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50–225 2009

IRS ASSISTANCE TO TAXPAYERS 

FACING ECONOMIC DIFFICULTIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

FEBRUARY 26, 2009 

Serial No. 111–2 

Printed for the use of the Committee on Ways and Means 

( 

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COMMITTEE ON WAYS AND MEANS 

OVERSIGHT SUBCOMMITTEE 

JOHN LEWIS, Georgia, Chairman 

XAVIER BECERRA, California 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOHN B. LARSON, Connecticut 

ARTUR DAVIS, Alabama 

DANNY K. DAVIS, Illinois 

BOB ETHERIDGE, North Carolina 

BRIAN HIGGINS, New York 

CHARLES W. BOUSTANY, JR., Louisiana, 

Ranking Member 

DAVID G. REICHERT, Washington 

PETER J. ROSKAM, Illinois 

PAUL RYAN, Wisconsin 

JOHN LINDER, Georgia 

JANICE MAYS, Chief Counsel and Staff Director 

JON TRAUB, Minority Staff Director 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

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C O N T E N T S 

Page 

WITNESSES 

Linda E. Stiff, Deputy Commissioner for Services and Enforcement, Internal 

Revenue Service ................................................................................................... 5 

Nina E. Olson, National Taxpayer Advocate, Internal Revenue Service ............ 17 

SUBMISSIONS FOR THE RECORD 

Howard S. Levy, Statement .................................................................................... 63 

Moira Souza Shiver, Statement .............................................................................. 64 

National Treasury Employees Union, Statement ................................................. 67 

Santa Barbara Bank and Trust, Letter ................................................................. 69 

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IRS ASSISTANCE TO TAXPAYERS 

FACING ECONOMIC DIFFICULTIES 

THURSDAY, FEBRUARY 26, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON OVERSIGHT, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:07 a.m. in room 

1100, Longworth House Office Building, the Honorable John Lewis, 

[Chairman of the subcommittee], presiding. 

[The advisory announcing the hearing follows:] 

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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON OVERSIGHT 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–5522 

February 19, 2009 

OV–1 

Lewis Announces a Hearing on IRS Assistance for 

Taxpayers Experiencing Economic Difficulties 

House Ways and Means Oversight Subcommittee Chairman John Lewis (D–GA) 

today announced that the Subcommittee on Oversight will hold a hearing on assistance available from the Internal Revenue Service (IRS) to taxpayers experiencing 

economic difficulties. The hearing will take place on Thursday, February 26, 

2009, at 10:00 a.m. in the main Committee hearing room, 1100 Longworth 

House Office Building. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. The National Taxpayer Advocate, Nina 

E. Olson, and the IRS Deputy Commissioner for Services and Enforcement, Linda 

E. Stiff, have been invited to testify. Any individual or organization not scheduled 

for an oral appearance may submit a written statement for consideration by the 

Subcommittee and for inclusion in the printed record of the hearing. 

FOCUS OF THE HEARING: 

During this recession, taxpayers are experiencing financial difficulties. In 2008, 

there were 3.4 million foreclosure filings and 2.6 million job losses. Many taxpayers 

are struggling to meet their daily living expenses as they face a wide range of financial and personal issues, which may make it difficult to meet their tax obligations. 

On January 6, 2009, the IRS kicked off the 2009 filing season with an announcement of steps taken to help financially distressed taxpayers. The IRS announced 

that its employees have greater flexibility to assist struggling taxpayers and may 

be able to adjust payments for back taxes, expedite levy releases, or postpone collections. Further, the IRS encouraged taxpayers to take advantage of new and existing 

credits (such as the first-time homebuyer credit and the earned income tax credit), 

deductions (such as the standard deduction for real estate taxes), and electronic filing options (such as Free File Fillable Tax Forms) to maximize and expedite refunds. 

The National Taxpayer Advocate, an independent official appointed to address 

taxpayer problems (established in Public Law 104–168), indicates that more action 

may be warranted to address the problems of struggling taxpayers. The Taxpayer 

Advocate’s most recent report to Congress focused on the challenges to taxpayers 

and tax administration during the economic downturn. The report recommended 

that the IRS change some of its collection practices in order to avoid exacerbating 

the financial distress of taxpayers. The Taxpayer Advocate noted that the IRS is 

underutilizing collection alternatives, particularly offers in compromise and partial 

pay installment agreements, and IRS employees need more guidance on how to 

identify and help distressed taxpayers. 

The Subcommittee will discuss the specific problems encountered by taxpayers 

during this recession. The Subcommittee will review the steps taken by the IRS to 

assist struggling taxpayers and consider recommendations of the National Taxpayer 

Advocate. 

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In announcing the hearing, Chairman Lewis said, ‘‘Americans are suffering 

during these difficult economic times. They are trying to do the right thing 

and pay their taxes, but they may be unable. We need to understand their 

problems. They need to reach out to the IRS for assistance. Together, we 

must find ways to collect the proper amount of taxes owed in a manner 

that is fair and recognizes the problems that taxpayers are facing during 

this recession.’’ 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Committee Hearings’’. Select the hearing for 

which you would like to submit, and click on the link entitled, ‘‘Click here to provide 

a submission for the record.’’ Once you have followed the online instructions, complete all informational forms and click ‘‘submit’’ on the final page. ATTACH your 

submission as a Word or WordPerfect document, in compliance with the formatting 

requirements listed below, by close of business Thursday, March 12, 2009. Finally, 

please note that due to the change in House mail policy, the U.S. Capitol Police will 

refuse sealed-package deliveries to all House Office Buildings. For questions, or if 

you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

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Chairman LEWIS. Good morning. The hearing is now called to 

order, the hearing of the oversight Committee. 

People all over the country are ready. A record number of people, 

our friends, our family and our neighbors are losing their jobs, losing their homes, and getting in line at food banks. People are sufjbell on PRODPC61 with HEARING

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fering. These are hard-working people with families who for the 

first time in their lives are struggling to stay afloat while their 

debts increase. We must reach out to help them. 

Today, the Ways and Means Subcommittee on Oversight will discuss what the Internal Revenue Service can do for taxpayers in 

need. We want people to know that there is help and help must be 

on the way. We need to tell people that they can get free help to 

prepare their tax returns during the following season. We want to 

tell them how to get their refund faster, especially if there is an 

emergency. We want them to know what steps to take if they owe 

taxes, and want to pay but cannot. In summary, we want to see 

the gentler and sweet side of the IRS. 

And I am grateful to our witness for appearing today. We look 

forward to you being here and your testimony. As always, we ask 

you tell us how the Congress can help you during this following 

season and beyond. And I call on the Ranking Member, Mr. 

Boustany for his opening statement. 

Mr. BOUSTANY. Thank you, Mr. Chairman, and I thank you for 

holding this hearing, and I welcome both of our witnesses. 

I think this will be a very productive hearing. With so many new 

Members of this Subcommittee, it is prudent to start the congress 

with a hearing that will focus on the operations of the internal revenue service. As Members of the Ways and Means Committee, we 

are asked to consider legislation that changes the Tax Code and affects millions of Americans. As such, we also need to be cognizant 

of the IRS’ role, and if they have the resources to administer and 

enforce those laws. 

We all met, I think, 2 weeks ago, with the Commissioner, and 

he discussed building a world class organization dedicated to taxpayer service while prudently enforcing the law. Their mission now 

includes meeting the substantial challenge of a recession with millions of taxpayers losing their jobs, resulting in financial hardship 

that is making it difficult for them to fulfill their tax obligations. 

The IRS is trying to help the taxpayers navigate the options 

available and in doing so, of course, with some additional resources 

we recently provided. But at the same time this is coming up along 

with the new tax filing season. So I believe this hearing will deepen our understanding of the IRS’s taxpayer services, their use of 

enforcement tools, which is essential knowledge for all Members of 

this Subcommittee, and more, it will allow us to explore what more 

can be done for financially distressed taxpayers. 

One final note, Mr. Chairman, as a follow-up to yesterday’s Full 

Committee hearing: I wanted to offer my full support for protecting 

the jurisdiction of the Ways and Means Committee. I know as we 

look at all these issues, and there will be multiple Committees 

working on some of these, our side is offering full support to you 

and to the Chairman of the Full Committee, and I would be glad 

to work with you if the opportunity arises to use this subcommittee 

to assert our jurisdiction and to work with you and the chairman. 

Chairman LEWIS. Well, thank you very much. I know the chair 

of the Full Committee and all the Members would appreciate your 

support and we all look forward to working together. 

Mr. BOUSTANY. Thank you, Mr. Chairman. 

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And, finally, before I yield back my time, I want to acknowledge 

Chris Giosa, who is leading our side, as a very dedicated and hardworking staffer. He’s the Staff Director of this Subcommittee. 

Chris, we want to thank you for all your great work, and we wish 

you all the best in your new role in working with our partner, the 

IRS, and so while we’re losing a very valuable staffer here and 

someone who’s very knowledgeable in this issues, we feel that we’ll 

have a partner working in the executive branch. So, Chris, we offer 

our deep and sincere thanks to you. 

Mr. Chairman, I yield back. 

Chairman LEWIS. Mr. Ranking Member, I want to join you in 

wishing Chris the best and thank him for his wonderful years of 

service. And we wish you well in the days to come. Thank you so 

much. 

Now we’re going to hear from our witnesses. I ask that you limit 

your testimony to 5 minutes. Without objection your entire statement will be included in the record. And now here’s my great pleasure to introduce the IRS Deputy Commissioner Linda Stiff and welcome. 

STATEMENT OF LINDA E. STIFF, DEPUTY COMMISSIONER FOR 

SERVICES AND ENFORCEMENT, INTERNAL REVENUE SERVICE 

Ms. STIFF. Thank you. Chairman Lewis, Ranking Member 

Boustany and Members of the Subcommittee, I appreciate the opportunity to discuss how the IRS is assisting economically distressed taxpayers during this period of great need. This country is 

currently experiencing an economic crisis unlike any we have seen 

in our lifetime. 

Every day we see the fall out with families, friends and neighbors struggling to hold on to jobs and homes and provide their families with basic necessities. The IRS’ effort to assist taxpayers during these difficult times are confirmation of part of our core mission 

which is to assist taxpayers in every way possible to meet their obligations. Therefore, the IRS has taken deliberate and focused actions to provide tangible relief to taxpayers in distress, while also 

helping others from straying across the line into non-compliance. 

Let me briefly describe some of those actions. America’s low income taxpayers have been particularly hard-hit by financial hardship. Many of these working families may be eligible for the earned 

income tax credit, which can put money in their pockets. The IRS 

has an aggressive outreach program to promote greater community 

awareness of this refundable credit for low-wage taxpayers. This 

outreach program includes a specific day each year devoted to press 

events, promoting and explaining the earned income tax credit. 

I want to thank all of the Committee Members for your support 

in this effort, especially Chairman Lewis for your recent help and 

participation in an event publicizing the EITC as well as for the 

time you took to share the law with the IRS family. This year on 

January 30th more than 80 partners from across the country conducted news conferences and over a hundred more issued press releases on EITC awareness day. Our efforts to make taxpayers 

aware of the EITC continue throughout the year. We send marketing materials to our community partners to distribute. We injbell on PRODPC61 with HEARING

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clude information in English and Spanish on our website, on IRS 

dot gov, and by a number of media opportunities. 

There are also more than 12,000 free tax preparation sites for 

low income individuals, seniors, and other eligible taxpayers 

around the country. When taxpayers visit one of these sites, our 

volunteers can also check to see if they are potentially eligible, not 

just for the EITC, but for other credits, deductions and exclusions, 

such as the child tax credit. 

We also understand that taxpayer service can only go so far in 

assisting millions of distressed taxpayers. This year, many taxpayers will owe money to the IRS and face difficulties paying those 

amounts. Accordingly, we have given our frontline, collection personnel more flexibility to work through these issues with taxpayers 

with a particular focus on previously compliant taxpayers, who 

may find themselves for the first time unable to meet the obligation to pay their Federal taxes. 

Depending on their circumstances, these taxpayers may be able 

to adjust payments for back taxes, avoid defaulting on payment 

agreements, or possibly defer collection action. We have reminded 

our frontline employees about offering installment agreements at 

the end of an audit for taxpayers, enabling them to minimize interest and penalty charges. Another good example involves the offerin-compromise program, which oftentimes is impacted by today’s 

battered real estates market. 

For individual taxpayers, we have responded quickly by expediting the process and creating flexibilities for people trying to sell 

or refinance a home. The bottom line is that the IRS should not 

be the reason someone can’t get out of a real estate jam. We have 

centralized our process to review home equity values in the volatile 

market, especially in the offer in compromise situations. 

We urge all taxpayers to visit our website, IRS dot gov, the fastest way to give information from the IRS or get questions answered. This year we even added what we call ‘‘what if’’ scenarios 

to our website. The ‘‘what if’’ scenarios allow taxpayers to go 

through what if A, what if B, to deal with payment and other financial problems. 

I would also like to put one issue on the Subcommittee’s radar 

screen: the recently enacted stimulus bill includes a number of refundable credits. We hope taxpayers will take advantage of these. 

We also recognize that such credits create the potential for abuse. 

We will watch them closely and report back to you if we see a problem. 

Thank you again, Mr. Chairman, for the opportunity to testify. 

The IRS is committed to assist America’s taxpayers in any way it 

can. You have my commitment and that of Commissioner Shulman 

to work closely with you as we move forward. 

Thank you. 

[The statement of Ms. Stiff follows:] 

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Chairman LEWIS. Well, thank you very much, Ms. Stiff. Your 

testimony and we would look forward to ongoing relationship and 

continue to work with you. 

Now it is my pleasure to introduce the national taxpayer advocate, Ms. Nina Olson. 

STATEMENT OF NINA E. OLSON, 

NATIONAL TAXPAYER ADVOCATE 

Ms. OLSON. Thank you, Mr. Chairman, Ranking Member 

Boustany, and Members of the Subcommittee. 

Thank you for inviting me to testify today about the challenges 

facing financially struggling taxpayers. The IRS itself faces a difficult challenge in trying to balance its mission of collecting tax 

revenue with the fair and compassionate treatment of taxpayers 

who for whatever reason are unable to pay their tax bills. The nature of this challenge is no different in a recession, but the number 

of affected taxpayers is obviously much greater. 

The IRS has many tools available to help these taxpayers and it 

is now more important than ever that it use these tools appropriately and compassionately. The general premise under which 

the IRS operates is that taxpayers should pay the full amount of 

the tax liabilities they owe, but there are times when taxpayers experience financial difficulties and can’t reasonably pay their tax liabilities in full. This may happen if a taxpayer has lost a job, become disabled, or experiences some other financial setback. When 

this happens, the IRS’ goal should be to collect as much of the tax 

as possible without imposing an undue financial burden on the taxpayer or the taxpayer’s family. 

IRS methods for establishing the priority of collection cases has 

traditionally placed primary emphasis on those cases with the 

greatest total dollar amounts of tax debts. As a result, many collection accounts do not receive adequate attention until penalties and 

interest equal or exceed the underlying tax due and the total tax 

bill is so large the taxpayer can’t ever fully pay. This situation occurs against a backdrop of what I would characterize as an institutional aversion to any collection method that results in collection 

of less than a hundred percent of the tax the IRS believes is owed. 

Consider the following. At the end of fiscal year 2008 there were 

more than 2.6 million taxpayers with delinquent accounts or accounts reported not collectible because the taxpayer had no current 

means to pay the tax liability. In that same fiscal year, the IRS accepted only 10,677 offers in compromise and entered into 22,000 

partial payment installment agreements. In other words, combined, 

one out of every 78 taxpayers with a delinquent account was granted one of these collection alternatives. It is clearly not the case that 

77 out of every 78 taxpayers with delinquent accounts were unwilling to deal with the IRS. Rather, despite explicit congressional support for collection alternatives, the IRS has made these options too 

inaccessible for taxpayers to obtain. 

I am also concerned the IRS does not proactively identify taxpayers who may be experiencing economic hardship. Today, for example, the IRS automatically levies 15 percent of the monthly Social Security benefits of taxpayers who owe Federal taxes without 

any screen for low income tax payers or others who might be 

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harmed as a result of the levy. This year, my research function developed a model for identifying these taxpayers. Our study showed 

that over one-third of taxpayers subject to an ongoing Social Security levy would likely be classified as unable to pay based on current IRS allowable expense guidelines, and that more than one 

quarter of these taxpayers had incomes at or below poverty levels. 

To minimize harm to economically distressed taxpayers and improve collection processes, I recommend that the IRS allocate resources to provide earlier intervention on delinquent accounts, 

make collection alternatives more accessible to appropriate taxpayers, and implement a hardship screen for Social Security levies. 

I also recommend that congress increase the authorization for low 

income tax payer clinic funding to $12 million and explicitly authorize the IRS to refer taxpayers to IRS-funded clinics, so that in 

these difficult times low income tax payers can obtain assistance in 

tax disputes. 

Another important issue: taxpayers whose lender forgives their 

obligation to pay all or some of a debt may face serious tax consequences, since the Tax Code requires them to include the amount 

of debt forgiveness in gross income. There are exceptions to this 

cancelation of this debt income rule, including when the taxpayer 

is insolvent or the debt relates to certain home mortgages. But the 

terms of these exclusions are complex. Few taxpayers know what 

the word ‘‘insolvent’’ means, and taxpayers use their home mortgage proceeds for purposes other than buying or improving their 

homes; for example, to consolidated credit card debt or pay education expenses are not eligible for the recently enacted home indebtedness exclusion. 

To reduce burden these rules impose on financially struggling 

taxpayers I recommend that congress consider adding an exclusion 

in sections 108(a) of the Code, which provides that taxpayers are 

not required to include canceled debts in gross income if the total 

amount of the canceled debts from all sources during the year falls 

below a specified threshold and we no longer require these taxpayers to file a very complex form 982. 

I appreciate your interest in these issues, and I would be pleased 

to answer any questions you may have. 

[The statement of Ms. Olson follows:] 

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Chairman LEWIS. Ms. Olson, thank you again for being here 

and thank you for your testimony. 

At this time I will open the hearing for questions. I ask that each 

Member follow the 5-minutes rule. If the witnesses will respond 

with short answers, all Members should have the time to ask question. 

I would like to remind Members that the Subcommittee will follow the Gibbons rule for questions. Members who were here before 

the gavel will be recognized in seniority order. Members arriving 

after the gavel are recognized by the time of arrival. Since we have 

so many new Members, I felt it was necessary to state that just to 

be reminded. 

Madam Deputy Director, the IRS has given its employees greater 

flexibility to deal with taxpayers while struggling to pay what they 

owe them. Have privates debt collectors also been given more flexibility to help taxpayers? 

Ms. STIFF. So we’ve taken a number of steps to increase the 

ability of our employees to resolve issues with taxpayers with minimal amounts of documentation or burden on those taxpayers in 

making the decision on how to handle those accounts. And the 

PCAs, the cases they get, those authorities that we’ve given to our 

people generally won’t be necessary in the situation of the PCAs, 

because by definition the private debt collectors are working cases 

where the taxpayers can either full pay or they choose to enter into 

an installment agreement. And, anything beyond that, the case 

comes back to the IRS and the flexibilities would be applied there. 

Chairman LEWIS. I thank you, Ms. Stiff. 

Ms. Olson, why is it so important for taxpayers to deal directly 

with the IRS and not private collection agency when trying to pay 

their taxes? 

Ms. OLSON. Well, as Ms. Stiff said, the private collection agency 

employees don’t have the ability to place taxpayers into currently 

not collectible status to process an offer in compromise, to really 

make any decision that requires the exercise of judgment and discretion. Our screens on these cases aren’t sophisticated enough to 

pick-up taxpayers in those circumstances, so many of the taxpayers 

that the private collections agencies get have to be referred back 

to the IRS for processing. It’s a duplication of effort. 

Chairman LEWIS. Let me now yield to the Ranking Member for 

question, Mr. Boustany. 

Mr. BOUSTANY. Thank you, Mr. Chairman. 

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Deputy Commissioner Stiff, the taxpayer advocate sites data in 

her written testimony that valid offers and compromises have fallen and that her analysis suggests more valid offers were deterred 

rather than frivolous ones. Do you concur with that analysis? 

Ms. OLSON. I know that the data would say that there’s a fewer 

number of offers coming into the agency today, and I guess the position I’d like to take on that, and I spent a lot of time thinking 

about this over the weekend, because over the past four to 5 years 

I think Nina and the IRS have spoken numerous times to Members 

of this body and other Members of the Congress on the offer in 

compromise program. We’ve taken extraordinary steps and measures to improve it. Nevertheless, I think the most important fact 

that I focus on is the fact that last year roughly 50,000 taxpayers 

came in and requested to be a part of the offer in compromise process. 

I think that suggests that there’s a disconnect between what’s 

available to taxpayers and what they’re availing themselves of, so 

I’ve asked our staff last night. I said I think it’s appropriate that 

we’re going to bring in a third party to do an assessment of how 

we’re doing our work to help us figure out where we may be putting impediments or barriers that we’re not even recognizing. And, 

more importantly, I want to bring in a third party who can help 

us determine, who are. That’s what they do for a living is determine how to reach a customer base or a taxpayer’s base and figure 

out how we can improve our communications, how we can improve 

what we’re doing at each step so that an offer in compromise becomes a viable collection tool, not just for IRS employees, but in the 

minds of taxpayers and preparers. 

So I think what I’d like to say here today is that we’ve been talking about this for a long time and I think it’s time now to take another step and bring in some outside expertise to help us expand 

and see if we can’t let the American public see the offers in compromise are a viable option in the appropriate circumstances. 

Mr. BOUSTANY. Thank you, and Ms. Olson in your testimony 

you discussed your research on the affect of the 2006 legislation 

which required taxpayers making an offer to make a downpayment 

of 20 percent of the offered amount. As a result, the number of offers fell 21 percent based on your testimony. I see that the receipt 

from offers also fell by roughly the same amount. 

The Joint Committee on Taxation estimated that this legislation 

would raise 160 million in the first fiscal year after its enactment. 

Were there some other actions or events that could have contributed to this decline in offers, or was the fall caused solely by the 

legislation? 

Ms. OLSON. I actually think that that fall was caused by the 

legislation. If you look at the table we have in our testimony, the 

number of accepted offers between 2000 and 2008 fell by 72 percent. And the first fall was attributable to what I believe are the 

IRS’ burdensome procedures. Then we imposed a user fee and then 

this 20 percent down requirement came in. And we did a study 

that found that the taxpayers who submitted good offers—offers 

that were accepted right before the legislation was passed—in 56 

percent of those cases taxpayers got their money for the offer for 

people other than themselves, from their family, from friends, from 

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churches, from employers. So the legislation itself, nobody’s going 

to give somebody money to put down on an offer that you don’t 

know is going to be accepted or not. It’s only when you know it’s 

going to be accepted that you’ll give that money. So we lost out. 

Mr. BOUSTANY. Would you expect receipts from offers to return 

to previous levels if we suspended that 20 percent downpayment? 

In other words, do we have 30 million per year as a revenue raiser 

on our hands? 

Ms. OLSON. I think it has to be coupled with a vigorous outreach campaign. And, I have to add this: I personally don’t think 

we need an outside expert to tell us how to run the offer program. 

We have models how to run the offer program correctly. Most practitioners believe that the offer program is dead, and so they go to 

bankruptcy for the clients rather than going into the offer in compromise program. And we lose money. So it has to be eliminating 

the 20 percent down and vigorously telling taxpayers we want to 

get good offers, and then changing our procedures so we receive 

good offers. We don’t stop them at the door like we are now. 

Mr. BOUSTANY. Thank you. 

Deputy Commissioner, would you like to respond? 

Ms. STIFF. I believe as I said earlier that there are literally millions of accounts receivables, taxpayers owing delinquent debts. 

Only 50,000 came in last year to apply for the offer program. I 

think that the program we have works. I think we’re actually 

granting as many offers pro ratably that we’ve ever granted. 

I think the issue for me is there’s a gap between taxpayers that 

are availing themselves of the program, and that suggests to me 

two things: one, that perhaps we’re not introducing the program or 

making it available in a way that it resonates; and, two, that I 

need to be doing something that touches the hearts and minds of 

taxpayers so they realize the program is there and they can use it. 

Mr. BOUSTANY. Thank you. 

I yield back. 

Chairman LEWIS. I am pleased to recognize Mr. Etheridge for 

questions. 

Mr. ETHERIDGE. Thank you, also, for having this hearing and 

for our witnesses for joining us today. 

Madam Deputy Commissioner, I applaud your efforts to aid the 

taxpayers that are facing economic difficulty in light of the current 

economy, because it really is tough as you indicate in your testimony. And over the last several years there’s really been a sharp 

increase in the fund anticipation loans that people have taken out 

anticipating a loan. 

So with that and with the current recession being even deeper, 

there may be even more taxpayers who borrow against those expected tax refunds to save their money a little quicker. And my 

question to you, are you seeing an increase in these types of loans 

already this year or can you tell yet. Is it too early to know? 

Ms. STIFF. It’s too early for me to definitively say that there are 

more or less RAU ones. I do think in the first few weeks of the filing season we had a slight increase in the number of returns file 

claiming EITC credits, and generally speaking, that’s where you 

see the RAU activity. But it’s so early that the increase isn’t statistically suggestive or to be relied on at this time. 

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Mr. ETHERIDGE. The reason I asked that question is because 

I feel that some of these loans create a problem for some of these 

taxpayers, so my question is this. Are there steps that the IRS is 

taking or can take that might minimize the number of taxpayers 

who choose to participate in these refunds, anticipate the loans 

that will help the taxpayer. Because that’s really what it’s about; 

that they don’t wind up with less than they could have had because 

they’ve had to participate in these programs. 

Ms. STIFF. I absolutely agree with you. It’s a sad state. Unfortunately, it occurs where taxpayers actually are willing to engage in 

the loan and pay the interest on the loan so that they can have the 

money instantaneously. We are trying to modernize our systems so 

that we will be able to accelerate the timeframe for refunds. 

If you file electronically, you’ll get your refund within seven to 

ten days. Our CADE system, which is our new modernized platform, processed last year roughly 35 million of the 140 million individual returns on that new system, and it provides the refund in 

roughly four to 6 days. Sadly, there are still taxpayers for whom 

four to 6 days is longer than they’re willing to wait, and so they 

still avail themselves of the RAUs. 

Mr. ETHERIDGE. I thank you, because I think this is an area 

where we can have as much impact on people who really have the 

greatest need, probably anything we can do to speed this up and 

minimize that drag time certainly puts money in the pocket of taxpayers quickly. 

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

Ms. OLSON. Yes, I think that what Ms. Stiff said about the 

CADE is very important and I think if congress authorized the IRS 

to do an advertising campaign that informed taxpayers of the different options, because right now there’s so much advertising about 

these immediate loans, us simply saying it in a press release is not 

going to be enough to get the message across. 

Secondly, I think the government needs to create stored value 

cards for taxpayers. We do it with Social Security, and 26 some odd 

states do it for unemployment compensation where taxpayers who 

don’t have bank accounts can get what is essentially an ATM card. 

They can go to any bank and could get their refund downloaded. 

We already have the technology, and I think we just need to do 

something like that. There are taxpayers working at large companies that get their payroll on these stored value cards. They could 

write that information in and we could get their refund out very 

quickly within these four to 6 days. 

Mr. ETHERIDGE. I thank you. 

And Mr. Chairman, I think this is an area where we can have 

a real impact on a lot of folks who have tremendous needs and it 

will be a hug savings. In the little time I have left, let me ask one 

final question. Are there more taxpayers calling IRS for assistance 

now than there were last year at this time? And is it increasing? 

And I guess my question would be what are taxpayers asking that 

we can help with. 

Ms. STIFF. Okay. The answer to that question is yes. More taxpayers are calling us than they did last year, and that in itself is 

a significant statement, because as you know, last year we were 

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ulus. There are a couple of things that are impacting the calls that 

we’re having this year. First of all is that if you were eligible, well, 

if you were a taxpayer and you got stimulus last year, and you got 

a reduced amount or you didn’t get it, but over the course of the 

year you became eligible for more than you got, you have an opportunity this year to claim that additional amount on your tax return. It’s called the rebate recovery program. 

Unfortunately, because of the way the law was crafted that’s a 

somewhat complex computation and an inordinate number of taxpayers who have tried to do that have experienced errors, and so 

we find them calling. Secondly, you know, in our e-file program, 

you can electronically file and you can submit your return; and, in 

the past, I’m hoping you all e-file or that someone is e-filing for 

you. But, if you e-filed it, then subsequently you had to send the 

IRS a form with your signature on it. 

We made a change this year at the urging of just about everybody and anybody involved in it that you shouldn’t need to send 

that form, that you could rely on a pin. That process of using the 

pin to file requires you to know your AGI or your adjusted gross 

income from the prior year. And, I guess, unlike myself, a lot of 

taxpayers don’t have their prior year returns in a desk drawer and 

go look up their AGI. Instead, they pick up the phone and they’re 

calling the IRS and saying can you tell me my AGI so I can e-file 

this year. So we’ve had an inordinate amount of that kind of traffic. 

The third area that we’re experiencing, and I think it really 

makes good sense and I think if I’m the taxpayers instead of the 

IRS I would probably do the same thing. They have been 

bombarded on the media, in the news, on the TV, with talk of stimulus, with talk of bailouts, with talk of checks. We have thousands 

of taxpayers calling us a week saying am I entitled to anything. 

Should I be getting something? What do I need to do to get something? And I don’t think it’s clear to them how that works, and so 

we are receiving an inordinate amount of phone calls. 

Mr. ETHERIDGE. Mr. Chairman, thank you for your indulgence, 

and this rates as a real issue that might need to consider. They do 

need some money to do some advertising to help get. 

Chairman LEWIS. Thank you very much. 

Mr. ETHERIDGE. Thank you, Mr. Chairman. 

I yield back. 

Chairman LEWIS. Well, thank you. 

I think that is very helpful. 

Mr. Roskam is recognized for question 

Mr. ROSKAM. Thank you, Mr. Chairman. 

And welcome. Thank you. It’s an honor to be here. 

Ms. Stiff, Chairman Lewis pointed out, I think accurately, that 

we’re going to be getting a lot more inquiries in our district offices. 

More and more people are hurting. There’s this looming tax liability that’s out there and I represent a district in the West and 

Northwest suburbs of Chicago that has an expectation of what’s 

good is good for the gander, just fair play. 

I am going to ask you to comment on Secretary Geitner’s treatment by the IRS, because it was a highly celebrated. Well, not celebrated. It got a great deal of attention. I’m obviously not going to 

ask you to comment on anything that’s in a confidential file, but 

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the facts and figures are in the public domain. So there’s an expectation that I am going to be hearing from constituents when they 

incur a tax liability and incur interest, and, presumably incur a 

penalty that they’re going to be treated and sort of get the Geitner 

rule applied to them. 

Can you comment on what their expectation is? What their expectation should be? The calculation that the IRS made as it related to Secretary Geitner’s tax liability and the decision not to 

pursue a penalty and to let him off by simply writing a check for 

the tax liability and the interest. And, what is it that animates the 

decisionmaking at the IRS, and how does it apply to the district 

that I represent? 

MS. STIFF. Okay. Clearly, I can’t speak to any of the facts specific to Secretary Geitner’s individual tax matter. What your constituents should expect, that if they owe an amount for their tax, 

that they’re going to be charged with the amount of tax they owe. 

that their going to be charged with interest and penalties to the extent they’re applicable. 

If your taxpayers believe there’s a reason that those penalties 

shouldn’t apply that they meet the reasonable cause standard, then 

they should expect to be prepared to explain that to us and engage 

with us in a discussion, and those decisions are individual facts 

and circumstances based on the penalties that would apply in their 

case. 

Then, thirdly, they should expect that once those amounts have 

been determined and agreed-to, that if they’re experiencing difficulties in coming up with ways to pay that that they need to engage 

with us to talk through what payment plan options there might be, 

what alternatives they would have that would allow them to resolve their tax debts in a way that isn’t overly burdensome to them 

as an individual. 

Mr. ROSKAM. Okay. Let’s assume for the sake of argument that 

someone has the ability to pay the liability as Secretary Geitner 

did. And let’s further assume that there is a similar self-employment issue. Let’s say I have a constituent that worked for the 

International Monetary Fund and didn’t pay their taxes. Is it an 

expectation that that taxpayer that I represent would be treated in 

that same way, not pay the penalty, regardless of whether they 

sort of, you know, pull out a laminated hall pass that says my accountant said this even though I got a letter from the IRS. I mean, 

how is that? 

Ms. STIFF. First of all, and I’m not trying to be coy. I’ll be perfectly honest with you. I don’t know the specific facts of Secretary 

Geitner’s case, but I can tell you that if a taxpayer failed to pay 

self-employment tax we would expect them to report it, pay the 

taxes they owe. They’re going to be subject clearly to the interest 

that flows with that. And the penalty that they may or may not 

be subject to will be dependent on the facts and circumstances of 

their case and the reasons for why they found themselves in that 

situation or not. 

Mr. ROSKAM. Okay. Our time is coming to a close. Two questions: could you follow-up; and, I’d like to hear from you once you 

do know the facts of the case. And at some point in the future within the next couple of weeks, could my office hear from you on that? 

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That’s question number one; and question number two is what 

is it that creates the predictability for how a taxpayer is going to 

be treated and is this an area that needs further inquiry into the 

future. Because if it’s completely within the discretion of the internal revenue service and you’re bound by a confidentiality that says 

you can’t disclose, and I would submit sometimes that’s handy and 

sometimes that’s a burden. Right? And you’d even acknowledge 

that. 

Ms. STIFF. Be happy—— 

Mr. ROSKAM. Let me just finish, because my time is winding 

up. 

I think it’s very important moving forward in this environment 

where, I think, there’s going to be more and more concern about 

people being treated fairly in the same way in which powerful people are treated in this country. 

Mr. Chairman, with that, I yield back, because my time has expired. 

Chairman LEWIS. Deputy Commissioner Stiff, do you care to respond? 

Ms. STIFF. I’ll respond by saying we’ll be happy to get back with 

you and I don’t want to suggest that the application of interest and 

penalties is discretionary. It’s a part of what’s expected. The discretion or the judgment comes in if there’s a reasonable basis that it 

shouldn’t be applied. But we’ll come back to you and we’ll talk 

more in detail about that. 

Mr. ROSKAM. I’m out of time. I’d love to engage you further. 

Thank you. 

Chairman LEWIS. Mr. Higgins is recognized for question. 

Mr. HIGGINS. Thank you very much, Mr. Chairman. First of all, 

Ms. Stiff, in your testimony you had indicated that the good news 

is in this economic contraction that working families may be eligible for the earned income tax credit which will put money in their 

pockets. The bad news is that as many as one in four eligible taxpayers are not claiming the credit. 

You go on to talk about the initiatives the IRS is making to go 

into those economically distressed areas with free tax preparers, 

does the IRS have a goal relative to insuring that people do in fact 

claim the credit and is there a period of time within which that 

goal is anticipated to be achieved? 

Ms. STIFF. Let me just provide a little bit of background to what 

you’re saying. I mean our goal clearly would be that every taxpayer 

that’s entitled to that credit would know it, claim it, and get the 

benefit of it. Having said that, the one in four number I itself, 

there’s more behind that. There is about approximately an 86, 85 

percent participation rate with the EITC credit for people who are 

eligible with two children. So the reason for that is at that level 

the value of the credit can go as high as $4800 for a family. 

The participation rate for taxpayers with no children, so the 

averages kind of mask that, is roughly 56 percent; and, the reason 

for that is the credit at that amount can be as low as $430. So 

there’s a different incentive and a different interest in making that 

claim, not that $430 isn’t a significant amount of money at those 

income levels. 

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So where we find ourselves now is we’ve spent years trying to up 

the total participation, and what we’re finding now is we need to 

make this remaining lift in the participation rate, that we’re going 

to have to have targeted outreach. And it may have to be different 

for the 56 percent with no children than it is to get the additional 

40 percent on the families with two children. 

Mr. HIGGINS. What was it 5 years ago? 

Ms. STIFF. I don’t know the answer off the top of my head, sir. 

I’d have to get back to you on that. 

Mr. HIGGINS. But improved? 

Ms. STIFF. I think the overall rate was between 68 and 75, so 

the IRS has done extraordinarily well with families with children 

and I think what you find in what we call the childless worker population is that many of those people have marginal wages, so they 

may not even be getting large refunds. They may not even be filing 

returns; and, so, they don’t even find out that they could get this 

$450 credit which would offset the Social Security that’s taken out 

of their checks. 

Mr. HIGGINS. Okay. Ms. Olson, what do you see as the most 

complex aspect of the Tax Code for individual taxpayers, particularly during this economic downturn? 

Ms. OLSON. You know, that’s such a hard question to answer 

because the law is so complex. You know, there are different things 

that impact different taxpayers. Again, we just had the discussion 

about the single worker who doesn’t even know there’s this benefit 

out there he can get. 

We have in the retirement provisions people who may need to 

take early withdrawals from their accounts, and they may be 

taxed. They’ll not only be taxed on those early withdrawals, but depending on the kind of retirement plan they have, they may get an 

additional 10 percent tax. You know, that’s a real trap for the unwary. 

I think that the indicator of just how complex the law is is that 

over 80 percent of individual taxpayers pay for assistance in preparing their returns. Over 60 percent go to paid commercial preparers and another 22 percent by software; and that’s not counting 

the people who go and get the free tax preparation. So it’s just the 

sheer size of complexity is just overwhelming. 

Mr. HIGGINS. Yeah, well, as a taxpayers advocate, what are 

suggestions, you know, you would have for simplification of the 

process? 

Ms. OLSON. Well, we have certainly recommended in the report 

additional simplification of the family provisions so that instead of 

having six different provisions that people have to wade through 

we really have a basic family credit and a basic worker’s credit. 

We’ve recommended simplification of the education incentive so 

people don’t have to have a degree to figure out which one’s the 

right one for them. And, again, as I talked about the retirement incentives and I would have to say you have to eliminate the alternative minimum tax. 

Mr. HIGGINS. Thank you, Mr. Chairman. 

Chairman LEWIS. Among this group, Members I don’t think 

would be in too much disagreement with that. I think that would 

be a proper consensus among the Members of the Committee—not 

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just the Subcommittee, but the Full Committee—that we must find 

a way to eliminate this tax; and, one day—one day—we will find 

the courage to do just that or find the means to do it. 

Mr. KIND. We shall overcome, Mr. Chairman. 

Chairman LEWIS. We shall overcome some day—someday. 

Mr. Reichert is recognized for question. 

Mr. REICHERT. Thank you, Mr. Chairman. 

And I echo Mr. Roskam’s statement in honor to be here and an 

honor to serve with you and the rest of the colleagues here. 

Chairman LEWIS. Thank you for being here. 

Mr. REICHERT. My pleasure. I wanted to follow-up if I could on 

Mr. Roskam’s line of questioning, just with a couple of thoughts. 

So talking about owed tax, interest and penalties, and there’s disagreements with that, then I think Ms. Stiff, you said there should 

be an engagement between the IRS and the taxpayer. And then 

hopefully you come to some agreement. 

How does this process take place? Is there a mediator? What if 

there’s no agreement? What happens? Is there a mediator that 

comes in that’s bipartisan personality? 

Ms. STIFF. I don’t know that I would say that there’s a mediator 

in the sense that you’re probably referring to. If taxpayers owe us 

money and they want to debate the amount of money they owe as 

a result of an audit, they do have due process. There’s an appeals 

process, which does bring in third-party to look at the facts of the 

case and reach a conclusion. Taxpayers can always exercise their 

options to go to court. 

On a collection action, if we’re proposing a lien or a levy as a result of the failure to pay, they have an ability to appeal that process. Most of where that discussion is to the reasonableness around 

penalties, which is the issue that he was raising, takes place at the 

frontline, either between the individual that’s interacting with the 

taxpayer as to the facts and circumstances. And we recently made 

some systems changes and some process changes, actually, at 

Nina’s urging in her report, to ensure that taxpayers aren’t being 

penalized during the period of time that we’re having that debate. 

Mr. REICHERT. I would assume that some time in this process 

of discussing the disagreements that exist, someone makes the decision whether or not there’s a criminal offense that’s occurred. Did 

that sometimes happen? 

Ms. STIFF. Yes, sir, we do. We have an active what we call a 

‘‘fraud referral process,’’ so that either in the collection or the examination stream, if our personnel identify what we call the badges 

of fraud, which are a series of indicators, then when we feel that 

we’ve got enough there. Then we’ll cease on our civil activity, and 

we’ll actually refer that case over to our criminal investigators so 

they can evaluate it for its criminal potential. 

Mr. REICHERT. This is where the Miranda warnings then come 

in? 

Ms. STIFF. Yes, sir, it is. 

Mr. REICHERT. Thank you. 

I want to just follow-up to on some comments that you mentioned 

there were increased calls. I’m just wondering by thousands of 

calls, have you asked for additional staff. Is there a need for additional staff? 

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Ms. STIFF. We’ve been very fortunate. You and your colleagues, 

and in particular Chairman Lewis, have taken steps to assure that 

the stimulus bill that you just passed included funding that is 

going to supplement our staff which should help in responding to 

some of the calls that are related to the stimulus. 

Mr. REICHERT. Will there be a need for additional staff, do you 

think? 

Ms. STIFF. It’s probably too soon for me to say that. I think that 

what we’ve asked for and with the passage of an ’09, the omnibus, 

will position us to get us out from under the CR, and it also provides for some additional funds to handle the phone traffic as a follow-up to last year’s. I think when we get that money we should 

be positioned to respond to what’s coming at us. 

Mr. REICHERT. Great. Ms. Olson, you mentioned the tax gap in 

your testimony and that the IRS’ lack of resources is significant. 

And it’s an impediment to your ability to really get your job done 

and it creates this tax gap. You mentioned that the complexity of 

the Tax Code in your testimony for example regarding AMT. 

Do you think the complexity of the Tax Code contributes to the 

tax gap? 

Ms. OLSON. I think that it contributes to a part of it. There are 

so many causes for that, and in a way I believe that that goes to 

how we should treat taxpayers. If you have someone who is actually undertaking fraudulent activity, that’s going to require a very 

vigorous response from the IRS in terms of enforcement action and 

criminal investigation action and criminal charges. 

On the other hand, if you have someone who is just confused and 

has made a mistake you really have to look at what’s the right approach for that person: clearly, educating them; making sure they 

don’t do that again; and then making sure that they pay the tax 

and the interest to the extent that they’re able to that gets into the 

penalty discussion. 

You know, I recommended a few years ago the proposal that was 

called the one-time, stupid act penalty abatement, where you basically give people a pass the first time. Because the goal of the penalty really is to make sure that they stay in voluntary compliance, 

so let’s educate them and say go and sin no more. You do it again, 

expect a penalty. 

Mr. REICHERT. Thank you. Thank you Mr. Chairman. 

Chairman LEWIS. Thank you very much. 

Mr. Kind is recognized for question. 

Mr. KIND. Thank you, Mr. Chairman. 

I want to thank our two invited guests here today for your testimony and thank you for holding this very important hearing. We 

have a lot of important issues coming up that gives us a lot of opportunity to delve into, many of it with you, one of which is obviously the recently enacted Economic Recovery and Investment Act 

(ERIA). There’s a lot of tax credits and deductions, exclusions, 

things of that nature; and Ms. Stiff, maybe we could start with you. 

In regards to the type of public education awareness campaign 

that needs to take place so people understand this more and know 

what they can take advantage of now, it is somewhat complicated 

and I’m just wondering what steps the IRS is taking in order to 

help with that public education campaign. 

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Ms. STIFF. The IRS has actually been working feverishly in anticipation of the passage of the legislation. Clearly, it was impossible to finalize what you’re going to communicate and what’s the 

best way to communicates it ’til you knew what was there. So we 

were well-positioned when the bill passed to drop in, kind of, what 

the provisions are, the rules. 

We’ve got to have forms. We’ve got to have pubs. We need to get 

information out to taxpayers swiftly. We’re working on that and I 

think we’re days away from being able in a number of those provisions to be fully loaded for Bear in terms of communication, not 

weeks or months. 

Mr. KIND. And a user friendly website, I assume, will go to IRS? 

Ms. STIFF. Yes, absolutely everything will go to IRS dot gov. 

Mr. KIND. Is this something our offices will be able to link to, 

because we’re already getting inquiries, my constituents. 

Ms. STIFF. Yes, sir. Clearly, we’re still having on some of the 

provisions, we’re still having to flush exactly how it’s going to be 

administered, and so we want to have the information when we get 

it out there, be as useful as we can. But I think given that the passage has been in recent days, I would expect that within just a very 

short, few days, that we’ll have at least for the provisions that are 

affected or affect taxpayers who are trying to file their tax returns 

this year, we’ll have that out there. 

Mr. KIND. And can we assume that the various software entities 

that exist for tax preparation purposes are going to be able to update all that? Because we’re already in tax filing season. 

Ms. STIFF. Yes, sir. We have been working with them again 

since before the holidays to ready for this. They face that same 

problem we did until it was passed. They couldn’t complete programming. We are talking to them multiple times a week and en 

masse and individually. And at this point, I think by and large 

we’ll all be prepared to move in time to get done what needs to be 

done, what you’ve asked us to do this year. 

Mr. KIND. Now, the making work pay tax provision in the recovery package, that’s going to be dealt with through the employers 

not taking as much withholdings out of the paychecks. What do 

you suspect the compliance rate will be with that? 

Will the employers be able to make that quick adjustment? Because this is my understanding kick in, in April already, and last 

throughout the rest of the year. 

Ms. STIFF. I think that for that type of provision we generally 

find that most employers are able to respond quickly and nimbly 

to that and aren’t expecting a lot of compliance issues there. 

We expect this time next year as taxpayers are trying to reconcile what was withheld and what they owe, we may see some additional issues or questions then. But, our experience is that our 

employers are as a general rule prepared to respond to a change. 

Mr. KIND. What about employees with multiple paychecks or 

multiple jobs? 

Ms. STIFF. That’s where it gets complex, because which withholding gets adjusted. Where, and is the employee going to be left 

as I said earlier at the end of this year, either having been over 

withheld more than they wanted or under withheld; and, part of 

our communication strategy will be to alert taxpayers to that. But 

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I’m confident that with 140 million individual filers this year, there 

will be some that will encounter that difficulty. 

Mr. KIND. Let me ask you too. I know it’s a small item, but it’s 

one that nevertheless tends to bother me from time to time. I notice that in the tax rebate notification process last year, but it’s my 

understanding the IRS is going to be sending out some tax withholding reports to nine million employers starting in mid-March, 

mailing it out. 

How much is that going to cost and is it necessary to have to actually mail those reports out to nine million employers, when my 

guess is all of them are automated anyway and they can get this 

information off the Internet? 

Ms. STIFF. I don’t know that it’s nine million or not, so I won’t 

dispute your number. But I don’t, off the top of my head, actually 

know. 

Mr. KIND. At least that’s what been reported. 

Ms. STIFF. It hasn’t been. Okay. I’ll say two things. We will 

have the tables on the web, in fact, they may be on the web. I’ve 

lost track in the last few days here. We’ll have the tables on the 

web for employers to begin accessing almost immediately. 

Mr. KIND. Right. 

Ms. STIFF. We also feel that we do have to distribute the tables, 

because there’s 20 something million small businesses in this country; and, to assume all of those, particularly some of the very small, 

are necessarily going to use the web. 

I don’t think that you or anyone would want—you’re intending 

for this money to get to these taxpayers—and we need to ensure 

that we equip the employers with the information they need to 

make that happen. I don’t know the cost, but I probably can get 

that. 

Mr. KIND. Well, I would like to follow-up with you on that, because we are in the 21st century now; and with all due respect, 

technology is a major part of what’s going on in the economy. And 

it just seems, you know, nine million withholding tables being 

mailed out individually. It seems to be an incredible waste of resources and money. 

I mean, last year, Mr. Chairman, you may recall there were two 

IRS notifications on the tax rebate check to the vast majority of 

people telling them you don’t have to do anything. And it cost us 

a hundred million dollars to do those two mailings for that. So I’m 

just wondering if the IRS is thinking through this, how we can best 

utilize technology for cost savings; and, granted, the withholding 

tables may not be that expense to mail out and there may be certain segments that need that and show up in their doorstep. But 

I would hope that as we’re moving forward, given the budget 

crunch, Your Honor, we try to streamline some of this. 

And, finally, Ms. Olson, I couldn’t agree with you more on tax 

simplification and would love to begin a dialog with you, especially 

with the education and the savings complexity in the Code right 

now and how we can streamline that and consolidate it. I know you 

and your organization has done a lot of work on that, and some of 

those issues where you mention it and everyone’s head goes up and 

down in vast agreement, you’ve just got to start doing it. 

Ms. OLSON. Thank you. 

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Ms. STIFF. Thank you. 

Chairman LEWIS. Mr. Davis is now recognized for question. 

Mr. DAVIS. Thank you, Mr. Chairman. 

Ms. Stiff, unlike Mr. Roskam I don’t have any constituents who 

work for the IMF so I won’t waste your time on that. Let me 

though talk about something that’s a little bit more relevant to my 

constituents. The University of Alabama runs an organization 

called the Center for Ethics and Social Responsibility; and the very 

talented young man who runs it happens to be the grandson of the 

former Supreme Court Justice, the late Hugo Black. 

And several months ago the Center conducted a sting operation. 

They used law students to go to tax preparer sites in the state of 

Alabama. All of these tax preparer sites purported that they would 

help you get an anticipatory refund in very short order. Sting operation was done in these 13 sites. Virtually every single one of them 

was engaging in some kind of negligent practice or some kind of 

practice that was an outright misrepresentation—virtually every 

single one of the 13. 

So Mr. Black has put together a legislative proposal at the Alabama legislature is currently considering, and it has several interesting components I want to get your reaction to. One of the things 

that this legislation would require is that for tax preparers, first 

of all, would have to be licensed by the state of Alabama. The second thing is that after being licensed as with lawyers, as with doctors, as I understand is the case with accountants, they would have 

CLE obligations. They would have to regularly take courses to update their knowledge of the shifting sands of tax law; and, in addition to that, they would have to pass a proficiency exam before they 

could be licensed at all to be tax preparers. 

Could I get some reaction from you, Ms. Stiff, and from you Ms. 

Olson, as to the advisability of a legislature passing that kind of 

remedial action to protect people from tax preparer services? Ms. 

Stiff, I’ll start with you. 

Ms. STIFF. Yeah, I’ll say a couple things. Nina will probably be 

in a position to respond probably more completely than you are because in the role of the IRS we generally enforce and don’t advocate laws. But I will say we are concerned. 

People that hold themselves out to the public and take on that 

fiduciary responsibility that they conduct themselves in an appropriate manner and we’re taking steps to strengthen our own monitoring of that universe and where we’re developing a preparer 

strategy in outreach, I know there’s been much debate by this body 

and on the Senate side as well around the merits of registering of 

licensing of monitoring; and, I think that there’s pros and cons to 

that. 

I am confident that there’s administerability issues with doing 

any and all of what you’re saying, and I think there are folks that 

will say to some extent it will help. To other extent, it tends to 

make it more difficult for the already compliant and drive the noncompliant further underground. So I think there’s a lot of debate 

to be had on the issue. 

Mr. DAVIS. Ms. Olson, would you like to weigh in? 

Ms. OLSON. Well, in 2002 one of my legislative recommendations was to do exactly what you suggested: register, test, and rejbell on PRODPC61 with HEARING

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quire continued testing of what I call unenrolled preparers; people 

who are not attorneys, certified public accounts or enrolled agents 

who already have a testing and annual continuing education proposal. That provision has been passed several times by the Senate. 

Congressman Becerra had a bill last year that had the most recent version of it and I think there’s actually very little debate on 

this at this point. 

Mr. DAVIS. Unless you’re in the Alabama legislature. 

Ms. OLSON. Well, every single major practitioner group, including these unenrolled preparers nationally have come out in support 

of this proposal. There are little things around the margin that 

they’re concerned about. 

I just say to me the worst thing that could happen is to have 50 

different regimes around the United States for the Federal tax law 

so that people who prepares from one state to another have to meet 

all of those requirements. This is a Federal law and I think we 

need to make sure that the people who are making their living by 

preparing returns, Federal tax returns, meet a basic level of competency; and we have to have the regime for that. 

Mr. DAVIS. And I would just conclude, Mr. Chairman, by saying 

Ms. Olson I suspect you’re right. An ideal world there would be a 

Federal standard in place. For various reasons that has not happened. I think it should happen and until we get to that point, it 

seems eminently reasonable to me that states would regulate in 

this area. As a matter of just common sense, it seems to me if 

you’re preparing tax returns for people and holding yourself out by 

definition as someone who has expertise that you ought to have to 

pass some exam that says that you have that expertise. 

As we’ve established, tax law changes constantly. This body has 

made changes. The last several years have been very impactful, so 

it seems reasonable that you ought to have to know about those 

things. And last comment, what has predictably happened in my 

state is that there was a lot of momentum around it. It was moving 

in a particular direction, and now a lobbying group has formed in 

the state of Alabama to fight for the right to prepare returns without being licensed. Not surprisingly, the lead entity in that lobbying front happens to be the company that have the most egregious violations and the sting operation that was conducted. 

Thank you, Mr. Chairman. 

Chairman LEWIS. Thank the gentleman, Mr. Davis from Alabama, for raising the issue. I think that concern would have been 

before us before, that you have this little fly by-night tax preparer 

that comes around during filing season, and a sort of rip-off to taxpayers. And then I’ve heard they sort of disappear. 

Mr. Becerra, who I want to yield to has been involved in the 

issues. I yield. 

Mr. BECERRA. Mr. Chairman, thank you very much. 

Mr. Chairman, I think this type of hearing, in fact, I think informal sessions with both Ms. Stiff and Ms. Olson would be very 

worthwhile for us. So first thank you for being here, your testimony, your observations; and, once again, Ms. Olson, thank you for 

your excellent recommendations on what we could try to do. 

I think much of what you said includes actions that could be 

taken without legislative authority; and, perhaps we could work 

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with you on trying to help move in that direction with some of 

these activities. 

Mr. Chairman, Ms. Olson has in her testimony a figure that I 

think is important for us to note. There were more than 2,600,000 

taxpayers with delinquent accounts that or non-collectible accounts 

in 2008. That same year, the IRS accepted about 10,600 offers in 

compromise, negotiated settlement, with some of these taxpayers 

who were delinquent. Interests have been trying to resolve it. Another 22,500 or so were taxpayers given a chance to arrange partial 

payment installment arrangements. 

That means that only one of every 78 taxpayers, who is delinquent or has an account that’s non-collectible, had an opportunity 

to try to resolve this without facing some further legal challenges 

or consequences. I am gratified to hear that the IRS is trying to 

do a little bit more and that recently you announced that you were 

going to try to deal with this situation economic distress that many 

taxpayers find themselves in to try to be more accommodating for 

those who are reasonably trying to do what they can to pay their 

share of taxes that they owe. 

But, I have a question that I’d like to ask Ms. Stiff and Ms. 

Olson. Actually, let me direct it to Ms. Olson for now. Those private 

collection agencies that are collecting from many of the most distressed families out there, because many of the accounts that these 

collection agencies have are people with modest incomes whose tax 

obligation is quite low. But for them it’s a big debt. These collection 

agencies don’t fall into the same requirements and responsibility 

that IRS personnel do to try to provide taxpayers with information 

about what they can do to try to make it easier for them to pay 

their taxes owed. 

Do those agencies have those same types of requirements? 

Ms. OLSON. No. The only thing that those agencies can do is ask 

the taxpayer if they can full-pay or if they can pay within 3 years. 

And anything else, the case has to go back to the IRS; and, clearly, 

the incentive is there that you would in ever so subtle ways, you 

would want to keep the case, because that’s what your commission 

is basically based on. The agency’s commission is based on the collections from the full payments or the installment agreements that 

they bring in, not that the IRS brings it. 

Mr. BECERRA. So first these private tax collection agencies are 

not required to inform these taxpayers that they could actually use 

the IRS directly to try to resolve their problems if they’re wishing 

to try to pay their taxes. 

Ms. OLSON. They are required to tell the taxpayer that they can 

opt-out. I do not know if that’s in their scripts. It is in the first letter that the taxpayer gets. But it doesn’t say that you can opt-out 

and talk to the IRS about an offer in compromise. 

Mr. BECERRA. And are they required to tell these taxpayers of 

the new steps that the IRS is taking to assist taxpayers facing difficulty paying their taxes? 

Ms. OLSON. Not to my knowledge. 

Mr. BECERRA. And then secondly we find that these tax collection agencies earn their money. They make their profit by making 

sure the collection occurs. 

Ms. OLSON. Right. 

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Mr. BECERRA. So if they get a cut of the collection, it’s not in 

their interest to send them over to the IRS. They get no cut if they 

just send them over to the IRS. They are the ones that have to collect. So it’s almost in their interest not to inform taxpayers of the 

services that the IRS provides free to try to help them make arrangements to collect their taxes, which I think is especially in this 

time of economic hardship just the wrong way to go. 

Ms. Stiff, I know many of us have concerns with private collection agencies for quite some time in this regard, and I hope that 

we have an opportunity to talk more specifically with the agency 

about this, because I think this is the worst time for us to be having headhunters out there looking for people who might be willing 

to pay their taxes but aren’t being given all the information that 

should be out there for them to try to help them deal with all their 

economic circumstances that they faced right now. 

Mr. Chairman, I know my time has expired, but if I may just 

make one other point, it concerns me to no end to know that a Social Security recipient can have his or her Social Security monthly 

stipend levied against based on an IRS claim. Now, we’re all taxpayers, and we all have to pay what we owe the government. And 

if it’s not a voluntary system, we’re in real trouble and we have to 

encourage people to be forthcoming and participatory. 

But, I’ve got to believe there’s a way for the IRS to work with 

recipients or taxpayers who are recipients of Social Security and 

probably for their main source of income to work with them to 

make sure that as we collect the debt they owe the government 

through taxes that we do it in a way that accommodates their need 

to continue living, especially if the Social Security check is their 

main form of income. 

I know that there are limits that you can place on other types 

of levies, but there is apparently no limitation on at what level you 

can dig into the pocket of someone who receives Social Security 

payments. And I hope that we can examine that a little closer, because this is probably not the time to hit people who live off of Social Security to pay their taxes. 

I suspect that they would be more than willing to help make 

their payments if we could reach some accommodation with them; 

and, so, if we could follow-up with that, I would very much appreciate it. 

Ms. STIFF. Sure. 

Chairman LEWIS. Let me just ask the two of you. If there anything that you want to tell us that you think we should know during this filing season? Do you think we have all the information 

that we need? 

What is your greatest concern during this filing season? 

Ms. OLSON. I’m going to say something, because I think Linda 

is in an awkward position to say this. 

Chairman LEWIS. You don’t think she had the courage to speak? 

Ms. OLSON. I think that in her position she’s not able to say 

very clearly the resource demands on the IRS about the last couple 

of years with the economic stimulus payment and now the new provisions that are coming in. And I just thought giving some information about the level of service on the phones. Last year was a 

record level of service meaning calls came in and essentially roughjbell on PRODPC61 with HEARING

61 

ly what percentage of the calls were we able actually to get to. And 

I’m not even talking about the wait time that taxpayers have before we can get there. 

But, through February 7th of this year, their overall level of 

service was at 55 percent and a year ago even with the difficult filing season the same time it was at 79 percent. On the main 1040 

number, through February 2nd of this year, the level of service— 

this is the main number for individuals—is at 50 percent, and a 

year ago it was at 80 percent. And my own phone number, my own 

toll free number for the taxpayer advocate service, where we get 

the cases where taxpayers are having the difficulties, you know, 

with these things. This is answered by another part of the IRS. It’s 

part of the main phone system, but it’s a dedicated line. 

We are at 69 percent level of service and a year ago we are at 

83 percent; and I think that as we look to the IRS to deliver programs, deliver stimulus to the economy, become a method for helping people with health insurance who’ve been unemployed, we have 

to really think hard about what the IRS needs and resources in 

order to be able to do this job. There are lots of reasons for why 

the IRS should do the job, because we have that contact with taxpayers. 

But, on the other hand, if we’re doing all these other jobs and 

not able to deliver our core ability to process the returns, answer 

tax law questions, deal with account questions, collect money when 

taxpayers are calling us, you know, then all of us are harmed. And 

I just want to make the case for perhaps this Committee weighing 

in with the appropriators about, you know, the need for really adequate funding for the IRS in interfacing with the taxpayers of the 

United States. 

Chairman LEWIS. Ms. Olson, I appreciate your comments and I 

appreciate you sharing those with us; and, I’m sure my colleagues 

appreciate it and the IRS appreciate it also. 

Mr. KIND. Mr. Chairman, could you yield on just that one point? 

Chairman LEWIS. I assume the same applies to that low-income 

taxpayer clinics that are being established and the increase in demand for assistance and help with those clinics in preparation? 

Ms. OLSON. Yes, and I’m so proud of their growth that we’re up 

to 160 now, and we get applications. We do a survey, a needs assessment of United States low-income taxpayers, to identify areas 

where there are populations of taxpayers that we believe need the 

assistance. And there are many places out there that I think we 

could get a program started with other community groups. 

Ms. STIFF. May I just insert I think there may be the issue isn’t 

just how much or how many. The issue is that we are now on about 

an 18-month run of asking the workforce or the IRS to do a very 

heavy lift over and above what their core mission, as Nina put it, 

and a lot of nights, weekends, holidays, vacations sacrificed for 

doing that. And I think that like any business at some level when 

you do that for so long you just increase the risk of people’s ability, 

their alertness, those things. So I think when you say what do we 

worry about, I think that’s an issue that continues to be something 

that the Commissioner and I are both cognizant of. 

Chairman LEWIS. Thank you. We appreciate it. 

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I want to yield and recognize the Ranking Member, Dr. 

Boustany, for in addition the question and statement you’d like to 

make. 

Mr. BOUSTANY. Thank you, Mr. Chairman. And that is, Ms. 

Stiff, I’m glad to see that the IRS is recognizing the upheaval and 

uncertainty in the housing market. And there are going to be difficulties with valuations of properties, predictably as we look at the 

offers in compromise agreements. And in your testimony you refer 

to or you suggest that some of these cases will be referred to a specialized group. Could you elaborate a little bit on that? 

Ms. STIFF. Yes, what we’re doing is kind of instilling. I’ll consider it a fail-safe for the taxpayers. It’s that in an offer in compromise situation, if there’s real estate involved, the valuation of 

that real estate, the decisions that are made, could hinge on that. 

And so we want to ensure that if for any reason we’re denying or 

that our information about the valuation runs contrary to that of 

what the taxpayer believes it is, that those cases will go to a specialized unit of people—I think they’re located in Texas—whereby, 

they’ll take the extra step and make sure that the valuation we’re 

relying on is based on the best facts and come back to it that way. 

So it provides what I would describe as the fail-safe for the taxpayer. 

Mr. BOUSTANY. I thank you. 

And, finally, our colleague, Mr. Roskam did raise some important 

questions regarding fairness and the public perception of fairness. 

And he referenced the case of Secretary Geitner. And I think it’s 

important, and I think your term as he was ending his line of questioning was having a reasonable basis for not applying certain penalties, finds and so forth. It would be helpful to us to have some 

general guidelines on how that is carried out, particularly in high 

profile cases. And I’m not going to put you on the spot now with 

it, but if you could get back to us in writing on that, it might be 

helpful. 

Ms. STIFF. Will do! 

Mr. BOUSTANY. Thank you. 

With that, Mr. Chairman, I am happy to yield back. I don’t know 

if my colleague here has an additional question with your indulgence. 

Chairman LEWIS. Yes, you are recognized. 

Mr. REICHERT. Thank you, Mr. Chairman. 

I won’t take up the full 5 minutes but I just want to quickly comment that I do understand the difficulty in answering some of 

these questions. I was Sheriff in Seattle prior to coming here to 

Congress and I testified both as an appointed sheriff and an elected 

sheriff in front of my county counsel. So I understand the difference in your ability to share freely, but I am a little disappointed 

that that my question I asked earlier was, I think, initially addressed until the Chairman pressed it, just a little bit as far as 

staffing and the need for staffing additional funding and how much 

that might cost. 

So I want to focus on comments made about the offer in compromise program. There was, I think, Ms. Stiff. You mentioned 

that you wanted a third party assessment and are you thinking of 

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process mapping effort in that program? Is that what you’re looking at? 

Ms. STIFF. Well, that will be part of it, but it’s actually less. 

We’ve spent a good deal of time in the last 4 years re-engineering 

our internal processes, process mapping, looking at where the work 

needs to be done. And, while there remain, you know, as with any 

program and opportunity for improvements there, I think the bigger question for me now isn’t what happens when they get in. It’s 

increasing the number of people who are availing themselves of the 

program and then assuring they’re being treated in a fair and equitable way once they’re in. 

Mr. REICHERT. What would be the cost of that, do you think? 

Ms. STIFF. Of the study? 

Mr. BOUSTANY. Yes, of your third party assessment? 

Ms. STIFF. I don’t know off the top of my head. 

Mr. BOUSTANY. And so you’ve been talking about this for a 

while though. How long has this discussion in the IRS been going 

on? 

Ms. STIFF. Oh, actually not. As I said earlier, when I was going 

through everything last night and looking at what we’ve done, 

we’ve been working with Nina. We’ve been working with practitioners and preparers. It’s a perennial issue everywhere we go, and 

it occurred to me that it may be time for us to look at it differently 

than we’ve been looking at it if we’re going to solve it. 

Mr. REICHERT. Would this be expanded beyond the offer in 

compromise program? It seems to me that the IRS overall could 

use a third party assessment. 

Ms. STIFF. I’m not sure specifically to what your question is. We 

have independent assessments ongoing at any given time in specific program areas. We also have ongoing oversight by GAO into 

specific programs. 

Mr. REICHERT. Is GAO considered to be a third-party assessment for you? 

Ms. STIFF. Yes. 

Mr. REICHERT. Yeah. Okay, thank you, Mr. Chairman. 

Chairman LEWIS. I would like to thank the IRS Deputy Commissioner and the national taxpayer advocate for the time and testimony. 

The Subcommittee appreciates your views. Thank you for being 

here today. We look forward to seeing you again; maybe not soon, 

but sometime later. There’s more business to come before the Committee. This hearing is now adjourned. 

Thank you very much. 

[Whereupon, at 11:28 a.m., the Subcommittee was adjourned.] 

[Submissions for the Record follow:] 

STATEMENT OF HOWARD S. LEVY, FORMER IRS TRIAL ATTORNEY 

I am a former IRS attorney who has helped everyday people work through IRS 

economic difficulties for almost 20 years. I have seen through the eyes of the government, and have seen the faces of taxpayers in distress. I appreciate the opportunity 

share my observations and recommendations. 

The problems of taxpayers who are in the system are well-documented. The IRS 

offer in compromise program is broken; IRS expenses allowances make obtaining installment agreements virtually impossible. Older IRS tax debt sits uncollected, leaving taxpayers in financial limbo for years. 

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My clients who are in the system are increasingly using bankruptcy to eliminate 

IRS difficulties, a course of action that cannot be good for the client, the government, or the economy. 

But the weight of the 6.1 million taxpayers who are out of the system deserves 

equal attention. 

I urge you to offer amnesty to the 6.1 million IRS non-filers if they come forward 

and pay the taxes they owe. This will strengthen, not weaken, our tax system. It 

will alleviate economic hardship on taxpayers. It will also bring the Treasury billions of needed dollars not just now, but into the future. 

For most, life situations lead to dropping out of the tax system, not a desire to 

gain an advantage. It could be divorce, medical problems, or the challenges of a 

business during these hard economic times. If the taxes cannot be paid, the returns 

are often not filed. 

Once behind, interest and penalties escalate to the point that a taxpayer can never 

catch up. The failure to act is magnified by the fact that interest and penalties double the original tax liability every five years. I have seen the discouraged faces of 

hard-working Americans—paying $100 monthly on a $20,000 tax debt—when they 

discover that the amount they owe is actually increasing, not decreasing, because 

of the interest and penalties. 

For taxpayers who come forward with their taxes, provide amnesty relief from the 

interest and penalties if the returns are filed and the tax is paid over an agreed upon 

payment plan. To ensure future compliance, implement a five year probationary period to stay current on all future obligations. Those suspected of tax crimes would 

not be eligible. 

In addition to the non-filers, there are millions of taxpayers who have filed and 

owe money. They badly want to repay their debt. They try to pay it, but can never 

break free from the weight of interest and penalties. It holds back their businesses, 

their lives and the economy. Provide the same relief to them. 

Tax amnesty works. States offering non-filer amnesty have been highly successful 

raising money and bringing taxpayers back into the system. Nevada recently collected nearly $41 million between July and October, 2008 from amnesty. Oklahoma 

generated about twice what it expected, raising $82 million in 90 days. 

If two states could generate $123 million in less than four months, imagine the 

benefit by including everyone back into the Federal system? 

Tax debt puts lives and economies on hold for years. Employment opportunities 

are lost and new business ventures delayed; home ownership is an impossibility. 

People want a fresh start. We as a country are now dedicated to reclaiming financial stability. To achieve that, encourage those who are out of the system to come 

back in. Implement IRS collection policies that encourage taxpayers who are in the 

system to stay there. 

I would be happy to meet with Committee Members to discuss this Statement. 

My contact information is Voorhees & Levy, LLC, 11159 Kenwood Road, Cincinnati, 

OH 45242, howard@voorheeslevy.com; www.howardlevyirslawyer.com. 

Howard S. Levy 

f 

STATEMENT OF INVESTMENT FRAUD VICTIM’S TAX RELIEF THROUGH 

IRC SECTION 165(c)(2) 

Victims, taxpayers and citizens, in general, are experiencing an extraordinary 

chapter in American financial history. Economic challenges, budget deficits and tax 

implications lead the list of many issues confronting citizens and legislators. Surfacing in the midst of what appears to be mass chaos is yet another disturbing 

issue—victims of investment theft suffering irrecoverable losses in their life savings. 

One bright spot, with the uncovering of these massive investment scams, the media 

is finally bringing attention to the fact that there are hundreds of thousands of people across this great country who are suffering tremendously at no fault of their 

own. 

For the last ten years, I have been fighting for financial recovery for victims of 

investment theft. There’s been a law on the books since 1954 that helps some victims, but most often it ignores the truly needy in favor of the wealthy. Unfortunately, it also requires a monumental struggle with the IRS to get the deserved relief. The pain and suffering these issues caused demanded I shift my focus and become an advocate for victims in three ways: 

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Investment Fraud Prevention Through Education 

Maximize Recovery Through Legitimate Sources 

Changes in the Tax Code to Carry Out the Intention of the Law 

PROBLEM—LACK OF CLARITY, COUNTLESS (MIS)INTERPRETATIONS & 

INEXPERIENCED PROFESSIONALS 

The $50 billion dollar Bernard Madoff Ponzi Scheme brought this subject to the 

public, but sadly, and very importantly, it also surfaced so-called experts that began 

advising victims on the recovery option under Internal Revenue Code Section 

165(c)(2). Adding to the tragedy of these losses is the fact that those same experts 

are supplying incorrect information. As an example: Stanford Law School and a 

former senior tax attorney for the IRS are both normally sources you can depend 

on for tax law advice. They are both valuable sources of information, but in trying 

to help victims of investment fraud, they recently published information that could 

cause more problems than they solve. 

An article, Long And Winding Path To Tax Relief For Madoff Victims, appeared on accountingweb.com dated February 19, 2009. Stanford University provided information on the IRC 165(c)(2) tax deduction, quoting a former IRS official. This article 

is an example of a long list of experts serving up misconceptions, serious omissions, 

wrong answers and lost opportunities. Add The Wall Street Journal, MSN, the New 

York Times and even the IRS to your list of experts providing incorrect information, 

and you begin to understand the seriousness of the problem. 

FACTS—CURRENT TAX LAW HELPING VICTIMS OF INVESTMENT THEFT 

Current law includes but is not limited to, the following facts: 

IRC 165(c)(2) 

• Law was established in 1954 to help investment fraud victims recover a portion of their losses through tax benefits (much like that of natural disaster 

loss victims or casualty losses such as a destroyed automobile not covered by 

insurance). It was readdressed in 1984 by the Tax Reform Act, which did 

away with the 10 percent exclusion/$100 per item reduction. 

• Deduction allows qualifying victims to take their total net loss against ordinary income in a single year. 

• Deduction allows for the taxpayer to go back three years after declaring the 

loss in the ‘‘Year of Discovery’’ if a Net Operating Loss (NOL) remains, or, 

they can waive their right to go back, and carry the NOL forward up to 20 

years. 

• Deduction allows for up to a 20 year carry forward, with the exception of 

when the 3 year carry back is utilized, which subsequently creates the potential for a 23 year benefit. 

• Losses in IRA and Pension Funds Do Not Qualify. 

• The taxpayer must prove the investment was made and lost by reasons of 

theft as defined in the state where the transaction took place. 

• Taxpayer must exhaust all reasonable means of recovery. 

• Taxpayer must be able to prove privity (Private or joint knowledge of a private matter; especially:cognizance implying concurrence (Merriam-Webster) or 

in practical terms, there was a first hand relationship between the thief and 

the victim) in order to qualify. Ponzi scheme victims are generally not held 

to this requirement but that I’m aware, that exception is not written as fact. 

• (Some) IRS agents consider any form of pending legal action (individual, class 

action, Federal indictments, bankruptcy or receivership) as potential recovery 

and will deny a claim until such time as that open pursuit of recovery is resolved. 

• IRS requires a victim to provide proof of cost basis (copies of checks, front and 

back, wire transfer confirmations, disbursements, withdrawals, recovery, etc.). 

• Taxes on phantom income are recoverable in full but are only allowed to be 

carried back 3 years. The balance (NOL) can be carried forward up to 20 

years. 

FICTION—MISINFORMATION COMMONLY GIVEN TO THE PUBLIC 

• Before a taxpayer can claim a deduction, they must first exclude 10 percent 

of their Adjusted Gross Income and $100 per item—Wrong. Although originally an aspect of the deduction, this exclusion was eliminated 25 years ago 

by the Tax Reform Act of 1984. 

• 2 Year Net Operating Loss Carry Back—Common misconception. Other than 

in 2002, when Congress allowed an exception allowing for 5 years, the carry 

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back has always been 3. The 2 year carry back does not apply to investment 

losses caused by theft. • Up to 50 percent recovery of loss—Misleading. In my experience, taxpayers 

should expect to receive a total benefit between 10–20 percent of their loss. 

Although there may be an exception out there somewhere, I’ve never seen any 

victims receive even close to a 50 percent benefit. • The deduction is taken in the year victims discover the money is gone— 

Maybe but not likely. Convincing the IRS of the right year to take the deduction is complicated. The big issue is the taxpayer having ‘‘exhausted all reasonable means of recovery’’. The ‘‘year of discovery’’ determination will vary 

from agent to agent. • The deduction is simple to obtain—Really? It takes a knowledgeable and experienced 165 tax preparer to guide both taxpayers and the IRS agents 

through this process. I promise you, you should be prepared to be fully prepared. Taxpayers should expect to be reviewed carefully. 

FUTURE—NEW PROPOSED LEGISLATION 

For some time, I have been trying to get Congress to see the need for changes 

in the law. The size of the Madoff ponzi scheme helped me with my mission to get 

congresses attention. In doing so, they are now discovering how prevalent investment theft and ponzi schemes are in America. Congressman Kendrick Meek of Florida’s 17th district moved quickly and proposed new legislation on February 24, 

2009. I’m thrilled to see it happen, but it did not go far enough. 

Proposed changes to current tax law. 

• Will allow a 10 year carry back (or length of time in fraudulent investment, 

whichever is lesser) on cost basis and taxes paid on phantom income verses 

the current carry back of 3 years. Given the fact that a great deal of injured 

investors are in the retiree/elder categories and have had little to no income 

over the last several years, this change will hopefully increase the chance of 

them reaching a year where significant taxes were paid. • Proposes to provide assistance to individuals who contributed to charitable organizations. This is a new aspect to the law and it needs to be further examined in order to determine just who gets what benefits? It’s not clear on how 

this will work and I’ll have to wait for more details before I can comment. • New legislation uses the word ‘‘estimate’’ verses ‘‘ascertained’’. This may be 

a big help in the filing of the claims in a reasonable amount of time, but it 

is not definitive and more work needs to be done. 

FUTURE—CONTINUED—QUESTIONS NOT ADDRESSED 

• Will the complicated terms ‘‘Year of Discovery, Privity, Scienter, Cost Basis 

and Complete and Final Transaction’’ be defined in a way that makes it reasonable for the taxpayer to meet the requirements for filing? Regardless of 

what legislation is proposed or passed, unless these issues are defined in a 

way that tax payers, their tax professionals and the IRS alike can understand, little if any of this assistance will reach the intended recipients. • Why is this limited to just ponzi schemes? Although certainly less publicized, 

other forms of investment fraud are still investment fraud and all qualifying 

victims should be given the same consideration, Will the new legislation actually limit the amount of time before a victim can claim the deduction and the 

IRS can take to approve it? The current process often takes so long that victims lose everything, including benefits, their homes and even their lives, before the help arrives. • Will IRA and pension savings be added to the forms of acceptable losses/victims? A huge constituency of victims falls into this category and although 

technically they never paid taxes, they still worked hard for their money and 

would have paid them when the time arose. The money was withdrawn, the 

perpetrator was enriched and he or she should owe the taxes. Regardless of 

whether the IRS actually receives them, the victim should be entitled. • Would a uniform tax rate potentially be the better and fairer way to go? Although the current proposed legislation goes far in trying to help, there are 

still a group of individuals that will be left helpless. As many of these individuals paid on average 15–20 percent in taxes when the money was made, it 

doesn’t seem quite fair that they are penalized for having grown older or now 

having no income. 

SOLUTION 

I’d start with definable (and reasonable) guidelines for tax payers and professionals. Next would be setting up fair opportunities for recovery across the board, 

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regardless of tax bracket or age. And finally would be the creation of an organization, or an IRS qualifying exam, that sets the standards for professional services. 

Setting these guidelines and standards, much the same as what CPAs, doctors, attorneys, etc. must adhere to or lose their standing, would help satisfy the IRS that 

the claims are legitimate, would provide the relief that so far is nearly impossible 

to receive and insure that the professionals assisting these victims are qualified and 

making claims in good faith. By enacting legislation that gives the IRS authority 

to qualify those who represent taxpayers, they’d not only protect the victims, they’d 

protect all taxpayers against fraudulent or unworthy claims. 

It was a breath of fresh air to finally see someone step up and try to help these 

people and I applaud Congressman Meek. He’s taken the first step, and with a few 

additions, he could make this law something to be proud of. 

I’d like to officially request an opportunity to discuss this issue with the individuals working on this bill and formally request the opportunity to speak before any 

hearing considering it. I not only can provide valuable practical information on how 

current legislation is affecting individuals but potentially can provide insight into 

aspects not yet considered that directly impact this issue. 

Thank you for your time and consideration. 

Moira Souza Shiver 

MSS Advocacy Group 

mss165.com 

moira@mss165.com 

f 

STATEMENT OF COLLEEN M. KELLEY 

Chairman Lewis, Ranking Member Boustany, and distinguished Members of the 

Subcommittee, I would like to thank you for allowing me to provide comments on 

IRS assistance for taxpayers experiencing economic difficulties. As President of the 

National Treasury Employees Union (NTEU), I have the honor of representing over 

150,000 Federal workers in 31 agencies, including the men and women at the IRS. 

Mr. Chairman, NTEU believes that in the current economic climate, it is more 

important than ever that taxpayers be able to deal with the IRS directly to work 

through any financial difficulties they may encounter. IRS employees have a wide 

range of tools and information at their disposal, which allow them work with taxpayers to address their financial hardships and to become compliant. 

Above all else, the IRS employee’s interest is in assisting struggling taxpayers to 

meet their tax obligations in a way that will not exacerbate their financial distress. 

When an IRS employee works with a taxpayer, the employee has access to all of 

the taxpayer’s information and can answer questions and offer advice. For example, 

they can see whether a taxpayer has not filed a return and explain that the sooner 

the taxpayer makes arrangements to address filing and balance due issues the less 

penalty and interest they will owe. They can look at the taxpayer’s records and answer questions about why they owe a balance and what they can do about it. They 

can also tell the taxpayer that they are not having enough taxes withheld by their 

employer and need to address that or that if an ex-spouse is claiming a child as 

a dependent they will not also be able to receive an exemption. If a simple mistake, 

like a math error, has occurred, they can fix it. They can provide an extension of 

the time period for payment. They can make a determination that the taxpayer 

meets the currently not collectible requirements or whether the taxpayer may be eligible for an Offer in Compromise, in which part of the balance due is foregone. 

In addition to this wide-range of services, the IRS just last month announced a 

number of additional steps which will allow IRS workers to better assist financially 

distressed taxpayers. These include, providing IRS employees with greater authority 

to suspend collection actions in certain hardship cases where taxpayers are unable 

to pay; allowing skipped payments or partial monthly payments for taxpayers in existing installment agreements that have previously paid on time but are no longer 

able to do so due to loss of employment or some other financial hardship; easing 

ability of some taxpayers to get an Offer in Compromise, and speeding delivery of 

levy releases for homeowners who are behind on their taxes who want to refinance 

or sell their homes. 

Mr. Chairman, while these additional flexibilities will better enable IRS workers 

to provide some struggling taxpayers with the assistance they require to work 

through their financial difficulties, some of our most vulnerable taxpayers, including 

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low-income taxpayers, those with language barriers, the elderly and the less educated will continue to be disadvantaged as a result of the IRS’ continuing use of private collection agencies (PCAs) to pursue tax debts. Aside from the folly of turning 

this inherently governmental function over to the private sector, use of the PCAs 

to collect taxes creates a double standard and disadvantages Americans who may 

be in the most dire straits. 

Unlike the PCAs, the IRS is able to provide special assistance to the most vulnerable in our society. IRS workers can postpone, extend or suspend collection activities 

for a period of time, make available flexible payment schedules that provide for 

skipped or reduced monthly payments or waive late penalties or postponing asset 

seizures. 

The PCAs cannot offer taxpayers any of these authorities. They can only request 

full payment of taxes owed either immediately or in an installment agreement of 

5 years or less. What is worse is that taxpayers who deal with PCAs are extremely 

unlikely to know that other options are available to them if they deal directly with 

the IRS, because the PCAs do not inform them. 

The PCAs sole interest is to collect from a taxpayer the balance due amount they 

have been provided. They have no interest in whether the taxpayer owes other taxes 

or may not have filed required returns, nor do they have access to any other taxpayer records, so they are unable to answer any questions, provide any advice or 

use any tools, such as extensions or offers in compromise. 

In addition, while taxpayers unfortunate enough to be assigned to the PCAs are 

limited to interacting with the PCAs over the phone, vulnerable taxpayers that prefer personal, face-to-face tax assistance with IRS employees can do so at the 

401Taxpayer Assistance Centers (TACs) located nationwide. Taxpayers are able to 

visit the TACs when they have complex tax issues, need to resolve tax problems relating to their tax accounts, have questions about how the tax law applies to their 

individual income tax returns, or feel more comfortable talking with someone in person. 

The IRS is also specially equipped to assist persons with limited English proficiency work through their financial troubles through its Multilingual Initiative 

(MLI). This service wide initiative provides written and oral assistance to Limited 

English Proficient (LEP) taxpayers in Spanish, Chinese, Vietnamese, Korean and 

Russian. This program ensures that non-English-speaking taxpayers who lack full 

command of the English language and are experiencing financial difficulties are able 

to take advantage of the wide array of services that the IRS can offer them. 

In calling for an end to the IRS use of PCAs, Nina Olson, the National Taxpayer 

Advocate, an independent official within the IRS that looks out for taxpayer rights, 

has said that taxpayers who are unrepresented and vulnerable are disproportionately likely to be contacted by PCAs, and that the median income of taxpayers assigned to the PCAs is significantly less than that of taxpayers assigned to the IRS. 

In addition, Olson has noted that no case can be turned over to a PCA in which 

a taxpayer is represented by a tax professional. Thus, ‘‘taxpayers who can afford 

representation are exempt from this initiative.’’ Clearly, that treats lower income 

taxpayers more harshly than others. 

Clearly, a tax system relying on public confidence that everyone is paying her or 

his fair share is dangerously eroded by the double standard generated when bounty 

hunters collect taxes from vulnerable people for profit and people who work directly 

with the IRS are receiving assistance that those working with debt collectors are 

not. 

NTEU strongly supports provisions in the Omnibus Appropriations bill to cut off 

appropriations for PCAs and supports H.R. 796 introduced by Chairman Lewis and 

Chris Van Hollen that would repeal the IRS’ authority to use them. 

Mr. Chairman, NTEU believes that in a bleak economic landscape, with skyrocketing job losses, home foreclosures and rising credit delinquencies, the last step 

we should be taking is disadvantaging people who are among our most vulnerable 

taxpayers. 

IRS employees remain committed to assisting delinquent taxpayers facing financial difficulties in the current economic climate. With access to a wide range of tools 

and information, the IRS can provide struggling taxpayers the flexibility and assistance they need to meet their tax obligations during the current economic downturn. 

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1Written statement of Nina E. Olson, National Taxpayer Advocate, before the Subcommittee 

on Oversight, House Committee on Ways and Means, Hearing on Tax Compliance Challenges 

Facing Struggling Taxpayers, February 26, 2009, p. 14. 2 Id., p. 15. 

3 National Taxpayer Advocate’s 2007 Annual Report to Congress, December 31, 2007, Volume 

I, p. 5. 4 Id., p. 15. 

STATEMENT OF SANTA BARBARA BANK & TRUST 

Dear Mr. Chairman: 

On behalf of Santa Barbara Bank and Trust (SBBT), a brand of Pacific Capital 

Bank, N.A. and one of the nation’s largest providers of tax-refund related products, 

I am writing to respond to testimony offered by Nina E. Olson, the National Taxpayer Advocate, at the Subcommittee’s February 26th hearing to examine assistance 

available from the Internal Revenue Service (IRS) to taxpayers experiencing economic difficulties. 

The Taxpayer Advocate’s testimony focused on the tax compliance challenges facing struggling taxpayers during this tax filing season. One such challenge cited by 

Ms. Olson was that ‘‘[m]any taxpayers who are entitled to tax refunds and need 

them quickly do not receive them for weeks and this delay drives many of them to 

pay significant transaction fees to obtain refund anticipation loans (RALs).’’ 1 In fact, 

we believe that RALs offer a significant value to almost nine million families who 

use them every year to more quickly obtain access to needed funds in anticipation 

of their tax refunds. 

For many low-income taxpayers, Federal tax refunds represent the largest sum 

of money they will receive at any one time in the entire year. As Ms. Olson’s testimony noted, ‘‘[a]mong taxpayers who received the earned income tax credit (EITC) 

and tax refunds in tax year 2006, the average refund amount was $3,184, and the 

average adjusted gross income was $15,763. Thus, the average refund amounted to 

20 percent of each taxpayer’s adjusted gross income.’’ 2 The National Taxpayer Advocate also stressed in her 2007 Annual Report to Congress that delays in obtaining 

tax refunds can be particularly challenging for low-income taxpayers: 

Tax refunds are particularly important to low-income taxpayers—A taxpayer 

for whom the refund is so significant often makes financial plans based on when 

he or she anticipates receiving the refund and may view the refund as a lifeline. 

For some taxpayers, a delay of two to four weeks in receiving the refund could 

mean eviction, inability to pay the high heating bills that arise during winter, 

or defaulting on credit card bills from the holiday season.3

The length of time it takes for taxpayers to receive their tax refund depends on 

(1) whether or they file electronically, (2) have a bank account and can receive the 

tax refund through the IRS Direct Deposit program, or (3) are unbanked and would 

have to wait for the IRS to send their refund via paper check. For taxpayers who 

have bank accounts and can receive their refunds through direct deposit, the IRS 

has done a good job of shortening the delivery time to between 8–15 days. However, 

for taxpayers without bank accounts, obtaining a refund via paper check still takes 

up to eight weeks from the date they file their tax return. 

Ms. Olson is concerned that for unbanked taxpayers, such potentially long delays 

‘‘drive many of them to pay significant transaction fees to obtain refund anticipation 

loans (RALs).’’ 4 While SBBT cannot speak to the transaction fees charged by tax 

return preparers, we believe that our RAL fees are very reasonable and that RALs 

provide a valuable service by bridging the potential eight week gap that those without bank accounts would otherwise have to wait for their tax refunds. 

SBBT’s average RAL amount in 2008 was $3,286. For that loan, SBBT charged a total of $113 in fees, including a $31 bank account set-up fee and a finance charge 

of 2.5 percent of the loan amount. Other than the actual principle due the bank 

(typically repaid after the IRS deposits the expected refund into a customer’s temporary RAL bank account), there are no other loan fees, payments or interest due 

from the taxpayer, even if the IRS holds the refund up (e.g., because the taxpayer’s 

return is undergoing a compliance check) or ultimately refunds less than the expected amount. There is simply the one-time fee. We believe this is certainly a fair 

amount to pay to receive access to much needed funds up to eight weeks faster than 

the IRS can currently deliver them. 

In order for SBBT to be able to offer RALs to taxpayers at a fair and reasonable 

price, we must develop a business plan each year for the program. This ‘‘plan’’ is 

based upon loan repayment rates, projected volume and certain fraud assumptions. 

The loan repayment rates are projected out over the tax season to determine the 

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funding curve that the bank will need to cover the loans until repayment occurs. 

Finally, income projections for the filing season complete the ‘‘plan,’’ which is subsequently used to secure appropriate funding for the program. Funding agreements, 

sometimes obtained outside the bank, and their performance are critical to achieve 

profitability 

This filing season, our RAL program has been thrown into disarray as a result 

of significant IRS delays in providing timely refunds for thousands of taxpayers who 

are also RAL borrowers. Our information tells us that the Service is experiencing 

significant processing and operational delays, in part due to added compliance 

checks instituted this year. As a result of these IRS processing delays, the rate of 

return that SBBT will earn on its RAL program will be less than what was estimated in our plan. Because our earnings will be lower than estimated, next year 

the cost of funds to securitize our RAL lending program will likely increase. That 

increase will inevitably be passed on to consumers. 

Collectively, the RAL banks consider ourselves to be major stakeholders in the 

IRS electronic filing program. Returns associated with RALs represent 20–25 percent of all e-filed returns. RALs provide an important service every year to millions 

of taxpayers at a fair price. While the Taxpayer Advocate’s suggestion to expand refund delivery channels is commendable, delivery of refunds for debit cards would 

not be a panacea for the processing and operational delays that occur in almost 

every tax filing season. For example, the compliance checks instituted this year 

would still have caused delays in refunds being loaded to debit cards for thousands 

of taxpayers. Conversely, thousands of taxpayers who otherwise would have had to 

wait (and would still be waiting) for their refunds obtained much-needed funds 

within 24–48 hours after filing their taxes by using RALs. Until the IRS is able to 

quickly and efficiently deliver all tax refunds, we believe that RALs will continue 

to play an important role in tax administration. 

We look forward to discussing with you and the Subcommittee staff ways in which 

both the private and public sectors can achieve greater transparency for fees 

throughout the entire tax preparation process, rather than simply continue to focus 

on RAL fees. 

Sincerely, 

Joseph Sica 

Senior Vice President 

National Government Relations Director 

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