[Senate Hearing 113-440]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-440

 
                 PROTECTING TAXPAYERS FROM INCOMPETENT
                     AND UNETHICAL RETURN PREPARERS
=======================================================================



                                HEARING

                               before the

                          COMMITTEE ON FINANCE

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 8, 2014

                               __________

                                     
                                     

            Printed for the use of the Committee on Finance





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                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan            PAT ROBERTS, Kansas
MARIA CANTWELL, Washington           MICHAEL B. ENZI, Wyoming
BILL NELSON, Florida                 JOHN CORNYN, Texas
ROBERT MENENDEZ, New Jersey          JOHN THUNE, South Dakota
THOMAS R. CARPER, Delaware           RICHARD BURR, North Carolina
BENJAMIN L. CARDIN, Maryland         JOHNNY ISAKSON, Georgia
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania
MARK R. WARNER, Virginia

                    Joshua Sheinkman, Staff Director

               Chris Campbell, Republican Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     1
Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     3

                               WITNESSES

Koskinen, Hon. John A., Commissioner, Internal Revenue Service, 
  Washington, DC.................................................     5
Olson, Nina E., National Taxpayer Advocate, Internal Revenue 
  Service, Washington, DC........................................     7
McTigue, James R., Jr., Director, Strategic Issues, Government 
  Accountability Office, Washington, DC..........................    32
Cobb, William, president and CEO, H&R Block, Kansas City, MO.....    34
Salisbury, Janis, chair, Oregon Board of Tax Practitioners, 
  Oregon City, OR................................................    36
Barrick, John, Ph.D., associate professor, Brigham Young 
  University, Provo, UT..........................................    37
Wu, Chi Chi, staff attorney, National Consumer Law Center, 
  Boston, MA.....................................................    39
Alban, Dan, attorney, Institute for Justice, Arlington, VA.......    40

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Alban, Dan:
    Testimony....................................................    40
    Prepared statement with attachment...........................    49
Barrick, John, Ph.D.:
    Testimony....................................................    37
    Prepared statement...........................................    62
Cobb, William:
    Testimony....................................................    34
    Prepared statement with attachments..........................    76
Hatch, Hon. Orrin G.:
    Opening statement............................................     3
    Prepared statement with attachment...........................   126
Koskinen, Hon. John A.:
    Testimony....................................................     5
    Prepared statement...........................................   131
McTigue, James R., Jr.:
    Testimony....................................................    32
    Prepared statement...........................................   138
Olson, Nina E.:
    Testimony....................................................     7
    Prepared statement...........................................   163
Salisbury, Janis:
    Testimony....................................................    36
    Prepared statement with attachments..........................   193
Wu, Chi Chi:
    Testimony....................................................    39
    Prepared statement with attachments..........................   257
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................   288

                             Communications

Gonzalez, Manuel.................................................   291
Jennings Advisory Group, LLC.....................................   292
Latino Association of Tax Preparers, Inc. (LATAX)................   294
Maryland State Board of Tax Preparers............................   301
National Association of Enrolled Agents (NAEA)...................   302
National Association of Tax Professionals (NATP).................   306
National Society of Accountants..................................   310
Williamson, Donald T. and James Gale.............................   316


                       PROTECTING TAXPAYERS FROM



                       INCOMPETENT AND UNETHICAL



                            RETURN PREPARERS

                              ----------                              


                         TUESDAY, APRIL 8, 2014

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:08 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Ron 
Wyden (chairman of the committee) presiding.
    Present: Senators Cantwell, Carper, Cardin, Brown, Casey, 
Hatch, Grassley, Crapo, Roberts, Thune, Burr, and Isakson.
    Also present: Democratic Staff: Michael Evans, General 
Counsel; Anne Cammack, Senior Tax Counsel; Joshua Sheinkman, 
Staff Director; Todd Metcalf, Chief Tax Counsel; Maureen 
Downes, Detailee; and Juan Machado, Professional Staff Member. 
Republican Staff: Chris Campbell, Staff Director; Shawn Novak, 
Senior Accountant and Tax Advisor; Jim Lyons, Tax Counsel; and 
Preston Rutledge, Tax Counsel.

   OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM 
             OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The Finance Committee will come to order.
    There is just a week to go before the April 15th deadline 
for filing taxes, and millions of Americans are spending a good 
portion of the spring struggling to fill out tax forms and 
digging through piles of receipts in a painful annual ritual. 
The complexity of the tax code creates an environment where 
confusion and errors flourish. And the Congress is not 
blameless on this issue, and that is one reason, in my view, 
why it is time to rewrite the tax code and make filing your 
taxes easier in America.
    For many Americans, maybe even a majority, nothing will 
have a bigger impact on their pocketbooks all year long. The 
great majority of Americans want to get it right, but because 
the tax code is so byzantine and so complicated, and so 
overgrown, nearly 80 million Americans pay for help preparing 
their tax return. And what is especially alarming is that most 
of those paid tax return preparers do not have to meet any 
standards--any standards--for competence in order to prepare 
somebody else's tax return.
    Earlier this year, because of the baffling outcome of that 
Federal Appeals Court case called Loving v. IRS, protection for 
American taxpayers against incompetence and fraud among tax 
preparers has taken a significant blow. As too often seems to 
be the case in situations like this, the most vulnerable people 
in America are going to bear the brunt of the effects of this 
decision. These are often people who are struggling from 
paycheck to paycheck, counting down the days until their refund 
comes through to help them make ends meet. They could be 
seniors or working families who qualify for the Earned Income 
Tax Credit, or they could be immigrants proud to pay taxes in 
their new country who just want to make sure they are following 
the rules of a tax code that is hard for anybody to understand.
    Here is my bottom line. For the second time in 8 years, the 
Government Accountability Office has done an independent 
inquiry and proven that the absence of meaningful oversight of 
much of the tax preparer industry is harming too many citizens 
who can least afford it. The problems they run into could be as 
simple as a typo or a miscalculation on a form, but they could 
also be much worse.
    In some egregious cases, preparers calculate a taxpayer's 
refund in person and skip the line that shows who did the work. 
Then, after the taxpayer leaves, the preparer falsifies the 
math to boost the refund, files the return, and pockets the 
difference. And worst of all, unless the taxpayer can prove 
what happened, they are on the hook for the money when the IRS 
finds out.
    Witnesses today are going to share some more eye-opening 
stories, and we are eager to get their thoughts on what the 
government can do to come up with more sensible policies here. 
The most important step is to restore standards to protect the 
American taxpayer.
    Now, I am proud to say my home State of Oregon gets this 
issue right. Tax preparers at home study, pass an exam, and 
keep up with the changing landscape of the tax code in order to 
maintain their licenses. And Oregon's standards work. The 
Government Accountability Office took a look at the system a 
few years ago and found that tax returns from Oregon were 72 
percent likelier to be accurate than returns from the rest of 
the country. That puts fewer Oregonians at the mercy of 
unscrupulous preparers and reduces the risk of a dreaded audit.
    Now, there are ways for Congress to help in this arena. For 
example, I strongly believe that comprehensive tax reform must 
simplify the tax code and make filing easier. That must be a 
priority.
    When the Finance Committee passed the EXPIRE Act last week, 
practically every Senator here on the dais agreed it is time to 
end stop-and-go policies and give Americans more certainty 
about their taxes. The bipartisan tax reform plan I worked on 
with Senators Begich and Coats, as well as former Senator 
Gregg, would make filing much quicker and more simple for 
millions of taxpayers by tripling the standard deduction. That 
would eliminate the need for more than 80 percent of taxpayers 
to itemize deductions. Then they could easily prepare their own 
returns and never fall risk to tax preparers' ineptitude or 
misconduct.
    Now, Senator Nelson of the committee has led our charge to 
protect taxpayers from identity theft, and Senator Cardin has 
also fought very hard for taxpayer rights. They and other 
Senators have valuable ideas on how to solve the challenge, and 
that is the point of today's hearing: to look at a variety of 
approaches to protect the American taxpayer and the integrity 
of our tax system.
    As long as the code is so overgrown and so complicated that 
most Americans have to seek out help to file, they should not 
have to worry about crooked or incompetent preparers. It is 
that simple.*
---------------------------------------------------------------------------
    * For more information, see also, ``Present Law and Background 
Related to the Regulation of Conduct of Paid Tax Return Preparers,'' 
Joint Committee on Taxation staff report, April 4, 2014 (JCX-34-14), 
https://www.jct.gov/publications.html?func=startdown&id=4580.
---------------------------------------------------------------------------
    As I wrap up, I would like to thank both our panels of 
witnesses for being here today. As always, Senator Hatch and I 
plan to work on this issue in a bipartisan way. You saw that, 
again, last week.
    [The prepared statement of Chairman Wyden appears in the 
appendix.]
    The Chairman. Senator Hatch, we welcome your comments.

           OPENING STATEMENT OF HON. ORRIN G. HATCH, 
                    A U.S. SENATOR FROM UTAH

    Senator Hatch. Thank you, Mr. Chairman, for holding this 
timely hearing. As we all know, the day for individuals to 
complete and file their annual income tax returns is 1 week 
away, and, at this point in the year, millions of Americans 
face a number of difficulties in trying to comply with that 
deadline.
    The sheer complexity of our tax system requires the 
majority of Americans to seek the services of a paid preparer 
in order to navigate through and comply with the tax code. Of 
the 142 million income tax returns filed by individuals last 
year, nearly 80 million, as the distinguished chairman has 
said, or roughly 56 percent, were prepared by a paid preparer.
    Our income tax system relies heavily on good faith, 
voluntary compliance, which, in turn, requires the services of 
paid preparers who are both competent and ethical. The IRS 
attempted to implement regulations in 2011 that, for the first 
time, imposed both ethical and competency standards on any 
person who sought to prepare tax returns for compensation. The 
D.C. Circuit Court of Appeals, however, has since prevented IRS 
from enforcing those regulations when it upheld the Loving 
decision on appeal, as mentioned by our chairman.
    Among the approaches to solving the problem of incompetent 
and unethical paid preparers that we will hear about today is 
government regulation. However, there are other approaches 
worthy of thoughtful consideration. One approach is 
comprehensive tax reform that results in a much simpler and 
straightforward tax system, with fewer compliance and 
administrative burdens.
    A less complex tax system that allows for simpler 
compliance rules will reduce taxpayer and preparer errors--
certainly errors associated with complexity--decrease the need 
for complex tax filings, and eliminate opportunities to cheat 
the system through unethical behavior. It is my belief that the 
best way to protect tax filers from incompetent and unethical 
tax preparers is to implement a fair and simple tax system that 
dramatically reduces their dependence on paid return preparers. 
Until we get there, we need to minimize the damage that 
incompetent and unethical return preparers can cause, and I 
look forward to hearing about different ideas on how to 
accomplish this worthy goal during today's hearing.
    Of course, with the IRS Commissioner testifying before us 
today, there are other matters that deserve the committee's 
attention. For example, there is the ongoing investigation into 
the IRS's targeting of conservative groups during the 2010 and 
2012 campaign seasons.
    Four congressional committees, including the Finance 
Committee, are currently looking into this matter. And up to 
now, the IRS officials have, with some exceptions, been 
cooperating. That is why it was disheartening to hear that 2 
weeks ago, Commissioner Koskinen apparently tried to spin what 
had gone on at the IRS, claiming that no one had used the word, 
quote, ``targeting'' to describe what happened.
    The fact is that the Treasury Inspector General for Tax 
Administration, or TIGTA, Russell George, used the word 
``targeting'' in his May 2013 report to describe the 
allegations; and, in testimony before Congress, he stated that 
the allegation had proven to be true.
    Furthermore, Commissioner Koskinen himself described the 
activities as ``targeting'' during his confirmation hearings 
before this committee. I want to remind you of that, although I 
really appreciate you being here today, more than you know.
    Now, this may seem like we are engaging in semantics, but 
the words we use here are important. If the administration, 
rather than acknowledging what went on at the IRS and trying to 
fix it, is going to engage in word play to minimize what 
happened, we are going to continue to have difficulties as we 
try to resolve these important issues.
    Even the Washington Post fact checker said it is ``silly 
and counterproductive'' to deny that the phrase ``targeting'' 
describes what happened, awarding the Commissioner 3 Pinocchios 
for saying otherwise. On top of that, we have the regulatory 
effort at the IRS that appears to be designed to further 
marginalize these same conservative groups. I am talking, of 
course, about the proposed regulations governing the political 
activities of 501(c)(4) organizations.
    People in organizations across the political spectrum have 
rightly condemned these proposed regulations, because they 
undermine free speech and the ability of American citizens to 
participate in the political process. The IRS had a record 
number of public comments filed in response to the proposal 
from all points on the political spectrum, and, from what I 
gather, they were almost uniformly negative.
    This regulation, if given the force of law, would 
effectively silence grassroots organizations by categorizing a 
number of routine and long-accepted activities as political, 
and it would ensure that a number of the administration's 
critics remain on the sidelines of the political debate, and 
that could work both ways in the future. And I do not want it 
to work both ways.
    This proposal is particularly disturbing given what has 
already gone on at the IRS with the targeting scandal. Now, 
last week, Commissioner Koskinen publicly stated that the 
regulation is not likely to be finalized this year. To me, that 
is not good enough. These regulations should go away entirely, 
and Commissioner Koskinen has the power to make that happen.
    Throughout the public debate over this proposal, little has 
been said of the role of the IRS Commissioner in approving the 
final regulation. However, as was confirmed by Secretary Lew in 
his recent appearance before this committee, the IRS 
Commissioner has the authority to unilaterally prevent these 
regulations from taking effect. That being the case, any effort 
to deflect responsibility in a different direction would appear 
to me to be futile.
    Now, as you can see, Mr. Chairman, we have a number of 
issues to discuss today, and I look forward to a robust and 
informative hearing. So I want to thank you for this.
    The Chairman. Thank you, Senator Hatch.
    [The prepared statement of Senator Hatch appears in the 
appendix.]
    The Chairman. Our hearing today is going to consist of two 
panels. Our first panel includes two government witnesses from 
the IRS. Our second panel will include the Government 
Accountability Office and a cross-section of individuals who 
are knowledgeable about tax preparation.
    I would note that we have eight witnesses, and, to that 
end, we hope that all of you are going to limit your testimony 
to 5 minutes.
    Our first witness is the Honorable John Koskinen, 
Commissioner of the Internal Revenue Service. Our second 
witness is Ms. Nina Olson, the National Taxpayer Advocate of 
the IRS.
    Thank you both for coming. Your prepared statements are 
going to automatically be made a part of the record.
    Why don't you start, Commissioner?

  STATEMENT OF HON. JOHN A. KOSKINEN, COMMISSIONER, INTERNAL 
                REVENUE SERVICE, WASHINGTON, DC

    Commissioner Koskinen. Thank you. Chairman Wyden, Ranking 
Member Hatch, and members of the committee, thank you for the 
opportunity to discuss IRS regulation of paid return preparers.
    The tax return preparer community is a key ally in our 
efforts to fulfill our dual mission of taxpayer service and tax 
compliance. Each year, paid preparers are called upon to 
complete about 80 million returns, as noted earlier, about 56 
percent of total individual income tax returns filed.
    Preparers make the IRS's job easier by helping their 
clients properly report their taxes and pay what they owe. At 
the same time, the level of oversight of paid return preparers 
has traditionally been uneven, at best. While attorneys, 
enrolled agents, and CPAs must meet mandated professional 
competency requirements, they make up only about 40 percent of 
the universe of paid tax return preparers. That has left 
another 60 percent preparing returns with little or no Federal 
oversight.
    Although a few States, including the State of Oregon, as 
noted, have begun regulating unlicensed preparers, most of the 
tax professional community favors Federal oversight to avoid 
the possibility of a patchwork of conflicting State 
requirements.
    While a majority of return preparers are competent and 
operate with the highest ethical standards, there are those who 
do engage in fraud. Others do not have enough training and are 
not equipped to do an adequate job of preparing tax returns. To 
ensure that return preparers are competent and adhere to 
professional standards, the IRS launched the Tax Return 
Preparer Initiative in 2010. Under this initiative, individuals 
must register with the IRS if they prepare all or a substantial 
portion of any Federal tax return or refund claim for 
compensation.
    The initiative also required paid preparers who are not 
CPAs, attorneys, or enrolled agents to pass a competency exam 
and complete annual continuing education requirements related 
to tax law and professional conduct.
    The IRS also extended the ethical rules found in 
regulations, commonly known as Treasury Department Circular 
230, to all paid preparers. This allows us to suspend, or 
otherwise discipline, tax return preparers who engage in 
unethical or disreputable conduct. Since 2010, more than a 
million individuals have registered with the IRS and obtained a 
Preparer Tax Identification Number, or PTIN. As of last month, 
approximately 677,000 return preparers were active in our tax 
professional database.
    Preparers must use their PTIN as the identifying number on 
returns they prepare for compensation, and they must renew 
their PTINs annually. Along with regulation of return 
preparers, the IRS also has a comprehensive compliance and 
enforcement strategy. With regard to these efforts, it is 
important to note that the registration requirement gives the 
IRS a better line of sight into the return preparer community 
than ever before. The information we obtain through the 
registration process helps us do more to analyze trends, spot 
anomalies, and potentially to detect fraud.
    The IRS announced the testing phase of its return preparer 
program in November of 2011. The test was designed to cover 
preparation of Form 1040 and its related schedules. Through 
2012, about 84,000 tests were given, and about 62,000 preparers 
received a passing grade, for a pass rate of about 74 percent. 
This, obviously, means that 26 percent were unable to pass the 
exam.
    The 15-hour annual education requirement consisted of 10 
hours of Federal tax law topics, 3 hours of tax law updates, 
and 2 hours of ethics or professional conduct. A lawsuit 
against the return preparer program, as noted, resulted in a 
court decision that invalidated the testing and education 
requirements in January of 2013. An appellate court recently 
upheld that decision. The IRS is continuing to assess the 
appeals court decision while consideration is given to options 
for appeal.
    It is true that preparer registration alone does help in 
identifying the paid preparer community, analyzing trends, and 
determining a general level of taxpayer service. But competency 
testing and continuing education may put us on a path to 
ensuring that all tax return preparers provide the appropriate 
level of service to taxpayers. We believe that this level of 
service will translate into improved overall tax compliance and 
certainly, with that, more effective tax administration.
    Therefore, we urge Congress to pass the proposal in the 
administration's fiscal year 2015 budget that would explicitly 
authorize the IRS to regulate all tax return preparers. This 
would let us resume mandatory testing and continuing education. 
In the meantime, we are taking a close look at the possibility 
of an interim step involving a program of voluntary continuing 
education.
    Before moving forward on this idea, we will solicit 
feedback from a wide range of external stakeholders as to 
whether such an interim step would be useful and appropriate. 
But the better solution would be for Congress to grant us 
explicit authority to provide better oversight of tax 
preparers.
    This concludes my testimony, and I would be happy to take 
your questions.
    The Chairman. Thank you, Mr. Koskinen.
    [The prepared statement of Commissioner Koskinen appears in 
the appendix.]
    The Chairman. Ms. Olson?

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

    Ms. Olson. Chairman Wyden, Ranking Member Hatch, and 
members of the committee, thank you for holding today's hearing 
on a subject I consider among the most important for U.S. 
taxpayers.
    Nearly 150 million individual taxpayers file tax returns 
every year, many jointly with their spouses. Because the tax 
code is so complex, the significant majority of taxpayers pay 
preparers to complete their returns for them. Unfortunately, 
many taxpayers have no easy way to determine whether the 
preparer they are hiring can do the job.
    In recent years, around 80 percent of tax filers have 
received tax refunds. The average refund amount is a little 
under $3,000 per return, and it is often higher for low-income 
taxpayers who receive refundable tax credits. Therefore, the 
work a preparer does can have a significant financial impact on 
the taxpayer.
    Other financial professionals whose work affects the 
financial lives of their clients are widely regulated. Yet, 
anyone can hang out a shingle as a tax return preparer, with no 
knowledge, no skill, and no experience required. I know this 
well, because I began my career in tax administration in 1975, 
when I myself hung out a shingle as an unenrolled return 
preparer. At that time, however, there were no widely available 
return preparation software packages. To do my job, I had no 
choice but to study and learn tax law, rules, regulations, and 
publications. Because one actually had to know something about 
the tax law to be a return preparer, taxpayers had some 
assurance of the preparer's competency.
    Today, there is no such assurance. Three transformational 
changes have taken place in the return preparation field. 
First, the advent of return preparation software has eliminated 
barriers to entry into the profession. Second, the enactment of 
refundable credits has expanded the taxpayer base to include 
low-income individuals. Third, preparers have financial 
incentive to inflate refunds and cross-market non-tax goods and 
services, like pay-stub loans. In fact, in many tax season 
advertisements today, it is difficult to discern the connection 
between the service offered--get money quick--and the act of 
tax preparation.
    As a result of seeing firsthand the radical change in the 
industry and its impact on vulnerable taxpayers, as National 
Taxpayer Advocate, in 2002, I recommended that Congress enact a 
program to register, test, and certify these preparers. I also 
recommended that Congress authorize greater preparer penalties 
and strengthen due diligence requirements. But there is an 
important distinction between these approaches.
    While penalties and due diligence requirements are a vital 
component of any oversight regime, these actions occur only 
after the taxpayer has been harmed. Prevention is less costly 
and more effective. Accordingly, Congress should clarify that 
the IRS has the authority to establish minimum standards for 
the unenrolled preparer population and to test and require 
continuing education of these preparers.
    The only credible argument I have heard against 
establishing preparer standards is that the cost will 
ultimately be passed on to the consumer. But the per-taxpayer 
cost of the program the IRS was implementing before the Loving 
decision seemed very reasonable as compared with the far more 
significant cost the GAO's and other ``shopping visits'' have 
found, where preparer errors caused some taxpayers to overpay 
their tax by thousands of dollars, and other taxpayers to 
underpay their tax by thousands of dollars and then likely face 
IRS enforcement action down the road.
    In the absence of clear legislative authority, I believe 
the IRS should do the following: first, offer unenrolled return 
preparers the opportunity to earn a voluntary examination and 
continuing education certificate; second, restrict the ability 
of unenrolled preparers to represent taxpayers in audits of 
returns they prepared unless they earn that certificate; third, 
mount a consumer protection campaign that educates taxpayers 
about the need to select preparers who can demonstrate 
competency and reminds taxpayers to obtain a copy of their tax 
return with the preparer's signature on it.
    Finally, the IRS should develop a publicly accessible and 
searchable preparer database to include all preparers who 
register with the IRS. After all, the best enforcement and 
consumer protection strategy is to have an informed and 
educated consumer base--in this instance, the taxpayers, who 
need to have some clear-cut way of knowing which preparers meet 
minimum levels of competency and which are not willing to make 
the effort. That is why having a mandatory ``certified 
preparer'' designation, along with enrolled agents, CPAs, and 
attorneys, is so important. It is a bright line that the 
taxpayers can understand.
    Thank you.
    The Chairman. Ms. Olson, thank you.
    [The prepared statement of Ms. Olson appears in the 
appendix.]
    The Chairman. Colleagues, we will all take 5-minute rounds 
at this point.
    Let me start with you, Ms. Olson, if I could. You are the 
National Taxpayer Advocate. In other words, it is your job to 
go to bat for the kind of people whom we are seeing getting 
fleeced around the country.
    I was particularly struck--and I would like you to amplify 
a bit on it--when you said that there are actually new 
incentives and new opportunities for the unscrupulous tax 
preparer to, in effect, rip people off. Could you describe that 
in a little more detail?
    Ms. Olson. Well, there are several ways we see this. One is 
that entities that would not normally be involved in the 
profession of return preparation use the ability to give 
advance loans on the refund itself to cross-market goods, 
whether it is cars that the client could purchase with a down 
payment, but at the very highest interest rates, or just simply 
the loan product itself, like the pay-stub loans.
    The other thing we are seeing is really out-and-out fraud, 
where, as was described in your statement, preparers will take 
the taxpayer's return after the taxpayer has approved it or, in 
some instances, the taxpayer has not approved it, but the 
preparer will inflate items on the return and pocket the 
refund. And then the taxpayer later finds out about this when 
the IRS is contacting them and saying ``You owe us taxes,'' and 
that causes the taxpayer to be engaged in a long, extended 
conversation with the IRS.
    By that point, the preparer is long gone. You cannot find 
that preparer.
    The Chairman. I appreciate your clarifying that, because I 
did not think the standards were adequate even before we saw 
taxpayers bumping up against the kinds of problems that you are 
talking about. And I appreciate your demonstrating that it is 
usually the case that the unscrupulous are always one or two 
steps ahead of efforts, particularly voluntary efforts, to deal 
with the problem.
    Now I gather, so we are clear on this point, that the 
Loving decision, in your view, has created new problems in 
effect, in terms of protecting taxpayers; is that right?
    Ms. Olson. Absolutely. The Loving decision, first of all, 
my reading of it is, it did not go to the fact of whether 
regulation is desirable or not. It addressed whether the IRS 
has the authority to regulate the return preparer under the 
current law. And right now there is an injunction in place 
against the IRS being able to implement the exam and the 
continuing education requirements, and that is a significant 
obstacle. We can register tax preparers, but we cannot test 
them, require them to be tested, or require them to take 
continuing education in order to do returns.
    The Chairman. How limited are the tools that are left given 
the Loving decision? Because my sense is that there are some 
tools that are left, but they are pretty narrow and they really 
do not go to the heart of what you have been talking about, 
which is protection against the unscrupulous preparer.
    I share the view that there are many, if not the majority, 
of preparers who are very honest and reputable, but it sure 
looks like some new opportunities, some new trap doors, have 
been created for those who are unscrupulous.
    Tell us, given the decision in the Loving case, how 
restricted the tools are for the IRS to deal with the 
unscrupulous preparer.
    Ms. Olson. Well, right now, the IRS has penalties that it 
can apply against preparers that it identifies as unscrupulous. 
It requires, in the Earned Income Tax Credit arena, for 
preparers to complete due diligence certifications, sort of 
questions that they have to ask the taxpayer, and certify that 
they have done so.
    We have the ability to seek injunctive relief against some 
unscrupulous preparers, working with the Department of Justice. 
But this is a situation where the IRS cannot audit itself out 
of this situation. It cannot audit or apply penalties or even 
do injunctions with 1.2 million preparers.
    It cannot get the kind of competence that we need to 
engender by doing one-on-one audits. You need a much broader 
approach. And more importantly, taxpayers need the designation 
so that they have a bright line, so that they can say, ``Yes, 
this is someone who has demonstrated competency, and this is 
someone I should go to.'' If you go to someone other than that, 
all bets are off whether that person is competent. That is a 
very important distinction that audits will not get you.
    The Chairman. I appreciate that, and I especially 
appreciate that last point, because, in effect, what you are 
saying is, we need a system that up front makes it clear to 
those who need these services where the, as you call it, bright 
lines are and where you ought to go to get the kind of consumer 
protection you need.
    The alternative to that, what we are stuck with, in effect, 
post the Loving decision, is essentially reactive kind of tools 
where you are playing catch-up ball. Is that a fair appraisal?
    Ms. Olson. Yes. And the taxpayer has already experienced 
the harm rather than being able to prevent the harm.
    The Chairman. It is very helpful to have your views today.
    Senator Hatch?
    Senator Hatch. Well, thank you, Mr. Chairman.
    Let me just ask both of you. What is the IRS doing to 
educate the public about how to select a competent and ethical 
return preparer, and what else should it do to educate the 
public on this issue and make it easier to confirm the 
competence and ethical standards of a particular preparer?
    You have alluded to answers to this, but I would like to 
have a little bit more.
    Commissioner Koskinen. As part of our outreach to 
taxpayers, we provide, on a regular basis throughout the year, 
a wide range of information and advice to taxpayers, trying to 
assist them in their attempts to figure out how much they owe 
and how to pay it. So we advise people they should be careful 
who their tax preparer is. They should check them out. But as 
noted, there is no way we can provide any minimum standard 
guarantee for tax preparers.
    So all we can do for taxpayers, which is what we do, is 
say, you should be careful; you should make sure you know who 
the tax preparer is and what their background and experience 
are. But for the average taxpayer, that is a very difficult 
thing to do. There are no listings, there is no way for them to 
figure out who are those who have studied and have a minimum 
level of competence and who do not.
    So our view has been, if you had a way of giving that 
information to the taxpayer, then the free market would be more 
intelligently applied. People would be able to say, ``All 
right. If I am going to a tax preparer who has not received the 
minimum standards, I am taking a bigger chance than if I go to 
a tax preparer who actually has passed the IRS examination.'' 
But at this point, we cannot give them that additional 
information. So we simply have to tell them, be careful with 
your preparer, but that is not particularly helpful to the 
average taxpayer.
    Ms. Olson. There is one thing that my office did, which is, 
we created a poster last year in this environment to warn 
taxpayers to obtain two things to protect themselves, and they 
are: preparers are required to give you a copy of your return 
that is signed by the preparer and has their PTIN number on it.
    So I think if there is one piece of information in this 
environment, without setting standards, it would be for 
taxpayers to at least get that, because then if the preparer 
alters the return afterwards, you, one, have the name and 
identifying number of the preparer, and, two, you can show that 
there really was fraud committed, and that is a very important 
piece of information for us to have when that happens.
    Senator Hatch. That is good.
    Mr. Commissioner, when you were confirmed by this 
committee, one of my charges to you was that you needed to 
restore public confidence in the IRS, and you affirmed it was 
your intent to make that a top priority. However, there have 
been several recent incidents which underscore the degree to 
which the public still may have reason to not trust the IRS.
    Between the furor over the IRS's proposed rulemaking for 
501(c)(4)s, which received over 150,000 comments, most of which 
were negative, and recent concerns raised by my colleagues on 
the House side about whether or not your agency is fully 
cooperating with producing documents related to the ongoing IRS 
political targeting investigation, I am concerned that it is no 
longer such a priority.
    The American people deserve to have an IRS which is free 
from political bias, and, of course, we have to hold you 
accountable as members of Congress, and I personally am holding 
you accountable for ensuring that, under your watch, no such 
bias is or will be present, and I believe you believe that and 
intend to do that.
    To that end, can you tell me what steps you have taken to 
begin restoring that trust and how my colleagues and I can be 
assured that you are continuing to make this a top priority?
    Commissioner Koskinen. Thank you, Senator. It is and always 
has been and will continue to be a priority of mine and the 
agency's.
    With regard to the production of documents for the tax 
writing committees, the House Ways and Means Committee and this 
committee, we have had no complaints about the volume of 
material we have now provided, well over 700,000 pages of 
information. We do not have to redact it. So, as we work 
through it, we are simply giving you everything we can find.
    We have worked closely with your staff and with the Ways 
and Means Committee staff to identify additional information 
that you may need, and we are providing that material in 
volume. We hopefully are nearing closure on that. We have 
provided you all the information about the determinations 
process that we have.
    The discussion has been, and the concern has been, with 
those committees that do not have the authority to see taxpayer 
information, where we have to review every single page and 
redact any information related to individual taxpayers before 
we can provide that information. But we are continually 
providing information. Since the hearing I had before the House 
Oversight Committee, we have provided them, by the end of this 
week, another 50,000 pages of redacted information.
    No one has a greater interest than me personally, within 
the IRS, to have these investigations come to a close. As I 
have said from the start, whenever we get a final report from 
someone, we will look at the facts as they are found, and we 
will consider what additional actions need to be taken, if any. 
We have already accepted all of the Inspector General's 
recommendations. And then we will move forward, because I do 
think it is important for every taxpayer to be confident that 
no matter who they are, what their organization, what their 
political beliefs, who they voted for in the last election, 
when they deal with the IRS, they will be treated fairly, in an 
evenhanded way, and they will be treated the same way everyone 
else is treated as we go forward.
    Senator Hatch. That is good.
    Thank you, Mr. Chairman.
    The Chairman. I thank my colleague.
    I would only say--it is Senator Casey's turn--I would just 
say that I do not see any evidence that protecting taxpayers 
from unscrupulous preparers is a partisan issue, and that is 
what we are focused on here today, and we have a lot of heavy 
lifting to do.
    We will go to Senator Casey next.
    Senator Casey. Mr. Chairman, thank you very much. Before I 
pose some questions for our witnesses, I wanted to address an 
issue that has been raised a number of times, including this 
morning. This is the 501(c)(4) issue, the processing of those.
    We did our subcommittee assignments recently, and I was 
just appointed the new chair of the Subcommittee on Taxation 
and IRS Oversight. So I, like folks in both parties on this 
committee, am committed to making sure that any kind of abusive 
practice that is engaged in is not repeated and is rooted out 
and exposed.
    The committee, Mr. Chairman, I guess, undertook an 
investigation, which has been a bipartisan investigation, into 
the issue. The investigation included interviews with 
individuals who are impacted, as well as IRS employees.
    Mr. Chairman, it is my understanding that the committee 
staff has essentially completed the investigation and is 
prepared to release its findings and conclusions. So, Mr. 
Chairman, I would welcome the prompt release of the conclusions 
of that bipartisan investigation and look forward to working 
with you on the issue, as well as other members.
    The Chairman. Thank you, Senator Casey. Certainly, that 
investigation was well underway when Chairman Baucus chaired 
the committee. Senator Hatch has been very constructive in 
terms of working with me.
    This is the only bipartisan investigation that is taking 
place into these issues, and I am very hopeful that we will 
have that report ready for members quickly.
    Senator Casey. Thanks very much.
    Commissioner, I wanted to start with you. I know that your 
team has identified some tax scams on a so-called ``dirty 
dozen'' list, and there are two issues that I have worked on 
that are related to this, the kind of abuse of data or 
information. One is the Death Master File, preventing that from 
being used for fraudulent purposes, as well as working with the 
Social Security Administration to prevent criminals from 
stealing Social Security checks.
    I guess more broadly, on this issue of scams and preventing 
them, what would you hope that we could do here in the 
Congress, starting here in the Senate and the Senate Finance 
Committee, to better help the IRS protect taxpayers? I am 
assuming that it would be some form of the items that you 
outlined on pages 6 and 7 of your testimony.
    Commissioner Koskinen. Right. I appreciate the question. 
Obviously, the Taxpayer Advocate and I are here supporting 
congressional efforts to give us the authority to set minimum 
standards for tax preparers--a reasonable amount.
    As I say, most tax preparers are competent, they are 
educated, and they do a good job. What we are worried about is 
those on the periphery who either do not have enough 
information to adequately prepare a return or, worse, are 
figuring out various ways to defraud taxpayers either by high 
fees, by taking all or a portion of their refunds, or by 
channeling them, as the Taxpayer Advocate said, into other 
activities which may or may not be in the taxpayer's interest.
    We also are proposing, with regard to identity theft and 
refund fraud generally, that the Congress give us authority to 
get W-2 information by the end of January. Right now, what has 
happened is--we are sort of the victims of our own progress.
    In the old days, you used to get your IRS refund months 
later, and, in the meantime, we would have gotten all of the 
third-party information. Now, with electronic filing and the 
tremendous progress the IRS and its employees have made, when 
you file your return, we say we will get you a refund within 21 
days. So we have leapfrogged the receipt by the IRS of the 
third-party information. So a critical part of that information 
for us would be to have third-party information and W-2 
identifiers earlier so we could check refund applications to 
ensure that at least there is some comparison before issuing 
refunds.
    The action the Congress already took to close the Death 
Master File has been very helpful, although there are still 
people who have access to it. We are concerned across the board 
with the ease of theft of Social Security numbers in the public 
sector. No one has ever stolen Social Security numbers from the 
IRS database, but they use the Social Security number to file a 
false return.
    Senator Casey. I appreciate that.
    Ms. Olson?
    Ms. Olson. I think one thing that is an emerging trend that 
I have just been briefed on is the theft of Social Security 
numbers from preparers themselves, hacking into preparer 
databases. And that is very disturbing, because you do get the 
wage information. So, even if we have the wage information, we 
cannot necessarily tell that that is a bad return.
    The IRS right now is doing a pilot to see if you can match 
the name on the return, where the deposit is supposed to be 
made into an account, with the name on the account itself, the 
bank account itself, and that is having some mixed results. But 
there may be things on that end where you can work with the 
financial institutions to do greater security--are these 
dollars supposed to go into there? And I know that the IRS is 
considering limiting how many refunds can be made into a 
particular account. So that would be a very easy fix.
    Again, these criminals are--you are truly talking about 
scams. These are opportunistic criminals. They are going to do 
whatever is easiest, and the more you can create barriers for 
them committing fraud, the more they will look somewhere else. 
They will not necessarily go away permanently, but they will go 
somewhere else.
    Senator Casey. Thank you very much.
    The Chairman. Thank you, Senator Casey.
    Senator Roberts?
    Senator Roberts. Mr. Koskinen, when you visited with me 
last year prior to your confirmation, sir, you told me that you 
thought it was your role to clean up the IRS and get the agency 
back on track in regard to the processing of exemption 
applications and the implementation of the Affordable Health 
Care Act, both monumental tasks indeed. You said that your 
longer-term goal, however, was to restore the IRS's reputation 
and integrity on these and other functions.
    I have some confidence that you are going to be able to do 
that. However, prior to your confirmation, you said that the 
IRS was targeting certain groups during the exemption 
application process, thereby trampling on their First Amendment 
rights.
    It seems to me that there is a common-sense step that you 
need to take, and you should take it today--stop all action on 
the proposed 501(c)(4) regulations until the House Ways and 
Means Committee, this committee, and everyone knows what went 
on, who was involved, what the implication of all of this is, 
and how we can address the issues raised and hold people 
accountable. That is why I have joined with Senator Flake from 
Arizona and 40 of my colleagues to offer legislation to stop 
the IRS from proceeding with the new rules until we have 
answers.
    Here is the deal. We have Code of Federal Regulations title 
26. I am sure you are familiar with it. Internal Revenue rules 
take various forms. The most important rules are issued as 
regulations, and the Treasury decisions are prescribed by the 
Commissioner and approved by the Secretary or his delegate. 
Other rules may be issued with the signature of the 
Commissioner or the signature of any other official to whom 
authority has been delegated. Regulations and Treasury 
decisions are prepared in the Office of the Chief Counsel after 
approval by the Commissioner.
    Here is the deal. Our constituents informed us, with some 
degree of outrage, that there is an IRS fox in the First 
Amendment chicken house. The response by the IRS: ``Yes, we 
know that. We are writing regulations that will tell the fox to 
behave himself.'' But that makes no sense. We are investigating 
why the fox was even in the First Amendment chicken house in 
the first place.
    So I have some suggestions. First, why do we not get the 
damn fox out of the First Amendment chicken house? Second, why 
not waive the regulations until we get our investigations done, 
at least until we can find out who put the fox in the chicken 
house in the first place and how and hold them accountable?
    Why can we not stop on these regulations until we are done 
with our investigation?
    Commissioner Koskinen. Having worked on my uncle's farm in 
Minnesota, I have a little bit of familiarity with foxes and 
henhouses, but let me just respond to the point.
    As I have said for some time, actually in my earlier 
testimony in February, especially since the volume of comments 
since then has gone up, the chances of our finishing any 
regulation before the end of the year are very slim, if not 
nonexistent.
    Our hope has been that, in fact, one or more of the six 
investigations that have been going on now since last year will 
be completed well in advance of that. So I think, in terms of 
the goal of not having a regulation until we have some 
investigations done, I think that unless the investigations are 
going to go on into next year, somebody will issue at least 
one, and hopefully this committee, perhaps others, will issue 
their report sometime in the next 3 or 4 months, which will be 
well in advance of any time that we would have a chance of 
completing this regulation.
    With regard to the regulation, as I have said in the past, 
not having been around when it was originally formulated, my 
commitment and dedication is that any regulation that is 
ultimately issued should be fair to everybody, should be clear, 
and it should be easy to administer.
    And we are going to carefully review the 150,000-plus 
comments that have been made. We have just started the review, 
so I am not quite sure how everybody knows whether they are 
positive or negative, but clearly the regulation has attracted 
a lot of interest.
    And as I have said, by the time we hold a public hearing, 
in all likelihood, re-propose any regulation that we would be 
considering and get more public comments, it is going to be 
well toward the end of this year. And as I say, my hope would 
be at least one of the six investigations will have been done 
by then, if not more, and we are committed to reviewing the 
findings of those investigative reports and taking any 
additional action that is necessary to put this behind us.
    Senator Roberts. My time is about up. I want to thank you 
for that word ``committed.'' So you are unequivocally committed 
to this committee and you are committing to this committee that 
501(c)(4) proposed regulations will not be finalized this year?
    Commissioner Koskinen. I think what I have said is that the 
chances of it being finalized before the end of the year, not 
before the election, before the end of the year, are slim.
    We are not rushing to get them done. We are actually 
being----
    Senator Roberts. There is an expression that the chances of 
something happening in Dodge City, KS are slim and none, and 
slim left town. So why do we not just say ``none'' this year 
and, more especially, until the investigations are done? Why 
can't we do that?
    Commissioner Koskinen. We could do that, and I think 
probably that it is a slim chance and it is fairly likely. What 
I can easily commit to is, we will not be anywhere near 
completing these regulations before somebody has completed an 
investigation, because I am confident----
    Senator Roberts. I hope you share these regs with us as we 
go through this, because there are an awful lot of people----
    The Chairman. The Senator's time has expired.
    Senator Roberts [continuing]. Who are outraged by this.
    Thank you, Mr. Chairman.
    The Chairman. Senator Grassley?
    Senator Grassley. Mr. Koskinen, I wrote to you and 
Secretary Lew on February the 20th. I asked about the 
administration's decision to delay the employer mandate until 
2017 for businesses with 50 to 99 employees. That category of 
businesses is not specified in the health care law at all.
    In order to qualify for the delay, you require employers to 
certify that they did not lay off employees to get below the 
100-employee threshold. This certification seems like 
unnecessary information, unless you think the employer mandate 
will cause businesses to lay people off.
    (A) Do you think that businesses will lay off their 
employees in order to avoid paying penalties under the health 
care law, and, if not, why are you requiring the certification? 
And (B), what is the legal justification for a new category of 
businesses with 50 to 99 employees in the certification 
process?
    Commissioner Koskinen. Senator, as you know, tax policy 
issues like this are all the domain of the Treasury Department. 
Those decisions were made by the Treasury Department. I did not 
participate in those.
    As a general matter, I do not think that companies, with 
regard to health care issues, are going to willy-nilly lay off 
their employees. I think most companies are dedicated to their 
workforce and to developing them.
    But the question in terms of on what basis those decisions 
were made, is really a question that has to be addressed to the 
Treasury Department.
    Senator Grassley. But you have to sign off on them.
    Commissioner Koskinen. All Treasury regulations are issued 
by Treasury and the IRS, but the policy issues behind questions 
like this are decided by the Treasury Department. The Chief 
Counsel's Office actually reports directly to the Treasury 
Department.
    Senator Grassley. Well, I requested a response from you and 
Secretary Lew by March the 7th. So then, when can I expect such 
a response? And I assume you can be an Aaron for making sure 
that this gets done.
    Commissioner Koskinen. I will clearly commit that I do not 
know why the delay, other than the fact that any response gets 
cleared by a complicated process. But my commitment to this 
committee and you and all of you has been that we will reply 
promptly to any letter we get from you, and I will assure you 
that I will get you a prompt response from our side. I cannot 
tell you when the Treasury Department will respond, but we 
should respond to you promptly.
    Senator Grassley. Well, you surely talk to Secretary Lew, 
and he made the same promise that you made: when he comes 
before the committee, he is going to answer our questions. And 
I do not know why people say they will answer our questions if 
they will not.
    Well, anyway, let us go on to the second question. Mr. 
Koskinen, just last week, I wrote to you concerning the 
nonprofit hospital reforms that I authored and were enacted in 
2010. These reforms imposed new requirements on nonprofit 
hospitals to hold them accountable for their tax-exempt status.
    To date, key legal guidance needed to ensure compliance 
with the law does not appear to be finalized. What has been the 
delay in finalizing regulations in this area, and when we can 
expect final regulations?
    Commissioner Koskinen. A series of regulations and 
proposals have been drafted pursuant to that statute. And in 
January of this year, Treasury provided, with the IRS jointly, 
guidance to hospitals that they could rely on the existing 
proposed regulations that are out there.
    We expect that the final regulations will be issued before 
the summer is out. But the hospitals have already been advised 
that they can rely upon the earlier regulations or proposals 
that are out there.
    Senator Grassley. The 2010 nonprofit hospital reforms also 
required the IRS and the Department of Health and Human 
Services to collect information on nonprofit hospitals and 
report to Congress every year. An annual report should have 
been issued to Congress for fiscal year 2012, but Congress 
never received any report. Congress has yet to receive a final 
report for fiscal year 2013.
    A 2012 report by the Inspector General of Treasury 
recommended that the IRS enter into a memorandum of 
understanding with HHS in order to better coordinate the 
collection and sharing of the information for the report. The 
IRS agreed with the Inspector General's recommendations, and, 
as I understand it, the memorandum of understanding has not 
been finalized.
    What is the status of the memorandum between IRS and HHS? 
When would you expect it to be finalized? Why has there not 
been an annual report, as required by law, and when can 
Congress expect the 2013 report?
    Commissioner Koskinen. We have been working cooperatively 
with HHS. We expect not a memorandum of understanding, but 
written, final confirmation from them about the process we are 
going to use going forward.
    The problem with timing is, it takes 2 to 3 years for all 
of the data to be filed. So the 2011 data has now been made 
public by HHS. We expect to provide it jointly, because our 
data is going to measure with theirs. The hospitals all asked 
for us to use apples-to-apples data.
    So this summer we will be issuing to the Congress a report 
for 2011, because that is the timing in which we actually get 
the final data. And then every year thereafter, we will provide 
that report on an annual basis jointly with HHS.
    So the data for 2011 is already public from HHS's side. We 
are collecting then for the same time period, calendar 2011, 
putting the data together, and every year it will be late 
because of the time the hospitals have to file all of that 
data. But as a regular matter, starting this summer, you will 
get annually the data required.
    The Chairman. Thank you, Senator Grassley.
    Senator Thune is next.
    Senator Thune. Thank you, Mr. Chairman. I want to thank you 
and Senator Hatch for holding this hearing.
    I think all Americans expect the IRS to administer our tax 
laws in an impartial manner, and they expect the tax preparers 
to act in a competent and ethical manner too. And so the 
concerns that have been brought to light by the GAO in its 
recent study are very troubling, and I am pleased the committee 
is examining this issue in order to determine if legislative 
action is necessary to ensure that Americans are protected from 
unscrupulous and incompetent tax return preparers.
    I do want to, Mr. Koskinen, give you an opportunity--I want 
to turn to something that has been mentioned here by my 
colleagues and has been discussed of late, and give you an 
opportunity to correct the record.
    Last week, the Washington Post fact checker, Glenn Kessler, 
awarded you three Pinocchios for your statement that the 
Treasury Inspector General for Tax Administration, Russell 
George, had not used the term ``targeting'' when referring to 
how the IRS has treated conservative social welfare groups. The 
Post article noted that Mr. George specifically stated in his 
testimony to Congress that the IRS targeted specific groups--I 
am quoting now--``applying for tax-exempt status. It delayed 
processing of these groups' applications and requested 
unnecessary information, as well as subjected these groups to 
special scrutiny.''
    Given that Post article and the confusion around recent 
statements that you have made on this topic, I want to give you 
an opportunity to correct the record. And the question, I 
guess, specifically, is, do you agree that the Treasury 
Inspector General for Tax Administration has found that certain 
conservative groups were targeted for extra scrutiny by the 
IRS?
    Commissioner Koskinen. I appreciate the opportunity to 
correct the record. It has been intriguing to me that it has 
become this big issue, a tempest in the teapot. What I said in 
my testimony, which seems to have triggered this, was that the 
Inspector General's report last May, in his findings, said that 
he found that inappropriate criteria were used to select 
applications for further review. It was in response to a 
question about the findings of the IG, and my point was the 
IG's finding in the report said it was improper criteria.
    Thereafter, I have--and a couple of times since then--made 
it clear the IG clearly in his testimony to Congress used the 
word ``targeting.'' He talked about targeting beforehand. My 
only point was in response to a question in which I was asked 
if the Inspector General's finding was ``targeted.'' I said his 
actual finding said ``improper criteria.''
    But one man's improper criteria is another man's targeting. 
How it got to be this big an issue I do not know, because 
clearly the issue is, however you describe it, it should not 
have happened. It should not happen going forward in the 
future.
    We are committed. We have already taken all of the IG's 
recommendations and accepted them. We are committed that, as I 
say, when people, not only for (c)(4) applications, but in any 
relationship with the IRS--we are going to continue to audit 
people. Some will be Democrats, some will be Republicans; some 
will go to church, some will not.
    When you hear from us, it is only because of something in 
your tax return. People need to be confident that that is our 
commitment, that is our general approach to these issues, and 
that is how we are going to behave going forward.
    Senator Thune. Just as a follow-up to that, the Post 
article also referenced your use of the term ``targeting'' and 
posed this question. The basic question was, was the phrase so 
toxic that it was wiped from the lexicon once you arrived at 
the IRS?
    And I guess I would just ask, since your confirmation as 
Commissioner, has anyone in the administration, within the IRS, 
the Treasury, the White House, anyplace like that, pressured 
you or counseled you against using the terms ``target'' or 
``targeting'' in reference to the matter that we are talking 
about?
    Commissioner Koskinen. No one in the administration. The 
only concern I have heard--I have been to 20 offices at the IRS 
now, and I have listened to and met with over 8,000 employees. 
Several of the employees have objected to the use of the term 
``targeting,'' but nobody in the White House, nobody in the 
Treasury, nobody in the administration, has asked me not to use 
the word.
    Senator Thune. Thank you.
    Mr. Chairman, I want to just--I have about a minute left 
here--focus on what I believe is a major driver of more and 
more Americans seeking tax preparation assistance, and that is 
the incredible complexity of the tax code.
    As you know, much of the Affordable Care Act is 
administered through the tax code, which means that when 
uninsured Americans file their taxes, they are going to need to 
figure out whether they qualify for the subsidies, how much 
they can receive, whether it makes more financial and medical 
sense to get coverage or to pay the penalty for violating the 
law.
    The question is, doesn't the Affordable Care Act create a 
lot of new complexity issues on top of those that we already 
have, making it even more difficult and driving even more 
Americans to tax preparers when it comes to getting their 
returns in on time? And do you believe that most tax preparers 
are adequately prepared to handle the complexities arising from 
the Affordable Care Act?
    Commissioner Koskinen. I think we are going to have a lot 
of questions by preparers and taxpayers about the Affordable 
Care Act.
    The vast majority of Americans are going to be unaffected 
by it. They are going to check off a box that says they have 
insurance, they have Medicare, and they will not be affected. 
But for the people who are in that area, who are applying for 
insurance, getting advanced premium credits, there are going to 
be questions asked.
    One of our concerns is to make sure we are prepared to 
answer those questions.
    Senator Thune. Ms. Olson, quickly, on that, do you have a 
comment?
    Ms. Olson. I think that there is certainly a great deal of 
complexity in the Affordable Care Act. I would note that I am 
watching very carefully and closely how the IRS is approaching 
that also, on the compliance side, what they do if somebody 
owes money as a result of the ACA.
    But there is one thing about the Affordable Care Act that 
is very important. We are going to get a lot of information 
from third parties, which will allow us to identify inaccurate 
claims during the filing season. As the Commissioner earlier 
alluded, it is very important for us to get W-2 and 1099 
information early in order to avoid all this fraud and errors 
in the regular tax system.
    So there is an actual added benefit in the Affordable Care 
Act that we do not have with the rest of the filing system that 
would be really good to have in the rest of the filing system.
    Senator Thune. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Thune.
    I very much appreciate your also highlighting the 
complexity of the code, because the Congress is not blameless 
here. Virtually every session, some other group comes up, 
usually with a good cause, and what happens here on the Finance 
Committee is, we just add it to the code. There have been 
something like 15,000 changes. It comes to maybe one or two for 
every working day in recent years.
    So that is right at the heart of tax reform, and I look 
forward to working with my colleague.
    Senator Isakson is next.
    Senator Isakson. Thank you, Mr. Chairman. I concur with 
your opening statement, talking about how tax simplification is 
the key to this, and I think it is the key.
    There is another key that I use to determine what Georgians 
are interested in, and that is how long I have to stay in the 
narthex after church to answer questions and what that subject 
is about. Yesterday, given the proximity to April 15th, 
everything was about the IRS. Listening to Senator Casey's 
statement, I think I heard that we are close to having 
conclusions from our bipartisan investigation. Is that correct?
    The Chairman. I will let Senator Hatch chime in here, but I 
believe so. Certainly, the staffs have been talking.
    Senator Hatch has been very constructive, given the fact 
that this is the only bipartisan investigation into this, and, 
obviously, there were errors made. There is no question about 
that. It is important that we wrap this up, but I am very 
hopeful that we can do that quickly.
    Senator Hatch, would you like to add to that?
    Senator Hatch. Well, we are trying to wrap this up as 
quickly as we can. It has been slow. We still have not gotten a 
number of documents that we still have to get, but I agree with 
the distinguished chairman that we are working in a bipartisan 
manner and hopefully we can conclude this within the relatively 
near future--at least I hope so.
    The Chairman. Commissioner, can we have some clarity on 
that point?
    I understand you have sent us a letter indicating that you 
have made available all the documents for purposes of this 
investigation. Is that right? I do not have the letter with me.
    Commissioner Koskinen. Yes. We, 3 weeks ago, said we had 
provided you all the documents we had about the determinations 
process, which was the subject of the Inspector General's 
report.
    Since then, we have had requests for additional 
information, not about the determinations process, but about 
any involvement by Lois Lerner in the exam process, the appeals 
process, and the regulatory process, and we are completing the 
provision to you of all of that additional information as well.
    But for the base issue of the determinations issue that the 
IG raised, you have all of the documents we could find.
    The Chairman. We are intruding on Senator Isakson's time, 
and I will let Senator Hatch have the last word here.
    Senator Hatch. They said they had given us most of the 
documents, and then we found out that they had not. So we just 
got a new set of documents last week.
    We are appreciative of the cooperation. We still have not 
gotten into the Treasury documents as much as we would like to, 
although we are starting. All I can say is, we are trying to do 
the very best we can to conclude this investigation, and 
hopefully we will in the near future.
    The Chairman. We are committed to getting this done, 
Commissioner. We are going to get it done in a bipartisan way, 
and I want to assure you that we will be following up with you 
quickly on any remaining questions. But I knew that, as of a 
couple of weeks ago, you had given us everything we asked for, 
and that strikes me as indicative of your cooperation.
    This is not going to be imputed to Senator Isakson's time. 
So let us make sure that----
    Commissioner Koskinen. In that case, let me just say I 
appreciate that. We have had good working relationships with 
the staffs of the majority and the minority, and we are 
committed to continuing to work with you. Whatever you need, we 
are anxious to get it to you.
    The Chairman. Very good.
    Senator Isakson, we are going to roll the clock back so you 
can have your full 5 minutes.
    Senator Isakson. Well, I asked the question, and I am glad 
you all went into the detail to answer the question, because, 
in a voluntary compliance-dependent system, which ours is, the 
confidence the American people have in the Internal Revenue 
Service is the key to voluntary compliance.
    I think the quicker we can get to all the answers, whatever 
those answers are, the better off all of us are. I want to 
thank Commissioner Koskinen for the visit he paid to Atlanta 3 
or 4 months ago and his including me in that visit.
    I would just comment, having run a business before and 
watched a department manager or a business head motivate 
employees, if your performance in Atlanta was typical of what 
you do when you visit other offices around the country, I think 
the confidence of the IRS employees and the IRS will go up, 
because I was very impressed.
    Commissioner Koskinen. Thank you.
    Senator Isakson. Ms. Olson made a statement about financial 
incentives to inflate numbers in tax returns for the preparer 
to take advantage and pocket the difference. How do they pocket 
the difference?
    Ms. Olson. Well, one of the ways that you see is, if you 
can get a larger tax refund for your customer, and you are 
actually preparing returns in a car dealership or in a 
furniture rental place or in any number of other kinds of 
entities that are selling products unrelated to tax, then you 
can give a loan advancing funds so that the taxpayer can apply 
those inflated refunds to purchasing a product.
    And what we are seeing in some instances--and I used to see 
this in the low-income taxpayer clinic I ran when I represented 
taxpayers--is we see this in a vehicle purchase, where a 
taxpayer would use the loan on an inflated refund to purchase 
an automobile. The IRS would then disallow that refund.
    The taxpayer would be unable to make the ongoing payments 
on this higher-dollar vehicle that they really could not 
afford. They owed the refund back to the IRS, and the car would 
ultimately be repossessed, and then the taxpayer would end up 
with cancellation of debt income for the next year, which was 
taxable.
    Commissioner Koskinen. Another, more direct way of fraud 
is, the preparer puts his bank account down as the bank account 
to which the refund should go, and it is all done 
electronically. Then the preparer can either take out a big fee 
before he provides the refund to the taxpayer, can keep some of 
the refund, or may keep it all. And there is no way for us--
because it is all done electronically, when he puts down his 
bank account--to keep the refund from going to his bank account 
rather than the taxpayer's. A lot of those taxpayers do not 
have bank accounts.
    Senator Isakson. In either case, that is a fraud against 
the taxpayer.
    Commissioner Koskinen. Fraud against the taxpayer.
    Senator Isakson. Which brings me to the question I wanted 
to ask about IRS's Free File program. You talked about low-
income taxpayers being the ones who are most often abused in 
something like that.
    Has Free File helped? Because it seems like electronic 
technology would help prevent people from padding deductions or 
padding income.
    Ms. Olson. Well, I think that the issue is, many of these 
taxpayers who are most vulnerable do not have computer 
literacy, the level of computer literacy, that would enable 
them to do that.
    In some of the walk-in sites that the IRS has and at some 
of the Volunteer Income Tax Assistance sites, they are actually 
trying to get taxpayers to sit down, and they walk them 
through. You can prepare--they have computer terminals. You can 
go and prepare your own return, and, if you can learn it once, 
maybe next year you can do it yourself. But there is a very 
high learning curve.
    I think one thing that can help is if we can get this W-2/
1099 information in advance, then maybe the IRS can pour that 
into, whether it is commercial software or into Free File or 
into the free fillable forms that we have as part of the 
consortium, if you could pour some of the data in, that might 
make it easier for taxpayers to then say, ``Okay, and I have 
these dependents,'' et cetera, and prepare their own returns. 
But it is a big lift for this population.
    Senator Isakson. This is my last question, and I appreciate 
the time, Mr. Chairman.
    When you catch an unenrolled preparer in a fraud, under the 
Loving decision, you do not have any standing to do anything to 
that person, but can you refer them to the Justice Department 
for prosecution or investigation?
    Commissioner Koskinen. Yes, and we do that. Whenever we 
find either systemic fraud or fraud that is a violation of law, 
we can refer it for prosecution. As the Taxpayer Advocate 
noted, that is after the fact, after the taxpayer has been 
abused, and we cannot prosecute every case. We do not have the 
resources to either catch everybody who has defrauded their 
clients or to prosecute them all, but they are at risk.
    If they commit fraud in the filing of their returns for 
their clients, if they violate the law, they are at risk of 
prosecution. The question is whether we can catch enough of 
them to make a difference.
    Senator Isakson. Well, if CMS does a good job of trying to 
enforce against fraud in Medicare and Medicaid by making highly 
visible profiles of anybody they catch defrauding the 
government, the same thing might be beneficial for the IRS as 
well.
    Commissioner Koskinen. We give as much visibility as we can 
to the prosecutions we get and to the sentences we get, but 
there are still a lot of people figuring out that they are 
playing roulette. And assuming that, at the levels they are 
operating, it will be hard to find them, and the question is 
whether there will be enough resources to prosecute them.
    Senator Isakson. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Isakson.
    Among the good points that you just made, I think there 
really ought to be more inquiry into Free File to actually see 
what its strengths and limits are. I have heard, for example, 
questions about whether they can do State returns and these 
kinds of matters. So I want to work closely with you on it.
    Senator Burr?
    Senator Burr. Commissioner, welcome. Senator Coburn and I 
have shared some correspondence with you in the last 2 weeks. 
You have responded. I thank you for that very timely response.
    Let me refresh your memory. This was in relation to the 
Chicago District of the NLRB's decision as it relates to the 
Northwestern Football Players and their potential unionization.
    We said to you that our interpretation of section 117 of 
the Internal Revenue Code was, in fact, exactly what your tax 
experts said, that there was an exclusion specifically stated 
in there for scholarships, educational scholarships, that made 
those exempt from ordinary income.
    But the statute goes on to note one exception, and I will 
quote it. It says section 117, and I quote, ``shall not apply 
to that portion of any amounts received which represents 
payment for services by the student required as a condition for 
receiving the qualified scholarship,'' meaning if the 
individual received a scholarship, a portion or the portion 
that represented a payment for service was no longer tax-
exempt.
    I got a very detailed letter back from you basically 
stating the first part, which is about section 117 and the 
exclusion for scholarships, and you made a very specific 
statement in here that the NLRB definition of an employee for 
labor law does not control whether the individual is an 
employee for the purposes of Federal tax. In other words, 
scholarships are governed by IRS code, and this is going to 
raise a big question, because nowhere did your letter note the 
disqualifying thing found in the tax code, which is providing a 
service.
    Now, let me just state for my colleagues, the NLRB decision 
said these students are employees. The suit was brought by 
Northwestern football players because they said, ``We are under 
the control of the university. They tell us when to go to 
practice, when to go to a game. They control. Therefore, we 
should have the opportunity to bargain with them because we are 
employees.''
    The NLRB made a determination that they were employees, and 
they referred to section 2.3 of the National Labor Relations 
Act. Let me just quote from the NLRB decision.
    ``The Act provides, in relevant part, that the term 
`employee' shall include any employee. The Supreme Court has 
held that by applying this broad definition of an employee, it 
is necessary to consider the common law definition of an 
employee. Under the common law definition, an employee is a 
person who performs services for another under a contract of 
hire, subject to the others' control or right of control, and 
in return for payment.''
    Now, let me just suggest to you that, if that does not meet 
the exclusionary part of section 117, I really do not 
understand it. And I understand your point here that labor law 
does not dictate tax law.
    So let me point then to tax law. In Revenue Ruling 77-263, 
which discusses section 117 and the tax law treatment of 
athletic scholarships, the IRS states this clearly: ``Any 
amount paid or allowed to or on behalf of an individual to 
enable an individual to pursue studies or research is not 
considered to be an amount received as a scholarship or a 
fellowship grant for the purposes of section 117, if such 
amount represents compensation for past, present, or future 
employment services or for services that are subject to,'' and 
I underline, ``direction or supervision of a grantor or if such 
studies or research are primarily for the benefit of the 
grantor. Any of these conditions will negate the existence of a 
scholarship or fellowship grant as defined in the regulation.''
    So the body of tax law is pretty clear on this question, 
Mr. Commissioner. Bargained-for payments cannot be excluded 
from income as athletic scholarships. Again, the players were 
seeking to unionize in the Northwestern case, and they make the 
argument that they are employees and that the scholarships they 
receive from the university are compensation for services 
rendered. The NLRB has agreed with the players that they are 
employees and that their scholarships are compensation for 
services rendered.
    Let me just ask you, how can the IRS ignore tax law and the 
facts in the answer that they prepared for you to send me?
    Commissioner Koskinen. Well, first of all, it would be 
interesting to see what the NLRB final decision is as that 
issue from the regional office goes forward.
    Senator Burr. If it goes as currently written, are those 
scholarships taxable?
    Commissioner Koskinen. Well, the revenue ruling you are 
talking about talks about and tries to distinguish, obviously, 
graduate students who teach, who do research, who get paid, and 
that issue.
    Obviously, interesting discussions are going on in the NCAA 
about whether, in fact, student athletes should get stipends, 
so whether they should, in fact, be paid in addition to their 
scholarships. The principle thus far has been that all of these 
students are student athletes, that the scholarship allows them 
to attend college and to participate in athletics, and that 
historically has been the rule applied.
    To the extent that the circumstances change significantly--
and that is why I say it will be interesting to see where this 
goes--then, obviously, we will take another look at what the 
definition of compensation is, what the definition of 
scholarships are, and what the situation is. But thus far, the 
people who have looked at it, the experts in the IRS, have 
ruled that nothing has changed thus far that would cause us to 
make a----
    Senator Burr. Commissioner, let me ask. Just from the 
explanation and what I read of tax law, where have I missed it 
that it is clearly stated there, that if they are supervised, 
if they perform a service required by that entity that controls 
them, this is no longer considered a scholarship?
    I think that you are reinterpreting what the tax law says 
and----
    Commissioner Koskinen. What I am saying is, historically, 
what football players do today is no different than what they 
did 5, 10, or 20 years ago, and they have always been treated 
as if those were scholarships.
    To the extent that the nature of the compensation changes, 
then we would take a look at it. But nothing in terms of what a 
student athlete does has changed, even as a result of that NLRB 
decision.
    The Chairman. Senator Burr, I just think we have to move 
on. We have a lot of additional witnesses. Is that acceptable 
to you? Do you have anything else you need to do? You are way 
over.
    Senator Burr. Let me just say, Mr. Chairman, it concerns me 
that we might look at it in the future, because we either 
follow the statute that is in the law, which I think is very 
clear, or we do not, and I am not sure the IRS statute is open 
for interpretation when it is as clear as it is. You would have 
to change a lot of words there to suggest that this does not 
fit the determination that the labor law makes.
    Thank you, Mr. Chairman.
    The Chairman. Senator Brown?
    Senator Brown. Thank you, Mr. Chairman.
    I appreciate Senator Burr bringing up such an interesting 
issue of what happens at Northwestern with these players, and I 
might add, I have met with a couple of them, and they are 
definitely not asking for compensation.
    I know Senator Burr did not say that, but it is about 
concussions, and it is about a kid who gets hurt and loses his 
scholarship because he is of no use to the university then and 
may not have his health care provided for.
    I remember a suspension some years ago of a major player at 
a university in my State. The suspension did not take effect 
until after the bowl games because of the revenue he 
represented to the university, the NCAA, and ESPN. So, even 
though he deserved suspension, he did not deserve it until 
after he would play that ballgame that would bring in that 
revenue. So I think we have a lot of discussions ahead of us on 
this.
    Senator Burr. If I could say to my good----
    The Chairman. Colleagues, we have quite a number of 
witnesses on the second panel. We are just going to have to 
continue on the question of fraud by tax preparers.
    Senator Brown?
    Senator Brown. Thank you, Mr. Chairman. And it will be 
that.
    There has not been much said--well, nobody on this panel 
has talked about the Earned Income Tax Credit. I cannot stay 
for the second panel. I do know one of the witnesses on the 
second panel will have much to say about the Earned Income Tax 
Credit.
    My view is, if we are going to look at the EITC--which 
President Reagan, as you know, called the best poverty program 
going in America--couple it with the Child Tax Credit and what 
that means. I know Ms. Olson has been outspoken about that. If 
we are going to look at EITC as being subject to too much 
fraud, and we always should be vigilant, to be sure, we might 
be just as focused on carried interest and blocker corporations 
and accounts in the Cayman Islands.
    But let me ask Ms. Olson. There was a TIGTA report that 
found higher rates of improper payments for EITC. They also 
estimate that between 20 percent to 22 percent of eligible 
workers are not claiming EITC.
    For many of us, in our States, we put real time and real 
staff, real personal staff and real staff time, into getting 
people to sign up, to know about it, to be aware of it.
    First, two questions, Ms. Olson. What do we do to maintain 
and enhance the EITC and the Child Tax Credit while reducing 
the error rate and increasing enrollment? And second, in 
Professor Barrick's written testimony, he states that despite 
the fact that EITC and the Child Tax Credit lift millions of 
families out of poverty, he says the risk of fraud is so great 
that it should be addressed by eliminating both credits.
    So comment on both of those, if you would, Ms. Olson.
    Ms. Olson. I think that the IRS has some research, some 
very good research, from its random audits of EITC taxpayers 
that really demonstrates that the sources of error are very 
great. And it is a complicated statute, so you have those kinds 
of errors, and then you do have fraud, for all the reasons we 
have talked about here, including the vulnerability of the 
population.
    The population also changes one-third every year. So it is 
very hard to have a learning curve where you are teaching 
people. They are leaving the EITC and coming into the EITC in 
great numbers.
    I have proposed in other testimony multiple ways of 
addressing the errors, including both education and redesigning 
the statute a little bit to combine the family-related credits 
and dependency exemptions and child credit into a larger family 
credit that would be refundable, and then a worker credit, 
because that makes the overall dollar amount a little less for 
each provision and a little less attractive for fraud.
    But the main point I really want to make about this is that 
the EITC has very low administration costs for such a large 
social benefit program. Where its costs are are in the 
compliance and error and fraud rate, and we do not know what is 
fraud and we do not know what is error.
    Other benefit programs have very high administration costs 
and not as high error costs. That is because they have a lot of 
front-end application process. We do not. You file on an income 
tax return. That is very inexpensive. We have the costs at the 
back end.
    But what the EITC has that no other benefit program has is 
a high participation rate. We have 75 to 80 percent of the 
eligible taxpayers getting that money. It is higher than any 
other benefit program that the United States administers to 
that population, to my knowledge.
    So, if you really want to look at the effectiveness and the 
efficacy of the EITC, yes, we have a higher error rate, but we 
have low cost and we have a high participation rate, as opposed 
to the programs that have low error rates but very high 
administration costs and low participation rates.
    I think if you look at it holistically, yes, we have to get 
down our error rates--and I have made really substantive 
proposals on how to do that--but as an effective program, it is 
very good, in my personal opinion, and my professional opinion 
too.
    Commissioner Koskinen. Yes. I agree with the Taxpayer 
Advocate. We have had two big meetings with everybody who has 
ever thought about this program. We have tried a lot of 
different things.
    I think the error rate, 20 percent to 22 percent, and the 
amount of payment made in error--it is not all fraud, as the 
Taxpayer Advocate said--are untenable. It is a great program, 
and, as I have told everybody, we have to make it clear to the 
public that we understand it is a problem, it is a serious 
problem that we care about, and, in fact, we are going to do 
something about it.
    One of the things we need, and we have asked the Congress 
this time around for, is authority for what is called 
``correctable error authority.'' We, if we find and know there 
is a problem in a return, cannot change that return, unless it 
is just simple math errors, without an audit and contacting the 
taxpayer. Correctable error authority would allow us, when we 
know there is an error in the return, to make the change, then 
advise the taxpayer. The taxpayer could appeal and come back to 
us. But it would allow us to eliminate some of the improper 
payments at the front end rather than requiring us to have an 
audit each time.
    The Chairman. My colleague's time has expired.
    Senator Carper?
    Senator Carper. Thanks, Mr. Chairman.
    Commissioner Koskinen, Ms. Olson, it is very nice to see 
you both. Thank you so much for your service and for being with 
us today.
    I just want to say, Mr. Chairman, I am delighted we are 
having this hearing, and I commend you and Senator Hatch for 
holding it.
    My colleagues hear me say from time to time that there are 
three things we need to do for deficit reduction if we are 
serious about it. We have seen the deficit come down from about 
$1.4 trillion in 2009; last year it was only $680 billion. This 
year it is expected to come in at about $550 billion, then drop 
a little bit more, and then start going back up again.
    But if we are serious about deficit reduction, we need to 
do three things. One is entitlement reform, save these programs 
for our kids, save some money, so it does not savage old people 
or poor people. Number two, we need tax reform that actually 
brings down our top corporate rates to something that is more 
competitive with the rest of the world and also generates some 
revenues for deficit reduction. The third thing we need to do 
is look at everything we do in government and ask this 
question: how do we get a better result for less money? And 
this falls right into that bailiwick.
    GAO has spent a lot of time in recent years looking at this 
and how we make sure, in terms of other revenue that is coming 
into the Treasury, that taxpayers are paying a fair and 
reasonable amount, but others are not being unduly burdened 
because some of our neighbors are not doing their fair share. 
And this hearing puts a real spotlight on one of the ways that 
we could better ensure that everybody is paying their fair 
share. So I am delighted we are having this hearing.
    The investigations by the GAO and by the Treasury Inspector 
General have revealed serious problems with tax return 
preparation by preparers who are not CPAs or who are not 
attorneys or otherwise credentialed, and, as we know, this 
poses serious problems for tax administration, particularly for 
highly complex tax provisions like the EITC. You indicate it is 
pretty easy to fill out the form, the tax form to apply for it, 
but the actual compliance of it is quite a different matter.
    In light of the recent circuit court decision, it looks 
like legislation is necessary to allow the IRS to adequately 
regulate the tax preparers. In the meantime, I support IRS's 
efforts to create a voluntary certification program for 
preparers. And let me ask this question.
    Do you believe that offering voluntary certification will 
offer enough opportunity for return preparers to distinguish 
themselves so that many preparers will participate?
    Commissioner Koskinen. Go ahead.
    Ms. Olson. I think that if we couple that voluntary 
certification with some conditions--for example, right now, 
unenrolled return preparers can represent taxpayers in audits 
before the IRS for returns that they prepare, and that is a 
rule that we have promulgated. We should change that rule to 
only grant that ability to people who have taken the test and 
demonstrated competency and continuing education.
    They can also write their name on the return and say, ``You 
can call us if there are questions about the return,'' and we 
should restrict that to certified preparers. So that gives a 
leg-up to those people who are taking the time out to do that 
voluntary testing and continuing education. They can say, ``We 
can do these things,'' whereas other people cannot.
    It will not work if we do not have a comprehensive 
education campaign. We have to make it the Good Housekeeping 
Seal of Approval, that you have a clear choice. You go to 
someone, an attorney, a CPA, an enrolled agent, or a certified 
preparer, or all bets are off.
    Senator Carper. How could we help in this regard, other 
than passing legislation, which I would like to see us do, but 
how can we help short of that? There may be nothing, but there 
may be something.
    Commissioner Koskinen. This hearing is very valuable to 
give visibility to the issue to try, as we do, to get taxpayers 
to be careful when they select a preparer, to try to determine 
what their background is and their competency.
    Again, the government and the IRS have a great interest in 
competent preparers, because the errors that are provided, or 
the fraud that is created when it is not done well, create a 
tremendous burden on the system, as well as a question of 
whether we are getting adequate compliance.
    So I think a voluntary program, which we are considering, 
would be a step forward, but it is still going to leave people 
on the periphery, if for whatever reason they decide they are 
not going to register and take the exams and demonstrate 
competence, to produce erroneous returns that we then have to 
deal with and have to contact taxpayers about.
    Ultimately, it is not as if it is sort of six of one and 
half a dozen of the other. From our standpoint, it is critical 
that taxpayers get proper advice and that we get as many 
accurate tax returns as we can so that we do not fritter away 
resources chasing people who had no business filling out that 
return in the first place.
    Senator Carper. Mr. Chairman, my time has expired. I am 
going to be submitting a question for the record, because I 
thought Senator Thune asked a question that is worth 
highlighting and returning to about a substantial portion of 
the Affordable Care Act being implemented through the tax 
system. So you will get a question from me on that.
    But thank you so much. It is great to see you both.
    The Chairman. I appreciate my colleague bringing up this 
voluntary compliance issue. My concern about voluntary 
compliance is it really does not deal with the scofflaws. We 
know that the majority of preparers are scrupulous and honest. 
The problem is what to do about the outliers, and those are the 
people who are not going to be exactly tripping over themselves 
to comply with the voluntary compliance point. But we are going 
to discuss that, and we are going to discuss all of the options 
here for dealing with this problem.
    Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman. And following on 
that note, one of the options, I believe, is continuing to make 
things simpler from a technology perspective.
    So some of my colleagues have brought up the Free File 
program, which is a public-private partnership between the IRS 
and commercial tax software companies that offer free Federal 
tax preparation. And since its inception, it has saved over 30 
million taxpayers in helping them with their filings, and it 
has also saved the Federal Government something like $91 
million by making it easier, obviously, on the processing 
costs.
    So one of the things that I kind of disagree with you a 
little bit on, Ms. Olson, is, I am sure there are a lot of 
people who make less than $58,000 who know how to use Word or 
Excel or various software programs. This is about continuing to 
make the complexity of the tax code simple so that the 
administration of it is simpler too.
    So I wanted to talk to you about what else we can do to 
continue to advance the use of technology and help taxpayers 
file efficiently, because I have certainly heard stories within 
my own office of young people using an online version, and 
paying a little bit for that, and then going the next year, 
thinking they were going to get some great advice from 
somebody, and all they are doing is sitting across from 
somebody who knows barely more than they do, but is charging 
them 2 times or 3 times the rate.
    So to me, I think we need to make the tax code simpler, 
make it easier for people to file, make the code easier to 
understand so that people know exactly what they are doing. Is 
that not the direction that we should be going?
    Ms. Olson. Absolutely. I have made the complexity of the 
tax code the number-one most serious problem for taxpayers many 
times in my annual report to the Congress.
    I was an unenrolled return preparer and then an attorney 
who prepared returns for many clients, and I was baffled why 
people would not do some of the returns that they were bringing 
to me. There is this nervousness factor that they are going to 
make a mistake, that they missed something, and I think that is 
driving people of all income levels to return preparers.
    The Free File usage has not been robust in terms of the 
numbers of taxpayers, even though it covers a large population, 
and I think some of that is that some taxpayers like to buy the 
tax software products to get all the other bells and whistles 
that are on those products, incorporating them with their 
accounting programs, et cetera. Others want to go to return 
preparers, like I said before, because they do not want to make 
a mistake and they just do not trust themselves, even with the 
software.
    I think the IRS publicizes the Free File or the free 
fillable forms. I will come back to something I said earlier. I 
think it is very important for the IRS to be able to get W-2 
and 1099 data early in the filing season, as early as possible, 
so we can make it available to taxpayers, so they can download 
it into their software programs that they may purchase, so 
preparers can download it into their programs, and so that 
people can download it into Free File or free fillable forms 
and get a little further along and that is accurate information 
then.
    You avoid keystroking errors and things like that and that 
missed W-2 that got sent to a wrong address. That would be the 
big technology push, and Congress could do something about this 
by setting some goals for the IRS to move forward in this.
    Congress set goals for the IRS to get into electronic 
filing, and, even though it did not hit the goal on time, it 
became a rationale, it became a goal, and the IRS organized 
itself around achieving that. And I think to get to this next 
electronic umph with getting the third-party information 
reporting timely, being able to help taxpayers, but, also, 
protect against fraud----
    Senator Cantwell. I think software developers have to focus 
all their attention on making it intuitive, and I think there 
is some intuitiveness we could probably put into the tax code 
explanations. And so we will certainly take you up on that 
offer.
    I also wanted to ask, quickly, because we have, obviously, 
suffered this devastating loss in the Oso, Darrington mud slide 
area of our State, and so we have been looking at all of this 
as it relates to disaster relief, and you certainly have seen a 
lot of these incidents with Sandy.
    Do you think that we need to look at this issue of what is 
available to communities? It seems like we are so almost rifle-
shot, and then here is a community where you have lost your 
house. In a lot of instances, you still have to pay on your 
mortgage even though your house has been totally wiped out.
    How do we help these communities?
    Ms. Olson. We have made some recommendations in the past 
about disasters that did not quite qualify for presidentially 
declared disasters, and I will commit to working with your 
office about some of that. And I also think your idea about 
some of the mortgage relief and debt relief and things, so you 
do not trigger taxable events because you cannot pay these 
things, that is very important. I would be more than happy to 
look into that.
    Senator Cantwell. Thank you.
    The Chairman. Thank you, Ms. Olson, both of you. This was 
very helpful in terms of the technology issue. There is no one 
in the Senate who is more tech-savvy than Senator Cantwell. So 
we are going to follow up on these two issues and on the 
mortgage point in terms of trying to protect people from tax 
increases when they get debt relief. That is part of the 
extenders, as a result largely of Senator Stabenow.
    At this point, I think we have completed our first round.
    I would like to introduce our second panel, and we will 
have Senator Hatch introduce Dr. John Barrick, associate 
professor at Brigham Young University.
    Thank you both very much. You have spent a lot of time at 
the witness table, and we thank you for your expertise and your 
patience.
    Now for our second panel. I would like to introduce the 
first witness, Mr. James McTigue, Director of Strategic Issues 
from the Government Accountability Office. Mr. Wayne McElrath 
is Director of Investigative Services and will answer any 
questions that members have after Mr. McTigue provides his 
testimony.
    Our next witness is Mr. William Cobb, the president and CEO 
of H&R Block.
    Our third witness is Ms. Janis Salisbury, the chair of the 
Oregon Board of Tax Practitioners. Ms. Salisbury, we know that 
you have tax clients waiting for you at home in Oregon, so we 
thank you for coming.
    Senator Hatch will introduce Dr. John Barrick momentarily.
    Our fifth witness will be Ms. Chi Chi Wu, staff attorney at 
the National Consumer Law Center.
    Our final witness will be Mr. Dan Alban, attorney for the 
Institute of Justice.
    Let us now have Senator Hatch introduce Dr. John Barrick, 
associate professor, Brigham Young.
    Senator Hatch. I would like to welcome Professor John 
Barrick from the School of Accountancy in the Marriott College 
of Business at Brigham Young University, which is a very highly 
rated business school.
    Professor Barrick is a leading academic expert in taxation. 
In addition, he has a wealth of practical experience. His 
highlights include 2 years of tax experience with the 
bipartisan Joint Committee on Taxation and 4 years as a tax 
consultant with PriceWaterhouse.
    John's family is with him here today. And we welcome you 
all here, and we are very happy to have you here helping us to 
understand these issues.
    The Chairman. Thank you very much, Senator Hatch.
    We thank all of our witnesses for coming.
    In order to give members of the committee time to ask 
questions, we would ask that you limit your testimony to 5 
minutes. Your prepared statements are going to automatically be 
part of the record.
    Why don't you start, Mr. McTigue?

STATEMENT OF JAMES R. McTIGUE, JR., DIRECTOR, STRATEGIC ISSUES, 
        GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC

    Mr. McTigue. Thank you, Mr. Chairman and members of the 
committee. I am pleased to be here today to discuss the quality 
of services provided by paid tax preparers.
    Millions of taxpayers rely on paid preparers to provide 
them with accurate and fully compliant tax returns. The IRS has 
long recognized that paid preparers' actions have an enormous 
impact on its ability to administer tax laws effectively and 
collect the revenue that funds the government. Despite the 
importance of paid preparers in our tax system, IRS's authority 
to regulate paid preparers is limited to certain preparers, as 
you have heard, such as attorneys and certified public 
accountants. The majority of preparers, 55 percent, are known 
as unenrolled preparers and are not regulated by IRS. In 2010, 
IRS initiated steps to regulate unenrolled preparers, but the 
courts ruled that IRS lacked the authority.
    In order to gain some insight into how unenrolled preparers 
actually perform, we developed two scenarios based on common 
tax issues. We call these scenarios our waitress scenario and 
our mechanic scenario. In our waitress scenario, our undercover 
investigator posed as a single mother who received wage income 
and unreported cash income from tips. She had one child who 
lived with her during the year and qualified for the Earned 
Income Tax Credit and one who did not. In our second scenario, 
a mechanic and his wife derived the majority of their income 
from his wages, but also had some side income from repair work 
and child care. They had three children who lived at home; one 
attended college.
    As you can see from the board on my right and figure 3 in 
my written statement, in 19 visits to randomly selected 
commercial paid preparers, refund errors ranged from $52 lower 
to $3,700 higher than they should have been. In only two 
instances did the paid preparer calculate the correct refund 
amount.
    In the waitress scenario, preparers made two key errors; 
first, not reporting all the cash tip income and, second, 
claiming both children as being eligible to receive the Earned 
Income Tax Credit. The clustering of the bars illustrates that 
different preparers made the same errors. For example, four 
preparers did not claim the cash tip income, which overstated 
the waitress' refund by $654. One preparer told our 
investigator that if she reported the tip income, it would be a 
red flag, and her employer would be audited. Three preparers 
made both errors, which resulted in refunds that were 
overstated by more than $3,700. In one case, the preparer told 
our investigator that she could claim her second child if no 
one else did, even though the child did not live with her for 
more than half of the year.
    In the mechanic scenario, not reporting cash income also 
resulted in refunds that were overstated by $3,000. One 
preparer told our investigator that if the side income was 
reported, his tax preparation fee would go up and his refund 
would go down. Two preparers went as far as to show our 
investigator how his refund would change if the side income was 
reported.
    Clearly, taxpayers were not well-served by the preparers 
that we visited. But as the next board on my right illustrates, 
figure 6 in the written statement, they paid a lot of money for 
the services, and fees varied widely. For example, with the 
mechanic scenario, fees ranged from about $300 to $600. 
Alarmingly, the average fee for the waitress scenario was 
nearly $300, more than 80 percent of her weekly pay.
    Often, the paid preparers either did not provide an 
estimate of the fees up front or the actual fees charged were 
higher. Higher fees, however, do not translate into more 
accurate returns. In fact, the fee charged for the correct 
mechanic return was one of the lowest at $311. When our 
investigators inquired about the high fees, we heard a range of 
responses like, we charge more in the morning than the 
afternoon, we charge more early in the tax season than later, 
and the Earned Income Tax Credit form is one of the most 
expensive.
    Although our findings are anecdotal, GAO's analysis of 
IRS's national research program data reveals that preparer-
filed returns showed an estimated 60-percent error rate 
compared to an estimated 50-percent for self-prepared returns. 
Errors on paid preparer returns were similar to those 
encountered during our visits. For example, preparer-filed 
returns claiming the Earned Income Tax Credit had an estimated 
error rate of 51 percent.
    Undoubtedly, many paid preparers do their best to provide 
clients with returns that are accurate and fully compliant. 
However, poor performance can result in taxpayers being 
audited, having to pay back taxes and interest, and possibly 
even penalties.
    In 2008, when GAO looked at States that regulate paid 
preparers, we found that returns filed by paid preparers in 
Oregon, which has the most stringent requirements of any State, 
were more likely to be accurate than comparable returns filed 
by preparers in the rest of the country.
    Given the importance of paid preparers in our voluntary tax 
system, we are recommending that, if Congress agrees 
significant preparer errors exist, it should consider granting 
IRS the authority to regulate unenrolled tax preparers.
    This concludes my statement, and I would be happy to answer 
any questions.
    Thank you.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. McTigue appears in the 
appendix.]
    The Chairman. Mr. Cobb, I think you will be next.
    Mr. McElrath, would you like to add to that?
    Mr. McElrath. No. I have nothing to add.
    The Chairman. Very good.
    Mr. Cobb?

         STATEMENT OF WILLIAM COBB, PRESIDENT AND CEO, 
                   H&R BLOCK, KANSAS CITY, MO

    Mr. Cobb. Chairman Wyden, Ranking Member Hatch, and the 
distinguished members of the committee, thank you for inviting 
H&R Block. We are pleased to participate in this important 
discussion about protecting consumers from incompetent and 
unethical preparers.
    As the world's largest consumer tax services provider, 
competent, ethnical tax return preparation is something we take 
very seriously. Last year, we filed more than 22 million U.S. 
individual income tax returns, about 15 million returns in our 
more than 10,000 offices, and another 7 million through our do-
it-yourself software offerings.
    We know a lot about consumer views on taxes and know what 
it takes to maintain expertise in this always-changing tax 
landscape. In order to protect taxpayers from incompetent and 
unethical tax return preparers, there are two key items that 
must be addressed: first, minimum standards for tax return 
preparers, and, second, consistent fraud prevention measures 
across all tax preparation methods.
    First, we support legislation that sets standards for 
professional tax return preparers. The most obvious way to 
address incompetent and unethical tax return preparers is to 
establish a set of minimum standards. Standards provide an 
objective measure for both consumers and tax preparers to 
measure and monitor the overall competency, expertise, and 
performance of tax return preparers.
    This is critical, because the ultimate goal is to help 
taxpayers file more complete and accurate returns. Equally 
important is the reduction of both fraudulent tax returns and 
the improper payment rate of the Earned Income Tax Credit. More 
than 80 million people file an individual income tax return 
with the help of a tax return preparer every year. Consumers 
need an objective way to know that the person they turn to for 
one of the biggest financial transactions of their year is 
competent and meets standards necessary to accurately prepare 
tax returns.
    Taxpayers themselves agree. A recent national survey that 
we commissioned found that 9 out of 10 consumers support 
requiring professional tax preparers to meet minimum training 
standards. As this initiative moves forward, the U.S. Treasury 
Department and IRS must leverage the lessons learned from the 
prior registered tax preparer program and partner with private 
industry to create an effective and cost-efficient program.
    The components of the program must include tax preparer 
registration, demonstrated competency, continuing education, 
and background screening. At the end of the day, requiring 
return preparers to meet minimum standards and stay current 
with the tax code is not about granting the IRS additional 
authority that it should not have or to advance anti-
competitive pursuits. It is about protecting the 60 percent of 
consumers who get help with their taxes every year. This is why 
we require our H&R Block tax preparers to meet stringent 
education and competency standards: 75 hours of tax law and 
return preparation education, plus 35 hours of skills training 
in their first year, then annually, another 15 hours of 
continuing education and 20 hours of skills training.
    The second key item that must be addressed is implementing 
consistent fraud prevention measures across all tax preparation 
methods. The steps designed to prevent EITC fraud in the paid 
preparer channel are notably absent in the do-it-yourself 
channel. Specifically, for the 40 percent of taxpayers who do 
their own taxes using do-it-yourself software, such as H&R 
Block's, they are not required to provide the same information 
and documentation to substantiate their eligibility for this 
refundable credit.
    Congress must close such obvious gaps not only for EITC, 
but for all refundable credits. With an EITC improper payment 
rate persisting at 20 percent or higher, this is an obvious 
opportunity that can and should be seized immediately.
    Consumers are not concerned about answering more questions. 
In the same survey I mentioned before, a significant majority 
of taxpayers expressed a willingness to do more to help combat 
tax fraud, such as answering more questions on their returns or 
even waiting a little longer for their refund.
    Government, the tax preparers, software developers, and 
taxpayers each play a significant role in the tax filing 
process. Taxpayers are willing to do their part as long as it 
is administered consistently for all. Additionally, this 
difference in standards creates a loophole for ghost preparers 
who do not want to comply with the paid preparer requirements. 
They simply use a do-it-yourself product. IRS should set 
standards for tax software to ferret out ghost preparers.
    Before I close, let me take a moment, Mr. Chairman, to 
acknowledge your interest in streamlining the tax code and the 
tax filing process. We would be pleased to share our consumer 
tax expertise on these issues with you and your staff.
    The Tax Institute at H&R Block, comprised of enrolled 
agents, tax attorneys, CPAs, and former IRS officials, analyzes 
proposed legislation and regulations with an eye on how they 
will affect consumers. And in doing this analysis, the Tax 
Institute has access to the real world expertise of our 70,000 
tax professionals who are on the front line with consumers.
    In conclusion, we urge Congress to listen to consumers and 
move to enact minimum standards for return preparers and 
implement consistent anti-fraud measures for taxpayers. These 
standards are essential for protecting consumers, combating 
fraud, and reducing improper payments.
    Until Congress can enact minimum standards for return 
preparers, we recommend that Treaury and IRS implement a 
voluntary certification program as supported by IRS 
Commissioner Koskinen and the National Taxpayer Advoate.
    Thank you for the time, and I look forward to working 
together to implement these common-sense measures.
    The Chairman. Mr. Cobb, thank you.
    [The prepared statement of Mr. Cobb appears in the 
appendix.]
    The Chairman. Ms. Salisbury, welcome. You made a long trek 
at a busy time of the year, and I know you have some late 
nights ahead of you, so we really appreciate your coming.

       STATEMENT OF JANIS SALISBURY, CHAIR, OREGON BOARD 
             OF TAX PRACTITIONERS, OREGON CITY, OR

    Ms. Salisbury. Thank you. Chairman Wyden, Ranking Member 
Hatch, and distinguished members of the committee, my name is 
Janis Salisbury. I am an IRS enrolled agent and a licensed tax 
consultant in Oregon. For the past 6 years, I have served the 
State of Oregon as a member of the Board of Tax Practitioners 
and have served on that board for the last 2 years as chair.
    I am pleased to be here to discuss with the committee the 
actions that Oregon has taken to protect taxpayers from 
incompetent and unethical tax return preparers, and to 
recommend that Congress provide the IRS with the authority to 
require individuals to demonstrate minimum competency in tax 
return preparation, either by passing a State board examination 
or for the individual to pass an IRS examination, and then to 
impose continuing education requirements after passage of such 
examination.
    The primary reason Oregon felt it necessary to develop its 
own paid preparer regulatory program 40 years ago is the same 
today as it was then. Initial training and registration is 
essential before anyone can even begin preparing your tax 
returns. Oregon's track record proves this.
    In 1972, Oregon determined that people engaging in tax 
return preparation should be licensed and be required to obtain 
continuing education relating to the tax return preparer 
occupation. The Board of Tax Practitioners currently regulates 
tax return preparers in Oregon. Oregon requires paid preparers 
who are not already licensed by the State as CPAs or attorneys 
to obtain a State license to prepare tax returns.
    To become a licensed tax preparer, a person must have a 
high school diploma or the equivalent, complete 80 hours of 
approved qualified education, pass a State-administered 
examination, and then pay a registration fee at application. 
Annual renewal by licensees requires proof of at least 30 hours 
of continuing education.
    According to a report to this committee prepared by the GAO 
in August of 2008, Federal tax returns for the year 2001 filed 
in Oregon were more likely to be accurate than returns filed 
anywhere in the rest of the country. Specifically, the GAO 
found that the odds that a return prepared by an Oregon paid 
preparer was accurate were about 72 percent higher than the 
odds for a comparable return filed by paid preparers in the 
rest of the country.
    Oregon has been a leader in requiring the licensing of tax 
return preparers for over 40 years, and the results noted by 
the GAO show the excellent results of Oregon's regulations. 
Accordingly, the Oregon State Board of Tax Practitioners urges 
the Congress to enact legislation similar to Oregon's 
legislation, which would require individuals to demonstrate 
competency in the preparation of tax returns and satisfy 
continuing education requirements.
    We suggest that such competency be demonstrated by passing 
a written examination approved by a State board of accountancy 
or a board of law examiners or a State entity, such as the 
Oregon Board of Tax Practitioners, or by the IRS. The passage 
of an examination recognized by a State, such as Oregon, to 
show competency in tax return preparation must be considered to 
demonstrate tax competency for Federal tax return preparers, in 
order to recognize efforts that have been undertaken at the 
State level and to avoid duplicate and unnecessary testing.
    We commend the Senate Finance Committee for holding this 
hearing and considering this important legislation. Thank you 
for the opportunity to be with you, and please let me know if 
you have any questions. I am very willing to answer.
    The Chairman. Thank you. That is very helpful, and we will 
have some questions in a moment.
    [The prepared statement of Ms. Salisbury appears in the 
appendix.]
    The Chairman. Professor Barrick?

STATEMENT OF JOHN BARRICK, Ph.D., ASSOCIATE PROFESSOR, BRIGHAM 
                  YOUNG UNIVERSITY, PROVO, UT

    Dr. Barrick. Chairman Wyden, Ranking Member Hatch, and 
members of the committee, thank you for inviting me to 
participate in this hearing. Protecting taxpayers from 
incompetent and unethical tax return preparers is an important 
topic.
    To illustrate the problem, I would like to share a former 
colleague and classmate's recent experience with a taxpayer who 
previously received return preparation services from a ghost 
preparer.
    A new client comes to visit a CPA and indicates that he has 
a tax problem. The client never attended college, is a single 
father, has two young children, ages 4 and 6, and is facing 
uncertain economic times. During the previous year, he engaged 
a tax return preparer who claimed that he could get him an 
$8,000 refund at the cost of $800 or 10 percent of the refund 
due.
    The return preparer did not sign the return nor did he 
provide reliable preparer contact information. As promised, the 
client did receive an $8,000 refund and began spending it. 
However, a short time later, the client received an IRS notice 
denying the three American opportunity credits that were 
claimed, one for himself and each of his two young children. 
The money had to be returned.
    Who was to blame? Both the client and the tax preparer 
knowingly submitted or had opportunity to know that the return 
claimed false information.
    The client is now worse off than before. He owes the full 
amount of the refund, plus he is out the $800 return 
preparation fee. The preparer is a ghost, not to be found, $800 
richer than before.
    All of us at this hearing would like to prevent this type 
of behavior from happening again. But how can we best do that?
    First, our tax system is both necessary to raise revenue 
and complex, as has been noted today. With 6.1 billion hours 
spent complying with the law and the code having over 4 million 
words and containing 4,600 changes since 2001, this complexity 
has led to the need for tax return preparers.
    There are three main problems associated with regulations: 
the inability to regulate the most unscrupulous and unethical, 
the inability to impose ethics on return preparers, and the 
creation of winners and losers within the industry. I firmly 
believe that the current regulatory framework is insufficient 
to address these limitations, and I will make several 
recommendations that the Congress and the IRS could follow to 
better protect these taxpayers.
    First, voluntary disclosure. We live in a free society. Let 
the markets decide. Create incentives for the return preparers 
to voluntarily register. Attorneys, CPAs, and enrolled agents 
already do this. If the IRS chooses to endorse or certify a new 
class of return preparers with only 15 hours of education, the 
IRS will provide a seal of approval and a false sense of 
security to taxpayers. I do not recommend this latter approach.
    Second, eliminate or limit refundable credits. The growth 
of refundable credits in the income tax system encourages 
unethical behavior by taxpayers, ghost preparers, and others 
wishing to defraud the Federal Government. The Earned Income 
Tax Credit, Child Tax Credit, and education credits are 
refundable. The new credits provided by the Affordable Care Act 
will double the amount of refundable credits available by the 
income tax system. Prior research has shown that financial 
incentives do matter, that current law encourages and creates 
incentives for fraud. To the unscrupulous and unethical, this 
is easy money.
    Third, enforce existing return preparer laws. In 2005, the 
IRS Criminal Investigation Division stated that the IRS 
currently has numerous tools available to address return 
preparer fraud. If the IRS already has ample statutorily 
authorized tools, why do they need regulations to address this 
issue? Encourage the IRS to use the existing tools.
    Fourth, educate taxpayers. Taxpayers are ultimately 
responsible for their returns. They have an obligation to put 
forth a good effort. If something promised to you by anyone 
sounds too good to be true, it probably is. Buyers beware. 
Taxpayer education can be an effective tool that the IRS has 
historically used successfully.
    In conclusion, the tax law is large and complex. For these 
reasons, the majority of taxpayers seek out return preparers to 
help them. But there are ghosts that attempt to defraud the 
income tax system.
    Rather than regulate, please take the previous steps that I 
have mentioned. The most important protection for taxpayers 
would be a simpler income tax system, as suggested by Chairman 
Wyden today. I would encourage the committee to continue to 
pursue meaningful reform.
    Thank you for giving me the time and opportunity to speak.
    The Chairman. Thank you, Dr. Barrick.
    [The prepared statement of Dr. Barrick appears in the 
appendix.]
    The Chairman. Ms. Wu?

STATEMENT OF CHI CHI WU, STAFF ATTORNEY, NATIONAL CONSUMER LAW 
                       CENTER, BOSTON, MA

    Ms. Wu. Chairman Wyden, Ranking Member Hatch, and members 
of the committee, thank you for inviting me here today. My name 
is Chi Chi Wu. I am a staff attorney at the National Consumer 
Law Center.
    Mr. Chairman, thank you for holding this hearing on the 
need to protect taxpayers from incompetent and unethical tax 
preparers. This is a consumer protection issue, as well as a 
revenue protection issue. Simply put, there needs to be 
licensing and competency standards for paid tax preparers. 
Either Congress needs to give IRS the authority, or the States 
need to enact such laws. Indeed, mindful of the difficulty in 
getting Federal legislation passed, we at NCLC have issued a 
model act to encourage States to adopt such laws.
    I have worked at the intersection of taxpayer and consumer 
rights for over a decade. When I began this work, I assumed, as 
do many Americans, that tax preparers were licensed 
professionals with certain educational credentials. After all, 
the tax return is the most important financial transaction 
during the year for many Americans, and it would only make 
sense that the preparers in whom consumers place their trust 
and their sensitive financial information would be required to 
take some courses and pass a test.
    To my surprise, the exact opposite was true. Preparers are 
essentially unregulated in 46 States. Contrast this with other 
professions that do require licensing in all or most States, 
such as hairdressers or landscape architects.
    The lack of regulation for tax preparers has resulted in an 
environment that breeds incompetence and fraud. One indication 
is the existence of fringe preparers, tax preparation offered 
by businesses such as payday lenders, pawn shops, check 
cashers, used car dealers, jewelry shops, even liquor stores 
and a ``rent-a-wheel'' business.
    This, of course, raises questions. How accurate are tax 
returns prepared by used car dealers? One can imagine that the 
incentive for accuracy might take a back seat to the desire to 
sell a car by using a tax refund as a down payment.
    Unfortunately, the problems go beyond that. In 2008, we 
conducted mystery shopper testing, the original purpose of 
which was to investigate disclosures concerning refund 
anticipation loans. To our surprise, what we found were serious 
tax errors and fraud in four out of the 17 tests we conducted, 
or nearly 25 percent. One example involved a preparer who did 
not know how to handle a Form 1099-D. To quote, ``The preparer 
said that there was a problem she did not know how to handle. 
The problem was that there was a $5,000''--that is a fictional 
number--``dividend that we must pay taxes on. With the 
dividend, our return would only return $100. If she were to 
ignore it, then we would receive $3,000 in returns. She then 
called her `tax people,' who told her we do not need to report 
the dividend and just ignore it.''
    In 2010, we conducted another round of testing and found 
incompetence and fraud in six out of 19 tests, or about 30 
percent. One example involved a preparer who, when realizing 
the tester would only receive a $1,000 refund and would owe 
State taxes, began making up deductions.
    To quote, ``The tester does not attend church, but the 
preparer included a $2,000 church donation. The preparer also 
deducted the cost of work clothes and laundry, even showed the 
tester that her Federal refund would increase to $3,000 from 
about $1,000. The preparer also tried to convince the tester to 
make up a dependent, as she does not have any, showing her that 
her refund would go to $5,000 if she did. The preparer also 
tried to qualify her for the EITC, even though she is not 
eligible. Finally, the tax preparer deducted $400 in 2008 tax 
preparation costs, even after the tester told the preparer she 
did not pay for tax preparation last year.''
    Unfortunately, these test results are not isolated and 
unique. Similar testing, including the testing announced by the 
GAO today, has found equal or greater levels of fraud or 
incompetence. Looking at the totality, we can see these 
problems are not limited to a handful of bad apples. Thus, 
bringing enforcement actions on a one-by-one basis is simply 
inadequate.
    For example, a recent lawsuit by the Department of Justice 
against Instant Tax Service might be considered a success 
because it shut down that chain, but it probably cost the 
government tens or even hundreds of thousands of dollars in 
staff time by IRS personnel and DOJ lawyers.
    There are simply not enough resources to go after all the 
bad actors. Furthermore, we disagree with the notion that 
preparer regulation could harm taxpayers because preparers will 
raise their fee to cover the cost of education and testing.
    First, the interest of consumers in obtaining competent, 
accurate, and ethical tax preparation far outweighs any 
increased marginal cost. After all, an erroneous return could 
put the taxpayer at risk of an IRS audit or even criminal 
sanctions.
    Second, we believe that preparer regulation will not 
actually even create significantly greater costs. Preparer 
compliance costs are minimal. For example, prior to the Loving 
decision, the IRS had planned to charge less than $120 for the 
exam. These costs are dwarfed by the hundreds of dollars in 
fees that some paid preparers charge for a single return, as we 
heard from the GAO today, and as our testing revealed--$400 to 
$500 in somes cases.
    And the DOJ's lawsuit against Instant Tax Service revealed 
that that chain typically charged about $550 for as little as 
15 minutes worth of work. Preparer regulation has more 
potential to lower costs than increase them by improving 
transparency and reducing abuses.
    Thank you for the opportunity to testify, and I look 
forward to your questions.
    The Chairman. Thank you very much, Ms. Wu.
    [The prepared statement of Ms. Wu appears in the appendix.]
    The Chairman. Mr. Alban, welcome.

               STATEMENT OF DAN ALBAN, ATTORNEY, 
              INSTITUTE FOR JUSTICE, ARLINGTON, VA

    Mr. Alban. Thank you, Chairman Wyden and Ranking Member 
Hatch, and other members of the committee.
    Congress should not give the IRS additional power over tax 
preparers by forcing them to get an IRS license before they can 
assist taxpayers with their tax returns. Tax preparers are 
already regulated by numerous Federal statutory requirements 
imposing both civil and criminal penalties for everything from 
failing to keep a list of the returns they prepared for the 
past 3 years to actual tax fraud. Tax preparers are also 
required to register with the IRS to obtain an individualized 
number, known as a PTIN, that they must include on every return 
they prepare, so that the IRS can track and analyze their 
returns. These tools already provide the IRS with what it needs 
to identify, track, and penalize the few bad apples without 
unnecessarily burdening the vast majority of law-abiding 
preparers.
    I have three main critiques of preparer licensing as bad 
public policy, followed by a few recommended solutions that are 
superior to licensing.
    First, preparer licensing is protectionist and 
anticompetitive. Rather than protecting consumers, licensing 
regulations can protect large incumbents and industry insiders 
from competition, by erecting costly barriers to entry. Indeed, 
several financial analysts have concluded that the largest 
firms, such as H&R Block, stand to benefit the most from 
licensing preparers.
    Unsurprisingly, the IRS licensing regulations were a 
product of lobbying by powerful special interests. H&R Block, 
Jackson Hewitt, and Intuit, the makers of TurboTax, all 
actively supported licensing, while other industry insiders, 
such as the American Institute of CPAs, obtained special 
exemptions for their members. Former H&R Block CEO Mark Ernst 
even oversaw the drafting of the regulations at IRS.
    Of course, mom-and-pop preparers generally do not have the 
resources to send lobbyists to Washington, DC to represent 
their interests. At the same time, licensing burdens usually 
fall hardest on the little guys who do not have the same 
financial resources and cannot benefit from economies of scale. 
Licensing was expected to push out tens of thousands of 
independent preparers, possibly as much as 10 percent to 20 
percent of all preparers. Most of those who would have been put 
out of business were seasonal mom-and-pop preparers, like my 
client, 81-year-old Elmer Kilian, of Eagle, WI, who hangs a 
shingle outside his house every tax season and has been 
preparing tax returns for over 30 years on his dining room 
table.
    Second, consumers would be harmed by preparer licensing, 
which raises prices and reduces choices. Licensing reduces 
competition, which is bad for consumers. Between reduced 
competition and increased regulatory compliance costs, 
licensing is expected to artificially drive up the prices 
consumers pay for tax preparation.
    Licensing also reduces consumer choices and interferes with 
consumer autonomy over personal finances. Many taxpayers will 
not only be left with fewer options, but will be forced to pick 
a new preparer if licensing drives their current preparer out 
of business. Instead, taxpayers, not the IRS, should be the 
ones who get to decide who prepares their taxes.
    Licensing may also result in other unintended consequences 
that harm consumers. Higher prices and fewer choices may push 
unqualified taxpayers to prepare their own returns. It will 
also likely boost the number of unregistered ghost preparers 
who do not sign the returns they prepare and are, thus, very 
difficult for the IRS to monitor.
    Third, preparer licensing offers a false promise and fails 
to deliver. As an initial matter, licensing regulations cannot 
do much about fraud prevention that is not already achieved by 
the PTIN registration combined with existing criminal 
penalties. Dishonest preparers can take exams and sit through 
continuing education courses just as well as honest preparers.
    Moreover, licensing and IRS-mandated training are largely 
ineffective. For example, IRS-trained and certified preparers 
in the VITA volunteer program were found by TIGTA to have a 61-
percent error rate in 2011. Similarly high error rates have 
been found over the years in TIGTA studies of IRS employees 
answering just a single tax question.
    Likewise, an IRS study found that licensed California 
preparers had the third-highest error rates in the country for 
2 years in a row, despite the State's long-standing licensing 
program. That is because the real problem is not competency, 
but tax code complexity.
    As the National Taxpayer Advocate explained last May, tax 
code complexity almost guarantees that every return has an 
error in it, some inadvertent, some intentional. Thus, 
licensing will not prevent tax preparers from making errors. It 
will simply limit who is licensed to make those errors.
    Licensing should be rejected because better solutions for 
these problems already exist. First, voluntary certification is 
far superior to mandatory licensing. It allows both consumers 
and preparers to decide if they value certification and permits 
them to opt in or opt out.
    Second, the best way to reduce errors is to reduce 
complexity. Simplify the tax code to reduce error rates.
    And, third, the IRS already has the legal and technical 
tools it needs to identify, track, and penalizes the few bad 
apples. Enforcement of these existing laws is far preferable 
because, unlike licensing, it does not impose substantial costs 
on the vast majority of law-abiding tax preparers.
    Thank you.
    The Chairman. Thank you, Mr. Alban. And all of you have 
been very helpful.
    [The prepared statement of Mr. Alban appears in the 
appendix.]
    The Chairman. I want to see what I can do to draw out some 
key questions.
    Mr. Alban, as I understand it, is particularly concerned 
about the small practitioner, and I certainly understand why 
small businesses can be frustrated with needless government red 
tape and bureaucracy. My understanding, however, here, Ms. 
Salisbury, is that you are a small practitioner. Are there not 
two practitioners at your firm?
    Ms. Salisbury. Yes. There are a total of four. Two are CPAs 
and two are licensed tax consultants.
    The Chairman. So I think that would certainly qualify you 
as a small practitioner.
    Do you all feel, apropos of Mr. Alban's point, that somehow 
this disadvantages you against Mr. Cobb? Because it looks to me 
like both of you passed a competency test. That does not look 
to me like a disadvantage to a small practitioner.
    Ms. Salisbury. Well, the numbers prove it is not in Oregon 
and in California. In Oregon, with our licensing, and as 
recently as 2011--these are the most recent facts I have--
nearly 84 percent of the practitioners in Oregon are not 
employed by H&R Block, Jackson Hewitt, or Liberty Tax Service, 
the three big companies in Oregon. And in California, it is 
nearly 89 percent.
    So it disproves that small practitioners will be affected, 
and both of those States have some form of registration for 
practitioners.
    Mr. Cobb. Mr. Chairman, if I may add, quickly, forty 
percent of our system is small business people. We have 1,670 
franchisees, many of whom are like Ms. Salisbury, have one or 
two offices, and really they are small businesses.
    The Chairman. So now that we have at least addressed, to 
some extent, this question of whether small practitioners are 
disadvantaged by having some minimum standards, I want to ask 
you, Ms. Salisbury--we have had our system for decades, and we 
Oregonians are pretty outspoken souls.
    I can tell you, I have been on the Finance Committee now 
since 2005, and I have not had anybody who is a practitioner 
come and say, ``Oh, my goodness, Ron, it is going to be 
bureaucratic water torture if we have the kind of thing that 
you have in Oregon.'' We pass a competency test. We undertake 
30 hours per year of continuing education, audit preparation, 
and sanctions for those who are not competent.
    We have done this for decades. Nobody is marching in the 
streets, nobody is picketing. There is no sign of unhappiness. 
Is that a fair appraisal of what we have had? And then, of 
course, the results have been documented by the Government 
Accountability Office, which you have referred to as well. We 
have superior results with this kind of system, and I think 
Oregonians would agree that appropriate oversight is missing 
today, which is the minimum competency standard.
    Is that a fair assessment?
    Ms. Salisbury. Very much so, very fair.
    The Chairman. What lessons can the IRS learn from Oregon's 
experience over these decades? I heard discussion from Mr. 
Alban about the cost. I have not heard complaints about 
Oregon's cost or things of this nature. Are there other lessons 
here from the standpoint of Oregon's experience for the IRS?
    Ms. Salisbury. Well, the costs in Oregon are very 
affordable. Probably the most expensive cost is education, but 
because we require education, we have a lot of resources in the 
State that provide cost-effective education.
    Rather than spending $200 or $300 or $400 for a day of 
education, you can get education through other resources, not 
as expensive. So education is not an issue. The registration 
fees are very affordable for even a small business. I had a 
larger business in years past and paid those fees for my 
employees and still managed to keep my head above water with 
the business. So it is not a concern.
    We have wondered why it has taken the Nation so long to 
be----
    The Chairman. We are always too logical for the rest of the 
country.
    One other question, if I might, for you, Mr. McTigue. One 
of the things that concerns me about some of these questions 
with respect to having minimum competence and the like is, 
those who are opposed say we already have these tough 
standards, and it seems to me what you all have found is that 
that is not the case.
    What we basically have is reactive, after the fact, when 
the harm is done to people who just want to get every single 
dollar back that they are owed. Is that a fair 
characterization?
    Mr. McTigue. Yes, Mr. Chairman, that is a fair 
characterization. As you stated, the majority of tools and 
actions that the IRS can take are after the fact, after the 
refunds have gone out, after the paid preparer has disappeared 
in some cases, and it is the taxpayer who is left explaining, 
dealing with the back taxes, having to pay back interest and 
penalties, whereas up-front regulation has the potential to 
prevent some of these return errors.
    The Chairman. My time has expired. I just appreciate the 
fact that you have done this second independent inquiry. People 
can question the value of one independent inquiry. I would not, 
because I have watched the professionalism of your office over 
the years, but you have now found it twice.
    I also know, because you are quite scrupulous in 
documenting the facts, you said, ``Look, we have looked at 19 
sites,'' but as you know, there have been other analyses which 
are pretty much in line with yours.
    So we have a lot of heavy lifting to do to fix this, and we 
are going to be working with all of you.
    Senator Hatch?
    Senator Hatch. Thank you, Mr. Chairman.
    I want to thank all of you for being here. Each of you has 
presented us with the various perspectives that I think will 
benefit the committee and hopefully the IRS as well.
    Dr. Barrick, let me just ask you a question. Credentialed 
preparers, such as attorneys, CPAs, and enrolled agents, have 
long been regulated and subject to professional standards of 
competence and ethical conduct. Is there clear evidence that 
returns prepared by these credentialed preparers are less prone 
to error than those returns that are prepared by now-
unregulated preparers or even ghost preparers?
    Dr. Barrick. I am unaware of specific evidence that shows 
that credentialed preparers in those specifically mentioned 
groups are fundamentally different. However, I do not have full 
access to the data that the GAO or TIGTA or others have used.
    As an academic, though, I am always willing to help them 
design more statistically reliable and more educated studies 
examining these important questions.
    Senator Hatch. Thank you.
    Mr. McTigue, let me ask you this. Software developments and 
increasing computer literacy have made it easier for many 
people to prepare and, of course, file their own tax returns. 
In fact, the percentage of self-prepared returns has been 
increasing in recent years.
    Is this trend one that is improving or degrading the 
overall quality of tax compliance?
    Mr. McTigue. Senator Hatch, that is an issue that we did 
not look at in this study. But when we did look at data from 
IRS's national research program database on error rates for 
preparer-filed returns versus self-prepared returns, and we did 
see a significant difference. Returns prepared by paid 
preparers had an error rate of 60 percent versus 50 percent for 
self-prepared returns.
    Senator Hatch. Let me throw this one out. When a tax filer 
stops using the services of a paid preparer and instead uses 
software to self-prepare their own return, do we know or have 
any statistics or any evidence--do we know what happens to the 
quality of their tax filings?
    Mr. McTigue. The data that IRS collects through random 
audits--the most recent national research program audit covered 
tax years 2006 through 2009--estimates error rates for both 
paid preparers and self-prepared returns, both in the aggregate 
and, also, for specific tax issues or line items. For example, 
for the Earned Income Tax Credit, the estimates showed that 
returns prepared by paid preparers had an error rate of 51 
percent versus 44 percent for self-prepared returns.
    Senator Hatch. Now, some have expressed concern that 
regulation will drive unethical preparers underground, turning 
them into what have been referred to here as ghost preparers 
who are very difficult to discover and shut down. How big is 
this problem of ghost preparers, and is the problem getting 
worse? What is being done to address that particular problem?
    Mr. McTigue. I am not aware of any data that exists, either 
IRS data or otherwise, that goes to the scope of that problem. 
Again, GAO feels that some basic level of regulation can help 
provide consumers with assurance that the people whom they are 
using to prepare their tax returns meet certain qualifications, 
and they have a certain level of assurance that their tax 
returns will be as compliant as they expect.
    Senator Hatch. Well, I want to thank all of you. H&R Block 
certainly does a great job, as do others.
    I would like, Mr. Chairman, to put this Intuit letter into 
the record.
    The Chairman. Without objection, so ordered.
    [The letter appears in the appendix on p. 129.]
    Senator Hatch. Thank you. Thank you all for being here.
    The Chairman. Senator Casey?
    Senator Casey. Thank you, Mr. Chairman. I only have time 
for one question, and I know the panel will not necessarily be 
upset about that.
    But, Mr. Cobb, I wanted to ask you a question that relates 
to your testimony. On page 12, you summarize what the so-called 
VITA folks have to go through, the Voluntary Income Tax 
Assistance folks, in their minimum standards.
    We all would agree, I think, that that is especially 
important. Those kinds of standards are especially important to 
vulnerable populations, folks who are easily misled or often 
isolated and who have to depend upon someone whom they come 
into contact with who might mislead them.
    I would assume that when we talk about kind of basic 
minimum standards here, that you would hope that everyone would 
have an opportunity to be served by an individual who goes 
through the minimum standards that would be comparable to your 
Appendix D, which were the requirements that these so-called 
volunteer tax preparers go through. Is that generally accurate?
    Mr. Cobb. Yes. That is generally accurate, Senator. For our 
people, we have continuing education every year. For people who 
start out wanting to be a tax preparer for us, it is over 100 
hours of training, and 75 hours of it is income tax training, 
including ethical training. We also do skills training.
    For continuing education, we average around 35 hours--15 
hours of income tax training plus 20 hours of skills training. 
For anyone, even if you have been a tax preparer for 30 years, 
you have to come in and get that. And we can adjust the hours, 
depending upon what the statute is. But, generally, we agree 
with your point.
    Senator Casey. And what is set forth in this appendix, 
these requirements that you just outlined, you would think that 
those would be the best direction that the Federal Government 
should move in? In other words, how do you effectuate this as a 
matter of national policy for all taxpayers to benefit from?
    Mr. Cobb. And again, I think Ms. Salisbury--I think we have 
a great model. The chairman has certainly pointed out with 
pride what Oregon does. I think that is a model to be built off 
of.
    I think the research we have done shows that this is--you 
have heard all day about fraud and various cases that people 
have cited. I think that we have a standard which has been 
implemented for a number of years in Oregon. We have the test 
in the market, if you will. We do a lot of training.
    So I think the outline is there to put the national policy 
in place. Plus, you have clients, consumers, who in our 
research are saying, ``Of course, I want to know that the 
person sitting across from me has certain standards.''
    Usually, people in my position are not in front of a 
committee like this asking for more regulation. I do not 
imagine you would find that very often. What we want is a level 
playing field. What we want to do is protect consumers; this is 
not about anticompetitive behavior. This is about going up 
against people who are just looking out for themselves. You 
have heard the horror stories about tax preparers in a 
furniture store or somewhere else saying, ``How big is your 
refund,'' to make loans to people based on that amount.
    We do not do refund anticipation loans. We just want to 
clean up this industry.
    Senator Casey. Thank you very much.
    The Chairman. Thank you, Senator Casey.
    I want to thank all of our witnesses for their 
participation.
    Members of the committee are going to have until the close 
of business on Friday, April 11 to submit questions for the 
record.
    I just want to make a short statement and then give the 
last word to Senator Hatch on this topic.
    Last week, in this room, on a bipartisan basis, our 
committee committed to dealing with what are called the tax 
extenders. There are a number of provisions that expired, that 
will expire this year and next year, and we indicated this was 
going to be the last time this committee did this. We called 
the proposal the EXPIRE Act because it was meant to expire. 
That is it, turn the lights out on it.
    So really, with this hearing, we begin the effort at 
overhauling the tax system and particularly making it simpler, 
doing it in a bipartisan way, so that Americans this time of 
year do not feel like they are going through bureaucratic water 
torture to comply with the tax rules.
    You have given us some very helpful suggestions here. 
Senator Hatch and I will be working together on this in a 
bipartisan way. The challenge is to figure out, with our 
colleagues on both sides of the aisle, the appropriate 
oversight of preparers.
    The two of us are going to talk about it, and then we will 
inform members of our proposal. But, clearly, what we have 
learned today, starting with the GAO, is this problem persists. 
You have documented it a second time. It is consistent not just 
with your analyses, but with others.
    Nina Olson, the independent Taxpayer Advocate, said not 
only does the problem exist now, but there are incentives for 
additional opportunities for the unscrupulous--who are, 
fortunately, a minority--to fleece our people, and very often 
those are the most vulnerable, those are the low-income. So 
that ought to concern us.
    Then, Ms. Salisbury, we are really glad that you came, 
because you have shown once again that Oregonians know that 
there is a better way. We do not just sit around and say, ``Oh, 
this is wrong, and that is wrong.'' We roll up our sleeves, and 
we come up with solutions.
    So you all have been very helpful to us, and I just want 
you to know I am going to work very closely with Senator Hatch 
on comprehensive tax reform, and on appropriate oversight with 
respect to tax preparers.
    I want to give my friend and colleague the last word here.
    Senator Hatch. Thank you, Mr. Chairman.
    I am grateful to all of you for being here, and all I can 
say is that, the more I look into this, the more I worry about 
the problems that are involved.
    On the other hand, there are a lot of good people in this 
industry who are trying to do what is right and who do do what 
is right. So we have to look at this very carefully. I do not 
want another great big bureaucratic institution to make it even 
more expensive to file tax returns. I have certain feelings for 
your libertarian approach toward tax preparers as well.
    So I am grateful that you all took time to come and see us 
here, helping us to understand this better, and hopefully you 
will continue to weigh in and give us your ideas on how we 
might do a better job here.
    Thanks so much.

    The Chairman. The committee is adjourned.

    [Whereupon, at 12:34 p.m., the hearing was concluded.]

                            A P P E N D I X

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