    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                   INTERNAL REVENUE SERVICE'S IMPLEMENTATION
                      AND ADMINISTRATION OF THE DEMOCRATS'
                                HEALTH CARE LAW

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

                                    HEARING

                                   before the

                           SUBCOMMITTEE ON OVERSIGHT

                                     of the

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

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                   __________

                               SEPTEMBER 11, 2012

                                   __________

                              Serial No. 112-OS16

                                   __________

             Printed for the use of the Committee on Ways and Means

                                   ----------

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    80-693 PDF                       WASHINGTON : 2013

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                          COMMITTEE ON WAYS AND MEANS

                         DAVE CAMP, Michigan, Chairman

    WALLY HERGER, California             SANDER M. LEVIN, Michigan
    SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
    KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
    PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
    DEVIN NUNES, California              JOHN LEWIS, Georgia
    PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
    DAVID G. REICHERT, Washington        XAVIER BECERRA, California
    CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
    PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
    JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
    TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
    VERN BUCHANAN, Florida               RON KIND, Wisconsin
    ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
    AARON SCHOCK, Illinois               SHELLEY BERKLEY, Nevada
    LYNN JENKINS, Kansas                 JOSEPH CROWLEY, New York
    ERIK PAULSEN, Minnesota
    KENNY MARCHANT, Texas
    RICK BERG, North Dakota
    DIANE BLACK, Tennessee
    TOM REED, New York

            Jennifer M. Safavian, Staff Director and General Counsel

                      Janice Mays, Minority Chief Counsel

                                     ______

                           SUBCOMMITTEE ON OVERSIGHT

                 CHARLES W. BOUSTANY, JR., Louisiana, Chairman

    DIANE BLACK, Tennessee               JOHN LEWIS, Georgia
    AARON SCHOCK, Illinois               XAVIER BECERRA, California
    LYNN JENKINS, Kansas                 RON KIND, Wisconsin
    KENNY MARCHANT, Texas                JIM MCDERMOTT, Washington
    TOM REED, New York
    ERIK PAULSEN, Minnesota

                                C O N T E N T S

                                   __________

                                                                       Page

    Advisory of September 11, 2012 announcing the hearing............     2

                                   WITNESSES

    PANEL 1:

    Steven T. Miller, Deputy Commissioner for Services and
      Enforcement, Internal Revenue Service, Testimony...............     6

    PANEL 2:

    Mr. Fred Goldberg, Jr., Partner; Skadden, Arps, Slate, Meagher &
      Flom LLP, Testimony............................................    26
    Ms. Kathy Pickering, Executive Director, The Tax Institute at H&R
      Block; Vice President, Government Relations, Testimony.........    35
    Mr. Scott A. Hodge, President; The Tax Foundation, Testimony.....    44
    Mr. Seth T. Perreta, Partner, Crowell and Moring LLP, Testimony..    52

                           SUBMISSIONS FOR THE RECORD

    Timothy Stoltzfus Jost...........................................    77
    William G. Schiffbauer...........................................    86

      INTERNAL REVENUE SERVICE'S IMPLEMENTATION AND ADMINISTRATION OF THE
                           DEMOCRATS' HEALTH CARE LAW

                                  ----------

                          TUESDAY, SEPTEMBER 11, 2012

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                                     Subcommittee on Oversight,
                                                        Washington, DC.

        The Subcommittee met, pursuant to notice, at 9:46 a.m. in
    room 1100, Longworth House Office Building, the Honorable
    Charles Boustany (Chairman of the Subcommittee) presiding.
        [The advisory of the hearing follows:]

    HEARING ADVISORY

         Boustany Announces Hearing on the Internal Revenue Service's
      Implementation and Administration of the Democrats' Health Care Law

    Tuesday, September 04, 2012
    *UPDATE: NEW TIME*
    ALL OTHER DETAILS OF THE HEARING REMAIN THE SAME.

        Congressman Charles W. Boustany, Jr., MD, (R-LA), Chairman of the
    Subcommittee on Oversight of the Committee on Ways and Means, today
    announced the Subcommittee will hold a hearing on the Internal Revenue
    Service's (``IRS'') implementation and administration of the Patient
    Protection and Affordable Care Act and Health Care and Education
    Reconciliation Act of 2010 (``Democrats' health care law''). The
    hearing will take place on Tuesday, September 11, 2012, in room 1100 of
    the Longworth House Office Building, beginning at 9:45 A.M.

        In view of the limited time available to hear witnesses, oral
    testimony at this hearing will be from invited witnesses only. However,
    any individual or organization not scheduled for an oral appearance may
    submit a written statement for consideration by the Subcommittee and
    for inclusion in the printed record of the hearing. A list of invited
    witnesses will follow.

    BACKGROUND:

        Enacted in large part on March 23, 2010, the Democrats' health care
    law contains 47 tax or tax-related provisions, some of which are
    already in effect and others that will become effective over the next
    18 months. These provisions include, the individual mandate and
    employer mandate taxes, restrictions on the use of Flexible Spending
    Arrangements and Health Savings Accounts, a new 3.8 percent tax on
    investment income, newly mandated information reporting on health
    insurance coverage, new taxes on medical devices, a new Medicare
    payroll tax, the health insurance premium subsidy, and new requirements
    for tax-exempt hospitals and group health insurance plans.

        The IRS is charged with implementing and administering these new
    provisions on top of its existing duties under the Internal Revenue
    Code, which include collecting $2.4 trillion in taxes, processing 145
    million individual tax returns, issuing $345 billion in tax refunds,
    and administering numerous non-revenue provisions such as the Earned
    Income Tax Credit and various green energy subsidies.

        Along with its review of the IRS's new duties, the Subcommittee
    will consider: (1) how the IRS's new duties under the health care law
    will affect both taxpayers and the IRS's core revenue-collection
    function; (2) the IRS's progress in implementing various provisions of
    the health care law, both those that are already in effect and those
    that are not yet in place; and (3) how the agency will coordinate with
    other Federal departments, state governments, and stakeholders to
    implement the new tax provisions.

        In announcing the hearing, Chairman Boustany said, ``In recent
    years, the Subcommittee has held hearings on the IRS's budget, its
    administration of our complex and convoluted Tax Code, and an estimated
    $100 billion in taxpayer dollars that have been lost to fraud, waste,
    and abuse over the past decade. Under President Obama's health care
    law, the IRS is now charged with administering much of the health care
    law. It is imperative that we take a close look at these new duties and
    consider the impact they will have on the agency and the taxpayers it
    serves.''

    FOCUS OF THE HEARING:

        The hearing will focus on the IRS's implementation of various tax
    provisions enacted in the Democrats' health care law and consider how
    the agency's implementation of the law will affect taxpayers and its
    core revenue-collection mission.

    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://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
    document, in compliance with the formatting requirements listed below,
    by the close of business on Tuesday, September 25, 2012. 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 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.

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

        Note: All Committee advisories and news releases are available on
    the World Wide Web at http://www.waysandmeans.house.gov/.

        Chairman BOUSTANY. This hearing will now come to order.
    Good morning and welcome to today's hearing on the Internal
    Revenue's implementation and administration of the President's
    health care law.
        Before we begin this morning, it is appropriate to recall
    that 11 years ago, almost to the hour, our Nation was savagely
    attacked. After these 11 years, each of us can certainly recall
    exactly what we were doing at that time.
        The horror of the day should give us the resolve to
    continue doing our business and demonstrate that we will not be
    intimidated or deterred.
        More than a decade has passed but the attacks of the day
    still outrage, the tragedies still overwhelm, and the acts of
    heroism still inspire us.
        We still mourn those lost on that day and all those who
    have given their lives since in the defense of liberty. We are
    thankful for those who continue to stand and volunteer to serve
    our country both at home and abroad.
        We will take a recess from this Subcommittee's proceedings
    at 10:45, so that those who wish to join the 9/11 remembrance
    in the Capitol can do so, and then we will promptly reconvene
    at 11:30 to resume the hearing.
        We are going to watch the clock pretty closely and we will
    stop at around 10:45.
        The Internal Revenue Service has enormous responsibility.
    It is tasked with administering our very convoluted tax system
    and a Tax Code that has changed nearly 5,000 times in the past
    10 years alone.
        The agency is charged with collecting roughly $2.5
    trillion, distributing hundreds of billions of dollars in tax
    credits, and enforcing 4,000 pages of tax laws, and 80,000
    pages of tax regulations.
        The agency's core revenue collection function has
    increasingly been crowded by its responsibility to administer
    many social programs.
        Through the years, Congress has sought to advance a
    multitude of non-revenue objectives through the Tax Code,
    energy policy, housing policy, and of course, health care
    policy.
        Making the IRS both revenue collector and administrator of
    these activities has diverted the IRS' resources from its
    central mission and can diminish taxpayer service.
        In 2010, Congress passed President Obama's health care law,
    expanding nearly 1,000 pages and passed ``so you can find out
    what is in it,'' in the famous words of then-Speaker Nancy
    Pelosi.
        The health care law contained 47 tax provisions and charged
    the IRS with vast new responsibilities.
        These included the implementation and administration of the
    largest entitlement created in more than a generation, new
    penalty taxes on individuals and employers who fail to provide
    or buy government approved health insurance, the need to
    quickly create vast new information technology systems, and the
    list goes on and on.
        The President's health care law has put the Federal
    Government in charge of approving health insurance plans,
    subsidizing them, punishing those who do not buy government
    approved plans, and many other aspects of our health care
    system.
        The Internal Revenue Service has been saddled with the
    responsibility of carrying out many of these new Federal
    activities.
        More than creating new burdens on the IRS, the President's
    health care law has led to new tax rules and regulations that
    will pose significant challenges to both individuals and job
    creators.
        The Administration's own documents state that the
    compliance burden of the new rules it has thus far written
    pursuant to the President's health care law will add nearly 80
    million man hours each to individuals and job creators. This is
    just the 17 regulations that have been issued so far. There are
    more to come.
        Eighty million hours that will not be spent creating new
    wealth, providing health care, or doing anything productive.
        Eighty million hours simply complying with new rules from
    Washington.
        This is the burden from just the IRS' new rules, the 17 new
    rules that have been promulgated. When you add the new
    regulations from HHS, the Department of Labor, and other
    agencies, the burden on our sluggish economy goes still higher.
        As a former surgeon and owner of a small medical practice
    in Louisiana, I certainly know how taxes, rules and regulations
    from Washington can impede not only a small business but also
    patient care.
        I am especially interested in hearing from the IRS and our
    witnesses today about how the new law will operate in the real
    world, in real time.
        The object of this hearing is to assess the IRS' efforts to
    administer the law, including its efforts on the Service's core
    mission, and how decisions made now to implement it will affect
    both the agency and taxpayers as the provisions continue to
    come into effect.
        Ladies and gentlemen, this is also not a hearing to beat up
    the IRS, an agency run by good men and good women. I want to
    emphasize that. Dedicated public servants who have an
    incredibly difficult job.
        The agency did not write the health care law. The previous
    Congress did. It passed the law. Now we are finding out what is
    in it and what it means for the country and for the Internal
    Revenue Service and for taxpayers.
        I look forward to the testimony and questioning of our
    witnesses. Now, I am pleased to yield to the distinguished
    Ranking Member from Georgia, Mr. Lewis.
        Mr. LEWIS. Thank you, Mr. Chairman. First of all, I want to
    thank you for pausing to observe what happened to our country
    11 years ago today. It is my hope and prayer that Americans all
    over will pause and observe what happened.
        Mr. Chairman, I want to thank you for holding this hearing
    on the Affordable Care Act. We are always pleased to discuss
    our landmark health reform law which will expand health
    coverage to over 30 million Americans.
        Because of the Affordable Care Act, children today cannot
    be denied insurance benefits due to preexisting conditions, and
    young adults can stay on their parents' insurance until age 26.
        Seniors are already saving hundreds of dollars on their
    prescription drugs and receiving free preventive services.
        This morning, the Department of Health and Human Services
    announced that the Affordable Care Act has saved people with
    private insurance over $2 billion.
        We must ensure that the Internal Revenue Service continues
    to move with all deliberate speed to deliver hundreds of
    billions of dollars of Federal tax credits to American families
    and small businesses, which will make health insurance
    affordable.
        I am confident that the tax provisions of the Affordable
    Care Act will be carried out on schedule.
        Today, I look forward to learning where we are in the
    process, the problems we have seen, and the issues that remain.
        I want to thank all of the witnesses for their
    recommendations to address these issues. I also look forward to
    hearing from the agency about the resources it needs to fulfill
    its duties under the health reform law.
        I continue to have serious concerns about the effect of
    recent budget cuts on taxpayers, tax collection, and agency
    operations.
        This year, the agency's budget was cut by over $300
    million. This cut harmed taxpayers and tax administration. For
    fiscal year 2013, the IRS requested a budget increase of $360
    million for administration of the health reform law. Almost 75
    percent of this money will be spent on technology needed to
    deliver hundreds of billions of dollars in tax credits.
        I look forward to hearing more about the IRS budget request
    and how the amount requested will help the agency complete its
    work on the health care law while protecting Federal tax
    dollars.
        Thank you very much, Mr. Chairman.
        Chairman BOUSTANY. Thank you, Ranking Member Lewis. Next,
    it is my pleasure to welcome two panels of witnesses before us
    today.
        Today's witnesses have extensive experience with the IRS
    and tax compliance, and I am delighted to have all with us.
        Our first panel will consist of Deputy Commissioner Steven
    T. Miller. I want to welcome him again before our Subcommittee.
    We appreciate you being willing to come before us today.
        Steven T. Miller, Deputy Commissioner for Services and
    Enforcement at the Internal Revenue Service.
        Deputy Commissioner Miller, the Committee has received your
    written testimony, and it will be made part of the formal
    hearing record. You will have 5 minutes for your oral remarks
    as is customary. You are recognized for 5 minutes, sir.

    STATEMENT OF STEVEN T. MILLER, DEPUTY COMMISSIONER FOR SERVICES
               AND ENFORCEMENT, INTERNAL REVENUE SERVICE

        Mr. MILLER. Thanks so much, Mr. Chairman. Chairman
    Boustany, Ranking Member Lewis, Members of the Subcommittee,
    thanks for the opportunity to update you on the IRS' staged
    implementation of the tax law portion of the Affordable Care
    Act.
        As I begin, let me say that there is no doubt that
    implementation of the ACA has required and will continue to
    require a concentrated effort on our part.
        However, the IRS has a successful history of such efforts.
    In this case, the IRS is taking full advantage of the fact that
    the major exchange related provisions, with respect to those,
    we will have time to plan our implementation and communicate
    with taxpayers.
        The IRS began both short term implementation and long term
    planning immediately upon passage of ACA. Our efforts focused
    on two things. First, to quickly implement tax law changes that
    were retroactively or immediately effective.
        Examples in this first category include the small business
    health care tax credit, the expansion of the adoption credit,
    and specific industry provisions such as those that focused on
    qualified therapeutic projects and the indoor tanning industry.
        In terms of those provisions that had future effective
    dates, we moved quickly to put a structure and process in place
    to plan and implement these provisions.
        Because many ACA tax provisions are substantial and require
    long term planning, the IRS established enterprise-wide
    governance and planning processes, both in its business
    operations and its information technology divisions. This is a
    significant undertaking and a lot of work still lies ahead.
    However, by involving top leadership and using established best
    practices, we have made important progress.
        We have prioritized our work based on the particular
    effective date of a provision and/or the need for the
    Government or taxpayers to build the systems necessary to
    support the new law.
        This approach is taken whether we are talking about our IT
    work or how we prioritize our guidance to the community.
        The IRS' most substantial implementation efforts relate to
    our work with the exchanges and the premium tax credit. In this
    area, we are working on the secure delivery of information to
    HHS as well as other work that will ensure that advanced
    premium tax credits are available beginning in 2014.
        The Department of Health and Human Services is the lead
    agency defining the structure and operations of the exchanges
    with Treasury and the IRS defining some of the associated
    rules.
        As part of our efforts, we are working to provide clear and
    flexible guidance to the community, and we have done this after
    engaging in a robust dialogue with those impacted.
        For example, we have worked closely with large employers to
    get them key pieces of guidance and time to set up their
    systems and procedures, including a number of simplifying safe
    harbors to assist in measurement and compliance.
        In terms of guidance on ACA more generally, we have to date
    issued a variety of regulations, more than 40 notices, as well
    as a variety of revenue rulings, procedures, announcements, and
    frequently asked questions.
        While there is much yet to be done, we have already
    accomplished a great deal.
        In addition to building necessary systems and issuing
    guidance, we are working on how taxpayers will interact with
    the IRS as they file their returns. This involves both service
    and compliance.
        We do have some time as most of these interactions begin
    during the 2015 tax filing season. Still, we are already
    engaged in discussions with tax return preparers and software
    developers so the taxpayers have what they need at the time
    they file their 2014 tax return.
        Let me speak to one area in particular, as there have been
    numerous questions about how the IRS will verify individual
    coverage.
        The IRS process for verifying coverage will be very similar
    to the one we have used for years to verify wages and
    withholding. The IRS will match what is reported on the tax
    return with the information reported by insurers.
        We will follow up with taxpayers who appear to have over
    paid, under paid, and/or were not eligible for an exemption.
        This will take the form of written correspondence. Revenue
    agents will not be doing this work. As required by the statute,
    we will not use levies, liens, or criminal prosecutions if
    taxpayers have unpaid amounts related to the individual
    coverage provision.
        Thank you for the opportunity to testify on our planning
    and implementation efforts related to ACA's tax provisions. It
    is a large undertaking but over the last several years, there
    have been thousands of tax law changes, some larger than
    others, and the IRS has implemented them all.
        Our work to date on ACA is going well. We have the
    processes and structure in place to succeed.
        I would be happy to answer any questions.
        [The prepared statement of Mr. Miller follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman BOUSTANY. Thank you, Mr. Miller. We have a lot of
    uncertainty out there today amongst the business community and
    families with regard to what is going to happen with taxes. Of
    course, we know about all the expiring tax provisions that are
    coming at the end of the year unless Congress duly acts.
        I would like to point out that the House has acted in July
    to avert rates from going up. I hope that the other body across
    the Capitol will move forward and do so hastily to eliminate
    this uncertainty that is ongoing.
        With that having been said, clearly we know there is a lot
    of uncertainty related to ACA, the implementation, the tax
    implications.
        I know the IRS has begun issuing regulations in accordance
    with the President's health law with many more coming. In fact,
    I have these two binders right here. These are the regulations,
    revenue proceedings, revenue rulings, and Treasury decisions to
    date, encompassing some 17 new regulations the IRS has
    published so far, that will require nearly 80 million hours of
    compliance work by taxpayers annually. Eighty million hours so
    far.
        This is according to the IRS and the Office of Management
    and Budget materials published in the Federal Register.
        This includes over 25 million hours for information
    reporting by tax exempt organizations, over 40 million hours
    for small businesses, and almost three million hours for the
    self employed.
        This additional 80 million hours is based only on what
    regulations have been published already, not on those coming.
    That is my understanding.
        Mr. Miller, can you give us an estimate of the regulatory
    burden expected once the President's law is fully implemented?
        Mr. MILLER. First, I guess, Mr. Chairman, I do not know the
    80 million figure, so I am not prepared to speak to whether
    that is correct or not. I am assuming it is correct, but I do
    not have that figure.
        Chairman BOUSTANY. This is from IRS and OMB.
        Mr. MILLER. I do not have a sense at this point for a total
    number of hours. Until we do the regulations and complete that
    work, that really is not possible.
        Chairman BOUSTANY. I understand. Given what we have so far,
    is it possible to estimate the economic cost to our economy on
    this? Are you aware of any estimates of the economic burden
    this will impose on American taxpayers?
        Mr. MILLER. Sir, you are talking to the Administrator, Mr.
    Chairman. I would not be able to speak to the economics of the
    situation, only to our working through the provisions and
    getting the guidance out to folks that need to comply.
        Chairman BOUSTANY. This will certainly be a question we
    will need to further investigate with Treasury and others.
        The President's law creates new insurance subsidies and
    employer mandate taxes, which are tied to the subsidies. Under
    the language of Section 1401 of that law, the subsidies are
    only available to individuals enrolled through an exchange
    established by the state. That is the statute.
        Yet, in August last year, the IRS proposed a rule that ran
    counter or seemingly ran counter to the plain language of the
    statute, providing for subsidies in states regardless of
    whether that state chose to create an exchange or not.
        This gives rise to employer mandate taxes that are not
    provided for by the statute and some have alleged it was done
    at the urging of political appointees at the Treasury
    Department and the White House.
        I know your position as Administrator is well taken, and I
    understand that. Can you publicly state whether the IRS had
    received any communication from political appointees at
    Treasury or anyone at the White House urging this reading of
    the statute?
        Mr. MILLER. Let me start with how our regulatory process
    works, which is a tripartite discussion between the Department
    of Treasury, Office of Tax Policy, our Office of Chief Counsel,
    our lawyers, and the Internal Revenue Service itself, Doug
    Shulman and myself.
        The jurisdictions, the Office of Tax Policy, really plays
    lead on policy matters. We take a look and see, as the IRS, is
    the proposed rule ``administratable,'' can we do it. We all
    have a part in talking to stakeholders about the rule.
        Our Chief Counsel's Office really speaks to what are the
    permissible reading's of a particular statutory provision.
        In this case, we probably did have discussions with the
    Administration, and that is not a surprise because where there
    is a multi-agency regulation, generally that will happen. Who
    in particular was briefed, I do not know.
        What I can say and what I want you to take away from this,
    Mr. Chairman, is the decision as to whether our reading of
    Federal versus just state was correct was made by our Counsel's
    Office at the IRS. We believe it is the correct legal
    interpretation.
        Chairman BOUSTANY. This was not solely an IRS determination
    but it was done with legal counsel at IRS in combination with
    those at Treasury and the White House?
        Mr. MILLER. You are putting the White House in there, and I
    do not know they were involved. The decision on whether the
    regulation contained a provision--to step around that a little
    bit, our position, and it is the IRS' position, is that you
    cannot read that statutory provision alone. You need to look at
    not only the text but the context, the purpose, and the
    structure of the statute.
        Our reading that a Federal exchange can provide a subsidy
    is a preferred reading, and it is the finding of the Chief
    Counsel's Office at the IRS.
        Chairman BOUSTANY. Okay. What we would like as a
    subcommittee are the dates and participants at all meetings,
    notes from those meetings. Certainly documents relating to that
    determination that the insurance premium subsidies apply to the
    Federal exchanges, Federally created exchanges.
        This is clearly something we dispute because the reading in
    the statute seems very clear. As you cite other aspects of the
    law, we would like to know what other aspects in the law were
    used in that determination by legal counsel and all outside
    input, including if indeed there was input from White House
    political advisors, but certainly I know Treasury was involved
    in this because it is a policy matter.
        Mr. MILLER. Right.
        Chairman BOUSTANY. If you could provide that to us as
    promptly as possible, we would certainly appreciate it.
        Mr. MILLER. We will be glad to respond.
        Chairman BOUSTANY. Thank you. With that, I will be happy to
    yield to my friend, the Ranking Member, for questions.
        Mr. LEWIS. Thank you very much, Mr. Chairman. Mr. Miller,
    at this moment today, do you expect IRS to be ready for the
    health care law by 2014?
        Mr. MILLER. Absolutely, Mr. Lewis.
        Mr. LEWIS. You do not have any reservation, you are ready?
        Mr. MILLER. We are ready. We will be ready. Based on what I
    know, based on our level of effort to date, based on the
    planning and structures we have put in place, we will be ready
    on the exchange related provisions and other provisions of the
    ACA.
        Mr. LEWIS. Will the administration of the health care law
    harm the IRS' core revenue collection mission?
        Mr. MILLER. I do not believe so. I will step back from that
    question, Mr. Lewis. I do not recognize core versus non-core in
    terms of the IRS' work. This is what we do. Congress passes a
    statute, whether it is a charitable deduction or whether it is
    a home mortgage deduction, some of those things have varied
    purposes, but they are in the Tax Code.
        We consider the ACA to be our core work. It is part of our
    core work.
        Mr. LEWIS. Mr. Commissioner, has the IRS been listening to
    and working with outside stakeholders to provide guidance that
    is responsive to their needs?
        Mr. MILLER. We have. In fact, I would note for the
    Chairman, in that big book, a whole bunch of that book are
    requests for comments and suggested safe harbors, and all the
    types of things we ought to be doing to engage the business
    community and others before we put out final rules.
        Mr. LEWIS. As part of carrying out the health reform law,
    does the IRS plan to conduct education, maybe workshops,
    activities, outreach to taxpayers, employers and tax
    professionals? What has the IRS done so far?
        Mr. MILLER. Again, here we are guided in our approach by
    the effective date of the provision. For example, the early
    provisions, we did something in excess of 1,500 meetings with
    small business over the tax credit for small business. We have
    done a couple of hundred meetings with folks in the tanning
    industry.
        We have tried to engage those folks. As we move into 2013,
    we will obviously start working on what is going to happen with
    the health care credits later in that year.
        This past year, we engaged more than 10,000 return
    preparers at our various tax forums around the country to try
    to educate them on what is here today and what is coming in the
    next year.
        We have a very active outreach program.
        Mr. LEWIS. Mr. Miller, for the year 2013, the IRS requested
    about $270 million for technology and operational support to
    deliver new tax credits.
        I want you to explain to Members of the Committee why
    additional money is needed for the IRS' computer system and how
    the computer system will be used to deliver the tax credits.
        Mr. MILLER. IT builds are considerable. The first that is
    necessary is we are obligated under the statute to provide some
    taxpayer information, to provide income and family size, so
    that the exchanges can do their work as people come in to sign
    up and get the right amount of advance premium.
        That work continues. We are working incredibly well with
    HHS and CMS to make sure that happens. That will be in place
    for the open season, which begins in late 2013. That is the
    first build.
        We also have a build where we will have to receive the
    information returns from various parties to ensure that the
    correct amounts are being paid out and verify that. That work
    becomes very important as we have the filing season for 2014.
        We have a whole array of work with respect to the exchange
    related provisions, and then there are some other provisions as
    well that require IT work.
        We do have significant building to do in the IT arena.
        Mr. LEWIS. Thank you very much, Mr. Miller. I yield back,
    Mr. Chairman.
        Chairman BOUSTANY. Ms. Jenkins, you are recognized for five
    minutes.
        Ms. JENKINS. Thank you, Mr. Chairman. Thank you for holding
    this hearing, and thank you, Commissioner Miller, for being
    here.
        Commissioner Shulman has said the President's health care
    law, and I quote ``Fragmentation of operational workload
    increases the difficulty of execution and will require an
    extraordinary amount of coordination with other players in the
    health care system.''
        For example, HHS will have to reach out to IRS to verify
    income and family size. Homeland Security might have to verify
    immigration status. The Social Security Administration might
    have to verify citizenship.
        All of this is occurring while a trillion in subsidies will
    be flying out the door.
        Are you aware of any previous law that has ever required
    the IRS to interact so extensively with other governmental
    agencies, and what sort of stress will this extension
    interaction place on the IRS' core function?
        Mr. MILLER. We share taxpayer information under very
    stringent restrictions with an awful lot of folks, with the
    state tax authorities, the state Medicaid authorities, with
    Social Security. We have a long history of doing it. It does
    not stress us.
        It does require us to work very hard to ensure that the
    safeguards are in place, that that taxpayer information is
    protected.
        Ms. JENKINS. No extra heavy lift on your part to
    coordinate?
        Mr. MILLER. As I mentioned, the IT work itself is a decent
    lift for us. We are working on that and we will succeed on it,
    but it is a decent lift.
        Ms. JENKINS. Okay. The insurance premium subsidy will be
    based on a new definition of IRS household income, which is
    affected by the make up of families' income, their personal
    finances and other personal matters.
        Under the President's health care law, individuals are
    responsible for informing governmental officials at the
    insurance exchange if they have changes to their household
    income during the year. This would be the adjusted size of
    their subsidy; is that correct?
        Mr. MILLER. I am less familiar with that piece of that
    because that is not really the IRS piece.
        It is true that when you come in the door to sign up for
    coverage and for an advance premium, there will be a discussion
    of what is your tax situation, what is the appropriate amount
    of the premium.
        As things change during the year, I believe there is an
    obligation to come back and talk to the exchange about whether
    that impacts the amount of the premium.
        Ms. JENKINS. If I lose a current job or get demoted, lose
    pay or get a raise, any change in all of that, as you
    understand, I would need to inform a governmental official at
    the exchange?
        Mr. MILLER. I do not know. I am quite sure it is not any
    change, Congresswoman. I cannot speak to that because that is
    an HHS sort of job to define that.
        Ms. JENKINS. Is there somebody that could get us that
    information?
        Mr. MILLER. I would think HHS would be the place to go for
    that.
        Ms. JENKINS. Okay. Thank you. I yield back.
        Chairman BOUSTANY. Mr. Kind.
        Mr. KIND. Thank you, Mr. Chairman. Thank you, Mr. Miller,
    for your testimony here today and the service that the IRS
    provides our Nation overall.
        I guess, Mr. Chairman, the big news this week for the
    Affordable Care Act that was revealed was Mitt Romney's embrace
    of some of the provisions that are part of the Affordable Care
    Act.
        To tell you the truth, it is not too surprising. For anyone
    who has read the actual legislation and understands what is in
    it and the provisions contained there, there has been wide
    embrace on both sides of the aisle on a variety of provisions.
        I think Mitt Romney in the light of honesty and full
    disclosure admits himself there is a lot in the Affordable Care
    Act that he can work with, that he would like to preserve if he
    was elected President.
        I thought that was a very revealing comment, but also not
    surprising given that he is the one that implemented his own
    health care reform, much of which was adopted with the
    Affordable Care Act here in Congress.
        Whether it is preexisting conditions, young adults staying
    on their parents' plans, I think the Governor has acknowledged
    there is a lot of good aspects of the Affordable Care Act that
    should be preserved and should be protected. I thought that was
    a very revealing and helpful comment.
        I agree with Mr. Lewis. I think it is helpful for us to
    have from time to time oversight in hearings to see about the
    implementation of the Affordable Care Act, especially the IRS'
    role in all of this.
        I think we have heard Mr. Miller testifying in regard to
    some of the resources that IRS is requesting and what that
    money is going to be used for.
        My sense is, and correct me if I am wrong, that the vast
    amount of the resources will be used as far as outreach and
    education and also some of the infrastructure needs that the
    IRS has in implementing the Affordable Care Act; is that right?
        Mr. MILLER. That is correct. The biggest amount of the $360
    million asked for in 2013 is actually for the IT build that we
    have talked about. A very small amount of it is enforcement or
    service, much of the balance is infrastructure to set up the
    processes to succeed.
        Mr. KIND. Mr. Lewis also asked you to respond to the
    outreach that is currently being conducted to the variety of
    stakeholders out there, whether it is businesses, individuals,
    tax preparers, things of that nature.
        How would you describe that relationship and that
    communication with a lot of the requests for information coming
    into the IRS today?
        Mr. MILLER. I think it has been robust. I think the second
    panel will be a perfect panel to talk to about that issue. I
    think overall, we have gotten a great response. Obviously,
    there is a great deal of interest, and most things, I think,
    people can live with and some things, they are continuing to
    talk to us about, which is the nature of a decent discussion, I
    believe.
        Mr. KIND. Will the IRS be involved at all in the
    enforcement of the Affordable Care Act, the requirement for
    health insurance for individuals?
        Mr. MILLER. We will. That is a tax provision.
        Mr. KIND. To what extent will you be involved with that?
    Will this be conducting audits of individuals or businesses or
    what?
        Mr. MILLER. I think, if I understand the question, Mr.
    Kind, and I alluded to this in my oral, with respect to the
    individual coverage provision, the IRS will, I believe--we have
    talked about this--there will not be revenue agents involved in
    this. These will not be audits. This will be a matching
    process. It will be something similar to what we see when we
    get in bank information with interest on it.
        There will be a match to see whether there has been
    insurance. There will be correspondence with the individual, if
    it looks like they are not entitled to an exemption, and they
    will have the ability to converse with us about whether or not
    there should be a payment or not.
        To the extent there is a payment, the statute is very clear
    in what we can and cannot do. We cannot do liens. We cannot do
    levies. We cannot do seizures. We cannot do criminal
    prosecutions.
        The vast majority of people in this category, they will pay
    the money they owe. That is the way the American system works.
    More than 70 percent of the money that we collect from the
    balance of dues is collected not through drastic collection
    action, but when we correspond with someone, when we give
    notice or other correspondence.
        I have no doubt that most people will comply with the
    payment. Those that do not, we have a limited amount that we
    will be able to do with respect to them, and we have talked
    about that at the end of the day, it might be an offset of----
        Mr. KIND. Some opponents in the past of the Affordable Care
    Act claim the IRS is going to have to staff up to the tune of
    16,000 enforcement agents. Is there any basis for that number?
        Mr. MILLER. There is no basis for that number.
        Mr. KIND. Thank you, Mr. Miller. Thank you, Mr. Chairman.
        Chairman BOUSTANY. Thank you, Mr. Kind. Before we go to Mr.
    Marchant, just a quick follow up. I know you mentioned a
    significant amount of money requested for IT implementation. I
    just want to remind you that Mr. Lewis and I sent a letter not
    long ago. We are still waiting on a response.
        It is about the IRS and what is going on with the money and
    the allocation for IT.
        Mr. MILLER. We will get you that letter this week.
        Chairman BOUSTANY. I appreciate it. Thank you. Mr.
    Marchant?
        Mr. MARCHANT. Thank you, Mr. Chairman. Mr. Miller, I would
    like to explore the new concept to the IRS of the household
    income. Since it is a brand new concept, is it a legal concept
    to the IRS at this point?
        Mr. MILLER. It is in the statute itself. It is defined in
    the statute. It is a statutory provision.
        Mr. MARCHANT. Has the IRS made preliminary findings on what
    constitutes a household?
        Mr. MILLER. I think we have. I think the statute sets it
    out. The statute basically says modified or adjusted gross
    income, which basically is off your tax return. The only twist
    to that is you have to add in for your family size, where you
    are taking a dependent, and that dependent is filing a tax
    return, that dependent's income has to be added in as well.
    That is the only real difference. There are very few people in
    that category, Congressman.
        Mr. MARCHANT. Is it the IRS that will be the final person
    who decides what constitutes that household unit or will it be
    the exchanges?
        Mr. MILLER. I believe, if I am understanding the question,
    that the IRS will be providing the exchange with information on
    any dependents that are filing a tax return in that unit.
        Mr. MARCHANT. If you have two people unmarried living under
    the same roof, each having a child, will that constitute a
    household, and which of the tax returns will be the main tax
    return that will constitute--that will apply to the exchange?
        Mr. MILLER. I will come back in writing if they tell me I
    am wrong, Congressman, but it is going to depend on who is
    taking whom as a dependent. The household is that individual
    who has some people being taken--who is taking some people as a
    dependent on their return.
        I do not know in a given situation whether the two
    unmarried folks have a dependency relationship in that respect
    or not or whether the children do or not. It really is going to
    depend--the definition of ``household income'' is your modified
    adjusted gross income subject to some foreign provisions in tax
    exempt interest, and the income from those who you have taken
    on your return as a dependent provided that dependent has filed
    a tax return.
        Mr. MARCHANT. If you had two adults living in the same
    household that filed separate tax returns, would a married
    couple filing separate tax returns be constituted as a
    household?
        Mr. MILLER. Well, I will answer the question in a different
    way, which is if you are married under ACA, to get the premium
    tax credit, you must file married, filing jointly. That is an
    eligibility requirement for the credit.
        Mr. MARCHANT. The physical living together has no part of
    the definition of ``household.'' It is defined by virtue of the
    IRS Code, purely?
        Mr. MILLER. The physical proximity might have an impact on
    the dependency claim on the tax return. Again, it ties off to
    whether you are a dependent on that person's return.
        Mr. MARCHANT. For the first time ever, it will be the IRS'
    job to compile this and go through a separate step and define
    ``household income?''
        Mr. MILLER. The only separate step, Congressman, is
    including the income from a dependent who is filing a tax
    return. To be quite frank, you should have a general feel for
    what that income is if you are taking that person as a
    dependent because that is part of the test of taking that
    person as a dependent.
        Much of that if not all of that discussion should be
    occurring already.
        Mr. MARCHANT. Heretofore, all of this information has been
    passed to the states and HHS basically on an individual basis,
    an individual tax return basis.
        Mr. MILLER. Rather than as a household. I do not know the
    answer to that one, Congressman. I apologize.
        Mr. MARCHANT. Will the states get more information about
    households and IRS returns and will there be more people at the
    state level able to view more information about a person's IRS
    income and IRS status than ever before?
        Mr. MILLER. To the extent that the exchanges are using this
    for eligibility purposes, then those are new purposes, and
    probably new people that are taking a look at that data.
        Mr. MARCHANT. Thank you.
        Chairman BOUSTANY. Mr. Reed.
        Mr. REED. Thank you, Mr. Chairman. Thank you, Mr. Miller,
    for being here today.
        I just want to follow up quickly before I get to another
    point on Mr. Kind's comment. When he asked you about the 16,000
    new employees for the IRS, you quickly and confidently said
    there was no basis for that number.
        It is clear to me that you have taken a look at that
    situation in depth to be able to make such a quick response and
    confident response.
        What I am going to ask you, Mr. Miller, is in 2012, I
    believe there were 1,278 additional employees to implement the
    Affordable Care Act that were requested and put forth in the
    IRS. In 2013, 859 new employees.
        Do you agree with those numbers of employees that were
    increased in the staffing for IRS to implement the Affordable
    Care Act?
        Mr. MILLER. No. It is a mis-reading. The total number of
    people working on ACA in 2012, and I will be wrong on the
    specific number, but something like 670.
        Mr. REED. 670 for 2012. For 2013, how many new employees
    will be doing that work, or is it just 670 is all you are going
    to need?
        Mr. MILLER. It is the 670 plus the increment to get to the
    859 you were talking about. 859 is the total number of folks.
        Mr. REED. 670 in 2012 and the difference between 859 and
    670 would be the increase for 2013.
        Mr. MILLER. Right.
        Mr. REED. From 2012 to 2013, the testimony is 859 new
    employees?
        Mr. MILLER. No, sir.
        Mr. REED. I am confused. Please correct me.
        Mr. MILLER. Again, the total number of employees will be
    859 employees in 2013. They are not additive. We already have
    670, whatever the math is. I cannot do the math off the top of
    my head.
        Mr. REED. The total for the 2 years, 2012 and 2013, is 859?
    Is that what you are saying?
        Mr. MILLER. No, I do not think I am saying that. I am
    saying in 2012, we had 670 people work on it. In 2013, our
    intention is to have 859 work on it. They are separate numbers.
        Mr. REED. Let's go forward, 2014, the bulk of the law goes
    into further implementation, how many additional employees do
    you feel are going to be either hired or allocated to implement
    the Affordable Care Act thereafter?
        Mr. MILLER. That number we are working on as we speak. We
    have a draft 2014 budget that is floating up into a discussion
    with Department of Treasury, OMB, and that will be part of the
    administration's budget.
        Mr. REED. Okay. You are working on an estimate, you are
    working on a proposal. What does that estimate show you right
    now at this point in time?
        Mr. MILLER. I do not have that number for you because
    again, it is an estimate and it has not been approved.
        Mr. REED. You are working on it, I would hope.
        Mr. MILLER. Yes, we are working on the 2014 budget, which
    is due in January.
        Mr. REED. The employment needs for the IRS in 2015 and
    beyond, I hope you are doing some projections as to what you
    are going to need in order to implement the law.
        Mr. MILLER. That becomes more difficult because again we
    operate on an annual basis. We are working on 2014 and we will
    see what we have in 2014, and that will inform along with where
    we are on various other business processes, what we desire in
    2015. We do not have details.
        Mr. REED. That concerns me, Mr. Miller. You are the agency
    that has been responsible or charged with responsibility for
    implementing this law. What you are telling me is you really do
    not have a clear indication as to what employment burdens are
    going to be put on the IRS as a result of this law. That is
    very concerning to me.
        Would you agree that is concerning to a Member of an
    oversight Committee on your agency, that the agency should have
    some type of projection as to what those employment burdens are
    going to be and the costs associated?
        Mr. MILLER. Mr. Reed, I understand your point, and if you
    were to give me a budget for multiple years, I might have a
    better sense of what I could do or not.
        The budgetary process is an annual process. It is difficult
    for me given the scenario of budgets to have a precise number
    for you at this point for 2015. We are working on 2014, sir.
        Mr. REED. How about anything past 2015? Nothing?
        Mr. MILLER. We will be in steady state in 2016, sir.
        Mr. REED. I have a few more minutes, I hope. I want to talk
    about the premium tax credits real quick. My understanding is
    the advance payment for that goes to the insurer.
        Mr. MILLER. The insurance company.
        Mr. REED. The insurance company, not the insured, but the
    insurer, which is the insurance company.
        Mr. MILLER. Correct.
        Mr. REED. If there is an over credit, and I know I am short
    on time, do you go back to the insurance carrier to get that
    over payment or do you go to the individual taxpayer?
        Mr. MILLER. I would be glad to answer it. I am not sure I
    understand the question, sir. I apologize.
        Mr. REED. Okay. I am out of time. I do want to follow up on
    that. I am concerned that the money goes to the carrier and yet
    the taxpayer ultimately, if it is an over payment situation,
    the money never gets from the carrier back to the individual.
    It comes from the IRS which then comes from the taxpayers.
        Mr. MILLER. There will be a reconciliation process on both
    ends.
        Mr. REED. I will submit written questions on that. I
    appreciate your input, Mr. Miller. I really do. Thank you. I
    yield back.
        Chairman BOUSTANY. Thank you, Mr. Reed. If you could
    respond to that final piece in writing.
        Mr. MILLER. We will do that.
        Chairman BOUSTANY. Thanks, Mr. Miller.
        Mr. Paulsen.
        Mr. PAULSEN. Thank you, Mr. Chairman, for conducting the
    hearing. Mr. Miller, last week we heard from the IRS about
    plans to publish revisions to Form 637 very soon. 637, that is
    the application for registration dealing with excise taxes in
    particular.
        In reviewing this form, I am looking at the form, I know
    there are a lot of items that are listed that are subject to
    the excise tax. Items like gas guzzler automobiles, sports
    fishing equipment, fishing tackle boxes, bows, quivers,
    broadheads, points, arrow shafts, also alcohol, tobacco and
    gasoline are subject to an excise tax.
        The public policy rationale in the past for excise tax has
    historically been to deter certain activities. As you know, the
    medical device tax, which is a part of the new health care law,
    is an excise tax. In my mind, the last thing we want to do is
    deter creation or innovation of these life saving, life
    improving drugs.
        Do you believe as a matter of public policy it is
    appropriate to apply an excise tax to medical devices in a
    similar category as these other items?
        Mr. MILLER. Congressman, I only administer it. I cannot
    really speak to whether it is appropriate policy in terms of
    use or not.
        Mr. PAULSEN. Do you think the line item we might see on a
    Form 637 is going to also include gas guzzling automobiles and
    life saving medical devices? Will there be a line item that
    will identify it for medical device companies in that manner?
        Mr. MILLER. I do not know specifically. We are working
    hard. We have proposed regulations out on the medical device
    tax. We are working with the industry to make sure we try not
    to burden them and get them to know the rules and comply going
    forward.
        I am not sure on the form itself. I am not familiar with
    it.
        Mr. PAULSEN. According to the new law, the companies will
    have to begin paying this tax on January 1, which is just a few
    months from now. Am I correct in my understanding that no final
    rule has been released by the IRS yet on this?
        Mr. MILLER. Right. That is close, sir.
        Mr. PAULSEN. Without clarity of the rules, you said you
    were working with the industry, but I know they are expressing
    concern about having to comply with the new law, certainly. You
    say you are working with them?
        Mr. MILLER. We are.
        Mr. PAULSEN. There are about 7,000 of these companies
    across the country. They do a lot of medical devices. It could
    be diagnostic equipment. Many of these companies are not
    profitable. They are still going to be required to pay the tax.
    This fact does not take into account the administrative burdens
    of the tax that will come through the new IRS form, for
    instance.
        Has the IRS done a Paperwork Reduction Act analysis to
    measure the administrative burdens of the device tax on
    companies?
        Mr. MILLER. I do not know the answer to that. I can get
    back to you on that, sir.
        Mr. PAULSEN. That would be good to know. I am just curious.
        Mr. MILLER. If I could say one thing. The burden that has
    been placed on--it is a statutory provision. We did not create
    this out of whole cloth, sir.
        Mr. PAULSEN. I know there is going to be additional
    paperwork, costs for companies to comply with the tax. It is
    also my understanding that the excise tax payments are
    traditionally collected semi-monthly or every 2 weeks.
        Do you think that model would fit for many of these
    companies which have the experience essentially of making
    estimated income tax deposits on a quarterly basis, but they do
    not have any experience in the Federal excise tax component,
    and I do not think they have systems in place for calculations.
        Is there consideration being taken into account for that?
        Mr. MILLER. I do not know the answer to that question
    either, sir. Again, we are working with them. The proposed
    regulations are out. The number of issues, Congressman, are not
    a myriad. There are a few issues that remain unclear and we are
    working with them on. A lot of this has been put out and
    discussed.
        Mr. PAULSEN. Okay. Mr. Chairman, I just raise some of these
    issues because I think we are clearly going in a precarious
    situation or dangerous situation for a lot of these companies
    that provide a lot of jobs, it is domestic manufacturing, and
    we have analyzed a little bit of what the effects of the tax
    would be.
        We have tried to stop it. We have repealed it in the House
    in a very strong bipartisan vote.
        Now that we are moving forward on January 1 and these
    companies are laying off employees already, I want to make sure
    we are also taking into account the paperwork connections and
    the IRS following up on the Paperwork Reduction Act analysis
    and process as well.
        I yield back.
        Chairman BOUSTANY. I thank the gentleman. I think the
    gentleman is correct in that we have a lot of uncertainty in
    the policy of the law but also concerns about the
    implementation, too, and the timing.
        This is creating uncertainty for business, and it is
    certainly not helping our economy.
        Ms. Black, you are recognized for 5 minutes.
        Mrs. BLACK. Thank you, Mr. Chairman. Mr. Miller, I want to
    go to the privacy issue. As we know, there are few things more
    sacrosanct to people than having their tax information known
    broadly and widely to other folks.
        An entire section of the Tax Code, Section 6103, as you
    well know, is devoted to limited instances in which this
    information can be shared, but in the wrong hands, taxpayer
    information can be used to steal tens of thousands of dollars
    from the Treasury. We have already seen instances of that. We
    have had hearings here related to that matter.
        It contains information of a personal nature, about
    personal finances, and family information.
        Underneath of the President's health care law, the IRS will
    be sharing this information, this taxpayer information, more
    broadly with many more parties than you ever have before.
        While the IRS already shares some of this data with places
    like child support, we have heard about that in testimony,
    Medicaid and some other revenue collection situations, this new
    sharing is going to be much broader, especially since the
    exchange employees will be taking place.
        How do you plan to make sure this information is fully
    protected?
        Mr. MILLER. Congresswoman, this is what we do. We do this
    quite a bit already. We have hundreds of agreements with
    various governmental agencies.
        The process is quite restrictive actually, and I think if
    you would talk to other agencies, they would tell you how
    restrictive we are in terms of making sure that the information
    that is sent needs to go--once it arrives, it is stored
    properly, it is subject to appropriate controls in terms of who
    has access to it, and is subject to either destruction or
    return to the IRS when it is no longer needed.
        These are rules, and I can outline these in writing, these
    are safeguard rules, that we have an entire part of the IRS
    working with folks on.
        We will come to an agreement with a particular government
    entity or the exchange as to what is the expectation of what
    will happen with that data. We will then go on-site and inspect
    to ensure that document is correct.
        We have quite detailed rules in the area because we take it
    incredibly seriously.
        Mrs. BLACK. You already have memorandum's of understanding
    with agencies and exchanges?
        Mr. MILLER. Not exchanges at this point, I do not believe.
        Mrs. BLACK. Not exchanges. You say you already have rules
    in place?
        Mr. MILLER. We have rules in place generally,
    Congresswoman, for this sort of situation.
        Mrs. BLACK. Okay. Can you provide us with what you are
    doing with those agencies as that comes along? I think that
    will be important for this Committee, considering the fact, as
    I say, we have already had hearings about how taxpayer
    information is used by people to fraudulently get their return,
    get money back that does not belong to them.
        I think it would be important for this Committee, this
    oversight Committee, to know that we are protecting even more
    information with even more people that are going to have access
    to this.
        My next question is what will be the repercussions against
    exchange employees or contractors that mis-use taxpayer
    information? Do you already have something in place?
        Mr. MILLER. I will come back to you on that, but I believe
    they are subject to the same restrictions as I am in terms of
    being subject to criminal prosecution and other penalties for
    disclosing that information.
        Mrs. BLACK. I would appreciate you keeping this Committee
    in touch with what you are doing so we can be sure that
    absolutely is happening considering all the things that are
    happening with people's information right now.
        Thank you. I yield back the balance of my time.
        Chairman BOUSTANY. Thank you. Mr. Miller, I think that
    concludes our questioning. We appreciate you being here today
    and providing this information.
        Of course, there is more work to be done as we look at the
    implementation of this. We look forward to hearing from you in
    the future. We appreciate your testimony and your forthright
    answers.
        Mr. MILLER. Thank you.
        Chairman BOUSTANY. We are going to ask the next panel to
    come forward, and we will start taking testimony. We will
    recess, as I mentioned earlier, to attend the commemoration,
    and then we will resume at 11:30.
        We will ask the next panel to come up and we will try to
    get through some of the testimony.
        I want to thank our next panel of witnesses for being with
    us today. We have four experts on this subject.
        First, we will hear from the Honorable Fred Goldberg, a
    partner of SkaddenArps, a law firm here in Washington, DC. Mr.
    Goldberg is a former IRS Commissioner, former Assistant
    Secretary of Treasury for Tax Policy.
        Next, we will welcome Kathy Pickering. Ms. Pickering is
    Executive Director of The Tax Institute and Vice President of
    governmental Relations at H&R Block.
        Third on the panel is Scott Hodge. Mr. Hodge is President
    of The Tax Foundation here in Washington.
        Finally, we will hear from Mr. Seth Perretta, a partner of
    the law firm Crowell and Moring.
        We want to thank you all for being with us today. The
    Committee has received your written testimony and it will be
    made part of the formal hearing record. Each of you will be
    recognized for 5 minutes for your oral remarks.
        Mr. Goldberg, we will start with you for 5 minutes. We will
    try to get through two statements. We will recess and come back
    promptly at 11:30.
        Mr. Goldberg, you may proceed.

    STATEMENT OF FRED GOLDBERG, JR., PARTNER; SKADDEN, ARPS, SLATE,
                             MEAGHER & FLOM

        Mr. GOLDBERG. Mr. Chairman, Ranking Member Lewis, Members
    of the Committee, it is an honor to appear before you today to
    discuss the impact of certain revenue provisions of the
    Affordable Care Act on taxpayers and the IRS.
        I am appearing today solely in my individual capacity.
        Many years ago, I had the pleasure of appearing before this
    Committee during my time as IRS Chief Counsel, as IRS
    Commissioner, and as Assistant Secretary for Tax Policy.
        Your Committee has a long bipartisan history of concern for
    effective tax administration and your efforts have served the
    American people well.
        Before starting, I would like to make a preliminary
    observation. The administrative, behavioral and tax compliance
    issues you are considering are inherent in any policy that
    provides phased out tax credits to subsidize the purchase of
    health insurance, including, for example, the Ryan-Wyden
    proposal. They are not unique to the Affordable Care Act.
        Much of my written statement explains in some detail why my
    experience as IRS Commissioner convinces me that the revenue
    provisions of the Act in their current form will become a
    burdensome, costly, and frustrating quagmire for millions of
    Americans, and will cause significant non-compliance with our
    tax laws.
        My oral statement does not address portions of my written
    statement dealing with adverse impact of the Act's financial
    incentives on employers and individuals, but I will be happy to
    answer any questions.
        What I want to emphasize today is my experience as IRS
    Commissioner also convinces me that these failings are
    unnecessary and are easily minimized.
        Chief Justice Roberts and four of his colleagues have
    decided that the revenue provisions of the Act are all about
    the government's taxing power.
        I believe they got it right and the best way to avoid
    administrative, behavioral and tax compliance melt down is to
    embrace this reality.
        First, now that we know the revenue provisions are all
    about the government's taxing authority, there is no longer any
    reason whatsoever why each of 51 different exchanges should
    have responsibility for determining the proper amount of health
    insurance tax credits on behalf of millions of individuals and
    families.
        The exchanges will be starting from scratch with
    information that is 2 years out of date because personal and
    financial circumstances change. Change is the one constant in
    our real lives. The exchange's credit calculations will be too
    high or too low most of the time. Now, in hopes of getting it
    less wrong, each exchange will need to obtain sensitive
    personal and financial information from millions of individuals
    and families and it will need to do so throughout the year
    because life's changes do not follow the bookkeeper's calendar.
    These efforts will require direct interaction with millions of
    individuals and families in ways that meet their reasonable
    expectations and allow them to make timely decisions.
        Decades of IRS experience make clear that as citizens, we
    want our questions answered and our issues resolved promptly,
    properly, and in ways we understand. We are sharing intimate
    details of our personal and financial lives and expect that our
    information will remain confidential, and because the stakes
    are so significant, our health and hard-earned money, we have
    high expectations and little tolerance for mess ups.
        These responsibilities are not going to be core competency
    of the exchanges. There is no reason they should be and there
    is no chance the exchanges will get it anywhere near right.
    They are facing more than enough challenges without functioning
    as some weird hybrid of tax advisor and tax enforcer. Let folks
    figure out their expected credits with support from a long-
    established network of public and private intermediaries and
    let them make appropriate representations to their exchanges.
    They have been doing this kind of thing for decades in their
    dealings with the IRS. Taking the exchanges out of the picture
    will make things far less intrusive, burdensome, and costly and
    will save the exchanges a fortune.
        Second, from the standpoint of tax compliance, the current
    sanctions for overstating the amount of health insurance tax
    credit, coupled with limits on IRS enforcement activities,
    effectively guarantee that there will be widespread
    noncompliance. To avoid these compliance issues, treat these
    taxes like all other taxes.
        Thank you very much.
        [The prepared statement of Mr. Goldberg follows:]

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        Chairman BOUSTANY. Thank you, Mr. Goldberg.
        Ms. Pickering, you're recognized for 5 minutes.

       STATEMENT OF KATHY PICKERING, EXECUTIVE DIRECTOR, THE TAX
      INSTITUTE AT H&R BLOCK; VICE PRESIDENT, GOVERNMENT RELATIONS

        Ms. PICKERING. Good morning, Chairman Boustany, Ranking
    Member Lewis, and distinguished Members of the Oversight
    Subcommittee. Thank you for the opportunity to share H&R
    Block's views on the IRS' implementation of the Patient
    Protection and Affordable Care Act.
        H&R Block is the country's leading provider of tax
    preparation services. In each of your districts, we have on
    average 37 offices, 12 franchisees, and 323 preparers. We are
    one of the largest employers of military spouses in the nation
    and we work alongside the IRS to help taxpayers annually file
    about 25 million returns.
        Clearly, the implantation of ACA is a significant
    undertaking and we commend the IRS for the progress it has
    made; however, it will face numerous challenges and conflicting
    demands for resources.
        First, the IRS and HHS have two very different missions and
    focuses with respect to the ACA. HHS will focus on ensuring
    that everyone has healthcare coverage. The focus of the IRS
    will be on enforcing tax law, reconciling advanced payments of
    the premium tax credit, and collecting revenues from the
    various tax provisions of the ACA.
        For example, HHS has stated that an individual can enroll
    in an exchange, but using documentation from other sources to
    substantiate income levels; however, the IRS will require
    individuals to file a tax return to reconcile advanced payments
    of the premium tax credit. As a result, individuals may receive
    an unpleasant surprise when they find out that they have a tax
    liability because they improperly estimated their income. We
    recommend the IRS and HHS develop consistent processes for
    income verification and eligibility. Requiring individuals to
    provide tax return information is the most reliable, consistent
    way to provide this verification.
        The second area I wish to highlight is the need for
    finalizing regulations and educating the greater tax community.
    There are many key provisions that still need to be finalized
    in order to implement by January 1, 2014. As a franchisor, H&R
    Block is concerned about the impact and timing of new
    regulations on small businessowners. For example, small
    businessowners will need at least 4 months to plan and to
    determine if they will participate in a small business health
    options program where enrollment begins in October 2013. We
    recommend that, given the time required to publish regulations,
    the IRS should ensure all ACA regulations are proposed by April
    30, 2013.
        To be successful, the IRS and HHS must also provide
    individuals with timely education and guidance. This may be one
    of the most challenging tasks the IRS will face in 2013. We
    recommend the IRS leverage the tax preparation community
    through the Return Preparer Initiative to amplify taxpayer
    outreach and education efforts. To do so, the IRS and its
    testing vendor need to ensure they have sufficient testing
    capacity across the country to meet the December 2013 deadline;
    however, the IRS has ongoing operational challenges which will
    be magnified by the difficulties of implementing of ACA.
    Therefore, a third and final area of importance is ensuring
    readiness for the 2013 tax season.
        In the 2012 tax season, millions in refunds were delayed in
    the early season due to fraud system programming errors and
    transmission problems with the Modernized e-File System,
    coupled with a decrease in IRS toll-free phone services in
    2012. Taxpayers dealt with increased hold times and a decreased
    level of service. The IRS must complete the full transition to
    the Modernized e-File System, continue to improve fraud
    controls, respond to late tax legislation, and successfully
    implement the Return Preparer Initiative, all while handling
    the effects of a late start to the e-filing system currently
    set for January 22nd. This means that many early season, low-
    income filers will not receive their much needed refunds until
    well into February.
        We recommend that the IRS begin accepting and processing e-
    filed returns no later than January 15, 2013. Additionally, the
    IRS should maintain legacy as a contingency and provide the
    framework they intend to use to determine if it will be
    deployed. More importantly, the IRS should promptly notify the
    tax preparation community and taxpayers of problems with
    processing returns.
        In conclusion, the IRS and HHS together have a daunting
    task ahead and the IRS should use the upcoming tax season to
    improve several key areas of tax administration in order to be
    better positioned to fully implement ACA. H&R Block looks
    forward to continue to working with the IRS in these and many
    other areas.
        Chairman Boustany, thank you once again for organizing
    today's hearing and for the opportunity to testify.
        [The prepared statement of Ms. Pickering follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman BOUSTANY. Thank you, Ms. Pickering.
        We are now--the Committee is now going to recess for the
    commemoration of 9/11. I appreciate the panel's patience with
    us. We will promptly reconvene at around--right about 11:30 at
    the conclusion of that commemoration and we will proceed from
    there.
        So we thank you. Committee stands in recess.
        [Recess.]
        Chairman BOUSTANY. We would like to reconvene the hearing.
    I would ask the panelists to please take their seats.
        The Subcommittee thanks you all for your patience with this
    delay we have had and--but, anyway, we will continue onward.
        And Mr. Hodge, you are recognized for 5 minutes for your
    oral statement.

       STATEMENT OF SCOTT A. HODGE, PRESIDENT; THE TAX FOUNDATION

        Mr. HODGE. Thank you, Mr. Chairman and Mr. Lewis and
    Members of the Committee. I really do appreciate the
    opportunity to talk about this important topic.
        I am sure you all agree that the ideal tax system should do
    only one thing and that is raise a sufficient amount of
    revenues to fund the government activities with the least
    amount of harm to the economy, but by all accounts, the U.S.
    Tax Code is far from that ideal. Our current tax system is a
    byzantine monstrosity that spans 70,000 pages, costs taxpayers
    more than $160 billion a year to comply with, and now dictates
    virtually every aspect of our lives, and even before the ACA
    grafted more than 40 new provisions to the Tax Code, the
    relentless growth of credits and deductions over the past 20
    years has made the IRS a super agency, engaged in policies as
    unrelated as delivering welfare benefits to subsidizing energy-
    efficient refrigerators.
        Although the IRS's annual budget may be relatively small,
    it is essentially controlling vastly more budgetary resources
    than any cabinet level agency. The more than 170 different tax
    expenditure programs in the Tax Code have a total budgetary
    cost of over $1 trillion and these myriad tax provisions were
    enacted to achieve all manner of social and economic
    objectives, but the most troubling development in recent years
    is that the expanded use of these tax credits to deliver social
    policy has knocked millions of people off the tax rolls and
    turned the IRS into an extension of the welfare state, a role
    that it has not managed very well, and today there are a record
    number of Americans, 56 million in all, 41 percent of all
    filers now pay no individual income taxes because of the
    generous credits and deductions, and worse yet, the IRS now
    gives out more than $100 billion in refundable credits to
    people who have no income tax liability.
        In 2010, the budgetary costs of both refundable and
    nonrefundable tax credits exceeded $224 billion, and to put
    this in perspective, if tax credits were combined into a single
    program, they would be the fourth largest domestic program
    behind Social Security, Medicare, and Medicaid, and the ACA's
    generous tax credits and cost sharing programs will no doubt
    increase the number of non-payers and increase the IRS's role
    as a deliverer of social benefits and the IRS has a dismal
    record of managing these tax credit programs. So we should
    expect the ACA to lead to billions of dollars in fraud, abuse,
    and erroneous payments.
        The Treasury's own IG for tax administration has testified
    here that refundable credits are a magnet for unscrupulous
    individuals who file erroneous claims for these credits and the
    IRS' failure to rein in the sizable amount of fraud and
    improper payments in programs such as the EITC and the Hope
    Credit should give us great concern about the ability of the
    IRS to skillfully manage the ACA, and the IRS stumbled out of
    the gate in implementing some of the earliest and perhaps the
    simplest provisions of the ACA, such as the Small Business
    Healthcare Credit and the indoor tanning tax.
        Many businessowners said that the benefits of the Small
    Business Health Insurance Credit was not worth the effort and
    you can't blame them considering that calculating the credit
    takes multiple steps and seven different worksheets, and the
    IRS also had difficulty simply identifying the number of
    businesses who are supposed to pay the tanning excise tax.
        In many areas, the ACA makes the IRS an extension of the
    Department of Health and Human Services. The Premium Assistance
    Credit is a case in point where HHS has the authority to make
    the rules while the IRS and Treasury are responsible for doing
    the paperwork, policing the system, cutting the checks, and
    fixing any problems that may arise.
        Now, imagine if the Supplemental Nutrition Assistance
    Program were run in the same fashion where eligibility for SNAP
    benefits was determined by USDA, but the IRS was responsible
    for verifying the incomes of recipients and either giving a
    food tax credit directly to taxpayers or sending checks to
    grocery stores on their behalf. Does anyone think that that
    would make for an efficient and user-friendly system?
        The added compliance costs of the ACA will fall
    disproportionately on small businesses and the poor. Already
    about 73 percent of those people claiming their income tax
    credit pay a professional preparer to complete their tax return
    and no doubt that number will arise because of the ACA. The
    irony is that many taxpayers, low-income taxpayers, will have
    to ask themselves how much they can afford to pay a
    professional tax preparer in order to claim a tax credit that
    is intended to pay for health insurance that they currently
    cannot afford.
        In conclusion, Mr. Chairman, it is hard to believe that
    anything can make the Tax Code look simple and understandable,
    but the Affordable Care Act does just that. The solution is not
    to give the IRS more money, resources or staff. The solution is
    to reform the Tax Code and eliminate the most burdensome and
    distortionary tax preferences and return the IRS to its core
    mission of simply collecting the necessary revenues to fund
    government programs.
        Thank you very much for this opportunity. I welcome any
    questions that you may have.
        [The prepared statement of Mr. Hodge follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman BOUSTANY. Thank you, Mr. Hodge.
        Mr. Perretta, you may proceed with 5 minutes.

       STATEMENT OF SETH PERRETTA, PARTNER; CROWELL & MORING, LLP

        Mr. PERRETTA. Thank you, Mr. Chairman and Members of the
    Subcommittee. I am Seth Perretta, a partner at Crowell and
    Moring, where I lead the firm's employee benefits practice. I
    am here today on behalf of the American Benefits Council for
    whom I serve as outside health tax counsel.
        The Council's Members are principally major national
    employers, as well as health insurers and employee benefit
    advisors. Collectively, the Council's Members either sponsor
    directly or provide services to health and retirement plans
    covering more than 100 million Americans.
        I would like to briefly address three points today. The
    first concerns the job that the Treasury Department and the IRS
    have done in helping employers and others comply with the
    Affordable Care Act, the second is to refer to a few examples
    of how the agencies have resolved the challenges faced by
    employer sponsors of health plans, and the third is to mention
    some of the important decisions yet to be made.
        First, whether one believes the Affordable Care Act
    represents good policy or bad policy, everyone ought to agree
    on two points. Namely, the Act is a large and complex statute
    involving many new responsibilities for employers and other
    stakeholders, and given that reality, the Treasury Department
    and IRS have overall done a very commendable job helping
    employers and others understand and comply with the law's
    requirements.
        As referenced in my written testimony, the Council and the
    employer community as a whole have not always agreed with the
    interpretations that the agencies have made regarding certain
    provisions of the Act. For example, the agencies'
    interpretation of what constitutes a grandfathered plan is an
    example, but it has been our experience that the agencies have
    generally sought to give employers flexibility in implementing
    the law and I can say without reservation that the agencies
    have been very accessible during this process to us, not only
    welcoming input from us, but also actively seeking out our
    views on how to make the law more administratable.
        Since March of 2010, the American Benefits Council has
    hosted 14 webinars for our members on different aspects of the
    Affordable Care Act. Collectively, thousands of employee
    benefits professionals nationwide have participated. IRS or
    Treasury officials have directly presented at a great many of
    these programs and have been a very valuable technical resource
    for all of them.
        In the same vein, I just completed my term as chairman of
    the Employee Benefits Committee of the DC Bar where we hosted
    seven programs ourselves related to the ACA for the benefit of
    legal practitioners across the city. Again, the agencies'
    officials actively participated in these programs upon request.
        These sessions and other formal and informal communications
    have allowed the regulators to answer numerous questions from
    employers as well as benefit practitioners. Of equal
    importance, the agencies have used these opportunities to
    better understand the design and operation of employer
    sponsored health plans so they could address the true diversity
    of plan offerings that exist and develop rules regarding
    implementation.
        Second, time does not permit a lengthy discussion of
    specific regulatory projects, but my written testimony
    addresses some in greater detail, and of course I will be
    pleased to answer any questions you may have about them.
        The first concerns the requirement for employers to include
    the value of employer healthcare on an employee's form W-2
    starting for the 2011 tax year. Employers had many questions
    and concerns about this new requirement, including whether
    particular coverage was to be included on the form, and if so,
    how do actually value that coverage. In answering these
    questions, the IRS incorporated many employer suggestions and
    in fact gave employers a much needed one-year reprieve in
    complying with the new requirement.
        Another example concern to the law is the so called pay-or-
    play provision and the challenge of defining what constitutes
    full-time employment and whether coverage is deemed affordable.
    This is relevant both from employer penalties as well as for
    purposes of the premium tax credit. The IRS has crafted safe
    harbors that will make these determinations simpler for plan
    sponsors.
        A third example relates to the way in which IRS allows
    employers to treat multiple plan offerings for purposes of
    determining their financial obligation to pay one of the new
    fees prescribed by the law. I believe one of you mentioned the
    medical device tax. Well, this is--there is another fee called
    the PCORI fee and the IRS issues favorable guidance from the
    employer perspective that makes it easier to comply.
        Again, with respect to all three examples, it goes without
    saying that many companies may not like the underlying
    requirements, but IRS action has made compliance with these
    provisions more straightforward and flexible to accommodate a
    variety of plan structures.
        The third and final point I want to emphasize concerns the
    future. In the coming months, employers will need clear and
    easy to follow guidance in order to fulfill a number of
    reporting and disclosure obligations, including just 6 months
    from now a March 2013 notice related to state insurance
    exchanges. The IRS also needs to more fully explain how
    employers are to determine whether the plans they offer provide
    minimum value for purposes of the Act's pay-or-play provision.
    And likewise, employers who sponsor wellness programs to
    improve the health of their employees and control healthcare
    costs need to know how wellness incentives will be taken into
    account for determining whether an employer-sponsored plan is
    deemed affordable.
        With respect to these and other regulatory projects yet to
    be developed, we urge the IRS to continue to be receptive to
    input from employers in the same fashion that it has sought to
    do so from day one of the Act.
        Thank you for allowing me to testify this morning. I would
    be pleased to answer any questions.
        [The prepared statement of Mr. Perretta follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman BOUSTANY. Thank you, Mr. Perretta. We will begin
    questioning.
        Our tax laws provide financial and behavioral incentives to
    actors across our entire economy, some intended, others not.
        Mr. Goldberg, in your experience both as a government
    official in multiple capacities and a tax practitioner, I think
    you probably have a deeper understanding than most of us about
    how that all plays out. Can you describe in greater detail some
    of the unintended consequences the new law might provide?
        For example, might it provide incentives for employers to
    dump low-income employees into an insurance exchange or shift
    workers to part-time employment?
        On the individual's side, does it incentive healthy
    individuals to forgo buying health insurance until they are
    sick or injured?
        Could you comment on some of the unintended consequences
    that might ensure?
        Mr. GOLDBERG. Sure, Mr. Chairman.
        My experience tells me that the American people are
    extraordinarily responsive to incentives created by the Tax
    Code. They are aided in this process by a massive
    infrastructure of advisors. For the most part, I think this is
    healthy. This is part of who we are.
        The way the Affordable Care Act is currently structured, I
    believe that employers will have significant incentives to
    discontinue group coverage and split their savings with
    employees. I believe that is going to happen. I believe that
    the current tax penalty structure for failure to purchase
    insurance on an exchange clearly provides a young, healthy
    individual to not purchase the policy until he or she is in
    need of insurance. So this is going to happen and it is going
    to happen for sure.
        You can change it. You have decades of collective
    experience in structuring incentives. If you structure the
    incentives properly, you will change the behavior.
        Chairman BOUSTANY. Others want to comment on this, on
    unintended consequences?
        Mr. HODGE. Yes, Mr. Chairman.
        If you are looking to reduce the cost of healthcare, this
    is not the way to do it, and for instance, two taxes in
    particular, one is the medical device tax, which the ultimate
    payer of that tax will be insurance companies of the first
    order, ultimately consumers, but that will cascade down to
    consumers eventually. In addition to that, there is the fee
    that is being placed on insurance companies. That will also
    cascade down to the payers, the companies, businesses, and
    individuals.
        Chairman BOUSTANY. In higher premiums then?
        Mr. HODGE. In higher premiums. So these will actually jack
    up the cost of premiums in insurance. So if the intended goal
    is to reduce that, this is going to have a contrary effect.
        Chairman BOUSTANY. Thank you.
        Others want to comment on this?
        Mr. Hodge, you made a comment in your statement and it is
    also in your written statement about the tax credits that we
    have thrown throughout our entire Tax Code and the sheer
    complexity of this and you made a statement and I want to make
    sure I have this correct. It constitutes the--it would
    constitute the fourth largest social welfare program.
        Mr. HODGE. That's correct, Mr. Chairman.
        If you add up to the total cost in both the refundable and
    nonrefundable costs of all of the tax credits that are
    currently administered, it would be the fourth largest domestic
    program in the budget. They currently total $224 billion and
    that would make them fourth only to Social Security, Medicare,
    and Medicaid.
        Chairman BOUSTANY. And so now we are going in a direction--
    with ACA we are going in a direction of more complexity in the
    Tax Code rather than the stated goals of trying to get to a
    simplified Tax Code with lower rates?
        Mr. HODGE. Well, we have certainly turned the IRS now into
    a full-blown governmental agency managing vast numbers of
    programs in a way that it was simply not intended to do.
        Chairman BOUSTANY. Thank you.
        And I would like to hear from the panel on how the new
    responsibilities from the healthcare law might affect the tax
    gap. I think when I read through testimony, this was raised,
    and Mr. Goldberg, I know you mentioned a threat of an increased
    tax gap in your written testimony. Could you expand on that?
        Mr. GOLDBERG. Yes, Mr. Chairman.
        Again, I have a simple story. This is a tax. Treat it like
    a tax. The current penalties for noncompliance, and I am
    talking principally about on the credit side, there is no
    interest, there are no penalties. The IRS is not going to
    engage in its customary enforcement efforts. This is an ugly
    story. It is not happy, but it is true, and if you give--if you
    simply let the IRS do its job the way it does elsewhere, you
    will mitigate significantly these compliance problems.
        It is not a perfect marriage, but it has been around a long
    time and despite what others say, I believe the IRS and
    taxpayers pretty much have worked it out pretty well and if you
    are going to go down this road, let taxpayers do their job, let
    the IRS do its job, and I believe it will significantly
    minimize noncompliance, but as currently structured, it is
    going to be a mess.
        Chairman BOUSTANY. So we will see a widening of the tax
    gap?
        Mr. GOLDBERG. Yes, sir.
        Chairman BOUSTANY. And the revenue generated from these
    taxes in ACA are basically a significant part of the funding of
    the new program, the coverage expansion; is that correct?
        So we are going to see a widening tax gap, but also
    significant underfunding of the proposed program; is that a
    fair statement?
        Mr. GOLDBERG. I believe it is, Mr. Chairman. I think your
    Committee historically has done an admirable job bipartisan
    supporting adequate funding for the IRS. They are charged with
    immense responsibility and they should be funded properly to
    discharge it.
        Chairman BOUSTANY. Thank you.
        Others want to comment on the tax gap issue? No.
        Thank you. That's all I have.
        Mr. Lewis?
        Mr. LEWIS. Thank you, Mr. Chairman.
        I want to thank each one of you for being here today,
    taking the time and being so patient.
        Mr. Perretta has reached out to the IRS on issues related
    to health reform, to the health reform law, and what have been
    your experience in term of the IRS responding?
        Mr. PERRETTA. I speak with folks at the IRS and Treasury on
    issues both on behalf of the American Benefits Council and on
    behalf of my issuer and employer clients on a very frequent
    basis. I would say I speak with them probably on a biweekly or
    certainly once a month on issues of emerging importance in
    terms of figuring out how to comply with these rules and I can
    say that the response has always been fantastic.
        The IRS and Treasury, I really think, in many respects as a
    Federal agency are a model for making themselves available to
    help comply with their rules. They always make themselves
    available to provide both explanations on an informal basis to
    individual practitioners, but also to larger groups.
        As I mentioned, as chairman of the DC Bar Employee Benefits
    Committee, we hosted several programs and several--seven or
    eight programs since 2010 on the ACA and you call around town
    and you try to get people from the agencies to come speak to
    practitioners who are trying to understand these rules and help
    employers understand these rules, and I can say without a
    doubt, the IRS and Treasury have always been the most
    responsive of the agencies I have dealt with in making
    available people to help have those conversations.
        Mr. LEWIS. What type of help/assistance do employers need
    from the IRS that hasn't been issued yet?
        Mr. PERRETTA. There are sort of, I think, three really,
    really big issues. One is minimum value in order to determine
    whether or not an employer is providing coverage that will
    qualify as minimum essential coverage under the pay-or-play, so
    essentially how an employer decides whether or not they are
    complying with the obligation to provide qualifying coverage.
    The coverage must provide minimum value, and right now, we have
    a proposed sort of concept as to how minimum value will be
    determined, which we are very thankful for and very happy with,
    but I think further contours on that rule would be helpful so
    employers can understand their obligation.
        Wellness incentives, employers are using wellness programs
    to a greater extent to help both reduce the healthcare trends
    and also to make sure their employees are healthy and wellness
    incentives were codified--sorry, were addressed in regulation
    by HIPAA almost 20 years ago and it was codified by Congress in
    the ACA, and employers just want to make sure that as we move
    forward with wellness programs, that they are supported as a
    way for employers to continue to encourage their employees to
    become healthier.
        I think those would be two of the more significant.
        Mr. LEWIS. Thank you very much.
        Mr. Hodge, I am somewhat curious and maybe I just want to
    know. You seem to be saying by the IRS helping to carry out the
    mandate of the Affordable Care Act, that it is helping to
    expand the welfare state and I want to be sure that we are
    reading from the same page.
        Could you just tell me what is the welfare state?
        Mr. HODGE. I would include all of the means-tested type
    safety net programs in addition to all--many entitlement
    programs that are generally administered through HHS and so
    forth, and the IRS has now become an integral part of many of
    those welfare type programs, broadly stated, and so, yes, it is
    an integral part of the welfare state in providing basic
    assistance to people through things like the Earned Income Tax
    Credit and other sorts of refundable credits.
        Mr. LEWIS. And do you think that is a good thing or----
        Mr. HODGE. I think it is a very bad thing actually. I do
    not think it is a role for the IRS to play in that. I think for
    the IRS to be handing out now over $100 billion worth of
    refundable credits is a very bad trend.
        Mr. LEWIS. Well, who should play that role? What agency of
    the government should play that role? It is a necessary role
    for someone to play. Who should play that role?
        Mr. HODGE. Well, it is already being played in other areas
    of the government. For instance, HHS is providing that role
    through its assistance programs and now we have it duplicated
    through the Tax Code and I think that we ought to have agencies
    that specialize in it keep to their core missions.
        Mr. LEWIS. Would other Members of the panel like to
    respond?
        Mr. Goldberg.
        Mr. GOLDBERG. Mr. Lewis, I--my first presidential
    appointment was from Ronald Reagan. My second presidential
    appointment and third were from the first President George
    Bush. Each of those presidents supported increases in the
    Earned Income Tax Credit. The intellectual birth of the Earned
    Income Tax Credit is Milton Friedman.
        The IRS is the most efficient delivery of these kinds of
    incentives in the world. It doesn't regulate. It doesn't
    dictate behavior. It simply administers a pricing system. One
    would think that conservatives are particularly enamored, as am
    I, of pricing systems. The code is about our values. It is
    about homeownership. It is about education. It is about thrift.
    It is about education. It is about health. And abstract notions
    to get rid of all of that, I believe, are stillborn.
        So I think the IRS is doing a terrific job. It is a job
    that was charged with by each of my bosses, President Reagan
    and President Bush, and I think they do it very well.
        Thank you very much.
        Mr. LEWIS. Thank you, Mr. Goldberg.
        Madam Chair, I yield back.
        Mrs. BLACK. Thank you, Mr. Lewis.
        And now, Ms. Jenkins, you are recognized for 5 minutes.
        Ms. JENKINS. Thank you, Madam Chair. Thank you all for
    being here.
        Ms. Pickering, in your testimony you noted that the vastly
    different missions of the Department of Health and Human
    Services and the Internal Revenue Service has the potential to
    create taxpayer confusion and unexpected debt, tax debts, as a
    result of overpayments of subsidies. For example, according to
    HHS regs, a taxpayer does not have to file a tax return to
    substantiate their income level; however, the IRS will require
    a tax return to reconcile the advanced premium tax credit.
        Can you just elaborate on the consequences of having two
    different standards and what recommendations would you have to
    ensure that taxpayers do not receive an unpleasant surprise
    because they improperly estimated their income?
        Ms. PICKERING. Thanks for that question.
        We certainly, on the frontline as we are serving our
    clients, see from a very real and practical experience the
    challenges that individuals have in navigating the complex tax
    laws. What we are particularly concerned about with regards to,
    you know, the HHS having much looser documentation requirements
    for establishing income and eligibility, the HHS in their
    mission is motivated and incented to help everyone gain health
    coverage and the IRS is incented to collect taxes and reconcile
    that premium, and so for that, we are afraid that with
    different standards and different confusing information, and
    certainly as this is a new regulation being rolled out, we will
    see that there are many taxpayers that have not recently or
    ever been required to file their taxes will now have to enter
    into the tax system to file their taxes to reconcile that
    premium and that is going to cause some frustration, some
    surprises, and put people into a situation where they have a
    tax liability through no fault of their own, certainly not
    through, you know, bad intentions. They just didn't understand
    the regulations, estimated things incorrectly, and now find
    themselves owing money.
        Ms. JENKINS. Okay. Thank you. That helps.
        From my understanding, current law requires that if a
    taxpayer's circumstances change during the year, whether it is
    due to good news, like a new job or a raise, or because they
    lost their job, the taxpayer's responsible for updating their
    information with the exchange, potentially resulting in a large
    overpayment or underpayment if not timely reported. The
    taxpayer advocate has warned taxpayers who do not update their
    household information during the year may find that they owe a
    significant amount of money at the end of the year, money they
    likely do not have.
        Maybe, Mr. Goldberg, each of you could comment and describe
    how this requirement to provide notice and the IRS
    reconciliation process works from this perspective of just
    everyday taxpayers.
        Mr. GOLDBERG. Sure, Ms. Jenkins.
        Let me comment very briefly on your prior question.
        Ms. JENKINS. Sure.
        Mr. GOLDBERG. I believe that the issue of forcing people to
    file tax returns may be less than is generally estimated.
    Because of the way the Affordable Care Act is structured, I
    believe virtually all of--a very, very large percentage of
    those folks will receive health coverage through Medicaid
    rather than on the exchanges. There will be some exceptions and
    it is going to be a problem.
        Stepping back, I think that we have decided to run this
    through the exchanges. I believe, frankly, that was a political
    decision because people didn't want to call it a tax. That
    creates a wholly unnecessary intermediary dealing with all of
    the information you are talking about. They don't know how to
    do it. Mrs. Black, as you alluded to, it raises serious
    confidentiality and privacy--and it is just not necessary. The
    H&R Blocks of the world, the advisors of the world, the
    churches, the nonexempt or tax-exempt organizations, the IRS, I
    believe will do a credible job of educating employees and
    purchasers on the exchanges generally how the rules work.
        If you simply let the family go in and say, ``Gee, I got a
    raise, I want to change my premium,'' which families are
    perfectly capable of doing, it will work fine. If you say,
    ``You have to fill out three forms and talk with four different
    government employees, getting passed from phone to phone before
    you can make the change,'' they are just not going to do it.
        So my recommendation is you trust the individuals and
    families to make that decision working with advisors, working
    with providers, and you will significantly reduce that problem
    and I believe the IRS, properly instructed by this Committee,
    will be reasonable in dealing with the transition, but as it is
    structured, it is just a bureaucratic mess.
        Ms. JENKINS. Okay. Fair enough.
        Madam Chair, I yield back.
        Mrs. BLACK. Thank you, Ms. Jenkins.
        And Mr. Becerra, you are recognized for 5 minutes.
        Mr. BECERRA. Thank you, Madam Chair, and thank you all for
    your testimony. By the way, thanks for being patient with us as
    we went out to commemorate 9/11.
        You know, I would agree with anyone who is willing to say
    that any time you do something big, especially in a big place
    like America, it is going to take a little time to adjust.
        And, Mr. Goldberg, can I just say to you thank you for your
    constructive comments. We could be critical or critique, but at
    the same time, what we are hoping to do is have a functional
    government, and I appreciate where you point out where IRS can
    do better and where it is doing the best it can and I agree
    with you. There aren't too many governments in the world that
    can say they have as efficient a system as we do. We still have
    to figure out how we collect on that tax gap that we got, but I
    got to believe that men and women who work in the IRS, who
    oftentimes get a lot of heartburn for what they do, are trying
    to do the best job they can, especially the folks that are out
    there trying to do the enforcement, you know, trying to find
    the folks who are trying to evade paying their fair share of
    taxes.
        So I am going to be the last one that is going to sound
    like Scrooge and say that as we try to expand healthcare to 33
    million Americans who had a heck of a time trying to afford it,
    that we should try to go backward because the reality is it is
    not just about trying to help 33 million Americans and their
    families to get health insurance, quality, affordable health
    insurance for the first time. Actually, a lot more is at stake.
    There are over 100 million Americans who, beginning 2014, will
    never have to worry about a preexisting condition again. They
    all have the security of knowing that they are going to keep
    their insurance, and as we try to administer this program,
    whether through the IRS or HHS, who cares, we are trying to do
    something to help folks.
        At the end of the day, as Mr. Goldberg, I think you said,
    it is trying to make sure that government works for people,
    whether it is the IRS or any other agency, and my sense is that
    if we all work together, we can make this happen.
        Mr. Hodge, I am concerned when I hear people say that the
    IRS is taking on way too many things. It should go back to
    its--I think you said something to the effect of it should go
    back to its core responsibilities. I don't disagree with that
    except that the IRS helps people save money. Should the IRS
    stop providing assistance through these provisions that help
    people save money by encouraging them to do so and getting a
    tax break by doing so? Should the IRS not do that?
        Mr. HODGE. There are certain elements of the Tax Code that
    should be in place. We should not be taxing savings. So I don't
    consider that a ``tax break.'' It should----
        Mr. BECERRA. But we do tax it. We do tax benefits/gains
    that are made, people's income, and what we do is we give
    people a chance to not have all their income taxed if they save
    some of it.
        So should we not provide folks with that type of a tax
    credit or a tax deduction through the code?
        Mr. HODGE. We have gone way beyond that into----
        Mr. BECERRA. No, I know we have. I agree with that, but----
        Mr. HODGE.--now giving credits for replacing the windows of
    their home and buying an electric car and putting their kids in
    daycare and so forth, and so----
        Mr. BECERRA. Right. So should we return to, as you say, the
    core mission of simply collecting the necessary amount of tax
    revenues the government?
        Mr. HODGE. That is right.
        Mr. BECERRA. Okay. So then we shouldn't provide--encourage
    people, through a tax credit or a tax deduction, encourage them
    to save more money? We shouldn't encourage them through the
    homeowner's mortgage interest deduction, an incentive to
    purchase a home. We shouldn't provide them with a tax credit to
    save money to prepare to send their kids to college.
        Those are not core missions of the IRS, and from what I
    gather from your testimony, we are simply pure and have the IRS
    collect the revenues that the government needs. There are a
    whole bunch of Americans who would have a tougher time buying a
    home, saving for their kids' college education or even saving
    for their own retirement, and I understand what you are saying.
    The further away you get from your core responsibility, the
    more chance that there is mischief or a mistake, but I got to
    believe that only Scrooge would say don't try to package that
    present for that little child on Christmas Day.
        There are things that we try to do to make life better.
    Don't always get them right, but, as I think Mr. Goldberg was
    just saying, if we try to focus on doing it right, then there
    is a good chance that we are going to be helping a lot of
    Americans and in a bill that has become law, historic
    legislation, that now will extend protections against
    discrimination on preexisting condition in healthcare to 150
    million Americans or so, to extend coverage to 33 million
    American families now. I hope that what we do is just work
    together, figure out how we can help the IRS make sure it
    doesn't make mistakes and does it right so that when Christmas
    comes, everyone gets what they deserve.
        With that, Madam Chair, I will yield back the balance of my
    time.
        Mrs. BLACK. Thank you, Mr. Becerra.
        And Mr. Marchant, you are recognized for 5 minutes.
        Mr. MARCHANT. Thank you, Madam Chair.
        When I held my town hall meetings this last break, Bedford,
    Texas comes to mind, the crowds pretty consistently stood and
    delivered one message. Please simplify the Tax Code. Please
    make it to where the IRS does not have as much involvement in
    our lives. Pretty simple message from my constituents.
        When I got the briefing paper for this hearing today, which
    was a very good briefing paper, I was taken aback by the exact
    opposite. When the Affordable Healthcare Act comes into effect,
    the IRS is going to be even more involved in our lives. The IRS
    is going to be a bigger part of everybody's tax return, and in
    fact, in my opinion, people that have been doing their own
    taxes may now have to consult with someone and pay someone to
    help, and in my mind, we are going exactly the opposite
    direction.
        Yes, 33 million people theoretically will become--have
    access to healthcare, but 300 million people are possibly
    impacted by the process that we have put in place to bring
    about that change.
        Mr. Hodge, Deputy Commissioner Miller suggested that the
    process of taxpayers updating government officials about the
    details, the intimate details, of their personal and family
    lives had really nothing to do with the IRS. It was just going
    to be a simple calculation, a simple you fill out your return
    and based on what you put on the return, that was going to be
    the extent of the IRS's involvement. Do you have anything to
    say about that?
        Mr. HODGE. Well, it looks very clear, as I understand the
    legislation, and especially from what Mr. Goldberg and Ms.
    Pickering has said, the IRS will be immediately and very--and
    intimately involved in that, and if I read the briefing from
    the Joint Committee on Taxation summary of the ACA, it says
    very clearly that any adjustment to tax resulting from the
    difference between the advanced premium assistance and the
    allowable refundable tax credit would be assessed as an
    additional tax or a reduction in tax on the tax return. In many
    aspects, this will be like the Alternative Minimum Tax where it
    is sort of an accidental thing that people fall into when they
    actually fill out their tax return. It is very difficult for
    them to adjust their withholding in such a manner as to
    anticipate this situation. So they are going to be caught in
    this bureaucratic quagmire between HHS and the exchanges, which
    could make a mistake, and their own changes and their own
    situation, and then the IRS that has to rectify these.
        It is--I feel sorry for folks that are going to get caught
    up in this and they will end up on April 15th realizing a tax
    burden that they may not have seen coming and that is pretty
    frightening.
        Mr. MARCHANT. Mr. Goldberg, do you see--you made the
    comment earlier that business and individuals are very
    responsive to the Tax Code and they will sit down, they will
    figure it out. Do you see the opportunities for additional tax
    avoidance in the way these forms are filled out or do you see
    people's behavior being altered? Do you see them sitting down
    with their accountant saying, ``Okay, we may have filed this
    way before, but because of the new rules, we are going to
    decide to file this way?'' And, in fact, the Alternative
    Minimum Tax is an excellent example from my district because
    that's the number one thing in the Tax Code that catches my
    constituents.
        Will it alter the behavior of taxpayers?
        Mr. GOLDBERG. Yes, sir, I believe that it is a certainty.
    For example, if you have a young kid off on his or her own who
    is healthy, someone, I guarantee you, will tell her, ``You can
    either pay $400 to the IRS or you can pay $3,000 to the
    exchange or you can wait and when you get sick, you can buy an
    insurance policy because there is no preexisting conditions. So
    you can save 2,600 bucks a year till you get sick.'' That is
    going to happen for sure.
        So, yes, of course, and I think that is just human nature.
    That is--I mean you see nothing but human nature if you are
    running the IRS, better and worse.
        The important point I think that Congress needs to keep in
    mind is if you say you want to maintain private markets for
    health insurance and if you say I want to subsidize the cost of
    insurance for those who have difficulty paying, you have just
    said I want some form of phased-out credit. That is what you
    have just said, otherwise you can give everybody $25,000 and
    tell everybody to go buy insurance and tax it at the back end.
    That would actually work, but otherwise, you are stuck with
    this question.
        I personally think the structure of the Ryan proposal,
    setting aside the numbers, in many ways is a terrific
    structure. It was first supported by President Clinton, but it
    has the same question. How are you going to get progressive,
    subsidized subsidies from the government to buy health
    insurance? See, you got the same question any way you go. You
    got the same issues, and I believe the choice is very simple.
    For all of its problems, you either let the IRS administer
    those kinds of progressive credits or you get somebody else to
    do it, and I think it is a more prudent choice to let the IRS
    do it, but you can't avoid the choice. You go to single-payer,
    you avoid the choice, but otherwise, I think you are stuck with
    it.
        You are absolutely right about the behavior. The Tax Code
    today is grotesque. It is repulsive. It is so unneedlessly
    complex (sic). In terms of issues, your colleague across the
    capitol, Senator Coburn, is a profile in courage for calling
    out some of the needless subsidies provided by the Tax Code.
    You guys could do a terrific job to strip it down. Healthcare,
    progressive subsidies, phased-out credit, you are stuck where
    you are, whether it is Congressman Ryan or whether it is the
    Affordable Care Act. That's what I----
        Mrs. BLACK. And thank you, Mr. Goldberg. The time is
    expired. Thank you, Mr. Marchant.
        And I think, barring anyone else walking in the door, it
    looks like we are at the end, and I just want to go back to a
    question that I asked to the previous panel, Mr. Miller,
    related to the amount of information that is going to be in so
    many different places having to do with the taxpayer's personal
    information so much more than we have ever known before and
    that is a real concern for me.
        I mean obviously right now the IRS does share some of this
    data with Child Support, some with Medicaid, and maybe some
    other cases of revenue collection, but now we are going to see
    it much broader. We are going to see it where the exchange
    employees with vast amounts of information that they haven't
    previously been privy to, and I want to know from your
    perspective, each of you, if you have the same concern that I
    have, especially given the fact, as I said in the previous
    panel, that what we have seen in this Committee, as we have had
    the IRS hearings, that we know that there is fraud out there.
    There are people who have gotten refunds that didn't belong to
    them, and are--do you have a concern about where we are going
    with this?
        Mr. Goldberg, I want to start out with you and if we can
    just go down the panel, that would be great.
        Mr. GOLDBERG. Yes, I share the concern. It is one of the
    greatest concerns about the Affordable Care Act. The easiest
    solution is to take the exchanges out of that business.
        Mrs. BLACK. Thank you.
        Ms. PICKERING. Yes, I share that concern as well. We know
    that the IRS works very hard to protect taxpayer information.
    In working with HHS and the exchanges now, there is going to be
    a broader exchange of information, and while I believe everyone
    works to the--you know, to the best of their ability with the
    best intentions, there is just so much more opportunity and the
    fraudsters and the criminals are getting so much more clever in
    their ability to propagate these fraud schemes. So I think
    there is exposure and vulnerability.
        Mrs. BLACK. Thank you.
        Mr. Hodge.
        Mr. HODGE. Yeah, I too share that and I am sure every
    taxpayer fears their information getting out. They do so when
    they fill out a credit card application, a health plan.
    Everything is now accessible to these hackers and I would think
    everyone would worry that the more you disseminate this kind of
    information, personal information, the more vulnerable it is to
    that kind of mischief.
        Mr. PERRETTA. Thank you. I certainly support the comments
    of my fellow panelists here.
        I can't help but say a couple things from the perspective
    of the Council, which is employers are obviously very focused
    on employee privacy and, you know, one of the issues that
    employers were concerned about was the issue of having to
    figure out whether their health coverage was affordable because
    that is relevant to figuring out whether the employer has to
    pay a penalty, and most employers don't know what their
    employees' household income is and most employees don't want to
    tell their employers what the household income is, and
    thankfully the IRS listened to the Council and the employer
    community and they came up with the Safe Harbor Rule, which
    lets employers base affordability on the employee's W-2 wage,
    which is something that the employer will know, and so it does
    go a little bit to your point, Chairwoman, about the issue of
    privacy.
        Another issue I do want to touch on while I have your
    attention is the issue of notice and disclosure and this goes a
    little bit to the issue of flowing of information from parties,
    and I think employers, both small and large, are obviously
    concerned about the burdens that are going to fall upon them in
    terms of having to transmit, collect, store information as part
    of their obligations under the ACA and I think as the IRS moves
    forward, they have been very thoughtful in reaching out to us
    to understand sort of what our concerns are, but that is
    obviously an area where working closely with the employer
    community would be helpful since the employers will bear a
    significant piece of that burden in making sure that
    information flows in the right way.
        Mrs. BLACK. Thank you.
        Ms. Pickering, I have one additional question, one final
    question for you, and this goes back to the comment that you
    made both here and also in your written testimony about the
    concerns as preparers and getting your--the folks that work for
    you educated on what they are going to have to be doing as far
    as the rules go and I would like for you just to expound a
    little bit about how if we don't get those final rules in a
    timely manner, how this is really going to affect those who
    will be preparing those taxes for folks/the clients that you
    will be seeing?
        Ms. PICKERING. We have got a number of factors going on
    there. The Registered Tax Return Preparer Initiative is a very
    important initiative for getting all professional tax preparers
    registered with the IRS and up to--you know, up to standard
    competency levels. This is something that we have always
    supported. We think it is important for the professionalism of
    the industry, and in there, there is a continuing education
    requirement as well which says that preparers need to stay
    current on tax law.
        Now, as the ACA is rolling out as well, our clients will be
    coming to us looking forward to some additional understanding
    at least a minimum what are the tax implications to them with
    regards to the healthcare implementation and it is very
    important to have timely regulations so that all of that can be
    incorporated into the training plans and getting people
    prepared.
        So the timing of these things is critical and it is, you
    know, certainly a daunting task, but one that we look forward
    to partnering with the IRS on.
        Mrs. BLACK. Well, thank you.
        Mr. PERRETTA. Could I just add a follow-up comment?
        Mrs. BLACK. Yes.
        Mr. PERRETTA. Just to the idea that--going on that point,
    employers are often pricing their health insurance coverage 12
    to 14 months in advance.
        Mrs. BLACK. That is right.
        Mr. PERRETTA. And so when you think about having coverage
    in effect for 2014, many employers are beginning to fashion
    that coverage and make decisions about what that is going to
    look like, what their subsidies are going to be, and obviously
    playing on that point about the timely information, really the
    sooner the regulations can come out, obviously with opportunity
    for notice and comment, the better.
        Mrs. BLACK. Absolutely, and I know I am also hearing this
    from the insurance industry as well. Everybody's waiting for
    those final rules and regulations, almost that they need them
    yesterday in order to be able to give advice to their clients
    or those that are buying the product.
        Once again, I want to say thank you to the panel for your
    patience today and thank you for all of the good information
    that you provided to us.
        This hearing is completed.
        [Whereupon, at 12:20 p.m., the Subcommittee was adjourned.]
        [Submissions for the Record follow:]

                             Timothy Stoltzfus Jost

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                            William G. Schiffbauer

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