MARIE BUERKLE, New York 

PAUL A. GOSAR, Arizona 

RAU ́ L R. LABRADOR, Idaho 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

JOE WALSH, Illinois 

TREY GOWDY, South Carolina 

DENNIS A. ROSS, Florida 

FRANK C. GUINTA, New Hampshire 

BLAKE FARENTHOLD, Texas 

MIKE KELLY, Pennsylvania 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

EDOLPHUS TOWNS, New York 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

DENNIS J. KUCINICH, Ohio 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

MIKE QUIGLEY, Illinois 

DANNY K. DAVIS, Illinois 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

JOHN A. YARMUTH, Kentucky 

CHRISTOPHER S. MURPHY, Connecticut 

JACKIE SPEIER, California 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

ROBERT BORDEN, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, EFFICIENCY AND FINANCIAL

MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman 

CONNIE MACK, Florida, Vice Chairman 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

FRANK C. GUINTA, New Hampshire 

BLAKE FARENTHOLD, Texas 

EDOLPHUS TOWNS, New York, Ranking 

Minority Member 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

ELEANOR HOLMES NORTON, District of 

Columbia 

(III) 

C O N T E N T S 

Page 

Hearing held on April 19, 2012 .............................................................................. 1 

WITNESSES 

Mr. Steven T. Miller, Deputy Commissioner for Services and Enforcement, 

Internal Revenue Service 

Oral Statement .......................................................................................... 4 

Written Statement .................................................................................... 7 

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

Oral Statement .......................................................................................... 18 

Written statement ..................................................................................... 20 

The Honorable J. Russell George, Treasury Inspector General for Tax Administration 

Oral Statement .......................................................................................... 42 

Written Statement .................................................................................... 44 

Mr. James R. White, Director, Stategic Issues, U.S. Government Accountability Office 

Oral Statement .......................................................................................... 69 

Written Statement .................................................................................... 71 

APPENDIX 

The Honorable Edolphus Towns, Ranking Member, A Member of Congress 

from the State of New York: Opening Statement ............................................. 110 

Appendix I: 2006 Tax Gap estimate data and methodology ................................ 112 

The Honorable Gerald E. Connolly, A Member of Congress from the State 

of Virginia: Written Statement ........................................................................... 113 

(1) 

PROBLEMS AT THE INTERNAL REVENUE 

SERVICE: CLOSING THE TAX GAP AND PREVENTING IDENTITY THEFT 

THURSDAY, APRIL 19, 2012, 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, 

EFFICIENCY AND FINANCIAL MANAGEMENT, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:007 a.m. in 

room 2154, Rayburn House Office Building, the Honorable Todd 

Russell Platts [chairman of the subcommittee], presiding. 

Present: Representatives Platts, Towns and Connolly. 

Staff Present: Michael R. Bebeau, Majority Assistant Clerk; 

Adam P. Fromm, Majority Director of Member Services and Committee Operations; Mark D. Marin, Majority Director of Oversight; 

Tegan Millspaw, Majority Research Analyst; Staff Member; Jaron 

Bourke, Minority Director of Administration; Beverly Britton Fraser, Minority Counsel; Devon Hill, Minority Staff Assistant; Jennifer Hoffman, Minority Press Secretary. 

Mr. PLATTS. Today’s hearing of the Subcommittee on Government Organization, Efficiency and Financial Management will 

come to order. 

I certainly thank everyone for being here today, both witnesses 

and guests, and my Ranking Member, Mr. Towns from New York. 

Our hearing today focuses on two key issues at the Internal Revenue Service. First, our hearing will address the tax gap between 

what people owe in Federal taxes and what the IRS ultimately collects. Second, the hearing will review the increasing problem of 

identity theft related to tax fraud. 

Federal taxes make up about 96 percent of the Government’s 

total revenues each year. Because of this, it is very important that 

the IRS is able to effectively collect taxes and enforce Federal policy. The majority of Americans pay their taxes voluntarily and on 

time. But every year, there is a gap between the amount of Federal 

taxes owed and the amount the IRS collects. 

Earlier this year, the IRS released its most recent analysis on 

the tax gap using data from the 2006 tax year. That data shows 

a $450 billion gap between taxes owed and taxes voluntarily paid. 

IRS recovered approximately $65 billion of this amount, making 

the net tax gap $385 billion. 

According to the National Taxpayer Advocate, the average household must pay approximately $3,400 or more for the Government 

2 

to raise the same revenue it would have collected if everyone paid 

their taxes in full. 

There are many causes of the tax gap, including intentional 

under-reporting, failing to file taxes or math errors on those taxes 

that are filed. Because of this, we need a multi-faceted approach 

to achieve an effective and appropriate response, and to close the 

tax gap. Using third party information to verify tax returns could 

increase voluntary compliance. The Treasury Department has recommended increasing penalties for people who purposely do not 

comply with Federal tax law, especially egregiously, and maybe 

more so, repeatedly failing to comply. 

Simplifying the Federal tax code could also help by making it 

easier to file taxes and reducing the opportunity to commit willful 

tax evasion. We will hear more from our witness today about solutions on how to close the tax gap and better serve all of our taxpayers. 

This hearing will also address identity theft-related tax fraud. 

Identity theft affects thousands, as we are learning more and more, 

hundreds of thousands of taxpayers each year, and has a significant impact on its victims. Identity thieves often steal personal information from taxpayers, including names, social security numbers and addresses. With this information, the thieves can file 

fraudulent tax returns with the IRS and receive the refunds that 

are owed to the legitimate taxpayer. Victims may not even know 

they have had their identity and tax returns stolen until they go 

to file their own returns and the IRS notifies them that somebody 

has already fraudulently filed on their behalf. 

It can often take months for IRS to resolve these cases and issue 

refunds to the legitimate taxpayer, the victim of the crime. Identity 

theft-related tax fraud is a serious and rapidly growing problem 

that has been the focus of two prior hearings of this Subcommittee. 

While significant work is being done to address this problem, and 

I certainly commend the IRS for their efforts, we must do more to 

protect taxpayers from criminals who steal their identities and 

their refunds and do harm to not just that individual victim, but 

also to America and the hard-earned tax dollars of lawful citizens. 

Just this week, authorities reported that a man working for a 

health care non-profit stole the identities of more than 50 brain injured patients to steal funds from the American people through 

fraudulent returns. The American people deserve a government 

that protects the taxes they pay and fairly and equitably enforces 

the law. We need solutions to ensure that honest taxpayers are not 

unduly burdened because others do not pay their share. We must 

also work to reduce identity theft and prevent it before payments 

are issued to criminals. 

Today we are joined by four experts regarding these issues, who 

have extensive knowledge about the problems that exist within the 

Federal tax systems. I look froward to the testimony of our witnesses and to continuing to work with each of them and all our 

partners, including here within the Subcommittee, to better prevent tax fraud and fairly administer the tax code. 

With that, I yield to the previous chairman of the full Committee 

and the Ranking Member of the Subcommittee, and previous chairVerDate Aug 31 2005 10:57 Jun 20, 2012 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\74455.TXT APRIL
3 

man of the Subcommittee, my good friend and colleague from New 

York, Mr. Towns, for the purpose of an opening statement. 

Mr. TOWNS. Thank you very much, Mr. Chairman. Let me thank 

the witnesses as well. I think this is a very timely hearing. 

This is the third hearing in a series held by this Committee to 

examine how the IRS handles the growing problem of identity theft 

and tax fraud. As of March 3rd, 2012, the IRS had already identified over 440,000 tax returns with $2.7 billion claims in fraudulent 

refunds. Fortunately, IRS screening prevented 97 percent of those 

fraudulent claims from being paid. 

Today the IRS is doing a better job of protecting the taxpayer 

and the Treasury from criminals than ever before, and we salute 

you for that. But more is required of us to stay ahead of the criminals and to help the victims. One of the first priorities we must address is the quality of assistance given to taxpayers victimized by 

employment or tax refund fraud. The Inspector General does not 

paint a pretty picture of how the IRS will be able to handle this 

problem going forward. 

It seems as if taxpayers will have fewer walk-in help centers, 

with shorter business hours, and longer hold time on the phone 

with IRS agents. Budget cuts are the primary reason, but I hope 

we can find alternate solutions to these issues. 

Today we will also focus on the $450 billion tax gap. This tax gap 

equals nearly 20 percent of our forecasted deficit for this fiscal 

year. We simply cannot afford to look the other way and just not 

do anything. 

Part of the tax gap is a result of tax cheats who simply refuse 

to comply with the law, which increases burden on the rest of us. 

But a portion is due to taxpayers’ confusion and unintentional errors as well. I am sure that we can all agree that the tax code is 

extremely complex. This complexity makes it hard for taxpayers 

who honestly want to pay their taxes to figure out what they actually owe. And as a result, they can accidentally overpay or underpay. 

We must do more to understand the sources of the tax gap and 

compliance burdens, so we can make progress in uncovering new, 

creative solutions. We cannot close the tax gap by enforcement 

against the average American who is doing their best to comply 

with the tax laws. We all have to share the burden and do more. 

And let us work to reform our tax code in a way that will help us 

collect more of the taxes that are owed but not paid. And let us 

continue our work to make the tax code more fair and simple. In 

order to do that, we must work together. 

I thank our witnesses today, Inspector General Miller, Mr. 

White, Ms. Olson, for your appearance here today, Mr. George, I 

thank all of you for being here. I look forward to the testimony 

with great anticipation. We need to make certain that people are 

protected, and that is our obligation and responsibility to do it. I 

think that working together, we can do a lot better than what we 

are doing. This is not a Committee here to blame you and you 

blame us, this is a Committee to come up with some solutions. 

Thank you so much, Mr. Chairman. 

Mr. PLATTS. I thank the gentleman and would echo your final 

comment there as well, that we are about working with you and 

4 

all to solve problems, not to pay gotcha. And all the more, we appreciate our witnesses being here with us today. 

We will keep the record open for seven days for any additional 

statements or extraneous materials to be submitted for the record. 

We are now glad to move to our witnesses and we are honored 

to have four very dedicated public servants who day in and day out 

seek to serve the American people with great distinction and honor, 

and who bring great expertise to the benefit of the Subcommittee 

today. So we thank each of you for being here. 

We are honored to have Mr. Steven Miller, Deputy Commissioner 

of Service and Enforcement at the Internal Revenue Service, Ms. 

Nina Olson, National Taxpayer Advocate, the Honorable J. Russell 

George, Treasury Inspector General for Tax Administration, and 

Mr. James White, Director of Strategic Issues at the United States 

Government Accountability Office. 

Again, we thank each of you for being here. We have had a 

chance to review your written testimony and appreciate your submitting that ahead of time. That allows me to go through, and I 

am famous for my blue marker and making notes in things I want 

to try to get to in the time we will have. But we do appreciate having that in advance and welcome your testimony today. If we can 

try to stay to about the five-minute window, and hopefully that will 

allow us again to go through all of your opening statements before 

running to the Floor for votes and then coming back for questions. 

Commissioner Miller, if you would like to begin. I apologize, if I 

could ask all four of you to stand. Pursuant to our Committee 

rules, I need to swear you in. If you could stand and raise your 

right hand. 

Do you solemnly swear or affirm that the testimony you are 

about to give this Committee will be the truth, the whole truth and 

nothing but the truth? 

[Witnesses respond in the affirmative.] 

Mr. PLATTS. Thank you, you may be seated. Let the record reflect 

that all four witnesses affirmed the oath. 

We will now begin with Commissioner Miller. You are recognized. 

STATEMENTS OF WITNESSES 

STATEMENT OF STEVEN T. MILLER 

Mr. MILLER. Chairman Platts, Ranking Member Towns, my 

name is Steve Miller, as you have mentioned, Deputy Commissioner of the Internal Revenue Service. I appreciate the opportunity 

to testify on the tax gap today and also to update the Subcommittee on our identity theft work this filing season. 

The tax gap is the difference between the amount of tax owed by 

taxpayers for a given year and the amount that is paid voluntarily 

and on time. The amount includes the complete spectrum of behavior from confusion to fraud. The tax gap analysis itself is best seen 

as a directional tool to provide insights into areas where non-compliance exists and the means by which we can impact compliance. 

As better explained in my written testimony, our work shows 

that compliance is most prevalent where there is withholding and/ 

or third party reporting. 

5 

The IRS recently received an updated tax gap study covering the 

tax year 2006, which shows that the Nation’s compliance rate for 

that year is a little over 83 percent. This is essentially unchanged 

from the last review covering tax year 2001. The report also 

showed that the net tax gap in dollars for 2006 was $385 billion. 

The tax gap is comprised of three components: under-reporting, 

non-filing and under-payment, of which under-reporting is by far 

the largest. As indicated, the largest parts of the under-reporting 

category are where there is little withholding or third party reporting. 

In our view, any discussion on how to reduce the tax gap must 

consider three guiding principles. First, both unintentional taxpayer error and intentional taxpayer evasion must be addressed. 

Thus, both enforcement and service are necessary. 

Second, different sources of non-compliance require different approaches. And third, any major attempt to address the tax gap by 

legislation, regulation or through increased enforcement must be 

considered within a context that fully recognizes taxpayer burden 

and taxpayer rights. 

In keeping with these principles, our strategy involves not only 

increasing enforcement activities but also educating taxpayers 

about their tax obligations, improving customer service in order to 

make it easier for individuals and businesses to get the help they 

need to meet their filing requirements, reducing opportunities for 

tax evasion, expanding compliance research and improving information technology. 

With respect to enforcement, the IRS is making significant headway in increasing tax compliance. Over the last decade, tax collections have gone up significantly and audit rates have risen. But 

some of these gains are deteriorating as our budget atrophies. 

Thus, we would ask for your support for our 2013 budget. We believe the best way to impact the tax gap is through a combination 

of responsible discussions on legislative change and responsible investments in the IRS. 

Turning now to identity theft. In November I testified before the 

Subcommittee and described our ongoing work. In my written testimony today I provided an update on IRS actions. What you will see 

is that we have implemented the many initiatives we outlined in 

November. 

As before, our approach is two-pronged. First, we need to stop 

false refunds before they get out. Second, we need to help those 

who have been victimized. We are in fact stopping much more refund fraud generally and identity theft specifically. We have put 

various new identity theft screening filters in place to improve our 

ability to spot false returns before they are processed and before a 

refund is issued. The numbers are in my testimony and I am obviously more than willing to discuss any questions that you have in 

a particular area. 

On our work with victims, we have trained 35,000 of our employees to recognize and be sensitive to identity theft. We have also expanded a program for identity protection personal identification 

numbers, or IP PINS. For the 2012 filing season, we issued IP 

PINS to over 250,000 i.d. theft victims, which will allow unfettered 

filing for 2012 for those individuals. We continue to increase staffVerDate Aug 31 2005 10:57 Jun 20, 2012 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\74455.TXT APRIL
6 

ing to assist identity theft victims and we are revising and streamlining our process to determine who the real taxpayer is when duplicate filings occur. 

Again, I will say that we are not done, but we have made real 

progress in the area. 

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

more than happy to answer any questions. 

[Prepared statement of Mr. Miller follows:] 

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Mr. PLATTS. Thank you, Commissioner Miller. 

Ms. Olson? 

STATEMENT OF NINA OLSON 

Ms. OLSON. Chairman Platts, Ranking Member Towns and members of the Subcommittee, thank you for inviting me to testify 

today about the subjects of the tax gap and tax-related identity 

theft. Both of these issues present challenges to tax administration. 

Regarding the tax gap, the IRS recently released an updated net tax gap estimate of $385 billion in 2006. And the size of this estimate has understandably attracted considerable attention. 

There are many causes of non-compliance, including difficulty 

understanding and complying with the law, inability to pay due to 

financial hardships, and deliberate understatements of tax. I believe the complexity of the tax code is responsible for a considerable 

portion of non-compliance, and I have repeatedly recommended in 

my reports to Congress that you all simplify the code. 

While you are working on that, and I am ever the optimist in 

that regard, that there are other steps that can be taken. First, the 

IRS should be given the resources to substantially improve its taxpayer services. The percentage of calls the IRS answers, known as 

the level of service, has been declining in recent years. For the year 

to date, about one out of every three calls seeking to reach an IRS 

representative hasn’t gotten through. When taxpayers have managed to get through, taxpayers have waited an average of about 14 

minutes on hold. 

The IRS is also behind in timely processing taxpayer correspondence, with the percentage of letters classified as over age at nearly 

half of all correspondence by the end of fiscal year 2011. There is 

no doubt in my mind but that some taxpayers give up in frustration or in anger when the find nobody is home and simply don’t file 

or pay. This state of affairs may cause the tax gap to increase by 

converting formerly compliant taxpayers into non-compliant ones, 

simply because the IRS doesn’t timely pick up the phone or look 

at its mail. 

Second, while the IRS will never be the Government’s most popular agency, I believe its funding levels should be substantially increased. Overall, the IRS is an extraordinary investment. On a 

budget of $12.1 billion, it collected $2.4 trillion in tax revenue last 

year, bringing in about $200 for every dollar invested. Yet the Congressional budget rules generally require that the IRS be funded 

like all other spending programs, with no direct credit given for the 

funds the IRS brings in. That makes little sense. 

In my view, simplifying the tax code, improving taxpayer service 

and giving the IRS sufficient funds to expand its enforcement programs in the proper way would go a long way toward maximizing 

the tax compliance. 

Regarding tax-related identity theft, the IRS has made significant progress in this area in recent years, including adopting many 

of my office’s recommendations. Notwithstanding these efforts, it is 

clear that combating identity theft continues to pose significant 

challenges for the IRS. 

Three points deserve particular emphasis. First, the IRS should 

continue to work with the Social Security Administration to restrict 

19 

public access to the Death Master File. Second, I am aware that 

some State and local law enforcement agencies would like access to 

taxpayer return information to help combat identity theft. I have 

significant concerns about loosening taxpayer privacy protections 

and believe this is an area where we need to tread carefully. 

But as I describe in my written statement, the IRS is developing 

a procedure that would enable taxpayers to consent to the release 

of their returns in appropriate circumstances. In my view, giving 

taxpayers a choice strikes the appropriate balance. 

Lastly, I note that even as the IRS is being urged to do much 

more to combat identity theft, taxpayers are clamoring for the IRS 

to process returns and issue refunds more quickly. While there is 

still room for the IRS to make improvements in both areas, the two 

goals are fundamentally at odds. If our overriding goal is to process 

tax returns and deliver tax refunds as quickly as possible for the 

vast majority of persons who file legitimate tax returns, it is inevitable that some identity thieves will get away with refund fraud 

and some honest taxpayers will be harmed. 

On the other hand, if we decide to place a greater value on protecting taxpayers against identity theft and the Treasury against 

fraudulent refund claims, the IRS will need more time to review returns and the roughly 110 million taxpayers who receive refunds 

will have to wait longer to get them, perhaps considerably longer. 

Alternatively, the IRS will require a considerably larger staff to 

enable it to review questionable returns more quickly. There is no 

way around these tradeoffs. 

I appreciate the opportunity to testify today and would be happy 

to answer your questions. 

[Prepared statement of Ms. Olson follows:] 

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Mr. PLATTS. Thank you, Ms. Olson. 

Inspector General George? 

STATEMENT OF J. RUSSELL GEORGE 

Mr. GEORGE. Thank you, Chairman Platts, Ranking Member 

Towns, Mr. Connolly. Thank you for the opportunity to testify on 

the tax gap and the efforts by the Internal Revenue Service to enforce compliance with the tax code. 

My comments will also address the growing risk of identity theft 

and tax fraud. In January 2012, the IRS released updated estimates of the tax gap for tax year 2006, which indicated that the 

Nation’s 83 percent voluntary compliance rate was essentially unchanged from prior estimates. The IRS estimated that the gross tax 

gap increased from $345 billion to $450 billion, as was indicated by 

Mr. Miller. 

My written statement includes a table that shows the comparison between the prior and current tax gap estimates. 

As also stated earlier, the IRS reports that the gross tax gap is comprised of three primary components, again, $376 billion in 

under-reporting of tax liabilities, $28 billion due to non-filing of tax 

returns, and $46 billion in under-payment of tax liabilities. The 

IRS reported that the growth in the tax gap from tax year 2001 to 

2006 was concentrated in the under-reporting and under-payment 

forms of non-compliance, which jointly account for more than nine 

out of ten tax gap dollars. 

The IRS also reported that the tax gap is caused by both unintentional taxpayer errors, whether due to tax law complexity, confusion or carelessness, and willful tax evasion, or cheating. 

The IRS needs to overcome institutional impediments to more effectively address the tax gap. These impediments refer to the established policies, practices, technologies or business requirements 

that add unintended costs or are no longer optimal, given today’s 

society. We at TIGTA believe the current institutional impediments 

the IRS faces can point the way to improved opportunities, namely, 

address incomplete compliance research, re-assess insufficient compliance strategies, determine how best to fix incomplete document 

matching programs, and find a way to handle the insufficient enforcement resources. 

Every year, more than one half of all taxpayers pay someone else 

to prepare their Federal tax returns. Third party reporting and 

transparency is crucial to high compliance among individual taxpayers. Business reporting associated with the buying and selling 

of securities was an area that needed third party reporting based 

on previous studies that showed low levels of compliance. The new 

merchant card reporting requirements were established in 2011. 

They provide third party reporting data on business receipts for the 

first time, making it much easier for the IRS to identify businesses 

that are either under-reporting receipts or not reporting at all. 

Globalization of the U.S. economy has been a major trend for 

many years. The scope and complexity of the international financial system creates significant enforcement challenges for the IRS. 

The IRS continues to be challenged by a lack of information reporting on many cross-border transactions. The mis-classification of 

millions of employees as independent contractors is a nationwide 

43 

problem that continues to grow and contribute to the $72 billion 

under-reporting employment tax gap. 

TIGTA identified more than 74,000 taxpayers who may have 

avoided paying approximately $26 million in Social Security and 

Medicare taxes in 2008. 

TIGTA has continued to assess the IRS’s efforts to identify and 

prevent identity theft. Unscrupulous individuals are stealing identities at an alarming rate for use of submitting tax returns with 

false income and withholding documents. For processing year 2011, 

the IRS reported that it had detected 940,000 tax returns involving 

identity theft and prevented the issuance of fraudulent tax refunds 

totaling $6.5 billion. The amount of fraudulent tax refunds the IRS 

detects and prevents is substantial. The IRS does not know how 

many identity thieves are filing fictitious tax returns and how 

much revenue is being lost, resulting from the issuance of fraudulent tax refunds. 

We have fond that the issuance of fraudulent tax refund based 

on false income documents goes beyond the amount detected and 

prevented by the IRS. An upcoming report will provide further 

data. 

Access to third party income and withholding information at the 

time tax returns are processed is the single most important tool the 

IRS could have to identify and prevent tax fraud. Chairman Platts, 

Ranking Member Towns, thank you for the opportunity to share 

my views. 

[Prepared statement of Mr. George follows:] 

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Mr. PLATTS. Thank you, Inspector General George. 

Mr. White? 

STATEMENT OF JAMES R. WHITE 

Mr. WHITE. Chairman Platts, Ranking Member Towns and members of the Subcommittee, I am pleased to be here to discuss the 

tax gap, i.d. theft-based fraud and how to reduce them. 

The gross tax summarized on pages 4 and 5 of my statement, as 

you have heard, was recently estimated by the IRS to be $450 billion for tax year 2006. This is the amount the taxpayers should 

have paid but did not pay on time. Note that this is the amount 

unpaid for just one year. 

Of this, the IRS estimates, as you have heard, that it will ultimately collect $65 billion from its enforcement actions and from 

late payments by taxpayers, leaving a net gap of $385 billion. One 

piece of context is that the tax gap has persisted at about the same 

level as a percent of total tax liability for decades, this despite a 

myriad of Congressional and IRS efforts to reduce it. 

Key for thinking about how to reduce the tax gap is understanding its nature. The tax gap is spread across various types of 

taxes, taxpayers and taxpayer behavior. Most of the tax gap is for 

the individual income tax. But the corporate income tax and employment tax are also significant contributors. Much of the tax gap 

is due to misreporting of business income, even for the individual 

income tax. But non-business income also contributes. 

Even for a certain category of taxpayer, there is a variety of 

misreporting behavior. For example, in a recent report, we found 

that sole proprietors misreport both their receipts and their expenses, and some of each is unintentional, while some is intentional. 

At one level, as you have heard, the cause of the tax gap is easy 

to understand. Income subject to withholding and/or information 

reporting to IRS by third parties, such as employers or banks, has 

low misreporting. Only about 1 percent of wage income withholding 

is misreported. On the other hand, 56 percent of rent, royalty and 

sole proprietor income, with little or no information reporting, is 

misreported. 

There are opportunities to reduce the tax gap. But because of the 

variety of non-compliance, multiple approaches will be needed. No 

single approach is likely to fully and cost effectively address the tax 

gap. 

Opportunities include more third party information reporting. 

Third party reports to IRS about a taxpayer’s income allow IRS to 

easily verify through computer matching and without an audit that 

the taxpayer’s return is accurate. As I already noted, compliance is 

high when income is reported by third parties, such as employers 

or banks. The challenge with increasing third party reporting is 

identifying new third parties. They must have knowledge of taxpayers’ income or expenses and have tolerable reporting costs. 

Also, IRS must be able to enforce the reporting requirements. So, 

for example, a small number of reporting entities, like banks, can 

be an advantage. The problem is that most third parties that meet 

these requirements are already required to report. 

70 

Another opportunity is improving service to taxpayers. Service 

has declined. For example, wait time to get through to an IRS telephone assister has been around 16 minutes this year. The model 

of human assisters responding to taxpayers may not be sustainable 

given its high cost. Different strategies for answering taxpayer 

questions, such as on the IRS website, or through paid tax preparers or tax preparation software, will be needed. 

Another opportunity is additional resources. With tight budgets, 

if IRS’s efforts to innovate don’t keep up with workload growth, 

then the risk is that enforcement, and with it voluntary compliance, will go down. That could snowball. If taxpayers lose faith in 

the fairness of the system, they could become less willing to comply 

themselves. 

Another opportunity is increasing pre-refund compliance checks. 

Doing more computerized checks before refunds are issued could 

reduce improper payments and might also limit refund fraud based 

on i.d. theft. Leveraging external resources. Such resources include 

paid preparers, tax software companies and whistleblowers. We 

have made recommendations to help IRS leverage all three to reduce the tax gap. 

Modernized information systems. Such systems can route phone 

calls to help taxpayers get the answers they need and support 

IRS’s enforcement staff with timely access to data. 

Simplifying the tax code, which has also been discussed. Simplification can make it easier for taxpayers who want to comply do 

so successfully, and make it harder for those intentionally trying 

to evade their tax obligations to hide from IRS. 

In closing, I want to highlight the value of research on the nature and causes of the tax gap. Such research is costly, but without 

it, Congress and IRS are left struggling to reduce the tax gap without a fact-based understanding of its causes. 

Mr. Chairman, this concludes my statement. I would be happy 

to answer any questions. 

[Prepared statement of Mr. White follows:] 

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Mr. PLATTS. Thank you, Mr. White, and again, I thank all four 

of you. 

Perfect timing, clock is at zero on the Floor, so I am going to run 

over. Mr. Towns, Mr. Connolly and I will return very quickly, as 

soon as the vote is concluded. And then we will get into questions 

with you. I appreciate your testimony. 

This hearing stands in recess until the call of the Chair. 

[Recess.] 

Mr. PLATTS. The hearing will come to order. 

I appreciate everyone’s patience while we concluded Floor votes. 

We will move right into questions, and I will yield myself five minutes to begin. 

Certainly the numbers are pretty staggering when you think of a tax cap of almost $400 billion, even after netting some recovery 

of taxes that were not properly paid. When we talk about taxpayer 

identity theft, fraud, the fact that we have hundreds of thousands 

of Americans being victimized and again, billions of dollars at risk. 

So the issues that we are trying to address today are real issues 

that are about real money for the American people, and about trying to protect American people as well, that they are not paying 

$3,400 of somebody else’s tax bill, or they are not being victimized 

by criminals. 

Starting with the area of the tax gap, Commissioner Miller, I 

guess kind of a structural question or framework, the data we are 

looking at, it is 2006 data, we are in 2012. Prior to that it was 

2001, five years back before we had similar data. One, is there a 

plan that, this year you are going to update it again, five years, 

now six years, to update the data about the tax gap? And what is 

the difficulty in having it be more current? Having six-year old 

data certainly is helpful, but it wouldn’t be as helpful as if it was 

one-year old or two-year old data. 

Mr. MILLER. I think that is right, Mr. Chairman. The process has 

been to do examinations. So for example, if we were to do 2011 

year, those returns are now coming in. It would be a while before 

we do our statistical sample. And using 1040s as an example, we 

are doing 14,000 research audits per year to try to update this. So 

it is a continuing path we are on. 

It will be a while, it will be a few years, before we complete those 

audits, before we are able to roll up the information with respect 

to those audits. Two thousand and six is a long time ago, but I am 

not sure how much better we would be able to get. I think we will 

have an easier time going forward than we had in 2001. We did 

a better job in 2006, we had better data, better estimating models. 

And we will get more current. But I don’t think we will ever be, 

the 2011 gap is, as we said, in 2012. 

Mr. PLATTS. And I certainly don’t expect that in 2012 we could 

look and say, in 2011, this was what the tax cap was. But it is, 

the fact that it is six-year old data that we are still using, especially with technology and I guess what concerns me a little bit is 

that we are still doing audits and haven’t really completed and 

compiled the information from audits from 2006, well, 2007, 2008, 

so four year back, five years back that we still have that. 

Because I think that is one of the issues that I think the Inspector General raises in the ability to use the data we have. And 

90 

whether it deals with identity theft, whether it deals with the tax 

gap is that, I understand that it costs money. But if we do it well 

and then act on what we learn it will save money in the long run 

by helping us to close that tax gap in this case. 

So that is a concern that jumps out, is that we are relying on 

six-year old data and the need to make that more current so we 

can be more effective in how we can respond to whatever that data 

tells us. 

Ms. OLSON. Mr. Chairman, if I may add, jump in here. I do think 

that the IRS is doing a rolling research study. So they are going 

to be doing three years rolled up at a time. So you would be able, 

even though you may be a bit behind, when 2006 is done, you 

would do 2007, 2008 and 2009 rolled together. And then you just 

move one year on as you go along. 

And to the point about how long it really does take, if you have 

even 2006, some people are filing in October 15th and you may 

want those people in your random sample, because they may be 

some complex returns. So you are waiting for those to go through 

the processing. And then taxpayers have rights. So even those 

14,000 audits that we have, they may want to go to appeals before 

they go to tax court. If they go to tax court, it may take a year and 

a half before they are out of tax court. And we have to wait until 

we are final on the whole issue. We don’t know what is going to 

be in that 14,000 case sample, whether there are going to be some 

tax court ones or not. 

So it is not an easy thing. But I do think that the IRS’s proposal 

about the rolling sample really will work, that will give us, even 

though we will have some years of lag, it will give us good data 

going forward. 

Mr. PLATTS. I certainly appreciate that some of these cases are 

going to be very complex, especially those that go into tax court. 

But again, we don’t need the data from all 14,000 to be able to assess what is working or not. If we lost 4,000, we had 10,000 to look 

at. But it is three-year old data instead of six-year old data, that 

certainly would be more beneficial. 

Inspector George? 

Mr. GEORGE. I was just going to add, sir, that there are certain 

segments of the tax gap that the IRS just really hasn’t adequately 

addressed, too. For example, the international tax gap. Our office 

estimates that is in the hundreds of billions of dollars, again, per 

year, that is due to the American taxpayer, the Treasury, and isn’t 

being paid on time, if at all. 

So again, it is an enormous task, as was pointed out, that does 

need additional resources. But it is something that needs to be addressed. 

Mr. PLATTS. Commissioner Miller, do you want to comment on 

that? I know that is an area where we have, in my understanding, 

the most limited information regarding what efforts are. Again, I 

realize this is an issue of resources. I am not an appropriator, although I want to look at how we can try to make the case, and the 

Taxpayer Advocate well documents the return on investment if we 

invest in taxpayer services and what a dramatic return on investment that is compared to enforcement and how we can help to promote what your needs are. 

91 

But when we hear hundreds of billions of dollars that maybe we 

are not getting in that one category, how can we do better? 

Mr. MILLER. On the international tax gap, I am not familiar with 

the Inspector General’s numbers, to be honest with you. So I am 

not going to speak directly on that. 

On international, I can say two things. Really, you are not looking at a single number, you are looking at different components. 

You are looking at what is cross-border activity of large corporations, and that is one set of documentation that we would look at. 

And we are doing operational audits there, and we do look at that. 

That is our window into that world. 

The other world is offshore accounts, which as you may be aware, 

we have done a remarkably good job in. We have 33,000 people 

that have come into us in the last two years, three years, with over 

$4.4 billion of declared money coming into the Treasury as we go 

out and attack bank secrecy jurisdictions. 

Do we know the total number? Do we know the full pie in either 

case? Probably not. But we are on our way doing good things in 

both areas. 

Mr. PLATTS. I don’t want to suggest that we are not moving in 

the right direction, but I think to the American people that are 

paying their taxes and doing their best to pay, whether it is $5,000 

or $3,000 or $10,000, and then when they see numbers that are, 

if it was even tens of billions, but it is hundreds of billions that is 

not being paid, that we need to do a better job, out of fairness to 

those who are complying with the law and paying their fair share. 

One other question before yielding to the Ranking Member. One 

of the issues, Ms. Olson, you talked about, is in the current system, 

we use an electronic system of collection, especially for the withholding of income taxes and employment taxes. And we have a 

mandatory 94 percent requirement for IRS in using electronic collection. Can you expand on that. The way I understood it is, your 

suggestion and recommendation is, if we apply that same approach 

to estimated tax payments, it would not just help the taxpayer be 

more compliant but ultimately generate more collection if we took 

that approach? 

Ms. OLSON. With estimated, we were very successful once the 

IRS was given sort of a little nudge to say, achieve this goal in employment taxes, in getting electronic payments, which saves the 

whole government money, obviously, because you are not processing checks. But it also makes it easier for the taxpayer, after 

they get used to it. 

But we should apply that to estimated taxes. I think that in 

some areas, it is very hard for taxpayers to save up money to pay 

estimated taxes quarterly. So if they can pay it monthly like they 

pay other bills, and most, they pay lots of bills through their bank 

accounts, just setting up payments. And we don’t have a good interface. So I think that if we could get some kind of a nudge from 

Congress that sets a goal, the IRS has always responded well with 

that and developed a strategy. Then we would get the different 

parts of Treasury together to make it a really good user interface 

for the taxpayer. 

92 

Mr. PLATTS. Is it kind of the same argument on making it clear 

that voluntary withholding agreements would achieve, in essence, 

that same goal? 

Ms. OLSON. Yes. And that proposal actually came from some 

trade associations that met with me that said, for example, the 

hair salons, they do have an employee like the receptionist. So they 

are already in the payroll tax system. And the people who cut hair 

really are independent contractors, they are renting booths from 

them. But they get in trouble, and then they move on, because they 

don’t pay their estimated taxes. 

So the hair salon was saying, if we could enter into an agreement 

where these are not our employees, because they are renting and 

everything, but we are already in the system, we will withhold a 

percentage and keep them in compliance, we will have these people 

stay with us and we won’t have so much upheaval. And when we 

worked with counsel, they have said that we don’t have the legal 

authority to enter into those agreements the way that particular 

code section is written. 

Mr. PLATTS. The IRS general counsel? 

Ms. OLSON. Yes, the IRS general counsel. 

Mr. PLATTS. They need additional statutory authority? 

Ms. OLSON. They need additional statutory authority. And so this 

really was a user-friendly, taxpayer-friendly proposal. 

Mr. PLATTS. Something that we are glad to look at as a committee and try to see if we can work to allow that. I think it sounds 

like a win-win for the person who has those independent contractors working in their facility. They don’t get the turnover, the independent contractor is more—— 

Ms. OLSON. And it is not mandatory. It is totally voluntary. 

Mr. PLATTS. Right, and ultimately the taxes that are owed are 

better collected. 

Ms. OLSON. Right. 

Mr. PLATTS. I yield to the Ranking Member, Mr. Towns, for the 

purpose of questions. 

Mr. TOWNS. Thank you very much, Mr. Chairman. 

Let me begin with you, General George. Your testimony indicates 

that the IRS has institutional impediments that prevents them 

from effectively addressing the tax gap. And of course, you mention 

specifically that even when the IRS examines a tax return that 

needs improvement, often there is no change made to the return. 

And this increases the burden on compliant taxpayers. 

Could you just elaborate on this just a little bit more? 

Mr. GEORGE. Certainly, Mr. Towns. 

The IRS, the bottom line is the IRS has incomplete compliance 

research. Specifically, the IRS does not know all the sources of noncompliance, so the IRS’s resources cannot be targeted appropriately. The research which is needed is on the relationship between the taxpayers’ burden and compliance and on the impact on 

customer service on voluntary compliance. 

These are various studies that they may have engaged in in the 

past, but we don’t believe they have done so adequately. Additional 

research is also needed to measure how establishing benchmarks 

and other measures to assess the effectiveness of some of the efVerDate Aug 31 2005 10:57 Jun 20, 2012 Jkt 000000 PO 00000 Frm 00096 Fmt 6633 Sfmt 6633 C:\DOCS\74455.TXT APRIL
93 

forts that IRS has engaged in in the past, whether something is 

working or isn’t working. 

So for example, we know for a fact that when they reach out to 

a taxpayer by letter, the initial contact normally results in a relatively high response from the taxpayer. That is, the taxpayer will 

either acknowledges that he or she owes the tax and pay it. Yet 

if the IRS delays reaching out to the taxpayer by, I don’t have the 

exact numbers yet, whether the number of weeks or number of 

days, we know that the response rate declines. 

So in a recent report, we encouraged the IRS to increase the frequency in which they communicate with taxpayers. The IRS, to my 

understanding, has declined to do so, again, citing resources. But 

that is just one example. 

Incomplete compliance strategies, the IRS’s systems that identify 

returns for examination need improvement to identify potentially 

non-compliant returns. The collection activity that extends for 

years has a lower rate of collection for delinquent liabilities. The 

IRS has something called the queue, which is a data base in which 

tax returns for people who owe taxes which aren’t handled by IRS 

revenue officers or any other method within the IRS literally are 

put in line. And that line contains millions of tax returns. 

Keep in mind, there is a statute of limitations on when someone 

has to comply with their tax obligations. So millions of dollars are 

potentially, and in reality, being lost because the IRS has not simply addressed these returns, had someone assigned to them to look 

at them. 

But one of the most disconcerting aspects of all of this is that the 

IRS has an incomplete document matching program. So the IRS 

does not have reliable third party data for taxpayers, for all taxpayer sectors, at least, and for all types of tax returns. Most notably, income earned by the self-employed. 

I carry this card with me and I cite this at every opportunity 

that I can, because this is information that comes from the IRS 

that is just very compelling. You heard earlier today, there is a 

very high correlation between tax compliance and third party reporting. The IRS estimates individuals whose wages are subject to 

withholding report 99 percent of their wages for tax purposes. Selfemployed individuals who operate non-farm businesses are estimated to report only 68 percent of their income for tax purposes. 

But the most striking number is self-employed individuals who 

operate businesses on a cash basis are estimated to report only 19 

percent of their income. So there is no question that if the IRS, and 

again, it would have to have authority from Congress in some of 

these instances, were able to mandate third party reporting, the 

levels of compliance would go up, astronomically, I would argue. 

Mr. TOWNS. Right. Mr. Chairman, I just need a minute to give 

Mr. Miller an opportunity to respond to some of that. Also Mr. 

White, very quickly. 

Mr. MILLER. Thank you, Mr. Towns. There is a whole batch that 

was wrapped into General George’s comment. A few things I would 

like to clarify. One, our national research program that comes up 

with the tax gap is also used on an annual basis to improve our 

filters. So it has a benefit to us to do these things to improve our 

selection process. Because we have a living process that filters back 

94 

in the results, so that we can target better our non-compliance. 

There is no doubt that we can improve, and we are improving on 

an annual basis. 

Other things I will mention, the queue in the collection area exists, no question about that. Cases go to the queue when they are 

lower priority than other cases. Other cases can be a high priority, 

one, because we think they are better dollar cases, or two, because 

we don’t have the resources to reach them at this point. 

We are doing a better job of selecting cases for collection. It is 

not first in first out, I do want to make that very clear. It is based 

on the attributes of the given case. 

Mr. TOWNS. Let me ask you this very quickly. I appreciate your 

generosity. Has anybody ever estimated or looked at the fact that 

you indicate you have 35,000 employees who detect identity theft. 

What would happen if you had 55,000 or 45,000? Would the resources increase? I am not sure that not having more staff is an 

economical way to go. 

Mr. MILLER. Mr. Towns, I would agree with you. I think that 

Nina has said, and others at this table have said, that we believe 

the IRS is a pretty good investment, in that we are in essence the 

people who bring in $2.4 trillion and in the 90 percent, upper 90 

percentile of every dollar that comes into the government on an annual basis. 

So I think that as we pull people, and we have pulled many people to work on identity theft, as we had to and as we should, that 

does impact other programs. 

Ms. OLSON. Sir, if I might comment on some of the earlier points 

from the Inspector General. The IRS does have a project right now 

that is looking into the impact of service on compliance. My office 

is working very closely with the Office of Research and with the 

Wage and Investment Division. We are doing a lot of surveys of 

taxpayers. It will be very interesting what we find out. And this 

is a constantly developing area. 

I have been very critical of the IRS’s collection strategy and their 

use of automation and their failure to just pick up the phone and 

talk to taxpayers. Because I think you can really get resolution. 

But the notice stream, where we send out notices to taxpayers 

early in the system, or in the process is very effective. But what 

that leaves us with are those taxpayers who aren’t going to willingly come forward. And they need maybe a little nudging. And it 

is how you do the nudging. 

The main point I want to talk about is the comment about our 

incomplete document matching. We have been given some significant tools with the merchant card reporting. But you all just repealed a provision that would have given the IRS more information 

about the purchases that businesses made. But the upshot, and we 

really criticized the provision, because it imposed so much burden 

on the businesses who are going to have to do the reporting. I 

think that is the tradeoff. 

And in the self-employed area, the way to get information reporting on the self-employed is to get the householder to report on the 

person who is cutting their grass every week. And you are not 

going to get that done. That is just not something we can impose 

on those taxpayers. 

95 

So that is why you have to do vigorous audits and look at areas 

of risk and then think of some alternative strategies. I am not convinced that information reporting is the end all, be all for this 

tough area that we have. 

Mr. TOWNS. Right. 

Mr. White, just before you answer or respond, also include in 

your response getting back to the third party reporting. Do you 

think the IRS is taking full advantage of third party reporting? 

And then whatever else you have to add, I would appreciate it. 

Mr. WHITE. Let me start with a quick example that highlights 

the importance of research. I want to follow up on Mr. Miller’s 

point there. 

The recently-enacted basis reporting requirements for financial 

transactions, financial securities, that policy proposal was based in 

significant part on research that was done using the compliance 

data that IRS develops to estimate the tax gap. So that is an example of how you can use that data to make changes to reduce the 

tax gap. It is estimated that the first seven years of that basis reporting proposal bring in $7 billion. That is a reduction in the tax 

gap. 

In terms of information reporting, third party information reporting, one of the advantages there, as I think has been discussed 

somewhat, is that IRS can match that information to tax returns 

rather than having to do an audit. Audits are labor-intensive, very 

costly for IRS. More importantly, they are very burdensome on taxpayers. So this is an alternative to audits for enforcement processes. 

The difficulty is in identifying new information reporting sources. 

There are some that we have raised in recent reports, some additional sources. One is payment for services. 

Mr. PLATTS. Mr. White, if I can ask you, Mr. Towns, if you don’t 

mind, Mr. Connolly needs to run for a Floor statement. IF we can 

kind of come back, let Mr. Connolly get in and then we are going 

to come back to those examples of additional sources. Is that okay? 

Mr. TOWNS. That is fine. 

Mr. PLATTS. Yield to the gentleman from Virginia. 

Mr. CONNOLLY. I thank my colleagues. 

Mr. Chairman, I would ask unanimous consent that my opening 

statement be entered into the record in full. 

Mr. PLATTS. Without objection, so ordered. 

Mr. CONNOLLY. I would further request that Colleen Kelley’s, the 

President of the National Treasury Employees Union, statement 

prepared for this hearing also be entered into the record in full. 

Mr. PLATTS. Without objection, so ordered. 

Mr. CONNOLLY. I thank the Chair. 

Mr. George, you talked about, I think you said a $450 billion tax 

gap? 

Mr. GEORGE. Gross, yes. 

Mr. CONNOLLY. That is this year? 

Mr. GEORGE. That is as of 2006. 

Mr. CONNOLLY. 2006 and it is growing? 

Mr. GEORGE. Yes, it is. I believe it is a lowball figure, and again, 

part of the earlier discussion indicated that is an ongoing review. 

And it doesn’t include aspects such as the international tax gap. 

96 

Mr. CONNOLLY. Understood. Do you think there could be some 

relationship between that growing gap and the fact that we have 

had a 20 percent reduction since 1995 in revenue offices and revenue agents? 

Mr. GEORGE. There is no question that if the IRS had additional 

resources, they would be able to collect additional tax receipts. 

Mr. CONNOLLY. I would point out to my colleagues, just for the 

sake of argument, $450 billion in money owed the Government we 

are not collecting. That is what the tax gap is, correct? 

Mr. GEORGE. Roughly. 

Mr. CONNOLLY. Times ten is $4.5 trillion. 

Now, here we are sweating can we go big at $4 trillion, sweating 

a sequestration that would be $1.2 trillion. This would be a big 

dent in the debt if we simply put the resources into IRS to collect 

the money that is owed. 

Now, over and above that, this Subcommittee, led by my colleagues, Mr. Platts and Mr. Towns, has done a lot of work on the 

issue of improper payments. And Mr. Miller, I think you were covering that in your testimony. What is the estimate of annual improper payments, mistakes get made, refunds get sent to people 

who really didn’t qualify for them or the amounts are wrong or 

whatever it may be? What is the estimated annual improper payment for IRS? 

Mr. GEORGE. Just to give two examples, under the—— 

Mr. CONNOLLY. Well, no, is there a global figure? You have $450 

billion as the tax gap. What is the comparable figure for annual improper payments? 

Mr. GEORGE. Let me respond by saying that I can tell you definitively that under the additional child tax credit it is estimated at 

$4.2 billion a year, although the IRS under an interpretation from 

Treasury disputes whether or not that is an actual improper payment. We don’t believe we, the IG’s office, don’t believe that Congress, the law, authorizes the payment of the additional child tax 

credit to people who are not U.S. citizens and who don’t have—— 

Mr. CONNOLLY. Yes, but we are trying to deal with global numbers here. It would be useful to have a number. The total amount 

estimated for the entire Federal Government is $125 billion a year. 

Mr. GEORGE. And then of course the earned income tax credit is 

estimated at about $13 billion a year. But no, I do not have a golden number. 

Ms. OLSON. Our tax gap numbers say that tax credits as part of 

the under-reporting gap are about $28 billion of that $450 or 6 percent of the gross tax gap. So that includes a number of refundable 

tax credits. 

Mr. CONNOLLY. Mr. Miller? 

Mr. MILLER. Sir, the only thing I would caution is, there is a difference between the improper payment, which is what went out 

that shouldn’t have gone out, and the tax gap which includes all 

sorts of different pieces. 

Mr. CONNOLLY. Yes, I agree with you. I am making that distinction, and I am trying to get what is the number for the former. 

Mr. MILLER. And I don’t have that number. We can come back 

to the Committee with that. 

97 

Mr. CONNOLLY. That would be helpful. Because again, if you set 

a goal of making it zero, understanding that that is probably an 

impossible task, but backing into that, what would be required? 

What would be required to close that $450 billion gap and to better 

get our handle on the improper payments? Because we are making 

incredible and, in my opinion, sometimes egregious policy decisions 

that are going to do real damage to the United States of America. 

We are cutting back on investments that are very important if we 

are going to stay competitive. 

And here right in front of us is a source of revenue we are owed. 

Except this body is not willing to make the investments in IRS that 

we need to make. And what is very clear from your testimony is 

that for every dollar we invest in IRS, especially in terms of compliance, we have a big return without pain and suffering. It puzzles 

one why Congress wouldn’t seize on that opportunity as one measure to put a real dent in the debt without having to create weeping 

and gnashing of teeth. 

Let me ask a question of Mr. Miller. Oops, if I may, Mr. Chairman? 

You talked about offshore tax havens, is that correct? 

Mr. MILLER. Yes, sir. 

Mr. CONNOLLY. That is kind of something every ordinary, average American taxpayer has, right? 

[Laughter.] 

Mr. MILLER. I hope not, actually. 

Mr. CONNOLLY. Well, what percentage of tax filers have offshore 

accounts? 

Mr. MILLER. We know the ones, and I don’t have the percentage 

with me, but we don’t know, we know the ones who are declaring 

them either under the FBAR rules or under our new rules that call 

for a check box on the 1040. We will find that out when the 2011 

returns fully come in. 

Mr. CONNOLLY. And that is a legal loophole in the law that somebody can take advantage of? 

Mr. MILLER. It is a permissible act. Obviously, we have made inroads on offshore, and we also have the FACA rules now that are 

going to require banks to report to the United States those who 

have foreign bank accounts. 

Mr. CONNOLLY. Can’t think of anybody who has those kinds of 

accounts—oh, yes, I can think of one. 

According to one study, the percentage of income paid in taxes 

for the top one-tenth of 1 percent of taxpayers in that top bracket 

has declined from 70 percent to 40 percent. And if you look at the 

middle income quintile, it has increased from 15.9 percent to 20 

percent. That suggests a rather dramatic regression in taxes paid 

and the de facto tax code we are living with. Would you comment? 

Mr. MILLER. I really wouldn’t be able to comment on that. 

Mr. CONNOLLY. Well, are those numbers accurate? 

Mr. MILLER. I don’t know. I would have to check on that. 

Mr. CONNOLLY. Well, would you not agree that if the top onetenth of 1 percent, which used to pay 70 percent of the percentage 

of income paid in taxes is now 40 percent, that is certainly not 

progress that is called regression? 

98 

Mr. MILLER. That is outside of what the Deputy at the Internal 

Revenue Service would be speaking about, sir. 

Mr. CONNOLLY. Ms. Olson? 

Ms. OLSON. Sir, I don’t have those numbers. I would be glad to 

look into them and get back to you. 

Mr. CONNOLLY. Would you agree if those numbers are accurate, 

that would suggest that the de facto income tax in this Country is 

becoming more regressive, not more progressive? If the top onetenth of 1 percent is paying almost half of what it used to pay and 

the middle quintile is paying more? 

Ms. OLSON. Sir, the reason why it is difficult to answer that 

question is that I have just been looking at historical data. And it 

is not clear to me that the highest income tax payers are paying 

less than what they might have done historically. So that is why 

I am saying I would need to look at what you are asking me and 

look at the charts that I have and be able to answer for the record. 

Mr. CONNOLLY. I have to say to you, Ms. Olson, the numbers 

available to me are quite clear. They are not ambiguous. They have 

declined significantly in terms of the total percentage of income tax 

collected by the IRS. 

Mr. Chairman, I thank you, and I thank you, Mr. Towns, for 

your indulgence. 

Mr. PLATTS. I thank the gentleman. And before coming back, Mr. 

Towns, I would associate myself with the gentleman’s comments 

about the need for us to do a better job of making that investment 

with the revenue officers to get the return on that investment for 

the American taxpayers. And similar to how the three us worked 

together on the funding levels for the Government Accountability 

Office and advocating to the Appropriations Committee members 

and staff on the return, I think there was like $86 for every dollar 

spent at GAO, glad to work with you and Mr. Towns on something 

similar to that that makes a case. The Advocate’s numbers really 

presented pretty well on what that return on investment is. 

With that, I will come back to Mr. Towns, and if it is okay, Mr. 

White, if you wanted to conclude. You were referencing some examples of additional data collection that would be helpful. 

Mr. WHITE. This would be additional information reporting. Two 

things we have recommended in recent reports, one is payments for 

services to corporations. This is not payments for goods, but this 

would be purchases of services from perhaps, from contractors, outside contractors who may be incorporated. If you are incorporated, 

that does not have to be reported to IRS. If you are not incorporated, it does have to be reported to IRS. 

So one suggestion for additional information reporting there is to 

extend that to contractors who are incorporated. Payments for services by owners or rental real estate is another area where we have 

recommended increased reporting. 

And then there are also cases where reporting is done now but 

where additional information could be provided. One example is on 

reporting on mortgages. Currently the 1098 forms that report mortgage information do not include the address of the mortgaged property. That creates problems for IRS in sorting out suspicious returns from correct returns. Because it is not easy to tell even how 

99 

many properties somebody owns. So there are both sorts of opportunities there. 

One other point I would mention is, there has been quite a bit 

of discussion about return on investment. This is something, our 

recent work, we have highlighted with IRS the importance of doing 

more estimates of return on investment, both for proposed initiatives, which the Service is now doing, and then after the fact, trying to calculate, trying to measure the actual return from investment on compliance initiatives. So that the Service learns what has 

been effective, what has been more effective than they thought it 

would be, what has been less effective than they thought it would 

be. That raises then the possibility of redirecting resources to areas 

to get the biggest bang for the buck. 

Mr. TOWNS. Thank you. Mr. George? 

Mr. GEORGE. Mr. Towns, I beg your indulgence just to touch on 

what Mr. White discussed. Throughout this session, we have talked 

about the need for the IRS to receive additional information, third 

party information and how that would enhance revenue collection. 

But what is just as important is, once the IRS receives this information, what it does with it. And that is a problem that we have 

reported on before, whether it is a 1099 or what have you. The IRS 

will receive this information from an employer and then will receive a tax return or return seeking a refund, and it won’t match 

the two in time to ensure that the information is accurate. 

So if someone wants to commit tax fraud, they are able to claim 

more in a refund than they are entitled to, because the IRS didn’t 

on a timely basis compare the information. That is a major problem, yes, it is a resource, you don’t derive in terms of their having 

fewer computer systems or revenue officers. I will defer to Mr. Miller to address how they handle that internally. But it is a significant problem. 

Mr. TOWNS. Right. Mr. Miller? 

Mr. MILLER. Mr. Towns, I agree with General George that it is 

a significant problem and it stems from a number of reasons, the 

key of which is timing. We don’t have the 1099 or the W–2 often 

when the return comes in for refund. We do what we can. But 

under the current systems, we don’t have the information to match. 

We have recently started talking to the community about being 

more real time, which would, has in mind exactly what General 

George is talking about. The most information we can have at the 

time of that refund, the better off we will all be. 

We should have the W–2, we should have the 1099s with respect 

to that person, so that we can validate, one, that it is the person 

that should be getting the refund and two, that the amount is correct. 

Mr. TOWNS. Why can’t we get that? 

Mr. MILLER. We receive, many 1099s are due March 30th, and 

we already are 70 million into the refund stream by that time. 

Mr. TOWNS. What changes would have to be made? This is why 

we are having this hearing, to see in terms of what we can correct. 

That is the purpose. So what needs to be done? 

Ms. OLSON. This is something that my office has proposed several years ago. We did a study, looked at many different countries 

around the world. Many countries, and I alluded to this in my tesVerDate Aug 31 2005 10:57 Jun 20, 2012 Jkt 000000 PO 00000 Frm 00103 Fmt 6633 Sfmt 6633 C:\DOCS\74455.TXT APRIL
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timony a little bit, don’t start the filings, they don’t issue refunds 

until the filing season is closed and they have received all the returns and they have had a chance, including information returns, 

and they have had a chance to run everything against, and do 

matching. And then they issue the refunds. 

Now, in the United States, people are showing up the first week 

of January to file their returns to get a refund. And it would mean 

a major shock to the system. 

I do understand, I understand that some of the payroll processing companies have said that if all we needed was gross wages 

and withholding on the W–2s, they could basically provide us that 

information within the first couple of weeks of January. It is all the 

information classifying non-taxable health insurance and retirement plans. That is what takes a little bit longer for them to process. 

So I think that the IRS is looking, as Commissioner Miller said, 

we are engaging in conversations now with the information reporting sector to see what we can get early. 

I could also tell you that Australia took a very interesting approach, sort of what the United States is doing. They sat down 

with many of their partners, like the major banks and some of the 

major employers, and they said, what information can you get us 

very quickly. And people voluntarily came in and said, we can get 

you this very quickly. And then they told the taxpayers, if you wait 

until this date, filing season starts here, but if you wait until this 

date, you can go online and you can see the information that we 

have, so you can be sure about what you get. 

So they voluntarily asked taxpayers to sort of wait in the filing 

season. And because they had a pre-filled return, so that taxpayers 

could just sort of download that information and fill in the rest of 

the stuff, it was viewed as a very positive thing. 

Now, they are really getting about 40 percent of their taxpayers 

are actually waiting and using the information that the agency is 

getting voluntarily. And they are getting to the point where they 

might be able to say, okay, now we are changing deadlines, because 

we are seeing people move to later in the filing season. 

And that is the approach that we have recommended. Use if voluntarily, make it as a desirable thing, taxpayers will wait because 

they want the certainty. Negotiate with your partners like the IRS 

is beginning to do. And rather than bringing a huge shock to the 

system where taxpayers are really desperately waiting for their refunds up early. 

Mr. TOWNS. Right. Mr. White? 

Mr. WHITE. I would just add a little bit to this. A few other considerations in addition to the burden on the third parties, changing 

the filing date for the information returns, there does need to be 

enough time allowed for them to ensure that those information returns are accurate. If they are not accurate, if they have errors in 

them, then they are much less useful for IRS, because it means 

they are finding false positives. At that point, contacting taxpayers 

about a mismatch when there may not be a true mismatch. 

One other point about the value of this kind of information return matching early on, before refunds are issued, is that it would 

to some extent be a long-term solution, or at least a partial solution 

101 

to the i.d. theft problem. IRS would be able to do more verification 

before issuing refunds to detect illegitimate claims. 

Mr. TOWNS. You mentioned, and this is it for me, Mr. Chairman, 

you mentioned in terms of statute of limitations. There is no statute of limitation on fraud. 

Ms. OLSON. Correct. 

Mr. GEORGE. That is correct. 

Mr. TOWNS. Okay, Mr. Chairman. 

Mr. GEORGE. But proving the fraud, it is which comes first. So 

it is in the queue. If it is there for five years, and that is the statute of limitations for it, for someone having to pay their tax obligation, if the IRS hasn’t gotten to it, it is out of the queue. That is 

my understanding, and you can correct me if I am wrong, Commissioner. 

So if they haven’t proven it by then, how do they know it was 

fraudulent? 

Mr. WHITE. And much of the tax gap is not in that queue. There 

are significant parts of the tax gap that IRS does not detect in the 

sense of identifying the particular taxpayers that owe that amount. 

One of the issues here is that a significant portion of the tax gap 

is in very small amounts of money spread over millions of taxpayers. There are a lot of small businesses that have reporting 

problems, both intentional and unintentional. They are small, by 

definition the tax liabilities there are small. And it raises the question of whether it is worth going after them. Because to find the 

unpaid taxes, in many cases, you would have to audit them. 

And then another question is how intrusive you want the tax 

system to be to find those relatively small amounts spread over, 

again, millions of taxpayers. 

Mr. MILLER. Sir, if I could, just one correction to General George. 

There is a 10-year statute for us to collect the money. And actually, 

I think I would agree that the older and colder the debt, the less 

likely it is we are going to collect it. It is just like any other debt. 

But we do have offsets that occur constantly and we have other 

liens and other tools that do make use of that data. And those accounts are collected on. 

Ms. OLSON. Something that Mr. White said, there are things 

other than direct enforcement that are very valuable tools. Commissioner Miller mentioned the refund offsets. A large percentage 

of collection occurs because a taxpayer has a debt with us but they 

are also getting a refund in a future year. That is just the computer seeing the refund and grabbing it. And it goes into the public 

treasury. 

But another thing that the IRS is doing this year is some behavior modification, if you will. We had recommended several years 

ago on the sole proprietorship return that you break out the lines 

for reporting income where you say, here is income from 1099s, 

that is reported on 1099s filed to me, and here is other income. I 

just know as a former return preparer that my client would come 

in and they would just show me their 1099 income. And I would 

say, well, clearly, I am not going to audit your books, but clearly 

you have more money than this that you earned, that you brought 

in. And they would go, oh, yes, $100 or something. 

102 

Well, if you force taxpayers to have to articulate, they are going 

to look at, they have put all their money under the 1099, they are 

going to think, oh, the IRS is going to audit me if I don’t report 

some money on this other line, the non-1099 income. So suddenly 

you disappear, even if people were now reporting $100 and they go 

up to $1,000, that is $900 per taxpayer. And that is a lot of money. 

So we have used that in the past, little behavior modifications 

that drive people to a little bit more compliant behavior because 

they think we are looking at them. That is a very important tool. 

That is really the policy behind information reporting, but you 

don’t just need it for third party. You could do it through what they 

have to report on their returns. 

Mr. TOWNS. Thank you, Mr. Chairman, for your generosity. 

Mr. PLATTS. The gentleman is more than welcome. I want to turn 

the discussion a little more toward specifically identity theft and 

the issue that the Ranking Member and I have focused a lot of 

time on with our staff, and both sides, with the Subcommittee staff. 

I certainly want to commend the IRS for increased focus on this 

issue. It certainly is a necessity as we see the numbers going up 

each year of those who are seeking to defraud the American people 

through identity theft related to tax refunds. 

I know one of the issue is the taxpayer protection units that have 

been established. As someone who has been a victim of identity 

theft, or believes they have, to have a designated unit, I think that 

is an important step. But I will tel you, one of the things that 

jumped out to me, and it was the Taxpayer Advocate’s testimony, 

that is just unacceptable, is how I would say it, is the level of service numbers. I understand that in general, the goal this year was 

about 60 plus percent level of service. And yet when the taxpayer 

protection unit level of service in mid-March was under 12 percent, 

and even in this past week and kind of the heaviest time was only 

at 35 percent. 

I look at that as saying, we are going to create a special unit for 

those who have been victimized, and I emphasize victimized by 

criminals because of identity theft. And we set up a special unit for 

them to call, and we are only helping not even two-thirds, when we 

have the highest level of assistance dedicated to their assistance. 

And even those who do get through to get assistance, according to 

the Advocate’s testimony, the average wait on hold was one hour 

and six minutes. That is not how we should be treating victims. 

And it goes to our previous discussions here that we need to recognize this for what it is. It is a crime and there is a victim of the 

crime. And that we set up a special unit is a good thing. But if the 

unit can’t deliver to help the victims, that is not a good thing. 

So dropping to 60 percent level of service overall is of concern. 

But dropping to 12 percent for those that are supposed to help 

those who have been victimized, and even those who got help had 

to wait over an hour on hold, anybody in this room enjoy being on 

hold for over an hour? I don’t think so. I am amazed that anybody 

stayed on hold for over an hour, quite frankly. That is just not acceptable. That is not how you treat a victim of a crime. 

So I want to recognize that you are trying to do the right thing 

here, but we are far from where we need to be. 

103 

Ms. OLSON. Chairman Platts, just to make a clarification, the 

unit that that number went to is different from the unit where taxpayers who think they have been identity theft victims calls the 

IRS out of the blue. The unit that those statistics go to is a unit 

where the IRS has sent taxpayers letters and said, we think there 

is a question about your return and we are not going to hold it. So 

I just wanted to make that distinction. 

Mr. PLATTS. Yes, absolutely. But where there is a belief that 

there is identity theft here, and so we set up a special unit for 

them then to respond, and then we put them on hold for an hour, 

if they get through, and as the numbers show, the overwhelming 

majority do not. 

Mr. MILLER. I agree, Mr. Chairman. I was unaware of the 35 

percent, I wasn’t aware of the earlier problems. I thought we had 

resolved that. I know we have added more staffing, and maybe we 

have not added enough. 

Mr. PLATTS. Yes. 

Mr. GEORGE. Not only do they not have adequate staffing and extended wait times, if someone calls back to find out what the status 

is of their case, they are assigned to someone who may not have 

seen the case before. They are not handed to the same person who 

has the institutional knowledge of their case. 

In addition, in times such as recently, with the tax filing deadline, people who are normally assigned to those types of cases are 

reassigned to answering regular tax concerns from other taxpayers 

who dial the 800 number or who walk into taxpayer assistance centers. So there is a way that the IRS could certainly run this system 

a lot better than it is. 

Mr. PLATTS. And General George, you raise an important point 

in whether the IRS has looked at this in the past or not. Especially 

when you set up that special unit to respond to specifically, and 

certainly at a fraction of the numbers here. But I will equate it to 

my office or Ranking Member Towns’ office, we open about, over 

4,000 new constituent cases a year as an office. And that is individuals. 

Now, if somebody calls in and the person they were working with 

is not in, another member of my staff can pull up their case to see 

if there has been anything updated in it since they last talked to 

the staffers. But there is a dedicated staff person that they are 

working with. And that does make a huge difference than having 

to start over. 

So I don’t know if that is anything that the IRS has looked at 

doing, so that when you call in, once you make that contact, that 

you then have, all right, here is your case manager that you should 

be dealing with, so you are not starting over and having to re-educate every time you call in. Is that something considered? 

Mr. MILLER. It is considered. And I don’t know whether it would 

work here or not, to be honest with you. Generally, and I think the 

Taxpayer Advocate and I may disagree on this, we don’t necessarily 

have the resources to say, this is your person. What we ought to 

be doing is to ensure whoever does get on the phone with you has 

all the information in front of them, and that is what we try to do. 

Mr. PLATTS. Is that done through the case files electronically, 

that whoever helps you, that they are then well documenting? 

104 

Mr. MILLER. That is our attempt. Our attempt is to have, and remember, we are talking about, this is a microcosm of the way we 

are doing business on the phone generally, where we can’t necessarily, our systems do not permit a single person, we don’t believe it is the most efficient way to do it, and we can’t do a single 

number to a single person at this point. 

So we are looking at it. In a perfect world, yes, I would have an 

individual who was assigned to my account. And we have not been 

able to get there in terms of resources or systems to date. 

Ms. OLSON. All I know is that, not just in identity theft, but in 

correspondence exam and in automated collection, some of the most 

significant and frequent complaints we get are taxpayers saying, I 

have talked to four different people, I have had to explain my situation over and over again for each one. I have looked personally at 

some of the notes that people take. And you cannot read, you can’t 

build a story from the notes. You don’t know what the person before you did. 

And to Mr. White’s point, this is where you go into the return 

on investment, to do the analysis to say, by saving pennies by having anybody answer the phone, whoever is the next available person, are you really saving money downstream, where you get the 

wrong result and the taxpayer keeps calling back. And then you go 

to a taxpayer advocate service, where you have two employees 

working the case, mine and the IRS employer. You go to appeals, 

which is a higher-graded employer, you go to tax court, where you 

have the lawyers and the paralegals and the tax court personnel 

involved. And can we really do a good return on investment on 

that? I would say no, you are not saving money. 

Mr. PLATTS. And when you add to that the data that has been 

shared here today, that we know that our best chance of eliminating the tax gap is voluntary compliance. So the person who is 

calling in is trying to figure out, I will use the example of the victim calling in because they have been defrauded or victimized. But 

for anybody calling in, the fact that they are calling in is a good 

thing. They are trying to resolve their case. 

So we want to get them the assistance they need and the data 

shows that. And that goes to that issue of taxpayer services, the 

return on investment versus enforcement. And so yes, I think it is 

a penny saved and a pound lost. It doesn’t seem to be a well 

thought-out approach. 

An issue where I want to acknowledge what I think is a very 

positive step in the area of identity theft, if I understand this correctly, and this s something we raised in the first hearing on identity theft last June, I guess it was. That is, somebody files a return 

fraudulently. The legitimate taxpayer then submits their return, 

finds out, hey, somebody already filed and got a $4,000 refund, and 

it is going to take a while for us to work through. 

But even when that happens, and we are working on shortening 

that time frame for the victim to be made whole, that in the past, 

the victim couldn’t get any information about the fraudulent conduct, even though it was submitted in their name, their Social Security number, as I understand, your General Counsel has issued 

an opinion now that says, the legitimate taxpayer has a right to 

that information, of the fraudulent material that was submitted, 

105 

and then can authorize, I want that information and I want to be 

able to share it with law enforcement. 

I will use the example of a couple of the citizens who testified 

last year. I guarantee you, if they had been given it a year ago, the 

information, they probably would have gone to New York with the 

information, gone to the NYPD and said, listen, here is where the 

check went, let’s go get the photos from the bank that will show 

who came in and collected that money, if they had that information. At that point, they were being told no. 

But is that correct that it has been changed, that they have a 

right to that information? 

Mr. MILLER. It is correct, Mr. Chairman, that we have the opinion of counsel that we can share that information. It will require, 

and what we are doing, as we speak, we are rolling out a pilot with 

some local law enforcement. 

The real issue is, we cannot share this information with local law 

enforcement. 

Mr. PLATTS. But the taxpayer can authorize it to be shared, 

right? 

Mr. MILLER. The taxpayer can authorize through waiver for it to 

be shared. We are rolling that out as we speak. 

Mr. PLATTS. That is great. I have heard of it being used in cases 

in Tampa and local law enforcement in Florida. If the legitimate 

taxpayer can say, hey, I want to work with the local police, give 

them everything you have, I think that is going to be an important 

step. Because I understand when we are talking about an average 

of I think $3,500 or $4,000 as the fraudulent return refund, that 

from a prioritization resources the cost of, at the national level, trying to go after those. 

But the local guys, that is what they do every day. That is what 

my local police are doing, helping citizens every day with those 

smaller types of crimes or fraudulent conduct. So I think that is a 

very positive step. While I am very displeased with the level of 

service on the TPU, the taxpayer protection unit, I do want to recognize that is a very important step in the right direction. 

Maybe two other issues here before we wrap up and I appreciate 

all our witnesses’ patience, the issue of the Social Security Death 

Master list and the fact that is pretty much open game for fraudulent conduct, or those who want to commit fraudulent conduct. I 

know the IRS, I believe the position is to restrict access to that. Is 

that correct, that you would like legislative action to restrict who 

can access that information? 

Mr. MILLER. I think we are working with the Social Security Administration and the Administration more generally on legislation 

that would do that. 

Mr. PLATTS. So that is an ongoing effort, but not ready yet to 

say, here is what we think is the right approach within the Administration? 

Mr. MILLER. I think that is right. I think your question would 

be very well answered to go to SSA and have that discussion. I 

think they are actively engaged in talking to people about it as we 

speak. 

Mr. PLATTS. It is something that we want to look at, of how to 

do that. To me, the fact that that information is too freely shared, 

106 

sometimes for legitimate purposes shared, but it is just too big a 

target for those who are committing the identity theft. 

Mr. MILLER. Yes. 

Mr. PLATTS. The other final issue is more of a broad issue. That 

is the balance, and if any of the four of you would like to comment, 

when it comes to the fraudulent, and this goes to the issue of the 

timing of matching documentation with returns, I know it is a balance between a quick refund, which those who are entitled to refunds want it to be quick, because they can. 

Although I would also say that most taxpayers don’t have to wait 

for a refund if they wanted to adjust the filings and get the money 

in their paycheck, so they could get an instantaneous refund every 

paycheck rather than one lump sum. 

Ms. Olson, you were talking about human nature and behavioral 

management, I will admit I am one that, it is kind of a forced savings and I would rather get $1,000 back than have to write a check 

for $1,000. I think it is a mental psyche of how you look at it. 

But it is a choice that every taxpayer has, to try to ensure that 

they don’t have to get a refund. In fact, if they want, they can owe 

money and come out ahead because they had the money and then 

write a lump sum check. 

But given that, how do we balance that quick refund against the 

risk, and that we are not able to match? Today with electronic filings, as the use of electronic filings more and more the norm, more 

and more the norm also is that typical individual doesn’t just have 

a computer, but they also have a printer that is also the scanner. 

That is the norm with printers today. If you buy a printer, it can 

scan, fax and print. 

Have you looked at saying, if you want to file electronically, and 

maybe it is not all refunds, maybe it is a pilot to look at, but you 

have to scan in your W–2s, so rather than waiting for anything to 

be mailed in or matched up from the third party, if you want an 

electronic return, you scan in your W–2. So when you electronically 

submit and especially when it is paid taxpayers, what is the percentage, Commissioner Miller, is it 65 percent or higher than use 

paid? 

Mr. MILLER. It is above 60, yes, in that range. 

Mr. PLATTS. For those, it would especially be, I guarantee you, 

if you are a paid provider, your ability to scan a document is a 

given. Is that something that we should consider? 

Mr. MILLER. If I could start out, a couple of things. I think two 

separate points altogether, which is enforce savings. I think it is 

absolutely true for you and I, I think it is less true as you go down 

the income scale, where you have the earned income tax credit and 

maybe one-third of people float in and out of on an annual basis. 

It is a changing circumstance. 

Mr. PLATTS. I think that is a very relevant point. 

Mr. MILLER. On the second piece, I think we should look at everything we possibly can. We need to get better at our screening, 

we need to get as much information as fast as we can to apply it 

to refunds as they come in. 

On the scanning item, we certainly should look at it. I think at 

this point, to be honest with you, we still get a lot of paper fraud 

in. They have dummied up W–2s. So I am not sure that that, in 

107 

and of itself, it may be a piece of a larger strategy and is absolutely 

worth looking at. But I am not sure in and of itself that that will 

be a game changer for us. 

Mr. PLATTS. Mr. White? 

Mr. WHITE. I agree. I have the same concern about the scanning, 

that the i.d. thieves are making up W–2s. So getting one from the 

taxpayer doesn’t guarantee that it is legitimate. What you need to 

do is get the information return, the W–2 from the third party employers faster. That is where technology may help, that a lot of the 

deadline that Mr. Miller mentioned earlier, for due dates for those 

information returns were set many years ago. With more modern 

technology it may be possible for third parties, for at least certain 

kinds of information returns, to submit them much earlier in the 

filing season, so that they could be matched to returns. 

Now, there are some other things that need to be in place to 

make this work as well. IRS is modernizing its information systems. But obviously you need systems in place that can handle 

massive amounts of data. IRS gets billions of information returns 

each year. So you are talking about a lot of information that you 

would have to match very quickly so that you are not making taxpayers wait for refunds. 

Mr. GEORGE. Mr. Chairman, I would note though, certain software tax packages, Turbo Tax being one, do allow for people to 

download their W–2s electronically. So it does exist, but again, you 

are right, it is $65 to purchase that package, and some people just 

don’t want to make that expense. 

Ms. OLSON. We have thought a lot about behavioral modification. 

I think that the demise of refund anticipation loans has, what refund anticipation loans did was tell taxpayers, you can get your 

dollars tomorrow. So suddenly the IRS getting you money through 

direct deposit and electronic filing within 10 days looked like an 

enormously long time. 

I think we have to really think hard about messaging and communicating with taxpayers to talk to them about what is the reality of the filing season, and that they actually really do want us 

to do these refund screens. The first year it may be hard because 

you are depending on this money like you have always. But if you 

can adjust your behavior, then you can depend on it in the future 

at the same time every year. 

The lower income really used this for paying their heating bills. 

The studies showed that they used it for things like buying refrigerators, buying school clothes, stuff like that. So I think we have 

to work with a larger community to get people used to it. But I 

think the IRS has to step up to that plate and really change expectations and behavior. 

Mr. PLATTS. Mr. Towns, I just have two more questions, then we 

will wrap up and conclude. 

Two final questions here. One is, with the information that is 

provided with the push on certified tax preparers that you are moving forward with, when there is a professional tax preparer, paid 

tax preparer, do they have to certify, I know that they sign they 

prepared the document, the return. But do they have to certify in 

some way that they have seen the W–2s or the supporting documentation? Is there an affirmation they have to make? 

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Mr. MILLER. I don’t think the signature means that, Mr. Chairman. I can come back to you on a more detailed discussion of under 

Circular 230 what exactly are they signing when they sign the return. But the due diligence that they are required to do I think is 

at a broader level than that. 

But I can come back to you with a more specific answer on that. 

Mr. PLATTS. That would be great. 

And the final thing is, in looking again at conduct and the type 

of fraud, are we able today, when we talked last year, it was about 

the issue of debit cards and what percentage of identity theft fraud 

is paid out on debit cards versus a deposit into a bank account, because of the ability for a criminal that they have to go in and access money in a bank account, there is much more of a trail to be 

followed if we are going to pursue the criminal conduct, different 

than with a debit card. 

Mr. MILLER. I will have to come back to you with that as well. 

I think we have seen an increase in the use of debit cards, and you 

are quite right, there are pluses and minuses to that. 

Mr. PLATTS. I think that goes to the broader issue of assessment 

of the information that we have. If we are identifying, say there is 

400,000 possible cases or actual cases of identity theft that were 

identified and stopped, what percentage of those were asking for 

refunds on debit cards. And as to, shall we be issuing debit cards. 

Ms. OLSON. I am not sure we would know that. 

Mr. MILLER. That is why I said—— 

Mr. PLATTS. That is what I am getting after is, I think we need 

to know that. 

Ms. OLSON. I think that the debit card has an account that is the 

same as a bank account. 

Mr. MILLER. And the Financial Management Services, actually 

the part of Treasury that is making the payment, it sees an account number. It does not know, I don’t believe, whether it is a 

debit card or a bank account. That would be something that was 

known by the software providers. And those are discussions that 

are ongoing. I agree, we need to get our arms around that. 

Mr. PLATTS. Because when you hear the testimony or the information from, like in Tampa, when they go in, and a former drug 

dealer, I think, went in and they have 50 debit cards with $4,000 

in each of them that were fraudulent returns, that seems like some 

evidence that the criminals, who are organized criminals doing 

this, are using that method more likely than any other method. 

Again, it is a data analysis that’s what I am after. 

Mr. MILLER. Right. I think one other point, because there is one 

no doubt that we are seeing the same stories you are, where there 

are rows of debit cards. I want to make it clear, if we have stopped 

the refund, the criminal will have a debit card, he or she will have 

a debit card, there will be nothing loaded on it. And when he or 

she goes to load, there will be nothing there, because it will have 

been stopped, either by us or frankly, by the debit card company 

because it is finding fraud as well. 

Those stacks, I am sure some of them have money, don’t get me 

wrong, but it shouldn’t be assumed that they all have money on 

them. 

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Mr. PLATTS. I am going to make a final comment, then we need 

to wrap up. On the issue of identity theft, I want to just re-emphasize that this is about the victims, legitimate taxpayers who are 

victimized by criminals. There is maybe no more egregious example 

of what I heard reported this week of a fallen hero of this Nation, 

who gave his life in defense of the Nation, and then his parents 

come to learn that not only did they lose their son, but their deceased son, who gave his life in defense of this Nation, was victimized by identity theft related to taxpayer refund. That just epitomizes the type of victimization that is occurring. We need to do 

right by that family and by every individual or family out there, 

that those legitimate, hard-working, law-abiding citizens are not 

victimized. And if and when they are, that we prioritize them. 

So I know we can do a lot better in that regard. 

I want to thank each of you for your testimony, your patience 

here, especially with the break, with the Floor votes. I thank the 

Ranking Member. As hopefully came through, we are not about 

gotcha, we are about trying to work through this issue with you 

and how can we help. Whether it is the issue of adequate funding 

for the resources that make that return on investment, that we invest and the taxpayers come out ahead, whether it be on legislative 

authority that you don’t have that we need to provide. But on all 

aspects, we want to work with each and every one of you and your 

offices. 

General George, did you have a final comment? 

Mr. GEORGE. I just wanted to clarify one thing. In response to 

Mr. Towns’ question about the statute of limitations, Mr. Miller 

was correct in terms of it is 10 years to collect. There is no statute 

of limitations on fraud if it is willful fraud. But there is a threeyear statute of limitations on the IRS’s ability to conduct examinations on tax returns. 

So it is something that needs to be clarified here in the overall 

record. 

Mr. PLATTS. I appreciate the clarification. 

Mr. Towns, did you want to make a closing remark? 

Mr. TOWNS. Actually, I want to associate myself with your remarks and thank the witnesses for being here. And to say that if 

there is something that we need to do on this side, feel free to let 

us know. I just think there are some areas here that need to be 

dealt with. I think that working together, we can deal with it. 

I thank you very much, Mr. Chairman, for this hearing. 

Mr. PLATTS. Again, we will have the record open for seven days 

for some of that extraneous material or responses to some of the 

questions. I appreciate our witnesses’ testimony and this hearing 

stands adjourned. 

[Whereupon, at 12:15 p.m., the committee was adjourned.] 

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