Part of the program, that will give us a chance to hear from everyone and have maybe more than one round of questions. I am going to recognize the members in order of seniority. Those that were here and the latecomers, we will recognize them based on their arrival. E will go back and forth between the parties. I think most of you know that the 2014 appropriation cycle tested our endurance. It was only after the fiscal year started and after we had a Government Shutdown that the Budget Committee came to an agreement on the Discretionary Spending. Once we have that agreement enacted, we will do our sleeves and we went to work quickly and got a bipartisan on this appropriation bill. It is and thanks in no small part to our distinguished chairman, mr. Rogers, who is with us today. We hope this year will go more smoothly. We have got an agreement on the total Discretionary Spending that is in place. By that, i mean the way we are supposed to work and we will mark up our bills and subject them to amendments on the full committee and on the house floor. The administration hasnt submitted their budget of 2015 yet. We will have that soon. We have invited the commissioner to come back, probably in april. Today this is an oversight hearing. That really gets into how to spend the money that has been appropriated. How much will come a little bit later. I suggest that the two are very interrelated. How you spend the money that you have impacts how much money you will receive in the future. I think that we all know that you have come to the irs and what would be described as a difficult time. Some would say you have inherited a pretty big mess. We have a situation that is one of the dark periods in the irs history. There was a time when irs was awash with money and there was horse play and lavish parties. That was not good for anyone. At the same time, we found out the irs with singling out individuals on the groups of ndividuals and subjecting them to harassment and intimidation, bullying, if you will. That is what you inherited. Also, probably inherited an agency that wouldnt do a good job of dealing with the consumer, the folks at call the irs if they have questions. When your predecessor was sitting in the chair youre sitting in, i asked him at a hearing like this, do you think the irs has the trust of the American People . He said, yes. But i want to try to help you build that trust. Im sure that one of your goals as the new guy, as the new commissioner, is to rebuild the trust we have lost would not just this midi, but the American People. That is what you are about. I must tell you that some of the decisions you have made early on are of some concern to me as you try to rebuild that trust. For instance, 63 million of bonuses that were paid and eversing a decision that you predecessor made to not pay those bonuses is troublesome. I know that you do not begin this rulemaking process. There is a row that has been proposed that some would say rule that has been proposed that some would say now there is a rule for people to quiet peoples involvement and they are proposing a rule that some would argue it is the same thing and fringes upon the First Amendment right. You do not start the process, but you are continuing the process. One of the things i have read from time to time when you are slap in the face to the taxpayer. Their Consumer Services as they try to find out more from the irs, they will find that is going down and that the bonuses are going up. I would think that is hard to tolerate as a taxpayer or as an ndividual. We collected 2. 8 trillion. That was at a time when the sequester was going on. There is less money for the irs to have. All i have to say is i do not necessarily believe that a higher level of spending equals a higher level of service. That is why i think we have an oversight hearing to say how are you spending the money . It is not just how much you have, but how you spend it. I think how you spend it can improve even if you do not have as much as you would like to have. Everybody knows government needs money to provide services, right . But everybody also knows that these are difficult times in our country. We have got 17 trillion dollars in debt. We have an annual deficit this year that will be less than 1 trillion and we are all excited about that. The first time in five years it has been less than 1 trillion. Yes, government needs money, but i would say today the government need something more. In these discipline to rein in spending. It needs courage to make tough decisions. It needs commitment to make sure we do everything more efficiently and more effectively than we have done before. We want to work with you to help you do that, to help you set the right priorities which help you pend the money that we appropriate to you. We thank you for being here today. We will have questions. Before we do that, i want to turn to my friend, the Ranking Member. Let me say to him that it has been a whirlwind time, but he has been a great partner. We do not always agree on everything, but as we go through negotiations with our Senate Counterparts to come to this conclusion, it was a team effort. Thank you for that. Any comments . Thank you for your willingness to work with us, especially your staff. And our staff. Lets hope omnibus puts us back n the road of order. I would also like to welcome the new irs commissioner, john koshinen, for his first hearing before the subcommittee. Thank you for undertaking this endeavor at a challenging time for the irs. By now, most americans know that last year it was recorded that the irs had used inappropriate criteria to decide what 501 c 4 entities should be subject to greater scrutiny. As i said at the time, all members of congress were appalled by these actions. Ineffective liberal and conservative groups alike it affected liberal and conservative groups alike. At a hearing soon after the ontroversy into light, the question i asked was where to go from here . What must be done to prevent Something Like this from happening again . Think that the irs has made a good start at answering those questions. He irs has implement it all of the recommendations suggested by the taxpayer. The irs has also implemented numerous internal reforms that have brought more accountability and oversight to review decisions that are being made. Perhaps most importantly, the rs is making effort to further clarify what is and what is not olitical activity. Here is no doubt a number of roups have abused their claims to the 501 taxexempt status by engaging in political activity. This is not a right, but rather a responsibility. Too Many Organizations have been claiming it as a way to avoid transparency and taxes. Laster, i suggested the irs need to revisit these rules to provide greater clarity. As to what is considered a political activity for purposes of making a 501 designation, the rules proposed by the irs have attested to do just that in my opinion. I cannot say whether the irs struck the right balance, but i o know that they will take any and all concerns seriously though for finalizing them. However, this committee cannot help the irs and these reforms did we do not adequately fund gency. Fiscal year 2014 appropriations gave the irs more than the sequester level, but the irs is still being funded at its lowest level since fiscal year 2008. If we care about the fair implementation of our tax laws, this is simply unacceptable. Yall know at this level of funding, every additional dollar even to the irs allows them to bring in at least six dollars from taxes. We cannot ask more from the irs and provide them with less. That is not a good recipe for Tax Compliance or the nation. I hope the hearing will be of use as we discussed funding levels. I am concerned we might be here to engage in Election Year politics. Let me state the facts that are on the record already. It has been proven after significant investigation that the inappropriate targeting was both liberal and conservative groups alike not just one side. This targeting was not orchestrate by any political appointee or by an individual outside of the irs. The irs has been forthcoming in helping numerous investigations by using more than 150 employees to engage in 70,000 hours of work to provide the various investigations of more than 500,000 pages of documents. These are issues that simply do not need to be rehashed at this point again. Rather this hearing must look forward to fiscal year 2015 appropriations process is upon us and the focus of the committee needs to be on ensuring that copper reforms are in place and that the irs has a resources to complete its mission of serving the american taxpayer. And ensuring that everyone follows the law. We know the importance the irs has in ensuring we have the funding. You have seen this controversy to cut further resources would harm the irs and the American People as well. Welcome to the subcommittee. I hope that when we meet again in april, it will be under better circumstances. Thank you. Thank you. I would like to turn to the chairman of the full committee, mr. Rogers. Thank you. Thank you, commissioner. This is the very first of what will probably be 100120 committees our committee will onduct during the spring eason. You are the very first one. You have the privilege and honor of sitting in that chair for the first time. Before we get to the important business at hand of the day, let me first echo the chairman sentiment regarding the ppropriate of reparations process. Fiscal 2014 is a true result of compromise. My partnership with the Ranking Member and her counterpart on the senate side and Ranking Member shelby together, along with the subcommittee, we made responsible choices to reline our nations Funding Priorities and target precious tax dollars were they are needed the most, all the while continuing the trend of reducing federal Discretionary Spending. While the omnibus is a testament to the longstanding tradition of bipartisanship, now is not the time to rest on our laurels. As chairman crenshaw as mentioned, i expect the committee to move forward under regular order, draft legislation it is a product of rigorous oversight. We have much difficult work ahead of us. I am hopeful that the process will move swiftly and smoothly given that ryanmurray budget agreement. I think it is fitting that this commitment to regular order and transparency in the appropriations assess is reaffirmed at todays hearing with the irs. Just as congress has a supreme responsibility and stewardship of the taxpayer dollars, so too does the irs have that special duty to apply our countries tax laws fairly and uniformly. Commissioner koshinen, you have taken the helm of this agency during a tumultuous time to say the least. In the recent years, there have been grave violations of the Publics Trust that should give all americans cause for concern. I hope that you are the right person to write the ship right the ship. As i wrote to you earlier this month, i have serious concerns about the opposed regulation published by your predecessor in november. This rule would continue to target the First Amendment rights of the same conservative grassroots organizations that were unfairly scrutinized in applying for tax exempt status in the runup to that 2010 and 2012 elections. Given the agencys recent track record of improper political isolation and intimidation, i strongly believe this rule is a step in the wrong direction for an agency struggling to regain the americans public faith and onfidence. I look forward to hearing from you of your intentions in this respect today, particularly your plans to cooperate to make sure these dark days in the irs history books are truly behind us. Acting commissioner wefel last came before the committee detailing the irss wasteful spending on for most conferences and the Senior Executives who oversaw the 501 c 4 debacle in cincinnati have received ignificant performance bonuses. Listening to chairman crenshaws remarks, it seems like deja vu all over again. The irs discharge with the massive undertaking of a mandate under the Affordable Care act, the greatest intrusion of this agency into personal health care ecisions in history, combating Identity Theft and refund fraud, and addressing International Compliance issues. Among many other competing priorities, you can understand why additional reviews and more training conferences with heightened security i can scrutiny, we hope to ascertain how the irs will go about planning is training conferences to ensure that they are goal oriented and effective, as well as compliant with the irss procurement processes. I also hope you can explain to the satisfaction of this committee how and why 63 million in performance bonuses are appropriate or beneficial to the taxpayer . E are all painfully aware we are in the middle of some grim budget times. Every federal agency, especially he irs is duty bound to root out excess and waste. When we provide you with more than 11 billion annually to fulfill these duties, we expect you to spend it wisely and effectively. Mr. Commissioner, i hope we have your commitment to work with this committee to achieve our shared vision of protecting the taxpayers and their hardearned dollars. We look forward to hearing the testimony and wish you the best of luck. Thank you. We will turn to the commissioner for his testimony. If you have any written remarks you would like to submit, you can keep your oral testimony in the neighborhood of five minutes. The floor is yours. Turn on the microphone. All right. Mr. Chairman, Ranking Members, members of the subcommittee, thank you for the opportunity to be here before you today to give an overview of the irs operations. Im honored to serve as the irs commissioner and serve the agency and the dedicated employees. I believe the success of the irs is vital to the country. I want to outline what i believe are the key challenges and what i will focus on moving forward. We just started a new Filing Season four weeks ago. Over 30 99 returns have been filed. We sometimes many returns have been filed. Many are being filed electronically. Im confident that things do the hard work of our employees, the Filing Season will continue to go well. We also want to put to rest the issues of concern surrounding tax exempt status. He management problems associated with the 501 c 4 application process has shaken the Publics Trust in the irs under the former acting commissioner. We have made great progress in this area. It is my duty to make sure we omplete that work. Public trust is the irss most valuable asset. The irs needs to build on the progress it has made to improve Tax Compliance in a number of areas. One of the most critical is refund fraud. The irs has gotten better at resolving identity that cases. We are resolving those cases for taxpayers much faster. On average, it takes about 920 for new cases we can and will do better. The irs needs to keep looking for ways to improve the service we provide to taxpayers, which is critical to ensuring our system of voluntary compliance works properly. I am deeply concerned that chairman noted the significant reduction in the irs budget here our current funding level at 11. 3 billion dollars is roughly 900 million below what it was four years ago. We now have about 10,000 fewer employees than four years ago, including fewer officers and agents. As a result, the irs estimates it will not be able to collected billions of dollars in enforcement revenues. We expect audits conducted by the irs will be time to buy an estimated 100000 and a number of collection activities will decline by 190,000. One of our concerns is to deliver the service for the taxpayer needs are this taxis and. Almost 40 of taxpayers who called were unable to reach an irs employee. That is unacceptable. Our employees are doing their best to answer every call they can. Our service goal is 70 . Fullyear, we estimate 18 million taxpayer calls will not be able to reach us. Another area of concern is the amount of time people wait to get in person help that our assistance to get a person. The best of a play efforts and an expansion of online offerings can only go so far to help with these problems. There has been a loss of confidence within congress and this immediate regards to the way the irs has manages operations. One of my response abilities to make sure we solve management and operational problems that may arise so that congress and the subcommittee can be confident that our funding will always be used wisely and we understand the need to be careful stewards of taxpayer dollars entrusted to us. A look forward to working with congress and the subcommittee to solve the budget problems. I hope that one of my legacies at the end will put agency on a solid and funding level. This concludes my statement. I will be happy to take your questions. Thank you. Let me start the question process. In my Opening Statement, and mentioned the issue responding to the questions that people have. You mentioned that 40 of the calls went unanswered. As we have this oversight hearing, we talked about how you spend the money. I want to pursue how you make the decisions in terms of priorities. Where do you decide to spend money and where do you decide you are not able to spend money when you have limited resources . The subcommittee oversees about 30 different agencies. Your agency receives the largest amount of money. It receives more than half of all of the money that is allocated to distribute to agents. We have to make decisions in terms of priority and who is spending their money wisely and who is not. You obvious they have a lot of willie way leeway to make those decisions with the irs. He seems to me one of the most important things you do is deal with Consumer Services. You are like the front door. The phone call is the entryway to the irs. That is a lot of peoples First Contact when they make a phone call. If they find out the phone calls will be answered and if they do get answered, they will have to spend time waiting, that is not a good perception of the general public to have about the irs in this operations of business. I want you to tell this committee how you make that decision. Here is what bothers me. Ny time you need more money, you pick out the most visible service that you offer and one that inflicts most pain on people and then you save, we cannot do that unless we have its like you turn out the lights on the Washington Monument because we dont have enough money. When the sequester came, people see we cant have tours of the white house because we dont have enough money. We wont let the veterans go World War Two memorial because we dont have enough money. Thatm not suggesting youre using that old trick. Wonder,times i have to when you have 11 billion and you have to make these thations, it seems to me one of the priorities ought to be to interact with people. So tell the subcommittee how you go about making that decision. I looked back 2004, looked back 10 years and in 87 of the phone calls got answered. And that was a time when the had 1 billion less than it has today. I know youve got more all thoselity and kinds of things. But my point about how you spend importantis just as sometimes as how much you have to spend. Will, do youf you ever think about, well, weve got rent, weve got technology, weve got certain other things, and obviously in this case you had 63 billion to pay the bonuses and youre pursuing a that arguably clarifies things, but some people would the wrongs in direction. What goes through the decision where thecess beside money gets spent . Its a good question, we of time worrying about that question, to make sure we spend the money most effectively. We haveme things that no choice about. We have no choice about a filing aason, which is why we spent tremendous amount of time and effort making sure it went well this year. Part of the reason its going well is also we havent had any major tax law changes. So the is, thethe tax code better the Filing Season will go. But thats our highest priority. Do statutory mandates. If you tell us to do something we will do it. Timere spending implementing the Affordable Care compliance act. We dont feel we have any choice about that, the mandate from congress that we should perform that. 75 of our budget is personnel. We have 10,000 fewer people than four years ago doing significantly more work including other requirements that we implement those statutes. So we have to make decisions and places we have discretion are in fact in tax enforcement and Taxpayer Services. Have 3500 fewer people doing enforcement, revenue agents and officers, 1500 fewer people answering the phones. So weve made more cuts on the side than on the call side. But theyre two sides of the same coin. Uponately we depend voluntary compliance and i am concerned, as you are, that if provide adequate Taxpayer Service were going to undercut the core mission of the agency. Noted, we received all of 98 of our money as the taxpayer comes fromid, compliance. Only 2 of revenues come from enforcement efforts, although that is a lot of money. Thee need to protect process as it goes forward. But its not a question of a few dollars one way or the other. Did have and our goal would be to return to those days when phonee 85 service on cause so you dont have to wait more than 5 or 7 minutes and your call will go through. But is it a priority, when you look at rent and your if wects, you say, gee, could save some money here and there we could answer more phone calls, is that high on your priority list . By the ebb of this year well be using 300 million square foot space, at thece end of this year well save 60 million but not producing we used tolications and not mailing them out to everybody. None of us get the old forms in the mail. That saves you 60 million. Weve cut the use of contractors by 200 million a year. We already have 300 million a year in annual savings and were continuing to look at ways to do better than that. And well be happy to share that it. Rmation as we develop but, i appreciate that, and i ast think that ought to be big priority and i hope it is. Mr. Cerano. Now to thank you, mr. Chairman. Youve been on the job now at months. S. Just over two but youve spent 21 years in various public and private positions. Ership because of your previous experience, id be interested in what your First Impressions of the i. R. S. Are, in particular i understand that listeningn going on a tour in the district offices. What have you been hearing from employees . Id also leak to know what the morale is of the employees hits that many have the or its an important question. I am, i joined the urs through the 25ted states tour of major i. R. S. Offices. Im doing that primarily because my experience in the 20 years in the private sector as well as my 20 years in the Public Sector is the people who know best about whats going on in the organization are the people actually doing the work on the front lines. Them, i holding to a town hall every place i go ith 200 to 300 employees, have lunch with 15 randomly selected employees to listen to what they have to say. After the couple months, and ive had briefings obviously with everybody running any significance any at the i. R. S. , ive been theoughly impressed with professionalism, the skill, the dedication to the mission of all the employees. What surprised me a little when i went through and started in cincinnati, ive been with the chairman in jacksonville and other, ive been in eight cities and im off to fresno tonight. What has surprised me is the energy and enthusiasm that remains. These are employees, like all federal employees, that vp had a years,se in four suffered through the Government Shutdown, suffered with fur will criticismndured the over the last eight to 10 months about the agency. So you would expect i would hear a lot of complaining. What ive heard continually across those 10 cities ive been to already is that the employees primary concern is art enough people, for them in the offices to help taxpayers. Sat in callho ive centers in baltimore, call centers in st. Louis, people, their concern is not that theyre overworked, they are working as hard as they k. Their concern is that there arent as as there used to be answering phone calls and they dont feel theyre delivering taxpayers the services they deserve. The people at the tax payary says tans centers who run those often types with empty deives are also concerned about the people standing in line. A refreshing indication of the dedication the 90,000 employees forking for the i. R. S. Have. And the chairman is exactly right, the mission of the agency is to provide taxpayers the services they deserve, if we expect them to be able to comply code. He tax so, in general, you feel that the staff is one of lets get the job done, not publicitying the bad caused by some, and the shortage personnel . That has been my experience and it has surprised me. I thought i would hear more about the fact they hadnt had a pay raise in four years or about the fact that they were working overtime a lack of personnel. Ive seen atay, last count, over 3,000 employees with 20,000 employees in them. And the constant theme has been we need more people to allow us to do the work. Well, i think its always a good time, so ill take it now, to thank our federal workers. I know there are some small of both bodiesrs who would like to see no federal government. But thats another issue for another hearing. Not this one. Theve Great Respect for federal workers and the work that they do. Lets me ask you a question. Commissioner werfel conducted an intent review that president obama requested to restore public trust in the i. R. S. Thatthe recommendations in review been carried out . Are there other changes that you think would be helpful . If so, how can this committee assist you . Have implemented and responded to positively all of the nine recommendations from the Inspector General focused on situation. 4 we also have done broader theews of efficiencies in organize, again trying to be able to respond more effectively to the demands that have been placed on the organization. How is my time, mr. Chairman . A yellow sign. Caution. Ns and theres 30 seconds left. I take umbrage, whatever that that yellow. Just one more question then. e urs budget would reduce 660 million due to the sequester. What was the effect of your operations based on that reduction . We expect that if we had had thepresequester number, not president s request for 2014, the presequester number we would to answer another three and a half million calls, we would do another 100,000 we would collect approximately 3 billion more in our enforcement activities. Right. Thank you, mr. Chairman. Thank you. Mr. Diaz ba heart. Thank you very much, mr. Chairman, glad to have you here. Threat me throw out two issues if i may. Is one ive been dealing with your predecessors for a long time and unfortunately the urs has not always acted in good faith. Actually at one time admitting to me in front of a number of people that they had been instructed to not tell me the truth. In other words to ms. Lead members of congress. The issue im aware of that situation. Pleased that they at least admitted to me, that the person said i was not authorized truth, which i thought was a sad day, but you Better Believe thats something never happen again. It pertains to an i. R. S. Ruling, a Technical Advice memorandum, or tam, that all of the outside experts say calls into question 70 years oftled law on the definition political subdivisions, theres many of them around the country florida. This tam effectively makes theges, makes a change to law and its retroactive, so this is not something the i. R. S. An audit. Doing in if it wants to change a law it should come to congress or at least propose regulations to make the changes. Its calling into question taxions of dollars of exempt bonds already in the hands of investors. Not only by the way of this of this entityp thats affected by it, but also many many others around the country. The point where Economic Development projects in florida and other states have been halted as a result of this tam, who had gone for are having to pay higher interest vaguenessuse of the of this tam. So, commissioner, ive been with this with your predecessors and we have been misinformed, the chairman is aware of this. I just need your commitment that youre going to look at this in to make sure the i. R. S. Is not doing things in a way and retroactively in a way is in essence changing 70 years of state law through a tam. I will be pleased to look you. That and get back to i dont expect you to have the details right now, but i do expect to get together with you to solve that. Thats fine, im delighted to talk with you about that further. Thank you. Me switch gears, the other issue is the urs plans or no plans to move forward with the tax system. This subcommittee has replaced in our annual appropriations bills, prohibiting the i. R. S. From using funds on a simple tax program. Lot without seeking specific authorization. In february 2013 i sent a letter to acting commissioner miller confirmuesting that he in writing that the i. R. S. Expenditures to convert to a time tax system had ceased. The commissioner wrote back saying that the i. R. S. Is not in process of implementing a conversion to real tax system. Unfortunately later i learned money spentas been on that and that there have been plans under way, i tried to find was. Ow much it i asked the i. R. S. How much funding had been spent on a real tax system. The response was that there was contract for approximately 3. 54 million to explore a sir, that congress has specifically said it cant do and the i. R. S. Had told us that werent going to do. Later i hear from other committees, the House Government Committee hasht recovered additional documents from tester that shows that the amount spend by the i. R. S. On time system could be as much as 30 million. I cant confirm that. Questions. L are you aware of any further exploration and implementation datae i. R. S. Of any Collection System related to the realtime tax system . One. R and again, because that language bill sinceopriations 209 cease to have been absolutely ignored. You pledge to adhere to the language in the current omnibus, and again what im asking is also 100 thisparency to subcommittee, to members of the subcommittee on the other issue system. On the real tax im happy to commit that we will follow and we will follow instructions, whether you give them to us personally or in legislation, because i us tothats important for be able to do. With regard to the real time tax system, part ofthe problem is all sorts different systems have been called real time tax. The thing thats been the focus external is the idea of could we populate a return form, prepopulate so you could look at and it make decisions or the i. R. S. Could time your a lot for u. Thats what of people have talked about as being the real time tax. Were not doing anything with that. It would take a long time to be able to do that. We do have work going onto betterout how to get Third Party Information into our system earlier, so as we actually match up tax returns for Identity Theft or engage in datas, well have more available in a more timely manner. Right now we dont get the w2 from Social Security or the 1099 forms until late in the doesnt do us much good as everybody is filing in january or february. So some people internally have called that a real time tax system, but it has nothing to do with the program youre talking about. Have no Program Going forward that i know of and certainly dont intend to do anything like that without you. Ng to thank you, i look forward to working with the commissioner on these and other issues. Thank you. Mr. Quigley . Thank you, mr. Chairman. Welcome, commissioner. In addition to Everything Else you have going with the i. R. S. , historic filing period. The defense of marriage act was last june by the Supreme Court, and so for the first time same sex couples will be filing federal tax returns together. This is the first filing period that is taking place. The i. R. S. Ion within and outside the i. R. S. Is taking place . How are you helping to educate making Resources Available to people, particularly with some of the tees involved . As you know, different states have different laws, and i have residents in my district and in my state who were married in iowa, for example, illinois is just now beginning to recognize marriages. So what is the i. R. S. Doing to deal with these complex tees . I think its important, one of the things that did surprise congressmane on serranos question is the amount does toach the i. R. S. Taxpayers. We have a website which if you look at it today is very i was a year ago, in the sense of being more user friendly, provide information more directly. We have Wonderful Partnerships with tax preparers who advise, we give them information, we share information about what information their clients will need. Channel withtube over 100 instructional videos about what you should worry about. Out our first advice to taxpayers this week about to look forward to how to deal with the Affordable Care act, particularly if their circumstances change during the adjusthey need to whatever premium tax credit theyre getting. So in the defense of marriage act weve out reminders to people. We remind people of when its time to pay your estimated taxes. Theres a tremendous amount of time spend reaching out to taxpayers trying to educate them the taxas we can about code, as i said, it may take a before i can convince people that im from the i. R. S. Were here to help you. But prior to the Filing Season and during the Filing Season, to much information as they can get. So this year, for instance, we dont callg people, if you need to find where your refund is, go to the website, yearthe tab, and last 250 Million People got information about, quote, where is my refund. This year for the first time can you go to the website, authenticate who you are and you of yourtranscripts previous filings and you can print them out at home. To annt have to come assistance center, you dont have to call. The concern which, we cant just sit around and say what will we do. A lot of time thinking about what information taxpayers much can we give them in a channel of communication. So you recognize, these are unique circumstances, for the first time in history this is taking place and a lot of taxpayers need additional assistance. All the resources youre talking about are helping these new filings. Right. And the people who are on the phones have information about call andif taxpayers get through theyll be able to get that kind of information, but its on the website, as i tried proactively in all of these areas to get information out to taxpayers out theiry fill returns and even before they feel they have to call. We appreciate that. Aboutredecessor talked the cases of Identity Theft. Nearlyat there were 250,000 reported to your agency and 816,000 in 2012. Is an alarming increase. What are you attributing this to doing . T is the agency its been an explosion, since 2010, through last Filing Season in terms of people either borrowing, stealing, going to the death master files, getting Social Security numbers, and filing false returns, and trying to get refunds early. Have spent time, as i was talking to the chairman earlier, spent time in jacksonville with a wonderful task force that jointly between the i. R. S. , criminal investigation and state local Law Enforcement in florida have become much more pursuing this. Weve had last year had 1500 from 300 thes up two years before. We have a substantially filtered sophisticated system that identifies suspicious returns as they are electronically. Last year we actually saw a plateauing in the number of thatns that came through we were able to tax, or we think that between we had 1,000 indictments recommended last year, up from 165 two years think we are getting some of the people off the street. I think were getting the not ae out that this is free game, its not a free good that you cant steal a social refundy number and get a without being prosecuted for that. But it is a significant problem. We had in the budget proposed 100 million of i. T. Work that not included in the budget, but were figuring in some other ways and part of the 92 million funding provided was for just this purpose and were spending it that way. A problem,ing to be we think we have under control. As i noted were able to resolve terse Identity Theft problems much faster than we used to. But its one of the three or havehighest priorities we in tax administration. You. Ank mr. Grave. Mr. Commissioner, a lot of the 501 c 4 s earlier. What are some specific examples that . 501 c 4 s cover a wide gamut, everything from garden to advocacy groups, and in fact the vast majority of applications have nothing to do with political activity. As they go forward. Relatively small percent under that area. So one of the issues that as we can talk about the proposed draft regulations, is that everybody is focused on, really just Political Organizations that are involved. Of thebably 90 501 c 4 s have nothing to do with political advocacy. An example of an organization that might come under scrutiny under this rule . Rule, thereer this would be any organization that is a social Welfare Organization providing information to the public, that engages in political activity in a political campaign. So if you are an organization and youre providing information particular subject matter, that would be viewed as social welfare. If you then start running ads for a candidate in a campaign beporting that, that would political activity or campaign activity. So is it not true though under the proposed definition that its any public communication thats made within before antime period election would be considered candidate related political activity if it identifies that candidate or a Political Office . Right. C4r question what about a and, there is a draft regulation, we expect to have over 100,000 comments on it. For just thisg discussion, thats what i assume the 100,000 comments are doing, issues. As three one is what should be the definition of political activity. As notould be included appropriate for a social Welfare Organization, and what would be that pool. Then the next question is how much of that is that the proposed definition . No, theres a proposed definition, and comment is being asked for that. But is that the proposed definition right now, the one i just read that deals with political activity as it relates to a candidate or Political Office during the time period election . Thats proposed the comment that people are asking is, what should options to that, it be applied at all, should we stay with the facts and circumstances. Lets assume that that proposed definition stays in place as been to not assumee that because i think we need to review the 100,000 comments, involvedm going to be with because its a joint regulation from treasury and i. R. S. , and as ive said in my prepared testimony, my goal is that whatever comes out of this, if there is any regulation, its guaranteed there will be, be one thats clear, fair to everyone, and easy to administer. The i. R. S. Is not a Political Organization and we ought to do whatever we can to get out of politics of all this. Right, so i just heard you say then that although its a proposed definition right now, you hope that that is not the definition. I hope you wouldnt put those words in my mouth. What i said was i hope that out,ver regulation comes if there is one, is one thats clear, fair, and easy to administer. Does not take a position on what is i thought i heard you say you is not the final definition. But under that current definition, if it were final, would mean no Faith Based Organization can issue a voter guide on public positions take to consolidate that information to assist voters . Is that not accurate . If thats candidates are mentioned and in to 60 days depending whether its a primary election, thats what the planned, it could mean organizations such as planned not be able tod issue voter guides as well oh, the National Abortion within a campaign thats what the draft would be and thats what the comments are about. Ultimatelyill be after the comments are reviewed there will be a public hearing at which congressional members as the public will be invited to attend. Under the current definition i guesst mean that the, lets say the american legion, or the v. F. W. , would they be able to make phone calls to notify voters that, one to agister to vote, maybe potential voter, or to notify voters about candidates and militaryitions on defense positions or expansion general. E in again, the proposed draft up haveomment, of which we 100,000 and were looking forward to reviewing them, would registrationr drives within the context of a campaign would not be allowable. The other question that needs to answered, i would hope everybody would understand, a, its a question of whats the definition going to be, should be. B, how much of that activity again is not proposed that people have no activity, the question is how much of that activity, as its defined, can in beforeation engage it jeopardizes its tax exemption. And the third important question what 501 c 4 organizations should the regulation, if there is one, apply. One last question, mr. Chairman. How many in the department have terminatedanded or as a result of that latest scandal . Still, process is theres a review board, the leadership from the top down is all gone. Point. And several of the people are no longer at the i. R. S. A number you can place on that . There is not a number, im about liberty to talk personnel actions. Danny werfel appointed a special board, it started at the ground level all the way up the exempt Organization Leadership structure. Its beenl like substantially its been justified, all the actions have, the reprimands have been taken care of and youre satisfied with the direction the is going now and with the goode i. G. Had very recommendations for training, ofdance, for better review how questions are handled. I went to cincinnati and talked make sure people are comfortable. That in fact whatever the issues were before have been solved. As i said, its important going forward, you know we have andinvestigations going on as ive said im looking forward to having at least one or two of them finished sometime soon so can see what the determination of the facts are and well respond appropriately you know how the response is to that. But people need to understand from, as iforward say, this point forward, anyone dealing with theist, any taxpayer should be comfortable that theyre going to get treated fairly and the same way that anybody else is no matter their political affiliation, whatever their organization is, who ever they for in any election recently, whether they go to church or dont go to church. With the i. R. S. Theyre going to be treated in the same way everybody else is. Eve 2010t audited, limited resources well do a million 400,000 audits this year, but if you get a letter, you need to be confident and thats becauset theres something in your return that if it was in somebody sames return would get the response, that it has nothing to do with who you talked to, what whatng you went to, organization you belong to. Thank you. Mr. Amodei, in your so wee we welcomed you, welcome you again in your presence. Thank you, mr. Chairman, i hope my presence will be better my absence, but the jury is out on that so well go from there. Follow up where mr. Graves was going. First of all i looked at your statement, so i assume youve at it and this is your statement, im assuming you had help preparing it. Statement thatr you stand by for purposes of the hearing today. I wouldnt have submitted it stand bynt going to it. Very good. Youve indicated at the bottom of page 1 that the i. R. S. Needs fulfillnue to responsibilities to implement tax related provisions, major legislation, youve referenced a. C. A. And the i would like to focus or a of theon the genesis regulation rewrite. In that do you know when first put on the books as legislation generally . Askingtell you why im you, because were talking about redoing a regulation now as a result of what happened, i dont but allin cincinnati, the way up the line, and so im 501 c 4 know how worked before this latest round of stuff that started with cincinnati. Thats just been around for a while. The regulation was drafted in in Eisenhower Administration 1959. Are you aware of any major problems where its been looked at by the i. G. From eisenhower what were talking about now . I am not. Okay, thank you, i appreciate that. So and i know you welcome back there, so im going forward, congratulations on your timing, the way, its excellent. Some people would say that good. Ming isnt so its better than others. Can you tell me the genesis of decided within the i. R. S. , we need to take a look at 501 c 4 and do new regulations. And let me tell you why im asking that to help you out. Is that i get that you want to restore confidence in the i. R. S. And all its procedures and processes, and good for you. Like there was no, as you indicated in earlier questioning, there was no major legislation recently which in your preparation, so why is 501 c 4 now on top heap . Regulatory i do not know, well, its on the top of the heap now because i. G. Report noting that there were difficulties in the 501 c 4 determination process, and one of the strong recommendation business the i. G. In subsequentand testimony was that the Treasury Department and the i. R. S. Should priority form, review and clarification of the requirements. Was so that was generated internally as a result of i. G. Operations at the department of treasury . All i know is that there was the issue in the i. G. Report and that his recommendation was that a be considered as part of the priority process at i. R. S. Y and what happened before that i wasnt there and i dont know. Are you curious as to anything before . No, at this point ive spent 40 years, 20 in the private sector, 40 just minutes. Nt on my five i know youre not trying to evade anything there. Can you tell me what percentage i. R. S. s budget is devoted to 501 c 4 staffing and operations . Let me tell you why im asking that question, because you talk about resource challenges and so what percentage of your operations go to 501 c 4 administration enforcement, investigation, whatever . Well, off the top of my head got to be under 1 , significantly, in the sense that we have 90,000 employees, only 800 work in the entire exempt organization itself. Small ery so its 1 of your budget, i appreciate those numbers. Less. S 1 or thats an estimate that id have to take a look at. This point only 1 of the employees working the entire exempt organization, and the 501 c 4 s are probably 5 of that, so youre talking know, point 2 . Im going to read off about the or five things here and context is priorities. You got the a. C. A. That youre issues on, youve got with conferences and spending money, less than 1 , ill do the ish on generally what that of your budget. Youve got bonuses that are in the news, youve got 501 c 4 s then youve got taxpayer assistance which youve devoted a lot of time to. One priority for regulatory reform, out of those, 501 c 4 . Priority because its been is it the number one priority or not out of those five things . Im sorry, you were asking about regulatory reform. Reforming archc. A. , were just implementing it. Regulations set of that i understand. Youre talking about my that ifes, i would say we can solve the final 501 c 4 us,lem and put it behind that clearly is one of the five or six priorities that i have. Question, where its less than 1 and youre talking to this committee about our concerns about Taxpayer Service, our concerns about getting this Filing Season right, the a. C. A. Which happens project thats floating around and youve got some internal management inherited,at youve i appreciate all that, in terms of conference r conferences and really . And its like a law thats been around for 50 years and this is whats going regulatoryf the thing. My time is expired, you, but in, thank will look forward to interacting in more than a five minute context. A longerke to have discussion with you. Look forward to it. Thank you. Mr. Yoder. Thank you. Commission, welcome to the committee, were pleased to have talkome before us today to about certainly a voor i variety of issues that are important to americans at home and taxpayers. In the midst of the outcry over the n. S. A. And the targeting of specifically conservative groups based on was a littlere known breach of public trust that was occurring at theist and agencies that was brought to light, which i think is as stunning or more stunning the other concerns that are constantly raised in the media. The i. R. S. And other federal agencies admitted that they were reading the emails and electronic correspondence of americans without a warrant, without for Fourth Amendment privacy protections, and the brazenwent so far to be enough to say that americans do not have a reasonable expectation of privacy when it emailo their correspondence. Stunning. Myunder your leadership, question for you, is the i. R. S. Continuing to read the emails or other electronic correspondence, the private correspondence of americans without a warrant in contra of Fourth Amendment rights . And secondly when it was reading those emails, are you aware of the it was reading both conservative and liberal emails was it also targeting those private readings without warrant was on conservatives as it targeted by other portions of the i. R. S. . This is the first time ive the i. R. S. Read anybodys email. So i cant give you any further information. Look into definitely that and i will get back to you with answers to your question. I appreciate it and im sure that if that is occurring, sir, would you, i guess to the ensure thatgree to it no longer occurs at the i. R. S. . I would be happy to say if we it, thenuthority to do we should not be doing it. Now, criminal investigations investigate, you know, we had 4500 recommendations for indictments last year, so theres a whole enforcement arm i. R. S. That has Law Enforcement authority, works with the Justice Department and government. Cal so i dont know how much of this is in their domain. The i. R. S. , the s. E. C. And agencies have argued that they have Legal Authority under treat law that does not electronic correspondence the same way it treats paper correspondence. This is outrage us to a lot of our sketch constituent z on both aisle, and many groups have spoken out about. In ive introduced a bill along graves andssman democratic members that has over 175 bipartisan cosponsors to this practice stops in a variety of federal agencies. So i guess in your leadership could ensure you that you would head that off at the pass, that the i. R. S. Would engaged in that practice, and that americans could trust that their private correspondence is not being read by some i. R. S. Agent without a warrant at least or following normal due process protections that are outlined in the Fourth Amendment of the United States constitution. Its a very serious matter, i take it seriously, i will look into it and i will get back to you. I appreciate that, thank you for your testimony on that. The issue has been raised regarding 501 c 4 groups, thats certainly been discussed and its anittees issue that Many Americans are concerned about. I understand that the i. R. S. Is attempting to write regulations that might make the enforcement potentially easier on the i. R. S. I think the biggest concern that that most have is americans didnt have a lot of trust already and now they have the little trust that i. R. S. Is being fair in their enforcement of the law. Ive had folks say that they dont want to get involved in campaigns or be associated with any groups because theyre afraid theyre going to be personally subjected to audit. Im sure you would say today, happening,thats not but regardless of what rules we write at the i. R. S. , its not howrules themselves, its theyre enforced and whether they are enforced fairly and the people,an trust the individuals in their private moments to do the right thing. Can you do sir what to ensure that the folks like lois learner and others that even if the rules are there that they enforce them fairly. Biggest, not new rules i think the public needs to have this comfort and confidence. One of the reasons im spending as much time talking to front line employees is im trying to make sure that our culture encourages everybody at all of the organization to raise issues and problems and concerns when ever they have them. Werfel set in motion the beginnings of a program of a management and ive told people that everybody has to be a risk manager in the agency and risks is tomportant make sure that were following a law, were treating taxpayers fairly. Of rules to make sure that happens, but it does depend on people. Concern is to make sure that any employee that is concerned, has a problem, sees they feeloing on that does not reflect well on the i. R. S. , doesnt treatment taxpayers fairly, they need to be comfortable they can raise that directly either to me or anyone else. To that end, sir, we had shulman come before us and confirm, long before this became an issue, we asked him in committee, is this happening, and he assured us that it couldnt happen, it weve heardpen. So these assurances before. So just be aware that the trust is not there between congress and either because weve had folks sit in your chair and say can you trust me this isnt happening. I would say to that, my point earlier was when i parachuted into these things, my rule was play the hand youre lot ofnd not spend a time second guessing decisions. Weve got 90,000 employees and a complicated tax law, so some things are not going to always go perfectly. My view of running an theres aon is if problem its my problem and well work on it together. If theres a mistake, its my mistake and well work on it together. And if theres a problem i dont know about, thats my fault. Because that means we have not built a culture where issues, problems, difficulties, get raised through the system. So my view is, i am responsible accountable for everything the agency does, and when ever we make a mistake were going to find it, were to fix it quickly and well be transparent about it and if i dont know about it, fault. My because im trying to get the organization comfortable that as individualhem, every needs to feel bad news is good news. I cant help solve the problem unless i know it exists. I appreciate those statements of personal accountability and looknsibility and i forward to good result prosecution your leadership, sir, thank you. You. Ank mr. Butler is recognized. Thank you, mr. Chairman. Thank you, commissioner, for being here. I have a couple questions. Quite where mr. Yoder was coming from, but on the issue of media, twitter and facebook, last year the i. R. S. Noted it was in the process of itsewing and updating policies on the use of social is considerings. What limitations if any should be placed on the use of publicly available, so its a little different, social Media Information in a civil examination or collection new internal procedures would be made public. Curious, i have two thoughts about that. How do you go about deciding who on, ifgoing to read up youre going to go that route . Someone thatit youre trying to collect information about for a action . On or is it that people, youre putting together part of your division thats going to specifically patrol online spaces . Thats your thought process going in this route . Thought process is when we do examinations, when we send you a letter about something in return, we deal with you about the return. We do not go and look for account your facebook might look like. That doesnt seem to be efficient, effective or appropriate. When we are in criminal investigations, as i say, the criminal investigation use all of the Information Available when they are tracking down people, trying assets. Down so there i think its appropriate for them to use whatever information they need to. Thats when were tracking down people who have vile lated the law and not paid the taxes owe and, one agent made a good point to me, he said we have to distinguish between the willing to pay who have difficulties and ton willing to pay. Those who have difficulties because they have some problem family, we have to deal with them with installment agreements or compromise. Theyre very different tonight mo are unwilling to pay, hiding assets, moving them around, storing them off shore. My view is we should chase them to the end of the effort and media we can use social to find them we should do that. To useoure willing facebook and twitter in criminal investigations . Thats where i think its important. And theyre not using facebook and twielter for people who are investigations . I do not know about that,ly fine out the answer. Its an important question and i to find outghted and share with you that answer. Please share with it the committee. Gears, i got a letter from a constituent who lives abroad and obviously has some theous concerns about foreign account Tax Compliance act. And his observation was that a large number of americans who voluntarily compliant with this, with our tax code, and law is really impacting those folks, obviously youre whoing to go after people are not. What what he was saying and what hes seeing is that his bank closed,has already been he has other accounts and specifically his bank cited this law as the reason. So hes looking Different Services and hes concerned about other accounts he has. Be here hes trying to compliant, he is being compliant and basically his comment to me was, im being punished for having an american citizenship. Of thelowing the spirit law, not just the letter, and services in the countries that im living that have these accounts, because citing this law. What are you doing about, so you talked a little before about after criminal investigations what are you lawg to make this easier on abiding citizens who are trying to comply who are getting these, we dont want them to disavow their american citizenship. I think thats right. Things were looking at as we start to get the information is how to make sure we provide and impose as little a burr as we can on the whole youre talking about, have been compliant. The problem isnt from the i. R. S. Or from the United States. Is problem hes running into banks, some banks in some countries are saying rather than determining who is a foreign borno is a participant, were simply going to only deal with residents citizens and if youre not a resident citizen were not going to provide you services. A widespread activity because banks obviously are anxious in this Global Economy whereverith citizens they are coming from, and were not the only country engaged in this effort. It is unfortunate wherever a decidesa country x theyre only going to deal with their own citizens, you think it poundbe penny wise and foolish because youre missing out on people like your constituent. Can do forr we people who have already been make sureto try to that we dont impose unnecessary burdens on them and we ameliorate to it the extent we can, we will. If someone has a challenge, whether its this person overseas or whether its the small businessman i sat next to on my flight over here, who did tell me he feels like hes been the, hes received retribution politically int the form of a beautiful audit. Someone has that concern or they feel like theyve been theyrly targeted, who do redress their grievances to . Or dore a third group they have to come back to you . No, they could contact me personally. But the taxpayer advocates has been set up independently by statute, youll hear from her later. The Inspector General does a very good job of pursuing issues in compliance. My view is that those are important sources of information. The Interagency Council of inspectors general thinkree years, and i inspectors general provide a valuable service and a lot of information. The problem,create they just discover it for you before it gets bigger and more withicated and the same g. A. O. So any time they feel way, they should feel comfortable contacting the advocate. Were going to do 1,400,000 audits. Some of those people will be republican, some will be democrats, some will be people church, someto will, people who go to church regularly. Whats important and all we can tole emphasize it and actually perform, is for those people to understand theyre not getting that letter from the i. R. S. Because of who they voted for, where they were last oh week at a meeting. Theyre getting that letter because theres something in their return that were asking information. That point. Were going to have to just, and ill cut it off here, youre us,g to have to prove it to because they have received that letter because of political ideology before, it has happened. Thats part what was this whole controversy was, so we look proving it to us. Its intolerable for it to happen and its extremely corrosive to the tax people for happen. O think it might my highest priority is to do to restorecan whatever trust has been lost by the American Public in theist. Viewed as in the i. R. S. We want people to pay the right less. , not more, not were going to deal with you fairly and the same way we would else. Ith anyone thank you very much. Weve got some time for another questions, if members have, and let me start that by questions. Ally two one has to do with the 501 c 4 , theres been a lot of that. Sion about my main concern, as i said in my Opening Statement, is that it in theto be premature sense that all these investigations were going on and we didnt have all the information. And i think the subcommittee will recall we put a provision in our markup that said that we wouldnt spend any money that appropriated under this bill. Rule. K on that that was by the full committee, it full house, and and didnt make it boo the omnibus bill. But there was concern that when limited resources that maybe thats something we can wait until we had all the information. Happen and its gone along. Plan assume that you dont on stopping that any time soon. When you just ask you, anticipate finalizing the draft regulation. Instance, are you going to finalize the draft before the november elections . Chances of it getting finalized before the november election are fairly slim. An overwhelming amount of comments to take into consideration. There will be a public hearing, more opportunities for people to provide information to us. If theres going to be a and i would say if, nothing is guaranteed when you start the process you end up product at the end, if there is going to be a regulation and it has changes in beit would likely republished for more comment. So my hope would be that at of the investigations would be done well before we get to anything that looks like finality in whatever regulation might come out. Because i think its right, we what the facts were in that particular circumstance, although again the general issue we provide clarity, not just for the i. R. S. , my concern is if i were organizing an advocacy operation, i would be appreciative if i had clear guidelines as to how to organize it. But most importantly if i had clear guidelines as to how to operate it. Three years down the road, the more clarity we can provide to those people as to do and cant do and how much of it you can do without being in jeopardy it very important. The facts and circumstances test and the unclarity about how much of political activity can you do means that everybody is sitting out there worrying and wondering get measured, is this going to count on one side of the equation or the other, am if im 45 s are is that now no longer primary . And i just dont think its us, but it certainly isnt helpful for people running those organizations. Its good to hear that you dont think it will be finalized before the elections, i guess theres some, if speedup process. But maybe an equally important think thesedo you draft regulations that, have chillingady produced a effect, as people decide, gee, better avoid political activities, because we dont jeopardize our tax exempt status or have it denied or revoked . That happen . I dont know, i havent seen any studies or surveys about that. We have tried to emphasize that we have readvised and taken all i. G. Recommendations into consideration. Were providing we think appropriate training and the process. So were encouraging people to continue to file if they have doing that. T in we have a streamlined process that was set up to solve the backlog which says if youll say that youre not going to spend time onn 40 of your what has been historically viewed as political activity, can you get a streamlined approval even so that you wont have to worry about the backlog. Last question, you think bit,red this a little whether youll wrap up all these loose ends and be one final regulation or maybe it might be a series of regulations that are couple over the next years. Do you have any judgment about that . I have no idea. Im trying tooint keep an open mind about the whole thing, see what the comments are. There is a complicated question of what should the definition whatever it be apply to. To 501c3s, 5s, 6s, 7s and those are important questions that you cant know an easy answer to. Instinct is, the clearer it is and the more simpler and and therative it is fairer to everyone it is, the be. Er off well all let me ask you one quick happy question. I found out for the first time week that theres a program called free file. Has ine i. R. S. Conjunction with folks that prepare tax services. Had an event in my home district to try to make more of it, because im not sure everybody is aware. But if you make less than you qualify for the free file and you can actually file your tax return free, because if some arrangement the i. R. S. Has with folks. Liance of so they told me that they have yearsew that every five with a memorandum of understanding. So in an effort to make more people aware, they said 70 of the taxpayers might be aware or free be eligible for this file. So tell us very quickly, if you think thats a good idea and if plan on signing a new memorandum of agreement to sten it. It is i good idea, i should you out with me, because every time i do a Filing Season, emphasize that we have this agreement with 14 providers, all the major ones you would think of. Can go on the free file website, 100 million americans are eligible. Theyou pick which ever of 14 you like and you can file for free, you dont have to pay get the same treatment you would if you were in one of their offices. Its a Wonderful Partnership and we do plan to renew it and give more visibility to it because i donk taxpayers comfortable their returns without a provider should take advantage of this. Servicesone of the were happy to provide. Well, you are from the i. R. S. Us. You are here to help so thank you for that. Mr. Serrano. Thank you, mr. Chairman, i hope you give me a little leeway theuse i may shock committee and the congress using a little more time to say that i mr. Yoder. Ee with and i know thats shocking to some folks. I sponsored his bill, rankingred his bill, as member i participated in a voice amendment last year. Because whether democrat or believe that dont our privacy should be lost. About when you hear government perhaps reading emails, thats unacceptable. Unacceptable to us and its unacceptable to our democracy. To hear some people say well if you have nothing to hide do with having20 anything to hide. Theayes to do with constitution and what this country is known for and that people throughout the world like to imitate who we are. And i know who we are and we that. Nt have that doesnt mean i sign up with like to disable Government Agencies to the point where they cab function. Thatn this we agree, americans have a right to privacy, and that should be protect. That we so i think the big headlines tomorrow in one of the papers be serrano and yoder agree on something. Happy to be the catalyst for that. Soon as you tell me where the hustings are, i have no why whether theyre in the bronx or anywhere like that. Me get this straight. If you have 501 c 4 status, to engage supposed primarily in activities that are political. If your activities are primarily political, then my understanding is that you can register as a exempt organization under another part of the tax code, section 527. Someroblem for organizations is that if they do this, theyll have to disclose donors are as opposed to being registered on their have to where you don disclose who funds you. Groups though these could choose to be registered they donts a pac, want to do so because they would have to clis close their donors. Am i correct on that . That is correct. Putting you on the spot where you have to try to figure out what happened in the past, was that part of the problem that people were doing this and therefore there had to and maybe thaty scrutiny went overboard . As i say, i have not spent a looking back yard because weve got six investigations going on. There was an increase after the in 2010 inrt case organizations and the flow of money into public discussion and debate and political activities. Went up to some extent, became more visible question, for a long time nobody paid attention because most of these organizations werent visible as you go but i do think that again, if the process is clear, then people who meet the process ought to be able to make that choice. But a mainly factor in the choice is that if you were a 527 you could spend all your time and money on political activity, but contributions would be visible. If you are a 501 c 4, social Welfare Organization, you can only spend a certain percentage of your time, and nobody has quite known what the personal is, but you have to be primarily a social Welfare Organization not engaged in whatever is the definition of political activity. Now, do you think that, or maybe i missed something. Do your rules define once and for all what is political activity . Do you think we will reach the day where we can define what is political activity . Well, that is the whole pursuit of the draft and the whole purpose of the 100,000 comments back and the tub public debate about the deaf situation. Whatever the definition is, how much of that definition, how much of that activity should you be allowed to do before you jeopardize your status as a social Welfare Organization . It is a complicated to figure out how to deal with that in a way that is fair with everybody. I think the criticism needs to be considered in the comments and make sure that this applies fairly to people and not viewed as singling out any particular group of people. That is why you have to take a look at what sections of the 01 c 4 statute rules apply to. If it is easy to add sfer. Trying to judge what are the facts and circumstances, how are they going to change. It doesnt do us any good and gets us involved in a loft decisions we would be better off not making. I supported including 200,000 in the bill for the training in the exempt organizations unit. Please explain how you will use those funds to prevent the problems from happening in the future. Training is important. I share the concern that we train appropriately. The Training Session that went on in trent, and o. M. B. In 2011 and 2012 has made it clear those sessions arent going to happen in the particular case of 501 c 4s, in response to the i. G. Recommendations, we provide clearer guide ands to employees, providing training. One of the recommendations was to provide training before elections so we make sure people understand what is appropriate and not appropriate in terms of reviewing organizations as we go forth. We are comfortable that while the standard is still facts and circumstances, which is hard to know about, we are comfortable that we have much better training and visibility and oversight of this issue. Going back 50 years, nobody paid a lot of attention to it, which is a part of the problem. I thank you for your time today. I know you have a very difficult job ahead of you. If it makes you feel any better, understand that all the year i have been in public office, and it is 40 now, i have also known, and before that, that the i. R. S. Was never a very Popular Agency to begin with. That and the i. N. S. Were right up there with some folks. So yes, you have a challenge to bring back the confidence the president wants, but no, this is not new. There has been a distrust for many years by the i. R. S. By the public. It is something we have to keep working on. Thank you for your service. Thank you. Thank you, mr. Chairman. Mr. Commissioner, thank you for your answers, and i appreciate that. I want to just a couple of things. One is when we talk about transparency and all that other stuff, any plans to release the learner emails to any of the other committees in the near future . Let me tell you why i am asking that. No, it is a good question. The context of the proposed regulation, the con text timingwise that it comes forward in is something i dont think anybody in this room can ignore. Actually the 50 years may not be very important. But on the heels of what has happened in 501 c 4s, and if that hasnt come to light, the i. G. Probably wouldnt have taken into that. You say sitting here and going forward, and i respect that, we want to be open and transparent and all that other stuff, and you say as part of that we are going to define political activity. God bless you for your courage. It sounds like defining obscenity, and the struck Supreme Court hard a hard time. I wish you luck. With all due respect, that is something the legislative branch probably ought to undertake if it should be done because it will have the ability of assuming that. We are sitting here trying to go i agree or disagree. If that needs to be done, then we ought off this debate with all due respect. When are those emails going to the meaner committees than this one . I would just correct a slight technicality. What has been in place is the regulation. In 1959 it was an i. R. S. Regulation that set in motion the definitions we have today. The law has been there longer than that. But you are exactly right. Even if we end up with a regulation, the congress always has the authority to change the statute or overrule the regulation. It is not as if the i. R. S. And treasury have Carte Blanche to do whatever they want. With regard to versions, in the process of having further conversations with chairman kanp of the house ways and means committee, and we are anxious to provide when i told him when i met with him about a month ago, and he gave me a list of things, the items they needed to have to get to closure, we are anxious to get him all the information he needs to make his decisions. We are working with the committees, working with the Senate Finance committee as well and the other committees. We have four congressional once going forward. And i appreciate that. And we want to satisfy them that they have the information they need to reach the determination they are making about the determination process. Let me tell you why i think it is important. It is not important in terms of who did what to who or who shot the sheriff. It is important in terms of looking at this action and going. Was this a flaw in the regulation, or was this something out of the ordinary . To listen to this today, yeah we are changing the regulation. Not you, but generally. I think it is important in terms of examining how the existing regulatory body was working before this latest issue came up, not in terms of who got caught doing whatever. So with that, i thank you and look forward to visiting with you. Thank you, mr. Chairman, and i yield back. Let me say a couple of things to make sure we have claret. The regulation was drafted pursuant to an after the pursuant to and after the i. G. Report. The report had been under way when the i. R. S. Acknowledged it had been inappropriately highlighting organizations for review in the 501 c 4 area. But the i. G. Investigation had been going on for some months, and the draft of the regulation was a recommendation from the i. G. But you are exactly right, we need to provide as much transparency as we can. My goal on the investigations as i say is to do whatever we can to get the information they need for the determination process. When you start a new investigation saying they are not actually not worried about the regulatory process, that is a different investigation than what we have been dealing with for the last 810 months. My only thought about that is we are happy to try to get you information about that, but we cant do a series of investigations all at the same time. I guess it would be nice to have a rule so you cant pick out people based on their political philosophy and bully them and intimidate them and harass them. That would be a pretty clear rule. I think that is the rule. I guess that got violated. And i think there are versions going on to find out exactly whether they were and how. Let me recognize mr. Yoder. Thank you, mr. Chairman. To ld be happy to yield mr. Serrano to say anything else he wants to say nice about me. Dont push it. Thank you. Thank you for your comments. As you can see on that issue we have strong bipartisan support. I know we have your assurances we are going to try to fix that. There are a lot of issues we afree on in this committee and across congress that dont always get the media headlines, and so it is nice to find more and more of those we can Work Together to fix. I appreciate folks on both sides of the aisle to work on that. I want to give another one that i think we have some bipartisan agreement on. This comes from a constituent as i asked what question should i ask the i. R. S. Commissioner. This could be fun. I think this is a very important question and one probably felt by a lot of americans. We have talked this morning about the trust deficit that exists between the spernl Revenue Service and americans, particularly in light of what i will term is much more egregious from what we heard from our colleagues on the other side of the aisle, the abuse of the code to i a tack people based on ideology. We are going to continue to investigate your version you have internally, but here in congress. People need to be held accountable more so than they have been. A c. P. A. In my district makes the point that he is a c. P. A. , and the tax code is very difficult to navigate. I think we would all agree to that. Four Million Words and 10,000 pages. Are yes. How can the i. R. S. Make it to prepare ualified forms without unintentional oversights or errors. Additionally, how can there be less of an adversarial relationship between the i. R. S. And professionals when dealing with taxpayers as well and accept new dollars . How can you operate the i. R. S. In a different way to improve that relationship which as you can imagine if even a cspan or a regular hard working for a regular c. P. A. Or a regular hard working american trying to pay their taxes. It is a nightmare to sort through this. Many of us believe we need tax reform. Your comments on that . As i told the chairman earlier, i strongly believe in tax simplification. Most americans if you toll them what they owe are willing to pay it. But when you impose all sorts of complexity and make it difficult, they get always less happy. We have an Important Partnership with preparers and those who are qualified. We are always concerned about unregular rated preparers around the periphery who sometimes engage in fraud or uneducated and dont provide good service. But for people look your constituent, we have a lot of perhaps trying to reach out to preparers, trying to provide them as much information as we can. I would hope as we make the website more user friendly, it used to be clunky in the extreme. We are spending some of our resources there because we think it is important for Taxpayer Service. But we value the work that preparers do. They are our outreach to clients. If they understand the intricacies of the tax code, it will make it easier for their clients. We have a line you can call. Our concern is even there the resource constraints we have heard from preparers that they have to sit on the line longer. That is not fair for them. They have businesses to run. If they have to wait a half hour or 45 minutes on a special line. If they have five or six clients, they could waste a significant amount of time. All i can say is we value the preparer community. We will tip to reach out to them. The best thing we can do is give them as much information and guidance as we can. It is also a function of style. They take their cues from the person leading the organization. The efforts you can make to ensure that the relationships are less adversarial and more supportive, and we need to see this at all levels of government where americans feel that these federal agencies are there not to work with them, but against them. This is a common problem, and i hope you will do your west to try to fix those problems at the i. R. S. Right. One of the advantages of this tour i am on is i to get to talk to people doing the work. In philadelphia i had a very productive meeting with a half dozen agents and officers. These are revenues officers who you think are banking on your door. They say if you are willing to pay and you have difficulties, we are willing to work with you. The biggest problem they have is a lot of times people dont respond to noesi from the i. R. S. Because they are very nervous about it and concerned. We ought to have a way of making sure people understand that if you are just having trouble peggy your taxes, we are going to try to work with you. The people we dont like are the people who are consciously trying to avoid taxes, moving assets around the country and engaging in fraud. Those people we dont have to be very nice to. If there was an honest mistake made and they are trying to pay, we ought to have a productive working relationship with them. And then if i might, one quick budgetary question. This question was asked earlier , but if you could follow up with information for the committee. How many hours and how many dollars have been spent related to the controversy created by the investigation related to 501 c 4 groups last year and the reforms or the changes that you are looking at now . I know you said it was less than 1 of your budget. If you could let us know the impact . I know this was prior to your time there, but these things do have an impact on time that could be spent elsewhere. Number one. And then number two, how much money has been spent, and how much are you needing and requesting related to the enforcement of the Affordable Care act and the impact that is having on your agency. Several years ago the i. R. S. Has repeatedly asked for hundreds of millions of more dollars to hire more agents to go out and make sure that Small Businesses and americans are following the Big Government mandates on them regarding this law. I would like to know the cost to the i. R. S. And where you are finding those resources . I can answer that question because it is a question i have been asking. That is the 2014 president ial budget for the i. R. S. Proposed there are 440 million for the Affordable Care act. 330 million of that was for information technology. None of that funding is provided. One of the constraints we have is we have to pay for the i. T. Out of projects we would have otherwise funded going forward. The 100 million is preparing for and dealing with information, designing of the systems, making sure they work. It is as you can imagine my priority is i am committed that we will at this Time Next Year have an effective Filing Season, which means we will be effectively implementing our responsibilities at the Affordable Care act. We did it on the front end. It is a major challenge and finding the funds is one thing we have to find in other areas of the i. R. S. Just a qualification point. The amount requested was 440 million. How much does the i. R. S. Spend annually on the implementation of the Affordable Care act . I can give you what we have spent the last couple of years and our estimate for next year. One of the issues that is going to happen to us as i have talked to people about it, starting late in the fall and Filing Season exnext year, because it is a new requirement, we are going to have a lot of inquiries from preparers as well as tax payers if they are in the area of being eligible for a premium tax credit. And if they arent, making sure they are comfortable filling out that return. We will spend all the rest of this year trying to get preparers and taxpayers comfortable and that they understand. 70 or 80 of the taxpayers arent going to have anything to do with it at all. They will check a box saying i have insurance and move on. We will get you and the committee the information about over the last two or three years how much we have suspend on i. T. For Affordable Care, and what do we expect the requirements to be in the next year or two. Next i am sure when you appear before us there will be a lot of discussion about the dollars necessary. I wanted to ask about bonuses. Sure bonuses are being given to employees who have shown improved performance or goals they have met. We put some language together. Taken the language to make sure the bonuses would be rewarded to those who showed performance and productivity . They are performance awards. Is one percent of compensation. The performance judgments are , not by thegers employees themselves, and the history is that those awards have gone to about two thirds of the employees who do not get any. The average size is about 1200, so no one is making a lot of money. If i could respond to the one percent in terms of how did i come to this decision, after the to reach themade sequester levels that performance awards would not be paid, they issued a governmentwide edict that one percent performance awards could be made. My predecessor decided while the contract provided with the bargaining unit performance awards, a pool of 1. 75 , that we thought negotiation ability changed that number and the number went to zero. The union filed a grievance, and unfair label labor practice, and a lawsuit. , i hope we will have that agreement settled. We have been negotiating about what the performance pool ought to be going forward. What does that mean . The number of people eligible . The bargaining unit is thousands of employees. You take the salary, and what is the pool . These arent meritbased . These are performance awards based on merit. Size of the pool available for awards was set at 1. 75 . That will get a performance award . The pool. As each individual was evaluated. The judgment was made. About two thirds were eligible for performance awards. The average award was about 1200. One third of them were not eligible because they had not performed determined by the manager, and the question is what is the size of the pool or whether there would be a pool or not. A pool at all. The decision was no pool. They would drop the unfair labor practice and drop the lawsuit, and we would pay not 1. 75 into a pool that one percent. In terms of how we are able to do that, we had in our budget funding for that, because as a result of the sequester, we lost people, and on an annual basis, that provides part of the revenues we need. We have made more assumptions about cuts and other expenses of about four percent, and the arrangement with the union is we will not pay those awards in the fiscal year the way we have always done it. We pay managers two or three months after the fiscal year into the next one, so we are moving the bargaining unit awards into the next fiscal year. This year we are only going to pay one pool award. Thats how it fits into the budget. Really quickly, reclaiming my time. I was going to give you two minutes. What i am interested in understanding is i think if someone is eligible for a reward because they have shown based on their merit and hard work that they deserve it, i am fine with that. My issue is you said the managers make the decision. I assume you have issued guidance whereby they can use some kind of criteria to make this. There is an agencywide Performance Plan run by the Human Capital office. There is a followup to make sure there is not a manager saying, so the people have actually met these awards because they received these theormance awards who are subject of investigations. I want to make sure that moving forward these awards are appropriate. Thats where my question is. I asked the question myself to make sure for managers when we pay a performance award we need to be comfortable the system is actually rewarding performance. Employees know who is performing and who is not, and if you make rewards for people who are not performing, thats not good for morale either. We have a sophisticated system, and your point is taken that we need to a value weighted to make sure we are comfortable, that this isnt lake will be gone and everyone is above average. We could do this within the budget. These are employees who havent had a pay raise in four years, who have been subject to a lot of difficulties over the last our, and ultimately, 75 of budget is people. Without the people the work isnt going to get done. Part of the reason i am wandering around the country in the middle of winter is to remind those employees we value their work. They are terrifically dedicated. Some of them have been around 20, 30 years working on this. Their only concern is can we get them the resources to provide better Taxpayer Services. If in saving us the risk of having to pay more in that pool and being able to time it in a different way i can send a signal to the employees that we value their work, it seems to me that was appropriate. That, i yield back. Anybody have any other questions . About to move into panel two. Let me say to you, commissioner, thank you. I know how busy you are. Think you for being here today. We know what a difficult job you have, and sometimes we lose sight of the good things the irs does, that you do every day under difficult circumstances. Collecting the revenues, talking to folks, answering questions, chasing down the bad guys, all the things you do every day, we very much appreciate, and we are here to help you do that even think you for the time. This concludes the first panel, and we will ha [captions Copyright National cable satellite corp. 2014] [captioning performed by the national captioning institute] well, receipt me welcome our second panel today. I want to thank you for your patience and for being with us today. We appreciate both your team and your expertise. Since the i. R. S. Is the largest pressurery bureau, they are the largest of the three Inspector Generals. To whom much is given, much is expect med. We are relying on your office and counsel to help us understand the i. R. S. s management and use of taxpayers funds. Welcome back, inspector george. I am also pleased to welcome back the National Taxpayer advocate. This is your first appearance before the subcommittee since 2007. Im hoping today we can hear from you about your services and what you provide to the taxpayers, what you are doing to help those taxpayers who may have been victims of tracks fraud and abuse, how the i. R. S. Is make the most of its funding. Thank you. I appreciate the service of both of you and look forward to your testimony. Serrano the to mr. Ranking member for any Opening Statement he would like to make. I want to welcome you both here. We just had a very interesting conversation with the commissioner. I would be interested to hear your thoughts on what recommendations you have and whether things are falling into place or not, and from you mrs. Olson on how we can better serve the public and wring down some of that fear everybody has of the i. R. S. So we thank you, and we look forward to your testimony. Thank you. Let me start by asking both of you all a question. Im sorry. I would like to ask you to make your Opening Statements. I got carried away. Mr. Serrano was so brief. I got confused. But please, take your time. Mr. George, will you begin . Thank you, chairman crenshaw. Ranking member serrano and members of the subcommittee, thank you for the opportunity to discuss the significant challenges currently facing the internal Revenue Service. Let me start with the topic of providing Quality Customer service. We have seen a decline in the i. R. S. s ability to provide a sufficient level of Customer Service in each of the chance that taxpayers use, including telephone, walkin and correspondence. Many taxpayers use the telephone to contact the i. R. S. Meeting demand with reduced staffing continues to be a struggle, resulting in long wait times, abandoned calls and taxpayers redialing the i. R. S. Tollfree telephone lines for service. At its walkin offices known as taxpayer assistance centers, the i. R. S. Has decided to eliminate Certain Services such as tax return preparation that can be obtained through other chance. The i. R. S. Assisted over 6. 5 million taxpayers at these Service Centers in fiscal year 2013 but plans to reduce that year. By 14 this
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