[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
__________
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Small Business Committee Document Number 114-063
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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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