[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



  TREASURY, POSTAL SERVICE, AND GENERAL GOVERNMENT APPROPRIATIONS FOR 
                        FISCAL YEAR 2001--Part 6

                 TREASURY, POSTAL SERVICE, AND GENERAL

                     GOVERNMENT APPROPRIATIONS FOR

                            FISCAL YEAR 2001

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION
                                ________

  SUBCOMMITTEE ON THE TREASURY, POSTAL SERVICE, AND GENERAL GOVERNMENT 
                             APPROPRIATIONS

                      JIM KOLBE, Arizona, Chairman

 FRANK R. WOLF, Virginia            STENY H. HOYER, Maryland
 ANNE M. NORTHUP, Kentucky          CARRIE P. MEEK, Florida
 JO ANN EMERSON, Missouri           DAVID E. PRICE, North Carolina
 JOHN E. SUNUNU, New Hampshire      LUCILLE ROYBAL-ALLARD, California
 JOHN E. PETERSON, Pennsylvania     
 VIRGIL H. GOODE, Jr., Virginia     

 NOTE: Under Committee Rules, Mr. Young, as Chairman of the Full 
Committee, and Mr. Obey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.

       Michelle Mrdeza, Jeff Ashford, Kurt Dodd, and Tammy Hughes,
                            Staff Assistants
                                ________

                                 PART 6
                                                                   Page
 IRS-Electronic Tax Administration................................    1
 ATF-YCGII........................................................  225
 Executive Residence Budget Justification.........................  283

                              

                                ________

         Printed for the use of the Committee on Appropriations
                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 67-864                     WASHINGTON : 2000

                       COMMITTEE ON APPROPRIATIONS

                   C. W. BILL YOUNG, Florida, Chairman

 RALPH REGULA, Ohio                     DAVID R. OBEY, Wisconsin
 JERRY LEWIS, California                JOHN P. MURTHA, Pennsylvania
 JOHN EDWARD PORTER, Illinois           NORMAN D. DICKS, Washington
 HAROLD ROGERS, Kentucky                MARTIN OLAV SABO, Minnesota
 JOE SKEEN, New Mexico                  JULIAN C. DIXON, California
 FRANK R. WOLF, Virginia                STENY H. HOYER, Maryland
 TOM DeLAY, Texas                       ALAN B. MOLLOHAN, West Virginia
 JIM KOLBE, Arizona                     MARCY KAPTUR, Ohio
 RON PACKARD, California                NANCY PELOSI, California
 SONNY CALLAHAN, Alabama                PETER J. VISCLOSKY, Indiana
 JAMES T. WALSH, New York               NITA M. LOWEY, New York
 CHARLES H. TAYLOR, North Carolina      JOSE E. SERRANO, New York
 DAVID L. HOBSON, Ohio                  ROSA L. DeLAURO, Connecticut
 ERNEST J. ISTOOK, Jr., Oklahoma        JAMES P. MORAN, Virginia
 HENRY BONILLA, Texas                   JOHN W. OLVER, Massachusetts
 JOE KNOLLENBERG, Michigan              ED PASTOR, Arizona
 DAN MILLER, Florida                    CARRIE P. MEEK, Florida
 JAY DICKEY, Arkansas                   DAVID E. PRICE, North Carolina
 JACK KINGSTON, Georgia                 MICHAEL P. FORBES, New York
 RODNEY P. FRELINGHUYSEN, New Jersey    CHET EDWARDS, Texas
 ROGER F. WICKER, Mississippi           ROBERT E. ``BUD'' CRAMER, Jr., 
 GEORGE R. NETHERCUTT, Jr.,             Alabama
Washington                              MAURICE D. HINCHEY, New York
 RANDY ``DUKE'' CUNNINGHAM,             LUCILLE ROYBAL-ALLARD, California
California                              SAM FARR, California
 TODD TIAHRT, Kansas                    JESSE L. JACKSON, Jr., Illinois
 ZACH WAMP, Tennessee                   CAROLYN C. KILPATRICK, Michigan
 TOM LATHAM, Iowa                       ALLEN BOYD, Florida
 ANNE M. NORTHUP, Kentucky              
 ROBERT B. ADERHOLT, Alabama            
 JO ANN EMERSON, Missouri               
 JOHN E. SUNUNU, New Hampshire          
 KAY GRANGER, Texas                     
 JOHN E. PETERSON, Pennsylvania         
 VIRGIL H. GOODE, Jr., Virginia     

                 James W. Dyer, Clerk and Staff Director

                                  (ii)

 
  TREASURY, POSTAL SERVICE, AND GENERAL GOVERNMENT APPROPRIATIONS FOR 
                                  2001

                              ----------                              

                                          Tuesday, October 3, 2000.

                   IRS-ELECTRONIC TAX ADMINISTRATION

                               WITNESSES

CHARLES ROSSOTTI, COMMISSIONER, INTERNAL REVENUE SERVICE
PAUL D. HARRISON, PRESIDENT & CEO, FREETAXPREP.COM, INCORPORATED
EDWARD BLACK, PRESIDENT & CEO, COMPUTER & COMMUNICATIONS INDUSTRY 
    ASSOCIATION
CHARLES LACIJAN, THE IMPLEMENTATION GROUP
    Mr. Kolbe. Good afternoon. The Subcommittee on Treasury, 
Postal Service and General Government will come to order.
    Commissioner, we welcome you here. We are happy to have you 
once more before the subcommittee on this oversight hearing, 
and we look forward to hearing from you today.
    Let me just set the tone for what we are trying to do here 
today by giving a little bit of overview for this hearing. The 
purpose is to talk about electronic tax administration, where 
we are and where we are going. It is a very timely issue. The 
country, indeed the world, is becoming very adept at using 
electronic media in daily life. Every day we find more services 
that are being offered electronically, and more transactions 
that are being conducted through the use of electronic means.
    As people become more comfortable using digital technology, 
as the technology itself improves and becomes more widely 
available, the development and implementation of the Federal 
electronic tax administration has to proceed appropriately and 
with all due speed. So while this is a timely issue it is 
certainly not an entirely new issue to the Internal Revenue 
Service. Indeed, the IRS Restructuring and Reform Act of 1998 
has a whole title on this area that talks about electronic 
filing and provides for the establishment of the electronic 
commerce advisory group.
    Industry is offering a wide range of electronic tax 
services to tax filers, including no-cost filing options under 
certain circumstances. The IRS, through its Office of 
Electronic Tax Administration, has been working for a long time 
now to develop and implement aspects of electronic tax 
administration.
    In the tax season that has just ended, 27 percent of all 
the tax returns that were filed, that is 35 million out of 130 
million, were filed electronically. But we still have some 
issues that need to be looked at, and that is the purpose of 
the hearing today.
    Some of the issues involving electronic tax administration, 
particularly Internet interactions, appear to break some new 
ground for the IRS and impact fundamental concepts regarding 
the relationship of the IRS to the American people. These 
concepts include the establishment of rules and pricing policy 
for tax services, the voluntary compliance system on which our 
tax system is founded, the relationship between the IRS and the 
tax preparation industry and, of course, issues of privacy.
    The IRS has made recent announcements regarding its plans 
and expectations for moving forward with electronic tax 
administration. Our purpose is to get a better understanding of 
these plans and expectations, to provide a forum for hearing 
concerns and perspectives from outside groups that include 
members of the tax preparation industry.
    So we will have two panels here. We will begin with Mr. 
Rossotti, a panel of one here, who will be followed by a panel 
of three outside witnesses. We will hear from Charles Lacijan, 
a former chairman of the Electronic Tax Administration Advisory 
Committee; Edward Black, President and CEO of the Computer & 
Communications Industry Association; and Paul Harrison, who is 
President and CEO of FreeTaxPrep.Com.
    Before I turn to you, Mr. Rossotti, for your opening 
statement, let me ask Mr. Hoyer if he has any comments that he 
would like to make. Mr. Hoyer.
    Mr. Hoyer. No. I welcome the Commissioner to the hearing 
room, and we look forward to his testimony and the testimony of 
others.
    Mr. Kolbe. Thank you very much.
    Mr. Rossotti, we will let you begin with your statement. As 
always, we will put the full statement in the record, if you 
would prefer to do it that way, or however you want to proceed 
here.
    Mr. Rossotti. I have submitted the full statement.
    Mr. Kolbe. The full statement will be put in the record.
    Mr. Rossotti. As you noted, Mr. Chairman, the IRS 
Restructuring Act had a whole section concerning electronic 
filing. Probably one of the most prominent parts of that was to 
establish a goal that 80 percent of returns be filed 
electronically by 2007.
    More broadly, I think we have, as you noted, Mr. Chairman, 
defined electronic administrations to be all of our 
transactions with the public; and our overarching goal is to 
really convert most of those to electronic means. To meet this 
objective, we not only have to make it technologically 
possible, we have to make it attractive to the public for them 
to change from their traditional paper way of doing business to 
electronic.
    Now, while our goal, I think, is clear as laid out in the 
Act and in spite of the fact that we, I believe, have made some 
very significant progress over the last two years, I have to 
say we do not have all the answers yet as to how we are going 
to achieve this goal. We keep finding new and complex issues, 
as you noted in your opening statement, as new technology comes 
about, but also as we learn more about what taxpayers need and 
want. So given this kind of changing, dynamic environment, we 
are constantly seeking advice from the Congress, from industry 
and especially from the Electronic Tax Administration Advisory 
Committee, which was established for this purpose.
    I want to thank you, Mr. Chairman, for holding this 
hearing. I think it is very timely to lay out these issues.
    Now let me briefly and with the help of this chart, which 
is also in the back of the testimony, just give a very short 
overview of how this system works. Taxpayers can file 
electronically in one of three ways: through tax practitioners, 
directly from a home computer or over the telephone. A number 
of private companies that are shown on the chart play a role.
    For all forms of electronic filing it is important to note 
that a return must be prepared electronically in order to be 
filed electronically. It is really a combination of those two, 
and that creates a lot of the benefit. And just three options--
the first option on the top there, which is currently used by 
25 million taxpayers, is the one in which a taxpayer goes to a 
tax professional, a tax preparer, to file their return. In our 
jargon these are known as electronic return originators, and 
last year 25 million returns were filed by this method.
    I think, as shown on the chart, most of the tax 
practitioners who electronically file returns for taxpayers 
actually transmit their returns through bulk transmitters that 
collect the forms. Usually, these are the same firms that 
provide the practitioner the tax software; and last filing 
season there were about 77,000 active practitioners and/or EROs 
and all but about 5,300 of them filed through their software 
provider, their bulk transmitter. About 5,300 of them actually 
filed with us directly.
    The IRS does not charge any fees for electronic filing or 
receiving these returns, but many of the electronic return 
originators do charge a fee to their taxpayers for that 
service. Some of them do bundle that in the tax preparation 
fee.
    The second option, which is becoming prevalent more 
rapidly, is the one in which the taxpayers file directly from 
their home computer. They put the software on the home computer 
and use that commercial software to prepare the return and then 
transmit it. This software can actually either reside on their 
own personal computer or it can reside on a Web site, which is 
a newer option. The taxpayer accesses the software through the 
Web site. When the return is completed, the taxpayer can 
transmit that information by modem to the software provider 
who, in turn, transmits it to the IRS; and last year there were 
about five million taxpayers who did it that way.
    We do not receive tax returns directly from individual 
taxpayers from their home computers. We receive that from the 
software providers who provide the software. The tax software 
providers sometimes charge the taxpayers a separate fee for 
transmitting it, but, more commonly, they bundle that with the 
software that they provide either through the Web site or for 
purchase cost.
    Then there is a third option which is called TeleFile, 
which is for really very simple returns, 1040 EZ, in which some 
taxpayers can simply pick up a Touch Tone phone, dial in some 
numbers, and then it actually computes the tax and transmits it 
to us. Last year, we had 5.2 million taxpayers do it that way.
    Those are the three ways to electronically file.
    I think, going back again into the RRA to determine how we 
get from where we are right now, 35 million, 27 percent, as you 
noted, to the 80 percent, the Congress wrote in both some 
guidance for us and a process as to how we should go about 
working in this market process.
    One is they encouraged us to work in partnership with the 
private sector to improve the offerings of filing services that 
were available; and it mentioned three kind of things, reduce 
barriers, provide incentive and, to quote the conference 
report, press for robust private sector competition. Those were 
the words from the Act. I think we have tried to act on those 
suggestions from taxpayers and the industry and practitioners 
to make filing more attractive and remove barriers.
    One of the key barriers is to make it possible to actually 
file all the individual returns through this electronic means. 
Up until now that has not been possible because we could not 
accept certain kinds of schedules and forms. We are solving 
that problem rapidly for this upcoming filing season 2001. We 
are adding 23 more forms to the program, and we will roll out 
the remaining 40 forms and schedules in 2002. So that means by 
2002, which is the season after next, we will have solved that 
problem. All of the forms and schedules will be able to be 
filed electronically with some very, very minor exceptions; and 
the importance of that is it does open up about four million 
more potential taxpayers.
    But I think, more importantly, the practitioners tell us 
they want to do business one way. They do not want to do some 
with paper and some electronically. So that problem is rapidly 
being solved, and by 2001 it will be solved.
    The second key barrier that we are eliminating is the fact 
that up until now electronic filing has not been truly 
paperless. In some cases--in most cases, it was required to 
send a signature document in by paper, even though you filed 
electronically. That problem will be solved in this coming 
filing season. Working with chief counsel and the Justice 
Department we have come up with a way, having tested it for a 
couple of years, to use a personal identification number as the 
taxpayer's signature, with a few exceptions, in this coming 
season. This will now be extended to taxpayers nationwide who 
will be able to select their own pin, provide some additional 
data to us and file electronically without any paper. That 
would be true for all three methods.
    The third important point is, traditionally, most 
electronically filed returns were those where the taxpayer 
received a refund and they got them faster, and that is one of 
the attractions. But we would also like to encourage taxpayers 
who actually have a balance due, as we call it, in other words, 
they owe the IRS money instead of the other way around, to be 
able to file electronically. In order to make that possible we 
are accepting more electronic payment mechanisms, debit 
payments through TeleFile, accepting credit cards for Form ES, 
which are the estimated tax payments, and also for taxpayers 
who have extensions of time to file. So, essentially, through 
either debit cards or credit cards, taxpayers will be able to 
pay balances due in most cases electronically rather than 
through paper.
    The fourth thing, which is still in the prototype stage and 
is more of a longer term effort, is that especially for our 
electronic return originators, we would like to extend our 
electronic communication not only for the filing process, but 
through other forms of communication that we have. We have a 
pilot that is working on resolving account-related issues in a 
secure way through the Internet. It will be one of our major 
goals through our technologymodernization.
    Finally, in terms of marketing, with the authorization of 
the Restructuring Act and the funds that this committee has 
provided, we do have a marketing campaign which has been quite 
successful; and next year--we will show you the chart after 
that--there is some new marketing that we will be doing that 
revolves around the idea of stressing that over 30 million 
Americans are already using e-file. We are now beginning to 
promote not just awareness of it but the specific values to the 
taxpayer. Those are some pretty important steps that are taken 
that we have heard from the industry are needed.
    Having taken those steps, or when we will have taken them 
over the next 15 to 18 months, there is one additional hurdle, 
however, that we--or barrier, if you will--that we have heard 
from taxpayer practitioners and others, which is the cost to 
the taxpayer. As it is now, taxpayers must either pay a fee to 
a preparer or pay a fee to buy or use software to prepare and 
file their returns. It was to try to address this issue that 
the President included two provisions in the fiscal 2001 budget 
proposal. One was a proposed tax credit for electronic filing. 
The second was a provision requesting the IRS to find ways to 
allow taxpayers to file over the Internet at no cost to 
themselves.
    Since there has been some confusion about it, especially 
this latter proposal, I would like to clear up a couple points, 
or at least attempt to right now, that have been I think points 
of confusion or concern about this.
    One is, it was not and is not intended that this provision 
is related to the IRS itself offering tax software preparation 
or filing services in any form. That was not the intent. We can 
elaborate on that, but I believe that would not be a wise thing 
for the IRS to do.
    Secondly, with respect to confidentiality of taxpayer data, 
it is clear that this must be assured under all circumstances 
as is required by law; and there was no implication or 
intention in any form that any of the protections for taxpayer 
confidentiality would be modified or compromised in any way, 
shape or form.
    Finally, I think it is the IRS' intent to try to follow the 
provisions of the law concerning the promotion of robust 
competition in the industry and potential use of incentives to 
make e-filing more attractive and to reduce the cost to the 
taxpayer. Our approach here was to ask the industry for 
suggestions on how to accomplish this objective, which we have 
done by putting out a request for them to tell us what their 
ideas are. We think this approach is consistent with the 
thoughtful advice that we have received from the advisory 
committee.
    Mr. Chairman, I just want to conclude here and say that we 
believe there is a challenge to meet these goals, but we are 
working closely with Congress and the industry to try to 
achieve them.
    [The information follows:]



    Mr. Kolbe. Good timing. We have our 5-minute warning here 
on the vote. We will go take it. We have two votes, and then we 
will be right back and begin our questions.
    Mr. Rossotti. Sure. Thank you.
    Mr. Kolbe. The subcommittee will stand in recess 
temporarily.
    [Recess.]
    Mr. Kolbe. The subcommittee will come to order again.
    At the suggestion of two of our members that it might be--
and I think it is a good suggestion--that it might be useful to 
have the private sector panel speak so that we could get--the 
questions for the Commissioner might come out of the things 
that are said by them. If that is acceptable to you, 
Commissioner, why don't we go ahead and ask you to step aside a 
moment? We will ask the second panel to come up here, if you 
would--all three of you, yes.
    Let me, if I might, welcome this panel of outside witnesses 
here to the hearing.
    We have, first, Mr. Charles Lacijan, who has chaired the 
Electronic Tax Administration Advisory Committee during the 
production of the most recent report, the one in June. We will 
submit a copy of this report for the record here and place it 
in the record; and we thank you very much, Mr. Lacijan. We 
found it very helpful to us in preparation for this hearing.
    Mr. Kolbe. We also have Mr. Edward Black, who is President 
and CEO of the Computer & Communications Industry Association. 
The members of that association include a variety of companies 
that are engaged in electronic tax preparation and filing.
    Finally, we have Mr. Paul Harrison, who is President and 
CEO of FreeTaxPrep.Com, a relatively new company, who has a 
strong interest in electronic tax administration.
    We thank you for being with us today. All of you represent 
different aspects of electronic tax administration issues, and 
I think we look forward to hearing your testimony and views on 
this topic.
    Your full statements can be placed in the record, and if 
you preferred, if you would--and I would hope you would--each 
summarize it so we can go directly to questions.
    Mr. Kolbe. We will begin with you, Mr. Lacijan, if you 
might.
    Mr. Lacijan. Thank you, Mr. Chairman.
    My name is Chuck Lacijan. I am the Senior Technical Advisor 
for The Implementation Group, a Washington, D.C., based 
consulting firm. I also served as chair of the Electronic Tax 
Administration Advisory Committee from September, '98, to June 
2000, and have also evaluated electronic filing issues while 
serving on the staff on the National Commission on 
Restructuring the IRS. I will summarize my written statement as 
you requested.
    I would like to acknowledge that in 1995 this committee 
initiated the formation of the IRS restructuring commission. 
Its final report and the subsequent legislation has led to a 
number of new directions at the IRS, including that of 
electronic tax administration.
    Certainly, as we heard today, electronic tax administration 
is one of the most important elements of IRS business systems 
modernization. If you take that, combined with the development 
of the new data engine which will provide timely and accurate 
tax data and post-filing applications, that is really the heart 
and soul of the modernized IRS.
    My written statement provides some background on the 
importance of electronic tax administration and how it can help 
the whole tax administration process run more smoothly, and I 
would certainly refer you to my statement to get some of the 
details of that.
    I have also included in the written statement the role of 
ETAAC and its membership; and I certainly want to stress that 
the June, 2000, report from ETAAC was a consensus among the 22 
members who serve on the committee and who represent a very 
broad spectrum of electronic tax administration stakeholders.
    But let me quickly go to the issue at hand and that is how 
to best use the Internet to achieve low- and no-cost tax prep 
and e-filing. Certainly, the ETAAC supports this objective 
because it believes that no-cost e-filing encourages more 
taxpayers to e-file.
    My written statement identifies several approaches that the 
ETAAC evaluated. The option that involves an IRS offering of 
its own product either directly or through working with a few 
selected providers was thought to be inappropriate at this time 
in favor of letting the private sector continue to provide this 
capability. This position was based on the belief that the 
clear choice of public policy should be to let the private 
sector provide the capability for this no-cost electronic 
filing tax prep, with the Federal Government only stepping in 
if the private sector does not meet the need.
    The reason for this recommendation was simple. It is that 
competition works. I think ETAAC believed that competition is 
the most effective way to provide taxpayers with the widest 
range of tax prep and e-filing services. The marketplace has 
made considerable progress towards this goal in the last few 
years; and I think my fellow panelist, Mr. Paul Harrison, is 
proof positive that competition works and can deliver taxpayer 
options for both low-cost and no-cost electronic filing for tax 
prep.
    The ETAAC also recommended that the marketplace be assessed 
in two years to determine if competition is having the desired 
effect. If not, ETAAC believed that the IRS would then be 
justified in evaluating, in conjunction with the ETAAC, if an 
electronic template or other approach was an appropriate needed 
tool to promote no-cost e-filing over the Internet.
    However, ETAAC is not advocating that the IRS should do 
nothing. I would say quite the contrary. ETAAC believes there 
are some appropriate actions that the IRS can take. That is, 
one, to continue to foster competition; two, to seek industry 
reviews on which barriers lower or inhibit lower and no-cost 
private-sector-supplied e-filing options; and, three, to 
stimulate e-filing through creative advertising and making it 
more convenient to use.
    I would like to now discuss an issue that has arisen after 
ETAAC submitted its report on June 30, 2000; and here I am 
getting into the area of personal opinion as opposed to ETAAC 
consensus, as the ETAAC has not had an opportunity to meet as a 
group to form the consensus since our June 2000 report was 
submitted. In July of 2000 the IRS issued the Request for 
Information or an RFI that I think has caused some confusion in 
the marketplace. The stated purpose of the RFI was for the IRS 
to seek comments and input from the public and private industry 
concerning IRS providing free tax prep and filing of individual 
tax returns over the Internet.
    At the heart of the issue was the following statement taken 
out of the President's 2001 budget request. No later than tax 
year 2002 the IRS would be required to offer one or more 
options to the public for preparing and filing individual 
income tax returns over the Internet at no cost to the 
taxpayer. If the IRS offered such options through contract 
arrangements with authorized IRS e-file providers, it would be 
with the assurance that the taxpayer's tax return information 
would not be used by the provider without the taxpayer's 
permission for any purpose other than submission to the IRS.
    I think, despite denials by the IRS in several forums that 
it did not intend to get into the tax prep business, a number 
of private sector firms believe that the RFI was actually the 
first step to do just that. I think the resulting confusion 
concerning the IRS's true intentions has caused some turmoil in 
the marketplace.
    Congress is now being asked to articulate a public policy 
to address the perceived threat of IRS entry to the marketplace 
that previously has only been occupied by the private sector. I 
think that several recommendations from the ETAAC June 2000 
report can serve as guiding principles in formulating such a 
policy; and I have four items I would like to mention.
    First, the clear choice of public policy should be let the 
private sector provide the desired capability, with the Federal 
government only stepping in if the private sector is not 
meeting the need. Second, for the next 2 years, do not pursue 
the public policy that would require the IRS to offer no-cost 
e-filing over the Internet. Third, the IRS, with the support 
from ETAAC, should assess the marketplace in 2 years to 
evaluate whether the Internet includes no-cost e-filing options 
for taxpayers and make the judgment whether an IRS entry in the 
marketplace is needed. Lastly, the IRS should be encouraged to 
take the appropriate steps, as I just mentioned earlier.
    In closing, I just want to make one observation. Congress 
has laid ambitious goals for the IRS for e-filing--80 percent 
by 2007; and these goals only can be metby partnering with the 
private sector. However, partnerships require a sense of trust if they 
are to work; and, unfortunately, the current situation--gives little 
evidence that the trust needed to succeed is actually present.
    I am not here to assess blame to any one organization. I 
think it is really a question of deciding where we go from 
here. That is the real challenge, and I hope that the guiding 
principles that I laid out will be effective in helping the 
committee reach a decision.
    That concludes my testimony.
    Mr. Kolbe. Thank you very much, Mr. Lacijan.
    [The information follows:]



    Mr. Kolbe. We will hear from Mr. Black.
    Mr. Black. Mr. Chairman and members of committee, I am Ed 
Black, President and CEO of Computer & Communications Industry 
Association. I am very pleased to be here today to testify on 
behalf of the high technology industry regarding the future 
role of the U.S. Government in electronic commerce and 
specifically as it pertains to electronic tax services.
    CCIA is an industry association representing Internet, 
computer, telecommunications, software and electronic commerce 
companies ranging from small entrepreneurial firms to some of 
the largest in the industry. Our member companies employ well 
over half a million people and generate annual revenues 
exceeding $300 billion. We believe technology policy issues 
currently before Congress are critical to the future health and 
growth of the American economy.
    Although the instant question is whether the IRS should get 
into the role of providing electronic tax preparation services 
to the public, the real public policy question at stake is much 
larger and more profound.
    In 1997, President Clinton issued a report that declared, 
``For electronic commerce to flourish, the private sector must 
lead.''
    We believe it is this principled approach that has helped 
the U.S. technology industry to grow dramatically to the 
distinct benefit to American consumers and workers.
    Other governments have heavily regulated e-commerce, 
managing and directing competition or offering government-
sponsored goods and services, distorting their economies and 
stunting their economic growth, which brings us to the matter 
before the committee, the Internal Revenue Service's offering 
of free electronic tax preparation services over the Internet.
    The Congressional mandate of achieving 80 percent 
electronic filing of individual income tax returns by the year 
2007 is a worthy goal and one the private sector 
enthusiastically supports. However, the Congressional mandate 
for electronic filing applies only to the filing of tax 
returns. Congress has not mandated or even provided authority 
to the IRS to offer tax preparation services.
    Private sector innovation and competition has enabled the 
American taxpayer to prepare and file their income tax returns 
electronically at very low cost or at no cost. The options 
available to consumers are numerous, and a number of market 
leaders even donate their Internet-based services to low- and 
middle-income taxpayers at no charge.
    It is difficult to understand, therefore, why the Federal 
government would seek to interpose itself in this robust 
marketplace. Given the success of free market competition in 
electronic financial services, it is difficult to understand 
why the IRS would contemplate setting price controls on the 
products and services of this industry or try to regulate its 
commercial business and revenue models, as IRS officials have 
discussed doing this spring.
    We believe that such regulation would be a fundamental 
mistake that would actually endanger our ability to achieve the 
electronic filing objectives that Congress has brought forth as 
the national policy by impeding the development of a 
competitive market for such services.
    There appears to be no identified justification, no unmet 
need in the marketplace to justify IRS entry into electronic 
tax preparation and to offer it to the public as a new Federal 
service. Our economic system does not countenance the injection 
of the government into competitive private markets in this 
manner. Internet-based electronic financial services are a core 
competency of the private sector. Most importantly, this 
approach runs counter to a sound economic and public policy, 
including the administration's own position on electronic 
commerce.
    As my colleague has mentioned, even the IRS's ETAAC 
committee, its own advisory committee, strongly recommends 
against pursuing this policy.
    The Office of Management and Budget's Circular A-76 
provides a strong policy foundation for decision making in this 
area. That presidential directive was formulated during the 
Eisenhower administration, but it has been forcibly and 
effectively reissued and formulated ever since by every 
President.
    It says, ``in the process of governing, government should 
not compete with its citizens.'' It further provides that ``a 
commercial activity is not a governmental function.''
    A number of Members of Congress have proposed an immediate, 
government-wide moratorium suspending those activities that 
would duplicate or compete with established private sector 
electronic commerce businesses. We believe this is a thoughtful 
approach that will enable Congress to determine the proper 
government role in the emerging new economy.
    We believe Congress and the Administration should act now 
to implement this recommendation. We look forward to 
participating in the policy review that lies ahead and to 
contributing the expertise and insight of high technology to 
this dialogue.
    In the meantime, however, we think it is vital that the 
subcommittee step into the breach, uphold the Administrative 
Procedures Act and OMB Circular A-76 by declaring the simple 
fact that no authorization or appropriation exists for the IRS 
to undertake its announced electronic tax preparation services 
project and that further activity should cease in order to 
permit Congress to perform its lawful constitutional function.
    We think the assessment of every President sinceEisenhower, 
Kennedy, Johnson, Nixon, Ford, Carter, Reagan, Bush and Clinton--was 
correct that it is not a proper function for the government to do this 
and that a competitive enterprise system characterized by individual 
freedom and initiative is the primary source of national economic 
strength.
    I appreciate the opportunity to appear before the committee 
today, and I look forward to working with you.
    [The information follows:]



    Mr. Black. I do have some relevant documents that I would 
like to submit for inclusion in the record, if I could.
    Mr. Kolbe. Those documents will be placed in the record at 
this point--at the point of your testimony, Mr. Black. Thank 
you very much. We will get those from you.
    Mr. Harrison.
    Mr. Harrison. Thank you, Mr. Chairman. My name is Paul 
Harrison, and I am the founder, CEO and President of 
FreeTaxPrep.com. FreeTaxPrep is a venture capital-backed 
company which was founded in December of 1999, and starting 
with the 2000 tax season we will be offering free tax 
preparation and free electronic filing over the Internet.
    I would like to assure everyone here that the management of 
this company is both experienced and very serious about this 
initiative. The management alone has over 60 years of 
experience in the tax technology software and electronic filing 
business.
    We also understand how critical preparing and assisting 
people with the preparation of their taxes is, and we take that 
responsibility very seriously in the way we approach this 
industry.
    In responding to the IRS' 80 percent initiative, I think 
there are some things that we all need to understand when we 
look at how difficult it is going to be to achieve that goal. 
First and foremost, tax software and electronic filing have 
been around for 15 years. I have been involved with tax 
software from the consumer side since 1990.
    To date, only 20 percent of the people who prepare their 
own returns use tax software, and only 10 percent file their 
returns electronically. That leaves 55 million individuals who 
prepare their own returns who do not file electronically. 
Getting those people to file electronically is going to be very 
large hurdle to achieve by the year 2007.
    We believe there are three impediments to achieving that 
goal that need to be overcome. The first one is awareness. We 
applaud the IRS for the advertising campaigns that they are 
undertaking. We applaud the fact that there have been budget 
dollars allocated toward creating awareness with consumers 
regarding e-filing. But we are concerned that that is not the 
most effective way to drive consumer usage of products and 
services that allow them to file their returns electronically.
    The research that we have done with consumers, reveals that 
consumers hear the ads for e-filing, but they don't know what 
it is and they don't know how to do it. So we feel what is 
required is a much more directed campaign, which tells 
consumers what are the options you can use to file your returns 
electronically. This approach would be much less expensive than 
the current method, which is very expensive, for creating a 
brand for e-filing.
    The second impediment to the 80 percent goal is access. Not 
everyone has access to a computer. Not everybody has access to 
computers with modems. I believe there is good news there. All 
of the recent research shows that the highest area of growth in 
both computer usage and in Internet usage, is in the middle- to 
lower-middle-income demographic. That is the demographic that 
is currently least involved with electronically filing their 
tax returns from a self-preparation standpoint. So there will 
be access. Access is moving very quickly into those segments.
    The last impediment to the 80 percent goal is price. This 
is a very, very serious impediment to achieving this goal.
    We are a consumer products company, and as a consumer 
products company, we always look at things from the viewpoint 
of our customer, the consumer.
    Filing your taxes is not a discretionary event; it is 
something that you have to do. Most people do not view it as an 
enjoyable event; it is a chore. When people are being requested 
to file their returns electronically, their first question is, 
what is in it for me. What people see at this point in time is 
that electronic filing benefits the IRS, it makes the IRS' 
handling of paperwork easier; and there is no benefit to the 
consumer, because they don't understand that electronic filing 
is easier, and they have to pay for it.
    Let me give you a very similar example. Prior to forming 
FreeTaxPrep.com, I spent the last five years implementing 
online banking systems for the largest banks in North America. 
When we started doing this work for banks like Bank of America, 
and serveral others, thebanks--wanted more customers doing 
banking online. We did research with consumers, and consumers said 
``You are nuts; we are not going to go online and pay you for the 
privilege to make your life easier and to allow it to be less costly 
for you to process a transaction.'' Citibank finally jumped the hurdle 
and said, It is free.
    Guess what? In a 6-month period of time, Citibank added 
more customers for online banking than the whole industry 
combined. Every other bank got in line and followed, and they 
are all happy they did it, because it broke the logjam and 
created millions and millions of consumers who are on online 
banking now.
    The challenge that we are facing here is very similar. If 
we don't provide a free option for consumers, there are going 
to be some people who are willing to pay, there are going to be 
people who want a more branded type of solution. But for the 
masses, it is going to have to be free to achieve this 80 
percent.
    We are very committed to this model, and we will succeed in 
this model. And we will succeed upholding the highest standards 
of security and privacy for the consumer.
    I can assure this committee that we have no intention of 
using any consumer data without total approval of the 
consumers. We will always ask consumers to opt in to letting us 
use their data. We will not try to trick them by having the box 
checked on the screen. We will always ask them to opt in.
    We will give full disclosure to consumers. We will never 
sell the data, we will never rent the data, and we will not 
solicit these customers without their approval for products and 
services. We want to be the poster child of how you can do this 
and how you can do it right without compromising the goodness 
of the consumer and the privacy of the consumer.
    We do believe the IRS can help companies like us succeed. 
We would like to see the IRS have advertising campaigns that 
are a little more focused on the solutions in the industry.
    We brought to the IRS earlier this year a very extensive 
marketing plan on how we felt they could help us. That 
marketing plan did not include one budget dollar that the IRS 
would have to expend to help us in our efforts. Quite honestly, 
we are disappointed that we have not received any response to 
those recommendations. We think we understand why that is, but 
to date there hasn't been a lot of progress and we have 
essentially taken some different courses with our marketing 
efforts.
    The whole issue of resisting the entry to a market of 
companies like ourselves is really based on a simple fact. In 
1998, tax preparation software for our citizens was an 
oligopoly. There were two companies providing that service. In 
1993, I was on the wrong end of the Justice Department blocking 
a merger of those two tax companies, and it was still in 
oligopoly in 1994.
    In the year 2000, tax preparation software is an oligopoly. 
There are economic interests that the two companies that 
control this market have right now to prevent free tax 
preparation from being successful. We have been very disturbed 
that there have been articles in some of the major newspapers 
throughout the country trying to strike fear in the hearts of 
consumers that free is bad, suggesting that if someone is 
offering free tax preparation, they are going to misuse your 
data.
    There have been articles written that the IRS is going to 
sell the consumer data in return for its free tax preparation. 
We don't believe that, we don't advocate that and that doesn't 
need to happen for this to be successful. We plan on proving 
that in our efforts in the industry.
    The biggest risk here is that these efforts to try to taint 
free tax preparation on the Internet are going to slow down the 
process. We believe this is what has caused the IRS to be 
unresponsive to our request for marketing programs and working 
with them. And quite honestly, companies like ourselves are 
dependent upon raising money in the venture capital community, 
and they ask us the question, does the IRS support what you are 
doing.
    We would like to see some more support from the IRS.
    In closing, I can assure you, we will adhere to the highest 
standards possible. We will be good partners of the government, 
we will be good partners of our customers, and we will be good 
partners of the IRS. We want to make this work. We are 
committed to making it work. And we will provide the taxpayers 
of this country a secure private online solution which is free 
for both preparing their taxes and electronically filing them.
    And I thank you for the opportunity of speaking today.
    [The statement of Mr. Harrison follows:]



    Mr. Kolbe. Thank you very much. I think the testimony of 
all of you has been very helpful.
    Could I get the three of you to kind of roll your chairs to 
the side so we can get the Commissioner up here. There we go.
    Now, if we could just get everybody to slide down a little 
bit, we will get the Commissioner up there at the table. 
Everybody, thank you.
    I think this is very useful information for us to have, and 
it raises some real questions. I am not on the authorizing 
committee, of course, which crafted this language about 
electronic filing; and so maybe among all of you, you can help 
me understand this a little bit. It is important for us and the 
Appropriations Committee because we have the responsibility to 
be sure the IRS is doing its job of implementing congressional 
intent.
    On the one hand, we have the idea of the goal of the 80 
percent filing. We have the idea of providing free filing on 
the Internet, free filing through the IRS. On the other hand, 
although that may be--although Mr. Harrison has told us it is 
not to some, it might sound like this is inconsistent in the 
marketplace--how do you do something free? I think I know the 
answer that Mr. Harrison would give to us.
    So let me begin by asking the Commissioner whether 
youbelieve it is possible to have free filing to the IRS and have it 
done through the private sector?
    Mr. Rossotti. I think it is possible because it is being 
done now. Even last year there were some offers--as I think Mr. 
Black noted, there are some companies that offer free filing to 
people that file certain kinds of returns, usually lower-income 
returns, and those are potentially fairly significant.
    In addition to that, there is at least one company that I 
am aware of, maybe others, that offer either no-cost or low-
cost filing through the Internet; and Mr. Harrison has noted 
that he is going to be offering some services.
    So I think the market is developing much as ETAAC noted, 
and I think, contrary to what you may have heard, the IRS is 
simply trying to foster that trend. I mean, the act itself 
simply says that we are supposed to--I think words are ``reduce 
barriers,'' ``provide incentives'' and ``provide for robust 
competition.'' Those are the three pieces in the act.
    We have not used any financial incentives which were 
authorized, because the industry told us they would rather have 
us work on reducing barriers rather than do that--although that 
possibility could exist. But we have asked, through the RFI. 
And again we may have unintentionally caused some confusion 
here, but the purpose of the RFI was to solicit--gee, it would 
seem I didn't know ``on'' from ``off.''.
    Mr. Kolbe. That is one of those computers that handles all 
of those.
    Mr. Rossotti. But really our intent was simply to solicit 
from the industry and our representatives of the industry here 
what ideas they had as to what we could do to basically try to 
support this trend, which is already happening to some degree, 
but we would like to support it as much as possible. And, you 
know, we don't know really all the possibilities that exist out 
there.
    I mean, the Internet especially is a fast-changing market. 
We don't know all the business models that people have. So we 
would like to get as much input as we can from the industry and 
use that to see if there are some things that we could do.
    Mr. Kolbe. Does the idea of making it possible for people 
to do free electronic filing mean that the IRS needs to provide 
a software program to make that happen?
    Mr. Rossotti.  I don't believe that that is true. I 
really--having been a part of the software business myself, and 
now having been in the IRS, I think we have enough to do with 
developing software for the things that we have to do 
internally, that it is not good sense for us to get--that is 
not necessary.
    But I think you know the access that we should support or--
--
    Mr. Kolbe. So you believe you can meet the terms of the act 
without actually getting into the software business?
    Mr. Rossotti.  I believe that we can. I mean, I obviously 
won't know everything we can do, but I think that there is 
enough going on in the industry that if we do what the act 
says--press for competition, provide incentives--we need to 
find out more from the industry, what kind of support they 
need.
    Mr. Harrison said he would like to get more support from 
us, you know, in some form. I am not sure exactly what that 
means, but we would like to find out from companies like his 
what it is that they would want. We have links on our Web site 
for example. Maybe we could do more links on our Web site to 
refer people to companies that offer these services.
    Mr. Kolbe. Let me turn now, if I might, to the industry 
people here and ask them the response to that question. I take 
it, the concern you have, or at least what we heard certainly 
from Mr. Black as a concern, is that you are not at all sure 
that the IRS really does intend to meet the requirement of the 
reform act without developing its own software.
    Would that be a fair recapitulation of your statement?
    Mr. Black. Partly, Mr. Chairman, yes. The IRS can get into 
the marketplace by them actually writing their own software or 
by trying to pick winners and losers by perhaps identifying one 
firm, and making an exclusive contract. So they could do it 
through a contract.
    Mr. Kolbe. Do you see that happening? What is your--are you 
concerned that this is a potential problem, or is this 
something that you see some----
    Mr. Black. There have been a number of statements made by 
IRS officials, ETA officials, that have indicated that was the 
intent. There was an indication during deliberations on 
authorizing legislation, in fact, to obtain certain authority 
that moved in this direction. I think the Commissioner has made 
a very articulate statement about not wanting to move in this 
direction, but I am not at all sure that that is universally 
shared within all parts of the agency, and we constantly sense 
that there is such a desire.
    I should also add that while we fully support the goal of 
electronic filing at 80 percent, we do not think there is any 
national mandate to move towards zero-cost, free filing. If the 
private market can get there--and it is clearly moving to lower 
costs, and people that provide these services have great public 
services in providing low- and middle-income taxpayers that 
opportunity--we think that is great. If the market moves there, 
so be it.
    Mr. Kolbe. You do not think--let me just see if I 
understand.
    You do not think there is a mandate. Is that a goal, 
though, a public policy goal that we should be moving towards, 
of no-cost filing?
    Mr. Black. I don't think that there has been such a goal 
established by either Congress or the executive branch. If that 
is a goal that we should perhaps consider pursuing, then, the 
policy process of the U.S. Government ought to make that 
decision. But that has not been a decision that has been made, 
so far as we can tell, by any statutory authority, nor any 
presidential directive. So we think that, if this is a public 
policy decision people want to make, we will debate it. We 
think the arguments are yet to be made on both sides.
    Mr. Kolbe. If I am filing, not electronically, if I can 
figure out all the forms and get them filled out myself on 
paper, the cost of filing is the stamps to mail it. So it can 
be done free other than the postage cost.
    Mr. Black. The cost of filing entails tremendous man hours, 
huge cost. That is what software, through logarithms, in 
essence replaces. There is a huge cost to the private sector in 
technological development research to, in fact, create it and 
an ongoing need to update those logarithms to do the tax 
preparation. So there is a savings----
    Mr. Kolbe. There is a savings in time. There is noquestion 
that time is dollars, time is money. But in actual cash outlay, you are 
saying there is a difference.
    Commissioner, do you see that as accurate, that there is no 
mandate in the legislation to move to----
    Mr. Rossotti.  No, I don't think there is a mandate in the 
legislation to reduce the cost of filing to zero. I think the 
mandate in the legislation or the goal in the legislation is to 
find a way to get to 80 percent, and we are supposed to do that 
by three means. One is--you know, again I go back to ``reduce 
barriers,'' ``provide incentives'' and ``press for robust 
competition.'' I think that is what we should do.
    That is a perfectly reasonable set of guidelines. It also 
provides a process for us to consult with ETAAC, which has been 
designated to be set up under the legislation. And we have been 
consulting with ETAAC. I think their advice in the June 30th 
report is pretty wise advice; I certainly accept that advice.
    I think the idea of the RFI we put out was an attempt, 
although there might have been confusion about this, to simply 
solicit industry views about how we could do what it is, who is 
to press for robust competition and support the industry in the 
direction it seems already to be moving, which is to provide 
more services at less cost.
    I think, as I said in my prepared testimony, that based on 
what I have heard--and I think Mr. Harrison's research showed 
this--that there are a number of barriers that stand in the way 
of getting beyond the level we are at now. Not all of them are 
costs, but one of them is cost.
    We do certainly hear from taxpayers that they--some 
taxpayers are concerned about the fact that they have to pay a 
fee to electronically file their tax return, and if they can 
use a stamp not to--whether that is rational on their part, 
based upon how much time they would save or not, it 
nevertheless is certainly something that we believe is a view 
held by some taxpayers.
    Mr. Kolbe. Mr. Black.
    Mr. Black. Mr. Chairman, I think what is lost here is there 
has been a recent request for information that is, in essence, 
a procurement to provide this service.
    Mr. Rossotti. It is simply a request for information.
    Mr. Kolbe. There seems to be some dispute about this.
    Mr. Rossotti.  In our information, it is just a request for 
people to provide views. There is no procurement involved. 
There is no specific proposal. There is no more contemplated. 
All we have asked is for people to give us views and answers to 
some questions.
    I am afraid I have to correct that. That is not an accurate 
statement.
    Mr. Kolbe. Mr. Black, I would be interested in hearing your 
thoughts about that. A request for information is very 
different from an RFP, which is a request for a proposal which 
is a specific contractual obligation at that time IRS intends 
to enter into upon completion of that. Is that not correct?
    Mr. Black. It is not an RFP, that is correct. But as we 
view it, in essence what it really is doing is requesting that 
kind of connection to the private sector and asking for 
private-sector participation; and we see that what can go on 
here is in essence picking somebody in the private sector to be 
the arm of the IRS in providing this service.
    Actually, that is what we think is happening.
    Mr. Kolbe. I take it your real concern at this point, as I 
hear--what I heard in your testimony--what you have said again, 
Mr. Black, is the idea of the IRS picking and choosing winners 
here; is that it?
    Mr. Black. That has certainly been part of it.
    If I may make reference to the cover letter of the RFI 
itself, it does say that ``the IRS plans to issue a subsequent 
solicitation for the purposes of identifying organizations who 
are willing to offer free tax preparation, and electronic 
filing via the Internet.'' It says ``this RFI is for planning 
purposes only. Responses to this RFI are not offers and cannot 
be accepted by the Government to form a binding contract,'' but 
they do plan a general solicitation. It is the first step in a 
procurement process.
    It is not an RFP itself, but it appears to be a step in the 
procurement process.
    Mr. Kolbe. Well, I don't want to get into the ``he said, 
you said,'' but let me ask the Commissioner to respond to that 
statement.
    Then I will ask Mr. Price for some questions.
    Then I want to go to some other areas and involve the other 
people here.
    Commissioner, that statement about subsequently seeking 
proposals----
    Mr. Rossotti. I think what we intend to do is look at the 
responses we have gotten. By the way, we have gotten about 150 
responses so far. So therefore we presume there are a lot of 
different views as to what could be done and what should be 
done, and until we look at that, we are not going to have----
    Mr. Kolbe. Where are these coming from? Are these coming 
from----
    Mr. Rossotti. Industry.
    Mr. Kolbe. From Internet as well as software and----
    Mr. Rossotti. There is a wide variety of people that have 
responded. I am afraid that--you know, it is possible that we 
contributed to the confusion, but I think I should make it 
clear that there isn't anybody in the IRS that is going to do 
anything, to put it very bluntly, that I don't agree they 
should do, because that is why I am the Commissioner.
    I have stated on the record here to the committee that we 
are not doing a procurement, so if there is someone that has 
told Mr. Black that we are doing a procurement, let me know who 
it is, because that is not going to happen, Mr. Black.
    Mr. Kolbe. Once again, we are going to get interrupted. I 
am going to see how far we have to go before we go.
    This is the vote on the continuing resolution.
    Mr. Price, I will ask you for some questions.
    Mr. Price  [presiding]. Thank you, Mr. Chairman. Let me 
echo my thanks to the entire panel, both panels for your 
testimony here today.
    I would like to concentrate on the Commissioner's testimony 
mainly, although I do want to say, Mr. Harrison, I am intrigued 
by what you say and that--what you said and some other services 
that I have learned about are the pretexts for the question I 
would like to pose to the Commissioner.
    The Commissioner has said more than once that the hurdle to 
be surmounted, cost to the taxpayer, is a significant barrier 
to the 80 percent goal we all want to reach. This morning, 
actually, I reviewed a tax return and it was not a return from 
a particularly low-income taxpayer, a tax return that was filed 
electronically for free this year via H.D.Vest Online, and I 
have a little information about this service.
    This--I don't mean to single out this company particularly; 
I am interested in how typical this is, or how feasible this is 
to become more widespread.
    H.D. Vest--this article from E-Commerce Tax News by David 
Harristy, June 25th of this year, says H.D. Vest has a plan to 
provide free tax return preparation services. Services include 
both Federal and State individual income tax returns, as well 
as free electronic filing. According to the company, from 
January 28th to April 17th, there were more than 1.5 million 
unique visitors to the H.D. Vest site; of these, more than 
260,000 prepared and e-filed their 1999 income tax returns free 
of charge.
    How does this work? Where is the profit in this? Well, the 
article goes on that when an individual comes to the H.D. Vest 
site for free tax return preparation, the site provides 
information on other services that are available from local 
affiliates. The hope is that users of free services will 
eventually become buyers of premium services.
    Now, I assume that there is already evidence, pretty 
convincing evidence, that free filing via the Internet is 
possible, is feasible, is electronically workable. Is this 
something the IRS, Mr. Commissioner, is in any way encouraging? 
Are there aspects of it that you are concerned about? Is this, 
in fact, the wave of the future?
    Mr. Rossotti. Well, I think it is certainly something that 
we are observing carefully. I think it points to the fact that 
the industry is responding with new and creative options as to 
how we can improve the services that are available.
    Mr. Harrison noted that he is starting up a company. I 
think what we simply are trying to do, notwithstanding maybe 
some of the confusion that we may have caused inadvertently, is 
to simply support these--you know, these trends which seem to 
be moving in the right direction.
    There may well be things that we can do in the way of 
supporting or encouraging or advertising or marketing or 
working with companies that are offering services that are 
going in the direction that I think we all want, which is to 
offer more services at less cost to the taxpayer.
    Mr. Price. There are other hurdles to taxpayer acceptance, 
some of which you have referred to--data security, personal 
privacy, the prospect of being put on some kind of e-mail 
mailing list--and then the problems this could pose, I suppose, 
for dispute resolution down the line.
    You, of course, have testified very strongly that 
confidentiality of taxpayer data must be assured under all 
circumstances. Do these online services pose particular 
challenges in that regard? Has the IRS's role in overseeing 
these services and working with these providers in offering 
greater assurance to taxpayers that their data is secure, their 
privacy is protected?
    Mr. Rossotti. I think that our role is actually spelled out 
in the statute or in the regulations. There is a specific 
regulation, known as Regulation 7216, which actually deals with 
tax people who are tax preparers. And although the Internet is 
new, it has been determined that companies who offer tax 
preparation software over the Internet are considered tax 
preparers, and they are governed by this particular regulation. 
And it really spells out pretty concretely, with some very 
strict limitations as to the privacy of taxpayer data, the 
confidentiality of taxpayer data, including the issue of use, 
or reuse, of any information on the return.
    So what our goal is, or our--I guess our need is to make 
sure that we administer that regulation, get questions as they 
come up, if there are new issues that haven't been considered 
before; and try to get industry input or industry questions 
about any new questions that might come up.
    But fundamentally the standard is set by law. It is our job 
to administer that and to provide any new answers that might be 
coming up as a result of the new technology.
    I think more broadly, you know, protection of confidential 
tax information, that is one of the most fundamental aspects of 
the whole tax administration system. There are many, many 
things, you know, that the IRS would like to do with technology 
which we are being very cautious about simply because of the 
paramount need to protect the security and confidentiality of 
taxpayer data. We have no interest and no authority to 
relinquish or in any way weaken that standard.
    So our role is to administer the standards that exist in 
the protection of taxpayer data. Clearly, there could be some 
novel issues that come up as the result of new technology 
which, with the help of our counsel, we have to react to. But 
the policy, I think, is quite clear and it is set by law.
    Mr. Price. And you seem to have little doubt that the IRS's 
proper role can be clearly delineated.
    You have some interest--I think, some responsibility--to 
promote and encourage the provision of these services, to 
consult with those providing the services, to make certain that 
it is meeting your specifications, to make certain that there 
are consumer protections involved.
    You are satisfied that there is not a problematic gray area 
there, where the agency might go into a more overtly 
promotional mode?
    Mr. Rossotti. Well, I think that there is not a gray area 
in the sense that the IRS should be getting into, or would 
intend to get into, the business. I think that would be very 
unwise, either by contract or in any form.
    I think, though, where it comes into the question, to 
provide incentives and promote robust competition there is 
certainly a question and there may be differences of view as to 
how we should do that. I mean, ETAAC said we should continue to 
press for competition; the law says we should press for robust 
competition, and it also says we could provide incentives, 
working with companies to do cooperative advertising perhaps.
    We don't know what the requests are, or the ideas are, that 
the industry has come up with in response to our RFI.
    So there isn't any question about the protection of 
taxpayer data. That is set by law and it is of paramount value 
and importance in the tax system. I don't think, at least from 
my point of view, there is any gray area in terms of the IRS 
either by--in any form, really, getting into the tax 
preparation or tax--even the tax filing business.
    I think where you get into the question is, what does it 
mean, you know, and what are the appropriate things to do when 
it says ``provide incentives'' and ``press for robust 
competition.'' That is what we are trying to find out. The 
purpose of the RFI was really to find out what views we might 
receive from the industry about how we could proceed there. 
Andthere could be disagreements about that.
    But I think that is really the question: what should we be 
doing to provide incentives and press for robust competition?
    Mr. Price. I appreciate that answer. It does seem to me 
that the industry complains notwithstanding the fact that the 
industry is going to depend on the IRS to promote electronic 
filing if they are to succeed, and that this should not be an 
adversarial situation.
    Mr. Rossotti. I don't think it should be. I think, for the 
most part, our interests coincide. That doesn't mean there 
couldn't be, you know, disagreements about some specific item.
    It is also the case, though, that the law provided, I 
think, an interesting process. It said where there is any 
disagreement, we should consult through ETAAC, which is what we 
would intend to do. So, I mean, before we could do anything of 
any significance--there would not be anything that we could do 
on our own--we would consult with ETAAC as the designated 
advisory group to work with us on any initiatives that we might 
take.
    Mr. Price. Thank you. We have a vote on. What is our 
process here?
    Mr. Hoyer. We are going to recess pretty soon.
    Following up, I understand this question wasn't asked. I am 
sorry that I wasn't here for all the testimony, but I am going 
to read all the testimony. I was on the House floor discussing 
the next continuing resolution bill.
    There is some concern expressed by the fact that the IRS 
would align itself with certain e-authorized vendors. Do you 
have any plans to align yourself with any vendors?
    Mr. Rossotti. We have no plans. Well, we have all the 
electronic return originators, about 77,000; we are not aligned 
with any one of them.
    I think that--you know, the question that may come up as we 
receive input to this RFI is, what proposals do people have to 
work with us in a cooperative way. We certainly would not be 
authorized through this RFI process to pick, you know, one 
company or a small set of companies or any subgroup of 
companies. But the question that we are asking for is what are 
their ideas about how we could effectively work with them--you 
know, whichever ones are interested in working with us--and 
before we would be able to do anything on that, we would 
certainly consult with ETAAC. That is what is described by the 
statute.
    Mr. Hoyer. Thank you, Mr. Commissioner, and gentlemen. The 
chairman is going to be back. I can't come back because I have 
a 3:30 meeting, which will obviously be pushed back. But the 
chairman indicated he would be back. So we will recess the 
hearing until the chairman returns. Thank you.
    [Recess.]
    Mr. Kolbe. The subcommittee will resume. I apologize. That 
was the last interruption for the day, so at least we don't 
have to do this again. I apologize--all of you, I suspect, have 
testified before--or certainly been around hearings here enough 
to know how votes tend to interrupt these hearings. But sorry 
that this has happened.
    Let me go back to a couple of other things that I wanted to 
talk about.
    First, Commissioner Rossotti, the plans you are talking 
about for reducing the barriers, the things that you need to do 
to enhance the electronic filing, to what extent is this 
dependent on your modernization plans, your technology 
modernization plans; and I might add, your reorganization 
perhaps?
    Mr. Rossotti. Well, I think that, as with all the things, 
you know, Mr. Chairman, we tried to segment things we can do 
immediately from things that will take longer.
    The immediate things----
    Mr. Kolbe. I think your button is off.
    Mr. Rossotti. The immediate things that we are doing over 
the next filing season and the following filing season are 
largely being done by upgrading the existing legacy systems, 
because that is the only way we can get those done in that 
period of time; and those are well under way.
    However, some of the longer-term things are dependent 
entirely on the technology modernization and, in particular, to 
be able to convert our ability to do business with taxpayers 
and practitioners beyond just filing; in other words, to be 
able to do other kinds of transactions--to do the whole tax 
administration process, to provide them access to taxpayer 
accounts, to do electronic messages--those things are entirely 
dependent on our technology modernization.
    And, in fact, the request that, you know, we have been 
working with your committee on for the 2002 release has steps 
in that direction. So that would allow, for example, electronic 
originators to communicate with us in a secure way over the 
Internet for such things as applying for applications and 
eventually exchanging account data.
    So those things are very important, and they will fit into 
the overall process of creating a greater incentive for people 
to do business with us electronically.
    But the immediate steps that I specifically mentioned of 
eliminating the need for the paper form and extending the 
filing option to all the forms and schedules, those are more 
tactical initiatives that we need to get done right away 
through our existing legacy systems.
    Mr. Kolbe. By the way, your mentioning the additional forms 
raises just one thing in your testimony I just wanted to ask--
this is kind of an aside. You said with that it would then be 
possible for 99.1 percent of people who file electronically. 
What is the nine-tenths--what is the 1 percent that gets left 
out?
    Mr. Rossotti. There are some, honestly--we have lots of 
little schedules that are used by people in very limited 
circumstances.
    Mr. Kolbe. So there are some of the forms that will not 
be----
    Mr. Rossotti.  Just a few things. I don't frankly know what 
is limited; I don't think it is technical. I think there are 
some legal requirements, but effectively they affect a very 
small number of people. We consider that will be as close as we 
need to get.
    Mr. Kolbe. One of your modernizations is the Security and 
Technology Infrastructure Release, as it is called, STIR, which 
provides the security infrastructure foundation necessary for 
conducting the business functions, such as electronic services. 
Would you comment on the GAO conclusion that this project needs 
to go through a rigorous assessment of security threats and 
vulnerabilities?
    Mr. Rossotti. We agree with that. It does need to and it 
will because that is the sort of core infrastructure project 
that will provide appropriate security mechanisms for 
essentially all of our technology modernization. So it is 
literally the critical component in terms of security. And we 
will--through a rigorous security assessment, we have anumber 
of resources available to us to do that. One of them is our own 
internal security office, which we built up considerably; the other one 
is MITRE Corporation that has a great deal of expertise.
    We will be using all the resources, as well as that of the 
prime contractor, to assess the threats and issues that will 
arise. That will be an ongoing process. We will be doing that 
as part of the development process, but also as we move through 
it and we learn more about threats that might exist.
    So we concur with that recommendation, and we intend to 
pursue that vigorously.
    Mr. Kolbe. Okay. Let me turn back to some of the testimony 
that we heard from the other panel.
    Mr. Harrison spoke about the concerns that have been 
expressed on the privacy issue. I think some of the others 
alluded to that, as well.
    Commissioner, you did too.
    Let me just ask this question as a kind of a--in terms of 
being provocative, not necessarily expressing my view of it, 
but just to take an extreme position, what difference should 
the privacy issue make before the information gets to the IRS?
    If I want to go out with some private company--with Mr. 
Harrison's company or somebody else--sell it, let him use it, 
if I know that he is using it, if he wants to tell me that that 
is my business, or my problem, perhaps, but until it gets to 
you, until it is transmitted through the Internet or 
electronically to you, what concern do you have about that?
    Mr. Rossotti. Well, I think that is definitely a broad 
policy issue that has been probably thrashed out over the 
years. But in that policy-making process which is incorporated 
in, you know, Section 7216, which is the part of the regulation 
that regulates tax preparers--this is way before there was an 
Internet; this deals with tax preparation business--I think the 
policy decision was made--and this is long before I was here--
that in this sense, the people that prepare tax returns are 
part of the tax administration process and that there are some 
protections that need to be established for the taxpayer as to 
how their data would be used or not used. And those policy 
decisions were incorporated in--you know, and they have been 
long-standing policy decisions that have been in place in 
business for a considerable period of time.
    And I think--you know, it is interesting that those were 
made before. You know, I think in recent years the issue of 
privacy has become a greater public concern, or at least it has 
been expressed more vocally; and yet, you know, even prior to 
this time, there was a reasonably strict regulation--actually 
quite strict regulations that were established to protect 
taxpayer data even while it was in the hands of people who 
prepare the data.
    In a sense, the tax preparation industry is, I guess, 
viewed in that sense as part of the broader tax system. And 
certainly we view it that way. We view tax preparers as very 
important partners; the tax system wouldn't work without them. 
But there is a balancing act there that has been established in 
the form of this policy. As I see it, our role at the IRS is 
simply to administer that policy the best way we can. And 
certainly if there are those issues that arise because of 
technology, we would have to try to find answers to those.
    So the policy is pretty well established.
    Mr. Kolbe. So the policy is that tax preparers are guided 
by certain requirements of protecting the privacy even though 
they are in the private sector and that is before the 
information is transmitted to you.
    So, Mr. Harrison--now, the others can comment on this as 
well--did you agree with that? And if you do, it is pretty 
obvious how a tax preparer that does it not electronically, or 
even electronically now, and I walk into their office--just use 
a name--an H&R Block, when I walk into their office, it is 
pretty obvious how they get their compensation; they charge me 
a fee for preparing my return.
    You are talking about a system where you don't do that, 
where it could be done free, which means that you have got to 
get your financial reward in some other fashion. How do you do 
that and protect the privacy at the same time?
    Mr. Harrison. Well, first off, we agree with the assessment 
that the Commissioner has stated regarding the privacy 
provisions. I would say that there is a question--while we plan 
fully on following those, there is a question as to--it is 
wrong for us to say, It is our data; and I think it is wrong 
for the IRS to say, it is their data, because in the end it is 
the individual's own data and we must not to lose sight of 
that.
    However, in our business model, we really are focused on 
the fact that there are $146 billion of tax refunds that are 
issued each year. And the consumer is very concerned with 
convenience and very motivated by convenience. We want to make 
it convenient for the consumer to put those refunds to their 
intended use whether that is putting them in touch with a 
merchant where they can buy a product from that merchant, 
whether it is putting those funds into an investment account of 
some type, whether it is getting a loan against those funds. 
Whatever it may be, that is how we are focused on our business 
model.
    We do not need to use taxpayer's individual data to do 
that. We are not going to be looking at how much money they 
make. We are not going to be looking at what type of deductions 
they have, how many children they have, anything of that 
nature.
    I would say that if there is one thing I would request that 
the IRS look at, it is the use of electronic signatures. The 
regulations are currently written to require an actual written 
signature, assuming that people are in tax preparation offices. 
That does not work in the electronic world.
    The IRS has made great strides in allowing taxpayers to 
file paperless returns. I think the next thing they need to be 
able to do is to allow the individual to use that code that 
they create electronically to allow companies like ourselves to 
use that data for other means.
    Mr. Kolbe. I don't want to lose the thread of what I was 
talking about here about--according to your testimony, you are 
well on the way to solving that problem; are you not?
    Mr. Rossotti. I think what Mr. Harrison is saying, we are 
well on the way to solving it with respect to the things that 
have been of most concern in the past, up to now, which is 
having taxpayers file their return electronically and having to 
send in a separate piece of paper with a signature. That 
problem is going to be stopped as soon as this current season.
    Mr. Kolbe. So they will not have to send in a separate 
piece?
    Mr. Rossotti. They will not have to for the purpose of 
filing their return.
    But what I think Mr. Harrison might be referring to--
correct me if I am wrong--is what would be required for a 
taxpayer to give a firm permission to, for example, market some 
other service or use their name in some other way.
    Mr. Kolbe. Directly to the individual?
    Mr. Rossotti. In other words, the taxpayer under the 
rules--the tax preparer is not allowed to use the taxpayer's 
information in any way, shape or form to market without their 
permission, without a physical signature----
    Mr. Kolbe. Oh, without a physical signature.
    Mr. Rossotti [continuing]. For that purpose.
    Mr. Kolbe. Okay. And, Mr. Harrison, you are saying that 
that is the area where the signature issue has to be addressed?
    This is in the rules governing tax preparers, I gather.
    Mr. Harrison. Yes. We believe that is the main thing that 
needs to be addressed.
    We believe there are ways over the Internet of ensuring 
that it is a legitimate signature. We would sign up for all of 
the audit provisions where people come in and audit, that we 
are actually receiving these signatures, before we use the 
data; but clearly that hurdle does have to be overcome.
    Mr. Kolbe. So this is the kind of signature you would get 
at the time somebody comes in or comes through the Internet, 
contacts you to do their return, you prepare the return and 
file it. You would get it, and that is the way basically you 
get the compensation for your company; once you have that 
signature on file, you can then market the information not 
about their tax return, but only about making available 
information about how they could use their refund; is that 
right?
    Mr. Harrison. Right. We have ways now, we have a revenue 
model that is not totally dependent on that signature. There 
are things we can do within the rules that do not require that 
signature. However, not being able to get that signature 
electronically is actually going to force misuse of that data.
    Earlier there was a reference to H.D. Vest. They wanted to 
use the personal data to help people do financial planning and 
to turn them over to a real-person financial planner. Because 
of these regulations, what they did--and we don't approve of 
what they did, but what they did was, they had a taxpayer go to 
their site and they said, We would like to collect your 
personal financial information; and they did that up front in 
the context of a financial planner.
    Then they said, by the way, we will use that data to fill 
out your tax return. So they somewhat sidestepped that 
regulation by collecting the data first and doing the tax 
return second.
    We don't think that should have to be the case. We just 
feel there needs to be a way to facilitate a signature in the 
electronic world.
    Mr. Kolbe. The business you are doing seems to be posing 
some very interesting questions. And I have no objections to 
it; I think it is very good for the consumer. But it is 
interesting, I would not--if I were XYZ Investment Company, 
Brokerage House, I would not be able to go to the IRS today and 
say, hey, I would like to buy a list of everybody that is 
getting a refund, just so I could do a mailing to them. I don't 
want any other information about their return; I just want a 
list of everybody who is getting a refund, but I would like to 
contact them about a way in which they could put that money to 
good use here.
    Mr. Harrison. That clearly is not our intent. What we will 
do at the end of a tax return is tell the taxpayer that there 
are various things you can do with this refund. If you would 
like, you can get a check from the IRS. If you would like, we 
have a relationship with X Brokerage Company; we can 
electronically deliver that money directly to an investment 
account.
    But consumers will always be given the option of what they 
want done. We will not supply the names in that context.
    Mr. Kolbe. Mr. Lacijan, you spoke a couple times in your 
testimony about the problem of trust. And I wonder if you would 
talk about that a little bit, in what you see as the 
relationship between the electronic tax preparation industry 
and the Internal Revenue Service.
    Is trust an ongoing problem that we haven't solved or 
figured out yet, or how are we doing in that regard?
    Mr. Lacijan. Just a little side comment first: If the IRS 
could sell the names of everybody getting a refund, the need 
for future appropriations would go way down.
    I think the discussion at the table has confirmed my 
testimony that the RFI has caused some confusion in the 
marketplace, and we are not quite up at the partnership level 
yet. Certainly, I think there are things we need to work 
together on to overcome that. I think there needs to be very 
open communication on both sides of the issue from IRS to 
industry and industry back to IRS. ETAAC certainly is one way 
to do that.
    There are industry groups that exist in addition to ETAAC. 
But clearly industry dislikes uncertainty. You can't expect 
someone to invest millions of dollars in a concept for a 
product and then find out 6 months after that the IRS is going 
to offer the same product for nothing. So there clearly needs 
to be a sense of openness in terms of what IRS is planning to 
do and what they expect the private sector to do.
    Mr. Kolbe. Is the IRS making good use of ETAAC, of the 
Electronic Tax Administration Advisory Committee? How do you 
feel the relationship between, if not the whole industry and 
IRS, between at least your advisory committee and the IRS has 
been?
    Mr. Lacijan. I think among some of the members the issuance 
of the RFI after we made our report caused some concern that 
their advice, the advice we gave in the June 2000 report, 
wasn't being followed; that they would have expected that IRS 
would not have issued the RFI in light of the recommendations 
in the ETAAC report not to pursue a public policy to have IRS 
offer its own e-filing product.
    This was in the belief that the RFI was leading to the IRS 
offering its own product. So I think that is part of the 
confusion of which I spoke.
    Mr. Kolbe. Commissioner, I gather you would say this is a 
misunderstanding?
    Mr. Rossotti. I have acknowledged--first of all, I believe 
that--as I have tried to do very diligently, I think, with 
almost all of our stakeholders, all of our stakeholders, I do 
believe there is an important relationship in trust and open 
communication.
    Every once in a while, I have to concede, it breaks down 
for whatever reason; then we have to repair it.
    But with respect to this RFI, there has been a 
miscommunication. It was not our intent, you know, to do 
anything other than solicit industry views about how we could 
promote the objective of reducing the cost and making 
electronic tax preparation more available over the Internet. It 
is not, I think, anything more than that.
    There are certainly things some people probably said that 
could be interpreted that way. My purpose--one of my purposes 
here today was to try to clarify that and to make it clear that 
was not the intent.
    I think that we do have to acknowledge that while we have 
to have a good relationship and an open relationship, that 
there are different views within the industry. I think we have 
heard some of them here today. And there is a question, I think 
when you were just coming back, that Mr. Hoyer asked me: Is 
there a gray area?
    I don't think there is a gray area about what the IRS' role 
is in terms of providing services, because I don't believe that 
we should provide tax preparation services or tax software.
    I think where the question might arise is with respect to 
the part of the law that says we should provide incentives and 
encourage, quote, ``robust competition''; you know, what it 
means, what that means exactly, is open to some interpretation. 
And I think that we do have a commitment to work with ETAAC to 
get their input and their advice that, I think, has been very 
good in the past. I don't see anything in their June 30 report 
that I don't agree with. As a matter of fact, they indicated, 
in two years they might reconsider and get into some sort of a 
product. I think that could happen.
    But that is a thing that they propose. I would be very 
skeptical of even that, because I don't really see that that 
kind of an approach. I think that would be getting the IRS 
further even than I would want to see us get into.
    So I do believe that there is a need to, every once in a 
while, improve communication where it breaks down. I think 
there might have been some confusion that we created here. But, 
you know, one of the advantages of this hearing is that it 
helps to clear that up.
    Mr. Kolbe. If we can do at least that I would appreciate 
that. Yes, Mr. Lacijan.
    Mr. Lacijan. As a the follow-up, I think in the three years 
that Commissioner Rossotti has been commissioner external 
stakeholders would give him very high marks for outreach.
    Mr. Black. Mr. Chairman, first, I would like very much to 
associate myself with the comments of Mr. Lacijan. I think it 
is important we remove the cloud. We want the trust. We very 
much want to work in partnership with the IRS. Right now, we do 
have this cloud of uncertainty hanging over us, and while you 
were gone we talked about how the language----
    Mr. Kolbe. Excuse me for interrupting. But do you see that 
cloud as being created by this RFI?
    Mr. Black. Tremendously so. There were statements made by 
IRS officials which were reported in the press that basically 
used the terms RFI and RFP interchangeably over the course of a 
whole industry conference. In addition to that, with the 
President's budget submission, the fact sheet of the IRS itself 
for this year's budget said, ``the IRS could implement this 
option by issuing a Request for Proposal to the industry 
requesting vendors to submit proposals that would meet these 
requirements.'' So there are out on the record indications that 
indicate there is some intent of the IRS to move this way.
    But the Commissioner made some very useful, strong 
statements today; and if we can take some of that, in essence, 
as a pledge they are not moving in that direction and if, 
frankly, the committee would adopt the ETAAC recommendation to 
signal in its language accompanying Treasury-Postal 
appropriations that there should be a two-year moratorium on 
the IRS moving into this area, that would remove the cloud.
    We would say that it is not going to happen. They will have 
been told it will not happen. There is a moratorium.
    Now let's sit down together and work and really make 
electronic filing, make e-government work well and smoothly for 
the taxpayer and not worry about this issue, whether they will 
compete directly or indirectly with the private sector. I think 
you would provide a great service by clarifying that, removing 
for everybody that issue from the table.
    Mr. Kolbe. I want to follow up. It looked like, 
Commissioner, you wanted to make a response.
    Mr. Rossotti. No.
    Mr. Kolbe. Let me ask the three people from the private 
sector, if this happens and if we can remove these doubts or 
uncertainties here, do you think the market is much greater 
even then what we have seen today? The Commissioner said 150 
responses to the RFI so far. I think some of you have indicated 
there was low industry response to the RFI.
    Mr. Rossotti. At the time I think of the original date it 
may have been too tight a date, and we didn't get that many. We 
just extended that a little bit, and we got a lot more 
responses.
    Mr. Kolbe. So you are getting a lot more responses. Do you 
think this field--we haven't even touched the field yet in 
terms of the amount of competition that is possible out there 
in the marketplace. Mr. Lacijan.
    Mr. Lacijan. I think that is true. Let me give you one 
example. I don't know of anything specific in the works, but in 
my much younger days I can remember when banks gave away free 
toasters for signing up an account. The new economy version of 
that would be for a bank that is offering online banking 
saying, if you bank with us, As a competitive edge, we will 
allow you to access a tax prep product for nothing and 
facilitate technology just as part of our normal service. That 
is kind of a normal model that could easily be just around the 
corner. That is one example of how the marketplace might react 
to provide more e-filing for nothing.
    Mr. Black. Mr. Chairman, if I could, a robust private 
sector is I think what we have, what we all say we want, andI 
think it is important to remember when we talk about competition with 
the IRS I think we interpret the language of promoting robust 
competition slightly differently. Because in our mind that means let 
the dynamic of the marketplace work, and if the marketplace's dynamic 
is really working well you will have competition, you will have 
innovation. That is what really does it.
    What hurts the marketplace is an attempt to artificially 
jump in and interfere with it, and that is where there may be 
some worry that, in an attempt to help it, you can have 
collateral damage in the different dynamic in the marketplace. 
We see lots of examples--it's not just taxes. It is a whole 
package of financial services offered on the Internet 
electronically, many other companies who don't care about the 
IRS. But, in fact, we see a lot of different people, lots of 
people packaging different kinds of services in a wide range of 
ways. But people will not be anxious to create and investors 
will not be anxious to invest in companies if they think they 
will be competing against a branch of the U.S. Government. That 
stifles the dynamic marketplace, not helps it.
    Mr. Kolbe. Thank you.
    Mr. Harrison.
    Mr. Harrison. I would just question the assertion that 
there is dynamic competition that exists today.
    Mr. Black. You are it.
    Mr. Harrison. As I previously stated, for 12 years there 
has only been two companies that have survived in this sector. 
I know of at least three companies that entered the online tax 
preparation business last year that will not be coming back 
this year because of how difficult it is to survive. I would 
say the biggest cost associated with this business is acquiring 
the customers.
    Mr. Kolbe. I am sorry. Is what?
    Mr. Harrison. Acquiring the customers. And the IRS can play 
a significant role in helping us acquire the customer while 
they are achieving their goal of the 80 percent electronic 
filing. That is where we really believe the effort has to be in 
helping people in the industry succeed, and that is going to 
require the IRS be proactive and not just sitting on the 
sidelines and watching people come into this industry and fail 
because they can't provide an economic model that works.
    Mr. Kolbe. Why is it that difficult to acquire customers? I 
mean, unlike some other things, we know that every April 15 or 
somewhere between January and April every single one of us who 
is out there working is going to file a return. It should be a 
nice market base to work from.
    Mr. Harrison. Well, we live in this industry, and it is 
amazing, until you do consumer research, you don't realize how 
little people know about what we do every day. But if you get a 
focus group together and you sit down and talk to people, most 
people don't even know that financial software exists for doing 
their taxes, and it has been around for 15 years, let alone do 
they know that there is an option of electronically filing it. 
And surely they don't know there is an option for doing that 
for free.
    So there is an awareness capability here, and the IRS has 
the credibility and ability of creating that awareness very 
quickly because they touch every one of those 125 million homes 
that has to file a tax return. I can guarantee you that a 
mailing from the IRS explaining this to consumers will get a 
lot more attention than a mailing from freetaxprep.com.
    Mr. Kolbe. Let me turn to Commissioner Rossotti.
    Commissioner, what do you see as the IRS role in terms of 
educating your filing public about the options that are 
available to them?
    Mr. Rossotti. I think this is really the essence of it. 
Because, as I see it, I don't see any value or benefit to us 
either by directly or by contract actually offering these 
services. On the other hand, I do see a value potentially. We 
need to get people's ideas of how this should be best done, of 
letting them know what the options are and helping to educate 
them, perhaps through our Web site, perhaps through our 
marketing program. That is what we really were asking for, as I 
see it, through this RFI: What can we do?
    I would categorize that under the category of providing 
incentives and pressing for robust competition. I would not 
think that just standing by is consistent with the mandate we 
have that says to press for robust competition. We could do 
that, and we could just stay and say we'll see what happens. I 
think the ETAAC report said we should--part of the 
recommendation was that we should promote competition, which is 
the same thing that the law says.
    There might be some disagreements about what that consists 
of. People could say that interfering with the private sector, 
if we do anything, to even let people know that there are 
options out there--and I don't think I would go that far. I 
think that wouldn't be consistent with our mandate.
    That is a long way of us getting into the business of 
either providing software directly or through contracts. That 
is why I have no hesitation in saying that is not our intent. 
There is potentially, I would say, some disagreement that could 
arise about what it would mean for us to take any initiative 
based on whatever input we got from the industry to actively 
inform the public or let them know what the options are that 
they would have to get better services at lower costs.
    Mr. Kolbe. So you do see marketing the options as one of 
your functions, one of your roles.
    Mr. Rossotti. I could see that would be one of our roles. I 
think that is what it says we are supposed to do. We already do 
that now, but in a very, very general way. I think Mr. Harrison 
said maybe there is some more targeted or concrete way. We are 
not the experts on figuring out how to market products or how 
to let the public know. We are interested in getting the 
industry's views on that.
    Mr. Kolbe. Mr. Black.
    Mr. Black. We think there is a lot of benefit in making 
more people aware of the benefits of electronic filing, and I 
think the very fact than Mr. Harrison stated that there is such 
a large number of people who don't avail themselves of this 
service is a great indication that there are great market 
opportunities for companies to market to that. But I do think 
we have to be careful how we will support going out educating 
consumers. It is important that the government--again, there is 
a winner-and-loser issue--not do it in a way that is not 
balanced and fair and evenhanded.
    If all of sudden they say we are going to highlight a 
couple of companies over other companies or a certain kind of 
service over another service, we can get into very dangerous 
territory. But, yes, I think as long as it is truly, evenly 
balanced I think there is a great role in promoting the 
benefits of electronic filing.
    Mr. Kolbe. Final question--at least I think this is my 
final one. Mr. Harrison, you spoke about the need for doing 
something about changing the rules, regulations with regard to 
the signature that allows you to be able to have access to the 
market information, from a marketing standpoint, the 
information that you have about tax, the tax preparation and 
the filing that you are doing. I would like all of you to 
comment on whether or not there are other areas where--and the 
Commissioner as well--where we need to make changes in either 
the rules or regulations or in the law to make this work better 
than it is right now. In other words, what can you tell us that 
we should be looking at here in Congress to make sure that we 
are moving towards a world of electronic tax filing that we are 
not now doing?
    Mr. Harrison. The only other thing I would add--and I would 
say it is a gray area right now--but it is very difficult 
especially to build a business plan for a new company when 
there is this gray area that you are trying to work around. We 
don't think there is a huge amount of advertising revenue 
associated with this business, but there is some. Right now, it 
is not even clear if you can run an advertisement on a Web site 
that does tax preparation. That is no different than telling 
someone that has an H&R Block office that the person next door 
to them can't have an advertisement outside because someone 
will walk past it to get to the tax store. We are a store, a 
virtual store but we are a store. And not being able to have 
advertisements that are not driven by the consumer data--not 
just general purpose advertisements--not being able to have 
that on your site----
    Mr. Kolbe. You are not talking about advertising about your 
business. You are talking about other kinds.
    Mr. Harrison. Other kinds--third-party advertising--for 
example an advertisement on our site that shows someone doing a 
tax return and drinking Coke instead of Pepsi.
    Mr. Kolbe. The regulations now prohibit that or you are not 
sure?
    Mr. Harrison. It is a gray area.
    Mr. Rossotti. This is what I meant before. I think the 
regulations are out there. We certainly have the obligation to 
enforce those and administer those. There are some new 
questions as to exactly how to interpret them in the light of 
Internet that we probably need to work on.
    Again, we need to get some questions from the industry. 
This is another point. Any conclusions that the IRS would come 
to with the help of counsel would in all cases, as is required 
by law, be public inclusions that we would put out in the 
appropriate forum, not in the forum of any particular company, 
giving advice to any particular company. They would be public 
statements that would answer questions for everybody to know 
what the answers were. That is the way the process works.
    Mr. Kolbe. Mr. Black or Mr. Lacijan, anything we are 
missing here that we should be looking at from either a 
regulation or law change?
    Mr. Black. Mr. Chairman, I think it is an excellent 
question. And to follow up on the Commissioner's comments, we 
think that updating rule 7216 is exactly what we have been 
advocating, that in fact the IRS should conduct a public rule 
making process to update and modernize the rule to deal with 
the e-commerce era. Public rulemaking would permit full public 
comment, sunshine, and let consumers' rights really be aired. 
We need to modernize the rule. It needs to be done in a way 
consistent with the President's e-commerce policy directive for 
all agencies, and that is what we have been asking for. We 
think that is the way to go. Not requests for information and 
quasi procurements, but let's go through a formal, public, 
sunshine rulemaking.
    Mr. Kolbe. Mr. Lacijan.
    Mr. Lacijan. To avoid repeating what some of the other 
panel has said, let me take it to an entirely different area.
    The ETAAC strongly endorsed the President's proposal for a 
$10 tax credit. Now that has some expense associated with it, 
but clearly, in terms of public policy, we are talking in terms 
of potential tax cuts in the billions and almost a trillion 
dollars. This would cost about half a billion a year. But, in 
essence, the repeat rate among e-filers is very high. The 
satisfaction rate as measured by public surveys of e-files 
compared to other files is also in the 70s, compared to around 
50 percent. It would build up a tremendous demand for e-filing 
that would allow practitioners to build up infrastructure, and 
I think it would have a tremendous impact on making the whole 
tax administration system run far more smoothly by getting all 
this information in electronically. In the end, I think 
actually it would be worth the expense of the half a billion 
dollars it would cost.
    Mr. Kolbe. That leads to an--I said final question, but it 
leads to an interesting thought, Commissioner. Have you done 
any cost-benefit studies of this to say for every 1 percent 
additional electronic filing what the IRS can save, what 
taxpayers can save? Do we know?
    Mr. Rossotti. What taxpayers can save, no, we have not done 
that, but what we can save, yes.
    Mr. Kolbe. I am sorry. When I said taxpayers I meant 
through the IRS, not individually.
    Mr. Rossotti. In terms of direct cost, we have estimated 
what that would be on a per-term basis. There is short-term 
cost savings for every return next year, just in terms of the 
labor. But then there is a bigger cost saving if we get to the 
point where we have a sufficient volume that we can consolidate 
some of our activities. So we do have that information, and it 
is attractive. It is one of the things we are counting on to be 
able to deliver all of the services that taxpayers want within 
the limits of the appropriations because we know there is going 
to be limited appropriations and so we have to make 
technological improvements. So that is one of the things we are 
counting on to be able to deliver over the next years.
    Of course, it happens year by year. It does not happen all 
at once. It happens as we gradually convert people from paper 
to electronic.
    Mr. Kolbe. So the $10 tax credit really ends up being a 
cost savings.
    Mr. Rossotti. You aren't going to save $10 per return. I 
think the $10 tax credit was intended for a limited period of 
time. I think it was for five years. I characterized it lightly 
as kind of an introductory offer. As Mr. Lacijan said, once 
they do it electronically they will probably not go back to 
paper. I think the thought was to get people into the 
electronic system with this incentive for the $10 to offset 
whatever transitional costs they have might have; and then once 
they got on, and especially if the cost to the taxpayer after 
that were to come down, then it would make itattractive for 
them to stay. So I don't think it was intended as one for one.
    Clearly, we are not going to save $10 directly in internal 
appropriations, but I think that would be a one-time kind of a 
thing for just a few years to get people into it. Then once you 
got them there--but I really think the problem is getting them. 
Once they get there, and assuming the cost to them is 
reasonable, they are probably not going to go back to filing on 
paper.
    Mr. Kolbe. Mr. Lacijan.
    Mr. Lacijan. What the Commissioner said is very true. But 
the real cost savings might not just be the few dollars per 
return that the IRS saves. It has been well publicized that the 
error rate for paper return is about 20 percent and for 
electronic returns is 1 percent. So some of those 20 percent of 
the errors that paper returns introduce that don't get caught 
filter into notices downstream, and a lot of man hours get 
spent resolving notices and people going to practitioners. So 
the real cost savings, which probably are undocumented, are 
downstream after filing occurs.
    Mr. Kolbe. Gentlemen, thank you. Is there anything I 
haven't asked that I should have asked? Is there anything you 
would like to say in closing that I have not given you an 
opportunity to say?
    If not, I would like to thank all of you. I think this has 
been, for me, extraordinarily enlightening. I hope this has 
been one of those hearings where we actually contributed 
something in a tangible way to maybe clearing the air a bit 
between the industry and the IRS, and I hope we have helped to 
stimulate the communications. I want to thank all of you again 
for coming and participating today.
    Mr. Black. We appreciate your leadership. Thank you.
    Mr. Kolbe. The subcommittee stands in recess.



                                         Thursday, October 5, 2000.

                BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

                               WITNESSES

BRADLEY BUCKLES, DIRECTOR, BUREAU OF ALCOHOL, TOBACCO AND FIREARMS
DENNIS SCHINDEL, OFFICE OF INSPECTOR GENERAL (TREASURY)
ROBERTA RICKEY, TREASURY, INSPECTOR GENERAL
    Mr. Kolbe. The Subcommittee on Treasury, Postal Service and 
General Government will come to order. Thank you very much for 
being here. Mr. Price, thank you for joining us.
    This afternoon we are going to have this hearing to focus 
on the implementation of what has been called the Youth Crime 
Gun Interdiction Initiative. I understand that Treasury, the 
Bureau, refers to it as ``Yogi.'' At least until recently, here 
on Capitol Hill we have always called it ``Yiggi.'' So Yogi or 
Yiggi; that is what we are talking about here today.
    The Bureau of Alcohol, Tobacco and Firearms, following the 
direction of the President, initiated this program in 1996 to 
focus enforcement efforts against gun traffickers whose weapons 
are used by or against youth, particularly those in the age 
group of 18 to 24.
    Today, to talk about this program and how it has worked, we 
have two witnesses. First, we will be hearing from Mr. Dennis 
Schindel, the assistant inspector for audit of the Office of 
the Inspector General in the Department of the Treasury, and he 
is joined at the table here by his assistant, Ms. Roberta 
Rickey.
    After that, we will hear from the ATF director, Mr. Bradley 
Buckles.
    Mr. Schindel recently supervised a series of audits of the 
Youth Crime Gun Interdiction Initiative, ``YCGII,'' the YCGII 
program, including one of particular interest to us today that 
examined the implementation and performance measurements. He 
will be talking today about the findings of the OIG and their 
recommendations.
    Director Buckles will then be asked to respond to those OIG 
reports as well as tell the subcommittee the steps that ATF is 
taking with regard to improving the YCGII performance and 
implementations and what plans he might have for this program 
or ideas for it for the future.
    First, before we ask for Mr. Schindel's remarks here, let 
me observe that without question, YCGII is a program that has 
grown. It has grown, in fact, from around $300,000 in Fiscal 
Year 1996 to $51 million in Fiscal Year 2000, covering 38 
cities. Even by Washington standards, that is a hefty growth 
rate.
    With the $76 million increase in funding expected for 
Fiscal Year 2001, or at least what is in the bill, the budget 
of the conference report, this would increase it to about 50 
cities, the coverage of YCGII to 50 industries, and would 
account for over a tenth, or 10 percent, of all ATF salaries 
and expenses in their budget. YCGII, in Fiscal Year 2001, will 
also have staffing levels that are associated with it of 500 
full-time equivalents for agent, administrative, or technical 
positions.
    So I would say that even by Washington standards, we cansay 
this is a big program and certainly, as I just suggested by growth, it 
is tremendously big.
    But it is a program that has been a priority for ATF and 
the administration, and I should emphasize the Congress has 
agreed with this so far. They have agreed that this level of 
effort is justified by the need to reduce gun violence that 
involves our children and youth. However, from the beginning I 
think we all expected ATF to carry out a consistent effort in 
the participating YCGII cities, with clear program guidance, 
standard data, minimum level of effort reflected both in the 
processing of trace information as well as in providing 
strategic analysis and investigative reports to the cities that 
are participating.
    What we have seen instead, at least as outlined in the 
inspector general's report, is a program that varies very 
significantly from city to city. There is not really a 
coherent, overall program. It often has very unclear lines of 
communication, to the extent that both local ATF field offices 
and city police departments cannot always describe the 
organization or the level of efforts for YCGII, let alone 
characterize or give any clear indication of the impact that it 
is having on youth or the reduction of guns or juvenile crimes 
involving guns.
    In my own city of Tucson, for example, one of the cities 
that is involved in this, I found that local law enforcement 
agents were completely unaware, for the most part, of the 
program's existence. Given the high profile and scale for this 
program, such obscurity does not inspire confidence that 
funding for the program has really been targeted in any 
meaningful way.
    So I hope today that the subcommittee can learn in more 
detail the inspector general's findings about the program and 
then hear from ATF on the current program and the actions they 
plan to pursue, since ATF has indicated its agreement with all 
of the findings by the OIG. I believe it is fair to say that 
this subcommittee is going to look carefully for answers to 
these questions as we consider future funding requests for the 
program, especially the plan to expand it to 75 cities in 
Fiscal Year 2003.
    So I think this is a timely hearing for us before we get 
into the nitty-gritty of considering next year's budget to 
focus on this one very major, fast-growing, program in ATF with 
substantial growing pains.
    Before I hear from my witnesses, let us see if, Mr. Price, 
you have any opening comments that you would like to make.
    Representative Price. Thank you, Mr. Chairman. I have no 
comments except to welcome our witnesses and to look forward to 
their testimony.
    Mr. Kolbe. Thank you. And with that, we will turn to Mr. 
Schindel for his statement. Of course, the full statement will 
be placed in the record. You are welcome to summarize it. Give 
part of it, or however you wish to do it here.
    Mr. Schindel. Thank you, Mr. Chairman, Mr. Price. I am 
pleased to appear before you today to discuss the results of 
the audits that we conducted at the Bureau of Alcohol, Tobacco 
and Firearms on their implementation of the Youth Crime Gun 
Interdiction Initiative. We do refer to it as ``Yogi,'' and 
that is how I will refer to it throughout the rest of my 
statement.
    With me today is Roberta Rickey, who is the director of 
program audit in Chicago, and her team performed this audit.
    This program brings together federal, state, and local law-
enforcement officials to improve information about and 
investigation of the illegal sources of guns recovered from 
juvenile and adult criminals, and to use that information to 
strengthen the enforcement of the nation's firearms laws.
    Our office did conduct three separate reviews addressing 
ATF's implementation of YCGII. My testimony will focus on our 
most recent audit, which looked at ATF's effectiveness in 
implementing YCGII in the field offices and whether 
participating local law-enforcement agencies implemented 
activities designed to identify and investigate illegal 
firearms trafficking to juveniles and youths.
    YCGII is a component of ATF's overall, illegal-firearms-
trafficking project. The program targets juveniles and youths 
involved in gun crimes. ``Juveniles'' are defined as those ages 
17 and under, and ``youths,'' those ages 18 through 24. Through 
YCGII, ATF seeks to address a fundamental question in youth gun 
crime: How are they getting the weapons?
    As you mentioned, the program has grown. It started out 
with 17 cities. It has grown to 38 cities in 2000, and plans 
are to expand it to 75 cities in the next four years. There are 
two components that we feel are crucial to the success of the 
YCGII program. First, there are the YCGII coordinators in the 
ATF field offices. Second, there are the police departments in 
the YCGII cities.
    Our review of ATF's implementation of the YCGII program 
looked at the initial 17 cities that were put into the program 
because they had been in the program the longest, up to two 
years at the time we did our review. We found that ATF needs to 
do a better job of implementing YCGII so that the full benefits 
of the program can be realized. YCGII was not consistently 
implemented in all cities, and not surprisingly, this has 
produced mixed results. Whereas some cities have a very active 
program; others do not.
    The results of our work identified four areas that should 
be improved for the program to be successful. First, existing 
guidance for ATF field-office YCGII coordinators needs to be 
updated, expanded, and include best practices that have been 
gained over the past three years of experience with the 
program. This is especially needed because of a high turnover 
of coordinators in some field offices.
    We found that ATF field offices did not consistently 
implement activities that are critical to the program's 
success. These activities included, one, reconciling trace 
requests received with police-department records of crime guns 
recovered--this is important to ensure that all crime guns are 
traced; second, conducting comprehensive or end-to-end traces 
of a sample of crime guns--this is important to obtain a more 
complete picture of the illicit firearms market; and, third, 
ensuring that ATF special agents work actively with ATF 
inspectors to target firearms dealers with a high number of 
crime guns traced to them. We found that all three activities 
were performed in only two of the 17 initial cities in the 
program.
    Second, ATF needs to develop a formal methodology for 
allocating special-agent resources in support of field-office 
YCGII investigations. For Fiscal Year 1999, 
Congressappropriated ATF $16 million for 81 full-time, equivalent-
special-agent positions. ATF field offices were directed to assign a 
minimum of six experienced, special agents to YCGII. These agents were 
to spend most of their time on YCGII cases. Field offices were then to 
hire six special agents each to back fill for the experienced agents 
assigned to YCGII.
    We found that while 86 new agents were hired in the initial 
17 cities, only 49 experienced agents were reassigned to YCGII 
cases. More importantly, ATF's decision to assign six 
experienced agents to YCGII in each field office was not based 
on an analysis of firearms-trafficking problems in the 
respective cities. In fact, YCGII coordinators from two field 
offices told us that they did not believe that the trafficking 
problem was significant enough in their respective cities to 
justify six agents being assigned to YCGII. A coordinator from 
a third field office told us that there were not enough 
experienced agents in the field office to assign to YCGII cases 
without jeopardizing arson or explosive investigations.
    Third, ATF needs to better communicate and partner with 
local police departments to improve the level of their 
participation. Only five of 17 police departments in the 
initial cities has the means to electronically submit trace 
requests to ATF's National Tracing Center. Other police 
departments had to use less-efficient, more time-consuming 
means involving at least some manual processing. One impact of 
this is that four police departments did not request traces on 
all recovered crime guns.
    Electronic transmission of requests is essential to make 
the tracing of a large volume of crime guns manageable. In that 
regard, ATF needs to continue to help participating cities 
develop electronic-transmission capabilities.
    We also found that police departments were not always aware 
of or could not access ATF analytical tools to develop 
strategies to combat illegal firearms trafficking to juveniles 
and youths. These tools include ATF's on-line lead system, 
which provides leads to special agents by analyzing data on 
crime gun traces, stolen guns, and multiple gun sales, and the 
capability to map the location of recovered guns. With respect 
to on-line lead system, representatives from six police 
departments were not aware of the system, and representatives 
from five other police departments told us that the information 
was not readily available to them.
    Fourth, ATF needs to develop YCGII performance measures 
that gauge its actual impact on gun traffickers who supply 
firearms to juveniles and youths. ATF has not developed 
specific performance measures to show what impact YCGII has had 
in the participating cities. For example, ATF has been 
reporting as its principal program measure the number of trace 
requests submitted by participant cities. While trace requests 
are certainly important for ATF's analysis of trafficking 
trends, this statistic does not by itself measure whether 
trafficking of firearms to juveniles and youths has decreased 
as a result of YCGII.
    In summary, we found a number of areas that need to be 
improved to ensure the success of the program, specifically 
implementation has been inconsistent on the part ATF. The level 
of participation by city police departments has been mixed. The 
resources appropriated have not been effectively allocated or 
fully utilized in support of YCGII, and also, after two years 
of operation in the original 17 cities, ATF cannot show the 
true impact of the YCGII program. All together, we made nine 
recommendations to improve the implementation and management of 
YCGII in the 17 cities and in the additional cities that have 
been added.
    As YCGII continues to grow, it is important that ATF take 
immediate action to improve its management of the program. The 
good news is that this appears to be happening. In response to 
our draft report, ATF provided a comprehensive, corrective-
action plan. They have agreed to implement all of our 
recommendations, and they have already completed or have under 
way a number of actions. I will just mention a few.
    ATF indicated in its response that new guidance and 
training have been delivered to ATF field agents as well as 
state and local police departments, and a best-practices 
pamphlet is being developed. ATF has reevaluated the six-agent-
per-city strategy for its 2001 budget submission and has 
processes in place to monitor changing field-office work loads. 
Efforts are also under way to develop more meaningful 
performance measures.
    Mr. Chairman, this concludes my remarks, and I will be 
happy to answer any questions you or Mr. Price may have or 
other members of the committee.
    Mr. Kolbe. Thank you.
    I think I am going to do what we did yesterday, which it 
worked extraordinarily well in this kind of oversight hearing, 
and ask you just to step aside for a minute and let Mr. Buckles 
give his testimony, and then do the questions with both of you 
up there because I think we are going to find ourselves going 
back and forth now, if that is acceptable with you.
    Mr. Schindel. That is fine.
    Mr. Kolbe. So we will do that. We will ask Mr. Buckles to 
come up to the table here, and we can bring up more chairs here 
in a minute. Mr. Buckles, we welcome you and are prepared to 
hear your testimony. As we suggested to Mr. Schindel, we will 
put the full statement in the record here, but you are welcome 
to go ahead and summarize.
    Mr. Buckles. Thank you, Mr. Chairman, Mr. Price, Mr. Goode. 
I thank you for providing me this opportunity today to address 
you on one of the most important firearms initiatives by ATF, 
the Youth Crime Gun Interdiction Initiative. As you pointed 
out, I have submitted a long statement for the record, so I 
will be brief this afternoon in my comments.
    The Youth Crime Gun Interdiction Initiative was developed 
in response to chilling statistics that gun homicides among 
young people nearly tripled between 1985 and 1995. Easy access 
to crime guns by this most vulnerable segment of oursociety was 
clearly an important component to the shocking increase in violence. 
Successfully reversing this culture of violence requires action on all 
fronts.
    As you are aware, our firearms-enforcement efforts directed 
specifically at armed criminals, as well as ATF's work with 
youth crime-gun prevention through the G.R.E.A.T. program, are 
part of ATF's main strategies on dealing with youth violence.
    The Youth Crime Gun Interdiction Initiative is designed to 
complete that coverage by attacking the sources of crime guns. 
Virtually all crime guns begin as legal commodities. Therefore, 
developing a better understanding of how firearms move from 
legal to illegal commerce is essential.
    The first three years of the Youth Crime Interdiction 
Initiative focused on tracing of crime guns. Comprehensive 
tracing of all crime guns in selected cities, with special 
emphasis on those possessed by youth, gave us a more precise 
picture of the problem. The number of firearms traced by ATF 
climbed from under 100,000 in the early nineties to over 
200,000 by the end of the decade. In Fiscal Years 1999 and 
2000, the committee supported an increase in ATF investigative 
personnel to enable us to take enforcement action at these 
sources of crime guns.
    Your investment in the Youth Crime Gun Interdiction 
Initiative has been significant. Rightfully, you must be 
convinced that the return on your investment is actually 
significant in terms of protecting the American people and 
particularly our youth from the ravages of gun violence.
    We believe the early results demonstrate that the Youth 
Crime Gun Interdiction Initiative is a valuable program. 
Through this program we have dramatically enhanced our ability 
to analyze crime-gun information and apply this knowledge 
strategically to combat violent crime and illegal trafficking. 
In the first two quarters of Fiscal Year 2000 we initiated 874 
illegal-firearms-trafficking investigations involving over 
14,600 firearms.
    While gun homicides by juveniles and youths have declined, 
they remain at an unacceptable level, and there is much to be 
done. But even the best of programs require careful scrutiny to 
ensure that they are executed in the most efficient and 
effective manner possible. What brings us here today is a 
series of examinations by the Treasury Department's inspector 
general into ATF's implementation of the youth crime gun 
initiative.
    The inspector general has helped us identify a number of 
areas where we need to improve, and their recommendations have 
proven invaluable as we have moved from a rather modest tracing 
initiative to a more strategic effort to systematically attack 
illegal sources of firearms to our youth and children. We have 
accepted each and every recommendation, the majority of which 
have already been implemented, and all of the rest are in some 
stages of implementation.
    With the support and careful oversight of this committee, 
the Youth Crime Gun Interdiction Initiative is making a 
difference. As it develops, I am committed to the continued 
scrutiny of the management of this program and accountability 
to youth for the results. I am convinced that our effectiveness 
in reducing armed violent crime is increasing, making our 
communities safer for our children and all Americans. And I 
thank you for your commitment to this important goal. That 
concludes my statement. I would be pleased to answer any 
questions you have.
    Mr. Kolbe. Thank you very much. Yes, Mr. Schindel, if you 
would come back up here. Ms. Rickey, if you would like to join 
us, too, that is fine.
    Let me begin with kind of a basic question here. Is this 
youth program really a youth program? I guess my question is 
directed to this. You really trace all guns, do you not, 
Director Buckles? This is not a criticism, but it is not a 
youth program, is it? It is a tracing of all guns.
    Mr. Buckles. It is a tracing of all guns, and it is 
identifying traffickers on all levels. [Agency note: To 
adequately assess the role played by, or impact to, the age 
groups at hand, it is imperative to not only trace all crime 
guns in a YCGII city, but to use that information in an 
analytical sense with offense data.]
    Mr. Kolbe. What is the concentration on the youth, then?
    Mr. Buckles. The reason that we were concentrating on youth 
when we began this program is, looking at the overall universe 
of violent firearms crimes, the single age group with the 
highest incidence in many categories was the ages 17 to 24. 
Almost 41 percent of all firearms homicide were being committed 
by people in that age range. It is also a situation where we 
believe that it is probably an area that is most susceptible to 
changing that pattern and affecting the access of younger 
people to firearms. Older criminals may have different access 
to firearms. They are adults; how they can purchase firearms, 
what crimes are involved are different, but quite often the 
youth are involved in crimes of opportunity, and if we can 
interrupt and make it more difficult for people in that age 
range to acquire firearms, we have a much greater possibility 
of impact through that trafficking interdiction.
    Mr. Kolbe. Is there a mission statement for the YCGII 
program? Is it laid out in a manual someplace?
    Mr. Buckles. Well, we put out documents to our field 
describing the program and setting forth exactly what the 
objectives are. Part of the criticism or findings with the 
inspector general was that there was confusion even within the 
agency as to exactly what the overall goals and objectives to 
the program were. I think that that is a result of the fact 
that it was a program that grew.
    It started off, as I said, as kind of a modest tracing 
initiative early on, when we received some money from the asset 
forfeiture fund to make improvements in our tracing center, and 
as it grew incrementally, unfortunately, we did not pull 
everything back together so that the field and everyone in the 
agency and others dealing with us had that comprehensive view 
of what we were doing.
    Mr. Kolbe. Mr. Schindel, I think that was one of the 
criticisms you made as to whether or not it is really clear, 
the focus of this program. In your view, are there adequate 
performance measurements here, goals for this program? We are 
spending $50 million on this now. Are we getting our money's 
worth out of that? I guess that is the bottom line of what I am 
looking at here. I know it is popular to talk about youthcrime 
and doing something about it, but I do not advocate just throwing money 
at a program if we are not getting something from it here.
    Mr. Schindel. That was another one of our findings, was 
that we do not feel there are adequate performance measures. 
Certainly, getting all guns submitted for tracing is an 
important part of the program, but there are, as I mentioned, 
other activities that have to take place after guns are 
submitted for tracing.
    Many of the activities, such as the end-to-end tracing, 
which really tries to follow the gun all the way back to when 
it was first sold by a federal firearms licensee, helps to 
identify the trafficking aspect of it, which helps to answer 
partially the question, how are youths and others who are not 
entitled to these firearms getting them? If that activity takes 
place effectively, then the program has the opportunity to do 
what it is intended to do, and you get your money's worth. But 
there have to be, I think, some measures that show that those 
types of things are taking place and that there is a bottom-
line impact that, in fact, it is reducing the trafficking of 
firearms to juveniles and youths.
    Mr. Kolbe. But in order to measure that, you have to 
develop some kind of a baseline, do you not?
    Mr. Schindel. Yes. I do not know if there are statistics 
out there, crime statistics, that already exist, that can be 
used, but obviously we are beyond the start of the program, so 
baseline measures have not been established at this point, and 
it would be difficult, unless if you just do it now----
    [Agency note: Baseline measures used to this point were 
ones previously established for the two major aspects of this 
initiative, firearms tracing and related trafficking measures. 
My statement for the record explains measures that are in 
development to assess outcomes unique to this combination of 
enforcement tactics.]
    Mr. Kolbe. It is kind of hard to establish them after the 
program has been operating for four years. Mr. Buckles.
    Mr. Buckles. Well, we are looking at baselines that we can 
work from, and I think there are a number of them out there. If 
we talk about the program being there for four years, early on 
one of our most important performance measures was the number 
of firearms being traced, because that was the focus of the 
initiative.
    As we move beyond that, we need more result-oriented 
performance measures, and we are looking at a variety of 
things. Reduction in the time to crime. We have now, with the 
study we have done, have some ideas on the time to crime 
between a firearm being sold and ending up in the hand of a 
youth. If we are affecting that and slowing down the time to 
crime, then it means it is harder for people to get a hold of 
firearms. If we are impacting the number of youths who are 
being arrested in possession of illegal possession of a 
firearm. We have baselines now on the cities that we have 
looked at so far. So I think we have things that we can work 
off of as we move ahead.
    Now, we are also entering into some work with the National 
Institute of Justice to come out with some even broader ways to 
look at our program and to determine how it is affecting youth 
violence overall. So we are exploring all sorts of different 
ways that we can come up with measures that can show you some 
tangible results that are coming out of this program.
    Now, there are a lot of things. It flows in many 
directions, and let me give you an example. As we learn and 
understand more about what the trafficking problem or what the 
firearms sources are in a particular area, what that does, it 
allows us to take a number of steps that in the past, frankly, 
would have been shots in the dark.
    If we determine that one of the principal areas of firearms 
showing up in a city is from stolen firearms from FFLS, it 
allows us to work with the dealer community to improve security 
requirements. Some areas, we find that straw purchasers are the 
biggest problem. We recently entered into a program with the 
National Shooting Sports Foundation to work on areas to deal 
with straw purchasers.
    So by knowing what the various sources are--it is not 
always going to lead to a criminal case--it also allows us to 
engage and address each problem up front through a variety of 
other measures as well.
    All of these have to be pulled together so that when we 
come before you we can tell you what this information was that 
we were able to collect, how we were able to use it, and then 
see if it has resulted in a reduction of firearms thefts from 
dealers, a reduction in straw purchasers, et cetera.
    Mr. Kolbe. Well, you have jumped ahead and answered at 
least some of the questions I had ongoing as to how this 
information is used, and you referred to the pronoun, ``we,'' 
and I gather that means ATF. If I look at this report here--it 
has got a section here for my city of Tucson. If I go out to 
the city of Tucson, am I going to find law-enforcement people 
there that are going to be intimately familiar with the 
information that is in here? What use is made of this?
    Mr. Buckles. Well, that was the one of the criticisms from 
the inspector general's report, that in some cities it was 
being used, and in other cities it was not. I cannot speak 
directly to Tucson, but what----
    Mr. Kolbe. I am not asking you to speak directly to Tucson.
    Mr. Buckles. But what we have done as a result of that is 
instituted very clear guidelines as to how we are supposed to 
be using those reports in each case, in terms of what ATF can 
use from them to develop a strategy and also what the local 
police and law-enforcement authorities can do and how they can 
use that. So we are taking steps to make sure that the best 
practices that we are using in some communities are also being 
used in all of the communities as well because that is what it 
is designed to do.
    Mr. Kolbe. I want to go to my colleagues for some 
questions. I have a series of others, and I especially want to 
come back to Mr. Schindel, but let me see if Mr. Price has some 
questions here and Mr. Goode.
    Representative Price. Thank you, Mr. Chairman. I want to 
thank both of you for your testimony, and I would like to 
start, Mr. Schindel, with the activities that you identified as 
being critical to the program's success on page four of your 
testimony.
    You are talking about, first, reconciling trace requests 
received with the records of crime guns recovered; secondly, 
conducting sample, end-to-end traces to get a more complete 
picture of the illicit-firearms market; and finally, and this 
is the one I want to concentrate on, ensuring that ATF's 
special agents work actively with inspectors to target firearms 
dealers with a high a number of crime guns traced to them. 
Presumably, that is the bottom line. Presumably, that is the 
end goal.
    You say that of these 17 cities you looked at, all three 
activities were performed in only two, which, of course, does 
not sound very good. With respect to that third 
activity,though, which in some ways is the culmination of the effort, 
what would the success rate be on that criteria? I think that one was 
actually the most successful of the three. I think only two out of 17 
cities were not performing that activity.
    Representative Price. So that changes the picture a bit if 
you break down those three activities in that way. I really did 
not anticipate that answer. So you are saying that there would 
be 15 out of the 17 on that last criterion.
    Mr. Schindel. Right.
    Representative Price. Well, presumably, the other two are 
somehow leading up to that third activity. Right? The tracing 
program leads you to identify these high-volume dealers. Is 
that right? How can the third activity succeed or be 
implemented without the first two?
    Mr. Schindel. It would be difficult. You have to have the 
tracing first to get the information to start leading back to 
the FFLs, firearm-licensing dealers.
    Representative Price. Does that imply, then, that the 
targeting of these high-volume dealers is somehow based on 
inadequate data somehow or inadequate tracing information?
    Mr. Schindel. Well, I think that there could be more 
targeting in some of these other cities who are doing that who 
were not getting all of their guns traced. So while they were 
performing that activity where there was information that they 
could develop that lead back to FFLs, there were probably some 
missed opportunities because not all of the guns were being 
traced in those cities.
    Mr. Price. Well, I must say, it does change the picture 
somewhat if there is such radically different performance rates 
with these three activities. Simply to lump them together and 
say all three are being performed in only two out of 17 cases 
gives a somewhat misleading picture, would not you think?
    Mr. Schindel. Well, again, the idea was that there should 
be some consistent application of the program, and obviously 
that is not taking place.
    Representative Price. But you also seem to be saying here 
in your oral testimony that in terms of that third activity, 
targeting firearms dealers with a high a number of crime guns 
traced to them, that is taking place in most of these cases. 
Now, do you have anything further to say about how 
thoroughgoing or how effective that targeting is? What does 
that entail? Mr. Buckles, if you want to chime in here, I 
welcome your thoughts as well.
    Mr. Buckles. Well, I think that the information that we 
gleaned from the inspector general report was that while we 
were using that data, and we have accumulated--make no doubt 
about it--regardless of what the performance was, a tremendous 
amount of information on crime-gun data and sources of crime 
gun.
    What we learned from the inspector general report was that 
we were not getting all of that, and maybe there were still 
opportunities we were missing. Not that we were not using the 
information we had to deal with possible sources of guns, crime 
guns, but that there may be more sources out there that we are 
missing because things were not reconciled, because there were 
not complete traces in every situation. That was the way I 
understood the inspector general's report, there weren't issues 
with making the most of what we had, but that we might be 
missing additional opportunities because we were not getting 
everything we might possibly get out of this information.
    Representative Price. I see. So the deficient performance 
in these early stages would then compromise your ability at the 
final stage, or it could.
    Mr. Buckles. Well, I think, if I am speaking correctly for 
the inspector general, it suggests that we may yet be missing 
opportunities.
    Representative Price. What exactly does it mean to target 
these dealers? What kind of specific efforts are you carrying 
out with respect to these dealers once you identify them, once 
you have the patterns established?
    Mr. Buckles. What we are doing is conducting a focused 
inspection on dealers that have high numbers of gun traces to 
them, short-time-to-crime guns coming from that dealer. We 
recently conducted a study of a thousand or so of these dealers 
to determine the factors influencing the source of crime guns. 
In some cases we are finding out that there are dealers that 
have a very high volume of business, and they have been in 
business for a long time, and the number of traces coming back 
to them are not inordinate, and that their businesses are in 
good shape.
    In other cases we are finding people who have sloppy record 
keeping, and guns may be going to the wrong people simply 
because of the way in which they manage their business, and 
still in other cases we may find dealers that are intentionally 
violating the law and selling firearms off book, for example. 
So we are finding the range. What this information is doing is 
it is leading us to the sources of crime guns so we can, again, 
be able to sort through that data further and refine our focus 
on where the problems are.
    Representative Price. That is a tip-off as to where further 
investigation might pay off and where you might find criminal 
activity that you need to zero in on.
    Mr. Buckles. That is correct. And we are not assuming it is 
criminal activity. If you notice, this is turning information 
over to our compliance inspectors, who are first looking at 
these dealers from the point of view, ``are they complying with 
the law?,'' If they do find that there are problems at that 
dealer, then it can be turned into some kind of investigation, 
or we can correct the situation with regulatory sanctions, but 
we are using this information as a way to target our very 
limited inspector resources.
    Representative Price. The chairman referred to the quality 
of the liaison with local police departments, and both of you 
have spoken to that briefly. Of course, that is an important 
criticism, I think, in this report and an important thing to be 
working on, and apparently you are doing that. To what extent, 
Mr. Schindel, or how much weight are you placing on the 
efficiency you found in technical capability?
    You talked about the fact that four police departments did 
not request traces on all recovered crime guns. You seem to be 
tracing that back to the absence of a capacity to do that 
electronically, to process this information electronically. Is 
that your main explanation, or is this failure to undertake 
this kind of thoroughgoing tracing activity, is it traceable 
maybe to other causes as well?
    Mr. Schindel. Well, I think we found that this is probably 
the main obstacle. It is less efficient to submit that 
information. If you cannot do it electronically, in some cases 
when they inventory these crime guns they take time to record 
all of this information, and if they cannot submit it to ATF or 
to the tracing center at the same time, then they have got to 
go back and kind of duplicate their effort. They are on to 
other things, and in some cases even where it wasbeing 
submitted, it may not have been submitted timely. It may not have been 
submitted accurately so that even when the information was submitted, 
the trace could not be done. In some cases the information would be 
submitted to an ATF field office through fax or through a disk, and 
then the ATF agents would have to spend their time filling out the 
trace request to send to the National Tracing Center, so it is a very 
inefficient process.
    Representative Price. Well, Mr. Buckles, to the extent that 
that is the problem, to the extent that this lack of a 
technical capability is the problem, to what extent are you in 
a position to address that, to deal with it?
    Mr. Buckles. Well, we are addressing that problem now. We 
have a variety of different initiatives going on trying to 
provide ways in which police departments can supply this 
information in a more efficient manner. The difficulty that we 
have run into is with every police department you run into a 
different computer system, a different data base, a different 
structure, and trying to come up with a solution that will 
either extract or submit that data so they do not have to keep 
reentering it every time, that can pull out of their system and 
place it in the tracing system, has proven to be a somewhat 
larger challenge than we thought it might be. We are looking 
for Internet-based solutions that will allow a better interface 
with that data as one of the solutions on dealing with it.
    Representative Price. Thank you very much.
    Mr. Kolbe. Thank you, Mr. Price. Mr. Goode.
    Mr. Goode. Thank you, Mr. Chairman. Let me ask, I guess, 
Mr. Buckles first. I need to be familiarized with current law. 
You know, a juvenile, by definition, and I believe in one of 
your testimony is 16 or under.
    Mr. Buckles. It is 17.
    Mr. Goode. Seventeen and under. Now, can a 17 year old 
possess a handgun legally?
    Mr. Buckles. Well, I believe a juvenile can possess 
firearms under certain circumstances, and we are not making 
every possession by a juvenile to be illegal. We are interested 
in these----
    Mr. Goode. I know, but what is the law?
    Mr. Buckles. I know they can possess a rifle.
    Mr. Goode. A shotgun.
    Mr. Buckles. I believe they can possess a handgun if it 
is----
    Mr. Goode. Is it federal law? Do you enforce a state law 
for violation?
    Mr. Buckles. No. We do not enforce a state law.
    Mr. Goode. So what is the federal law?
    Mr. Buckles. Well, I used to be the chief counsel, and you 
are going to catch me not knowing exactly what that is, but 
federal law generally sets age standards on who can buy a 
firearm from a licensee, so a juvenile cannot go to a licensed 
premises. I am from Wyoming, and I know youngsters have rifles 
that are given to them by their parents, and it is perfectly 
legal under federal law. You could not go into a dealer 
yourself if you are under 18 and buy one, but you can certainly 
have one if it is given to you by your parents.
    [The information follows:]

    [Clerk's note.--agency adds that under Federal law, it is 
unlawful for a Federal fireams licensee (FFL) to transfer a 
rifle or shotgun to anyone who they know or have reasonable 
cause to believe is less than 18. Federal law does not place an 
age or restriction on the possession of rifles or shotguns. 
Under Federal law, it is unlawful for an FFL to transfer a 
handgun to anyone they know or have reasonable cause to believe 
is less than 21. In addition, under Federal law it is generally 
unlawful for any person less than 18 to possess a handgun. 
There are exceptions to the prohibition on juvenile possession, 
for example, target shooting with parental permission.]

    Mr. Goode. Okay. I believe you mentioned 200,000 firearms 
you confiscated from those under 24. Is that right?
    Mr. Buckles. No. I said that the total number of traces at 
our tracing center had increased from under 100,000 earlier to 
over 200,000 by the end of the decade. Now, that would be all 
crime-gun traces, not just out of this program. I believe the 
number out of the Youth Crime Gun Interdiction Initiative 
cities is somewhere around 60,000 of that. But those are not 
all confiscated from juveniles. These would be firearms that 
are in some way involved in a crime.
    Mr. Goode. All right. The 200,000 involved in a crime, 
then, and these are federal crimes. These are federal or state.
    Mr. Buckles. No, sir. In most cases they are going to be 
state violations. The vast majority of trace requests we get 
are from local authorities who are enforcing state laws.
    Mr. Goode. In those 200,000 situations, and in how many 
instances was someone arrested or charged with that crime?
    Mr. Buckles. Well, I could not tell you----
    Mr. Goode. Just ball park.
    Mr. Buckles. Well, I would imagine in most of those cases 
there has been some kind of crime involved. Whether someone was 
charged with a crime, it could be a firearm recovered at a 
crime scene, and whether anybody is ever charged with that, I 
do not know. Generally, the firearms that come into police 
departments' custody is where they have arrested someone for 
any kind of crime. It may be a breaking and entering, and they 
were carrying a firearm. It could be a robbery, but generally 
there is some kind of state violation that went on that led the 
police to be able to have that firearm, then, in their custody.
    Mr. Goode. Of those charged and arrested, and you are 
pursuing prosecution, do you have any records of what you are 
doing with those persons?
    Mr. Buckles. We do not have a record of what we are doing 
because the vast majority of those are for state violations, 
and we performed a trace on behalf of local authorities who are 
asking us to trace the source of that firearm. [Agency note: 
ATF uses this information to interdict sources of crime guns.]
    Mr. Goode. As a novice, tell me what you do when you trace 
a firearm.
    Mr. Buckles. What we would be doing, for example, and let 
us use something from your state. For example, we have got the 
Exile program in Richmond, which is a different kind of 
firearms initiative that has to do with the use of firearms 
generally in a crime. The Richmond Police arrest someone. They 
have got a firearm on them. Perhaps they arrest them for a drug 
violation, and they are possessing a firearm.
    What we do with that is they provide us the information on 
the make, model, and serial number of that firearm, and we 
trace that firearm to the first retail purchaser to tell where 
that firearm came from and where it was last known to be in 
legal commerce. In some cases that firearm may trace back to 
the person who was arrested. They may have bought it in a gun 
store. In another case we may find that the firearm was 
reported as stolen from a gun store; there was a break-in. 
There could be any variety of things that we might find when we 
trace that firearm.
    Mr. Goode. Well, let me ask you this. If I bought--I do not 
have one, but if I bought my 17-year-old son a rifle, and that 
was used in a crime, you would just know that I purchased it. 
Is that right?
    Mr. Buckles. Yes, sir.
    Mr. Goode. Project Exile has done very well in Richmond, in 
my opinion. Do you think you would reduce crime more by 
expanding that rather than worrying about tracing the guns as 
much?
    Mr. Buckles. Well, we believe that we have to do both of 
those. It is important to find out where all of those guns in 
Richmond are coming from so that every firearm that is 
recovered from a suspect in an Exile case is traced through our 
National Tracing Center, and we find out where, if there are 
any common sources for the firearms that are showing up, and 
quite often we will find out that there is.
    A large percentage, surprisingly enough, of gun traffickers 
also happen to be violent felons themselves, so tracing the 
firearm can lead us back to somebody who is not only a violent 
felon, but also somebody who is being a multiplier on their 
conduct by providing firearms to others in the community. By 
being able to trace the firearm and focus in on that 
trafficker, we believe, is also a key component to successfully 
combating gun violence.
    Mr. Goode. But you concur, though, that putting the violent 
felons in prison, state or federal, is certainly a key way in 
reducing crime and has been.
    Mr. Buckles. Yes, and it has been an important component of 
our enforcement strategy all along, yes.
    Mr. Goode. Thank you, Mr. Chairman.
    Mr. Kolbe. Thank you, Mr. Goode. Mr. Hoyer.
    Representative Hoyer. Thank you, Mr. Chairman. Let me 
apologize for being late.
    John Kluge gave $60 million to the Library of Congress, as 
you have probably read in the paper this morning. There was a 
brief ceremony today and there will be a dinner tonight, 
today's brief ceremony honored him, and at that sum, I thought 
I would show up, so I apologize for being late, Mr. Chairman.
    I did not hear the testimony and, frankly, have not read 
the testimony either. My staff has prepared some questions, and 
I am sorry if I am redundant. If I am redundant, simply say we 
have answered that, and we will go to the record.
    Mr. Price asked some questions pertaining to the three 
criteria that the two out of 17. I think you have cleared up 
that perception a little bit.
    You may have answered this Mr. Buckles, but perhaps you 
could say something, or perhaps the IG, if he has any 
information, on the additional cities that were not looked at, 
what progress are we making. Now, was that asked, David? What 
progress is being made in light of the IG's observations with 
reference to the first 17 cities?
    Mr. Buckles. Well, that is why we have found the IG's 
report so helpful in making sure as we move on that any 
stumbling blocks we had from the original 17 cities is not 
repeated in the program as we go forward. So we are using the 
same suggestions that the IG found with the original 17 cities 
to ensure that we are not repeating those mistakes with the 
newer cities.
    I believe one of the things that the IG recommended to us 
was to update the agreement with the original 17 cities signed, 
as to what the program is and what everybody's responsibilities 
were. At the time of the original 17, the program was fairly 
limited. What happened when we expanded it to other cities and 
we had more details as to what we were going to require of the 
cities and what was expected in terms of joint enforcement 
programs; the original 17 had never been updated. So with their 
suggestion, we went back to the original 17 and actually gave 
them the more complete description of what the program should 
be. So I think that we are in better shape with the newer 
cities, and we have actually left the older ones unfortunately 
behind with what we had asked them to do.
    Representative Hoyer. Well, I suppose that is good news.
    Mr. Buckles. That is good news.
    Representative Hoyer. That is good news. Let me ask you, 
and, again, I know that Mr. Price was getting into some of 
these issues in terms of--I think Mr. Goode a little bit as 
well. The trace analysis of the program cites 96,747 traces 
between 1998 and 1999. What are the number of firearms traced 
compared with firearms recovered? Now, you have mentioned that 
a little bit with respect to--there has been some discussion 
about that, but do you have that relationship?
    Mr. Buckles. I am not sure what you mean by firearms 
recovered.
    Representative Hoyer. Firearms recovered in the course of 
police work, that they get firearms.
    Mr. Buckles. Do you mean the total number nationwide?
    Representative Hoyer. Yes.
    Mr. Buckles. We do not know exactly what that number is. It 
is kind of like the total number of firearms in society.
    Representative Hoyer. Right.
    Mr. Buckles. There are various estimates. We believe that 
there is probably somewhere between a universe of four to 
500,000. If we had universal tracing by all police departments 
the way you have universal reporting under the uniform crime 
reporting, I think that is probably the ball park of what we 
think we would see. So we are seeing probably less than half, 
being able to trace less than half, of the firearms that are 
currently being recovered by police as having been involved in 
crime.
    Representative Hoyer. Now, Mr. Price, I think, did askabout 
resources available. What is your capacity at this point in time?
    Mr. Buckles. Well, the capacity of our tracing center has 
expanded rapidly, and we are probably in a better position than 
perhaps police departments would be to supply all of that 
information. Some of the questions that we addressed earlier 
were problems that some police departments have in manually 
pulling this information out and submitting the traces. But 
with the recent improvements to our computer system, we have 
established electronic connections with a number of firearms 
dealers that allow them to automatically trace a firearm for us 
so that it is less labor intensive for the firearms industry. 
We have been able to expand our capacity without putting a 
great new burden on the legal firearms industry.
    [The information follows:]

    [Clerk's note.--agency adds that it could handle gradual 
increases in the tracing workload with commensurate increase in 
staffing and contract support; generally in increments of 
10,000 traces. That is tracing only, not analysis.]

    Representative Hoyer. So if the universe is in the 
neighborhood of 400,000, what percentage of those, if we were 
covering the universe, could we handle?
    Mr. Buckles. I would have to get back to you on that to see 
exactly what we might be able to do today.
    [The information follows:]

    [Clerk's note.--agency adds that there is no mandatory 
reporting system for requiring state and local law enforcement 
agencies to submit firearms crime information such as is the 
case with the Uniform Crime Reports (UCR).]

    Representative Hoyer. Now, it is our understanding that ATF 
has created a model of best practices that is going to be used 
as a guide in the program by your coordinators. It is my 
understanding you have also had several conferences on this 
issue with your field representatives. Are you reasonably 
confident that the best practices and best performances are 
being applied in all of our field offices?
    Mr. Buckles. With the steps that we have taken as a result 
of the IG's recommendation, I am very confident that we have 
corrected almost all of the problems we saw from before. We 
have still got a ways to go. We are still training state and 
locals, but we have the training programs now in place that 
will help bring them along. We do have clearer instructions to 
our people in the field as the program becomes more ingrained.
    As a core part of what we do, the systems within ATF are 
making sure that things get done in the normal course of things 
rather than always trying to force those efforts. But I think 
we have made tremendous progress, and I am confident that we 
are on the right track now.
    Representative Hoyer. You referenced this as well, and, 
again, this may be repetitive, but with respect to the 38 
departments that we are dealing with now around the country and 
their level of participation and cooperation; how would you 
characterize that? Are half participating fully or two-thirds 
participating fully or all participating fully?
    Mr. Buckles. The vast majority are participating fully when 
it comes to the tracing, and we are having fewer and fewer 
problems with the departments not following through on that. 
Just to digress, we have had some departments that initially 
wanted to get involved in the tracing program but as their 
resources and other priorities change, it is something they 
cannot consistently sustain at this time. But most of the 
police departments are eager to stay involved in this kind of 
approach and to find new ways to deal with gun violence.
    I think they all know that the only way we are going to 
successfully deal with these problems is by working smarter, 
not just working harder, and this is a way in which we can all 
work smarter to deal with the gun problem. Nonetheless, it is 
going to be a consistent struggle and constant effort on our 
part to make sure that everybody is carrying out what they need 
to do.
    There is the situation that on a very immediate level 
tracing a handgun by a particular detective does not seem very 
important because he has already arrested the person, the 
person has the gun. Solving his crime is not dependent upon 
where that firearm gets traced to. [Agency note: But the 
initiative seeks to exploit that crime gun information further, 
past its obvious value, so having all traces conducted 
continuously is essential.] There are always going to be 
situations in any system that unless you are forcing issues, it 
is easy for the tracing to drop off in particular cases. So 
what we have learned from the IG report is we have to remain 
vigilant with the departments, and they have to remain vigilant 
to make sure firearms are being consistently traced.
    Representative Hoyer. I am sure we have a list, and I 
probably should have looked at it, but of the 38 departments, 
can you give me the range of those departments in terms of 
their size? I do not necessarily mean the number necessarily of 
sworn officers, per se, but size of jurisdictions.
    Mr. Buckles. Well, we would have everything from New York 
City to Bridgeport, Connecticut, probably, and that might be a 
range of the sizes you would look at.
    Representative Hoyer. Bridgeport is pretty large. I do not 
know what Bridgeport is. What is it, somewhere in the 
neighborhood of 125 to 150,000 people?
    Mr. Buckles. Probably.
    Representative Hoyer. Here is the list of cities. For the 
most part, we are talking about large metropolitan areas.
    Mr. Buckles. Yes. And as we move forward this year in the 
2001 budget to additional cities, we are obviously moving to 
smaller cities each time, and those create additional problems 
sometimes and additional potentials.
    Representative Hoyer. And I asked that in the context of 
your response that some police departments' resources are 
obviously limited, and I presume the smaller the department, 
the less able they are, although they have a much smaller 
volume, the less able they are to participate. Would that be a 
correct conclusion or not?
    Mr. Buckles. Well, I think we will find that, but Ican tell 
you that moving in the direction we have into 2001, with up to 50 
cities, we are not finding any problem having cities that want to be 
involved in this program and take advantage of it.
    Representative Hoyer. Thank you, Mr. Chairman.
    Mr. Kolbe. Let me ask you a series, Mr. Schindel, a series 
of questions based on your report, and then I am going to turn 
to Mr. Buckles and ask him to respond to some of these. Mr. 
Schindel, does the ATF headquarters have a full-time, 
department or organizational position that oversees this 
program?
    Mr. Schindel. Not consistently. For some of the field 
coordinators it is a collateral or part-time duty.
    Mr. Kolbe. But that is within each agency. I said at the 
national level.
    Mr. Schindel. Oh, I am sorry. I did not hear that. Yes. 
They have a director for the Yogi program and, I think, one 
assistant.
    Mr. Kolbe. Okay. And an assistant there, and you agree with 
that.
    Mr. Schindel. Yes.
    Mr. Kolbe. Okay. Is there a set of published guidelines, a 
manual that is available to the field offices, and did you find 
that it was out there and available? Is it updated regularly?
    Mr. Schindel. There is not a manual, per se. There was a 
series of memos issued. There is the agreements that have been 
signed with the newer cities, ``statement of participants,'' 
they call it, which outlines the basic activities of the city--
of the participants, but for the coordinators I would not say--
--
    Mr. Kolbe. I am sorry. Outlines what?
    Mr. Schindel. Outlines----
    Mr. Kolbe [continuing]. Activities? The responsibility of 
the cities in terms of participating in this?
    Mr. Schindel. I do not believe it necessarily has that.
    Mr. Kolbe. Who is it signed by? Is it signed by usually the 
police chief?
    Mr. Schindel. The police chief and the YCGII----
    Mr. Kolbe. And the YCGII coordinator in that city. Is that 
correct, Mr. Buckles?
    Mr. Buckles. Yes.
    Mr. Kolbe. Is that how it would normally be done?
    Mr. Buckles. But there is not a manual.
    Mr. Kolbe. So there is no manual. There is just a whole 
series of little memos and notes. How does your YCGII 
coordinator in the city, Mr. Buckles, know what they are 
supposed to be doing on this?
    Mr. Buckles. Well----
    [The information follows:]
    [Clerk's note.--agency provided the following: We have 
information available on CD-ROM that provides all they need to 
know about the essential elements and requirements of this 
program as it concerns the basic goals. Those agents involved 
as coordinators are in regular communication with the Crime Gun 
Analysis Branch for guidance on their cities' tracing and 
analysis efforts. They are also brought together with program 
managers for workshops, and many are also trained to deliver 
associated YCGII instruction for state and locals.]

    Mr. Kolbe. Do you have a regular training? Do you have a 
formal training for these people?
    Mr. Buckles. Yes, we do now. Again, we have to talk about 
the difference between when the inspector general looked at 
this, which was a period of July 1999, I think, through 
December 1999, and where we are today. So the answer is 
different depending on what time period.
    When the inspector general looked at it, they found a 
program that had grown incrementally with a series of memos or 
policy statements and that nothing had actually brought all of 
this stuff together into one package. We do have that now with 
the training that we provide both to our coordinators in the 
field division and the state and locals who participate in this 
so that they get very clear instructions as to what the goals 
of the program are, what the responsibilities of each of us 
would be as we move forward on this. So we have made 
considerable improvement in that.
    Mr. Kolbe. You are looking at going from 38 to 50 cities 
with the additional funding you are going to get. What is the 
criteria for adding new cities to this program?
    Mr. Buckles. The criteria--I will tell you roughly, because 
I may miss something here, but it is generally it has to do 
with the amount of violent crime in the city, crime involving 
youth. There are about five factors detail of which is found in 
my statement for the record.
    For 2001, we have identified a range of cities that we are 
looking at right now. We have contacted cities to see who wants 
to be involved and who would be committed to the program, and 
once our appropriation is approved for this fiscal year, we are 
prepared to move forward with adding the additional cities.
    Mr. Kolbe. Mr. Schindel, I know you looked at the 17 
original cities, but is there any evidence that the local field 
offices play some role in making the recommendations for 
evaluating this criteria?
    Mr. Schindel. Not in the original 17 cities. I think that 
was in part based on the criteria of cities that had expressed 
an interest in participating, had a concern about youth gun 
crime in their city, and I think a number that were 
participating in a program called COPS.
    Mr. Kolbe. Yes. I think that was one of the criteria. Mr. 
Buckles, when you went from 17 to 38, did you have more 
applications than that? Did you have to say yes to some cities 
and no to others? Was there a formalized review of this?
    Mr. Buckles. I could not answer that specifically. I would 
have to supply that for the record. [Agency note: Based on 
where those cities fell in our ranking guidelines, we tried to 
address those with more critical problems first. The balance 
were moved to the list of potential candidates for the next 
year.]
    Mr. Kolbe. I would appreciate it if you would.
    Mr. Buckles. I have been told that we have had morecities 
that want to participate than we can bring in each year.
    Mr. Kolbe. Mr. Schindel, in your report you say that there 
are four police departments not submitting trace requests. Two 
told you--this is the original 17--two told you that because 
they do not have a computerized system for trace-requests 
submission, third was submitting some trace requests, but not 
all due to problems with the computer system, but then there 
was a fourth one that did not participate at all, did not 
submit trace requests, did not have a YCGII representative, and 
yet it still included an ATF budget request and statistical 
reports on YCGII. Is that correct?
    Mr. Schindel. Yes. That is correct.
    Mr. Kolbe. Mr. Buckles, what has been done by ATF about 
this city that does not participate? Why has not it been 
replaced?
    Mr. Buckles. They have been dropped.
    Mr. Kolbe. They have been dropped?
    Mr. Buckles. Yes, and replaced by another city.
    Mr. Kolbe. So it is no longer one of these 17. Was that 
recently?
    Mr. Buckles. Yes. [Agency note: Inglewood, CA, was dropped 
and replaced by San Jose, CA. Likewise, Bridgeport, CT, and 
Salinas, CA, are also under review to determine their continued 
participation.]
    Mr. Kolbe. In the last year or two? Do you rely on the 
evaluations from your local field office about the criteria 
about recommendations for cities that might be included in the 
next round?
    Mr. Buckles. As we get the proposed cities through our 
system, we consult with our own field divisions about their 
sense of the police departments involved and their commitment 
to be able to work with us as we move forward.
    Mr. Kolbe. Last question so I can go back to another round 
for everybody else here. In March, Mr. Buckles, you told this 
subcommittee that ``personnel may be called upon to provide 
assistance.'' You have talked about now the YCGII personnel in 
the cities, ``called upon to provide assistance in other 
activities, if available, and on a case-by-case basis.'' But 
isn't it really kind of the opposite? Isn't YCGII just kind of 
an add-on activity for your agents, and it is kind of the last 
thing that gets assigned to people?
    Mr. Buckles. Well, I do not believe that that is the case. 
YCGII is something that is an expansion on quite often things 
that some of the agents may already have been doing, but in 
order to make it really within the YCGII program, you have to 
follow it up and cover all of the bases.
    We have been doing trafficking cases for years, for 
example, but to make that trafficking case truly part of the 
Youth Crime Gun Interdiction Initiative, we have to follow up 
with additional steps and analysis of the data and make sure we 
are working properly with the locals. So I think we are 
requiring a more complete effort to make it fit within this 
program, but it is not add-on work, as such. Some of it is the 
same kind of case, but as we get more resources, it is the 
ability to do more of those cases as well.
    Mr. Kolbe. Mr. Schindel, did you find in your analysis of 
the 17 cities that the personnel turnover in ATF on this 
program was fairly high?
    Mr. Schindel. In some cities they were on their third 
coordinator, for example.
    Mr. Kolbe. Did you find that it is a corollary duty in some 
cases?
    Mr. Schindel. Yes.
    Mr. Kolbe. So it was not really a full-time assignment for 
them.
    Mr. Schindel. Right.
    Mr. Kolbe. Did you find that there were a lot of junior 
agents that were assigned to this?
    Mr. Schindel. No. I think we found that mostly they adhere 
to that requirement to assign experienced agents where they had 
them.
    Mr. Kolbe. Okay.
    Mr. Buckles. Mr. Chairman, I may have misunderstood your 
question before if we are talking about add-on duties. If you 
were asking me about the YCGII coordinator, that would have 
been probably an additional duty placed upon a member of the 
division staff who had other responsibilities of program 
monitoring responsibilities within that division. So if I 
misunderstood your question the first time, I apologize.
    Mr. Kolbe. Mr. Hoyer.
    Representative Hoyer. I am prepared to have you go on and 
ask questions. I am finding you have it pretty well organized 
there. I have got some other questions, but I will submit them 
for the record. I would like to hear the answers to questions 
you are asking.
    Mr. Kolbe. Well, let me just try a couple more, then. I 
think I am coming close to the main ones that I wanted to get 
through here.
    Mr. Schindel, the report, your report, indicates that the 
ATF headquarters guidance describes critical activities that 
the field offices really need to be performing, reconciling the 
trace requests with the actual crime guns that are recovered, 
conducting the end-to-end traces of a sample of routine cases, 
and working closely with industry operations to target the 
licensees that have the highest number of guns traced to them.
    But I think you found that really of the 17 cities only two 
of them--and that goes back to that criteria that Mr. Price was 
talking about--in only two cases they were doing it in all of 
the three that you labeled there. Did you analyze as to why 
they were doing some of the things and not all of them there?
    Mr. Schindel. I think in some cases----
    Mr. Kolbe. Manpower, or was it simply a misunderstanding?
    Mr. Schindel. I think in some cases they were not fully 
aware of what all of the requirements were. In some cases I 
think that they felt that they had too many other duties to 
handle.
    Mr. Kolbe. So partly manpower, partly that there was not 
any clear direction.
    Mr. Schindel. A number of them had their own case load. 
They were investigating cases as well as handling this 
responsibility.
    Mr. Kolbe. I have the impression that there is really not a 
clear focus for this program and that it is kind of--you get a 
sense from reading Mr. Schindel's report that it is kind of--
maybe this is too harsh, but it is kind of an seat-of-the-
pants, fly-by-night kind of program, and that in each city the 
agents kind of interpret it in their own way here as to what 
they are supposed to be doing. I do not see a lot of national 
direction to this as to what they are supposed to be doing.
    Mr. Buckles. Well, you would not see that now, but let me 
back up to that question, because the perspective and function 
of this initiative has indeed evolved. You have to remember 
that the first time we received any FTE for our field component 
of the Youth Crime Gun Interdiction Initiative, was in the 
Fiscal Year 1999 budget. We had received funds before, but most 
of that was related to increasing the capacity of the tracing 
center and other technology changes. And, quite frankly, we 
were trying to push that out and be as aggressive as we could.
    At the same time we really did not have any more people on 
board than we did before. You are talking about the middle of 
Fiscal Year 1999 before additional FTE were brought on. We were 
losing as many people as we were bringing on. We had not 
started really getting ahead in terms of the amount of 
resources we had, but we were still committed to make the youth 
crime gun initiative work.
    And seat of your pants; I do not know. That has a lot of 
different implications, but I will tell you, we were doing it 
as a stretch. We had people who were working very hard to try 
to keep this going and to get it up and running without, at 
that particular point in time, mid-1999, any big boost in the 
resources. That has come since then.
    And I think that you would find a very different situation 
today as you look at it. We have been able to hire people. We 
have had difficulty in almost every program we have in 
management of offices and of having people in place a long 
time. We are a young agency. We have had a lot of people 
retire, and we have been pushing people up through the ranks 
and changing jobs, but these are issues we are working through, 
and we are determined to address them and make sure that we 
have got systems in place that are not just relying upon having 
an old salt there that knows what to do and is used to dealing 
with people. We will have systems in place and measurements in 
place so that when we meet with you again you will see a very, 
very different picture, and we will be able to paint out 
exactly what it is we are getting of this program.
    Mr. Kolbe. Well, I guess what I meant when I said ``seat of 
the pants'' is--I will put the question another way. If I were 
an ATF agent today and working for us, and I was named the 
YCGII coordinator in my own city of Tucson, would I know what 
the heck I am supposed to do?
    Mr. Buckles. Well, you would be brought in for a training.
    Mr. Kolbe. You have a formalized training program now----
    Mr. Buckles. Yes, we do.
    Mr. Kolbe [continuing]. For the coordinators?
    Mr. Buckles. Yes.
    Mr. Kolbe. How long is that training?
    Mr. Buckles. I think we had a week-long workshop where we 
had all of the YCGII coordinators in and state and local 
counterparts, and we have continued training planned into the 
future so that we have a constant effort there with both our 
people and our partners to know what everyone's 
responsibilities are, what we have all agreed to do, because 
those agreements can get put, either at a police department or 
ATF, in a folder somewhere, and it requires additional efforts 
to make sure everybody continues to be aware of what their 
responsibilities are.
    Mr. Kolbe. A conference of field coordinators and their 
local counterparts does not sound exactly like training to me. 
You would have an annual conference of your YCGII coordinators 
maybe to go over what you have done, but do you have a training 
process of when I am named the coordinator that I am going to 
be brought in for a training process, or do I just wait for the 
annual conference and come in and learn it at that time?
    Mr. Buckles. Well, let me provide for you for the record, 
if I could, what we have done to make sure that our 
coordinators know what the programs are and know what their 
responsibilities are and also that the people we deal with. If 
I try to get too specific on this, I will probably stumble, but 
I will give you the specifics on it for the record. [Agency 
note: Training now being provided is itemized in the statement 
for the record and in ATF's response to the IG report.]
    Mr. Kolbe. Mr. Schindel, did you find that the YCGII 
structure was consistent from city to city, or did it vary 
quite a bit?
    Mr. Schindel. I do not think there is really necessarily a 
structure. The YCGII coordinators could be in different 
functions in the different SAC offices, in some cases in the 
intelligence function and in other cases in a different 
function, so there is no structure. I do not think there are 
YCGII teams, per se, of all of the folks that work YCGII cases 
all in one group. They can be agents scattered into different 
groups who get assigned YCGII cases. So there is not a 
structure, per se.
    Mr. Kolbe. What I am hearing is that YCGII is just kind of 
an overlay of a program and picks agents. For an hour a day 
they might be working some YCGII cases, but then they are back 
over here to other assignments here. They are doing other 
things.
    Mr. Schindel. Other than the coordinator, who should have 
more----
    Mr. Kolbe. Other than the coordinator.
    Mr. Schindel [continuing]. Of a full-time post.
    Mr. Kolbe. That is your understanding of the way the 
structure of it is?
    Mr. Buckles. It varies, actually, in cities. If you have a 
large city, a large field office, one of the groups will be a 
trafficking group, and almost all of what they do would be 
trafficking cases that would fall within the YCGII program. If 
you talk about a smaller office, such as Tucson, where we have 
got an office with a small number of agents, those same agents 
have to be working a trafficking case if that comes up, or if 
there is a bombing, they have got to be prepared to deal with 
that. So in smaller offices, frankly, the agents have to do a 
little bit of everything. Trafficking and ways that help focus 
on youth is one of their main responsibilities.
    The extent to which we can work on these cases has to 
really be viewed on a macro level because every case, even if I 
take a trafficking case, a youth-crime-gun case in Chicago, 
some of the work on that case, or maybe a lot of the work that 
comes out of that, will be in Mississippi because that is the 
source state. So we will have agents in Mississippi who will be 
working on a particular investigation that is actually a YCGII 
case out of Chicago but deals with a source state in 
Mississippi. Inspectors associated with the youth crime gun 
initiative may well be placed in Mississippi to deal with the 
Chicago problem. We have one inspector for the entire state of 
Mississippi, but it is a major source state of firearms going 
to Chicago.
    So when we assign inspectors, we tried to come up with this 
as a model and not a cookie cutter that Chicago is going toget 
six agents and two inspectors. We have got to look at it as a model of 
what we need on a macro level. We are a nationwide organization. 
Trafficking problems cross state lines in most cases, and we have to 
have resources in every state that are prepared to step in and 
contribute when it comes to working on these cases. [Agency note: The 
statement for the record elaborates on how we have recognized 
geographic patterns that affect work load and resource management.]
    What we will have to do in terms of monitoring the amount 
of resources we are putting into this program and making sure 
we are committing what we need to is look at overall records of 
where we are expending our resources. We have time- and case-
management systems that demonstrate to us where our work is 
being conducted, the kinds of cases that are being worked that 
are managed by field offices, that have YCGII as something they 
have got to accomplish, that is, in their performance 
evaluation, and then monitored on a macro level at 
headquarters.
    Mr. Kolbe. Okay. Finally, let me just ask about the cities 
that enlist in this program. I am concerned about the 
coordination with them, the amount of inspection that they have 
and the cooperation level. You mentioned also that there was a 
conference where your coordinators come in, and you bring in 
the counterparts from the cities. Does part of the change of 
your YCGII coordinators include training the person in the city 
that is going to be the coordinator?
    Mr. Buckles. I do not know if training would be the proper 
word, but, yes, I think that that is part of the 
responsibility----
    [Agency note: Each office has now in place an agent who is 
tasked with training State and local partners. We also maintain 
a roster of all agents designated as coordinators, so that we 
keep any agents new to the program properly informed.]
    Mr. Kolbe. The key to this program, this program does not 
work if they do not provide all of the information for gun 
traces. Is that not right?
    Mr. Buckles. Correct.
    Mr. Kolbe. And we have already seen that in some cases we 
did not get all of that, and some cities are not providing all 
of that. So I would assume from the very beginning the emphasis 
has got to be on the city. We are going to have to do this. We 
are going to help you with this. We are going to give you this 
information. You in return have to give us the raw data.
    Mr. Buckles. Yes. All of these are things that we have 
addressed that came out of the inspector general's 
recommendations, and we have taken steps to implement every one 
of the recommendations made by the inspector general's office. 
That is why maybe there is a disconnect here.
    He can describe what the problem was, and I am trying to 
make it sound like there is not a problem, but it is largely 
because we have recognized the problem that existed and that we 
have taken a whole series of steps in each one of these areas 
to address the problem of making sure that our partners know 
their responsibilities, that we set up systems where we are 
monitoring whether or not the police department is actually 
sending in the traces so that we will get sooner feedback if 
there is a problem. So we have set up systems now to try to 
address all of these issues.
    [The information follows:]



    Mr. Kolbe. There again, what kind of assistance do you give 
the city in making use of this data when you have compiled it?
    I just opened it randomly to Minneapolis, and there is page 
after page here of juveniles, youth, adults, age unknown, 
percentages of crimes with firearms, homicide, kidnaping, and 
so forth. What kind of use do you make of this data for the 
city, and how do you help them make use of it?
    Mr. Buckles. Well, one of the commitments we have is that 
we will work together to review those reports and identify 
where the information can help us develop a strategy for 
addressing gun violence in their community.
    Mr. Kolbe. You say that is a goal that you have now?
    Mr. Buckles. Yes.
    Mr. Kolbe. Okay.
    Mr. Buckles. I think it was our goal before, but the IG 
pointed out that we were not always following through on that, 
but that was a stated goal earlier on in the program, and they 
found that there was a deficiency in that, that in some cases 
we had local partners who were saying they give me the 
information, but they do not do anything to tell me what to do 
with it. In other places we would find that that is a very 
actively used document for defining strategies, but the IG made 
it clear that in other places it was not being used as 
intended.
    Mr. Kolbe. Mr. Schindel, you are finding that local law-
enforcement agencies simply did not know how to use this data?
    Mr. Schindel. In some cases that was the situation. They 
were not aware of things, like I said, the on-line lead. I 
think on-line lead is an issue that ATF needs to figure out how 
to address because it is not available to police departments on 
line. I do not think ATF wants to make it available on line 
because there are some issues associated with that, but some of 
the police departments said it is not readily available to 
them, and in some cases they felt it was inconvenient to get at 
the information. They have got to actually go into an ATF 
office and use their system. So that needs to be addressed a 
little more. I think they are addressing it with some of the 
actions that they are taking.
    The coordinator role is probably in some sense a marketing 
role, too. They have got to market this program to the local 
city police departments, to some extent, because it is 
voluntary on their part, and they have to see a benefit to it. 
So being able to provide that information, for example other 
information that some police departments were looking for was 
the ability to use mapping data to be able to identify pockets 
ofareas where crime guns are being recovered. They wanted that 
information, and it was not always readily available to them.
    Mr. Kolbe. I would agree with you. I think that is a key 
part of this, and maybe what was missing, and hopefully we are 
correcting that, is the marketing aspect of this thing. It only 
is going to be as valuable to the local law-enforcement 
agencies as the cooperation they have with ATF, and they know 
how to make use of this data. I will probably have some 
additional questions for the record, but let me see if Mr. 
Goode has some additional questions.
    Mr. Goode. A couple of questions.
    Mr. Buckles. It is not another legal question, is it?
    Mr. Goode. No, sir. You get these firearms that are 
committed in crimes. Are all of them confiscated, or do you 
ever turn any of them--if they are stolen, I guess you give 
them back to the owner. What do you all do with the ones that 
were illegally obtained, the ones that do not go back to the--
--
    Mr. Buckles. There is a very specific procedure in federal 
law as to what we have to go through to forfeit those firearms. 
There are time periods we have to comply with. There is 
notice----
    Mr. Goode. Do you resell them, or do you just usually 
destroy them?
    Mr. Buckles. They have to be destroyed. Under GSA 
regulations----
    Mr. Goode. I can resell--I mean, you know, a sheriff's 
office can resell.
    Mr. Buckles. That is right. Many local jurisdictions, they 
do. Federal-property rulings published by GSA require all 
surplus or forfeited firearms to be destroyed. They can be 
converted to official use if they were something susceptible to 
that.
    Mr. Goode. If you call up a manufacturer and say, ``Hey, we 
have got--this is a Colt serial number this and make this,'' do 
you keep any record of guns in crimes with regard to 
manufacturer source?
    Mr. Buckles. Yes. Do you mean would we be able to tell you 
how many from each manufacturer or type of firearm was traced? 
Yes, we would.
    Mr. Goode. Okay. That is all I have, Mr. Chairman.
    Mr. Kolbe. One last question, I guess, and we have got a 
good wrapup kind of a basis. Looking at the YCGII funding 
history, going from $300,000 to the request for this year, and 
I believe our budget gives it all to you, $76 million, as I 
listened to the answers to these other questions, it sounds to 
me like the key to this program is the cooperation and the 
involvement of the local law-enforcement agency, that they have 
to participate in giving you this data, that you would be doing 
this anyhow. You would be doing these gun traces now, with or 
without the YCGII program, YCGII program funding for it. Is not 
that essentially accurate?
    Your job is doing this kind of tracing. You would be doing 
this whether or not we have formally called it a YCGII program. 
And I guess I am wondering what the funding really enables you 
to do that you are not able to do today if you did not have 
this. It is more additional personnel, I gather, although we 
heard the personnel were not assigned specifically to this task 
except for the coordinator.
    Mr. Buckles. Right. The significance of this is twofold. 
One, it is essentially a trafficking and firearms source 
project that is trying to give us information that we can use 
both to make trafficking cases and find other ways that we can 
impact violent crime. That is something that ATF has always 
done to some degree or other, and that has expanded our ability 
to do that.
    In terms of it being a youth crime gun initiative, it is 
centered around youth and crime guns because of the figure I 
told you earlier, with 41 percent of all of the violent 
firearms crime being committed by people in this age range, 
that provided a focus, both of where the biggest problem was 
and also potentially where we could make the greatest 
difference in and change people's lives. If youth did not get 
involved in firearms, if they did not commit firearms crimes, 
you have a chance to make the biggest impact in terms of the 
future of violent crime as well.
    So the program itself is part of what the Gun Control Act 
was designed to do. It makes dealers keep records so that 
people can find out where crime guns came from. That is the 
whole purpose of the Act, going back to 1968. This is just a 
way in which we are highlighting exactly how we are trying to 
take those authorities and tools and deal both with the larger 
issues of source guns on crime with a slant on it that allows 
us to look at probably the most vulnerable and potentially most 
affected section.
    Mr. Kolbe. If you did not have all of this funding, you 
would not be able to do all of the tracing or this empirical 
data, collecting this empirical data.
    Mr. Buckles. No, sir. Our tracing system before was used 
primarily as a service. If you had a law-enforcement agency 
where they recovered----
    Mr. Kolbe. Came to you with a specific gun.
    Mr. Buckles. They recovered a crime gun at a scene. They 
wanted to see if they could get a lead on finding out who 
committed the murder. They would trace the firearm. We would 
tell them who purchased it.
    This allows us actually to be more carefully focused on 
what we are doing on the sources of crime guns.
    Mr. Kolbe. Mr. Buckles, Mr. Schindel, I thank you very much 
both for being here. Ms. Rickey also. Thank you for your 
testimony. I think you have helped add some light, at least, on 
this program and certainly given us additional food for thought 
as we go into the next budget cycle. We appreciate the 
frankness with which you gave your answers today, and I think 
you have helped this subcommittee do its work. So thank you 
both very much for participating in this. And without 
objection, the subcommittee stands adjourned.





                           W I T N E S S E S

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                                                                   Page
Rossotti, Charles................................................     1
Harrison, P.D....................................................     1
Black, Edward....................................................     1
Lacijan, Charles.................................................     1
Buckles, Bradley.................................................   225
Schindel, Dennis.................................................   225
Rickey, Roberta..................................................   225


                               I N D E X

      ...........................................................
                                                                   Page
Bureau of Alcohol, Tobacco and Firearms:
    Buckles, Opening Remarks.....................................   229
    Questions for the Record Submitted by Subcommittee...........   256
    Schindel, Opening Statement..................................   227
Executive Residence at the White House: Budget Justification.....   283
Internal Revenue Service:
    Black, Testimony of..........................................    26
    Harrison, Opening Remarks....................................    36
    Lacijan, Statement of........................................    18
    Questions Submitted for the Record by Congressman Hoyer......    70
    Questions Submitted for the Record by Congresswoman Emerson..    68
    Questions Submitted for the Record by Congresswoman Northup..    65
    Questions Submitted for the Record by Subcommittee...........    71
    Rosotti, Statement of Commissioner...........................     7

                                
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