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





             H.R. 4181, THE DEBT PAY INCENTIVE ACT OF 2000

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      INFORMATION, AND TECHNOLOGY

                                 of the

                     COMMITTEE ON GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                                   ON

                               H.R. 4181

 TO AMEND TITLE 31, UNITED STATES CODE, TO PROHIBIT DELINQUENT FEDERAL 
 DEBTORS FROM BEING ELIGIBLE TO ENTER INTO FEDERAL CONTRACTS, AND FOR 
                             OTHER PURPOSES

                               __________

                              MAY 9, 2000

                               __________

                           Serial No. 106-201

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform

                   U.S. GOVERNMENT PRINTING OFFICE
70-748                     WASHINGTON : 2001


_______________________________________________________________________
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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
HELEN CHENOWETH-HAGE, Idaho              (Independent)
DAVID VITTER, Louisiana


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                    Lisa Smith Arafune, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

   Subcommittee on Government Management, Information, and Technology

                   STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois               JIM TURNER, Texas
THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon                  MAJOR R. OWENS, New York
DOUG OSE, California                 PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin                 CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          J. Russell George, Staff Director and Chief Counsel
                         Randy Kaplan, Counsel
                           Bryan Sisk, Clerk
                     Michell Ash, Minority Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 9, 2000......................................     1
Text of H.R. 4181................................................     2
Statement of:
    Ashby, Cornelia M., Associate Director, Tax Policy and 
      Administration Issues, General Accounting Office, 
      accompanied by Gregory D. Kutz, Associate Director, 
      Governmentwide Accounting and Financial Management Issues, 
      and Tom Armstrong, Assistant General Counsel; Deidre Lee, 
      Acting Deputy Director for Management, Office of Management 
      and Budget; Joe Mikrut, Tax Legislative Council, Department 
      of the Treasury; Carol Covey, Deputy Director of Defense 
      Procurement, Department of Defense; and Sally Thompson, 
      Chief Financial Officer, Department of Agriculture.........    18
Letters, statements, etc., submitted for the record by:
    Ashby, Cornelia M., Associate Director, Tax Policy and 
      Administration Issues, General Accounting Office, prepared 
      statement of...............................................    20
    Covey, Carol, Deputy Director of Defense Procurement, 
      Department of Defense, prepared statement of...............    58
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California, prepared statement of.................     7
    Lee, Deidre, Acting Deputy Director for Management, Office of 
      Management and Budget:
        Information concerning non-tax receivables...............    75
        Prepared statement of....................................    43
    Mikrut, Joe, Tax Legislative Council, Department of the 
      Treasury, prepared statement of............................    51
    Thompson, Sally, Chief Financial Officer, Department of 
      Agriculture, prepared statement of.........................    66
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................    11

 
              H.R. 481, THE DEBT PAY INCENTIVE ACT OF 2000

                              ----------                              


                          TUESDAY, MAY 9, 2000

                  House of Representatives,
Subcommittee on Government Management, Information, 
                                    and Technology,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn, Biggert, Davis, Ose, Turner, 
and Maloney.
    Staff present: J. Russell George, staff director and chief 
counsel; Randy Kaplan, counsel; Bonnie Heald, director of 
communications; Bryan Sisk, clerk; Michael Soon and Elizabeth 
Seong, interns; Michelle Ash and Trey Henderson, minority 
counsels; and Jean Gosa, minority assistant clerk.
    Mr. Horn. A quorum being present, the Subcommittee on 
Government Management, Information, and Technology will come to 
order.
    Today we will examine a bill introduced by the ranking 
member of this subcommittee, Representative Jim Turner of 
Texas.
    [The text of H.R. 4181 follows:]

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    Mr. Horn. Mr. Turner's bill is a superb one as far as I am 
concerned, and I am glad to be a cosponsor of it. H.R. 4181, 
the Debt Payment Incentive Act of 2000 would prohibit 
delinquent tax debtors from receiving Federal loans or 
contracts until their delinquencies are resolved.
    The bill expands the Debt Collection Improvement Act of 
1996, which bars delinquent nontax debtors from receiving 
Federal loans or loan guarantees. That law only applied to non-
tax related delinquent debts. Frankly, the reason it applied 
only to that is that if we wanted the bill to get through in 
1996 we had to ride the train leaving the station, and that 
meant don't get bogged down in the Committee on Ways and Means.
    These overdue debtors that are referred to in the nontax-
related delinquent debts, who are overdue in paying off their 
student loans and home mortgages, farm or business loans, 
currently owe the Federal Government a total of $46 billion. 
However, the 1996 law does not apply to the tax-related debt, 
as we noted, which is estimated to be $231 billion in overdue 
taxes, penalties, and interest.
    At a hearing last summer, the General Accounting Office 
testified that unpaid payroll taxes is one of the largest 
categories of that outstanding tax debt. GAO investigators 
found that nearly 2 million business owners owed the Federal 
Government nearly $50 billion in unpaid payroll taxes, taxes 
these employers had collected from their workers but failed to 
forward to the U.S. Treasury.
    Despite those debts, however, a significant number of the 
same business owners and other individuals with delinquent tax 
debts are receiving millions of dollars in Federal benefits and 
new loans. H.R. 4181 would prohibit that outrageous practice 
from continuing. The bill would require the Internal Revenue 
Service to report the tax status of all applicants for Federal 
loans, loan guarantees, and Federal contracts to the agency 
granting the loan or issuing the contract.
    Admittedly, this places an additional administrative 
responsibility on an agency, the Internal Revenue Service, and 
that agency, as we know, is already beleaguered by serious 
financial and operational challenges, but that cannot be any 
excuse for picking up the nontax debt and the tax debt.
    Today we will examine whether the Internal Revenue Service 
can meet this responsibility.
    We will also hear from representatives of other Federal 
agencies who will discuss their views on the legislation. I 
commend Mr. Turner for seeking to remedy this appalling abuse 
of taxpayers' money and yield to him to discuss his bill.
    [The prepared statement of Hon. Stephen Horn follows:]
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    Mr. Horn. Mr. Turner.
    Mr. Turner. Thank you, Mr. Chairman.
    First of all, I want to thank you for granting a hearing to 
this bill; and I thank you for your cosponsorship of the 
legislation. I also want to thank Mr. Davis and Mr. Ose who 
have joined with us, along with Mr. Burton, Mr. Waxman, Mr. 
Owens, Mrs. Biggert, Mrs. Maloney, Mr. Walden of our committee; 
also, I thank Mr. Shays and Mr. Mica, Mr. Tierney, Mr. Gilman, 
on our full committee, have joined with us in this effort.
    It is no secret that taxpayers owe the Federal Government 
billions of dollars in delinquent taxes, and to figure out how 
to collect that is one of the tasks that this committee under 
Chairman Horn's leadership has struggled with on many fronts.
    According to the IRS records, the Federal Government was 
owed $231 billion in unpaid taxes, penalties, and interest. In 
a hearing before this subcommittee in August of last year, the 
General Accounting Office revealed that nearly 2 million 
businesses owed $49 billion in cumulative unpaid payroll taxes. 
An additional $15 billion in penalties had been assessed 
against the 185,000 individuals responsible for the nonpayment 
of these payroll taxes.
    The GAO also reported that a significant number of 
businesses with unpaid payroll taxes and individuals with 
outstanding penalties are also receiving billions of dollars in 
Federal benefits. One alarming example was of a freight handler 
company which owed an estimated $2 million in unpaid payroll 
taxes. They routinely funneled corporate funds to an affiliated 
company, one owned by one of the corporate officers, to acquire 
trucks and other equipment for the affiliated company's 
expansion. Eventually it turned out the IRS discovered that 
funds for the unpaid payroll taxes were also being used for 
corporate officers' personal expenses, including the 
installation of a private swimming pool and maintenance of at 
least eight antique cars owned by one of the corporate 
officers. The most disturbing aspect of this story is the fact 
that during this time Federal contracts accounted for 85 
percent of this particular company's revenues.
    Additionally, we learned that about 12,500 taxpayers, both 
businesses and individuals with outstanding payroll liabilities 
totaling about $280 million, had received SBA loan 
disbursements totaling about $2.4 billion.
    In a 1992 GAO report that studied 26,000 businesses that 
had Federal contracts valued at over $25,000, the GAO 
discovered that 21 percent or more than 5,700 of these Federal 
contractors owed $773 million in delinquent taxes, interest, 
and penalties, and another 4 percent of them, almost 1,100 of 
these Federal contractors, were under investigation for not 
filing Federal tax returns.
    Can you believe that tax debtors enjoy Federal contracts 
and Federal loan assistance? They can under current law, and 
this legislation intends to change it.
    We introduced this bill, H.R. 4181, the Debt Payment 
Incentive Act of 2000, to remedy this problem. This bipartisan 
legislation builds upon the success of the Debt Collection 
Improvement Act of 1996 which banned Federal loans and loan 
guarantees to delinquent nontax debtors.
    H.R. 4181 amends the Debt Collection Improvement Act to bar 
delinquent Federal debtors from obtaining Federal contracts, as 
well as Federal loan assistance already covered under existing 
law. The bill expands the Debt Collection Improvement Act to 
include tax debt in generally the same manner that nontax debt 
is already included under the provisions of the Debt Collection 
Act. This is the first time tax debt has been brought under 
Federal law.
    Strong precedent already exists for this legislation. OMB 
Circular A-129 already requires that Federal agencies determine 
whether applicants for Federal loan assistance are delinquent 
on any Federal debt, including tax debt.
    Under this circular, agencies must include a question on 
loan application forms asking applicants if they have such 
delinquencies. Processing of applications should be suspended 
until the debtor satisfactorily resolves the debt. However, 
implementation of Circular A-129 has been uneven and the GAO 
reported that many agencies are not even following the 
requirements.
    While I think we can all agree that those who fail to pay 
their taxes should not receive these Federal benefits, loans, 
and Federal contracts, I realize that there are a number of 
implementation issues surrounding the legislation.
    I want to thank the numerous individuals and organizations 
who have submitted testimony and suggestions on our 
legislation: The U.S. Chamber of Commerce, the National Farmers 
Union, the Aerospace Industries Association, the National 
Defense Industry Association, National Federation of 
Independent Businesses, the National Taxpayers Union, the Small 
Business Administration, the Department of the Treasury, the 
IRS, the USDA, the GSA, of course the GAO, OMB, the Financial 
Management Services, the Department of Defense, and the Family 
Farm Coalition all commented or are prepared to testify 
regarding this legislation.
    In an effort to find a workable solution to the problem 
that we have discussed, each of these people have been very 
open, each of these groups, in trying to offer their best 
assistance to achieve the goal that we all agree upon.
    First, I recognize that the IRS is currently modernizing 
its computer systems; and a few weeks ago at our hearing, I 
asked Commissioner Rossotti to comment on this bill. He 
concluded that the IRS could handle the requirements of this 
new legislation if they were given time to implement the system 
to make it workable.
    Therefore, it seems to me that the effective date of this 
legislation should take into account that there should be some 
lag time to be sure the IRS can handle this responsibility.
    It is not the intent of this bill to delay the process by 
which the Federal Government awards contracts or loans, and it 
has also been suggested that perhaps during this interim period 
before the legislation becomes fully effective that a pilot 
project should be initiated, to be sure that it is workable and 
that the IRS can handle the task.
    Second, with regards to procurement I still believe that 
making tax compliance is a prerequisite to awarding Federal 
contracts and that it is a legitimate screening tool. 
Currently, Federal agencies can consider tax delinquency in 
making their contract awards. Under this legislation, the 
agency head and the Treasury can waive the bar to contracts. It 
is worthy of consideration that perhaps our legislation should 
delegate this responsibility to the chief procurement officer 
rather than solely being an authority granted to the agency 
head.
    Third, I think it is important for us to be sure that our 
definition of delinquency will cover those who are still 
involved in legitimate disputes with the IRS. It has been 
suggested that perhaps our definition should have some 
refinement, and I am certainly open to the suggestions that 
will be made today to accomplish that.
    We do not want to take any right of appeal away from any 
taxpayer by this legislation. We simply want to be sure that 
after all appeals and remedies are exercised by the taxpayer 
that if they still owe the Federal Government taxes, then they 
are barred from Federal contracts or loans.
    Fourth, in order to clear up any confusion about what type 
of acquisitions are covered under this legislation, I would 
suggest, and it has been suggested, that we exempt small 
purchases under $2,500 which under current law do not require a 
formal contract.
    Fifth, with regard to the provisions relating to the 
penalties for trust fund taxes, it has been suggested that 
perhaps we should limit coverage of this bill to only partners 
with 25 percent ownership or more. I had originally suggested 
perhaps 10 percent. I am certainly open on that point as well.
    In closing, let me make one final point. There are usually 
multiple policy goals involved when the Federal Government 
makes a loan or contract for services. One goal, it seems to 
me, should be to ensure that applicants applying for loans and 
businesses contracting with the government are not delinquent 
in their taxes. Exactly how we achieve that goal is the subject 
of this hearing today, and I welcome the testimony from each of 
our witnesses and again I thank the Chairman and the members of 
this committee who have joined in cosponsoring this bill. Thank 
you, Mr. Chairman.
    [The prepared statement of Hon. Jim Turner follows:]

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    Mr. Horn. Thank you very much for that summary of your 
legislation. The further opening statements will be limited to 
5 minutes. We give the author more leeway. And I am delighted 
now to call on the Representative from Northern Virginia, Mr. 
Davis.
    Mr. Davis. I have no comments.
    Mr. Horn. I now call on Mrs. Maloney, Representative from 
New York, if she has any opening comments for 5 minutes.
    Mrs. Maloney. I support this legislation, and it is part of 
the continuum work that you and I have done together on working 
together to make government be more responsible and effective 
for the taxpayer and the citizens. I am glad to be here in 
support of this legislation. Thank you. I yield back my time.
    Mr. Horn. We thank you. The gentleman from California, Mr. 
Ose.
    Mr. Ose. No, sir.
    Mr. Horn. OK. We will then start with the first panel. Let 
me just note for some of you that might not have been here 
before, we will ask you all and any of your assistants that are 
there that might whisper in your ear to take the oath when I 
have you stand on that. Then those that have written records, 
they will go in the hearing record at the point in which you 
are introduced on the panel. They will automatically be in 
there. I don't have to go through this mumbo-jumbo with every 
witness.
    Then we would like you to keep your oral testimony to, 
let's say, 7 minutes or so, and we might give a little more 
leeway to the General Accounting Office because of the study 
here, but it is important that we get out the summary of your 
testimony on behalf of either the administration, the agencies, 
the GAO, so that we can have a dialog and then we will try to 
get everybody involved. So let us stand and raise your right 
hands and swear you in and your assistants. The clerk will 
count the people in the back row which are one, two, three, 
four, five backing up and then six witnesses.
    [Witnesses sworn.]
    Mr. Horn. The clerk will note that the six witnesses have 
affirmed and so have the assistants.
    So we will start down the line in the order in which 
individuals are put on here, and that is with Cornelia M. 
Ashby, the Associate Director, Tax Policy and Administration 
Issues for the General Accounting Office.
    Ms. Ashby is accompanied with Gregory D. Kutz, the 
Associate Director, Governmentwide Accounting and Financial 
Management Issues, and Tom Armstrong, the assistant general 
counsel. So Ms. Ashby.

STATEMENTS OF CORNELIA M. ASHBY, ASSOCIATE DIRECTOR, TAX POLICY 
     AND ADMINISTRATION ISSUES, GENERAL ACCOUNTING OFFICE, 
      ACCOMPANIED BY GREGORY D. KUTZ, ASSOCIATE DIRECTOR, 
GOVERNMENTWIDE ACCOUNTING AND FINANCIAL MANAGEMENT ISSUES, AND 
 TOM ARMSTRONG, ASSISTANT GENERAL COUNSEL; DEIDRE LEE, ACTING 
   DEPUTY DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND 
BUDGET; JOE MIKRUT, TAX LEGISLATIVE COUNCIL, DEPARTMENT OF THE 
TREASURY; CAROL COVEY, DEPUTY DIRECTOR OF DEFENSE PROCUREMENT, 
  DEPARTMENT OF DEFENSE; AND SALLY THOMPSON, CHIEF FINANCIAL 
               OFFICER, DEPARTMENT OF AGRICULTURE

    Ms. Ashby. Mr. Chairman and members of the subcommittee, we 
are pleased to be here today to assist the subcommittee in its 
consideration of H.R. 4181. Our remarks are based on work we 
did for the subcommittee on unpaid payroll taxes and associated 
tax penalties and our audits of IRS.
    We support the concept of barring delinquent taxpayers from 
receiving Federal contracts and loan assistance. However, with 
respect to H.R. 4181, we believe there are significant 
implementation issues involving the capability of IRS' current 
information systems, additional burden on the Federal 
acquisition process and using 90 days after assessment as the 
only determinant of delinquent status.
    First, let me describe the current situation. As we 
reported to this subcommittee last August and as you mentioned 
earlier, Mr. Chairman, nearly 2 million businesses owed $49 
billion in delinquent unpaid payroll taxes as of September 30, 
1998; and 185,000 individuals responsible for the nonpayment of 
delinquent payroll taxes owed $15 billion in tax fund recovery 
penalties. Nearly 50 percent of the businesses were delinquent 
for more than one tax period, and nearly 25,000 individuals 
with trust fund recovery penalties had been assessed such 
penalties for more than one business.
    Further, the majority of the unpaid payroll taxes and the 
associated trust fund recovery penalties are not likely to be 
collected. A significant number of businesses with delinquent 
unpaid payroll taxes and individuals with outstanding trust 
fund recovery penalties also receive substantial payments from 
the Federal Government. For example, our analysis indicated 
that as of September 30, 1998, over 1,700 businesses and 
individual taxpayers had received SBA loans estimated at nearly 
$449 million after accumulating unpaid payroll tax 
delinquencies of almost $32 million.
    Against this backdrop, H.R. 4181 may provide several 
benefits. The general barring provisions of the bill would 
prevent delinquent taxpayers from benefiting from Federal loan 
assistance or contracts. Other provisions of the bill would end 
the practice by some multiple tax offenders of using Federal 
loans and contracts to start new businesses while the payroll 
taxes of other businesses they were or are associated with 
remain unpaid because of some willful action on their part.
    In addition, the provisions of the bill could serve as an 
incentive for individuals and businesses to comply with their 
tax obligations. Also, the bill would provide fairness to 
compliant taxpayers who consistently fulfill their tax 
obligations while a portion of their tax payments are used to 
finance Federal loans and contracts for those who do not pay 
their fair share.
    However, accompanying these potential benefits are three 
implementation issues. First, IRS currently does not have the 
systems that would enable it to consistently provide Federal 
agencies with timely and accurate information on a taxpayer's 
delinquency status. IRS is undergoing a major systems 
modernization program which will likely take several more years 
to complete. If modernization efforts are successful, IRS may 
be able to provide accurate, real time delinquency status 
information.
    OMB currently directs administrators of Federal loan 
assistance programs to determine whether an applicant has 
delinquent Federal debt, including tax debt, to assess 
creditworthiness. Because of this directive, agencies should 
have time built into their application processes to determine 
whether a loan applicant has Federal tax debt. Even so, because 
of IRS's limitations, we recommend that Congress provide that 
H.R. 4181 requirements be implemented on a pilot basis for one 
or more loan assistance programs to determine whether IRS' 
current systems could effectively and efficiently handle the 
expected volume of delinquency status requests.
    The second implementation issue involves the Federal 
acquisition process. In recent years, both Congress and the 
administration have attempted to streamline the government 
procurement system in an effort to reduce costs. Because 
Federal agencies do not currently have to check a prospective 
contractor's tax delinquency status, H.R. 4181 could add 
considerable burden to the acquisition process. However, this 
burden could decrease if IRS' modernization efforts allow a 
real time tax delinquency check system. To help reduce the 
burden on the acquisition process, we recommend that Congress 
defer the application of the barring provisions of H.R. 4181 
for Federal contracts until the results of the pilot program 
for loan assistance and IRS' systems modernization efforts are 
known.
    The third implementation issue is a definitional one. 
Generally, with the exception of taxpayers that have made 
arrangements with IRS to make payments on their debts, H.R. 
4181 would deny loan assistance or contracts to all taxpayers 
with tax debts that have been outstanding for more than 90 days 
after the date of assessment. As a starting point, the 90 days 
after assessment standard is not unreasonable. However, this 
provision may be too restrictive because it may not allow 
enough time for taxpayers to fully exercise their due process 
rights for collection actions or to negotiate payment 
agreements.
    To help ensure that taxpayers are not barred from receiving 
Federal contracts or loan assistance prematurely, we recommend 
that the Congress require the Secretary of the Treasury to 
prescribe additional standards for IRS to use in determining 
when a taxpayer has a tax debt in delinquent status for 
purposes of barring under H.R. 4181.
    Mr. Chairman, this concludes our statement. We would be 
pleased to answer any questions you or members of the 
subcommittee may have.
    Mr. Horn. Thank you very much. We appreciate that very 
thorough statement.
    [The prepared statement of Ms. Ashby follows:]

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    Mr. Horn. Our next presenter is Deidre Lee, the Acting 
Deputy Director for Management, Office of Management and 
Budget. Nice to have you here again.
    Ms. Lee. Good morning. Chairman Horn, Congressman Turner, 
and members of the subcommittee, I have been asked to discuss 
the administration's views on H.R. 4181, the Debt Payment 
Incentive Act of 2000. The bill would amend Title 31 of the 
U.S. Code to bar delinquent debtors from obtaining Federal 
contracts. It also adds delinquent debt as a bar to obtaining 
not only Federal contracts but other types of Federal 
assistance.
    The administration shares the subcommittee's goal to reduce 
delinquency. We supported the Debt Collection Improvement Act 
of 1996 which provided a comprehensive set of tools for 
agencies to use at their discretion to improve account 
servicing and debt collection, such as consolidating and cross 
servicing the Treasury offset program and loan sales assets. 
The tools have allowed us to reduce our delinquent nontax debt 
from $60 billion in fiscal year 1998 to $53 billion in 1999, 
and we expect a continued decline as agencies sell delinquent 
loan assets to the private sector and refer greater amounts of 
delinquent debt to Treasury for cross servicing, but this is 
not enough. We need to continue to reduce that debt.
    We have supported H.R. 436, Government Waste, Fraud, and 
Error Reduction Act of 1999, which would have strengthened the 
provisions of the Debt Collection Improvement Act, including 
barring delinquent nontax debtors from receiving Federal 
benefits.
    In support of these legislative efforts, the President has 
declared improved management of Federal receivables to be a 
priority management objective. Priority management objections 
are OMB's highest management priorities for the Federal 
Government. These objectives are areas in need of reform and 
receive ongoing attention from the administration in the most 
senior levels of OMB and the agencies.
    Notwithstanding our support for improved debt collection, 
we are concerned that the bill, without modification, may undo 
some of the important progress this committee has helped us to 
achieve in reforming the procurement process.
    I would like to highlight for you how H.R. 4181 would 
affect the procurement process, some concerns we have with 
certain provisions, and some suggestions that we would like to 
offer. I will defer to the Department of Treasury on the 
implementation of their aspects of the bill.
    As you know, an efficient, economical, and well functioning 
procurement system requires the award of contracts to 
individuals and organizations that meet high standards of 
integrity and business ethics. The government should only be 
doing business with high performing and successful companies 
that work to maintain a good record of compliance with their 
responsibilities as entities within the community. At the same 
time, we have been striving in recent years to ensure that our 
procurement tools provide the flexibility to acquire those 
goods and services necessary to carry out the mission of the 
agency in an efficient and expeditious manner.
    As we work together to strengthen our debt collection 
efforts, we also need to preserve the achievements of our 
recent procurement reform efforts. The ability of the 
contracting officer to exercise good business judgment in their 
contracting decisions has been critical to procurement reform. 
The bill provides exceptions for national security and disaster 
relief but there may be other circumstances where exceptions 
should apply.
    For example, the bill could provide contracting officers 
with the discretion to assess on a case by case basis whether a 
delinquent debtor should be barred from Federal contracting.
    I am also concerned that the lack of contracting officer 
discretion may have adverse impact on small business. As you 
know, many small businesses need the constant cash-flow, and we 
need to balance the ongoing contracts they have in the offset 
and collection procedures and perhaps evaluate how that would 
impact them.
    I would also suggest a dollar threshold. As Mr. Turner 
mentioned, we have a large number of small dollar activities 
that from timeframe and sheer volume we should look at their 
impact and how these could be assessed.
    The simplified acquisition procedure of $100,000 might be a 
threshold to consider.
    This bill requires verification of not only corporate 
debtor status but also the status of officers and major 
shareholders who have been assessed a penalty for failure to 
collect and account for payroll taxes. This means that the 
contracting officer will have to check the delinquent status of 
not only the corporation but the officers and major 
shareholders, and similarly this will affect partnerships that 
have many partners. So our concern here, again, and I think it 
has been mentioned by others, is how do we set up that system 
to ensure that we can check this large number of individuals 
and do that on a fairly quick turnaround to provide the 
information.
    The bill defines a delinquent tax debt as a debt that is 
not paid within 90 days, and as already addressed by Ms. Ashby, 
we think there are some definitional issues that could be 
straightened out or clarified here. For example, someone may be 
in recovery status and they are still delinquent but they are 
recovering that debt. How do we address that in this bill?
    In light of these concerns, careful consideration should be 
given to strengthening the current mechanisms for dealing with 
delinquent debtors. For example, pursuant to the Debt 
Collection Improvement Act, the Treasury Department maintains 
an offset program to collect nontax debt. Under this program 
contract payments owed by a Federal contractor may be used to 
offset debts the contractor owes to the Federal Government. 
Federal agencies routinely report their contractor's taxpayer 
identification number to the IRS when contracts are awarded so 
that the IRS is aware of the companies with whom Federal 
agencies do business.
    This process enables the IRS to issue tax levies if a 
contractor has an unpaid debt. Under this process, amounts 
otherwise paid to the contractor are paid to the IRS to offset 
the tax debt. An alternative to the bill under consideration 
might be to expand or improve these programs.
    Notwithstanding the final language of the bill, again as 
Ms. Ashby stated, we should include a provision that would 
allow time to make sure the verification system is in place and 
then, of course, in addition to that there are some 
considerations on how we put into place the Federal acquisition 
guidelines to explain to the contracting officers and the 
contractors how this process will operate.
    Like this committee, the administration strongly supports 
collection of debts owed to the government. We met recently 
last week with your staff to discuss several of the issues that 
I have discussed today, and we would be glad to continue that 
dialog.
    I hope we can work together to formulate a proposal with 
the goals that we can both share, and reduce the delinquent 
debt. This concludes my formal remarks and I would be happy to 
answer any questions.
    Mr. Horn. Thank you very much.
    [The prepared statement of Ms. Lee follows:]
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    Mr. Horn. Our next presenter is Joe Mikrut, the Tax 
Legislative Counsel for the Department of the Treasury.
    Mr. Mikrut. Thank you, Mr. Chairman.
    Mr. Chairman, Ranking Member Turner, distinguished members 
of the subcommittee, good morning. I appreciate the opportunity 
today to discuss with you the Federal tax policy aspects of the 
provisions of H.R. 4181, the Debt Payment Incentive Act of 
2000. Section 3720(b) of Title 31 the U.S. Code enacted as part 
of the Debt Collection Improvement Act of 1996 currently bars a 
person from obtaining loans, loan guarantees, or loan insurance 
administered by a Federal agency if the person has an 
outstanding Federal debt other than a tax debt that is in 
delinquent status.
    H.R. 4181 would amend section 3720(b) in two key aspects. 
First, it would extend the act to persons applying for Federal 
contracts. Second, it would extend the act to tax debts as well 
as nontax debts.
    Treasury supports efforts to reduce delinquent debt, both 
tax debt and nontax debt. To effectively achieve this result, 
however, a number of policy and technical issues must be 
addressed.
    The two primary policy issues deal with the effects on 
voluntary tax compliance and the effects on taxpayer privacy 
rights.
    The more general tax policy issue raised by the bill that 
must be considered is its effect on voluntary tax compliance. 
Ours is a system of voluntary tax compliance dependent upon 
self-assessment. We rely upon taxpayers to personally determine 
or assess their tax liabilities, to file tax returns, and to 
timely remit any taxes owed. The role of the IRS is to 
facilitate, monitor, and enforce this process. Anytime a 
person's tax status becomes relevant for nontax purposes, an 
incentive is created to misreport or, in some cases, to fail to 
report a tax liability in order to obtain this other benefit.
    Because it takes longer for a taxpayer who does not file a 
tax return to be reflected as delinquent in the IRS records, 
the bill could have the potential effect of encouraging people 
not to file returns to avoid detection. On the other hand, the 
bill could have the opposite effect on enhancing tax compliance 
by encouraging taxpayers to avoid tax delinquent status by 
either paying their tax debts or pursuing other appropriate 
procedural avenues.
    The second important policy consideration that the bill 
deals with is with respect to taxpayer privacy. In general, in 
order to encourage tax compliance, current law makes private a 
taxpayer's confidential tax information. Current law contains 
certain exceptions to this rule. H.R. 4181, by necessity, would 
require a disclosure of taxpayer information, that is, the 
taxpayer's delinquency status, to administering Federal 
agencies. We have some suggestions on how to best achieve the 
conflicting goals of taxpayer privacy and the need for 
information under the bill.
    Under the bill, in connection with the loan application or 
a contract proposal, taxpayers would be required to authorize 
the Secretary of the Treasury to disclose whether they had a 
debt under the Internal Revenue Code that is in delinquent 
status. Treasury would be required to develop a form for such 
purposes. The authority for such disclosure would be under 
section 6103 of the Code which permits the disclosure of 
returns or return information upon consent.
    Treasury recommends that the disclosures contemplated by 
the bill should be made, instead, by amending section 
6103(l)(3), which currently provides explicit statutory 
authority for similar types of disclosures without the 
taxpayer's consent. This is consistent with the statutory 
scheme of 6103, generally, under which large scale disclosures, 
as contemplated by the bill, typically are achieved through an 
explicit statutory exception that grants an agency automatic 
access to return information.
    In addition, different rules and procedures apply to 
disclosures pursuant to 6103(c) than are pursuant to explicit 
statutory exceptions. Explicit statutory exceptions typically 
specify exactly which information can be disclosed, to whom and 
for what purposes.
    In addition, many of the disclosures are subject to special 
recordkeeping and safeguarding procedures. Disclosures pursuant 
to consent under 6103(c), by contrast, have none of these 
limitations.
    Finally, while statutory disclosures are typically at least 
partly automated, 6103(c) waivers typically involve a paper 
process and are subject to review for compliance with certain 
regulatory requirements by the IRS.
    Currently, about 2 million third party consents are 
processed each year by the IRS. The disclosures required by 
this bill would add substantially to that number and would be 
difficult to administer and thus create delays in granting 
loans and contracts.
    Another important consideration relevant to disclosure of 
return information under this provision is that many Federal 
agencies use contracts to administer their programs. The 
Congress traditionally has restricted access to return 
information by contractors even when disclosure otherwise may 
have been authorized due to concerns about taxpayer privacy.
    In order to protect taxpayer privacy, the amendment to 
section 6103(l)(3) should make explicit that disclosures to 
contractors of the agencies administering the loans or entering 
into contracts will be permitted for purposes only of this 
provision, subject to the contractor's agreement to otherwise 
maintain the confidentiality of information, and subject to the 
agency's demonstrated oversight of the contractor's compliance 
with these safeguards.
    We certainly recognize the value of notice provided by 
requiring taxpayers to authorize the necessary disclosures. We 
suggest that such notice should be incorporated into the loan 
application process or the contracting process without each 
notice having the legal effect of authorizing disclosure as 
would happen under section 6103(c) consent.
    In addition to concerns about the effects of voluntary tax 
compliance and taxpayer privacy, we have certain technical 
comments on the bill. The most fundamental is the definition of 
tax delinquency. The bill currently defines tax delinquent 
status to be any Federal tax debt that has not been paid within 
90 days of assessment.
    Treasury recommends modification or deletion of this 
provision. The language may be unnecessary in light of section 
3720(B)(a) which grants Treasury the authority to define 
delinquent status. Alternatively, we believe that the bill 
should make it explicit that a debt will not be considered to 
be in tax delinquent status if the taxpayer has either already 
administratively or judicially appealed or still has the 
opportunity to administratively or judicially appeal a 
determination of the IRS.
    This is generally consistent with the approach of 3720(B). 
It should be noted, however, that it can take a significant 
amount of time for a taxpayer to exhaust all its administrative 
and judicial remedies with respect to a Federal tax debt.
    In any case, Treasury should have the authority and the 
flexibility to determine additional standards for consideration 
of a tax debt to be in delinquent status. For example, it might 
be appropriate to exclude delinquencies of nominal amounts.
    Regardless of how precisely a tax delinquent account is 
defined, significant procedural and systems changes would be 
necessary for the IRS to be able to track, analyze, and 
communicate the information necessary to implement the 
provisions of the bill.
    At least initially the process would involve labor 
incentive analysis of each relevant taxpayer's account. The IRS 
preliminarily estimates that the procedural changes could take 
at least 18 months to implement. Automation of this process, if 
possible, would require significant systems changes on top of 
the IRS' already planned modernization efforts and could be 
years off.
    We have had additionally suggested technical modifications 
to the bill which we have shared with the majority and with 
minority staffs and we look forward to working with the 
subcommittee in developing these proposals.
    In general, Mr. Chairman, in light of Treasury's policy and 
technical concerns with the bill, we suggest that, if it were 
enacted, you give careful consideration to the GAO's 
recommendation that it be initiated as a pilot program or some 
similar form. This would permit an overall evaluation of the 
effectiveness of the program, including its effect on tax 
compliance, and would provide the IRS with an opportunity to 
develop procedures or the systems necessary to implement this 
program.
    This concludes my prepared remarks. We look forward to 
working with the Congress in addressing these concerns as the 
legislation develops, and I would be happy to respond to your 
questions.
    Mr. Horn. Those are very helpful comments and we appreciate 
that.
    [The prepared statement of Mr. Mikrut follows:]

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    Mr. Horn. Carol Covey is the Deputy Director of Defense 
Procurement for the Department of Defense. Ms. Covey.
    Ms. Covey. Mr. Chairman and members of the subcommittee, 
thank you for the opportunity to appear before you today to 
talk about the views of the Department of Defense on H.R. 4181.
    H.R. 4181 would prohibit Federal agencies from awarding 
contracts to individuals who are delinquent in the payment of a 
tax debt or any other Federal debt. The Department of Defense 
is concerned that prohibiting the award of contracts to Federal 
debtors may be more punitive than is necessary and that it may 
not accomplish the goal of providing an incentive to delinquent 
debtors to pay their debts but may instead be counterproductive 
to the prompt payment of Federal debts.
    It may be more effective to expand or improve existing 
programs for collecting Federal debt from contractors than to 
prohibit the award of contracts to Federal debtors. These 
programs ensure the government is able to recoup contractor 
debts in a timely manner.
    These programs include the ones mentioned by Ms. Lee 
earlier, the Treasury offset program for nontax debt, and the 
IRS levy program for tax debt.
    The Department is also concerned that compliance with this 
bill's requirements would compel Federal agencies to implement 
a contract clearance process with the Treasury Department to 
ensure no contract was awarded to a delinquent debtor. This 
process would undoubtedly delay contract awards until automated 
systems were implemented. DOD awards hundreds of thousands of 
contracts annually that could be delayed as a result, and I 
would like to note that Mr. Turner mentioned potentially 
setting a threshold at $2,500 for contract actions. That is the 
micro-purchase threshold.
    If the threshold were set at that level for the Department 
of Defense alone, we would estimate that the number of actions 
covered in a fiscal year would be about 6.3 million actions. So 
we are talking a large number of individual contract actions.
    The Department's other concerns are the definition of 
delinquent tax debt may not provide adequate due process for 
contractors, particularly if the debt is disputed. We have 
looked at the definition included in Treasury regulations for 
delinquent nontax debt, and that appears to be a very 
satisfactory alternative. It provides due process for debtors, 
including situations where the debt is disputed.
    We would recommend that a similar definition be considered 
for inclusion in the bill.
    The Department is also concerned that the bill could hurt 
small businesses. A small business that relies on the Federal 
Government for much of its income may be put out of business if 
all Federal contract awards stop. This would seem to reduce the 
probability that the company would be able to repay any debts 
it owes to the Government.
    The bill also currently provides an exception for contracts 
designated by the President as necessary to the national 
security. We recommend that the bill be revised to enable the 
Department of Defense to establish exceptions to meet national 
security needs rather than maintaining that authority at the 
Presidential level.
    I would add that over the past 6 years or so Congress has 
acted to streamline the Federal Government acquisition process. 
The bill as currently structured is really inconsistent with 
congressional reform efforts for the acquisition system.
    The Department of Defense would be happy, though, to work 
with the committee staff and with the other agencies to try to 
recraft the bill into something that administratively is more 
workable. Thank you for providing me the opportunity to present 
the Department's concerns with the bill and I would be happy to 
answer any of the subcommittee's questions.
    Mr. Horn. Thank you very much. Those are helpful comments.
    [The prepared statement of Ms. Covey follows:]

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    Mr. Horn. Our last presenter is Sally Thompson, the Chief 
Financial Officer for the Department of Agriculture. Glad to 
see you here again.
    Ms. Thompson. Thank you, and good morning, Mr. Chairman, as 
well as Congressman Turner and other members of the 
subcommittee. On behalf of Secretary Glickman, I would like to 
thank you for the opportunity this morning to discuss House 
bill 4181.
    As you know, we are a steward of a $104 billion loan and 
debt portfolio at USDA, and we consider improving debt 
collection and ensuring the integrity of our loan programs to 
be a critical part of the mission of our agency.
    Your committee and staff always have recognized the 
significant contributions that these loan programs play in 
strengthening rural America. Our portfolio includes assistance 
for socially disadvantaged persons, farm operations, emergency 
disaster relief efforts, and rural housing and development 
projects that all require very specialized services. We are the 
lender of first opportunity for a broad range of Americans who 
cannot get assistance from other private lending institutions.
    We too support the intent of this act to ensure that 
individuals and corporations that owe debts to the Federal 
Government must resolve these outstanding issues before 
qualifying to receive additional assistance from the Federal 
Government.
    We support the provisions that exempt individuals or 
service providers from the requirement of this act during 
national disasters or national security efforts because, as you 
know, we do provide immediate relief and assistance in both 
domestic and international events.
    However, Mr. Chairman, USDA has serious concerns regarding 
this legislation's provision that require our loanmaking and 
contracting officers to verify or, in effect, audit with the 
Internal Revenue that applicants are not delinquent in Federal 
debt. In other words, we do require a statement that they are 
not delinquent; and of course if they are, we stop right there. 
However, this is not an audit, and we do not verify that with 
the IRS.
    This additional verification process would add significant 
delays to our loanmaking and contracting process.
    Currently, program managers rely on the instant information 
or they wait 2 or 3 days from the commercial credit bureaus or 
from the Credit Alert Interactive Voice Response system, the 
CAIVR system; and also we check with Social Security, who has 
an automated system. We attribute the portion of our low 
delinquency debt to these credit checks, but as you know for 
confidentiality purposes the IRS does not report its 
delinquencies to the on-line credit resources.
    I have put up a chart for you, and I see you really can't 
read it, but trying to give you some sort of an overall view of 
the volume of agencies, such as USDA loan processing and 
contracting. In the rural development mission area, farm and 
foreign agriculture services are our major credit agencies.
    In 1999, rural development delivered over 73,000 loans 
worth $9.9 billion to rural housing, businesses, 
telecommunications, distant learning projects, and also 
infrastructure. In addition to that, rural development has over 
850 county-based offices that create and take in a lot of these 
loan applications.
    In the same fiscal year, our farm and foreign agriculture 
services made approximately 33,000 nondisaster-related loans 
for about $3.6 billion.
    Of this total, which is very unique in some respects, FSA 
made approximately 17,000 of these loans during the time of 
March and April to finance the production of seed for farmers. 
Historical records reflect that those majority of our loans are 
made during that period of time, and so that would say that we 
are very concerned about the timing and the turnaround that 
this would add making sure that there was money available for 
our farmers to get their seed in the ground at the right time.
    Also, we have over 2,400 offices that are also processing 
those loan applications; and when I am beginning to try to 
paint the picture is how that information would be coming in 
from all these different locations from all over the country.
    In addition to this, FSA is also responsible for 
administering the Commodity Credit Corporation, which aids 
producers through loans and purchases and payments and 
operations, materials and facilities in the manufacturing and 
marketing of agricultural products, which then also includes 
exports.
    Again, we have a timing on that, and we have made over 
207,000 loans last year for a total of about $8 billion. You 
begin to get the picture of the magnitude of trying to get this 
process through IRS and the delays that it might create for us 
at USDA and, most importantly, for our clients that we are 
trying to serve.
    Several of the people here this morning have also mentioned 
about the contracting challenges, and I would agree with all of 
those. We face the same contracting challenges.
    I would certainly support the fact that you are looking at 
putting a pilot program in. I would certainly support the fact 
that you are looking at a delayed implementation because we too 
are concerned with systems, not only our own systems that you 
heard me talk about but also being able to talk to IRS systems 
as well.
    In addition to this, we also would support very strongly 
some sort of a cap on this. One of the things, I believe, that 
maybe wasn't even mentioned today but is the smart card that we 
use for small purchases.
    We have over 20,000 people at USDA that have this card. We 
made over $1 million worth of purchases last year. It is 
growing at a very rapid rate, and for us--how do you know, you 
know, when our people are out there buying a purchase from any 
number of commercial establishments, whether they have any tax 
debt or any of their shareholders or principal officers have a 
tax debt? We also buy off a GSA schedule a lot, and then in 
those particular cases we do not do the same verification or at 
least have a signed statement from the business that we are 
contracting with on their delinquent debt.
    We assume that GSA has taken care of that, and that's a 
concept that hasn't come up this morning as well.
    So in conjunction with that, Mr. Chairman, as you know, we 
have worked very hard over the last couple of years to get our 
delinquency down and collect those. We have collected over $136 
million in delinquent debt this last year through the programs 
that were mentioned here today, the offset program and other 
delinquent collection tools. We have increased our collections 
by over 45 percent from 1999 over 1998, and that was an 
increase from 1997, as well; and we have also dropped our 
delinquency over 15 percent in the last couple of years.
    Of course, all of these figures, as you know, don't include 
the tax debt that we are talking about today; but I do think it 
shows that the criteria that was put in the original debt 
collection act is working and that it is moving right along.
    So, again, as I said, USDA does support the principle of 
the bill. We agree with both the suggestions that Congressman 
Turner made this morning, as well as the suggestions that have 
been made here by GAO, Treasury, OMB, and the Department of 
Defense; and I would be more than willing to answer any 
questions you might have.
    Mr. Horn. That is very helpful, as usual. I am glad so many 
of you are at least with it in principle.
    I am reminded of ``Yes, Minister,'' that great British show 
where the career civil servant, Mr. Humphrey, always says, 
``But, Minister, we agree to that in principle.''
    [The prepared statement of Ms. Thompson follows:]

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    Mr. Horn. We will get down to the nitty-gritty in these 
questions. I want to first call on the gentleman from Virginia, 
Mr. Davis, for 5 minutes of questioning.
    Mr. Davis of Virginia. Thank you, Mr. Chairman.
    Ms. Lee, let me ask you, in looking at your testimony, you 
noted--you state I think toward the end, the bill defines a 
delinquent tax debt as a debt that has not been paid within 90 
days of an assessment of a tax penalty or interest under the 
Internal Revenue Code of 1986. Then you say it is not clear 
that this definition would provide adequate due process for 
contractors on disputed debts. That may be right, but isn't 
that--when I go back to blacklisting and everything else--it 
seems to me that has been one of our concerns that some of the 
other regulations that have been proposed by OMB and the 
administration have not provided adequate due process for 
contracts.
    Is this a consistent view, or is this a selective view?
    Ms. Lee. Mr. Davis, again and one of the things I tried to 
emphasize was the flexibility versus the total debarment. In 
this case, if you get the answer back that yes you are 
delinquent, whether if its on a recovery program, days, weeks 
or amounts, the response is you cannot award a contract. Under 
contractor responsibility, the contractor is asked and given 
input as to where they are with respect to a debt. There is a 
requirement for the contracting officer then to discuss those 
issues with the contractor so they have a process.
    There is still a decision to be made at the end, but 
contracting officers have a little more input. It is not just 
that we got a report back that said the answer is yes; 
therefore, I cannot award you a contract. There is a little 
difference in flexibility.
    Mr. Davis of Virginia. Well, there is. On the one hand, 
though, when you talk about due process you are leaving it in 
the hands of a contracting officer to make a decision versus 
the law to make a decision, and you could argue almost that you 
could get a different outcome based on different contracting 
officers under your scenario whereas under this scenario at 
least it is uniform.
    Ms. Lee. Correct. Correct.
    Mr. Davis of Virginia. OK. I thought it was interesting. We 
are concerned about that, and that is something I think we will 
try to address as we move through.
    I want to ask some questions about the Circular A-129. This 
is the policies for Federal credit programs and nontax 
receivables. Are you familiar with it? It requires agencies to 
determine whether loan applicants have delinquent Federal 
debts, including tax debt. A-129 also requires agencies, as I 
understand it, to include a question on their loan application 
forms asking applicants if they have such delinquencies.
    According to GAO's testimony, agencies are not complying 
with this directive. Now, what I would ask you is to what 
extent do you think agencies are complying with the A-129 in 
asking loan applicants if they have Federal delinquencies? Do 
you have a feel for that?
    Ms. Lee. I don't have a good feel for that. I certainly 
would be happy to go back and look at the format. There is a 
lot going on regarding assistance agreements and trying to make 
that more accessible to agencies from a standardized format, 
particularly in grants. I would be happy to look at that and 
see how we can address that.
    Mr. Davis of Virginia. In addition to that, what steps do 
agencies generally take to ensure that loan applicants are not 
delinquent on their tax obligation, or is that just ignored 
right now as a matter of course?
    Ms. Lee. Specific tax----
    Mr. Davis of Virginia. I will ask anybody else if they 
would like to address either one of those, too. They may better 
have a better familiarity in some of the other departments that 
are doing this hands on every day.
    Ms. Thompson. Mr. Congressman, when we take a loan 
application, as it says in the A-129 Circular, there is a 
question on there that asks, Are you delinquent on your tax 
debt? Obviously----
    Mr. Davis of Virginia. Does anybody ever check that and say 
they are delinquent?
    Ms. Thompson. Occasionally, yes. And quite often those are 
the same ones that show up on the credit checks that we do, and 
they are delinquent in other areas of debt as well.
    My point, in my testimony, was that we don't verify or 
audit that; and this would require that, and then we got into 
the processing.
    Mr. Davis of Virginia. Don't you argue--that's pretty 
burdensome to go through and audit all of that, isn't it? Isn't 
it?
    Ms. Thompson. Yes, that's what I was saying and certainly 
until we get the systems in place and we can electronically 
transfer that information, I tried to give you a feel of the 
thousands of locations that are making loans.
    Mr. Davis of Virginia. Well, let me ask this--and I will 
ask this to everybody--are agencies contacting the IRS to 
ascertain the creditworthiness of Federal loan applicants?
    Ms. Thompson. No, they are not.
    Mr. Davis of Virginia. OK. Nobody is doing that right now?
    Ms. Thompson. Nobody is verifying the information. We ask 
for tax returns as well, and we get copies of their tax 
returns. But do we verify those were the actual ones filed with 
the IRS? No.
    Mr. Davis of Virginia. OK. Does everybody agree with that, 
it is not done as a general rule?
    To what extent does the Department of Agriculture screen 
loan applicants to determine whether they are delinquent on 
other nontax debts?
    Ms. Thompson. Every application is verified either through 
the credit bureau or that CAIVR system.
    Mr. Davis of Virginia. How often do you find the loan 
applicants are delinquent on other Federal nontax debts?
    Ms. Thompson. I couldn't answer that percentage as well. I 
would suppose probably about 20 percent maybe.
    Mr. Davis of Virginia. OK. I think my time is up. Thank 
you.
    Ms. Thompson. Remember the type of clientele that we are 
doing. We call this our lender of first opportunity. Others 
call it the last opportunity.
    Mr. Davis of Virginia. I understand. Thanks.
    Mr. Horn. I yield 5 minutes of questioning to the author of 
the bill, Mr. Turner of Texas, and then we will go back to Mr. 
Ose and Mr. Davis.
    Mr. Turner. Thank you, Mr. Chairman.
    I think Mr. Davis has perhaps uncovered something we all 
needed to hear about because apparently we are not doing a very 
good job of implementing the current A-129 OMB Circular.
    It would seem to me that it is important here to be 
sensitive to the concerns of the Treasury and the IRS in terms 
of implementation, and I want to work with you to accomplish 
that.
    But I don't--somebody testified just a minute ago that the 
IRS was performing about 2 million of these type of checks a 
year. I forget which witness said that. Mr. Mikrut, what was 
that reference to?
    Mr. Mikrut. Sir, that is with respect to consents, where 
the taxpayer consents for the release of his tax information to 
someone else; and that often happens, for instance, if you are 
looking for a home mortgage, you may give a consent to the bank 
that they can ask the IRS for certain tax information.
    Mr. Turner. So when they talk about increasing the burden 
on the IRS, they are already doing 2 million of these type of 
searches a year now?
    Mr. Mikrut. That is correct.
    Mr. Turner. So it is our obligation, I guess, to try to 
figure out what the additional burden is going to be here? It 
is not that the IRS is not doing this. I guess a lot of it is 
being done manually, done by hand, without the use of some 
realtime computer system that would give you the answer 
immediately?
    Mr. Mikrut. That is correct. The consent request is 
generally a manual paper-type of process; and to the extent you 
would expand that, for instance, under the student loan 
application, there may be another 10 million of these such 
requests. As you know, some sort of system that would be more 
automated would probably be much more efficient.
    Mr. Turner. All right. I think I tend to agree with you 
with regard to trying to fine tune our definition or use of the 
word ``assessment.'' You know, in the bill as originally 
drafted, we talked about 90 days after the assessment of a tax 
or penalty; and we also said we were not including debts that 
were the subject of an installment agreement or a compromise in 
settlement. Obviously, from what you are saying, we haven't 
quite gone far enough to ensure that we are not cutting off 
some taxpayer's right to exercise another step in the appeal 
process, and we want to clear that up because I don't think any 
of us have any intent of cutting off anyone's right to appeal 
to the last step when they have no other recourse and they owe 
the tax. Ninety days after that is when we want to bar them 
from Federal contracts or loans.
    So help us on that, to get over that hurdle.
    With regard to the Department of Defense's concerns, Ms. 
Covey, I wanted to ask you, you mentioned if we exempt the 
$2,500 and below, which I think is an appropriate suggestion, 
it has been said by several witnesses because you can go in 
with a government credit card and purchase something under 
$2,500 and obviously we can't check whether those particular 
vendors owe taxes or not, but you mentioned there were 6.7 
million actions, you said.
    Ms. Covey. 6.3 contract awards, 6.3 million contract awards 
over $2,500.
    Mr. Turner. How many contractors are there as opposed to 
contract awards? What we are checking here are contractors, not 
contracts, however many you have every year. How many 
contractors?
    Ms. Covey. But we have to do it on a contract-award by 
contract-award basis, I mean unless you are suggesting, for 
instance, that if we annually checked for a particular 
contractor that might be sufficient as well.
    Right now we estimate that we are doing business with 
about, 180,000 contractors annually. We have a central system 
by which we register them, and that estimate is based on how 
many are registered in the system.
    Mr. Turner. Well, work with us on this, because obviously 
we would like to check out the contractors, not every contract. 
If there are 6.3 million of them. Perhaps we can do a 
semiannual check and be sure these contractors are paying their 
taxes or something like that; would be more plausible, I think. 
As you know, we put a provision in the bill allowing this bar 
in this legislation to be waived in the interest of national 
security. We said the President should do it. You suggested it 
ought to be in the Department of Defense. We don't object to 
that.
    Frankly, I kind of felt like when we put in an exception 
for national defense we put a hole in the bill you can drive a 
truck through anyway by the Pentagon, so work with us. We are 
trying to not get in your way. We are just trying to be sure we 
accomplish the goal that we all concur on.
    Ms. Covey. We appreciate that.
    Mr. Turner. I think that most of the issues that were 
raised today were very legitimate ones, and I think that we 
can, as the staff continues to work with you, resolve every one 
of them. I don't see any of them that are insurmountable.
    The one I am going to struggle with the most is information 
that reveals that the IRS doesn't have the technical capability 
to provide this information timely, and I really need to look 
into that further.
    I do think a pilot program of some type with an effective 
date at a later time for full implementation is probably the 
right way to go.
    Thank you, Mr. Chairman.
    Mr. Horn. Well, we thank you and there will be further 
rounds here. Five minutes for Mr. Ose, the gentleman from 
California.
    Mr. Ose. Thank you, Mr. Chairman.
    Ms. Ashby, I want to make sure I understand something that 
I think you said, and that is that OMB agrees with a connection 
between awarding additional contracts to nontax delinquent 
debtors? I wasn't quite sure if I understood you correctly.
    Ms. Ashby. No, I did not say that. I was talking about OMB 
Circular A-129 that requires agencies--or directs agencies--to 
check on the delinquency status of prospective loan applicants.
    Mr. Ose. OK. Does GAO have a position regarding the concept 
of barring delinquent taxpayers from receiving Federal 
contracts?
    Ms. Ashby. Well, as I said in my short statement and as we 
said in our longer statement for the record, we agree in 
concept to the barring of delinquent taxpayers.
    Mr. Ose. OK.
    Ms. Ashby. But we also recognize that there are key 
significant implementation issues that need to be resolved, and 
many of those have been talked about here this morning.
    Mr. Ose. Your testimony here this morning also talks about 
unpaid payroll taxes, which I find one of the most egregious 
examples of nonpayment. It just kind of drives me nuts. Your 
testimony highlights an estimate of $49 billion in unpaid 
payroll taxes as of September 30, 1998 owed by over 1.8 million 
businesses?
    Ms. Ashby. That's correct.
    Mr. Ose. And this is not a unique occurrence for about 50 
percent of those businesses.
    Ms. Ashby. That's right. For about 50 percent, they owed 
for more than one tax period, more than one quarter.
    Mr. Ose. I just wanted to make sure I understood the scope 
of the issue here.
    Ms. Lee, I want to go to a question about one of the things 
you mentioned. You said that in 1998 there were about $60 
billion worth of nontax outstanding obligations, and that by 
1999 that had been reduced to $53 billion. For that I want to 
applaud you. I do want to explore that number a little bit.
    Did we actually collect $7 billion in that period of time?
    Ms. Lee. Well, I can get you the exact figures, but we have 
reduced the debt. That could be collection as well as 
dismissals or for some reason resolution that we weren't going 
to collect. So I would have to get you the exact number and say 
whether it was collected.
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    Mr. Ose. So it is not necessarily that we have $7 billion 
that we didn't have any more; it is that we have either 
negotiated, been paid or settled?
    Ms. Lee. Correct.
    Mr. Ose. $7 billion?
    Ms. Lee. Correct.
    Mr. Ose. We might have only had $1 billion? We might have 
taken 10 cents on the dollar? We might have gotten a dollar, 
but we might have only taken 10 cents, too?
    Ms. Lee. Correct.
    Mr. Ose. OK.
    Ms. Lee. Some sort of resolution for that $7 billion.
    Mr. Ose. OK. I just wanted to get it clear in my head that, 
while the face value of the outstanding amount has reduced, it 
doesn't mean we have actually put in our pocket a whole bunch 
more money.
    Ms. Lee. Right.
    Mr. Ose. OK. I appreciate that.
    Ms. Covey, you testified there were 6.3 million contract 
awards at the DOD that would be subjected to the $2,500 
threshold. How many would be subjected to the $100,000 
threshold?
    Ms. Covey. Less than 100,000 actions.
    Mr. Ose. So we basically have like a 97 percent reduction?
    Ms. Covey. Right.
    Mr. Ose. So that would go to 100K.
    Then in the ag department, Ms. Thompson, how many 
contracts, if you will, would be affected? Like the DOD has 6.3 
million different awards that would be affected if the 
threshold was set at $2,500. At the ag department, how many are 
we talking about?
    Ms. Thompson. I would say probably about 157,000, and about 
500 contractors throughout the country.
    That threshold would certainly, as we said, do away with 
credit card transactions.
    Mr. Ose. If we went to the $100,000 threshold, how many 
would we have?
    Ms. Thompson. I would have to get you that number.
    Mr. Ose. If you could, please.
    Ms. Thompson. We do an awful lot of small business. As OMB 
talked about, probably 41 percent of the contracting business 
we do are with small businesses so, you know, off the top of my 
head I would say that it would eliminate a large percentage of 
those, maybe as much as 50 percent; but I would have to go back 
and look.
    Mr. Horn. Without objection, that letter to the committee 
and Mr. Ose will be put in the record at this point.
    Mr. Ose. Thank you, Mr. Chairman. My time is up.
    Mr. Kutz. Congressman, can I make one point with that? I 
think it is important to note that most of the 1.8 million 
businesses that owe those taxes are indeed small, closely held 
businesses, restaurants, construction companies, etc. So in 
looking at this threshold, it is important to consider that 
probably most of the delinquent taxpayers are indeed getting 
very small contracts in all likelihood. I just wanted to make 
it understood that the 1.8 million taxpayers are indeed very 
small businesses.
    Mr. Ose. If I could have just a moment, Mr. Chairman.
    Mr. Horn. Sure.
    Mr. Ose. You bring up an interesting point in that if we 
have small businesses who are not paying their employee taxes 
and we set the threshold at $100,000, then how do we keep from 
rewarding those people who aren't paying their employee taxes? 
Are you suggesting we need a stable----
    Mr. Kutz. I am suggesting that the problem is with small 
businesses so that you need to be cautious in setting a 
threshold too high so that you are going to--I mean, the big 
businesses in this country are generally compliant taxpayers. 
The defense contractors, such as General Dynamics and General 
Electric and the other ones that are going to do much bigger 
contracts, they are not the ones that are the problem here. It 
is generally small businesses we are talking about.
    Mr. Ose. I am trying to figure out how to scale the 
enforcement mechanism, if you will. So I appreciate you 
bringing that up. That's a good point.
    Mr. Horn. The gentleman from Texas, Mr. Turner, for 5 
minutes.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Mikrut, I want to talk to you about a couple of your 
other suggestions. I think we have resolved that we can come up 
with language that clears up what we mean by assessment, or do 
that. I don't see any great problem there.
    Your suggestion about limiting the examination of 
shareholders to those who own 25 percent of the shares of stock 
in a corporation, I think I mentioned I had suggested 10. Do 
you see any reason, big reason, to choose 10 or 25?
    Mr. Mikrut. No, Mr. Turner. It is just a matter of how much 
more of a burden you would have on the administrating agencies 
and the IRS, but I think there should be some threshold for 
partnerships as you do have for corporations. I think that 
would be appropriate.
    Mr. Turner. OK. With regard to the way we carried out the 
disclosure, our intent here was to be sure that the taxpayers 
who get loans from the Government and contract with the 
Government knew that when they contracted or when they apply 
for a loan, that somebody is going to check and be sure they 
are current in their Federal taxes. I think I understand why 
you have suggested we go under 6103(l)(3), and I don't think 
there is any reason to object to going that route.
    If we do what you suggested in your written testimony when 
you said in order to protect taxpayer privacy the amendment to 
section 6103(l)(3) should make explicit that disclosures to 
contractors of the agencies administering the loans or entering 
into contracts will be permitted for purposes only of this 
provision subject to the contractor's agreement to otherwise 
maintain the confidentiality of the information and subject to 
the agency's demonstrated oversight of its contractor's 
compliance with the safeguard requirements of 6103(p)(4) and to 
the Secretary's satisfaction, and we need some help in drafting 
that language.
    If we already are required under the OMB circular to find 
out if somebody is current in their taxes, I assume that there 
is some kind of disclosure process currently ongoing saying 
that before you get this loan you have to be current in your 
taxes.
    So it seems to me that if we extend that to parties that 
contract with the Government, that we have probably done all we 
should have to do to assure that the taxpayer who is the 
contracting party or who is the loan applicant knows that there 
is going to be a check to be sure that they are in compliance 
with this statute.
    Does that seem satisfactory to you?
    Mr. Mikrut. I believe so, Mr. Turner. As I understand it, 
your concern is that the loan applicant or the contracting 
party should be aware that questions are going to be asked of 
the IRS regarding their tax status. And you can do that under 
6103(l)(3) simply by putting that provision in the contract or 
in the loan application or some place there, so that the 
taxpayer knows that's going to happen.
    It does not have to be done under 6103(c) under the consent 
form, although they clearly have notice under consents. It is 
really a technical tax distinction which subsection you come 
under, but we think we can accomplish your goals regarding 
taxpayer notice as well as our goals regarding taxpayer privacy 
by simply putting it under (l)(3).
    Mr. Turner. Well, work with us on that. I think your 
suggestions are well taken.
    It is an interesting discussion we have had this morning 
because I almost feel like that it is like a fellow who is 
walking along and he stumbles into a hornet's nest and the 
hornets are going everywhere because the truth of the matter is 
that we have had the requirement in law, not in law but in OMB 
regulations since January 1993, requiring agencies before they 
make a loan to find out if somebody owes Federal taxes. And it 
doesn't sound like to me, from the answers to Mr. Davis' 
question, that we are doing a very good job of carrying out 
that OMB circular that's been out there since 1993.
    So perhaps that having stumbled into that hornet's nest, it 
is good we have the opportunity to at least understand that we 
have a ways to go. And by reaching out and covering tax debt in 
a more formal way than the OMB circular on loan applicants and 
extending it to government contractors perhaps might get us in 
a position where what common sense would tell us becomes 
reality, and that is if you owe taxes to the Federal Government 
you shouldn't get the benefits of Federal contracts, nor should 
you get the benefits of Federal loans.
    I think we can resolve the Department of Defense problem, 
and I look forward to working with you, Ms. Covey, to do that.
    Mr. Chairman, thank you for the opportunity to have the 
hearing this morning.
    Mr. Horn. Well, we thank you.
    The gentleman from California, Mr. Ose, do you have further 
questions?
    Mr. Ose. Thank you, Mr. Chairman. I did want to cover a 
comment. I want to commend our friend from Texas for his good 
work on this. I think he has come across something that I think 
will be a useful tool in ensuring that. For instance, we get 
the employee taxes that are supposed to have been collected and 
to which employees have basically contributed half from their 
pay as it relates to Social Security, if nothing else.
    So I want to compliment Mr. Turner on that.
    I also want to associate myself with the--I don't want to 
say the amusement, but the irony or the conundrum we face as it 
relates to the blacklisting issue that Ms. Lee and Mr. Davis 
and I have discussed on separate occasions as reflected in her 
testimony today. It did not escape us in my office either, the 
contradiction, if you will, that seems to be there--it probably 
isn't, but appears to be there--in the testimony as it relates 
to the blacklisting issue.
    So with that, Mr. Chairman, I will yield back.
    Mr. Horn. Well, thank you. I have a few closing questions 
here directed at Ms. Ashby and Ms. Lee.
    In March 1992, during the House Ways and Means Committee 
hearing, the General Accounting Office said this that in 
considering the issue of whether tax compliance should be a 
prerequisite to awarding a Federal contract, ``The goal of 
ensuring that Federal contractors comply with tax laws must be 
balanced against other national goals.''
    Now, Ms. Ashby, I am curious. In your testimony today, you 
state that the GAO supports the concept of barring delinquent 
taxpayers from receiving Federal contracts, and I am curious 
what caused the General Accounting Office to change its views 
on this issue since 1992.
    Ms. Ashby. I don't think we really have changed our views 
and let me explain. In 1992--and I am very familiar with that 
testimony because I was an assistant director working for 
Jennie Stathis who testified, and I probably wrote parts of 
that testimony, the part dealing with the Federal contractors. 
And the testimony was delivered in the context of work that we 
had done where we had actually looked at--compared Federal 
contract amounts, award amounts, with IRS' records of unpaid 
taxes, not just payroll taxes. We had numerous examples of 
contractors who were, in fact, delinquent, who seemed to have 
resources that could have been used to pay off some of the 
debt; and our primary focus on that work was to determine how 
much money IRS might collect by levying the contract payments.
    In the course of doing that work and discussing our 
results, it became obvious that, well, there are numerous cases 
where there are actually delinquent taxpayers benefiting from 
Federal contracts and should that be, was sort of the issue we 
raised. But at the same time, we saw that there were other 
policy issues. Implementation issues, policy issues--I think 
the words probably mean a lot of the same things--and we 
recognized at that time and today that there are numerous 
public policy goals, one of which is to collect delinquent 
taxes. And there are others including acquiring goods and 
services in a cost effective and efficient manner, securing the 
national defense and so forth.
    So it was then and now a recognition that there are 
multiple issues here that need to be resolved, and we at GAO 
can't make a recommendation, just as at this point I don't 
think anyone feels that they can make a recommendation for the 
answer to this problem. But it is an evolutionary process that 
we are going through, and we are getting various viewpoints; 
and we will get to a workable solution, I am sure.
    I think back in 1992 and perhaps even before that, we were 
pretty much where we are today, that we recognize that there is 
an issue here. There is an issue of fairness; there is an issue 
of providing public benefits to those who are not fulfilling 
their public responsibilities.
    Mr. Horn. Well, I think that's well said.
    Ms. Lee, do you agree with the GAO's position on this 
issue?
    Ms. Lee. Yes. There is the balance and how do you take into 
account all of this information and make sure you apply it to 
relevancy, and how do we make sure that those receiving the 
Federal benefits, in some case if we really need their product 
or service or whatever, that we then employ the offset so that 
we can also recover? It is an interesting balance on how do we 
make sure that we have those policy issues all moving forward 
together.
    Mr. Horn. Well, I would ask the whole panel here, what is 
your guess, in your agency, do the benefits associated with 
this bill outweigh the added costs of the procurement process 
that were identified by some of the witnesses and some of the 
statements from various potential witnesses that will be put in 
the record later?
    I am just curious. Agriculture, Department of Defense, 
Treasury, how would you answer that question, the cost-benefit 
ratio?
    Ms. Covey. You are saying the cost-benefit ratio----
    Mr. Horn. Right.
    Ms. Covey [continuing]. For the Department of Defense as 
the bill is structured right now?
    Mr. Horn. Right.
    Ms. Covey. I think it fails the test. I think the costs 
associated with the revised process versus the limited benefits 
to be gained from the bill, I just don't think it meets the 
cost benefit test. That's why the Department had proposed that 
we use the systems we already have, the offset system that 
Treasury administers for nontax Federal debt and the IRS levy 
program for tax debt and that we look at expanding those 
systems because we feel that they impact the process, the 
procurement process, much less than would this type of 
clearance process.
    Ms. Thompson. I believe that the cost benefit would 
certainly be reduced significantly in terms of administrative 
burden once the IRS had an electronic process where we could 
send the names in electronically and they could then, within a 
2 or 3-day turnaround time, get back to us.
    As I mentioned, I am really concerned about farm loans and 
the amount of the workload during the months of March and 
April. I think more the cost of it is--the administrative cost 
is significant, but I think the cost of not getting the money 
into the farmers' hands, how do you evaluate that? How do you 
put a dollar amount on to that? That becomes significant.
    I think when we talked about loans, mortgage loans, if you 
think of the amount of time it takes to get a mortgage loan to 
the private sector, and then you add to that the type of 
clientele that we are serving out in rural America, you begin 
to see the amount of the costs there as well.
    I am also concerned, of course, as we have talked, Mr. 
Chairman, about the administrative staff and how that has 
shrunk so significantly over the last few years, and then you 
add the burden to that of more administrative work on them, 
which would then impact the delivery of programs.
    Mr. Horn. Well, do you have any studies where you can give 
us a cost-benefit ratio with some evidence?
    Ms. Thompson. No.
    Mr. Horn. I would ask that of the Department of Defense 
also. This is off the top of the head, I think, isn't it?
    Ms. Covey. Yes, this is off the top of my head. No, we have 
no studies to support this.
    Mr. Horn. OK. And to what extent are your records 
electronically available so you could send them over to IRS for 
that 1 day, 2 day quick that Ms. Thompson is talking about?
    Ms. Covey. It may be in Department of Defense we are a 
little bit unique because we have a contractor registration 
system that's on-line. We can give the IRS access to that 
system. It contains taxpayer identification numbers for every 
contractor we do business with, other than those where we use 
the purchase card. So we may be unique in that regard, but we 
could certainly make that information available to the IRS.
    I think an alternative that maybe wasn't discussed this 
morning was whether the IRS could put up some sort of on-line 
system where the agencies could automatically access this 
information on-line.
    Again, I think that would resolve a lot of the 
implementation problems associated with this sort of process.
    Mr. Horn. Any comments from the Treasury?
    Mr. Mikrut. I think with respect to the on-line program Ms. 
Covey mentioned, it would be interesting. I think it would be a 
great deal of work to get that in a place where it could be 
effective.
    Finally, I think in general, with respect to taxpayer 
disclosures, we try to limit as many taxpayer disclosures as 
possible. I think there would be a real concern if the tax 
information of all taxpayers was suddenly available to any one 
agency.
    For instance, the IRS in the past had put in place 
implementations to restrict what is known as ``agent 
browsing,'' that they just can't simply look through taxpayer 
records without a sufficient reason to, and we have concerns in 
that respect if all taxpayer information made was available to 
all Federal agencies.
    Mr. Kutz. Mr. Chairman, let me say something on this, too. 
I think Congressman Turner's bill provides a preventive control 
rather than a detective control, and there are some significant 
benefits to preventing taxpayer delinquencies from ever getting 
into IRS' records. You are aware that IRS has records of $231 
billion of unpaid taxes, and there is a significant cost to IRS 
carrying those records over the course of 10 years.
    So to the extent that you can prevent delinquencies, you do 
save the Government some of the administrative costs, incurred 
by the IRS, including sending out all the various notices and 
you know all the administrative debt collection processes you 
have heard discussed today by the various witnesses. To the 
extent you don't let taxpayers become delinquent, you eliminate 
those costs up front.
    So the bill has a significant benefit not only from the 
preventive side but for future compliance, which you can't 
quantify.
    Mr. Horn. I think you are absolutely correct on that. What 
got me started in this business in 1995 was in the Farmer's 
Home Administration where this multimillionaire had a ranch. He 
hadn't paid back the mortgage, and he then moved to Santa 
Barbara, a rather posh place; and he gets another loan to the 
millions and doesn't pay that back.
    How do you let this person get away with it and just sit 
there?
    So I would hope that if you have some real data here as to 
the impact, fine; but I don't see it when millions are going 
down the drain and nobody is doing anything about it. At least 
that's the way it sounds in part of the testimony this morning, 
that well, you know, we have a problem and so forth and so on.
    I think Mr. Kutz is saying if the word gets out, don't mess 
around with the Federal Government if you have a contract. We 
know a lot of the major defense contractors have--very little 
taxes are paid. They have numerous ways to get out of it. We 
ought to be taking a look at that; and the taxpayers that do 
pay their bills and pay their taxes would sure appreciate it, 
in other words, the average citizen.
    Would the gentleman from Texas have any further questions 
he would like to ask this panel?
    Mr. Turner. Mr. Chairman, I just thank you again for the 
opportunity to have the hearing, and I thank all the witnesses 
and will continue to work with them to try to come up with a 
piece of legislation that accomplishes our goals in the least 
obtrusive and burdensome manner.
    Thank you, Mr. Chairman.
    Mr. Horn. Well, we thank you.
    Let me put a few documents in the record of witnesses that 
could not be with us today. One is from the National Defense 
Industrial Association. One is from the Aerospace Industries 
Association. One is from the U.S. Small Business Administration 
from the chief counsel for advocacy. And without objection they 
will be put in the record at this point.
    I would like to thank the staffs, both majority and 
minority, for their work. I think it is a very good panel we 
have here, and we thank you for coming. J. Russell George, 
staff director, chief counsel of the House Subcommittee on 
Government Management Information Technology; to my left, to 
your right, is Mr. Kaplan. Randy Kaplan is counsel to the 
subcommittee. Bonnie Heald is director of communications. Bryan 
Sisk is our clerk. And we have for Mr. Turner, as ranking 
member; Trey Henderson, his counsel; and Jean Gosa, minority 
clerk. The court reporter is Mindi Colchico. We have two 
interns working their hearts out, and that's Elizabeth Seong 
and Michael Soon.
    So with that, we are recessing this hearing until 2 this 
afternoon.
    [Whereupon, at 11:30 a.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
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