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78–818 2013

INTERNAL REVENUE SERVICE OPERATIONS AND 

THE 2012 TAX RETURN FILING SEASON 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MARCH 22, 2012

Serial No. 112–OS10 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

WALLY HERGER, California 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

GEOFF DAVIS, Kentucky 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

RICK BERG, North Dakota 

DIANE BLACK, Tennessee 

TOM REED, New York 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

JENNIFER SAFAVIAN, Staff Director 

JANICE MAYS, Minority Chief Cousel 

SUBCOMMITTEE ON OVERSIGHT 

CHARLES W. BOUSTANY, JR., Louisiana, Chairman 

DIANE BLACK, Tennessee 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

KENNY MARCHANT, Texas 

TOM REED, New York 

ERIK PAULSEN, Minnesota 

JOHN LEWIS, Georgia 

XAVIER BECERRA, California 

RON KIND, Wisconsin 

JIM MCDERMOTT, Washington 


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C O N T E N T S 

Page 

Advisory of March 22, 2012, announcing the hearing .......................................... 2 

WITNESS 

The Honorable Douglas Shulman, Commissioner, Internal Revenue Service, 

testimony .............................................................................................................. 63 

SUBMISSIONS FOR THE RECORD 

The Honorable Lynn Jenkins #1 ............................................................................ 5 

The Honorable Lynn Jenkins #2 ............................................................................ 50 

The Honorable Scott R. Tipton ............................................................................... 100 

National Community Tax Coalition ....................................................................... 101 

National Treasury Employees Union ..................................................................... 104 


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(1) 

INTERNAL REVENUE SERVICE OPERATIONS 

AND THE 2012 TAX RETURN FILING SEASON 

THURSDAY, MARCH 22, 2012 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON OVERSIGHT, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 9:31 a.m. in Room 

1100, Longworth House Office Building, the Honorable Charles W. 

Boustany, Jr. [Chairman of the Subcommittee] presiding. 

[The advisory of the hearing follows:] 


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HEARING ADVISORY 

Boustany Announces Hearing on Internal Revenue Service Operations and the 2012 Tax Return Filing Season 

Thursday, March 22, 2012 

Congressman Charles W. Boustany, Jr., MD, (R–LA), Chairman of the Subcommittee on Oversight of the Committee on Ways and Means, today announced 

that the Subcommittee will hold a hearing on the Internal Revenue Service (‘‘IRS’’) 

and the 2012 tax return filing season. The hearing will take place on Thursday, 

March 22, 2012, in Room 1100 of the Longworth House Office Building, beginning at 9:30 A.M. 

The Commissioner of the Internal Revenue Service, the Honorable Douglas 

Shulman, will be the only witness at the hearing. Any individual or organization 

may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

In fiscal year 2011, the IRS collected $2.4 trillion in taxes, processed 144.7 million 

individual tax returns, and issued $345 billion in refunds. With the 2012 tax return 

filing season underway, the Subcommittee will review IRS performance with a focus 

on taxpayer service, taxpayer rights, and refund administration. 

In conjunction with the review of the current tax return filing season, the Subcommittee will review IRS operations in general. Specifically, the Subcommittee will 

consider: (1) the recently reported delays in tax refunds; (2) fairness in examinations 

and tax administration; and (3) efforts to prevent fraud, waste, and abuse. As part 

of its consideration of IRS operations, the Subcommittee will also review the Administration’s fiscal year 2013 budget proposal for the IRS of $16.1 billion, an increase 

of $1.3 billion over the fiscal year 2012 enacted level. 

In announcing the hearing, Chairman Boustany said, ‘‘The Subcommittee looks 

forward to hearing from Commissioner Shulman about steps being taken 

by the Agency to deliver timely service to American taxpayers during this 

filing season. In addition to a discussion of the current budget request, I 

am also particularly interested to learn more about how the agency is 

using its current budget to administer tax enforcement initiatives that protect taxpayer dollars from fraud.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on the 2012 tax return filing season, the IRS’ budget, and 

IRS operations generally. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written comments 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 ‘‘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, submit all requested information. ATTACH your submission as a Word document, in compliance with the formatting requirements listed below, by the close 

of business on Thursday, April 5, 2012. Finally, please note that due to the 

change in House mail policy, the U.S. Capitol Police will refuse sealed-package deVerDate Mar 15 2010 01:01 Feb 20, 2013 Jkt 078818 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\78818.XXX GPO1 PsN: 78818

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liveries to all House Office Buildings. For questions, or if you encounter technical 

problems, please call (202) 225–3625 or (202) 225–5522. 

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 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://www.waysandmeans.house.gov

f 

/. 

Ms. JENKINS. [Presiding.] The Subcommittee will come to order 

on the hearing on the Internal Revenue Service budget request and 

the 2012 tax filing season. 

Hard working American taxpayers have faced incredible challenges over the last several years. Many have struggled with unemployment, sluggish economic growth, and doubt about our country’s 

economic future because of out of control spending and public debt, 

and then tax season comes around. 

The Tax Code, which has tripled in size since 1975, continues to 

burden American families and small businesses with too many 

taxes, too many loopholes, and too many pages. 

It is estimated that the average taxpayer spends 21 hours and 

over $250 complying with the Tax Code each year. 

They must keep track with an increasingly complex and difficult 

to understand Tax Code or at least hire someone else who does. 

The Internal Revenue Service, of course, has the unenviable job 

of administering and enforcing our convoluted Tax Code. 

As we meet today, we are in the middle of the 2012 tax return 

filing season, and millions of taxpayers and employers are willing 

to meet their tax filing obligations. 

Some have reported experiencing delays in receiving tax refunds, 

and programming errors at IRS have delayed some six million returns, which we will discuss in today’s hearing. 


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We will also talk about the frustrating issue of tax fraud and improper payments. Taxpayers are exasperated because while they 

work so hard to comply with the Tax Code, they see press reports 

of thieves robbing the Treasury of billions of dollars each year. 

One recent press report detailed how an identity theft ring in 

Florida committed $130 million in fraud through stolen Social Security numbers. 

On top of this fraud, tens of billions of dollars in taxpayer money 

is lost every year through improper payments of refundable tax 

credits, including $17 billion a year for the earned income tax credit alone. 

Finally, we will talk about the Administration’s fiscal year 2013 

budget request for the IRS. For fiscal year 2013, the Administration has requested nearly $13 billion in appropriations for the 

Agency, an increase of eight percent from fiscal year 2012. 

Included in this request are over $360 million and nearly 900 

new employees to implement portions of the Affordable Care Act, 

including a new instrument subsidy and the controversial individual mandate penalty. 

We look forward to discussing this and the other new initiatives 

that the IRS plans for fiscal year 2013. 

With that, I would like to welcome Commission Douglas 

Shulman here today. I look forward to a fruitful discussion of his 

Agency, his mission, and the ongoing tax return filing season. 

Before I yield to the Ranking Member, Mr. Lewis, I ask unanimous consent that for all members, written statements be included 

in the record. Without objection, so ordered. 

Ms. JENKINS. I will also ask unanimous consent that GAO’s report on the 2011 tax filing season and fiscal year 2012 budget request be included in the record. Without objection, so ordered. 

[The information follows, The Honorable Lynn Jenkins #1, The 

Honorable Lynn Jenkins #2] 


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GAO 

March 2011 

GAO-11-481 

United States Government Accountability Office 

Report to Congressional Requesters 

2011 TAX FILING 

IRS Dealt with 

Challenges to Date but 

Needs Additional 

Authority to Verify 

Compliance 

GAO 

Accountability * Integrity * Reliability 
6 


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Contents 

Letter 

Appendix I 

Appendix II 

Appendix III 

Appendix IV 

Tables 

Scope and Methodology 

Background 

Interim Filing Season Rpsults 

Conclusion 

Mattpr for Congressional Consideration 

Agency Comments and Our Evaluation 

Updated Slides from the March 23 and March 24, 

2011, Congressional Briefings 

2 

:3 

G 

IRS's Existing Math Error Anthority :37 

Descriptions of IRS Volunteer Income Tax 

AssistancerI'ax Centers for the Elderly and Treasury 

Programs to Offer Tax Refunds on Debit Cards ~18 

GAO Contact and Staff Acknowledgments 41 

Tablr 1: IRS's 1:1 EXisting ;'I/IEAs :37 

Table 2: Tax Refunds Offered all Debit Cards at IRS -rITA and TeE 

Sit,'S :)8 

Table ;3: Treasury Pilot Debit Card Program Offers ~19 

Page i GAO-1J-481 Tax Filing Sf'ason 
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Abbreviations 

CADE 

E-file 

EITC 

FDIC 

IRS 

IVR 

MEA 

MeF 

SMS 

TCE 

TIN 

Treasury 

VITA 

Customer Account Data Engine 

Electronic filing 

Earned Income Tax Credit 

Federal Deposit InsuranC'e Corporation 

Internal Revenue Service 

Interactive voice response 

math error authority 

Modernized e-File 

Short messaging service 

Tax Center for the Elderly 

Taxpayer identification number 

Department of the Treasury 

Volunteer Income Tax Assistance 

This IS a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed In its entirety 

without further permission from GAO. However, because thiS work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary If you wish to reproduce thiS material separately. 

Pageii GAO·11-481 Tax Filing Season 
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United States Governm(>nt Accountability Office 

Washington, DC 20548 

March 29, 2011 

The Honorable Max Baucus 

Chairman 

Committee on Finance 

United States Senate 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on the Judiciary 

United States Senate 

The Honorable Charles W. Boustany, Jr. 

Chairman 

The Honorable John Lewis 

Ranking Member 

Subcommittee on Oversight 

Committee on Ways and Means 

House of Representatives 

Every tax filing season is a large-scale undertaking during which the 

Internal Revenue SE'rvicE' (IRS) interacts with taxpayers by procE'ssing 

returns, issuing refunds, answering telephone calls, and providing other 

services, both face-to-face and on its Web site. As part of processing 

returns and before refunds are issued, IRS uses its statutory authority to 

automatically correct E'rrors. This allows IRS to avoid costly and 

burdensome audits and taxpayers to be made aware of additional taxes 

OWE'd before being fE'quired to pay interest and penalties. For the 2011 

filing season, IRS is administering a number of complex tax law changes, 

including the Residential Energy Property Tax Credit and provisions 

enacted in December 2010 as part of the Tax Relief, Unemployment 

Insurance RE'authorization, and Job Creation Act of 2010 (commonly 

known as the tax extenders). 1 

Other changes for the 2011 filing season include paid preparer regulations 

and expanded efforts to provide refunds on debit cards. In 2011, for the 

first time, paid preparers must register with IRS. In the future, certain paid 

preparers will be subject to competency tests and continuing education 

lLR.C ;\ 2:")(' and Pub. 1. No. 111-:312, respectively 

Page 1 GAO-1l-481 Tax Filing S('a90n 
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Scope and 

Methodology 

requirement.') to be allowed to prepare tax returns. 2 This year IRS is 

offering refunds on debit cards to taxpayers at almost all of its roughly 

12,000 Volunteer Income Tax Assistance (\1TA) and Tax Counseling for 

the Elderly (TCE) sites. Also, the Department of the Treasury (Treasury) is 

pilot testing whether offering refunds on debit cards on a larger scale 

would be feasible. 

As part of our ongoing assessment of IRS's 2011 filing season being 

conducted at your request, on March 23 and 24, 2011, we briefed the 

offices of the Senate Committee on Finance and the Subcommittee on 

Oversight, House Committee on Ways and Means, respectively, on IRS's 

perfonnance to date. This report includes updated materials presented at 

the briefing in appendix L 

Based on discussions with your offices, our objective wa''i to provide an 

interim assessment of IRS's performance during the 2011 filing season, 

including its efforts to streamline returns processing, conduct pre-refund 

compliance checks, improve taxpayer service, and issue refunds on debit 

cards, 

To accomplish our objective, we 

obtained and analyzed data from IRS related to processing returns, 

telephone service, Web site performance, and debit card refund offers; 

reviewed documentation to identify areas where additional statutory 

authority to conduct automated pre-refund compliance checks would 

benefit taxpayers or IRS; 

obtained and analyzed Treasury data on its 2011 debit card initiative 

and plans to evaluate it and also interviewed Treac;ury officials; 

interviewed representatives of tax preparation and tax software firms 

about challenges IRS faced during the 2011 filing season; 

interviewed IRS officials on various aspects of filing season 

perfonnance, including ongoing efforts to provide refunds on debit 

cards at VITA and TCE sites and efforts to evaluate the program; and 

interviewed Treasury Inspector General for Tax Administration 

officials about IRS's 2011 filing season. 

We interviewed IRS and Treasury officials and determined that the data 

presented in our briefing were sufficiently reliable for our purposes. We 

~Wp plan to issue a rpport Oil paid prepare'r regulatiolls in March 2011. 

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Background 

conducted this perrormance audit in March 2011 in accordance with 

generally accepted government auditing standards. Those standards 

require that we plan and perfonn the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on our 

audit objectives. 

IRS is making major changes to how it processes individual income tax 

returns. IRS initiated its current Customer Account Data Engine (CADE) 

in 1999 to provide a modernized system for processing tax returns, which 

proved to be more complicated than IRS expected. As a result, IRS created 

a new strategy referred to as CADE 2, which it expects to deliver in three 

phases-one in 2012, one in 2014, and one at a yet to be detE'Tmined date. 

IRS is finalizing plans to deliver the first phase of CADE 2 for the 2012 

filing season, and, if effectively implemented, IRS expects it should 

provide many benefits, including providing fa.'3ter refunds and IRS with 

more timely account information. IRS's Modernized E-file (MeF) system is 

expected to replace the legacy electronic filing (e-file) system, which IRS 

is scheduled to retire in October 2012. MeF provides taxpayers with a 

faster acknowledgment that their returns have been accepted and better 

information on why electronically filed returns are rejected. 

In the past, Congress has granted IRS statutory authority, called math 

error authority (MEA), to correct calculation errors and check for obvious 

noncompliance, such as claims above income and credit limits. In some 

cases, MEA allows IRS to use prior year tax return information to verify 

compliance before issuing refunds. These automated and relatively lowcost compliance checks (compan'd to audits) can prevent erroneous 

refunds and avert the need to try to recover such payments. Congress 

must grant IRS specific authority to use MEA for purposes beyond 

computational errors. For example, in 2009, Congress gave IRS MEA 

following our suggestion that IRS should be authorized to determine 

whether taxpayers claimed the First-Time Homebuyer Credit more than 

once.'l For more discussion ofIRS's and taxpaYE'rs' responsibilities and 

\'ongrpss pnach'd lht' FirSl·Tilllf' lIolllPhnyn Crpdit to a.."isist 

and help 1axpayprs pnrcha."i<' lheir firs1 homes. GAO, 

E.i."!:;:! jor IRS to Enhance '''','''''''''' """'ice 

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Interim Filing Season 

Results 

rights under MEA, see our 2010 report. I IRS's 13 existing MEA" are 

described in appendix II 

Since 2009, IRS has worked with partner organizations at VITA and TeE 

sites to encourage taxpayers not requesting a direct deposit of their refund 

to opt to receive it on a debit card sponsored by a participating financial 

institution. Separately, in 2011, Treasmy launched a pilot program which 

offers low-income taxpayers tax refunds on debit cards. Although 

targeting the same demographic group, the VITA site offer is made in 

person and the Treasury offer is made through the mail. Both the IRS and 

Treasury initiatives are intended to reduce the cost of delivering refunds to 

taxpayers, provide faster refunds compared to paper checks, reduce 

transaction costs, and provide individuals who might not otherwise have 

access with an ongoing financial account to obtain banking services. 0; 

As of March 18, 2011, IRS had processed about 73 million returns and 

issued about 65 million refunds totaling close to $193 billion. 

The percentage of e-filed returns continues to grow, which remains 

important because it significantly reduces IRS's costs and speeds 

refunds. For fiscal year 2009, IRS reported that it costs 19 cents to 

process an e-filed return compared to $3.29 for a paper retlITll. 

Late tax law changes in 2010 resulted in IRS not being able to accept 

certain returns until mid-February 2011 because of the time it took to 

complete programming changes. According to officials from IRS's 

Business Modernization Office, when CADE 2 and MeF are fully 

implemented, IRS will be able to reprogram its computers more 

efficiently. 

IRS's inability to accept celtain returns until mid-February also 

affected paid preparers and tax preparation software providers. 

Representatives from those groups told us that some taxpayers 

believed that the delay applied to all tax returns and delayed filing as a 

result, effectively condensing the filing season. According to IRS data, 

Page 4 GAO-1l-481 Tax Filing Season 
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Conclusion 

IRS received about 21 percent fewer returns through mid-February 

2011 compared to mid-February 2010. Those same representatives also 

expressed some concerns about the new paid preparer registration 

process.'i 

IRS has rejected about 13 percent of e-filed returns for reasons such as 

incorrect personal identification numbers. According to IRS officials, 

when returns are rejected through MeF, taxpayers receive better 

information on why returns are rejected and MeF allows taxpayers to 

submit additional documentation electronically, both of which reduce 

IRS's costs. 

IRS lacks MEA to review prior year tax returns to verify compliance 

with lifetime limits on anlOunts that can be claimed. For example, IRS 

does not have MEA to verify that the Residential Energy Credits 

claimed for 2009 and 2010 do not exceed the lifetime credit limit of 

$1,500. According to IRS officials, evidence exists that some taxpayers 

may be claiming Residential Energy Credits beyond the limit. Without 

MEA, IRS must ensure compliance through audits, which are time 

consuming for taxpayers and too costly to conduct in large numbers. 

Total telephone call volume increased by nearly 13 percent compared 

to volume during the same time period last year. Wait times to speak to 

an assistor averaged about 10 minutes, slightly longer than last year. 

The number of visits to IRS's Web site has increased by about 9 percent 

compared to visits during the same time period last year. 

It is too early to tpll the extent to which the various dpbit card offers 

are being accepted by taxpayers. Both IRS and Treasury officials said 

they will evaluate their programs after the filing season.'-

IRS has had to deal with several challenges this filing season, including 

late tax law changes and an increase in the volume of telephone calls. 

IRS's inability to accept certain returns until mid-February highlights the 

importance of fully implementing new systems to modernize returns 

processing, particularly CADE 2 and MeF. According to IRS officials, these 

systems should allow IRS to more ea.'lily accommodate tax law changes 

and issue reftmds faster. 

"Our forthcoming no'port on p;Jid pr€'parE'J' regulations will discuss IRS's effort.": to 

implement the program. 

-IRS df'signE'd th(' evaluation has('d in part on a rf"('omllwndation WE' madf" in 2010 for IRS 

to indmi(, tl1f" full rang(' of stak('holdf"rs in its analysis of til(" df"bit card program. S('t' GAO, 

2010 Ta,r Filillg Season: IRS'" Ibfornwncc Improt'ed i1l Saint' Key Areas, but EJlicicnry 

Gains Am Possible in Qllum; (L\O-ll·lll (Washington, D.c.: Ope. 1(5,2010). 

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Matter for 

Congressional 

Consideration 

Agency Comments 

and Our Evaluation 

Additional MEA to verify compliance with lifetime limits on cre-dits and 

deductions has advantages, compared to audits, for both taxpayers and 

IRS. For example, taxpayer errors can be caught and corrected before they 

result in penalties. This, in turn, would allow IRS to use its expensive 

auditors' time on more significant compliance problems. 

To ensure that IRS can adequately enforce certain tax provisions: 

Congress should provide IRS with MEA to use tax return information from 

previous years to ensurE' that taxpayers do not improperly claim credits or 

deductions in excess of lifetime limits where applicable. 

IRS officials provided us with technical comments on this report, which 

we incorporated as appropriate. 

AB agreed with your offices, lUlless you publicly announce the contents of 

this report earlier, we plan no further distribution until 2 days from the 

report date. At that time, we will send copiE's of this report to the 

Chairmen and Ranking Members of other Senate and House committees 

and subcommittees that have appropriation, authorization, and oversight 

responsibilities for IRS. We will also send copies to the Commissioner of 

Internal Revenue, the Secretary of the TreasUIY, the Chairman of the IRS 

Oversight Board, and the Director of the Office of Management and 

Budget. 

The report also is available at no charge on the GAO Web site at 

http://www.gao.gov. If you or your staff have any questions or wish to 

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discuss the material in this report further, please contact me at (202) 512-

9110 or at whitej@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

Major contributors to this report are listed in appendix IV. 

James R. White 

Director, Tax Issues 

Strategic Issues 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

1 

,If: GAO 

Accouotablh!y • Integrity' Rel,~blhty 

2011 Tax Filing: 

IRS Dealt with Challenges to Date but Needs Additional 

Authority to Verify Compliance 

Senate Committee on Finance and Subcommittee on 

Oversight, House Committee on Ways and Means, 

March 23 and 24, 2011 

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Objective 

Appendix I: Updated Slides from the 

March 2;l and Man'h 24, 2011, Congressional 

Briefings 

Based on discussions with your offices, our objective was to provide an 

interim assessment of the Internal Revenue Service's (IRS) performance 

during the 2011 filing season, including: 

its efforts to streamline returns processing; 

conduct pre-refund compliance checks; 

improve taxpayer service; and 

issue refunds on debit cards. 

Page 9 

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GAO-11-481 Tax Filing Season 
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Results in Brief 

Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

To date, for the 2011 tax filing season: 

• IRS processed about 73 million returns and issued about 65 million refunds 

and the percentage of taxpayers filing electronically continues to grow, 

which is important because it reduces IRS's costs. 

• IRS's inability to process certain returns until mid-February highlights the 

need for IRS to complete new systems. 

• IRS lacks statutory authority to review prior year tax returns for provisions 

with lifetime limits on the amount that can be claimed. 

• Total call volume increased by about 13 percent and the average wait time 

to reach a live assistor was about 10 minutes. 

• The number of visits to IRS's Web site has increased by about 9 percent. 

• It is too early to tell the extent to which debit card offers are being accepted 

by taxpayers. Both IRS and Treasury officials said they will evaluate their 

programs this year. 

Page 3 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

Scope and Methodology 

• To accomplish our objective, we 

! 

~ GAO 

AccouIl!eb,mv " !llIe9r<IV " RehabUllV 

o.btained and analyzed data from IRS related to processing returns, telephone service, Web site performance, and debit card offers; 

reviewed debit card refund offers; 

~eu1~~5t~gp~~~:f~Wdi~~rWpil?aennJ~yc~~ec~~ ~~~~~ ~~~~~?n~x~tg~~~~r~ra!~~~rity to conduct 

obtained and analyzed Department of the Treasury (Treasury) data on its 2011 debit card Initiative and plans to evaluate It and also Interviewed Treasury offiCials; 

interviewed representatives of tax preparation and tax software firms about challenges IRS faced during the 2011 filing season; 

~t~~~et~~9d~~eo:~fJ~~so~nva~gi~~grSJse~fsv~l~i~rege~T~gg~~f~~r~;s~~fa~g~I(Si~~f~Rgi~~x Center for the Elderly (TeE) sites and efforts to evaluate the program; and 

intervit;:wed Treasury Inspector General for Tax Administration (TIGTA) officials about IRS's 2011 filing season. 

• As part of our onqoinq work on IRS's 2011 filing season performance, we conducted this 

performance audit in March 2011 in accordance with generally accepted government auditing standards. We interviewed IRS and Treasury officials and determined that the 

data presented in this briefing were sufficiently reliable for our purposes. 

Page 4 

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Background 

Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

! 

~ GAO ACCoulltablldy"lm"srlty"AcMb.hty 

IRS is making major changes to how it processes individual income tax returns. 

IRS initiated its current Customer Account Data Engine (CAD E) in 1999 to 

provide a modernized system for processing tax returns, with the intention of 

ultimately replacing the Individual Master File (IMF), the authoritative source for 

individual taxpayer accounts. However, developing the system was more 

complex and taking longer than IRS expected. 

As a result, IRS created a new strategy to replace the current CADE, referred to as 

CADE 2, which it expects to deliver in three phases-one in 2012, one in 2014, and 

one at a yet to be determined date. 

If effectively implemented, CADE 2 should provide many benefits, including providing 

faster refunds and IRS with access to more timely account data for use in compliance 

and resolution of taxpayer questions or issues. 

Page 5 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

Background, Cont'd 

i 

~ GAO AccounlablMy 'Inlegrjlv· Reljabllily 

• IRS's Modernized E-file (MeF) system is expected to replace the legacy 

electronic filing (e-file) system and be fully operational for the 2012 filing season. IRS began accepting some individual tax returns on MeF in 

2010 and expects to retire the legacy e-file system in October 2012. 

• According to IRS officials: 

• MeF provides taxpayers with a faster acknowledgment that their 

returns have been accepted and better information on why returns are rejected. 

• MeF currently provides IRS with the ability to accept additional 

documentation electronically through portable document files. 

Without MeF, IRS must accept certain returns on paper. 

Page 6 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Bri('fings 

Background, Cont'd 

! 

~ GAO Accoun!ab,\oly'Inlegroty" Rchob,lIty 

• Taxpayers and IRS rely heavily on paid preparers and tax preparation 

software providers. About 90 percent of returns are prepared by 

individual taxpayers or paid preparers using tax preparation software. 

Additionally. in 2010. over 70 percent of taxpayers electronically filed 

their tax returns, which has benefits for IRS. 

• In 2011, paid preparers must register with IRS, and in the future, certain 

paid preparers will be subject to competency tests and continuing education requirements to be allowed to prepare tax returns . 

• We plan to issue a report on paid preparer regulations at the end 

of March 2011. 

Page 7 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

! 

Af:GAO Ac~o"ntab'llty' IntegrIty' Rallabltlty 

Background, Cont'd 

Complex tax law changes enacted in December 2010 as part of the Tax Relief, 

Unemployment Insurance ReauthorizatioQ, and Job Creation Act of 2010-commonly referred to as the tax extenders ( Pub. L. ,"0. 111-312)-caused IRS to be unable to process returns until February 14, 2011, for taxpayers 

g~'i?utti~gredule A, because of the extension of the state and local general sales tax 

• claiming the higher education tuition and fees deduction on Form 8917; or 

• claiming the educator expense deduction, for K-12 educators with out-of-pocket classroom expenses. 

In addition, IRS is administering the Residential Enerqy Property Credit (I.R.C. § 25C). This credit allows taxpayers to receive 30 percent of the cost of imRrovements with a maximum lifetime credif limit of $1,500 for the combined 2009 and 2010 tax years (Pub. L. 

No. 111-5, § 1121). 

• In 2011, the limit drops to 10 percent of the cost of improvements with a $500 credit limit (Pub. L. No. 111-312, § 710). 

Page 8 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

l 

~ GAO 

Accounlftbllity'Inlcgnly" Acllabilny 

Background, Cont'd 

• As part of its pre-refund compliance checks, Congress has granted IRS 13 specific math error authorities (MEA). MEA allows IRS to correct calculation errors and check for 

obvious noncompliance, such as claims above income and credit limits. Congress 

must grant MEA to IRS for purposes beyond correcting computational errors. 

• has ~ranted MEA to use information from prior year returns to determine compliance. This 

Ag~~~u~~~'bfr~lb9t~i;'!fu9i'~~~t1Wg ~~2~~%,:ff2'!i~~~ i~oanpsp~~d~~~r o~'0mert~~A-Time 

• When IRS has MEA, it does not have to provide the taxpayer with a statutory notice of 

deficiency to correct a return. 

• Correcting errors before issuing refunds allows IRS to avoid costly' and burdensome audits 

and taxpayers may receive larger refunds or be made aware of aaditional taxes owed 

before they are required to pay interest and penalties. 

• We previously sugQesteq that Congress should provide IRS with broader MEA2 Congress has yet to provide rRS with thiS autnonty. 

Taxp,;ye, ';""""nd 

Page 9 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

Background, Cont'd 

! 

~ GAO 

Accountab1h1V' IntE>9"ly' Rellab,hly 

• Since 2009, a small number of VITA sites have encouraged taxpayers not 

requesting a direct deposit to opt for a debit card sponsored by a participating 

financial institution. 

In 2010, IRS partnered with three large financial institutions to offer debit 

cards at 20 VITA sites. However, only about 3 percent of eligible taxpayers 

elected to receive the cards, down from 8 percent of eligible taxpayers in 

2009. 3 

• Taxpayers may sign up for the card at a participating VITA site. 

In 2011, Treasury launched a pilot program that offers low-income taxpayers 

and taxpayers without bank accounts debit cards to receive their refunds at a 

low cost. 

• Treasury informed taxpayers of this program through targeted mailings. 

~~~~; ~:;:~s~~~~~~~ ~~a~o:~ '~~'~~~7ormance Improved in Some Key Areas, but Efficiency GallJs Are Possible In Others, GAO- Page 10 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

Background, Cont'd 

• These debit card initiatives are intended to 

1 

,E GAO 

AccQunID~illlv' Integ.ity· RI!lIahility 

• reduce the cost of delivering refunds to taxpayers, provide faster 

refunds compared to paper checks, and reduce transaction costs 

and 

• provide banking services to individuals who might not otherwise 

have access to an ongoing financial account. 

• We previously recommended that IRS examine the feasibility of offering 

refunds on debit cards. 4 lRS stated that they were exploring a range of 

options to deliver refunds to un banked taxpayers, including providing 

refunds on debit cards. 

Page 11 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

• ,€:GAO A<:count&bill!y'lllIlIgrlty-Acliablhtv 

Processing: Percentage of E-Filed Returns Continues to 

Grow 

Table 1: Tax Returns Processed through Mid-March (in Thousands) 

2007 2008 2009 2010 2011 Percentage 

change from 

2010 to 2011 

Number of returns processed 70.194 74.139 74.806 70.937 73.342 3.4% 

Electronic 53,053 57.702 61.110 60.764 65.275 7.4 

Paper 17.141 16.437 13.696 10.173 8,067 -20.7 

Percentage electronically fileda 75.6 77.8 81.7 85.7 89.0 N/A 

Number of refunds Issued 63.0 64.7 66.9 63.3 64.7 2.2 

(millions) 

Amount of refunds (dollars in $152.8 $161.3 $1833 S190.0 $193.1 1.6 

billions) 

Average refund amountb $2.427 $2.492 $2.740 $3.004 $2.985 -0.6 

Ie 

Page 12 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

! €: GAO 

AccounlabJlily' Integrity' Actlabllily 

Processing: Percentage of E-Filed Returns Continues to 

Grow, Cont'd 

• Electronic filing: 

• Is important because it reduces IRS's costs. For fiscal year 2009, 

IRS reported that it cost 19 cents to process an e-filed return 

compared to $3.29 for a paper return . 

• Reduces errors because it eliminates the need for IRS to 

manually transcribe information from returns and it allows 

taxpayers to receive refunds faster. 

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Appendix I: Updated Slides from tbe 

Marcb 23 and Marcb 24, 20ll, Congressional 

Briefings 

, 

.IE:. G AO Accountability , Int"9rLty , RcMbllily 

Processing: IRS's Inability to Process Certain Returns 

until Mid-February Highlights the Need for IRS to 

Complete New S~stems 

• According to officia s from IRS's Business Modernization Office, when 

CADE 2 and MeF are fully implemented, IRS will be able to reprogram 

its computers more efficiently following tax law changes. 

• As of March 18, 2011, over 24 million returns have been processed 

using the current CADE. 

• In 2011, IRS expects to process approximately 42 million returns 

using the current CADE, about the same as last year. 

• IRS plans to retire the current CADE later this year and all 

taxpayer accounts will be shifted to acceleratea processing on the 

IMF next year and then to CADE 2. Accelerated processing on the 

IMF will also result in faster refunds to all taxpayers. 

Page 14 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

! 

~ GAO Accountability' Integrity , Reliability 

Processing: IRS's Inability to Process Certain Returns 

Until Mid-February Highlights the Need for IRS to 

Complete New Systems, Cont'd. 

• IRS data show that through March 27, 2011, MeF had accepted about 

4.8 million individual returns (on Form 1040), up from about 281,000 

returns at the same time last year. 

• Last year we noted that IRS-authorized e-file providers did not use 

MeF as much as IRS anticipated because of issues with the 

system's stability. 

• According to industry experts, the MeF system is much more stable 

this filing season and IRS is continuing to promote its use. 

• IRS plans to fully retire the legacy e-file system in October 2012 and use 

MeF to accept all individual tax returns after that. 

Page 15 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011. Congressional 

Briefings 

Processing: IRS's Inability to Accept Certain Returns until 

Mid-February Also Affected Paid Preparers and Tax 

Preparation Software providers • According to industry experts representing paid preparers and tax preparation 

software firms we interviewed: 

• Some taxpayers believed that the delay applied to all tax returns and not a limited number of tax returns and delayed filing as a result; 

• Delays result in tax professionals preparing and transmitting to IRS a larger volume of returns in a shorter period of time, effectively condensing the 

filing season. According to IRS data, IRS received about 21 percent fewer 

returns through mid-February 2011 compared to mid-February 2010. 

• The implementation of new paid preparer regulations caused some concerns, but did not indicate that the new rules have had a significant effect on return preparation during the 2011 filing season. 

• Our forthcoming report on paid preparer regulations will discuss IRS's efforts to 

implement the program. 

Page 16 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

.l 

Ii:,.GAO AccOUOlaQlhly' Inlegrlty' Reliability 

Processing: Reducing Rejected Electronic Returns Could 

Result in Cost Savings 

• IRS automatically rejects a return and sends it back to the taxpayer when basic 

information provided by the taxp'ayer, such as verification of identi!y with a personal identification number (PIN) or address, does not match IRS records. 

• As of March 21, 2011, IRS had a rejection rate of 13 percent for electronically filed returns. 

• According to IRS data, the most common reasons for rejection were (1) incorrect PIN information-.nrovided, (2) a dependent's Social Security number not matchinq the IM~ and (3) incorrec information for taxpayers claiming the Earnedlncome I ax CrediP 

• MeF provides better information to taxpayers on why returns are rejected and 

allows taxpayers to submit additional documentation electronically, both of 

which, according to IRS, reduce IRS's costs. 

• Taxpayers with rejected returns frequently call IRS to learn why and ma'y refile on paper rather than electronically. It costs IRS about $25 for an IRS 

assistor to answer a call and about $3.10 extra to process a paper return. 

SThe Earned Income Tax Credit is a refundable tax credit for modNate and low-income working individuals and families For 

refundable credits taxpayers receive payments even when there IS no tax liability Page 17 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

1 

.If: GAO 

A.;counlabdity , Inleg"ty , Rehabl1fly 

Pre-Refund Compliance Checks: IRS Lacks MEA to Use 

Prior Year Information 

• IRS lacks MEA to review prior year tax returns for provisions with 

lifetime limits on the amount that can be claimed . 

• For example, IRS does not have MEA that would allow it to review 

the 2009 return to see if the total amount of Residential Energy 

Credits claimed for 2009 and 2010 exceeds the $1,500 lifetime limit. 

• According to IRS officials, preliminary analysis conducted by TIGTA 

indicates that some taxpayers may be claiming more Residential 

Energy Credits than they are entitled to claim . 

• Without MEA, IRS must ensure compliance through audits, which are time consuming for taxpayers and costly for IRS. Resource constraints 

also limit the number of audits IRS can complete in a given year. 

Page 18 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Bri£'fiugs 

, 

~ GAO 

Accounlab,my ' Integ"ly' Rellabllil1 

Service to Taxpayers: Total Call Volume Is Up Compared 

to Last Year 

Table 2: IRS Call Volume from January 1 through Mid-March (In Millions) 

2007 2008 2009 2010 2011 Percentage 

change 

from 

2010to 

2011 

Assistor calls answered 94 9.5 11.4 9.6 96 00% 

Automated calls answered 13.4 13.7 16.4 18.3 223 21.9 

Abandoned calls 63 6.8 11.2 9.6 10.3 7.3 

Busies and IRS disconnects OA 05 40 0.7 0.8 14.3 

Total calls to IRS 29.5 30.5 43.0 38.2 43.0 12.6 

Source: GAO analysIs of IRS data 

Note: Data are cumulative for IRS from January 1 of each yearto March 17. 2007 March 15, 2008 March 14.2009: March 13, 2010: and March 12. 

2011 

Page 19 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

i ..a GAO 

Accounlab'liIY'lnl~fitY'Rehnb'lhl' 

Service to Taxpayers: Average Telephone Wait Times 

Remain High, and the Goal for Providing Live Assistance 

Remains low 

Table 3: Telephone Service Goals and Performance from January 1 through Mid-March 

2007 2008 2009 2010 2011 Percentage 

change from 

2010 to 

2011 

Percentage of callers seeking FY goala 82.0 82 Db 77.0c 71.0 71.0 0.0% 

live assistance who received it 

(in percent) Actual to Date 83.3 80.0 60.9 74.2 72.6 -2.2 

Average wait time FY Goala 4.3 4.5 10.4 11.6 11.6 0.0 

(in minutes) 

Actual to Date 4.1 5.4 9.2 9.9 10.3 4.0 

Source. GAO analysIs 01 IRS data 

Note. Data are cumulative for IRS Irom January 1 01 each year to March 17, 2007, March 15 2008' March 14,2009, March 13 2010, and March 12, 

2011 

'The goal listed IS lor the entire fiscal year. not Just the time period from January 1 through mlcl-March 

liRS revised Its original fiscal yeal goal of 82.0 percent down to 74.0 percent because of high call volume causod by stllnulus-mlatcd calls 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Bri£'fiugs 

, 

~ GAO 

Accounlab,my ' Integ"ly' Rellabllil1 

Service to Taxpayers: IRS Has Requested Additional 

Funding to Improve Its Level of Telephone Service 

• IRS sets its annual goal for telephone level of service-the percentage 

of taxpayers seeking live assistance who actually receive it-based on anticipated call volume and available resources. 

• IRS has requested additional funds to increase the goal for level of 

service to 80 percent in fiscal year 2012. 

• The level of service goal for fiscal year 2011 remains 71 percent, the same as in fiscal year 2010. IRS has asked for an additional $20.9 

million to raise this goal to 75 percent, but has not received this 

funding under the current continuing budget resolution . 

• In its fiscal year 2012 budget request, IRS asked for an additional 

$30 million (on top of the $20.9 million requested in 2011) to raise 

the level of telephone service to 80 percent. 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

! 

Af:GAO Ac~o"ntab'llty' IntegrIty' Rallabltlty 

Service to Taxpayers: Use of IRS's Website Continues to 

Grow 

Table 4: IRS's Web site Visits from January 1 through Mid-March (in Millions) 

2008 2()O\) 2010 2011 

thr~~~h ~g~ ~ 

TotallRS.gov visits 97.1 124.9 120.1 131.1 9.2% 

IRS searches 565 1309 1390 159.0 14.4 

"Where's My Refund" visits 21.4 34.0 37,8 40,7 

(landing page) 

Source GAO analysIs of IRS data 

Note: Data ar81rom January l1hroughMarch 12 for all years 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

1 

~ GAO 

Acco"~tabil1\y' !ntes"ty • Rcbob,lity 

Service to Taxpayers: IRS Has Requested Funding to 

Expand Its E-Services 

• IRS is taking steps to improve its Web site, including planning to invest 

$320 million over 10 years to introduce a new Web site by the 2013 

filing season. 

• For the fiscal year 2011 budget, IRS asked for $25 million to 

upgrade its public user portal, which will allow for the installation of 

adaitional e-services, but has not received this funding under the 

current continuing budget resolution. 

• For the fiscal year 2012 budget, IRS requested $25 million to 

replace both the employee and registered user portal (on top of the 

$25 million requested in 2011). IRS requested an additional $8 

million to create an e-service, called E-Notices . 

• This service would allow taxpayers who have entered into 

installment agreements to opt for monthly electronic payment reminders. 

Page 23 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

! 

~ GAO 

AccountalHllty " Integrily " Rellabllll,. 

Issuing Refunds on Debit Cards: IRS Partners with 

Financial Institutions to Offer Debit Cards at VITA Sites 

• For 2011 IRS is Qartnering with J.P. Morgan Chase, PNC Bank, U.S. Bank, and 

Western Union (PNC and-U.S. Bank also participated last year) to offer refunds on debit cards and debit cards are available to taxpayers al almost all of IRS's 

roughly 12,000 volunteer sites across the country. Additionally, IRS partner organizations work with financial institutions locally to provide debit cards to 

taxpayers. 

• Debit cards from Western Union are available through the software program used to prep'are returns at nearly all VITA sites. This card includes a $1.95 

fee per ATM withdrawal and may only be used in the United States. 

• The other three partnering financial institutions offer debit cards at a limited 

number of VITA sites (18 sites, 154 sites, and 45 sites, respectively). 

• All four options include no monthly or activation fee. 

• All of the debit cards except the Western Union card include free in-network 

ATM withdrawals. Except lor Western Union, each bank has ATMs in a limited 

number of states. 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

! 

~ GAO Accountability' Integrity , Reliability 

Issuing Refunds on Debit Cards: Treasury's 2011 Pilot 

Program Involves Testing Different Debit Card Offers 

• In January 2011$Treasury mailed offers to about 808fiOOO taxpayers who likely make less than 35,000 per year, and are unlikely to ave bank accounts. 

• All cards are provided on a Visa debit card by a contractor selected by Treasury. Card options include no acquisition lee, Iree In-network ATM withdrawals, and 

$2.50 out-aI-network ATM withdrawals. 

• Appendix III 01 our report provides a more detailed comparison 01 the Treasury and IRS programs 

Page 25 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

! 

~ GAO 

A"counlab,lily'Inte<;J'lly" ReHablhly 

Issuing Refunds on Debit Cards: Both IRS and Treasury 

Are Conducting Program Evaluations 

• It is too early to tell what the take-up rate for the IRS program will be this 

year or whether any of the debit card options in the Treasury program 

will be widely used. Both IRS and Treasury plan to evaluate their 

programs after the filing season. 

• IRS will apply social marketing principles and techniques to promote and 

increase the use of prepaid cards by different target groups.' 

• IRS will engage a range of stakeholders and partners to issue a program 

evaluation report by August 2011. 

• IRS designed its evaluation based, in part, on a recommendation we made 

in 2010 for IRS to include the taxpayers, volunteer site partners, and other 

stakeholders in its analysis of the debit card program.? 

6S0clai marketing emphasizes listening to the needs and desires 01 the target audIence to develop a program to benefit them 

IGAO-ll-l11 Page 26 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

1 

€:.GAO ACcQuntab,lily'Int"9nly" Rt>liabil,\), 

Issuing Refunds on Debit Cards: Both IRS and Treasury 

Are Conducting Program Evaluations, Cont'd 

• Treasury contracted with the Urban Institute, a research organization, to 

evaluate its debit card program. The study will compare taxpayers' 

responsiveness to the eight different offers and evaluate the design and 

execution of the program. 

• The study should be publicly released later this year, and, 

according to Treasury officials, will be used as one of the 

factors in the decision regarding the future of its debit card 

program. 

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Conclusion 

Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

1 

~ GAO 

Acc"u"!at>il,!y·I"!~ri!y·A .. llallll'!y 

• IRS has had to deal with several challenges this filing season, 

including late tax law changes and an increase in the volume of 

telephone calls. IRS's inability to accept certain returns until midFebruary highlights the importance of fully implementing new 

systems to modernize returns processing, particularly CADE 2 and 

MeF. According to IRS officials, these systems should allow IRS to 

more easily accommodate tax law changes and issue refunds 

faster. 

• Additional MEA to verify compliance with lifetime limits on credits 

and deductions has advantages, compared to audits, for both 

taxpayers and IRS. For example, taxpayer errors can be caught and 

corrected before they result in penalties. This, in turn, would allow 

IRS to use its expensive auditors' time on more significant 

compliance problems. 

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Appendix I: Updated Slides from the 

March 23 and March 24, 2011, Congressional 

Briefings 

Matter for Congressional Consideration 

, 

i§:.GAO ACCQUfllablilly' 1,,1"lIflly , Rcllab,lIty 

• To ensure IRS can adequately enforce certain tax provisions and 

consistent with our previous suggestion that Congress grant MEA to 

IRS more broadly, Congress should provide IRS with MEA to use 

tax return information from previous years to ensure that taxpayers 

do not improperly claim credits or deductions in excess of lifetime 

limits where applicable. 

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Appendix II: IRS's Existing Math Error 

Authority 

Table 1 summaIizes the Internal Revenue Service's (IRS) existing math 

error authority (MEA). 

Table 1: IRS's 13 Existing MEAs 

No. Description 

An error in addition, subtraction, multiplication. or division shown on any return. 

An incorrect use of any table provided by IRS with respect to any return if other information in the return makes the incorrect 

use apparent. 

An entty on a return of an item that is inconsistent with another entry of the same or different Item on that return. 

An omission of information that is required to be supplied on the return to substantiate an entry on that return. 

An entry on a return of a deduction or credit In an amount that exceeds the statutory limit for that deduction or credit, if that 

limit is expressed as a specific monetary amount or as a percentage, ratio, or fractIon, and if the component items of that limit 

appear on the return 

A correct Taxpayer Identification Number (TIN) not provided on the return as required for the following provisions: 

• Earned Income Tax Credit (EITC); 

• child and dependent care credit; 

• personal or dependent exemption; 

• child tax credit; or 

• Hope and Lifetime Learning credits. 

A return claiming an EITC for net earnings from self-employment, where the self employment tax imposed by I.R.C. § 1401 

on those net earnings has not been paid. 

An omission of information required for recertification of eligibility for the EITC 

An entry on the return of a TIN required for the EITC, the child credit, and the child and dependent care credit, when 

information associated with that TIN indicates that the child does not meet the age eligibility requirements for those credits. 

lOAn entry on the return of a claim for the EITC where the Federal Case Registry of Child Support Orders indicates that the 

taxpayer is the noncustodial parent of that child. 

11 A failure to reduce Electronic Stimulus Payment credit on a return related to the Economic Stimulus Act of 2008 by amounts 

previously advanced 

12 A failure to reduce the Making Work Pay credit by the amount of any payment received as a result of tax abatement resulting 

from the combat-related deaths of members of the Armed Forces, deaths of astronauts, and deaths of victims of certain 

terrorist attacks, or by the amount of any credit allowed under the American Recovery and Reinvestment Act of 2009, or a 

failure to submit a proper Social Security number with the claim. 

13 A claim for the First Time Homebuyer Credit where the taxpayer has not included the required settlement statement; or where 

other information indicates that the taxpayer is under 18 years of age, or where information from the past 2 years of returns 

indicates ineligibility for the credit. 

Additionally, IRS may correct the return where the taxpayer has failed to include the increased tax required under the 

recapture provision for the credit, when applicable. 

Source.GAOa~alysls 

Page 37 GAO-1l-481 Tax Filing Season 
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Appendix III: Descriptions of IRS Volunteer Income 

Tax AssistancelTax Centers for the Elderly and 

Treasury Programs to Offer Tax Refunds on Debit 

Cards 

Table 2 provides further details on the debit cards being offered at 

Volunteer Income Tax Assistance (VITA) and Tax Center for the Elderly 

(TeE) sites. 

Table 2: Tax Refunds Offered on Debit Cards at IRS VITA and TeE Sites 

Type of card 

Card activation 

Monthly maintenance 

Signature purchase 

PIN Purchase 

Retailer purchase with cash back 

option 

ATM cash withdrawals 

Bill payment 

Live customer service 

Overdraft 

J.P. Morgan Chase 

Visa 

Free 

Free 

Free 

Free 

Free 

Free at Chase and 

network 

$0.75 

Free 

No fee ($.75 per 

denied transaction 

for insufficient 

funds) 

Online electronic statements Free 

Payroll direct deposit (employer N/A 

must have the capabilities for 

direct deposits) 

Money transfer load N/ A 

Online/Interactive Voice Response Free 

account activity 

Short Message Service account Free 

notifications (wireless provider 

could charge a fee) 

Card replacement One free per year. 

Additional card 

$7.50 

PNC Bank 

Visa 

Free 

Free 

Free 

Free 

Free 

Free at PNC and 

network 

Free 

Free 

No charge 

Free 

Free 

N/A 

Free 

Free 

Free 

Cash reloads N/A Free at PNC branch 

Teller cash advance $10 Free 

Card consecutive month inactivity 6 months 3 months 

fee assessed after 

Relationship building with financial Yes 

institution 

Yes 

Page 38 

U.S. Bank 

Visa 

Free 

Free 

Free 

Free 

Free 

Free at US Bank and 

network 

Free 

Two free per month 

No charge 

Free 

Free 

N/A 

Free 

$0.15 

Free 

Western Union 

MasterCard 

Free 

Free 

Free 

Free 

Free 

$1.95 plus 

additional ATM 

fees could be 

assessed by ATM 

Free 

Free 

No charge 

Free 

Free 

Free 

Free 

Free 

Free 

Free at U.S. Bank branch $4.95 

$5 Not available 

3 months 12 months 

Yes No 

GAO-11-481 Tax Filing Season 
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Appendix III: Descriptions of IRS Volunteer 

Income Tax Assistancetrax Centers for the 

Elderly and Treasury Programs to Offer Tax 

Rf'funds 011 Dehit Cards 

Federal Deposit Insurance 

Corporation protected 

Visa/MasterCard zero liability 

protected 

Personalized card 

Geographic coverage 

J.P. Morgan Chase PNC Bank 

Ye' 

Ye, 

Ye, 

Arizona, California, 

Colorado, 

Connecticut, 

Delaware, Florida, 

Georgia, Idaho, 

Illinois, Indiana, 

Kentucky Louisiana, 

Michigan, Missouri, 

Nevada, New 

Jersey, New York, 

Ohio, Oklahoma, 

Oregon, South 

Carolina, Texas, 

Utah, Washington, 

West Virginia, and 

Wisconsin 

Ye' 

Yes 

Yes 

Delaware, District of 

Columbia, Florida, 

Illinois, Indiana, 

Kentucky, Maryland, 

Missouri, New York, 

Ohio, Virginia, West 

Virginia, and Wisconsin 

Source GAO analys,s of IRS data. 

U.S. Bank Western Union 

Yes Yes 

Yes Yes 

Yes Yes 

Arizona, Arkansas, USA only 

California, Colorado, Florida, 

Georgia, Idaho, Illinois, 

Iowa, Kentucky, Minnesota, 

Missouri, Montana, 

Nebraska, Nevada, North, 

Dakota, Ohio, Oregon, 

Pennsylvania, South 

Dakota, Tennessee, Texas, 

Utah. Washington, 

Wisconsm, and Wyoming 

Table 3 provides additional details on the fee structures offered through 

Treasury's pilot program. 

Table 3: Treasury Pilot Debit Card Program Offers 

Service Fee 

Monthly Fee $0 or $4.95 depending on offer (for offers with $4.95 monthly fee, that 

charge is waived in any monthly billing cycle in which cardholder loads at 

least $1 ,000 to the Card or makes 30 purchase transactions) 

Savings Account For those participants who are offered a savings feature, there is no charge 

to open or maintain the account, no minimum balance, and 0.25 percent 

annual percentage yield (variable rate, subject to change). Fees may apply 

to withdraw funds if cardholder uses an ATM outside of the 

MyAccountCard network. There are limitations on the number of transfers 

in and out of the account per month. 

Card acquisition fee Free 

Unlimited ATM cash withdrawals and balance check at Free 

15,000 participating locations nationwide ($2.50 service 

fee applies for out-of-network ATM withdrawals 

Transactions at U.S. merchant locations Free 

Purchases onlme or over the phone Free 

Cash back with purchases Free 

Online bill pay Free 

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Appf'ndix III: Descriptions oflRS Volunteer 

Income Tax Assistancetrax Centers for the 

Elde-rly and Treasury Programs to Offer Tax 

Rf'funds on Debit Cards 

Service Fee 

Balance inquiries online, by phone, by text and at in- Free 

network ATMs (standard text messaging rates may apply 

from your wireless carrier) 

Add money with direct deposit Free 

Lost/stolen card replacement $4.95 

Second card $4.95 

Out-ot-network ATM cash withdrawals $2.50 piUS any fee the ATM owner may charge 

Teller cash withdrawals $2.50 

Balance Inquiries al out-at-network ATMs $0.50 

Add money in-person at participating locations Up to $4.95 

Card use outside of the 50 United States 3 percent of transaction amount 

Source Treasury 

Page 40 GAO-11-481 Tax Filing Season 
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Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Staff 

Acknowledgments 

(4(;0899) 

.James R. White, (202) 512-9110, whitej@gao.gov 

In addition to the contact named above, Joanna Stamatiades, Assistant 

Director; Steven J. Berke; Abbie David; David Fox; Tom Gilbert; Matt 

Johlie; Inna Livits; Karen O'eonor; and Sabrina Streagle made kpy 

contributions to this report. 

Page 41 GAO-1l-481 Tax Filing Season 
49 

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GAO 

For Relea<;e on Delivery 

Expected at 11:00 a.lll. EST 

Friday, March 11, 2011 

GAO-1l-453T 

United States Government Accountability Office 

Testimony 

Before the Subcommittee on Legislative 

Branch, Committee on Appropriations, 

House of Representatives 

FISCAL YEAR 2012 

BUDGET REQUEST 

U.S. Government 

Accountability Office 

Statement of Gene L. Dodaro 

Comptroller General of the United States 

i 

j:;GAO Accountability * Integrity * Reliability 
51 


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Mr. Chainnan, Ranking Member Honda, and Members of til(> 

Subcommittee: 

I appreciate the opportunity to be here today to discuss tlw U.S. 

Government Accountability Office's (GAO) budget request for fiscal 

year 2012. I want to thank the subcommittee for its continued support 

of GAO. We very much appreciate the confidence you have shown in 

our efforts to help support the Congress in carrying out its 

constit utional responsibilities and to help improve government 

perfonnance and accountability for the benefit of the American people. 

With this committee's suppmt, in fiscal year 2010, GAO provided 

a.9sistance to every standing congressional committee and 70 percent of 

their subconunittees. Our work yielded significant results across the 

govC'nunent, including financial benefits of $49.9 billion-a return on 

investment of $R7 for every dollar invested in GAO. In addition, WE' 

documented over 1,300 other benefits resulting from our work that 

helped improve services to the public, promote improved management 

throughout government and change laws, such as thl" Improper 

Payments Elimination and Recovery Act of 2010, 1 

Recently, we issued two major reports that underscore GAO's 

continuing value in helping Congress and the Administration reduce 

('osts and improve government, particularly in a time of reduc'ed 

resource's, 

First, just Jast week on March 1,2011, we- detailed 81 opportunitif's 

to reduce duplication, overlap, or fragmentation. ~ These 

opportunities span a range of federal government mission areas 

such as agriculture, defense, economic development, energy, 

general government, health, homeland security, international 

affairs, and social sC'rvi('('s. Within and across thcs(' missions, our 

repOlt touches on hundreds of federal programs, affecting virtually 

all major federal departments and agencies. By reducing or 

eliminating unnecessary duplication, overlap, or fragmentation and 

by addressing the other cost-saving and revenue-enhancing 

I GAO-11-2SP, United Statl"s Govt'rnnwnt Accountabllity Oflkt' Pt'rfonnane(> ancl 

Accountability Rt'port Fiscal Y(>ar 201O.and (;'AO-ll-;lSP. Summar;y or GAO's 

Performance and Finandallnformation Fiscal Year :2010. 

~ GAO-II-318SP, Opportunities to Reduce' Potential Duplication in Government 

Programs, Save Tax Dollars and Enhance Revenup. 

Page 1 GAO-11-453T 
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opportunities contained in the report, the federal government could 

sav{' tC'ns of billions of tax dollars annually and hrlp agencies 

provide mon? efficipnt and effpctivp services. 

Second, our High Ri.sk update issued on Fehmary 17, 2011 

identified 30 f{'deral areas and programs at risk of fraud, waste, 

abuse, and mismanagement, and those in need of broad-based 

transformation. Solutions to high-risk problems offer the potential 

to save billions of dollars, dramatically improve service to the 

puhlic, and strengt.hen confidence and t.mst in the performance and 

accountability of the U. S. Government.·1 

Looking ahead to fiscal year 2012, GAO is acutely aware of our dual 

re'sponsibilitirs in a time' of fiscal austerity. First, the Congress has 

rightly ('orne to rely upon GAO to hE'lp identify billions of dollars in 

eost-saving opportunities to tighten federal budgets or to point out 

revenue enhancement opportunities. We know our mission becomes 

ever more critical when the nation facE'S difficult. financial times. But 

second, GAO must also ensure it meets this rE'sponsibility while 

implemE'nting all possible cost savings in its own operations without 

diminishing our traditionally high-quality work that lays the foundat.ion 

for critical decision-making and oversight by the- Congress. 

Accordingly, we are seeking only to maintain our fiscal year 2010 

funding h:'vd of $556.8 million in fiscal year 2012 and plan to maintain 

our current authorizf'd staffing If'vf'ls. While operating at this funding 

lew'l with no increa...,e poses challenges, GAO is committed to reducing 

our own costs as much as possible in order to absorb the additional 

demands and incrE'asing costs of t.h(-~ coming year wit.hout additional 

rf'sourcf's. Our budget requf'st attempt.s t.o balance tradeoffs and 

assumes that we will be able to manage at reduced funding levels, and 

try to maintain our staffing If'vf'ls to provide insightful analyses on the 

most important priorities for congressional oversight and decision 

making. 

Howev('r, if GAO's funding is reduced bf'low the requested level, more 

drast.ic mea..<;urf'S would be needed) such as reductions in our staff 

capacity, which would result in inereasf'd delays in responding to 

: Our 2011 High-Risk Llst is indmkd in Apppnriix I. 

Page 2 GAO-11-453T 
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GAO Efforts Help the 

Congress Address 

Domestic and 

International 

Challenges 

congressional requests, limit our ability to provide timely responses to 

support congressional oversight, and reduce the number of requests 

that we could complete. 

GAO stands ready to serve the Congress and the American people at 

this historically criticaljuneture and is uniqUl~ly positioned to hplp 

address our nation's challenges and identify opportunities. Pressures to 

reduce the federal deficit following an economic recovery will mean a 

greater need for analyses of programs and their effectiveness, as well as 

a reduction in improper federal payments and closing the gap between 

taxes oWf'd and paid. 

Congressional demand for GAO services remains high as E'vidpnccd by 

our workload. Wp exppct that trpnd to continue as a result of the 

pressures on federal finances and our economy. For example, we will 

bp working to produce future annual reports outlining duplication, 

overlap and fragmentation as well as opportunities to reduce costs and 

pnhance rpvenup. Additionally, the Wall Street Rpfonn Act contained 

44 new statutoty [pqnirements or authorities for GAO assistancE', 

including audit.s rf'latf'd to thf' Federal Rf'serve. 

Our past performance is evidpnce of the critical role our dedicated staff 

play in helping the Congress and the American people better 

understand issues, both a.''1 they arise and over the long term. For 

example, in fiscal year 2010, GAO issue-area experts testified 192 times 

before the Congress un a wide range of issues, ranging from ail'cargo, 

horder and CybPf sP(,Ulit.y issups and the Department. of Dpfpllse's 

planning for the drawdown of US. forces from Iraq to the Medicare 

prescription drug program, processing of disability daims and funding 

for broad band s('rvic('s. ! 

GAO's stratpgic plan for sprving the Congress and thp nation, highlights 

thp broad scope of our efforts to help the Congrpss respond to 

donlPstic and intprnational challenges, such a.<; 

threats confronting U.S. national security intE'rests; 

fiscal sustainability and debt challenges; 

4 A list of selected issues on which GAO stafftestifir-d before Congress 

during fiscal year 2010 is included as Appendix II. 

Page 3 GAO-11-453T 
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f'COllOmic recovelY and restored job growth; and 

advances in sciencp, technology, engineering, and mathematics. 

GAO sE'eks not only to help position the govcrnmC'nt to bettcr managc 

risks that could compromise the nation's security, health, and solvency, 

but also to identify opportunities for managing government resources 

wisely for a more sustainable future. 

Our Strategic Plan covers the following goals and objectives. 

Goal1: Help the Congress Address Current and Emerging 

Challenges to the WelJ-being and Financial SecUl'ity of the 

American People 

Financing and Programs to Servp the Health NeE'ds of an Aging and 

Diverse Population 

Lifelong Learning to Enhance U.S. Competitiveness 

Bpnefits and Protections for Workers, Families, and Children 

Financial Security for an Aging Population 

• A Responsive, Fail', and Effective Syst.em of JustiCE' 

• Viable Communities 

• A Stable Financial System and Consumer Protection 

• Responsible Stewardship of Natural Resourcps and the 

Environment 

• A Viable, Efficient, Safe, and Accessible National Infrastructure 

Goal2: Help the Congress Respond to Changing Security 

Threats ;llId the Glmllenges of Global InterdepeIldence 

• Protect and Secure the Homeland from Threats and Disasters 

• Ensure Military Capabilities and Readiness 

• Advance and Protect U.S. Foreign Policy Interests 

Respond to the Impact of Global Market Forces on U.S. Economic 

and Security Interests 

Goal3: Help Transform the Federal GoVerLlment to Address 

National Challenges 

• Analyze the Government's Fiscal Position and Opportunities to 

Strength€'n Approach€'s to Address thE' Current and ProjectNI Fiscal 

Gap 

Identify Fraud, Wa.<;te, and Abuse 

Page 4 GAO-1l-453T 
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Constrained Fiscal 

Year 2012 Budget 

Request 

GAO Maintains 

Effective Workforce 

Relations 

Support Congressional Oversight of Major Management Challenges 

and Program Risks 

Our Strategic Plan framework is included in Appendix IV. 

Our n~quested funding level of $550.8 million will allow us to try to 

support a staffing level of 3,220 FTEs to provide insightful analysis on 

the most important priorities for congressional oversight and decision 

making. We will continue to outreach to the Congress to understand 

and set priorities to ensurE' that we focus on the most important issuE'S 

for congressional oversight. 

Although operating under a flat budget for 3 years provides significant 

operational challenges, we have carefully considered our resource 

requiremenL<; and made tradeoffs to ensure that we try to maintain our 

staff capacity within our current funding level to allow us to provide thE' 

CongrE'ss with high-quality, timely, and objectivE' analyses of 

government programs, operations and finances-infonnation that the 

Congress needs to make policy chOices, ('nsure transparency and 

accountability, and protf'ct thf> taxpayer. 

However, since 80 pE'rcE'nt of our budget covers staff compensation and 

benefits, our flexibility to control costs without diminishing our staff 

capadty is limited. Without additional funding in fiscal YE'ar 2013 and 

beyond, we would need to reduce our staff capacity which would 

increase the delay in starting work on eongressional requests, limit our 

ability to provide timely responses and analyses to support 

congressional oversight, and reduce the number of requests that we 

could undertake. 

We could not have achieved our level ofperfornlance without the hard 

work and dedication of our professional, diverse, and multidisciplinary 

staff. Rpcognizing that GAO's accomplishments arC' a din'ct result of 

our dE'dicated workforce, we continuously strivE' to maintain a work 

environmE'nt that promotes employee well-being and productivity. WE' 

are also proud of the results from our 2010 annual employee feedback 

survey, which indicate that employee satisfaction continues to increase 

and that we contimlE' to make progress toward our goal to create a 

more inclusivE' work environment. In 2010, GAO was oncE' again rated 

sE'cond on tlw list oft.he "BE'st. Places to Work" in the federal 

govemn1E'nt by thE::' Partnership for Public Service. 

Page 5 GAO-1l-453T 
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Concluding Remarks 

GAO regularly seeks and values the input we receive from our 

f'rnployce organizations, Rcccntly, wc rcached tentative agrccment 

with GAO's Employees Organization, IFPTE, Local 1921, on a master 

contract that has since been ratified by its members and is pending 

legal review. We are also working with our Employee Advisory Council 

and the Diversity Advisory Council on a range of issues. 

I be-lieve that you will find our prurient budget request is fiscally 

re-sponsible and E'ssential to ensure that we can maintain our capacity 

to assist the Congress in this challenging period in our nation's history. 

We have a prov('n track [('cord of helping the Congress evaluate critical 

issues of national importance and improving the transparency and 

accountability of our national government. Our new strategic plan for 

serving the Congress through fiscal year 2015 provides the framework 

for reporting on progress toward our institutional goals. 

We remain committed to providing accurate, objective, nonpartisan, 

and constructivt" infonnation to the Congress to help it conduct 

effcctivE' oversight and fulfill its constitutional r('sponsibiliti('s. I 

appreciate, as always, your careful consideration of our submission and 

look forward to discussing our proposal with you. 

Mr. Chairman, Ranking Member Honda, Members of the Subcommittee, 

this coneludes my prepared statement. I would be plE'asC'd to rE'sptmd 

to any questions that you or other members of the subcommittee might 

havE'. 

Page 6 GAO-1l-453T 
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Appendix I: GAO's 2011 High-Risk List 

Strengthening the Foundation for Efficiency and Effectiveness 

Management of Federal Oil and Gao;; Resources (New) 

Modf'rnizing the Outdated V.S. Financial Regulatory System 

• Restructuring the V.S. Postal Serviel:' to AC'hievE' Sustainable :FinanC'iaI Viability 

Funding the Nation's Surfael" Transportation System 

• Strategic Human Capital Management 

• Managing Federal Real Property 

Transforming DOD Program Management 

• DOD Approach to Business Transfonnation 

• DOD Business Systems Modernization 

• DOD Support Infrastructure Management 

• DOD Financial Management 

• DOD Supply Chain Management 

DOD Weapon Systems Acquisition 

Ensuring Public Safety and Security 

• Implementing and Transfonning the Department of Homeland Security 

Establishing Effective Mechanisms for Sharing and Managing Terrorism-Related 

Infonnation to Protect the Homeland 

Protecting the Federal Government's Information Systems and the Nation's Cyber Critical 

Infrastructures 

Ensuring the Effective Protection of Technologies Critical to C.S. National Security 

Interests 

• Revamping Federal Oversight of Food Safety 

Protecting Public Health through Enhanced Oversight of Medical Products 

Transfonning EPA's Process for Assessing and Controlling Toxic Chemicals 

Managing Federal Contracting More Effectively 

DOD Contract Management 

DOE's Contract ManagemE'nt for tht' National :-.JudeaI' SE'curity Administration and Office 

of En .. ironmental l\lanagf'ment 

NASA Acquisition Management 

Management of Interagency Contracting 

Assessing the Efficiency and Effectiveness of Tax Law Administration 

• Enforcement of Tax Laws 

• IRS Business Systems Modemization 

Modernizing and Safeguarding Insurance and Benefit Programs 

Improving and Modprnizing Federal Disability Programs 

Pension Benefit Guaranty Corporation Insurance Programs 

• Medicare Program 

Medicaid Program 

• National Flood Insurance Program 

Page 7 GAO·ll·453T 
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Appendix II: Selected Testimony Topics, 

Fiscal Year 2010 

Sdecled Testimony Topico; • Fiscal Year 2010 

Goal 1: Mtiren C'ln"'fV:nt lind Emerg;T~ Chttlknges1:o tim Well-Being ami Fi Mud.tl 

Security of the Anuriclln Ptwpk 

• Un~mployrn<:nt lruurs.m::o:: Trust Funds • DOl's Civil Rlghts DiYision Entt.Kcrm:m Elfom 

• 5oc131 So.:unty Disability • Community Emo:rgo::my Pn:ra=:lrr0:5S 

• Undo:rfunded Pension Pians • Fannie: }"'la<: & Frddi ... Mac 

• Prupd.:ra.ry Schoo\:; • Into:rior's Ch-:::rsight of oil & Gas 

• M~.a.re High-Cost Drug.; • Clo::an Wan:r Act Enforco::.mo::nt Efrons 

• Toxic Subsu.nce Abuso; Di:sIeaso:: ~glstI)' • U.S. Ibsul Soen:i..r Financial Viability 

• Concussions in High schocl. Athletes • Federal Facilities Sewrity 

• ChildrensAa:o::ss ro Medicaid Do:ntai Servicc:s • High S£=,d Rlil Pro,i<xn 

• Corporate Cdm.., • Comm<:rcial Avi.ation Consul'nc:r Fees 

Goal 2: Respetul to ChangitJg Security 'Ihreats anti the Challimges of Global 

1.-.lepeo"",," 

• Financial I'\ .. 1arkets Regulation • CountO:-rflafCorics and Antkrime EfFOrts in 

• N1t!on:tl Flood InsurancePmg":un 

• CJimato:: Ch.l.n~ 

• ,'\lien Smuggling Along U.S. s':'uth'l\J'(:H Border 

• A'o"iatiorr Security Ad""J.nct:ei Imaging TochnoJogr 

• T.::norisr \"I;'atchhst Scmming 

• Combating Nud=r Srrmggling 

• Iran Sanction.s 

11o=:cico 

• Global Food S<:curiry 

• Inulio:-ctual Propo:-rty Enforc<:ment Eiforts 

• Afgh:misrall So;;urlty Fon;.:: Capacity 

• DOD MUiraI}' and CivLli.l.n Employ.::.:: 

Comp<:ruuion 

• 'X'arfighur Contr:lct Support 

• JOint Strlk.:: Fight.::! Cnalkonges 

Goal 3: Help T1'4nsfonn the Federal Go'~"nHWNr tQ AdJt'r"y Nariona/ C"itll~"gu 

• D.::~ Spa.ce.okquislrions 

• Milirruy Langwg.:: Skills 

• Illto:rago:ncy Collaboration for Nation.al S.::cudty 

In[o:ragO:-flg Contn.ctingStrMo:-gks 

• NASA Manag<:ment and Program ChaU.::ngcs 

• Balancing th.:: Government-fa-Contractor 

\Vc,rkfOrcc 

• 2010 c.:on~us I\.hnag<:m ... nt Chalkng<:s 

• U.s. G<:>VI:'rnmo:-nr Fin.l.odal Statements 

• DHS Financ.i.al: M;lI'1ag.::m<:nt $pt=s 

Consolicbrian 

• Protc>:ting FcxkullnJOrmation Systelll5 

• Em,jronm.::rrral SatcUitts 

• D<:bt S<:tti<:ment Risks to Consu.mas 

• It.tq and Afghanistan Contr.lCt and Gr.i.I'lt 

,\1anagemo:nt • Scr>i~ Disabled V<:teraIl+Own.ed Small Bu~iw:" 

• Reco ... o:ry Act Oveulghr 

• First Timo: HomebuyerTax Cro::\.it 

• Equal EmpW;.·m~tOpportu.nltyat DHS 

Progmm Fraud PC<:".'ention 

• HEAD START ProgrJ.m Fr.J.ud 

• Dcfen~ Contr,.l..;-r i\.u.dit .<\gency Vulno:rJ.bilities 

Page 8 GAO·l1·453T 
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Appendix III: How GAO Assisted the 

Nation, Fiscal Year 2010 

How GAO Assisted the Notion • Fiscal Yea 2010 

GOiElI1: Admws Curn"t-anJEmergingOm/Jenges totIH W'eJt.BeingA1IdFinam:ial 

Sec..";ty qftheAmeriatn P",pIe 

.. tdl!lJUfied .....-ay" Em- HHs. to ~~l!n =P"'=UOlJ5 of ;W!blllatory rurgi~<ll t;~rs leadJflg ro II fuudold ID>..~>@ m t:li!o! 

proponi= of ~ imu:d to h.n~ doirlic:ieD.t pncme-> 

• App~d49~:md,.~dffsr;o30~cre\1lJ.dinlJ.eU, beald:.car-el~gJ.ilit!on 

:II R.eCalllmE!ll&d. food s~' l1lJPIO\~ts tllm:!lw! C-oo.gre~~lllCl.w!edm oe~latl.Otl.fOf CSDA's St~! lunch program 

.. Facilitated. e:tpl!dJ.ted clai.n.J.s proce.~:<; fur Labor-'s hlack ~ benefih progr,IDl 

• lnue:a'>ed EPA flX:lli. on I!IDIIIWlllli!'llml ~l115 TIl cluJ.men s hm\.dl 

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Pagf' 9 GAO-II"453T 
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Appendix IV: GAO's Strategic Plan 

Framework 

Serving the Congress and the Nation 

G,\O's Strat('~i(' Plan I·'nlllu'wol'k 

MISSION 

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... ResponcitoChlnging SttCUrity 

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Help Transform thlt Federal Govemml!ftt to 

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.loIximize the ¥alUI!' of GAO by Enabling 

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Health care needs 

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Benefits and protect Ions for work.@r~, 

families. and children 

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Militarycapabillties 

and readiness 

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position and options for dOSIng gap 

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and quality collaooration 

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CORE VALUES 

Acrountabilily Integrity R.li.bi~1y 

Page 10 GAO-II-453T 
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This is a work of the U.S. government and IS not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 
62 

f 

Ms. JENKINS. Mr. Lewis. 

Mr. LEWIS. Thank you very much, Madam Chair, for holding 

this hearing on the Internal Revenue Service. 

I am pleased that we have the Commissioner before us today. 

I have serious concerns about the effect of the recent budget cuts 

on taxpayers, tax collection, and Agency operations. 

In the most recent report to Congress, the National Taxpayer Advocate stated that the most serious problem facing taxpayers is 

that the IRS is not adequately funded to serve taxpayers and to 

collect taxes. I fully agree with this statement. 


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63 

This year, the Agency’s budget was cut by over $300 million. 

This cut harmed taxpayers and telephone service. Telephone calls 

have increased by 34 percent, but the hours phones are answered 

have decreased by 20 percent. 

Only 65 percent of taxpayers seeking telephone assistance are 

able to speak to an IRS employee, and they must wait an average 

of 17 minutes. 

Taxpayers seeking in person assistance also have been harmed. 

This is clear from the very long wait time at Taxpayer Assistance 

Centers. 

The budget cut also harmed Agency operations. The cut forced 

the Agency to lay off thousands of employees. The majority of these 

employees worked in Enforcement. They protected and collected 

revenue. This reduction does not help tax collection or reduce the 

deficit. It makes no sense. 

I look forward to discussing these issues and the Agency’s proposed budget for next year. 

Madam Chair, finally, I would like to take a moment to thank 

Floyd Williams for his service and dedication to the Agency and to 

this Congress. 

As many of you know, Floyd is the Legislative Affairs Director 

of IRS. He plans to retire this summer. 

Floyd began his Government service as a congressional page 

under Senator Fulbright of Arkansas many years ago. I think the 

Senator from Arkansas probably violated the child labor laws. You 

are not that old. 

I have worked with Floyd in many roles on this committee, and 

I know he will be missed. I wish him the best as he retires. Thank 

you for your great service. 

With that, Madam Chair, I yield back. 

Ms. JENKINS. Thank you, Mr. Lewis. 

I would like to welcome back the Commissioner of the Internal 

Revenue Service, Mr. Douglas H. Shulman, who has served as 

Commissioner since March 2008. 

Commissioner Shulman, thank you again for your time today. 

The Committee has received your written statement and it will be 

made part of the formal hearing record. 

You will be recognized for five minutes for your oral remarks, 

and you may begin when you are ready. 

STATEMENT OF DOUGLAS H. SHULMAN, COMMISSIONER, 

INTERNAL REVENUE SERVICE 

Mr. SHULMAN. Thank you very much, to all the Members of the 

Subcommittee, for giving me the opportunity to testify today. 

I want to talk a little about filing season, our strategic initiatives, and the President’s 2013 budget, which would give us a much 

needed increase over the 2012 enacted levels. 

A significant portion of the President’s 2013 budget would restore 

congressional reductions in IRS funding made over the last two 

years. 

I want to start by saying that I believe it is incumbent on all of 

us in the Government to be as efficient as possible and to spend 

taxpayer dollars wisely. 


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64 

For the IRS, that means finding savings where we can and continuing to invest in strategic priorities that allow us to improve 

service and voluntary compliance. 

From fiscal year 2009 through the 2013 proposed budget, we will have achieved nearly $1 billion in budget savings and efficiencies 

in core IRS operations. 

These savings and efficiencies reflect an across the board commitment at the IRS to find better and more efficient ways to administer the tax system. At the same time, we collect $200 in revenue for every dollar spent on our budget. We also collected $2.4 trillion last year. We 

issued 110 million refunds for $345 billion to hard working American taxpayers. Our compliance activities brought in a direct revenue of $55 bil- lion, and we blocked another $14 billion from going out the door 

to taxpayers who were trying to commit fraud on the Government. 

In this regard, I want to point out that the Administration’s proposal for IRS funding includes critically important enforcement initiatives that would be funded through a program integrity cap adjustment. 

Let me just say that this proposal makes sense and is a reflection of the President’s and this Administration’s belief that IRS 

funding actually helps reduce the deficit. 

Congress is literally leaving money on the table if it does not 

enact this proposal, which would allow for deficit reducing initiatives in tax compliance, while leaving specific funding decisions to 

the normal annual appropriations process. 

Let me just talk about a couple of things that we have done over 

the last few years that have moved the Agency forward to position 

it for the future and do a better job serving taxpayers and making 

sure they comply with the Tax Code. 

Let me just start with filing season. E–File continues to grow. 

This year, we have issued about 59 million refunds for a total of 

$174 billion. That is about the same number as last year. 

We deployed several new large technology systems. I would be 

happy to talk about those as we get further into filing season. 

In strategic areas, this year for the first time in history, we have 

moved from a weekly batch cycle to daily processing of tax returns 

through CADE 2. CADE 2 delivers on the promise of IRS modernization going back two decades, and we are very proud of this 

achievement. 

A couple of years ago, I told this committee we restructured our 

technology program, we were going to deliver our major technology 

initiatives, and this year, we have delivered those initiatives. 

We also had the highest score ever last year on the American 

Customer Satisfaction Index Rating, which is the overall score we 

track for taxpayer satisfaction with their interactions with the IRS. 

We scored 73 on this Index, and we are very proud of this 

achievement in a constrained budget environment. 

Our return preparer program is now up and running. To date, 

more than 840,000 paid preparer’s have registered with the IRS. 

Both the testing and education requirements are well underway. 

This is going to be one of the most important initiatives in the 

tax system in several decades. 


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We have also made significant progress in our battle against offshore tax evasion. We have collected more than $4.4 billion to date 

through our offshore voluntary disclosure program. We are getting 

people back in the system through this and other offshore initiatives. 

I think we have made significant progress, as I said. We have cut 

$1 billion out of our core operating budget through the 2013 budget 

proposal that we have given. 

Let me conclude my opening statement with one concern that I 

want to emphasize for this subcommittee, and I think it is quite 

important for the Ways and Means Committee as a whole. 

In recent years, it seems taxpayers increasingly face uncertainty 

about what the tax law will be for the next filing season. This year, 

we at the IRS are very concerned with the status of the AMT and 

so-called ‘‘extenders.’’ 

If the AMT and extenders are not dealt with in a timely fashion, 

we may have to delay the start of filing season for many millions 

of taxpayers as we have done in prior years. 

I have written to this committee before that it is imperative that 

whatever action Congress decides to take on AMT and extenders, 

that this action happen by the end of the year, which would still 

be late from an operational perspective, but not longer than that, 

in order to prevent even more widespread disruption of next year’s 

tax filing season. 

[The prepared statement of Mr. Shulman follows:] 


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WRITTEl'< TESTIMONY 

OF 

DOUGLAS H. SHULMAN 

COMMISSIONER 

INTERNAL REVENUE 

BEFORE 

THE HOUSE WAYS & MEANS 

SUBCOMMITTEE ON OVERSIGHT 

FILING SEASON AND FY 2013 BUDGET REQUEST 

MARCH 22, 2012 

INTRODUCTION AND SUMMARY 

Chairman Boustany, Ranking Member Lewis and Members of the Subcommittee, thank 

you for this opportunity to testify on this year's tax tiling season and to provide you with 

a quick look at some of our recent successes and an overview of our proposed FY 2013 

Budget and what we hope to accomplish with these resources. 

The 2012 tiling season is underway and as of March 10,2012, the IRS received over 70 

million individual returns. The IRS has issued 59.2 million refunds for a total of$174 

billion, as compared to 59 million refunds for a total of$178 billion over the same time 

period in 20 II. The average dollar refund was approximately $3,000, about the same as 

last year. During the same time period, the IRS directly deposited 51.3 million refunds to 

taxpayers, as compared to 49.8 million last year - a 3 percent increase. 

The IRS E-file program continues to grow. This year the individual E-file rate continues 

to trend upward - a very positive development. Later in my testimony, I provide more 

statistics and information on the current filing season. 

Let me turn to the FY 2103 Budget for the IRS. Although the economy is regaining 

strength, we still face numerous challenges, such as finding the right balance between 

fiscal discipline while still investing in programs that produce a high rate of return, and 

are important to the future of our nation and the American people. 

It is incumbent upon all of us in government to be as efficient as possible and spend 

taxpayer dollars wisely. For the IRS, that means finding savings where wc can, and 

continuing to invest in strategic priorities that allow us to improve service and voluntary 

compliance. 

Indeed, the IRS consistently achieves a high return on investment for its activities while 

running a fiscally disciplined operation. From FY 2009 through the FY 2013 proposed 

budget, the IRS will have achieved nearly $1 billion in budget savings and efficiencies. 

At the same time, the agency collected nearly $200 in government revenues for every 

dollar spent on the IRS budget. 
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Against this backdrop, it is clear that the IRS is vital both to the functioning of 

government and keeping our nation and economy strong. In FY 20 II, the IRS collected 

$2.415 trillion in taxes, representing 92 percent of federal govemment receipts. The IRS 

processed more than 144.7 million individual retums during the 2011 filing season and 

issued almost 110 million refunds totaling $345 billion that traditionally help boost 

consumer spending. 

The IRS is proud of its record over the past few years as we have made tangible progress 

on a number of strategic initiatives while carrying out our core duties, such as delivering 

a smooth filing season in 2011 - in spite of the late passage of legislation. The following 

are some of the more prominent programs and initiatives, including those in our core 

programs that demonstrate how targeted investments can deliver real value to taxpayers 

and OUf nation. 

Return Pre parer Program 

The Retum Preparer Program is one of the most important initiatives the IRS has 

undertaken in recent memory that leverages preparers' expertise and commitment to 

quality service and the integrity of the tax system. 

Boiled down to its essence, the program will ensure a basic level of competency f()f 

return preparers while enabling us to focus on finding unscrupulous preparers. First, we 

had to identify all preparers and have them register. 

Since September 201 0, almost 840,000 individuals have registered and obtained a 

Preparer Tax Identification Number, or PTlN, and are now in our tax professional 

database, And we are learning some interesting facts about not only the size, but the 

nature of the tax preparer community. For example, over 60 percent of PTiN holders are 

not attomeys, CPAs, or enrolled agents. 

Once PTIN registration was in place, we began the next phase of the program aimed at 

ensuring a minimal level of competency for all return preparers. 

In November 201 I, we launched a new competency test for certain tax return preparers 

who prepare Form 1040 retums but who are not attomeys, CPAs, or enrolled agents, or 

supervised by onc of them in a finn. These individuals also have a new requirement to 

complete 15 hours of continuing education each year from IRS approved providers, 

Let me add also that from the beginning we planned to exempt CPAs, attomeys, and 

enrolled agents from the testing and continuing education requirements as they already 

have more stringent testing and education requirements. 

As we "ve set up the registration, testing and continuing education components of our 

retum preparer initiative, it is also important that we focus on finding unscrupulous 

preparers who damage the good name ofhollcst retum preparers and undermine the 

2 
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overall tax system; therefore, we have a comprehensive strategy to focus on preparer 

enforcement and compliance. 

Our compliance efforts will be focused on places of highest risk - where the vast 

majority of preparers who play by the rules should want us to il)CUS. 

We will also continue to conduct undercover shopping visits to return preparers suspected 

of engaging in fraud, and we will continue to work closely with the Department of Justice 

to pursue civil or criminal action against unscrupulous retum preparers. 

Customer Account Data Engine 2 (CADE 2) Launch 

In January 2012, the IRS for the first time since the beginning of automated processing of 

tax returns five decades ago began processing tax returns daily instead of weekly. The 

new system, known as CADE 2, is a major milestone for the tax system and the IRS. 

CADE 2 addresses myriad issues that have historically created issues in the tax system. 

It will provide more up-to-date information at the fingertips of our customer account 

representatives, speed account issue resolution, allow for faster refunds, and provide a 

platform for more real-time analytics and compliance. It will also eliminate structural 

technology problems that could lead to time-lag problems, such as when notices are sent 

to taxpayers. 

For example, it will enable faster resolution of taxpayer account issues and account 

adjustments, which will greatly help taxpayers and the IRS. And it will correct one of the 

biggest problems we have when a taxpayer calls about a payment he or she made, but our 

representative cannot tell whether it has been posted or not. 

Taxpayers and practitioners will also see quicker updates to web-based applications, and 

faster taxpayer notices. The CADE 2 database will also allow IRS to consider offering a 

wider range of web-based, self-initiated service solutions that could fundamentally 

change the way taxpayers interact with the IRS, and potentially provide greater 

operational efficiencies. 

CADE 2 also supports sophisticated, next-generation compliance systems which will 

improve overall compliance through enhanced workload selection and by enabling 

advanced decision analytics. 

Budget Trends 

Over the last several years, the IRS budget requests have reflected strategic investments 

in thc IRS that serve to reduce thc deficit, along with substantial efficiency and other 

targeted reductions that reflect our commitment to effective stewardship of the resources 

that we are given. 
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These savings and efficiencies reflect an across-the-board commitment to finding better 

and more efficient ways to administer the tax system. They come from a variety of 

sources, including reductions in outside contracts, training and all but case-related travel. 

Howcvcr, even with these efficiencies, the IRS would not have been able to meet the 

level of budget reduction enacted for FY 2012 without substantially reducing our 

headcount. The IRS had already instituted an agency-wide hiring freeze and has only 

been replacing attrition on an exception basis. Attrition savings were not sufticient to 

meet the 2012 levels, though, so the IRS resorted to voluntary incentives designed to 

accelerate retirements of those who were retirement-eligible, or close to eligible. As of 

March 5, 2012, these incentives - known as buyouts - were given to approximately 1,000 

workers. 

As a result of these measures, the IRS has approximately 5,000 fewer statf on the payroll 

this tiling season, as compared to last year. Of the 5,000 person reduction, approximately 

3,000 are in Enforcement, with the balance of the reduction principally coming from 

Taxpayer Service. 

Off,hore Tax Eva.,ion 

Our approach to offshore tax evasion follows the natural course of cleaning up the abuses 

orthe past and then mining and leveraging the data we receive to mount a greater attack 

on the abuse. 

A good example of our offshore successes is the IRS' work relating to a major Swiss 

bank, where for the first time in history, a bank secrecy jurisdiction turned over thousands 

of names and account numbers. The bank also agreed to pay hundreds of millions of 

dollars in fines, penalties, interest and restitution as part of a deferred prosecution 

agreement with the u.s. government. 

However, our offshore work has never been about one bank or one country. The IRS has 

produced results and will continue to produce positive outcomes through other elements 

of our offshore program, such as our game-changing voluntary disclosure programs. 

In January 2012, we reopened the Offshore Voluntary Disclosure Program (OVDP) to 

help people hiding offshore accounts get current with their taxes; as ofthe end of2011, 

we had collected more than $4.4 billion to date tram the two previous OVD programs in 

2009 and 2011. That number will grow as the IRS processes the 2011 cases. 

Our decision to reopen the OVDP was a result of continued strong interest from 

taxpayers and tax practitioners after the closure of the previous programs. People still 

wanted to come in and get right with their government. 

This new program makes good sense for taxpayers still hiding assets overseas and for the 

nation's tax system. This is the best chance to get these taxpayers back into the system 

and back into compliance, so they properly report and pay their taxes for years to come. 

4 
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Large Business Issue Resolution 

We have been in the process of transforming our relationship with our large corporate 

taxpayers. We need to work smarter. We need to be more emcien!. We need to create 

innovative strategies for issue resolution that are less time and resource intensive for both 

the IRS and these taxpayers. 

We now have a suite of programs at the IRS that are designed to provide greater 

certainty, consistency and efficiency going forward for both our large taxpayers and the 

IRS. They may have different names and functions but all arc focused on resolving 

issues. 

First is the Compliance Assurance Program (CAP), which we made permanent last year. 

Any corporation that meets the program's requirements and wants to enjoy the benetits of 

open, cooperative, and transparent interactions can now apply. The number of corporate 

taxpayers in the program has already grown trom 17 in the 2005 tax year - when the pilot 

began - to 160 taxpayers in the 20 II tax year. In recent months, I've been talking with 

CAP taxpayers, and the feedback I've gotten is that the paradigm of transparency and 

certainty is a welcome change in our tax system. 

We have another important tool in our toolkit that can help us cut through the fog of 

uncertainty. The Industry Issue Resolution Program (UR) can help the IRS and corporate 

taxpayers reach administrable, common sense solutions for uncertain tax areas. 

For example, by using UR, we resolved some long-standing controversies that had 

plagued the telecommunications, transmission and distribution industries for years. We 

see IIR as a very useful tool for issue resolution and continue to work on a number of 

new issues. 

Fast Track Settlement is an additional issues resolution tool we are encouraging our 

agents to use. Instead of finishing an audit and then going to Appeals, Fast Track allows a 

taxpayer to settle an issue with an Appeals officer during the audit process. We have 

witnessed an uptick in participation, which is promising, and are committed to expanding 

our ability to resolve issues more quickly with taxpayers who want to do so. The latest 

data is also most promising. It shows that 83 percent of the cases accepted into Fast Track 

resulted in a resolution. 

Our uncertain tax position (UTP) initiative gets to the heart of information we need, 

while respecting a taxpayer's internal analysis and deliberations. The program's goal is to 

have a transparent discussion with corporations to resolve issues much quicker, and be 

more efficient in targeting taxpayers and issues with the highest risk of non-compliance. 

And here are the latest statistics on Schedule UTP. As of January I, 2012: 

Approximately 1,900 taxpayers have filed Schedule UTP 

Approximately 4,000 issues have been disclosed 
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The top three Code sections are Section 41, research tax credits; Section 482, 

allocation of income including transfer pricing; and Section 162, trade or business 

expenses 

19 percent of all issues disclosed are transfer pricing issues. 

Lastly, I am the Chair of the global body of tax authorities called the Forum on Tax 

Administration (FTA). We have been very focused on governments moving Irom 

information sharing to real, coordinated action. To that end, the U.S. recently led an 

effort to develop a protocol for joint audits, where two or more countries conduct a single 

audit of a taxpayer. At the same time we were developing a protocol lor joint audits 

through the FTA, I asked our IRS team to find opportunities to start some joint audits 

immediately. 

We recently conducted ajoint audit involving one of our CAP taxpayers on a transfer 

pricing issue that demonstrated the substantial benefits for both governments and 

taxpayers, The joint audit reduced taxpayer burden - especially for these large 

multinational corporations that must face audits in multiple jurisdictions on the same set 

of transactions. It provided the taxpayers with a timesaving and less resource-intensive 

way to address the tax consequences of a transaction on a bilateral or even multilateral 

basis. And just as important to a swift resolution of issues, the joint audit provided 

certainty for the taxpayer today and in the future. 

We at the IRS have dedicated ourselves to creating innovative new paths that will help 

both businesses and the IRS resolve issues and achieve our shared goals of certainty, 

consistency and ef1iciency. I think we can all agree that these are goals that, if achieved, 

would benefit the entire tax system. 

IRS Customer Service 

The IRS continues to provide taxpayers with quality customer service and different 

service channels and products. We recognize that we must never stop innovating to meet 

the service needs of an increasingly diverse taxpayer base and must serve taxpayers when 

and where they need it. 

Our broad portfolio of customer service channels run the gamut from traditional walk-in 

sites for those who need to see an IRS representative tace-to-face, to toll-free automated 

and assistor tclephone service and web-based applications and social media. All make it 

easier for taxpayers to file and pay their taxes. 

One of our most far reaching innovations - and one of the most successful modernization 

programs in all of government - is e-filing, For the 2011 calendar year, the IRS processed 

more than 110 million individual tax returns electronically, setting a new record. 

Individual returns electronically [lied increased to 77.2 percent, up 7,9 percent from 

2010. Business returns filed electronically jumped to 33.9 percent, up from 26,6 percent 

in 2010 and home-computer filing increased to 39.8 million retums, 14.2 percent more 

than 20 I 0, 

6 
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IRS.gov has become the favorite source of information for millions of taxpayers. For the 

2011 filing season, there were almost 323 million web page visits to IRS.gov - a five 

percent increase over the same time period last year. Usc of the "Where's My Refund" 

electronic tracking tool continued to post double-digit yearly gains. And in FY 2011, the 

IRS received a Compuwarc Gomez "Best orthe Web" award, which recognized IRS.gov 

as one of the best websites in govemment for performance and quality and lirst in 

consistency. 

The IRS is increasingly communicating with taxpayers who may not get their information 

from traditional sources, such as newspapers and broadcast and cable news. By 

employing social and new media, such as YouTube, Twitter and even iTunes, we are able 

to reach these taxpayers with important service and compliance messages. Last year, the 

IRS also unveiled IRS2Go, its tirst smaltphone application that lets taxpayers check on 

the status of their tax refund and obtain helplul tax information. This new smartphone 

application reflects our commitment to modernizing the agency and engaging taxpayers 

\vhere and when they want. 

Ho\vever, we have not forgotten the importance of the content of our communications 

and we launched a major plan to overhaul our notices with a focus on clarity. Our ellorts 

were recognized last May when the Center for Plain Language honored the IRS with the 

ClearMark Grand Prize Award, citing two of our revised notices lor the best clear 

language of all the documents they reviewed. 

We received another important sign of the progress the IRS is making: every year, the 

American Customer Satisfaction Index survey is conducted and for 2011, the survey of 

taxpayers showed satisfaction with our services reaching 73 on a scale of 100 among all 

individual tax 1ilers. That score is a three-point jump li'OITI a year earlier and our highest 

score since we began participating in the survey that began in 1994. Satisfaction among 

people who filed electronically came in even higher at 78. This is a tremendous step in 

the right direction and one that we will build upon in the future. 

Enforcement 

Tuming to entorcement, the IRS continues to run robust compliance programs. We 

continue to have appropriate and balanced audit coverage rates across taxpayers and to 

innovate in our collection programs. As previously noted, through our OtTshore 

Voluntary Disclosure Programs we have callected more than S4.4 billion to date from 

those hiding money overseas and that number will grow as the IRS processes the 2011 

cases. 

In FY 201l, IRS compliance activities returned $55.2 billion to the Treasury as a result of 

our examination and collection programs. While the direct revenues brought in by IRS 

activities are important, the indirect effects are far more substantial and impoLtant. A 

strong and lair enforcement program serves to support over $2 trillion that is paid 

voluntarily and on a timely basis every year. In addition, IRS enforcement revenues do 

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not include billions of dollars in attempted refund fraud that is stopped by IRS upfront 

fraud detection programs. 

In short. despite a quickly evolving taxpayer base and unprecedented demands on IRS 

resources, the IRS continues to deliver for the American people. 

People 

The IRS' workforcc is our greatest asset. Three years ago. I embarked on a campaign to 

make the IRS the best place to work in the federal government. This past November, the 

Partnership for Public Service released the results of the 2011 Best Places to Work in 

Federal Government survey. The IRS ranking improved yet again, moving over a twoyear period from a ranking of 127 to a ranking of 65 out of the 240 participating agencies. 

And, we are now ranked third out of 15 large agencies (thosc with over 20,000 

employees) in the employee engagement index from the survey. 

In addition, our own employee engagement index - which measures the degree of 

employees' motivation, commitment and involvement in the mission of the organization 

- and the job satisfaction index both remained stable compared with last year. In other 

words, we saw no erosion of the substantial gains we had made over the past few years. 

This is especially heartening to me because we have faced more than the usual number of 

challenges this year, trom late tax law changes, to six short-term continuing resolutions 

during tiling season, to weeks of speculation of a possible government shutdown, and 

ultimately a decreased budget. 

The fact that our survey results showed that our employees remain engaged, motivated 

and committed, regardless of the external environment, is a testament to the 

professionalism and deep commitment to service woven into the culture of the IRS. 

Real-Time Tax System 

Last April, I began discussing a potential new structure that would fundamentally change 

the way taxpayers and tax practitioners prepare and file individual returns and that 

leverages technological innovations. 

We initially came to call this vision the "real-time" tax system because it would deal in 

real time. We want to move away from the after-the-fact or '''Iook-back'' model where 

audits may take place years after a return is filed, and taxpayers had to hunt for, or 

recreate records and documentation - to a new model where we reduce burden. 

Under the vision of a real-time tax system, thc IRS could embed more information return 

data into its pre-screening filters, and could provide the opportunity for taxpayers to fix 

the return before we accept it - if it contains data that does not match our records. 
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Under this vision - which I've described as a long-term destination, rather than a shorttenn project or initiative - taxpayers and the IRS would have more confidence that 

returns are accurate. Many problems could be dealt with up-front, while records are 

available, and many taxpayers have access to the tax professional who may have prepared 

their return. We could shift resources to spend more money on getting it right in the first 

place, and focus back-end auditing resources on more complex issues. There are huge 

compliance and service benefits associated \vith such a system, not to mention burden 

reduction for taxpayers. 

The IRS has held two public meeting to get feedback on our initial work on real-time. 

Both of these meetings were very helpful to us and reinforced our belief that this is a 

vision worth pursuing. 

THE 2012 FILING SEASON & TAXPAYER SERVICE 

Mr. Chairman, there is much of which to be proud this filing season. Let me stress that 

providing quality taxpayer service throughout the year, but especially during the filing 

season, is important if we are to help taxpayers get it right trom the start and avoid 

making unintentional errors. Assisting taxpayers wilh their questions before they file their 

returns prevents inadvertent noncompliance and reduces burdensome post-tiling notices 

and other interactions with the IRS. 

Submission Processing, Refund. and E:filing 

As of March 10,2012, the IRS received over 70.7 million individual returns. Overall 

individual tiling is up near live percent compared to the same time period last year. 

The IRS e-file program continues to grow. This year the individual e-file rate is trending 

higher than last year - a very positive development. On the other hand, paper returns are 

dropping. 

The number of taxpayers e-tiling their returns themselves continued to grow this filing 

season. As of March 10,2012, more than 25.6 million prepared their own e-file returnan II percent point increase over the same time penod last year. The overall growth in etiling translates i11tO a huge savings for the Federal Govel11ment. 

For FY 2010, it cost only 17 cents to process an e-filed return - a traction of the $3.66 it 

takes to process a paper return. And with e-fiIe, taxpayers get their refund faster, with 

fewer data processing errors that can lead to problems later in the process. 

Indeed, taxpayers filing electronically can get their refunds as soon as 10 to 21 days upon 

acknowledgement of receipt by the IRS. Based on the most current Refund Timeliness 

data, the average time to process a refund for a paper tax return is six weeks upon receipt 

of the return. 

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Through March 10,2012, the IRS issued 59.2 million refunds for a total of $174.4 

billion, as compared to 59 million refunds for a total of S178.3 billion over the same time 

period in 20 II. The average dollar refund was approximately $3,000, about the same as 

last year. During the same time period, the IRS directly deposited 46.2 million refunds to 

taxpayers, as compared to 45.3 million last year - a two percent increase. 

1 would be remiss if! did not acknowledge that in the tirst few weeks of the tax filing 

season, we experienced some delays in processing a subset of e-tiled returns. These were 

temporary issues that afTected a subset of taxpayers who filed in late January and early 

February, and the issues were resolved by mid-February. And, even with the delays, the 

IRS was generally delivering refunds in our normal 10 to 21 day time frame. I recognize 

that this group of taxpayers encountered delays this filing season and we regret the 

inconveniences caused. 

Even with these initial issues, the overall average refund timeline remained steady in FY 

2012 when compared to FY 2011. In other words, the delays were isolated to early issues 

in the filing season, and after that IRS was processing tax returns according to normal 

relund time lines. 

Toll-Free Telephone Performance 

High quality toll-free telephone service - both assistor and automated - is an extremely 

important tool in answering taxpayer questions, helping them navigate an extremely 

complex tax code and making voluntary compliance easier. 

As of March 3,2012, IRS telephone assistors answered 7.3 million calls. The IRS also 

completed 29.5 million automated calls - a 45.5 percent increase over last year's 20.3 

million calls, reflecting a growing taxpayer appetite for quality self-serve options. 

Accuracy rates for both customer tax law and account questions remain in the 90-plus 

percentile with minimal change over last tiling season '5 levels. 

Website Usage and New Media 

IRS.gov continues to be the favorite source of information for millions of taxpayers. As 

of March 3, 2012, there were over 157 million visits to IRS.gov - a 35 percent increase 

over the same time period last year. Use of the "'Where's My Refund" electronic tracking 

tool continued to post double-digit yearly gains. IRS.gov/Espanol offers many of the 

same services and infonnation in Spanish. 

Taxpayers can also use electronic tools, such as the Earned Income Tax Credit (EITCl 

Assistant, to determine ifthcy qualify for the refundable tax credit or a withholding 

ca\culator to help them determine the right amount oftax to withhold from their 

paychecks. 

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The Interactive Tax Assistant (IT A) is an expanded resource this filing season that 

provides consistent answers to a limited number oftax law questions using a probe and 

response process. The ITA will guide you to accurate answers that are not readily 

addressed through simple Frequently Asked Questions. 

As previously noted, the IRS is increasingly employing social and new media to reach 

taxpayers who do not get their information from traditional sources. For example, during 

the week of February I 0-l7, 2012, our YouTube Video "When Will I Get My Refund?" 

had more than 254,000 views. Our "tweet" and subsequent "re-tweets" on the "Dirty 

Dozen" tax schemes reached almost 28,000 people. The IRS Video in English is 

currently the 4th most viewed Federal Government YouTube channel with nearly three 

million total views. 

Taxpayer Assistance Centers (TACs) 

As of March 3, 2012, approximately 1.16 million taxpayers were served at TACs - a 

nearly five percent decrease over the previous year. In addition to IRS help, community 

organizations partner with the IRS. Volunteer Income Tax Assistance programs assist 

people who earned $50,000 or less, and Tax Counseling for the Elderly programs assist 

individuals age 60 and over with their 2012 income tax return preparation and electronic 

tiling. Many of these sites have Saturday hours while others afTer assistance at various 

times during the week. 

Limited English Proficiency (LEP) 

Today, the IRS offers language services to LEP taxpayers, thereby affording them the 

same access to Federal benefits and services as English speakers. We now have more 

than 2,300 bilingual employees who provide services to LEP taxpayers; a Spanish 

language web site; and a Multilingual Gateway that provides information in Chinese, 

Vietnamese, Korean and Russian. A telephone interpreter service is also available in 

more than 170 languages, and more than 600 tax products have been translated into 

languages such as Spanish, Chinese, Vietnamese, Russian and Korean. 

Identity Theft 

Mr. Chairman, I know that the Committee starr has been working closely with IRS staff. 

I would simply like to reiterate that the IRS is intently focused on executing a twopronged identity theft strategy that focuses on both fraud prevention and victim 

assistance. We continue to improve our programs to prevent and detect identity theft and 

although we cannot stop all identity thefl, we arc working hard to resolve issues created 

when identity theft occurs. And in calendar year 2011, the IRS protected $1.4 billion in 

refunds from being erroneously sent to identity thieves. 

Finally, working closely with the Justice Department, IRS criminal investigators are 

pursuing those who are behind these schemes. In January, the IRS and Justice 

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Department announced a nationwide sweep that targeted 105 people in 23 states, and our 

efforts in this area continue. 

THE ADMINISTRATION'S FY 2013 BUDGET REQUEST FUNDS KEY 

PRIORITIES 

The Administration's Fiscal Year 2013 Budget request for the Internal Revenue Service 

is approximately $12.8 billion, a $944.5 million increase (8%) over the FY 2012 enacted 

level but only a $639.3 million increase (5.3%) from the level enacted for FY 2011. A 

significant portion of the increase from FY 2012 represents the Administration's request 

to restore lost resources resulting from reductions in IRS funding made over the past two 

years. This request is designed to provide the resources necessary to administer and 

enforce the current tax code, implement recent changes to the law to update the Code and 

serve the American taxpayer in a timely manner. 

To collect the revenues required to fund the policies passed by Congress and meet longtenn obligations to the American people. the IRS FY 2013 funding request reflects a 

continued commitment to improving tax compliance through the balance of quality 

taxpayer service with fair enforcement of the tax laws. It also supports the 

Administration's strategic goal of managing the government's finances in a fiscally 

responsible manner. 

As noted in the introduction to my testimony, the IRS consistently achieves a high return 

on investment for its activities while running a fiscally disciplined operation. In FY 2013, 

the IRS expects to identify nearly $71 million in cost savings from increased use of 

electronic return filing, reductions in non-case related travel and streamlining operations. 

Enforcement Program 

The FY 2013 Budget request includes $403 million in new IRS enforcement activities, 

which arc expected to raise $1.48 billion in revenue annually at full performance, once 

new hires are fully trained and develop broader experience by FY 2015. The return on 

investment is 4.3-to-l. The return on investment is even greater when factoring in the 

deterrence value ofthese investments and other IRS enforcement programs, which is 

conservatively estimated to be at least three times the direct revenue impact. 

The enforcement budget also includes $200 million in additional examination and 

collection programs that will generate more than $1.1 billion in additional annual 

enforcement revenue by FY 2015. Investments such as these in IRS enforcement 

programs arc especially important to further the IRS' mission of improving tax 

compliance. 

Specific areas where the proposed FY 2013 funding will enable the IRS to continue to 

strengthen enforcement effOlts and reduce the tax gap include: 

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Improving international compliance by individual and business taxpayers. In FY 

2013, the IRS will continue to address offshore tax evasion by individuals through 

such efforts as increased examinations and the special offshore voluntary 

disclosure program. To ensure business entity compliance, the IRS will provide 

additional international technical specialists to increase coverage of complex 

international transactions; 

Protecting revenue by expanding efforts to identify fraud and prevent issuance of 

questionable refunds, including tax-related identity theft. The increase in funding 

will help support efforts to reduce erroneous reli.md payments, including noncompliant and fraudulent claims by prisoners and claims for the EITC by 

ineligible taxpayers; 

Implementing tax law changes that make available the use of new information 

reporting requirements to help address the underreporting tax gap; and 

Enhancing IRS oversight of complex financial situations, including transfer 

pricing and uncertain tax positions. 

Return Pre parer Initiative 

The FY 2013 Budget request includes $35 million to strengthen return preparer 

compliance. It bears repeating that this initiative is one ofthe most important that the IRS 

has undertaken in recent years, the foundation of which is mandatory registration for all 

paid tax return preparers. In addition, the IRS is developing requirements to establish 

mandatory competency testing and continuing education for preparers to ensure that 

taxpayers are hiring preparers who have a minimum level of competency and adhere to 

professional standards. This initiative is core to the IRS' tax gap strategy and will 

increase government revenue, and support high-priority, preparer-related enforcement 

activities. 

Implementation of Tax Law Changes 

The request provides $128 million to support IRS efforts to implement programs that are 

designed to ensure compliance with a number of recent changes to the tax laws, and to 

help taxpayers understand them. Recent tax law changes include the reporting provisions 

related to merchant payment cards and third party reimbursements (included in the 

Housing and Economic Recovery Act of 2008), basis reporting on securities sales 

(included in the Emergency Economic Stabilization Act of 2008), and the non-exchange 

related tax law changes included in the Affordable Care Act (ACA). 

Infrastructure Requirements 

The FY 2013 Budget also requests funding for the IRS to continue the development of 

new information technology systems, and substantial modilication and enhancement of 

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existing systems necessary to implement the new premium assistance tax credit and other 

tax law provisions related to the insurance exchanges created in the ACA. 

Taxpayer Service Program 

The FY 2013 request provides funding for the IRS to continue delivering services using a 

variety of in-person, telephone and web-based channels to help taxpayers understand 

their tax obligations, correctly file their returns and pay taxes due in a timely manner. 

The IRS is committed to expanding the use of electronic transactions, including 

increasing the e-file rate and expanding taxpayer service options available over the 

Internet. In 201 I, there were more than 322 million visits to IRS.gov, and more than 78 

million taxpayers checked their refund status by accessing Where's My Refund? in 

English or in Spanish on our website. 

Business Systems Modernization 

In FY 2013 the IRS will continue the modernization of its IT systems. It will strategically 

invest in state-of-the-art capabilities, such as online taxpayer services, and focus on the 

second phase of the CADE 2, to ensure the long-tcnn viability of IRS tax processing 

systems. 

In 2012, the IRS delivered the most significant update to its core tax processing system in 

decades. As noted, through the deployment of the tirst phase afCADE 2, the IRS 

transitioned to a daily processing cycle from a weekly batch cycle. Also f(lr the tirst time, 

IRS processing systems began accepting all 1040 forms electronically through a 

modernized e-filing capability. 

EX PLANA T10N OF BUDGET ACTIVITIES 

Taxpayer Services 

The FY 2013 President's Budget request is $2,253,133,000 in direct appropriations, an 

estimated $24,050,000 from reimbursable programs, and an estimated $142,742,000 from 

user fees, for a total operating level of $2,419,925,000. This appropriation funds the 

following budget activities. 

Pre-filing Taxpayer Assistance & Education ($625,931.000from direct appropriations, 

$1.151,OOOfrom reimbursable resources) 

This budget activity funds services to assist with tax return preparation, including tax law 

interpretation, publication, production, and advocate services. In addition, funding for 

these programs continues to emphasize taxpayer education, outreach, increased volunteer 

support time and locations, and enhancing pre-filing taxpayer support through electronic 

media. 

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Filing & Account Services ($1,627,202,O(}O from direct appropriations, $22,S99,O(}O 

;rom reimbursahle resources, and an estimated $142, 742,O()(} from userfees) 

This budget activity funds programs that provide filing and account services to taxpayers, 

process paper and electronically-submitted tax returns, issue refunds, and maintain 

taxpayer accounts. The IRS continues to make progress in decreasing paper returns and 

increasing the use of electronic filing and payment methods. This budget activity also 

provides operating resources to administer the advance payment feature of the Trade Act 

of2002 (Public Law 107-210) health insurance tax credit program, which assists 

dislocated workers with their health insurance premiums. 

Enforcement 

The FY 2013 President's Budget request is 55,701,670,000 in direct appropriations and 

an estimated $73,604,000 from reimbursable programs. and an estimated $17,750,000 

from user fees. for a total operating level of$S,793,024,000. The total direct 

appropriations level includes an additional appropriation for tax enforcement and 

compliance activities funded through a program integrity cap adjustment totaling 

$691.028,000, of which $276,964.000 will be funded from the Enforcement account. 

This appropriation funds the following budget activities. 

investigation ($688,296,OOOfrom direct appropriation.l, and an estimated $61,633,O(}O 

fi-om reimbursable resources) This budget activity funds the criminal investigations 

programs that uncover criminal violations of the internal revenue tax laws and other 

financial crimes, enforce criminal statutes relating to these violations, and recommend 

prosecution as warranted. These programs identify and document the movement of both 

legal and illegal sources of income to identify and document cases of suspected intent to 

defraud. It provides resources for international investigations involving U.S. citizens 

residing abroad, non-resident aliens and expatriates and includes investigation and 

prosecution of tax and money-laundering violations associated with narcotics 

organizations. 

Exam & Collections ($4,846, 749,000from direct appropriations, and an estimated 

SII,307,OOO/i'om reimbursable resources) This budget activity funds programs that 

enforce the tax laws and increase compliance through examination and collection 

programs that ensure proper payment and tax reporting. It includes programs such as 

specialty program examinations (employment tax. excise tax and estate and gill exams). 

and international collections and examinations. The budget activity also supports appeals 

and litigation activities associated with exam and collection. 

Regulatory ($166,625,000 from direct appropriations, an estimated $664. OOOfrom 

reimbursable resources. and an estimated $17, 750,000 ji'om userfees) 

This budget activity funds the development and printing of published IRS guidance 

materials; interpretation oftax laws; internal advice to the IRS on general non- tax legal 

issues such as procurement, personnel, and labor relations; enforcement of regulatory 

rules, laws, and approved business practices; and support of taxpayers in the areas of prefiling agreements, determination Ictters, and advance pricing agreements. The Rcturn 

IS 
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Preparer initiative is funded within this activity in addition to the Office of 

Professional Responsibility which is responsible for identifying, communicating, and 

enforcing the Treasury Circular 230 standards of competence, integrity, and conduct of 

professionals representing taxpayers before the IRS. 

Operations Support 

The FY 2013 President's Budget request is 54,476,200,000 in direct appropriations, an 

estimated $37,564,000 from reimbursable programs, and an estimated $57,958,000 from 

user fees, for a total operating level of$4,571 ,722,000. The direct appropriations level 

includes an additional appropriation for tax enforcement and compliance activities funded 

through a program integrity cap adjustment totaling $691,028,000, of which 

$414,064,000 will be funded from the Operations Support account. This appropriation 

funds the following budget activities. 

1n/i'astructure (5987,730., OOO/rom direct appropriations, an estimated $889,000.from 

reimbursable resources, and an estimated $21,867,()()Ofrom userfees) 

This budget activity funds administrative services related to space and housing, rent and 

spacc alterations, building services, maintenance, guard services, and non-IT cquipment. 

Shared Services & Support ($/,348,363,0.00 from direct appropriations, an estimated 

$20,207, OOO.from reimbursable resources, and an estimated $11, 700, OOOfrom lIserfees) 

This budget activity funds policy management, IRS-wide support for research, strategic 

planning, communications and liaison, finance, human resources, and equity, diversity 

and inclusion programs. It also funds printing and postage, business systems planning, 

security, corporate training, legal services, procurement, and specific employee benefits 

programs. 

Information Services (S2, 140, 107.000 ji-am direct appropriations, an estimated 

$16,468, 000 ji'om reimbursable resources, and an estimated $24,391,000 ji-om user fees) 

This budget activity funds staffing, equipment, and related costs to manage, maintain and 

operate thc infonnation systems critical to the support of tax administration programs. 

This includes the design and operation of security controls and disaster recovery 

planning, This budget activity funds the development and maintenance ofthe millions of 

lines of programming code that support all aspects and phases of tax processing and the 

operation and administration of the mainframes, servers, personal computers, networks, 

and a variety of management information systems. 

Business Systems Modernization 

The FY 2013 President's Budget request is $330,210,000 in direct appropriations. This 

appropriation funds the following budget activity. 

Business Systems Modernization ($330.210,000lrom direct appropriations) 

This budget activity funds the planning and capital asset acquisition of infonnation 

technology to continue the modcrnization ofIT systems, including labor and related 

16 
82 

f 

Ms. JENKINS. Thank you, Commissioner Shulman. I think we 

will turn to questioning now. We will alternate between sides with 

five minutes being given to every member. 

Last year, you testified to the Committee that enforcement and 

customer service are not an either/or proposition, providing quality 

taxpayer service, especially during a filing season, is important to 

help taxpayers avoid unintentional errors, inadvertent non-compliance, and reduce other burdensome post-filing interactions with the 

IRS. 


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83 

So far this filing season, access to live IRS assisters is down to 

65 percent and taxpayers are waiting an average of 18 minutes to 

talk with an IRS assister. 

The rate of taxpayers getting busy signals or that are disconnected from the IRS has roughly doubled, yet this is not a new 

problem but rather seems to be just a bad trend. 

Since 2004, the percentage of answered calls has dropped from 

87 percent to 70 percent in 2011. Last year, the average wait time 

was 12 minutes, and in 2007, it was five minutes or less. 

Personally, I have heard from Kansas CPAs that it is not uncommon to be on hold for 30 minutes. 

According to GAO, this decline in customer service has occurred 

despite the number of full time equivalents dedicated to answering 

the phones, having increased from 8,000 in fiscal year 2007 to 

8,800 in 2011, and despite greater use of automated answers and 

self service website options. 

It seems to me that the IRS has placed greater emphasis on enforcement at the expense of service, yet as you told us last year, 

the lack of service for those who have questions will only lead to 

greater non-compliance than if those questions had been answered. 

Can you help me better understand a few things? First, what actions are being taken to ensure that taxpayers are able to reach a 

live IRS assister? 

Secondly, given your belief that the IRS must deliver both enforcement and customer service, do you think this budget request 

focuses too much on enforcement while sacrificing customer service, 

and then finally, does the IRS consider this to be an acceptable 

level of service? 

Mr. SHULMAN. Thanks for bringing up a set of important 

issues. First, let me repeat what I told you last year and what I 

talk about a lot with our employees, Members of Congress, and everyone involved in the tax system. 

It is not an either/or proposition. We need to run service operations and compliance operations to make the nation’s tax system 

work. 

Let me put in context the resources that we have this year to put 

towards both enforcement and customer service. 

We had a $300 million budget cut, which was $1.2 billion less 

than the President had requested for service and enforcement last 

year. 

We also had to absorb for rent and other kinds of increases about 

$200 million of inflation, and $66 million was put into our technology accounts, which we are very appreciative of, so if you take 

300, 200, 66, we had a $566 million reduction in our core services 

and enforcement accounts. 

What we are trying to do is do the best we can with the resources we were given. 

Last year, our phone level of service was about 70 percent. This 

year, it is running at about 66 percent, even though we had predicted about 61 percent, and the reason for that is we have really 

squeezed efficiency. We have routed calls. More people are using 

automated answering systems, and people are using our website. 

As you said, the wait is longer. At a certain point, we can 

squeeze as many efficiencies out of technology and other efficiencies 


ccoleman on DSK8P6SHH1PROD with HEARING
84 

as we can, but it comes to how many people do we have answering 

phones. 

Volume is up, so the numbers you gave that said we have more 

people, we also have much more volume. We have more taxpayers. 

We have a more complicated Tax Code right now. 

Another number that is interesting to look at is how many people 

hang up in the first couple of minutes. We have added a feature 

that tells them how long a wait. 

We say if you want to, use our web, use our automated phone, 

or call back when there is less time, then our phone level of service 

this year is 77 percent, if you take away the people who hung up 

in the first couple of minutes. 

I guess my view of this is we have taken a whole bunch of actions. At a certain point, we need money to invest. You need people 

to answer phones for live service. 

I am pretty proud that while service is down, it has not degraded 

to a point where it could have gone given the cuts, and the answer 

to your last question, which is do we think it is acceptable, you 

know, I want everyone who contacts the IRS to get what they need 

from the IRS. 

This year, everyone is not getting what they need from the IRS, 

but I think we are doing a pretty good job given the resources we 

were given. 

Ms. JENKINS. Okay. Thank you, Commissioner. I am just looking at data, and the budget cuts compared to the level of service, 

they do not always follow, given this information from the GAO. 

We would just encourage you to continue to work on that, and 

we would be delighted to work with you in any way we can. 

With that, I would recognize Mr. Lewis for five minutes. 

Mr. LEWIS. Thank you very much, Madam Chair. 

Mr. Commissioner, the GAO notes there has been a 34 percent 

increase in the number of calls for this filing season, and about a 

50 percent increase in calls answered by the automated service. 

Can you tell us what the taxpayers are calling about? What are 

the nature of the calls? 

Mr. SHULMAN. You know, calls can be anything from people 

want to set up a payment plan to people are curious, I am filling 

out my return and I am going to take this deduction, how does that 

work, just general tax law questions, to questions about where is 

my refund, I filed last Friday, and my preparer told me I would get 

a refund on Wednesday and I have not gotten it. 

Calls vary. We can get you a specific breakdown of what the calls 

are. 

Mr. LEWIS. Thank you very much. We understand IRS is requesting a cap adjustment of about $700 million for next year’s 

budget to fund the enforcement program. 

What are your plans if any if the Agency does not receive these 

resources? 

Mr. SHULMAN. Well, we are still early in the congressional 

budget and appropriations cycle, so we are quite hopeful. In the 

past, we have had broad bipartisan support for cap adjustments. 

The most recent cap adjustment was 2006 in 2007 with a Republican President and a Democratic controlled Congress. 


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We actually think this is a bipartisan proposal. It reflects the Administration’s belief that prudent investments in the IRS are good 

for deficit reduction, so that there should be cap adjustments for 

our budget. Investments for us is good for the long term for the tax 

system. 

Right now, I think our position is that for this budget program, 

integrity cap adjustments are good for the system, that people 

should agree with it, and we have had good productive conversations in both the House and Senate about it. 

Mr. LEWIS. Mr. Commissioner, could you tell Members of the 

Subcommittee, how has the $300 million budget cut impacted taxpayer service this year, and what taxpayer service has been reduced? 

Mr. SHULMAN. For Ms. Jenkins, I walked through the notion 

of there is $300 million at the top, but the impact is greater, given 

where the resources were put in our budget. 

I think we have a slight dip in number of taxpayers served in 

walk-in centers, but we have had a corresponding increase in number of taxpayers served in volunteer VITA sites, where we encourage them to go, because we work in partnership with community 

organizations. 

Our phone level of service is down by about four percent compared to last year, although automated calls are up, and the wait 

times are longer. 

I guess the way I characterize it is there has been a predictable 

effect because of less resources. With that said, I am quite proud 

that we have been able to mitigate some of that effect by making 

sure we work smart and we really drive efficiencies as hard as we 

can. 

Mr. LEWIS. Thank you very much, Mr. Commissioner. I yield 

back, Madam Chair. 

Ms. JENKINS. Thank you, Mr. Lewis. Now we will give five minutes to the Representative from Minnesota, Mr. Paulsen. 

Mr. PAULSEN. Thank you, Madam Chair. 

Thank you, Commissioner, for being here today. I just wanted to 

follow up on a letter I sent to you not too long ago. 

In the last year, you have been talking a lot or a great deal about 

this concept of a real time tax system, and have had a number of 

actually public meetings on the issue as well. 

I know there are benefits to receiving real time verification and 

having that information on hand, but I am concerned that the cost 

could outweigh the benefits, particularly in the sense that having 

this filing system could lead to a burden that is very similar to the 

1099 provision that was being rolled out as a part of the President’s new health care law, which would have been a nightmare for 

America’s employers, small and large. 

If the IRS is going to make this real time system work, I am sure 

you are going to want to have all the data earlier than is required 

today, you probably are going to want more 1099 data as well. 

Just looking at what has been discussed today, it seems that 

compressing this reporting time line is going to make it more challenging for reporting requirements for pretty much a very onerous 

and burdensome process right now. 


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Let me ask you this, what are you doing right now to work with 

existing stakeholders, with the business community, you know, to 

kind of get their feedback, their buy in, as part of this? 

There is no doubt increased regulatory and compliance costs are 

a big deal now for employers. It is one of the reasons I think on 

that level of uncertainty you mentioned on some tax rate issues 

and AMT and extender issues, but I know this is a factor as well. 

Can you talk a little bit about that? Have you conducted any 

studies of the increased cost to businesses of changing deadlines, 

for instance, for reporting informational returns or increasing reporting requirements, or would you agree to an independent study 

as part of that process? Would that make sense? 

Mr. SHULMAN. Thanks, Mr. Paulsen, it is great questions and 

an important set of issues. Let me give you perspective on it. 

I view one of my jobs as Commissioner to make sure I am helping prod the tax system forward so it works better for the American people ten years and 20 years from now than it does today. 

The combination of consumer expectations of us working better 

and quicker and more timely with taxpayers with the advances in 

technology, clearly there is room for us to think about a future that 

works better for people. 

What really struck me is the average taxpayer, if they have an 

interaction with us beyond just filing, that interaction is they have 

their economic activity one year, they file their return the next 

year, and it can take us a year to two years to reach out to them. 

By the time we go back to them, they have either spent their refund or their records and all the memory is gone, whether it is a 

small business or individual. 

I think the current system actually adds a lot of burden to people, and we have heard that. 

I laid out this vision that said what if we could clear everything 

up rather than coming back to them on the back end at the time 

they filed, which is the simplest way to think about this. 

I also recognize all the things you said, which is this is something that would affect all the stakeholders in the tax system, from 

taxpayers to tax preparers to information return filers. 

The way we went about this is the way I think a public agency 

should go about this, which is we held a series of public meetings, 

which I hosted, with stakeholders, the broad range of stakeholders, 

to get their input. 

What we heard universally is basically makes sense, we would 

all love to have everything work faster in the tax system, but we 

need to make sure we work through the details together in a constructive fashion so that we do not add burden in the process. 

What we are doing now is taking the next step and really developing detailed vision about what this would mean. 

I think there has been some misunderstanding. We have never 

suggested speeding up or adding more information reporting. We 

have asked questions about what do people have now, when is it 

ready, and when could they get it to us, not is there more or would 

they have to start doing what they already do faster. 

We have asked ourselves internally, how do our systems work, 

and when could we do this kind of matching. 


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Mr. PAULSEN. Let me just ask you this, time is kind of running 

out here. How much will an upgraded system cost, to sort of encapsulate all of this, that would be needed to run this type of system? 

How many years would it take to build and test? You are here 

justifying the budget in terms of the request that Congress would 

give to the President, for instance, or the Administration, to run 

your operations. 

Mr. SHULMAN. Way too early. This is a vision that we are having conversations with stakeholders on. The first step is laying out 

exactly what it would mean. 

There are a bunch of things we can do right away, which is just 

process things through our system quicker, so we could have 

quicker engagement. 

I cannot tell you. There is no blueprint right now. We have laid 

out a vision. We have had a broad set of stakeholder engagements, 

and we are now moving in to have the next round of stakeholder 

engagements. 

Mr. PAULSEN. Would it be safe to say that you plan to have an 

actual proposal for Congress to have feedback on at some point as 

a part of your vision? 

Mr. SHULMAN. I think for sure we will have public proposals. 

We will have plenty of time for interaction. 

Mr. PAULSEN. Thank you. 

Ms. JENKINS. Thank you. We will recognize Representative 

Becerra for five minutes. 

Mr. BECERRA. Thank you, Madam Chair. 

Commissioner, always good to see you. By the way, thank you for 

the work that you are doing, given the real budgetary constraints 

that you are facing, and if you will pass along to each and every 

one of your employees who are doing yeoman’s work, I cannot 

imagine the stress they are under given that you have thousands 

of Americans waiting to connect with them on the phone, who are 

waiting 10/20 minutes, and many of them very unhappy that they 

have to wait that long. 

I think after two or three minutes, most Americans tend to hang 

up on any phone call where they are having to be put on hold. 

I hope we will get this done in a smart way. I do not think the 

first thing we want to do is short change the Agency, which already 

has a tough task, and that is asking Americans to voluntarily pay 

their taxes, and where we have Americans who do so to watch as 

others do not, it is very frustrating. 

We do not want to undermine the voluntary compliance rates 

that we have in this country by Americans who pay their taxes. 

Please share with all the folks you work with that we thank 

them very much, and also tell that gentleman right over there, Mr. 

Williams, that we thank Floyd Williams for all his years of service. 

We are going to miss him because he has been a tremendous 

asset to not just Congress but to the American people because of 

the service he has provided to the IRS and to us as the go between, 

between your Agency and the Congress. We are going to miss him, 

and we want to say, Floyd, to you, thank you for all the service you 

have provided over the years. 


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Your initiative on tax preparer’s, that universe of people out 

there who are representing themselves as competent and qualified 

to prepare American’s tax returns, and get paid to do it. 

We know there are some great ones, but we know there have 

been some that have just ripped off the American public. 

It is hard to believe you need a license to cut someone’s hair, but 

in America, you do not need a license to prepare someone’s perhaps 

most important financial documents. 

I thank you for the initiative to try to bird dog that industry and 

make sure competent folks are the ones that are preparing our 

taxes. 

I am distressed. As I sit and listen to what you are saying, you 

have lost 5,000 employees. Your budget was cut $300 million. 

We know when you do tax compliance enforcement, that dollar 

you spend to have that investigator and those folks who follow 

through to make sure people are complying with payment of the 

taxes they owe, that you return $6 for every $1 we invest in you 

to do that. 

For us to be cutting $300 million from your budget, it is distressing. The last thing we want is stories of how some over zealous tax agent goes and busts someone’s door down to try to collect 

taxes. 

The truth is for the most part, you have employees who do just 

yeoman’s work to try to help their fellow American’s prepare their 

taxes. 

I hope that you will sound the alarms, if they are alarms, on the 

ability for us to pay our taxes the right way voluntarily. 

My understanding is, and correct me if I am wrong, that we now 

estimate that some $385 billion annually is not paid in taxes that 

are either avoided or intentionally not paid in this country. 

Is that the estimate now, $385 billion? 

Mr. SHULMAN. That is the tax gap estimate for tax year 2006. 

Mr. BECERRA. That is more money than we would fund you for 

how many years? 

Mr. SHULMAN. A lot. 

Mr. BECERRA. It is just incredible. We have American’s who are 

voluntarily paying their taxes. You have a whole bunch of other 

American’s who unfortunately are not doing what they should or 

at the level they should, so the responsible taxpayers in this country are having to cover for those who are not. 

You can go out and figure out who they are, if you just had the 

compliance money, the enforcement money, to go out there and find 

them. 

Many of them make errors, simple errors. I think most of those 

American’s are ready to pay their fair share. Others are not. Others are trying to send their money overseas and do things that they 

should not, and we should make them pay their fair share. 

I just hope that we go out there and do this the right way. 

Is there any hope that with the funding that you are getting that 

you can fulfill everything that we are asking you to do? 

Mr. SHULMAN. Well, it is very much the prerogative of Congress to fund us, and whatever Congress ends up giving us, we will 

do the best that we can. 


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I am quite proud of this Agency delivering on multiple fronts 

over the last several years and especially this year in a decreased 

budget environment, and really trying to balance compliance and 

service. 

I think we are doing a good job. 

Ms. JENKINS. Thank you. The time has expired. Ms. Black is 

recognized for five minutes. 

Mrs. BLACK. Thank you, Madam Chair, and thank you, Mr. 

Shulman, for being here. 

We are all talking about limited dollars. We need to spend our 

dollars in the best way we possibly can. 

I was reading a report just recently from the Treasury Inspector 

General for Tax Administration, who found billions of dollars in 

Federal education credits that were issued in error. 

What I am really trying to get to here is number one, to save, 

to make sure we are giving the money to the people that really deserve the money, so that we can use it in the budgetary process to 

fund those places, such as yourself, that can continue to do a good 

job. 

It is very disturbing when I see here how much money this represents that was potentially given to those who do not deserve it. 

I just want to read a couple of things out of that report. 1.7 mil- lion taxpayers received $2.6 billion in education credits for students 

for whom there was no supporting documentation in the IRS files 

that they even attended an educational institution. 

Almost 380,000 of these individuals claims students were not eligible because they did not attend the required amount of time or 

were post-graduate students, resulting in an estimated $550 million in erroneous education credits, 64,000 of those taxpayers erroneously received $88 million in education credits for students 

claimed as a dependent or a spouse on the other one’s return. It 

was a double payment. 250 prisoners erroneously received over 

$255,000. 

It says here that it was identified that a valid Social Security 

number is required for Federal student aid, but not for these educational credits. 

That just blows me away. I know when we were talking about 

the child tax credit at one of the other hearings, that was told to 

us, that it was not a requirement that they have a Social Security 

number. 

I am not sure how you track that when you do not have a Social 

Security number being used. 

I want to go to trying to find ways to help you, what we can do, 

what kind of tools we can do and give you so you can have the authority to say we are not going to process this return, it does not 

have the proper information on there. 

A Social Security number just seems like an easy thing to me, 

not sending it to a prison would seem like an easy thing, as well 

as making sure they attended the classes, or at least attended a 

college, and perhaps maybe a valid school EIN number would also 

help, to make sure that when those credits are being processed, 

that you have all the information to verify that truly they qualify 

for those. 

Can you help me out with that? 


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Mr. SHULMAN. Sure. Thanks for bringing it up and I appreciate 

the offer of help. We can always use help. 

A couple of things. One is we have significantly stepped up our effort to crack down on fraud. Last year we stopped $14 billion in 

potentially either fraudulent or mistaken credits from going out the 

door. 

The specific report that you referenced, I just want to point out 

a couple of things. 

There was an Inspector General report a couple of years earlier 

that showed that there was huge error rate on the 1098’s, which 

are the education reports we get. 

While that report said there could have been that level of fraud, 

there is also a recognition that the documents they were using to 

match might not have been accurate documents, meaning the education institutions often do not send in the right information, so it 

is not always clear the student was not there, even though it came 

up. 

With that said, the answer to what we can get to help, if we 

want to block a credit because we think there is not right documentation, if we do not have math error authority, we have to go 

through a full fledged audit, which is resource intensive, and it 

comes to people. 

Even if we see an issue, if we do not have people who will follow 

up, answer the phone, engage with the taxpayer, we cannot block 

it, because we cannot change their return. 

If we have math error authority tied to certain provisions, then 

we can block it and change the return without going through a full 

fledged audit. 

We requested in this budget math error authority for a couple of 

things. 

The second that you mentioned, prisoners, authorization for us 

to share information with prisons, so there can be a real punishment for a prisoner, like losing privileges or put in solitary confinement if they try to defraud the system, our authorization in Congress to actually share information back with prisons so we can 

have that kind of dialogue expired at the end of last year. 

Re-upping that authorization is another thing you all could do to 

help. 

Mrs. BLACK. This math error authority, you need to be given 

that. Is that by law? 

Mr. SHULMAN. Yes. 

Mrs. BLACK. We do have to change the law. Do you already 

have the authority to require there be a Social Security number on 

that form? 

Mr. SHULMAN. That is a whole different issue. Certain tax 

credits, you have to have a Social Security number. Certain tax 

credits, you do not. 

The ones you are mentioning, you do not. It is not a requirement. 

If Congress decides that only people with Social Security numbers 

can get that credit, then that would have to be up to Congress. We 

cannot stop it because it is not a requirement at this point. 

Mrs. BLACK. Okay. I know some ways we can help you. Thank 

you. 

Mr. SHULMAN. Thank you. 


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Chairman BOUSTANY. [Presiding] Commissioner Shulman, good 

to see you. I apologize for arriving very late to this hearing. 

Before I recognize Mr. Reed for his questions, I want to take a 

moment to recognize Floyd Williams for his 15 years of service at 

the IRS. I think it is a total of what, 35 years of Government service? Sir, we want to thank you as you move on to what I hope is 

a good retirement. Thank you for your service. 

With that, Mr. Reed, you are recognized for five minutes. 

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

Commissioner, for being here with us today. 

Commissioner, I would like to explore—I really try to rely on 

data when we make decisions here in Congress. 

One thing that I have a concern with is on the enforcement initiatives, you have certain projections on return of investment for 

those enforcement initiatives. 

I am sure you are familiar with the issue we are going to talk 

about here. 

I believe for 2013 you proposed an enforcement initiatives’ return 

on investment will be 1.9 to 1. 2015, you project, it is my understanding, the return on the investment for those enforcement initiatives will be 4.3 to 1. 

Historically, I read some reports that projected that by 2012, 

there was supposed to be a 7.8 return on investment to a dollar. 

Do you confirm those numbers, those estimates, those projections 

with actual data? If you do, how do you do that? If you do not, why 

do you not do that? 

Mr. SHULMAN. It is a great question. Let me give you how I 

think about return on investment and exactly what backs it up. 

First of all, we are very conservative in the numbers we give you. 

The people that we know do those jobs, a rolling ten year average 

on the exact enforcement initiatives. 

If we are going to hire 20 Grade 13 examiners for an excise tax, 

we look at ten year rolling average, how much revenue comes in 

directly from those people making adjustments that actually comes 

into the Treasury. 

It is a look back ten year rolling average of those numbers. 

I actually think those way understate the impact because the 

real game of running the tax system and the real objective is the 

$2.4 trillion that comes in every year, which most of those people 

we do not engage with in that kind of activity. 

Our job is to run good service, so when people call, they get answers to questions. Compliance coverage where there is the most 

risk, so that if you get an audit, your neighbors know that you get 

an audit around specific issues and it drives voluntary compliance. 

Another way to look at our numbers is a $12 billion budget, give 

or take, $2.4 trillion in revenue, every dollar invested brings you 

$200, or a smaller way to look at it is we have what we call our 

turk numbers, which are real dollars in the door every year. 

Last year, it was about $55 billion. The year before, it was 57. 

The year before, it was 49. That is literally people go out, make an 

adjustment, people go through the adjudicatory process, and bring 

money into us. That is a 5 to 1 return. 


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The numbers you gave us are based on very specific activities in 

a granular way based on the kind of people that do those activities, 

looking back ten years, how does that tie to those turk numbers. 

Mr. REED. Is it fair to say your testimony is they are based on 

actual data where you go back and confirm the numbers? 

You are looking at actual data, when you project the 1.9 to 1 for 

2013, return on investment, you will be able to show us at the end 

of 2013 the actual data that confirms whether or not you had an 

1.9 to 1 return on investment? 

Mr. SHULMAN. I think we will be able to—what I said was I 

think it is very good numbers. It is ten year rolling averages. I 

think things spike and they move, so this is an estimate. 

2013 might not be exactly that. It might be higher in 2013 or 

lower, but over a ten year period, I think you are going to see it 

average out to be that amount. 

Mr. REED. I guess that is my question. In 2012, it was projected 

to be a 7.8 to 1 return on investment. Was it 7.8? What was the 

number for 2012 on your enforcement initiatives’ return on investment? 

Mr. SHULMAN. Again, I do not think you want to look at these 

things as year point in time, and you do not want to encourage us 

to do that. 

What you want to encourage us to do is get the right resources 

that over time are going to drive the right taxpayer behavior. 

These numbers are ones we certainly consult with GAO and 

OMB on. I think we are very comfortable with these numbers, and 

we have ongoing dialogue. 

Mr. REED. You bring up a great point when you bring GAO into 

the conversation. My understanding in reading some of their materials is they are very concerned that you are not using actual data 

to confirm those projected return on investment numbers that you 

are giving to us. 

Mr. SHULMAN. I would not characterize it as very concerned. 

I think they have said we can together work on methodology, and 

we are actually having those staff conversations on a regular basis. 

Mr. REED. Okay. You are working with GAO to come to some 

sort of—— 

Mr. SHULMAN. Absolutely, but again, I feel very comfortable in 

our numbers, and if anything, I think they understate the return. 

Mr. REED. I appreciate that. I appreciate the work you do, Commissioner, I really do. I appreciate all the work you do over there. 

It is a tough job. 

Mr. SHULMAN. Yes, I know. Thank you. These are great questions because we need to be accountable for delivering results. 

Mr. REED. Thank you. With that, Mr. Chairman, I yield back. 

Chairman BOUSTANY. Thank you. Commissioner Shulman, 

again, welcome. 

Does the IRS have available resources with the current budget 

to tackle new enforcement responsibilities? Do you have the resources available to take on new enforcement responsibilities? 

Mr. SHULMAN. Earlier I was saying we try to do the best we 

can with the budget that Congress gives us. Obviously, we have a 

big job to do, and we try to balance across the board all the things 

we do. 


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We have requested in the 2013 budget some new resources for 

some of the new legislation that has come through, and we are 

quite hopeful we will get that. 

Chairman BOUSTANY. In reviewing the President’s 2013 budget 

proposal, this proposes saddling the IRS with additional enforcement responsibilities by shifting alcohol and tobacco tax and trade 

bureau duties of enforcing tax provisions related to alcohol and tobacco to the IRS with no funding allocated in this budget to pursue 

those kinds of violations. 

Is that something you have had internal discussions with others 

in the Administration about? 

Mr. SHULMAN. I am sorry, Mr. Chairman. What are you referring to in the budget? I do not think there is a major shift in the 

budget. 

Chairman BOUSTANY. I think the 2013 budget proposes giving 

you additional enforcement responsibilities by shifting alcohol and 

tobacco tax and trade bureau duties to the IRS. 

Mr. SHULMAN. I should get back to you on this. I do not think 

there is a full shift proposed. 

In the past, we have been reimbursed to have some of our investigators help them with some investigations, and that is what I am 

aware of that has happened in the past. 

Chairman BOUSTANY. If you could just get me some clarification on that, I would appreciate it. 

Mr. SHULMAN. Sure. 

Chairman BOUSTANY. One other question. It has come to my 

attention and I have gotten a number of letters just recently. 

We have seen some recent press allegations that the IRS is targeting certain Tea Party groups across the country requesting what 

have been described as onerous document requests, delaying approval for tax exempt status, and that kind of thing. 

Can you elaborate on what is going on with that? Can you give 

us assurances that the IRS is not targeting particular groups based 

on political leanings? 

Mr. SHULMAN. Thanks for bringing this up. I think there has 

been a lot of press about this and a lot of moving information. I 

appreciate the opportunity to clarify. 

First, let me start by saying yes, I can give you assurances. As 

you know, we pride ourselves on being a non-political, non-partisan 

organization. 

I am the only—me and our chief counsel are the only presidential 

appointees, and I have a five year term that runs through presidential elections, just so we will have none of that kind of political 

intervention in things we do. 

For 501(c)(4) organizations, which is what has been in the press, 

organizations do not need to apply for tax exemption. Organizations can actually hold themselves out as 501(c)(4) organizations 

and then file a 990 with us. 

The organizations that have been in the press are all ones that 

are in the application process. First of all, I think it is very important to emphasize that all of these organizations came in voluntarily. 

They did not need to engage the IRS in a back and forth. They 

could have held themselves out, filed a 990, and if we would have 


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seen an issue, we would have engaged, but otherwise, we would 

not. 

The basic rules around 501(c)(4) organizations are they need to 

be primarily engaged in promoting the common good and general 

welfare of their community. They can be involved in political and 

campaign activity, but it cannot be their primary purpose. 

When people apply for 501(c)(4) status, what we do is engage 

them in a number of questions about making sure we understand 

their primary purpose around this and other sorts of engagement. 

What has been happening has been the normal back and forth 

that happens with the IRS. None of the alleged taxpayers, and obviously, I cannot talk about individual taxpayers, and I am not involved in these, are in an examination process. They are in an application process, which they moved into voluntarily. 

There is absolutely no targeting. This is the kind of back and 

forth that happens when people apply for 501(c)(4) status. 

Chairman BOUSTANY. Finally, is it fair to say that there has 

been no change in IRS practice with regard to what triggers audits 

and so forth with regard to tax exempt organizations as a whole? 

Mr. SHULMAN. So, as a whole, we have audits based on risk criteria, coverage requirements, et cetera. In the area of political activities, just to make extra sure that folks are very insulated, we 

actually have a committee of three career professionals who are not 

based in Washington, D.C., that any time an audit will be triggered 

because of potential political activity or if there is a referral from 

a Member of Congress and other kinds of things that could be 

viewed as political, that group of three actually first looks at it, so 

no single individual can launch an audit. It has to be agreement 

amongst three. 

Then the decision would be made for an audit based on resources, risk, allegations, facts, et cetera, and it would be shipped 

out to an auditor to do that audit. 

That has been the practice for many years for anything to do 

with political activity, and that is the practice now. 

Chairman BOUSTANY. I thank you for your answer. Mr. 

McDermott, do you want to inquire? You may inquire. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

I want to shift the questions just a little bit or the issues you 

have been dealing with here. 

I have a lot of LGBT clients or constituents. They have been approaching me about the problems of dealing with the IRS on how 

to file their income taxes, and are having the experience of having 

more than one source give them a different answer. 

They are not quite sure—they are spending some of them twice 

as much as a married couple would spend to get their income tax 

done. They have gotten married under the law, but suddenly, when 

they ask questions about certain things, it is just not clear what 

the answer is. 

I am wondering, is there any single place or perhaps should 

there be a single place where they can call and find out the answer 

to a question or some place in the IRS where somebody takes this 

issue and begins to give definitive answers? 

Mr. SHULMAN. Great question. I am aware of the issue. We 

have actually tried to do a bunch. 


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First of all, it is a very complex issue for these taxpayers because 

under state law, these taxpayers have a different legal status than 

under Federal law, because of some of our Federal laws. 

Under state law, they often split the income but under Federal 

law, they have to actually file separately. 

We recognized there was a lot of confusion, so we actually consolidated and put a group together who worked and put out a 

whole set of frequently asked questions that answered a lot of 

these questions. 

We realized that as laws have changed around the country, this 

has been an issue. We have been engaging with the community 

around this, and I think we have clarified a lot of questions. 

Let me just say until you have state laws and Federal laws recognizing couples the same way, this is going to remain difficult for 

people. 

Some of the things people have asked us to do, we cannot do 

under the law. 

Mr. MCDERMOTT. When they are filing their income tax federally, I suppose if you have a different thing at the state level, but 

federally, if they are doing it together, they cannot do it together. 

Is that what you are saying? 

Mr. SHULMAN. It all depends. Different states have different 

domestic partnership laws. State returns often piggy back on Federal returns, but recognizing couples as couples is different depending on which state and also Federal laws are different. 

Mr. MCDERMOTT. The piggy backing off the Federal tax return 

sort of works in reverse at the state level. They are going to have 

to change some state laws to actually make this rational. 

Mr. SHULMAN. It adds complexity to these taxpayers filing. We 

have tried very hard to make sure we do our job, like we do with 

all taxpayers, which is we have a set of taxpayers with specific 

issues, we get a team together. We worked on these things. We did 

outreach and engagement, and we tried to really clarify what we 

could clarify. 

Mr. MCDERMOTT. If I had a question, what number would I 

call to get the answer? 

Mr. SHULMAN. You would dial our 800 number. 

Mr. MCDERMOTT. That number should get you to somebody 

who will give you the same answer day after day, you will not get 

two different answers? 

Mr. SHULMAN. That is our hope. We track accuracy and consistency, and they are always in the high 90s. 

Mr. MCDERMOTT. All right. I appreciate that. It is an issue I 

hear from the District a lot, and I want to know what it is that 

you have tried to do, and we will see if we need to do something 

about it and we need to look at it. 

Thank you. 

Chairman BOUSTANY. With your indulgence, Commissioner 

Shulman, Mr. Becerra has one follow up question. 

Mr. BECERRA. Mr. Chairman, thank you for generously allowing me to ask one last question. 

Commissioner, two weeks ago, I sat down with my tax preparer 

and went over my taxes in preparation to file. He has been doing 


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this forever. He is an enrolled agent. He is licensed and all the 

rest. 

He said to me, you know, I was always supportive of what you 

all were doing with regard to the tax preparer’s, trying to get us 

to be a more defined group. 

He gets folks who come in to correct taxes that have been filed 

improperly by folks who prepared these things and charged people 

money and did it the wrong way. 

He asked me a question. He said it seems to me like a lot of us 

who have done this for a long time are the ones that are being 

asked to go through the process to certify that we are competent 

and all the rest. 

I said to him my sense is that everyone is going to be at some 

point touched by the IRS as it is moving toward the effort of trying 

to certify that folks are competent to be out there representing 

themselves as qualified preparer’s of tax returns for money. 

The Chairman was gracious enough to indulge me. I am wondering if you can tell us what the status is of the initiative at the 

IRS to try to help do the bird dogging, the oversight, of tax preparer’s, and maybe respond to the question of who is being contacted in the tax preparer world by the IRS to follow up? 

He said he had to go through some courses or programs to test 

his qualifications and so forth. 

If you could just give us a quick sense of where things stand. 

Mr. SHULMAN. Sure. First, similar to what I talked about with 

the real time system, this is a big initiative. We had multiple public hearings around the country, vetted it with a report, put out 

regulations with lots of public comment, so we have had a lot of 

engagement with the preparer community around this. 

This is really about partnering with the preparer community to 

make sure taxpayers are served well. 

Status is we have had about 840,000 people apply and receive 

PTINs, which is preparer tax identification number. About 60 percent of those were not already an enrolled agent, a CPA, or a lawyer. 

Mr. BECERRA. Wow. 

Mr. SHULMAN. Enrolled agents, your preparer and CPAs and 

lawyers who already had higher level qualifications, had already 

gone through their own set of competency testing, already had ongoing continuing education requirements, were not required to take 

the test, because they have already taken a test, or have continuing education. 

Your preparer should not have had to take a test if he was already an enrolled agent. 

We have about 840,000 people who have signed up. Last Fall, we 

started administering the competency examination, and we have a 

number of people through that. 

One of our promises to the American people was that we were 

not going to cut out preparer services. We wanted to make sure 

people still could get service. 

There are a lot of very competent preparer’s who have been preparing returns for 20 to 30 years who have not taken a test in a 

while, so we gave them three years to pass the test. 


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People are now starting to pass the test. You do not actually become a registered tax return preparer until you pass the test. All 

you do is have the PTIN right now. 

Now people are starting to move through the test, and we have 

had several thousand who have taken the test, and we expect that 

number to grow. 

We started approving continuing education providers. This year, 

continuing education requirements kick in. 

We are well on our way to move there. The last thing I would 

say is this filing season, we had the PTIN. We had CADE processing everything faster. We have a lot better data analytics. 

We were able to look at preparer’s who had really egregious 

problems with their returns, go out to them immediately, in late 

January, with visits, letters, phone calls, and really start to engage 

the preparer community to make sure they are treating taxpayers 

well. 

We are very pleased with the status of the initiative, and that 

is a broad overview. 

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

very much. 

Chairman BOUSTANY. Mr. Kind, you may inquire. 

Mr. KIND. Thank you, Mr. Chairman. I apologize. I was a little 

bit late. I was tied up in another meeting. 

Commissioner Shulman, thank you for your testimony and for 

the work you are doing. We really appreciate it. 

Obviously, there are a lot of issues that are pending. I had a 

chance to review the National Taxpayer Advocate Report, and I am 

sure you all at the IRS pay attention to that as well. 

Obviously, some of the disturbing trends that they see in that report is mainly the inadequacy of funding for the IRS in order to 

do your job adequately and serve the citizens of our country. 

In particular, they were concerned because of funding cuts and 

the inadequacy of resources, what that means to the IRS’ ability 

to address the non-compliance issue. 

The concern is it is only going to go wider, if there is a lack of 

confidence or belief in the IRS when it comes to compliance measures, it is only to exacerbate the situation. 

Do you agree with what the report was stating in regards to enforcement of non-compliance? 

Mr. SHULMAN. Well, we had budget cuts. We try to do the best 

we can with those budget cuts. We talked for a while before about 

service. We have not really talked a lot about compliance. 

Clearly, we are doing less exam’s this year, and we have to triage 

and find places. We are doing less collection activities. It is going 

to result in less money coming in than otherwise would have come 

in. 

The big trend I am worried about is if we do not stem the tide 

in the 2013 and 2014 budget, you get to a point where there is 

enough news about compliance rates being so low, but still, a lot 

of people are going to pay their taxes because they are honest, hard 

working Americans, and they want to pay into the society they feel 

benefits them. 


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But if people want to push the envelope, which some do, and 

want to cut corners, if they think we are not on the job, then they 

will do so. 

I think the general comments about you cannot have a long term 

trend of degrading compliance resources, because that really starts 

to hit voluntary compliance, and I think the specific of just less 

funding means less dollars in the door. That is simple math. 

Mr. KIND. Let me ask you a couple of questions. We are approaching the second anniversary of passage of the Affordable Care 

Act. 

One of the provisions is they did allow tax credits to small businesses who do provide health care coverage for their workers, 35 

percent this year. It is supposed to go to 50 percent in 2014 with 

the creation of the exchanges. 

There are moments back home when some small business owners 

come to me and complain about the complexity of that tax credit 

and having to fill that out. 

What is your opinion on that? Is that an item where the IRS or 

us working with you can try to simplify that process to make it 

easier for small businesses to qualify for that tax credit? 

Mr. SHULMAN. Yes. One, it is obviously an important tax credit 

for small businesses, to help them afford paying for health coverage 

for their workers, which is a key component of the Affordable Care 

Act. 

I think it is a very complex credit. We have heard from a lot of 

practitioners and small businesses that the phase out’s around that 

and other issues have made it very hard for people to (a) understand if they can hit the sweet spot where you get the credit, and 

(b) sometimes discourages people from actually taking advantage of 

the credit. 

The President’s budget actually has a simplification proposal in 

it, which works on the phase out’s and other issues to make it 

hopefully much more attractive to small businesses, and Congress 

taking up and passing that, I think, would be beneficial. 

Mr. KIND. You think that makes a lot of sense, what the Administration has looked at and what they are proposing? 

Mr. SHULMAN. Yes. 

Mr. KIND. What about in 2014, with the exchanges, there is 

going to be a lot of credits for the individuals within the exchange 

market? 

Is the IRS making preparations in order to deal with that, and 

are you on track? 

Mr. SHULMAN. Yes. We are making preparations. We are on 

track. The majority of the work we are doing and the people we 

have to hire is to build technology systems to interact with the 

state exchanges and the Federal exchange, so that an estimated 30 

million people can get over a ten year period $400 billion of tax 

credits. 

I testified yesterday before our Appropriations Committee. What 

I said to them is I understand there is heartfelt policy debate about 

the Affordable Care Act, and there are some Members of Congress 

who do not like it. There are members who like it. 

The bottom line is come 2014, there is going to be a lot of constituents in every District who are going to expect a tax credit 


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when they show up at the exchange, and we need to get funded appropriately in the 2013 budget to prepare for that. 

We are on track. We are spending money now based on authorization that came through the bill, but we are going to need to get 

financial support because we have a big job to do. 

Again, we are not involved in health policy. We are involved in 

moving the money to help make the law work. 

Mr. KIND. Thank you, Commissioner. Thank you, Mr. Chairman. 

Chairman BOUSTANY. You know, this broader question of the 

complexity of the Tax Code should give impetus to all of us to look 

at fundamental tax reform. 

I know the Chairman has set that as a goal. I think it is something we should do in a bipartisan way. 

Commissioner Shulman, thank you for appearing before us 

today. As is customary, please be advised that members may have 

additional questions that they may submit to you in writing, and 

those questions and your responses will be made part of the official 

record. 

With that, we will conclude the Subcommittee hearing. 

[Whereupon, at 10:39 a.m., the Subcommittee was adjourned.] 

[Submissions for the Record follow:] 

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The Honorable Scott R. Tipton 

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National Community Tax Coalition 


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~ NATIONAL COMMUNITY 1AX COALi ilON .&' " " u, 

Maintaining Quality Tax Services in the 2012 Filing Season 

Comments on the 2012 Tax Return Filing Season 

for the House Ways & Means Subcommittee on Oversight 

By Jackie Lynn Coleman, Executive Director, National Community Tax Coalition 

April 2, 2012 

Chairman Boustany, Ranking Member Lewis and Members of the House Ways and Means 

Subcommittee on Oversight: Thank you for the opportunity to share our thoughts on tax-filing 

matters and Internal Revenue Service (IRS) operations, in conjunction with your March 22 

hearing on these subjects. 

The National Community Tax Coalition (NCTC) is the nation's largest, most comprehensive 

network of community-based providers offering free tax preparation and financial services to 

low- and moderate-income working families through Volunteer Income Tax Assistance (VITA). 

In the 2011 filing season, our member organizations operated more than 6,200 Community 

VITA sites that leveraged the help of more than 53,000 trained and certified volunteers 

throughout the country. These efforts helped households meet their tax obligations by filing 

about 1.5 million federal returns, obtaining more than $2 billion in tax refunds. 

In our comments, we'd like to briefly address three main points: 

NCTC and Community VITA programs have approached this filing season with a heightened 

commitment to accuracy and quality for the taxpayers we serve. 

We identified and expressed concerns about service problems experienced by taxpayers 

early in this filing season, but are encouraged by the progress IRS is making in responding 

to many of these challenges. 

The IRS cannot adequately handle its increasing responsibilities with fewer resources. 

NCTC and Community VITA programs have approached this filing season with a 

heightened commitment to accuracy and quality for the taxpayers we serve. This is 

particularly important in light of last year's annual audit of the VITA program by the Treasury 

Inspector General for Tax Administration (TIGTA). 

The TIGTA audit raised several concerns about quality and accuracy in a review of 36 returns 

that were filed by VITA and Tax Counseling for the Elderly CTCE) sites. These concerns were 

treated very seriously by both the VITA field and the IRS Stakeholder Partnerships, Education 

and Communication (SPEC) office, which oversees the VITA program. 
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Corrective actions were taken immediately when auditors uncovered problems during the 

2011 filing season; these included mid~season closures of three tax preparation sites. IRS SPEC 

implemented - and the VITA field voluntarily adopted - several other important actions for this 

filing season to ensure high standards and the best quality of services for taxpayers, including: 

New ethics requirements for VITA providers - To curb future instances of 

inappropriate behavior. SPEC adopted mandatory ethics training for all VITA volunteers 

and certified staff, who are also now required to pass an ethics exam. The training and 

exam have been successfully implemented throughout the VITA field. 

NCTC Quality Pledge - In the wake of the TIGTA report, NCTe's Quality Assurance 

Working Group helped develop a new Quality Pledge for the VITA field. It allows 

programs and volunteers to publicly reaffirm their commitments to quality and 

accurate tax-return preparation. Several programs have directly responded to NCTC 

with their commitments and have been featured in our publications and on our website; 

NCTC is now moving to make Pledge commitments a mandatory part of our affiliates' 

membership and membership-renewal processes. 

2012 NCTC "Formula Five for the Field" - NCTC annually releases to VITA programs 

our collective recommendations for ensuring continued improvements in quality of 

services to taxpayers. This year's recommendations were: 

1. 1000/0 Quality Review - It is critical that every single tax return is properly 

reviewed, as required by regulations, and all reviewer checklists are completed. 

2. Quality Review Procedures and Training - All sites have developed and 

implemented clear procedures for review and have provided staff and volunteers 

with practical training on these procedures. 

3. Utilize Quality Review Results - Programs should recognize and respond swiftly 

to any errors in tax preparation, as they occur, and use quality reviews for ongoing 

volunteer training throughout the season. 

4. Research Tax Issues - Staff are staying on top of the latest tax information and 

disseminating new information as it arises, to keep volunteers well-informed and 

well-educated, eliminating guesswork in tax preparation. 

5. Limit Tax Issues - It is crucial that the only returns prepared are those within the 

scope of knowledge of volunteers and the level of expertise at the site. 

For a more complete picture of SPEC's responses to audit concerns - as well as other positive 

actions taken by SPEC - we would refer you to the full TIGTA audit, which is posted online at 

www.treasury.gov /tigta/auditreports/2011 reports/201140094fr.pdf. NCTC would like to 

reiterate our members' commitment to quality, accuracy and high standards in our important 

work of helping low- and moderate-income, working families to meet their tax obligations. 
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National Treasury Employees Union 


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The National Treasury Employees Union 

Statement of Colleen M. Kelley 

National President 

National Treasury Employees Union 

On 

"Internal Revenue Service Budget for FY 2013 and the 2012 

Tax Filing Season" 

Submitted to 

House Ways and Means Subcommittee on Oversight 

March 22, 2012 

1750 H Street, N.W.· Washington, D.C. 20006· (202) 572-5500 
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Chairman Boustany, Ranking Member Lewis and distinguished members of the 

Subcommittee, I would like to thank you for allowing me to provide comments on the 

Administration's FY 2013 budget request for the Intemal Revenue Service (IRS) and the 2012 

tax filing season. As President ofthe 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 strongly supports the Administration's FY 2013 budget requcst 

for the IRS. We believe that the President's request will allow the IRS to continue helping 

taxpayers meet their tax obligations while also improving enforcement of the tax law. 

We are particularly pleased the Administration's budget request would provide critical 

increases for Service enforcement and taxpayer service activities that have been reduced in 

recent years, and would allow the IRS to rebuild its workforce which is down by almost 25,000 

since 1995. 

I would also note that in previous years, NTEU has supported the budget 

recommendations proposed by the IRS Oversight Board which have generally called for 

additional resources above that requested by the Administration. For FY 2013, the Oversight 

Board has recommended $13.764 billion in funding for the IRS. While we have not seen the 

specific details of the Board's proposal, we would be inclined to support providing additional 

funding for the IRS above the Administration's request and look forward to reviewing the 

Board's recommendation. 

Mr. Chainnan, as you know, despite the critical role that the IRS plays in helping 

taxpayers meet their tax obligations and generating revenue to fund the federal government, the 

IRS' ability to continue doing so has been severely challenged due to the lack of adequate 

funding in FY 'II and FY '12. 

For FY '11, the full year CR provided IRS with $12.121 billion in funding, roughly its' 

FY '10 level of $12.146 billion, less a 0.2% rescission, which strained IRS' capacity to carry out 

its important enforcement and taxpayer service missions and led to a general freeze on hiring. 

In FY '12, funding for the IRS wa'> again reduced by almost $330 million below its 

FY '10 level. In addition to hampering IRS' ability to collect revenue and assist taxpayers in a 

timely manner, the FY' 12 funding reductions resulted in the loss of more than 3,800 FTE's 

below the FY '11 enacted level at a time when the workload is dramatically increasing and 

staffing levels are more than 20% below what they were 15 years ago. In 1995, the IRS had a 

staff of 114,064 to administer the tax law and process 205 million returns. Today, they have just 

90,711, yet must administer a much more complicated tax code and process approximately 236 

million, much more complicated, tax returns. 
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The dangers associated with underfunding the IRS cannot be overstated and have been 

highlighted in recent reports by the IRS Oversight Board, IRS Advisory Council, and most 

recently, by the National Taxpayer Advocate. In her most recent Annual Report to Congress, the 

National Taxpayer Advocate identified inadequate funding for the IRS as the most serious 

problem facing taxpayers. Thc report noted that a lack of sufficient resources, coupled with a 

rising workload and increasingly complex tax code, was negatively impacting IRS' ability to 

carry out its taxpayer service mission and assist efforts to reduce the federal deficit. 

In particular, Olson noted that IRS' capacity to respond to taxpayer inquiries has been 

severely diminished, to the extent that now the IRS is unable to answer three out of every ten 

calls it receives, and nearly half of all taxpayers who write to the IRS must wait more than 6 1/2 

weeks lor a reply. In addition, recent funding cuts resulted in a drop in the telephone level of 

serviee from 74 to 70 percent between FY , 10 to FY , II. Because of expected higher call 

demand and new legislation requiring more training for telephone assistors, the Administration's 

FY' 13 target level of service is 63 percent. 

In addition to delays in correspondence and reduced telephone levels of service, NTEU 

has also received reports Irom our members about abnormally long wait times for taxpayers 

seeking assistance at many of the walk-in Taxpayer Assistance Centers (TACs) around the 

country due to insufficient staffing. According to the IRS, 107 out of the 398 TACs located 

around the country are currently being statTed by just one or two employees, while overall 

stafling at many TACs is halfofwhat it wasjust 8 years ago. The lack of sufficient staffing has 

greatly increased wait times at the TACs and has hampered the ability ofTAC employees to 

provide taxpayers with the personal one-on-one assistance that they need. Inadequate staffing 

and availability of service at T ACs has long been a problem at the IRS and has previously been 

highlighted by the National Taxpayer Advocate as a serious problem disproportionately 

impacting the most vulnerable populations who use TACs most often, including low income 

taxpayers, those with language barriers, the elderly and the less educated. 

In addition to the adverse impact on taxpayer services, the Taxpayer Advocate's Report 

also noted that the lack of adequate resources was also undermining IRS' ability to efTectively 

implement its enforcement and compliance initiatives, hampering its ability to maximize revenue 

collection and close the tax gap. Because of the IRS' unique role in generating revenue that 

funds the federal government, Olson urged Congress to view providing sufficient resources for 

the IRS as an investment rather than an expense. 

We are pleased the President's budget proposal acknowledges the importance of 

providing IRS with the necessary resources to generate critical revenue for the federal 

government and devotes a significant portion of the increase from FY '12 to restoring lost 

revenue resulting from reductions in funding over the past two years. 

NTEU strongly believes that helping taxpayers understand their tax reporting and 

payment obligations is the foundation of taxpayer compliance. Through a variety of channels, 

the IRS is able to provide year-round assistance to millions of taxpayers, including outreach and 

education programs, issuance of tax forms and publications, rulings and regulations, toll-free call 

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centers, the IRS.gov web site and Taxpayer Assistance Centers (TACs). These efforts have 

enabled the IRS to continue raising the standard of service to America's taxpayers and assisted in 

effOlts to improve voluntary compliance even during this challenging budget environment. 

The IRS' comprehensive approach to taxpayer service played a critical role in allowing it 

to deliver a successful 2011 filing season, despite the challenges presented by reduced funding 

and enactment of tax legislation in late December 2010. During this time, IRS employees 

processed more than 144.7 million individual returns and issued 109 million refunds, totaling 

$345 billion; answered more than 42 million automated calls and 34.2 million assistor calls; 

responded accurately to 93.4 percent of tax law questions and 96 percent of account questions; 

and helped millions of taxpayers at the 398 Taxpayer Assistance Centers located around the 

country. 

But, without the additional funding proposed in the Administration's budget request, 

NTEU believes taxpayers will continue experiencing a degradation of services including 

difficulty seeking telephone assistance, delays in responses to letters, including those seeking to 

resolve issues with taxes due, delayed responses to small business owners or individual taxpayers 

looking to set up payment plans, and difficulties for those seeking answers on tax deductions and 

credits due under the tax codes. As noted previously, IRS' ability to respond to taxpayer 

inquiries has already been diminished due to the FY , 12 funding cuts which are resulting in a 

very challenging tiling season. 

NTEU strongly believes providing quality services to taxpayers is an important part of 

any overall strategy to improve compliance, and that the President's request for additional 

funding for taxpayer services will help prevent further degradation of services and enable the 

IRS to deliver a successful filing season next year. 

Mr. Chairman, NTEU believes that in the CUITent budgetary environment, it is critical that 

the IRS has the resources it needs to maximize taxpayer compliance, reduce the tax gap and 

generate critical revenue for the federal government. 

IRS' ability to generate critical revenue necessary to reduce the federal deficit is clear. In 

FY , II, on a budget 01'$12.1 billion, the IRS collected $2.42 trillion, 92 percent of federal 

government receipts. This means that, for every $1 that Congress appropriated for the IRS, the 

IRS collected about $200 in return. 

However, reductions in enforcement funding in FY '11 and FY , 12 have undermined 

IRS' ability to maximize taxpayer compliance and bring in much needed federal revenue. In FY 

'11, the IRS generated $55 billion in enforcement revenue, down from $57.6 billion in FY , I O. 

The reduction in revenue can be partly attributed to a reduction in the total number of revenue 

omcers (ROs) and revenue agents (RAs). Despite the critical role they play in maximizing 

taxpayer compliance and generating revenue, the total number of ROs and RAs were reduced by 

almost 450 between FY '10 and FY , 11, and are down almost 20 percent since 1995. 
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The need for sufficient enforcement staffing is more important than ever. In January the 

IRS released a new set of tax gap estimates for tax year 2006. The tax gap is defined as the 

amount of tax owes by taxpayers that is not paid on time and is the most comprehensive and up 

to date data that IRS has on noncompliance. According to the IRS, the amount of tax not timely 

paid is $450 billion, translating to a noncompliance rate of almost 17 percent. 

While the tax gap can never be completely eliminated, even an incremental reduction in 

the amount of unpaid taxes would provide critical resources for the federal government. 

That is why NTEU was happy to sec the Administration's budgct request would provide 

a $402 million increase in funding for IRS tax enforcement above the FY 2012 level, including 

additional resources made available through a program integrity cap adjustment. 

The increased funding will be invested in Service enforcement programs designed to 

increase compliance by addressing offshore tax evasion, reduce the underrcporting tax gap, and 

restore revenue lost from FY '] 2 reductions to examination audit and collection programs. 

According to the IRS, these investments are expected to generate $1.48 billion in additional 

annual enforcement revenue, resulting in a return on investment (ROI) of more than 4 to 1, once 

new hires reach full potential in FY 2015. This estimate does not account for the deterrent effect 

of IRS enforcement programs, estimated to be at least three times larger than the direct revenue 

impact. 

At a time when Congress is debating painful choices of program cuts and tax increases to 

address the federal budget deficit, we believe it makes sense to invest in one of the most effective 

deficit reduction tools: collecting revenue that is owed, but hasn't yet been paid. 

NTEU urges support for the Administration's request for an additional $691 million in 

enforcement funding for FY '13 through a program integrity cap adjustment for high revenue 

generating enforcement activities. This $691 million in funding, coupled with additional 

investments through 2022, will support a variety of compliance activities, including new 

initiatives that deepen and broaden IRS' focus on international tax compliance of high net worth 

individuals and entities. These investments are expected to generate an additional $44 billion in 

additional tax revenue over ten years. 

In recent years, both Democratic and Republican Administrations have requested and 

Congress has approved, integrity cap adjustments for IRS enforcement activities. President 

Bush's FY 2006 budget proposal included a program integrity cap adjustment for IRS 

enforcement of $446 million. Congress approved that amount and in 2007 the IRS stated in 

Congressional testimony, "much of the enforcement success in FY 2006 was the direct result of 

this increased funding provided by the program integrity cap adjustment." Congress also 

approved an $890 million cap adjustment in FY 20 I O. 

The Budget Control Act of2011 specitically allows for other program integrity cap 

adjustments for Social Security disability claim reviews and health care haud and abuse 

programs. The Senate version of the Budget Control Act also included an IRS enforcement 

program integrity cap adjustment, but it was not included in the 11nallegislation. Clearly, 

Congress recognized the wisdom of small spending increases when they will be more than offset 

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