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


            THE TAXPAYER ADVOCATE ANNUAL REPORT TO CONGRESS

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         GOVERNMENT OPERATIONS

                                 OF THE

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             April 15, 2016

                               __________

                           Serial No. 114-66

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                     JASON CHAFFETZ, Utah, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, Jr., Tennessee       CAROLYN B. MALONEY, New York
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
TIM WALBERG, Michigan                    Columbia
JUSTIN AMASH, Michigan               WM. LACY CLAY, Missouri
PAUL A. GOSAR, Arizona               STEPHEN F. LYNCH, Massachusetts
SCOTT DesJARLAIS, Tennessee          JIM COOPER, Tennessee
TREY GOWDY, South Carolina           GERALD E. CONNOLLY, Virginia
BLAKE FARENTHOLD, Texas              MATT CARTWRIGHT, Pennsylvania
CYNTHIA M. LUMMIS, Wyoming           TAMMY DUCKWORTH, Illinois
THOMAS MASSIE, Kentucky              ROBIN L. KELLY, Illinois
MARK MEADOWS, North Carolina         BRENDA L. LAWRENCE, Michigan
RON DeSANTIS, Florida                TED LIEU, California
MICK MULVANEY, South Carolina        BONNIE WATSON COLEMAN, New Jersey
KEN BUCK, Colorado                   STACEY E. PLASKETT, Virgin Islands
MARK WALKER, North Carolina          MARK DeSAULNIER, California
ROD BLUM, Iowa                       BRENDAN F. BOYLE, Pennsylvania
JODY B. HICE, Georgia                PETER WELCH, Vermont
STEVE RUSSELL, Oklahoma              MICHELLE LUJAN GRISHAM, New Mexico
EARL L. ``BUDDY'' CARTER, Georgia
GLENN GROTHMAN, Wisconsin
WILL HURD, Texas
GARY J. PALMER, Alabama

                   Jennifer Hemingway, Staff Director
                 David Rapallo, Minority Staff Director
  Katie Bailey, Staff Director, Subcommittee on Government Operations
               Chris D'Angelo, Professional Staff Member
                         Jack Thorlin, Counsel
                 Subcommittee on Government Operations

                 MARK MEADOWS, North Carolina, Chairman
JIM JORDAN, Ohio                     GERALD E. CONNOLLY, Virginia, 
TIM WALBERG, Michigan, Vice Chair        Ranking Minority Member
TREY GOWDY, South Carolina           CAROLYN B. MALONEY, New York
THOMAS MASSIE, Kentucky              ELEANOR HOLMES NORTON, District of 
MICK MULVANEY, South Carolina            Columbia
KEN BUCK, Colorado                   WM. LACY CLAY, Missouri
EARL L. ``BUDDY'' CARTER, Georgia    STACEY E. PLASKETT, Virgin Islands
GLENN GROTHMAN, Wisconsin            STEPHEN F. LYNCH, Massachusetts
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 15, 2016...................................     1

                               WITNESSES

Ms. Nina Olson, National Taxpayer Advocate, Internal Revenue 
  Service
    Oral Statement...............................................     4
    Written Statement............................................     7
Mr. James Buttonow, Chairman, Electronic Tax Administration 
  Advisory Committee, Internal Revenue Service
    Oral Statement...............................................    51
    Written Statement............................................    53

 
            THE TAXPAYER ADVOCATE ANNUAL REPORT TO CONGRESS

                              ----------                              


                         Friday, April 15, 2016

                  House of Representatives,
             Subcommittee on Government Operations,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 9:37 a.m., in 
Room 2154, Rayburn House Office Building, Hon. Mark Meadows 
[chairman of the subcommittee] presiding.
    Present: Representatives Meadows, Jordan, Walberg, Carter, 
Grothman, Maloney, Plaskett, and Lynch.
    Mr. Meadows. The Subcommittee on Government Operations will 
come to order. And without objection, the chair is authorized 
to declare a recess at any time.
    I want to thank you both for coming. We have a few other 
things that are going on, so we'll have members coming in and 
out.
    We are here today obviously to examine the taxpayer 
advocate's 2015 annual report. The taxpayer advocate is a 
statutorily required--she is statutorily required to provide a 
report to Congress and must also identify 20 of the most 
serious problems facing the American taxpayer. So I look 
forward to hearing from my friend, Nina Olson, the taxpayer 
advocate, about how to better serve the American taxpayers by 
overcoming these problems.
    I would, on a personal note, just say thank you, Ms. Olson, 
for coming to western North Carolina to advocate on behalf of 
the taxpayer. And really to hear the concerns of so many, it 
was very refreshing, well-received, and it just shows that you 
are going the extra mile to get that input.
    I would also like to thank you for your dedication to, you 
know, working to protect the American taxpayer. This was on 
full display when you came to my district for the town hall, 
but it was also interesting to see the other information that 
was helpful to understand about tax administration.
    As far as this year's annual report, I would like to note 
that, as we look to spend considerable time discussing the 
Future State plan that is currently being developed by the IRS, 
this plan will lead to a greater electronic tax administration 
and online service for the IRS. We obviously have a witness 
here from Greensboro, North Carolina, to talk on those issues.
    And these are a positive and important trend for the 
American taxpayer. However, we want to make sure that we have 
the responsibility to ensure that these are done in a safe, 
secure manner that protects the information and rights of the 
taxpayer.
    So I would welcome comments of the taxpayer advocate on 
this topic, as well as yours, Mr. Buttonow, the chairman of the 
Electronic Tax Administration Advisory Committee. Your 
expertise in the area of tax administration will provide a 
valuable insight as Congress conducts the oversight of the 
IRS's Future State plan.
    The taxpayer advocate report also discusses troubling 
trends in two important areas: improper payments of the earned 
income tax credit and the difficulties administering the 
Affordable Care Act. The EITC is one of the largest and most 
important tax credits available to low-income taxpayers, and 
the taxpayer advocate reports that noted an estimated 27 
percent--that is right, 27 percent--of the $65 billion in EITC 
claims result in improper payments. This is roughly $17.5 
billion and potentially a massive waste. We will look forward 
to hearing more from the taxpayer advocate about what is being 
done to reduce the improper payments with regard to the EITC 
payment program.
    Regarding the ACA, the IRS has seen massive overpayments by 
individuals of the individual mandate penalty fee. Last year, 
approximately 412,000 taxpayers overpaid by an average of $123 
per return. The IRS needs to help taxpayers understand 
precisely what is their penalty for payments under the ACA.
    The taxpayer advocate also noted that the businesses face a 
complicated calculation to establish their obligations to pay 
the employer-shared-responsibility payment under the ACA. We 
have heard from constituents in my district as it relates to 
that complex issue as well. The IRS has not issued any clear 
guidance to help them calculate that payment obligation. 
Furthermore, the taxpayer advocate reports that the IRS's 
employees who will handle those complex cases lack the 
specialized training needed to do their job effectively.
    So in short, the ACA has imposed burdensome requirements on 
the American taxpayer, but the IRS is not doing enough to help 
the public understand and comply with the law.
    I look forward to hearing from both of our witnesses today, 
and I want to thank each of you for coming.
    Mr. Meadows. And I will now recognize Ms. Plaskett as the 
ranking member providing an opening statement instead of Mr. 
Connolly. So she is now recognized for her opening statement.
    Ms. Plaskett. Thank you very much, Mr. Chairman.
    Good morning to you. Thank you so much for being here with 
us.
    I first want to thank Mrs. Olson, Mr. Buttonow, for the 
work that they do and for being here today. I sincerely believe 
that the work that you both do on behalf of taxpayers and 
Congress is vitally important, especially this time of year 
when millions of Americans are filing their taxes and, you 
know, frustrating. And I personally--I think I have little 
stomachaches during this time of year, what about you, Mark?
    Mr. Meadows. Without a doubt.
    Ms. Plaskett. I hear from my constituents--and I know, Ms. 
Olson, you hear from people all over the country--who find 
themselves this time of year frustrated and stressed. I 
appreciate the forums you have been holding around the country 
listening to stakeholders and taxpayers alike so that we can 
learn what their concerns are and how we can look for 
solutions. That is fantastic.
    Many of these frustrations stem from having a difficult 
time getting through to a person at the IRS, whether it is the 
long wait times for calls or not having a call answered at all. 
Unfortunately, this less-than-robust service is not unexpected. 
When Congress slashes the inflation-adjusted budget of the IRS 
by $1.2 billion, I do not know what we expect to happen to 
taxpayer services.
    Ms. Olson, you address this in your report stating, ``The 
national taxpayer advocate has been recommending against 
significant reduction in the IRS's budget because reductions of 
this magnitude harm taxpayers.''
    Because of the budget cuts Congress has imposed, the IRS 
has cut staffing and now has 13,000 fewer full-time permanent 
employees. Because of the budget cuts, IRS's IT systems are 
totally obsolete. Some of the systems date back to--I thought 
this was a typo when I saw it--but it says Kennedy 
Administration. These systems are so old that young IT 
professionals and recent college graduates do not want and do 
not know how to work on them. The IRS cannot find people who 
can code in the old languages that run these systems. This is 
absolutely unsustainable.
    The IRS has outlined its plan to modernize its IT systems, 
create efficiencies through online taxpayer accounts in its 
Future State Initiatives. Congress needs to fund this 
initiative so that we can reverse this trend of degrading 
taxpayer services because of the cuts we have made.
    Congress approved $290 million in additional funding for 
fiscal year 2016, which was a step in the right direction, but 
we need to make strides, not mere steps. But online customer 
service is not a one-size-fits-all solution for the country. 
There are millions of taxpayers who do not have access to or 
feel comfortable doing financial transactions online still. The 
IRS needs to take this into account.
    Ms. Olson, I understand you have some concerns about this 
plan, and I look forward to hearing from you today. And the IRS 
needs to take these concerns into account when moving forward. 
The IRS needs to be transparent and engaged with taxpayers and 
Congress as they develop the Future State Initiative.
    You also raised an excellent point, Mrs. Olson, when you 
state, ``In this environment of more work and inadequate 
funding, it is easy to bash the IRS. This bashing in turn can 
produce a bunker mentality in the IRS that makes it wary of 
sharing things with the public until they are absolutely 
finalized. But that means the IRS will almost certainly miss 
things and get things wrong precisely because it hasn't engaged 
the public and floated proposals publicly before they become 
set in stone.''
    You also recommend Congress assert our oversight authority 
and insist the IRS come sooner rather than later to explain the 
specifics of the Future State Initiative. You also state--and I 
am going to quote you again--``It is important that these 
hearings be kept separate from the hearings Congress has 
conducted in recent years over actual or perceived IRS 
shortcomings. Letting us see their plans and their initiatives 
and their thoughts on moving forward, not just having hearings 
about what specifically they're doing.''
    I feel like you were speaking directly to this committee, 
were you not, Ms. Olson? I call on my Republican colleagues to 
heed this advice and to bury the hatchet so that we can work 
together to improve taxpayer services for all of our 
constituents.
    Thank you very much.
    Mr. Meadows. I thank the gentlewoman for her comments. And 
I want to follow up just very briefly on that. It is very easy 
when we start to look at problems in the Federal Government to 
paint with a very broad brush all Federal employees. Ms. Olson, 
you know I had the opportunity to visit some of the employees 
at the IRS. It is part of a longer process where not only do we 
visit them here but throughout the country, as you and I have 
discussed.
    And so I want for the record today for all those IRS 
employees to know that the vast majority of them want to serve 
the American taxpayer not only in a professional manner but in 
one that is indicative of customer service that would be 
highlighted in the best of the private sector. So my hat's off 
to the hundreds of thousands of Federal workers who each day 
show up. I am committed in a bipartisan way to make sure that 
we address the real problems and focus in on that. And that is 
the reason for this hearing today. And yet at the same time 
applaud those who day in, day out show up to work very 
diligently on behalf of the American taxpayer.
    So I would like to say that we will hold the record open 
for 5 legislative days for any member who would like to submit 
a written statement.
    We will now recognize our panel of witnesses. I am pleased 
to welcome Ms. Nina Olson, the national taxpayer advocate at 
the Internal Revenue Service; and Mr. James Buttonow, the 
chairman of the Electronic Tax Administration Advisory 
Committee at the Internal Revenue Service. Welcome to you both.
    And pursuant to committee rules, all witnesses will be 
sworn in before they testify, so I would ask you to please rise 
and raise your right hand.
    [Witnesses sworn.]
    Mr. Meadows. Thank you. Let the record reflect that the 
witnesses answered in the affirmative. You may be seated.
    In order to allow time for discussion and questions, we 
would ask that you limit your oral testimony to 5 minutes, but 
your entire written statement will be made part of the record.
    So I would like to recognize you, Ms. Olson, for 5 minutes.

                       WITNESS STATEMENTS

                    STATEMENT OF NINA OLSON

    Ms. Olson. Okay. Chairman Meadows, Ranking Member 
Plunkett--Plaskett, and distinguished members of the 
subcommittee, thank you for holding today's hearing on the 
national taxpayer advocate's 2015 Annual Report to Congress. In 
the report I identified the IRS's Future State plan as the 
number one most serious problem for taxpayers, and I will focus 
on that issue in my testimony today.
    I will start with a simple but foundational question. What 
is taxation about? To my mind, taxation involves taking money 
from one person and applying that taking to the greater good of 
many if not all. That is an extraordinary thing to ask of 
people. A tax system depends on taxpayers being willing to 
offer up their hard-earned or saved dollars and let their money 
be applied to everyone's or someone else's benefit.
    So the central question in tax administration is how do we 
promote that willingness? What does the tax administrator need 
to do to maintain and expand taxpayers' willingness to pay 
their taxes? The answers to these questions should drive both 
the current and future state of the IRS.
    Taxpayers are experiencing many problems today because the 
IRS lacks adequate resources to assist them. Since fiscal year 
2010, we estimate the IRS's budget has been reduced by about 19 
percent on an inflation-adjusted basis. That is a huge 
reduction for any organization, particularly one as labor-
intensive as the IRS.
    This year, Congress has given the IRS an additional $290 
million, which is very helpful, and I am hopeful Congress will 
continue to provide additional funding in the coming years to 
ensure our nation's taxpayers receive the assistance they 
deserve.
    Budget constraints have greatly influenced the IRS Future 
State plan that envisions how the agency will operate in 5 
years and beyond. A central component of the plan is the 
creation of and reliance on online taxpayer accounts. The IRS 
believes online accounts will produce significant cost savings 
and enable it to substantially reduce its expenditures for 
telephone and in-person assistance.
    The crux of my disagreement with the IRS boils down to 
whether taxpayers will ultimately use online accounts as a 
substitute for personal service or whether taxpayers will use 
online accounts as a supplement to--for personal service.
    While I have long advocated that the IRS offer online 
account access to taxpayers, I believe the IRS is wrong in 
assuming online accounts will substantially reduce taxpayer 
demand for telephone and face-to-face assistance for many 
reasons, including that millions of taxpayers do not have 
internet access.
    Millions of taxpayers with internet access do not feel 
comfortable trying to resolve important financial matters over 
the internet, particularly in the face of massive security 
breaches on online government systems. And many taxpayers are 
not cookie-cutter, thus requiring a degree of back-and-forth 
discussion that is better suited for conversation and that 
taxpayers will insist upon. Therefore, it is critical the IRS 
not develop future plans based on assumed cost savings that may 
not materialize.
    The IRS likes to say it needs to provide the same type of 
service that financial institutions provide to their customers. 
Well, the results of the most recent annual survey conducted by 
the Board of Governors of the Federal Reserve System shows 
that--and I quote here--``While mobile banking users are 
utilizing technological platforms at a high rate and on a 
consistent basis, they have also maintained connections to 
their banks through the more traditional branch and ATM 
channels.''
    Yet despite this evidence of consumer behavior in the 
financial sector, for several years now the IRS has been 
reducing face-to-face taxpayer service options at its taxpayer 
assistance centers, and it has recently decided to switch to an 
appointment-only system at all of its TACs by the end of 2016. 
The TACs, which were previously known as walk-in sites, will no 
longer accept walk-in taxpayers. And the IRS is conducting a 
pilot under which it will not even accept tax payments from 
walk-in taxpayers.
    In short, the IRS is failing to meet the needs of many 
walk-in taxpayers for personal assistance, and I find the 
notion of declining to accept tax payments from walk-in 
taxpayers inexplicable and baffling for a tax collection 
agency.
    The results of the appointment-only TAC pilot show 20 
percent of the taxpayers had to wait between 13 and 41 days to 
obtain an appointment and 5 percent had to wait more than 41 
days for an appointment.
    In my written testimony, I describe how taxpayers who 
arrive at a TAC without an appointment are being treated. I am 
also concerned that as taxpayers give up and stop going to the 
TACs because they are not provided--providing adequate 
assistance, the IRS will use the data of declining usages to 
justify further reductions in in-person service.
    For many years and in many areas, the IRS has made more 
services more difficult to use and then touted the declining 
usage of that service as a basis to cut the service further and 
to eliminate it entirely. To me it--that's disingenuous.
    I believe the IRS must--the Future State must adopt as its 
north star the needs of the vast majority of taxpayers who are 
willing to comply with the laws. I use the word ``willing'' 
here deliberately because it includes taxpayers who may not now 
be in compliance. These are taxpayers who want to comply but 
for one reason or another are not able to. My point here is 
that rather than designing tax administration around the small 
minority of taxpayers who are deliberately evading payment of 
tax, we should design our rules and procedures to make it 
easier and clearer for the willing taxpayers to comply.
    In my opinion, any Future State plan will fail unless the 
IRS changes its focus to prioritize taxpayer assistance and 
does a better job of listening to taxpayers and their 
representatives about what it takes to maintain and enhance 
voluntary compliance.
    Thank you, and I'll be glad to answer any questions.
    [Prepared statement of Ms. Olson follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Meadows. Thank you, Ms. Olson.
    Mr. Buttonow, you are recognized for 5 minutes.

                  STATEMENT OF JAMES BUTTONOW

    Mr. Buttonow. Thank you, Mr. Chairman. Thank you----
    Mr. Meadows. If you will push that red button right in 
front of you, or it will be red once you push it.
    Mr. Buttonow. Thank you, Mr. Chairman. And thanks to the 
subcommittee for holding today's hearing on the national 
taxpayer advocate's 2015 Annual Report to Congress.
    The taxpayer advocate and her office are critical voices to 
the rights of all taxpayers in the improvement of tax 
administration. Each year, the taxpayers' best friend, Nina 
Olson and her team, take a very productive approach to reducing 
taxpayer burden while increasing overall voluntary compliance.
    The IRS Electronic Tax Administration Advisory Committee, 
or ETAAC as we're known, was formed by law in 1998 to make 
strategic recommendations to Congress on how to improve overall 
tax administration through electronic means. In short, we are 
objective, outside digital strategy consultants to the IRS.
    In the past few years, ETAAC has been focused on two big 
challenges in tax administration today: first, the 
proliferation of tax identity theft; and second, the inadequate 
levels of taxpayer service at the IRS caused by an antiquated 
customer service model. The committee believes that a key 
solution to both of these problems is a more innovative 
digitally enabled IRS. Much of this is outlined in the IRS's 
Future State Initiative.
    Now, to address the urgent problem of tax identity theft, 
the IRS commissioner has formed a security summit, which is a 
coalition of State and industry leaders. ETAAC applauds this 
collaboration with industry and the--for the IRS in working 
together with this important group to find solutions. 
Authenticating taxpayer identities is absolutely foundational 
to a digitally enabled IRS, and the Security Summit is working 
towards some innovative solutions to this challenge.
    But today, I'm going to focus on the Future State of 
taxpayer service at the IRS. Now, first, let's take a look at 
where we are today. Now, for most taxpayers interacting with 
the IRS, it's not quick, it's not easy, and it's mostly done by 
paper and phone. Most taxpayers have no idea about their tax 
information or their status at the IRS, and when they do have 
to interact with the IRS, they're often greeted with long wait 
times and extended answer periods. Now, these are big problems, 
especially for the 43 percent of taxpayers who have to interact 
with the IRS outside of filing a tax return.
    Now, the IRS's current state and their history, quite 
frankly, could leave us feeling quite pessimistic about the 
near-term possibility of modernizing taxpayer service. But the 
IRS has committed to a digitally enabled taxpayer service model 
with its Future State Initiative. The IRS Future State vision 
aligns with ETAAC's vision of how taxpayers should be served by 
their tax administrator.
    Now, an ideal taxpayer experience allows taxpayers to fully 
understand their tax obligations, have transparent access to 
their tax information and status with the IRS, and allows the 
taxpayer to effectively and securely interact with their tax 
administrator in the way that they want to be served. Now, 
these are big statements, but they're not revolutionary. In 
fact, the Future State mirrors the customer service experience 
that most financial institutions and many other companies 
already provide today.
    So what will the Future State mean for taxpayers? First, it 
will mean transparency when there's hardly any today. Taxpayers 
will get information customized to their circumstances, 
including their specific tax responsibilities. The Future State 
will also mean real-time taxpayer service, so it'll allow 
taxpayers to securely interact with the IRS online.
    Now, what about taxpayers who want or need to deal with the 
IRS in person or by phone? Now, these taxpayers, they're not 
left behind. It's true that increasing numbers of taxpayers 
prefer interacting online. When the IRS creates digital tools, 
it can meet their expectations. But importantly, by doing so, 
the IRS will also free up phone lines and IRS employees for 
taxpayers who really need and prefer human interaction. The IRS 
will meet taxpayers where they want to be served whether it's 
online, by phone, by chat, by taxpayer assistance center, a 
VITA site, or a low-income taxpayer clinic, or through a tax 
professional.
    Now, let me sum it all up. The Future State of the IRS 
enables technology as part of a holistic taxpayer service 
strategy. The Future State embraces digital solutions to allow 
the IRS to maximize its limited resources. It creates targeted 
capacity to serve all taxpayers they way they want to be 
served. ETAAC endorses the digital service components of the 
IRS Future State plan.
    Now, to take it a step further, we have abdicated to 
Congress that the IRS actually accelerate these plans, but this 
won't be easy. We know that the IRS has many obstacles to 
overcome, and this includes satisfying all of us that the 
security of taxpayer information comes absolutely first.
    So on behalf of the ETAAC, thank you for inviting us to 
testify on this important topic on the Future State of the IRS. 
I'd be happy to take any questions from the subcommittee.
    [Prepared statement of Mr. Buttonow follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Meadows. Thank you so much.
    The chair recognizes the vice chair of the Government 
Operations Subcommittee, the gentleman from Michigan, Mr. 
Walberg, for a series of questions.
    Mr. Walberg. Thank you, Mr. Chairman. And probably the 
three of us being here indicates that we don't fear the IRS, 
right?
    [Laughter.]
    Mr. Walberg. So then why are we here? No, I certainly agree 
with the points you made about the general IRS employee 
attempting to do their job but a difficult job.
    Ms. Olson, 2015 is the first year that the IRS has to 
implement a number of measures that are targeted with the 
Affordable Care Act, for example, one of those being the 
employer shared-responsibility payment. Your report suggested 
that the IRS doesn't know which employees are going to be 
responsible for evaluating employers so those employees 
probably will not have adequate training if I understand the 
report. Let me ask you, what complexities will the IRS 
employees face in determining which employers must pay the 
employer-shared responsibility payment?
    Ms. Olson. I think there are a lot of questions about what 
employees are going to be included in some very complex 
calculations to determine who is covered, who should be 
covered, and then who isn't covered. And that all goes into the 
calculation of whether the employer is going to be penalized. 
And the penalty is very, very stiff and very steep. And our 
concern has been that we have heard from a lot of employers 
about the complexity of these determinations, and that they 
have not been able to get answers in the way or with the speed 
that they need to get them.
    This is a new initiative, but I think this is where 
transparency and engaging with the population that's going to 
be penalized is--should have happened a long time ago and needs 
to happen now and really needs to heed them, what their 
concerns are.
    Mr. Walberg. Do you see any efforts toward that direction?
    Ms. Olson. I think people are trying. I think that it's not 
as open as I would like. I also think some of it is that the 
IRS isn't the only one involved in this. You know, they're 
getting information from other areas. The law is very complex, 
and there are lots of government agencies involved.
    It's getting better, but we want to see more engagement, 
and we want to see more guidance, even if it's put out there in 
a temporary format.
    Mr. Walberg. Okay. Another area with ACA is the workweek, 
the hours, 30 hours----
    Ms. Olson. Right.
    Mr. Walberg.--provisions that is there. IRS, from your 
report, has failed to issue formal guidance about calculating--
--
    Ms. Olson. Right.
    Mr. Walberg.--full-time employees for the Employer Shared 
Responsibility Act. Has the IRS offered a reason why it will 
not help employers, especially when they can't use the Web site 
and the information on the Web site as a defense----
    Ms. Olson. Right.
    Mr. Walberg.--for failure to----
    Ms. Olson. Right.
    Mr. Walberg.--do it the way the IRS then says they should? 
Is there a reason why they won't help employers to understand 
their obligation?
    Ms. Olson. I have not heard a reason, and we really focused 
in on that 30-hour calculation because that's what we heard a 
great deal from employers. You know, they need to have some 
certainty in a way they'll accept and answer as long as they 
have an answer so that then they can do their own programming. 
There's a whole domino effect to this guidance. You know, once 
you get it out there, people have to program their own systems. 
They have to do their assurance processes and things like that.
    And people are doing the best they can and they're worried 
that they will be penalized and the penalties won't be abated 
if they show good-faith effort. And we're trying to identify 
the issues and raise them to the IRS and get them to engage 
with the community.
    Mr. Walberg. Well, certainly, guidelines ought to be a 
defense----
    Ms. Olson. You would think so.
    Mr. Walberg.--if they have attempted to follow it.
    Ms. Olson. Yes. If you--and if you tried----
    Mr. Walberg. Yes.
    Ms. Olson.--to follow what was generic out there on the Web 
site, that goes to the penalty abatement. But again, why would 
you want to put an employer in the position of having to ask 
for penalty abatement when they could have avoided the penalty 
in the ----
    Mr. Walberg. Right, in the first place.
    Ms. Olson.--beginning if they had the guidance?
    Mr. Walberg. Yes. On the individual shared-responsibility 
payment issue, you have indicated that in tax year 2014 
approximately 412,000 taxpayers overpaid the penalty associated 
with a failure to apply. The average, you stated, was $123 per 
return. What percentage of taxpayers had to make the individual 
shared-responsibility payment?
    Ms. Olson. Pardon? What----
    Mr. Walberg. What percentage of taxpayers?
    Ms. Olson. You know, I don't know the answer to that. I--
it's in my testimony. It's in my annual report. I can get you 
that.
    Mr. Walberg. We have 412,000 taxpayers. I was just 
wondering what percentage----
    Ms. Olson. Of them all----
    Mr. Walberg.--of those----
    Ms. Olson.--I--actually, I don't know the answer to that--
--
    Mr. Walberg. Okay.
    Ms. Olson.--but I can give you that----
    Mr. Walberg. If we could get that, that would----
    Ms. Olson.--percentage.
    Mr. Walberg.--be great.
    Ms. Olson. Yes. You know, those overpayments were--a lot of 
them were driven by software not asking taxpayers to identify 
their exemptions. And so they were actually exempt from having 
health insurance, but they didn't ask, and so--the software 
didn't ask, and so they didn't tell anybody. And that's also 
true that some of the preparers didn't ask.
    We were able to work with the software companies to get 
some of those programs changed for this filing season, and 
we'll be looking very carefully at those overpayments to make 
sure that it doesn't happen again.
    Mr. Walberg. Well, thanks for looking. I yield back.
    Mr. Meadows. I thank the gentleman.
    So, Ms. Olson, one quick follow-up question. Is the 
guidance ambiguous enough that the IRS should consider a waiver 
of penalties until we get the guidance more specific?
    Ms. Olson. My personal opinion is that this law is so 
complex that for the first year we should be very, very lenient 
and only apply a penalty where there's truly egregious, in-
your-face ignoring of basic requirements, that this is a 
learning process and we have to have a partnership with the 
tax--the employer population so that we can identify the 
issues, get clearer guidance out there, use this filing season 
as a dry run. That is how I would have approached it.
    Mr. Meadows. All right. Thank you, Ms. Olson.
    The chair recognizes the gentleman from Massachusetts, Mr. 
Lynch, for a series of questions.
    Mr. Lynch. Thank you, Mr. Chairman. And I want to thank 
both of the panelists for your willingness to help the 
committee with its work.
    I did have a question that was raised earlier about the 
Affordable Care Act. A big part of the funding mechanism for 
the Affordable Care Act was the so-called Cadillac tax. Now, 
the Cadillac tax applies to generous health care plans, a lot 
of union health care plans. I am a former union president 
myself, so I have served as a trustee of the health care plan.
    The tax is about a 40 percent tax. It applies to both the 
employer and the employee. Now, Congress in its wisdom delayed 
the implementation of the Cadillac tax until 2020. However, the 
limit stays the same, so thousands and thousands, probably 
millions of more people will be in that Cadillac tax category 
when 2020 rolls around. So for every dollar over the limit, you 
will pay a 40 percent tax, so 40 cents for every dollar you put 
into your health care over the limit. And it is prorated for 
employer and employee, so the employee is going to have pay 
more on tax, this Cadillac tax, and the employer. I read it 
more closely. And then the tax itself, the penalty is taxed, so 
it really comes out to like a 58 or 59 percent penalty on every 
dollar spent over that limit.
    I am just wondering, do employees and employers know that? 
Do the health care plans----
    Ms. Olson. I think that's some of the----
    Mr. Lynch.--I mean----
    Ms. Olson.--problem with the Affordable Care Act. There are 
so many moving pieces in it that getting education out about 
all of these issues is very difficult. I have not looked at the 
statute specifically to see whether it's indexed for inflation.
    Mr. Lynch. It is not.
    Ms. Olson. Then that would be something that we----
    Mr. Lynch. Yes.
    Ms. Olson.--seriously need to----
    Mr. Lynch. Right.
    Ms. Olson.--look at.
    Mr. Lynch. We asked Mr. Gruber, Jonathan Gruber, who was 
one of the architects of this plan, and he explained that it 
was not adjusted for the rate of inflation because they wanted 
more and more people over time to be captured by that tax.
    And, you know, I will confess I am a former union attorney 
and union president. In my history I have dealt with a lot of 
union plans not only for the ironworkers but for the Teamsters 
and the wardrobe workers. And so all of these plans are going 
to be--and a lot of these big companies like Gillette and 
Raytheon and all--funny, the people who sat down with their 
employees and worked out a plan for their health care plan, the 
people who did the right thing, they are the ones that are 
going to be hit with this tax. And it is a huge, huge problem, 
and it is multiplied because of the amount of the tax and now 
we have delayed it so more and more people are going to be 
captured.
    And I am just wondering from the IRS position, are we 
educating consumers about that because when it hits, it is 
going to be like a tidal wave. It is going to wipe out a lot of 
health care plans. I am just wondering if we have contingency 
plans for that event?
    Ms. Olson. I think this is something that, because it is so 
far off, it is not something that the IRS is thinking about 
messaging, and yet----
    Mr. Lynch. Yes.
    Ms. Olson.--on the other hand, if you are really trying to 
drive people's behavior, you should be starting the messaging 
now so that it----
    Mr. Lynch. Yes.
    Ms. Olson.--sinks in and they can make the plans to not be 
hit in 2020.
    Mr. Lynch. Yes.
    Ms. Olson. You know, I also----
    Mr. Lynch. The dilemma is that costs of health care keep 
going up----
    Ms. Olson. Right.
    Mr. Lynch.--and you are telling people you want them to 
spend less--employers and employees, you are telling them, 
because of the tax, you want them to spend less on health care.
    Ms. Olson. Right.
    Mr. Lynch. And so, you know, it is tough to reconcile----
    Ms. Olson. From the taxpayers' perspective, not indexing 
it--and I understand the policy reasons for why you wouldn't--
but it's like the alternative minimum tax----
    Mr. Lynch. Right, exactly.
    Ms. Olson.--you know, it's so----
    Mr. Lynch. More and more people get captured.
    Ms. Olson. It's so irrational when----
    Mr. Lynch. Yes.
    Ms. Olson.--the taxpayer sees that number coming up and 
they think they've held their withholding and everything like 
that, that you can have all the policy reasons in the world, 
but it feels profoundly unfair to the taxpayer.
    Mr. Lynch. Yes. Mr. Buttonow, do you have any comments on 
that?
    Mr. Buttonow. Just I think I could echo was--I could echo 
what Nina says. And the ACA has got so much complexity to is, 
is that when you're dealing with the IRS, they're like what's 
urgent now. And so what's urgent now----
    Mr. Lynch. Right.
    Mr. Buttonow. What--what's urgent now, you know, after a 
while, you know, you look at what's urgent now, you fall behind 
on some things. And when you talk about falling behind on some 
of the individual shared responsibility of the--with the 
employer shared-responsibility penalty, you're looking at maybe 
the IRS should employ some of their administrative relief items 
like first-time abatement or such like that so that it gives 
taxpayers some relief because, you know, taxpayers are getting 
caught up on this--not voluntarily being caught up on this. 
They're just a victim of not knowing what to do. So----
    Mr. Lynch. Right.
    Mr. Buttonow.--you know, in order to promote voluntary 
compliance, by all means, I think you should give them a waiver 
the first year.
    Mr. Lynch. Okay. All right. Fair enough. Thank you both. I 
yield back.
    Mr. Meadows. I thank the gentleman.
    The chair recognizes the gentleman from Georgia, Mr. 
Carter, for 5 minutes.
    Mr. Carter. Thank you, Mr. Chairman. And thank you for 
being here. We appreciate you being here. This is obviously 
very important to all of us and all Americans.
    Ms. Olson, in your 2015 taxpayer advocate report you list 
the right to a fair and just tax system as a taxpayer right. 
You would agree to that, right?
    Ms. Olson. Absolutely.
    Mr. Carter. Do you agree that a fair and just tax system is 
one that ensures that the tax credits only go to those who are 
qualified to get them?
    Ms. Olson. Absolutely. Taxpayers need to know that, you 
know, everyone is paying the right amount of tax, and that 
would include not getting credits that aren't--they are not 
eligible for.
    Mr. Carter. So it is inclusive in a fair and just----
    Ms. Olson. Absolutely.
    Mr. Carter.--tax system that tax rebates aren't going to 
people who shouldn't be getting them?
    Ms. Olson. Absolutely.
    Mr. Carter. Okay. In the report that we referenced earlier, 
the report stated that improper payments constitute 27 percent, 
27 percent of the $65 billion that were handed out annually 
through the earned income tax credit. That amounts to $17.7 
billion of improper payments----
    Ms. Olson. That's----
    Mr. Carter.--$17.7 billion----
    Ms. Olson. Yes.
    Mr. Carter.--of improper payments. How do filers obtain 
improper payments? How does that happen?
    Ms. Olson. These improper payments come in when taxpayers 
fill out their tax return and claim the earned income tax 
credit. And the payments can occur for--overpayments can occur 
for many reasons. It can be that they are incorrectly stating 
their income. They can be claiming a child that they are not 
eligible to claim because that's where most of the 
eligibility--that's the eligibility requirement, to have a 
qualifying child. The law is very complex and it's easy to fall 
afoul. There are a percentage of those payments, although no 
one really knows, that are attributable just to out-and-out 
fraud, whether it's that there's a preparer involved saying, 
okay, here, you claim somebody else's child or a taxpayer 
decides that they're going to claim somebody else's child----
    Mr. Carter. Okay. Well, let me----
    Ms. Olson.--but----
    Mr. Carter.--Let me ask you specifically. Is it possible--
in your research has it indicated that illegal immigrants have 
received some of these improper payments from the earned income 
tax credit?
    Ms. Olson. It should not be possible because if they're----
    Mr. Carter. But does your research indicate that it 
happens?
    Ms. Olson. I do not see that as--the IRS does not see that 
as a major issue because for the earned income tax----
    Mr. Carter. But----
    Ms. Olson.--credit----
    Mr. Carter. Not as a major issue, but is it----
    Ms. Olson. No, but ----
    Mr. Carter.--an issue?
    Ms. Olson. I do not think it is because, for the earned 
income tax credit, you have to have a Social Security number 
and use that on the return. You cannot use an ID----
    Mr. Carter. But we're not naive enough to believe that 
there aren't fraudulent Social Security numbers out there.
    Ms. Olson. There are Social Security numbers that people--
identity thieves are using, and if someone who's an 
undocumented person or an illegal immigrant as you call it, you 
know, files a return with someone else's Social Security 
number, that is identity theft and----
    Mr. Carter. I understand----
    Ms. Olson.--we have----
    Mr. Carter.--and I--I am sorry.
    Ms. Olson. Yes, okay.
    Mr. Carter. I don't mean to interrupt but, you know, I 
don't know that we are necessarily going to agree on this. But 
I want to ask you, is it possible for an illegal immigrant who 
is given or granted protection or protected status--for an 
illegal immigrant who is granted protected status under 
President Obama's Executive actions, can they obtain the earned 
income tax credit?
    Ms. Olson. If they have a Social Security number under that 
program that's authorized for work----
    Mr. Carter. Is it possible to get a Social Security number 
under that program?
    Ms. Olson. I don't know the answer under that program, but 
if under that program they could get a Social Security number 
authorized for work, they could claim the earned income credit 
under the law.
    Mr. Carter. So the answer to my question, can an illegal 
immigrant who is granted protected status under President 
Obama's Executive orders obtain the earned income tax credit, 
the answer is yes?
    Ms. Olson. If they have a Social Security number authorized 
for work. That's the requirement that's--in the earned income 
credit, you have to have a Social Security number authorized to 
work, your spouse has to have a Social Security number 
authorized to work, and your child that you're using has to 
have a Social Security number authorized to work.
    Mr. Carter. Okay. As I understand it, improper payments of 
the earned income tax credit have increased since 2005.
    Ms. Olson. They've actually----
    Mr. Carter. They have increased from 2005 to the present 
day.
    Ms. Olson. There may have been an increase. I thought it 
was fairly stated----
    Mr. Carter. Is it possible that that increase can be 
attributed to illegal immigrants?
    Ms. Olson. My personal opinion is not. That's my personal 
opinion.
    Mr. Carter. Do any of the studies indicate----
    Ms. Olson. None of the IRS----
    Mr. Carter.--and back up your personal opinion?
    Ms. Olson. None of the IRS studies indicate that. I'm just 
telling you what--the sources of the error for the earned 
income credit, the majority of the errors are attributable to 
overstated income.
    Mr. Carter. I understand, but I am specifically interested 
in illegal immigrants who are getting this, and all I want to 
ask you, my final question is is the administration 
addressing--or the IRS, are you addressing this at all?
    Ms. Olson. The IRS is certainly looking at undocumented 
persons, persons who don't have Social Security numbers getting 
credits that they shouldn't be getting.
    Mr. Carter. I----
    Ms. Olson. They are certainly looking at that.
    Mr. Carter. I would certainly hope so because as we started 
out this conversation, a fair and just tax system would 
certainly involve that.
    Thank you, Mr. Chairman, and I yield back.
    Mr. Meadows. I thank the gentleman.
    The chair recognizes himself for a series of questions. And 
depending on votes, they are supposed to call votes here 
shortly. We will see whether Mr. Lynch and I have a series of 
second questions.
    Mr. Buttonow, let me come to you. You know, with the 
electronic filing and that being your expertise, do you see 
that electronic filing has increased the likelihood of identify 
theft at the IRS?
    Mr. Buttonow. Yes.
    Mr. Meadows. I need you to hit your button.
    Mr. Buttonow. Absolutely. I think what it--it's one of the 
elements that enabled it, right? So, you know, electronic 
filing and fast refunds have come about, it offers the 
opportunity for tax ID thefts to beat the IRS to the refund. So 
they'll get the refund quick, long before the IRS has the 
ability to go ahead and verify them as a taxpayer.
    Mr. Meadows. All right. So if electronic filing has 
increased the likelihood of identify theft, further going more 
digital, as you mentioned in your opening testimony under the 
Future State plan, would that exacerbate the chances of 
identity theft?
    Mr. Buttonow. It could. It very well could. But if you 
adopt industry standards of authentication, it may in fact 
actually work in the opposite.
    One thing that we don't have in our system today is we 
don't verify taxpayers before they file. Anybody can come and 
go, right, offering the opportunity for identity thieves to 
take someone's identity and go with it.
    Mr. Meadows. All right.
    Mr. Buttonow. If we were able to authenticate taxpayers 
before they filed, we would know who they are----
    Mr. Meadows. All right. So ----
    Mr. Buttonow.--to offer an opportunity ----
    Mr. Meadows. So in that you make your living, I guess, with 
taxpayers being able to file electronically, is that correct?
    Mr. Buttonow. Actually, I don't file one tax return a year, 
so no, I don't make my living on----
    Mr. Meadows. Okay.
    Mr. Buttonow.--the e-file.
    Mr. Meadows. Well, your group does. I mean, I guess 
you're----
    Mr. Buttonow. Yes.
    Mr. Meadows.--representing a group----
    Mr. Buttonow. Yes. That--yes. I mean, and generally, we're 
in favor of e-filing, right? That's the mandate the ETAAC has 
had since 1998 where our original goal was to get the IRS when 
they were at 15, 20 percent e-file rate to 80 percent, and 
we've gone past that 80 percent goal.
    Mr. Meadows. Right. So if that is your goal and you have 
private stakeholders that are making a profit based on that and 
the potential danger is that because of that new model that 
we're getting additional taxpayer identify theft. The hard 
question is is what liability or what protections does the 
private sector have versus the Federal Government? And that is 
the fundamental question we have to have. Is this all the IRS's 
responsibility or is there a responsibility for the preparer/
authenticator, as you have just mentioned?
    Mr. Buttonow. Well, I think it's a shared effort, right? 
I----
    Mr. Meadows. All right.
    Mr. Buttonow.--think it's a shared--it's definitely a 
shared effort. And that's what the Security Summit is looking 
to do is to find where software companies can go ahead and put 
in those additional authentications, and they have done that.
    Mr. Meadows. All right.
    Mr. Buttonow. But I--but understand that that, you know, 
detection at the back end of it is still ultimately just 
detection. Prevention would be a better method.
    Mr. Meadows. I understand that. So the last question I have 
for you is what impediments are you finding that would stop the 
private stakeholders from assisting the IRS with that 
authentication process?
    Mr. Buttonow. The IRS's willingness to do so, right? So----
    Mr. Meadows. So you are saying they are not willing to do 
so?
    Mr. Buttonow. Well, I--so there's--it--the IRS is clearly 
obviously the tax administrator. Them dealing with private 
industry is--I mean, obviously, they're doing it more and 
more----
    Mr. Meadows. But this Future State plan calls for more 
electronic filing and everything to be online--well, not online 
and transparent but online and digital in its nature so that we 
go what we call to a virtual customer service rep versus a real 
customer service rep. So you are saying that they are not 
willing to help the stakeholders authenticate?
    Mr. Buttonow. Well----
    Mr. Meadows. Because that is a pretty bold statement. If it 
is true, we need to address it, but that is a bold statement.
    Mr. Buttonow. No, what I am saying is is the IRS needs to 
view industry as a partner, right?
    Mr. Meadows. And they don't?
    Mr. Buttonow. Well, it's a tenuous relationship, right? So 
you definitely need to look at--if you want the best technology 
out there, I'm not sure that looking inside the IRS to 
understand that is the best place, right? In order to be able--
--
    Mr. Meadows. So how can Mr. Lynch--let me cut you off there 
because I am running out of time. How can Mr. Lynch and I 
assist you with the IRS to make sure that it is a hand-in-glove 
approach versus a--as you--I think your adjective was 
contentious. Did you say contentious?
    Mr. Buttonow. It's tenuous.
    Mr. Meadows. Tenuous, okay.
    Mr. Buttonow. Yes.
    Mr. Meadows. All right. Wrong word, but go ahead. Tenuous. 
How can Mr. Lynch and I help you there?
    Mr. Buttonow. Well, I think by encouraging the IRS to work 
with industry. I mean, some--there are some barriers to going 
ahead and working with industry on some of the disclosure rules 
that make it a barrier for sharing information. So there needs 
to be a partnership, a true partnership between the industry 
and the IRS when it comes to all things technology. The IRS 
can't expect to be a technology leader out there. There is many 
other people--many other companies and many other developers 
out there who are technology leaders.
    Mr. Meadows. Yes, they are still programming in COBOL so 
I----
    Mr. Buttonow. Yes. Yes.
    Mr. Meadows.--understand that.
    Mr. Buttonow. I----
    Mr. Meadows. Well, I have run out of time. I thank you. I 
have got some questions for Ms. Olson, but I am going to go to 
Mr. Lynch and recognize him for a second series of questions.
    Mr. Lynch. Thank you, Mr. Chairman.
    You know, we have recounted some of the weaknesses in the 
IRS system, you know, lack of personnel, that has diminished of 
recent years, lack of communication between the taxpayer and 
the IRS, the risk of ID theft through filings. Do we have any 
idea how many false tax returns get filed every year?
    Ms. Olson. Oh, there are millions.
    Mr. Lynch. Yes. Okay.
    Ms. Olson. And I have to say that----
    Mr. Lynch. All right. You don't need to get into that.
    The complexity of the system as well, the health care 
information component that has come in recently, and then the 
infrastructure weakness as well. I understand some of the 
programs that the IRS is using date back to the Kennedy 
Administration, which is sad.
    I am just worried about--not just worried about, but I am 
worried about the presumption of compliance, you know, within 
the American people. And I think most people pay their taxes, 
try to do the right thing. I know there are countries where 
that is not the norm. I know Greece is very, very low 
compliance, you know, with tax laws. Nobody pays--well, very 
few people pay their taxes. Mostly the government employees pay 
their taxes because the government takes it out right away.
    And I am just wondering, you know, with all these 
obstructions that I am listing here, are we going to see a 
lower rate--is there a trend now that you shouldn't pay your 
taxes? You should get off the grid? Is that something that 
might result because of all of these factors, Ms. Olson?
    Ms. Olson. I think that particularly last year's filing 
season when we had such a low percentage of the phone calls 
answered by the IRS, you know, that--or when you won't take a 
payment in a walk-in site ----
    Mr. Lynch. Yes.
    Ms. Olson.--you know, this is sending a message that we're 
just--we can't deal with you, and a taxpayer would say, well, 
if you can't deal with me, I won't deal with you.
    The problem with that is the IRS will eventually find you 
and it'll be very unpleasant when that happens.
    Mr. Lynch. Yes.
    Ms. Olson. And I think, you know, my concern is about the 
future. It's a combination of where we are today. We've got 
this bright picture of the future, but our technology is so far 
behind today. And we're just talking about, you know, a 
customer account, but the data into that customer account has 
to come from about 200 different case management systems. And, 
you know, there are employees today who can't see into this 
system when they're trying to talk to a taxpayer on the phone 
and you have to call somebody else to get the answer to that. 
So how that's going to merge in an online account, this is 
very, very complex.
    In the meantime, you also have the percentage of taxpayers 
who don't or won't use these accounts and for very good 
reasons.
    And the other issue that I have about the online account 
is, as we try to protect the security of the taxpayer--and we 
should set very high standards for that verification because we 
can't have one leak. I mean, that would be horrible, and the 
impact on compliance would be huge.
    Mr. Lynch. Yes.
    Ms. Olson. But if we set it high, we will have people drop 
out. The IRS right now is testing a version of the online 
account with IRS senior management and non-bargaining unit 
employees. So these are people who are fairly sophisticated 
financially. Fifty percent of those volunteers could not get 
through the online account the first time around.
    Mr. Lynch. Yes, that is not good.
    Ms. Olson. Fifty percent.
    Mr. Lynch. Okay. Thank you. Thank you for answering my 
question. Thank you.
    Mr. Meadows. Ms. Olson, I want to come back to a few things 
that have been mentioned today, but one of the things I heard 
when you were in western North Carolina was that we have a 
greater need for personal contact, that even with the online 
tools that may be here, that when that interaction, when there 
is a letter that comes from the IRS, that there is a desire to 
have not only a personal contact but just someone who can 
manage the system. And the frustration that I heard in the room 
was of hours of holding of just trying to get a real person 
somewhere who can answer the question. And then when they 
called back that they don't leave enough detail that it 
actually leaves kind of this--they pass the football back, but 
they are not sure who they are getting the pass from. Was that 
input in North Carolina different than what you have heard in 
your other panels across the country?
    Ms. Olson. We have heard this consistently. You know, we 
have heard both from taxpayers and practitioners that they want 
to talk to the IRS. For a taxpayer, they don't understand the 
notice that they've received, and they want to hear from the 
IRS what it means. And that would be true whether they get it 
electronically or they get it, you know, in the mail.
    For the practitioners, they did say that they would find 
the online accounts very, very helpful because then--because 
they could look at the background, they could go online to 
their tax--their client's account, see what's going on in it, 
but then they would want to call the IRS.
    They would also use the account to monitor what happened 
after they talked to the IRS and the IRS said we'll do X. So it 
could get rid of some phone calls and, you know, might get rid 
of two phone calls out of every, you know, transaction, but 
they still for that critical what are you--you know, let me 
tell you this, let me hear from you, they want that 
interaction.
    Mr. Meadows. So obviously part of that is a resource issue.
    Ms. Olson. Yes.
    Mr. Meadows. Part of it is not a resource issue; it is a 
commitment issue. And the reason I say that is I heard about--
you know, in your testimony you talked about having to schedule 
an appointment for walk-up centers. Now, we all love the fact 
that we need an appointment, but the other part of is is that 
what is perplexing to me is you have a willing taxpayer willing 
to give some of their hard-earned dollars to the IRS and show 
up and they are saying we can't take the payment because you 
don't have an appointment. Is that correct?
    Ms. Olson. That's correct.
    Mr. Meadows. Is that not insane? I mean, you know, I have 
worked in collections. I won't make you comment on whether that 
is insane or not----
    Ms. Olson. I'm perfectly fine commenting on it. It is 
insane. I don't understand the policy. I think it says to the--
the taxpayer is standing there saying what?
    Mr. Meadows. So we have heard a little bit about a 
directive memo that would suggest on what--as people try to 
comply where there is this compromise and they are saying, 
okay, here is my down payment. It is my understanding in the 
past if they are not up to speed on all their tax returns, we 
have taken that money and we have held it and said you need to 
get caught up, and once you get caught up, we will be able to 
agree to this. Is it true that now when someone comes in with a 
check and a compromise that if they are not caught up that we 
are sending the check back to the taxpayer? Is that true?
    Ms. Olson. Yes. The IRS released a memo this week saying if 
you file an offer and compromise and you give us your down 
payment, we--and you're not in compliance with all your tax 
returns, we are sending the money back to you, we are sending 
the offer back to you and saying get in compliance.
    Mr. Meadows. So I will ask a second time, is that not 
insane?
    Ms. Olson. Yes, it is insane.
    Mr. Meadows. Okay. So we have American taxpayers who are 
willing to pay their taxes, albeit maybe reluctantly, but they 
are willing to do it, and we have the IRS who is giving the 
money back or refusing to take the money because they don't 
have an appointment.
    Ms. Olson. Yes, that makes no sense.
    Mr. Meadows. That should be headlines. I mean, I don't 
understand why we would do that.
    So what can Mr. Lynch and I and Mr. Jordan and I do with 
Commissioner Koskinen to help him perhaps see the error of 
their ways? What would you recommend?
    Ms. Olson. I think raising this in this hearing has 
certainly done a lot, but I honestly think that the IRS needs 
to do a better job when it makes these decisions of analyzing 
the consequences of these decisions and not just look at we're 
saving money because we're not handling these in-person 
contacts that are $60 per contact. You may have spent $60, but 
you might have brought in $5,000 by serving that taxpayer in 
that walk-in site. And that's the not the analysis that's 
happening, and that needs to be asked for.
    Mr. Meadows. Would you be willing to give this committee in 
the next 45 days or so your recommendations on what legislative 
fixes that you would recommend? Or actually, I am asking you to 
do that.
    Ms. Olson. Yes.
    Mr. Meadows. And so if you would be willing to do that, 
what I would like to do is to make sure inn a bipartisan way we 
address that. There are a number of others. I think they are 
about to call votes. I am going to recognize the gentleman from 
Ohio for a series of questions so if----
    Ms. Olson. Thank you. Yes.
    Mr. Jordan. Thank you, Mr. Chairman.
    Ms. Olson, thank you for being here and for the work of 
your office.
    Are you familiar with the--we had earlier this week the GAO 
here in this committee room talking about the $385 billion 
annual tax gap that exists. You are familiar with the GAO's 
report?
    Ms. Olson. I haven't read their most recent, but I'm very 
familiar with the tax gap and the----
    Mr. Jordan. Yes. And would you agree that that is a pretty 
accurate figure they have put on it? I mean----
    Ms. Olson. Yes.
    Mr. Jordan.--the gentleman here from the IRS, frankly, 
agreed with GAO's finding.
    Ms. Olson. Well, I think that that data comes from the IRS, 
you know----
    Mr. Jordan. So you think it is right?
    Ms. Olson. So it's as correct as you can--it's the known 
tax gap. There's an unknown tax gap----
    Mr. Jordan. Yes.
    Ms. Olson.--criminal activity, things like that, but yes, I 
think people--there's a general consensus that's the figure.
    Mr. Jordan. And obviously all the Americans who pay their 
taxes would expect that all the revenue should be generated and 
that they would get the type of service that, you know, they 
need or expect from their government. And that is maybe not 
happening because of the failure to collect all the revenue 
due.
    Ms. Olson. We have looked at the tax gap as a surtax on the 
taxpayers who are paying their taxes.
    Mr. Jordan. Exactly right. And GAO had 112 recommendations 
to the IRS that would help deal with this significant tax gap. 
And our understanding is that the IRS has only implemented 53 
of those 112 recommendations. Is that your understanding?
    Ms. Olson. That, I think, is what the report said, yes.
    Mr. Jordan. Yes. And obviously, that, too, seems to be not 
reflective of what is best for taxpayers, the failure of the 
IRS to implement all their recommendations.
    And the chairman was just talking about this appointment 
issue, which I didn't know about, which is, as you said a 
couple times, I think, is crazy. I think the term you used or 
the chairman used was insane. Did any of the 112 
recommendations deal with that issue?
    Ms. Olson. Not to my knowledge.
    Mr. Jordan. So there should be 113 at least then?
    Ms. Olson. Sounds like it.
    Mr. Jordan. Okay. Okay. The one thing I am concerned about 
is an IRS that won't implement 112, now 113 recommendations 
that make sense, that will help taxpayers, treat them with the 
respect they deserve, is focused on something that I think 
potentially can harm taxpayers, harm their most fundamental 
liberties. And that is this whole geolocation stingray 
operation. Are you familiar with what stingray technology does?
    Ms. Olson. I have a high level of understanding. I'm not 
detailed----
    Mr. Jordan. Okay.
    Ms. Olson.--level, but I understand what you're talking 
about.
    Mr. Jordan. Yes. And the witness who was here earlier this 
week said that he believes--we posed a number of questions to 
Mr. Dalrymple, who frankly couldn't answer many of them but 
said he would get back with us. But one thing he did offer to 
the committee was that he believes 37 times this technology, 
which without a probable cause warrant was used on American 
taxpayers and----
    Ms. Olson. By the IRS.
    Mr. Jordan. By the IRS, yes. I mean, good point, there are 
other agencies using it, too, I believe without Fourth 
Amendment probable cause type of warrants. And that the IRS is 
currently in the process of purchasing an additional stingray 
unit, additional technology at the cost of several hundred 
thousand dollars. Do you believe that is in the best interest 
of taxpayers?
    Ms. Olson. I don't know that I have enough information to 
answer that question. I need to know who is going to use it and 
what are the protections for using it. And I don't have the 
knowledge about that. If it were not being--if it were 
available to anyone on the civil side of the IRS as opposed to 
the criminal side and due process protections and court orders 
were not being expected----
    Mr. Jordan. Let me ask the question this way----
    Ms. Olson. Yes.
    Mr. Jordan.--Ms. Olson. Of those 112 recommendations that 
GAO made to deal with the $385 billion tax gap that we now know 
should frankly be 113 recommendations based on the discussion 
between you and the chairman, do any of those 113 
recommendations encourage the IRS to purchase an additional 
stingray technology unit?
    Ms. Olson. Not that I know of.
    Mr. Jordan. Yes. That is my understanding, too. But, 
potentially, at least potentially you would agree with me that 
this stingray technology infringes on the very taxpayers you 
are supposed to be advocating for, infringes on potentially 
their most fundamental liberties?
    Ms. Olson. I have a lot of concerns about its use. I share 
your concerns.
    Mr. Jordan. I thank you.
    Thank you, Mr. Chairman.
    Mr. Meadows. I thank the gentleman.
    The chair recognizes the gentlewoman from New York, Mrs. 
Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman. Thank you, all of 
the panelists, and thank you to the ranking member.
    The IRS is developing the taxpayer experience of the future 
of virtual taxpayer assistance through individual online 
accounts. It will replace the personal interaction for digital-
savvy taxpayers. So, Ms. Olson, you write in your report that 
this plan has been driven by a really important consideration, 
and that is the lack of appropriate funding and continual 
cutbacks to the operations of the IRS. In your opinion, does 
the plan have the potential for making the agency more 
efficient and saving money for the future?
    Ms. Olson. I personally don't think so. I think it will 
create a lot of rework for itself.
    Mrs. Maloney. And if you were to move forward with this 
program, is it important or is it necessary for Congress to 
make a lot of contributions or contribute substantially to the 
cost of it or----
    Ms. Olson. Well, it's going to require some significant up-
front cost, revamping----
    Mrs. Maloney. Like about how much----
    Ms. Olson.--whole systems.
    Mrs. Maloney.--do you think?
    Ms. Olson. I really couldn't give you that estimate. I 
think it's--parts of it are in the President's budget 
proposals, things like that, that--but it is, you know, just--
because we have systems that are still in COBOL, because we are 
just very archaic in our systems, to pull something off like 
this, to have it really an integrated system is going to cost a 
lot of money, a total----
    Mrs. Maloney. Okay.
    Ms. Olson.--reengineering of the IRS IT.
    Mrs. Maloney. Mr. Buttonow, most recent annual report to 
Congress from your organization makes the observation, ``Future 
challenges require digital transformation at the IRS,'' and you 
state, ``The IRS needs to transform its taxpayer services and 
compliance capabilities for the efficiency through digital 
tools.'' It's been reported that some of IRS's systems date 
back to the Kennedy Administration. Will those systems support 
the transformation that you're talking about, Mr. Buttonow?
    Mr. Buttonow. Yes, ultimately. Now, this is not going to 
happen overnight. I mean, what the IRS needs to do is build--if 
they want to have an online presence, an online taxpayer 
service, they need to start iterating on that now, which means 
give us a solid plan of what the details are and start 
improving on each iteration. So as the IRS develops its 
capabilities, those systems that support those capabilities 
will need to be upgraded.
    Mrs. Maloney. The IRS Commissioner John Koskinen 
acknowledges the responsibility to serve all taxpayers, 
including those who prefer personal over digital interaction. 
And I guess I will ask this question to both of you. Is there 
anything that you have not seen in this plan that you believe 
should have been included to improve taxpayer services?
    Ms. Olson. Well, my--again, my disagreement with the IRS is 
that the--we all agree that an online account is vitally 
important. My disagreement is that the online account is not 
going to substitute for in-person, you know, or phone 
assistance, that personal contact. It will supplement it. And 
as I said in my testimony, the Federal Reserve has borne that 
out in its surveys over the last 5 years that people who are 
digital mobile banking users visit their branches on average 
three times in the month before the survey by 87 percent. I 
mean, it's an extraordinary percentage. People want multiple 
choices. And they will use the online account, they will also 
use the phones, and they will also do face-to-face. And we 
should provide that to them. And I don't see that in the plan.
    Mr. Buttonow. And I would----
    Mrs. Maloney. Mr. Buttonow?
    Mr. Buttonow.--agree with all those statements. I don't--
this is not a replacement. This is absolutely not a 
replacement.
    Now--but we need to go online. The IRS needs to go online, 
it needs to serve taxpayers where they want to serve. There's 
increasing preferences as the millennials come online. They 
want to deal digitally. Tax professionals who file 57 percent 
of their returns out there, they want to interact with the IRS 
digitally just for basic information.
    Now, when it gets to more complicated areas of tax 
administration, things like compliance, then I think there's a 
higher opportunity where people want to go ahead and talk with 
the IRS, but they should be able to interact with them online 
also.
    Mrs. Maloney. I agree with you. It is certainly the way of 
the future. Everything is online, particularly with----
    Mr. Buttonow. Your State is a great example of it.
    Mrs. Maloney.--the younger generation.
    Mr. Buttonow. Right.
    Mrs. Maloney. They communicate almost entirely online and 
read online. They are not even reading normal newspapers. 
Everything is online. So I feel it is a way we have to move and 
go towards.
    Is the IRS moving towards going online or not?
    Ms. Olson. That is definitely its view of the future.
    Mrs. Maloney. But right now, can you interact online? Can 
you----
    Ms. Olson. No, you cannot.
    Mrs. Maloney.--ask--you know, certainly, basic questions--
--
    Ms. Olson. You can find----
    Mrs. Maloney.--should be answered online.
    Ms. Olson. You can find out where your refund is. They--the 
IRS last October took off the only service it had where you 
could email a question and have someone answer it back to you.
    Mr. Buttonow. Yes.
    Ms. Olson. So even as it's moving forward, it's moving 
backwards.
    Mrs. Maloney. Okay. My time is expired. Thank you.
    Mr. Meadows. I thank the gentlewoman. I thank both of you 
for your testimony. They have called votes, and we have only 
got a few minutes left, and so I think we are both going to 
skip our closing remarks and just say thank you so much for 
being here today.
    If there is no further business before the committee, the 
committee stands adjourned.
    [Whereupon, at 10:47 a.m., the subcommittee was adjourned.]

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