[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




 
                       FULL COMMITTEE HEARING ON
                       ENTREPRENEURS AND TAX DAY:
                    HOW IRS POLICIES AND PROCEDURES
                        IMPACT SMALL BUSINESSES

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             April 14, 2010

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 111-062
Available via the GPO Website: http://www.access.gpo.gov/congress/house



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman

                          DENNIS MOORE, Kansas

                      HEATH SHULER, North Carolina

                     KATHY DAHLKEMPER, Pennsylvania

                         KURT SCHRADER, Oregon

                        ANN KIRKPATRICK, Arizona

                          GLENN NYE, Virginia

                         MICHAEL MICHAUD, Maine

                         MELISSA BEAN, Illinois

                         DAN LIPINSKI, Illinois

                      JASON ALTMIRE, Pennsylvania

                        YVETTE CLARKE, New York

                        BRAD ELLSWORTH, Indiana

                        JOE SESTAK, Pennsylvania

                         BOBBY BRIGHT, Alabama

                      DEBORAH HALVORSON, Illinois

                  SAM GRAVES, Missouri, Ranking Member

                      ROSCOE G. BARTLETT, Maryland

                         W. TODD AKIN, Missouri

                            STEVE KING, Iowa

                     LYNN A. WESTMORELAND, Georgia

                          LOUIE GOHMERT, Texas

                         MARY FALLIN, Oklahoma

                         VERN BUCHANAN, Florida

                      BLAINE LUETKEMEYER, Missouri

                         AARON SCHOCK, Illinois

                      GLENN THOMPSON, Pennsylvania

                         MIKE COFFMAN, Colorado

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

                  Karen Haas, Minority Staff Director

        .........................................................

                                  (ii)

  
?

                         STANDING SUBCOMMITTEES

                                 ______

               Subcommittee on Contracting and Technology

                     GLENN NYE, Virginia, Chairman


YVETTE CLARKE, New York              AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana              ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon                W. TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois          MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois               GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania

                                 ______

                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman


DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               W. TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, Pennsylvania, Chairman


HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana              LOUIE GOHMERT, Texas

                                 (iii)

  
?

               Subcommittee on Regulations and Healthcare

               KATHY DAHLKEMPER, Pennsylvania, Chairwoman


DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia, 
MELISSA BEAN, Illinois               Ranking
JASON ALTMIRE, Pennsylvania          STEVE KING, Iowa
JOE SESTAK, Pennsylvania             VERN BUCHANAN, Florida
BOBBY BRIGHT, Alabama                GLENN THOMPSON, Pennsylvania
                                     MIKE COFFMAN, Colorado

                                 ______

     Subcommittee on Rural Development, Entrepreneurship and Trade

                 HEATH SHULER, North Carolina, Chairman


MICHAEL MICHAUD, Maine               BLAINE LUETKEMEYER, Missouri, 
BOBBY BRIGHT, Alabama                Ranking
KATHY DAHLKEMPER, Pennsylvania       STEVE KING, Iowa
ANN KIRKPATRICK, Arizona             AARON SCHOCK, Illinois
YVETTE CLARKE, New York              GLENN THOMPSON, Pennsylvania

                                  (iv)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Graves, Hon. Sam.................................................     2

                               WITNESSES

Hon. Shulman, Douglas , Commissioner, Internal Revenue Service...     3

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    22
Graves, Hon. Sam.................................................    24
Hon. Shulman, Douglas , Commissioner, Internal Revenue Service...    27

Statements for the Record:
Associated Builders and Contractors, Inc.........................    41

                                  (v)

  


                       FULL COMMITTEE HEARING ON
                       ENTREPRENEURS AND TAX DAY:
        HOW IRS POLICIES AND PROCEDURES IMPACT SMALL BUSINESSES

                              ----------                              


                       Wednesday, April 14, 2010

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 2:07 p.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chair of the Committee] presiding.
    Present: Representatives Velazquez, Moore, Dahlkemper, 
Schrader, Nye, Bean, Graves, Bartlett, King, Buchanan, and 
Coffman.
    Chairwoman Velazquez. Good afternoon. This hearing is now 
called to order. With tax day now just hours away, most 
Americans are wrapping up their paperwork, looking forward to 
12 months without touching a W-2. For many small business 
owners, however, the process is still underway. The weak 
economy, along with a series of new tax measures has compounded 
its historic complexity, making the process of filing a small 
business tax return especially challenging. This is not the 
first time our committee has met to discuss the tax challenges 
facing small firms. In the past, small businesses have told us 
that complexity is the most stubborn of those obstacles. With 
good reason--entrepreneurs face more than 200 IRS forms and 
schedules. The process of navigating this maze of regulations 
is not only complex, it is expensive and time consuming.
    Businesses with fewer than 20 workers spend roughly $1,300 
per employee on tax compliance, and according to one IRS study, 
up to 80 hours. At a time when many businesses are struggling, 
every hour counts and so does every dollar. This afternoon we 
will discuss the role that the IRS plays in helping 
entrepreneurs meet their tax obligation and examine the 
agency's management of certain Recovery Act tax incentives. 
Last year, Congress passed one of the largest and most sweeping 
tax cuts in U.S. history. The Recovery Act incorporated $15 
billion in relief for entrepreneurs, including provisions to 
not only put cash back in their pockets, but to increase demand 
for their products, such as the first-time home buyers' tax 
credit.
    Now we need to be asking whether or not those refunds and 
the resulting economic boost are being disbursed effectively. 
With the economy still struggling, it could use a fresh influx 
of circulating capital, and it is critical that the IRS do 
everything it can to stoke, rather than restrict, our economic 
recovery. But as one study recently found, that isn't 
happening.
    Since 2005, the agency has increased its small business 
audits by 30 percent. Meanwhile, audits of large companies 
dropped 21 percent. I understand that in light of our Nation's 
fiscal constraints, closing the $345 billion tax gap is 
critical to our long-term prosperity. But so are small 
businesses. These are the companies that create 70 percent of 
new jobs and will play a leading role in rebuilding our 
economy. Any effort to increase our tax base must be done in a 
way that is responsible, fair and not unduly burdensome to 
small businesses. Small firms should be able to look to the IRS 
as an ally, not an enemy.
    Given the myriad of available small business schedules and 
incentives, entrepreneurs need to know that they can count on 
the IRS to address their concerns quickly and answer their 
questions accurately. The agency's move to increase staff 
levels within the Small Business/Self-Employed program should 
be an important step in delivering those resources, and I was 
pleased to see Commissioner Shulman place a greater emphasis on 
small firms overall.
    In this afternoon's conversation, we will discuss the 
improvements he has made and look to see if more can be done. 
Tax law operates most effectively when small businesses have 
certainty and stability and now is the time for policies to 
deliver both. Now is the time for incentives that encourage 
would-be entrepreneurs to start up and existing businesses to 
expand. With the proper tools, America's small firms can 
strengthen the economic recovery that is currently underway and 
spark the job creation we are waiting to see. With that, I 
would like to welcome and thank Commissioner Shulman for being 
here today. I know this is a busy time over at the IRS, and I 
look forward to hearing from you. So now I will yield to 
Ranking Member Graves for his opening statement.
    [The statement of Ms. Velazquez is included in the 
appendix.]
    Mr. Graves. Thank you, Madam Chairman, and I want to thank 
you for calling this important hearing on tax issues affecting 
small businesses. Special thanks to Commissioner Shulman for 
testifying today. Unemployment is hovering around 10 percent; 
new home sales are still falling; consumer confidence is low; 
and our government's rampant spending could soon jeopardize the 
United States' AAA credit rating that keeps borrowing 
affordable. The unsustainable policies of government bailouts, 
skyrocketing Federal spending, higher taxes and record national 
debt have had a devastating effect on small businesses. In 
order to hire new workers, expand operations and help our 
economy, entrepreneurs and small business owners, need some 
certainty. However, right now the only thing that is certain 
for small business owners is more taxes and more regulation. 
Today's businesses are facing more uncertainty than ever as 
they try to determine the real impact of the new health care 
law is going to have on their families, their businesses and 
their community. I am particularly concerned about who is going 
to enforce the new health care mandates on individuals and 
small businesses and how much it is going to cost.
    Estimates on this information vary, and no one seems to 
know the real numbers. Initiating such a massive overall of 
health care without first having a clear understanding of the 
cost and impact to me is a recipe for disaster. In addition to 
the health care laws, $569 billion in tax increases, employers 
have to worry about other tax hikes that may be just around the 
corner. The expiration of the 2001 and 2003 tax cuts threatens 
to raise the capital gains rate on dividends from the current 
15 percent for middle-class taxpayers and 20 percent for higher 
income earners to as much as 45 percent. This is not the kind 
of policy that is going to allow small business owners to 
expand and create jobs.
    Rather than increasing taxes and unfairly punishing small 
businesses, one of the best steps we could take to help small 
business owners is simplifying the Tax Code. The IRS taxpayer 
advocate reported that U.S. taxpayers and businesses spend 
about 7.6 billion hours a year complying with filing 
requirements. In fact, tax complexity has been consistently 
ranked as the number one issue facing both taxpayers and the 
IRS. By making it easier for small businesses to navigate the 
Tax Code, we could save them the time and expense of hiring tax 
professionals. Churchill once said that a nation trying to tax 
itself into prosperity is like a man standing in a bucket and 
trying to lift himself up by the handle. Forcing small business 
owners to create the majority of private sector jobs to carry 
the financial burden of damaging Washington initiatives is only 
going to lead to more unemployment and fewer opportunities for 
Americans. Again, Madam Chairman, I want to thank you for 
holding this hearing. I look forward to Commissioner Shulman's 
testimony today.
    [The statement of Mr. Graves is included in the appendix.]
    Chairwoman Velazquez. Thank you. Now it is my pleasure to 
welcome the Honorable Douglas Shulman, IRS Commissioner. He is 
the 47th commissioner of Internal Revenue and began his 5-year 
term on March 24, 2008. Prior to joining the IRS, he worked for 
the Financial Industry Regulatory Authority, the private sector 
regulator of all security firms doing business in the United 
States. The IRS collects approximately $2.4 trillion in annual 
tax revenue that funds most government operations and public 
services. Welcome.


   STATEMENT OF HON. DOUGLAS SHULMAN, COMMISSIONER, INTERNAL 
                        REVENUE SERVICE

    Mr. Shulman. Thank you, Madam Chairman, Ranking Member 
Graves. Members of the committee thanks for giving me the 
opportunity to testify today. The IRS has two equal parts of 
its mission: Service and enforcement. I have been very clear 
since I started that we need to excel at both. For the vast 
majority of American taxpayers--small businesses included--they 
are trying to wrestle with the complex Tax Code and get it 
right. We need to be there to educate them, give them world-
class service, and for those who don't pay their taxes, we need 
to run rigorous compliance programs.
    My written testimony highlights our efforts for the small 
business community especially focusing on outreach, but I want 
to highlight a few things we are doing here today. We have 
moved swiftly to implement the new laws in the last 15 months 
that were intended to help small businesses. We have put out 
over $9 trillion in net operating loss carrybacks, which was 
part of the Recovery Act. The HIRE Act, which was signed into 
law last month, gives small businesses an important incentive 
to start hiring again and we are working to implement that 
quickly. We have already begun to mobilize and let small 
businesses know the new tax credit that is available for them 
to help buy insurance, health insurance for their employees. 
These actions reflect our commitment to service.
    As I said, most small business owners want to pay what they 
owe. They don't want to pay too much. And they certainly want 
to take all credits and deductions that are available to them. 
So we have redoubled our efforts to make sure small businesses 
know what credits what deductions are available to them. At my 
prompting, the agency has also shown greater flexibility in 
dealing with small businesses. After all, the public trust 
depends on people believing that everyone is paying what they 
owe, but this trust also demands that we be flexible and 
principled in dealing with taxpayers who are in financial 
trouble. This year we are holding hundreds of special Saturday 
open houses staffed by my employees where we can resolve 
problems on the spot and we are dedicating in May and June a 
number of those open houses just to small businesses, to help 
them work through installment plans, help them clean up tax 
debt, help them work out settlements. We remain committed to 
service at the IRS.
    Today as everybody knows, too many small business owners 
continue to struggle to make their payroll, secure lines of 
credit, provide health insurance coverage, contribute to their 
employees' retirement plans and stay current with their taxes. 
As Commissioner, I have sought to give our employees the 
guidance and discretion they need to assist small businesses 
with the service that they need. Let me end with a word about 
our employees and our employees' commitment to public service.
    This February, many of you may know, an individual flew a 
plane into an IRS building in Austin, killing one of our 
employees. We have no reason to believe that this attack could 
have been prevented or that it was part of an organized 
opposition to the agency. However, I continue as Commissioner 
to be concerned that the IRS, and especially its employees, who 
are doing the work of the American people, not be demonized. 
The IRS is filled with dedicated public servants who serve 
taxpayers every day.
    I am very appreciative of the support that Congress gave 
the agency immediately after the attack, and I ask all members 
of this committee to help me in explaining to the vast majority 
of Americans that when they interact with the IRS, it is us 
getting a refund to them. It is us answering a question, and 
that at its core we spend just as much time on service as we do 
on compliance.
    So in closing, Madam Chairwoman, let me assure you that I 
appreciate that the Small Business Committee needs the IRS to 
provide service and education. We are going to continue to 
search for ways to do our job better, and I look forward to 
working with you and all the members of this committee as we 
move forward.
    [The statement of Mr. Shulman is included in the appendix.]
    Chairwoman Velazquez. Thank you. Commissioner, starting in 
2011, credit card companies and merchant banks will be required 
to verify the taxpayers' ID number for businesses they provide 
services for. If the bank cannot confirm the team, it is 
required to withhold 28 percent of the gross credit card 
transactions. If there is a mistake, this could have major 
consequences for honest small businesses. How will the IRS 
ensure that small firms are not harmed by paperwork errors?
    Mr. Shulman. One of the problems that many small businesses 
have, as you alluded to, is they are not hiring. Accountants 
keep their books every day. They have record keeping issues 
they have cash issues, et cetera. And our hope is actually that 
this regulation will help people with getting a simple 
statement from their credit card company about their gross 
receipts which will help reduce the paperwork and let them file 
their taxes.
    I have been very clear from the outset that we think this 
piece of legislation that Congress passed is an important piece 
of legislation because information reporting helps us do our 
job and it helps simplify the job of small businesses. But we 
have been doing a lot of outreach, both to the small business 
community and to the credit card community to make sure there 
is smooth implementation. If we see issues like people having 
hard times--we won't hesitate to jump on it and help people 
sort through any issues.
    Chairwoman Velazquez. Recent reports indicate that the 
average tax reform is up nearly 10 percent over last year and 
that the IRS has already sent out $6 billion more in refunds 
than last year. Would you attribute increasing reforms to 
provisions contained in the Recovery Act, like the home buyer 
tax credit, increased sections 179 expensing, energy efficiency 
tax credits and other refundable credits and deductions?
    Mr. Shulman. Yes. I mean, I think it is certainly a factor. 
There were major tax cuts and tax credits. A lot of those tax 
credits are now coming out in people's refunds. Just the fact 
that you get an $8,000 tax credit for buying a house, obviously 
there are a number of people who have bought houses and that 
has increased the average refund.
    Chairwoman Velazquez. As of mid-March, the IRS has sent out 
a record $175 billion in refunds, and the average tax refund 
was over $3,000. However, at that time, nearly half of all 
taxpayers had not filed their returns. Do you have any updated 
data on the amount of refunds the IRS has sent out or if the 
average refund has changed?
    Mr. Shulman. The average refund stayed around $3,000. About 
90 million returns from filed as of Friday last week which were 
our last count. We expect another 20 million to 30 million this 
week, and then there is usually about 10 million extensions. So 
this year the only major change in trends that we have seen has 
been the increase in refund amount, which clearly there has 
been a lot of tax law changes that is attributable to that.
    Chairwoman Velazquez. Let's talk about the increase in 
business audits that I mentioned in my opening statement. A 
recent study determined that audit hours of small businesses 
have increased by 34 percent while large corporate audits have 
decreased by 33 percent between 2005 and 2009. Small firms are 
worried that small business audits will rise because the audits 
are easier and quicker to complete. Can you discuss why small 
business audits continue to rise? And will the IRS focus their 
enforcement efforts for closing the tax gap on large 
corporations rather than small businesses?
    Mr. Shulman. There was a study released on Monday that I 
have serious concerns about the way that it characterized our 
numbers. We are a pretty transparent organization. We have data 
books and reams of data. That study actually used a very 
specific number which was audit hours of closed cases. And so 
if you look, they use 2005 as an example, which was an anomaly 
year because my predecessor had a campaign to close a number of 
cases and get all of the cases current that year. And they 
added up multiple years of audits for closed cases that year, 
which I think is a skewed statistic.
    And then they did the same thing with the small businesses. 
Let me give you the numbers that I think are the most relevant 
to see where our audit resources are spent.
    Chairwoman Velazquez. Didn't the study also show that three 
out of four large corporations are not being audited by the 
IRS?
    Mr. Shulman. Let me give you the broad audit numbers. These 
are the numbers. These are our published numbers and the ones--
rather than commenting on theirs. Our audit rate overall for 
individuals is 1 percent.
    Chairwoman Velazquez. And small business too and large 
corporations?
    Mr. Shulman. So for people who make more than $1 million--I 
am just going to give you four numbers--it is 6.5 percent. For 
businesses which are defined as large, over $10 million in 
assets it is 14.5 percent. For businesses under $10 million in 
assets it is less than 1 percent. So the small businesses in 
this country have a smaller chance of being audited than an 
average individual and a 1-in-14 chance of being audited as 
compared to a large business. And then as you go up the scale 
for large businesses, if you are what you think of as a 
multinational, they are under continuous audit.
    Anyone with more than $20 billion of assets, there is 100 
percent chance of being audited. If you have got $5 billion or 
more of assets, there is a 50 percent chance of being audited. 
So I feel very comfortable that we have been for the last 5 
years increasing our resources because there had been a 
dramatic decline in compliance resources for a 10-year period 
that we are in the process of reversing. But I, by no means, 
think we are disproportionately focused on small business. If 
anything, they are the lowest number.
    Chairwoman Velazquez. You mentioned in your statement that 
a small business solution Saturday is planned. Would you please 
tell us, how will you determine the main topics for the forums? 
What will be the focus?
    Mr. Shulman. So the topic is whatever a business is having 
trouble with. So we define topics by the taxpayer that comes to 
us. I have a motto that I go around the country and talk to our 
employees and I say, our job is to walk in the taxpayers' shoes 
and meet them based on what their needs are. So if there is a 
small business who got way behind on their taxes or had a lot 
of profit last year and their cash flow has fallen off the 
books and they literally can't pay, trying to work out some 
sort of a payment plan.
    If there is somebody who has complexity and trying to 
figure something out, doing that. The way this will work, call 
your local office set up an appointment, we will make sure all 
the right people are there. And we may have an agent there who 
can settle the case; we may have a collection person if they 
are in collection; and we have appeals officers there if 
someone who disputes what has happened in an audit so they can 
settle it.
    Our goal is to solve problems on the spot. Our first set of 
open houses we had last month, 88 percent of the people who 
showed up walked away with all of their issues resolved, which 
was the goal of these open houses.
    Chairwoman Velazquez. Okay. So without waiting for one of 
those solution Saturdays that you are planning, I will tell you 
that one of the issues that small businesses are confronting 
today is they are struggling to meet tax obligations because of 
the economic downturn that we are experiencing. So I would like 
to ask you, why is it that the IRS has accepted 72 percent 
fewer OIC than 2001? And is the IRS taking action to increase 
OICs for small businesses in 2010?
    Mr. Shulman. Yeah. I am glad you asked me about that 
because when I came in, I looked at our Offer-in-Compromise 
program. I was not pleased that people weren't using it as much 
and that applications that were coming in weren't accepted. We 
made a major change this year which we announced in January. In 
the past, our policy was, if you wanted to come in for a 
settlement, an Offer-in-Compromise, we would look at your last 
3 years of income to determine your ability to pay, recognizing 
that a lot of people are unemployed. People have shuttered some 
of their businesses and there are people who really can't meet 
basic living expenses and pay.
    We changed our criteria starting in January that we are now 
looking at current income. So we are not looking at whatever 
you made a couple of years ago. We are looking at what you are 
making right now and assessing your ability to pay, which my 
hope is for taxpayers who are struggling, that will help them 
out.
    Chairwoman Velazquez. Given the economic crisis and the 
fact that small businesses continue to struggle and especially 
to get access to capital, are you planning to do anything to 
simplify the OIC's process? Because one of the complaints that 
we hear from small businesses is about the fact that the 
process is complicated and is complex.
    Mr. Shulman. We have been looking at that. Our first step 
was to do what I mentioned. We are also looking at seeing if 
there is a way to simplify it. So I mean, what I would tell you 
is I am very focused on this. I actually have a working group 
with an outside consultant looking at ways we can improve the 
program. Obviously within the confines of the law and the 
flexibility that is given to us because we can't just 
compromise any debt. We don't have that kind of authority, but 
it is something that we are definitely looking at.
    Chairwoman Velazquez. Thank you. I have more questions but 
we will continue and then in the next round I will ask you. Mr. 
Graves.
    Mr. Graves. I have questions, too, Madam Chair. But we have 
a time conflict, so I will pass it to Mr. Buchanan.
    Mr. Buchanan. I want to thank the ranking member. Madam 
Chair, thank you for putting on this hearing on today. 
Commissioner Shulman, I was interested, how did you manage to 
be up on the Hill the day before tax day?
    Mr. Shulman. I was invited.
    Mr. Buchanan. Let me mention a couple of things. And I have 
been in business 30 years before I got here in 2007 and in 
small business primarily. Why is the Tax Code so complex? I 
mean, I read the other day, or someone showed me that USA Today 
reported 60,000 pages of Tax Codes, deductions and this. I 
can't imagine anybody ever signs a tax return that is accurate 
because I know in my case--I had a bunch of different 
businesses, and my CPAs fill it out. We want to get it all 
right. But isn't there a way we could simplify this process, 
especially for small businesses? Many of them may have 15 
employees or less. It just seems like it is crazy. What are 
your thoughts on it?
    Mr. Shulman. My thoughts are, my job as Commissioner of the 
IRS is to administer the law that Congress writes and 
policymakers write. So I am a big fan of simplification because 
I have to go out there and be the one who interacts with the 
American people with this complex Tax Code. I would ask you and 
use your expertise, you know, the Tax Code is used for 
everything from collecting the funds to run the government to 
administering credits for a variety of targeted social programs 
to giving breaks to different industries and different special 
interest groups along the way. I think the reason it is so 
complex is that the Tax Code, over the last 20 years, has been 
used more and more for specialized purposes rather than the 
general raising of funds to run the government.
    Mr. Buchanan. It is how many thousands of pages is what is 
amazing to me. I want to get into the heart of what I want to 
talk about. I know the Democrats and Republicans, all of us 
have focused on helping people get back to work, but yet it 
looks like we are going to take our taxes up to 39.6 and then 
they are asking for a surtax of 5.4. Now most businesses--and I 
am in Florida--99 percent of the businesses register in 
Tallahassee, our capital, are classified as small businesses. 
Most small business, as you know, have pass-through income, 
whether they are an LLC, sub S, partnership, soul 
proprietorship, whatever they might be. So it just seems 
strange to me in a time where we are trying to create jobs, we 
are going to be raising taxes from 34 percent to 45.
    Is that your understanding of what this will net out to be 
if the Bush tax cuts sunset and we add a 5.4 percent surtax to 
people making over $200,000 or $250,000 which are--a lot of 
those people I know, a lot of those people are running small 
businesses, so we are going to add another 10 percent in tax to 
their bottom line, which is another liability. Is that your 
understanding?
    Mr. Shulman. You know, I would defer you to the Joint 
Committee on Tax. Again, you know, my job is to interface with 
the American people to run the tax system, to administer the 
laws on the books, not to run the economics of where the--
    Mr. Buchanan. I am not asking for the economics. I am 
asking for your understanding. My understanding is that is 
going to take the top tax bracket of the tax cuts, do sunset up 
to 39.6 and then another 5.4 surtax which I told you, most 
small businesses, as you know, have pass-through income. So it 
seems to me--because I get asked this. I go to town hall 
meetings. People are saying, What is the net, the top tax 
bracket? I have got a person who said, I have 40 jobs. I am 
trying to figure out how to get some cash flow. I can't borrow 
from the banks. I need access to capital. Are they going to 
charge me another 10 percent in tax? I think that is something 
you should know ideally or should figure out.
    Mr. Shulman. I don't want to respond to a bunch of moving 
numbers and do it accurately for you. So I would be happy to 
work with my colleagues at Treasury, work with your staff and 
get you that net effect so you can answer that for your 
constituents.
    Mr. Buchanan. The other thing is, is that in terms of the 
jobs bill--and maybe you can run this down too--the President 
and I both agree. I talked to him. He was up in Baltimore--
about the idea of taking capital gains to zero from 15 percent, 
just with conceptually the idea that at some point that it 
would sunset. And the reason I think it is important is because 
there is a lot of capital on the sidelines. People don't have 
confidence in the economy. I would just say they don't have 
confidence in the Congress and the administration, a lot of 
small business people. Do you have an opinion on that or a 
thought at all about capital gains? I think the President 
supports it. Not forever but for a period of time. And I 
support it because I think that small businesses--our community 
banks and our area has been decimated. They did a lot of 
lending 3 years ago. Banks aren't lending in general. So again 
we are trying to find a way to get capital available and there 
is some capital. There are people who thank have money but they 
don't have the confidence. But yet if it goes to zero maybe for 
a couple of years, it could make capital available for people 
that invest it in the small businesses.
    Mr. Shulman. So there is actually a proposal in the 
President's 2011 budget to have no capital gains for certain 
investments for entrepreneurs in small businesses. So I think 
conceptually, my understanding is--I haven't talked to the 
President about this. I can't speak for him--but that he has 
been quite supportive of this. I ran a small business. I 
started one.
    Mr. Buchanan. I like it a lot more.
    Mr. Shulman. So I totally understand all the things from 
operations to raising funds, et cetera. And I think that, 
again, you know, it is not the arena I spend my time playing 
in, the policy arena. I spend my time in the administration 
arena, on the numbers on the books. But I think anything we can 
do to get funds and capital to small businesses is a good 
thing.
    Mr. Buchanan. The other thing, we have an ag community in 
our area, a pretty substantial ag community, and of course, 
across the country in small businesses. I am against raising 
taxes or the tax amount we have on estate taxes. Where does 
that sit today? Is it your understanding that if someone passed 
away today, they pay zero; the next year, they pay 55, is that 
where that sits today?
    Mr. Shulman. I think it is influx. That is what is on the 
books now, but I think that Congress hasn't decided what it 
wants to do. I think there has been talk about people taking it 
up. I think we are not in a good situation right now because 
there is uncertainty, right? So yes, if someone died today, you 
know the estate tax has expired. But the Congress has the 
option to make it retroactive and there are different parts of 
the provision. So I think right now for my job and for the 
American people, it is not in a good place.
    Mr. Moore. [presiding.] Excuse me. The gentleman's time has 
expired.
    Mr. Buchanan. Thank you.
    Mr. Moore. The chair next recognizes the gentlelady from 
Illinois, Ms. Bean. Ms. Bean, do you have questions?
    Ms. Bean. Thank you, Mr. Chairman. First of all, thank you 
so much for being here and providing your testimony. I also 
want to thank your staff, has been out to help at some of the 
constituent service fairs in the Eighth District that I 
represent as well as the--I have done a small business Federal 
resources form specifically to allow small businesses to come 
in contact with the agencies that do provide resources towards 
their success.
    And you had Lynda Dyer at our Constituents Services Fair 
and Yolanda Ruiz at the Small Business Fair. Both were very 
well received and they did answer very specific questions about 
tax credits that were available to both constituencies.
    I would like to back up and ask you about the--of the $280 
billion of tax cuts that were included in the stimulus, money 
of those--many of those cuts were directed to the small 
business community, the NOL carryback being one, the 179 bonus 
depreciation that we had in there. We had the smart grid 
technology, we had health IT initiatives along with--we 
happened to have at our forum, we had the DOE there to talk 
about some of the grants there and the IRS was able to talk 
about some of the specific questions for those that came. I 
would like to specifically talk about the NOL carryback. I 
believe I saw in your written testimony but I don't know if I 
heard you say it that there were 40,000 businesses that have 
already participated in the NOL. And I think there was a number 
I saw here. Was 22.6 billion.
    Mr. Shulman. From the--so there is $9 billion between the 
Recovery Act and then there was the extension that happened in 
the fall. We staffed up that operation because we recognized a 
lot of small businesses. This was their lending when credit was 
crunched. This was their access to capital and we wanted to 
make sure we got that out quickly.
    Ms. Bean. So it was a total of how much?
    Mr. Shulman. $9 billion is the number where we are running, 
but these move every day.
    Ms. Bean. Good. I am really glad to hear you say that. I 
think it is really important. There are a lot of fears the 
business community has had in these uncertain economic times, 
but there have been tremendous resources provided to assist 
small businesses, both in the guarantees that we provided to 
the SBA lending programs so there would be capital flowing in 
over 20 billion has been put in the hands of small businesses 
through the SBA lending programs that we increase the 
government guarantee on also as part of the stimulus, but I 
think you said well carryback bonus depreciation and other 
initiatives are important as well.
    So I want to thank you for highlighting that. And one other 
thing, I guess I would also mention, is of the 6 million small 
businesses in the country, 5.8 of them are under 50 employees. 
So for those who are concerned about ramifications or mandates 
or penalties to small businesses, there will be no penalties or 
mandates for those 5.8 million of the 6 million businesses. 
There is only 200,000 that are over 50. And of the 200,000 
businesses that have more than 50 employees, only 5 percent 
don't already have insurance. So there is no issue there for 
those companies.
    So while there are some fears and concerns as people are 
learning what is actually in the bill, it is important that we 
clarify that this is a very positive move forward and of those 
businesses, of the 6 million, four of them are eligible for tax 
credits that will assist them, for those who already have 
insurance, to pay their premiums, and for those who don't, it 
will assist them to enter the health care market and provide 
coverage to themselves and their employees.
    So I just wanted to clear up the record on that because 
there sounded like there was some confusion. Thank you. I yield 
back.
    Mr. Moore. Dr. Bartlett, the gentleman is recognized for 5 
minutes.
    Mr. Bartlett. Thank you very much. Thank you for your 
testimony. I was in small business in another life before I 
came here, so I understand what we are talking about. For a 
small business to be able to pay their taxes, don't they have 
to charge more for their product or their service?
    Mr. Shulman. Well, I think, you know, the U.S. Tax Code, 
people can figure out what they are going to do. So that is a 
presumption that you are welcome to make.
    Mr. Bartlett. Well, I think most people would agree with 
that. Doesn't that then make this a very regressive tax since 
the--it simply becomes another part of the cost of doing 
business, and if they can't pass it on to the consumer, they go 
out of business, don't they? So doesn't that make tax on 
business a very regressive tax? Because the poorest of the poor 
have to buy the products of business? Bill Gates doesn't care. 
He can pay the tax. Why do we want to have this really 
regressive tax? Why don't we make this a fair tax, just don't 
tax business at all and tax the people who buy the product, 
isn't that fair?
    Mr. Shulman. Like I told your colleague, I am going to 
defer on broad tax policy and broad characterizations of how 
the taxes work. My job is to kind of get it technically right 
and make sure we administer it fairly.
    Mr. Bartlett. I understand that. I understand that you 
don't develop policy, that you simply administer the policy 
that is developed from the laws that the Congress passes. But 
if you really look at the tax on business, if they can't pass 
that on as a part of the cost of doing business, then they 
can't continue in business, so then that makes it a very 
regressive tax. My question is, why do we want to have 
regressive taxes? Why don't we simply tax the product when it 
is bought by people, rather than increasing the cost of the 
product, wouldn't that greatly simplify the tax?
    Mr. Shulman. Again, I think you are talking about a VAT.
    Mr. Bartlett. No, sir. I am not talking about a value added 
tax. That is a horrible tax. It is a hidden tax. And I like a 
consumption tax. In fact, I would like to tax in big red 
letters, big red numbers at least as large as the cost of the 
product so that when you bought a product, you knew what taxes 
you were paying. I remember when I was younger, you went to the 
gas station. You bought your gasoline. There were a number of 
numbers on the gas pump there, and it was the cost of the gas 
and the cost of the taxes that were added to it. Now it is just 
all lumped in together. I think it is 40-some cents taxes we 
pay in Maryland but that is hidden. Whatever taxes are hidden, 
they are easier to collect, aren't they?
    Mr. Shulman. Again, you know, these are all conversations 
that are very interesting to me. But the kind of broad 
characterizations of what is hidden, what is not, what is 
regressive, what is not, I am going to stay away from.
    Mr. Bartlett. I am always concerned that we wanted to tax 
businesses, not understanding that what we are doing is hurting 
the poorest of the poor who have to buy the product of that 
business. And since you tax the business, you increase the cost 
of the product unnecessarily or the small business can't stay 
in business if they can't collect enough money to pay their 
taxes, right? So now we have increased the cost of the product. 
I have trouble understanding why we want to hurt poor people. I 
would like to make things cheaper for poor people and to 
collect the taxes from those who can pay the taxes.
    Last year I think 52 percent of Americans got more from 
government than they paid into the government. Why would we 
want to increase the cost of the things that these people are 
buying by taxes? I would like to have a zero tax on business. I 
think that is the fairest tax, the simplest tax and simply to 
collect it from the consumer. Why wouldn't that be a better tax 
system? I know you are not in the policy. You are in 
administration. But wouldn't that simplify your job if we did 
that?
    Mr. Shulman. Again, I encourage you to take it up with the 
Ways and Means Committee and the other tax writing committees.
    Mr. Bartlett. Thank you. Thank you very much. I appreciate 
your testimony. Thank you.
    Mr. Moore. Thank you. And the chair recognize himself for 
one question. My question is focused on the IRS's task of 
educating taxpayers about the new laws that may affect them. As 
you know, the IRS' small business self-employed divisions 
specifically provides information, service and education to the 
millions of small businesses and self-employed taxpayers. As 
you also know, in 2009, this division hired over 3,500 
additional employees for a total of almost 30,000 employees. 
How are these new employees being utilized by the IRS? And how 
are all the employees of this division being utilized to assist 
small business taxpayers in general? If you would, sir.
    Mr. Shulman. As I mentioned before, we spent a lot of time 
on average. Let me give you some of the output measures, which 
are I think interesting. In 2009, we attended or held 2,400 
symposium seminars for small businesses to help them understand 
the Tax Code, directly reaching 180,000 small business 
taxpayers. We have members of the staff in that division who 
put out a small business electronic newsletter every month that 
goes to 170,000 small businesses or their tax advisers. Again, 
specifically to help them understand small business tax 
provisions.
    I mentioned the open houses that are being staffed by 
people from that division. We have phone forums where 3,000 
people can get on the phone, e-mail in questions and answer any 
questions they have got about issues. We hold those throughout 
the year. And we hold what we call nationwide tax forums where 
we send people from that group to help people understand their 
tax obligations. There is one we have in Las Vegas every year, 
that is 5,000 people who show up who either advise or are small 
businesses in taxes.
    So that division clearly has a compliance role and does a 
variety of compliance but has a tremendous amount of time spent 
educating taxpayers doing outreach.
    Mr. Moore. Thank you, sir. The chair will next recognize 
Mr. King for 5 minutes.
    Mr. King. Thank you, Mr. Chairman. Commissioner, thank you 
for your testimony. I appreciate you being here today. I want 
to suggest for your opening remarks, too, that I believe there 
are also a lot of highly qualified people who work for the IRS. 
And I am seeing the President and ObamaCare look to expand 
those numbers by 16,000 to 17,000 people. That is a huge number 
at a cost of $10 billion.
    I have watched the private sector shrink dramatically under 
the nationalization of private sector policy that actually 
began under the Bush administration, was accelerated 
dramatically under the Obama administration. And by the way, 
everything that began under the Bush administration that sent 
us in that direction was supported by then-Senator Obama. There 
is no exit strategy to divest ourselves from the Federal 
consumption of the private sector. I did hear a notice that 
some of Citigroup might be spun off. I don't think there has 
been any action on that at this point. But you add to that 
ObamaCare, the student loan program all being nationalized, it 
is curious to me there is no exit strategy on the part of the 
Federal Government.
    Do you find yourself in a position here to enforce tax 
policy? And again, I would compliment the workers and their 
intelligence and skills there. I think you know also by their 
reputation that I think they could also do very well in the 
private sector. So I don't have any hesitation about the 
skills.
    I do have a couple of things that I would like to follow up 
on. With ObamaCare and the collection that you apparently will 
be soon required to carry out, can you tell me the discussion 
that has been in the open dialogue has been about the IRS 
having the authority to withhold a refund if one does not 
comply with the mandate to purchase insurance for their 
employees or perhaps as individuals, soul proprietors, 
partnerships, LLCs, et cetera? And does your power go beyond 
that, beyond withholding a refund? What about the tax lien 
component of the collection that the IRS, I expect, will be 
using when the refund is not a tool that is effective for them?
    Mr. Shulman. Let me respond and give you a sense of what I 
view our role as and then get to your specifics. One is, as I 
mentioned in my opening statements, I think that there has been 
some irresponsible demonizing of the IRS around this health 
care debate. First of all, there is no 16,000 people out there 
that are going to be hired.
    Mr. King. How many?
    Mr. Shulman. That was a number put out by a study. It 
wasn't put out by us.
    Mr. King. How many?
    Mr. Shulman. So that number is just floating around. I 
don't have a number for you. Second of all--
    Mr. King. Excuse me, Mr. Commissioner. My clock is ticking 
here. I would point out that you did feel free to speculate on 
capital gains tax cuts, which has been floated by the 
administration, but not willing to talk about policy changes 
when Mr. Buchanan talked about the increase in small business 
taxes. So I just want to make sure that we are on a subject 
matter where that we can get definitive responses.
    So do you have a number that you could give me as to how 
many IRS agents? If a person doesn't have a number, then how 
can they have a number that the number that is out there isn't 
accurate?
    Mr. Shulman. I can argue about the number because I 
actually get to set how many agents are out there, and I 
haven't set how many people are out there. Second of all, what 
I was talking about, which I think is irresponsible, people 
throw around numbers like agents and 16,000 agents. Well, most 
of what we are going to have to do around the health care law 
is--
    Mr. King. Commissioner, my time is ticking here. If you are 
going to set the number, what will you set it at?
    Mr. Shulman. I will finish and answer the question.
    Mr. King. There is 1 minute and 13 seconds left on our 
clock. I am sorry I have to be abrupt, but I would like to get 
a response if I could, please.
    Mr. Shulman. Most of what we are going to spend our time on 
is building computer systems to get credits to people and 
administering tax law provisions. Right now there is no--
    Mr. King. Commissioner, I do have to interrupt you because 
you have not answered any of my questions. And I have asked if 
you have the authority to apply a tax lien beyond withholding 
someone's tax refund as a means to enforce ObamaCare. And I 
have asked you if you are going to set the numbers of agents or 
officers or employees of the IRS, and you disagree with the 
number at what you expect to set it at. If you will not answer 
either one of those questions, I don't think there is any 
reason for us to carry on this dialogue.
    Mr. Shulman. The law specifically prohibits liens, levies 
and seizures. Most of what you can think about when you think 
about the requirement to buy insurance and the penalty to not 
have insurance is it will be like a 1099. The insurance company 
will send the employee and say either you have the insurance or 
you don't. They will send that same information. And a letter 
will go out. This is not the kind of thing that we have agents 
for.
    Mr. King. So how do you follow up?
    Mr. Moore. The gentleman's time has expired.
    Mr. King. Mr. Chairman, I ask unanimous consent for an 
additional minute.
    Mr. Moore. We have got one more person who needs to have a 
chance to ask questions here.
    Mr. King. Do I hear an objection?
    Mr. Moore. I am objecting.
    Mr. King. Okay, Mr. Chairman, let the record note that the 
witness refused to answer my questions and I have been gaveled 
down before I could get an answer. I apologize to the chairman 
for having to be rude and abrupt.
    Mr. Moore. Thank you, sir. Mr. Schrader, you are recognized 
for 5 minutes, sir.
    Mr. Schrader. Thank you, Mr. Chairman. Mr. Commissioner, 
thank you for coming.
    Mr. Shulman. Thank you.
    Mr. Schrader. I guess I don't agree with everyone on the 
panel that would have individuals pay all the taxes in this 
country. I think there is a shared burden that needs to be 
going forward. I am a little surprised that some people seem to 
be suggesting that we need to increase taxes on individuals, 
especially in these very, very difficult times. I don't think 
America is really ready for that. I am interested in, you know, 
some of the recommendations that the taxpayer advocate has 
made. I came in late. I apologize if you have addressed this. 
But there are several changes regarding some of the check box 
things on form C and adding lines to form C that most small 
businesses file their returns with. Was that discussed at all? 
Are you familiar with that?
    Mr. Shulman. No, it wasn't. And I am not sure exactly what 
you are talking about.
    Mr. Schrader. Well, it is my understanding that for the 
last several years, the taxpayer advocate report had talked 
about making some changes to form C and trying to simplify it a 
little bit, make it a little bit more user-friendly for small 
businesses. Well, I will get to you later then to make it 
easier for you going forward.
    We have also introduced a bill on home office deduction 
simplification. And hopefully that will lend its way through 
this Congress at some point in time. I am trying to make it 
easier for small businesses--I mean, really small business, mom 
and pop shops, shops with, you know, a token office in their 
home or residence, how they could take advantage of that. Do 
you see that as something being popular that a lot of business 
folks would end up taking advantage of going forward?
    Mr. Shulman. I think the home office, figuring out which 
piece of that is an expense and not, is incredibly complicated 
for people. They are trying to figure it out. I would welcome 
simplification.
    Mr. Schrader. I went through that a little bit when I 
started up my farm in trying to allocate a chunk of my house to 
that. I was trying to figure out the mortgage piece, the 
insurance piece, the property tax piece. It became very, very 
difficult. So some of that stuff would be very, very helpful. I 
guess the other comment I would be interested in is with regard 
to the health care bill. It looks like there is going to be a 
lot of tax credits for small businesses, particularly as they 
deal with some of the health insurance things.
    I would assume that most small businesses are not aware of 
this, at least not to any great degree. Do you see a way we 
would be getting that word out to make sure small businesses 
concerned about health care in general but wanting to do the 
right thing, which I think most small business--my little 
veterinarian clinic included--try to do, how they can access 
some of the small business tax credits for many, many 
businesses out there?
    Mr. Shulman. Yes. So obviously the recently passed health 
care bill is a big bill. It is a multi-year bill. And one of 
the reasons why I am unable to answer some of the things that 
will come into place in 2014 is the bill was just passed and we 
are focusing on the things we have to do this year. Just to be 
very clear and get on the record, what we are doing is 
administering the tax provisions, not the health provisions. 
The things that we have to do this year is get a credit program 
up and running, out to small businesses to help them pay for 
health care. There is a new tax on tanning salons. There is a 
therapeutic discovery credit to give tax grants to companies 
who come up with innovative ways and innovative therapies.
    So that is what we are very focused on. The thing that is 
immediately effective is the small business tax credit. We have 
put out questions and answers. We have deployed our people who 
do lots of outreach to small business every day to make sure 
people know that this is available to them because we want 
people to get credits that are available to them. And we plan 
on doing a lot of outreach and would be able happy to do with 
any member of this committee outreach events in your district 
on this other or tax provisions and also on just general how 
IRS can help the open houses, things like that. So we are very 
focused on doing outreach on the early provisions in this law, 
just like we are with every law.
    Mr. Schrader. I appreciate that because I think that is 
going to put money in the pockets of many small businessmen and 
women right now so they can improve their bottom line, hire 
people and expand their business. The last question would be, 
the Blue Dogs of which I am a member, are putting out a fiscal 
platform, trying to make sure we get our own fiscal house in 
order now that we have helped save the country. And what we are 
trying to do is, one of the elements is program integrity. 
Would you comment a little bit? One of the pieces is empowering 
the IRS. I happen to think that is a good thing, to make sure 
that some people who aren't paying their fair share in taxes 
pay their fair share. I don't mind paying mine. We get great 
services in my State, education, health care, public safety. 
There are some benchmarks you can use to figure out for a 
dollar of investment in the IRS, we can get something back?
    Mr. Shulman. The general benchmarks we use--I am a big 
believer that compliance comes about because of service and 
enforcement. So we put a lot of money into service, trying to 
help people just to meet their tax obligations, understand the 
complex code. So the best benchmark we have is just a 5-1 
return on the overall IRS budget and our dollars that are 
brought in--not the overall collection for the country but the 
dollars from direct IRS actions.
    Depending on the program, though, we have up to 20-to-1 
returns, some of our document matching programs. In our 
appropriation every year we have details about program by 
program, the return and we would be happy to share that with 
you.
    Mr. Schrader. Thank you very much. I yield back.
    Mr. Moore. The gentleman's time has expired. The last 
questioner is Mr. Coffman. You have 5 minutes, sir.
    Mr. Coffman. Thank you, Mr. Chairman. Commissioner Shulman, 
please know that my colleagues, for your employee that was lost 
in Texas, the families of the diseased are in our thoughts and 
prayers and very respectful of not simply his service to his 
country through the IRS, but his service to the country through 
the military prior to that.
    Mr. Shulman. Yes.
    Mr. Coffman. You all certainly do the best you can do under 
these challenging times.
    Mr. Shulman. Thank you.
    Mr. Coffman. I have a question about the new health care 
law. It will require you to develop a host of new forums, 
collection methods and implementation strategies. What is the 
timeline for these changes to develop this?
    Mr. Shulman. Yes. So as I mentioned, there is a bunch of 
things that went into effect immediately. And that is what we 
have got a team working on right now. We also are putting teams 
together now to look at the longer-term impact of what happens. 
Most of the individual provisions and the employer provisions 
go into effect in 2014. So if you think about us building our 
systems, generally you want to have systems built a year ahead 
of time and then they are going to have to interface with the 
exchanges, insurance companies, employers because you think of 
us as the payment system around that. That means you need to 
get it designed in 2012 within a couple of years. Just so I am 
clear, I don't have numbers now, but we are diligently working 
on them and we are trying to scope this out. We have people 
going through the entire bill and we are hoping to be able to 
come to Congress in the near future and work out exactly what 
resources we are going to need in a lot more details.
    Mr. Coffman. Is the time frame to have this up and running 
by 2014 realistic?
    Mr. Shulman. I think it is. My understanding is that it was 
designed to give plenty of lead time. For us, we are running 
tax provisions which we do every day. A lot of times Congress 
passes things retroactively or passes things in December that 
we have to implement in January. So we are not through the 
entire bill but I am confident that if we have administrative 
flexibility and if we are given proper resources, that at least 
for our portion, we will be prepared by 2014.
    Mr. Coffman. Do you have any feeling as to what the 
budgetary impact of that will be in terms of ramping up to meet 
the obligations of the bill?
    Mr. Shulman. I don't right now. Obviously, CBO put a number 
out there which is the tradition. CBO puts out numbers which 
Congress votes on. I think it will be potentially in that 
range, but it is just really too early to say.
    Mr. Coffman. Well, let's see. I think the Congressional 
Budget Office came up with this $10 billion in costs, 
additional funds and 17,000 employees. Is that at all accurate 
in your view?
    Mr. Shulman. Sir, the only number they came up with was $5 
billion to $10 billion over 10 years. They didn't come up with 
an employee number. My understanding is--and we didn't do those 
numbers with them--is that they recognized a lot of that is 
technology interface to get the flow of funds back and forth. A 
lot of that is service and answering questions on the phone. So 
the employee number, I really don't know, as we had this 
discussion with your colleague. I think the broader numbers--we 
are still getting our arms around it but it could be within 
that range.
    Mr. Coffman. So it could be in the 17,000 individual range?
    Mr. Shulman. No, no, no. I am just talking about the number 
range.
    Mr. Coffman. When do you think you will have the costs down 
and be able to project out the cost for the implementation as 
well as the number of personnel?
    Mr. Shulman. I think we will be able to know the costs for 
the next year and a half provisions through fiscal year 2011 
pretty soon. I think the rest really depends on design, a bunch 
of choices that are made, how these exchanges get set up, et 
cetera, because again, a lot of us, it is just flowing money 
and doing interchange on the money provisions, not on the 
health provisions, with the exchanges. So I really don't have a 
date for you exactly when.
    Mr. Coffman. Okay. But the exchanges are not the 
enforcement?
    Mr. Shulman. But the exchange is you sign up at an exchange 
and you get your tax credit in exchange and it is based on tax 
data. So there is going to be a lot of information flow going 
back and forth.
    Mr. Coffman. Okay. Very well. Madam Chairman, I yield back 
the balance of my time.
    Chairwoman Velazquez. [presiding.] Mr. Graves.
    Mr. Graves. Thank you, Madam Chairwoman. Commissioner, 
could you walk me through? Obviously, we have been talking a 
lot about health care and what your role is going to be. But 
would you walk through with me what your role is going to be 
with the verification process, kind of clarify that? As far as 
verifying whether or not, a small business has complied with 
the mandate or is that going to be part of the collection 
process beyond that?
    Mr. Shulman. So let me give you as much as I can right now 
with me still getting up to speed on this because it is a new 
provision and it doesn't go into effect for a while. One is 
with individuals who will be required to have adequate health 
insurance, the way that I think this is going to work is, first 
of all, I want to be 100 percent clear, IRS is not going to be 
involved in any way in the sensitive health matters of 
individuals. I think HHS and insurance companies will work out 
what adequate coverage means. We will get a simple yes/no 
information return from the insurance company, the same 
information return--think of it like a 1099 will get sent to 
the individual which will say, attach this to your tax return 
and show that you had coverage or you are going to have to have 
a fee that you pay, and we will get that same thing that says, 
Yes, they had it or no, they didn't.
    So I think of it similar to a 1099 right now that we get 
for dividend income where we get information from a brokerage 
firm about your dividends and we go off of that information. So 
it will be information reporting and information matching.
    For employers, the shared responsibility provision, as I 
understand it, it is only for people who employ more than 50 
employees. And if they don't offer health insurance and an 
employee goes into an exchange and gets federally subsidized 
health insurance and gets a benefit and again, I think we will 
administer that like we administer anything else. People will 
pay in. If we see a lot of employees that are getting 
subsidized insurance from an employer and they haven't self-
reported that, that will trigger something. But we haven't 
really worked through any of the compliance programs.
    Mr. Graves. Do you foresee problems with if an individual 
doesn't attach their verification or says that they have got 
their health insurance, goes ahead and sends in their return, 
goes through the process? Are still going to have to go ahead 
and charge them the penalty for not doing that or you will have 
to verify it someplace? That is going to be a horrendous issue 
trying to figure out how you are going to move forward. 
Because, there are going to be people out there who just aren't 
going to attach that or aren't going to comply or whatever the 
case may be. But is that burden going to fall on you completely 
to then make a phone call to--you don't even know who the 
insurance company is, for that matter.
    Mr. Shulman. We will get an information return from the 
insurance company and we match that against the return of the 
individual. I don't even know that they will need to attach it 
because we will have the information, and they will get a 
letter. And we have automated programs right now where if you 
don't report your interest from your bank but we get 
information from your bank that you had interest you will get a 
letter. Or we can make an adjustment on your return, and so I 
think it will work very much like that. I think of this like 
other tax provisions that we administer.
    Mr. Graves. Thank you, Madam Chair.
    Chairwoman Velazquez. Commissioner Shulman, the new 
uncertainty tax position reporting will apply to business 
taxpayers with assets in excess of $10 million. Was it even 
considered that there are numerous small businesses that have 
equipment, land and inventory that might push them above this 
threshold and will face increased reporting compliance costs?
    Mr. Shulman. Yes. So that is our standard number where we 
put people into large business. There is no specific definition 
of large or small business, but the 10 million cutoff is what 
we use for electronic filing, it is what we use. It gets you 
out of our small business division into our large business 
division. It is $10 million and having audited financials so 
audited financials that are audited under the standard where 
you have to take a reserve for uncertain tax positions. And so 
this proposal which is an important one of ours is looking at 
basically getting a list of where people think that they have 
uncertain tax positions. We are in the notice and comment 
period and we ask specifically about the $10 million asset 
question and ask is that the right threshold.
    Chairwoman Velazquez. Would the IRS consider raising the 
$10 million threshold?
    Mr. Shulman. We haven't seen the comments yet, when we are 
in comment period and ask for specific questions, absolutely. I 
mean, we would consider anything depending on the comments and 
the persuasiveness of them.
    Chairwoman Velazquez. Commissioner, many CPAs work as 
apprentices before taking the CPA exam, performing most of 
their returns and then having a manager review it. Likewise, 
many law graduates or financial planners begin work while 
waiting to hear the results of their licensing exams. Because 
they are not licensed they will likely have to complete 
education training and testing processes increasing cost for 
small CPA firms and other tax professionals.
    Has the IRS considered any way to differentiate for 
exemption purposes between professionals with advanced training 
from other licensed preparers with little, if any, advanced tax 
education?
    Mr. Shulman. Frankly, no one has brought this specific 
issue about a apprentices to my attention. What we are trying 
to do is make sure that a lot of our licensing and registration 
focus was on people who are really filling out the tax return, 
really doing the work, that the people that American people 
think are providing them service and then they ship it off, 
someone else's name is on it and those people disappear. A lot 
of it has been focused on low income communities where people 
run these EITC mills.
    Chairwoman Velazquez. Yes.
    Mr. Shulman. And people aren't qualified to do the work. We 
exempted CPAs, attorneys, enrolled agents out of this 
requirement because they already have a professional 
credential. We certainly, as we move into this, are going to 
have to have a bunch of discussions about this exact kind of 
example and make sure that it makes sense. My main goal is the 
people who are interfacing with the American taxpayers are 
qualified and provide good service. And so if there is 
protections built in other ways, we certainly would look at 
that.
    Chairwoman Velazquez. Very good.
    Commissioner, the deadline for the home buyers tax credit 
will occur in a few weeks. Based on 2009 returns, do you have 
data on the number of and type of individuals who have claimed 
a credit? And are you able to determine if the credit boosted 
home sales?
    Mr. Shulman. I think generally people think the credit 
boosted home sales and helped at least stabilize the housing 
market from its dramatic decline that was going on a year ago 
when it was put in place. We don't have that data parsed right 
now. We are trying to keep up and make sure we process credits 
and get refunds out quickly. And so we usually do an after-the-
fact analysis to see where it is, we would be happy to work 
with your staff.
    Chairwoman Velazquez. At this point, you don't have any 
data on the number of and type of individuals who claimed the 
credit?
    Mr. Shulman. I don't have it off the top of my head. We 
might have some more that we can get to you.
    Chairwoman Velazquez. Ranking member, do you have any other 
questions? Mr. Schrader? If not I ask unanimous consent that 
members will have 5 days to submit a statement in supporting 
materials for the record. Without objection so ordered. This 
hearing is now adjourned. Thank you.
    [Whereupon, at 3:14 p.m., the committee was adjourned.]

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