    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

    THE SHARING ECONOMY: A TAXING EXPERIENCE FOR NEW ENTREPRENEURS, PART II

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

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  HEARING HELD
                                  MAY 26, 2016

                                   __________

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                Small Business Committee Document Number 114-063
                  Available via the GPO Website: www.fdsys.gov

                                    ___________

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                       HOUSE COMMITTEE ON SMALL BUSINESS

                          STEVE CHABOT, Ohio, Chairman
                                STEVE KING, Iowa
                          BLAINE LUETKEMEYER, Missouri
                            RICHARD HANNA, New York
                             TIM HUELSKAMP, Kansas
                             CHRIS GIBSON, New York
                              DAVE BRAT, Virginia
                 AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                            STEVE KNIGHT, California
                            CARLOS CURBELO, Florida
                             CRESENT HARDY, Nevada
                   NYDIA VELAZQUEZ, New York, Ranking Member
                             YVETTE CLARK, New York
                              JUDY CHU, California
                            JANICE HAHN, California
                         DONALD PAYNE, JR., New Jersey
                              GRACE MENG, New York
                           BRENDA LAWRENCE, Michigan
                           ALMA ADAMS, North Carolina
                          SETH MOULTON, Massachusetts
                               MARK TAKAI, Hawaii

                       Kevin Fitzpatrick, Staff Director
                           Jan Oliver, Chief Counsel
                      Michael Day, Minority Staff Director

                                C O N T E N T S

                               OPENING STATEMENTS

                                                                       Page
    Hon. Steve Chabot................................................     1
    Hon. Nydia Velazquez.............................................     2

                                    WITNESS

    Ms. Nina Olson, National Taxpayer Advocate, Internal Revenue
      Service, Washington, DC........................................     3

                                    APPENDIX

    Prepared Statement:
        Ms. Nina Olson, National Taxpayer Advocate, Internal Revenue
          Service, Washington, DC....................................    13
    Questions for the Record:
        None.
    Answers for the Record:
        None.
    Additional Material for the Record:
        None.

                         THE SHARING ECONOMY: A TAXING
                   EXPERIENCE FOR NEW ENTREPRENEURS, PART II

                                  ----------

                             THURSDAY, MAY 26, 2016

                      House of Representatives,
                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 10:00 a.m., in Room
    2360, Rayburn House Office Building, Hon. Steve Chabot
    [chairman of the Committee] presiding.
        Present: Representatives Chabot, Velazquez, and Meng.
        Chairman CHABOT. The Committee will come to order. I want
    to wish everybody a good morning. We thank you all for being
    here, and we have a special thanks for our witness here who has
    taken time away from her very busy schedule to be with us
    today. I would note that we may very well, in fact, we will be
    interrupted by votes here shortly. When that occurs, we will
    wrap up, not immediately, but we have 15 minutes to get over
    there and vote. So at some point between the bells going off
    and us having to be there, we will wrap up and come back after
    to continue the hearing, but depending on how many votes we
    have we could be gone anywhere from a half-hour to an hour or
    so.
        We are here today to follow up on a hearing we held earlier
    this week where we heard from a distinguished panel of experts
    about the challenges faced by small businesses and
    entrepreneurs in the new sharing economy. We heard first-hand
    about the challenges they are facing in dealing with a broken
    tax code and outmoded IRS policies that are not really designed
    to accommodate them.
        As I said in Tuesday's hearing, the IRS has not been a part
    of the solution as taxpayers struggle to navigate the new
    sharing economy. Too often it seems to have been part of the
    problem itself. This failure has left on-demand platform
    companies and their workers confused and frustrated as they try
    to do the right thing and pay the taxes that they owe.
    Congressional committees like ours have a duty to provide
    robust oversight of the IRS and ensure they are providing small
    businesses with clarity and treating them fairly. When the IRS
    is behind the times, it puts small businesses behind the eight
    ball. This must change.
        We are hearing from entrepreneurs across the country that
    they do not fully understand their tax obligations for sharing
    economy income. In many cases, they do not even receive an end-
    of-the-year statement documenting that income. As if that was
    not bad enough, here is the real kicker. Many on-demand
    companies say they would gladly provide tax compliance training
    but they do not because they are afraid the IRS will reclassify
    their relationship and subject them to a whole new host of
    regulations and obligations. The current tax and regulatory
    climate clearly is not working for entrepreneurs in the sharing
    economy. We must do better and the IRS has a key responsibility
    here.
        I recently noticed that the IRS' own mission statement on
    its own Web site says the agency will ``provide America's
    taxpayers top quality service by helping them understand meet
    their tax responsibilities and enforce the law with integrity
    and fairness to all.'' The time has come for the IRS to live up
    to this standard and help our entrepreneurs in the new sharing
    economy.
        Today, we are pleased to have with us a true expert on
    these issues, the national taxpayer advocate, Nina Olson. She
    has examined these issues in-depth and will share some
    proposals to address these changes. We are very much looking
    forward to your testimony here today, and I would now like to
    yield to the ranking member, Ms. Velazquez, from New York, for
    her opening statement.
        Ms. VELAZQUEZ. Good morning. Thank you, Mr. Chairman, and
    thank you for having this meeting. Welcome, Ms. Olson.
        The sharing economy is based on a model in which
    individuals are able to borrow or rent assets owned by someone
    else. The number of companies employing the sharing economy
    platform has grown significantly over the past decade. Yet
    despite the popularity and success of these companies, the
    sharing economy presents unique legal challenges. As we learned
    on Tuesday, the most hotly contested challenge posted by the
    sharing economy is the issue of worker misclassification. This
    issue arises when companies incorrectly classify their workers
    as independent contractors instead of employees.
        By classifying workers as independent contractors,
    companies do not have to provide the benefits that are legally
    required with employee status, which can greatly reduce their
    costs. As such, the legal classification of workers in the
    sharing economy has significant implications for workers,
    companies, and their consumers. While no one can agree on the
    proper label for these workers, a fact of the matter is that
    these businesses rely on these workers no matter how they are
    classified. And without workers, there is no business.
        We heard from private sector witnesses during our previous
    hearing about the benefits and challenges of the sharing
    economy business model. We even learned how the law is unclear,
    making it more difficult for small businesses to comply and
    harder for workers to understand their rights. Furthermore,
    this issue harms the nation's budget in lost tax revenue.
        We have already had a crackdown on worker misclassification
    by both the Treasury and the Department of Labor. However, the
    sharing economy remains an aberration in this concern because
    no one is quite sure how to apply the law. This committee is
    tasked with assisting small businesses, especially when there
    is no bright line test for compliance. However, we must also
    ensure workers are being treated fairly.
        Today, we are privileged to have the National Taxpayer
    Advocate to help us better understand the complexity
    surrounding this area of the law. It is important for this
    committee to fully comprehend what is the sharing economy so
    that we can work towards implementing clear change that is easy
    to understand for those small businesses that are operating in
    the sharing economy.
        I would like to add, Ms. Olson, that maybe in your
    testimony or later on, tell us how you see the IRS to be more
    effective in order to do their job. Because here in Congress,
    we love to vilify institutions and government, and if we cannot
    dismantle the agency, then we cut the budget. When you cut the
    budget, there are real consequences. As people in Chicago try
    to take a flight and miss the flight because of the long lines,
    we know that budget and budgetary constraints have
    consequences.
        Thank you. I yield back.
        Chairman CHABOT. Thank you. The gentlelady yields back.
        If Committee members have opening statements prepared, we
    would ask that they be submitted for the record. I will take
    just a moment to explain our rules here as far as timing goes,
    which are pretty simple. You get 5 minutes and we get 5
    minutes, and there is a lighting system to help you out. The
    green light will be on for 4 minutes--yellow light for about a
    minute, and then the red light, if you would not mind kind of
    keeping within that. We will give you a little flexibility if
    you need it since we only have one witness here this morning.
        We are especially happy to have this witness because it is
    Ms. Nina Olson, who is the national taxpayer advocate, NTA, who
    is the voice of the taxpayer within the IRS and before
    Congress. She leads the Taxpayer Advocate Service, TAS, an
    independent organization within the IRS that helps taxpayers
    resolve problems and works for systemic change to mitigate
    problems experienced by groups of taxpayers.
        Throughout her career, Ms. Olson has advocated for the
    rights of taxpayers and for greater fairness and less
    complexity in the tax system. Ms. Olson was appointed to the
    position of national taxpayer advocate in January 2001. Among
    her many accomplishments, the IRS adopted the Taxpayer Bill of
    Rights in June 2014, for which Ms. Olson had long advocated.
    Congratulations on that.
        Prior to her appointment as the NTA, Ms. Olson founded and
    served as executive director of the Community Tax Law Project,
    the first independent section 501(c)(3) low-income taxpayer
    clinic in the United States. We thank you for that also. She is
    an attorney licensed in Virginia and North Carolina. We will
    not hold that against you, being a recovering attorney myself.
        Ms. Olson, you are recognized for 5 minutes. Thanks for
    being here.

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

        Ms. OLSON. Thank you so much, Chairman Chabot and Ranking
    Member Velazquez. Thank you for inviting me to speak on the
    important and emerging topic of the sharing economy. In my
    written testimony, I focus mainly on two aspects of tax
    administration: the IRS presence in the sharing economy and
    ways to increase tax compliance among participants in that
    economy.
        Estimates show that over 2.5 million Americans are earning
    income through the sharing economy and that number is expected
    to continue its upward trajectory. Establishing the tax
    compliance norms in this emerging industry in its infancy will
    benefit participants in the tax system as this segment grows.
    Understandably, many of these new service providers may not
    fully comprehend their tax-filing obligations or have
    experience with the requisite tax recordkeeping.
        According to a recent survey conducted by NASE, 69 percent
    of entrepreneurs who participate in the sharing economy
    received absolutely no tax guidance from the companies with
    which they work. It bears saying that if a person working in
    the sharing economy called the IRS toll-free line today, he or
    she would hear a recording saying the IRS is not answering any
    tax law questions after April 15th, so please check IRS.gov.
    The same message is given to people asking tax law questions at
    the IRS walk-in sites. For a tax agency to not answer questions
    from taxpayers trying to learn what they need to do to comply
    is beyond unacceptable, it is absurd.
        There are many ways in which the IRS can provide improved
    taxpayer service and assistance to this growing sector. For
    example, many Uber drivers engage in an online forum where they
    can share information about or solicit advice on a wide range
    of topics. There is even a subforum dedicated to tax
    compliance, focused on 1099 income deductions and the IRS.
    Similarly, Airbnb hosts have created an online forum where
    hosts can share advice with other hosts, and there is a
    subforum dedicated to regulation tax issues. The IRS could
    convey helpful information through such online forums. It could
    even designate a representative to respond to questions in
    ``ask me anything'' style on a Reddit forum for Airbnb or Uber
    users. Another benefit of these exchanges is that the IRS will
    learn about specific challenges and issues facing this segment
    of the economy and do a better job of tailoring its guidance
    for both taxpayers and IRS employees.
        While IRS publications contain helpful information, an
    Airbnb host would have to sift through a 24-page Publication
    527, Residential Rental Property, and an Uber driver would have
    to navigate through the 50-page Publication 463, Travel,
    Entertainment, Gift, and Car Expenses, and they still might not
    understand how these rules apply to themselves as service
    providers in a sharing economy. Thus, the IRS should develop
    and publicize a new publication for sharing economy
    participants that at a minimum provides a checklist of issues
    that first-time, self-employed persons participating in that
    economy should be aware of. It could also create a dedicated
    Web page containing tax tips for freelancers engaging in a
    sharing economy. Even better, the IRS could create an online
    wizard to walk taxpayers who are newly self-employed through
    the various steps one needs to take. For example, getting an
    employer identification number, making estimated tax payments,
    keeping books and records. Why not create a downloadable
    mileage log for taxpayers to use with prepopulated mileage
    rates for a given year that we set? Why not develop a calendar
    function that permits taxpayers to add the estimated tax
    payment due dates to their smartphone calendars? These steps
    would benefit all self-employed persons.
        In my reports to Congress and in my written testimony, I
    have made numerous proposals over the years designed to
    increase compliance among small businesses. Among other things,
    I recommend that Congress align the estimated tax payment
    deadlines with calendar year quarters that are easier to
    remember and to calculate net income, such as the last day of
    the month following the calendar quarter, rather than on April
    15, June 15, September 15, and January 31, which aligns to
    nothing whatsoever. Because research shows that taxpayers are
    more compliant in paying taxes on income subject to
    withholding, independent contractors should have the option to
    enter into voluntary withholding agreements with the entities
    to which they provide services.
        In conclusion, there is lots the IRS can do to establish a
    presence in the community, provide service to the participants,
    and provide guidance to shape the compliance norms of these
    taxpayers.
        Thank you, and I will be glad to answer any questions.
        Chairman CHABOT. Thank you very much. I will yield myself 5
    minutes.
        I will begin with the first question. I think you are
    correct that the IRS has a great opportunity to be at the
    forefront of tax compliance for the sharing economy, yet we
    have seen, as you indicated, very little action as of yet from
    the IRS in this area. Does the IRS not yet realize the looming
    issues that are here or are there other reasons for its failure
    to initiate some of the actions that you describe would be
    helpful?
        Ms. OLSON. I think that there is a recognition that this is
    a growing part of the economy. I think that the IRS moves
    slowly, and hearings such as this will help move it along. I
    think my office can play a role in instigating some activity,
    like these publications. I think issues about what can be done
    online, there are always concerns about whether the private
    sector will view that as intruding in their bailiwick, and my
    point there is I do not see that as competition. I see us
    working together, and we do, after all, own setting the mileage
    rates and own setting the deadlines and things like that.
        I think also if I can just say this, that worker
    classification is an issue. There is the ban on providing
    guidance, and so it becomes hard to develop a Web site if you
    are banned on providing anything other than just the rote,
    ``here are the 20 factors'' type guidance, which is really not
    helpful in this environment.
        Chairman CHABOT. You brought up the current due dates for
    quarterly estimated payments and how they are so oddly spaced,
    and I was a sole practitioner attorney for years and filed my
    own stuff for myself and my employees. It is hard to figure,
    why is it like that, A, and why do they not make it just the
    quarters or some way that actually makes sense so that people
    do not have to sit down and remember, oh, yeah, the last one is
    in January? Is it the 15th or is it the 31st? When is it?
        Ms. OLSON. I do not know the historical reason. We were
    talking about that the other day. It might go back to some kind
    of budgeting issue at some point, money coming into the
    Treasury. We are actually poking around in the archives to find
    the reason. But we have been advised that it, at this point,
    would need congressional action. That is what we have been
    advised. I really think doing it on a quarter basis, you know,
    within 30 days after the quarter ends, makes sense. Trying to
    calculate net income on June 15th is silly and difficult.
        Chairman CHABOT. Thank you. Maybe this is one that the
    Ranking Member, myself, I mean, if it really does take
    congressional action, maybe we could work together and offer
    legislation that could be bipartisan and make it happen.
        Ms. OLSON. I think the self-employed persons of America
    would thank you.
        Chairman CHABOT. I think so. They could thank us both. We
    will work on it together.
        This is actually a very bipartisan Committee. We actually
    do work on stuff together. The other Committees are pretty
    awful, but this one is not. Except for the other two Committees
    I am on; those are good, too.
        A lot of my constituents have been receiving fraudulent
    calls from people claiming to represent the IRS and demanding
    money. The Ranking Member got them. I got them. You got them.
    The IRS commissioner himself, Mr. Koskinen, he got them. Our
    tax lawyer got them as well.
        I remember we had been literally on vacation and my wife is
    going through and listening and here is the IRS on the phone.
    She goes--I will not tell you what she said, but I cannot
    believe--the IRS, first of all, does not call you, but a lot of
    people do not know that. Especially what I am concerned about
    is seniors who may be more vulnerable to these kinds of frauds,
    and I have heard stories. I think it was you, actually, that
    told me some examples of these things which are really sad.
    Maybe tell an example, if you would, and what are we as the
    government doing to stop these things? Why is it so difficult
    to stop it?
        Ms. OLSON. The example that we had was my office received a
    number of packages by Federal Express that just contained a
    deposit slip of between $5,000 and $8,000 in it, and they were
    addressed to a particular person at the IRS headquarters in
    Washington, D.C., and it got delivered to us. This person is
    fictitious. Because it was overnight mail, we had a phone
    number for the taxpayers who sent these deposits and we called
    them. They explained to us that they had been called by someone
    who appeared to be an IRS employee and told them that we were
    sending the sheriff out to them if they did not go to a bank
    and deposit immediately between $5,000 and $8,000, and they
    were to stay on the phone until they got to the bank and made
    that deposit. Then, very cleverly, they were to send the
    deposit slip to the IRS headquarters building. If you went
    online you would see it was a legitimate address. The person
    that we talked to said it was the worst day of his life when he
    realized about 2 hours after he had transferred $8,000 what he
    had actually done.
        What the IRS is doing is they have a lot of information on
    the Web about tax scams and they have done a lot of public
    service announcements--not public service announcements but
    press releases. I think that public service announcements are
    the way to go, and I think we just, in congressional letters
    and everywhere, we need to get word out to people that if
    somebody is threatening to send the sheriff to you, the IRS
    does not do that.
        Chairman CHABOT. Maybe that is something that we ought to
    do. My time is expired so I will end it with this, but maybe on
    the forms that we get from the IRS as citizens, maybe there
    ought to be in great big letters on the envelopes that are
    going out and right at the top saying that the IRS does not
    call and threaten and that there is a lot of fraud about this
    so do not do it. I would put it in big red letters or red,
    white, and blue letters or something and let people know. In
    any event, it is particularly frustrating and outrageous that
    people are being preyed upon by other folks. My time has
    expired and I would now like to--the Ranking Member is
    recognized for 5 minutes.
        Ms. VELAZQUEZ. Thank you, Mr. Chairman.
        Ms. Olson, since 2010, the budget of the IRS has been cut
    by 18 percent and as I mentioned before, this has consequences.
    When you call in and you are a small business person who wants
    an answer, you want to get the answer right there, but instead
    we have an automatic system in place. I do not want to discuss
    the budget here. What I want to know is if the IRS has
    performed outreach to small businesses on this complex topic.
        Ms. OLSON. Not to my knowledge, and I am concerned about
    the IRS's small business outreach function. Back in 1998, when
    the IRS was reorganized, it created a unit called TEC that was
    solely charged with experts on small business issues and small
    business law and requirements to be in the communities and
    conduct outreach to the small businesses. In about 2004, they
    dissolved that organization and put all those experts back to
    work auditing or collecting instead of doing outreach and
    education to small businesses, and they centralized the unit.
    Today there are many States that have no person in the IRS
    dedicated to do outreach and education to the small businesses
    of that State, and I really think that is just foolish; that we
    need to do preventive education and outreach. If you do that,
    you will really solve problems and also hear the problems of
    that sector and be able to give better guidance going forward
    as well.
        Ms. VELAZQUEZ. That was in 2004, right?
        Ms. OLSON. Yeah.
        Ms. VELAZQUEZ. You can imagine now.
        Ms. OLSON. What it is like.
        Ms. VELAZQUEZ. Since 2010, the budget has been cut by 18
    percent.
        Ms. Olson, the common law 20-factor test to determine
    proper classification is complex, subjective, and does not
    always produce clear answers. The potential for errors and
    abuse is high and does not always produce the same results.
    Does the IRS provide examples to small businesses as an attempt
    to help employers define workers?
        Ms. OLSON. I think that the difficulty is that it is not
    supposed to give guidance on worker classification, so it is
    sort of stuck with producing training materials for its own
    employees that can be made public and people can read them. The
    average small business is not going to read that. The average
    worker is not going to read that. You can read court cases
    where it has been litigated and see what the courts look at. I
    was struck by something that HMRC, which is the U.K. tax agency
    did several years ago, they created a Web application, and it
    was based on the 20 factors, but they had questions that the
    business could go through and answer. If you answered them in a
    certain way, you would get an answer back that would say we
    think these workers are independent contractors or we think
    they are employees. If you wanted to keep that answer, then
    that would be binding unless you had lied materially on that
    thing. If you did not like the answer you did not have to
    accept it. You could proceed and ask for greater guidance. I
    thought that brought some certainty to people without it being
    definitive, and we have recommended that for several years and
    the IRS has never picked it up.
        Ms. VELAZQUEZ. They could administratively----
        Ms. OLSON. I do not know whether under the law, the way
    that Congress has banned them from issuing guidance, would that
    Web thing be interpreted as guidance?
        Ms. VELAZQUEZ. Thank you.
        Ms. OLSON. Yes.
        Ms. VELAZQUEZ. Many of the new economy entrepreneurs have
    had difficulty operating their businesses in a regulatory
    scheme that was formed for traditional brick-and-mortar
    businesses. With the changing environment in which companies
    conduct daily business, how can we adapt existing laws and
    regulations to make it easier to classify a worker?
        Ms. OLSON. I was really struck by some of the testimony
    earlier this week about a third way really that, our common law
    rules are based in 17th, 18th century law, and so what does
    that mean? That was very intriguing to me. The key factors
    there are withholding. Obviously, getting the money into the
    system, working on benefits for these people, particularly
    retirement savings because that is what comes with being
    classified as an employee, and is there some way to do that in
    this third type of worker that the economy seems to be moving
    to?
        We had proposed several years ago, in response to actually
    the Hair Salon Association coming to us and saying we have all
    these people who are renting booths in hair salons. They are
    clearly independent contractors but they are getting into
    trouble by not paying their estimated taxes. We were willing to
    withhold from them. We do not want them to be classified as
    employees, but we have already an employee on our staff who
    takes appointments and things like that. We would be willing to
    do it. It would make more stable workers. We have been advised
    by chief counsel in the IRS that that needs to be a legislative
    solution; that you give the IRS the authority to allow people
    to enter into voluntary withholding.
        Ms. VELAZQUEZ. That was my follow-up question you answered.
        Ms. OLSON. Yes. It needs legislation is what we have been
    told.
        Ms. VELAZQUEZ. Thank you.
        Chairman CHABOT. Thank you. The gentlelady's time is
    expired.
        The gentlelady from New York, Ms. Meng, who is the Ranking
    Member of the Agriculture, Energy, and Trade Subcommittee, is
    recognized for 5 minutes.
        Ms. MENG. Thank you, Ms. Olson, for being here today.
        My question stems from occasional inquiries that we get
    from some of our constituent small business owners who
    obviously many of them have fewer resources to spend on
    accountants working on complex tax problems. One of the issues,
    obviously, is worker misclassification but there are different
    issues that they face.
        I wanted to ask, what can we do to put small businesses on
    a more level playing field to help them? In the interest of
    time, part two of my question is what types of compliance or
    assistance services are available or maybe studies that have
    been done that could help us better assess the problem?
        Ms. OLSON. I will give you an example of something that I
    think really reduced the burden on small businesses. For years,
    we recommended that the IRS create a small business home office
    deduction EZ form where you had a standard deduction for home
    offices that you could do on square footage instead of doing
    all these calculations and things like that. It took a while
    but they adopted that. I think there are many opportunities
    like that in the law where you have a law and there is a
    deductible expense, but if you think about small business
    recordkeeping, there is a way to do it that could be a safe
    harbor or a standard deduction or something like that that
    would reduce recordkeeping and still guard against abuse in a
    way. I think there are a lot of opportunities there.
        I will come back to the fact that there is really not a
    geographic presence reaching out to small businesses in the
    IRS, and to me that is incredibly important because the small
    businesses in New York are different from the small businesses
    in Ohio, from the small businesses in Iowa and Montana. They
    all have different kinds of needs and challenges. You have to
    have somebody in the field knowledgeable about their issues
    that can also raise them to the IRS. In terms of service, I
    really think a geographic footprint of a small business
    outreach function would allay a lot of concerns and give the
    IRS a lot of information to do a better job reaching these
    taxpayers.
        Ms. MENG. Then finally, in terms of businesses and people
    just being more technologically savvy, are there apps or
    software available that could, in a quicker way before IRS may
    develop some sort of policy to geographically help them, to be
    able to help them either track their workers or help them more
    fully comply?
        Ms. OLSON. There are many excellent products on the market
    and they all cost money, and I am not saying we should not have
    them, and as a matter of fact, many small businesses really
    appreciate them. I think what I have been focusing on is what
    things can the IRS do that could interface with those products
    that could get the small business off to the right start?
    Because if you can get them right at the beginning, and build
    trust at the beginning so if they do have compliance problems
    they are willing to come in and get help rather than letting it
    pyramid and snowball, that is what I think the IRS needs to
    focus on, and then how it can partner with the private sector
    and some of the products that they have, feed our information
    into their products so that taxpayers can use them in that way.
        Ms. MENG. Thank you. I yield back.
        Chairman CHABOT. The gentlelady yields back.
        We will go on a second round. I will recognize myself for 5
    minutes, or perhaps less if the other members would like to
    jump in.
        First of all, you specifically mentioned that taxpayers
    need to be able to speak with someone and be able to reach the
    IRS year-round, and I think you mentioned that as of April
    15th, after that they are told to go to the Web site. What type
    of service is the IRS currently providing that we should know
    about? What can we do to make this a much more taxpayer-
    friendly experience right now? Is it just a budget issue or are
    they going to tell us, well, we just need more money and more
    staff and then we can do more things?
        Ms. OLSON. I think it is two things. The budget is driving
    so much. On the taxpayer service side you just do need more
    bodies to pick up the phone and talk to taxpayers. It is not
    just talking. It is, you know, pick up the phone and stay on
    the phone. Listen to the taxpayer and try to get to the bottom
    of what really is their concern because sometimes they do not
    express it well themselves. That takes time, and that means you
    need enough people to be able to spend that time and get to the
    problem up front.
        The other thing is that the IRS does want to move as many
    people as possible to an online presence because that is less
    expensive. I challenge some of that because I think if the
    taxpayer does not understand online, they will do something
    wrong and you will spend more expensive resources downstream
    collecting and auditing and things like that. But they are
    trying to build a strong online presence where people can see
    what is going on in their account. Maybe have an account where
    if they are in dog breeding they would get guidance about dog
    breeding issues and things like that. That is several years
    down the line and I think that is a good direction to go in.
    But I just have to say, I have been in tax since 1975, and
    there is no substitute for talking to taxpayers and
    understanding what their confusion is, what they need, and
    learning from them even as we are teaching them. There is just
    no substitute and that is human beings.
        Chairman CHABOT. Thank you. You recommended that the IRS
    encourage voluntary withholding agreements in exchange for a
    safe harbor. Would you recommend that such agreements cover
    employment taxes, income taxes, or both, or what would you
    suggest?
        Ms. OLSON. I think it needs to be both. Our concern was in
    particular self-employment tax because sometimes with expenses
    these businesses are so marginal that they owe very little
    income tax. We had focused on that self-employment tax which
    always shocks the small business person and drives them
    underground sometimes. That is just not the direction we want
    to go. But we did acknowledge both. So many businesses that are
    working in this gig economy or like in the salon association or
    the travel agent association, they are already in the
    withholding system because they do have formal employees, like
    a secretary or receptionist, already in their system. It is
    just adding some more and doing the withholding. There is a
    business reason for it because then they get better stability
    among their workforce.
        Chairman CHABOT. Thank you. You had talked about the IRS
    creating an online wizard to help sharing economy workers. How
    exactly would you envision that working?
        Ms. OLSON. I think if someone was thinking I am going into
    this component of it, I am selling something on Etsy or I am
    working with some platform, that you could go to this and it
    would walk you through and say, the first thing you need is an
    employer identification number. Go here. We have a device
    online, but we are directing them. Then when you are done the
    wizard says, okay, here is some information about
    recordkeeping. If you are doing driving, you need to have a
    contemporaneous record of your mileage and here is what it
    looks like. Actually, here is an app where you could enter each
    thing and we would multiply it by the mileage rate and each
    year that we update the mileage rate we will update it and you
    can download it to your smartphone. Things like that. Depending
    on the business, we could craft some one-page guidance to them
    and direct them to that. There is all sorts of information out
    there. Finding it and not having to go to 5 different, 7
    different, 10 different places to do it is the problem.
        Chairman CHABOT. Thank you. I have got about 40 seconds
    left. Let me just get back to the business about the fraudulent
    calls which are occurring. We talked about an example of what
    happened and what is happening. Would you let us know if you
    can talk to the IRS what their response is about making this a
    much higher visibility thing on what they are sending out
    anyway so we can inform the public?
        Ms. OLSON. Yes, absolutely.
        Chairman CHABOT. Then secondly, and finally, what do you
    hear back from the IRS about why they have not been more
    successful in stopping this type of behavior since they know it
    is going on and since it is so widespread?
        Ms. OLSON. It is very hard to track down, but I will note
    that just this week apparently they did catch some people that
    were responsible for one particular scam that basically brought
    in about $40 million, so they are pursuing these
    investigations. I have to say it is very difficult to do that
    because they are moving, they are in different parts of the
    country, they are all over the place.
        Chairman CHABOT. Thank you very much. My time is expired.
        The ranking member is recognized for 5 minutes.
        Ms. VELAZQUEZ. Thank you. I can imagine that this issue is
    more pervasive among immigrants.
        Ms. OLSON. Yes.
        Ms. VELAZQUEZ. Maybe that is why I am constantly called
    asking for my Social Security or that I owe money here and
    there.
        Ms. Olson, we heard on Tuesday about the penalties
    businesses face for improper classification of workers. In your
    experience, have you had many complaints about penalties for
    misclassification?
        Ms. OLSON. We get a regular number of cases every year
    dealing with worker classification, and they are both from what
    you would call the employer and the worker. They go in
    different directions. What I am particularly concerned about is
    just the lack of clarity in the actual investigations. I think
    both the employers and the workers are confused about the basis
    for decisions, and that makes it difficult for either party to
    appeal, seek appellate rights, and in some instances they are
    not allowed to have appellate rights. We have written about
    that in the past. I think there are real opportunities for
    improving that process. But I do have to come back to the point
    on the IRS not being able to do guidance has sort of
    constricted it and kept it at that 20-factor level because that
    is all it can do.
        I have not talked with the IRS division about this. We have
    talked with taxpayers and representatives of the group, and we
    have used this hearing to formulate some very specific
    recommendations. I do think that what we will do is work with
    the forms and pubs section to come up with a document, a mini-
    pub for the sharing economy, and we are working right now on
    maybe working on part of our Web site. We have a toolkit, tax
    prep toolkit, that we could have some tips for the sharing
    economy, and maybe from that get the IRS jump started.
    Sometimes we are a little more nimble than the rest of the IRS.
        Ms. VELAZQUEZ. Thank you. I yield back. Thank you, Mr.
    Chairman.
        Chairman CHABOT. Thank you. The gentlelady yields back.
        Does the gentlelady from New York have any other questions?
    Okay.
        We have done something very unusual. We are wrapping up
    early and we are doing it before the votes. We greatly
    appreciate your testimony here today. In addition to the
    testimony that we had on Tuesday, I think we learned a lot,
    really a great deal about the tax challenges faced by
    participants in the so-called sharing economy, and we got into
    some of the problems that all taxpayers have, whether they are
    in the sharing economy or not.
        I am particularly pleased that we were able to get somewhat
    into the fraudulent stuff that is going on out there because
    there are people being victimized. To the extent that we can
    reduce or eliminate that, we certainly ought to be about that.
    We look forward to working with you and other stakeholders to
    rise to the challenge of encouraging the growth and continued
    success of the so-called sharing economy. It is a rapidly
    growing example of how the free market, if it is working right,
    can work and how we are going to create the jobs of the future.
        I would ask unanimous consent that members have 5
    legislative days to submit statements and supporting materials
    for the record.
        Without objection, so ordered. If there is no further
    business to come before the Committee, we are adjourned. You
    can all go home. Thank you.
        [Whereupon, at 10:42 a.m., the Committee was adjourned.]

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