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


 
                 THE NATIONAL TAXPAYER ADVOCATE'S 2009 
                  REPORT ON THE MOST SERIOUS PROBLEMS 
                        ENCOUNTERED BY TAXPAYERS 

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 16, 2010

                               __________

                           Serial No. 111-43

                               __________

         Printed for the use of the Committee on Ways and Means

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                      COMMITTEE ON WAYS AND MEANS

               SANDER M. LEVIN, Michigan, Acting Chairman

CHARLES B. RANGEL, New York          DAVE CAMP, Michigan
FORTNEY PETE STARK, California       WALLY HERGER, California
JIM MCDERMOTT, Washington            SAM JOHNSON, Texas
JOHN LEWIS, Georgia                  KEVIN BRADY, Texas
RICHARD E. NEAL, Massachusetts       PAUL RYAN, Wisconsin
JOHN S. TANNER, Tennessee            ERIC CANTOR, Virginia
XAVIER BECERRA, California           JOHN LINDER, Georgia
LLOYD DOGGETT, Texas                 DEVIN NUNES, California
EARL POMEROY, North Dakota           PATRICK J. TIBERI, Ohio
MIKE THOMPSON, California            GINNY BROWN-WAITE, Florida
JOHN B. LARSON, Connecticut          GEOFF DAVIS, Kentucky
EARL BLUMENAUER, Oregon              DAVID G. REICHERT, Washington
RON KIND, Wisconsin                  CHARLES W. BOUSTANY, JR., 
BILL PASCRELL, JR., New Jersey       Louisiana
SHELLEY BERKLEY, Nevada              DEAN HELLER, Nevada
JOSEPH CROWLEY, New York             PETER J. ROSKAM, Illinois
CHRIS VAN HOLLEN, Maryland
KENDRICK B. MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
DANNY K. DAVIS, Illinois
BOB ETHERIDGE, North Carolina
LINDA T. SANCHEZ, California
BRIAN HIGGINS, New York
JOHN A. YARMUTH, Kentucky

             Janice Mays, Chief Counsel and Staff Director

                   Jon Traub, Minority Staff Director

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

                     JOHN LEWIS, Georgia, Chairman

XAVIER BECERRA, California           CHARLES W. BOUSTANY, Jr., 
RON KIND, Wisconsin                  Louisiana, Ranking Member
BILL PASCRELL, Jr., New Jersey       DAVID G. REICHERT, Washington
JOHN B. LARSON, Connecticut          PETER J. ROSKAM, Illinois
ARTUR DAVIS, Alabama                 PAUL RYAN, Wisconsin
DANNY K. DAVIS, Illinois             JOHN LINDER, Georgia
BOB ETHERIDGE, North Carolina
BRIAN HIGGINS, New York

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 March 9, 2010 announcing the hearing.................     2

                               WITNESSES

Nina E. Olson, National Taxpayer Advocate, Internal Revenue 
  Service........................................................     5

                       SUBMISSIONS FOR THE RECORD

Cheryl J. Latos, statement.......................................    59


                 THE NATIONAL TAXPAYER ADVOCATE'S 2009
      REPORT ON THE MOST SERIOUS PROBLEMS ENCOUNTERED BY TAXPAYERS

                              ----------                              


                        TUESDAY, MARCH 16, 2010

             U.S. 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 1100, Longworth House Office Building; the Honorable John 
Lewis, [Chairman of the Subcommittee], presiding.
    [The advisory announcing the hearing follows:]

HEARING ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

March 9, 2010

    The House Ways and Means Subcommittee on Oversight today announced 
that it will hold a hearing on the National Taxpayer Advocate's 2009 
Report to Congress on the most serious problems encountered by 
taxpayers. The hearing will take place on Tuesday, March 16, 2010, in 
the main Committee hearing room, 1100 Longworth House Office Building, 
beginning at 2:00 p.m.
      
    The National Taxpayer Advocate, Nina E. Olson, will be the only 
witness at the hearing. 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 Office of the Taxpayer Advocate was established by the 1996 
Taxpayer Bill of Rights (P.L. 104-168). The purpose of the office is to 
provide an independent system to assist taxpayers in resolving problems 
with the Internal Revenue Service (IRS), to propose changes in the 
administrative practices of the IRS, and to identify potential 
legislative changes to resolve problems affecting groups of taxpayers. 
The office is under the supervision of the National Taxpayer Advocate 
(Taxpayer Advocate) and operates independently from the IRS. The 
Taxpayer Advocate must submit a report each year to the House Committee 
on Ways and Means and the Senate Committee on Finance.
      

FOCUS OF THE HEARING:

      
    The Taxpayer Advocate will highlight key issues and recommendations 
from her December 2009 Report to Congress. The Taxpayer Advocate's 
report contains sections on the most serious problems encountered by 
taxpayers; legislative recommendations; the most litigated tax issues; 
and certain research and related studies. The hearing will focus on 
issues raised by the Taxpayer Advocate that relate to services provided 
to taxpayers and fairness in the administration of our tax laws. 
Specifically, the hearing will review her concerns related to: the 
IRS's proposed tax return preparer initiative; the unmet needs of low-
income taxpayers; the decline in IRS toll-free telephone assistance; 
and certain IRS collection policies that unnecessarily harm taxpayers. 
The hearing will explore legislative and administrative solutions to 
the problems identified. Finally, the Taxpayer Advocate will update the 
Subcommittee on issues included in previous annual reports.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://democrats.waysandmeans.house.gov, 
select ``Hearings''. Select the hearing for which you would like to 
submit, and click on the link entitled, ``Click here to provide a 
submission for the record.'' Once you have followed the online 
instructions, submit all requested information. ATTACH your submission 
as a Word or WordPerfect document, in compliance with the formatting 
requirements listed below, by close of business Tuesday, March 30, 
2010. Finally, please note that due to the change in House mail policy, 
the U.S. Capitol Police will refuse sealed-package deliveries to all 
House Office Buildings. For questions, or if you encounter technical 
problems, please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item 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 submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies 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. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone, and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://democrats.waysandmeans.house.gov.

                                 

    Chairman LEWIS. Good afternoon. Welcome. This is a hearing 
on the Taxpayer Advocate report. The hearing today is now 
called to order.
    The National Taxpayer Advocate is a valuable resource for 
this Committee and we are pleased to welcome her here today. 
She is a voice for all taxpayers. Her office was created to 
help taxpayers resolve problems with the Internal Revenue 
Service. As we meet today, we are in the middle of the tax 
return filing season, and we are mindful that so many Americans 
are suffering during these difficult economic times.
    So, it is a fitting time for us to hear from the Taxpayer 
Advocate. This hearing will give us a chance to learn what 
problems taxpayers are facing and how we can help. Calls that 
are not answered, penalties that bankrupt businesses and liens 
that harm low-income taxpayers are only a few of the problems. 
Other problems include making taxpayers who offer to pay their 
taxes over time complete 100 steps to have their offers 
accepted. This is not right. It almost makes no sense.
    We must simplify the process to make it easier for 
taxpayers to meet their obligations. In some cases, the laws 
may need to be changed, and in other cases, the IRS may need to 
change its policy or rules. Either way, the time is now to 
address these problems. These issues are important to the 
Committee. They are important to the taxpayers. We must work 
now to address them this year; not next year, but this year.
    Now, I am pleased to recognize the distinguished Ranking 
Member, Dr. Boustany, for his opening statement.
    Mr. BOUSTANY. Mr. Chairman, thank you very much for holding 
this hearing and I thank you for yielding time. And, Mrs. 
Olson, thank you once again for appearing before our 
subcommittee to represent the interest of one of the groups 
most in need of Washington representation, average American 
taxpayers.
    You do a great service to our country and I thank you for 
your tireless advocacy on behalf of those taxpayers. We are 
holding this hearing today as we do every year to examine the 
most serious problems encountered by taxpayers in their 
dealings with the federal tax laws and the Internal Revenue 
Service. This year, however, the timing of the hearing is 
fortuitous in many respects, for if the House Democratic 
leadership is to be believed, then by the end of the week 
Congress might have enacted a piece of legislation that vastly 
expands the scope of the IRS's responsibilities and 
fundamentally alters the relationship between the IRS and 
taxpayers. That piece of legislation is H.R. 3590, the Senate 
passed healthcare bill.
    I noticed that in this year's report, Mrs. Olson, you 
included an extensive discussion on the risks and challenges 
involved in running social programs through the tax system. 
Jumping off from that discussion, I would point out that the 
Senate Healthcare bill creates by far the largest social 
program ever run through the IRS. While the Senate bill 
delegates enforcement of numerous parts of the health insurance 
system to the IRS, one of the most troubling expansions of IRS 
power is the power to approve a taxpayer's health insurance as 
sufficient to meet the definition of minimum coverage required 
to be purchased by law. This is the so-called individual 
mandate.
    Under the Senate's individual mandate, the IRS would be in 
charge of verifying that every American taxpayer has obtained 
acceptable health coverage for every month of the year. If the 
IRS determines that a taxpayer lacks acceptable insurance for 
even a single month, then the IRS would have the power to 
impose a new tax on that taxpayer, even auditing the taxpayer 
in assessing interest and penalties on top of the tax. This is 
an unprecedented new role for the IRS, one that will inject the 
IRS even further into the personal lives of American families.
    So, in a few moments I intend to ask you, Mrs. Olson, to 
share your thoughts on what problems might arise both between 
the IRS and taxpayers and within the IRS itself, if the House 
Democrats decide to send the Senate Bill on to the President 
and make it the law of the land. Mrs. Olson, I look forward to 
your testimony and your responses; and, Mr. Chairman, thank you 
very much, and I yield back.
    [The prepared statement of Mr. Boustany follows:]
  Prepared Statement of Charles Boustany, Jr. (R-LA), Ranking Member, 
                       Subcommittee on Oversight
(Remarks as Prepared)

    Mr. Chairman, thank you for yielding time.
    And Ms. Olson, thank you once again for appearing before the 
Subcommittee to represent the interests of one of the groups most in 
need of Washington representation--average American taxpayers. You do a 
great service to our country and I thank you for your tireless advocacy 
on behalf of those taxpayers.
    We are holding this hearing today--as we do every year--to examine 
the most serious problems encountered by taxpayers in their dealings 
with the federal tax laws and the Internal Revenue Service. This year, 
however, the timing of the hearing is fortuitous. For if the House 
Democratic leadership is to be believed, than by the end of the week 
Congress might have enacted a piece of legislation that vastly expands 
the scope of the IRS's responsibilities, and fundamentally alters the 
relationship between the IRS and taxpayers. That piece of legislation 
is H.R. 3590, the Senate-passed health care bill.
    I noticed that in this year's report, Ms. Olson included an 
extensive discussion on the risks and challenges involved in running 
social programs through the tax system. Jumping off from that 
discussion, I would point out that the Senate health care bill creates 
by far the largest social program ever run through the IRS. While the 
Senate bill delegates enforcement of numerous parts of the health 
insurance system to the IRS, one of the most troubling expansions of 
IRS power is the power to approve a taxpayer's health insurance as 
sufficient to meet the definition of minimum coverage required to be 
purchased by law. This is the so-called ``individual mandate.''
    Under the Senate's individual mandate, the IRS would be in charge 
of verifying that every American taxpayer has obtained acceptable 
health coverage for every month of the year. If the IRS determines that 
a taxpayer lacks acceptable insurance for even a single month, then the 
IRS would have the power to impose a new tax on that taxpayer, even 
auditing the taxpayer and assessing interest and penalties on top of 
the tax. This is an unprecedented new role for the IRS--one that will 
inject the IRS even further into the personal lives of American 
families.
    In a few moments, I intend to ask Ms. Olson to share her thoughts 
on what problems might arise--both between the IRS and taxpayers, and 
within the IRS itself--if House Democrats decide to send the Senate 
bill on to the President and make it the law of the land. Ms. Olson, I 
look forward to your testimony and your responses.
    Thank you, Mr. Chairman. I yield back.

                                 

    Chairman LEWIS. Thank you very much, Dr. Boustany, for your 
statement.
    Now we will hear from the Taxpayer Advocate, Ms. Nina 
Olson. I ask that you limit your testimony to five minutes. 
Without objection, your entire statement will be included in 
the record. You may start.

    STATEMENT OF NINA E. OLSON, NATIONAL TAXPAYER ADVOCATE, 
                    INTERNAL REVENUE SERVICE

    Ms. OLSON. Thank you, Mr. Chairman, ranking member Boustany 
and Members of the Subcommittee. Thank you for inviting me to 
discuss the National Taxpayer Advocate's 2009 Annual Report to 
Congress.
    First, I'd like to commend the IRS's response to one 
problem I identified in 2002 and again this year: the need to 
improve oversight of the return preparation industry. Since 
2002 there has been considerable congressional support for 
preparer regulation including legislation sponsored by 
Congressman Becerra. In January 2010 under Commissioner 
Shulman's leadership, the IRS issued a report setting out a 
blueprint to do the job itself and it is now working on 
implementation details.
    When fully implemented, I believe this initiative will 
improve tax administration sufficiently by helping taxpayers 
locate qualified preparers, establishing clear requirements of 
competence and ethics for preparers and disciplining and even 
shutting down unqualified and unethical preparers. Second, this 
year I designated the inability of the IRS to adequately answer 
taxpayer phone calls as the number one most serious problem for 
taxpayers.
    The IRS's target for the current fiscal year is to answer 
only 71 percent of calls from taxpayers seeking to reach a 
telephone assistor. Among calls that do get answered, the IRS 
projects the average wait time will be nearly 12 minutes, up 
from just over four minutes in fiscal year 2007. I encourage 
the subcommittee to support sufficient, additional funding for 
the IRS toll free lines so that the IRS can achieve an 85 
percent level of service, an average wait time of five minutes.
    Third, my report designated the IRS's lien filing policies 
as the second most serious problem for taxpayers. The IRS 
collection function has awesome powers to collect unpaid taxes, 
including the notice of federal tax lien. The mere notation of 
a federal tax lien on a taxpayer's credit report typically 
causes the taxpayer's credit score to drop by about 100 points, 
initially. It can increase borrowing, insurance and housing 
costs, and even impair the taxpayer's employability.
    For small business tax payers, a lien can be a fatal blow. 
The lien notation remains on credit reports for seven years 
after the tax debt is paid in full. Thus, the decision to file 
a lien requires the IRS to balance the harm the lien will 
inflict on the taxpayer against the revenue the lien is likely 
to generate. Yet, the IRS does not require its employees to 
conduct that balancing. The revenue benefits of IRS lien 
filings actually appear quite limited. The IRS has increased 
lien filings by 475 percent over the last decade, while 
inflation adjusted collection revenue has dropped by 7.4 
percent.
    In fact, despite the economic downturn, the IRS filed more 
liens in fiscal year 2009 than in any year since fiscal year 
1994. Moreover, a recent task study found that on accounts 
against which a lien had been filed, the largest source of 
collection revenue and payments were refund offsets, which 
occur regardless of whether or not a lien has been filed. Based 
on the data we've seen, there is a strong possibility that the 
IRS is harming hundreds of thousands of taxpayers a year to 
collect $1 billion or less.
    The legislative history of the ``Restructuring Act'' shows 
that Congress wanted more managerial review of lien filings, 
but the IRS is now requiring less review. In many cases, the 
IRS generates liens without determining whether taxpayers have 
any assets or are likely to acquire any assets to which the 
lien would attach. For example, the IRS automatically requests 
liens for every taxpayer the IRS puts in currently not 
collectible hardship status and whose debts exceed $5,000. 
These are cases where the IRS itself has determined the 
taxpayer cannot pay basic living expenses if he or she pays the 
tax debt.
    I recommend that Congress require the IRS to consider a 
number of factors prior to filing the tax lien. We should not 
be unnecessarily harming taxpayers and impairing their future 
tax compliance for the collection of very few tax dollars. 
Fourth, I have similar reservations about the IRS's current 
approach to the offers in compromise program. In the past I've 
expressed that concern that the IRS has made offers less and 
less accessible to taxpayers creating a category of permanent 
tax debtors and undermining IRS collection efforts as well.
    Consider this my last point. At the beginning of fiscal 
year 2009 there were over four million taxpayers with 
delinquent accounts, yet during fiscal year 2009 the IRS 
accepted only 10,665 offers. That means roughly speaking that 
the IRS accepted one offer of every 375 taxpayers with a 
delinquent account. At the same time the IRS placed accounts of 
over 2.1 million taxpayers into currently not collectible 
status last year. The result of the IRS's restrictive offer 
policy is that IRS did not collect any tax on many of these 
accounts. I appreciate the opportunity to raise these concerns 
and welcome any questions.
    [The prepared statement of Ms. Olson follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman LEWIS. Thank you very much, Ms. Olson, for your 
statement. At this time I will open the hearing for questions. 
I ask that each member follow the five-minute rule. If you, Ms. 
Olson, will respond with short answers, all members should have 
the opportunity to ask a question.
    Now, Ms. Olson, the number of offers in compromise accepted 
by the IRS has declined by 72 percent from 2001 to 2009. You 
reported that taxpayers must complete over 100 steps to apply 
for an offer in compromise. Are all of these steps necessary? 
What can be done to increase the use of offers in compromise?
    Ms. OLSON. I think there's one legislative thing that we 
need to repeal the requirement that taxpayer's put 20 percent 
down before submitting an offer. Many taxpayers get their money 
for an offer from a source that is not the taxpayer, from a 
family member, from a church, from different people who will 
loan them money to resolve their tax debts, and they'll be 
unwilling to give that money up front without knowing the offer 
is going to be accepted.
    The IRS itself needs to revise completely its offer 
procedures, so that what we are trying to do is get people 
through the door to begin a conversation about how to resolve 
this debt and get them back into compliance on a going forward 
basis. And, right now, we put too many obstacles in their way 
procedurally.
    Chairman LEWIS. Ms. Olson, last week the Internal Revenue 
Service announced new flexibility for IRS employees to consider 
an unemployed taxpayer's current earnings and potential future 
earnings rather than prior year earnings. When negotiating an 
offer in compromise, should the IRS expand this policy for all 
fully-employed and under-employed individuals?
    Ms. OLSON. I do believe so. This policy has been in place 
since the 90s so the guidance last week just encouraged IRS 
employees to do what was already in the provisions in their own 
guidance. And I think that points up the problem with the offer 
in compromise process, which is that many employees, I think, 
believe that it's an amnesty for taxpayers and they forget that 
we're getting a promise from taxpayers that they have to comply 
for five years in the future or the whole debt is reinstated. 
It's a win-win for everybody. We need to change attitudes in 
the IRS as well as the processes.
    Chairman LEWIS. All right. Now you reported that the IRS 
can offset up to 100 percent on an EITC recipient's refunds to 
satisfy a debt. You believe that the IRS should not be allowed 
to offset the full amount of any future tax refund that is from 
the earned income tax credit. Why do you think an offset of up 
to 15 percent of the refund would be fair?
    Ms. OLSON. Well, I think that Congress is already using 15 
percent, has set 15 percent as the offset against Social 
Security benefits if taxpayers owe past tax debts. And so it 
seemed to me that the population is very similar that Social 
Security has by and large a lower income population similar to 
the earned income tax credit. And so 15 percent was a 
reasonable amount. It made no sense to me to grab the entire 
earned income tax credit of people we've already determined are 
low income and will need public assistance in other ways.
    Chairman LEWIS. Thank you very much for your answer. And I 
turn to the ranking member for his questions.
    Mr. BOUSTANY. Thank you, Mr. Chairman.
    Ms. Olson, on page 87 of volume 2 of your report you state, 
I quote: ``When social program delivery is grafted to 
traditional IRS activities, there arises a potential conflict 
with the IRS's traditional mission.'' Wouldn't this healthcare 
bill that we have before us be the largest social program ever 
entrusted to the IRS?
    Ms. OLSON. I don't know the answer to that specific 
question, because I don't know its size relative to the earned 
income credit or some of the other programs we've been in.
    Mr. BOUSTANY. But certainly substantial.
    Ms. OLSON. But it is substantial, yes, sir.
    Mr. BOUSTANY. And should we be concerned by that given the 
potential for conflict in the mission to the IRS.
    Ms. OLSON. We should be concerned. That's the reason why I 
wrote that piece to give guidance to Congress if it wanted to 
give the IRS social programs, here are some things that you 
should consider when you're designing that program.
    Mr. BOUSTANY. Thank you. I see as I look at the bill, 
Sections 1501, 1502, and 10106 of a bill, for example, create 
an individual mandate to buy health insurance and grant the IRS 
the authority to enforce that mandate. And given that your 
expertise in dealing with the relationship between the IRS and 
the individual taxpayer, I'd like to get your thoughts on what 
does this really mean.
    Will it really alter the relationship? Will the IRS be that 
much more involved in the everyday lives of American families 
in trying to deal with this health insurance mandate?
    Ms. OLSON. Well, we do have some experience in delivering 
some health insurance subsidies through the health coverage tax 
credit, which utilizes third parties to do the verification and 
state agencies to do the certification; and then the IRS is 
really a disbursement agent. Now, with the mandate and the 
penalty that's attached, the concern that I had was that we 
exclude people who don't have any filing requirement and don't 
need a relationship and don't have an otherwise relationship 
with the IRS. And we also make sure that we're not taking 
active collection actions or lien filings against these people.
    And I did express those concerns to the Senate Finance 
Committee. I think they've been addressed at least in the 
Senate bill, but of course we have not seen the final 
legislation, nor has anyone.
    Mr. BOUSTANY. Right. And of course we have concerns about 
whether there will be liens, you know, associated with 
penalties. So I take that to mean that the IRS certainly will 
be much more involved with the individual taxpayer at a 
different level now than its current mission.
    Ms. OLSON. It may very well be. It's similar to where we 
are involved in the earned income tax credit.
    Mr. BOUSTANY. Thank you. And on March 11th of this year the 
congressional budget office letter to Senate Majority Leader 
Reid estimated that the IRS budget would have to be increased 
by as much as $10 billion over the next decade to help 
administer the nation's health insurance system. And when you 
consider this and the fact that the new system really doesn't 
take effect until 2014 in many respects with regard to the 
mandate, that really means $10 billion over the last six years 
or so of the budget window.
    So we're talking now about more than a billion dollars 
annually, if you break it out. And given that the IRS currently 
has a budget of roughly, I think, $12 billion, it seems to me 
the IRS is going to have to get much bigger, and perhaps 10 
percent bigger to enforce these health insurance laws.
    Ms. OLSON. I think the IRS is a victim of its own success 
in administering programs like make work pay or the first-time 
homebuyer credit, or the economic stimulus payment. And we've 
become identified as a very successful and efficient agency. I 
think from the IRS's point of view if it has flexibility in 
administering programs and sufficient time to plan an advance, 
and to your point sufficient resources, it will do what 
Congress tells it to do.
    I think that has been the commissioner's position. My point 
has been that programs need to be designed in a way that we 
don't torment taxpayers and torment the IRS at the same time.
    Mr. BOUSTANY. I believe that $10 billion, which may be an 
underestimate, who knows, is not included in the score of the 
bill. So that's another point to make. Do you think service 
levels will be affected by the implementation of this new 
function; you know, the phone calls? We already know there are 
some problems that we're not meeting certain benchmarks. You've 
talked about customer wait times and so forth. Do you have any 
sense of how that will play out?
    Ms. OLSON. Well, it's a simple answer. If the IRS gets the 
resources it needs to administer this program, then the service 
levels in the other areas won't. If it doesn't get the 
resources then there's only so much we can do with the dollars 
that we have and other service levels will be impacted, and 
that's very simple.
    Mr. BOUSTANY. Do you have a sense of where you think it 
might, what might really happen?
    Ms. OLSON. Are you asking me to predict what Congress might 
do?
    [Laughter.]
    Ms. OLSON. No.
    Mr. BOUSTANY. Well, if history is any guide we know that 
these resources are stressed. I thank you and I yield back, Mr. 
Chairman.
    Chairman LEWIS. Thank you. Now we turn to Mr. Pascrell for 
his questions.
    Mr. PASCRELL. Thank you, Mr. Chairman. Mr. Chairman, I need 
to respond to my good friend from Louisiana--how under any 
circumstance I am amazed that weaving in of healthcare, the 
healthcare debate, is interesting.
    So, now that you've done that and you've set precedent in 
this hearing, I'll get to the IRS in a second, because you are 
the main target or focus of today. Your organization has done a 
fantastic job, and I've said that before, but we know that 
individual and family spending on premiums and out-of-pocket 
healthcare costs will increase significantly, and spending is 
going to jump 34 percent by 2015 and 79 percent in 2020. So 
what we're left with is a picture, a perception of a huge 
dinosaur which we call the IRS unable to climb up the stairs 
and get away from another dragon of sorts. And the question is 
we pulled these facts out of the air. You know, what you're 
saying makes sense, is stated in good faith.
    But you need to take a look at it in context to see what we 
are paying, what we will pay, if we do nothing, if we start off 
with a blank page, and to weave that into the tax issue. I find 
it very interesting. I'd be more concerned----
    Mr. BOUSTANY. Would my friend yield?
    Mr. PASCRELL. Yes, absolutely.
    Mr. BOUSTANY. Well, I think this is a consideration, 
because we already know based on the CBO letter that there are 
going to be additional costs and additional burdens placed on 
the IRS and I think it's critically important that those things 
be addressed and put out on the table. And, Ms. Olson has 
repeatedly testified year after year about the need for 
resources for IRS. We saw what happened with the implementation 
of stimulus.
    Mr. PASCRELL. And she's been correct?
    Mr. BOUSTANY. And she's been correct, and so I think if 
history is any guide we can expect there will be more demands 
and will service to the taxpayers' suffer.
    Mr. PASCRELL. And if history is any guide, the numbers that 
I quoted will be something we need to face and we'll be facing 
them another thirty years from now and when the numbers are 
even greater. So we need to do something--not to find a perfect 
solution--only God is perfect. But we need to find a solution 
that is workable and that will bring us closer to the goal line 
of having people not worry about how deep their pockets are to 
get healthcare and not throwing them out of healthcare coverage 
simply because they have a malady of some sorts. And I think 
you believe in the same thing.
    The question is how do we get to that point and that's what 
the debate is all about, so you can't demonize any of the 
health insurance bill. I mean there's enough demons out there 
to go around. Now, let me ask you a question, if I may.
    Ms. OLSON. Certainly.
    Mr. PASCRELL. I'm very concerned about the fact of foreign 
businesses. In fact, you make a point of that in terms of 
500,000 tax returns were filed from a foreign address in 2007. 
I don't have the numbers for 2008. They don't understand, many 
of those taxpayers, that they have filing requirements, the 
complexity, et cetera, et cetera, et cetera. I'm really 
concerned about that, because how much lost revenue do you 
think the government is not able to take advantage of because 
of the fact that these folks aren't filing, filing incorrectly, 
or we can't catch up to them period.
    Ms. OLSON. I have never seen a revenue estimate that the 
IRS has produced. We put those numbers out to show that U.S. 
taxpayers abroad, and these are U.S. citizens abroad, you know, 
have no way to reach the IRS without incurring substantial 
costs to get answers to their questions and, to your point, 
being confused, may think they don't have a filing requirement 
when in fact they do.
    And when they finally figure it out, they have penalties 
and interest, you know, from years and years and years. And 
they may have been paying taxes in their own--the country that 
they're living in--that they didn't have to owe, and then they 
can't get it figured out. This is a very serious issue for us.
    Mr. PASCRELL. Oh, I think it is, and in terms of lost 
revenue here, we're talking about hundreds of billions of 
dollars.
    Ms. OLSON. We may very well.
    Mr. PASCRELL. If you go back over 10 years, these are the 
things we should be trying to, you know, close loopholes, 
getting folks to own up to what happens. Same thing with 
American corporations that go offshore. I mean that's revenue. 
It's like somebody on my street who owns a home and doesn't pay 
his property taxes. That means I have to pay more, because the 
town is waiting and depending upon expected revenue. If that 
revenue doesn't come in, then I have to pay it. This is what we 
should be concerned about, instead of all the time catapulting 
the IRS. I mean I do that enough myself. But the point of the 
matter is this is a very serious issue, and I think we should 
get estimates about how much revenue the American people have 
had to shoulder because of individual problems, not filing, and 
corporations who simply are out to shaft the American people, 
legally. Thank you. We'll have a second round?
    [Laughter.]
    Chairman LEWIS. It's possible.
    Mr. PASCRELL. Thank you.
    Chairman LEWIS. Now we turn to Mr. Reichert for his 
questions.
    Mr. REICHERT. Thank you, Mr. Chairman. Well, I want to 
agree with my good friend Mr. Pascrell. You know, we need to 
focus on those things that the IRS has been doing for years, 
collecting revenue, closing loopholes, and going after people 
who aren't filing their income tax; and, of course, holding 
corporations accountable, too. We've seen what can happen when 
we're not able to do that.
    Accountability and responsibility and the IRS's job 
absolutely key, but there are questions, though, how this new 
responsibility lays over all that you already have to do and 
how are you going to get it done. And I understand perfectly 
well you need more resources. If you need more dollars, you'll 
be able to do the job, but we're borrowing now and spending too 
much now. So the purpose for the questioning today, at least 
from our side and looking at the healthcare question, people 
want to know how this is going to affect me personally.
    So if Ms. Olson under Section 1501 of the Senate Healthcare 
Bill, if a taxpayer cannot prove to the IRS that he or she has 
minimal essential coverage as defined by the Democrats, what 
action could the IRS take?
    Ms. OLSON. Well, I don't know that I have the expertise to 
answer specifically to that bill, but what I spoke to to the 
Senate Finance Committee was that my personal opinion was that 
we should not be allowing the IRS to take levies against wages 
or things like that, or file liens against the taxpayers in 
that situation. And I think what the section says is that they 
can take refund offsets.
    I would recommend that we carry over to that provision that 
you not take more than 15 percent of the earned income credit 
refund, because then you're robbing Peter to pay Paul. So I 
think that there's been restriction on IRS collection activity 
that would make sure that taxpayers were protected.
    I also think on the issue of whether the IRS is looking 
whether the taxpayer has qualified health insurance, as I noted 
before, in the health coverage tax credit. We actually contract 
out that decision and a different entity makes the 
determination whether that policy qualifies for the current 
health coverage tax credit; and that provision has been around 
for quite some time as the result of NAFTA and a few other 
arrangements where United States taxpayers lost jobs. And we 
really don't have a lot of complaints about that.
    Mr. REICHERT. There would be an increased cost, though, 
to----
    Ms. OLSON. Yes, that's true.
    Mr. REICHERT [continuing]. Extend that program. What about, 
could the IRS conduct an audit of those people that don't have 
a healthcare plan, choose not to have?
    Ms. OLSON. I have not seen, obviously, the final language 
of the bill, but if it's anything like the health coverage tax 
credit, then no. We do not have the ability to conduct an 
audit; nor does the taxpayer have the right to go to the tax 
court to challenge our determination, because all we are really 
doing is disbursing funds.
    Mr. REICHERT. How many individual income tax returns were 
filed in 2008? Would you happen to know approximately?
    Ms. OLSON. In 2008 I think it's about 140 million. We have 
140 million individual taxpayers and about 30 million 
corporation taxpayers.
    Mr. REICHERT. Okay. And under the bill, I'm sure you're 
aware that the IRS would impose the individual mandate tax 
penalty for every month that a taxpayer fails to show the 
minimal essential coverage. So does that mean that the IRS is 
then going to be responsible for, and this goes back to Mr. 
Pascrell's point, for following 140 or 150 million taxpayers a 
year every month?
    Ms. OLSON. Well, again, I haven't seen the final bill but I 
think what the IRS would want, and I'm just speaking here from 
my own perspective, but I think what the IRS would want is 
flexibility as to when and how it would be making that 
determination. And if the bill were drafted appropriately it 
would be able to decide how it could best administer it without 
having to, you know, put the taxpayer through a lot. And the 
second point would be that we exclude people who have incomes 
so low that they have no return filing requirement at this 
time. We don't want to pull them into the system, and I do 
think that the thresholds accomplish that in the Senate bill.
    Mr. REICHERT. What, if any, additional burden will small 
businesses bear under this plan? Additional paperwork? Time? 
Money?
    Ms. OLSON. Well, I can only speak for the tax provisions; 
and, there, there is the tax subsidy for small businesses. And 
I'm not sure again how that would be implemented, whether that 
would be implemented through the payroll system or as a credit 
at the end of the year that they would claim in their income 
tax return.
    Mr. REICHERT. Okay. Thank you, Mr. Chairman.
    Chairman LEWIS. Thank you. Now we turn to Mr. Higgins for 
his question.
    Mr. HIGGINS. Thank you, Mr. Chairman.
    Ms. Olson, first of all, let me say that your Western New 
York office has been very helpful to my office and our 
caseworkers in helping our constituents address issues with the 
IRS. We appreciate it very much. It's an essential public 
service that you provide and we are grateful.
    On the issue of electronic filing, your report indicates 
that incentives are needed to increase the rate of electronic 
filing. A couple of things in answering that question: what is 
the percentage of those who file electronically versus those 
manually or through the mail; and, what are the incentives that 
you encourage?
    Ms. OLSON. Well, I think at this point it's about a 60 
percent electronic filing rate and we are increasing each year. 
I think that one of the big incentives that occurred this year, 
already enacted, is the requirement that preparers who prepare 
over, I think, it's 11 or more returns for a fee, have to file 
electronically. Because today about 67 percent of taxpayers use 
return preparers, and in small business it's even more. So if 
we can get those preparers to file electronically, we can 
really get it up there.
    Chairman LEWIS. Did you say 11 or 11 percent?
    Ms. OLSON. Eleven or more returns.
    Chairman LEWIS. Thank you.
    Ms. OLSON. Right.
    Chairman LEWIS. Thank you.
    Mr. HIGGINS. Does your report reference any kind of target 
as to the percentage that you would like to see within a 
specified period of time?
    Ms. OLSON. Yes, we definitely recommended that the IRS 
shoot for--well, Congress has set the goal of 80 percent--and 
we encourage that you keep that goal. It's a good incentive 
goal. We have looked at larger percentages. Just when Congress 
sets a goal, I think it organizes the IRS, even if they miss 
the deadline. It makes them act.
    Mr. HIGGINS. 80 percent by?
    Ms. OLSON. Well, I think Congress had said originally 2007, 
and obviously the IRS missed it. And, I think it's been 
extended to 2012, but I'm not sure on that.
    Mr. HIGGINS. Is it a 60 percent increase?
    Ms. OLSON. The goal was 80 percent to reach.
    Mr. HIGGINS. Right. Is that a significant increase?
    Ms. OLSON. Oh, from years ago it's a huge increase. It's 
actually very impressive in my mind that they got there.
    Mr. HIGGINS. So progress is being made toward that goal?
    Ms. OLSON. Progress is being made. I think now, and I think 
that you'll get a big leap with this return preparer mandate.
    Mr. HIGGINS. Great. Thank you for your work. I have no more 
questions.
    Ms. OLSON. Thank you.
    Mr. HIGGINS. Thank you.
    Chairman LEWIS. Thank you. Now we turn to Mr. Becerra for 
his question.
    Mr. BECERRA. Thank you, Mr. Chairman, and we could probably 
hold an Oversight hearing once a week with Ms. Olson and all of 
us would be much the better for it; and, certainly, the 
taxpayers would. So, Ms. Olson, thank you for the work that you 
do. I'm not sure when we establish the office by statute, but 
it was one of the best things that Congress did, is to have an 
oversight. The year was 1996, Congressman Kind tells me. That's 
what we did to have some oversight over the IRS to not only get 
on top of it but also to pat it on the back when it does the 
right thing. We're trying to get people to voluntarily pay 
their taxes, so thank you so much for the work that you've 
done.
    Ms. OLSON. Thank you.
    Mr. BECERRA. The number one most serious problem you've 
identified is the fact that more and more people aren't getting 
through, at least not on a timely basis when they make a phone 
call to the IRS on that toll free line and part of it, we know, 
is because of the mass increase in volume as a result of the 
2008 stimulus, the economic recovery package and so forth. So, 
I think we have to give the IRS some slack, because, in fact, 
they increased their ability to respond to calls given the 
increased number.
    But, my understanding is that they've called for an 
increase in the budget to help reduce the amount of people that 
don't get through on the telephone, toll-free line. But, 
they're taking the money it seems from a very good program, or 
they're trying to give the money to a very good program, 
telephone access through the toll-free line, but they're taking 
it from programs that are just as valuable, if, perhaps, not 
more valuable. My understanding is they're taking almost half 
the money they're going to put to increase the ability to 
service calls from a program that would help provide tax 
counseling to our elderly.
    Ms. OLSON. Right.
    Mr. BECERRA. The elderly are people who are trying to do 
the right thing, probably on fixed incomes, may not file 
correctly if they don't get assistance; or, may end up having 
to pay exorbitant amounts to tax preparers who take advantage 
of them, which doesn't seem to make sense to take money out of 
that program to put it into another very good program. They're 
taking money out of the low-income taxpayer clinics, which once 
again help people who might be taken advantage of, exploited, 
and have to pay exorbitant fees to probably file simple tax 
returns or who may end up filing incorrect returns.
    And then the voluntary income tax assistance clinics, which 
are oftentimes handled by law students and others, are giving a 
free service for Americans trying to help do the right thing. 
And, by the way, I understand they're taking quite a bit of 
money out of your office as well. Do you have any understanding 
why the IRS would want to take money out of an office that has 
been one of the champions? You go to bat for taxpayers every 
day, we're essentially killing the messenger.
    The IRS is killing the messenger for pointing out what they 
have to do better or to try to do better in an area you've 
pointed out. I don't get it. Do you have an explanation for why 
the IRS would take money out of your office and other good 
programs to try to pay for another good service?
    Ms. OLSON. I have no explanation.
    Mr. BECERRA. Okay.
    Ms. OLSON. I'm not sure that it's the IRS that did it. I 
just really, honestly, have no explanation.
    Mr. BECERRA. Okay. Well, I know that we're going to have an 
opportunity to speak to the Commissioner soon. We'll ask him, 
and I know everyone's got budget constraints--and so no one 
needs to pre-judge. But I would certainly hope that the 
Commissioner will have an opportunity when he's here to explain 
how we can work with him to try to make sure that we figure out 
a way to do this without having taxpayers pay--having taxpayer 
Peter pay so that taxpayer Paul can get through on the phone 
line. It just is silly.
    I hope that we can also follow-up with you on this issue of 
liens and offers in compromise. Give me a sense--These offers 
in compromise, essentially, it's a settlement. We're talking 
about settlements with taxpayers who are willing to come 
forward, willing to try to pay, but they're trying to do it 
under terms that they can afford. Most of the time you're 
talking about middle-income, modest-income families. They're 
saying, ``Okay. You're right. I made a mistake. I want to pay. 
Help me come up with a schedule so I can pay.'' What's the 
problem?
    Ms. OLSON. Well, again, I think that the IRS is being hide-
bound by rules and procedures and it's keeping people who maybe 
came in with the wrong offer amount; but, if you had a 
conversation with them and you talked to them about what we 
needed to see, they might find a way to come forward with that 
information. But the problem is that the procedures sort of 
keep people out.
    Mr. BECERRA. How many offers in compromise were there that 
were accepted last year?
    Ms. OLSON. 10,665, which is pitiful.
    Mr. BECERRA. And how many delinquent tax accounts does the 
IRS have that it thinks it can collect on?
    Ms. OLSON. Well, it had four million that were delinquent 
and it put two million last year in currently not collectible, 
which it gave up on. So there are millions of people that might 
participate if we just drop some of these bureaucratic rules.
    Absolutely.
    Mr. BECERRA. Thank you.
    Chairman LEWIS. Now we turn to Mr. Kind for his question.
    Mr. KIND. Thank you, Mr. Chairman, and thank you Ms. Olson 
for being here. We always look forward to your testimony and I 
just want to also express my personal appreciation for the work 
that you do and the National Taxpayer Advocate. So I have a 
close friend of mine, Mary Jo Warner from Lacrosse, Wisconsin, 
who serves on the advisory board. And I'm always calling her 
and asking her thoughts and advice on a whole host of issues. 
So we do look forward to your report as far as what 
efficiencies and improvements can be made. I think there's a 
shared interest in this Committee and throughout the Congress 
in doing that.
    Let me just touch upon a couple of subjects just to get 
your feedback on. The report was clear as far as the IRS toll-
free service opportunity and decline. And you have established 
goals on that, but another area of concern that I have is the 
quality of the information that's available; and, what more can 
be done when people who actually do get through and actually 
speak to someone for assistance to improve the quality of the 
information that they can then use without further mistakes 
being made. Do you have any recommendations on what more can be 
done?
    Ms. OLSON. Well, I think that the IRS needs to be a little 
bit more ambitious in what it's willing to answer. It declares 
many issues out of scope. And so if you call, they shunt you 
off to someone else and each time you delay the taxpayer from 
getting an answer, the taxpayer may get frustrated, drop out, 
get the wrong answer; you know, claim the wrong answer. And I 
think that just takes a lot of attention. The IRS has to really 
commit to training its employees on more than just its core 
issues.
    Mr. KIND. Yeah, and I think it indicated in the report an 
about 85 percent service level and roughly a five-minute 
waiting time, nothing more frustrating than calling and trying 
to hopefully get through, and ultimately not getting through. 
So it's a terrible problem that we have to address. And then 
the e-filing and the goal that really ramped that up as Mr. 
Higgins was questioning about earlier. In the area of lower-
income taxpayers, what more can be done as far as outreach and 
assistance and education to help them take better advantage of 
e-filing?
    Ms. OLSON. Well, I think that first of all the problem with 
low-income taxpayers is that e-filing is often linked with 
refund anticipation loans. And so I think that's where the 
return preparer regulation project really comes in. We have a 
slide show on one of our websites that shows a return 
preparation site that is run in a dog grooming parlor; and you 
just have to ask what the qualifications are.
    Mr. KIND. Is it low-income tax clinics? Is that another?
    Ms. OLSON. These are not a clinic. This is just a for 
profit business that is grooming your dogs and preparing your 
taxes at the same time. And you just have to say what are your 
qualifications for doing that, really. And these are where low-
income taxpayers go to get assistance, and then they are sold 
these loans and these people don't know how to prepare returns 
properly. So we really need to get qualifications in place, for 
instance.
    Mr. KIND. What about low-income tax clinics specifically 
geared for this?
    Ms. OLSON. Well, the clinics do controversy representation 
or educate taxpayers about the rights. And the clinics, I 
administer that grant program. In 2008 they took 16,000 cases 
that were tax disputes with the IRS for low income tax payers. 
And in the first half of the year of 2009 they had 14,000. So 
you can see what the economic downturn has done in people.
    You know, almost by half of the year they had almost as 
many cases as they did for the whole year the previous year, 
and we just need more VITA sites. We need additional funding 
for the VITA site so they can go out to communities that are 
hard to get to; you know, that sort of thing.
    Mr. KIND. All right. Let me also just shift your focus 
momentarily on the tax refund processing that's going on. It's 
my understanding that it's basically a presumption to try to 
get the refund out, even before information can be checked and 
verified. And you're advocating in the report that we ought to 
shift that a little bit to a trust, but verified type of 
system. Is that right? Is that a fair way to describe it?
    Ms. OLSON. Well, I think so. We get information returns 
like W2s and 1099s. They're supposed to be sent out to the 
taxpayer, most of them, by January 31st. But the IRS doesn't 
get them in a workable format until August and we're basically 
saying we're shipping out refunds or freezing refunds, because 
we think they're suspicious and holding them, when in fact if 
we could get the third party information in very early when the 
returns are coming in, we could get good refunds out, very, 
very quickly, and save the public fisc a lot of money by not 
shipping out refunds that shouldn't go out.
    So it requires study, because it means we're going to have 
to really think through this. And so this is another one where 
if Congress set a deadline, Congress said IRS come back in a 
year. Treasury, come back in a year. Tell us what needs to be 
done to get this done; and then we could decide how to proceed.
    Mr. KIND. Yeah, because right now you've got early 
preparers obviously getting their returns and anticipating a 
refund, but some of the information doesn't have to ultimately 
be in until what, the end of March or early sometime?
    Ms. OLSON. That's correct. Right. That's correct.
    Mr. KIND. Okay. All right. Well, thank you. Thank you again 
for the work that you and the group do. We appreciate it.
    Ms. OLSON. Thank you.
    Mr. KIND. Thank you, Mr. Chairman.
    Chairman LEWIS. Thank you. Now we return to Mr. Etheridge 
for his question.
    Mr. ETHERIDGE. Thank you, Mr. Chairman. And Ms. Olson, 
thank you for being here. Let me ask you a couple of questions, 
because in your role as a National Taxpayer Advocate I would be 
interested in your comments regarding the IRS's ability to deal 
with the growing complexity of the Tax Code. Let me just share 
with you some of the things I'm thinking about, because I think 
we're trying to do the right thing.
    We have expended the tax credits for education. We have 
provided credits for energy efficiency among other things; and 
these are very valuable. I am fully supportive of them and 
pushing forward for years, but I think my question to you is: 
are there means to help people make the decisions to go to 
college, to understand the credits are there; how to buy a 
home, or at least work with folks so they can understand that; 
reduce their energy use through energy efficiency means and 
share with us in that whole area, because your office talks to 
thousands of taxpayers? And my question is do you believe that 
most of the public is aware these credits are available to 
them?
    And let me just layer on top of that the other question so 
I won't have to ask it, please share with us the steps that 
you're taking to make sure that people do get the credits that 
they really deserve that we intended then to have to make a 
difference in energy policy, educational opportunity and a 
whole long list of things.
    Ms. OLSON. Well, the first thing as far as do taxpayers 
know about these things, I think they hear about them in the 
press and the media. The problem is that the media talk about 
them in very general ways, so taxpayers think, oh, I'm 
qualified for this and request them when in fact they may not, 
because the requirements, the eligibility requirements are very 
detailed. And, you know, the IRS could probably do better with 
provisions online where people could go in and do Qs and figure 
out whether they really are qualified.
    Mr. ETHERIDGE. Excuse me. Do you have work sheets where you 
can go on and look at?
    Ms. OLSON. Certainly.
    Mr. ETHERIDGE. It seems to me.
    Ms. OLSON. The IRS does have work sheets and we could 
probably do a better job of making them more electronic so that 
people could get at them easily. But I think that we really, 
you know, this is where tax reform comes in, because sometimes 
the complexity of it undermines the very policy goals that 
Congress is trying to achieve by these provisions.
    One thing we recommended in this study that we publish this 
year was that Congress mandate that IRS come back with a report 
about the effectiveness of the program. Did it do what Congress 
wanted it to do? And that could be it didn't do it, because 
taxpayers didn't know about it or were confused about it. Or 
IRS made it too hard to get it, or, it was just too confusing. 
And if Congress had that information, they could better design 
the credits in the future.
    Mr. ETHERIDGE. Okay. Thank you, Mr. Chairman. I yield back.
    Chairman LEWIS. Thank you very much. We turn now to Mr. 
Davis for his question.
    Mr. DAVIS of Illinois. Thank you very much, Mr. Chairman. 
And thank you and your office, Ms. Olson, for the tremendous 
work that you do. I don't know how much some district offices 
make use of taxpayer advocates but mine certainly does. And, we 
are often pleased with response and pleased with the assistance 
that people are receiving.
    One of the areas that I have some interest in is the whole 
business of tax lien policies. In terms of how the Internal 
Revenue Service is handling and implementing those policies at 
this point, for example, after review of a taxpayer's case, the 
IRS may determine that the outstanding tax liability is 
currently not collectible.
    These cases, of course, involve taxpayers who are 
experiencing in many instances, serious economic hardship. Does 
it really make sense for the IRS to use automatic federal tax 
liens in these cases, even though it's already determined that 
the individuals are not going to be able to pay?
    Ms. OLSON. Absolutely not. It makes no sense whatsoever to 
me. I'm not saying that the IRS might not want to file a lien 
in some case where somebody's maybe got a lot of real estate 
that they can't sell because of the economy and we want to 
protect the government's interest, but no one's making that 
determination. No one's looking at the facts. No one's looking 
at whether the taxpayer has been complaint. All of their life 
they had a heart attack. They got behind in one year and they 
will make it up very quickly. There is no reason to destroy 
somebody's credit for that, which will impair their ability to 
pay taxes in the future.
    Mr. DAVIS of Illinois. And, I guess some of this also just 
relates to the question that one of my colleagues just raised 
relative to offers in compromise, and whether or not there is 
realistic in some instances acknowledgment of what those offers 
really are and how a situation could be resolved; and in many 
instances I guess they just kind of go over periods of time and 
ultimately the resolution, of course, is not going to be in the 
interest of the taxpayer, nor are they often by then in the 
best interest of the Internal Revenue Service, because there's 
no value, seemingly.
    Ms. OLSON. IRS figures show that we get on average 17 cents 
on the dollar from an offer in compromise, whereas, we have 10 
years to collect the debt in general. And in year two, we only 
collected about 11 to 13 cents on the dollar through our normal 
collection activity; and, in year three, we collect virtually 
nothing. So from that perspective an offer is a very good deal 
for the government as well as a very good deal to give the 
taxpayer a fresh start.
    Mr. DAVIS of Illinois. Let me ask you another question. 
I've been trying to understand how the differences exist in 
auditing the way that everybody in the country audited relative 
to statutes of limitation except people in the Virgin Islands 
who seem somehow or another to fall outside what the norm would 
be. Could you explain that to me or do you think that's a fair 
situation for them?
    Ms. OLSON. Well, I think that the way the Internal Revenue 
Service has interpreted the statute right now, they are saying 
that going forward, if you file a return with the Virgin 
Islands, that will start the statute of limitations. But they 
have carved out a group of taxpayers. So it's sort of like this 
one group has a special statute of limitations just for them 
where they have no statute of limitations, essentially. And I 
am very troubled by that and I've written about that 
extensively and made some recommendations both to the IRS and 
to Congress to close that loop. The idea of creating just a 
special statue of limitations for 243 taxpayers bothers me 
greatly.
    Mr. DAVIS of Illinois. Do you think it would require 
legislation to actually change that?
    Ms. OLSON. Some strong encouragement to the IRS might, but 
it may very well require legislation, I'm afraid.
    Mr. DAVIS of Illinois. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman LEWIS. Thank you. Now we turn to Mr. Roskam for 
his questions.
    Mr. ROSKAM. Thank you, Mr. Chairman. Ms. Olson, thank you 
for your time today. I had a quick question. I think I wanted 
to return to an area of inquiry that Mr. Reichert had with you 
and I understand you're not completely versed on the Senate 
bill and all of the drama. But there are some top lines that 
are unambiguous that everybody that's been watching the news 
knows about, so I don't want to drag you into the weeds.
    It's interesting because the IRS is going to have a more 
significant role by definition, based on the increased tax 
liability for non-compliance. You'd agree with that. Right?
    Ms. OLSON. Hm-hmm.
    Mr. ROSKAM. Okay. So it's clear that the Senate version of 
the bill doesn't have a criminal penalties provision, which is 
a good thing. It doesn't have the ability of the IRS to put a 
levy on property, which is a good thing, I would argue, but it 
doesn't completely take away all the tools that the IRS has. 
Could you for the benefit of the committee or the subcommittee, 
could you tell us what other tools the IRS has at its disposal 
in case of non-compliance?
    Ms. OLSON. My understanding is what they're limited to 
doing is offsetting people's refunds. It is not clear to me 
whether they can file a lien. If they could file a federal tax 
lien I'd be concerned about that, but my understanding is they 
can't. So my understanding is they can only offset people's 
refunds. Now, 80 to 85 percent of taxpayers get refunds in 
their income tax returns, so if you're expecting something, you 
may not get it if you have a penalty on there.
    Mr. ROSKAM. And sort of implicit in that, if a taxpayer 
came to you as the advocate and said, look. I feel like I'm 
being unfairly manipulated by the IRS. I'm in fact being 
audited by the IRS. Wouldn't you be in a position to say, well, 
that sort of comes with the territory? The senate bill doesn't 
explicitly take away the IRS's audit authority here. And 
wouldn't you then recommend to the taxpayer that's not an area 
where we're going to concentrate on taking the IRS on?
    Ms. OLSON. Well, no. I always am willing to take the IRS on 
anything, but I would say that it's not clear to me under the 
Senate bill whether the IRS has the authority to audit anybody 
on anything really, other than is this an eligible insurance 
policy, or do you have the required coverage. If you are 
auditing, then I think that the taxpayer does need rights to be 
able to challenge the IRS.
    Mr. ROSKAM. I agree with you wholeheartedly, and I agree 
with you in terms of your interpretation; but, just to go back 
and sort of revisit, I think the point you were making a minute 
ago the IRS has. I mean, to your point, I just want to make 
sure I'm clear. The IRS would have the ability to have that 
question of whether the coverage is adequate pursuant to the 
code. That's an auditable question. Isn't it?
    Ms. OLSON. If the bill is structured in that way, and I 
don't now for a fact whether it is. If Congress says IRS, you 
are going to make the determination, you are the determiner, 
and the bill doesn't take it out of the normal procedures to 
get tax court jurisdiction and things like that, then the IRS 
could audit it. It could be under some bills it could be a math 
error in which we say this doesn't fit the requirements; and, 
if you don't like it, come in and tell us and we'll put you 
through our normal procedures. Could be very simple, yes, no, 
and it's how you all write it. It's not what the IRS is going 
to do. The IRS will do whatever you write.
    Mr. ROSKAM. Isn't the fact--and I appreciate your response. 
Isn't it true that since it's placed in the Tax Code, since the 
mandate is placed in the Tax Code that there's an implicit 
audit authority there? I mean it's not resident in some other 
part of the statutes. It's in the Internal Revenue Code.
    Ms. OLSON. Unfortunately, I don't think that's true, 
because we have the health coverage tax credit where we have no 
audit authority, and that is in the Internal Revenue Code. So 
we don't have that. We don't audit anybody on that issue.
    Mr. ROSKAM. Wouldn't you argue that in order to take away 
the ambiguity that has been demonstrated by this conversation 
for the past couple of minutes, Congress should affirmatively 
put in place that the IRS in fact doesn't have the authority, 
because at best, people like me are interpreting it and saying, 
well, it looks like there's authority. There's people like you 
that are saying, well, maybe, maybe not. Isn't the best remedy 
to put it in the same category of things like no criminal 
penalties, no liens, and no audit authority? Isn't that in fact 
the best way to go?
    Ms. OLSON. Clarity is always helpful.
    Mr. ROSKAM. Thank you. I yield back.
    Chairman LEWIS. Thank you very much. Ms. Olson, I want to 
ask you a question. I know it's not in keeping with your 
report, but let me just ask you. Do you have any counterparts 
to your knowledge on the state level?
    Ms. OLSON. There are many states that have created taxpayer 
advocates: California, Pennsylvania; New York has one. Every 
day I'm finding more taxpayer advocates throughout the United 
States, state advocates. And in May, I think, or September of 
next year, we are actually--or this year, rather. In Albany 
we're going to have a conference of state taxpayer advocates.
    Chairman LEWIS. Well, do you know about how many states?
    Ms. OLSON. At this point, I don't know. I could find out 
for you, sir.
    Chairman LEWIS. The reason I'm raising this question, I 
just noticed a few days ago there was a national news report 
that said on the state level many states are holding up the tax 
refund, because they want to hold onto their money because of 
budget shortfalls. That doesn't seem to be fair or right.
    I hope if they decide to do this, they're going to at least 
be prepared to pay some interest to the taxpayers. I'd just 
like to know, but you may not want to get involved in some 
other person or some other states if you have an opinion about 
that?
    Ms. OLSON. Well I mean these are provisions. If the 
Internal Revenue Service proposed that I would be very unhappy 
and would be vocally opposing that or at least ensuring that 
taxpayers got their interest, you know, paid out to them. And 
we also have the authority and the ability to override, like 
refund offsets and things like that where the taxpayer has 
economic hardship. And so that is something you would want to 
occur whether it's in the healthcare penalty area or the income 
tax credit area, or maybe if someone were holding back a check 
for one reason or another, the ability to override where there 
is a need.
    Mr. PASCRELL. Yeah.
    Chairman LEWIS. Mr. Pascrell.
    Mr. PASCRELL. Mr. Chairman, I just wanted to clarify. I 
know that there was work done to address what the gentleman 
just said, working on legislation to disallow the IRS to audit 
under these circumstances or pretense, which ever you want to 
call it, so we are sensitive to that issue.
    I hope we are as sensitive to that issue, Mr. Chairman, as 
we are to 46 million people not having any coverage in the 
United States of America; and, the only way, having gone 
through several options, this Committee, right here, to begin 
the process of covering that many people is to make sure there 
is a leveling off and everybody has to have all hands on deck.
    So you cannot escape the process, because we are all 
intimately involved with the health of this nation as I 
understand it. But I have another question for you which I hope 
that you will answer as you've done all the others responded to 
all the questions. Our unemployment is now 9.7 percent and it 
kills you. It kills me to see so many people losing their 
homes, struggling to pay for their children's educations at the 
same time to bring bread home on the table; and it's straining 
to put a meal for the whole family on that table. It's not an 
easy proposition if you're out of work.
    So we find ourselves in the midst of the tax season. It 
could be troubling time for many. Many of us were faced with a 
multitude of financial difficulties, as more and more people 
lose homes, et cetera. One of the economic hardships many of 
our citizens in working class communities, like the people I 
represent in the eighth district in New Jersey, are vulnerable 
to unscrupulous individuals who take advantage during tax 
season, particularly.
    The report, Ms. Olson, that you presented to us notes that 
the IRS's collection of penalties assessed against preparers is 
very low. Yet, we know to the contrary examining other evidence 
that the amount of violations is very high. So far so good?
    Ms. OLSON. Hm-hmm.
    Mr. PASCRELL. So, in 2009, the IRS collected only 22 
percent of the collectible preparer penalties. Why?
    Ms. OLSON. I have no answer to that. I think, you know, 
it's silly to impose penalties if you don't collect them, and 
how are they going to be a disincentive against certain 
behavior if you don't collect them. We have said in the report 
that the IRS needs a robust, you know, return preparer 
strategy.
    Mr. PASCRELL. Right.
    Ms. OLSON. And needs to do shopping visits, you know, 
posing as a taxpayer as GAO has done and the Inspector General 
has done on a routine basis.
    Mr. PASCRELL. Who can prepare taxes?
    Ms. OLSON. Anyone.
    Mr. PASCRELL. So, you don't have to have a certificate or 
have it be stamped or anything like that. Anybody can prepare 
your taxes.
    Ms. OLSON. Now that is changing. The IRS has determined 
that it has the authority to acquire people who are not 
attorneys, accountants, or enrolled agents.
    Mr. PASCRELL. Well, a lot of attorneys don't know how to 
file either.
    Ms. OLSON. A lot of attorneys, I know. But we have a bar.
    Mr. PASCRELL. So I mean why would we leave them out?
    Ms. OLSON. Right. There's a bar to requiring them to take a 
test to practice before the Federal Government.
    Mr. PASCRELL. Well, would you agree with me that many 
attorneys are not trained and are not capable of helping you, 
Ms. Olson, file your tax?
    Ms. OLSON. Certainly. That's not their area of expertise.
    Mr. PASCRELL. Okay. So there's a lot of folks that fall 
into that category.
    Ms. OLSON. Absolutely. We think that most preparers fall 
into the category called ``unenrolled preparers,'' who are 
anybody. You know, not an attorney, not a CPA, not an enrolled 
agent. And the IRS is going to start in April of next year, 
imposing a testing requirement, so that you have to demonstrate 
your competency to prepare returns before you get permission to 
prepare returns. And these are things that I've recommended 
since 2002; that we will be doing a major advertising campaign 
to alert taxpayers to look for those people who are registered 
with the IRS and have either passed a test, or are attorneys, 
CPAs, or enrolled agents but who are registered with the IRS 
before they pay any money to get a return prepared.
    Mr. PASCRELL. And if I just may ask one more question, in 
the low-income areas, let's say a company that's been doing 
this for many years; let's say, H&R Block. Can they hire 
anyone, even though they may not have any experience to fill 
out your taxes?
    Ms. OLSON. Today, yes, they can, anyway.
    Mr. PASCRELL. Thank you. Thank you very much, Mr. Chairman.
    Chairman LEWIS. Thank you. We didn't mean to go for a 
second round. I want to yield now to Dr. Boustany for 
clarification.
    Mr. BOUSTANY. Right. Thank you, Mr. Chairman. In following 
up on Mr. Roskam's line of questioning, you made comparisons to 
the healthcare tax credit, which is one being a voluntary 
program and the other, we're talking about, the mandatory tax, 
is a mandatory program. And it seems to me that if you're going 
to have compliance in a mandatory program, then the IRS would 
probably have to do a significant degree of auditing. Would you 
agree with that?
    Ms. OLSON. Sir, any time that you need compliance you need 
to have somebody looking at the requirements.
    Mr. BOUSTANY. I mean given that it's a mandatory program?
    Ms. OLSON. Right. That's correct.
    Mr. BOUSTANY. And also because of the way the program is 
structured with other parts of the healthcare plan, the way 
it's devised, it depends on that mandate. So I would beg to 
differ and would think again given the compliance needs, audits 
will be necessary. And those on our side have concerns about 
how this will play out with individual taxpayers.
    Ms. OLSON. It's how you write the bill. Again, my point 
about the health coverage tax credit was actually I think there 
are entities that are looking at this, but the certification is 
being done on the state level. So the compliance is really 
being done at that level and the IRS, again, is just a 
disbursement agent. And that could also be done in terms of the 
penalty where someone else is making the determination, and the 
IRS is being told that this is not an eligible plan, and 
therefore all we are doing is imposing the penalty, once a 
determination has been made elsewhere.
    That's what I was trying to say. It doesn't have to be the 
IRS making that determination. I cannot comment on the bill 
because it's not a final bill and we're trying not to do that. 
These are my concerns. These are the things that I've seen. I 
could also say that there are other countries around the world 
that have faced the growth of programs in the Tax Code through 
the Tax Code, and how they have addressed it is by specifically 
recognizing that what is a trend in the world tax 
administrations today is using tax administration, not just for 
core tax responsibilities, but also for these other provisions.
    And in that way they're explicitly recognizing that we're 
using the agency that touches so many taxpayers to do these 
other things, and then they're funding it in that way. That is 
a policy decision. It is not my decision, and it really rests 
in you all deciding whether that's what you want to do.
    Mr. BOUSTANY. And your work requirement is going to grow if 
this does become law.
    Ms. OLSON. Certainly. Certainly.
    Mr. BOUSTANY. The needs for advocacy.
    Ms. OLSON. Certainly.
    Mr. BOUSTANY. Thank you. I yield back.
    Ms. OLSON. Thank you.
    Chairman LEWIS. Ms. Olson, I'd like to thank you for your 
testimony, for your views, and sharing your views with us. 
Members of the Committee appreciate it. We wish you the best. 
Just before we adjourn, I think we would like to pause and say 
happy birthday to a young Mr. Ron Kind of Wisconsin. Today is 
his birthday.
    Ms. OLSON. Happy birthday.
    Mr. KIND. Thank you, Mr. Chairman. Thank you. It's not the 
years. It's the mileage, as I'm sure you're well aware.
    [Laughter.]
    Mr. KIND. A lot of miles on these old bones, already. So, 
it's an honor to serve with all of you, especially in this 
place at this time with the challenges that we face. Thank you.
    Chairman LEWIS. Well enjoy the birthday and celebrate.
    Mr. KIND. Okay.
    Chairman LEWIS. There being no further business before the 
Committee, the Committee is adjourned.
    [Whereupon, at 3:12 p.m., the subcommittee was adjourned.]
    [Submission of the record follows:]

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