[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]




 
                DECEPTIVE MAILING CONCERNING TAX REFUNDS

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 19, 2001

                               __________

                           Serial No. 107-37

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                       Subcommittee on Oversight

                    AMO HOUGHTON, New York, Chairman

ROB PORTMAN, Ohio                    WILLIAM J. COYNE, Pennsylvania
JERRY WELLER, Illinois               MICHAEL R. McNULTY, New York
KENNY C. HULSHOF, Missouri           JOHN LEWIS, Georgia
SCOTT McINNIS, Colorado              KAREN L. THURMAN, Florida
MARK FOLEY, Florida                  EARL POMEROY, North Dakota
SAM JOHNSON, Texas
JENNIFER DUNN, Washington


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
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                            C O N T E N T S

                               __________
                                                                   Page
Advisory of July 12, 2001, announcing the hearing................     2

                               WITNESSES

Internal Revenue Service, Robert E. Wenzel, Deputy Commissioner..     6
U.S. Postal Inspection Service, Lawrence E. Maxwell, Inspector in 
  Charge, Fraud, Child Exploitation and Asset Forfeiture Division     8

                                 ______

                       SUBMISSION FOR THE RECORD

Ohio Office of the Attorney General, Hon. Betty D. Montgomery, 
  statement......................................................    19


                DECEPTIVE MAILING CONCERNING TAX REFUNDS

                              ----------                              


                        THURSDAY, JULY 19, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:00 p.m., in 
room B-318, Rayburn House Office Building, Hon. Amo Houghton 
[Chairman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
July 12, 2001
No. OV-6

                          Houghton Hearing on

                Deceptive Mailing Concerning Tax Refunds

    Congressman Amo Houghton (R-NY), Chairman, Subcommittee on 
Oversight of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing to investigate recent reports of a 
deceptive mailing. Unsuspecting taxpayers are being solicited by a 
group, calling itself the Revenue Resource Center, that is attempting 
to convince taxpayers to pay approximately $15 to receive a fact sheet 
that purports to outline the amount of their upcoming U.S. Department 
of the Treasury refund check. The hearing will take place on Thursday, 
July 19, 2001, in B-318 Rayburn House Office Building, beginning at 
2:00 p.m.

    Oral testimony at this hearing will be from invited witnesses only. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.

BACKGROUND:

    The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 
107-16) directs the U.S. Treasury Department to send checks to most 
taxpayers beginning later this summer as an advance payment to reflect 
the new 10 percent tax bracket.

    However, there have been recent reports of unscrupulous entities 
hoping to take advantage of taxpayers who may want further details 
about their eligibility for this tax refund payment. Taxpayers in at 
least five States have received postcards designated as ``2001 Form 16-
B,'' resembling an official Internal Revenue Service (IRS) tax form, 
and bearing the designation, ``Revenue Resource Center,'' a ``Non-
Partisan Bureaucratic Agency.'' The postcard offers to send information 
on the amount of the recipient's tax refund check in exchange for 
$14.95. The postcard, which may be easily confused with official IRS 
correspondence because of its use of certain terms, typeface, and a 
quotation attributed to President Bush, requests money ``in order to 
identify the amount of the tax credit you are scheduled to receive.''

    In announcing the hearing, Chairman Houghton stated: ``Everyone 
should be on guard against deceptive mailings that attempt to look like 
they come from the government and are trying to sell a service the 
government provides for free. We have to let people know that if they 
receive this postcard, they should ignore it.'' In passing the tax 
relief bill, Congress anticipated questions about these payments, and 
directed the Treasury Department to send taxpayers a letter telling 
them the specific information they need to know about their tax refund 
check. Taxpayers can learn further details about their refund by 
checking the Internal Revenue Service web site, www.irs.gov.

FOCUS OF THE HEARING:

    The hearing will highlight the deceptive mailing being sent to 
individuals and the way taxpayers can find legitimate information about 
the tax payment checks they may soon receive.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Thursday, 
August 2, 2001, to Allison Giles, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Oversight office, room 1136 Longworth 
House Office Building, by close of business the day before the hearing.

FORMATTING REQUIREMENTS:

    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.

    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.

    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.

    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.

    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.

    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                


    Chairman Houghton. All right. The meeting will come to 
order. So now, on behalf of Mr. Coyne and myself, I welcome 
everybody here, and I thank you very much for your presence. I 
am just going to say a word or two, and then I will turn it 
over to Mr. Coyne, and then we will have the testimony.
    Just a few words: The hearing today focuses on a very 
deceptive mailing and trying to take advantage of unsuspecting 
taxpayers. It happens all the time, but it is particularly 
egregious now, and these mailings attempt to deceive taxpayers 
that prey upon the will of law-abiding citizens, often by just 
plain misrepresenting what a government agency says, such as 
the Internal Revenue Service (IRS).
    And as we will really put a fine point on for this hearing, 
in recent reports, as you know, about a deceptive mailing 
associated with the tax rebate checks soon to be issued by the 
Treasury Department.
    The mailing, in the form of a double-sided postcard 
displayed in front of me--and displayed in front of me right 
over there--has been sent to taxpayers in at least six States 
from an entity called the Revenue Resource Center. That sounds 
pretty authentic, doesn't it?
    [The opening statement of Chairman Houghton follows:]

    Opening Statement of the Hon. Amo Houghton, M.C., New York, and 
                  Chairman, Subcommittee on Oversight

    Good afternoon. Today's hearing focuses on a deceptive mailing that 
is designed to take advantage of unsuspecting taxpayers. These mailings 
attempt to deceive taxpayers and prey upon the good will of law-abiding 
citizens, often by misrepresenting a government agency, such as the 
IRS, as we will see at this hearing.
    Recent reports have surfaced about a deceptive mailing associated 
with the tax cut rebate checks soon to be issued by the Treasury 
Department. The mailing, in a form of a double-sided postcard, 
displayed in front of me, has been sent to taxpayers in at least six 
states from an entity called the Revenue Resource Center.
    Now, at first glance, this looks like an official Internal Revenue 
Service document, with terms like ``Form 16-D--Taxpayer Refund Relief 
Information Worksheet,'' ``Bureaucratic Agency,'' ``Taxpayer Activity 
Report,'' and a quote from President Bush citing the need for tax 
relief.
    The card asks taxpayers to send in $14.95 for a fact sheet about 
their upcoming Treasury Department refund check. And, I think the card 
uses a very suspect tactic when it says the recipient should return the 
card ``to assure proper delivery.'' Some people might think this means 
that they must ``send in $14.95 to assure proper delivery of their 
refund check.''
    Today, with the assistance of the Internal Revenue Service, the 
U.S. Postal Service, and through the work of state consumer protection 
agencies, like the one headed by Ohio Attorney General Betty 
Montgomery--we will expose this fraud.
    We will hear from two witnesses to answers some important questions 
and help us get to the bottom of this deceptive mailing.
    Through this hearing, I hope the public will learn to be on guard 
against deceptive mailings.
    I am pleased to yield to our ranking Democrat, Mr. Coyne.

                                


    Chairman Houghton. Now, at first glance, this looks like an 
official Internal Revenue Service document with terms like 
``Form 16-D,'' ``Taxpayer Refund and Relief Information 
Worksheet,'' ``Bureaucratic Agency,'' ``Taxpayer Activity 
Report,'' and then a quote from President Bush citing the need 
for tax relief.
    Now, the card asks taxpayers to send in $14.95 for a fact 
sheet about their upcoming Treasury Department refund check, 
and I think the card uses a very suspect tactic when it says 
the recipient should return the card to ``assure proper 
delivery,'' quote, unquote. Some people might think this must 
mean that they send in $14.95 to ``assure proper delivery'' of 
their refund check.
    So today, with the assistance of the Internal Revenue 
Service, the U.S. Postal Service and the work of State consumer 
protection agencies, like the one headed by Ohio Attorney 
General, Betty Montgomery, we are going to expose this fraud; 
and we will hear from two witnesses to answer some of the 
important questions and help us get to the bottom of this 
deceptive mailing.
    So through this hearing, I hope the public will soon learn 
to be on guard, not only about this, but also other deceptive 
mailings. So what I am pleased to do now is to yield the floor 
to our ranking Democrat, Mr. Coyne.
    Mr. Coyne. Thank you, Mr. Chairman. The tax laws are 
complicated enough, as we know, without having scam artists 
preying on the public with misleading tax information and 
offers to provide, for a fee, completely unnecessary tax 
assistance. I am pleased that the Oversight Subcommittee under 
the leadership of Mr. Houghton is holding today's hearing on 
the most recently discovered tax scam. I hope that we learn 
from today's testimony that this scam has been shut down.
    Taxpayers nationwide are beginning to get their letters 
from the IRS concerning the amount of their upcoming tax 
rebates. The rebate program was designed to be very simple, as 
today's hearing will confirm; and taxpayers don't need to do 
anything to get their rebate.
    Mailings from anyone offering to help in this process for a 
fee should be considered a fraud and should be forwarded to the 
Treasury Inspector General's office, or the IRS.
    I want to thank Chairman Houghton for quickly scheduling 
this hearing from the information that has been brought to our 
attention, to see if we can't get to the bottom of it.
    Thank you.
    [The opening statement of Mr. Coyne follows:]

   Opening Statement of the Hon. William J. Coyne, M.C., Pennsylvania

    The tax laws are complicated enough without having scam artists 
preying on the public with misleading tax information and offers to 
provide--for a fee--completely unnecessary tax assistance.
    I am pleased that the Oversight Subcommittee is holding today's 
hearing on the most recently discovered tax scam. I hope that we learn 
from today's testimony that the scam has been shut down and that the 
perpetrator is under criminal investigation.
    Taxpayers nationwide are beginning to get their letters from the 
IRS concerning the amount of their upcoming tax rebates and the process 
for receiving them. The rebate program was designed to be very simple--
as today's hearing will confirm, taxpayers don't need to do anything.
    Mailings from anyone offering to help in this process for a fee 
should be considered a fraud and should be turned over to the Treasury 
Inspector General's Office or the IRS immediately.
    I urge that the Subcommittee continue to investigate tax scams as 
they surface. Finally, I want to thank Chairman Houghton for quickly 
scheduling this hearing.

                                


    Chairman Houghton. Okay. Thank you, Mr. Coyne.
    I have got to say something about Mr. Coyne. One of the 
nice things about being on this Subcommittee is that I really 
do think we work in a bipartisan way, because there are a lot 
of people who claim they do, but--you can hear the bugles, but 
you don't see the horses coming over the hills. But we really, 
I think, do the best we possibly can. So I am delighted to join 
with Mr. Coyne in this.
    The two program members, just let me introduce you. You 
don't need any introduction for yourself, but I think for the 
rest of the people here: Mr. Robert E. ``Bob'' Wenzel, who is 
the Deputy Commissioner of the Internal Revenue Service; and 
then Larry Maxwell, Inspector in Charge of Fraud, Child 
Exploitation and Asset Forfeiture Division, United States 
Postal Service.
    And so would you begin the testimony, please, Mr. Wenzel.

 STATEMENT OF ROBERT E. WENZEL, DEPUTY COMMISSIONER, INTERNAL 
                        REVENUE SERVICE

    Mr. Wenzel. Thank you, Mr. Chairman. We welcome the 
opportunity to testify before this Subcommittee about the 
recent attempt to lure taxpayers into needlessly paying for 
information about their advance payment checks. The IRS is 
providing the information free of charge to all taxpayers in a 
series of mailings that began just this past Saturday. We fully 
share the Subcommittee's concern and outrage about this 
contemptible effort to prey upon unsuspecting taxpayers, and 
applaud your efforts, Mr. Chairman, in exposing such 
unscrupulous activity through this hearing.
    The IRS appreciates the help offered by you, the Department 
of Treasury, and many other interested parties who are able to 
raise public awareness about this serious problem. We have 
placed an alert on the front page of our Web site and certainly 
welcome any other suggestions you might have.
    We are concerned about all fraudulent schemes and 
solicitations, particularly those such as mail or wire fraud 
that rise to the level of criminal activities. While we do not 
have independent jurisdiction to investigate mail and wire 
fraud, we work continuously with the appropriate Federal law 
enforcement agencies that have such authority to help ensure 
that any such conduct is addressed.
    Mr. Chairman, long before this scam appeared, we 
anticipated that there would be enormous interest in the 
advance payments. We took immediate steps before and directly 
following the enactment of the Economic Growth and Tax Relief 
Reconciliation Act to help taxpayers understand the process and 
to provide them with legitimate free information.
    On May 31st, we inserted a general announcement before the 
prompts on our toll-free telephone lines. Our representatives 
on the toll-free telephone lines were also provided helpful 
scripts and answers to frequently asked questions so they could 
better assist taxpayers.
    And even as the bill was being signed by our President on 
June 7th, we began issuing a nationwide press release and 
accompanying fact sheets with details about the advance payment 
checks. In the release, we told taxpayers that we were working 
together to make this process as simple as possible. We 
informed them that they would receive a letter describing the 
check amount and identifying the week it would be sent.
    We also committed to sending a letter of explanation for 
taxpayers who would not be eligible to receive the advance 
payment. And at the same time, we posted information on the IRS 
Web site that we call the ``Digital Daily'' about the advance 
payment checks and the advance payments process.
    Beginning June 27th, taxpayers calling on the toll-free 
telephone lines were able to automatically receive information 
both on eligibility for the advance payments, as well as about 
the check mail-out schedule; and we have made this information 
available to taxpayers in both English and Spanish.
    The IRS and its employees have worked very hard to get the 
message out about the checks. Throughout our communications, we 
emphasized that taxpayers did not need to call us, fill out any 
special forms or do anything else to receive the check.
    Mr. Chairman, as you are aware, of the 112 million advance 
payment notices printed, approximately one-half of 1 percent, 
or approximately 500,000 notices, contained incorrect 
information concerning the amount of the check that taxpayers 
would receive. This was a human and not a systemic error.
    I would like to stress, Mr. Chairman, that the error was 
detected very quickly and corrected prior to the printing of 
the checks. Taxpayers will receive a check for the correct 
amount.
    We apologize for any confusion the incorrect notices may 
have caused, and in order to reduce that confusion, the IRS is 
sending corrected notices to the affected taxpayers.
    In conclusion, Mr. Chairman, we want to do all we can to 
ensure that taxpayers do not fall prey to solicitation schemes. 
One of the best ways to accomplish this is by providing 
taxpayers with specific information about when they may expect 
their checks and how much they may expect to receive in their 
advance payment checks. The IRS will continue to provide this 
information through a variety of channels, and we look forward 
to working with you and the Subcommittee to combat this type of 
problem now and in the future.
    Thank you, and I would be happy to answer any questions.
    [The prepared statement of Mr. Wenzel follows:]

 Statement of Robert E. Wenzel, Deputy Commissioner, Internal Revenue 
                                Service

    Mr. Chairman, I welcome this opportunity to testify on the recent 
attempt to lure taxpayers into needlessly paying for information about 
their advance payment checks. The IRS will provide this information 
free of charge to all taxpayers in a series of mailings that began on 
Saturday.
    I fully share the subcommittee's concern and outrage about this 
brazen attempt to prey upon unsuspecting taxpayers. And I applaud your 
efforts, Mr. Chairman, to expose this unscrupulous activity through 
this hearing. As Justice Brandeis often remarked, ``Sunshine is the 
best disinfectant.'' We will work with you, the Department of Treasury 
and all interested parties to help raise public awareness about the 
problem. We have placed an alert on our web site and we certainly would 
welcome any suggestions you might have.
    The IRS is concerned about any scheme or fraudulent solicitations, 
particularly those that might rise to the level of criminal activities, 
such as mail or wire fraud. While the IRS does not have independent 
jurisdiction to investigate mail and wire fraud, we will work with the 
appropriate federal law enforcement agencies that do, such as the 
Postal Service, to ensure that any such conduct is addressed.
    Mr. Chairman, long before this scam appeared, we anticipated that 
there would be enormous interest in the payments. We took great steps 
before and immediately following enactment of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 to help taxpayers understand the 
process and to provide them legitimate and free information through a 
variety of channels.
    After passage of the conference report to the legislation, we began 
to receive taxpayer calls. On May 31, 2001, in response to these calls, 
we provided on our toll-free lines the following general announcement 
before the prompts: ``If you are calling about the recently passed tax 
refund, there is nothing you need to do to receive this check. The 
Internal Revenue Service will send you a letter by the middle of July 
telling you the amount of the check you will receive and when you will 
get it. The IRS will begin mailing these checks by the third week in 
July. Please note all payments will be made by check and direct deposit 
is not available. Again, there is nothing that you need to do to get 
the check.'' Our representatives on the toll-free telephone lines were 
also provided helpful scripts and answers to frequently-asked-questions 
to assist taxpayers.
    As the President was signing the bill on June 7, IRS' 
Communications and Liaison Division began issuing a nationwide press 
release and accompanying fact sheets with the details of the advance 
payments checks. In the release, we stated that the IRS wanted to make 
this process as simple as possible. Taxpayers would receive a letter 
describing the check amount and the week it would be sent. We would 
also send a letter of explanation for taxpayers not eligible for the 
advance payment.
    We emphasized throughout our communications that taxpayers did not 
need to call, fill out special forms or do anything else to receive the 
check. Commissioner Rossotti was quoted as saying, ``All you need to do 
is open your mailbox. We'll take care of everything else. You don't 
need to do anything else to receive the check.''
    By our calculations, as of July 6, IRS staff across the nation 
answered 168 media inquiries, initiated nearly 400 media contacts to 
interest reporters to cover the story and participated in almost 370 
interviews with television, radio and print reporters. It was front-
page news or the lead story for many broadcasts.
    IRS National Public Liaison also shared the fact sheets and 
releases with their key practitioner contacts. The Government Liaison 
Division staff in the field began briefing state tax administrator and 
local congressional offices using the prepared materials. At the same 
time, we posted on the IRS web site, the Digital Daily, a cover story 
on the advance payment checks as well as a special page on the advance 
payments.
    On June 27, taxpayers calling on the toll-free telephone lines were 
able to automatically receive information both on eligibility for the 
advance payments as well as the check mail-out schedule. The 
information is available in both English and Spanish. Clearly, we have 
worked very hard to get the message out about the checks.
    Mr. Chairman, as the subcommittee is aware, of the 112 million 
advanced payments notices printed, approximately half of one-percent or 
500 thousand, contained incorrect information on the amount of the 
check taxpayers would receive. The incorrect information was the result 
of human error that failed to limit, in some cases, the tax relief 
amount. This was not an error in our systems. In order to reduce the 
confusion, the IRS will send corrected notice as soon as possible to 
the affected taxpayers. Let me stress, Mr. Chairman, that the error was 
quickly detected and corrected prior to any information being sent to 
FMS for the printing of checks. Taxpayers will receive a check for the 
correct amount. We apologize for any confusion the incorrect notices 
caused.
    Mr. Chairman, in conclusion, we want to ensure that taxpayers do 
not fall prey to the solicitation schemes. One of the best ways to 
attack this problem is by providing taxpayers with the specific 
information they need about their advance payment checks. Therefore, 
the IRS will continue to provide this information through a variety of 
channels and we look forward to working with you and the Subcommittee 
to address this problem. Thank you and I would be happy to answer any 
questions you have.

                                


    Chairman Houghton. Well, thanks very much, Mr. Wenzel. I am 
sure we will ask questions, but let us go to Mr. Maxwell's 
testimony first.

 STATEMENT OF LAWRENCE E. MAXWELL, INSPECTOR IN CHARGE, FRAUD, 
 CHILD EXPLOITATION AND ASSET FORFEITURE DIVISION, U.S. POSTAL 
                       INSPECTION SERVICE

    Mr. Maxwell. Thank you, Mr. Chairman, Mr. Coyne, and my 
thanks to the Subcommittee for inviting us here.
    Briefly, the Postal Inspection Service is the law 
enforcement arm of the Postal Service. We have been around 
since the beginning of the Postal Service, for about 200 years.
    We have two primary weapons in the war against fraud, the 
mail fraud statute, which I refer to as the granddaddy of all 
consumer fraud protest statutes, that was enacted in 1872; and 
we also have a civil remedy, false representation, under Title 
39, 3005, and that was amended by Congress last year--enhanced, 
I should say--through the Deceptive Mail Prevention and 
Enforcement Act, which has been a tremendous boon to us. And, 
in fact, in this particular instance, I would call this case 
the ``the poster boy for fraud opportunities,'' because of how 
it fits a government look-alike.
    Following Mr. Wenzel, I will say--I will restrict my 
remarks primarily to the investigation of this mailing and what 
happened here; and I should say, first up, that IRS does have 
their own excellent Criminal Investigation Division, but as Mr. 
Wenzel said, this fraud falls beautifully within the Inspection 
Service's statutes. I should point out we have worked very 
closely together over the many years.
    This is the actual postcard. As you see, it is a postcard 
and that is the blowup of it. It is a First Class postcard, 
very authentic, looks like a nice government mail piece.
    You probably have heard of the movie shown last year, ``The 
Perfect Storm,'' and the book. If there was ever a scene set 
for the perfect fraud scheme, I would say this was it. You have 
a very good thing happening, that is, anticipation of a refund 
check. The public is aware; they know what is coming. And then 
in the midst of this, you have an opportunist jumping in with 
an offer that you have to pay to get the information, which is 
actually available free.
    That, in and of itself, is a violation under the Deceptive 
Mails Act, and that is what we focused on.
    Thanks to a Member of your staff, Mr. Walder, sitting 
behind you, who is familiar with our agency, we were alerted to 
the card and the promotion before we even received a complaint. 
And that is not uncommon, that in instances like this where it 
seems like a legitimate operation, that we do not receive the 
complaints until people have actually paid money. And that is 
the sad part of fraud, because you can prevent it if you can 
intercept it beforehand.
    Arresting people, prosecuting people is excellent; it is a 
good enforcement tool, preventive measures. But it is better to 
prevent victimization if we can, and this is a beautiful case 
of it.
    When Mr. Walder referred it to us, we were able to take 
swift action by filing a false representation order--a 
complaint, actually, for false representation order. It is on 
file now with our law department, and that was filed on July 
16th. We were able to also withhold the mail, which at the time 
was only literally a handful of pieces that came in, so we are 
very lucky to have minimized the number of victims, I think, in 
this case.
    Interestingly, though, the operator learned of our 
intervention, and this is very typical, then moved to another 
address location. And if you notice on the address, Revenue 
Resource Center, it has the designation on the second line at 
the end, PMB. PMB stands for ``private mailbox,'' and that is a 
new regulation that the Postal Service just put out last year 
for commercial mail receiving agencies, and it was to mirror 
the----
    Chairman Houghton. Where is that?
    Mr. Maxwell. It is on the address at the bottom of the 
card, at the very bottom left corner.
    Chairman Houghton. Oh.
    Mr. Maxwell. And that is for ``private mailbox.''
    What we did when we worked with the commercial mail 
receiving industry on making the regulations, it was so that 
the public would have a means to know that this is not a 
physical address; this is a commercial mail receiving agency. 
It helps us in fraud prevention. That was what we were hoping, 
that at least the public would know who they were mailing their 
money to, and if it was a P.O. Box, it would say a P.O. Box, so 
they could explore whether they want to send their money to 
this location or not.
    The promoters in this case did open another address in the 
Northeast, in the Boston area, which we just became aware of. 
We are in the process of amending our complaint now to include 
that address.
    And there is a potential here, based on some of the claims 
made, where there could possibly be criminal violations here 
for mail fraud.
    So I am here, and I am happy to answer any questions for 
the Subcommittee. Thank you very much.
    [The prepared statement of Mr. Maxwell follows:]

  Statement of Lawrence E. Maxwell, Inspector in Charge, Fraud, Child 
  Exploitation and Asset Forfeiture Division, U.S. Postal Inspection 
                                Service

    Thank you Chairman Houghton, Congressman Coyne and other Members of 
the Subcommittee for the opportunity to testify today.
    The U.S. Postal Inspection Service is responsible for protecting 
postal employees, the mails and postal facilities from criminal attack, 
and for protecting consumers from being victimized by fraudulent 
schemes or other crimes involving the mails.
    In the last Congress the ``Deceptive Mail Prevention and 
Enforcement Act'' was passed by Congress and signed into law by the 
President. This law provided new disclosures to be made on certain 
mailings, afforded the Inspection Service with additional investigative 
tools and extended penalties to be levied upon violators of the law. 
One section of the law applies specifically to the type of mailing made 
by the ``Revenue Resource Center'' out of Boca Raton Florida.
    The mailing done by ``Revenue Resource Center'' offers to provide a 
service that the government provides for free for a $12.95 processing 
fee and rush service is also offered for an additional $2.00. For the 
fee, the Revenue Resource Center will calculate the amount of a refund 
the taxpayer is due. The paid service is provided for free by the IRS. 
Millions of taxpayers will receive notice of the amount of their refund 
checks and when they can expect them.
    The law provides that any solicitation for the purchase or payment 
for any product or service that is provided by the federal government 
for free must contain a clear and conspicuous statement that this 
product or service may be obtained from the Federal Government for 
free.
    On July 17, 2001 a Complaint was filed by the U.S. Postal Service 
against the mailing for violations of the Deceptive Mail Prevention and 
Enforcement Act. The Complaint will seek penalties, the new law allows 
for penalties based upon the number of mailings. The penalties can 
range up to $1,000,000.
    The investigation is ongoing. I will keep the Subcommittee informed 
of any additional activity regarding the subject mailing. In the past 
we have seen operations such as this one spring up in a various 
locations in an effort to stay one step ahead of law enforcement.
    Thanks to the vigilant oversight of this Subcommittee, the specific 
legislation passed last Congress, and the swift action taken by the 
U.S. Postal Inspection Service consumers have been alerted and the scam 
will be halted.
    Chairman Houghton, Members of the Subcommittee, I will be glad to 
answer any questions about the investigation that the Subcommittee 
might have. Thank you.

                                


    Chairman Houghton. Before we go to questions, I would just 
like to introduce two other Members of the Subcommittee. Mr. 
Johnson over here--let me just put it this way. Anybody that 
has been in the military knows who a hero is, and this is a 
genuine 14-carat hero down here. And we are honored to have him 
on the Subcommittee, a wonderful contributing member.
    And also over here, here is one of the new stars of 
Congress. He is from North--you better believe it--Dakota, is 
that what you call it?
    Mr. Pomeroy. North, by God, Dakota.
    Chairman Houghton. But anyway, thank you very much for 
coming.
    Mr. Pomeroy. Mr. Chairman, if you would yield, I might 
observe the--on the hero scale, we have kind of laid out, in 
respect, from most heroic down to me.
    Mr. Johnson. What part of Dakota was that?
    Chairman Houghton. You know, I would just like to ask you a 
couple questions, and then I will turn it over to you, because 
I know you have some.
    I would like to ask the basic question, is it necessary to 
have any explanation at all from anyone about these rebate 
checks?
    Mr. Wenzel. Let me respond to that. I think it was very 
critical to share with taxpayers the amount that they would be 
receiving and the date that they would be receiving their 
refund check. I mean, when taxpayers started to hear about the 
possibility of the advance payments for 2001, we received that 
kind of inquiry, and we felt it was very important to let 
individuals know that.
    Chairman Houghton. Well, I have got another question that 
sort of tags along to that.
    To help get the word out about the circulation of the tax 
rebate, can you explain to all of us here the details of the 
refund accounts? I know it is very easy to determine the amount 
each person will receive, but what about the details of the 
refund amounts?
    Mr. Wenzel. On the amount itself, as to how they are 
calculated?
    Chairman Houghton. Yeah.
    Mr. Wenzel. You know, it is an excellent opportunity for me 
to put in a plug here for our Web site.
    Chairman Houghton. Go right ahead.
    Mr. Wenzel. And I really want to do that, because the 
details of that are on our Web site www.irs.gov. So it is 
really easy to get into, and right on our front page when it 
comes up on the ``Digital Daily,'' all you have to do is click 
in and it points you to about six pages of information about 
how one gets the advance payment, how it is calculated; and it 
goes on, as I said, for six pages.
    But I think one of the real highlights of this Web site is 
the fact that we give three specific examples: one that deals 
with a single taxpayer, one that deals with a head-of-household 
taxpayer, and one with the joint filing taxpayer; and it gives 
you the different scenarios in terms of the calculation and so 
forth.
    Now, certainly not everyone has a computer at home or in 
their office that they could pull this down, but certainly a 
community center or a library--so, if they went in and just 
called down the www.irs.gov, it would give you a real clear 
explanation as to how the payment is calculated.
    And then our notices, the 112 million notices that we sent 
out really provided the information--as best as we can put it 
in writing, and making it as concise as possible; and we were 
able to do that actually in just a half a page--in terms of 
what is a lesser amount, in terms of a couple, three conditions 
that would prevent one from receiving payment and the actual 
amount of their advance payment check.
    We supplemented that, of course, with various--as I mention 
in my testimony--news releases, and they have gotten a lot of 
coverage around the country, front page news coverage; 
electronic media, TV, radio, if you will, took the time to 
explain how to calculate the amount one would get depending on 
their filing status. And also there were charts explaining 
when--stating when one might expect their refund check, and 
that it is dependent on the last two digits of their Social 
Security number.
    Chairman Houghton. And just a quick question for you: Who 
did these mailings, these false mailings, go to usually? What 
is the usual target?
    Mr. Maxwell. The usual target--again, it depends on the 
circumstances, and I have often thought if you look at 
indicators of the economy, one should also include fraud 
complaints, because if you have unemployment situations, you 
are going to get work-at-home schemes cropping up. If you have 
a bad financial picture, you are going to have credit repair. 
You are going to have credit advance-fee schemes.
    In this instance, it obviously affects the entire country, 
so everybody, in this instance, I think, would be vulnerable to 
this type of scam.
    But often deceptive mailings target certain sectors or 
demographics. For example, in one very major case we had, which 
was a deceptive mailing case and a telemarketing case, it was--
used both strategies. The average age was 74 of the victim, and 
in that case, we actually had well over 12 million lost. So it 
is pretty significant. So they do definitely target.
    Chairman Houghton. Okay. Mr. Coyne, would you like to----
    Mr. Coyne. Thank you, Mr. Chairman.
    Mr. Maxwell, you indicated that the first notice that the 
postal inspectors had of this was from a Member here, a staff 
Member?
    Mr. Maxwell. Yes.
    Mr. Coyne. You placed information on the IRS Web site 
alerting people to this problem. What other methods would you 
consider to get the word out to people that don't have access 
to a Web site?
    Mr. Maxwell. Well, one of the things, again, that we found 
in reaching people, 2 years ago we conducted a national mailing 
called Project Know Fraud, that focus primarily on 
telemarketing, but it included all frauds by alerting people 
where to go when they are victimized.
    And what we found after we conducted nine focus groups, 
different age categories in different sectors of the country, 
and we found out, to our dismay, being in law enforcement, that 
most people in this country do not know where to report the 
crime of fraud. They get very confused as to, who do we report 
frauds to?
    In this instance, IRS, maybe Treasury? We received our 
first complaint in this case just this week; I would expect we 
will get a lot more soon.
    But that is the problem. Prevention and education can be 
effective in a variety of ways. The Web site is great, but as 
you say, that is limited to people who are computer oriented. 
Newspaper ads.
    We are in the process now--actually, next week, working in 
our Pittsburgh office with a local firm to prepare a mailing 
focusing on, again, on seniors that are subjected to 
telemarketing. Seniors are deluged sometimes. They are on 
mailing lists, and they will be called relentlessly.
    So we are looking at another mailing, another postcard and 
possibly putting posters in post offices around the country. We 
have done that with child exploitation, and we think in fraud 
you can't do enough of that. I am a big advocate of prevention 
and education to the degree we can.
    Mr. Coyne. Mr. Wenzel, is any tax legislation needed to 
prevent this type of scam?
    Mr. Wenzel. Congressman, we don't think so. Right now the 
Deceptive Mail Prevention and Enforcement Act seems adequate to 
address the problem.
    The public knows that it can obtain free information from 
IRS. For example, our Publication 17 is the document that we 
issue every year for individuals that, want to prepare their 
annual 1040 form. That publication is made available to other 
private sector companies as well. But we feel confident that 
the public knows that it can obtain it from the IRS free of 
charge. They can go to the IRS to obtain the like publication.
    So we are comfortable with that.
    Mr. Coyne. Mr. Maxwell, do you have any idea, estimate, of 
the number of people who have responded to the Revenue Resource 
Center?
    Mr. Maxwell. Right now, like I said earlier, we have just a 
handful of letters that we were able to find for that address, 
and that is all that has come in so far. Hopefully, we will be 
able to get a better handle in the next week or two on how many 
actually would have come in, because we will be able to stop 
them, stamp them and return them once we get the representation 
order, which I am confident we will be able to get.
    I think we have gotten this very early, and certainly I 
couldn't ask for any better result than this because of the 
swift action.
    Mr. Coyne. Do you have any sense of the source of the name 
and address that--names and addresses that the Revenue Resource 
Center used?
    Mr. Maxwell. Yes.
    Mr. Coyne. What the source of that was?
    Mr. Maxwell. Yes. And if I may, I would like to hold back 
that information until it becomes public, because it is ongoing 
investigation. I will be glad to provide it to you as soon as 
we can make it public, and I could do so through the staff.
    But, yes, we are aware of who is holding that box and also 
their address that I mentioned earlier up in the Northeast.
    Mr. Coyne. Thank you. Thank you, Mr. Chairman.
    Chairman Houghton. Very good. Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Chairman. It is a pleasure to 
be with you today, and would you allow me to enter the remarks 
in the record, please?
    Chairman Houghton. Yes.
    Mr. Johnson. You know, I think you have done a good job 
with the summer rebate. And it is so simple, I don't know why 
it needs an explanation, frankly, but people gripe about you 
all sending the card out ahead of time.
    But let's face it, you are doing that to try to find out if 
there are any bad addresses out there that you don't want to 
send a check to and have it rebated. So I appreciate what you 
are doing, and I think that most taxpayers can go to any number 
of reputable Web sites and free places to find information.
    In fact, my own Web site, wwwa.house.gov/samjohnson, has 
your information on it, and I think, Mr. Chairman, that we 
ought to get the whole Congress to put a warning out on this 
fraud that is going on because, you know, if we do that, then 
you are going to have people from all over the country pulsing 
our Web sites and finding out about this kind of stuff that is 
going on.
    I am glad to know that you are interceding on letters 
coming back, but what can you do, if you would answer, to stop 
it totally by closing those mailboxes down? Can you do that?
    Mr. Maxwell. Yes. That is what the false representation 
order would do. In essence, the mail for that promotion would 
never go through, so anybody responding to this particular 
notice, that mail would never be delivered, so the money 
wouldn't get to them.
    Mr. Johnson. How do you and your system sort that mail out?
    Mr. Maxwell. There are indications--when it is addressed to 
that, the postmaster is instructed by the order to review it. 
If they suspect that that is the mail, then they hold it aside. 
The actual owner of the box, the addressee, can come in and 
say, yes or no, and they open it in front of us; that is 
required if there is any doubt.
    Normally, it is marked in a certain way. It will come in, 
you know, addressed to that address, and that may be the only 
mail in this instance coming to that address.
    Mr. Johnson. So you just ``return to sender?''
    Mr. Maxwell. ``Return to sender,'' yes. It has a stamp on 
it saying ``False Representation Order Issued,'' ``Return to 
Sender.''
    Mr. Johnson. I see. But you can't actually physically close 
the boxes down?
    Mr. Maxwell. That gets a little difficult, in the sense of, 
one, we are dealing with a commercial mail receiving agency, 
which we don't regulate. We can hold delivery of the mail, but 
what we can do is return the mail for that promotion. Any other 
mail, they can get, unless we have evidence of some other 
crime.
    Mr. Johnson. Okay. And you have answered who they are 
targeted to, and I think you are right on target with that. 
Thank you.
    I think the information--getting the information out there 
is pretty important, Mr. Chairman. Thank you.
    Chairman Houghton. Okay. Thank you, Mr. Johnson.
    Mr. Pomeroy.
    Mr. Pomeroy. I thank the Chairman. I commend you for your 
timely crackdown on this. I used to be an insurance 
commissioner in the mid-eighties, and it was not at all 
uncommon to see dummied-up, government-looking documents sent 
to seniors with all manner of insurance solicitations that have 
since been largely regulated out. But there is always a new 
wrinkle, and so I am very pleased that you have cracked down in 
this way.
    There are some--as long as we are talking about the 
mailings, some issues I would like to explore with you. The 
cost of the mailings is $32.5 million, and the mailing will be 
a letter saying, We are about to send you a check.
    It reminds me of the--some of the correspondence I get from 
my health insurance, This is not a bill. My inclination, well, 
if it is not a bill, why are you sending it to me?
    I think there will be a bit of that relative to the expense 
we put behind this mailing. I think perhaps the mailing will 
have the greatest benefit in bringing disappointing news to 
those not getting the refund that they are now expecting. 
Fifty-one million Americans, something like 44 percent of the 
constituents I represent are not going to get their full refund 
in light of the--having not had the taxable income, excluding 
the Federal Insurance Contribution Act tax (FICA), of course, 
which they pay.
    What has been the--how is the mailing addressing this--
informing people they are not going to get the refund they have 
expectation of receiving?
    Mr. Wenzel. Yes. There was a separate letter that we sent 
to those individuals that notified them that they would not get 
the refund this year. And we go on to explain in our letter--
again, we were able to do that in just one page in terms of 
being concise and brief--and the second paragraph explains that 
individuals who had taxable income and paid Federal income 
taxes in the year 2000 and who could not be claimed as a 
dependent on someone else's are eligible.
    And then it says--we go on into the third paragraph, and 
this is very important--however, if you pay income taxes in the 
year 2001 and are otherwise eligible, you will be able to claim 
a credit on your 2001 tax return--and instructions on how to 
determine if you qualify for the credit will be provided in the 
2001 Federal income tax return. In addition, you may be 
eligible for tax relief in future years as Federal taxes are 
scheduled to be reduced further.
    So what this is saying to them is, while they may not be 
eligible right now for the reasons cited in the second 
paragraph, their situation may have changed in the current 
year, and as they file their tax return for tax year 2001, they 
would possibly be eligible.
    Mr. Pomeroy. Are these personalized letters or is this one 
generic letter everyone gets?
    Mr. Wenzel. It is the same letter that goes to everyone, 
yes.
    Mr. Pomeroy. Oh, I am afraid that might still be quite 
confusing. In fact, even your description of it may fall a 
little short of actually letting people know you are not going 
to get the refund that has been generally promised to all 
taxpayers, and here is why.
    I believe failure to provide information just that clearly 
is going to result in Members of Congress and others, most 
particularly the IRS, getting an awful lot of phone calls.
    Mr. Wenzel. Yes, Congressman. And again, we offer our phone 
number in terms of a further explanation. If this was not 
clear, we again try to refer the individuals to our Web site 
that has really complete information and----
    Mr. Pomeroy. If someone gets that letter and is well aware 
that out of their paycheck comes--you know, it is a significant 
tax withholding, FICA tax deduction--do you think they will be 
able to understand that, well, the FICA tax deduction doesn't 
get you a refund; it has got to be income tax, not FICA tax, 
that will get you the refund? Is that going to be clear from 
that text?
    Mr. Wenzel. We hope so. I mean, we have tested this and 
tried it on a number of individuals, and we felt that this 
would help adequately explain how you are eligible. In this 
case, why you are not eligible this year, and then going on to 
say there may be the opportunity to be eligible in the 
current----
    Mr. Pomeroy. But the same letter says you are getting a 
refund unless you are not getting the refund. Is that kind of 
how--how does the first paragraph read in this thing?
    Mr. Wenzel. The second paragraph says, in general----
    Mr. Pomeroy. No. The first paragraph.
    Mr. Wenzel. ``We are pleased to inform you that the U.S. 
Congress has passed on the''----
    Mr. Pomeroy. May I see that letter?
    Mr. Wenzel. Sure.
    Chairman Houghton. Here.
    Mr. Pomeroy. Thank you, Mr. Chairman.
    Mr. Johnson. Can we all get a copy?
    Mr. Pomeroy. So here is the letter:
    ``We are pleased to inform you that the U.S. Government 
passed, President George W. Bush signed into law, the Economic 
Growth and Tax Reconciliation Act of 2001, which provides long-
term tax relief for all Americans who pay income taxes.'' 
Individuals with taxable income who cannot be claimed as a 
dependent are eligible to receive immediate tax relief in the 
form of a check.
    You know, as I look at this, having--I have done dozens of 
senior citizen insurance forms, going over in very detailed and 
painstaking ways what to understand from the materials they 
receive and whatnot. I believe that the 51 million Americans 
not receiving a refund will not find it clear from this. I 
think that we might expect some significant volume of calls.
    I wish, in fact, that there had been two mailings, a 
mailing to those getting full refunds saying, Expect the 
refund--again, whether or not that is a sound expenditure; the 
judgment has been made that it is--but a specific mailing to 
those not receiving it, laying out very clearly why not. I am 
not quite sure this gets it done.
    The final point I would ask is your comment on page 2 of 
the testimony that approximately 500,000 have been mailed 
incorrect statements. What was that?
    Mr. Wenzel. When we programmed the change, the law, we 
thought it was programmed correctly. We have a quality 
assurance function in our Chief of Information office, part of 
the Internal Revenue Service, and we kept testing the program 
that was provided as a result of this law. And as part of that 
programming, the quality assurance part, I should say, we share 
20 scenarios, case scenarios, if you will, with our Treasury 
Inspector General for--Tax Administration.
    In their review and in our ongoing review of the program 
that was conducted in order to administer these advance 
payments, there was a mistake that was made, a human mistake by 
one of our programmers, that resulted in an incorrect 
calculation that would have resulted in a larger refund going 
to approximately 500,000 taxpayers than what they were actually 
entitled to. So we caught it before the checks have been 
issued, in the sense that----
    Mr. Pomeroy. The good news is, you don't have to go shake 
people down for their money back, but you do have a significant 
disappointment factor.
    Mr. Wenzel. Once we caught that, we made the correction in 
terms of the programming, and as I said, the correct amount 
will be going out on the checks here shortly. But we also plan 
on sending a letter to the approximately 500,000 taxpayers, 
letting them know what the correct amount is.
    Mr. Pomeroy. You know, I stand corrected. You did send out 
two letters, apparently.
    Mr. Wenzel. That is correct.
    Mr. Pomeroy. One to those receiving--this is very 
straightforward. As part of the immediate tax relief, you will 
be receiving a check in the amount of X during the week of X. I 
get that.
    I wish there had been similar clarity to this letter: You 
are not receiving a refund; you didn't have enough taxable 
income; FICA tax didn't count for purposes of this law. I think 
that would have much more clear than this. This is virtually 
incomprehensible; this actually never does say, You are not 
getting a check, does it?
    Mr. Wenzel. Well, I would hope that one could conclude from 
in that they are not entitled to a payment----
    Mr. Pomeroy. Oh, I see the second part of that, according 
to information, you either did not pay and therefore do not 
have taxable income or--I am sorry. It does say that.
    It says it most directly, Mr. Chairman, although late in 
the second paragraph.
    Well, I think we are all going to be getting quite a few 
calls and further clarification, a little more straightforward 
denial letter might have been helpful in that regard. I don't 
fault the Service in any way. I think this represents very 
prompt turnaround from an assignment that was abruptly given to 
you, and so I commend you for your best efforts and, in 
particular, finding the fraudulent abuse of this.
    I thank you and yield back.
    Mr. Wenzel. Thank you for that comment, Congressman.
    Chairman Houghton. Yeah. I have got--maybe others have got 
a question; I have got a specific question.
    I mean, we have got this issue, and it seems to me we are 
right on top of it. The error was made, they corrected it, the 
check will go out. There will always be some questions on it.
    But the broader issue is that this goes on all the time. I 
mean, you see them in Social Security. You see them in 
Medicare. I mean, I can remember being on the Grace Commission 
in 1982, and the continuation of that, and some of the 
economies that were going to happen, and it would affect 
individuals. It gets everybody all excited, and we are sending 
money in order to get the inside information. It is a blight on 
our society.
    Do you see this thing proliferating? Is there anything we 
can do?
    Mr. Maxwell. Well, there are two things. One, Congress did 
do something last year with that legislation, and what we have 
seen--and I mentioned this at a hearing about 2 weeks ago on 
cross-border fraud--what we have seen since that legislation in 
the area of deceptive mails, where I reported a 26 percent 
decline in these types of mailing complaints to our fraud 
complaint system.
    We have since actually looked at it in more depth, and we 
found out that our calculations were conservative, that if we 
include all the mailings that we associate with deceptive 
mailings, it was closer to a 37-percent decline since the 
enactment of the legislation. That is a big step.
    The problem is, those are the people who complain, and that 
is good, and I am pleased to see that it is declining and that 
the legislation, that we can do things like we are doing here 
quickly, swiftly, with certainty.
    What concerns me is what you are alluding to, is what 
happens to the folks who don't complain, there are a lot of 
them. They are either too embarrassed to complain, or they have 
lost their money; and many times it is people with very little 
money to lose, and they go for something like this. That is 
where the prevention effort comes in. And what Congressman 
Johnson said about the Web site, I think that certainly should 
be explored to every extent.
    One thing I probably could add, in addition to Know Fraud, 
there is an ongoing Know Fraud Campaign. Next week and the week 
after, we are partnering with some local agencies in the cities 
of Phoenix and Atlanta to do what we are calling ``town hall 
meetings.'' We are bringing in the U.S. attorney and the 
attorney general, and we are reaching out--it is an outreach--
to the public, and we are going to illustrate in those areas 
what types of fraud schemes are most prevalent, introduce the 
agencies that deal with those issues, where they go to report 
those types of crimes, what to look for.
    In fact, I think this would be a good case to throw up as 
an example. Here is something everybody expects. It is a good 
thing that someone is trying to make look bad, and these are 
the things that you need to be educated about. Because if you 
can teach somebody about fraud and what to look for, you can 
prevent it, where if somebody gets robbed, that is a little bit 
more difficult to stop.
    But if you could educate people to be careful what they do 
with their money, then it is a lot better.
    Chairman Houghton. Okay. Thank you.
    Do you have any questions? Do you have anything?
    Well, listen, this is on ongoing problem. It is wonderful 
to know that people like you exist and are on top of it.
    We want to help you in any way we possibly can, and we 
might have another hearing like this. So thank you so much.
    [Whereupon, at 2:42 p.m., the hearing was adjourned.]
    [Submission for the record follows:]

    Statement of the Hon. Betty D. Montgomery, Ohio Attorney General

    Most of us are familiar with various junk mail offers. We have all 
received the slick mailers with eye-grabbing headlines enticing us to 
read about an ``exciting'' or ``exclusive'' offer. While most consumers 
disregard these solicitations, many fall victim to these potentially 
deceptive business practices. They include personalized messages and 
purported official documents that lead consumers to believe that they 
are recipients of official government documents. It is only when you 
read the fine print that you discover what is really being offered and 
who is actually behind the solicitation.
    A prime example is a current mass mailing being distributed to 
consumers throughout the United States. Two weeks ago my office was 
contacted by a member of the press who had talked to a constituent who 
received an official-looking postcard from ``Revenue Resource Center'' 
of Boca Raton, Florida. This company promised to estimate the 
consumer's Internal Revenue Service refund and ``assure proper 
delivery,'' all for $12.95 ($14.95 for ``rush service''). This 
particular consumer was wise to question what appears to be a mail 
scam.
    This official looking postcard titled ``2001 Form 16-B, Taxpayer 
Refund Information Card,'' asks for consumers to fill out a brief 
``information worksheet,'' which asks for marital status, what 
government benefits the consumer receives, if children are living at 
home, whether taxes are withheld from paycheck, and if the consumer 
filed tax return last year. There is one line on the card that states 
the company is not a division of the Internal Revenue Service or the 
Federal Government. However, on the other side of the postcard, it 
states that it is a ``non-partisan bureaucratic agency.'' This 
statement implies that they are a quasi-federal agency. Further, the 
post card gives the impression that they have access to consumer tax 
records.
    While state consumer protection laws vary from state-to-state, 
individual chief law enforcement officers will need to determine 
whether these business practices violate state consumer protection 
laws. Based upon our review of the postcard, it appears that it 
violates our consumer laws. As the Consumer Protection Chairperson of 
the National Association of Attorneys General we are constantly trying 
to educate and identify initiatives and safeguards to further protect 
consumers from possible abusive and deceptive practices, through multi-
state working group activities and enforcement actions. The consumer 
protection-working group is currently examining such business 
practices. However, due to confidentiality concerns we cannot comment 
on our specific ongoing investigations.
    All state Attorneys General have the obligation to help educate 
consumers from possible scams. In this case, our office has taken a 
number of steps to educate our constituents by issuing helpful tips 
through the media. Among the tips we suggest:
     You do not have to do anything to receive the income tax 
rebate from the federal government;
     You do not have to pay anything to receive information 
about your tax rebate; and
     There is no guarantee that the rebate information that 
this private company promises is reliable.
    We are telling consumers to wait for the letter that will soon be 
mailed by the Internal Revenue Service that outlines rebate 
information. We also warn consumers to be wary about giving out 
personal information, such as a bank account, credit card number, or 
social security number. That information can be used to make unwanted 
charges on your credit card. The information can also be used to steal 
your identity.
    Because these postcards are being mailed through the postal system, 
it should be noted that the federal government has jurisdiction over 
postal issues. Specifically the United States Postal Service has the 
authority to enforce the False Claims Act under Title 39 USC Sec. 3005. 
They also have the ability to stop the mail and get a temporary 
restraining order under Title 39 USC Sec. 3007, which were strengthened 
under the federal sweepstakes law recently enacted by Congress.
    State Attorneys General are not only here to enforce the law, we 
are here to protect consumers. Often vulnerable consumers, such as the 
elderly, trust what they receive through the mail. Because some are 
trusting and not sophisticated enough to read the fine print (or may 
not be able, literally, to read the fine print if it is too small), 
these companies have been successful at using the ``official'' name of 
good government for financial gain.
    We appreciate the opportunity to submit these comments and look 
forward to working with your committee in developing an effective and 
comprehensive approach to protecting consumers from deceptive mail 
solicitations.