Transcripts For CSPAN Treasury Department Fiscal Year 2016 Budget Request 20150308

Attack takes place in our own country. This president by the way his former secretary of state let us down in this regard. We will hear from hillary clinton, from an emilys list gala, and we will hear from jeb bush in iowa, speaking at a fundraiser for david young today at 6 30 p. M. Eastern here on cspan. The Senate Appropriations Committee Held a hearing on tuesday to review the president s budget request for the Treasury Department. Jack lew and john cost them and discussed why additional spending is being proposed. They also talked about areas like Cyber Security, tax fraud and irs Taxpayer Services in helping Small Businesses. This is almost two hours. The subcommittee will come to order. Today marks the first hearing of the Financial Services and general Government Subcommittee for the 114th congress. This is also my first hearing is subcommittee chairman. I am pleased to sit alongside the new Ranking Member. I would also like to knowledge the other members of our subcommittee. Although our subcommittee is small, the number of agencies we have found is large and their impact on our economy is significant. I am confident that the members are up to the task before us. As we begin this important hearing to review the budget request from the department of treasury and the Internal Revenue service, we welcome our witnesses, senator jack lew i bet i am not the first one that struggled with that name a little bit. [inaudible] very good. And the treasury ig for Tax Administration, russell george. Thank you for being here and we look forward to your testimony. As members of this committee we have a tremendous responsibility to ensure that the hardearned tax dollars a millions of americans are spent appropriately. Unfortunately the president has put for the budget that is out of touch with the needs and concerns of hardworking taxpayers. In his current budget the president proposes to create 2. 1 trillion in new taxes increase spending by 65 , and add 8. 5 trillion to the debt over the next 10 years. While the hardworking people will be forced to cut their spending significantly for the last few years. The president has been unwilling to do the same in washington. The country is in need of serious budgeting. All too often they lose sight of the fact that every dollar the government spends comes out of the pocket of the taxpayer and is one less dollar that the taxpayer could spend to provide for their family, grow their businesses, or help their neighbor. As members of this committee we have a responsibility to ensure that the decisions about federal funding are made with those taxpayers in mind. Nowhere is the need for oversight more apparent than in the agencies before us today. When the iri irs takes actions that reach the American People, it affects the impartiality of the agency. This selfinflicted damage harms a credibility essential for our voluntary compliance system to function. Americans have lost faith in the institution and you have a responsibility to regain their trust. We have all heard too often that investigations into these issues are distracting and that everyone should move on. Unfortunately to taxpayers these responses continue to reflect the lack of accountability and leadership. To repair that damage there has to be a fundamental change in the culture of the agency and the change must begin with the complete transparency and acceptance of the responsibility. Unfortunately there is continued evidence of a culture that is simply out of touch with taxpayers. Hiring employees who have passed performance conduct issues, and it weakens the ability of the irs to safeguard the rights of the taxpayer. Making bonuses a priority does not help them regain the trust of the taxpayers or raise the confidence that the agency will enforce tax laws impartially without regard to individuals exercising their constitutional rights. This was the case in the previous fiscal year, one of their first actions after the enactment of the appropriations bill was to announce that they would pay out 60 Million Dollars in awards to employees. Once again irs management seems to have forgotten that their most important customers are not their own employers employees, it is the American People. It is disappointing to again see that their budget request is unrealistic. The president s request for 2016 is almost 12 point 9 billion. Under the budget control act the Discretionary Spending caps for fiscal year 2016 limit nondefense spending to four hundred 93 billion. This represents an increase of 1. 1 billion over the fiscal year 2015 level for nondefense departments and agencies. Yet for fiscal year 2060 the increase has requested a base increase that is higher than the total increase available for all the nondefense Discretionary Spending. Also troubling is the request for the visual 670 million above the limit of the spending set by the current law. The treasury and the irs are fully aware that cabinet adjustments like this were not included in the budget act of 2011. No adjustment has been authorized to spend. Given this unrealistic request it sets unreasonable expectations, more troubling when looking for critical work to protects protect taxpayers in the future from the trauma of Identity Theft. The American People want a government that works for them not against them. They want to make the government more efficient, effective, and accountable, pursuing policies that create Economic Opportunities for everyone. These are the qualities of the American People reflected in the critical oversight that we conduct as we consider fiscal year 2016 budget requests for all the agencies within our jurisdiction. With that i yield back in time to senator kearns. Thank you for bringing us together today. I look forward to working with you and hope that with new blood, new energy, and a new approach we might bring more to the committee. I look forward to the testimony that you have in accordance with your difficult jobs under these challenging scenarios. A responsible stewardship of the hardearned taxpayer money is one of the most responsible allegations we have and it is important that we work diligently and together for the trust that our constituents put in us. I realize that there will be areas where we disagree but i hope we can approach the work with the seriousness deserved to it. I welcome the chance to examine the treasurys budget request and have what i hope will be a frank discussion about what is required to fill your responsibilities. Even to learn how treasury has adapted to Budget Constraints and how you will deal with resource competition and competing demand. Much of the treasurys budget goes to the irs, but there are a number of important functions i look forward to hearing about. Three in particular play the request towards strengthening the Financial Institutions Fund Bond Guarantee Program with the state credit program, i believe that programs like these can provide access to capital for Small Businesses around the country, helping them to grow jobs. Given the pressing issues in the sanctions against russia i look forward to hearing your thoughts on that topic. No agency is more visible to the American People than the Internal Revenue service. Each year more than 80,000 Public Servants at the irs make hundreds of millions of contacts with taxpayers. It is my hope that the irs could be best reset described as the counts receivable department and for fiscal 2016 they requested in 18 funding increase for the irs. At this point it is malleable to reflect on the bipartisan dislike of pain, we should not cut off our nose to spite our face. The more we cut off funding, the harder it becomes for the agency to respond to tax fraud or abuse. I hear from those who are frustrated when there calls go unanswered or it takes a long time to connect or get responsible answers to questions. Im sure that many others have had the same experience. Every dollar cut from the budget results in seven fewer dollars collected by one estimation commissioner douglas, that was 2011. So, we have a lot to discuss today, ways that we can improve the functioning operation of the irs, ways that we can improve the functioning and operation of the Treasury Department. The forecast is not encouraging a significant restraints remain in place. I look forward to getting the perspective on what is required to deliver topnotch Service Taxpayers and enforce our laws fairly. I look forward to working with you and having an open exchange of ideas as the hearings progress. Thank you. Thank you, senator. We now look forward to the testimony of secretary lou. It is a pleasure to be here to discuss the treasurys budget. As we meet here today, the economy and the country have made considerable progress that we can take pride in. From job creation to Economic Growth deficit reduction and Energy Dependence america has come a long way. We have seen the best year of job growth since the 1990s and in the past five years american businesses have created 12 million new jobs. The longest stretch of sustained job growth in the nations history. We continue to expand in 2014 with forecast projecting above trend growth for the year. We continue to work with trading partners who are struggling to recover from the Global Economic crisis. Records were set last year for goods and services set overseas, largely driven by Small Businesses. The deficit has fallen in this forecast and it declined even further for the next fiscal year. These achievements underscore americas enduring strength and we can keep this progress going with the right policies and bipartisan cooperation. This is a blueprint for washington to Work Together laying out a path for Common Ground, putting forward sensible solutions for every american that works hard having a chance to get ahead. The budget knocks down barriers for working families. Things like child care, mortgage payments, more affordable. It Fuels Research and development, repairing roads bridges, and ports. It reforms the tax systems of the we can eliminate special interest loopholes to strengthen the middle class for businesses. The bipartisan budget act of 2013 released a portion of sequestration and allowed for higher investments in 2014 and 2015, doing nothing to alleviate sequestration in 2016. The proposed arbitrary spending cuts that were bad for the economy and for security. These acrosstheboard cuts were never intended to go into affect. Rather they were personally unpalatable to prevent deficit reduction. Congress should act for their domestic and National Security requirements. Treasuries budget will allow the department to carry out its vast responsibilities efficiently and effectively. They are instrumental in helping to shape economic policies and todays requests will allow the department to promote prosperity, responsibility, and resilient Financial System, even as it addresses our National Security objectives here at home and abroad. The Treasury Department touches the lives of virtually every american to our work to responsibly manage the governments finances, fuel lending to Small Businesses spur Economic Development advanced Strategic Interests make Social Security payments and reduce the nations currency. Since president obama took office, the Treasury Department has had to marshal resources against deep challenges. We have consistently met obligations efficiently. This budget request continues to achieve savings and fund vital programs alongside strategies that will make the department more effective. The primary area where we are affect requesting Additional Resources are in the additional are in the Internal Revenue service. These cuts amount to a total of 1. 3 billion, or 10 of the agencys budget. As a result taxpayers face longer and on acceptable wait times on the phone and it takes the irs longer to respond to correspondents. A sustained sustained deterioration in Service Presents serious longterm risks for the tax system, which is based on voluntary compliance. The treasury budget requests storage to provide an acceptable level of Customer Service as deserved by the american taxpayer along with modernization to meet legislation from congress. The funds will help the irs to update on update antiquated Computer Systems and prevent taxpayer misinformation. We are sinking an injunction of the Program Integrity gap to allow them to invest in investments that will generate sizable returns. To be specific, 60 billion dollars in additional revenue at the cost of 19 billion, meaning the deficit will be reduced by 40 billion over the next 10 years. The budget also includes additional funding so that treasury can meet its obligation in the digital accountability and Transparency Act and provide americans with Accurate Information about government spending. On top of that we are requesting a reauthorization of programs that have proven results, like an extension of the Community Development financial to should one guarantee program in underserved communities. It proposes a new investment in the state Small Business Credit Initiative that leverages strengthening to private businesses nationwide. I would like to think the team at the Treasury Department. The dedicated work that they do in their commitment to the American People, proud to represent them here today, on behalf of these hard in many and women i would like to say how much we appreciate the support of the people on this committee. Thank you. Thank you very much, mr. Secretary. At this time we will proceed to the question reach senator has seven minutes per round. There are sufficient opportunities that we will try to accommodate. I appreciate it. In their you mentioned the need for finding Common Ground i think that you mentioned infrastructure and things like that. We have some different viewpoints as the how to get those dollars, which is a sticking point, but the other thing is let me do this in the form of question it concerns our Community Bankers. I feel that the backbone of america is Small Businesses, but the backbone the Small Businesses is Community Banks. Many have expressed concerns about the cost of applying what they feel are onerous Regulatory Burdens. Again, it is the bat backbone of our community. University Research Released a report in february about the plight of Community Banks in the United States and how poor regulatory coordination is stifling Community Banks. This is a particular concern to states like arkansas, for 96 towns that have only one physical banking location. Two thirds of these communities have less them 1000 residents. What do you propose that the Administration Due to ease the problems facing Community Banks . We very much share with you the view that Community Banks play an important part in our communities and in the fabric of our national economy. I think that if you look at the design of many of the laws and rules, you will see that there are standards that reflect the differences between smaller and larger Financial Institutions. There are exemptions, in many cases, for smaller institutions bars that are easier to clear for smaller institutions that do not present the same level of financial risk. I know that as regulators look at their discretion they are all looking for whether there is flexibility and whether or not there is a risk that they need to be concerned about. They have consistently made judgments to have the burden on smaller Financial Institutions reflect in general lower levels of risk. I think that we have to be careful to remember the purposes of financial reform. The purposes were to make sure that we never again faced the kind of economic crisis that we had in 2008. I think that the standards that we used have to be such that the architecture that was put in place is designed to prevent the taking of risk that could add up to a risk to the country. You know, the relatively easier standards for smaller institutions are appropriate, i think, but i do think that the oversight we have now is more prone to than we do then where we were in 2008, but frankly we have lapsed in our ability to see Risk Development in the u. S. Economy, with financial reform being quite effective at making the Financial System safer and sounder, we tried to do it in a way that is mindful of the burdens of Smaller Banks in smaller communities. My concern is that when you get out and visit and go to institutions like this, if you go to these 96 small towns, it is again universal. They feel that things have changed dramatically and i would argue that these types of Community Banks just did not have anything at all to do with the meltdown that we experienced several years ago. I really wish that you would look at that something that we are looking at. It is a kind of onesizefitsall and i think again, that the idea for these banks that they were somehow responsible for that, i simply do not agree with it. Recent Cyber Security reports show that a cyber criminal out of russia, china, ukraine, and other parts of europe have stolen up to 1 billion from other countries around the world, including the United States, since 2013. Cyber security is a huge thing that we are very concerned about. In your opinion, is this Information Safe . I think that Cyber Security is an enormously important and difficult issue, one that i know i worry about every day. When i talk to ceos of Financial Institutions and retail businesses, they worry about it every day. I know that we are doing an awful lot that is a kind of defense against Cyber Attacks but the cyber criminals are always holding their attack. We cannot think that we can get ahead of them. Our challenge is to keep up with them. To have good practices in place that we have the ability to respond when there are attacks in to share information so that best practices can be made available throughout the system. Legislation is pending that the president has proposed that we think would go a long way towards providing the ability to share information and make the system safer. I think that the Financial Sector is probably in a better situation right now, but no one can sit back and rest comfortably. Mr. Chairman, i cannot help but notice that a Ranking Member of the committee came in while i have been responding and let me give you just a moment to would you please give me just a moment to wish her well and thank her for her service. I will have more to say in a minute. I have been here for two years jack. Look forward to working with you. Even with all the issues we are talking about. Thank you. No, thank you. Very quickly and shortly, i am running over my time, but i am encouraged by recent steps to boost commercial ties with significant benefits for our economies. My home state of arkansas x wouldnt nearly 30 billion in 2004 for payment restrictions that were tightened in 2005. Earlier this year researchers at the university of arkansas estimated that expanded travel to cuba would bring 50 million. What is being done to ease the pain of restrictions . How will this impact whats going on in cuba . The actions that the president announced just a few months ago regarding the easing of some of those sanctions against cuba, we think that that will help u. S. Businesses and we mostly think that it will help to advance the kind of positive change in cuba did could be positive and the terms of making a difference where old policies did not create we have tried to make it easier, more the kind of transaction that has been frustrating for american agriculture to go forward and be consistent with, legal constrictions that remain in place. I think that there are opportunities for americans in agriculture and other sectors to do business with you but, but i think the bigger story in terms of relations is the chance for cuba to be more exposed to u. S. Values and freedoms in a way that will be more effective in terms of pushing back on the practices in cuba that still need to change, the old policies that were not productive in terms of changing cuba and hurting u. S. Interests. Thank you, chairman. Thank you both for your testimony. On the team that the chairman started with about access to capital in small towns and how Community Banks can make a significant difference, explain for me briefly how the Community Development Financial Institutions fund is used to help rebuild those businesses and how the Bond Guarantee Program, if it were to ramp up to one billion, how they might play a constructive role in providing access to capital for small communities and, second, i am sorry that they asked about the Regulatory Burden on Smaller Banks. I have heard from another a number of folks from the Financial Community who believe that once banks obtain 50 million in assets they suddenly become subject to all the Regulatory Oversight of the megabanks. While i am a strong supporter of the steps taken to prevent future crises, i wonder if that is quite accurate or if there is a step series where you steadily ratcheted up regulations in accordance with the growing size. I would welcome your insight into those points as well. Cdf i has been an enormously effective program, both because of what it does directly and the Institution Building role that it plays in the communities that it serves. Looking at the raw numbers, and 2013 we made 146 million in awards and produced 50,000 new jobs. Almost 10,000 new businesses. In the communities where they were present there was a Financial Institution that local businesses could go to. Places where Community Banks were not able to have a foothold, they had created access to the benefits of the communitybased offer. The cdf i Bond Guarantee Program addresses one of the most revitalizing challenges in the community. Low income and underserved communities have access longterm extraneous that are just hard or impossible to find. The guaranteed a program today as 520 5 million in bonds to the program in order to help them provide financing needs for the community. I think it is a well leveraged and successful program, which is why we have proposed the reauthorization again. With regards to the threshold question that we asked about you asked about, it is correct it is not a hard line for everything happens to an institution if they pass the threshold. There are many requirements for which institutions are exempt and others with standards that are modified to reflect a little bit of risk. I think that with that said, we remain very much focused on what we can do to make the burden even less without creating risks to the kind of general architecture of financial security. An area that i know all the regulators are focused on. Good, because i share that concern, that we provide ways to find more lending at the Community Banking level without increasing the risks to the Financial System as a whole and making changes to i believe are important safety protections. I made reference to these in my Opening Statement in a hearing from the last congress and was the vice chair was essential in advocating for an increase to make sure that we had the resources, but given the ongoing issues with russia, the ukraine syria and iran that the budget proposed a reduction. Why did it proposed to cut funds to this office knowing that there was a significant threat . Was there too much resource . What about the potential to return. I think the work that our office obtained is anonymously important. The sanctions programs we have administered include the tools that are extraordinarily effective and helpful. I must say that when i think about how much time is spent working in this area it is a bit of a surprise to me how much of my time goes into this because of the world we live in today. As far as resources go, we have requested the resource level as a floor, not a ceiling. We wanted offices so that there would be more flexibility. There were onetime expenditures last year that may or may not recur. We have not lessened our level of activity on the sanctions. I dont think that we missed a beat in terms of the other programs that we administer. We came up to speed quickly when there was a need for russians engines and i was out of our team for having mastered the intricacies of russian Financial Institutions and interconnection to the global Financial System and how we could use targeted and surgical sanctions to put pressure on the targets of the sanctions with minimal sanctions to europe and the rest of the world. It has been funded at the right level, but it is a floor, not a ceiling, and we appreciate the support of the committee has given for this function. Just speaking for myself, i intend to follow this closely. I want to make sure that you have more than adequate resources for the fight. Your i. T. Investments are significant relative to the total increase requested with data act implementation. I share the chairmans concerns about Cyber Security. Last, i have a question about mlp. I had read that the investment of the data act was extremely important and that we work on the development of that legislation. We are eager to improve it. It cannot be implemented as well as we should without the resources to do it properly. I think that it helps to safeguard systems to invest in Cyber Security by having better systems to begin with. Many of our systems are vital. I was struck that it proposed eliminating them as a structure. I have long been a bipartisan advocate of those staying open for Renewable Energy and i think it is a politically feasible way to provide longterm financing support for Renewable Energy. Did you have a comment . It is an area i would be happy to follow up with you on. Obviously, we have many proposals to promote Renewable Energy in terms of Financing Development with large limited partnerships over the years. Thank you, mr. Chairman. The senator from kansas . Thank you. Before asking questions, the senator from maryland this announce intentions not to run for reelection and i wanted to take this opportunity to say thank you for your service. We appreciate the tenacity with which you have tackled our spending and our continued attempts to get us to the appropriations process and back into regular order. Thank you very much. Mr. Secretary, three relatively quick questions, i was told that the chairman was questioning you about those regulations and i would add my voice to that issue. My understanding is that your response was something along the lines of i would indicate that ive did not think it was the case. They have been brought up in a broader regulatory scheme than they deserve to be. Consequences are significant for the economy. In a state like mine, in which Community Banks provide significant capital for startups, the relationship to banking is important. The example that i use that has become so annoying and devastating to me is that many of my Community Banks have made the decision to no longer make Home Mortgage loans to individuals who want to buy home in their hometown. I doubt that the intend in was to reduce the availability of mortgage credit in a town of several thousand people, but that has been the end result. Not only for the Regulatory Environment but the consequences based on the failure of the bank across every t and dot every eye. The reason it is necessary to bring this kind of issue to you as so many of the regulators are not subject to appropriations. In this setting you are our one opportunity to express concerns about things that are happening within the Treasury Department broader Regulatory Environments faced by those banks. Senator, i understand the concern about Community Banks and i share them i agree with all of you who have expressed the view that Community Banks are an enormously important part of the fabric of our Economic System and community. As we were discussing a few moments ago, what happens at the cut off point is not quite as dramatic as it is sometimes ascribed as there are different rules for smaller institutions. With regards to the housing issue that you mentioned, i know the regulators are reviewing some of the rules that have been a concern to Community Banks and i do not think that the intention was to stop the lending to you describe, but it was to put burdens on the clients and offer different kinds of products so that they did not shut down the lending. Looking at things like put back risk, regulators have been trying to take some of that unknown out of the system by being clear about what would and would not be considered an actual kind of error. I think that these regulators are attuned to it. Obviously this is not directly in the jurisdiction of treasury but i am concerned as a chairperson and as someone who cares deeply about the health of our bank and Financial System, i think we have to be careful not to undo the architecture that has made the system so much safer than it was. Is there any one person that answers to you that would be a good person for us to talk to about it . We have an office of domestic finance in people that work on these banking issues. I appreciate that. Thank you. Part of the review that is underway, where the banking regulations are now being considered on that review, i would welcome a report back as to how that process is going and whether we are headed in a direction that would eliminate or modify the existing rules and regulations. I am very much focused on that. I was an omb director and we looked back at the rules on the federal government where we did not have the ability to reach into the independent regulatory agencies, so i am pleased to see this process underway, where those agencies are doing the same thing. Conversations i have had with the heads of these agencies, i think that there will be something very interesting there. I am pleased with your smile in answer to the question. I am also pleased with the answer you gave to this topic. Omb, i was not sure that you would know about this process. Hopefully as treasury secretary would, and definitely as director of omb. Let me ask a question, this Congress Passed it last year, last session, the welfare exclusion act. What was going on was irs activity on the lands involving the taxation of indians and establishing of an educational system for irs field agents. It seems to me that the treasury is going out of its way to not have native americans on the advisory committee. Would you dispel me of that believe . I am not sure where that notion comes from. We filed the charter for the treasury and the travel advisory committee, we have issued a call for nominations for the three members to be appointed. We have expressly contacted tribal leaders for nominations and the deadline for the application was the 28th of april. We are still very much in the process of reviewing candidates. Do you have any believe as to whether they should or should not be involved . I do not start out with a preconceived notion. I think that we should review the applicants who come in and look for those most qualified and strongest candidates. A good answer, i would suggest the tribal leaders as part of the makeup of that committee would the unimportant component in providing you and the Treasury Department with advice. I did have a meeting with tribal leaders several months ago that was a Good Exchange and i think that the feedback that i got was that they welcome to the interaction with the Treasury Department and would continue to stay very much working with them. Thank you. The senator from maryland . Thank you, mr. Chairman. Thank you for your kind words. Secretary, thank you for your service. We have been together for a really long, long time. Back when we were discussing earmarks. Again, thank you for your words and your service. I want to reiterate some questions about Community Banks that i see is a common theme here among all of our colleagues on both sides of the aisle. Perhaps, mr. Chairman, it will require meeting with domestic finance on this conversation. Let me get to my question. I am concerned that given the shrinking number of Community Banks, i am concerned about the shrinking number of minority owned Community Banks that have demonstrated solvency and stability. I know that within last year it went from 47 to a number in the 20s. I think that these are issues that we really need to be looking at. We can talk about the merits of a Community Bank as compared to the original or franchise banking in the community, but let me get to my question, one of which being the variables of government being interfered with by banks being able to get back on their feet. A specific question that i have is a Community Bank in maryland that meets needs the approval of a bank in order to buy back what they had gotten in the tarp program. They are told that they cannot buy it back, but convicted funds have made a way for the hedge fund by the bank . I dont want to get into individual cases, but it is where the rules of government seem to be poor peeling or derailing Community Banks in order to move out of the recession. And yet they have their own solvency that they are absolutely committed to, thats fine. Do you have any thoughts about what treasuries telling people about buying back preferred stock from regulators . From a treasury perspective, obviously we have been working our way through the assets, trying to resolve them so that we can recover taxpayer investments fully wherever possible. We have worked with Community Institutions and have no objection when Community Institutions are able to do that. Im not sure what the regulatory issue is that you are describing , but obviously we do not have any authority over those decisions. But the fed really does have to go and work with the treasury and i would like to get formal numbers. I would be happy to look into it. Two other points that are very specific to the maryland and d. C. Area, just to bring them to your attention and ask you to look into them, then i have a pretty big question. An old accounting error was discovered. These are the pensions that we are responsible for. I would like to get you a letter on that, and a letter from miss norton. I am not asking for a response there. The other is the treasury, i know, is merging Financial Management services with the bureau of public debt. The Financial Management services in hyattsville. I was there to negotiate a fiveyear delay with the treasury in terms of this move but we hear that there are employees at treasury so grouchy about what i did to protect those people, so that we can sort this out, that they are being demoted, intimidated, and pushed out. Could you take a look at that . It would be unacceptable if that were true. I will together look into that. I think the merger has been effective, but there should be no kind of treatment like you have described. They were looking for eight dollar and accountants eight dollar an hour accountants in west virginia, and i do not think any accountant is eight dollars an hour. The other is a larger question for my colleagues. You and i have done two appropriations together when i was the chair. Could you tell me the impact of crisis driven appropriations . Lastminute agreements . I am nothing but excellent words to say about my colleagues but it was a hell of a time. I wonder, u. S. Secretary of treasury, the domestic economy and global economy, what is the impact of crisis driven appropriations . Senator, i think that is in an extraordinarily important question. I commend you for the work you did last year to put together an appropriations will that would provide funding levels to meet current needs. That is so important in terms of having our system maintain if current agility. The getting resolution does not have an agility. When you look at the deadline driven crisis driven funding decisions that have been made over the last couple of years it has caused substantial anxiety. Not just for the united date but around the world and think everyone looks at the Business Investment environment. It is about psychology. The psychology of confidence. The government is acting in a way that destroys thousands of confidence. That sense of confidence. The confidence of the u. S. System and its economy, since we have seen something that returns to regular order. Maintaining regular order is extremely important. We need to have decisions that are made by people thinking in a direction of two years, three years, not just a week or a month. I applaud the efforts new went through to put this together. If congress can meet the requirements to funds of the government to make sure that our debt does not become an issue anxiety again, that would be important. Latebreaking news, good news. The Homeland Security bill cleared the house 257 to 167. We now have passed 12 bills in the Appropriations Committee and completed today our fiscal 15 work 2015 work. Congratulations. Thank you mr. Secretary for being here. Week appreciate you testifying. We have gotten some very valuable information. We will followup with additional questions for the record that our members may have in the future. We appreciate your time and responses as always. And all warner to move through the with mrs. In order to move through the witnesses thank you. Thank you for being here. I now invite you to present your testimony on behalf of the Internal Revenue service. Chairman boozman, Ranking Member coons, and members of the subcommittee, thank you for the opportunity to appear before you today to discuss the irs budget and current operations. After 15 months as irs commissioner, it remains an honor for me to lead this great institution. My respect for the agencys role and admiration for its workforce continue to grow. Im pleased to report that the 2015 tax Filing Season opened on schedule on january 20th, and is going well so far. Opening the current Filing Season on schedule was a major accomplishment, given the challenges we faced. I attribute this achievement to the dedication, commitment and expertise of the irs workforce. Along with normal Filing Season preparations, there was a significant amount of extra work to get ready for tax changes relating to the Affordable Care act and the foreign account Tax Compliance act. We also had to update our systems to reflect the passage of the tax extender legislation in december. Even with the demonstrated capacity of our workforce to meet these challenges to successfully open Filing Season on time, i remain deeply concerned that the significant reductions in the irs budget will degrade the agencys ability to continue to deliver on its mission during Filing Season and beyond. In fact, one of my highest priorities since becoming commissioner has been to advise congress about the ramifications of continued substantial cuts to our funding, and that is what i will focus on in my testimony today. Irs funding has been reduced 1. 2 billion over the last five years, dropping to 10. 9 billion in fiscal year that level is 2015. 346 million below the enacted level for fiscal year 2014. More than 11 million copies of previously filed Tax Information has been obtained online. These inquiries would have invaded our phone lines and result in the longer lines and our walking sites. We have taken seriously issues raised about inappropriate actions and activities in the past by making necessary changes and improvements in our policies and procedures, to ensure that these situations not recur. We have cut spending by 80 . We have established review boards for training expenses. We have ensure that those who willfully failed to meet their Tax Obligations are not eligible for performance awards. Former employees with serious conduct violations are not rehired. We have implemented the directions of the Inspector General over the failures of review of applications of those on welfare status. We have had made very critical performance changes. Budget cuts have made an impactful and negative change. Taxpayers in our view on to have the same level of service from the irs that they have no from the Financial Institutions whether it is a bank of mortgage company, or Brokerage Firm and the president s fiscal 2016 budget request for the irs would help them to move ahead in all of these critical areas. We would bring our service up from 40 to 80 rate. And we would be if of to take steps toward building a more modern interface between the agency and taxpayers. I understand and appreciate the concerns raised but it took this job 15 months ago because i also understand the Critical Role the irs plays and lives of taxpayers and in the collection of the revenues that fund the government. I know i speak for the thousands of professional and dedicated employees when i say we are committed to working with you and the other members of congress to lead the agency effectively and appropriately into the future. We need your help and support were going to be successful. This is kind that this concludes my statement, i would be happy to take your questions. Thank you. Thank you for being here today. I appreciate your testimony. The problem is lack of confidence. We can go all through these things, but the irs targeted hiring people rehiring people of bad records those who had been marked do not hire, no safeguards, not enough safeguards on the safety of information. One employee taking home over one million records, and the list goes on and on. Programs in shambles. Solar security licensors wasting millions of dollars. The taking of Bank Accounts from people with little evidence of wrongdoing. Still having tax entities that are waiting for literally years. And still no execution plan on how to implement the aca that we are aware of. The problem is accountability and getting some confidence to act. In your budget request you are asking for almost 12. 9 billion for the irs. Even without the request for 667 million above current spending limits, youre asking for a 1. 3 billion increase. Totaled on to spend total nondefense spending for the entire government will only raised by 1. 1 billion. Are you developing contingency plans on how to carry out your miss you and based on a more realistic budget expectation . The difference between the irs and the other agencies is if you give us money we will give you more money back in terms of deficit reduction which is a critical issue going forward, in many ways it is counterproductive that the more revenues and support for the irs that get cut, the greater the difficulty we have been collecting revenues. I do take the point, and we are continuing our options, that we will stay at the flat level. That was our assumption going into 2015 when we ended up with a budget cut of 350 million. We were the only agency in the government with a cut, and we were the only major agency of the government that was not restored to the presequester level when it was implanted. We have the impact of two sequesters while everyone else is waiting to see what happens with the next sequester. To that extent, we are already having to deal with a very difficult reality. Thank you. We are prepared, all i can tell you is that we did not get the increase in funding request for Customer Service, for example. It will drop below 50 , and it has done that. To the extent that we do not get additional revenues for enforcement, i can tell you that the enforcement revenues available to the government are going to decreased by six times to eight times more than the cut in the budget has been. But we are prepared. We will always play the hand you deal, and whatever decision you make we will abide with them. I will tell you there are greatest great threats to tax enforcement, and Cyber Security. We get attacked 145 million times a year. There is no database that is more attractive than our database, and yet we are doing with less support from our i. T. System that is appropriate. We are already underfunded. How much did you waste in licensure last year . In licensure . I do not know that we wasted any money in licensure. In i. T. Licensure . There is a report for licenses for software, on whether we had lost money by not using them, and it was the issue of how you measured it. But we have an impact taken have in fact taken measures to make sure that when we raise an issue like that, we deal with it. During a hearing last month senators asked you about the tax impacts of the president s actions on immigration. Your followup letter to him last week that individuals may claim up to three years of refunds on income coming even if they were working off of the books month or never paid taxes is truly startling. Wire you allowing to why are you allowing individuals who cheated by not paying any taxes to earn this . This is only if you had earnings that could be documented. Even though they are undocumented and paying into the system, anyone who now under the president program is provided a Social Security number, they would be eligible for filing an amended return. They then have to demonstrate that they actually had earnings, and they had to pay taxes on their earnings. Only then would they be eligible. A single employee without a family is eligible for a little less than 600 year in the earned income tax credit. You have to provide the evidence and the documentation. You to pay taxes on what you are to be ineligible any kind of eligible for a tax rcredit. The statement that individuals may claim up to three years of income even if they were working off the books or never paid taxes is not true . There are 700,000 undocumented residents filing every year without with us. You have to have worked, and you have to provide the documentation that you actually had earnings that year, youll of taxes on those earnings, and it will be factored into what tax Income Credit you are entitled to. The sender from maryland. Thank you mr. Chairman. Thank you mr. Koskien. I appreciate that someone of your caliber has continued in public service, and to do it at irs. The irs has taken heat beating both in the budget, by members of congress, we have demonized the men and women who work there, and underfunded and give them an impossible job. When they cannot do it, we punish them with even less money, and then it goes from impossible to catastrophic. I appreciate you going and trying to run this ship. If we do not find the president s was it we budget, we are talking about more money in Taxpayer Service. Let me get to my question. This goes to service. I am concerned that by giving you money we end up with more fraud and abuse. Tally, tell me, what is the staff level reduction since 2010 . Since 2010 we have lost 13,000 employees, and by the time of 2016 we will be down 16,000 employees. In five years. Having looked at that, i understand wrong from the Taxpayer Advocate that for every dollar spent on tax enforcement, we get six dollars back. I am concerned about the fraud issues, as i know you are. The guys in prison who come up with dummy accounts, this recent thing with turbotax, we could go through one fraudulent thing after another. What is the impact of shrinking amount of money both in the area of enforcement and in investigations that you have . Across the board, we have no choice but to cut across the board. We are to have fewer people everywhere. We have tried to support and maintain the number of people helping taxpayers who have been victims of taxpayer fraud. We have made less progress in the development of our filters in our system capable of dealing with the influx of those returns. We have 5000 fewer agents and criminal investigators. An increasing percentage of our criminal work is focused on cracking down on identity thieves, but there is a limit to what our revenue agents to do, and what our criminal investigators can do. Theres a reference to the earned income tax credit, a problem i am concerned about. We need help from congress in terms of legislative fixes. There again, we religion number of people in that area as well we have a limited number of people in that area as well. The reductions that congress has forced upon you, are you having a hard time recruiting people . We have some difficulty. We are basically the only way to get through this year is that we are not hiring anybody. We have a whole total freeze. As a general matter, we are not replacing anybody when they leave. When you have a freeze, people in the enforcement an investigation area, do you replace them . No. It is a freeze on replacement . The way we are going to lose 3000 people this year is simply not replacing those who leave a we have 1000 people right now who have applications in to retire. They will not be replaced. That is a significant amount of experience going out the door that will not be replaced. My concern in the long run is that we will have an Employee Base that will have a bust in the middle of it. There will be a time at which we will have a gap in our experience level, and that will be a serious problem for the agencies no matter what we do now. Let me go to the impact. I want to raise an issue, what it is to helping victims of these fraud problems. I have many constituents who were victims of a crime through a Company Called accu pay. When you hire a company, Small Business, to do the books that is the way they talk about it. And in this company took their money that they gave them to pay the taxes, did not pay the irs and disappeared. Ive been trying to get it straight, and what i find is that approximately 500 to 600 businesses were scammed in my state. The irs is only offering 54 offers in compromise. They paid the company, who do not pay irs. So the irs comes back after the Small Businesses. It is that really main street strip mall type business. And i put in legislation that requires the irs to do more, but they have not. They just have not followed by laws and it even has become an issue with the national Taxpayer Advocate, and for msp number 21. The irs did not comply with the law regarding Service Provider failure. Can you help me out with this . The requirement, a thoughtful, sensible one, is that every time a tax preparer makes any change in their residence, we should actually notify the constituents that their payroll provider has moved. Within the constraints of personnel, we are trying not only in this area but across the board, when any one misses an estimated tax payment from around the waiting until the end of the your, we are going to try to reach out and identify with payments are not beat on a quarterly basis so we can catch these problems earlier. There was no one who knew there was a problem until after the end of the year. We are going to try to, to the extent we can, identify where we are not getting the quarterly payments of employee taxes that we should be getting, and notify the payers as well as the intermediaries. Can i ask you to really look into what the Taxpayer Advocate says that they are not complying with the law . Your agency is not implanting the law. I will look into that. We are in the process of notifying all when their address changes i got that. I will be happy to talk to them. I need with them regularly to make sure that we do. Last year i asked them to take the 23 most significant challenges, and give me the list that we could of limit without having to spend more money. I have made the same opportunity this year. Out of the list of things we should do, the things we could do without any expenditure of money, we will make a serious effort, and this would be one of those. Thank you. Thank you. I think you brought up an excellent point. The senator from kansas. Thank you. A couple of topics. First of all dealing with veterans. My understanding is that the American Legion, the National American legion, has been required by the irs to provide tax identification numbers from every post across the country. When they file their return, and that they are incapable of doing. They are not a Parent Organization for various posts across the country, they have been trying to sort this out with the irs without any success. And number of lenders request seven made to the irs. Letters of request have been made to the irs. If you could bring the uptodate on this topic. I met with you or your predecessor back in 2013 in which the topic was American Legion post across the country that were being required to provide the dd 214 serviceconnected discharge document for every veteran that was a member of their post. My understanding was that my that practice was coming to an end. I just in fact, before i walked into this hearing, came from a meeting with the vfw me mbers who indicated that that is happening again across the country. Figure being required to provide the dd 214 for every post member. That is something very difficult if not a possible to publish impossible to accomplish. That was something i was assured would come to an end, and then were recently being told they must provide the tax exempt status documentation from every post across the country, which they are incapable of doing, and have also been able to unable to receive a response to their inquiries to the irs. Whatever the discussions were in 2013, i am not privy to them. I thought we resolve the issue on the dd two 214. If your staff would guess the background get us the Background Information we would be delighted to look into that. We try to ensure to the extent we can and they can, that they are operating within the charter and exemption. That is for veterans organizations, that they are not expanding their operations. I thought wed taken the point in the past that this has to be done in a reasonable way. We cannot be layering impossible burdens on top of people. If you will get me the details about that i will look into it and get back to you promptly. The National Post of the American Legion being required to provide information from every post across the country to the irs is a different issue than the one we just described is to you know anything about that topic . I had not heard anything about that. Posts across the country who do not have the records would not make much sense either. Again, i would be happy to look at most of those issues for you and let you know the status of them and get back to you quick way. Quite on your town and and words, my solution is that this appears to be something that ought to be resolved quickly and satisfactorily toward Veterans Service organizations . Our goal in a lot of these areas is to make it easy for people to establish if they are still operating and serving within their charters and the people they were meant to a we need to figure out to do that in a way that is most efficient. Your predecessor assured me this practice was coming to a conclusion, i had not heard about it at the local level until this meeting right before i said i had to go question the irs commissioner. They immediately had a request and this apparently is three vfw posts in new york state. If the acting commissioner said the process is coming to an and, it should have come to an end. If there are residual elements out there, i will look into it. Thank you. In regard to a similar question that i asked the secretary lew, this tribal general welfare exclusion act. The law stipulation that all audits must be under the general exclusion should be suspended until the tribal committees are established and the field agents are trained in the law, what this issue is i met with the tribal leaders late last fall when they were here in the and. This may have been the first time in irs commissioner had done that. Thank you for doing that. The concern is this that the irs audits continue, even though the tribes believe that the issues that are being audited relate to the general welfare exclusion. Can you provide me with the standards being used to determine what relates to the general where clear exclusion, and conference confidence about what is being applied to the tribal leaders . I would be happy to do that. My understanding is that the general welfare solution applied and we would honor that, but i would be delighted to go check on that and get back to you quickly. If your staff could just let us know the details of where they are hearing that from, i cannot talk about individual cases, but that was our understanding. When we met with the tribal leaders, we were going to have a better working relationship, understand the significance of their sovereignty, and make sure that our people were properly trained and respectful that sovereignty. Do you have an idea of how many audits of have been suspended as a requirement of this act . I do not. John koskinen as you provide the information, how many have been put on hold in waiting the training of the appraiser committees, if there is a tribe that believes that the audit is improper how do they appealed the decision that they are being audited . In their conversations with me they had no recourse. They do not know what to do about it. If you could respond to that. Every taxpayer has a right to our appellate process which is totally independent of our compliance process. Include that in your inquiry and we will give them a roadmap to make sure they have an appropriate way to raise their concerns. Thank you to [captions Copyright National cable satellite corp. 2014] for responding to my concerns. I joined the Appropriations Committee in no small part because of the fervor and passion and commitment that the chair, now vice chair demonstrates as to returning us to regular order and that will be solely missed at the end of these two years. Where you think funding shortfalls have caused real challenges for irs and taxpayers , i want to touch on a couple of those. The secretarygeneral identified security for taxpayers data as a number one challenge. I want to talk for a moment about Identity Theft and combating refund fraud. They have paid out 5. 1 billion in identity refund fraud refund. Fraudsters keep finding more and more sophisticated ways to hack in and access, or to take it vantage on different schemes. What better methods would help the irs to detect and halt fraud . It has been historically a growing problem that has exploded and overwhelmed Law Enforcement in the irs. The point you raise is the important want to know. We have raised over 2000 convictions of those going to jail for fraud. A lot of prisoners are identified and prosecuted. But what we are fighting, not surprisingly because it is consistent across cyber areas is that we are dealing with organized crime sick tickets here and around the world. Not just one return at a time, filing 500 returns at a time. Reverse engineering are filters, and adjusting accordingly. We are continued over the last three or four years to increase our investigations and prosecutions on the one hand and to increase the sophistication of our filters on the other. We stopped approximately 5 million returns before they went out because of suspicion of identity fraud. A quarterly we continue to have a number of taxpayers 3000 300,000 to 500,000 that will have their identity stolen. We have doubled the number of people helping taxpayers, 3000 people working with taxpayers. We used to take us a year, and now it takes us 120 days or less. While this is a highpriority we have been slower at developing more sophisticated fraud filters and detection devices than we would have liked to have been. If we had the funding we are suggesting for next year, we would be able to get to a point where we are even more effective. In terms of additional tools across the board if we had a w2 information return earlier, it would help us significantly. We are also working on legislation requirements that would give us unique identifiers for every w2, and be able to identify legitimate number w2s. There are some organizations that are trying to file for false or copycat organizations. In terms of dealing with those who have been victimized, they would assign a single account representative to the victims to help them navigate the case, rather than be frustrated with several different employees. Is this something you plan to intellect . Implement . We have moved all of the refund fraud activity into a single location. He is to be spread throughout the agency. There is in fact a single point of contact working these issues. We then have an individual employee who is assigned to each of the 3000 to 5000 taxpayers working their way through. We disagree with that in terms of dealing with call centers anywhere. You work with a person, and what you want to build to do is call back in and make sure that when you call back into the single point of contact they know who you are and you do not have to start all over again. Many taxpayers have had that experience that they got moved to one part to another and had to start over again. We do not think that that is a healp. Servicelevel level is a significant concern to me. Given a significant reduction in your workforce less than half of the callers seeking advice and assistance, answers to text and questions will ever receive help. There is aan average week time of 33 minutes. What dollar amount of increased funding would bring you to your old Service Level . And what social consequence of having those who are trying to figure out how to comply voluntarily unable to get your questions met . If we had 380 million we would be able to bring our tax Level Service to 80 . You do not want to be at 100 , because then you have people sitting around waiting for the call, but you want to wait time to be less than eight minutes. Ideally less than five minutes. I am personally concerned on how much money do we collect with our activities, and you get six or eight times as much. It is revenues and Taxpayer Service on the other, they are signs of the compliance coin. The number im concerned about is that we collect 3 trillion a year in the voluntary compliance system. If it goes down by 1 because people take the chance of getting caught, or they aggravated with us, it will cost the government 30 billion annually. It is 300 million in what were looking at. People lose confidence in the agency, and if they lose confidence in the fairness of the system, the risk to us is not that our collections will go down, the real risk is what happens in the overall compliance rate. What happens to the 3 trillion number. Are people most important are the employees, because the taxpayers ought to get to the people who are committed to them. 13,000 individual irs employees the biggest concern i have is not that they are overworked the biggest concern is that there are not enough people to provide the services that we believe are important. Thank you. I will submit my additional questions for the record. . Thank you for your testimony commissioner. We really look forward to working with you in an effort to serve and protect the american taxpayer. Thank you for appearing here today. At this time i would like to call forward Inspector General george to present his testimony. Thank you. Please proceed. Thank you. Chairman boozman, Ranking Member coons, and members of the subcommittee, thank you for the opportunity to testify today. I will address the fiscal year 2016 budget request for, the treasury Inspector General for Tax Administration. This proposed increase is intended to improve Service Level and enforcement efforts. We have reported that a trend of lower budgets and reduced staffing has affected the irss ability to deliver its Priority Program areas, including Customer Service and enforcement. At the same time had has increased responsibilities of implementing certain provisions of the Affordable Care act. We also continue to dedicate significant resources to review Identity Theft tax returns. Those who were d working the Identity Theft cases have been severely cut, and has affected our ability to return a timely response to these cases. As of 20142015, the average wait time was 28 minutes on an irs call. The level of service was only 30 43 and 1. 3 million calls. While we face many challenges, tigta has reported on many areas where they can operate more effectively. We believe we could save about 17 million for a year if we would allow taxpayers to electronically file amended tax returns, rather than only allowing paper returns. This would also enable the irs to use the same validation process that utilizes to verify originally filed tax returns. This could prevent the issuance of more than 2. 1 billion in potentially erroneous refunds over the next five years. The irs could also make more informed Business Decisions when determining how to make this limited resource. The irs illuminated or reduced services that were at the service centers, in part a result of the anticipated budget cut, and to not show what services cut with lower cost. In later hydrogen reverse certain decisions. Cases with the highest collection potential identified. Changing the law to require third parties to file information earlier to verify tax returns at the time they are processed, rather than as the refunds are issued. However, even if the thirdparty information returns are received more timely, the irs still needs authority to efficiently and effectively use this data. Generally the text irs must audit any made with a questionable claim before it can be denied, even if they have reliable data that shows the claim is erroneous. The department of treasury has included a legislative postal as part of the budget request since fiscal year 2015 2 obtain correctable error authority which would allow them to systematically deny all claim that they had data that shows it is erroneous. This authority, along with the expanded use of the National Directory of new hires under the department of health and Human Services could have eliminated the one point the dollars of questionable claim money distributed last year. 1. 7 billion of questionable claims distribution. Tigtas Budget Priorities include mitigating resources and other tax law changes, and then accessing the assessing the firms authority ain looking offshore accounts. Protecting the irs against attempts to corrupt or interfere with Tax Administration will take priority. Thank you for the opportunity to share my views, i am happy to take your questions. Thank you very much. I know that the senator has a classified briefing he has supposed to be at, so we will go to him. Thank you. I will try to be brief. The number one management challenge facing the irs is the security of taxpayer information. How responsive has the irs been to your recommendations to bolster systems . What would you recommend any third top rarity in responding to this system . I already in responding to this . P priority in responding to this . A have been very effective in responding to this. I feel confident that some of the issues we identified are addressed and i think it is a very important note, as the commissioner said, that they are under attack on a daily basis. Hundreds of times. Fortunately, we have not yet detected any breaches to the tax system that would undermine it which would obviously be devastating to this nation. In that sense, we felt confident. Limited resources and having to make difficult choices as to what to focus on is going to put some of what i just said to you possibly at risk or make it completely inaccurate, depending upon what happens day today. Given the response to your concerns criticisms suggestions, what level do you have of confidence that the increase resources in this area might result in the increase in security of this vital data . There is no question that if they had Additional Resources to devote to this it would enhance my confidence that it would be more secure. You identified the aca as the number two challenge. When you feel the veracity of the irs to meet their responsibilities in administering this, and what recommendations have you offered . At the request of congress we are now in the process of working both of the Inspector General of the department helped health and Human Services, as well as with my people on this very important issue. This is unprecedented territory for the Internal Revenue service. At this stage i am not in a position to give you a definitive answer. We are monitoring it and we will be reporting in the very near future. A 17 noncompliance rate is very striking. What are your views on the adequacy of the strategy to narrow this gap, and one of the impediments that need to be dealt with to attack this or deal with this, given the declining Resources Available . We believe that the iris produced figure is actually understating the problem. We believe that the International Aspect of the tax gap is not included in that figure. There is no question that some of the reputations we are made in this area and will continue to make include thirdparty reporting. There is a figure, and i think your indulgence because it is so important that i think people understand this. This is according to the Internal Revenue service, there is such a high correlation between Tax Compliance and thirdparty information reporting and withholding of taxes. The irs estimates individuals whose wages are subject to with holding report 99 of their wages. Selfemployed individuals who operate, are estimated to only report 68 percent of their income for tax purposes. The most striking figure is cell phone lloyd individuals operating on a cash basis are estimated to report just 19 of their income. Is selfemployed individuals operating on a cash basis are estimated to reports 19 of their income. This would help to increase the amount of money that is reported as income, and ultimately taxes paid to the federal government. This is just one aspect of what can be done to address the tax gap. Thank you. I look forward to working with you this year and next year to make sure that you responded to by the irs. There was a statement received by the subcommittee from the president of the National Tragedy treasury employees union, i would ask that that be made art of the record. Without objection. Thank you for allowing me to go to this briefing. Good luck. Thank you, mr. George for being here. The earned income tax credit has been declared a highrisk program. 14. 5 billion were paid in error. In addition, the irs estimates that they have paid 124 billion to 148 billion in improper payments in the fiscal years 20032013. They have developed a strategy in an attempt to reduce, and focus on intervention and make sure that individuals claiming the credit are in compliance with the credit rules. This fight those efforts, the estimated improper payment rate has remained relatively unchanged since fiscal year 2003 and the amount of tax credit claims paid in error has literally grown. The iris noted it cannot fully address the earned income tax credit noncompliance by simply auditing returns, and must pursue alternative i would like to seek permission to include a report that we have conducted on the earned income tax credit into the record. Without objection. As a refundable credit, all refundable credits that the irs issues are so difficult to manage, because once the money is out of the door, it is so much more expensive for the irs to reclaim it, recoup it, they have to make a costbenefit analysis as to whether or not it is worth doing. There are ways that the irs could of addresses, which we have recommended in the past and that included earlier reporting of earnings under the w2 form. Again, the earlier the irs has information on what people are paid, the earlier they can address problems that they ultimately find. This is in conjunction with the request that the Treasury Department as well as recommendations that we have made and the irs has made for what is known as correctable error authority. For example, once the tax Filing Season begins in the second or third week of january, depending on the year, people can file their tax return and seek a refund. The irs is not required to receive from the payee, the employer or whomever, for another three months, sometime in march, that same information on that individual. Now if the individual claims a different amount than what the employer claims, that individual could receive more money and then receive a refundable credit, whether it is the earned Income Credit or the additional Child Tax Credit or an education credit, what have you. If the irs has correctable error authority, it does not necessarily have to wait until as i pointed out in my Opening Statement, all of the information is in hand and what have you, they could automatically hold off paying that refund and making the corrections themselves. Of course the taxpayer would still have the right to contest the irs is decision if they believe it was inaccurate, but it is a symbiotic relationship in terms of legislation that the irs and the department of the treasury is seeking. There are ways to address this, but it is obviously a very delicate area for all involved. I guess the frustration is that this is an area where throwing money at it is not wont help, in the sense of making it more we have a program that is in error 24 of the time, which is certainly unacceptable. In the past, we have identified refund fraud committed by prisoners as a significant problem. Last fall, refront fought refund fraud remains a serious problem, the number of fraudulent tax returns using a prisoner so security number that were identified by the irs increased from more than 37 37,000 tax returns in 2007 to more than 137,000 tax returns in calendar year 2012. The refunds claimed on these tax returns increased from 166 million to 1 billion. I understand the treasury has the authority to share information with the state authority of prisons and corrections to help determine if prisoners may have filed or help the filing of fraudulent returns. Would you pleas give us an update on the effectiveness of the irs efforts to reduce these improper payments to prisoners . Yes, and thank you for posing this question, mr. Sherman, this is one of the areas where i have to admit that i am most disappointed. This was one of the first subjects that i testified before congress on almost a decade ago about the problem that exists and has since continued to grow. Congress did in power the irs to take actions to address this by forming agreements with various states and federal penitentiary correctional organizations. And they have they didnt some point take positive steps in doing so. Some of those expired. Others fell by the wayside. But this is a multibilliondollar problem. It is still going on. And a lot of these individuals have so much time on their hands, and in all candor, have nothing left to you lose, that theyre not going to stop. Until something more tangible is done meaning further prosecutions or more authority or the irs somehow feeling the pinch of they dont tech take action with Data Information sharing programs and the like. This problem will continue to grow. It will metastasize. I red the ig report talking about this, and one of the recommendation was i think there were 300 some odd prisoners they had identified to decision give that information that group that they had, you know fix it where they could, and they refuse to do that. Is that correct . I dont know if they refuse to do it. At one point, they did not have the authority to do it. Im not sure that what youre describing predates the authority of what congress did ultimately provide or not, but i can get back to you with clarity. Thats fine good again, is this a frustration among the many things that we have talked about. One last question and we will let you go. Under you have lots of stuff to do. We have identified significant concerns about fraudulent claims to premium tax credits as the irs provides data to the health exchanges. The irs will also have to administer penalties related to the individual mandate and try to see correction in premium tax credits provided to an eligible taxpayers. According to your audits, the irs continues to report that more than 20 of the earned income tax credit is a problem issued improperly, 15 billion in 2013 in improper payments, as we discussed earlier. Do you believe that there is the potential for similar problems with the premium tax credit . Most deadly, sir. It starts from the outset. The bottom line is if somebody is able to provide fraudulent information at the outset when they first apply for this credit, that starts the ball rolling downhill. Now, to its credit, the rs has established some filters in the system to try to weed these out and so i hope the magnitude of the problem isnt anything like the refundable credits we referred to earlier, but we are in the process of evaluating this very issue to see whether the irs has adequate resources information in effect, because this could be a budget buster, sir. Thank you very much. Thank you for your testimony today. Thank you for being here. We really do appreciate it. We appreciate your hard work. Again, as all of the witnesses who are testifying, i know everybodys doing their best to work in a very difficult situation, trying to restore confidence in the agency. I want to thank the other two witnesses for being here. I appreciate hearing from these individuals with the Treasury Department, the irs, and the igs office, and having opportunity to discuss important and timely issues. Todays discussion will be helpful as we move forward in our work on the next fiscal year. And especially in light of the answer to the last question about getting these things straight on the front in or we are going have real problems and not let history repeat itself. At this time, i ask unanimous consent by the Taxpayer Advocate be included in the hearing record. I asked unanimous consent that report prepared for the subcommittee also be included in the record. As there is no objection, they will be included. With that, i adjourn the meeting. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] [captions Copyright National cable satellite corp. 2015]